##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2010 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE TRANSITION PERIOD FROM _______________ TO _______________
 Commission file number 1-02199
 ALLIS-CHALMERS ENERGY INC.
  DELAWARE
    
    39-0126090(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)5075 WESTHEIMER, SUITE 890, HOUSTON, TEXAS
    
    77056(Address of principal executive offices)
    
    (Zip Code)
 (713) 369-0550
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    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 March 31, 2010
 TABLE OF CONTENTS
  
 ITEM
    
    PAGEPART I1. Financial StatementsConsolidated Condensed Balance Sheets as of March 31, 2010 and December 31, 2009
    
    
    3Consolidated Condensed Statements of Operations for the three months ended
March 31, 2010 and 2009
    
    
    4Consolidated Condensed Statements of Cash Flows for the three months ended
March 31, 2010 and 2009
    
    
    5Notes to Consolidated Condensed Financial Statements
    
    
    62. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    233. Quantitative and Qualitative Disclosures about Market Risk
    
    
    304. Controls and Procedures
    
    
    31PART II6. Exhibits
    
    
    31Signatures
    
    
    31EX-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
  March 31,
    
    
    December 31,2010
    
    
    2009(unaudited)AssetsCash and cash equivalents
    
    $
    23,745
    
    
    $
    41,072Trade receivables, net
    
    
    114,072
    
    
    
    105,059Inventories
    
    
    34,609
    
    
    
    34,528Deferred income tax asset
    
    
    3,605
    
    
    
    3,790Prepaid expenses and other
    
    
    11,969
    
    
    
    13,799Total current assets
    
    
    188,000
    
    
    
    198,248Property and equipment, net
    
    
    736,622
    
    
    
    746,478Goodwill
    
    
    40,639
    
    
    
    40,639Other intangible assets, net
    
    
    31,493
    
    
    
    32,649Debt issuance costs, net
    
    
    9,183
    
    
    
    9,545Deferred income tax asset
    
    
    28,441
    
    
    
    22,047Other assets
    
    
    33,086
    
    
    
    31,014Total assets
    
    $
    1,067,464
    
    
    $
    1,080,620Liabilities and Stockholders EquityCurrent maturities of long-term debt
    
    $
    16,279
    
    
    $
    17,027Trade accounts payable
    
    
    43,551
    
    
    
    34,839Accrued salaries, benefits and payroll taxes
    
    
    21,684
    
    
    
    22,854Accrued interest
    
    
    6,382
    
    
    
    15,821Accrued expenses
    
    
    20,834
    
    
    
    21,918Total current liabilities
    
    
    108,730
    
    
    
    112,459Long-term debt, net of current maturities
    
    
    474,753
    
    
    
    475,206Deferred income tax liability
    
    
    8,220
    
    
    
    8,166Other long-term liabilities
    
    
    906
    
    
    
    1,142Total liabilities
    
    
    592,609
    
    
    
    596,973Commitments and ContingenciesStockholders EquityPreferred stock, $0.01 par value (25,000,000 shares authorized, 36,393 shares issued
and outstanding at March 31, 2010 and December 31, 2009)
    
    
    34,183
    
    
    
    34,183Common stock, $0.01 par value (200,000,000 shares authorized;
72,149,083 issued and outstanding at March 31, 2010 and
71,378,529 issued and outstanding at December 31, 2009)
    
    
    721
    
    
    
    714Capital in excess of par value
    
    
    424,192
    
    
    
    422,823Retained earnings
    
    
    15,759
    
    
    
    25,927Total stockholders equity
    
    
    474,855
    
    
    
    483,647Total liabilities and stockholders equity
    
    $
    1,067,464
    
    
    $
    1,080,620
  3




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ALLIS-CHALMERS ENERGY INC.
 
 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
   For the Three Months EndedMarch 31,2010
    
    
    2009Revenues
    
    $
    140,370
    
    
    $
    145,103Operating costs and expenses:Direct costs
    
    
    107,715
    
    
    
    103,134Depreciation
    
    
    20,188
    
    
    
    19,371Selling, general and administrative
    
    
    12,063
    
    
    
    13,640Amortization
    
    
    1,156
    
    
    
    1,187Total operating costs and expenses
    
    
    141,122
    
    
    
    137,332Income (loss) from operations
    
    
    (752
    )
    
    
    7,771Other income (expense):Interest expense
    
    
    (10,956
    )
    
    
    (13,507
    )Interest income
    
    
    155
    
    
    
    5Other
    
    
    (1,515
    )
    
    
    217Total other expense
    
    
    (12,316
    )
    
    
    (13,285
    )Loss before income taxes
    
    
    (13,068
    )
    
    
    (5,514
    )Income tax benefit
    
    
    3,537
    
    
    
    2,909Net loss
    
    
    (9,531
    )
    
    
    (2,605
    )Preferred stock dividend
    
    
    (637
    )
    
    
    Net loss attributed to common stockholders
    
    $
    (10,168
    )
    
    $
    (2,605
    )Net loss per common share:Basic
    
    $
    (0.14
    )
    
    $
    (0.07
    )Diluted
    
    $
    (0.14
    )
    
    $
    (0.07
    )Weighted average shares outstanding:Basic
    
    
    71,028
    
    
    
    35,206Diluted
    
    
    71,028
    
    
    
    35,206
  4




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ALLIS-CHALMERS ENERGY INC.
 
 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
   For the Three Months EndedMarch 31,2010
    
    
    2009Cash Flows from Operating Activities:Net loss
    
    $
    (9,531
    )
    
    $
    (2,605
    )Adjustments
to reconcile net loss to net cash
(used in) provided by operating activities:Depreciation and amortization
    
    
    21,344
    
    
    
    20,558Amortization and write-off of deferred financing fees
    
    
    551
    
    
    
    555Stock-based compensation
    
    
    1,380
    
    
    
    1,080Allowance for bad debts
    
    
    
    
    
    
    385Deferred income taxes
    
    
    (6,155
    )
    
    
    (4,374
    )Gain on sale of property and equipment
    
    
    (41
    )
    
    
    (357
    )Loss on investment
    
    
    1,466
    
    
    
    Changes in operating assets and liabilities, net of acquisitions:Decrease (increase) in trade receivable
    
    
    (9,013
    )
    
    
    24,938Decrease (increase) in inventories
    
    
    (81
    )
    
    
    1,763Decrease in prepaid expenses and other current assets
    
    
    2,471
    
    
    
    1,616Decrease in other assets
    
    
    464
    
    
    
    657Increase (decrease) in trade accounts payable
    
    
    8,712
    
    
    
    (16,037
    )(Decrease) in accrued interest
    
    
    (9,439
    )
    
    
    (11,148
    )(Decrease) in accrued expenses
    
    
    (1,088
    )
    
    
    (1,240
    )(Decrease) in accrued salaries, benefits and payroll taxes
    
    
    (1,170
    )
    
    
    (323
    )(Decrease) in other long-term liabilities
    
    
    (236
    )
    
    
    (355
    )Net Cash (Used In) Provided By Operating Activities
    
    
    (366
    )
    
    
    15,113Cash Flows from Investing Activities:Deposits on asset commitments
    
    
    (4,612
    )
    
    
    (248
    )Proceeds from sale of property and equipment
    
    
    1,436
    
    
    
    1,825Purchase of property and equipment
    
    
    (11,758
    )
    
    
    (13,958
    )Net Cash Used In Investing Activities
    
    
    (14,934
    )
    
    
    (12,381
    )Cash Flows from Financing Activities:Proceeds from long-term debt
    
    
    4,000
    
    
    
    Net borrowings under line of credit
    
    
    
    
    
    
    6,000Payments on long-term debt
    
    
    (5,201
    )
    
    
    (4,647
    )Payment of preferred stock dividend
    
    
    (637
    )
    
    
    Debt issuance costs
    
    
    (189
    )
    
    
    (91
    )Net Cash (Used In) Provided By Financing Activities
    
    
    (2,027
    )
    
    
    1,262Net change in cash and cash equivalents
    
    
    (17,327
    )
    
    
    3,994Cash and cash equivalents at beginning of year
    
    
    41,072
    
    
    
    6,866Cash and cash equivalents at end of period
    
    $
    23,745
    
    
    $
    10,860Supplemental information:Interest paid
    
    $
    20,078
    
    
    $
    23,867Income taxes paid
    
    $
    1,588
    
    
    $
    2,589
  5




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ALLIS-CHALMERS ENERGY INC.
 
 NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 1  NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Nature of Operations
   Basis of Presentation
   Financial Instruments
  6




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 1  NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 Recent Accounting Pronouncements
    NOTE 2  STOCK-BASED COMPENSATION
   For the Three Months EndedMarch 31,2010
    
    
    2009Expected dividend yield
    
    
    
    
    
    
    Expected price volatility
    
    
    89.90
    %
    
    
    77.32
    %Risk free interest rate
    
    
    1.40
    %
    
    
    1.37
    %Expected life of options
    
    5 years
    
    5 yearsWeighted average fair value of options granted
at market value
    
    $
    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
    
    
    1,001,003
    
    
    
    3.77Canceled
    
    
    (4,000
    )
    
    
    13.75Exercised
    
    
    Outstanding at March 31, 2010
    
    
    1,698,735
    
    
    
    4.80
    
    
    
    8.28
    
    
    $
    0.29Exercisable at March 31, 2010
    
    
    597,732
    
    
    $
    7.11
    
    
    
    5.40
    
    
    $
    0.06
   Weighted AverageGrant-Date FairNumber of Shares
    
    
    Value Per ShareNonvested at December 31, 2009
    
    
    837,626
    
    
    $
    15.63Granted
    
    
    1,900,500
    
    
    
    3.76Vested
    
    
    (12,820
    )
    
    
    10.02Forfeited
    
    
    
    
    
    
    Nonvested at March 31, 2010
    
    
    2,725,306
    
    
    $
    7.38
  8




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 3  LOSS PER COMMON SHARE
   For the Three Months EndedMarch 31,2010
    
    
    2009Numerator:Net loss
    
    $
    (9,531
    )
    
    $
    (2,605
    )Preferred stock dividend
    
    
    (637
    )
    
    
    Net loss attributed to common stockholders
    
    $
    (10,168
    )
    
    $
    (2,605
    )Denominator:Weighted average common shares outstanding excluding
nonvested restricted stock
    
    
    71,028
    
    
    
    35,206Effect of potentially dilutive common shares:Convertible preferred stock and stock-based compensation shares
    
    
    
    
    
    
    Weighted average common shares outstanding
and assumed conversions
    
    
    71,028
    
    
    
    35,206Net loss per common shareBasic
    
    $
    (0.14
    )
    
    $
    (0.07
    )Diluted
    
    $
    (0.14
    )
    
    $
    (0.07
    )Potentially dilutive securities excluded as anti-dilutive
    
    
    15,248
    
    
    
    1,537
  NOTE 4  GOODWILL AND INTANGIBLE ASSETS
   9




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 5  INVENTORIES
  March 31,
    
    
    December 31,2010
    
    
    2009ManufacturedFinished goods
    
    $
    3,164
    
    
    $
    2,983Work in process
    
    
    1,872
    
    
    
    2,299Raw materials
    
    
    693
    
    
    
    884Total manufactured
    
    
    5,729
    
    
    
    6,166Rig parts and related inventory
    
    
    12,141
    
    
    
    10,654Shop supplies and related inventory
    
    
    7,483
    
    
    
    7,762Chemicals and drilling fluids
    
    
    4,173
    
    
    
    4,381Rental supplies
    
    
    1,990
    
    
    
    2,134Hammers
    
    
    2,275
    
    
    
    2,257Coiled tubing and related inventory
    
    
    583
    
    
    
    939Drive pipe
    
    
    235
    
    
    
    235Total inventories
    
    $
    34,609
    
    
    $
    34,528
 NOTE 6  DEBT
  March 31,
    
    
    December 31,2010
    
    
    2009Senior notes
    
    $
    430,238
    
    
    $
    430,238Revolving line of credit
    
    
    
    
    
    
    Bank term loans
    
    
    60,374
    
    
    
    60,744Insurance premium financing
    
    
    250
    
    
    
    997Capital lease obligations
    
    
    170
    
    
    
    254Total debt
    
    
    491,032
    
    
    
    492,233Less: current maturities
    
    
    16,279
    
    
    
    17,027Long-term debt obligations
    
    $
    474,753
    
    
    $
    475,206
 Senior notes, bank loans and line of credit agreements
   10




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 6  DEBT (Continued)
       Notes payable
  11




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 6  DEBT (Continued)
 Other debt
  NOTE 7  STOCKHOLDERS EQUITY
  NOTE 8  CONDENSED CONSOLIDATING FINANCIAL INFORMATION
  12




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 8  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING BALANCE SHEETS
 Allis-Chalmers
    
    
    
    
    
    
    Subsidiary(Parent/
    
    
    Subsidiary
    
    
    Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    TotalAssetsCash and cash equivalents
    
    $
    
    
    
    $
    16,018
    
    
    $
    7,727
    
    
    $
    
    
    
    $
    23,745Trade receivables, net
    
    
    
    
    
    
    45,612
    
    
    
    70,562
    
    
    
    (2,102
    )
    
    
    114,072Inventories
    
    
    
    
    
    
    16,183
    
    
    
    18,426
    
    
    
    
    
    
    
    34,609Intercompany receivables
    
    
    
    
    
    
    105,540
    
    
    
    2,287
    
    
    
    (107,827
    )
    
    
    Note receivable from affiliate
    
    
    31,313
    
    
    
    
    
    
    
    
    
    
    
    (31,313
    )
    
    
    Prepaid expenses and other
    
    
    891
    
    
    
    5,853
    
    
    
    8,830
    
    
    
    
    
    
    
    15,574Total current assets
    
    
    32,204
    
    
    
    189,206
    
    
    
    107,832
    
    
    
    (141,242
    )
    
    
    188,000Property and equipment, net
    
    
    
    
    
    
    481,788
    
    
    
    254,834
    
    
    
    
    
    
    
    736,622Goodwill
    
    
    
    
    
    
    23,250
    
    
    
    17,389
    
    
    
    
    
    
    
    40,639Other intangible assets, net
    
    
    448
    
    
    
    24,278
    
    
    
    6,767
    
    
    
    
    
    
    
    31,493Debt issuance costs, net
    
    
    9,052
    
    
    
    131
    
    
    
    
    
    
    
    
    
    
    
    9,183Note receivable from affiliates
    
    
    3,008
    
    
    
    
    
    
    
    
    
    
    
    (3,008
    )
    
    
    Investments in affiliates
    
    
    944,249
    
    
    
    
    
    
    
    
    
    
    
    (944,249
    )
    
    
    Other assets
    
    
    30,658
    
    
    
    27,348
    
    
    
    3,521
    
    
    
    
    
    
    
    61,527Total assets
    
    $
    1,019,619
    
    
    $
    746,001
    
    
    $
    390,343
    
    
    $
    (1,088,499
    )
    
    $
    1,067,464Liabilities and Stockholders EquityCurrent maturities of long-term debt
    
    $
    
    
    
    $
    3,775
    
    
    $
    12,504
    
    
    $
    
    
    
    $
    16,279Trade accounts payable
    
    
    
    
    
    
    17,479
    
    
    
    28,174
    
    
    
    (2,102
    )
    
    
    43,551Accrued salaries, benefits and payroll taxes
    
    
    
    
    
    
    2,675
    
    
    
    19,009
    
    
    
    
    
    
    
    21,684Accrued interest
    
    
    5,954
    
    
    
    220
    
    
    
    208
    
    
    
    
    
    
    
    6,382Accrued expenses
    
    
    745
    
    
    
    9,398
    
    
    
    10,691
    
    
    
    
    
    
    
    20,834Intercompany payables
    
    
    107,827
    
    
    
    
    
    
    
    
    
    
    
    (107,827
    )
    
    
    Note payable to affiliate
    
    
    
    
    
    
    
    
    
    
    31,313
    
    
    
    (31,313
    )
    
    
    Total current liabilities
    
    
    114,526
    
    
    
    33,547
    
    
    
    101,899
    
    
    
    (141,242
    )
    
    
    108,730Long-term debt, net of current maturities
    
    
    430,238
    
    
    
    19,030
    
    
    
    25,485
    
    
    
    
    
    
    
    474,753Note payable to affiliate
    
    
    
    
    
    
    
    
    
    
    3,008
    
    
    
    (3,008
    )
    
    
    Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    8,220
    
    
    
    
    
    
    
    8,220Other long-term liabilities
    
    
    
    
    
    
    
    
    
    
    906
    
    
    
    
    
    
    
    906Total liabilities
    
    
    544,764
    
    
    
    52,577
    
    
    
    139,518
    
    
    
    (144,250
    )
    
    
    592,609Commitments and ContingenciesStockholders EquityPreferred stock
    
    
    34,183
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,183Common stock
    
    
    721
    
    
    
    3,526
    
    
    
    42,963
    
    
    
    (46,489
    )
    
    
    721Capital in excess of par value
    
    
    424,192
    
    
    
    570,512
    
    
    
    137,439
    
    
    
    (707,951
    )
    
    
    424,192Retained earnings
    
    
    15,759
    
    
    
    119,386
    
    
    
    70,423
    
    
    
    (189,809
    )
    
    
    15,759Total stockholders equity
    
    
    474,855
    
    
    
    693,424
    
    
    
    250,825
    
    
    
    (944,249
    )
    
    
    474,855Total liabilities and stockholders
equity
    
    $
    1,019,619
    
    
    $
    746,001
    
    
    $
    390,343
    
    
    $
    (1,088,499
    )
    
    $
    1,067,464
 13




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




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##### Table of Contents



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




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 8  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
 Allis-
    
    
    
    
    
    
    OtherChalmers
    
    
    
    
    
    
    Subsidiaries(Parent/
    
    
    Subsidiary
    
    
    (Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors)
    
    
    Adjustments
    
    
    TotalCash Flows from Financing Activities:Accounts receivable from affiliates
    
    
    
    
    
    
    (26,019
    )
    
    
    (335
    )
    
    
    26,354
    
    
    
    Accounts payable to affiliates
    
    
    26,354
    
    
    
    
    
    
    
    
    
    
    
    (26,354
    )
    
    
    Note payable to affiliate
    
    
    
    
    
    
    
    
    
    
    342
    
    
    
    (342
    )
    
    
    Proceeds from long-term debt
    
    
    
    
    
    
    
    
    
    
    4,000
    
    
    
    
    
    
    
    4,000Payments on long-term debt
    
    
    
    
    
    
    (1,580
    )
    
    
    (3,621
    )
    
    
    
    
    
    
    (5,201
    )Payment of preferred stock dividend
    
    
    (637
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (637
    )Debt issuance costs
    
    
    (189
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (189
    )Net Cash Provided By (Used
In) Financing Activities
    
    
    25,528
    
    
    
    (27,599
    )
    
    
    386
    
    
    
    (342
    )
    
    
    (2,027
    )Net change in cash and cash
equivalents
    
    
    
    
    
    
    (15,840
    )
    
    
    (1,487
    )
    
    
    
    
    
    
    (17,327
    )Cash and cash equivalents at
beginning of year
    
    
    
    
    
    
    31,858
    
    
    
    9,214
    
    
    
    
    
    
    
    41,072Cash and cash equivalents at end
of period
    
    $
    
    
    
    $
    16,018
    
    
    $
    7,727
    
    
    $
    
    
    
    $
    23,745
 16




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 8  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING BALANCE SHEETS
 Allis-Chalmers
    
    
    
    
    
    
    Subsidiary(Parent/
    
    
    Subsidiary
    
    
    Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    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
    )
    
    
    Deferred income tax liability
    
    
    
    
    
    
    
    
    
    
    8,166
    
    
    
    
    
    
    
    8,166Other long-term liabilities
    
    
    
    
    
    
    
    
    
    
    1,142
    
    
    
    
    
    
    
    1,142Total 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
 17




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 8  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING INCOME STATEMENTS
 Allis-Chalmers
    
    
    
    
    
    
    Subsidiary(Parent/
    
    
    Subsidiary
    
    
    Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    TotalRevenues
    
    $
    
    
    
    $
    65,967
    
    
    $
    79,789
    
    
    $
    (653
    )
    
    $
    145,103Operating costs and expensesDirect costs
    
    
    
    
    
    
    41,295
    
    
    
    62,492
    
    
    
    (653
    )
    
    
    103,134Depreciation
    
    
    
    
    
    
    14,309
    
    
    
    5,062
    
    
    
    
    
    
    
    19,371Selling, general and administrative
    
    
    942
    
    
    
    9,168
    
    
    
    3,530
    
    
    
    
    
    
    
    13,640Amortization
    
    
    12
    
    
    
    980
    
    
    
    195
    
    
    
    
    
    
    
    1,187Total operating costs and expenses
    
    
    954
    
    
    
    65,752
    
    
    
    71,279
    
    
    
    (653
    )
    
    
    137,332Income (loss) from operations
    
    
    (954
    )
    
    
    215
    
    
    
    8,510
    
    
    
    
    
    
    
    7,771Other income (expense):Equity earnings in affiliates, net
of tax
    
    
    10,612
    
    
    
    
    
    
    
    
    
    
    
    (10,612
    )
    
    
    Interest, net
    
    
    (12,284
    )
    
    
    (8
    )
    
    
    (1,210
    )
    
    
    
    
    
    
    (13,502
    )Other
    
    
    21
    
    
    
    (31
    )
    
    
    227
    
    
    
    
    
    
    
    217Total other expense
    
    
    (1,651
    )
    
    
    (39
    )
    
    
    (983
    )
    
    
    (10,612
    )
    
    
    (13,285
    )Net income (loss)before income taxes
    
    
    (2,605
    )
    
    
    176
    
    
    
    7,527
    
    
    
    (10,612
    )
    
    
    (5,514
    )Provision for income taxes
    
    
    
    
    
    
    4,304
    
    
    
    (1,395
    )
    
    
    
    
    
    
    2,909Net income (loss)
    
    $
    (2,605
    )
    
    $
    4,480
    
    
    $
    6,132
    
    
    $
    (10,612
    )
    
    $
    (2,605
    )
 18




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 8  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)
    
    $
    (2,605
    )
    
    $
    4,480
    
    
    $
    6,132
    
    
    $
    (10,612
    )
    
    $
    (2,605
    )Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Depreciation and amortization
    
    
    12
    
    
    
    15,289
    
    
    
    5,257
    
    
    
    
    
    
    
    20,558Amortization and write-off of deferred financing fees
    
    
    555
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    555Stock based compensation
    
    
    1,080
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,080Allowance for bad debts
    
    
    
    
    
    
    385
    
    
    
    
    
    
    
    
    
    
    
    385Equity earnings in affiliates
    
    
    (10,612
    )
    
    
    
    
    
    
    
    
    
    
    10,612
    
    
    
    Deferred income taxes
    
    
    (4,702
    )
    
    
    1,177
    
    
    
    (849
    )
    
    
    
    
    
    
    (4,374
    )(Gain) on sale of equipment
    
    
    
    
    
    
    (343
    )
    
    
    (14
    )
    
    
    
    
    
    
    (357
    )Changes in operating assets and liabilities, net of
acquisitions:Decrease in trade receivables
    
    
    
    
    
    
    21,930
    
    
    
    3,008
    
    
    
    
    
    
    
    24,938(Increase) decrease in inventories
    
    
    
    
    
    
    (308
    )
    
    
    2,071
    
    
    
    
    
    
    
    1,763(Increase) decrease in prepaid expenses and other
current assets
    
    
    1,789
    
    
    
    (278
    )
    
    
    105
    
    
    
    
    
    
    
    1,616(Increase) decrease in other assets
    
    
    (104
    )
    
    
    233
    
    
    
    528
    
    
    
    
    
    
    
    657(Decrease) in trade accounts payable
    
    
    
    
    
    
    (9,023
    )
    
    
    (7,014
    )
    
    
    
    
    
    
    (16,037
    )(Decrease) in accrued interest
    
    
    (10,782
    )
    
    
    
    
    
    
    (366
    )
    
    
    
    
    
    
    (11,148
    )(Decrease) increase in accrued expenses
    
    
    (183
    )
    
    
    (2,087
    )
    
    
    1,030
    
    
    
    
    
    
    
    (1,240
    )(Decrease) increase in accrued salaries, benefits
and payroll taxes
    
    
    
    
    
    
    695
    
    
    
    (1,018
    )
    
    
    
    
    
    
    (323
    )(Decrease) in other long- term liabilities
    
    
    
    
    
    
    (19
    )
    
    
    (336
    )
    
    
    
    
    
    
    (355
    )Net Cash Provided By (Used In) Operating
Activities
    
    
    (25,552
    )
    
    
    32,131
    
    
    
    8,534
    
    
    
    
    
    
    
    15,113Cash Flows from Investing Activities:Deposits on asset commitments
    
    
    
    
    
    
    
    
    
    
    (248
    )
    
    
    
    
    
    
    (248
    )Proceeds from sale of property and equipment
    
    
    
    
    
    
    1,810
    
    
    
    15
    
    
    
    
    
    
    
    1,825Purchase of property and equipment
    
    
    
    
    
    
    (9,578
    )
    
    
    (4,380
    )
    
    
    
    
    
    
    (13,958
    )Net Cash Used in Investing Activities
    
    
    
    
    
    
    (7,768
    )
    
    
    (4,613
    )
    
    
    
    
    
    
    (12,381
    )
 19




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 8  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
 Allis-
    
    
    
    
    
    
    OtherChalmers
    
    
    
    
    
    
    Subsidiaries(Parent/
    
    
    Subsidiary
    
    
    (Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors)
    
    
    Adjustments
    
    
    TotalCash Flows from Financing Activities:Accounts receivable from affiliates
    
    
    
    
    
    
    (19,557
    )
    
    
    
    
    
    
    19,557
    
    
    
    Accounts payable to affiliates
    
    
    19,557
    
    
    
    
    
    
    
    
    
    
    
    (19,557
    )
    
    
    Net borrowing under line of credit
    
    
    6,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,000Payments on long-term debt
    
    
    
    
    
    
    (907
    )
    
    
    (3,740
    )
    
    
    
    
    
    
    (4,647
    )Debt issuance costs
    
    
    (5
    )
    
    
    (86
    )
    
    
    
    
    
    
    
    
    
    
    (91
    )Net Cash Provided By (Used
In) Financing Activities
    
    
    25,552
    
    
    
    (20,550
    )
    
    
    (3,740
    )
    
    
    
    
    
    
    1,262Net change in cash and cash
equivalents
    
    
    
    
    
    
    3,813
    
    
    
    181
    
    
    
    
    
    
    
    3,994Cash and cash equivalents at
beginning of year
    
    
    
    
    
    
    2,923
    
    
    
    3,943
    
    
    
    
    
    
    
    6,866Cash and cash equivalents at end
of period
    
    $
    
    
    
    $
    6,736
    
    
    $
    4,124
    
    
    $
    
    
    
    $
    10,860
 20




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 9- SEGMENT INFORMATION
  For the Three Months EndedMarch 31,2010
    
    
    2009RevenuesOilfield Services
    
    $
    39,635
    
    
    $
    44,450Drilling and Completion
    
    
    88,500
    
    
    
    79,146Rental Services
    
    
    12,235
    
    
    
    21,507$
    140,370
    
    
    $
    145,103Operating Income (Loss):Oilfield Services
    
    $
    (1,548
    )
    
    $
    (1,213
    )Drilling and Completion
    
    
    5,462
    
    
    
    8,509Rental Services
    
    
    (910
    )
    
    
    3,948General corporate
    
    
    (3,756
    )
    
    
    (3,473
    )$
    (752
    )
    
    $
    7,771Depreciation and Amortization:Oilfield Services
    
    $
    7,814
    
    
    $
    7,315Drilling and Completion
    
    
    6,328
    
    
    
    5,257Rental Services
    
    
    7,138
    
    
    
    7,904General corporate
    
    
    64
    
    
    
    82$
    21,344
    
    
    $
    20,558Capital Expenditures:Oilfield Services
    
    $
    4,063
    
    
    $
    4,032Drilling and Completion
    
    
    5,741
    
    
    
    4,639Rental Services
    
    
    1,901
    
    
    
    5,256General corporate
    
    
    53
    
    
    
    31$
    11,758
    
    
    $
    13,958Revenues:United States
    
    $
    47,128
    
    
    $
    61,559Argentina
    
    
    72,385
    
    
    
    63,425Brazil
    
    
    9,500
    
    
    
    10,766Other international
    
    
    11,357
    
    
    
    9,353$
    140,370
    
    
    $
    145,103
 21




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 9  SEGMENT INFORMATION (Continued)
 As ofMarch 31,
    
    
    December 31,2010
    
    
    2009Goodwill:Oilfield Services
    
    $
    23,250
    
    
    $
    23,250Drilling and Completion
    
    
    17,389
    
    
    
    17,389Rental Services
    
    
    
    
    
    
    $
    40,639
    
    
    $
    40,639Assets:Oilfield Services
    
    $
    280,475
    
    
    $
    255,899Drilling and Completion
    
    
    455,244
    
    
    
    441,482Rental Services
    
    
    299,877
    
    
    
    307,283General corporate
    
    
    31,868
    
    
    
    75,956$
    1,067,464
    
    
    $
    1,080,620Long Lived Assets:United States
    
    $
    569,358
    
    
    $
    572,727Argentina
    
    
    166,104
    
    
    
    168,681Brazil
    
    
    82,321
    
    
    
    82,477Other international
    
    
    61,681
    
    
    
    58,487$
    879,464
    
    
    $
    882,372
 NOTE 10  LEGAL MATTERS
   22




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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 30.
 Overview of Our Business
    Our Industry
  Company Outlook
  23




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Comparison of Three Months Ended March 31, 2010 and 2009
  24




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25




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Revenues
    
    
    Income (Loss) from OperationsThree Months Ended
    
    
    Three Months EndedMarch 31,
    
    
    
    
    
    
    
    
    
    
    March 31,2010
    
    
    2009
    
    
    Change
    
    
    2010
    
    
    2009
    
    
    Change(in thousands)Oilfield Services
    
    $
    39,635
    
    
    $
    44,450
    
    
    $
    (4,815
    )
    
    $
    (1,548
    )
    
    $
    (1,213
    )
    
    $
    (335
    )Drilling and Completion
    
    
    88,500
    
    
    
    79,146
    
    
    
    9,354
    
    
    
    5,462
    
    
    
    8,509
    
    
    
    (3,047
    )Rental Services
    
    
    12,235
    
    
    
    21,507
    
    
    
    (9,272
    )
    
    
    (910
    )
    
    
    3,948
    
    
    
    (4,858
    )General corporate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,756
    )
    
    
    (3,473
    )
    
    
    (283
    )Total
    
    $
    140,370
    
    
    $
    145,103
    
    
    $
    (4,733
    )
    
    $
    (752
    )
    
    $
    7,771
    
    
    $
    (8,523
    )
 Oilfield Services
  Drilling and Completion
  Rental Services
  General Corporate
  26




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Liquidity
   Operating Activities
     Investing Activities
  27




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Financing Activities
         28




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Off Balance Sheet Arrangements
  Capital Resources
  Critical Accounting Policies
  Recently Issued Accounting Standards
  29




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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.
  30




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ITEM 4. CONTROLS AND PROCEDURES.
 (a) Evaluation of Disclosure Controls and Procedures
   (b) Changes in Internal Control Over Financial Reporting.
  
 PART II. OTHER INFORMATION
 
 ITEM 6. EXHIBITS
  
 SIGNATURES
  Allis-Chalmers Energy Inc.(Registrant)/s/ Munawar H. HidayatallahMunawar H. HidayatallahChief Executive Officer and Chairman
 31




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EXHIBIT INDEX
 4.1
    
    Third Amendment to Investment Agreement, dated January 5, 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 January 5, 2010).10.1
    
    Sixth Amendment to Second Amended and Restated Credit Agreement, dated as of February 25,
2010, by and among the Company, as borrower, certain subsidiaries of the Company, as
guarantors, Royal Bank of Canada, as administrative agent, and the lenders named thereto
(incorporated by reference to Exhibit 10.1 to the Registrants Form 8-K filed on March 2,
2010).10.2
    
    Form of Performance Award Agreement, amended and restated effective March 3, 2010
(incorporated by reference to Exhibit 10.1 to the Registrants Form 8-K filed on March 9,
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 32