Allis-Chalmers Posts Full Year, Q4 2008 Results
Allis-Chalmers has announced results for the full year and fourth quarter ended December 31, 2008. Allis-Chalmers reported a net loss of $70.4 million for the fourth quarter, or $2.00 per share, including $120.1 million of charges, primarily the impairment of goodwill in the amount of $115.8 million. Net income for the fourth quarter of 2007 was $5.8 million, or $0.16 per diluted share. Without the charges, net income for the fourth quarter of 2008 would have been $9.8 million or $0.28 per diluted share. Revenues for the fourth quarter of 2008 increased 26.1% to $181.4 million compared to $143.8 million for the fourth quarter of 2007.
The financial results for the fourth quarter of 2008 include non-routine pre-tax charges totaling $120.1 million from a combination of impairment of goodwill and other items which impacted the fourth quarter, including a foreign exchange loss of $1.3 million due to the devaluation of the Argentine peso, a $1.8 million addition to the allowance for bad debts, and the writedown of an asset held for sale of $900,000. The impairment of goodwill is a $115.8 million pre-tax, non-cash charge pursuant to Statement of Financial Accounting Standards No. 142. The goodwill impairment charge is affected by current valuations in the equity markets and the economic environment. The goodwill impairment charge has no impact on any of Allis-Chalmers’ debt covenants, collateral coverage of its secured debt, or liquidity.
For the full year ended December 31, 2008, total revenues were $675.9 million, which represented an increase of 18.4% compared to $571.0 million for the year ended December 31, 2007. Revenues in 2008 increased 35.0% in our Drilling and Completion segment due to the addition of 16 new service rigs and one new drilling rig placed in service in Argentina in 2008 and price increases. Revenues increased 20.0% in 2008 in our Oilfield Services segment due to the purchase of additional equipment, growth in new geographic regions, such as the Fayetteville, Marcellus and Haynesville shales, and acquisitions completed in the second half of 2007 which expanded our directional drilling capabilities. In our Rental Services segment, revenues decreased 14.4% in 2008 due to the decrease in U.S. Gulf of Mexico activity, a more competitive pricing environment, and the impact of Hurricanes Ike and Gustav.
The net loss for the year ended December 31, 2008 was $39.5 million, or $1.13 per share, including the $115.8 million goodwill impairment charge, compared to net income of $50.4 million, or $1.45 per diluted share, in 2007. Excluding the impairment charge, net income for 2008 was $38.4 million or $1.08 per diluted share. Net income in 2007 included a gain on the sale of assets of $8.9 million equal to approximately $0.16 per diluted share, compared to a gain on the sale of assets of $166,000 in 2008.
For the fourth quarter of 2008 Adjusted EBITDA was $41.6 million, compared to $38.6 million for the fourth quarter of 2007. Adjusted EBITDA was $177.3 million for the year ended December 31, 2008, compared to $185.4 million for 2007. Adjusted EBITDA in 2007 included an $8.9 million gain from 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, "We are very pleased with our results in the fourth quarter and for all of fiscal 2008. Despite the allowance for the non-cash charges, every segment performed as per expectations. We continue to believe in the future prospects and values inherent in our businesses and are pleased with our position in the Rental Services segment. Although the significant reduction in the domestic rig count will pose challenges to equipment utilization and pricing in 2009 we plan to continue to defend our position and grow our international operations which contributed approximately 40% of our total EBITDA in 2008. The acquisition of BCH Ltd. in December 2008, the deployment of two rigs to Bolivia in December 2008 and January 2009, and the benefit from a full year’s operation of 16 additional service rigs and two 750 hp drilling rigs in Argentina should result in increased international EBITDA in 2009."
Mr. Hidayatallah also noted, "Domestically our Oilfield Services segment expanded its geographic footprint into the Marcellus, Haynesville and Fayetteville shales and added new technologically advanced equipment such as Casing Running Tools for our Tubular Services division, new coiled tubing units, and foam units for air drilling. Unfortunately, we began to see the domestic market deteriorate in the fourth quarter before we achieved the full benefit of all of these investments. Our Rental Services segment achieved its goal of increasing its business from the growing land shale plays and the international markets, while diversifying away from the U.S. Gulf of Mexico shelf. We continue to maintain our rental business in the less volatile deep water Gulf of Mexico with the rental of our premium drill pipe and our specialized equipment for landing heavy casing strings. During 2008 we commenced generating rental revenues from Colombia and Libya, and last month announced the formation of a new joint venture to operate in Saudi Arabia."
Mr. Hidayatallah continued, "As previously announced, we have taken steps to respond to the decrease in the U.S. rig count, the turmoil in the financial markets and the resulting impact on capital availability. Capital expenditures have been reduced to maintenance levels and to finishing out those projects previously committed. We have taken significant cost reduction steps and will continue to examine other opportunities dependent upon the business outlook. The profile of our debt is such that 85% is on an interest only basis, due in 2014 to 2017. We currently have $42.5 million of borrowings under our $90 million revolver or about 4% of our capitalization. We have a total of approximately $70.0 million available under our credit facilities and net working capital of approximately $83.1 million."
Segment Results for Full Year 2008
- Oilfield Services. Revenues for the year ended December 31, 2008 for our Oilfield Services segment were $280.8 million, an increase of 20.0% from $234.0 million in revenues for the year ended December 31, 2007. The increase in revenues was primarily due to the purchase of additional MWD tools, new compressors and new “foam” units for our underbalanced drilling operations, new coiled tubing units and the benefit of acquisitions completed in the last half of 2007 which added downhole motors, MWDs, and directional drillers. The additional equipment and personnel enabled us to strengthen our presence in new geographic markets and increase our market penetration. Income from operations decreased 27.4% to $38.6 million for 2008 from $53.2 million for 2007 primarily because income from operations includes a $9.4 million goodwill impairment charge for the year ended December 31, 2008, while income from operations for the year ended December 31, 2007 includes an $8.9 million gain on the sale of our capillary tubing assets. In addition, depreciation and amortization expense in the segment increased 46.8% to $24.7 million in 2008, compared to $16.8 million in the prior year. The increase in depreciation expense in this segment was due to our capital expenditures, principally the new coiled tubing units which were delivered in the second half of 2008 and the new Casing Running Tools. Depreciation expense impacted income from operations as we did not achieve high levels of equipment utilization due to the decrease in domestic activity.
- Drilling and Completion. Our Drilling and Completion revenues were $291.3 million for the year ended December 31, 2008, an increase of 35.0% from $215.8 million in revenues for the year ended December 31, 2007. Our Drilling and Completion revenues increased in 2008 primarily due to the addition of 16 new service rigs and one drilling rig which were placed in service at various dates in 2008 and increased prices for our services. Income from operations increased to $40.2 million in 2008 compared to $38.8 million for the year ended December 31, 2007. Income from operations as a percentage of revenue decreased to 13.8% for 2008 compared to 18.0% for 2007. This was due primarily to higher wages, which included other payroll expenses, and the increase in administrative costs all relating to labor concessions in Argentina granted by the oil industry in the last half of 2007 and a significant increase in our labor force and labor-related expenses in connection with the delivery of new rigs prior to their activation.
- Rental Services. Our Rental Services revenues were $103.8 million for the year ended December 31, 2008, a decrease of 14.4% from $121.2 million in revenues for the year ended December 31, 2007. Income from operations decreased to an operating loss of $74.4 million in 2008, compared to operating income of $49.1 million in 2007, primarily because of a $106.4 million goodwill impairment charge recorded in 2008. The decrease in revenues and operating income is also attributable to a more competitive market environment due to decreased U.S. Gulf of Mexico drilling activity beginning in the last half of 2007 as a result of the departure of drilling rigs to the international markets, and the impact of hurricanes in the U.S. Gulf of Mexico in 2008.