##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2008
 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
    
    (I.R.S. Employerincorporation or organization)
    
    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
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



ALLIS-CHALMERS ENERGY INC.
 FORM 10-Q
 For the Quarterly Period Ended June 30, 2008
 TABLE OF CONTENTS
 ITEM
    
    PAGEPART I1. Financial StatementsConsolidated Condensed Balance Sheets as of June 30, 2008 and December 31, 2007
    
    
    3Consolidated Condensed Income Statements for the three and six months ended
June 30, 2008 and 2007
    
    
    4Consolidated Condensed Statements of Cash Flows for the six months ended
June 30, 2008 and 2007
    
    
    5Notes to Consolidated Condensed Financial Statements
    
    
    62. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    273. Quantitative and Qualitative Disclosures about Market Risk
    
    
    374. Controls and Procedures
    
    
    38PART II6. Exhibits
    
    
    38Signatures
    
    
    39Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO & CFO Pursuant to Section 906
  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 31,2008
    
    
    2007(unaudited)AssetsCash and cash equivalents
    
    $
    10,080
    
    
    $
    43,693Trade receivables, net
    
    
    143,345
    
    
    
    130,094Inventories
    
    
    36,707
    
    
    
    32,209Prepaid expenses and other
    
    
    14,843
    
    
    
    11,898Total current assets
    
    
    204,975
    
    
    
    217,894Property and equipment, net
    
    
    668,563
    
    
    
    626,668Goodwill
    
    
    138,398
    
    
    
    138,398Other intangible assets, net
    
    
    33,093
    
    
    
    35,180Debt issuance costs, net
    
    
    13,211
    
    
    
    14,228Note receivable
    
    
    40,000
    
    
    
    Other assets
    
    
    28,221
    
    
    
    21,217Total assets
    
    $
    1,126,461
    
    
    $
    1,053,585Liabilities and Stockholders EquityCurrent maturities of long-term debt
    
    $
    9,127
    
    
    $
    6,434Trade accounts payable
    
    
    46,131
    
    
    
    37,464Accrued salaries, benefits and payroll taxes
    
    
    20,295
    
    
    
    15,283Accrued interest
    
    
    18,136
    
    
    
    17,817Accrued expenses
    
    
    25,078
    
    
    
    20,545Total current liabilities
    
    
    118,767
    
    
    
    97,543Long-term debt, net of current maturities
    
    
    532,218
    
    
    
    508,300Deferred income taxes
    
    
    34,399
    
    
    
    30,090Other long-term liabilities
    
    
    3,074
    
    
    
    3,323Total liabilities
    
    
    688,458
    
    
    
    639,256Commitments and contingenciesStockholders EquityPreferred stock, $0.01 par value (25,000,000 shares authorized, no shares issued)
    
    
    
    
    
    
    Common stock, $0.01 par value (100,000,000 shares authorized;
35,421,072 issued and outstanding at June 30, 2008 and
35,116,035 issued and outstanding at December 31, 2007)
    
    
    354
    
    
    
    351Capital in excess of par value
    
    
    331,158
    
    
    
    326,095Retained earnings
    
    
    106,491
    
    
    
    87,883Total stockholders equity
    
    
    438,003
    
    
    
    414,329Total liabilities and stockholders equity
    
    $
    1,126,461
    
    
    $
    1,053,585
  3




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ALLIS-CHALMERS ENERGY INC.
 
 CONSOLIDATED CONDENSED INCOME STATEMENTS
   For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues
    
    $
    163,135
    
    
    $
    143,362
    
    
    $
    316,317
    
    
    $
    279,262Cost of revenuesDirect costs
    
    
    105,034
    
    
    
    83,218
    
    
    
    204,232
    
    
    
    160,823Depreciation
    
    
    15,225
    
    
    
    12,248
    
    
    
    29,727
    
    
    
    24,064Gross margin
    
    
    42,876
    
    
    
    47,896
    
    
    
    82,358
    
    
    
    94,375General and administrative
    
    
    14,137
    
    
    
    14,302
    
    
    
    28,921
    
    
    
    28,273Gain on capillary asset sale
    
    
    
    
    
    
    (8,868
    )
    
    
    
    
    
    
    (8,868
    )Amortization
    
    
    1,071
    
    
    
    988
    
    
    
    2,187
    
    
    
    2,026Income from operations
    
    
    27,668
    
    
    
    41,474
    
    
    
    51,250
    
    
    
    72,944Other income (expense):Interest expense
    
    
    (12,036
    )
    
    
    (11,845
    )
    
    
    (24,077
    )
    
    
    (25,866
    )Interest income
    
    
    1,538
    
    
    
    1,108
    
    
    
    2,690
    
    
    
    1,867Other
    
    
    369
    
    
    
    92
    
    
    
    476
    
    
    
    276Total other income (expense)
    
    
    (10,129
    )
    
    
    (10,645
    )
    
    
    (20,911
    )
    
    
    (23,723
    )Income before income taxes
    
    
    17,539
    
    
    
    30,829
    
    
    
    30,339
    
    
    
    49,221Provision for income taxes
    
    
    (6,981
    )
    
    
    (11,325
    )
    
    
    (11,731
    )
    
    
    (17,552
    )Net income
    
    $
    10,558
    
    
    $
    19,504
    
    
    $
    18,608
    
    
    $
    31,669Net income per common share:Basic
    
    $
    0.30
    
    
    $
    0.56
    
    
    $
    0.53
    
    
    $
    0.95Diluted
    
    $
    0.30
    
    
    $
    0.55
    
    
    $
    0.53
    
    
    $
    0.93Weighted average shares outstanding:Basic
    
    
    35,018
    
    
    
    34,662
    
    
    
    34,928
    
    
    
    33,502Diluted
    
    
    35,534
    
    
    
    35,193
    
    
    
    35,386
    
    
    
    34,116
  4




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ALLIS-CHALMERS ENERGY INC.
 
 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
   For the Six Months EndedJune 30,2008
    
    
    2007Cash Flows from Operating Activities:Net income
    
    $
    18,608
    
    
    $
    31,669Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    31,914
    
    
    
    26,090Amortization and write-off of deferred financing fees
    
    
    1,038
    
    
    
    2,182Stock-based compensation
    
    
    4,385
    
    
    
    1,104Allowance for bad debts
    
    
    636
    
    
    
    279Deferred taxes
    
    
    4,309
    
    
    
    6,746Gain on sale of property and equipment
    
    
    (537
    )
    
    
    (37
    )Gain on capillary asset sale
    
    
    
    
    
    
    (8,868
    )Changes in operating assets and liabilities, net of acquisitions:(Increase) in trade receivable
    
    
    (13,887
    )
    
    
    (25,472
    )(Increase) in inventories
    
    
    (4,498
    )
    
    
    (3,849
    )(Increase) decrease in prepaid expenses and other current assets
    
    
    (178
    )
    
    
    9,495(Increase) decrease in other assets
    
    
    (3,657
    )
    
    
    109Increase in trade accounts payable
    
    
    8,667
    
    
    
    3,991Increase in accrued interest
    
    
    319
    
    
    
    7,856Increase in accrued expenses
    
    
    4,533
    
    
    
    3,002Increase in accrued salaries, benefits and payroll taxes
    
    
    5,012
    
    
    
    2,128(Decrease) in other long-term liabilities
    
    
    (249
    )
    
    
    (43
    )Net Cash Provided By Operating Activities
    
    
    56,415
    
    
    
    56,382Cash Flows from Investing Activities:Investment in note receivable
    
    
    (40,000
    )
    
    
    Deposits on asset commitments
    
    
    (3,447
    )
    
    
    Acquisition of businesses, net of cash received
    
    
    
    
    
    
    (3,550
    )Purchase of investment interests
    
    
    
    
    
    
    (440
    )Proceeds from sale of property and equipment
    
    
    3,578
    
    
    
    3,679Proceeds from sale of capillary assets
    
    
    
    
    
    
    16,250Purchase of property and equipment
    
    
    (74,663
    )
    
    
    (47,181
    )Net Cash Used In Investing Activities
    
    
    (114,532
    )
    
    
    (31,242
    )Cash Flows from Financing Activities:Proceeds from issuance of stock, net
    
    
    
    
    
    
    100,055Proceeds from exercises of options
    
    
    609
    
    
    
    3,138Proceeds from long-term debt
    
    
    17,946
    
    
    
    250,000Net borrowings under line of credit
    
    
    10,000
    
    
    
    Payments on long-term debt
    
    
    (4,102
    )
    
    
    (305,199
    )Tax benefits on stock-based compensation plans
    
    
    72
    
    
    
    1,464Debt issuance costs
    
    
    (21
    )
    
    
    (7,581
    )Net Cash Provided By Financing Activities
    
    
    24,504
    
    
    
    41,877Net change in cash and cash equivalents
    
    
    (33,613
    )
    
    
    67,017Cash and cash equivalents at beginning of year
    
    
    43,693
    
    
    
    39,745Cash and cash equivalents at end of period
    
    $
    10,080
    
    
    $
    106,762
  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
     6




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
 Fair Value Measurements,
 The Fair
Value Option for Financial Assets and Financial Liabilities
 Business Combinations,
 Non-controlling Interests in Consolidated Financial Statements  an amendment of ARB No. 51
 Disclosures
about Derivative Instruments and Hedging Activities  an amendment of FASB Statement No. 133
 7




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
 Determination of the Useful Life of
Intangible Assets Goodwill and Other Intangible Assets Business Combinations
 NOTE 2  STOCK-BASED COMPENSATION
 Share-Based Payment
    Weighted
    
    WeightedShares
    
    Average
    
    Average
    
    AggregateUnder
    
    Exercise
    
    Contractual
    
    Intrinsic ValueOption
    
    Price
    
    Life (Years)
    
    (millions)Balance at December 31, 2007
    
    
    986,763
    
    
    $
    10.77Granted
    
    
    
    
    
    
    Canceled
    
    
    (7,328
    )
    
    
    10.53Exercised
    
    
    (66,703
    )
    
    
    9.13Outstanding at June 30, 2008
    
    
    912,732
    
    
    
    10.89
    
    
    
    7.46
    
    
    $
    7.20Exercisable at June 30, 2008
    
    
    693,066
    
    
    $
    7.43
    
    
    
    6.94
    
    
    $
    7.19
  8




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
  For the Three Months EndedJune 30,2007Expected dividend yield
    
    
    Expected price volatility
    
    
    68.06
    %Risk free interest rate
    
    
    4.48
    %Expected life of options
    
    7 yearsWeighted
average fair value of options granted at market value
    
    $
    11.33
  Weighted AverageNumber of
    
    
    Grant-Date Fair ValueShares
    
    
    Per ShareNonvested at December 31, 2007
    
    
    993,203
    
    
    $
    17.45Granted
    
    
    10,000
    
    
    
    11.73Vested
    
    
    (249,574
    )
    
    
    17.00Forfeited
    
    
    
    
    
    
    Nonvested at June 30, 2008
    
    
    753,629
    
    
    $
    17.52
  NOTE 3  INCOME PER COMMON SHARE
 Earnings Per Share,
 9




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
  For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Numerator:Net income
    
    $
    10,558
    
    
    $
    19,504
    
    
    $
    18,608
    
    
    $
    31,669Denominator:Weighted average common shares
outstanding excluding nonvested
restricted stock
    
    
    35,018
    
    
    
    34,662
    
    
    
    34,928
    
    
    
    33,502Effect of potentially dilutive common shares:Warrants and employee and director
stock options and restricted shares
    
    
    516
    
    
    
    531
    
    
    
    458
    
    
    
    614Weighted average common shares
outstanding and assumed
conversions
    
    
    35,534
    
    
    
    35,193
    
    
    
    35,386
    
    
    
    34,116Net income per common shareBasic
    
    $
    0.30
    
    
    $
    0.56
    
    
    $
    0.53
    
    
    $
    0.95Diluted
    
    $
    0.30
    
    
    $
    0.55
    
    
    $
    0.53
    
    
    $
    0.93Potentially dilutive securities
excluded as anti-dilutive
    
    
    472
    
    
    
    91
    
    
    
    548
    
    
    
    92
 NOTE 4  GOODWILL AND INTANGIBLE ASSETS
 Goodwill and Other
Intangible Assets
  10




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
 NOTE 5
- INVENTORIES
  June 30,
    
    
    December 31,2008
    
    
    2007ManufacturedFinished goods
    
    $
    2,671
    
    
    $
    2,198Work in process
    
    
    2,247
    
    
    
    1,781Raw materials
    
    
    4,511
    
    
    
    4,464Total manufactured
    
    
    9,429
    
    
    
    8,443Hammers
    
    
    1,967
    
    
    
    1,434Drive pipe
    
    
    530
    
    
    
    420Rental supplies
    
    
    2,262
    
    
    
    2,261Chemicals and drilling fluids
    
    
    4,097
    
    
    
    3,236Rig parts and related inventory
    
    
    10,747
    
    
    
    9,985Coiled tubing and related inventory
    
    
    1,317
    
    
    
    1,014Shop supplies and related inventory
    
    
    6,358
    
    
    
    5,416Total inventories
    
    $
    36,707
    
    
    $
    32,209
 NOTE 6- NOTE RECEIVABLE
   NOTE 7- DEBT
  June 30,
    
    
    December 31,2008
    
    
    2007Senior notes
    
    $
    505,000
    
    
    $
    505,000Bank term loans
    
    
    21,684
    
    
    
    4,926Revolving line of credit
    
    
    10,000
    
    
    
    Seller notes
    
    
    2,000
    
    
    
    2,350Notes payable to former directors
    
    
    32
    
    
    
    32Equipment and vehicle installment notes
    
    
    
    
    
    
    595Insurance premium financing
    
    
    2,629
    
    
    
    1,707Obligations under non-compete agreements
    
    
    
    
    
    
    110Capital lease obligations
    
    
    
    
    
    
    14Total debt
    
    
    541,345
    
    
    
    514,734Less: current maturities
    
    
    9,127
    
    
    
    6,434Long-term debt obligations
    
    $
    532,218
    
    
    $
    508,300
 11




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
 Senior notes, bank loans and line of credit agreements
      Notes payable
    12




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
  Other debt
   NOTE 8  STOCKHOLDERS EQUITY
  NOTE 9  CONDENSED CONSOLIDATING FINANCIAL INFORMATION
  13




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
 CONDENSED CONSOLIDATING BALANCE SHEETS
 Allis-Chalmers
    
    
    
    
    
    
    Subsidiary(Parent/
    
    
    Subsidiary
    
    
    Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    TotalAssetsCash and cash equivalents
    
    $
    
    
    
    $
    7,666
    
    
    $
    2,414
    
    
    $
    
    
    
    $
    10,080Trade receivables, net
    
    
    
    
    
    
    88,678
    
    
    
    54,669
    
    
    
    (2
    )
    
    
    143,345Inventories
    
    
    
    
    
    
    18,785
    
    
    
    17,922
    
    
    
    
    
    
    
    36,707Intercompany receivables
    
    
    21,293
    
    
    
    
    
    
    
    
    
    
    
    (21,293
    )
    
    
    Note receivable from affiliate
    
    
    14,235
    
    
    
    
    
    
    
    
    
    
    
    (14,235
    )
    
    
    Prepaid expenses and other
    
    
    7,730
    
    
    
    4,020
    
    
    
    3,093
    
    
    
    
    
    
    
    14,843Total current assets
    
    
    43,258
    
    
    
    119,149
    
    
    
    78,098
    
    
    
    (35,530
    )
    
    
    204,975Property and equipment, net
    
    
    
    
    
    
    485,816
    
    
    
    182,747
    
    
    
    
    
    
    
    668,563Goodwill
    
    
    
    
    
    
    136,875
    
    
    
    1,523
    
    
    
    
    
    
    
    138,398Other intangible assets, net
    
    
    529
    
    
    
    32,525
    
    
    
    39
    
    
    
    
    
    
    
    33,093Debt issuance costs, net
    
    
    13,211
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,211Note receivable from affiliates
    
    
    13,490
    
    
    
    
    
    
    
    
    
    
    
    (13,490
    )
    
    
    Investments in affiliates
    
    
    868,110
    
    
    
    
    
    
    
    
    
    
    
    (868,110
    )
    
    
    Note receivable
    
    
    40,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,000Other assets
    
    
    4,912
    
    
    
    3,888
    
    
    
    19,421
    
    
    
    
    
    
    
    28,221Total Assets
    
    $
    983,510
    
    
    $
    778,253
    
    
    $
    281,828
    
    
    $
    (917,130
    )
    
    $
    1,126,461Liabilities and Stockholders EquityCurrent maturities of long-term debt
    
    $
    782
    
    
    $
    3,879
    
    
    $
    4,466
    
    
    $
    
    
    
    $
    9,127Trade accounts payable
    
    
    
    
    
    
    16,607
    
    
    
    29,526
    
    
    
    (2
    )
    
    
    46,131Accrued salaries, benefits and
payroll taxes
    
    
    
    
    
    
    3,569
    
    
    
    16,726
    
    
    
    
    
    
    
    20,295Accrued interest
    
    
    17,759
    
    
    
    58
    
    
    
    319
    
    
    
    
    
    
    
    18,136Accrued expenses
    
    
    55
    
    
    
    12,729
    
    
    
    12,294
    
    
    
    
    
    
    
    25,078Intercompany payables
    
    
    
    
    
    
    377,826
    
    
    
    1,185
    
    
    
    (379,011
    )
    
    
    Note payable to affiliate
    
    
    
    
    
    
    
    
    
    
    14,235
    
    
    
    (14,235
    )
    
    
    Total current liabilities
    
    
    18,596
    
    
    
    414,668
    
    
    
    78,751
    
    
    
    (393,248
    )
    
    
    118,767Long-term debt, net of current
maturities
    
    
    515,000
    
    
    
    
    
    
    
    17,218
    
    
    
    
    
    
    
    532,218Note payable to affiliate
    
    
    
    
    
    
    
    
    
    
    13,490
    
    
    
    (13,490
    )
    
    
    Deferred income taxes
    
    
    11,911
    
    
    
    13,696
    
    
    
    8,792
    
    
    
    
    
    
    
    34,399Other long-term liabilities
    
    
    
    
    
    
    186
    
    
    
    2,888
    
    
    
    
    
    
    
    3,074Total liabilities
    
    
    545,507
    
    
    
    428,550
    
    
    
    121,139
    
    
    
    (406,738
    )
    
    
    688,458Commitments and contingenciesStockholders EquityCommon stock
    
    
    354
    
    
    
    3,526
    
    
    
    42,963
    
    
    
    (46,489
    )
    
    
    354Capital in excess of par value
    
    
    331,158
    
    
    
    167,508
    
    
    
    74,969
    
    
    
    (242,477
    )
    
    
    331,158Retained earnings
    
    
    106,491
    
    
    
    178,669
    
    
    
    42,757
    
    
    
    (221,426
    )
    
    
    106,491Total stockholders
equity
    
    
    438,003
    
    
    
    349,703
    
    
    
    160,689
    
    
    
    (510,392
    )
    
    
    438,003Total liabilities and
stockholders equity
    
    $
    983,510
    
    
    $
    778,253
    
    
    $
    281,828
    
    
    $
    (917,130
    )
    
    $
    1,126,461
 14




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
 CONDENSED CONSOLIDATING INCOME STATEMENTS
  Allis-Chalmers
    
    
    
    
    
    
    Subsidiary(Parent/
    
    
    Subsidiary
    
    
    Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    TotalRevenues
    
    $
    
    
    
    $
    183,451
    
    
    $
    132,879
    
    
    $
    (13
    )
    
    $
    316,317Cost of revenuesDirect costs
    
    
    
    
    
    
    101,245
    
    
    
    103,000
    
    
    
    (13
    )
    
    
    204,232Depreciation
    
    
    
    
    
    
    23,167
    
    
    
    6,560
    
    
    
    
    
    
    
    29,727Gross margin
    
    
    
    
    
    
    59,039
    
    
    
    23,319
    
    
    
    
    
    
    
    82,358General and administrative
    
    
    3,890
    
    
    
    19,988
    
    
    
    5,043
    
    
    
    
    
    
    
    28,921Amortization
    
    
    23
    
    
    
    2,147
    
    
    
    17
    
    
    
    
    
    
    
    2,187Income (loss) from
operations
    
    
    (3,913
    )
    
    
    36,904
    
    
    
    18,259
    
    
    
    
    
    
    
    51,250Other income (expense):Equity earnings in
affiliates, net of tax
    
    
    43,700
    
    
    
    
    
    
    
    
    
    
    
    (43,700
    )
    
    
    Interest, net
    
    
    (21,221
    )
    
    
    60
    
    
    
    (226
    )
    
    
    
    
    
    
    (21,387
    )Other
    
    
    42
    
    
    
    24
    
    
    
    410
    
    
    
    
    
    
    
    476Total other income
(expense)
    
    
    22,521
    
    
    
    84
    
    
    
    184
    
    
    
    (43,700
    )
    
    
    (20,911
    )Net income (loss)before
income taxes
    
    
    18,608
    
    
    
    36,988
    
    
    
    18,443
    
    
    
    (43,700
    )
    
    
    30,339Provision for income taxes
    
    
    
    
    
    
    (4,449
    )
    
    
    (7,282
    )
    
    
    
    
    
    
    (11,731
    )Net income (loss)
    
    $
    18,608
    
    
    $
    32,539
    
    
    $
    11,161
    
    
    $
    (43,700
    )
    
    $
    18,608
 15




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
 CONDENSED CONSOLIDATING INCOME STATEMENTS
 Allis-Chalmers
    
    
    
    
    
    
    Subsidiary(Parent/
    
    
    Subsidiary
    
    
    Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    TotalRevenues
    
    $
    
    
    
    $
    93,323
    
    
    $
    69,818
    
    
    $
    (6
    )
    
    $
    163,135Cost of revenuesDirect costs
    
    
    
    
    
    
    50,693
    
    
    
    54,347
    
    
    
    (6
    )
    
    
    105,034Depreciation
    
    
    
    
    
    
    11,834
    
    
    
    3,391
    
    
    
    
    
    
    
    15,225Gross margin
    
    
    
    
    
    
    30,796
    
    
    
    12,080
    
    
    
    
    
    
    
    42,876General and administrative
    
    
    1,514
    
    
    
    9,942
    
    
    
    2,681
    
    
    
    
    
    
    
    14,137Amortization
    
    
    11
    
    
    
    1,052
    
    
    
    8
    
    
    
    
    
    
    
    1,071Income (loss) from
operations
    
    
    (1,525
    )
    
    
    19,802
    
    
    
    9,391
    
    
    
    
    
    
    
    27,668Other income (expense):Equity earnings in
affiliates, net of tax
    
    
    22,477
    
    
    
    
    
    
    
    
    
    
    
    (22,477
    )
    
    
    Interest, net
    
    
    (10,409
    )
    
    
    (16
    )
    
    
    (73
    )
    
    
    
    
    
    
    (10,498
    )Other
    
    
    15
    
    
    
    (20
    )
    
    
    374
    
    
    
    
    
    
    
    369Total other income
(expense)
    
    
    12,083
    
    
    
    (36
    )
    
    
    301
    
    
    
    (22,477
    )
    
    
    (10,129
    )Net income (loss)before
income taxes
    
    
    10,558
    
    
    
    19,766
    
    
    
    9,692
    
    
    
    (22,477
    )
    
    
    17,539Provision for income taxes
    
    
    
    
    
    
    (2,938
    )
    
    
    (4,043
    )
    
    
    
    
    
    
    (6,981
    )Net income (loss)
    
    $
    10,558
    
    
    $
    16,828
    
    
    $
    5,649
    
    
    $
    (22,477
    )
    
    $
    10,558
 16




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (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)
    
    $
    18,608
    
    
    $
    32,539
    
    
    $
    11,161
    
    
    $
    (43,700
    )
    
    $
    18,608Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:Depreciation and amortization
    
    
    23
    
    
    
    25,314
    
    
    
    6,577
    
    
    
    
    
    
    
    31,914Amortization and write-off of
deferred financing fees
    
    
    1,038
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,038Stock based compensation
    
    
    4,385
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,385Allowance for bad debts
    
    
    
    
    
    
    636
    
    
    
    
    
    
    
    
    
    
    
    636Equity earnings in affiliates
    
    
    (43,700
    )
    
    
    
    
    
    
    
    
    
    
    43,700
    
    
    
    Deferred taxes
    
    
    3,254
    
    
    
    (114
    )
    
    
    1,169
    
    
    
    
    
    
    
    4,309(Gain) on sale of property and
equipment
    
    
    
    
    
    
    (495
    )
    
    
    (42
    )
    
    
    
    
    
    
    (537
    )Changes in operating assets and
liabilities, net of acquisitions:(Increase) in trade receivables
    
    
    
    
    
    
    (6,191
    )
    
    
    (7,696
    )
    
    
    
    
    
    
    (13,887
    )(Increase) in inventories
    
    
    
    
    
    
    (3,086
    )
    
    
    (1,412
    )
    
    
    
    
    
    
    (4,498
    )(Increase) decrease in prepaid
expenses and other current assets
    
    
    
    
    
    
    1,312
    
    
    
    (1,490
    )
    
    
    
    
    
    
    (178
    )(Increase) decrease in other assets
    
    
    (4,897
    )
    
    
    989
    
    
    
    251
    
    
    
    
    
    
    
    (3,657
    )(Decrease) increase in trade
accounts payable
    
    
    
    
    
    
    (205
    )
    
    
    8,872
    
    
    
    
    
    
    
    8,667Increase in accrued interest
    
    
    50
    
    
    
    25
    
    
    
    244
    
    
    
    
    
    
    
    319(Decrease) increase in accrued
expenses
    
    
    (1,605
    )
    
    
    5,602
    
    
    
    536
    
    
    
    
    
    
    
    4,533(Decrease) increase in accrued
salaries, benefits and payroll
taxes
    
    
    
    
    
    
    (143
    )
    
    
    5,155
    
    
    
    
    
    
    
    5,012(Decrease) in other long- term
liabilities
    
    
    (31
    )
    
    
    (56
    )
    
    
    (162
    )
    
    
    
    
    
    
    (249
    )Net Cash Provided By (Used In)
Operating Activities
    
    
    (22,875
    )
    
    
    56,127
    
    
    
    23,163
    
    
    
    
    
    
    
    56,415Cash Flows from Investing Activities:Notes receivable from affiliates
    
    
    (3,075
    )
    
    
    
    
    
    
    
    
    
    
    3,075
    
    
    
    Investment in note receivable
    
    
    (40,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40,000
    )Deposits on asset commitments
    
    
    
    
    
    
    
    
    
    
    (3,447
    )
    
    
    
    
    
    
    (3,447
    )Proceeds from sale of property and
equipment
    
    
    
    
    
    
    3,535
    
    
    
    43
    
    
    
    
    
    
    
    3,578Purchase of property and equipment
    
    
    
    
    
    
    (34,968
    )
    
    
    (39,695
    )
    
    
    
    
    
    
    (74,663
    )Net Cash Provided By (Used in)
Investing Activities
    
    
    (43,075
    )
    
    
    (31,433
    )
    
    
    (43,099
    )
    
    
    3,075
    
    
    
    (114,532
    )
 17




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (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
    
    
    55,290
    
    
    
    
    
    
    
    
    
    
    
    (55,290
    )
    
    
    Accounts payable to affiliates
    
    
    
    
    
    
    (55,290
    )
    
    
    
    
    
    
    55,290
    
    
    
    Note payable to affiliate
    
    
    
    
    
    
    
    
    
    
    3,075
    
    
    
    (3,075
    )
    
    
    Proceeds from exercises of options
    
    
    609
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    609Tax benefit on stock-based
compensation plans
    
    
    72
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    72Proceeds from long-term debt
    
    
    
    
    
    
    
    
    
    
    17,946
    
    
    
    
    
    
    
    17,946Net borrowing under line of credit
    
    
    10,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,000Payments on long-term debt
    
    
    
    
    
    
    (2,914
    )
    
    
    (1,188
    )
    
    
    
    
    
    
    (4,102
    )Debt issuance costs
    
    
    (21
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21
    )Net Cash Provided By (Used
In) Financing Activities
    
    
    65,950
    
    
    
    (58,204
    )
    
    
    19,833
    
    
    
    (3,075
    )
    
    
    24,504Net change in cash and cash
equivalents
    
    
    
    
    
    
    (33,510
    )
    
    
    (103
    )
    
    
    
    
    
    
    (33,613
    )Cash and cash equivalents at
beginning of year
    
    
    
    
    
    
    41,176
    
    
    
    2,517
    
    
    
    
    
    
    
    43,693Cash and cash equivalents at end
of period
    
    $
    
    
    
    $
    7,666
    
    
    $
    2,414
    
    
    $
    
    
    
    $
    10,080
 18




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
 CONDENSED CONSOLIDATING BALANCE SHEETS
 Allis-Chalmers
    
    
    
    
    
    
    Subsidiary(Parent/
    
    
    Subsidiary
    
    
    Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    TotalAssetsCash and cash equivalents
    
    $
    
    
    
    $
    41,176
    
    
    $
    2,517
    
    
    $
    
    
    
    $
    43,693Trade receivables, net
    
    
    
    
    
    
    83,126
    
    
    
    46,973
    
    
    
    (5
    )
    
    
    130,094Inventories
    
    
    
    
    
    
    15,699
    
    
    
    16,510
    
    
    
    
    
    
    
    32,209Intercompany receivables
    
    
    76,583
    
    
    
    
    
    
    
    
    
    
    
    (76,583
    )
    
    
    Note receivable from affiliate
    
    
    8,270
    
    
    
    
    
    
    
    
    
    
    
    (8,270
    )
    
    
    Prepaid expenses and other
    
    
    7,731
    
    
    
    2,564
    
    
    
    1,603
    
    
    
    
    
    
    
    11,898Total current assets
    
    
    92,584
    
    
    
    142,565
    
    
    
    67,603
    
    
    
    (84,858
    )
    
    
    217,894Property and equipment, net
    
    
    
    
    
    
    477,055
    
    
    
    149,613
    
    
    
    
    
    
    
    626,668Goodwill
    
    
    
    
    
    
    136,875
    
    
    
    1,523
    
    
    
    
    
    
    
    138,398Other intangible assets, net
    
    
    552
    
    
    
    34,572
    
    
    
    56
    
    
    
    
    
    
    
    35,180Debt issuance costs, net
    
    
    14,228
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,228Note receivable from affiliates
    
    
    16,380
    
    
    
    
    
    
    
    
    
    
    
    (16,380
    )
    
    
    Investments in affiliates
    
    
    824,410
    
    
    
    
    
    
    
    
    
    
    
    (824,410
    )
    
    
    Other assets
    
    
    15
    
    
    
    4,977
    
    
    
    16,225
    
    
    
    
    
    
    
    21,217Total Assets
    
    $
    948,169
    
    
    $
    796,044
    
    
    $
    235,020
    
    
    $
    (925,648
    )
    
    $
    1,053,585Liabilities and Stockholders EquityCurrent maturities of long-term debt
    
    $
    32
    
    
    $
    4,026
    
    
    $
    2,376
    
    
    $
    
    
    
    $
    6,434Trade accounts payable
    
    
    
    
    
    
    16,815
    
    
    
    20,654
    
    
    
    (5
    )
    
    
    37,464Accrued salaries, benefits and payroll taxes
    
    
    
    
    
    
    3,712
    
    
    
    11,571
    
    
    
    
    
    
    
    15,283Accrued interest
    
    
    17,709
    
    
    
    33
    
    
    
    75
    
    
    
    
    
    
    
    17,817Accrued expenses
    
    
    1,660
    
    
    
    7,127
    
    
    
    11,758
    
    
    
    
    
    
    
    20,545Intercompany payables
    
    
    
    
    
    
    433,116
    
    
    
    1,185
    
    
    
    (434,301
    )
    
    
    Note payable to affiliate
    
    
    
    
    
    
    
    
    
    
    8,270
    
    
    
    (8,270
    )
    
    
    Total current liabilities
    
    
    19,401
    
    
    
    464,829
    
    
    
    55,889
    
    
    
    (442,576
    )
    
    
    97,543Long-term debt, net of current maturities
    
    
    505,750
    
    
    
    
    
    
    
    2,550
    
    
    
    
    
    
    
    508,300Note payable to affiliate
    
    
    
    
    
    
    
    
    
    
    16,380
    
    
    
    (16,380
    )
    
    
    Deferred income taxes
    
    
    8,658
    
    
    
    13,809
    
    
    
    7,623
    
    
    
    
    
    
    
    30,090Other long-term liabilities
    
    
    31
    
    
    
    242
    
    
    
    3,050
    
    
    
    
    
    
    
    3,323Total liabilities
    
    
    533,840
    
    
    
    478,880
    
    
    
    85,492
    
    
    
    (458,956
    )
    
    
    639,256Commitments and contingenciesStockholders EquityCommon stock
    
    
    351
    
    
    
    3,526
    
    
    
    42,963
    
    
    
    (46,489
    )
    
    
    351Capital in excess of par value
    
    
    326,095
    
    
    
    167,508
    
    
    
    74,969
    
    
    
    (242,477
    )
    
    
    326,095Retained earnings
    
    
    87,883
    
    
    
    146,130
    
    
    
    31,596
    
    
    
    (177,726
    )
    
    
    87,883Total stockholders equity
    
    
    414,329
    
    
    
    317,164
    
    
    
    149,528
    
    
    
    (466,692
    )
    
    
    414,329Total liabilities and
stockholders equity
    
    $
    948,169
    
    
    $
    796,044
    
    
    $
    235,020
    
    
    $
    (925,648
    )
    
    $
    1,053,585
 19




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
 CONDENSED CONSOLIDATING INCOME STATEMENTS
 Allis-Chalmers
    
    
    
    
    
    
    Subsidiary(Parent/
    
    
    Subsidiary
    
    
    Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    TotalRevenues
    
    $
    
    
    
    $
    177,540
    
    
    $
    101,749
    
    
    $
    (27
    )
    
    $
    279,262Cost of revenuesDirect costs
    
    
    
    
    
    
    88,549
    
    
    
    72,301
    
    
    
    (27
    )
    
    
    160,823Depreciation
    
    
    
    
    
    
    18,633
    
    
    
    5,431
    
    
    
    
    
    
    
    24,064Gross margin
    
    
    
    
    
    
    70,358
    
    
    
    24,017
    
    
    
    
    
    
    
    94,375General and administrative
    
    
    1,017
    
    
    
    23,088
    
    
    
    4,168
    
    
    
    
    
    
    
    28,273Gain on capillary asset sale
    
    
    
    
    
    
    (8,868
    )
    
    
    
    
    
    
    
    
    
    
    (8,868
    )Amortization
    
    
    23
    
    
    
    1,986
    
    
    
    17
    
    
    
    
    
    
    
    2,026Income from operations
    
    
    (1,040
    )
    
    
    54,152
    
    
    
    19,832
    
    
    
    
    
    
    
    72,944Other income (expense):Equity earnings in
affiliates, net of tax
    
    
    57,629
    
    
    
    
    
    
    
    
    
    
    
    (57,629
    )
    
    
    Interest, net
    
    
    (24,945
    )
    
    
    1,628
    
    
    
    (682
    )
    
    
    
    
    
    
    (23,999
    )Other
    
    
    25
    
    
    
    115
    
    
    
    136
    
    
    
    
    
    
    
    276Total other income
(expense)
    
    
    32,709
    
    
    
    1,743
    
    
    
    (546
    )
    
    
    (57,629
    )
    
    
    (23,723
    )Net income before income
taxes
    
    
    31,669
    
    
    
    55,895
    
    
    
    19,286
    
    
    
    (57,629
    )
    
    
    49,221Provision for income taxes
    
    
    
    
    
    
    (11,012
    )
    
    
    (6,540
    )
    
    
    
    
    
    
    (17,552
    )Net income
    
    $
    31,669
    
    
    $
    44,883
    
    
    $
    12,746
    
    
    $
    (57,629
    )
    
    $
    31,669
 20




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
 CONDENSED CONSOLIDATING INCOME STATEMENTS
 Allis-Chalmers
    
    
    
    
    
    
    Subsidiary(Parent/
    
    
    Subsidiary
    
    
    Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    TotalRevenues
    
    $
    
    
    
    $
    90,511
    
    
    $
    52,861
    
    
    $
    (10
    )
    
    $
    143,362Cost of revenuesDirect costs
    
    
    
    
    
    
    45,514
    
    
    
    37,714
    
    
    
    (10
    )
    
    
    83,218Depreciation
    
    
    
    
    
    
    9,516
    
    
    
    2,732
    
    
    
    
    
    
    
    12,248Gross margin
    
    
    
    
    
    
    35,481
    
    
    
    12,415
    
    
    
    
    
    
    
    47,896General and administrative
    
    
    599
    
    
    
    11,515
    
    
    
    2,188
    
    
    
    
    
    
    
    14,302Gain on capillary asset sale
    
    
    
    
    
    
    (8,868
    )
    
    
    
    
    
    
    
    
    
    
    (8,868
    )Amortization
    
    
    11
    
    
    
    968
    
    
    
    9
    
    
    
    
    
    
    
    988Income from operations
    
    
    (610
    )
    
    
    31,866
    
    
    
    10,218
    
    
    
    
    
    
    
    41,474Other income (expense):Equity earnings in
affiliates, net of tax
    
    
    31,507
    
    
    
    
    
    
    
    
    
    
    
    (31,507
    )
    
    
    Interest, net
    
    
    (11,406
    )
    
    
    976
    
    
    
    (307
    )
    
    
    
    
    
    
    (10,737
    )Other
    
    
    13
    
    
    
    68
    
    
    
    11
    
    
    
    
    
    
    
    92Total other income
(expense)
    
    
    20,114
    
    
    
    1,044
    
    
    
    (296
    )
    
    
    (31,507
    )
    
    
    (10,645
    )Net income before income
taxes
    
    
    19,504
    
    
    
    32,910
    
    
    
    9,922
    
    
    
    (31,507
    )
    
    
    30,829Provision for income taxes
    
    
    
    
    
    
    (7,817
    )
    
    
    (3,508
    )
    
    
    
    
    
    
    (11,325
    )Net income
    
    $
    19,504
    
    
    $
    25,093
    
    
    $
    6,414
    
    
    $
    (31,507
    )
    
    $
    19,504
 21




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (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
    
    $
    31,669
    
    
    $
    44,883
    
    
    $
    12,746
    
    
    $
    (57,629
    )
    
    $
    31,669Adjustments to reconcile net income to
net cash provided by operating
activities:Depreciation and amortization
    
    
    22
    
    
    
    20,620
    
    
    
    5,448
    
    
    
    
    
    
    
    26,090Amortization and write-off of
deferred financing fees
    
    
    2,182
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,182Stock-based compensation
    
    
    1,104
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,104Allowance for bad debts
    
    
    
    
    
    
    279
    
    
    
    
    
    
    
    
    
    
    
    279Equity earnings in affiliates
    
    
    (57,629
    )
    
    
    
    
    
    
    
    
    
    
    57,629
    
    
    
    Deferred income taxes
    
    
    6,699
    
    
    
    1
    
    
    
    46
    
    
    
    
    
    
    
    6,746(Gain) on sale of equipment
    
    
    
    
    
    
    (34
    )
    
    
    (3
    )
    
    
    
    
    
    
    (37
    )Gain on capillary asset sale
    
    
    
    
    
    
    (8,868
    )
    
    
    
    
    
    
    
    
    
    
    (8,868
    )Changes in operating assets and
liabilities, net of acquisitions:(Increase) in trade receivables
    
    
    
    
    
    
    (19,084
    )
    
    
    (6,388
    )
    
    
    
    
    
    
    (25,472
    )(Increase) in inventories
    
    
    
    
    
    
    (2,170
    )
    
    
    (1,679
    )
    
    
    
    
    
    
    (3,849
    )(Increase) decrease in other
current assets
    
    
    (271
    )
    
    
    9,631
    
    
    
    135
    
    
    
    
    
    
    
    9,495(Increase) decrease in other assets
    
    
    237
    
    
    
    (98
    )
    
    
    (30
    )
    
    
    
    
    
    
    109Increase in accounts payable
    
    
    3
    
    
    
    2,089
    
    
    
    1,899
    
    
    
    
    
    
    
    3,991Increase (Decrease) in accrued
interest
    
    
    7,873
    
    
    
    
    
    
    
    (17
    )
    
    
    
    
    
    
    7,856(Decrease) increase in accrued
expenses
    
    
    (46
    )
    
    
    2,307
    
    
    
    741
    
    
    
    
    
    
    
    3,002Increase in accrued salaries,
benefits and payroll taxes
    
    
    
    
    
    
    2
    
    
    
    2,126
    
    
    
    
    
    
    
    2,128(Decrease) in other long- term
liabilities
    
    
    (15
    )
    
    
    (28
    )
    
    
    
    
    
    
    
    
    
    
    (43
    )Net Cash Provided By (Used In)
Operating Activities
    
    
    (8,172
    )
    
    
    49,530
    
    
    
    15,024
    
    
    
    
    
    
    
    56,382Cash Flows from Investing Activities:Notes receivable from affiliates
    
    
    1,768
    
    
    
    
    
    
    
    
    
    
    
    (1,768
    )
    
    
    Acquisition of businesses, net of cash
received
    
    
    
    
    
    
    (3,550
    )
    
    
    
    
    
    
    
    
    
    
    (3,550
    )Purchase of investment interests
    
    
    
    
    
    
    (440
    )
    
    
    
    
    
    
    
    
    
    
    (440
    )Proceeds from sale of capillary assets
    
    
    
    
    
    
    16,250
    
    
    
    
    
    
    
    
    
    
    
    16,250Proceeds from sale of property and
equipment
    
    
    
    
    
    
    3,672
    
    
    
    7
    
    
    
    
    
    
    
    3,679Purchase of property and equipment
    
    
    
    
    
    
    (41,311
    )
    
    
    (5,870
    )
    
    
    
    
    
    
    (47,181
    )Net Cash Provided By (Used in)
Investing Activities
    
    
    1,768
    
    
    
    (25,379
    )
    
    
    (5,863
    )
    
    
    (1,768
    )
    
    
    (31,242
    )
 22




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
 Allis-
    
    
    
    
    
    
    OtherChalmers
    
    
    
    
    
    
    Subsidiaries(Parent/
    
    
    Subsidiary
    
    
    (Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors)
    
    
    Adjustments
    
    
    TotalCash Flows from Financing Activities:Proceeds from long-term debt
    
    
    250,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250,000Payments on long-term debt
    
    
    (300,000
    )
    
    
    (3,229
    )
    
    
    (1,970
    )
    
    
    
    
    
    
    (305,199
    )Accounts receivable from affiliates
    
    
    (40,672
    )
    
    
    10,859
    
    
    
    
    
    
    
    29,813
    
    
    
    Accounts payable to affiliates
    
    
    
    
    
    
    29,830
    
    
    
    (17
    )
    
    
    (29,813
    )
    
    
    Note payable to affiliate
    
    
    
    
    
    
    
    
    
    
    (1,768
    )
    
    
    1,768
    
    
    
    Proceeds from issuance of common
stock
    
    
    100,055
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,055Proceeds from exercises of options
and warrants
    
    
    3,138
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,138Tax benefits on stock plans
    
    
    1,464
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,464Debt issuance costs
    
    
    (7,581
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,581
    )Net Cash Provided By (Used
In) Financing Activities
    
    
    6,404
    
    
    
    37,460
    
    
    
    (3,755
    )
    
    
    1,768
    
    
    
    41,877Net change in cash and cash
equivalents
    
    
    
    
    
    
    61,611
    
    
    
    5,406
    
    
    
    
    
    
    
    67,017Cash and cash equivalents at
beginning of year
    
    
    
    
    
    
    37,769
    
    
    
    1,976
    
    
    
    
    
    
    
    39,745Cash and cash equivalents at end
of period
    
    $
    
    
    
    $
    99,380
    
    
    $
    7,382
    
    
    $
    
    
    
    $
    106,762
 23




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
 NOTE 10- SEGMENT INFORMATION
   For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007RevenuesOilfield Services
    
    $
    68,653
    
    
    $
    58,122
    
    
    $
    136,556
    
    
    $
    113,553Drilling and Completion
    
    
    69,818
    
    
    
    52,861
    
    
    
    132,879
    
    
    
    101,749Rental Services
    
    
    24,664
    
    
    
    32,379
    
    
    
    46,882
    
    
    
    63,960$
    163,135
    
    
    $
    143,362
    
    
    $
    316,317
    
    
    $
    279,262Operating Income (Loss):Oilfield Services
    
    $
    13,090
    
    
    $
    20,595
    
    
    $
    26,387
    
    
    $
    32,287Drilling and Completion
    
    
    9,391
    
    
    
    10,218
    
    
    
    18,259
    
    
    
    19,832Rental Services
    
    
    9,266
    
    
    
    14,770
    
    
    
    15,488
    
    
    
    28,693General corporate
    
    
    (4,079
    )
    
    
    (4,109
    )
    
    
    (8,884
    )
    
    
    (7,868
    )$
    27,668
    
    
    $
    41,474
    
    
    $
    51,250
    
    
    $
    72,944Depreciation and Amortization:Oilfield Services
    
    $
    5,961
    
    
    $
    3,877
    
    
    $
    11,591
    
    
    $
    7,665Drilling and Completion
    
    
    3,399
    
    
    
    2,741
    
    
    
    6,577
    
    
    
    5,448Rental Services
    
    
    6,795
    
    
    
    6,490
    
    
    
    13,464
    
    
    
    12,751General corporate
    
    
    141
    
    
    
    128
    
    
    
    282
    
    
    
    226$
    16,296
    
    
    $
    13,236
    
    
    $
    31,914
    
    
    $
    26,090Capital Expenditures:Oilfield Services
    
    $
    9,390
    
    
    $
    11,091
    
    
    $
    23,817
    
    
    $
    21,854Drilling and Completion
    
    
    21,165
    
    
    
    3,150
    
    
    
    39,694
    
    
    
    5,870Rental Services
    
    
    4,415
    
    
    
    10,369
    
    
    
    11,106
    
    
    
    18,882General corporate
    
    
    16
    
    
    
    226
    
    
    
    46
    
    
    
    575$
    34,986
    
    
    $
    24,836
    
    
    $
    74,663
    
    
    $
    47,181
 24




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
 As ofJune 30,
    
    
    December 31,2008
    
    
    2007Goodwill:Oilfield Services
    
    $
    30,493
    
    
    $
    30,493Drilling and Completion
    
    
    1,523
    
    
    
    1,523Rental Services
    
    
    106,382
    
    
    
    106,382$
    138,398
    
    
    $
    138,398Assets:Oilfield Services
    
    $
    324,074
    
    
    $
    299,300Drilling and Completion
    
    
    281,829
    
    
    
    235,020Rental Services
    
    
    444,113
    
    
    
    454,216General corporate
    
    
    76,445
    
    
    
    65,049$
    1,126,461
    
    
    $
    1,053,585Long Lived Assets:United States
    
    $
    652,096
    
    
    $
    655,513International
    
    
    269,390
    
    
    
    180,178$
    921,486
    
    
    $
    835,691
 For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues:United States
    
    $
    88,959
    
    
    $
    86,232
    
    
    $
    172,942
    
    
    $
    170,466International
    
    
    74,176
    
    
    
    57,130
    
    
    
    143,375
    
    
    
    108,796$
    163,135
    
    
    $
    143,362
    
    
    $
    316,317
    
    
    $
    279,262
 NOTE
11 - SUPPLEMENTAL CASH FLOW INFORMATION
 For the Six Months EndedJune 30,2008
    
    2007Cash paid for interest and income taxes:Interest
    
    $
    23,087
    
    
    $
    15,819Income taxes
    
    
    12,595
    
    
    
    6,639Non-cash activities:Insurance premium financed
    
    
    2,767
    
    
    
    3,150Note payable issued for acquisition of business
    
    
    
    
    
    
    350
 25




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
 NOTE
12 - LEGAL MATTERS
    NOTE 13
 SUBSQUENT EVENTS
  26




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 The following discussion and analysis should be read in conjunction with our consolidated financial
statements and the notes thereto included elsewhere in this report. This report contains
forward-looking statements that involve risks and uncertainties. Our actual results may differ
materially from the results discussed in such forward-looking statements. Factors that might cause
such differences include, but are not limited to, the general condition of the oil and natural gas
drilling industry, demand for our oil and natural gas service and rental products, and competition.
For more information on forward-looking statements please refer to the section entitled
Forward-Looking Statements on
page 37.
 Overview of Our Business
     Cyclical Nature of Equipment Rental and Services Industry
  27




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##### Table of Contents



Results of Operations
   Comparison of Three Months Ended June 30, 2008 and 2007
      28




---



##### Table of Contents



Revenues
    
    
    Income (Loss) from OperationsThree Months Ended
    
    
    Three Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    Change
    
    
    2008
    
    
    2007
    
    
    Change(in thousands)Oilfield Services
    
    $
    68,653
    
    
    $
    58,122
    
    
    $
    10,531
    
    
    $
    13,090
    
    
    $
    20,595
    
    
    $
    (7,505
    )Drilling and Completion
    
    
    69,818
    
    
    
    52,861
    
    
    
    16,957
    
    
    
    9,391
    
    
    
    10,218
    
    
    
    (827
    )Rental Services
    
    
    24,664
    
    
    
    32,379
    
    
    
    (7,715
    )
    
    
    9,266
    
    
    
    14,770
    
    
    
    (5,504
    )General corporate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,079
    )
    
    
    (4,109
    )
    
    
    30Total
    
    $
    163,135
    
    
    $
    143,362
    
    
    $
    19,773
    
    
    $
    27,668
    
    
    $
    41,474
    
    
    $
    (13,806
    )
 Oilfield Services
  29




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##### Table of Contents



Drilling and Completion
  Rental Services
  General Corporate
  Comparison of Six Months Ended June 30, 2008 and 2007
    30




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##### Table of Contents



Revenues
    
    
    Income (Loss) from OperationsSix Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    Change
    
    
    2008
    
    
    2007
    
    
    Change(in thousands)Oilfield Services
    
    $
    136,556
    
    
    $
    113,553
    
    
    $
    23,003
    
    
    $
    26,387
    
    
    $
    32,287
    
    
    $
    (5,900
    )Drilling and Completion
    
    
    132,879
    
    
    
    101,749
    
    
    
    31,130
    
    
    
    18,259
    
    
    
    19,832
    
    
    
    (1,573
    )Rental Services
    
    
    46,882
    
    
    
    63,960
    
    
    
    (17,078
    )
    
    
    15,488
    
    
    
    28,693
    
    
    
    (13,205
    )General corporate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,884
    )
    
    
    (7,868
    )
    
    
    (1,016
    )Total
    
    $
    316,317
    
    
    $
    279,262
    
    
    $
    37,055
    
    
    $
    51,250
    
    
    $
    72,944
    
    
    $
    (21,694
    )
 31




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##### Table of Contents



Oilfield Services
  Drilling and Completion
  Rental Services
  General Corporate
  Company Outlook
  32




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##### Table of Contents



Liquidity and Capital Resources
  Operating Activities
     Investing Activities
  33




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##### Table of Contents



Financing Activities
        34




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##### Table of Contents



Notes payable
     Other debt
   Off Balance Sheet Arrangements
  Capital Requirements
  35




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##### Table of Contents



Recent Developments
   Critical Accounting Policies
  Fair Value Measurements,
 The Fair
Value Option for Financial Assets and Financial Liabilities
 Business Combinations,
 36




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##### Table of Contents



Non-controlling Interests in Consolidated Financial Statements  an amendment of ARB No. 51
 Disclosures
about Derivative Instruments and Hedging Activities  an amendment of FASB Statement No. 133
 Determination of the Useful Life of
Intangible Assets Goodwill and Other Intangible Assets Business Combinations
 Forward-Looking Statements
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
  Interest Rate Risk.
  37




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##### Table of Contents



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 6. EXHIBITS
  38




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##### Table of Contents



SIGNATURES
  Allis-Chalmers Energy Inc.(Registrant)/s/ Munawar H. Hidayatallah

Munawar H. HidayatallahChief Executive Officer and
Chairman
 39




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##### Table of Contents



EXHIBIT INDEX
 3.1
    
    Second Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the
Registrants Form 8-K filed on April 3, 2008).10.1
    
    First Amendment, dated June 1, 2008, to the Agreement and Plan of Merger by and among
Allis-Chalmers Energy Inc., Elway Merger Sub, Inc. and Bronco Drilling Company, Inc.
(incorporated by reference to Exhibit 10.1 to the Registrants Form 8-K filed on June 2,
2008).10.2
    
    First Amendment to Investor Rights Agreement, by and among Allis-Chalmers Energy Inc. and the
holders named thereto, dated June 23, 2008. (incorporated by reference to Exhibit 10.1 to the
Registrants Form 8-K filed on June 26, 2008).10.3
    
    Amendment to Employment Agreement among Allis-Chalmers Energy Inc., AirComp LLC and Terrence
P. Keane, effective April 1, 2008 (incorporated by reference to Exhibit 10.1 to the
Registrants Form 8-K filed on May 1, 2008).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 40