##### 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 MARCH 31, 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 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)5075 WESTHEIMER, SUITE 890, HOUSTON, TEXAS
    
    77056(Address of principal executive offices)
    
    (Zip Code)
 (713) 369-0550  Registrants telephone number, including area code
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



ALLIS-CHALMERS ENERGY INC.
 FORM 10-Q
 For the Quarterly Period Ended March 31, 2008
 TABLE OF CONTENTS
 ITEM
    
    PAGEPART I1. Financial StatementsConsolidated Condensed Balance Sheets as of March 31, 2008 and December 31, 2007
    
    
    3Consolidated Condensed Income Statements for the three months ended
March 31, 2008 and 2007
    
    
    4Consolidated Condensed Statements of Cash Flows for the three months ended
March 31, 2008 and 2007
    
    
    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
    
    
    32Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO and 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
 March 31,
    
    
    December 31,2008
    
    
    2007(unaudited)AssetsCash and cash equivalents
    
    $
    10,247
    
    
    $
    43,693Trade receivables, net
    
    
    140,133
    
    
    
    130,094Inventories
    
    
    33,019
    
    
    
    32,209Prepaid expenses and other
    
    
    11,669
    
    
    
    11,898Total current assets
    
    
    195,068
    
    
    
    217,894Property and equipment, net
    
    
    650,485
    
    
    
    626,668Goodwill
    
    
    138,398
    
    
    
    138,398Other intangible assets, net
    
    
    34,064
    
    
    
    35,180Debt issuance costs, net
    
    
    13,730
    
    
    
    14,228Note receivable
    
    
    40,000
    
    
    
    Other assets
    
    
    27,819
    
    
    
    21,217Total assets
    
    $
    1,099,564
    
    
    $
    1,053,585Liabilities and Stockholders EquityCurrent maturities of long-term debt
    
    $
    6,232
    
    
    $
    6,434Trade accounts payable
    
    
    38,987
    
    
    
    37,464Accrued salaries, benefits and payroll taxes
    
    
    15,847
    
    
    
    15,283Accrued interest
    
    
    6,891
    
    
    
    17,817Accrued expenses
    
    
    31,488
    
    
    
    20,545Total current liabilities
    
    
    99,445
    
    
    
    97,543Long-term debt, net of current maturities
    
    
    539,852
    
    
    
    508,300Deferred income taxes
    
    
    32,054
    
    
    
    30,090Other long-term liabilities
    
    
    3,161
    
    
    
    3,323Total liabilities
    
    
    674,512
    
    
    
    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;
35,133,368 issued and outstanding at March 31, 2008 and
35,116,035 issued and outstanding at December 31, 2007)
    
    
    351
    
    
    
    351Capital in excess of par value
    
    
    328,768
    
    
    
    326,095Retained earnings
    
    
    95,933
    
    
    
    87,883Total stockholders equity
    
    
    425,052
    
    
    
    414,329Total liabilities and stockholders equity
    
    $
    1,099,564
    
    
    $
    1,053,585
  3




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
 
 CONSOLIDATED CONDENSED INCOME STATEMENTS
 For the Three Months EndedMarch 31,2008
    
    
    2007Revenues
    
    $
    153,182
    
    
    $
    135,900Cost of revenuesDirect costs
    
    
    99,198
    
    
    
    77,605Depreciation
    
    
    14,502
    
    
    
    11,816Gross margin
    
    
    39,482
    
    
    
    46,479General and administrative
    
    
    14,784
    
    
    
    13,971Amortization
    
    
    1,116
    
    
    
    1,038Income from operations
    
    
    23,582
    
    
    
    31,470Other income (expense):Interest expense
    
    
    (12,041
    )
    
    
    (14,021
    )Interest income
    
    
    1,152
    
    
    
    759Other
    
    
    107
    
    
    
    184Total other income (expense)
    
    
    (10,782
    )
    
    
    (13,078
    )Income before income taxes
    
    
    12,800
    
    
    
    18,392Provision for income taxes
    
    
    (4,750
    )
    
    
    (6,227
    )Net income
    
    $
    8,050
    
    
    $
    12,165Net income per common share:Basic
    
    $
    0.23
    
    
    $
    0.38Diluted
    
    $
    0.23
    
    
    $
    0.37Weighted average shares outstanding:Basic
    
    
    34,837
    
    
    
    32,330Diluted
    
    
    35,173
    
    
    
    33,011
  4




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
 
 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
 For the Three Months EndedMarch 31,2008
    
    
    2007Cash Flows from Operating Activities:Net income
    
    $
    8,050
    
    
    $
    12,165Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    15,618
    
    
    
    12,854Amortization and write-off of deferred financing fees
    
    
    519
    
    
    
    1,675Stock-based compensation
    
    
    2,612
    
    
    
    453Allowance for bad debts
    
    
    267
    
    
    
    172Deferred taxes
    
    
    1,965
    
    
    
    1,538Gain on sale of property and equipment
    
    
    (130
    )
    
    
    (862
    )Changes in operating assets and liabilities, net of acquisitions:(Increase) in trade receivable
    
    
    (10,306
    )
    
    
    (22,001
    )(Increase) in inventories
    
    
    (810
    )
    
    
    (1,825
    )Decrease in prepaid expenses and other current assets
    
    
    228
    
    
    
    7,315(Increase) in other assets
    
    
    (1,271
    )
    
    
    (41
    )Increase in trade accounts payable
    
    
    1,523
    
    
    
    3,358(Decrease) in accrued interest
    
    
    (10,926
    )
    
    
    (3,231
    )Increase in accrued expenses
    
    
    10,943
    
    
    
    2,124Increase in accrued salaries, benefits and payroll taxes
    
    
    564
    
    
    
    957(Decrease) in other long-term liabilities
    
    
    (162
    )
    
    
    (35
    )Net Cash Provided By Operating Activities
    
    
    18,684
    
    
    
    14,616Cash Flows from Investing Activities:Investment in note receivable
    
    
    (40,000
    )
    
    
    Deposits on asset commitments
    
    
    (5,331
    )
    
    
    Proceeds from sale of property and equipment
    
    
    1,488
    
    
    
    2,698Purchase of property and equipment
    
    
    (39,677
    )
    
    
    (22,345
    )Net Cash Used In Investing Activities
    
    
    (83,520
    )
    
    
    (19,647
    )Cash Flows from Financing Activities:Proceeds from issuance of stock, net
    
    
    
    
    
    
    100,078Proceeds from exercises of options
    
    
    61
    
    
    
    301Proceeds from long-term debt
    
    
    13,142
    
    
    
    250,000Net borrowings under line of credit
    
    
    20,500
    
    
    
    Payments on long-term debt
    
    
    (2,292
    )
    
    
    (302,774
    )Debt issuance costs
    
    
    (21
    )
    
    
    (7,032
    )Net Cash Provided By Financing Activities
    
    
    31,390
    
    
    
    40,573Net change in cash and cash equivalents
    
    
    (33,446
    )
    
    
    35,542Cash and cash equivalents at beginning of year
    
    
    43,693
    
    
    
    39,745Cash and cash equivalents at end of period
    
    $
    10,247
    
    
    $
    75,287Supplemental information:Interest paid
    
    $
    22,412
    
    
    $
    15,566Income taxes paid
    
    $
    2,181
    
    
    $
    1,395
  5




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##### Table of Contents



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
 NOTE 1  NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (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
 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
    
    
    
    
    
    
    Exercised
    
    
    (7,333
    )
    
    
    8.40Outstanding at March 31, 2008
    
    
    979,430
    
    
    
    10.79
    
    
    
    7.70
    
    
    $
    4.72Exercisable at March 31, 2008
    
    
    754,435
    
    
    $
    7.54
    
    
    
    7.22
    
    
    $
    4.71
    Weighted AverageNumber of
    
    
    Grant-Date Fair ValueShares
    
    
    Per ShareNonvested at December 31, 2007
    
    
    993,203
    
    
    $
    17.45Granted
    
    
    10,000
    
    
    
    11.73Vested
    
    
    (2,740
    )
    
    
    16.16Forfeited
    
    
    
    
    
    
    Nonvested at March 31, 2008
    
    
    1,000,463
    
    
    $
    17.39
  8




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 3  INCOME PER COMMON SHARE
 Earnings Per Share,
  For the Three Months EndedMarch 31,2008
    
    
    2007Numerator:Net income
    
    $
    8,050
    
    
    $
    12,165Denominator:Weighted average common shares outstanding excluding
nonvested restricted stock
    
    
    34,837
    
    
    
    32,330Effect of potentially dilutive common shares:Warrants and employee and director stock options
and restricted shares
    
    
    336
    
    
    
    681Weighted average common shares outstanding
and assumed conversions
    
    
    35,173
    
    
    
    33,011Net income per common shareBasic
    
    $
    0.23
    
    
    $
    0.38Diluted
    
    $
    0.23
    
    
    $
    0.37Potentially dilutive securities excluded as anti-dilutive
    
    
    1,088
    
    
    
    29
 NOTE 4  GOODWILL AND INTANGIBLE ASSETS
 Goodwill and Other
Intangible Assets
  9




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 5  INVENTORIES
  March 31,
    
    
    December 31,2008
    
    
    2007ManufacturedFinished goods
    
    $
    2,327
    
    
    $
    2,198Work in process
    
    
    1,518
    
    
    
    1,781Raw materials
    
    
    4,510
    
    
    
    4,464Total manufactured
    
    
    8,355
    
    
    
    8,443Hammers
    
    
    1,597
    
    
    
    1,434Drive pipe
    
    
    362
    
    
    
    420Rental supplies
    
    
    2,451
    
    
    
    2,261Chemicals and drilling fluids
    
    
    2,917
    
    
    
    3,236Rig parts and related inventory
    
    
    10,740
    
    
    
    9,985Coiled tubing and related inventory
    
    
    797
    
    
    
    1,014Shop supplies and related inventory
    
    
    5,800
    
    
    
    5,416Total inventories
    
    $
    33,019
    
    
    $
    32,209
 NOTE 6- NOTE RECEIVABLE
   NOTE 7- DEBT
  March 31,
    
    
    December 31,2008
    
    
    2007Senior notes
    
    $
    505,000
    
    
    $
    505,000Bank term loans
    
    
    17,439
    
    
    
    4,926Revolving line of credit
    
    
    20,500
    
    
    
    Seller notes
    
    
    2,350
    
    
    
    2,350Notes payable to former directors
    
    
    32
    
    
    
    32Equipment and vehicle installment notes
    
    
    162
    
    
    
    595Insurance premium financing
    
    
    491
    
    
    
    1,707Obligations under non-compete agreements
    
    
    110
    
    
    
    110Capital lease obligations
    
    
    
    
    
    
    14Total debt
    
    
    546,084
    
    
    
    514,734Less: current maturities
    
    
    6,232
    
    
    
    6,434Long-term debt obligations
    
    $
    539,852
    
    
    $
    508,300
 10




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 7  DEBT (Continued)
 Senior notes, bank loans and line of credit agreements
      Notes payable
   11




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 7  DEBT (Continued)
   Other debt
   NOTE 8  STOCKHOLDERS EQUITY
  NOTE 9  CONDENSED CONSOLIDATING FINANCIAL INFORMATION
  12




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 9  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING BALANCE SHEETS
 Allis-Chalmers
    
    
    
    
    
    
    Subsidiary(Parent/
    
    
    Subsidiary
    
    
    Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    TotalAssetsCash and cash equivalents
    
    $
    
    
    
    $
    9,255
    
    
    $
    992
    
    
    $
    
    
    
    $
    10,247Trade receivables, net
    
    
    
    
    
    
    85,660
    
    
    
    54,479
    
    
    
    (6
    )
    
    
    140,133Inventories
    
    
    
    
    
    
    16,419
    
    
    
    16,600
    
    
    
    
    
    
    
    33,019Intercompany receivables
    
    
    30,985
    
    
    
    
    
    
    
    
    
    
    
    (30,985
    )
    
    
    Note receivable from affiliate
    
    
    11,172
    
    
    
    
    
    
    
    
    
    
    
    (11,172
    )
    
    
    Prepaid expenses and other
    
    
    7,730
    
    
    
    1,874
    
    
    
    2,065
    
    
    
    
    
    
    
    11,669Total current assets
    
    
    49,887
    
    
    
    113,208
    
    
    
    74,136
    
    
    
    (42,163
    )
    
    
    195,068Property and equipment, net
    
    
    
    
    
    
    485,513
    
    
    
    164,972
    
    
    
    
    
    
    
    650,485Goodwill
    
    
    
    
    
    
    136,875
    
    
    
    1,523
    
    
    
    
    
    
    
    138,398Other intangible assets, net
    
    
    540
    
    
    
    33,477
    
    
    
    47
    
    
    
    
    
    
    
    34,064Debt issuance costs, net
    
    
    13,730
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,730Note receivable from affiliates
    
    
    16,553
    
    
    
    
    
    
    
    
    
    
    
    (16,553
    )
    
    
    Investments in affiliates
    
    
    845,633
    
    
    
    
    
    
    
    
    
    
    
    (845,633
    )
    
    
    Note receivable
    
    
    40,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,000Other assets
    
    
    1,472
    
    
    
    4,941
    
    
    
    21,406
    
    
    
    
    
    
    
    27,819Total Assets
    
    $
    967,815
    
    
    $
    774,014
    
    
    $
    262,084
    
    
    $
    (904,349
    )
    
    $
    1,099,564Liabilities and Stockholders EquityCurrent maturities of long-term debt
    
    $
    32
    
    
    $
    2,364
    
    
    $
    3,836
    
    
    $
    
    
    
    $
    6,232Trade accounts payable
    
    
    
    
    
    
    16,488
    
    
    
    22,505
    
    
    
    (6
    )
    
    
    38,987Accrued salaries, benefits and payroll taxes
    
    
    
    
    
    
    3,883
    
    
    
    11,964
    
    
    
    
    
    
    
    15,847Accrued interest
    
    
    6,751
    
    
    
    63
    
    
    
    77
    
    
    
    
    
    
    
    6,891Accrued expenses
    
    
    172
    
    
    
    16,804
    
    
    
    14,512
    
    
    
    
    
    
    
    31,488Intercompany payables
    
    
    
    
    
    
    387,518
    
    
    
    1,185
    
    
    
    (388,703
    )
    
    
    Note payable to affiliate
    
    
    
    
    
    
    
    
    
    
    11,172
    
    
    
    (11,172
    )
    
    
    Total current liabilities
    
    
    6,955
    
    
    
    427,120
    
    
    
    65,251
    
    
    
    (399,881
    )
    
    
    99,445Long-term debt, net of current maturities
    
    
    526,250
    
    
    
    
    
    
    
    13,602
    
    
    
    
    
    
    
    539,852Note payable to affiliate
    
    
    
    
    
    
    
    
    
    
    16,553
    
    
    
    (16,553
    )
    
    
    Deferred income taxes
    
    
    9,558
    
    
    
    13,809
    
    
    
    8,687
    
    
    
    
    
    
    
    32,054Other long-term liabilities
    
    
    
    
    
    
    210
    
    
    
    2,951
    
    
    
    
    
    
    
    3,161Total liabilities
    
    
    542,763
    
    
    
    441,139
    
    
    
    107,044
    
    
    
    (416,434
    )
    
    
    674,512Commitments and contingenciesStockholders EquityCommon stock
    
    
    351
    
    
    
    3,526
    
    
    
    42,963
    
    
    
    (46,489
    )
    
    
    351Capital in excess of par value
    
    
    328,768
    
    
    
    167,508
    
    
    
    74,969
    
    
    
    (242,477
    )
    
    
    328,768Retained earnings
    
    
    95,933
    
    
    
    161,841
    
    
    
    37,108
    
    
    
    (198,949
    )
    
    
    95,933Total stockholders equity
    
    
    425,052
    
    
    
    332,875
    
    
    
    155,040
    
    
    
    (487,915
    )
    
    
    425,052Total liabilities and
stockholders equity
    
    $
    967,815
    
    
    $
    774,014
    
    
    $
    262,084
    
    
    $
    (904,349
    )
    
    $
    1,099,564
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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 9  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING INCOME STATEMENTS
 Allis-Chalmers
    
    
    
    
    
    
    Subsidiary(Parent/
    
    
    Subsidiary
    
    
    Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    TotalRevenues
    
    $
    
    
    
    $
    90,128
    
    
    $
    63,061
    
    
    $
    (7
    )
    
    $
    153,182Cost of revenuesDirect costs
    
    
    
    
    
    
    50,552
    
    
    
    48,653
    
    
    
    (7
    )
    
    
    99,198Depreciation
    
    
    
    
    
    
    11,333
    
    
    
    3,169
    
    
    
    
    
    
    
    14,502Gross margin
    
    
    
    
    
    
    28,243
    
    
    
    11,239
    
    
    
    
    
    
    
    39,482General and administrative
    
    
    2,376
    
    
    
    10,046
    
    
    
    2,362
    
    
    
    
    
    
    
    14,784Amortization
    
    
    12
    
    
    
    1,095
    
    
    
    9
    
    
    
    
    
    
    
    1,116Income (loss) from
operations
    
    
    (2,388
    )
    
    
    17,102
    
    
    
    8,868
    
    
    
    
    
    
    
    23,582Other income (expense):Equity earnings in
affiliates, net of tax
    
    
    21,223
    
    
    
    
    
    
    
    
    
    
    
    (21,223
    )
    
    
    Interest, net
    
    
    (10,812
    )
    
    
    76
    
    
    
    (153
    )
    
    
    
    
    
    
    (10,889
    )Other
    
    
    27
    
    
    
    44
    
    
    
    36
    
    
    
    
    
    
    
    107Total other income
(expense)
    
    
    10,438
    
    
    
    120
    
    
    
    (117
    )
    
    
    (21,223
    )
    
    
    (10,782
    )Net income (loss)before
income taxes
    
    
    8,050
    
    
    
    17,222
    
    
    
    8,751
    
    
    
    (21,223
    )
    
    
    12,800Provision for income taxes
    
    
    
    
    
    
    (1,511
    )
    
    
    (3,239
    )
    
    
    
    
    
    
    (4,750
    )Net income (loss)
    
    $
    8,050
    
    
    $
    15,711
    
    
    $
    5,512
    
    
    $
    (21,223
    )
    
    $
    8,050
 14




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 9  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
 Allis-
    
    
    
    
    
    
    OtherChalmers
    
    
    
    
    
    
    Subsidiaries(Parent/
    
    
    Subsidiary
    
    
    (Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors)
    
    
    Adjustments
    
    
    TotalCash Flows from Operating Activities:Net income (loss)
    
    $
    8,050
    
    
    $
    15,711
    
    
    $
    5,512
    
    
    $
    (21,223
    )
    
    $
    8,050Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:Depreciation and amortization
    
    
    12
    
    
    
    12,428
    
    
    
    3,178
    
    
    
    
    
    
    
    15,618Amortization and write-off of
deferred financing fees
    
    
    519
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    519Stock based compensation
    
    
    2,612
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,612Allowance for bad debts
    
    
    
    
    
    
    267
    
    
    
    
    
    
    
    
    
    
    
    267Equity earnings in affiliates
    
    
    (21,223
    )
    
    
    
    
    
    
    
    
    
    
    21,223
    
    
    
    Deferred taxes
    
    
    901
    
    
    
    
    
    
    
    1,064
    
    
    
    
    
    
    
    1,965(Gain) on sale of equipment
    
    
    
    
    
    
    (130
    )
    
    
    
    
    
    
    
    
    
    
    (130
    )Changes in operating assets and
liabilities, net of acquisitions:(Increase) in trade receivables
    
    
    
    
    
    
    (2,800
    )
    
    
    (7,506
    )
    
    
    
    
    
    
    (10,306
    )(Increase) in inventories
    
    
    
    
    
    
    (720
    )
    
    
    (90
    )
    
    
    
    
    
    
    (810
    )(Increase) decrease in prepaid
expenses and other current assets
    
    
    
    
    
    
    690
    
    
    
    (462
    )
    
    
    
    
    
    
    228(Increase) decrease in other assets
    
    
    (1,457
    )
    
    
    36
    
    
    
    150
    
    
    
    
    
    
    
    (1,271
    )(Decrease) increase in trade
accounts payable
    
    
    
    
    
    
    (328
    )
    
    
    1,851
    
    
    
    
    
    
    
    1,523(Decrease) increase in accrued
interest
    
    
    (10,958
    )
    
    
    30
    
    
    
    2
    
    
    
    
    
    
    
    (10,926
    )(Decrease) increase in accrued
expenses
    
    
    (1,488
    )
    
    
    9,677
    
    
    
    2,754
    
    
    
    
    
    
    
    10,943Increase in accrued salaries,
benefits and payroll taxes
    
    
    
    
    
    
    171
    
    
    
    393
    
    
    
    
    
    
    
    564(Decrease) in other long- term
liabilities
    
    
    (31
    )
    
    
    (32
    )
    
    
    (99
    )
    
    
    
    
    
    
    (162
    )Net Cash Provided By (Used In)
Operating Activities
    
    
    (23,063
    )
    
    
    35,000
    
    
    
    6,747
    
    
    
    
    
    
    
    18,684Cash Flows from Investing Activities:Notes receivable from affiliates
    
    
    (3,075
    )
    
    
    
    
    
    
    
    
    
    
    3,075
    
    
    
    Investment in note receivable
    
    
    (40,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40,000
    )Deposits on asset commitments
    
    
    
    
    
    
    
    
    
    
    (5,331
    )
    
    
    
    
    
    
    (5,331
    )Proceeds from sale of property and
equipment
    
    
    
    
    
    
    1,488
    
    
    
    
    
    
    
    
    
    
    
    1,488Purchase of property and equipment
    
    
    
    
    
    
    (21,149
    )
    
    
    (18,528
    )
    
    
    
    
    
    
    (39,677
    )Net Cash Provided By (Used in)
Investing Activities
    
    
    (43,075
    )
    
    
    (19,661
    )
    
    
    (23,859
    )
    
    
    3,075
    
    
    
    (83,520
    )Cash Flows from Financing Activities:Accounts receivable from affiliates
    
    
    45,598
    
    
    
    
    
    
    
    
    
    
    
    (45,598
    )
    
    
    
 15




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 9  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
 Allis-
    
    
    
    
    
    
    OtherChalmers
    
    
    
    
    
    
    Subsidiaries(Parent/
    
    
    Subsidiary
    
    
    (Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors)
    
    
    Adjustments
    
    
    TotalCash Flows from Financing Activities: (continued)Accounts payable to affiliates
    
    
    
    
    
    
    (45,598
    )
    
    
    
    
    
    
    45,598
    
    
    
    Note payable to affiliate
    
    
    
    
    
    
    
    
    
    
    3,075
    
    
    
    (3,075
    )
    
    
    Proceeds from exercises of options
    
    
    61
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61Proceeds from long-term debt
    
    
    
    
    
    
    
    
    
    
    13,142
    
    
    
    
    
    
    
    13,142Net borrowing under line of credit
    
    
    20,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,500Payments on long-term debt
    
    
    
    
    
    
    (1,662
    )
    
    
    (630
    )
    
    
    
    
    
    
    (2,292
    )Debt issuance costs
    
    
    (21
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21
    )Net Cash Provided By
(Used In) Financing
Activities
    
    
    66,138
    
    
    
    (47,260
    )
    
    
    15,587
    
    
    
    (3,075
    )
    
    
    31,390Net change in cash and cash
equivalents
    
    
    
    
    
    
    (31,921
    )
    
    
    (1,525
    )
    
    
    
    
    
    
    (33,446
    )Cash and cash equivalents at
beginning of year
    
    
    
    
    
    
    41,176
    
    
    
    2,517
    
    
    
    
    
    
    
    43,693Cash and
cash equivalents at end of period
    
    $
    
    
    
    $
    9,255
    
    
    $
    992
    
    
    $
    
    
    
    $
    10,247
 16




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 9  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING 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
stockholders equity
    
    $
    948,169
    
    
    $
    796,044
    
    
    $
    235,020
    
    
    $
    (925,648
    )
    
    $
    1,053,585
 17




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 9  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING INCOME STATEMENTS
 Allis-Chalmers
    
    
    
    
    
    
    Subsidiary(Parent/
    
    
    Subsidiary
    
    
    Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    TotalRevenues
    
    $
    
    
    
    $
    87,029
    
    
    $
    48,888
    
    
    $
    (17
    )
    
    $
    135,900Cost of revenuesDirect costs
    
    
    
    
    
    
    43,035
    
    
    
    34,587
    
    
    
    (17
    )
    
    
    77,605Depreciation
    
    
    
    
    
    
    9,117
    
    
    
    2,699
    
    
    
    
    
    
    
    11,816Gross margin
    
    
    
    
    
    
    34,877
    
    
    
    11,602
    
    
    
    
    
    
    
    46,479General and administrative
    
    
    418
    
    
    
    11,573
    
    
    
    1,980
    
    
    
    
    
    
    
    13,971Amortization
    
    
    12
    
    
    
    1,018
    
    
    
    8
    
    
    
    
    
    
    
    1,038Income (loss) from
operations
    
    
    (430
    )
    
    
    22,286
    
    
    
    9,614
    
    
    
    
    
    
    
    31,470Other income (expense):Equity earnings in
affiliates, net of tax
    
    
    26,122
    
    
    
    
    
    
    
    
    
    
    
    (26,122
    )
    
    
    Interest, net
    
    
    (13,539
    )
    
    
    652
    
    
    
    (375
    )
    
    
    
    
    
    
    (13,262
    )Other
    
    
    12
    
    
    
    47
    
    
    
    125
    
    
    
    
    
    
    
    184Total other income
(expense)
    
    
    12,595
    
    
    
    699
    
    
    
    (250
    )
    
    
    (26,122
    )
    
    
    (13,078
    )Net income (loss) before
income taxes
    
    
    12,165
    
    
    
    22,985
    
    
    
    9,364
    
    
    
    (26,122
    )
    
    
    18,392Provision for income taxes
    
    
    
    
    
    
    (3,195
    )
    
    
    (3,032
    )
    
    
    
    
    
    
    (6,227
    )Net income (loss)
    
    $
    12,165
    
    
    $
    19,790
    
    
    $
    6,332
    
    
    $
    (26,122
    )
    
    $
    12,165
 18




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 9  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
 Allis-
    
    
    
    
    
    
    OtherChalmers
    
    
    
    
    
    
    Subsidiaries(Parent/
    
    
    Subsidiary
    
    
    (Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors)
    
    
    Adjustments
    
    
    TotalCash Flows from Operating Activities:Net income
    
    $
    12,165
    
    
    $
    19,790
    
    
    $
    6,332
    
    
    $
    (26,122
    )
    
    $
    12,165Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:Depreciation and amortization
    
    
    11
    
    
    
    10,136
    
    
    
    2,707
    
    
    
    
    
    
    
    12,854Amortization and write-off of
deferred financing fees
    
    
    1,675
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,675Stock-based compensation
    
    
    453
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    453Allowance for bad debts
    
    
    
    
    
    
    172
    
    
    
    
    
    
    
    
    
    
    
    172Equity earnings in affiliates
    
    
    (26,122
    )
    
    
    
    
    
    
    
    
    
    
    26,122
    
    
    
    Deferred taxes
    
    
    1,558
    
    
    
    (1
    )
    
    
    (19
    )
    
    
    
    
    
    
    1,538(Gain) on sale of equipment
    
    
    
    
    
    
    (862
    )
    
    
    
    
    
    
    
    
    
    
    (862
    )Changes in operating assets and
liabilities, net of acquisitions:(Increase) in trade receivables
    
    
    
    
    
    
    (17,055
    )
    
    
    (4,946
    )
    
    
    
    
    
    
    (22,001
    )(Increase) in inventories
    
    
    
    
    
    
    (1,451
    )
    
    
    (374
    )
    
    
    
    
    
    
    (1,825
    )(Increase) decrease in other
current assets
    
    
    
    
    
    
    7,685
    
    
    
    (370
    )
    
    
    
    
    
    
    7,315(Increase) decrease in other assets
    
    
    247
    
    
    
    (270
    )
    
    
    (18
    )
    
    
    
    
    
    
    (41
    )Increase in accounts payable
    
    
    
    
    
    
    1,217
    
    
    
    2,141
    
    
    
    
    
    
    
    3,358(Decrease) in accrued interest
    
    
    (3,190
    )
    
    
    
    
    
    
    (41
    )
    
    
    
    
    
    
    (3,231
    )(Decrease) increase in accrued
expenses
    
    
    (34
    )
    
    
    1,242
    
    
    
    916
    
    
    
    
    
    
    
    2,124Increase in accrued salaries,
benefits and payroll taxes
    
    
    
    
    
    
    353
    
    
    
    604
    
    
    
    
    
    
    
    957(Decrease) in other long- term
liabilities
    
    
    (15
    )
    
    
    (20
    )
    
    
    
    
    
    
    
    
    
    
    (35
    )Net Cash Provided By (Used In)
Operating Activities
    
    
    (13,252
    )
    
    
    20,936
    
    
    
    6,932
    
    
    
    
    
    
    
    14,616Cash Flows from Investing Activities:Notes receivable from affiliates
    
    
    (282
    )
    
    
    
    
    
    
    
    
    
    
    282
    
    
    
    Purchase of property and equipment
    
    
    
    
    
    
    (19,625
    )
    
    
    (2,720
    )
    
    
    
    
    
    
    (22,345
    )Proceeds from sale of equipment
    
    
    
    
    
    
    2,698
    
    
    
    
    
    
    
    
    
    
    
    2,698Net Cash Provided By (Used in)
Investing Activities
    
    
    (282
    )
    
    
    (16,927
    )
    
    
    (2,720
    )
    
    
    282
    
    
    
    (19,647
    )Cash Flows from Financing Activities:Proceeds from long-term debt
    
    
    250,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250,000Payments on long-term debt
    
    
    (300,000
    )
    
    
    (1,362
    )
    
    
    (1,412
    )
    
    
    
    
    
    
    (302,774
    )Accounts receivable from affiliates
    
    
    (29,813
    )
    
    
    
    
    
    
    
    
    
    
    29,813
    
    
    
    
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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 9  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
 Allis-
    
    
    
    
    
    
    OtherChalmers
    
    
    
    
    
    
    Subsidiaries(Parent/
    
    
    Subsidiary
    
    
    (Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors)
    
    
    Adjustments
    
    
    TotalCash Flows from Financing Activities: (continued)Accounts payable to affiliates
    
    
    
    
    
    
    29,830
    
    
    
    (17
    )
    
    
    (29,813
    )
    
    
    Note payable to affiliate
    
    
    
    
    
    
    
    
    
    
    282
    
    
    
    (282
    )
    
    
    Proceeds from issuance of common
stock
    
    
    100,078
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,078Proceeds from exercises of options
    
    
    301
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    301Debt issuance costs
    
    
    (7,032
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,032
    )Net Cash Provided By
(Used In) Financing
Activities
    
    
    13,534
    
    
    
    28,468
    
    
    
    (1,147
    )
    
    
    (282
    )
    
    
    40,573Net change in cash and cash
equivalents
    
    
    
    
    
    
    32,477
    
    
    
    3,065
    
    
    
    
    
    
    
    35,542Cash and cash equivalents at
beginning of year
    
    
    
    
    
    
    37,769
    
    
    
    1,976
    
    
    
    
    
    
    
    39,745Cash and cash equivalents at end
of period
    
    $
    
    
    
    $
    70,246
    
    
    $
    5,041
    
    
    $
    
    
    
    $
    75,287
 20




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 10- SEGMENT INFORMATION
   For the Three Months EndedMarch 31,2008
    
    
    2007RevenuesOilfield Services
    
    $
    67,903
    
    
    $
    55,431Drilling and Completion
    
    
    63,061
    
    
    
    48,888Rental Services
    
    
    22,218
    
    
    
    31,581$
    153,182
    
    
    $
    135,900Operating Income (Loss):Oilfield Services
    
    $
    13,297
    
    
    $
    11,692Drilling and Completion
    
    
    8,868
    
    
    
    9,614Rental Services
    
    
    6,222
    
    
    
    13,923General corporate
    
    
    (4,805
    )
    
    
    (3,759
    )$
    23,582
    
    
    $
    31,470Depreciation and Amortization:Oilfield Services
    
    $
    5,630
    
    
    $
    3,788Drilling and Completion
    
    
    3,178
    
    
    
    2,707Rental Services
    
    
    6,669
    
    
    
    6,261General corporate
    
    
    141
    
    
    
    98$
    15,618
    
    
    $
    12,854Capital Expenditures:Oilfield Services
    
    $
    14,427
    
    
    $
    10,763Drilling and Completion
    
    
    18,529
    
    
    
    2,720Rental Services
    
    
    6,691
    
    
    
    8,513General corporate
    
    
    30
    
    
    
    349$
    39,677
    
    
    $
    22,345
 21




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 10  SEGMENT INFORMATION (Continued)
 As ofMarch 31,
    
    
    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
    
    $
    314,102
    
    
    $
    299,300Drilling and Completion
    
    
    262,084
    
    
    
    235,020Rental Services
    
    
    449,891
    
    
    
    454,216General corporate
    
    
    73,487
    
    
    
    65,049$
    1,099,564
    
    
    $
    1,053,585Long Lived Assets:United States
    
    $
    656,435
    
    
    $
    655,513International
    
    
    248,061
    
    
    
    180,178$
    904,496
    
    
    $
    835,691
 For the Three Months EndedMarch 31,2008
    
    
    2007Revenues:United States
    
    $
    83,984
    
    
    $
    84,234International
    
    
    69,198
    
    
    
    51,666$
    153,182
    
    
    $
    135,900
 NOTE 11  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
     Cyclical Nature of Equipment Rental and Services Industry
  23




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Results of Operations
   Comparison of Three Months Ended March 31, 2008 and 2007
      24




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##### Table of Contents



Revenues
    
    
    Income (Loss) from OperationsThree Months Ended
    
    
    Three Months EndedMarch 31,
    
    
    March 31,2008
    
    
    2007
    
    
    Change
    
    
    2008
    
    
    2007
    
    
    Change(in thousands)Oilfield Services
    
    $
    67,903
    
    
    $
    55,431
    
    
    $
    12,472
    
    
    $
    13,297
    
    
    $
    11,692
    
    
    $
    1,605Drilling and Completion
    
    
    63,061
    
    
    
    48,888
    
    
    
    14,173
    
    
    
    8,868
    
    
    
    9,614
    
    
    
    (746
    )Rental Services
    
    
    22,218
    
    
    
    31,581
    
    
    
    (9,363
    )
    
    
    6,222
    
    
    
    13,923
    
    
    
    (7,701
    )General corporate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,805
    )
    
    
    (3,759
    )
    
    
    (1,046
    )Total
    
    $
    153,182
    
    
    $
    135,900
    
    
    $
    17,282
    
    
    $
    23,582
    
    
    $
    31,470
    
    
    $
    (7,888
    )
 Oilfield Services
  25




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##### Table of Contents



Drilling and Completion
  Rental Services
  General Corporate
  Liquidity and Capital Resources
  Operating Activities
   26




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Investing Activities
   Financing Activities
     27




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Notes payable
     28




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##### Table of Contents



Other debt
   Off Balance Sheet Arrangements
  Capital Requirements
   Recent Developments
  Critical Accounting Policies
  Fair Value Measurements,
 29




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##### Table of Contents



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
 Forward-Looking Statements
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
  30




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##### Table of Contents



Interest Rate Risk.
  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
  31




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##### Table of Contents



SIGNATURES
  Allis-Chalmers Energy Inc.

             (Registrant)/s/ Munawar H. Hidayatallah

Munawar H. HidayatallahChief Executive Officer and
Chairman
 32




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##### Table of Contents



EXHIBIT INDEX
 2.1
    
    Agreement and Plan of Merger, dated January 23, 2008,
by and among Allis-Chalmers Energy Inc.,
Elway Merger Sub, Inc. and Bronco Drilling Company, Inc. (incorporated by reference to Exhibit
2.1 to the Registrants Form 8-K filed on January 24, 2008).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
    
    Credit Agreement, dated January 31, 2008, by and among Allis-Chalmers Energy Inc., as lender,
BCH Ltd., as borrower, and BCH Energy do Brasil Servicos de Petroleo Ltda., as guarantor
(incorporated by reference to Exhibit 10.1 to the Registrants Form 8-K filed on February 6,
2008).10.2
    
    Option to Purchase and Governance Agreement, dated January 31, 2008, by and among
Allis-Chalmers Energy Inc., BrazAlta Resources Corp. and BCH Ltd. (incorporated by reference
to Exhibit 10.1 to the Registrants Form 8-K filed on February 6, 2008).10.3
    
    Subordination Agreement, dated January 31, 2008, by among Allis-Chalmers Energy Inc.,
Standard Bank PLC, BCH Ltd., BCH Energy do Brasil Servicos de Petroleo Ltda. and BrazAlta
Resources Corp. (incorporated by reference to Exhibit 10.1 to the Registrants Form 8-K filed
on February 6, 2008).10.4
    
    Form of Convertible Subordinated Secured Debenture (incorporate by reference to Schedule E to
Exhibit 10.1 to the Registrants Form 8-K filed on February 6, 2008).10.5
    
    Employment Agreement, effective January 1, 2008, between Allis-Chalmers Energy Inc. and Mark
Patterson (incorporated by reference to Exhibit 10.1 to the Registrants Form 8-K filed on
February 25, 2008).10.6
    
    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, 2008B).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