Allis-Chalmers Underscores Earnings from 3Q 2009

Allis-Chalmers reported a net loss attributed to common stockholders for the third quarter of 2009 of $10.3 million, or $0.14 per diluted share, after preferred stock dividend, compared to net income of $12.3 million, or $0.35 per diluted share in the third quarter of 2008. Revenues for the third quarter of 2009 decreased 32.7% to $120.0 million compared to $178.3 million for the third quarter of 2008.

Results for the third quarter of 2009 include $1.1 million of severance payments and a $500,000 addition to the allowance for bad debts.
Allis-Chalmers reported a net loss attributed to common stockholders for the first nine months of 2009 of $13.0 million, or $0.27 per diluted share, after preferred stock dividend, compared to net income of $30.9 million, or $0.87 per diluted share for the first nine months of 2008. Revenues for the first nine months of 2009 decreased 23.6% to $377.6 million compared to $494.6 million for the first nine months of 2008.

Results for the first nine months of 2009 include a pre-tax gain of $26.4 million on debt extinguishment associated with the repurchase of $74.8 million of senior notes in June 2009 and non-routine and restructuring charges totaling $12.5 million. These charges include a $4.1 million addition to the allowance for bad debts, $3.2 million in restructuring charges consisting of severance payments and the closing of certain yard locations, a $3.2 million non-cash loss on an asset disposition and inventory writedowns and $2.0 million of customer credits.
The decrease in revenues and net income in the third quarter and the first nine months of 2009, as compared to the third quarter and the first nine months of 2008, was due primarily to the drop in the U.S. rig count, equipment utilization and pricing.

Adjusted EBITDA was $20.6 million for the third quarter of 2009, compared to $48.3 million for the third quarter of 2008. For the first nine months of 2009 Adjusted EBITDA was $67.8 million compared to $136.9 million for the first nine months of 2008. Adjusted EBITDA does not include the $26.4 million pre-tax gain on debt extinguishment in the second quarter of 2009 and certain non-routine and restructuring charges. EBITDA and Adjusted EBITDA are non-GAAP financial measures that are not necessarily comparable from one company to another.

Weighted average shares of common stock outstanding on a diluted basis increased to 70.9 million for the third quarter of 2009 compared to 35.6 million for the third quarter of 2008. For the nine month period ended September 30, 2009, weighted average shares of common stock outstanding on a diluted basis were 47.8 million compared to 35.5 million for the first nine months of 2008.

Micki Hidayatallah, Allis-Chalmers' Chairman and Chief Executive Officer stated, "Our revenues and operating results improved modestly in the third quarter compared to the second quarter of 2009. Total revenues increased in the quarter by $7.5 million, or 6.7%, compared to the second quarter of 2009. Revenues for our Oilfield Services segment also increased sequentially by $2.4 million, or 8.2%, compared to the second quarter of this year. While the domestic pricing environment remains very competitive, we have seen a slight increase in utilization in our Oilfield Services segment and are realizing the benefits from our cost reduction measures. With the stabilization of the U.S. rig count and the financial markets we have begun to see the benefits of our strategy to: (1) redeploy assets and resources to the areas with the highest utilization rates and greatest growth potential such as the Haynesville, Marcellus and Eagle Ford shales; (2) increase market share and diversify our customer base through our new account management system and our emphasis on high technology products and services; and (3) reduce our workforce and close or scale back certain satellite locations. As opportunities arise, we are also redeploying idle Rental and Oilfield Services assets to Brazil, Columbia, Mexico and the Middle East."

Mr. Hidayatallah continued, "Our Drilling and Completion segment with operations in Argentina, Brazil and Bolivia has shown an improvement in day rates and revenues. Revenues for this segment increased in the quarter by $8.5 million, or 12.5%, compared to the second quarter of 2009. While we were successful during the quarter in increasing prices, it has been difficult to recoup rapidly increasing wages and other costs in their entirety in Argentina. In October, we relocated two drilling rigs from Argentina to Brazil where our operations have performed above expectations. In December, we expect to mobilize a 3000hp drilling rig from Argentina to begin a contract in Bolivia. In an effort to reduce our costs and redeploy equipment elsewhere from Argentina we have reduced our workforce by approximately 100 people and incurred severance costs of $1.4 million over the past nine months."

Segment Results for Third Quarter 2009

  • Oilfield Services. Revenues for our Oilfield Services segment were $31.9 million for the three months ended September 30, 2009; a decrease of 56.5% compared to $73.4 million in revenues for the three months ended September 30, 2008. Income from operations decreased $18.0 million and resulted in a loss from operations of $4.2 million in the third quarter of 2009 compared to income from operations of $13.8 million in the third quarter of 2008. Our Oilfield Services segment revenues and operating income for the third quarter of 2009 decreased compared to the third quarter of 2008 due to weak market conditions that resulted in reduced demand for our services and a significant deterioration in the pricing for our services. Depreciation and amortization expense for the Oilfield Services segment increased by $2.0 million or 32.4% in the third quarter of 2009 compared to the third quarter of the previous year, due to capital expenditures completed during 2008, including six coiled tubing units delivered in the last half of 2008. We have not realized the benefits of these capital expenditures due to decreased utilization and pricing of our equipment as a result of the decline in U.S. drilling activity.
  • Drilling and Completion. Revenues for the quarter ended September 30, 2009 for the Drilling and Completion segment were $76.3 million compared to $77.8 million in revenues for the quarter ended September 30, 2008. Income from operations decreased to $5.5 million in the third quarter of 2009 compared to $11.3 million in the third quarter of 2008. This reduction was due to: (1) reduced rig utilization and rig rates in Argentina; (2) increased labor and other costs in Argentina; (3) an increase of $1.8 million, or 47.4%, in depreciation and amortization; and (4) $1.1 million of severance costs during the three months ended September 30, 2009 related to workforce reductions in Argentina as a result of lower activity. The increase in depreciation and amortization expense was the result of the addition of new rigs in Argentina and the acquisition of BCH in Brazil. Our Drilling and Completion segment revenues for the third quarter of 2009 included $11.0 million of revenue generated from the acquisition of BCH at the end of 2008.
  • Rental Services. Revenues for the quarter ended September 30, 2009 for the Rental Services segment were $11.8 million, a decrease from $27.1 million in revenues for the quarter ended September 30, 2008. Income from operations decreased to a $1.2 million operating loss in the third quarter of 2009 compared to $8.5 million operating income in the third quarter of 2008. Our Rental Services segment revenues and operating income for the third quarter of 2009 decreased compared to the prior year primarily due to the decrease in utilization of our rental equipment and a more competitive pricing environment due to a decrease in drilling activity in the U.S. In addition, depreciation and amortization expense for our Rental Services segment increased $582,000, or 8.7%, in the third quarter of 2009 compared to the third quarter of 2008 due to capital expenditures made during 2008.
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