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Union Drilling Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: October 31, 2011 01:40PM

Union Drilling Inc. (UDRL) filed Quarterly Report for the period ended 2011-09-30. Union Drilling Inc. has a market cap of $180.89 million; its shares were traded at around $7.8 with and P/S ratio of 0.94.



Highlight of Business Operations:

Revenues. Our revenues increased by $14.7 million, or 28%, in the three months ended September 30, 2011 compared to the same period in 2010. This increase in revenues was attributable to the increase in our marketed rig utilization and dayrates. The $48.3 million, or 36%, increase in revenues for the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010 was also due to the increase in our marketed rig utilization and dayrates. Operating expenses. Our operating expenses during the three and nine months ended September 30, 2011 compared to the same periods in 2010 increased $5.5 million, or 14%, and $28.5 million, or 28%, respectively. The increase in operating expenses was primarily due to the increase in marketed rig utilization as well as an increase in operating costs due to increased employment costs and increased rig maintenance costs. Depreciation and amortization. The increase in depreciation and amortization expense during the three and nine months ended September 30, 2011 compared to the same period in 2010 was due to the increase in depreciable assets, resulting from rig acquisitions and capital equipment upgrades that enhanced our fleet capabilities. Impairment. The increase in impairment during the three and nine months ended September 30, 2011 compared to the same period in 2010 was due to the decision to auction certain of our older, smaller rigs as more fully described in the Company Overview. General and administrative expenses. Our general and administrative expenses during the three months ended September 30, 2011 compared to the same period in 2010 increased $1.0 million or 17%. The increase in general and administrative expenses was primarily attributable to higher employment costs due to increased headcount, costs associated with hosting and administrative support for our new information system, and an increase related to a $219,000 write off of bad debt. The $3.8 million, or 22%, increase in general and administrative expense for the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010 is primarily attributable to higher employment costs due to increased headcount, hosting and administrative support for our new information system as well as onetime costs related to post production support for our new information system, increased training expense and property taxes. Accounts receivable. We evaluate the creditworthiness of our customers based on their financial information, if available; information obtained from major industry suppliers, and our past experiences, if any, with the customer. In some instances, we require new customers to make prepayments. We typically invoice our customers semimonthly during the performance of daywork contracts and upon completion of the contract, with payment due within 30 days. Our allowance for doubtful accounts was $153,000 at September 30, 2011 and December 31, 2010. Any allowance established is subject to judgment and estimates made by management. We determine our allowance by considering a number of factors, including the length of time trade accounts receivable are past due, our previous loss history, our assessment of our customers’ current abilities to pay obligations to us and the condition of the general economy and the oil and gas industry as a whole. We recorded $219,000 of bad debt expense for the three and nine months ended September 30, 2011, and $77,000 and $90,000 for the three and nine months ended September 30, 2010. We write off specific accounts receivable when we determine they are uncollectible. During the three and nine months ended September 30, 2011, we wrote off $219,000 of accounts receivable for one customer. During the nine months ended September 30, 2010, we wrote off $1.3 million of previously reserved accounts receivable for one customer.

Stock-based compensation. Compensation cost resulting from share-based payment awards are measured at fair value and recognized in general and administrative expense on a straight line basis over the requisite service period for the entire award. The amount of compensation cost recognized at any date is at least equal to the portion of the grant-date value of the award that is vested at that date. For the three and nine months ended September 30, 2011, the Company recorded stock-based compensation expense of $318,000 ($207,000, net of tax) and $990,000 ($655,000, net of tax), respectively. For the three and nine months ended September 30, 2010, the Company recorded stock-based compensation expense of $333,000 ($220,000 net of tax) and $922,000 ($600,000 net of tax), respectively. Total unamortized stock-based compensation was $3.2 million at September 30, 2011, and will be recognized over a weighted average service period of 3.3 years.

Operating expenses. Our operating expenses during the three and nine months ended September 30, 2011 compared to the same periods in 2010 increased $5.5 million, or 14%, and $28.5 million, or 28%, respectively. The increase in operating expenses was primarily due to the increase in marketed rig utilization as well as an increase in operating costs due to increased employment costs and increased rig maintenance costs.

Our operations have historically generated sufficient cash flow to meet our requirements for debt service and equipment expenditures (excluding major business and asset acquisitions). Cash flow provided by operating activities during the first nine months of 2011 was $25.9 million compared to $22.4 million during the first nine months of 2010. This increase in cash flow from operating activities was primarily due to the decreases in net loss and benefit for deferred taxes. Our cash flow from operations was primarily used to invest in new machinery and equipment. During the first nine months of 2011 and 2010, cash used in investing activities totaled $65.4 million and $49.7 million, respectively.

During the nine months ended September 30, 2011, additions to drilling equipment included $41.6 million, of which $23.6 million related to the initial construction of four new builds. Additionally, the Company purchased a 1,000 hp mechanical rig for an aggregate price of $6.6 million, which was deployed in the second quarter and invested $1.5 million in upgrades for a new rig that was deployed during the third quarter. During the nine months ended September 30, 2011, the Company also purchased office buildings, rig yards and surrounding land in West Texas and Arkansas for $800,000 and $1.2 million, respectively.

Read the The complete Report



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