##### 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  JUNE 30, 2010
  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  Registrants telephone number, including area code
 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 June 30, 2010
 TABLE OF CONTENTS
 PAGEPART I FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Condensed Balance Sheets as of June 30, 2010 and December 31, 2009
    
    
    3Consolidated Condensed Statements of Operations for the three and six months ended
June 30, 2010 and 2009
    
    
    4Consolidated Condensed Statements of Cash Flows for the six months ended
June 30, 2010 and 2009
    
    
    5Notes to Consolidated Condensed Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    25Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    36Item 4. Controls and Procedures
    
    
    37PART II OTHER INFORMATIONItem 1A Risk Factors
    
    
    37Item 6. Exhibits
    
    
    38Signatures
    
    
    38EX-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
  June 30,
    
    
    December 31,2010
    
    
    2009(unaudited)AssetsCash and cash equivalents
    
    $
    17,569
    
    
    $
    41,072Trade receivables, net
    
    
    130,904
    
    
    
    105,059Inventories
    
    
    36,920
    
    
    
    34,528Deferred income tax asset
    
    
    2,727
    
    
    
    3,790Prepaid expenses and other
    
    
    7,667
    
    
    
    13,799Total current assets
    
    
    195,787
    
    
    
    198,248Property and equipment, net
    
    
    733,334
    
    
    
    746,478Goodwill
    
    
    40,639
    
    
    
    40,639Other intangible assets, net
    
    
    30,337
    
    
    
    32,649Debt issuance costs, net
    
    
    8,628
    
    
    
    9,545Deferred income tax asset
    
    
    33,900
    
    
    
    22,047Other assets
    
    
    37,949
    
    
    
    31,014Total assets
    
    $
    1,080,574
    
    
    $
    1,080,620Liabilities and Stockholders EquityCurrent maturities of long-term debt
    
    $
    18,596
    
    
    $
    17,027Trade accounts payable
    
    
    45,592
    
    
    
    34,839Accrued salaries, benefits and payroll taxes
    
    
    24,799
    
    
    
    22,854Accrued interest
    
    
    15,969
    
    
    
    15,821Accrued expenses
    
    
    25,743
    
    
    
    21,918Total current liabilities
    
    
    130,699
    
    
    
    112,459Long-term debt, net of current maturities
    
    
    470,623
    
    
    
    475,206Deferred income tax liability
    
    
    8,136
    
    
    
    8,166Other long-term liabilities
    
    
    676
    
    
    
    1,142Total liabilities
    
    
    610,134
    
    
    
    596,973Commitments and contingenciesStockholders EquityPreferred stock, $0.01 par value (25,000,000 shares authorized, 36,393 shares
issued and outstanding at June 30, 2010 and at December 31, 2009)
    
    
    34,183
    
    
    
    34,183Common stock, $0.01 par value (200,000,000 shares authorized;
72,418,855 issued and outstanding at June 30, 2010 and
71,378,529 issued and outstanding at December 31, 2009)
    
    
    724
    
    
    
    714Capital in excess of par value
    
    
    425,790
    
    
    
    422,823Retained earnings
    
    
    9,743
    
    
    
    25,927Total stockholders equity
    
    
    470,440
    
    
    
    483,647Total liabilities and stockholders equity
    
    $
    1,080,574
    
    
    $
    1,080,620
  3




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ALLIS-CHALMERS ENERGY INC.
 
 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
 
 For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues
    
    $
    158,644
    
    
    $
    112,505
    
    
    $
    299,014
    
    
    $
    257,608Operating costs and expensesDirect costs
    
    
    120,723
    
    
    
    87,239
    
    
    
    228,438
    
    
    
    190,373Depreciation
    
    
    20,517
    
    
    
    19,181
    
    
    
    40,705
    
    
    
    38,552Selling, general and administrative
    
    
    12,114
    
    
    
    15,525
    
    
    
    24,177
    
    
    
    29,165Loss on asset disposition
    
    
    
    
    
    
    1,916
    
    
    
    
    
    
    
    1,916Amortization
    
    
    1,156
    
    
    
    1,187
    
    
    
    2,312
    
    
    
    2,374Total operating costs and expenses
    
    
    154,510
    
    
    
    125,048
    
    
    
    295,632
    
    
    
    262,380Income (loss) from operations
    
    
    4,134
    
    
    
    (12,543
    )
    
    
    3,382
    
    
    
    (4,772
    )Other income (expense):Interest expense
    
    
    (11,149
    )
    
    
    (13,221
    )
    
    
    (22,105
    )
    
    
    (26,728
    )Interest income
    
    
    299
    
    
    
    9
    
    
    
    454
    
    
    
    14Gain on debt extinguishment
    
    
    
    
    
    
    26,365
    
    
    
    
    
    
    
    26,365Other
    
    
    (303
    )
    
    
    (485
    )
    
    
    (1,818
    )
    
    
    (268
    )Total other income (expense)
    
    
    (11,153
    )
    
    
    12,668
    
    
    
    (23,469
    )
    
    
    (617
    )Income (loss) before income taxes
    
    
    (7,019
    )
    
    
    125
    
    
    
    (20,087
    )
    
    
    (5,389
    )Provision for income taxes
    
    
    1,640
    
    
    
    (215
    )
    
    
    5,177
    
    
    
    2,694Net loss
    
    
    (5,379
    )
    
    
    (90
    )
    
    
    (14,910
    )
    
    
    (2,695
    )Preferred stock dividend
    
    
    (637
    )
    
    
    (35
    )
    
    
    (1,274
    )
    
    
    (35
    )Net loss attributed
to common stockholders
    
    $
    (6,016
    )
    
    $
    (125
    )
    
    $
    (16,184
    )
    
    $
    (2,730
    )Net loss per common share:Basic
    
    $
    (0.08
    )
    
    $
    0.00
    
    
    $
    (0.23
    )
    
    $
    (0.08
    )Diluted
    
    $
    (0.08
    )
    
    $
    0.00
    
    
    $
    (0.23
    )
    
    $
    (0.08
    )Weighted average shares outstanding:Basic
    
    
    71,270
    
    
    
    36,959
    
    
    
    71,149
    
    
    
    36,087Diluted
    
    
    71,270
    
    
    
    36,959
    
    
    
    71,149
    
    
    
    36,087
  4




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ALLIS-CHALMERS ENERGY INC.
 
 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
 
 For the Six Months EndedJune 30,2010
    
    
    2009Cash Flows from Operating Activities:Net loss
    
    $
    (14,910
    )
    
    $
    (2,695
    )Adjustments to reconcile net loss to net cash
provided by operating activities:Depreciation and amortization
    
    
    43,017
    
    
    
    40,926Amortization and write-off of debt issuance costs
    
    
    1,106
    
    
    
    1,151Stock-based compensation
    
    
    3,001
    
    
    
    2,345Allowance for bad debts
    
    
    
    
    
    
    3,565Deferred taxes
    
    
    (10,821
    )
    
    
    (6,088
    )Loss (gain) on sale of property and equipment
    
    
    807
    
    
    
    (602
    )Loss on investment
    
    
    1,466
    
    
    
    Equity in loss of unconsolidated affiliates
    
    
    260
    
    
    
    Loss on asset disposition
    
    
    
    
    
    
    1,916Gain on debt extinguishment
    
    
    
    
    
    
    (26,365
    )Changes in operating assets and liabilities:Decrease (increase) in trade receivable
    
    
    (25,845
    )
    
    
    55,279Decrease (increase) in inventories
    
    
    (2,392
    )
    
    
    2,526Decrease in prepaid expenses and other current assets
    
    
    8,838
    
    
    
    7,411Decrease in other assets
    
    
    799
    
    
    
    1,120Increase (decrease) in trade accounts payable
    
    
    10,753
    
    
    
    (27,170
    )Increase (decrease) in accrued interest
    
    
    148
    
    
    
    (2,954
    )Increase (decrease) in accrued expenses
    
    
    3,801
    
    
    
    (5,760
    )Increase (decrease) in accrued salaries, benefits and payroll taxes
    
    
    1,945
    
    
    
    (1,036
    )(Decrease) in other long-term liabilities
    
    
    (466
    )
    
    
    (605
    )Net Cash Provided By Operating Activities
    
    
    21,507
    
    
    
    42,964Cash Flows from Investing Activities:Deposits on asset commitments
    
    
    (10,096
    )
    
    
    10,032Proceeds from sale of investments
    
    
    368
    
    
    
    Proceeds from sale of property and equipment
    
    
    2,616
    
    
    
    6,693Purchase of property and equipment
    
    
    (30,989
    )
    
    
    (57,993
    )Net Cash Used In Investing Activities
    
    
    (38,101
    )
    
    
    (41,268
    )Cash Flows from Financing Activities:Proceeds from issuance of stock, net
    
    
    
    
    
    
    120,337Proceeds from long-term debt
    
    
    4,000
    
    
    
    25,000Net
repayments of line of credit
    
    
    
    
    
    
    (36,500
    )Payments on long-term debt
    
    
    (9,446
    )
    
    
    (57,396
    )Payment of preferred stock dividend
    
    
    (1,274
    )
    
    
    Debt issuance costs
    
    
    (189
    )
    
    
    (644
    )Net Cash (Used In) Provided By Financing Activities
    
    
    (6,909
    )
    
    
    50,797Net change in cash and cash equivalents
    
    
    (23,503
    )
    
    
    52,493Cash and cash equivalents at beginning of period
    
    
    41,072
    
    
    
    6,866Cash and cash equivalents at end of period
    
    $
    17,569
    
    
    $
    59,359
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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)
 New Accounting Pronouncements
     NOTE 2  STOCK-BASED COMPENSATION
   For the Three Months
    
    
    For the Six MonthsEnded
    
    
    EndedJune 30,
    
    
    June 30,2010
    
    
    2010
    
    
    2009Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    Expected price volatility
    
    
    88.54
    %
    
    
    89.81
    %
    
    
    77.32
    %Risk free interest rate
    
    
    1.51
    %
    
    
    1.41
    %
    
    
    1.37
    %Expected life of options
    
    5 years
    
    
    5 years
    
    
    5 yearsWeighted average fair value of options granted at market value
    
    $
    2.70
    
    
    $
    2.63
    
    
    $
    0.77
 7




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 2  STOCK-BASED COMPENSATION (Continued)
   Weighted
    
    
    WeightedShares
    
    
    Average
    
    
    Average
    
    
    AggregateUnder
    
    
    Exercise
    
    
    Contractual
    
    
    Intrinsic ValueOption
    
    
    Price
    
    
    Life (Years)
    
    
    (millions)Balance at December 31, 2009
    
    
    701,732
    
    
    $
    6.31Granted
    
    
    1,072,253
    
    
    
    3.78Canceled
    
    
    (21,967
    )
    
    
    8.30Exercised
    
    
    Outstanding at June 30, 2010
    
    
    1,752,018
    
    
    $
    4.74
    
    
    
    8.11
    
    
    $
    0.10Exercisable at June 30, 2010
    
    
    586,432
    
    
    $
    7.08
    
    
    
    5.15
    
    
    $
    0.02
   Weighted AverageGrant-Date FairNumber of
    
    
    ValueShares
    
    
    Per ShareNonvested at December 31, 2009
    
    
    837,626
    
    
    $
    15.63Granted
    
    
    2,061,750
    
    
    
    3.78Vested
    
    
    (294,253
    )
    
    
    17.30Forfeited
    
    
    (3,333
    )
    
    
    3.77Nonvested at June 30, 2010
    
    
    2,601,790
    
    
    $
    6.06
  8




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 3  INVENTORIES
  June 30,
    
    
    December 31,2010
    
    
    2009ManufacturedFinished goods
    
    $
    3,401
    
    
    $
    2,983Work in process
    
    
    1,360
    
    
    
    2,299Raw materials
    
    
    1,255
    
    
    
    884Total manufactured
    
    
    6,016
    
    
    
    6,166Rig parts and related inventory
    
    
    12,208
    
    
    
    10,654Shop supplies and related inventory
    
    
    8,864
    
    
    
    7,762Chemicals and drilling fluids
    
    
    4,599
    
    
    
    4,381Rental supplies
    
    
    2,026
    
    
    
    2,134Hammers
    
    
    2,191
    
    
    
    2,257Coiled tubing and related inventory
    
    
    784
    
    
    
    939Drive pipe
    
    
    232
    
    
    
    235Total inventories
    
    $
    36,920
    
    
    $
    34,528
 NOTE 4 GOODWILL AND INTANGIBLE ASSETS
   NOTE 5- DEBT
  June 30,
    
    
    December 31,2010
    
    
    2009Senior notes
    
    $
    430,238
    
    
    $
    430,238Revolving line of credit
    
    
    
    
    
    
    Term loans
    
    
    56,892
    
    
    
    60,744Insurance premium financing
    
    
    1,998
    
    
    
    997Capital lease obligations
    
    
    91
    
    
    
    254Total debt
    
    
    489,219
    
    
    
    492,233Less: current maturities
    
    
    18,596
    
    
    
    17,027Long-term debt, net of current maturities
    
    $
    470,623
    
    
    $
    475,206
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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 5  DEBT (Continued)
 Senior notes, line of credit agreements and term loans
        10




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 5  DEBT (Continued)
  Notes payable
  Other debt
  NOTE 6  STOCKHOLDERS EQUITY
  NOTE 7  LOSS ON ASSET DISPOSITION
  NOTE 8  GAIN ON DEBT EXTINGUISHMENT
  11




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 9
 LOSS PER COMMON SHARE
  For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Numerator:Net loss
    
    $
    (5,379
    )
    
    $
    (90
    )
    
    $
    (14,910
    )
    
    $
    (2,695
    )Preferred stock dividend
    
    
    (637
    )
    
    
    (35
    )
    
    
    (1,274
    )
    
    
    (35
    )Net loss attributed to common
stockholders
    
    $
    (6,016
    )
    
    $
    (125
    )
    
    $
    (16,184
    )
    
    $
    (2,730
    )Denominator:Weighted average common shares outstanding
excluding nonvested restricted stock
    
    
    71,270
    
    
    
    36,959
    
    
    
    71,149
    
    
    
    36,087Effect of potentially dilutive common shares:Convertible preferred stock and stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average common shares
outstanding and assumed conversions
    
    
    71,270
    
    
    
    36,959
    
    
    
    71,149
    
    
    
    36,087Net loss
per common shareBasic
    
    $
    (0.08
    )
    
    $
    0.00
    
    
    $
    (0.23
    )
    
    $
    (0.08
    )Diluted
    
    $
    (0.08
    )
    
    $
    0.00
    
    
    $
    (0.23
    )
    
    $
    (0.08
    )Potentially dilutive securities excluded
as anti-dilutive
    
    
    17,710
    
    
    
    15,698
    
    
    
    16,126
    
    
    
    15,698
  NOTE 10  SUPPLEMENTAL CASH FLOW INFORMATION
 For the Six Months EndedJune 30,2010
    
    
    2009Cash paid for interest and income taxes:Interest
    
    $
    21,294
    
    
    $
    28,329Income taxes
    
    
    57
    
    
    
    1,354Non-cash activities:Insurance premiums financed
    
    
    2,432
    
    
    
    2,381Receivable from sale of investments
    
    
    274
    
    
    
    Assets transferred to joint venture investment
    
    
    
    
    
    
    1,330Preferred stock dividend
    
    
    1,274
    
    
    
    35
 NOTE
11  CONDENSED CONSOLIDATING FINANCIAL INFORMATION
  12




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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
    
    
    ConsolidatingGuarantor)
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Adjustments
    
    
    Consolidated TotalAssetsCash and cash equivalents
    
    $
    
    
    
    $
    13,324
    
    
    $
    4,245
    
    
    $
    
    
    
    $
    17,569Trade receivables, net
    
    
    
    
    
    
    56,010
    
    
    
    81,845
    
    
    
    (6,951
    )
    
    
    130,904Inventories
    
    
    
    
    
    
    17,015
    
    
    
    19,905
    
    
    
    
    
    
    
    36,920Intercompany receivables
    
    
    
    
    
    
    104,356
    
    
    
    1,096
    
    
    
    (105,452
    )
    
    
    Note receivable from affiliate
    
    
    28,286
    
    
    
    
    
    
    
    
    
    
    
    (28,286
    )
    
    
    Prepaid expenses and other
    
    
    93
    
    
    
    6,754
    
    
    
    3,547
    
    
    
    
    
    
    
    10,394Total current assets
    
    
    28,379
    
    
    
    197,459
    
    
    
    110,638
    
    
    
    (140,689
    )
    
    
    195,787Property and equipment, net
    
    
    
    
    
    
    474,477
    
    
    
    258,857
    
    
    
    
    
    
    
    733,334Goodwill
    
    
    
    
    
    
    23,250
    
    
    
    17,389
    
    
    
    
    
    
    
    40,639Other intangible assets, net
    
    
    437
    
    
    
    23,320
    
    
    
    6,580
    
    
    
    
    
    
    
    30,337Debt issuance costs, net
    
    
    8,503
    
    
    
    125
    
    
    
    
    
    
    
    
    
    
    
    8,628Note receivable from affiliates
    
    
    2,400
    
    
    
    
    
    
    
    
    
    
    
    (2,400
    )
    
    
    Investments in affiliates
    
    
    950,645
    
    
    
    
    
    
    
    
    
    
    
    (950,645
    )
    
    
    Other assets
    
    
    31,932
    
    
    
    36,736
    
    
    
    3,181
    
    
    
    
    
    
    
    71,849Total assets
    
    $
    1,022,296
    
    
    $
    755,367
    
    
    $
    396,645
    
    
    $
    (1,093,734
    )
    
    $
    1,080,574Liabilities and Stockholders EquityCurrent maturities of long-term debt
    
    $
    
    
    
    $
    5,602
    
    
    $
    12,994
    
    
    $
    
    
    
    $
    18,596Trade accounts payable
    
    
    
    
    
    
    19,170
    
    
    
    33,373
    
    
    
    (6,951
    )
    
    
    45,592Accrued salaries, benefits and payroll taxes
    
    
    
    
    
    
    2,567
    
    
    
    22,232
    
    
    
    
    
    
    
    24,799Accrued interest
    
    
    15,448
    
    
    
    212
    
    
    
    309
    
    
    
    
    
    
    
    15,969Accrued expenses
    
    
    718
    
    
    
    13,851
    
    
    
    11,174
    
    
    
    
    
    
    
    25,743Intercompany payables
    
    
    105,452
    
    
    
    
    
    
    
    
    
    
    
    (105,452
    )
    
    
    Note payable to affiliate
    
    
    
    
    
    
    
    
    
    
    28,286
    
    
    
    (28,286
    )
    
    
    Total current liabilities
    
    
    121,618
    
    
    
    41,402
    
    
    
    108,368
    
    
    
    (140,689
    )
    
    
    130,699Long-term debt, net of current maturities
    
    
    430,238
    
    
    
    18,099
    
    
    
    22,286
    
    
    
    
    
    
    
    470,623Note payable to affiliate
    
    
    
    
    
    
    
    
    
    
    2,400
    
    
    
    (2,400
    )
    
    
    Other long-term liabilities
    
    
    
    
    
    
    
    
    
    
    8,812
    
    
    
    
    
    
    
    8,812Total liabilities
    
    
    551,856
    
    
    
    59,501
    
    
    
    141,866
    
    
    
    (143,089
    )
    
    
    610,134Commitments and ContingenciesStockholders EquityPreferred Stock
    
    
    34,183
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,183Common stock
    
    
    724
    
    
    
    3,526
    
    
    
    42,963
    
    
    
    (46,489
    )
    
    
    724Capital in excess of par value
    
    
    425,790
    
    
    
    570,512
    
    
    
    137,439
    
    
    
    (707,951
    )
    
    
    425,790Retained earnings
    
    
    9,743
    
    
    
    121,828
    
    
    
    74,377
    
    
    
    (196,205
    )
    
    
    9,743Total stockholders equity
    
    
    470,440
    
    
    
    695,866
    
    
    
    254,779
    
    
    
    (950,645
    )
    
    
    470,440Total liabilities and stockholders equity
    
    $
    1,022,296
    
    
    $
    755,367
    
    
    $
    396,645
    
    
    $
    (1,093,734
    )
    
    $
    1,080,574
 13




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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
    
    
    ConsolidatingGuarantor)
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Adjustments
    
    
    Consolidated TotalRevenues
    
    $
    
    
    
    $
    62,760
    
    
    $
    96,337
    
    
    $
    (453
    )
    
    $
    158,644Operating costs and expensesDirect costs
    
    
    
    
    
    
    42,300
    
    
    
    78,876
    
    
    
    (453
    )
    
    
    120,723Depreciation
    
    
    
    
    
    
    14,198
    
    
    
    6,319
    
    
    
    
    
    
    
    20,517Selling, general and administrative
    
    
    1,365
    
    
    
    7,156
    
    
    
    3,593
    
    
    
    
    
    
    
    12,114Amortization
    
    
    11
    
    
    
    959
    
    
    
    186
    
    
    
    
    
    
    
    1,156Total operating costs and expenses
    
    
    1,376
    
    
    
    64,613
    
    
    
    88,974
    
    
    
    (453
    )
    
    
    154,510Income (loss) from operations
    
    
    (1,376
    )
    
    
    (1,853
    )
    
    
    7,363
    
    
    
    
    
    
    
    4,134Other income (expense):Equity earnings in affiliates, net of tax
    
    
    6,396
    
    
    
    
    
    
    
    
    
    
    
    (6,396
    )
    
    
    Interest, net
    
    
    (10,415
    )
    
    
    141
    
    
    
    (576
    )
    
    
    
    
    
    
    (10,850
    )Other
    
    
    16
    
    
    
    (254
    )
    
    
    (65
    )
    
    
    
    
    
    
    (303
    )Total other income (expense)
    
    
    (4,003
    )
    
    
    (113
    )
    
    
    (641
    )
    
    
    (6,396
    )
    
    
    (11,153
    )Net income (loss)before income taxes
    
    
    (5,379
    )
    
    
    (1,966
    )
    
    
    6,722
    
    
    
    (6,396
    )
    
    
    (7,019
    )Provision for income taxes
    
    
    
    
    
    
    4,408
    
    
    
    (2,768
    )
    
    
    
    
    
    
    1,640Net income (loss)
    
    
    (5,379
    )
    
    
    2,442
    
    
    
    3,954
    
    
    
    (6,396
    )
    
    
    (5,379
    )Preferred stock dividend
    
    
    (637
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (637
    )Net income (loss) attributed to common stockholders
    
    $
    (6,016
    )
    
    $
    2,442
    
    
    $
    3,954
    
    
    $
    (6,396
    )
    
    $
    (6,016
    )
 14




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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
    
    
    ConsolidatingGuarantor)
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Adjustments
    
    
    Consolidated TotalRevenues
    
    $
    
    
    
    $
    114,642
    
    
    $
    185,700
    
    
    $
    (1,328
    )
    
    $
    299,014Operating costs and expensesDirect costs
    
    
    
    
    
    
    77,376
    
    
    
    152,390
    
    
    
    (1,328
    )
    
    
    228,438Depreciation
    
    
    
    
    
    
    28,316
    
    
    
    12,389
    
    
    
    
    
    
    
    40,705Selling, general and
administrative
    
    
    2,532
    
    
    
    14,356
    
    
    
    7,289
    
    
    
    
    
    
    
    24,177Amortization
    
    
    23
    
    
    
    1,916
    
    
    
    373
    
    
    
    
    
    
    
    2,312Total operating costs
and expenses
    
    
    2,555
    
    
    
    121,964
    
    
    
    172,441
    
    
    
    (1,328
    )
    
    
    295,632Income (loss) from
operations
    
    
    (2,555
    )
    
    
    (7,322
    )
    
    
    13,259
    
    
    
    
    
    
    
    3,382Other income (expense):Equity earnings in
affiliates, net of tax
    
    
    8,267
    
    
    
    
    
    
    
    
    
    
    
    (8,267
    )
    
    
    Interest, net
    
    
    (20,652
    )
    
    
    214
    
    
    
    (1,213
    )
    
    
    
    
    
    
    (21,651
    )Other
    
    
    30
    
    
    
    (1,778
    )
    
    
    (70
    )
    
    
    
    
    
    
    (1,818
    )Total other income
(expense)
    
    
    (12,355
    )
    
    
    (1,564
    )
    
    
    (1,283
    )
    
    
    (8,267
    )
    
    
    (23,469
    )Net income (loss)before
income taxes
    
    
    (14,910
    )
    
    
    (8,886
    )
    
    
    11,976
    
    
    
    (8,267
    )
    
    
    (20,087
    )Provision for income taxes
    
    
    
    
    
    
    10,512
    
    
    
    (5,335
    )
    
    
    
    
    
    
    5,177Net income (loss)
    
    
    (14,910
    )
    
    
    1,626
    
    
    
    6,641
    
    
    
    (8,267
    )
    
    
    (14,910
    )Preferred stock dividend
    
    
    (1,274
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,274
    )Net income (loss)
attributed to common
stockholders
    
    $
    (16,184
    )
    
    $
    1,626
    
    
    $
    6,641
    
    
    $
    (8,267
    )
    
    $
    (16,184
    )
 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 CASH FLOW
 Allis-Chalmers(Parent/
    
    
    Subsidiary
    
    
    Other Subsidiaries
    
    
    ConsolidatingGuarantor)
    
    
    Guarantors
    
    
    (Non-Guarantors)
    
    
    Adjustments
    
    
    Consolidated TotalCash Flows from Operating Activities:Net income (loss)
    
    $
    (14,910
    )
    
    $
    1,626
    
    
    $
    6,641
    
    
    $
    (8,267
    )
    
    $
    (14,910
    )Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:Depreciation and amortization
    
    
    23
    
    
    
    30,232
    
    
    
    12,762
    
    
    
    
    
    
    
    43,017Amortization and write-off of debt
issuance costs
    
    
    1,094
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    1,106Stock based compensation
    
    
    3,001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,001Equity earnings in affiliates
    
    
    (8,267
    )
    
    
    
    
    
    
    
    
    
    
    8,267
    
    
    
    Deferred taxes
    
    
    (10,954
    )
    
    
    
    
    
    
    133
    
    
    
    
    
    
    
    (10,821
    )Loss (gain) on sale of equipment
    
    
    
    
    
    
    965
    
    
    
    (158
    )
    
    
    
    
    
    
    807Loss on investment
    
    
    
    
    
    
    1,466
    
    
    
    
    
    
    
    
    
    
    
    1,466Equity in losses of unconsolidated
affiliates
    
    
    
    
    
    
    260
    
    
    
    
    
    
    
    
    
    
    
    260Changes in operating assets and
liabilities:(Increase) in trade receivables
    
    
    
    
    
    
    (2,962
    )
    
    
    (22,883
    )
    
    
    
    
    
    
    (25,845
    )(Increase) in inventories
    
    
    
    
    
    
    (744
    )
    
    
    (1,648
    )
    
    
    
    
    
    
    (2,392
    )Decrease in prepaid expenses and
other current assets
    
    
    
    
    
    
    2,778
    
    
    
    6,060
    
    
    
    
    
    
    
    8,838Decrease in other assets
    
    
    
    
    
    
    127
    
    
    
    672
    
    
    
    
    
    
    
    799Increase in trade accounts payable
    
    
    
    
    
    
    1,285
    
    
    
    9,468
    
    
    
    
    
    
    
    10,753(Decrease) increase in accrued
interest
    
    
    76
    
    
    
    (16
    )
    
    
    88
    
    
    
    
    
    
    
    148(Decrease) increase in accrued
expenses
    
    
    (58
    )
    
    
    2,243
    
    
    
    1,616
    
    
    
    
    
    
    
    3,801(Decrease) increase in accrued
salaries, benefits and payroll
taxes
    
    
    
    
    
    
    (195
    )
    
    
    2,140
    
    
    
    
    
    
    
    1,945(Decrease) in other long- term
liabilities
    
    
    
    
    
    
    
    
    
    
    (466
    )
    
    
    
    
    
    
    (466
    )Net Cash Provided By (Used
In) Operating Activities
    
    
    (29,995
    )
    
    
    37,077
    
    
    
    14,425
    
    
    
    
    
    
    
    21,507Cash Flows from Investing Activities:Notes receivable from affiliates
    
    
    3,293
    
    
    
    
    
    
    
    
    
    
    
    (3,293
    )
    
    
    Deposits on asset commitments
    
    
    
    
    
    
    (10,000
    )
    
    
    (96
    )
    
    
    
    
    
    
    (10,096
    )Proceeds from sale of investments
    
    
    
    
    
    
    368
    
    
    
    
    
    
    
    
    
    
    
    368Proceeds from sale of property and
equipment
    
    
    
    
    
    
    2,416
    
    
    
    200
    
    
    
    
    
    
    
    2,616Purchase of property and equipment
    
    
    
    
    
    
    (18,069
    )
    
    
    (12,920
    )
    
    
    
    
    
    
    (30,989
    )Net Cash
Provided By (Used In) Investing
Activities
    
    
    3,293
    
    
    
    (25,285
    )
    
    
    (12,816
    )
    
    
    (3,293
    )
    
    
    (38,101
    )
 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 CASH FLOW
 Allis-Chalmers(Parent/
    
    
    Subsidiary
    
    
    Other Subsidiaries
    
    
    ConsolidatingGuarantor)
    
    
    Guarantors
    
    
    (Non-Guarantors)
    
    
    Adjustments
    
    
    Consolidated TotalCash Flows from Financing Activities:Accounts receivable from affiliates
    
    
    
    
    
    
    (27,210
    )
    
    
    (955
    )
    
    
    28,165
    
    
    
    Accounts payable to affiliates
    
    
    28,165
    
    
    
    
    
    
    
    
    
    
    
    (28,165
    )
    
    
    Note payable to affiliate
    
    
    
    
    
    
    
    
    
    
    (3,293
    )
    
    
    3,293
    
    
    
    Proceeds from long-term debt
    
    
    
    
    
    
    
    
    
    
    4,000
    
    
    
    
    
    
    
    4,000Payments on long-term debt
    
    
    
    
    
    
    (3,116
    )
    
    
    (6,330
    )
    
    
    
    
    
    
    (9,446
    )Payment of preferred stock dividend
    
    
    (1,274
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,274
    )Debt issuance costs
    
    
    (189
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (189
    )Net Cash Provided By (Used
In) Financing Activities
    
    
    26,702
    
    
    
    (30,326
    )
    
    
    (6,578
    )
    
    
    3,293
    
    
    
    (6,909
    )Net change in cash and cash
equivalents
    
    
    
    
    
    
    (18,534
    )
    
    
    (4,969
    )
    
    
    
    
    
    
    (23,503
    )Cash and cash equivalents at
beginning of period
    
    
    
    
    
    
    31,858
    
    
    
    9,214
    
    
    
    
    
    
    
    41,072Cash and cash equivalents at end
of period
    
    $
    
    
    
    $
    13,324
    
    
    $
    4,245
    
    
    $
    
    
    
    $
    17,569
 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 BALANCE SHEETS
 Allis-Chalmers(Parent/
    
    
    Subsidiary
    
    
    Subsidiary
    
    
    ConsolidatingGuarantor)
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Adjustments
    
    
    Consolidated TotalAssetsCash and cash equivalents
    
    $
    
    
    
    $
    31,858
    
    
    $
    9,214
    
    
    $
    
    
    
    $
    41,072Trade receivables, net
    
    
    
    
    
    
    47,358
    
    
    
    58,962
    
    
    
    (1,261
    )
    
    
    105,059Inventories
    
    
    
    
    
    
    16,271
    
    
    
    18,257
    
    
    
    
    
    
    
    34,528Intercompany receivables
    
    
    
    
    
    
    79,521
    
    
    
    767
    
    
    
    (80,288
    )
    
    
    Note receivable from affiliate
    
    
    28,379
    
    
    
    
    
    
    
    
    
    
    
    (28,379
    )
    
    
    Prepaid expenses and other
    
    
    891
    
    
    
    6,826
    
    
    
    9,872
    
    
    
    
    
    
    
    17,589Total current assets
    
    
    29,270
    
    
    
    181,834
    
    
    
    97,072
    
    
    
    (109,928
    )
    
    
    198,248Property and equipment, net
    
    
    
    
    
    
    489,921
    
    
    
    256,557
    
    
    
    
    
    
    
    746,478Goodwill
    
    
    
    
    
    
    23,251
    
    
    
    17,388
    
    
    
    
    
    
    
    40,639Other intangible assets, net
    
    
    460
    
    
    
    25,236
    
    
    
    6,953
    
    
    
    
    
    
    
    32,649Debt issuance costs, net
    
    
    9,408
    
    
    
    137
    
    
    
    
    
    
    
    
    
    
    
    9,545Note receivable from affiliates
    
    
    4,415
    
    
    
    
    
    
    
    
    
    
    
    (4,415
    )
    
    
    Investments in affiliates
    
    
    942,378
    
    
    
    
    
    
    
    
    
    
    
    (942,378
    )
    
    
    Other assets
    
    
    24,366
    
    
    
    25,039
    
    
    
    3,656
    
    
    
    
    
    
    
    53,061Total assets
    
    $
    1,010,297
    
    
    $
    745,418
    
    
    $
    381,626
    
    
    $
    (1,056,721
    )
    
    $
    1,080,620Liabilities and Stockholders
EquityCurrent maturities of long-term
debt
    
    $
    
    
    
    $
    4,444
    
    
    $
    12,583
    
    
    $
    
    
    
    $
    17,027Trade accounts payable
    
    
    
    
    
    
    12,195
    
    
    
    23,905
    
    
    
    (1,261
    )
    
    
    34,839Accrued salaries, benefits and
payroll taxes
    
    
    
    
    
    
    2,762
    
    
    
    20,092
    
    
    
    
    
    
    
    22,854Accrued interest
    
    
    15,372
    
    
    
    228
    
    
    
    221
    
    
    
    
    
    
    
    15,821Accrued expenses
    
    
    752
    
    
    
    11,608
    
    
    
    9,558
    
    
    
    
    
    
    
    21,918Intercompany payables
    
    
    80,288
    
    
    
    
    
    
    
    
    
    
    
    (80,288
    )
    
    
    Note payable to affiliate
    
    
    
    
    
    
    
    
    
    
    28,379
    
    
    
    (28,379
    )
    
    
    Total current
liabilities
    
    
    96,412
    
    
    
    31,237
    
    
    
    94,738
    
    
    
    (109,928
    )
    
    
    112,459Long-term debt, net of current
maturities
    
    
    430,238
    
    
    
    19,941
    
    
    
    25,027
    
    
    
    
    
    
    
    475,206Note payable to affiliate
    
    
    
    
    
    
    
    
    
    
    4,415
    
    
    
    (4,415
    )
    
    
    Other long-term liabilities
    
    
    
    
    
    
    
    
    
    
    9,308
    
    
    
    
    
    
    
    9,308Total liabilities
    
    
    526,650
    
    
    
    51,178
    
    
    
    133,488
    
    
    
    (114,343
    )
    
    
    596,973Commitments and ContingenciesStockholders EquityPreferred Stock
    
    
    34,183
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,183Common stock
    
    
    714
    
    
    
    3,526
    
    
    
    42,963
    
    
    
    (46,489
    )
    
    
    714Capital in excess of par value
    
    
    422,823
    
    
    
    570,512
    
    
    
    137,439
    
    
    
    (707,951
    )
    
    
    422,823Retained earnings
    
    
    25,927
    
    
    
    120,202
    
    
    
    67,736
    
    
    
    (187,938
    )
    
    
    25,927Total stockholders
equity
    
    
    483,647
    
    
    
    694,240
    
    
    
    248,138
    
    
    
    (942,378
    )
    
    
    483,647Total liabilities
and stock holders
equity
    
    $
    1,010,297
    
    
    $
    745,418
    
    
    $
    381,626
    
    
    $
    (1,056,721
    )
    
    $
    1,080,620
 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 OPERATIONS
 Allis-Chalmers(Parent/
    
    
    Subsidiary
    
    
    Subsidiary
    
    
    ConsolidatingGuarantor)
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Adjustments
    
    
    Consolidated TotalRevenues
    
    $
    
    
    
    $
    44,738
    
    
    $
    68,384
    
    
    $
    (617
    )
    
    $
    112,505Operating costs and expensesDirect costs
    
    
    
    
    
    
    30,948
    
    
    
    56,908
    
    
    
    (617
    )
    
    
    87,239Depreciation
    
    
    
    
    
    
    13,913
    
    
    
    5,268
    
    
    
    
    
    
    
    19,181Selling, general and
administrative
    
    
    1,044
    
    
    
    10,788
    
    
    
    3,693
    
    
    
    
    
    
    
    15,525Loss on asset disposition
    
    
    
    
    
    
    
    
    
    
    1,916
    
    
    
    
    
    
    
    1,916Amortization
    
    
    11
    
    
    
    981
    
    
    
    195
    
    
    
    
    
    
    
    1,187Total operating costs
and expenses
    
    
    1,055
    
    
    
    56,630
    
    
    
    67,980
    
    
    
    (617
    )
    
    
    125,048Income (loss) from
operations
    
    
    (1,055
    )
    
    
    (11,892
    )
    
    
    404
    
    
    
    
    
    
    
    (12,543
    )Other income (expense):Equity earnings in
affiliates, net of tax
    
    
    (13,212
    )
    
    
    
    
    
    
    
    
    
    
    13,212
    
    
    
    Interest, net
    
    
    (12,202
    )
    
    
    (13
    )
    
    
    (997
    )
    
    
    
    
    
    
    (13,212
    )Gain on debt
extinguishment
    
    
    26,365
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,365Other
    
    
    14
    
    
    
    (75
    )
    
    
    (424
    )
    
    
    
    
    
    
    (485
    )Total other income
(expense)
    
    
    965
    
    
    
    (88
    )
    
    
    (1,421
    )
    
    
    13,212
    
    
    
    12,668Net income
(loss) before
income taxes
    
    
    (90
    )
    
    
    (11,980
    )
    
    
    (1,017
    )
    
    
    13,212
    
    
    
    125Provision for income taxes
    
    
    
    
    
    
    (258
    )
    
    
    43
    
    
    
    
    
    
    
    (215
    )Net income (loss)
    
    
    (90
    )
    
    
    (12,238
    )
    
    
    (974
    )
    
    
    13,212
    
    
    
    (90
    )Preferred stock dividend
    
    
    (35
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35
    )Net income (loss)
attributed to common
stockholders
    
    $
    (125
    )
    
    $
    (12,238
    )
    
    $
    (974
    )
    
    $
    13,212
    
    
    $
    (125
    )
 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 STATEMENTS OF OPERATIONS
 Allis-Chalmers
    
    
    
    
    
    
    Subsidiary(Parent/
    
    
    Subsidiary
    
    
    Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    TotalRevenues
    
    $
    
    
    
    $
    110,705
    
    
    $
    148,173
    
    
    $
    (1,270
    )
    
    $
    257,608Operating costs and expensesDirect costs
    
    
    
    
    
    
    72,243
    
    
    
    119,400
    
    
    
    (1,270
    )
    
    
    190,373Depreciation
    
    
    
    
    
    
    28,222
    
    
    
    10,330
    
    
    
    
    
    
    
    38,552Selling, general and administrative
    
    
    1,986
    
    
    
    19,956
    
    
    
    7,223
    
    
    
    
    
    
    
    29,165Loss on asset disposition
    
    
    
    
    
    
    
    
    
    
    1,916
    
    
    
    
    
    
    
    1,916Amortization
    
    
    23
    
    
    
    1,961
    
    
    
    390
    
    
    
    
    
    
    
    2,374Total operating costs and expenses
    
    
    2,009
    
    
    
    122,382
    
    
    
    139,259
    
    
    
    (1,270
    )
    
    
    262,380Income (loss) from operations
    
    
    (2,009
    )
    
    
    (11,677
    )
    
    
    8,914
    
    
    
    
    
    
    
    (4,772
    )Other income (expense):Equity earnings in affiliates, net of tax
    
    
    (2,600
    )
    
    
    
    
    
    
    
    
    
    
    2,600
    
    
    
    Interest, net
    
    
    (24,486
    )
    
    
    (21
    )
    
    
    (2,207
    )
    
    
    
    
    
    
    (26,714
    )Gain on debt extinguishment
    
    
    26,365
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,365Other
    
    
    35
    
    
    
    (106
    )
    
    
    (197
    )
    
    
    
    
    
    
    (268
    )Total other income (expense)
    
    
    (686
    )
    
    
    (127
    )
    
    
    (2,404
    )
    
    
    2,600
    
    
    
    (617
    )Net income
(loss) before income taxes
    
    
    (2,695
    )
    
    
    (11,804
    )
    
    
    6,510
    
    
    
    2,600
    
    
    
    (5,389
    )Provision for income taxes
    
    
    
    
    
    
    4,046
    
    
    
    (1,352
    )
    
    
    
    
    
    
    2,694Net income (loss)
    
    
    (2,695
    )
    
    
    (7,758
    )
    
    
    5,158
    
    
    
    2,600
    
    
    
    (2,695
    )Preferred stock dividend
    
    
    (35
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35
    )Net income (loss) attributed to common stockholders
    
    $
    (2,730
    )
    
    $
    (7,758
    )
    
    $
    5,158
    
    
    $
    2,600
    
    
    $
    (2,730
    )
 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 STATEMENTS OF CASH FLOW
 Allis-
    
    
    
    
    
    
    OtherChalmers
    
    
    
    
    
    
    Subsidiaries(Parent/
    
    
    Subsidiary
    
    
    (Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors)
    
    
    Adjustments
    
    
    TotalCash Flows from Operating Activities:Net income (loss)
    
    $
    (2,695
    )
    
    $
    (7,758
    )
    
    $
    5,158
    
    
    $
    2,600
    
    
    $
    (2,695
    )Adjustments to reconcile net income (loss) to net cash provided by operating activities:Depreciation and amortization
    
    
    23
    
    
    
    30,183
    
    
    
    10,720
    
    
    
    
    
    
    
    40,926Amortization and write-off of debt issuance costs
    
    
    1,149
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    1,151Stock based compensation
    
    
    2,345
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,345Allowance for bad debts
    
    
    
    
    
    
    3,565
    
    
    
    
    
    
    
    
    
    
    
    3,565Equity earnings in affiliates
    
    
    2,600
    
    
    
    
    
    
    
    
    
    
    
    (2,600
    )
    
    
    Deferred taxes
    
    
    (4,783
    )
    
    
    1
    
    
    
    (1,306
    )
    
    
    
    
    
    
    (6,088
    )(Gain) on sale of equipment
    
    
    
    
    
    
    (543
    )
    
    
    (59
    )
    
    
    
    
    
    
    (602
    )Loss on asset disposition
    
    
    
    
    
    
    
    
    
    
    1,916
    
    
    
    
    
    
    
    1,916Gain on debt extinguishment
    
    
    (26,365
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,365
    )Changes in operating assets and
liabilities:Decrease in trade receivables
    
    
    
    
    
    
    37,911
    
    
    
    17,368
    
    
    
    
    
    
    
    55,279Decrease in inventories
    
    
    
    
    
    
    631
    
    
    
    1,895
    
    
    
    
    
    
    
    2,526(Increase) decrease in prepaid expenses and other current assets
    
    
    7,520
    
    
    
    2,422
    
    
    
    (2,531
    )
    
    
    
    
    
    
    7,411(Increase) decrease in other assets
    
    
    (34
    )
    
    
    (902
    )
    
    
    2,056
    
    
    
    
    
    
    
    1,120(Decrease) in trade accounts payable
    
    
    
    
    
    
    (13,747
    )
    
    
    (13,423
    )
    
    
    
    
    
    
    (27,170
    )(Decrease) increase in accrued interest
    
    
    (2,831
    )
    
    
    243
    
    
    
    (366
    )
    
    
    
    
    
    
    (2,954
    )(Decrease) increase in accrued expenses
    
    
    3,951
    
    
    
    (6,410
    )
    
    
    (3,301
    )
    
    
    
    
    
    
    (5,760
    )(Decrease) increase in accrued salaries, benefits and payroll taxes
    
    
    
    
    
    
    (1,797
    )
    
    
    761
    
    
    
    
    
    
    
    (1,036
    )(Decrease) in other long- term liabilities
    
    
    
    
    
    
    (38
    )
    
    
    (567
    )
    
    
    
    
    
    
    (605
    )Net Cash Provided By (Used In) Operating Activities
    
    
    (19,120
    )
    
    
    43,763
    
    
    
    18,321
    
    
    
    
    
    
    
    42,964Cash Flows from Investing Activities:Investment in affiliates
    
    
    (3,500
    )
    
    
    
    
    
    
    
    
    
    
    3,500
    
    
    
    Deposits on asset commitments
    
    
    
    
    
    
    10,616
    
    
    
    (584
    )
    
    
    
    
    
    
    10,032Proceeds from sale of property and equipment
    
    
    
    
    
    
    6,634
    
    
    
    59
    
    
    
    
    
    
    
    6,693Purchase of property and equipment
    
    
    
    
    
    
    (49,089
    )
    
    
    (8,904
    )
    
    
    
    
    
    
    (57,993
    )Net Cash Used in Investing Activities
    
    
    (3,500
    )
    
    
    (31,839
    )
    
    
    (9,429
    )
    
    
    3,500
    
    
    
    (41,268
    )
 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 STATEMENTS OF CASH FLOW
 OtherAllis-Chalmers
    
    
    
    
    
    
    Subsidiaries(Parent/
    
    
    Subsidiary
    
    
    (Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors)
    
    
    Adjustments
    
    
    TotalCash Flows from Financing Activities:Accounts receivable from affiliates
    
    
    
    
    
    
    13,615
    
    
    
    
    
    
    
    (13,615
    )
    
    
    Accounts payable to affiliates
    
    
    (13,591
    )
    
    
    
    
    
    
    (24
    )
    
    
    13,615
    
    
    
    Proceeds from parent contributions
    
    
    
    
    
    
    
    
    
    
    3,500
    
    
    
    (3,500
    )
    
    
    Proceeds from issuance of stock, net
    
    
    120,337
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    120,337Proceeds from long-term debt
    
    
    
    
    
    
    25,000
    
    
    
    
    
    
    
    
    
    
    
    25,000Net repayment under line of credit
    
    
    (36,500
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (36,500
    )Payments on long-term debt
    
    
    (47,135
    )
    
    
    (1,380
    )
    
    
    (8,881
    )
    
    
    
    
    
    
    (57,396
    )Debt issuance costs
    
    
    (491
    )
    
    
    (153
    )
    
    
    
    
    
    
    
    
    
    
    (644
    )Net Cash Provided By (Used In) Financing Activities
    
    
    22,620
    
    
    
    37,082
    
    
    
    (5,405
    )
    
    
    (3,500
    )
    
    
    50,797Net change in cash and cash equivalents
    
    
    
    
    
    
    49,006
    
    
    
    3,487
    
    
    
    
    
    
    
    52,493Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    2,923
    
    
    
    3,943
    
    
    
    
    
    
    
    6,866Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    51,929
    
    
    $
    7,430
    
    
    $
    
    
    
    $
    59,359
 22




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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 Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues:Oilfield Services
    
    $
    49,730
    
    
    $
    29,473
    
    
    $
    89,365
    
    
    $
    73,923Drilling and Completion
    
    
    95,977
    
    
    
    67,792
    
    
    
    184,477
    
    
    
    146,938Rental Services
    
    
    12,937
    
    
    
    15,240
    
    
    
    25,172
    
    
    
    36,747$
    158,644
    
    
    $
    112,505
    
    
    $
    299,014
    
    
    $
    257,608Operating Income (Loss):Oilfield Services
    
    $
    2,055
    
    
    $
    (10,277
    )
    
    $
    507
    
    
    $
    (11,490
    )Drilling and Completion
    
    
    7,053
    
    
    
    403
    
    
    
    12,515
    
    
    
    8,912Rental Services
    
    
    (831
    )
    
    
    588
    
    
    
    (1,741
    )
    
    
    4,536General corporate
    
    
    (4,143
    )
    
    
    (3,257
    )
    
    
    (7,899
    )
    
    
    (6,730
    )$
    4,134
    
    
    $
    (12,543
    )
    
    $
    3,382
    
    
    $
    (4,772
    )Depreciation and Amortization:Oilfield Services
    
    $
    7,883
    
    
    $
    7,433
    
    
    $
    15,697
    
    
    $
    14,748Drilling and Completion
    
    
    6,498
    
    
    
    5,463
    
    
    
    12,826
    
    
    
    10,720Rental Services
    
    
    7,226
    
    
    
    7,395
    
    
    
    14,364
    
    
    
    15,299General corporate
    
    
    66
    
    
    
    77
    
    
    
    130
    
    
    
    159$
    21,673
    
    
    $
    20,368
    
    
    $
    43,017
    
    
    $
    40,926Capital Expenditures:Oilfield Services
    
    $
    6,968
    
    
    $
    4,028
    
    
    $
    11,031
    
    
    $
    8,060Drilling and Completion
    
    
    6,100
    
    
    
    39,069
    
    
    
    11,841
    
    
    
    43,708Rental Services
    
    
    5,851
    
    
    
    935
    
    
    
    7,752
    
    
    
    6,191General corporate
    
    
    312
    
    
    
    3
    
    
    
    365
    
    
    
    34$
    19,231
    
    
    $
    44,035
    
    
    $
    30,989
    
    
    $
    57,993Revenues:United States
    
    $
    59,795
    
    
    $
    40,622
    
    
    $
    106,923
    
    
    $
    102,823Argentina
    
    
    76,640
    
    
    
    52,871
    
    
    
    149,025
    
    
    
    115,654Brazil
    
    
    10,502
    
    
    
    10,012
    
    
    
    20,002
    
    
    
    20,778Other international
    
    
    11,707
    
    
    
    9,000
    
    
    
    23,064
    
    
    
    18,353$
    158,644
    
    
    $
    112,505
    
    
    $
    299,014
    
    
    $
    257,608
 23




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 12  SEGMENT INFORMATION (Continued)
 As ofJune 30,
    
    
    December 31,2010
    
    
    2009Goodwill:Oilfield Services
    
    $
    23,250
    
    
    $
    23,250Drilling and Completion
    
    
    17,389
    
    
    
    17,389Rental Services
    
    
    
    
    
    
    $
    40,639
    
    
    $
    40,639Assets:Oilfield Services
    
    $
    252,875
    
    
    $
    255,899Drilling and Completion
    
    
    464,479
    
    
    
    441,482Rental Services
    
    
    299,945
    
    
    
    307,283General corporate
    
    
    63,275
    
    
    
    75,956$
    1,080,574
    
    
    $
    1,080,620Long Lived Assets:United States
    
    $
    569,943
    
    
    $
    572,727Argentina
    
    
    164,842
    
    
    
    168,681Brazil
    
    
    86,223
    
    
    
    82,477Other international
    
    
    63,779
    
    
    
    58,487$
    884,787
    
    
    $
    882,372
 NOTE 13  LEGAL MATTERS
   NOTE 14 SUBSEQUENT EVENTS
  24




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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 36.
 Overview of Our Business
    Our Industry
  Company Outlook
  25




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26




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Comparison of Three Months Ended June 30, 2010 and 2009
       27




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Revenues
    
    
    Income (Loss) from OperationsThree Months Ended
    
    
    
    
    
    
    Three Months EndedJune 30,
    
    
    
    
    
    
    
    
    
    
    June 30,2010
    
    
    2009
    
    
    Change
    
    
    2010
    
    
    2009
    
    
    Change(in thousands)Oilfield Services
    
    $
    49,730
    
    
    $
    29,473
    
    
    $
    20,257
    
    
    $
    2,055
    
    
    $
    (10,277
    )
    
    $
    12,332Drilling and Completion
    
    
    95,977
    
    
    
    67,792
    
    
    
    28,185
    
    
    
    7,053
    
    
    
    403
    
    
    
    6,650Rental Services
    
    
    12,937
    
    
    
    15,240
    
    
    
    (2,303
    )
    
    
    (831
    )
    
    
    588
    
    
    
    (1,419
    )General corporate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,143
    )
    
    
    (3,257
    )
    
    
    (886
    )Total
    
    $
    158,644
    
    
    $
    112,505
    
    
    $
    46,139
    
    
    $
    4,134
    
    
    $
    (12,543
    )
    
    $
    16,677
 Oilfield Services
  28




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Drilling and Completion
  Rental Services
  General Corporate
  Comparison of Six Months Ended June 30, 2010 and 2009
  29




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Revenues
    
    
    Income (Loss) from OperationsSix Months Ended
    
    
    Six Months EndedJune 30,
    
    
    
    
    
    
    
    
    
    
    June 30,2010
    
    
    2009
    
    
    Change
    
    
    2010
    
    
    2009
    
    
    Change(in thousands)Oilfield Services
    
    $
    89,365
    
    
    $
    73,923
    
    
    $
    15,442
    
    
    $
    507
    
    
    $
    (11,490
    )
    
    $
    11,997Drilling and Completion
    
    
    184,477
    
    
    
    146,938
    
    
    
    37,539
    
    
    
    12,515
    
    
    
    8,912
    
    
    
    3,603Rental Services
    
    
    25,172
    
    
    
    36,747
    
    
    
    (11,575
    )
    
    
    (1,741
    )
    
    
    4,536
    
    
    
    (6,277
    )General corporate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,899
    )
    
    
    (6,730
    )
    
    
    (1,169
    )Total
    
    $
    299,014
    
    
    $
    257,608
    
    
    $
    41,406
    
    
    $
    3,382
    
    
    $
    (4,772
    )
    
    $
    8,154
 Oilfield Services
  Drilling and Completion
  31




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Rental Services
  General Corporate
  Liquidity
    Operating Activities
  32




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Investing Activities
   Financing Activities
  33




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34




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Recent Events
  Off Balance Sheet Arrangements
  Capital Resources
  Critical Accounting Policies
  Recently Issued Accounting Standards
  35




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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 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 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
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
  Interest Rate Risk.
  Foreign Currency Exchange Rate Risk.
  36




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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.
  The recent Deepwater Horizon incident in the U.S. Gulf of Mexico and its consequences could have a
material adverse effect on our business.
   The recent Deepwater Horizon incident in the U.S. Gulf of Mexico may lead to other restrictions or
regulations on offshore drilling in the U.S. Gulf of Mexico, which could have a material adverse
effect on our business.
  37




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The Deepwater Horizon rig explosion in the U.S. Gulf of Mexico and resulting oil spill may make it
difficult to buy adequate insurance.
  Historically, we have
been dependent on several customers operating in a single industry; the loss of
one or more customers could adversely affect our financial condition and results of operations.
    
 ITEM 6. EXHIBITS
  
 SIGNATURES
  Allis-Chalmers Energy Inc.(Registrant) /s/ Munawar H. HidayatallahMunawar H. HidayatallahChief Executive Officer and
Chairman 38




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EXHIBIT INDEX
 4.1
    
    Fourth Amendment to Investment Agreement, dated July 14, 2010, 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 14, 2010).10.1
    
    Employment Agreement, effective April 21, 2010, by and between DLS Argentina Limited and
Carlos F. Etcheverry.
(incorporated by reference to Exhibit 10.1 to the Registrants Form 8-K filed on May
20, 2010).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 39