We like to think that when we deposit a dollar at the bank, it goes into a big vault and we can pull out that same dollar at any time. But that¿s not how the U.S. banking system works. Banks take that money and invest it to make money themselves, so cash gets spread around. This, naturally, leads to a big risk: What happens if those investments go sour? Well, you¿d be out of luck. You can¿t get your dollar back.

The Federal Reserve doesn¿t like that scenario, so it prohibits banks from putting all the cash it has on deposit on the line. In fact, the Fed forces banks to keep a portion of their assets at the Federal Reserve itself, to make sure that some of your assets won¿t get squandered if the bank¿s bets go south. These are called ¿reserves,¿ (hence, Federal Reserve. Got it? Good), and usually amount to 10% of the total cash kept in checking accounts.

These reserves are never exactly 10%, and banks like to keep a little extra in reserve ¿ not, as you might think, to make you more comfortable that they¿re in good financial shape, but rather so they can take that excess and lend it to other banks and make money off it. (They¿re banks, they can¿t help themselves.) The rate at which they make these loans is called the Federal Funds rate, which is set by the Federal Reserve¿s Federal Open Market Committee.

When you hear people chattering about how the Fed cut or hiked interest rates, this is what they¿re talking about: the interest rate banks can charge for lending money from their reserves. This begs the question: If these are essentially loans between banks, why is the Fed Funds rate so important for the rest of the economy?

Well, simply put, because loans make the financial world go round. Bank A lends Bank B $10,000 at a Fed Funds rate of 5%. Bank B then lends out $10,000 to a small business at 7%. The small business then takes that money and expands the business and hires new workers. Now someone is employed, Bank B has made interest off the loan, and Bank A is the richer for making it all happen. It¿s perhaps overly simplistic, but you get the idea. When you want the economy to thrive, you make lending cheaper.

Of course, sometimes you don¿t want the economy to thrive. In fact, you might want it to cool down, mostly to avoid money flooding the system and causing inflation. In that case, the Fed raises interest rates, making it difficult to lend or borrow.

Home / Markets / Industries / Energy

Wednesday, August 06, 2008

Key Energy Announces June 2008 Quarterly Results

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Comtex

HOUSTON, Aug 06, 2008 /PRNewswire-FirstCall via COMTEX/ ----Key Energy Services, Inc. (NYSE: KEG) announced its results for the quarter ended June 30, 2008. The Company's earnings conference call will be held tomorrow at 10:00 a.m. EDT.

Second Quarter Results

Revenue for the quarter ended June 30, 2008 totaled $502.0 million, a new record for the Company, compared with revenue of $410.5 million for the quarter ended June 30, 2007. The increase in total revenue in the second quarter of 2008 versus the second quarter of 2007 was the result of strong performance in our Pressure Pumping and Fishing and Rental Tool segments, growth from the Company's Mexico and cased-hole wireline operations, and the results of acquisitions made during the last nine months. Net income and earnings per diluted share for the second quarter were $44.0 million and $0.35, respectively, compared to $48.1 million and $0.36, respectively, in the second quarter of 2007. The second quarter earnings per diluted share represent a 29.6% increase over first quarter 2008 earnings per share of $0.27.

Adjusted EBITDA for the June 2008 quarter totaled $121.5 million, compared to $116.1 million for the June 2007 quarter and $107.1 million for the first quarter of 2008 (see reconciliation of net income to Adjusted EBITDA below). In addition, general and administrative costs decreased to 11.6% of revenue in the second quarter of 2008 from 13.7% in the second quarter of 2007. The Company anticipates that general and administrative expenses for all of 2008 will be less than 13% of revenue.

During the second quarter, the Company acquired Western Drilling, LLC and Hydra-Walk, Inc. for total combined consideration of approximately $61.9 million. Total capital expenditures, excluding acquisitions, were $41.0 million for the quarter.

Commenting on the quarterly results, Dick Alario, Chairman and CEO, stated, "Record revenues in the second quarter were driven by our success in executing our growth strategies to acquire companies and assets, to expand existing capacity -- domestically and internationally -- and to add new services. We anticipate that the full effect of our acquisitions, combined with our July acquisition of the U.S. assets of Leader Energy Services and recently implemented price increases, position us for a strong second half. We continue to see new opportunities to deploy capital with attractive returns and anticipate strengthening in our markets in the second half of this year and into 2009. At this point in the year, we are comfortable tightening the range of our estimate of the 2008 full year earnings per diluted share to between $1.35 to $1.45 per share."

Share Repurchase Program

During the second quarter of 2008, the Company repurchased an approximately 1.8 million shares at an aggregate cost of approximately $27.0 million. From the inception of the Company's share repurchase program in November, 2007 through July 31, 2008, the Company has repurchased approximately 10.1 million shares of its common stock, at an aggregate cost of approximately $137.5 million. The Company is authorized to repurchase up to $300.0 million of its common stock on or before March 31, 2009.

Conference Call

 The Company will hold an investor
   conference call tomorrow, August 7, 2008, at 10:00 am EDT. To access the call, which is open to the public, please call the
   conference call operator at the following number: (888) 794-4637 and ask for the "Key Energy Conference Call." International
   callers should dial (706) 679-7045. The conference call will also be available on the web. To access the webcast, go to http://www.keyenergy.com
   and select "Investor Relations." A replay of the conference call will be available tomorrow afternoon beginning at 3:00 pm
   EDT and will be available for one week. To access the replay, please call (800) 642-1687. The access code for the replay is
   58495085. Quarterly operational activity data is provided in the table below: For the quarter ending June 30, 2008 March 31,
   2008 June 30, 2007 Rig Hours 701,286 659,462 611,890 Trucking Hours 603,632 585,040 583,074 Three Months Ended Six Months
   Ended June 30, June 30, 2008 2007 2008 2007 (In thousands, except per share data) (Unaudited) REVENUES: Well Servicing $379,959
   $308,825 $728,837 $619,985 Pressure Pumping 91,952 77,289 173,804 151,366 Fishing and Rental 30,092 24,397 55,761 48,079 TOTAL
   REVENUES 502,003 410,511 958,402 819,430 COSTS AND EXPENSES: Well Servicing 241,634 177,304 453,385 352,832 Pressure Pumping
   62,837 47,410 116,616 93,943 Fishing and Rental 18,017 13,509 34,128 26,960 Depreciation and amortization 42,271 30,684 82,247
   60,298 General and administrative 58,249 56,154 125,981 108,217 Interest expense, net of amounts capitalized 10,079 8,968
   20,119 18,317 Gain on sale of assets, net (360) (703) (626) (453) Interest income (182) (1,798) (690) (3,737) Other (income)
   expense, net (1,789) 512 (912) (112) TOTAL COSTS AND EXPENSES, NET 430,756 332,040 830,248 656,265 Income before income taxes
   71,247 78,471 128,154 163,165 Income tax expense (27,446) (30,335) (49,903) (62,838) Minority interest 211 - 245 - NET INCOME
   $44,012 $48,136 $78,496 $100,327 EARNINGS PER SHARE: Basic $0.35 $0.37 $0.62 $0.76 Diluted $0.35 $0.36 $0.61 $0.75 WEIGHTED
   AVERAGE SHARES OUTSTANDING: Basic 124,448 131,627 126,207 131,628 Diluted 126,521 134,140 127,914 134,028 June 30, December
   31, 2008 2007 (In thousands) (Unaudited) Selected Balance Sheet Data: Current assets: Cash and cash equivalents $45,459 $58,503
   Short-term investments 8 276 Accounts receivable, net of allowance for doubtful accounts 395,079 343,408 Other current assets
   74,093 85,678 TOTAL CURRENT ASSETS $514,639 $487,865 Current liabilities: Accounts payable $19,952 $35,159 Accrued liabilities
   and accrued interest 230,216 187,259 Current portion of long-term debt, capital lease obligations and notes payable - related
   parties 11,083 12,379 TOTAL CURRENT LIABILITIES $261,251 $234,797 Long-term debt, less current portion $525,000 $475,000 Capital
   lease obligations, less current portion 13,840 16,114 Notes payable - related parties, less current portion 20,500 20,500
   Deferred tax liability 160,786 160,068 Non-current accrued expenses 64,707 63,349 Minority interest - 251 Stockholders' equity
   $891,677 $888,998 Six Months Ended June 30, 2008 2007 (In thousands) (Unaudited) Selected Cash Flow Data: Net cash provided
   by operating activities $162,084 $148,640 Net cash used in investing activities (131,296) (169,266) Net cash used in financing
   activities (44,462) (7,357) Effect of changes in exchange rates on cash 630 (305) Net decrease in cash and cash equivalents
   (13,044) (28,288) Cash and cash equivalents, beginning of period 58,503 88,375 Cash and cash equivalents, end of period $45,459
   $60,087 Short-term investments $8 $114,975 RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES: SUPPLEMENTAL DATA Three Months
   Ended Three Months Ended Reconciliation of Net Income June 30, March 31, to Adjusted EBITDA 2008 2007 2008 (In thousands)
   (Unaudited) Net Income $44,012 $48,136 $ 34,484 Income tax expense 27,446 30,335 22,457 Gain on sale of assets, net (360)
   (703) (266) Other (income) expense, net (1,789) 512 877 Interest income (182) (1,798) (508) Interest expense, net of amounts
   capitalized 10,079 8,968 10,040 Depreciation and amortization expense 42,271 30,684 39,976 Adjusted EBITDA $121,477 $116,134
   $107,060

"Adjusted EBITDA" is defined as net income before interest, taxes, depreciation and amortization, other expense (income), and (gain) losses on sale of assets. Management does not include (gain) loss on sale of assets and other expense (income), net, in its calculations of Adjusted EBITDA, as it believes that they are either non-recurring or not representative of our core operations. Other expense (income), net generally represents our minority investment in IROC Energy Services, Corp. and foreign currency transaction gains and losses. As a minority shareholder in IROC, we cannot directly impact the performance of that investment. Further, management believes that most investors exclude (gain) loss on sale of assets, net from customary EBITDA calculations as that item is often viewed as non-recurring and not reflective of ongoing financial performance.

Adjusted EBITDA is a non-GAAP measure that is used as a supplemental financial measure by our management and directors and by external users of our financial statements, such as investors, to assess:

 * The financial performance of
   our assets without regard to financing methods, capital structure or historical cost basis; * The ability of our assets to
   generate cash sufficient to pay interest on our indebtedness; and * Our operating performance and return on invested capital
   as compared to those of other companies in the well services industry, without regard to financing methods and capital structure.

Adjusted EBITDA has limitations as an analytical tool and should not be considered an alternative to net income, operating income, cash flow from operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Adjusted EBITDA excludes some, but not all, items that affect net income and operating income and these measures may vary among other companies. Limitations to using Adjusted EBITDA as an analytical tool include:

   * Adjusted EBITDA does not reflect our current or future requirements for capital expenditures or capital commitments; * Adjusted
   EBITDA does not reflect changes in, or cash requirements necessary to service interest or principal payments on our debt;
   * Adjusted EBITDA does not reflect income taxes; * Although depreciation and amortization are non-cash charges, the assets
   being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash
   requirements for such replacements; and * Other companies in our industry may calculate Adjusted EBITDA differently than we
   do, limiting its usefulness as a comparative measure.

Certain statements contained in this news release constitute "forward- looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates and projections about the Company, the Company's industry, management's beliefs and certain assumptions made by management. Whenever possible, the Company has identified these "forward-looking statements" by words such as "expects," "believes," "anticipates" and similar phrases. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict, including, but not limited to: risks that the Company will be unable to identify or complete acquisitions and that it will be unable to integrate acquired operations; risks affecting the ability of the Company to maintain or improve operations, including the ability to maintain prices, or implement and maintain price increases, the impact of new rigs coming into the market and weather risk; the risk of changes in interest rates which could affect interest expense; and risks that the Company will be unable to achieve financial targets or cost reductions; factors affecting the Company's stock repurchase program, including, among others, the market price of the company's stock prevailing from time to time, the nature of other investment opportunities presented to the company from time to time, the company's cash flows from operations, availability under the Company's revolving credit facility, and general economic conditions; and risks affecting activity levels for rig hours including the risk that commodity prices decline or the risk that capital budgets from the Company's customers decrease. Readers should also refer to the section entitled "Risk Factors" in the 2007 Annual Report on Form 10-K filed February 29, 2008 for a discussion of risks to which the Company is subject. Because such statements involve risks and uncertainties, the actual results and performance of the Company may differ materially from the results expressed or implied by such forward-looking statements. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Unless otherwise required by law, the Company also disclaims any obligation to update its view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made here; however, readers should review carefully reports or documents the Company files periodically with the Securities and Exchange Commission.

 Contact:
   Bill Austin (713) 651-4300

SOURCE Key Energy Services, Inc.

http://www.keyenergy.com

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