##### 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 SEPTEMBER 30, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE TRANSITION PERIOD FROM  TO
 Commission file number 1-02199
 ALLIS-CHALMERS ENERGY INC.
  DELAWARE
    
    39-0126090(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 5075 WESTHEIMER, SUITE 890, HOUSTON, TEXAS
    
    77056(Address of principal executive offices)
    
    (Zip Code)
 (713) 369-0550
  þ o
 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




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##### 



ALLIS-CHALMERS ENERGY INC.
 FORM 10-Q
 For the Quarterly Period Ended September 30, 2009
 TABLE OF CONTENTS
 PAGEPART I
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsConsolidated Condensed Balance Sheets as of September 30, 2009 and December 31, 2008
    
    3Consolidated Condensed Statements of Operations for the three and nine months ended
September 30, 2009 and 2008
    
    4Consolidated Condensed Statements of Cash Flows for the nine months ended
September 30, 2009 and 2008
    
    5Notes to Consolidated Condensed Financial Statements
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    27Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    40Item 4.
    
    Controls and Procedures
    
    41PART II
    
    OTHER INFORMATIONItem 1A
    
    Risk Factors
    
    41Item 6.
    
    Exhibits
    
    42Signatures
    
    42Exhibit 31.1Exhibit 31.2Exhibit 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
 September 30,
    
    
    December 31,2009
    
    
    2008(unaudited)AssetsCash and cash equivalents
    
    $
    41,635
    
    
    $
    6,866Trade receivables, net
    
    
    94,335
    
    
    
    157,871Inventories
    
    
    35,197
    
    
    
    39,087Deferred income tax asset
    
    
    4,839
    
    
    
    6,176Prepaid expenses and other
    
    
    15,137
    
    
    
    15,238Total current assets
    
    
    191,143
    
    
    
    225,238Property and equipment, net
    
    
    756,211
    
    
    
    760,990Goodwill
    
    
    41,982
    
    
    
    43,273Other intangible assets, net
    
    
    33,813
    
    
    
    37,371Debt issuance costs, net
    
    
    10,071
    
    
    
    12,664Deferred income tax asset
    
    
    16,284
    
    
    
    3,993Other assets
    
    
    26,965
    
    
    
    31,522Total assets
    
    $
    1,076,469
    
    
    $
    1,115,051Liabilities and Stockholders EquityCurrent maturities of long-term debt
    
    $
    16,710
    
    
    $
    14,617Trade accounts payable
    
    
    33,392
    
    
    
    62,078Accrued salaries, benefits and payroll taxes
    
    
    21,420
    
    
    
    20,192Accrued interest
    
    
    6,144
    
    
    
    18,623Accrued expenses
    
    
    16,264
    
    
    
    26,642Total current liabilities
    
    
    93,930
    
    
    
    142,152Long-term debt, net of current maturities
    
    
    478,739
    
    
    
    579,044Deferred income tax liability
    
    
    8,113
    
    
    
    8,253Other long-term liabilities
    
    
    1,357
    
    
    
    2,193Total liabilities
    
    
    582,139
    
    
    
    731,642Commitments and contingenciesStockholders EquityPreferred stock, $0.01 par value; liquidation value $1,000 per share
(25,000,000 shares authorized, 36,393 shares issued and outstanding
at September 30, 2009 and no shares issued at December 31, 2008)
    
    
    34,183
    
    
    
    Common stock, $0.01 par value (100,000,000 shares authorized;
71,369,780 issued and outstanding at September 30, 2009 and
35,674,742 issued and outstanding at December 31, 2008)
    
    
    714
    
    
    
    357Capital in excess of par value
    
    
    424,024
    
    
    
    334,633Retained earnings
    
    
    35,409
    
    
    
    48,419Total stockholders equity
    
    
    494,330
    
    
    
    383,409Total liabilities and stockholders equity
    
    $
    1,076,469
    
    
    $
    1,115,051
  3




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues
    
    $
    120,016
    
    
    $
    178,265
    
    
    $
    377,624
    
    
    $
    494,582Operating costs and expensesDirect costs
    
    
    90,763
    
    
    
    116,921
    
    
    
    281,136
    
    
    
    319,761Selling, general and administrative
    
    
    11,430
    
    
    
    15,849
    
    
    
    40,595
    
    
    
    46,162Loss on asset disposition
    
    
    
    
    
    
    (166
    )
    
    
    1,916
    
    
    
    (166
    )Depreciation and amortization
    
    
    20,893
    
    
    
    16,628
    
    
    
    61,819
    
    
    
    48,542Total operating costs and expenses
    
    
    123,086
    
    
    
    149,232
    
    
    
    385,466
    
    
    
    414,299Income (loss) from operations
    
    
    (3,070
    )
    
    
    29,033
    
    
    
    (7,842
    )
    
    
    80,283Other income (expense):Interest expense
    
    
    (10,764
    )
    
    
    (12,166
    )
    
    
    (37,492
    )
    
    
    (36,243
    )Interest income
    
    
    39
    
    
    
    1,457
    
    
    
    53
    
    
    
    4,147Gain on debt extinguishment
    
    
    
    
    
    
    
    
    
    
    26,365
    
    
    
    Other
    
    
    37
    
    
    
    115
    
    
    
    (231
    )
    
    
    591Total other income (expense)
    
    
    (10,688
    )
    
    
    (10,594
    )
    
    
    (11,305
    )
    
    
    (31,505
    )Income (loss) before income taxes
    
    
    (13,758
    )
    
    
    18,439
    
    
    
    (19,147
    )
    
    
    48,778Provision for income taxes
    
    
    4,108
    
    
    
    (6,127
    )
    
    
    6,802
    
    
    
    (17,858
    )Net income (loss)
    
    
    (9,650
    )
    
    
    12,312
    
    
    
    (12,345
    )
    
    
    30,920Preferred stock dividend
    
    
    (630
    )
    
    
    
    
    
    
    (665
    )
    
    
    Net income (loss) attributed
to common stockholders
    
    $
    (10,280
    )
    
    $
    12,312
    
    
    $
    (13,010
    )
    
    $
    30,920Net income (loss) per common share:Basic
    
    $
    (0.14
    )
    
    $
    0.35
    
    
    $
    (0.27
    )
    
    $
    0.88Diluted
    
    $
    (0.14
    )
    
    $
    0.35
    
    
    $
    (0.27
    )
    
    $
    0.87Weighted average shares outstanding:Basic
    
    
    70,945
    
    
    
    35,156
    
    
    
    47,834
    
    
    
    35,004Diluted
    
    
    70,945
    
    
    
    35,551
    
    
    
    47,834
    
    
    
    35,455
  4




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
 For the Nine Months EndedSeptember 30,2009
    
    
    2008Cash Flows from Operating Activities:Net income (loss)
    
    $
    (12,345
    )
    
    $
    30,920Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Depreciation and amortization
    
    
    61,819
    
    
    
    48,542Amortization and write-off of debt issuance costs
    
    
    1,691
    
    
    
    1,563Stock-based compensation
    
    
    3,580
    
    
    
    6,212Allowance for bad debts
    
    
    4,065
    
    
    
    1,505Deferred taxes
    
    
    (11,094
    )
    
    
    4,315Gain on sale of property and equipment
    
    
    (1,180
    )
    
    
    (1,206
    )Loss (gain) on asset disposition
    
    
    1,916
    
    
    
    (166
    )Gain on debt extinguishment
    
    
    (26,365
    )
    
    
    Changes in operating assets and liabilities:Decrease (increase) in trade receivable
    
    
    59,471
    
    
    
    (30,642
    )Decrease (increase) in inventories
    
    
    3,890
    
    
    
    (6,961
    )Decrease in prepaid expenses and other current assets
    
    
    3,290
    
    
    
    544Decrease (increase) in other assets
    
    
    1,535
    
    
    
    (2,271
    )Increase (decrease) in trade accounts payable
    
    
    (29,035
    )
    
    
    16,590(Decrease) in accrued interest
    
    
    (12,479
    )
    
    
    (10,843
    )Increase (decrease) in accrued expenses
    
    
    (11,632
    )
    
    
    12,083Increase in accrued salaries, benefits and payroll taxes
    
    
    1,228
    
    
    
    4,780(Decrease) in other long-term liabilities
    
    
    (836
    )
    
    
    (682
    )Net Cash Provided By Operating Activities
    
    
    37,519
    
    
    
    74,283Cash Flows from Investing Activities:Investment in note receivable
    
    
    
    
    
    
    (40,000
    )Deposits on asset commitments
    
    
    7,054
    
    
    
    (9,219
    )Purchase of investment interests
    
    
    (1,102
    )
    
    
    (5,763
    )Proceeds from sale of property and equipment
    
    
    7,980
    
    
    
    6,004Proceeds from assets dispositions
    
    
    3,916
    
    
    
    3,000Purchase of property and equipment
    
    
    (67,266
    )
    
    
    (117,835
    )Net Cash Used In Investing Activities
    
    
    (49,418
    )
    
    
    (163,813
    )Cash Flows from Financing Activities:Proceeds from issuance of stock, net
    
    
    120,337
    
    
    
    Net proceeds from stock incentive plans
    
    
    14
    
    
    
    633Proceeds from long-term debt
    
    
    25,000
    
    
    
    20,001Net borrowings (repayments) under line of credit
    
    
    (36,500
    )
    
    
    38,500Payments on long-term debt
    
    
    (61,539
    )
    
    
    (6,451
    )Tax benefits on stock-based compensation plans
    
    
    
    
    
    
    73Debt issuance costs
    
    
    (644
    )
    
    
    (109
    )Net Cash Provided By Financing Activities
    
    
    46,668
    
    
    
    52,647Net change in cash and cash equivalents
    
    
    34,769
    
    
    
    (36,883
    )Cash and cash equivalents at beginning of period
    
    
    6,866
    
    
    
    43,693Cash and cash equivalents at end of period
    
    $
    41,635
    
    
    $
    6,810
  5




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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
    Financial Instruments
  6




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 1  NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 Reclassification
  New Accounting Pronouncements
       7




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 1  NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
   NOTE 2  STOCK-BASED COMPENSATION
   Weighted
    
    WeightedShares
    
    Average
    
    Average
    
    AggregateUnder
    
    Exercise
    
    Contractual
    
    Intrinsic ValueOption
    
    Price
    
    Life (Years)
    
    (millions)Balance at December 31, 2008
    
    
    901,732
    
    
    $
    10.95Granted
    
    
    125,000
    
    
    
    1.23Canceled
    
    
    (305,000
    )
    
    
    18.18Exercised
    
    
    (7,000
    )
    
    
    2.75Outstanding at September 30, 2009
    
    
    714,732
    
    
    $
    6.25
    
    
    
    6.33
    
    
    $
    0.52Exercisable at September 30, 2009
    
    
    589,732
    
    
    $
    7.31
    
    
    
    5.68
    
    
    $
    0.12
  8




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 2  STOCK-BASED COMPENSATION (Continued)
  For the Nine Months EndedSeptember 30, 2009Expected dividend yield
    
    
    Expected price volatility
    
    
    77.32
    %Risk free interest rate
    
    
    1.37
    %Expected life of options
    
    5
    yearsWeighted
average fair value of options granted at market value
    
    $
    0.77
   Weighted AverageNumber of
    
    
    Grant-Date Fair ValueShares
    
    
    Per ShareNonvested at December 31, 2008
    
    
    953,102
    
    
    $
    15.34Granted
    
    
    17,000
    
    
    
    1.23Vested
    
    
    (60,373
    )
    
    
    14.94Forfeited
    
    
    (10,200
    )
    
    
    12.05Nonvested at September 30, 2009
    
    
    899,529
    
    
    $
    15.14
  NOTE 3  INVENTORIES
  September 30,
    
    
    December 31,2009
    
    
    2008ManufacturedFinished goods
    
    $
    3,306
    
    
    $
    2,821Work in process
    
    
    2,048
    
    
    
    1,654Raw materials
    
    
    1,277
    
    
    
    2,499Total manufactured
    
    
    6,631
    
    
    
    6,974Rig parts and related inventory
    
    
    10,490
    
    
    
    13,097Shop supplies and related inventory
    
    
    7,676
    
    
    
    7,778Chemicals and drilling fluids
    
    
    4,861
    
    
    
    3,698Rental supplies
    
    
    2,344
    
    
    
    3,023Hammers
    
    
    2,023
    
    
    
    2,257Coiled tubing and related inventory
    
    
    937
    
    
    
    1,817Drive pipe
    
    
    235
    
    
    
    443Total inventories
    
    $
    35,197
    
    
    $
    39,087
 9




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE
4  GOODWILL AND INTANGIBLE ASSETS
   NOTE
5  DEBT
  September 30,
    
    
    December 31,2009
    
    
    2008Senior notes
    
    $
    430,238
    
    
    $
    505,000Term loans
    
    
    62,838
    
    
    
    49,609Revolving line of credit
    
    
    
    
    
    
    36,500Seller notes
    
    
    
    
    
    
    750Notes payable to former directors
    
    
    
    
    
    
    32Insurance premium financing
    
    
    1,982
    
    
    
    991Capital lease obligations
    
    
    391
    
    
    
    779Total debt
    
    
    495,449
    
    
    
    593,661Less: current maturities
    
    
    16,710
    
    
    
    14,617Long-term debt, net of current maturities
    
    $
    478,739
    
    
    $
    579,044
 Senior notes, bank loans and line of credit agreements
   10




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 5  DEBT (Continued)
      Notes payable
   11




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 5  DEBT (Continued)
  Other debt
  NOTE 6  STOCKHOLDERS EQUITY
     NOTE 7  ASSET DISPOSITIONS
  12




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 7  ASSET DISPOSITIONS (Continued)
  NOTE 8  GAIN ON DEBT EXTINGUISHMENT
  NOTE 9  INCOME (LOSS) PER COMMON SHARE
  For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Numerator:Net income (loss)
    
    $
    (9,650
    )
    
    $
    12,312
    
    
    $
    (12,345
    )
    
    $
    30,920Preferred stock dividend
    
    
    (630
    )
    
    
    
    
    
    
    (665
    )
    
    
    Net income (loss) attributed to common
stockholders
    
    $
    (10,280
    )
    
    $
    12,312
    
    
    $
    (13,010
    )
    
    $
    30,920Denominator:Weighted average common shares
outstanding excluding nonvested
restricted stock
    
    
    70,945
    
    
    
    35,156
    
    
    
    47,834
    
    
    
    35,004Effect of potentially dilutive common shares:Warrants and employee and director
stock options and restricted shares
    
    
    
    
    
    
    395
    
    
    
    
    
    
    
    451Weighted average common shares
outstanding and assumed conversions
    
    
    70,945
    
    
    
    35,551
    
    
    
    47,834
    
    
    
    35,455Net income (loss) per common shareBasic
    
    $
    (0.14
    )
    
    $
    0.35
    
    
    $
    (0.27
    )
    
    $
    0.88Diluted
    
    $
    (0.14
    )
    
    $
    0.35
    
    
    $
    (0.27
    )
    
    $
    0.87Potentially dilutive securities excluded
as anti-dilutive
    
    
    15,016
    
    
    
    786
    
    
    
    15,557
    
    
    
    776
  13




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 10  SUPPLEMENTAL CASH FLOW INFORMATION
 For the Nine Months EndedSeptember 30,2009
    
    
    2008Cash paid for interest and income taxes:Interest
    
    $
    48,631
    
    
    $
    45,904Income taxes
    
    
    3,963
    
    
    
    16,564Non-cash activities:Insurance premium financed
    
    $
    3,204
    
    
    $
    2,995Assets transferred to joint venture investment
    
    
    1,639
    
    
    
    Preferred stock dividend
    
    
    665
    
    
    
    Non-cash transaction in connection with asset disposition:Value on goodwill and other intangibles disposed
    
    $
    
    
    
    $
    2,246Value of inventory financed
    
    
    
    
    
    
    509Value of property and equipment disposed
    
    
    
    
    
    
    337Accrued expenses
    
    
    
    
    
    
    10Fair value of note receivable
    
    $
    
    
    
    $
    3,102
 NOTE 11  CONDENSED CONSOLIDATING FINANCIAL INFORMATION
  14




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 11  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING BALANCE SHEETS
 Allis-Chalmers(Parent/
    
    
    Subsidiary
    
    
    Subsidiary
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Adjustments
    
    
    TotalAssetsCash and cash equivalents
    
    $
    
    
    
    $
    29,181
    
    
    $
    12,454
    
    
    $
    
    
    
    $
    41,635Trade receivables, net
    
    
    
    
    
    
    44,002
    
    
    
    52,690
    
    
    
    (2,357
    )
    
    
    94,335Inventories
    
    
    
    
    
    
    16,761
    
    
    
    18,436
    
    
    
    
    
    
    
    35,197Intercompany receivables
    
    
    
    
    
    
    71,314
    
    
    
    
    
    
    
    (71,314
    )
    
    
    Note receivable from affiliate
    
    
    24,209
    
    
    
    
    
    
    
    
    
    
    
    (24,209
    )
    
    
    Prepaid expenses and other
    
    
    701
    
    
    
    8,790
    
    
    
    10,485
    
    
    
    
    
    
    
    19,976Total current assets
    
    
    24,910
    
    
    
    170,048
    
    
    
    94,065
    
    
    
    (97,880
    )
    
    
    191,143Property and equipment, net
    
    
    
    
    
    
    502,293
    
    
    
    253,918
    
    
    
    
    
    
    
    756,211Goodwill
    
    
    
    
    
    
    23,251
    
    
    
    18,731
    
    
    
    
    
    
    
    41,982Other intangible assets, net
    
    
    471
    
    
    
    26,202
    
    
    
    7,140
    
    
    
    
    
    
    
    33,813Debt issuance costs, net
    
    
    9,927
    
    
    
    144
    
    
    
    
    
    
    
    
    
    
    
    10,071Note receivable from affiliates
    
    
    5,823
    
    
    
    
    
    
    
    
    
    
    
    (5,823
    )
    
    
    Investments in affiliates
    
    
    940,226
    
    
    
    
    
    
    
    
    
    
    
    (940,226
    )
    
    
    Other assets
    
    
    20,160
    
    
    
    20,851
    
    
    
    2,238
    
    
    
    
    
    
    
    43,249Total assets
    
    $
    1,001,517
    
    
    $
    742,789
    
    
    $
    376,092
    
    
    $
    (1,043,929
    )
    
    $
    1,076,469Liabilities and Stockholders EquityCurrent maturities of long-term debt
    
    $
    
    
    
    $
    5,353
    
    
    $
    11,357
    
    
    $
    
    
    
    $
    16,710Trade accounts payable
    
    
    
    
    
    
    11,615
    
    
    
    24,134
    
    
    
    (2,357
    )
    
    
    33,392Accrued salaries, benefits and
payroll taxes
    
    
    
    
    
    
    1,883
    
    
    
    19,537
    
    
    
    
    
    
    
    21,420Accrued interest
    
    
    5,684
    
    
    
    236
    
    
    
    224
    
    
    
    
    
    
    
    6,144Accrued expenses
    
    
    1,112
    
    
    
    8,918
    
    
    
    6,234
    
    
    
    
    
    
    
    16,264Intercompany payables
    
    
    70,153
    
    
    
    
    
    
    
    1,161
    
    
    
    (71,314
    )
    
    
    Note payable to affiliate
    
    
    
    
    
    
    
    
    
    
    24,209
    
    
    
    (24,209
    )
    
    
    Total current liabilities
    
    
    76,949
    
    
    
    28,005
    
    
    
    86,856
    
    
    
    (97,880
    )
    
    
    93,930Long-term debt, net of current
maturities
    
    
    430,238
    
    
    
    20,832
    
    
    
    27,669
    
    
    
    
    
    
    
    478,739Note payable to affiliate
    
    
    
    
    
    
    
    
    
    
    5,823
    
    
    
    (5,823
    )
    
    
    Deferred income tax liability
    
    
    
    
    
    
    
    
    
    
    8,113
    
    
    
    
    
    
    
    8,113Other long-term liabilities
    
    
    
    
    
    
    7
    
    
    
    1,350
    
    
    
    
    
    
    
    1,357Total liabilities
    
    
    507,187
    
    
    
    48,844
    
    
    
    129,811
    
    
    
    (103,703
    )
    
    
    582,139Commitments and contingenciesStockholders EquityPreferred Stock
    
    
    34,183
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,183Common stock
    
    
    714
    
    
    
    3,526
    
    
    
    42,963
    
    
    
    (46,489
    )
    
    
    714Capital in excess of par value
    
    
    424,024
    
    
    
    570,512
    
    
    
    137,439
    
    
    
    (707,951
    )
    
    
    424,024Retained earnings
    
    
    35,409
    
    
    
    119,907
    
    
    
    65,879
    
    
    
    (185,786
    )
    
    
    35,409Total stockholders equity
    
    
    494,330
    
    
    
    693,945
    
    
    
    246,281
    
    
    
    (940,226
    )
    
    
    494,330Total liabilities and
stockholders equity
    
    $
    1,001,517
    
    
    $
    742,789
    
    
    $
    376,092
    
    
    $
    (1,043,929
    )
    
    $
    1,076,469
 15




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 11  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
 Allis-Chalmers(Parent/
    
    
    Subsidiary
    
    
    Subsidiary
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Adjustments
    
    
    TotalRevenues
    
    $
    
    
    
    $
    154,502
    
    
    $
    225,013
    
    
    $
    (1,891
    )
    
    $
    377,624Operating costs and expensesDirect costs
    
    
    
    
    
    
    101,284
    
    
    
    181,743
    
    
    
    (1,891
    )
    
    
    281,136Selling, general and
administrative
    
    
    3,029
    
    
    
    27,199
    
    
    
    10,367
    
    
    
    
    
    
    
    40,595Loss on asset disposition
    
    
    
    
    
    
    
    
    
    
    1,916
    
    
    
    
    
    
    
    1,916Depreciation and
amortization
    
    
    35
    
    
    
    45,629
    
    
    
    16,155
    
    
    
    
    
    
    
    61,819Total operating costs
and expenses
    
    
    3,064
    
    
    
    174,112
    
    
    
    210,181
    
    
    
    (1,891
    )
    
    
    385,466Income (loss) from
operations
    
    
    (3,064
    )
    
    
    (19,610
    )
    
    
    14,832
    
    
    
    
    
    
    
    (7,842
    )Other income (expense):Equity earnings in
affiliates, net of tax
    
    
    (1,101
    )
    
    
    
    
    
    
    
    
    
    
    1,101
    
    
    
    Interest, net
    
    
    (34,595
    )
    
    
    24
    
    
    
    (2,868
    )
    
    
    
    
    
    
    (37,439
    )Gain on debt
extinguishment
    
    
    26,365
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,365Other
    
    
    50
    
    
    
    (103
    )
    
    
    (178
    )
    
    
    
    
    
    
    (231
    )Total other income
(expense)
    
    
    (9,281
    )
    
    
    (79
    )
    
    
    (3,046
    )
    
    
    1,101
    
    
    
    (11,305
    )Net income (loss)before
income taxes
    
    
    (12,345
    )
    
    
    (19,689
    )
    
    
    11,786
    
    
    
    1,101
    
    
    
    (19,147
    )Provision for income taxes
    
    
    
    
    
    
    10,517
    
    
    
    (3,715
    )
    
    
    
    
    
    
    6,802Net income (loss)
    
    
    (12,345
    )
    
    
    (9,172
    )
    
    
    8,071
    
    
    
    1,101
    
    
    
    (12,345
    )Preferred stock dividend
    
    
    (665
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (665
    )Net income (loss)
attributed to common
stockholders
    
    $
    (13,010
    )
    
    $
    (9,172
    )
    
    $
    8,071
    
    
    $
    1,101
    
    
    $
    (13,010
    )
 16




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 11  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
 Allis-Chalmers(Parent/
    
    
    Subsidiary
    
    
    Subsidiary
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Adjustments
    
    
    TotalRevenues
    
    $
    
    
    
    $
    43,797
    
    
    $
    76,840
    
    
    $
    (621
    )
    
    $
    120,016Operating costs and expensesDirect costs
    
    
    
    
    
    
    29,041
    
    
    
    62,343
    
    
    
    (621
    )
    
    
    90,763Selling, general and
administrative
    
    
    1,043
    
    
    
    7,243
    
    
    
    3,144
    
    
    
    
    
    
    
    11,430Depreciation and
amortization
    
    
    12
    
    
    
    15,446
    
    
    
    5,435
    
    
    
    
    
    
    
    20,893Total operating costs
and expenses
    
    
    1,055
    
    
    
    51,730
    
    
    
    70,922
    
    
    
    (621
    )
    
    
    123,086Income (loss) from
operations
    
    
    (1,055
    )
    
    
    (7,933
    )
    
    
    5,918
    
    
    
    
    
    
    
    (3,070
    )Other income (expense):Equity earnings in
affiliates, net of tax
    
    
    1,499
    
    
    
    
    
    
    
    
    
    
    
    (1,499
    )
    
    
    Interest, net
    
    
    (10,109
    )
    
    
    45
    
    
    
    (661
    )
    
    
    
    
    
    
    (10,725
    )Other
    
    
    15
    
    
    
    3
    
    
    
    19
    
    
    
    
    
    
    
    37Total other income
(expense)
    
    
    (8,595
    )
    
    
    48
    
    
    
    (642
    )
    
    
    (1,499
    )
    
    
    (10,688
    )Net income (loss)before
income taxes
    
    
    (9,650
    )
    
    
    (7,885
    )
    
    
    5,276
    
    
    
    (1,499
    )
    
    
    (13,758
    )Provision for income taxes
    
    
    
    
    
    
    6,471
    
    
    
    (2,363
    )
    
    
    
    
    
    
    4,108Net income (loss)
    
    
    (9,650
    )
    
    
    (1,414
    )
    
    
    2,913
    
    
    
    (1,499
    )
    
    
    (9,650
    )Preferred stock dividend
    
    
    (630
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (630
    )Net income (loss)
attributed to common
stockholders
    
    $
    (10,280
    )
    
    $
    (1,414
    )
    
    $
    2,913
    
    
    $
    (1,499
    )
    
    $
    (10,280
    )
 17




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 11  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
 Allis-Chalmers(Parent/
    
    
    Subsidiary
    
    
    Other Subsidiaries
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    (Non-Guarantors)
    
    
    Adjustments
    
    
    TotalCash Flows from Operating Activities:Net income (loss)
    
    $
    (12,345
    )
    
    $
    (9,172
    )
    
    $
    8,071
    
    
    $
    1,101
    
    
    $
    (12,345
    )Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:Depreciation and amortization
    
    
    35
    
    
    
    45,629
    
    
    
    16,155
    
    
    
    
    
    
    
    61,819Amortization and write-off of debt
issuance costs
    
    
    1,682
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    1,691Stock based compensation
    
    
    3,580
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,580Allowance for bad debts
    
    
    
    
    
    
    4,065
    
    
    
    
    
    
    
    
    
    
    
    4,065Equity earnings in affiliates
    
    
    1,101
    
    
    
    
    
    
    
    
    
    
    
    (1,101
    )
    
    
    Deferred taxes
    
    
    (11,490
    )
    
    
    
    
    
    
    396
    
    
    
    
    
    
    
    (11,094
    )(Gain) on sale of equipment
    
    
    
    
    
    
    (1,059
    )
    
    
    (121
    )
    
    
    
    
    
    
    (1,180
    )Loss on asset disposition
    
    
    
    
    
    
    
    
    
    
    1,916
    
    
    
    
    
    
    
    1,916Gain on debt extinguishment
    
    
    (26,365
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,365
    )Changes in operating assets and
liabilities, net of acquisitions:Decrease in trade receivables
    
    
    
    
    
    
    41,296
    
    
    
    18,175
    
    
    
    
    
    
    
    59,471Decrease in inventories
    
    
    
    
    
    
    2,621
    
    
    
    1,269
    
    
    
    
    
    
    
    3,890(Increase) decrease in prepaid
expenses and other current assets
    
    
    7,296
    
    
    
    2,488
    
    
    
    (6,494
    )
    
    
    
    
    
    
    3,290(Increase) decrease in other assets
    
    
    
    
    
    
    (798
    )
    
    
    2,333
    
    
    
    
    
    
    
    1,535(Decrease) in trade accounts
payable
    
    
    
    
    
    
    (16,979
    )
    
    
    (12,056
    )
    
    
    
    
    
    
    (29,035
    )(Decrease) increase in accrued
interest
    
    
    (12,248
    )
    
    
    236
    
    
    
    (467
    )
    
    
    
    
    
    
    (12,479
    )(Decrease) in accrued expenses
    
    
    (300
    )
    
    
    (4,923
    )
    
    
    (6,409
    )
    
    
    
    
    
    
    (11,632
    )(Decrease) increase in accrued
salaries, benefits and payroll
taxes
    
    
    
    
    
    
    (2,050
    )
    
    
    3,278
    
    
    
    
    
    
    
    1,228(Decrease) in other long- term
liabilities
    
    
    
    
    
    
    (57
    )
    
    
    (779
    )
    
    
    
    
    
    
    (836
    )Net Cash Provided By (Used In)
Operating Activities
    
    
    (49,054
    )
    
    
    61,306
    
    
    
    25,267
    
    
    
    
    
    
    
    37,519Cash Flows from Investing Activities:Investment in affiliates
    
    
    (4,100
    )
    
    
    
    
    
    
    
    
    
    
    4,100
    
    
    
    Notes receivable from affiliates
    
    
    693
    
    
    
    
    
    
    
    
    
    
    
    (693
    )
    
    
    Deposits on asset commitments
    
    
    
    
    
    
    7,610
    
    
    
    (556
    )
    
    
    
    
    
    
    7,054Purchase of investment interests
    
    
    (2,393
    )
    
    
    
    
    
    
    1,291
    
    
    
    
    
    
    
    (1,102
    )Proceeds from sale of property and
equipment
    
    
    
    
    
    
    7,859
    
    
    
    121
    
    
    
    
    
    
    
    7,980Proceeds from assets dispositions
    
    
    
    
    
    
    
    
    
    
    3,916
    
    
    
    
    
    
    
    3,916Purchase of property and equipment
    
    
    
    
    
    
    (53,716
    )
    
    
    (13,550
    )
    
    
    
    
    
    
    (67,266
    )Net Cash Used in Investing
Activities
    
    
    (5,800
    )
    
    
    (38,247
    )
    
    
    (8,778
    )
    
    
    3,407
    
    
    
    (49,418
    )
 18




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 11  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
 Allis-
    
    
    
    
    
    
    OtherChalmers
    
    
    
    
    
    
    Subsidiaries(Parent/
    
    
    Subsidiary
    
    
    (Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors)
    
    
    Adjustments
    
    
    TotalCash Flows from Financing Activities:Accounts receivable from affiliates
    
    
    
    
    
    
    (18,637
    )
    
    
    
    
    
    
    18,637
    
    
    
    Accounts payable to affiliates
    
    
    18,661
    
    
    
    
    
    
    
    (24
    )
    
    
    (18,637
    )
    
    
    Notes payable to affiliates
    
    
    
    
    
    
    
    
    
    
    (693
    )
    
    
    693
    
    
    
    Proceeds from parent contributions
    
    
    
    
    
    
    
    
    
    
    4,100
    
    
    
    (4,100
    )
    
    
    Proceeds from issuance of stock, net
    
    
    120,337
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    120,337Net proceeds from stock incentive
plans
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14Proceeds from long-term debt
    
    
    
    
    
    
    25,000
    
    
    
    
    
    
    
    
    
    
    
    25,000Net repayment under line of credit
    
    
    (36,500
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (36,500
    )Payments on long-term debt
    
    
    (47,167
    )
    
    
    (3,011
    )
    
    
    (11,361
    )
    
    
    
    
    
    
    (61,539
    )Debt issuance costs
    
    
    (491
    )
    
    
    (153
    )
    
    
    
    
    
    
    
    
    
    
    (644
    )Net Cash Provided By (Used
In) Financing Activities
    
    
    54,854
    
    
    
    3,199
    
    
    
    (7,978
    )
    
    
    (3,407
    )
    
    
    46,668Net change in cash and cash
equivalents
    
    
    
    
    
    
    26,258
    
    
    
    8,511
    
    
    
    
    
    
    
    34,769Cash and cash equivalents at
beginning of period
    
    
    
    
    
    
    2,923
    
    
    
    3,943
    
    
    
    
    
    
    
    6,866Cash and cash equivalents at end of
period
    
    $
    
    
    
    $
    29,181
    
    
    $
    12,454
    
    
    $
    
    
    
    $
    41,635
 19




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 11  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING BALANCE SHEETS
 Allis-Chalmers
    
    
    
    
    
    
    Subsidiary(Parent/
    
    
    Subsidiary
    
    
    Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    TotalAssetsCash and cash equivalents
    
    $
    
    
    
    $
    2,923
    
    
    $
    3,943
    
    
    $
    
    
    
    $
    6,866Trade receivables, net
    
    
    
    
    
    
    88,528
    
    
    
    70,865
    
    
    
    (1,522
    )
    
    
    157,871Inventories
    
    
    
    
    
    
    19,382
    
    
    
    19,705
    
    
    
    
    
    
    
    39,087Intercompany receivables
    
    
    
    
    
    
    51,038
    
    
    
    
    
    
    
    (51,038
    )
    
    
    Note receivable from affiliate
    
    
    20,680
    
    
    
    
    
    
    
    
    
    
    
    (20,680
    )
    
    
    Prepaid expenses and other
    
    
    8,798
    
    
    
    8,074
    
    
    
    4,542
    
    
    
    
    
    
    
    21,414Total current assets
    
    
    29,478
    
    
    
    169,945
    
    
    
    99,055
    
    
    
    (73,240
    )
    
    
    225,238Property and equipment, net
    
    
    
    
    
    
    499,704
    
    
    
    261,286
    
    
    
    
    
    
    
    760,990Goodwill
    
    
    
    
    
    
    23,251
    
    
    
    20,022
    
    
    
    
    
    
    
    43,273Other intangible assets, net
    
    
    506
    
    
    
    29,143
    
    
    
    7,722
    
    
    
    
    
    
    
    37,371Debt issuance costs, net
    
    
    12,664
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,664Note receivable from affiliates
    
    
    10,045
    
    
    
    
    
    
    
    
    
    
    
    (10,045
    )
    
    
    Investments in affiliates
    
    
    937,227
    
    
    
    
    
    
    
    
    
    
    
    (937,227
    )
    
    
    Other assets
    
    
    3,837
    
    
    
    27,663
    
    
    
    4,015
    
    
    
    
    
    
    
    35,515Total assets
    
    $
    993,757
    
    
    $
    749,706
    
    
    $
    392,100
    
    
    $
    (1,020,512
    )
    
    $
    1,115,051Liabilities and Stockholders EquityCurrent maturities of long-term debt
    
    $
    782
    
    
    $
    992
    
    
    $
    12,843
    
    
    $
    
    
    
    $
    14,617Trade accounts payable
    
    
    
    
    
    
    27,759
    
    
    
    35,841
    
    
    
    (1,522
    )
    
    
    62,078Accrued salaries, benefits and
payroll taxes
    
    
    
    
    
    
    3,933
    
    
    
    16,259
    
    
    
    
    
    
    
    20,192Accrued interest
    
    
    17,932
    
    
    
    
    
    
    
    691
    
    
    
    
    
    
    
    18,623Accrued expenses
    
    
    281
    
    
    
    13,841
    
    
    
    12,520
    
    
    
    
    
    
    
    26,642Intercompany payables
    
    
    49,853
    
    
    
    
    
    
    
    1,185
    
    
    
    (51,038
    )
    
    
    Note payable to affiliate
    
    
    
    
    
    
    
    
    
    
    20,680
    
    
    
    (20,680
    )
    
    
    Total current liabilities
    
    
    68,848
    
    
    
    46,525
    
    
    
    100,019
    
    
    
    (73,240
    )
    
    
    142,152Long-term debt, net of current
maturities
    
    
    541,500
    
    
    
    
    
    
    
    37,544
    
    
    
    
    
    
    
    579,044Note payable to affiliate
    
    
    
    
    
    
    
    
    
    
    10,045
    
    
    
    (10,045
    )
    
    
    Deferred income tax liability
    
    
    
    
    
    
    
    
    
    
    8,253
    
    
    
    
    
    
    
    8,253Other long-term liabilities
    
    
    
    
    
    
    64
    
    
    
    2,129
    
    
    
    
    
    
    
    2,193Total liabilities
    
    
    610,348
    
    
    
    46,589
    
    
    
    157,990
    
    
    
    (83,285
    )
    
    
    731,642Commitments and contingenciesStockholders EquityCommon stock
    
    
    357
    
    
    
    3,526
    
    
    
    42,963
    
    
    
    (46,489
    )
    
    
    357Capital in excess of par value
    
    
    334,633
    
    
    
    570,512
    
    
    
    133,339
    
    
    
    (703,851
    )
    
    
    334,633Retained earnings
    
    
    48,419
    
    
    
    129,079
    
    
    
    57,808
    
    
    
    (186,887
    )
    
    
    48,419Total stockholders equity
    
    
    383,409
    
    
    
    703,117
    
    
    
    234,110
    
    
    
    (937,227
    )
    
    
    383,409Total liabilities and
stock holders equity
    
    $
    993,757
    
    
    $
    749,706
    
    
    $
    392,100
    
    
    $
    (1,020,512
    )
    
    $
    1,115,051
 20




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 11  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING INCOME STATEMENTS
 Allis-Chalmers
    
    
    
    
    
    
    Subsidiary(Parent/
    
    
    Subsidiary
    
    
    Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    TotalRevenues
    
    $
    
    
    
    $
    283,961
    
    
    $
    210,640
    
    
    $
    (19
    )
    
    $
    494,582Operating costs and expensesDirect costs
    
    
    
    
    
    
    156,807
    
    
    
    162,973
    
    
    
    (19
    )
    
    
    319,761Selling, general and
administrative
    
    
    5,480
    
    
    
    32,894
    
    
    
    7,788
    
    
    
    
    
    
    
    46,162Gain on asset dispositions
    
    
    
    
    
    
    (166
    )
    
    
    
    
    
    
    
    
    
    
    (166
    )Depreciation and
amortization
    
    
    35
    
    
    
    38,224
    
    
    
    10,283
    
    
    
    
    
    
    
    48,542Total operating costs
and expenses
    
    
    5,515
    
    
    
    227,759
    
    
    
    181,044
    
    
    
    (19
    )
    
    
    414,299Income (loss) from
operations
    
    
    (5,515
    )
    
    
    56,202
    
    
    
    29,596
    
    
    
    
    
    
    
    80,283Other income (expense):Equity earnings in
affiliates, net of tax
    
    
    67,898
    
    
    
    
    
    
    
    
    
    
    
    (67,898
    )
    
    
    Interest, net
    
    
    (31,520
    )
    
    
    62
    
    
    
    (638
    )
    
    
    
    
    
    
    (32,096
    )Other
    
    
    57
    
    
    
    97
    
    
    
    437
    
    
    
    
    
    
    
    591Total other income
(expense)
    
    
    36,435
    
    
    
    159
    
    
    
    (201
    )
    
    
    (67,898
    )
    
    
    (31,505
    )Net income (loss)before
income taxes
    
    
    30,920
    
    
    
    56,361
    
    
    
    29,395
    
    
    
    (67,898
    )
    
    
    48,778Provision for income taxes
    
    
    
    
    
    
    (7,329
    )
    
    
    (10,529
    )
    
    
    
    
    
    
    (17,858
    )Net income (loss)
    
    $
    30,920
    
    
    $
    49,032
    
    
    $
    18,866
    
    
    $
    (67,898
    )
    
    $
    30,920
 21




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 11  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING INCOME STATEMENTS
 Allis-Chalmers
    
    
    
    
    
    
    Subsidiary(Parent/
    
    
    Subsidiary
    
    
    Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    TotalRevenues
    
    $
    
    
    
    $
    100,510
    
    
    $
    77,761
    
    
    $
    (6
    )
    
    $
    178,265Operating costs and expensesDirect costs
    
    
    
    
    
    
    56,954
    
    
    
    59,973
    
    
    
    (6
    )
    
    
    116,921Selling, general and
administrative
    
    
    1,590
    
    
    
    11,514
    
    
    
    2,745
    
    
    
    
    
    
    
    15,849Gain on asset dispositions
    
    
    
    
    
    
    (166
    )
    
    
    
    
    
    
    
    
    
    
    (166
    )Depreciation and
amortization
    
    
    12
    
    
    
    12,910
    
    
    
    3,706
    
    
    
    
    
    
    
    16,628Total operating costs
and expenses
    
    
    1,602
    
    
    
    81,212
    
    
    
    66,424
    
    
    
    (6
    )
    
    
    149,232Income (loss) from
operations
    
    
    (1,602
    )
    
    
    19,298
    
    
    
    11,337
    
    
    
    
    
    
    
    29,033Other income (expense):Equity earnings in
affiliates, net of tax
    
    
    24,198
    
    
    
    
    
    
    
    
    
    
    
    (24,198
    )
    
    
    Interest, net
    
    
    (10,299
    )
    
    
    2
    
    
    
    (412
    )
    
    
    
    
    
    
    (10,709
    )Other
    
    
    15
    
    
    
    73
    
    
    
    27
    
    
    
    
    
    
    
    115Total other income
(expense)
    
    
    13,914
    
    
    
    75
    
    
    
    (385
    )
    
    
    (24,198
    )
    
    
    (10,594
    )Net income (loss)before
income taxes
    
    
    12,312
    
    
    
    19,373
    
    
    
    10,952
    
    
    
    (24,198
    )
    
    
    18,439Provision for income taxes
    
    
    
    
    
    
    (2,880
    )
    
    
    (3,247
    )
    
    
    
    
    
    
    (6,127
    )Net income (loss)
    
    $
    12,312
    
    
    $
    16,493
    
    
    $
    7,705
    
    
    $
    (24,198
    )
    
    $
    12,312
 22




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 11  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
 Allis-
    
    
    
    
    
    
    OtherChalmers
    
    
    
    
    
    
    Subsidiaries(Parent/
    
    
    Subsidiary
    
    
    (Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors)
    
    
    Adjustments
    
    
    TotalCash Flows from Operating Activities:Net income (loss)
    
    $
    30,920
    
    
    $
    49,032
    
    
    $
    18,866
    
    
    $
    (67,898
    )
    
    $
    30,920Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:Depreciation and amortization
    
    
    35
    
    
    
    38,224
    
    
    
    10,283
    
    
    
    
    
    
    
    48,542Amortization and write-off of debt
issuance costs
    
    
    1,563
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,563Stock based compensation
    
    
    6,212
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,212Allowance for bad debts
    
    
    
    
    
    
    1,505
    
    
    
    
    
    
    
    
    
    
    
    1,505Equity earnings in affiliates
    
    
    (67,898
    )
    
    
    
    
    
    
    
    
    
    
    67,898
    
    
    
    Deferred taxes
    
    
    4,708
    
    
    
    (108
    )
    
    
    (285
    )
    
    
    
    
    
    
    4,315Gain on asset dispositions
    
    
    
    
    
    
    (166
    )
    
    
    
    
    
    
    
    
    
    
    (166
    )(Gain) on sale of property and
equipment
    
    
    
    
    
    
    (1,097
    )
    
    
    (109
    )
    
    
    
    
    
    
    (1,206
    )Changes in operating assets and
liabilities, net of acquisitions:(Increase) in trade receivables
    
    
    
    
    
    
    (14,627
    )
    
    
    (16,015
    )
    
    
    
    
    
    
    (30,642
    )(Increase) in inventories
    
    
    
    
    
    
    (5,901
    )
    
    
    (1,060
    )
    
    
    
    
    
    
    (6,961
    )(Increase) decrease in prepaid
expenses and other current assets
    
    
    (8
    )
    
    
    1,319
    
    
    
    (767
    )
    
    
    
    
    
    
    544(Increase) decrease in other assets
    
    
    (4,073
    )
    
    
    1,034
    
    
    
    768
    
    
    
    
    
    
    
    (2,271
    )(Decrease) increase in trade
accounts payable
    
    
    
    
    
    
    5,673
    
    
    
    10,917
    
    
    
    
    
    
    
    16,590Increase in accrued interest
    
    
    (10,929
    )
    
    
    (10
    )
    
    
    96
    
    
    
    
    
    
    
    (10,843
    )(Decrease) increase in accrued
expenses
    
    
    (687
    )
    
    
    9,623
    
    
    
    3,147
    
    
    
    
    
    
    
    12,083(Decrease) increase in accrued
salaries, benefits and payroll
taxes
    
    
    
    
    
    
    1,055
    
    
    
    3,725
    
    
    
    
    
    
    
    4,780(Decrease) in other long-term
liabilities
    
    
    (31
    )
    
    
    (167
    )
    
    
    (484
    )
    
    
    
    
    
    
    (682
    )Net Cash Provided By (Used In)
Operating Activities
    
    
    (40,188
    )
    
    
    85,389
    
    
    
    29,082
    
    
    
    
    
    
    
    74,283Cash Flows from Investing Activities:Notes receivable from affiliates
    
    
    (6,075
    )
    
    
    
    
    
    
    
    
    
    
    6,075
    
    
    
    Investment in note receivable
    
    
    (40,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40,000
    )Deposits on asset commitments
    
    
    
    
    
    
    (19,544
    )
    
    
    10,325
    
    
    
    
    
    
    
    (9,219
    )Purchase of investment interests
    
    
    (5,742
    )
    
    
    (21
    )
    
    
    
    
    
    
    
    
    
    
    (5,763
    )Proceeds from sale of property and
equipment
    
    
    
    
    
    
    5,738
    
    
    
    266
    
    
    
    
    
    
    
    6,004Proceeds from asset disposition
    
    
    
    
    
    
    3,000
    
    
    
    
    
    
    
    
    
    
    
    3,000Purchase of property and equipment
    
    
    
    
    
    
    (52,560
    )
    
    
    (65,275
    )
    
    
    
    
    
    
    (117,835
    )Net Cash Provided By (Used in)
Investing Activities
    
    
    (51,817
    )
    
    
    (63,387
    )
    
    
    (54,684
    )
    
    
    6,075
    
    
    
    (163,813
    )
 23




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 11  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
 Allis-
    
    
    
    
    
    
    OtherChalmers
    
    
    
    
    
    
    Subsidiaries(Parent/
    
    
    Subsidiary
    
    
    (Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors)
    
    
    Adjustments
    
    
    TotalCash Flows from Financing Activities:Accounts receivable from affiliates
    
    
    52,908
    
    
    
    
    
    
    
    
    
    
    
    (52,908
    )
    
    
    Accounts payable to affiliates
    
    
    
    
    
    
    (52,908
    )
    
    
    
    
    
    
    52,908
    
    
    
    Note payable to affiliate
    
    
    
    
    
    
    
    
    
    
    6,075
    
    
    
    (6,075
    )
    
    
    Net proceeds from stock incentive
plans
    
    
    633
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    633Tax benefit on stock-based
compensation plans
    
    
    73
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73Proceeds from long-term debt
    
    
    
    
    
    
    
    
    
    
    20,001
    
    
    
    
    
    
    
    20,001Net borrowing under line of credit
    
    
    38,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38,500Payments on long-term debt
    
    
    
    
    
    
    (4,633
    )
    
    
    (1,818
    )
    
    
    
    
    
    
    (6,451
    )Debt issuance costs
    
    
    (109
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (109
    )Net Cash Provided By (Used
In) Financing Activities
    
    
    92,005
    
    
    
    (57,541
    )
    
    
    24,258
    
    
    
    (6,075
    )
    
    
    52,647Net change in cash and cash
equivalents
    
    
    
    
    
    
    (35,539
    )
    
    
    (1,344
    )
    
    
    
    
    
    
    (36,883
    )Cash and cash equivalents at
beginning of period
    
    
    
    
    
    
    41,176
    
    
    
    2,517
    
    
    
    
    
    
    
    43,693Cash and cash equivalents at end
of period
    
    $
    
    
    
    $
    5,637
    
    
    $
    1,173
    
    
    $
    
    
    
    $
    6,810
 24




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE
12  SEGMENT INFORMATION
  For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues:Oilfield Services
    
    $
    31,904
    
    
    $
    73,390
    
    
    $
    105,827
    
    
    $
    209,946Drilling and Completion
    
    
    76,299
    
    
    
    77,761
    
    
    
    223,237
    
    
    
    210,640Rental Services
    
    
    11,813
    
    
    
    27,114
    
    
    
    48,560
    
    
    
    73,996$
    120,016
    
    
    $
    178,265
    
    
    $
    377,624
    
    
    $
    494,582Operating Income (Loss):Oilfield Services
    
    $
    (4,211
    )
    
    $
    13,831
    
    
    $
    (15,701
    )
    
    $
    40,218Drilling and Completion
    
    
    5,508
    
    
    
    11,337
    
    
    
    14,420
    
    
    
    29,596Rental Services
    
    
    (1,218
    )
    
    
    8,545
    
    
    
    3,318
    
    
    
    24,033General corporate
    
    
    (3,149
    )
    
    
    (4,680
    )
    
    
    (9,879
    )
    
    
    (13,564
    )$
    (3,070
    )
    
    $
    29,033
    
    
    $
    (7,842
    )
    
    $
    80,283Depreciation and Amortization:Oilfield Services
    
    $
    8,077
    
    
    $
    6,101
    
    
    $
    22,825
    
    
    $
    17,692Drilling and Completion
    
    
    5,462
    
    
    
    3,706
    
    
    
    16,182
    
    
    
    10,283Rental Services
    
    
    7,281
    
    
    
    6,699
    
    
    
    22,580
    
    
    
    20,163General corporate
    
    
    73
    
    
    
    122
    
    
    
    232
    
    
    
    404$
    20,893
    
    
    $
    16,628
    
    
    $
    61,819
    
    
    $
    48,542Capital Expenditures:Oilfield Services
    
    $
    1,348
    
    
    $
    11,782
    
    
    $
    9,408
    
    
    $
    35,599Drilling and Completion
    
    
    7,067
    
    
    
    25,782
    
    
    
    50,775
    
    
    
    65,476Rental Services
    
    
    851
    
    
    
    5,594
    
    
    
    7,042
    
    
    
    16,700General corporate
    
    
    7
    
    
    
    14
    
    
    
    41
    
    
    
    60$
    9,273
    
    
    $
    43,172
    
    
    $
    67,266
    
    
    $
    117,835Revenues:United States
    
    $
    37,625
    
    
    $
    96,600
    
    
    $
    140,448
    
    
    $
    269,542Argentina
    
    
    65,192
    
    
    
    77,761
    
    
    
    180,846
    
    
    
    210,640Brazil
    
    
    11,034
    
    
    
    
    
    
    
    31,812
    
    
    
    Other international
    
    
    6,165
    
    
    
    3,904
    
    
    
    24,518
    
    
    
    14,400$
    120,016
    
    
    $
    178,265
    
    
    $
    377,624
    
    
    $
    494,582
 25




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 12  SEGMENT INFORMATION (Continued)
 As ofSeptember 30,
    
    
    December 31,2009
    
    
    2008Goodwill:Oilfield Services
    
    $
    23,250
    
    
    $
    23,250Drilling and Completion
    
    
    18,732
    
    
    
    20,023Rental Services
    
    
    
    
    
    
    $
    41,982
    
    
    $
    43,273Assets:Oilfield Services
    
    $
    262,084
    
    
    $
    309,901Drilling and Completion
    
    
    427,602
    
    
    
    411,486Rental Services
    
    
    320,655
    
    
    
    360,376General corporate
    
    
    66,128
    
    
    
    33,288$
    1,076,469
    
    
    $
    1,115,051Long Lived Assets:United States
    
    $
    579,867
    
    
    $
    573,975Argentina
    
    
    188,254
    
    
    
    212,456Brazil
    
    
    74,044
    
    
    
    79,568Other international
    
    
    43,161
    
    
    
    23,814$
    885,326
    
    
    $
    889,813
 NOTE 13  LEGAL MATTERS
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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 40.
 Overview of Our Business
     Our Industry
  27




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Company Outlook
     Results of Operations
   28




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Comparison of Three Months Ended September 30, 2009 and 2008
       29




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Revenues
    
    
    Income (Loss) from OperationsThree Months Ended
    
    
    Three Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    Change
    
    
    2009
    
    
    2008
    
    
    Change(in thousands)Oilfield Services
    
    $
    31,904
    
    
    $
    73,390
    
    
    $
    (41,486
    )
    
    $
    (4,211
    )
    
    $
    13,831
    
    
    $
    (18,042
    )Drilling and Completion
    
    
    76,299
    
    
    
    77,761
    
    
    
    (1,462
    )
    
    
    5,508
    
    
    
    11,337
    
    
    
    (5,829
    )Rental Services
    
    
    11,813
    
    
    
    27,114
    
    
    
    (15,301
    )
    
    
    (1,218
    )
    
    
    8,545
    
    
    
    (9,763
    )General corporate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,149
    )
    
    
    (4,680
    )
    
    
    1,531Total
    
    $
    120,016
    
    
    $
    178,265
    
    
    $
    (58,249
    )
    
    $
    (3,070
    )
    
    $
    29,033
    
    
    $
    (32,103
    )
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Oilfield Services
  Drilling and Completion
  Rental Services
  General Corporate
  Comparison of Nine Months Ended September 30, 2009 and 2008
  31




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32




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Revenues
    
    
    Income (Loss) from OperationsNine Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    Change
    
    
    2009
    
    
    2008
    
    
    Change(in thousands)Oilfield Services
    
    $
    105,827
    
    
    $
    209,946
    
    
    $
    (104,119
    )
    
    $
    (15,701
    )
    
    $
    40,218
    
    
    $
    (55,919
    )Drilling and Completion
    
    
    223,237
    
    
    
    210,640
    
    
    
    12,597
    
    
    
    14,420
    
    
    
    29,596
    
    
    
    (15,176
    )Rental Services
    
    
    48,560
    
    
    
    73,996
    
    
    
    (25,436
    )
    
    
    3,318
    
    
    
    24,033
    
    
    
    (20,715
    )General corporate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,879
    )
    
    
    (13,564
    )
    
    
    3,685Total
    
    $
    377,624
    
    
    $
    494,582
    
    
    $
    (116,958
    )
    
    $
    (7,842
    )
    
    $
    80,283
    
    
    $
    (88,125
    )
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Oilfield Services
  Drilling and Completion
  Rental Services
  General Corporate
  34




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Liquidity
    Operating Activities
    35




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Investing Activities
   Financing Activities
   36




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Senior notes, bank loans and line of credit agreements
      37




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Notes payable
    Other debt
  Off Balance Sheet Arrangements
  Capital Resources
  Critical Accounting Policies
  38




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Recently Issued Accounting Standards
        39




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Forward-Looking Statements
  
    
    the impact of the weak economic conditions and the future impact of such conditions
on the oil and natural gas industry and demand for our services;
    
    the unexpected future capital expenditures (including 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 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 our competitors that have
less debt, and could have other adverse consequences.
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
  Interest Rate Risk.
  40




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Foreign Currency Exchange Rate Risk.
  
 ITEM 4. CONTROLS AND PROCEDURES.
 (a) Evaluation of Disclosure Controls and Procedures
   (b) Change in Internal Control Over Financial Reporting.
  
 PART II. OTHER INFORMATION
 
 ITEM 1A. RISK FACTORS.
  Substantial sales of our common stock could adversely affect our stock price.
     41




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The DLS sellers and Lime Rock control substantial ownership stakes in us and have board nomination
rights, and they are therefore able to exert significant influence on our affairs and actions,
including matters submitted for a stockholder vote.
     
 ITEM 6. EXHIBITS
  
 SIGNATURES
  Allis-Chalmers Energy Inc.
(Registrant)/s/ Munawar H. HidayatallahMunawar H. HidayatallahChief Executive Officer and
Chairman 42




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EXHIBIT INDEX
 3.1
    
    Certificate of Designations of 7% Convertible Perpetual Preferred Stock (incorporated by
reference to Exhibit 3.1 to the Registrants Form 8-K filed on July 1, 2009).4.1
    
    First Amendment to Investment Agreement, dated June 25, 2006, between Allis-Chalmers Energy
Inc. and Lime Rock Partners V, L.P. (incorporated by reference to Exhibit 4.1 to the
Registrants Form 8-K filed on July 1, 2009).4.2
    
    Second Amendment to Investment Agreement, dated September 1, 2009, between Allis-Chalmers
Energy Inc. and Lime Rock Partners V, L.P. (incorporated by reference to Exhibit 4.1 to the
Registrants Form 8-K filed on September 2, 2009).4.3
    
    Registration Rights Agreement, dated June 26, 2009, between Allis-Chalmers Energy Inc. and
Lime Rock Partners V, L.P. (incorporated by reference to Exhibit 4.2 to the Registrants Form
8-K filed on July 1, 2009).10.1
    
    Amended and Restated Employment Agreement, dated August 5, 2009, between Allis-Chalmers
Energy Inc. and Victor M. Perez (incorporated by reference to Exhibit 10.1 to the Registrants
Form 8-K filed on August 11, 2009).10.2
    
    Amended and Restated Performance Award Agreement, dated August 5, 2009, between
Allis-Chalmers Energy Inc. and Victor M. Perez (incorporate by reference to Exhibit 10.2 to
the Registrants Form 8-K filed on August 11, 2009).10.3
    
    Fifth Amendment to Second Amended and Restated Credit Agreement, dated as of October 13,
2009, by and among the Company, as borrower, certain subsidiaries of the Company, as
guarantors, Royal Bank of Canada, as administrative agent, and the lenders named thereto
(incorporated by reference to Exhibit 10.1 to the Registrants Form 8-K filed on October 16,
2009).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 43