##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED March 31, 2011
OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROMTO
 Commission file number 1-02199
 ALLIS-CHALMERS ENERGY INC.
  DELAWARE
    
    27-3321250(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)11125 Equity Drive, Suite 200, HOUSTON, TEXAS
    
    77041(Address of principal executive offices)
    
    (Zip Code)
 (713) 856-4222
  o þ
 o o
  Large accelerated filer o
    

Accelerated filer þ
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ
   Allis-Chalmers Energy Inc. meets the conditions set forth in general instruction H(1)(a)
and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format.




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##### 



ALLIS-CHALMERS ENERGY INC.
 FORM 10-Q
 For the Quarterly Period Ended March 31, 2011
 TABLE OF CONTENTS
  
 ITEM
    
    PAGEPART I1. Financial StatementsConsolidated Condensed Balance Sheets as of March 31, 2011 (Successor Company)
and December 31, 2010 (Predecessor Company)
    
    
    3Consolidated Condensed Statements of Operations for the month ended March 31,
2011 (Successor Company), two months ended February 28, 2011 and three months
ended March 31, 2010 (Predecessor Company)
    
    
    4Consolidated Condensed Statement of Stockholders Equity as of March 31, 2011
(Successor Company), February 28, 2011 and December 31, 2010 (Predecessor
Company)
    
    
    5Consolidated Condensed Statements of Cash Flows for the month ended March 31,
2011 (Successor Company), two months ended February 28, 2011 and three months
ended March 31, 2010 (Predecessor Company)
    
    
    6Notes to Unaudited Consolidated Condensed Financial Statements
    
    
    72. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    294. Controls and Procedures
    
    
    36PART II6.Exhibits
    
    
    37Signatures
    
    
    37EX-31.1EX-31.2EX-32.1
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 ALLIS-CHALMERS ENERGY INC.


CONSOLIDATED CONDENSED BALANCE SHEETS
 Successor
    


    
    PredecessorMarch 31,
    


    
    December 31,2011
    


    
    2010(unaudited)AssetsCash and cash equivalents
    
    $
    5,398
    


    
    $
    20,940Restricted cash
    
    
    4,141
    


    
    
    Trade receivables, net
    
    
    165,551
    


    
    
    144,960Inventories
    
    
    44,662
    


    
    
    42,140Deferred income tax asset
    
    
    7
    


    
    
    81Prepaid expenses and other
    
    
    8,644
    


    
    
    9,192Total current assets
    
    
    228,403
    


    
    
    217,313Property and equipment, net
    
    
    681,749
    


    
    
    723,234Goodwill
    
    
    267,428
    


    
    
    46,333Other intangible assets, net
    
    
    99,247
    


    
    
    33,899Debt issuance costs, net
    
    
    
    


    
    
    7,405Deferred income tax asset
    
    
    
    


    
    
    1,969Other assets
    
    
    4,996
    


    
    
    8,116Total assets
    
    $
    1,281,823
    


    
    $
    1,038,269Liabilities and Stockholders EquityCurrent maturities of long-term debt
    
    $
    8,864
    


    
    $
    15,215Trade accounts payable
    
    
    57,087
    


    
    
    46,042Accrued salaries, benefits and payroll taxes
    
    
    27,273
    


    
    
    32,790Accrued interest
    
    
    5,945
    


    
    
    15,524Accrued expenses
    
    
    39,985
    


    
    
    30,676Total current liabilities
    
    
    139,154
    


    
    
    140,247Deferred income tax liability
    
    
    16,879
    


    
    
    8,240Long-term debt, net of current maturities
    
    
    457,468
    


    
    
    478,225Payable to parent
    
    
    71,798
    


    
    
    Other long-term liabilities
    
    
    20
    


    
    
    233Total liabilities
    
    
    685,319
    


    
    
    626,945Commitments and ContingenciesStockholders EquityPreferred stock, $0.01 par value (0 shares authorized, 0 issued and outstanding at March  31, 2011 and  25,000,000
 authorized, 36,393 issued and outstanding at December 31, 2010)
    
    
    
    


    
    
    34,183Common stock, $0.01 par value (1,000 shares
authorized, 1,000 issued and outstanding at
March 31, 2011 and 200,000,000 authorized,
73,722,347 issued and outstanding at
December 31, 2010)
    
    
    
    


    
    
    737Capital in excess of par value
    
    
    600,885
    


    
    
    429,924Accumulated deficit
    
    
    (4,381
    )


    
    
    (53,520
    )Total stockholders equity
    
    
    596,504
    


    
    
    411,324Total liabilities and stockholders equity
    
    $
    1,281,823
    


    
    $
    1,038,269
  3




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.


CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
 Successor
    


    
    PredecessorOne Month
    


    
    Two Months
    
    
    Three MonthsEnded
    


    
    Ended
    
    
    EndedMarch 31,
    


    
    February 28,
    
    
    March 31,2011
    


    
    2011
    
    
    2010Revenues
    
    $
    70,726
    


    
    $
    126,885
    
    
    $
    140,370Operating costs and expenses:Direct costs
    
    
    51,136
    


    
    
    97,130
    
    
    
    107,715Depreciation
    
    
    7,316
    


    
    
    15,026
    
    
    
    20,188Selling, general and administrative
    
    
    4,791
    


    
    
    23,752
    
    
    
    12,063Impairment of intangible assets
    
    
    5,100
    


    
    
    
    
    
    
    Amortization
    
    
    1,453
    


    
    
    811
    
    
    
    1,156Total operating costs and expenses
    
    
    69,796
    


    
    
    136,719
    
    
    
    141,122Income (loss) from operations
    
    
    930
    


    
    
    (9,834
    )
    
    
    (752
    )Other income (expense):Interest expense
    
    
    (3,746
    )


    
    
    (7,854
    )
    
    
    (10,956
    )Interest income
    
    
    3
    


    
    
    5
    
    
    
    155Other
    
    
    13
    


    
    
    122
    
    
    
    (1,515
    )Total other expense
    
    
    (3,730
    )


    
    
    (7,727
    )
    
    
    (12,316
    )Loss before income taxes
    
    
    (2,800
    )


    
    
    (17,561
    )
    
    
    (13,068
    )Income tax benefit (expense)
    
    
    (1,581
    )


    
    
    (1,736
    )
    
    
    3,537Net loss
    
    
    (4,381
    )


    
    
    (19,297
    )
    
    
    (9,531
    )Preferred stock dividend
    
    
    
    


    
    
    (375
    )
    
    
    (637
    )Net loss attributed to common stockholders
    
    $
    (4,381
    )


    
    $
    (19,672
    )
    
    $
    (10,168
    )
  4




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.


CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS EQUITY
 Capital in
    
    
    Retained
    
    
    TotalPreferred Stock
    
    
    Common Stock
    
    
    Excess of
    
    
    Earnings
    
    
    StockholdersShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Par Value
    
    
    (Deficit)
    
    
    EquityPredecessorBalances, December 31, 2010
    
    
    36,393
    
    
    $
    34,183
    
    
    
    73,722,347
    
    
    $
    737
    
    
    $
    429,924
    
    
    $
    (53,520
    )
    
    $
    411,324Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,297
    )
    
    
    (19,297
    )Preferred stock dividend
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (375
    )
    
    
    (375
    )Issuance of common stock:Issuance under stock plans, net of tax
    
    
    
    
    
    
    
    
    
    
    650,727
    
    
    
    7
    
    
    
    (1,828
    )
    
    
    
    
    
    
    (1,821
    )Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,084
    
    
    
    
    
    
    
    6,084Balances, February 28, 2011
    
    
    36,393
    
    
    $
    34,183
    
    
    
    74,373,074
    
    
    $
    744
    
    
    $
    434,180
    
    
    $
    (73,192
    )
    
    $
    395,915SuccessorCapitalization at merger
    
    
    
    
    
    $
    
    
    
    
    1,000
    
    
    $
    
    
    
    $
    600,885
    
    
    $
    
    
    
    $
    600,885Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,381
    )
    
    
    (4,381
    )Balances, March 31, 2011
    
    
    
    
    
    $
    
    
    
    
    1,000
    
    
    $
    
    
    
    $
    600,885
    
    
    $
    (4,381
    )
    
    $
    596,504
  5




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.


CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
 Successor
    


    
    PredecessorOne Month
    


    
    Two Months
    
    
    Three MonthsEnded
    


    
    Ended
    
    
    EndedMarch 31,
    


    
    February 28,
    
    
    March 31,2011
    


    
    2011
    
    
    2010Cash Flows from Operating Activities:Net loss
    
    $
    (4,381
    )


    
    $
    (19,297
    )
    
    $
    (9,531
    )Adjustments to reconcile net loss to net cash (used) provided by operating activities:Depreciation and amortization
    
    
    8,769
    


    
    
    15,837
    
    
    
    21,344Amortization of deferred issuance costs
    
    
    
    


    
    
    366
    
    
    
    551Stock-based compensation
    
    
    
    


    
    
    6,084
    
    
    
    1,380Impairment of intangible assets
    
    
    5,100
    


    
    
    
    
    
    
    Allowance for bad debts
    
    
    
    


    
    
    195
    
    
    
    Deferred income taxes
    
    
    63
    


    
    
    140
    
    
    
    (6,155
    )Loss on investment
    
    
    
    


    
    
    
    
    
    
    1,466Loss (gain) on sale of property and equipment
    
    
    (157
    )


    
    
    416
    
    
    
    (41
    )Changes in operating assets and liabilities, net of acquisitions:Increase in trade receivable
    
    
    (6,079
    )


    
    
    (15,944
    )
    
    
    (9,013
    )Increase in inventories
    
    
    (712
    )


    
    
    (1,810
    )
    
    
    (81
    )Decrease (increase) in prepaid expenses and other assets
    
    
    (65
    )


    
    
    550
    
    
    
    2,471Decrease (increase) in other assets
    
    
    (178
    )


    
    
    674
    
    
    
    464(Decrease) increase in trade accounts payable
    
    
    (1,909
    )


    
    
    12,954
    
    
    
    8,712Decrease in accrued interest
    
    
    (5,686
    )


    
    
    (3,893
    )
    
    
    (9,439
    )(Decrease) increase in accrued expenses
    
    
    1,016
    


    
    
    8,555
    
    
    
    (1,088
    )Decrease in other liabilities
    
    
    (72
    )


    
    
    (141
    )
    
    
    (236
    )Decrease in accrued salaries, benefits and payroll taxes
    
    
    (3,838
    )


    
    
    (1,679
    )
    
    
    (1,170
    )Net cash (used) provided by operating activities
    
    
    (8,129
    )


    
    
    3,007
    
    
    
    (366
    )Cash Flows from Investing Activities:Increase in restricted cash
    
    
    
    


    
    
    (4,141
    )
    
    
    Purchases of investment interests
    
    
    
    


    
    
    (1,177
    )
    
    
    Purchases of property and equipment
    
    
    (7,067
    )


    
    
    (22,758
    )
    
    
    (11,758
    )Deposits on asset commitments
    
    
    115
    


    
    
    82
    
    
    
    (4,612
    )Proceeds from sale of property and equipment
    
    
    566
    


    
    
    1,009
    
    
    
    1,436Net cash used in investing activities
    
    
    (6,386
    )


    
    
    (26,985
    )
    
    
    (14,934
    )Cash Flows from Financing Activities:Proceeds from issuance of long-term debt
    
    
    
    


    
    
    
    
    
    
    4,000Payments on long-term debt
    
    
    (2,070
    )


    
    
    (7,819
    )
    
    
    (5,201
    )Net borrowings (repayments) on lines of credit
    
    
    
    


    
    
    (36,500
    )
    
    
    Proceeds from parent
    
    
    348
    


    
    
    71,450Payment of preferred stock dividend
    
    
    
    


    
    
    (637
    )
    
    
    (637
    )Exercise of options and restricted stock awards, net of tax
    
    
    
    


    
    
    (1,821
    )
    
    
    Debt issuance costs
    
    
    
    


    
    
    
    
    
    
    (189
    )Net cash (used) provided by financing activities
    
    
    (1,722
    )


    
    
    24,673
    
    
    
    (2,027
    )Net increase (decrease) in cash and cash equivalents
    
    
    (16,237
    )


    
    
    695
    
    
    
    (17,327
    )Cash and cash equivalents at beginning of period
    
    
    21,635
    


    
    
    20,940
    
    
    
    41,072Cash and cash equivalents at end of period
    
    $
    5,398
    


    
    $
    21,635
    
    
    $
    23,745Supplemental information:Interest paid (net of capitalized interest)
    
    $
    8,907
    


    
    $
    10,991
    
    
    $
    19,622Income taxes paid (refunds)
    
    $
    993
    


    
    $
    (580
    )
    
    $
    1,588
  6




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
 
 NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 1 NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Nature of Operations
   Basis of Presentation
    7




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 1  NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 Financial Instruments
  Recent Accounting Pronouncements
  NOTE 2  BUSINESS COMBINATIONS
 Merger with Archer
  Current assets
    
    $
    237,873Property and equipment
    
    
    682,406Intangible assets, including goodwill
    
    
    373,227Other long-term assets
    
    
    4,949Total assets acquired
    
    
    1,298,455Current liabilities
    
    
    148,360Long-term liabilities
    
    
    549,210Merger net assets
    
    $
    600,885
  8




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 2  BUSINESS COMBINATIONS (Continued)
 Acquisition of AWC
  Current assets
    
    $
    7,585Property and equipment
    
    
    2,756Intangible assets, including goodwill
    
    
    11,749Other long-term assets
    
    
    2Total assets acquired
    
    
    22,092Current liabilities
    
    
    1,527Long-term liabilities
    
    
    1,401Net assets acquired
    
    $
    19,164
  NOTE 3  STOCK-BASED COMPENSATION
    For the Three MonthsEndedMarch 31,2010Expected dividend yield
    
    
    Expected price volatility
    
    
    89.90
    %Risk free interest rate
    
    
    1.40
    %Expected life of options
    
    5 yearsWeighted average fair value of options
granted at market value
    
    $
    2.63
 9




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 3  STOCK-BASED COMPENSATION (Continued)
  WeightedShares
    
    
    AverageUnder
    
    
    ExerciseOption
    
    
    PriceBalance at December 31, 2010
    
    
    1,751,018
    
    
    $
    4.74Granted
    
    
    
    
    
    
    Converted at Merger
    
    
    (1,750,018
    )
    
    
    4.74Exercised
    
    
    (1,000
    )
    
    
    1.23Outstanding at March 31, 2011
    
    
    
    
    
    
    
  WeightedAverage    Grant-Date Fair     ValueNumber of Shares
    
    
    Per ShareNonvested at December 31, 2010
    
    
    1,702,067
    
    
    $
    6.09Granted
    
    
    
    
    
    
    Vested
    
    
    (1,702,067
    )
    
    
    6.09Forfeited
    
    
    
    
    
    
    Nonvested at March 31, 2011
    
    
    
    
    
    $
    
 NOTE 4  GOODWILL AND INTANGIBLE ASSETS
   10




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 5  INVENTORIES
  Successor
    


    
    PredecessorMarch 31,
    


    
    December 31,2011
    


    
    2010ManufacturedFinished goods
    
    $
    4,377
    


    
    $
    4,238Work in process
    
    
    3,469
    


    
    
    2,990Raw materials
    
    
    4,629
    


    
    
    3,600Total manufactured
    
    
    12,475
    


    
    
    10,828Rig parts and related inventory
    
    
    11,691
    


    
    
    11,565Shop supplies and related inventory
    
    
    9,930
    


    
    
    9,620Chemicals and drilling fluids
    
    
    5,081
    


    
    
    4,814Rental supplies
    
    
    1,751
    


    
    
    1,761Hammers
    
    
    2,410
    


    
    
    2,380Coiled tubing and related inventory
    
    
    1,215
    


    
    
    1,046Drive pipe
    
    
    109
    


    
    
    126Total inventories
    
    $
    44,662
    


    
    $
    42,140
 NOTE 6- INCOME TAXES
   Successor
    


    
    PredecessorOne Month
    


    
    Two Months
    
    
    Three MonthsEnded
    


    
    Ended
    
    
    EndedMarch 31,
    


    
    February 28,
    
    
    March 31,2011
    


    
    2011
    
    
    2010United States
    
    $
    (3,304
    )


    
    $
    (17,544
    )
    
    $
    (17,979
    )Outside United States
    
    
    504
    


    
    
    (17
    )
    
    
    4,911$
    (2,800
    )


    
    $
    (17,561
    )
    
    $
    ( 13,068
    )
  Successor
    


    
    PredecessorOne Month
    


    
    Two Months
    
    
    Three MonthsEnded
    


    
    Ended
    
    
    EndedMarch 31,
    


    
    February 28,
    
    
    March 31,2011
    


    
    2011
    
    
    2010Income tax expense (benefit):United States
    
    $
    57
    


    
    $
    233
    
    
    $
    (6,104
    )Outside United States
    
    
    1,524
    


    
    
    1,503
    
    
    
    2,567$
    1,581
    


    
    $
    1,736
    
    
    $
    (3,537
    )
 11




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 6- INCOME TAXES (Continued)
  Successor
    


    
    PredecessorOne Month
    


    
    Two Months
    
    
    Three MonthsEnded
    


    
    Ended
    
    
    EndedMarch 31,
    


    
    February 28,
    
    
    March 31,2011
    


    
    2011
    
    
    2010United States Statutory federal income tax rate
    
    
    35.0
    %


    
    
    35.0
    %
    
    
    35.0
    %United States State income taxes, net of federal benefit
    
    
    1.2
    


    
    
    0.7
    
    
    
    2.2Non-United States income taxed at different rates
    
    
    (10.1
    )


    
    
    0.3
    
    
    
    5.3Valuation allowance, permanent differences and other
    
    
    (82.6
    )


    
    
    (45.9
    )
    
    
    (15.4
    )Effective tax rate
    
    
    (56.5
    )%


    
    
    (9.9
    )%
    
    
    27.1
    %
 NOTE 7- DEBT
  Successor
    


    
    PredecessorMarch 31,
    


    
    December 31,2011
    


    
    2010Senior notes
    
    $
    449,582
    


    
    $
    430,238Revolving line of credit
    
    
    
    


    
    
    36,500Bank term loans
    
    
    16,662
    


    
    
    25,723Insurance premium financing notes
    
    
    88
    


    
    
    979Total debt
    
    
    466,332
    


    
    
    493,440Less: current maturities of long-term debt
    
    
    8,864
    


    
    
    15,215Long-term debt
    
    $
    457,468
    


    
    $
    478,225
 Senior notes, bank loans and line of credit agreements
   12




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 7- DEBT (Continued)
       Notes payable
  13




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 8  STOCKHOLDERS EQUITY
   NOTE 9  CONDENSED CONSOLIDATING FINANCIAL INFORMATION
  14




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 9  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING BALANCE SHEETS
 Allis-Chalmers
    
    
    Subsidiary
    
    
    Subsidiary
    
    
    Consolidating
    
    
    Consolidated(Guarantor)
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Adjustments
    
    
    TotalAssetsCash and cash equivalents
    
    $
    
    
    
    $
    1,035
    
    
    $
    4,363
    
    
    $
    
    
    
    $
    5,398Restricted cash
    
    
    
    
    
    
    4,141
    
    
    
    
    
    
    
    
    
    
    
    4,141Trade receivables, net
    
    
    
    
    
    
    83,760
    
    
    
    93,370
    
    
    
    (11,579
    )
    
    
    165,551Inventories
    
    
    
    
    
    
    24,316
    
    
    
    20,346
    
    
    
    
    
    
    
    44,662Intercompany receivables
    
    
    
    
    
    
    82,309
    
    
    
    
    
    
    
    (82,309
    )
    
    
    Note receivable from affiliate
    
    
    18,832
    
    
    
    
    
    
    
    
    
    
    
    (18,832
    )
    
    
    Prepaid expenses and other
    
    
    12
    
    
    
    2,755
    
    
    
    5,884
    
    
    
    
    
    
    
    8,651Total current assets
    
    
    18,844
    
    
    
    198,316
    
    
    
    123,963
    
    
    
    (112,720
    )
    
    
    228,403Property and equipment, net
    
    
    
    
    
    
    432,501
    
    
    
    249,248
    
    
    
    
    
    
    
    681,749Goodwill
    
    
    
    
    
    
    179,697
    
    
    
    87,731
    
    
    
    
    
    
    
    267,428Other intangible assets, net
    
    
    
    
    
    
    59,132
    
    
    
    40,115
    
    
    
    
    
    
    
    99,247Note receivable from affiliates
    
    
    1,500
    
    
    
    
    
    
    
    
    
    
    
    (1,500
    )
    
    
    Investments in affiliates
    
    
    1,159,099
    
    
    
    
    
    
    
    
    
    
    
    (1,159,099
    )
    
    
    Other assets
    
    
    
    
    
    
    4,735
    
    
    
    261
    
    
    
    
    
    
    
    4,996Total assets
    
    $
    1,179,443
    
    
    $
    874,381
    
    
    $
    501,318
    
    
    $
    (1,273,319
    )
    
    $
    1,281,823Liabilities and Stockholders EquityCurrent maturities of long-term debt
    
    $
    1,884
    
    
    $
    88
    
    
    $
    6,892
    
    
    $
    
    
    
    $
    8,864Trade accounts payable
    
    
    
    
    
    
    26,216
    
    
    
    42,450
    
    
    
    (11,579
    )
    
    
    57,087Accrued salaries, benefits and
payroll taxes
    
    
    
    
    
    
    3,513
    
    
    
    23,760
    
    
    
    
    
    
    
    27,273Accrued interest
    
    
    5,674
    
    
    
    
    
    
    
    271
    
    
    
    
    
    
    
    5,945Accrued expenses
    
    
    552
    
    
    
    17,559
    
    
    
    21,874
    
    
    
    
    
    
    
    39,985Intercompany payables
    
    
    55,333
    
    
    
    
    
    
    
    26,976
    
    
    
    (82,309
    )
    
    
    Note payable to affiliate
    
    
    
    
    
    
    
    
    
    
    18,832
    
    
    
    (18,832
    )
    
    
    Total current liabilities
    
    
    63,443
    
    
    
    47,376
    
    
    
    141,055
    
    
    
    (112,720
    )
    
    
    139,154Long-term debt, net of current
maturities
    
    
    447,698
    
    
    
    
    
    
    
    9,770
    
    
    
    
    
    
    
    457,468Note payable to affiliate
    
    
    
    
    
    
    
    
    
    
    1,500
    
    
    
    (1,500
    )
    
    
    Payable to parent
    
    
    71,798
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71,798Other long-term liabilities
    
    
    
    
    
    
    
    
    
    
    16,899
    
    
    
    
    
    
    
    16,899Total liabilities
    
    
    582,939
    
    
    
    47,376
    
    
    
    169,224
    
    
    
    (114,220
    )
    
    
    685,319Commitments and ContingenciesStockholders EquityCommon stock
    
    
    
    
    
    
    3,527
    
    
    
    42,963
    
    
    
    (46,490
    )
    
    
    Capital in excess of par value
    
    
    600,885
    
    
    
    823,395
    
    
    
    290,090
    
    
    
    (1,113,485
    )
    
    
    600,885Retained earnings (deficit)
    
    
    (4,381
    )
    
    
    83
    
    
    
    (959
    )
    
    
    876
    
    
    
    (4,381
    )Total stockholders equity
    
    
    596,504
    
    
    
    827,005
    
    
    
    332,094
    
    
    
    (1,159,099
    )
    
    
    596,504Total liabilities and
stockholders equity
    
    $
    1,179,443
    
    
    $
    874,381
    
    
    $
    501,318
    
    
    $
    (1,273,319
    )
    
    $
    1,281,823
 15




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 9  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
 Allis-Chalmers
    
    
    Subsidiary
    
    
    Subsidiary
    
    
    Consolidating
    
    
    Consolidated(Guarantor)
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Adjustments
    
    
    TotalRevenues
    
    $
    
    
    
    $
    33,948
    
    
    $
    36,825
    
    
    $
    (47
    )
    
    $
    70,726Operating costs and expenses:Direct costs
    
    
    
    
    
    
    20,893
    
    
    
    30,290
    
    
    
    (47
    )
    
    
    51,136Depreciation `
    
    
    
    
    
    
    4,954
    
    
    
    2,362
    
    
    
    
    
    
    
    7,316Selling, general and
administrative
    
    
    35
    
    
    
    3,002
    
    
    
    1,754
    
    
    
    
    
    
    
    4,791Impairment of intangible
assets
    
    
    
    
    
    
    4,400
    
    
    
    700
    
    
    
    
    
    
    
    5,100Amortization
    
    
    
    
    
    
    531
    
    
    
    922
    
    
    
    
    
    
    
    1,453Total operating costs
and expenses
    
    
    35
    
    
    
    33,780
    
    
    
    36,028
    
    
    
    (47
    )
    
    
    69,796Income (loss) from
operations
    
    
    (35
    )
    
    
    168
    
    
    
    797
    
    
    
    
    
    
    
    930Other income (expense):Equity earnings in
affiliates, net of tax
    
    
    (876
    )
    
    
    
    
    
    
    
    
    
    
    876
    
    
    
    Interest, net
    
    
    (3,475
    )
    
    
    (1
    )
    
    
    (267
    )
    
    
    
    
    
    
    (3,743
    )Other
    
    
    5
    
    
    
    (27
    )
    
    
    35
    
    
    
    
    
    
    
    13Total other expense
    
    
    (4,346
    )
    
    
    (28
    )
    
    
    (232
    )
    
    
    876
    
    
    
    (3,730
    )Net income (loss) before
income taxes
    
    
    (4,381
    )
    
    
    140
    
    
    
    565
    
    
    
    876
    
    
    
    (2,800
    )Provision for income taxes
    
    
    
    
    
    
    (57
    )
    
    
    (1,524
    )
    
    
    
    
    
    
    (1,581
    )Net income (loss)
    
    
    (4,381
    )
    
    
    83
    
    
    
    (959
    )
    
    
    876
    
    
    
    (4,381
    )Preferred stock dividend
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss) attributed
to common stockholders
    
    $
    (4,381
    )
    
    $
    83
    
    
    $
    (959
    )
    
    $
    876
    
    
    $
    (4,381
    )
 16




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 9  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
 Allis-Chalmers
    
    
    Subsidiary
    
    
    Subsidiary
    
    
    Consolidating
    
    
    Consolidated(Guarantor)
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Adjustments
    
    
    TotalRevenues
    
    $
    
    
    
    $
    59,044
    
    
    $
    67,923
    
    
    $
    (82
    )
    
    $
    126,885Operating costs and expenses:Direct costs
    
    
    
    
    
    
    37,335
    
    
    
    59,877
    
    
    
    (82
    )
    
    
    97,130Depreciation
    
    
    
    
    
    
    10,174
    
    
    
    4,852
    
    
    
    
    
    
    
    15,026Selling, general and
administrative
    
    
    5,998
    
    
    
    15,034
    
    
    
    2,720
    
    
    
    
    
    
    
    23,752Amortization
    
    
    8
    
    
    
    678
    
    
    
    125
    
    
    
    
    
    
    
    811Total operating costs
and expenses
    
    
    6,006
    
    
    
    63,221
    
    
    
    67,574
    
    
    
    (82
    )
    
    
    136,719Income (loss) from
operations
    
    
    (6,006
    )
    
    
    (4,177
    )
    
    
    349
    
    
    
    
    
    
    
    (9,834
    )Other income (expense):Equity earnings in
affiliates, net of tax
    
    
    (6,057
    )
    
    
    
    
    
    
    
    
    
    
    6,057
    
    
    
    Interest, net
    
    
    (7,253
    )
    
    
    (8
    )
    
    
    (588
    )
    
    
    
    
    
    
    (7,849
    )Other
    
    
    19
    
    
    
    (232
    )
    
    
    335
    
    
    
    
    
    
    
    122Total other expense
    
    
    (13,291
    )
    
    
    (240
    )
    
    
    (253
    )
    
    
    6,057
    
    
    
    (7,727
    )Net income (loss) before
income taxes
    
    
    (19,297
    )
    
    
    (4,417
    )
    
    
    96
    
    
    
    6,057
    
    
    
    (17,561
    )Provision for income taxes
    
    
    
    
    
    
    (233
    )
    
    
    (1,503
    )
    
    
    
    
    
    
    (1,736
    )Net loss
    
    
    (19,297
    )
    
    
    (4,650
    )
    
    
    (1,407
    )
    
    
    6,057
    
    
    
    (19,297
    )Preferred stock dividend
    
    
    (375
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (375
    )Net loss attributed to
common stockholders
    
    $
    (19,672
    )
    
    $
    (4,650
    )
    
    $
    (1,407
    )
    
    $
    6,057
    
    
    $
    (19,672
    )
 17




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 9  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
 Allis-Chalmers
    
    
    Subsidiary
    
    
    Subsidiary
    
    
    Consolidating
    
    
    Consolidated(Guarantor)
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Adjustments
    
    
    TotalCash Flows from Operating Activities:Net income (loss)
    
    $
    (4,381
    )
    
    $
    83
    
    
    $
    (959
    )
    
    $
    876
    
    
    $
    (4,381
    )Adjustments to reconcile net income
(loss) to net cash (used) provided by
operating activities:Depreciation and amortization
    
    
    
    
    
    
    5,485
    
    
    
    3,284
    
    
    
    
    
    
    
    8,769Equity earnings in affiliates
    
    
    876
    
    
    
    
    
    
    
    
    
    
    
    (876
    )
    
    
    Impairment of intangible assets
    
    
    
    
    
    
    4,400
    
    
    
    700
    
    
    
    
    
    
    
    5,100Deferred income taxes
    
    
    
    
    
    
    16
    
    
    
    47
    
    
    
    
    
    
    
    63Loss (gain) on sale of equipment
    
    
    
    
    
    
    (165
    )
    
    
    8
    
    
    
    
    
    
    
    (157
    )Changes in operating assets and
liabilities, net of acquisitions:Increase in trade receivables
    
    
    
    
    
    
    (2,336
    )
    
    
    (3,743
    )
    
    
    
    
    
    
    (6,079
    )Decrease (increase) in inventories
    
    
    
    
    
    
    (816
    )
    
    
    104
    
    
    
    
    
    
    
    (712
    )Decrease (increase) in prepaid
expenses and other current assets
    
    
    (1
    )
    
    
    227
    
    
    
    (291
    )
    
    
    
    
    
    
    (65
    )Decrease (increase) in other assets
    
    
    
    
    
    
    (204
    )
    
    
    26
    
    
    
    
    
    
    
    (178
    )Decrease in trade accounts payable
    
    
    
    
    
    
    (877
    )
    
    
    (1,032
    )
    
    
    
    
    
    
    (1,909
    )Decrease in accrued interest
    
    
    (5,605
    )
    
    
    
    
    
    
    (81
    )
    
    
    
    
    
    
    (5,686
    )(Decrease) increase in accrued
expenses
    
    
    (363
    )
    
    
    192
    
    
    
    1,187
    
    
    
    
    
    
    
    1,016(Decrease) increase in accrued
salaries, benefits and payroll
taxes
    
    
    
    
    
    
    (5,453
    )
    
    
    1,615
    
    
    
    
    
    
    
    (3,838
    )Decrease in other long- term
liabilities
    
    
    
    
    
    
    
    
    
    
    (72
    )
    
    
    
    
    
    
    (72
    )Net cash (used) provided by
operating activities
    
    
    (9,474
    )
    
    
    552
    
    
    
    793
    
    
    
    
    
    
    
    (8,129
    )Cash Flows from Investing Activities:Notes receivable from affiliates
    
    
    (59
    )
    
    
    
    
    
    
    
    
    
    
    59
    
    
    
    Deposits on asset commitments
    
    
    
    
    
    
    
    
    
    
    115
    
    
    
    
    
    
    
    115Proceeds from sale of property and
equipment
    
    
    
    
    
    
    530
    
    
    
    36
    
    
    
    
    
    
    
    566Purchases of property and equipment
    
    
    
    
    
    
    (6,348
    )
    
    
    (719
    )
    
    
    
    
    
    
    (7,067
    )Net cash used in investing
activities
    
    
    (59
    )
    
    
    (5,818
    )
    
    
    (568
    )
    
    
    59
    
    
    
    (6,386
    )
 18




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 9  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
 Allis-Chalmers
    
    
    Subsidiary
    
    
    Subsidiary
    
    
    Consolidating
    
    
    Consolidated(Guarantor)
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Adjustments
    
    
    TotalCash Flows from Financing Activities:Accounts receivable from affiliates
    
    
    
    
    
    
    (10,302
    )
    
    
    
    
    
    
    10,302
    
    
    
    Accounts payable to affiliates
    
    
    9,185
    
    
    
    
    
    
    
    1,117
    
    
    
    (10,302
    )
    
    
    Note payable to affiliate
    
    
    
    
    
    
    
    
    
    
    59
    
    
    
    (59
    )
    
    
    Payments on long-term debt
    
    
    
    
    
    
    (261
    )
    
    
    (1,809
    )
    
    
    
    
    
    
    (2,070
    )Proceeds from Parent
    
    
    348
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    348Net cash (used) provided
by financing activities
    
    
    9,533
    
    
    
    (10,563
    )
    
    
    (633
    )
    
    
    (59
    )
    
    
    (1,722
    )Net change in cash and cash
equivalents
    
    
    
    
    
    
    (15,829
    )
    
    
    (408
    )
    
    
    
    
    
    
    (16,237
    )Cash and cash equivalents at
beginning of year
    
    
    
    
    
    
    16,864
    
    
    
    4,771
    
    
    
    
    
    
    
    21,635Cash and cash equivalents at end
of period
    
    $
    
    
    
    $
    1,035
    
    
    $
    4,363
    
    
    $
    
    
    
    $
    5,398
 19




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 9  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
 Allis-Chalmers
    
    
    Subsidiary
    
    
    Subsidiary
    
    
    Consolidating
    
    
    Consolidated(Guarantor)
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Adjustments
    
    
    TotalCash Flows from Operating Activities:Net loss
    
    $
    (19,297
    )
    
    $
    (4,650
    )
    
    $
    (1,407
    )
    
    $
    6,057
    
    
    $
    (19,297
    )Adjustments to reconcile net loss
to net cash (used) provided by
operating activities:Depreciation and amortization
    
    
    8
    
    
    
    10,852
    
    
    
    4,977
    
    
    
    
    
    
    
    15,837Amortization of deferred
issuance costs
    
    
    366
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    366Stock based compensation
    
    
    6,084
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,084Equity earnings in affiliates
    
    
    6,057
    
    
    
    
    
    
    
    
    
    
    
    (6,057
    )
    
    
    Allowance for bad debts
    
    
    
    
    
    
    195
    
    
    
    
    
    
    
    
    
    
    
    195Deferred income taxes
    
    
    
    
    
    
    34
    
    
    
    106
    
    
    
    
    
    
    
    140Loss on sale of equipment
    
    
    
    
    
    
    352
    
    
    
    64
    
    
    
    
    
    
    
    416Changes in operating assets
and liabilities, net of
acquisitions:Increase in trade receivables
    
    
    
    
    
    
    (3,714
    )
    
    
    (12,230
    )
    
    
    
    
    
    
    (15,944
    )Increase in inventories
    
    
    
    
    
    
    (1,434
    )
    
    
    (376
    )
    
    
    
    
    
    
    (1,810
    )Decrease (increase) in
prepaid expenses and other
current assets
    
    
    2,057
    
    
    
    235
    
    
    
    (1,742
    )
    
    
    
    
    
    
    550Decrease in other assets
    
    
    
    
    
    
    432
    
    
    
    242
    
    
    
    
    
    
    
    674Increase in trade accounts
payable
    
    
    
    
    
    
    8,417
    
    
    
    4,537
    
    
    
    
    
    
    
    12,954(Decrease) increase in
accrued interest
    
    
    (4,031
    )
    
    
    
    
    
    
    138
    
    
    
    
    
    
    
    (3,893
    )(Decrease) increase in
accrued expenses
    
    
    (15
    )
    
    
    (1,137
    )
    
    
    9,707
    
    
    
    
    
    
    
    8,555Decrease in accrued salaries,
benefits and payroll taxes
    
    
    
    
    
    
    (17
    )
    
    
    (1,662
    )
    
    
    
    
    
    
    (1,679
    )Decrease in other long- term
liabilities
    
    
    
    
    
    
    
    
    
    
    (141
    )
    
    
    
    
    
    
    (141
    )Net cash (used) provided
by operating activities
    
    
    (8,771
    )
    
    
    9,565
    
    
    
    2,213
    
    
    
    
    
    
    
    3,007Cash Flows from Investing Activities:Notes receivable from affiliates
    
    
    (114
    )
    
    
    
    
    
    
    
    
    
    
    114
    
    
    
    Increase in restricted cash
    
    
    
    
    
    
    (4,141
    )
    
    
    
    
    
    
    
    
    
    
    (4,141
    )Purchases of investment interests
    
    
    
    
    
    
    (1,177
    )
    
    
    
    
    
    
    
    
    
    
    (1,177
    )Deposits on asset commitments
    
    
    
    
    
    
    
    
    
    
    82
    
    
    
    
    
    
    
    82Proceeds from sale of property
and equipment
    
    
    
    
    
    
    924
    
    
    
    85
    
    
    
    
    
    
    
    1,009Purchase of property and equipment
    
    
    
    
    
    
    (16,931
    )
    
    
    (5,827
    )
    
    
    
    
    
    
    (22,758
    )Net cash used in
investing activities
    
    
    (114
    )
    
    
    (21,325
    )
    
    
    (5,660
    )
    
    
    114
    
    
    
    (26,985
    )
 20




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 9  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
 Allis-Chalmers
    
    
    Subsidiary
    
    
    Subsidiary
    
    
    Consolidating
    
    
    Consolidated(Guarantor)
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Adjustments
    
    
    TotalCash Flows from Financing Activities:Accounts receivable from affiliates
    
    
    
    
    
    
    12,811
    
    
    
    
    
    
    
    (12,811
    )
    
    
    Accounts payable to affiliates
    
    
    (23,607
    )
    
    
    
    
    
    
    10,796
    
    
    
    12,811
    
    
    
    Note payable to affiliate
    
    
    
    
    
    
    
    
    
    
    114
    
    
    
    (114
    )
    
    
    Payments on long-term debt
    
    
    
    
    
    
    (567
    )
    
    
    (7,252
    )
    
    
    
    
    
    
    (7,819
    )Net borrowings (repayments) on
line of credit
    
    
    (36,500
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (36,500
    )Proceeds from Parent
    
    
    71,450
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71,450Payment of preferred stock dividend
    
    
    (637
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (637
    )Exercise of options and restricted
stock awards, net of tax
    
    
    (1,821
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,821
    )Net cash provided by
financing activities
    
    
    8,885
    
    
    
    12,244
    
    
    
    3,658
    
    
    
    (114
    )
    
    
    24,673Net change in cash and cash
equivalents
    
    
    
    
    
    
    484
    
    
    
    211
    
    
    
    
    
    
    
    695Cash and cash equivalents at
beginning of year
    
    
    
    
    
    
    16,380
    
    
    
    4,560
    
    
    
    
    
    
    
    20,940Cash and cash equivalents at end
of period
    
    $
    
    
    
    $
    16,864
    
    
    $
    4,771
    
    
    $
    
    
    
    $
    21,635
 21




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 9  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING BALANCE SHEETS
  Allis-Chalmers
    
    
    Subsidiary
    
    
    Subsidiary
    
    
    Consolidating
    
    
    Consolidated(Guarantor)
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Adjustments
    
    
    TotalAssetsCash and cash equivalents
    
    $
    
    
    
    $
    16,380
    
    
    $
    4,560
    
    
    $
    
    
    
    $
    20,940Trade receivables, net
    
    
    
    
    
    
    79,100
    
    
    
    77,397
    
    
    
    (11,537
    )
    
    
    144,960Inventories
    
    
    
    
    
    
    22,066
    
    
    
    20,074
    
    
    
    
    
    
    
    42,140Intercompany receivables
    
    
    
    
    
    
    84,766
    
    
    
    
    
    
    
    (84,766
    )
    
    
    Note receivable from affiliate
    
    
    18,359
    
    
    
    
    
    
    
    
    
    
    
    (18,359
    )
    
    
    Prepaid expenses and other
    
    
    2,068
    
    
    
    3,280
    
    
    
    3,925
    
    
    
    
    
    
    
    9,273Total current assets
    
    
    20,427
    
    
    
    205,592
    
    
    
    105,956
    
    
    
    (114,662
    )
    
    
    217,313Property and equipment, net
    
    
    
    
    
    
    461,187
    
    
    
    262,047
    
    
    
    
    
    
    
    723,234Goodwill
    
    
    
    
    
    
    28,944
    
    
    
    17,389
    
    
    
    
    
    
    
    46,333Other intangible assets, net
    
    
    414
    
    
    
    27,278
    
    
    
    6,207
    
    
    
    
    
    
    
    33,899Debt issuance costs, net
    
    
    7,405
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,405Note receivable from affiliates
    
    
    1,800
    
    
    
    
    
    
    
    
    
    
    
    (1,800
    )
    
    
    Investments in affiliates
    
    
    934,274
    
    
    
    
    
    
    
    
    
    
    
    (934,274
    )
    
    
    Other assets
    
    
    
    
    
    
    7,390
    
    
    
    2,695
    
    
    
    
    
    
    
    10,085Total assets
    
    $
    964,320
    
    
    $
    730,391
    
    
    $
    394,294
    
    
    $
    (1,050,736
    )
    
    $
    1,038,269Liabilities and Stockholders
EquityCurrent maturities of long-term
debt
    
    $
    
    
    
    $
    979
    
    
    $
    14,236
    
    
    $
    
    
    
    $
    15,215Trade accounts payable
    
    
    
    
    
    
    18,634
    
    
    
    38,945
    
    
    
    (11,537
    )
    
    
    46,042Accrued salaries, benefits and
payroll taxes
    
    
    
    
    
    
    8,983
    
    
    
    23,807
    
    
    
    
    
    
    
    32,790Accrued interest
    
    
    15,310
    
    
    
    
    
    
    
    214
    
    
    
    
    
    
    
    15,524Accrued expenses
    
    
    1,192
    
    
    
    18,504
    
    
    
    10,980
    
    
    
    
    
    
    
    30,676Intercompany payables
    
    
    69,756
    
    
    
    
    
    
    
    15,010
    
    
    
    (84,766
    )
    
    
    Note payable to affiliate
    
    
    
    
    
    
    
    
    
    
    18,359
    
    
    
    (18,359
    )
    
    
    Total current
liabilities
    
    
    86,258
    
    
    
    47,100
    
    
    
    121,551
    
    
    
    (114,662
    )
    
    
    140,247Long-term debt, net of current
maturities
    
    
    466,738
    
    
    
    
    
    
    
    11,487
    
    
    
    
    
    
    
    478,225Note payable to affiliate
    
    
    
    
    
    
    
    
    
    
    1,800
    
    
    
    (1,800
    )
    
    
    Other long-term liabilities
    
    
    
    
    
    
    
    
    
    
    8,473
    
    
    
    
    
    
    
    8,473Total liabilities
    
    
    552,996
    
    
    
    47,100
    
    
    
    143,311
    
    
    
    (116,462
    )
    
    
    626,945Commitments and contingenciesStockholders EquityPreferred Stock
    
    
    34,183
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,183Common stock
    
    
    737
    
    
    
    3,527
    
    
    
    42,963
    
    
    
    (46,490
    )
    
    
    737Capital in excess of par value
    
    
    429,924
    
    
    
    589,676
    
    
    
    137,439
    
    
    
    (727,115
    )
    
    
    429,924Retained earnings (deficit)
    
    
    (53,520
    )
    
    
    90,088
    
    
    
    70,581
    
    
    
    (160,669
    )
    
    
    (53,520
    )Total stockholders
equity
    
    
    411,324
    
    
    
    683,291
    
    
    
    250,983
    
    
    
    (934,274
    )
    
    
    411,324Total liabilities
and stock holders
equity
    
    $
    964,320
    
    
    $
    730,391
    
    
    $
    394,294
    
    
    $
    (1,050,736
    )
    
    $
    1,038,269
 22




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 9  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING INCOME STATEMENTS
 Allis-Chalmers
    
    
    Subsidiary
    
    
    Subsidiary
    
    
    Consolidating
    
    
    Consolidated(Guarantor)
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Adjustments
    
    
    TotalRevenues
    
    $
    
    
    
    $
    51,882
    
    
    $
    89,363
    
    
    $
    (875
    )
    
    $
    140,370Operating costs and expensesDirect costs
    
    
    
    
    
    
    35,076
    
    
    
    73,514
    
    
    
    (875
    )
    
    
    107,715Depreciation
    
    
    
    
    
    
    14,118
    
    
    
    6,070
    
    
    
    
    
    
    
    20,188Selling, general and
administrative
    
    
    1,167
    
    
    
    7,200
    
    
    
    3,696
    
    
    
    
    
    
    
    12,063Amortization
    
    
    12
    
    
    
    957
    
    
    
    187
    
    
    
    
    
    
    
    1,156Total operating costs
and expenses
    
    
    1,179
    
    
    
    57,351
    
    
    
    83,467
    
    
    
    (875
    )
    
    
    141,122Income (loss) from
operations
    
    
    (1,179
    )
    
    
    (5,469
    )
    
    
    5,896
    
    
    
    
    
    
    
    (752
    )Other income (expense):Equity earnings in
affiliates, net of tax
    
    
    1,871
    
    
    
    
    
    
    
    
    
    
    
    (1,871
    )
    
    
    Interest, net
    
    
    (10,237
    )
    
    
    73
    
    
    
    (637
    )
    
    
    
    
    
    
    (10,801
    )Other
    
    
    14
    
    
    
    (1,524
    )
    
    
    (5
    )
    
    
    
    
    
    
    (1,515
    )Total other expense
    
    
    (8,352
    )
    
    
    (1,451
    )
    
    
    (642
    )
    
    
    (1,871
    )
    
    
    (12,316
    )Net income (loss) before
income taxes
    
    
    (9,531
    )
    
    
    (6,920
    )
    
    
    5,254
    
    
    
    (1,871
    )
    
    
    (13,068
    )Provision for income taxes
    
    
    
    
    
    
    6,104
    
    
    
    (2,567
    )
    
    
    
    
    
    
    3,537Net income (loss)
    
    
    (9,531
    )
    
    
    (816
    )
    
    
    2,687
    
    
    
    (1,871
    )
    
    
    (9,531
    )Preferred stock dividend
    
    
    (637
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (637
    )Net income (loss)
attributed to common
stockholders
    
    $
    (10,168
    )
    
    $
    (816
    )
    
    $
    2,687
    
    
    $
    (1,871
    )
    
    $
    (10,168
    )
 23




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 9  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
 Allis-Chalmers
    
    
    Subsidiary
    
    
    Subsidiary
    
    
    Consolidating
    
    
    Consolidated(Guarantor)
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Adjustments
    
    
    TotalCash Flows from Operating Activities:Net income (loss)
    
    $
    (9,531
    )
    
    $
    (816
    )
    
    $
    2,687
    
    
    $
    (1,871
    )
    
    $
    (9,531
    )Adjustments to reconcile net income
(loss) to net cash (used) provided by
operating activities:Depreciation and amortization
    
    
    12
    
    
    
    15,075
    
    
    
    6,257
    
    
    
    
    
    
    
    21,344Amortization of deferred issuance
costs
    
    
    545
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    551Stock based compensation
    
    
    1,380
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,380Equity earnings in affiliates
    
    
    (1,871
    )
    
    
    
    
    
    
    
    
    
    
    1,871
    
    
    
    Deferred income taxes
    
    
    (6,292
    )
    
    
    
    
    
    
    137
    
    
    
    
    
    
    
    (6,155
    )Loss (gain) on sale of equipment
    
    
    
    
    
    
    138
    
    
    
    (179
    )
    
    
    
    
    
    
    (41
    )Loss on investment
    
    
    
    
    
    
    1,466
    
    
    
    
    
    
    
    
    
    
    
    1,466Changes in operating assets and
liabilities, net of acquisitions:Decrease (increase) in trade
receivables
    
    
    
    
    
    
    2,587
    
    
    
    (11,600
    )
    
    
    
    
    
    
    (9,013
    )Decrease (increase) in inventories
    
    
    
    
    
    
    88
    
    
    
    (169
    )
    
    
    
    
    
    
    (81
    )Decrease in prepaid expenses and
other current assets
    
    
    
    
    
    
    1,614
    
    
    
    857
    
    
    
    
    
    
    
    2,471Decrease in other assets
    
    
    
    
    
    
    85
    
    
    
    379
    
    
    
    
    
    
    
    464Increase in trade accounts payable
    
    
    
    
    
    
    4,443
    
    
    
    4,269
    
    
    
    
    
    
    
    8,712Decrease in accrued interest
    
    
    (9,418
    )
    
    
    (8
    )
    
    
    (13
    )
    
    
    
    
    
    
    (9,439
    )(Decrease) increase in accrued
expenses
    
    
    (11
    )
    
    
    (2,210
    )
    
    
    1,133
    
    
    
    
    
    
    
    (1,088
    )Decrease in accrued salaries,
benefits and payroll taxes
    
    
    
    
    
    
    (87
    )
    
    
    (1,083
    )
    
    
    
    
    
    
    (1,170
    )Decrease in other long- term
liabilities
    
    
    
    
    
    
    
    
    
    
    (236
    )
    
    
    
    
    
    
    (236
    )Net cash (used) provided by
operating activities
    
    
    (25,186
    )
    
    
    22,381
    
    
    
    2,439
    
    
    
    
    
    
    
    (366
    )Cash Flows from Investing Activities:Notes receivable from affiliates
    
    
    (342
    )
    
    
    
    
    
    
    
    
    
    
    342
    
    
    
    Deposits on asset commitments
    
    
    
    
    
    
    (4,500
    )
    
    
    (112
    )
    
    
    
    
    
    
    (4,612
    )Proceeds from sale of property and
equipment
    
    
    
    
    
    
    1,238
    
    
    
    198
    
    
    
    
    
    
    
    1,436Purchases of property and equipment
    
    
    
    
    
    
    (7,360
    )
    
    
    (4,398
    )
    
    
    
    
    
    
    (11,758
    )Net cash used in investing
activities
    
    
    (342
    )
    
    
    (10,622
    )
    
    
    (4,312
    )
    
    
    342
    
    
    
    (14,934
    )
 24




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 9  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
 Allis-Chalmers
    
    
    Subsidiary
    
    
    Subsidiary
    
    
    Consolidating
    
    
    Consolidated(Guarantor)
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Adjustments
    
    
    TotalCash Flows from Financing Activities:Accounts receivable from affiliates
    
    
    
    
    
    
    (26,019
    )
    
    
    (335
    )
    
    
    26,354
    
    
    
    Accounts payable to affiliates
    
    
    26,354
    
    
    
    
    
    
    
    
    
    
    
    (26,354
    )
    
    
    Note payable to affiliate
    
    
    
    
    
    
    
    
    
    
    342
    
    
    
    (342
    )
    
    
    Proceeds from long-term debt
    
    
    
    
    
    
    
    
    
    
    4,000
    
    
    
    
    
    
    
    4,000Payments on long-term debt
    
    
    
    
    
    
    (1,580
    )
    
    
    (3,621
    )
    
    
    
    
    
    
    (5,201
    )Payment of preferred stock dividend
    
    
    (637
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (637
    )Debt issuance costs
    
    
    (189
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (189
    )Net cash (used) provided
by financing activities
    
    
    25,528
    
    
    
    (27,599
    )
    
    
    386
    
    
    
    (342
    )
    
    
    (2,027
    )Net change in cash and cash
equivalents
    
    
    
    
    
    
    (15,840
    )
    
    
    (1,487
    )
    
    
    
    
    
    
    (17,327
    )Cash and cash equivalents at
beginning of year
    
    
    
    
    
    
    31,858
    
    
    
    9,214
    
    
    
    
    
    
    
    41,072Cash and cash equivalents at end
of period
    
    $
    
    
    
    $
    16,018
    
    
    $
    7,727
    
    
    $
    
    
    
    $
    23,745
 25




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 10- SEGMENT INFORMATION
   Successor
    


    
    PredecessorOne Month
    


    
    Two Months
    
    
    Three MonthsEnded
    


    
    Ended
    
    
    EndedMarch 31,
    


    
    February 28,
    
    
    March 31,2011
    


    
    2011
    
    
    2010Revenues:Drilling Services
    
    $
    59,308
    


    
    $
    106,050
    
    
    $
    130,528Well Services
    
    
    11,418
    


    
    
    20,835
    
    
    
    9,842Total revenues
    
    $
    70,726
    


    
    $
    126,885
    
    
    $
    140,370Operating Income (Loss):Drilling Services
    
    $
    403
    


    
    $
    (9,943
    )
    
    $
    (244
    )Well Services
    
    
    527
    


    
    
    109
    
    
    
    (508
    )Total income (loss) from operations
    
    $
    930
    


    
    $
    (9,834
    )
    
    $
    (752
    )Depreciation and Amortization Expense:Drilling Services
    
    $
    7,754
    


    
    $
    13,792
    
    
    $
    19,188Well Services
    
    
    1,015
    


    
    
    2,045
    
    
    
    2,156Total depreciation and amortization expense
    
    $
    8,769
    


    
    $
    15,837
    
    
    $
    21,344Capital Expenditures:Drilling Services
    
    $
    4,607
    


    
    $
    19,939
    
    
    $
    9,770Well Services
    
    
    2,460
    


    
    
    2,819
    
    
    
    1,988Total capital expenditures
    
    $
    7,067
    


    
    $
    22,758
    
    
    $
    11,758Revenues:United States
    
    $
    33,140
    


    
    $
    57,651
    
    
    $
    47,128Argentina
    
    
    31,218
    


    
    
    57,458
    
    
    
    72,385Brazil
    
    
    2,698
    


    
    
    5,250
    
    
    
    9,500Other international
    
    
    3,670
    


    
    
    6,526
    
    
    
    11,357Total revenues
    
    $
    70,726
    


    
    $
    126,885
    
    
    $
    140,370
 26




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 10  SEGMENT INFORMATION (Continued)
 Successor
    


    
    PredecessorMarch 31,
    


    
    December 31,2011
    


    
    2010Goodwill:Drilling Services
    
    $
    206,441
    


    
    $
    40,639Well Services
    
    
    60,987
    


    
    
    5,694Total goodwill
    
    $
    267,428
    


    
    $
    46,333Assets:Drilling Services
    
    $
    1,120,505
    


    
    $
    940,481Well Services
    
    
    161,318
    


    
    
    97,788Total assets
    
    $
    1,281,823
    


    
    $
    1,038,269Long Lived Assets:United States
    
    $
    649,921
    


    
    $
    501,117Argentina
    
    
    277,537
    


    
    
    167,137Brazil
    
    
    63,806
    


    
    
    86,949Other international
    
    
    62,156
    


    
    
    65,753Total long lived assets
    
    $
    1,053,420
    


    
    $
    820,956
 NOTE 11  LEGAL MATTERS
     27




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 11  LEGAL MATTERS (Continued)
  NOTE 12  TRANSACTIONS WITH PARENT
  NOTE 13  SUBSEQUENT EVENT
  28




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 The following discussion and analysis should be read in conjunction with our consolidated financial
statements and the notes thereto included elsewhere in this report. This report contains
forward-looking statements that involve risks and uncertainties. Our actual results may differ
materially from the results discussed in such forward-looking statements. Factors that might cause
such differences include, but are not limited to, the general condition of the oil and natural gas
drilling industry, demand for our oil and natural gas service and rental products, and competition.
For more information on forward-looking statements please refer to the section entitled
Forward-Looking Statements on page 35.
 Overview of Our Business
    Merger with Archer
   29




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##### Table of Contents



Results of Operations
    Comparison of Three Months Ended March 31, 2011 and 2010
     30




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##### Table of Contents



Successor
    


    
    PredecessorOne Month
Ended
    


    
    Two MonthsEndedMarch 31,2011
    


    
    February 28,2011
    
    
    Combined2011
    
    
    Predecessor2010
    
    
    ChangeRevenues:Drilling Services
    
    $
    59,308
    


    
    $
    106,050
    
    
    $
    165,358
    
    
    $
    130,528
    
    
    $
    34,830Well Services
    
    
    11,418
    


    
    
    20,835
    
    
    
    32,253
    
    
    
    9,842
    
    
    
    22,411Total
    
    $
    70,726
    


    
    $
    126,885
    
    
    $
    197,611
    
    
    $
    140,370
    
    
    $
    57,241Income (Loss) from Operations:Drilling Services
    
    $
    403
    


    
    $
    (9,943
    )
    
    $
    (9,540
    )
    
    $
    (244
    )
    
    $
    (9,296
    )Well Services
    
    
    527
    


    
    
    109
    
    
    
    636
    
    
    
    (508
    )
    
    
    1,144Total
    
    $
    930
    


    
    $
    (9,834
    )
    
    $
    (8,904
    )
    
    $
    (752
    )
    
    $
    (8,152
    )
 Drilling Services
  31




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Well Services
  Liquidity
  Operating Activities
     32




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##### Table of Contents



Investing Activities
   Financing Activities
       33




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##### Table of Contents



Off Balance Sheet Arrangements
  Critical Accounting Policies
  Recently Issued Accounting Standards
  34




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##### Table of Contents



Forward-Looking Statements
  
    
    the impact of the weak economic conditions and the future impact of such conditions on
the oil and gas industry and demand for our services;
    
    unexpected future capital expenditures (including the amount and nature thereof);
    
    unexpected difficulties in integrating our operations as a result of any significant
acquisitions;
    
    adverse weather conditions in certain regions;
    
    the impact of political disturbances, war, or terrorist attacks and changes in global
trade policies;
    
    the availability (or lack thereof) of capital to fund our business strategy and/or
operations;
    
    the potential impact of the loss of one or more key employees;
    
    the effect of environmental liabilities that are not covered by an effective indemnity
or insurance;
    
    the impact of current and future laws;
    
    the impact of customer defaults and related bad debt expense;
    
    the potential impairment in the carrying value of goodwill and other acquired intangible
assets;
    
    the risks associated with doing business outside the United States, including currency
exchange rates; the effects of competition; and
    
    the effects of our indebtedness, which could adversely restrict our ability to operate,
could make us vulnerable to general adverse economic and industry conditions, could place
us at a competitive disadvantage compared to competitors that have less debt, and could
have other adverse consequences
  35




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES.
 (a) Evaluation of Disclosure Controls and Procedures
  Material Weakness in Internal Control over Financial Reporting
  Plan for Remediation of Material Weakness
  (b) Changes in Internal Control over Financial Reporting.
  36




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##### Table of Contents



PART II. OTHER INFORMATION
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 6. EXHIBITS
  
 SIGNATURES
  Allis-Chalmers Energy Inc.(Registrant)/s/ Christoph BauschChristoph BauschChief Financial Officer
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##### Table of Contents



EXHIBIT INDEX
 3.1
    
    Certificate of Merger of Allis-Chalmers Energy Inc. with and into Wellco Sub Company,
dated February 23, 2011 (incorporated by reference to Exhibit 3.1 to the Registrants Form 8-K
filed on March 1, 2011).3.2
    
    Certificate of Amendment to Certificate of Designations of 7.0% Convertible Perpetual
Preferred Stock of Allis-Chalmers Energy Inc., dated February 23, 2011 (incorporated by
reference to Exhibit 3.2 to the Registrants Form 8-K filed on March 1, 2011).4.1
    
    Third Supplemental Indenture, dated February 23, 2011, by and among Allis-Chalmers Energy
Inc. (formerly known as Wellco Sub Company), the other Guarantors parties thereto and Wells
Fargo Bank N.A., as Trustee, relating to the 9.0% Senior Notes due 2014 (incorporated by
reference to Exhibit 10.1 to the Registrants Form 8-K filed on March 1, 2011).4.2
    
    Supplemental Indenture, dated February 23, 2011, by and among Allis-Chalmers Energy Inc.
(formerly known as Wellco Sub Company), the other Guarantors parties thereto and Wells Fargo
Bank N.A., as Trustee, relating to the 8.5% Senior Notes due 2017 (incorporated by reference
to Exhibit 10.2 to the Registrants Form 8-K filed on March 1, 2011).10.1
    
    Amendment to Executive Employment Agreement, dated effective as of February 22, 2011, by and
between the Company and Theodore F. Pound III. (incorporated by reference to Exhibit 10.1 to
the Registrants Form 8-K filed on February 28, 2011).10.2
    
    Amendment to Executive Employment Agreement, dated effective as of February 22, 2011, by and
between the Company and Theodore F. Pound III (incorporated by reference to Exhibit 10.1 to
the Registrants Form 8-K filed on February 28, 2011).31.1*
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2*
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1*
    
    Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith 38