Allis-Chalmers reported net income for the third quarter of 2008 of $12.3 million, or $0.35 per diluted share, compared to $13.0 million, or $0.37 per diluted share in the third quarter of 2007. Revenues for the third quarter of 2008 increased 20.5% to $178.3 million compared to $147.9 million for the third quarter of 2007.
Net income increased 16.6% in the third quarter of 2008 to $12.3 million, or $0.35 per diluted share, compared to $10.6 million, or $0.30 per diluted share in the second quarter of 2008. Revenues increased 9.3% in the third quarter of 2008 to $178.3 million compared to $163.1 million in the second quarter of 2008.
Net income for the first nine months of 2008 was $30.9 million, or $0.87 per diluted share, compared to $44.7 million, or $1.29 per diluted share for the first nine months of 2007. Results for the first nine months of 2007 include an $8.9 million pre-tax gain on the sale of assets, equal to approximately $0.16 in earnings per share. Revenues for the first nine months of 2008 increased 15.8% to $494.6 million compared to $427.1 million for the first nine months of 2007.
The decrease in net income in the third quarter and the first nine months of 2008, as compared to the third quarter and the first nine months of 2007, was principally due to the reduced contribution from our Rental Services segment resulting from decreased rental services from the Gulf of Mexico and the overall impact of hurricanes Gustav and Ike in September 2008. For the nine month period, the $8.9 million pre-tax gain on our sale of assets in 2007 contributed to a decrease in net income during the comparable nine month period of 2008.
Adjusted EBITDA was $47.6 million for the third quarter of 2008, compared to $46.4 million for the third quarter of 2007. For the first nine months of 2008 Adjusted EBITDA was $135.6 million compared to $146.8 million for the first nine months of 2007. Adjusted EBITDA for the first nine months of 2007 includes the $8.9 million gain on the sale of assets. EBITDA and Adjusted EBITDA are non-GAAP financial measures that are not necessarily comparable from one company to another and additional information and discussion regarding EBITDA and Adjusted EBITDA are provided later in this release.
Micki Hidayatallah, Allis-Chalmers’ Chairman and Chief Executive Officer stated, "I am extremely pleased with our operating performance in the third quarter of 2008 despite the negative effects of hurricanes Gustav and Ike on our results. We estimate the impact of the hurricanes on our financial performance resulted in reduced revenues of approximately $3.0 million, a decrease in EBITDA of $2.0 million and a reduction of EPS by $.04 for the quarter. The financial results in this quarter were further affected by the current economic crisis which necessitated increasing our bad debt reserve by an additional $0.5 million above our normal accrual."
Hidayatallah also stated, "We are very pleased with our market position in the U.S. Operations in October remain stronger than anticipated and we believe we should benefit in the future by our focus both on the traditional markets and the new shale opportunities. We are, however, aware that domestic rig activity could decline in 2009, but we hope to increase market share even under more adverse business conditions and reap the benefits of our recent investments in new equipment."
Operational Update and Outlook
The strategic initiatives in the Oilfield Services segment of: (1) geographic expansion; (2) investment in new equipment and technology; and (3) cost efficiencies in a price sensitive market; proved to be successful. The Oilfield Services segment’s income from operations, despite storm disruptions, increased from $13.1 million in the second quarter of 2008 to $13.8 million in the third quarter 2008. The Oilfield Services segment benefited from market expansion into the Marcellus, Bakken, Woodford and Haynesville Shales resource basins.
In July and August, the segment experienced a significant increase in the utilization of its coiled tubing units and in the foam units that it operates in the Rocky Mountains. In addition, the Directional Drilling group increased their job capability from 35 jobs to 45 jobs per day. The strength of the Mexican market allowed us to realize higher utilization of our casing, tubing and hammer services. Allis-Chalmers anticipates that its Mexico operations will remain strong in the fourth quarter of 2008 and that demand for its services will increase in 2009. Furthermore, in the third quarter of 2008 Allis-Chalmers benefited from the cost reductions in its underbalanced percussion operations with reduced diamond insert costs through its manufacturing relationship in China.
The Rental Services segment established three strategic initiatives: (1) expand into targeted international markets; (2) increase market share in the domestic market; and (3) unify its pricing policies. This segment was successful in expanding its geographic footprint internationally with new contracts in Libya and Columbia and expects to see the benefits of these contracts in the fourth quarter of 2008 and in 2009. Allis-Chalmers also expects to establish a market presence in Brazil and Saudi Arabia next year. Although operating results in the third quarter of 2008 were somewhat impacted by hurricanes Gustav and Ike, the Rental Services segment had operating income of $8.5 million in the third quarter of 2008 compared to $9.3 million in the second quarter of 2008. Allis-Chalmers believes the outlook for the fourth quarter of 2008 and 2009 for this segment is strong and intends to continue its strategic initiatives of increasing its market share in the U.S. and expanding internationally.
In the third quarter of 2008, the Drilling and Completion segment began operating all 16 new service rigs and one new drilling rig. Allis-Chalmers anticipates the second new drilling rig will begin operations in the fourth quarter of 2008. In 2009, Allis-Chalmers expects to realize the revenue and earnings benefits of the new service rigs and drilling rigs operating for the full year. In addition to this, the increase in labor and other costs prior to the new rigs being operational will be diminished. These costs adversely impacted our operating earnings in the first three quarters of 2008 for the Drilling and Completion segment. Although this segment experienced labor slowdowns in July, rig utilization in August and September was strong. In the third quarter this segment continued to see the benefits of price increases and plans to continue to seek additional increases in the fourth quarter of 2008 to compensate for higher operating costs.
Allis-Chalmers is continuing its strategic initiative to diversify its market presence in South America. It recently executed two new contracts with Petrobras in Bolivia for a 3000 HP drilling rig and a 2000 HP drilling rig. In addition, Allis-Chalmers leased a 750 HP drilling rig to its affiliate in Brazil to operate under a contract with Petrobras. Its mud service, drilling fluids and chemicals operations have been prequalified by Pemex, and Allis-Chalmers intends to aggressively market its products in Mexico to both Pemex and contractors working for Pemex.
Overall, Allis-Chalmers anticipates its operations in the fourth quarter of 2008 will remain strong with revenues and operating income in 2009 improving. Allis-Chalmers expects that its strategy of mitigating cyclical risk by successfully executing its initiatives of international expansion and its efforts to increase market share in the domestic shale plays will yield positive results.
The conditions in the credit markets and the uncertainty in the oilfield service business outlook for 2009 requires the company to be very selective in its capital expenditures program. Allis-Chalmers expects to generate strong cash flows from operations and believes its liquidity is adequate to meet its planned capital requirements and fund its operations. Allis-Chalmers is currently in compliance with all financial ratio covenants of its revolving line of credit. Its senior notes due in 2014 and 2017 only require interest payments prior to maturity.
Segment Results for Third Quarter 2008
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