##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE TRANSITION PERIOD FROM  TO
 Commission file number 1-02199
 ALLIS-CHALMERS ENERGY INC.
  DELAWARE
    
    39-0126090(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)5075 WESTHEIMER, SUITE 890, HOUSTON, TEXAS
    
    77056(Address of principal executive offices)
    
    (Zip Code)
 (713) 369-0550  Registrants telephone number, including area code
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



ALLIS-CHALMERS ENERGY INC.
 FORM 10-Q
 For the Quarterly Period Ended June 30, 2009
 TABLE OF CONTENTS
 PAGEPART I FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Condensed Balance Sheets as of June 30, 2009 and December 31, 2008
    
    
    3Consolidated Condensed Statements of Operations for the three and six months ended
June 30, 2009 and 2008
    
    
    4Consolidated Condensed Statements of Cash Flows for the six months ended
June 30, 2009 and 2008
    
    
    5Notes to Consolidated Condensed Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    27Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    41Item 4. Controls and Procedures
    
    
    42PART II OTHER INFORMATIONItem 1A Risk Factors
    
    
    43Item 6. Exhibits
    
    
    43Signatures
    
    
    44Exhibit 31.1Exhibit 31.2Exhibit 32.1
   2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 ALLIS-CHALMERS ENERGY INC.
 
 CONSOLIDATED CONDENSED BALANCE SHEETS
  June 30,
    
    
    December 31,2009
    
    
    2008(unaudited)AssetsCash and cash equivalents
    
    $
    59,359
    
    
    $
    6,866Trade receivables, net
    
    
    99,027
    
    
    
    157,871Inventories
    
    
    36,561
    
    
    
    39,087Deferred income tax asset
    
    
    6,642
    
    
    
    6,176Prepaid expenses and other
    
    
    14,109
    
    
    
    15,238Total current assets
    
    
    215,698
    
    
    
    225,238Property and equipment, net
    
    
    767,665
    
    
    
    760,990Goodwill
    
    
    43,273
    
    
    
    43,273Other intangible assets, net
    
    
    34,997
    
    
    
    37,371Debt issuance costs, net
    
    
    10,611
    
    
    
    12,664Deferred income tax asset
    
    
    9,577
    
    
    
    3,993Other assets
    
    
    21,700
    
    
    
    31,522Total assets
    
    $
    1,103,521
    
    
    $
    1,115,051Liabilities and Stockholders EquityCurrent maturities of long-term debt
    
    $
    15,559
    
    
    $
    14,617Trade accounts payable
    
    
    35,257
    
    
    
    62,078Accrued salaries, benefits and payroll taxes
    
    
    19,156
    
    
    
    20,192Accrued interest
    
    
    15,669
    
    
    
    18,623Accrued expenses
    
    
    21,506
    
    
    
    26,642Total current liabilities
    
    
    107,147
    
    
    
    142,152Long-term debt, net of current maturities
    
    
    483,210
    
    
    
    579,044Deferred income tax liability
    
    
    8,215
    
    
    
    8,253Other long-term liabilities
    
    
    1,588
    
    
    
    2,193Total liabilities
    
    
    600,160
    
    
    
    731,642Commitments and contingenciesStockholders EquityPreferred stock, $0.01 par value; liquidation value $1,000 per share
(25,000,000 shares authorized, 36,393 shares issued and outstanding
at June 30, 2009 and no shares issued at December 31, 2008)
    
    
    34,183
    
    
    
    Common stock, $0.01 par value (100,000,000 shares authorized;
71,369,635 issued and outstanding at June 30, 2009 and
35,674,742 issued and outstanding at December 31, 2008)
    
    
    714
    
    
    
    357Capital in excess of par value
    
    
    422,775
    
    
    
    334,633Retained earnings
    
    
    45,689
    
    
    
    48,419Total stockholders equity
    
    
    503,361
    
    
    
    383,409Total liabilities and stockholders equity
    
    $
    1,103,521
    
    
    $
    1,115,051
   3




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ALLIS-CHALMERS ENERGY INC.
 
 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
   For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues
    
    $
    112,505
    
    
    $
    163,135
    
    
    $
    257,608
    
    
    $
    316,317Operating costs and expenses
Direct costs
    
    
    87,239
    
    
    
    104,329
    
    
    
    190,373
    
    
    
    202,840Depreciation
    
    
    19,181
    
    
    
    15,225
    
    
    
    38,552
    
    
    
    29,727Selling, general and administrative
    
    
    15,525
    
    
    
    14,842
    
    
    
    29,165
    
    
    
    30,313Loss on asset disposition
    
    
    1,916
    
    
    
    
    
    
    
    1,916
    
    
    
    Amortization
    
    
    1,187
    
    
    
    1,071
    
    
    
    2,374
    
    
    
    2,187Total operating costs and expenses
    
    
    125,048
    
    
    
    135,467
    
    
    
    262,380
    
    
    
    265,067Income (loss) from operations
    
    
    (12,543
    )
    
    
    27,668
    
    
    
    (4,772
    )
    
    
    51,250Other income (expense):Interest expense
    
    
    (13,221
    )
    
    
    (12,036
    )
    
    
    (26,728
    )
    
    
    (24,077
    )Interest income
    
    
    9
    
    
    
    1,538
    
    
    
    14
    
    
    
    2,690Gain on debt extinguishment
    
    
    26,365
    
    
    
    
    
    
    
    26,365
    
    
    
    Other
    
    
    (485
    )
    
    
    369
    
    
    
    (268
    )
    
    
    476Total other income (expense)
    
    
    12,668
    
    
    
    (10,129
    )
    
    
    (617
    )
    
    
    (20,911
    )Income (loss) before income taxes
    
    
    125
    
    
    
    17,539
    
    
    
    (5,389
    )
    
    
    30,339Provision for income taxes
    
    
    (215
    )
    
    
    (6,981
    )
    
    
    2,694
    
    
    
    (11,731
    )Net income (loss)
    
    
    (90
    )
    
    
    10,558
    
    
    
    (2,695
    )
    
    
    18,608Preferred stock dividend
    
    
    (35
    )
    
    
    
    
    
    
    (35
    )
    
    
    Net income (loss) attributed
to common stockholders
    
    $
    (125
    )
    
    $
    10,558
    
    
    $
    (2,730
    )
    
    $
    18,608Net income (loss) per common share:Basic
    
    $
    0.00
    
    
    $
    0.30
    
    
    $
    (0.08
    )
    
    $
    0.53Diluted
    
    $
    0.00
    
    
    $
    0.30
    
    
    $
    (0.08
    )
    
    $
    0.53Weighted average shares outstanding:Basic
    
    
    36,959
    
    
    
    35,018
    
    
    
    36,087
    
    
    
    34,928Diluted
    
    
    36,959
    
    
    
    35,534
    
    
    
    36,087
    
    
    
    35,386
   4




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ALLIS-CHALMERS ENERGY INC.
 
 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
   For the Six Months EndedJune 30,2009
    
    
    2008Cash Flows from Operating Activities:Net income (loss)
    
    $
    (2,695
    )
    
    $
    18,608Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Depreciation and amortization
    
    
    40,926
    
    
    
    31,914Amortization and write-off of debt issuance costs
    
    
    1,151
    
    
    
    1,038Stock-based compensation
    
    
    2,345
    
    
    
    4,385Allowance for bad debts
    
    
    3,565
    
    
    
    636Deferred taxes
    
    
    (6,088
    )
    
    
    4,309Gain on sale of property and equipment
    
    
    (602
    )
    
    
    (537
    )Loss on asset disposition
    
    
    1,916
    
    
    
    Gain on debt extinguishment
    
    
    (26,365
    )
    
    
    Changes in operating assets and liabilities, net of acquisitions:Decrease (increase) in trade receivable
    
    
    55,279
    
    
    
    (13,887
    )Decrease (increase) in inventories
    
    
    2,526
    
    
    
    (4,498
    )Decrease (increase) in prepaid expenses and other current assets
    
    
    7,411
    
    
    
    (178
    )Decrease (increase) in other assets
    
    
    1,120
    
    
    
    (3,657
    )Increase (decrease) in trade accounts payable
    
    
    (27,170
    )
    
    
    8,667Increase (decrease) in accrued interest
    
    
    (2,954
    )
    
    
    319Increase (decrease) in accrued expenses
    
    
    (5,760
    )
    
    
    4,533Increase (decrease) in accrued salaries, benefits and payroll taxes
    
    
    (1,036
    )
    
    
    5,012(Decrease) in other long-term liabilities
    
    
    (605
    )
    
    
    (249
    )Net Cash Provided By Operating Activities
    
    
    42,964
    
    
    
    56,415Cash Flows from Investing Activities:Investment in note receivable
    
    
    
    
    
    
    (40,000
    )Deposits on asset commitments
    
    
    10,032
    
    
    
    (3,447
    )Proceeds from sale of property and equipment
    
    
    6,693
    
    
    
    3,578Purchase of property and equipment
    
    
    (57,993
    )
    
    
    (74,663
    )Net Cash Used In Investing Activities
    
    
    (41,268
    )
    
    
    (114,532
    )Cash Flows from Financing Activities:Proceeds from issuance of stock, net
    
    
    120,337
    
    
    
    Proceeds from exercises of options
    
    
    
    
    
    
    609Proceeds from long-term debt
    
    
    25,000
    
    
    
    17,946Net borrowings (repayments) under line of credit
    
    
    (36,500
    )
    
    
    10,000Payments on long-term debt
    
    
    (57,396
    )
    
    
    (4,102
    )Tax benefits on stock-based compensation plans
    
    
    
    
    
    
    72Debt issuance costs
    
    
    (644
    )
    
    
    (21
    )Net Cash Provided By Financing Activities
    
    
    50,797
    
    
    
    24,504Net change in cash and cash equivalents
    
    
    52,493
    
    
    
    (33,613
    )Cash and cash equivalents at beginning of period
    
    
    6,866
    
    
    
    43,693Cash and cash equivalents at end of period
    
    $
    59,359
    
    
    $
    10,080
   5




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




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 1  NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 Reclassification
  New Accounting Pronouncements
 Fair Value Measurements,
 Business Combinations,
 Determination of the Useful Life of Intangible Assets Goodwill and Other Intangible Assets
 Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That
Arise from Contingencies Accounting for Contingencies Reasonable Estimation of the
Amount of a Loss
  7




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 1  NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly
 Interim Disclosures about Fair Value of
Financial Instruments Disclosures about Fair Value of Financial Instruments, Interim Financial Reporting
 Subsequent
Events
 , Amendments to
FASB Interpretation No. 46(R Consolidation of Variable Interest Entities
 The FASB
Accounting Standards Codification TM and Hierarchy of Generally Accepted
Accounting Principles, a replacement of FASB Statement No. 162,
  8




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 2  STOCK-BASED COMPENSATION
   Weighted
    
    
    WeightedShares
    
    
    Average
    
    
    Average
    
    
    AggregateUnder
    
    
    Exercise
    
    
    Contractual
    
    
    Intrinsic ValueOption
    
    
    Price
    
    
    Life (Years)
    
    
    (millions)Balance at December 31, 2008
    
    
    901,732
    
    
    $
    10.95Granted
    
    
    120,000
    
    
    
    1.23Canceled
    
    
    (207,000
    )
    
    
    21.58Exercised
    
    
    Outstanding at June 30, 2009
    
    
    814,732
    
    
    $
    6.82
    
    
    
    6.54
    
    
    $
    0.13Exercisable at June 30, 2009
    
    
    682,732
    
    
    $
    7.54
    
    
    
    5.96
    
    
    $
    0.00
   For the Six Months EndedJune 30, 2009Expected dividend yield
    
    
    Expected price volatility
    
    
    77.32
    %Risk free interest rate
    
    
    1.37
    %Expected life of options
    
    5 yearsWeighted average fair value of options granted at
market value
    
    $
    0.77
   Weighted AverageNumber of
    
    
    Grant-Date Fair ValueShares
    
    
    Per ShareNonvested at December 31, 2008
    
    
    953,102
    
    
    $
    15.34Granted
    
    
    17,000
    
    
    
    1.23Vested
    
    
    (39,645
    )
    
    
    13.31Forfeited
    
    
    (5,795
    )
    
    
    16.69Nonvested at June 30, 2009
    
    
    924,662
    
    
    $
    15.16
  9




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 2  STOCK-BASED COMPENSATION (Continued)
  NOTE 3  INVENTORIES
  June 30,
    
    
    December 31,2009
    
    
    2008ManufacturedFinished goods
    
    $
    3,407
    
    
    $
    2,821Work in process
    
    
    1,972
    
    
    
    1,654Raw materials
    
    
    2,169
    
    
    
    2,499Total manufactured
    
    
    7,548
    
    
    
    6,974Hammers
    
    
    2,157
    
    
    
    2,257Drive pipe
    
    
    264
    
    
    
    443Rental supplies
    
    
    2,615
    
    
    
    3,023Chemicals and drilling fluids
    
    
    3,992
    
    
    
    3,698Rig parts and related inventory
    
    
    10,675
    
    
    
    13,097Coiled tubing and related inventory
    
    
    1,357
    
    
    
    1,817Shop supplies and related inventory
    
    
    7,953
    
    
    
    7,778Total inventories
    
    $
    36,561
    
    
    $
    39,087
 NOTE 4  GOODWILL AND INTANGIBLE ASSETS
    10




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 5  DEBT
  June 30,
    
    
    December 31,2009
    
    
    2008Senior notes
    
    $
    430,238
    
    
    $
    505,000Term loans
    
    
    65,982
    
    
    
    49,609Revolving line of credit
    
    
    
    
    
    
    36,500Seller notes
    
    
    
    
    
    
    750Notes payable to former directors
    
    
    32
    
    
    
    32Insurance premium financing
    
    
    1,993
    
    
    
    991Capital lease obligations
    
    
    524
    
    
    
    779Total debt
    
    
    498,769
    
    
    
    593,661Less: current maturities
    
    
    15,559
    
    
    
    14,617Long-term debt, net of current maturities
    
    $
    483,210
    
    
    $
    579,044
 Senior notes, bank loans and line of credit agreements
     11




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 5  DEBT (Continued)
     Notes payable
    Other debt
   12




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 6  STOCKHOLDERS EQUITY
     NOTE 7  LOSS ON ASSET DISPOSITION
  NOTE 8  GAIN ON DEBT EXTINGUISHMENT
   13




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 9  INCOME PER COMMON SHARE
  For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Numerator:Net income (loss)
    
    $
    (90
    )
    
    $
    10,558
    
    
    $
    (2,695
    )
    
    $
    18,608Preferred stock dividend
    
    
    (35
    )
    
    
    
    
    
    
    (35
    )
    
    
    Net income (loss) attributed to common
stockholders
    
    $
    (125
    )
    
    $
    10,558
    
    
    $
    (2,730
    )
    
    $
    18,608Denominator:Weighted average common shares
outstanding excluding nonvested
restricted stock
    
    
    36,959
    
    
    
    35,018
    
    
    
    36,087
    
    
    
    34,928Effect of potentially dilutive common shares:Warrants and employee and director
stock options and restricted shares
    
    
    
    
    
    
    516
    
    
    
    
    
    
    
    458Weighted average common shares
outstanding and assumed conversions
    
    
    36,959
    
    
    
    35,534
    
    
    
    36,087
    
    
    
    35,386Net income (loss) per common shareBasic
    
    $
    0.00
    
    
    $
    .30
    
    
    $
    (0.08
    )
    
    $
    0.53Diluted
    
    $
    0.00
    
    
    $
    .30
    
    
    $
    (0.08
    )
    
    $
    0.53Potentially dilutive securities excluded
as anti-dilutive
    
    
    15,698
    
    
    
    472
    
    
    
    15,698
    
    
    
    548
  NOTE 10  SUPPLEMENTAL CASH FLOW INFORMATION
 For the Six Months EndedJune 30,2009
    
    
    2008Cash paid for interest and income taxes:Interest
    
    $
    28,329
    
    
    $
    23,087Income taxes
    
    
    1,354
    
    
    
    12,595Non-cash activities:Insurance premium financed
    
    
    2,381
    
    
    
    2,767Assets transferred to joint venture investment
    
    
    1,330
    
    
    
    Preferred stock dividend
    
    
    35
    
    
    
    
  14




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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 11  CONDENSED CONSOLIDATING FINANCIAL INFORMATION
  CONDENSED CONSOLIDATING BALANCE SHEETS
 Allis-Chalmers
    
    
    
    
    
    
    Subsidiary(Parent/
    
    
    Subsidiary
    
    
    Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    TotalAssetsCash and cash equivalents
    
    $
    
    
    
    $
    51,929
    
    
    $
    7,430
    
    
    $
    
    
    
    $
    59,359Trade receivables, net
    
    
    
    
    
    
    47,898
    
    
    
    53,497
    
    
    
    (2,368
    )
    
    
    99,027Inventories
    
    
    
    
    
    
    18,751
    
    
    
    17,810
    
    
    
    
    
    
    
    36,561Intercompany receivables
    
    
    
    
    
    
    37,423
    
    
    
    
    
    
    
    (37,423
    )
    
    
    Note receivable from affiliate
    
    
    23,495
    
    
    
    
    
    
    
    
    
    
    
    (23,495
    )
    
    
    Prepaid expenses and other
    
    
    477
    
    
    
    8,032
    
    
    
    12,242
    
    
    
    
    
    
    
    20,751Total current assets
    
    
    23,972
    
    
    
    164,033
    
    
    
    90,979
    
    
    
    (63,286
    )
    
    
    215,698Property and equipment, net
    
    
    
    
    
    
    513,150
    
    
    
    254,515
    
    
    
    
    
    
    
    767,665Goodwill
    
    
    
    
    
    
    23,251
    
    
    
    20,022
    
    
    
    
    
    
    
    43,273Other intangible assets, net
    
    
    483
    
    
    
    27,182
    
    
    
    7,332
    
    
    
    
    
    
    
    34,997Debt issuance costs, net
    
    
    10,460
    
    
    
    151
    
    
    
    
    
    
    
    
    
    
    
    10,611Note receivable from affiliates
    
    
    7,230
    
    
    
    
    
    
    
    
    
    
    
    (7,230
    )
    
    
    Investments in affiliates
    
    
    938,127
    
    
    
    
    
    
    
    
    
    
    
    (938,127
    )
    
    
    Other assets
    
    
    9,455
    
    
    
    19,279
    
    
    
    2,543
    
    
    
    
    
    
    
    31,277Total assets
    
    $
    989,727
    
    
    $
    747,046
    
    
    $
    375,391
    
    
    $
    (1,008,643
    )
    
    $
    1,103,521Liabilities and Stockholders EquityCurrent maturities of long-term debt
    
    $
    32
    
    
    $
    5,290
    
    
    $
    10,237
    
    
    $
    
    
    
    $
    15,559Trade accounts payable
    
    
    
    
    
    
    14,858
    
    
    
    22,767
    
    
    
    (2,368
    )
    
    
    35,257Accrued salaries, benefits and
payroll taxes
    
    
    
    
    
    
    2,136
    
    
    
    17,020
    
    
    
    
    
    
    
    19,156Accrued interest
    
    
    15,101
    
    
    
    243
    
    
    
    325
    
    
    
    
    
    
    
    15,669Accrued expenses
    
    
    4,733
    
    
    
    7,431
    
    
    
    9,342
    
    
    
    
    
    
    
    21,506Intercompany payables
    
    
    36,262
    
    
    
    
    
    
    
    1,161
    
    
    
    (37,423
    )
    
    
    Note payable to affiliate
    
    
    
    
    
    
    
    
    
    
    23,495
    
    
    
    (23,495
    )
    
    
    Total current liabilities
    
    
    56,128
    
    
    
    29,958
    
    
    
    84,347
    
    
    
    (63,286
    )
    
    
    107,147Long-term debt, net of current
maturities
    
    
    430,238
    
    
    
    21,703
    
    
    
    31,269
    
    
    
    
    
    
    
    483,210Note payable to affiliate
    
    
    
    
    
    
    
    
    
    
    7,230
    
    
    
    (7,230
    )
    
    
    Deferred income tax liability
    
    
    
    
    
    
    
    
    
    
    8,215
    
    
    
    
    
    
    
    8,215Other long-term liabilities
    
    
    
    
    
    
    26
    
    
    
    1,562
    
    
    
    
    
    
    
    1,588Total liabilities
    
    
    486,366
    
    
    
    51,687
    
    
    
    132,623
    
    
    
    (70,516
    )
    
    
    600,160Commitments and contingenciesStockholders EquityPreferred Stock
    
    
    34,183
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,183Common stock
    
    
    714
    
    
    
    3,526
    
    
    
    42,963
    
    
    
    (46,489
    )
    
    
    714Capital in excess of par value
    
    
    422,775
    
    
    
    570,512
    
    
    
    136,839
    
    
    
    (707,351
    )
    
    
    422,775Retained earnings
    
    
    45,689
    
    
    
    121,321
    
    
    
    62,966
    
    
    
    (184,287
    )
    
    
    45,689Total stockholders equity
    
    
    503,361
    
    
    
    695,359
    
    
    
    242,768
    
    
    
    (938,127
    )
    
    
    503,361Total liabilities and
stockholders equity
    
    $
    989,727
    
    
    $
    747,046
    
    
    $
    375,391
    
    
    $
    (1,008,643
    )
    
    $
    1,103,521
  15




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 11  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
 Allis-Chalmers
    
    
    
    
    
    
    Subsidiary(Parent/
    
    
    Subsidiary
    
    
    Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    TotalRevenues
    
    $
    
    
    
    $
    110,705
    
    
    $
    148,173
    
    
    $
    (1,270
    )
    
    $
    257,608Operating costs and expensesDirect costs
    
    
    
    
    
    
    72,243
    
    
    
    119,400
    
    
    
    (1,270
    )
    
    
    190,373Depreciation
    
    
    
    
    
    
    28,222
    
    
    
    10,330
    
    
    
    
    
    
    
    38,552Selling, general and
administrative
    
    
    1,986
    
    
    
    19,956
    
    
    
    7,223
    
    
    
    
    
    
    
    29,165Loss on asset disposition
    
    
    
    
    
    
    
    
    
    
    1,916
    
    
    
    
    
    
    
    1,916Amortization
    
    
    23
    
    
    
    1,961
    
    
    
    390
    
    
    
    
    
    
    
    2,374Total operating costs
and expenses
    
    
    2,009
    
    
    
    122,382
    
    
    
    139,259
    
    
    
    (1,270
    )
    
    
    262,380Income (loss) from
operations
    
    
    (2,009
    )
    
    
    (11,677
    )
    
    
    8,914
    
    
    
    
    
    
    
    (4,772
    )Other income (expense):Equity earnings in
affiliates, net of tax
    
    
    (2,600
    )
    
    
    
    
    
    
    
    
    
    
    2,600
    
    
    
    Interest, net
    
    
    (24,486
    )
    
    
    (21
    )
    
    
    (2,207
    )
    
    
    
    
    
    
    (26,714
    )Gain on debt
extinguishment
    
    
    26,365
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,365Other
    
    
    35
    
    
    
    (106
    )
    
    
    (197
    )
    
    
    
    
    
    
    (268
    )Total other income
(expense)
    
    
    (686
    )
    
    
    (127
    )
    
    
    (2,404
    )
    
    
    2,600
    
    
    
    (617
    )Net income (loss)before
income taxes
    
    
    (2,695
    )
    
    
    (11,804
    )
    
    
    6,510
    
    
    
    2,600
    
    
    
    (5,389
    )Provision for income taxes
    
    
    
    
    
    
    4,046
    
    
    
    (1,352
    )
    
    
    
    
    
    
    2,694Net income (loss)
    
    
    (2,695
    )
    
    
    (7,758
    )
    
    
    5,158
    
    
    
    2,600
    
    
    
    (2,695
    )Preferred stock dividend
    
    
    (35
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35
    )Net income (loss)
attributed to common
stockholders
    
    $
    (2,730
    )
    
    $
    (7,758
    )
    
    $
    5,158
    
    
    $
    2,600
    
    
    $
    (2,730
    )
  16




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 11  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
 Allis-Chalmers
    
    
    
    
    
    
    Subsidiary(Parent/
    
    
    Subsidiary
    
    
    Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    TotalRevenues
    
    $
    
    
    
    $
    44,738
    
    
    $
    68,384
    
    
    $
    (617
    )
    
    $
    112,505Operating costs and expensesDirect costs
    
    
    
    
    
    
    30,948
    
    
    
    56,908
    
    
    
    (617
    )
    
    
    87,239Depreciation
    
    
    
    
    
    
    13,913
    
    
    
    5,268
    
    
    
    
    
    
    
    19,181Selling, general and
administrative
    
    
    1,044
    
    
    
    10,788
    
    
    
    3,693
    
    
    
    
    
    
    
    15,525Loss on asset disposition
    
    
    
    
    
    
    
    
    
    
    1,916
    
    
    
    
    
    
    
    1,916Amortization
    
    
    11
    
    
    
    981
    
    
    
    195
    
    
    
    
    
    
    
    1,187Total operating costs
and expenses
    
    
    1,055
    
    
    
    56,630
    
    
    
    67,980
    
    
    
    (617
    )
    
    
    125,048Income (loss) from
operations
    
    
    (1,055
    )
    
    
    (11,892
    )
    
    
    404
    
    
    
    
    
    
    
    (12,543
    )Other income (expense):Equity earnings in
affiliates, net of tax
    
    
    (13,212
    )
    
    
    
    
    
    
    
    
    
    
    13,212
    
    
    
    Interest, net
    
    
    (12,202
    )
    
    
    (13
    )
    
    
    (997
    )
    
    
    
    
    
    
    (13,212
    )Gain on debt
extinguishment
    
    
    26,365
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,365Other
    
    
    14
    
    
    
    (75
    )
    
    
    (424
    )
    
    
    
    
    
    
    (485
    )Total other income
(expense)
    
    
    965
    
    
    
    (88
    )
    
    
    (1,421
    )
    
    
    13,212
    
    
    
    12,668Net income (loss)before
income taxes
    
    
    (90
    )
    
    
    (11,980
    )
    
    
    (1,017
    )
    
    
    13,212
    
    
    
    125Provision for income taxes
    
    
    
    
    
    
    (258
    )
    
    
    43
    
    
    
    
    
    
    
    (215
    )Net income (loss)
    
    
    (90
    )
    
    
    (12,238
    )
    
    
    (974
    )
    
    
    13,212
    
    
    
    (90
    )Preferred stock dividend
    
    
    (35
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35
    )Net income (loss)
attributed to common
stockholders
    
    $
    (125
    )
    
    $
    (12,238
    )
    
    $
    (974
    )
    
    $
    13,212
    
    
    $
    (125
    )
  17




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 11  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
 Allis-Chalmers
    
    
    
    
    
    
    Subsidiaries(Parent/
    
    
    Subsidiary
    
    
    (Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors)
    
    
    Adjustments
    
    
    TotalCash Flows from Operating Activities:Net income (loss)
    
    $
    (2,695
    )
    
    $
    (7,758
    )
    
    $
    5,158
    
    
    $
    2,600
    
    
    $
    (2,695
    )Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:Depreciation and amortization
    
    
    23
    
    
    
    30,183
    
    
    
    10,720
    
    
    
    
    
    
    
    40,926Amortization and write-off of debt
issuance costs
    
    
    1,149
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    1,151Stock based compensation
    
    
    2,345
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,345Allowance for bad debts
    
    
    
    
    
    
    3,565
    
    
    
    
    
    
    
    
    
    
    
    3,565Equity earnings in affiliates
    
    
    2,600
    
    
    
    
    
    
    
    
    
    
    
    (2,600
    )
    
    
    Deferred taxes
    
    
    (4,783
    )
    
    
    1
    
    
    
    (1,306
    )
    
    
    
    
    
    
    (6,088
    )(Gain) on sale of equipment
    
    
    
    
    
    
    (543
    )
    
    
    (59
    )
    
    
    
    
    
    
    (602
    )Loss on asset disposition
    
    
    
    
    
    
    
    
    
    
    1,916
    
    
    
    
    
    
    
    1,916Gain on debt extinguishment
    
    
    (26,365
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,365
    )Changes in operating assets and
liabilities, net of acquisitions:Decrease in trade receivables
    
    
    
    
    
    
    37,911
    
    
    
    17,368
    
    
    
    
    
    
    
    55,279Decrease in inventories
    
    
    
    
    
    
    631
    
    
    
    1,895
    
    
    
    
    
    
    
    2,526(Increase) decrease in prepaid
expenses and other current assets
    
    
    7,520
    
    
    
    2,422
    
    
    
    (2,531
    )
    
    
    
    
    
    
    7,411(Increase) decrease in other assets
    
    
    (34
    )
    
    
    (902
    )
    
    
    2,056
    
    
    
    
    
    
    
    1,120(Decrease) in trade accounts
payable
    
    
    
    
    
    
    (13,747
    )
    
    
    (13,423
    )
    
    
    
    
    
    
    (27,170
    )(Decrease) increase in accrued
interest
    
    
    (2,831
    )
    
    
    243
    
    
    
    (366
    )
    
    
    
    
    
    
    (2,954
    )(Decrease) increase in accrued
expenses
    
    
    3,951
    
    
    
    (6,410
    )
    
    
    (3,301
    )
    
    
    
    
    
    
    (5,760
    )(Decrease) increase in accrued
salaries, benefits and payroll
taxes
    
    
    
    
    
    
    (1,797
    )
    
    
    761
    
    
    
    
    
    
    
    (1,036
    )(Decrease) in other long- term
liabilities
    
    
    
    
    
    
    (38
    )
    
    
    (567
    )
    
    
    
    
    
    
    (605
    )Net Cash Provided By (Used In)
Operating Activities
    
    
    (19,120
    )
    
    
    43,763
    
    
    
    18,321
    
    
    
    
    
    
    
    42,964Cash Flows from Investing Activities:Investment in affiliates
    
    
    (3,500
    )
    
    
    
    
    
    
    
    
    
    
    3,500
    
    
    
    Deposits on asset commitments
    
    
    
    
    
    
    10,616
    
    
    
    (584
    )
    
    
    
    
    
    
    10,032Proceeds from sale of property and
equipment
    
    
    
    
    
    
    6,634
    
    
    
    59
    
    
    
    
    
    
    
    6,693Purchase of property and equipment
    
    
    
    
    
    
    (49,089
    )
    
    
    (8,904
    )
    
    
    
    
    
    
    (57,993
    )Net Cash Used in Investing
Activities
    
    
    (3,500
    )
    
    
    (31,839
    )
    
    
    (9,429
    )
    
    
    3,500
    
    
    
    (41,268
    )
  18




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 11  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
 Allis-Chalmers
    
    
    
    
    
    
    Subsidiaries(Parent/
    
    
    Subsidiary
    
    
    (Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors)
    
    
    Adjustments
    
    
    TotalCash Flows from Financing Activities:Accounts receivable from affiliates
    
    
    
    
    
    
    13,615
    
    
    
    
    
    
    
    (13,615
    )
    
    
    Accounts payable to affiliates
    
    
    (13,591
    )
    
    
    
    
    
    
    (24
    )
    
    
    13,615
    
    
    
    Proceeds from parent contributions
    
    
    
    
    
    
    
    
    
    
    3,500
    
    
    
    (3,500
    )
    
    
    Proceeds from issuance of stock, net
    
    
    120,337
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    120,337Proceeds from long-term debt
    
    
    
    
    
    
    25,000
    
    
    
    
    
    
    
    
    
    
    
    25,000Net repayment under line of credit
    
    
    (36,500
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (36,500
    )Payments on long-term debt
    
    
    (47,135
    )
    
    
    (1,380
    )
    
    
    (8,881
    )
    
    
    
    
    
    
    (57,396
    )Debt issuance costs
    
    
    (491
    )
    
    
    (153
    )
    
    
    
    
    
    
    
    
    
    
    (644
    )Net Cash Provided By (Used
In) Financing Activities
    
    
    22,620
    
    
    
    37,082
    
    
    
    (5,405
    )
    
    
    (3,500
    )
    
    
    50,797Net change in cash and cash
equivalents
    
    
    
    
    
    
    49,006
    
    
    
    3,487
    
    
    
    
    
    
    
    52,493Cash and cash equivalents at
beginning of period
    
    
    
    
    
    
    2,923
    
    
    
    3,943
    
    
    
    
    
    
    
    6,866Cash and cash equivalents at end of
period
    
    $
    
    
    
    $
    51,929
    
    
    $
    7,430
    
    
    $
    
    
    
    $
    59,359
  19




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##### Table of Contents



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




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 11  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING INCOME STATEMENTS
 Allis-Chalmers
    
    
    
    
    
    
    Subsidiary(Parent/
    
    
    Subsidiary
    
    
    Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    TotalRevenues
    
    $
    
    
    
    $
    183,451
    
    
    $
    132,879
    
    
    $
    (13
    )
    
    $
    316,317Operating costs and expensesDirect costs
    
    
    
    
    
    
    99,853
    
    
    
    103,000
    
    
    
    (13
    )
    
    
    202,840Depreciation
    
    
    
    
    
    
    23,167
    
    
    
    6,560
    
    
    
    
    
    
    
    29,727Selling, general and
administrative
    
    
    3,890
    
    
    
    21,380
    
    
    
    5,043
    
    
    
    
    
    
    
    30,313Amortization
    
    
    23
    
    
    
    2,147
    
    
    
    17
    
    
    
    
    
    
    
    2,187Total operating costs
and expenses
    
    
    3,913
    
    
    
    146,547
    
    
    
    114,620
    
    
    
    (13
    )
    
    
    265,067Income (loss) from
operations
    
    
    (3,913
    )
    
    
    36,904
    
    
    
    18,259
    
    
    
    
    
    
    
    51,250Other income (expense):Equity earnings in
affiliates, net of tax
    
    
    43,700
    
    
    
    
    
    
    
    
    
    
    
    (43,700
    )
    
    
    Interest, net
    
    
    (21,221
    )
    
    
    60
    
    
    
    (226
    )
    
    
    
    
    
    
    (21,387
    )Other
    
    
    42
    
    
    
    24
    
    
    
    410
    
    
    
    
    
    
    
    476Total other income
(expense)
    
    
    22,521
    
    
    
    84
    
    
    
    184
    
    
    
    (43,700
    )
    
    
    (20,911
    )Net income (loss)before
income taxes
    
    
    18,608
    
    
    
    36,988
    
    
    
    18,443
    
    
    
    (43,700
    )
    
    
    30,339Provision for income taxes
    
    
    
    
    
    
    (4,449
    )
    
    
    (7,282
    )
    
    
    
    
    
    
    (11,731
    )Net income (loss)
    
    $
    18,608
    
    
    $
    32,539
    
    
    $
    11,161
    
    
    $
    (43,700
    )
    
    $
    18,608
  21




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 11  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING INCOME STATEMENTS
 Allis-Chalmers
    
    
    
    
    
    
    Subsidiary(Parent/
    
    
    Subsidiary
    
    
    Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    TotalRevenues
    
    $
    
    
    
    $
    93,323
    
    
    $
    69,818
    
    
    $
    (6
    )
    
    $
    163,135Operating costs and expensesDirect costs
    
    
    
    
    
    
    49,988
    
    
    
    54,347
    
    
    
    (6
    )
    
    
    104,329Depreciation
    
    
    
    
    
    
    11,834
    
    
    
    3,391
    
    
    
    
    
    
    
    15,225Selling, general and
administrative
    
    
    1,514
    
    
    
    10,647
    
    
    
    2,681
    
    
    
    
    
    
    
    14,842Amortization
    
    
    11
    
    
    
    1,052
    
    
    
    8
    
    
    
    
    
    
    
    1,071Total operating costs
and expenses
    
    
    1,525
    
    
    
    73,521
    
    
    
    60,427
    
    
    
    (6
    )
    
    
    135,467Income (loss) from
operations
    
    
    (1,525
    )
    
    
    19,802
    
    
    
    9,391
    
    
    
    
    
    
    
    27,668Other income (expense):Equity earnings in
affiliates, net of tax
    
    
    22,477
    
    
    
    
    
    
    
    
    
    
    
    (22,477
    )
    
    
    Interest, net
    
    
    (10,409
    )
    
    
    (16
    )
    
    
    (73
    )
    
    
    
    
    
    
    (10,498
    )Other
    
    
    15
    
    
    
    (20
    )
    
    
    374
    
    
    
    
    
    
    
    369Total other income
(expense)
    
    
    12,083
    
    
    
    (36
    )
    
    
    301
    
    
    
    (22,477
    )
    
    
    (10,129
    )Net income (loss)before
income taxes
    
    
    10,558
    
    
    
    19,766
    
    
    
    9,692
    
    
    
    (22,477
    )
    
    
    17,539Provision for income taxes
    
    
    
    
    
    
    (2,938
    )
    
    
    (4,043
    )
    
    
    
    
    
    
    (6,981
    )Net income (loss)
    
    $
    10,558
    
    
    $
    16,828
    
    
    $
    5,649
    
    
    $
    (22,477
    )
    
    $
    10,558
  22




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##### Table of Contents



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




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 11  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
 OtherAllis-Chalmers
    
    
    
    
    
    
    Subsidiaries(Parent/
    
    
    Subsidiary
    
    
    (Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors)
    
    
    Adjustments
    
    
    TotalCash Flows from Financing Activities:Accounts receivable from affiliates
    
    
    55,290
    
    
    
    
    
    
    
    
    
    
    
    (55,290
    )
    
    
    Accounts payable to affiliates
    
    
    
    
    
    
    (55,290
    )
    
    
    
    
    
    
    55,290
    
    
    
    Note payable to affiliate
    
    
    
    
    
    
    
    
    
    
    3,075
    
    
    
    (3,075
    )
    
    
    Proceeds from exercises of options
    
    
    609
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    609Tax benefit on stock-based
compensation plans
    
    
    72
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    72Proceeds from long-term debt
    
    
    
    
    
    
    
    
    
    
    17,946
    
    
    
    
    
    
    
    17,946Net borrowing under line of credit
    
    
    10,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,000Payments on long-term debt
    
    
    
    
    
    
    (2,914
    )
    
    
    (1,188
    )
    
    
    
    
    
    
    (4,102
    )Debt issuance costs
    
    
    (21
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21
    )Net Cash Provided By (Used
In) Financing Activities
    
    
    65,950
    
    
    
    (58,204
    )
    
    
    19,833
    
    
    
    (3,075
    )
    
    
    24,504Net change in cash and cash
equivalents
    
    
    
    
    
    
    (33,510
    )
    
    
    (103
    )
    
    
    
    
    
    
    (33,613
    )Cash and cash equivalents at
beginning of period
    
    
    
    
    
    
    41,176
    
    
    
    2,517
    
    
    
    
    
    
    
    43,693Cash and cash equivalents at end
of period
    
    $
    
    
    
    $
    7,666
    
    
    $
    2,414
    
    
    $
    
    
    
    $
    10,080
  24




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 12- SEGMENT INFORMATION
  For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues:Oilfield Services
    
    $
    29,473
    
    
    $
    68,653
    
    
    $
    73,923
    
    
    $
    136,556Drilling and Completion
    
    
    67,792
    
    
    
    69,818
    
    
    
    146,938
    
    
    
    132,879Rental Services
    
    
    15,240
    
    
    
    24,664
    
    
    
    36,747
    
    
    
    46,882$
    112,505
    
    
    $
    163,135
    
    
    $
    257,608
    
    
    $
    316,317Operating Income (Loss):Oilfield Services
    
    $
    (10,277
    )
    
    $
    13,090
    
    
    $
    (11,490
    )
    
    $
    26,387Drilling and Completion
    
    
    403
    
    
    
    9,391
    
    
    
    8,912
    
    
    
    18,259Rental Services
    
    
    588
    
    
    
    9,266
    
    
    
    4,536
    
    
    
    15,488General corporate
    
    
    (3,257
    )
    
    
    (4,079
    )
    
    
    (6,730
    )
    
    
    (8,884
    )$
    (12,543
    )
    
    $
    27,668
    
    
    $
    (4,772
    )
    
    $
    51,250Depreciation and Amortization:Oilfield Services
    
    $
    7,433
    
    
    $
    5,961
    
    
    $
    14,748
    
    
    $
    11,591Drilling and Completion
    
    
    5,463
    
    
    
    3,399
    
    
    
    10,720
    
    
    
    6,577Rental Services
    
    
    7,395
    
    
    
    6,795
    
    
    
    15,299
    
    
    
    13,464General corporate
    
    
    77
    
    
    
    141
    
    
    
    159
    
    
    
    282$
    20,368
    
    
    $
    16,296
    
    
    $
    40,926
    
    
    $
    31,914Capital Expenditures:Oilfield Services
    
    $
    4,028
    
    
    $
    9,390
    
    
    $
    8,060
    
    
    $
    23,817Drilling and Completion
    
    
    39,069
    
    
    
    21,165
    
    
    
    43,708
    
    
    
    39,694Rental Services
    
    
    935
    
    
    
    4,415
    
    
    
    6,191
    
    
    
    11,106General corporate
    
    
    3
    
    
    
    16
    
    
    
    34
    
    
    
    46$
    44,035
    
    
    $
    34,986
    
    
    $
    57,993
    
    
    $
    74,663Revenues:United States
    
    $
    40,622
    
    
    $
    88,959
    
    
    $
    102,823
    
    
    $
    172,942Argentina
    
    
    52,871
    
    
    
    69,809
    
    
    
    115,654
    
    
    
    132,450Brazil
    
    
    10,012
    
    
    
    
    
    
    
    20,778
    
    
    
    Other international
    
    
    9,000
    
    
    
    4,367
    
    
    
    18,353
    
    
    
    10,925$
    112,505
    
    
    $
    163,135
    
    
    $
    257,608
    
    
    $
    316,317
  25




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 12  SEGMENT INFORMATION (Continued)
 As ofJune 30,
    
    
    December 31,2009
    
    
    2008Goodwill:Oilfield Services
    
    $
    23,250
    
    
    $
    23,250Drilling and Completion
    
    
    20,023
    
    
    
    20,023Rental Services
    
    
    
    
    
    
    $
    43,273
    
    
    $
    43,273Assets:Oilfield Services
    
    $
    272,318
    
    
    $
    309,901Drilling and Completion
    
    
    419,737
    
    
    
    411,486Rental Services
    
    
    333,565
    
    
    
    360,376General corporate
    
    
    77,901
    
    
    
    33,288$
    1,103,521
    
    
    $
    1,115,051Long Lived Assets:United States
    
    $
    576,475
    
    
    $
    573,975Argentina
    
    
    188,570
    
    
    
    212,456Brazil
    
    
    78,950
    
    
    
    79,568Other international
    
    
    43,828
    
    
    
    23,814$
    887,823
    
    
    $
    889,813
 NOTE 13  LEGAL MATTERS
     26




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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 41.
 Overview of Our Business
     Our Industry
   27




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Company Outlook
     Results of Operations
    28




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




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30




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Revenues
    
    
    Income (Loss) from OperationsThree Months Ended
    
    
    Three Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    Change
    
    
    2009
    
    
    2008
    
    
    Change(in thousands)Oilfield Services
    
    $
    29,473
    
    
    $
    68,653
    
    
    $
    (39,180
    )
    
    $
    (10,277
    )
    
    $
    13,090
    
    
    $
    (23,367
    )Drilling and Completion
    
    
    67,792
    
    
    
    69,818
    
    
    
    (2,026
    )
    
    
    403
    
    
    
    9,391
    
    
    
    (8,988
    )Rental Services
    
    
    15,240
    
    
    
    24,664
    
    
    
    (9,424
    )
    
    
    588
    
    
    
    9,266
    
    
    
    (8,678
    )General corporate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,257
    )
    
    
    (4,079
    )
    
    
    822Total
    
    $
    112,505
    
    
    $
    163,135
    
    
    $
    (50,630
    )
    
    $
    (12,543
    )
    
    $
    27,668
    
    
    $
    (40,211
    )
 Oilfield Services
  Drilling and Completion
  Rental Services
   31




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General Corporate
  Comparison of Six Months Ended June 30, 2009 and 2008
      32




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33




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Revenues
    
    
    Income (Loss) from OperationsSix Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    Change
    
    
    2009
    
    
    2008
    
    
    Change(in thousands)Oilfield Services
    
    $
    73,923
    
    
    $
    136,556
    
    
    $
    (62,633
    )
    
    $
    (11,490
    )
    
    $
    26,387
    
    
    $
    (37,877
    )Drilling and Completion
    
    
    146,938
    
    
    
    132,879
    
    
    
    14,059
    
    
    
    8,912
    
    
    
    18,259
    
    
    
    (9,347
    )Rental Services
    
    
    36,747
    
    
    
    46,882
    
    
    
    (10,135
    )
    
    
    4,536
    
    
    
    15,488
    
    
    
    (10,952
    )General corporate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,730
    )
    
    
    (8,884
    )
    
    
    2,154Total
    
    $
    257,608
    
    
    $
    316,317
    
    
    $
    (58,709
    )
    
    $
    (4,772
    )
    
    $
    51,250
    
    
    $
    (56,022
    )
 Oilfield Services
  Drilling and Completion
   34




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Rental Services
  General Corporate
  Liquidity
     35




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Operating Activities
     Investing Activities
    36




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Financing Activities
    Senior notes, bank loans and line of credit agreements
     37




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Notes payable
    Other debt
  Off Balance Sheet Arrangements
   38




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Capital Resources
  Critical Accounting Policies
  Recently Issued Accounting Standards
 Fair Value Measurements,
 Business Combinations,
 Determination of the Useful Life of Intangible Assets Goodwill and Other Intangible Assets
  39




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Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That
Arise from Contingencies Accounting for Contingencies Reasonable Estimation of the
Amount of a Loss
 Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly
 Interim Disclosures about Fair Value of
Financial Instruments Disclosures about Fair Value of Financial Instruments, Interim Financial Reporting
 Subsequent
Events
 , Amendments to
FASB Interpretation No. 46(R Consolidation of Variable Interest Entities
  40




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The FASB
Accounting Standards Codification TM and Hierarchy of Generally Accepted
Accounting Principles, a replacement of FASB Statement No. 162,
 Forward-Looking Statements
  
    
    the impact of the weak economic conditions and the future impact of such conditions
on the oil and natural gas industry and demand for our services;
 
    
    the unexpected future capital expenditures (including amount and nature thereof);
 
    
    unexpected difficulties in integrating our operations as a result of any
significant acquisitions;
 
    
    adverse weather conditions in certain regions;
 
    
    the impact of political disturbances, war, or terrorist attacks and changes in
global trade policies;
 
    
    the availability (or lack thereof) of capital to fund our business strategy and/or
operations;
 
    
    the potential impact of the loss of one or more key employees;
 
    
    the effect of environmental liabilities that are not covered by an effective
indemnity or insurance; the impact of current and future laws;
 
    
    the effects of competition; and
 
    
    the effects of our indebtedness, which could adversely restrict our ability to
operate, could make us vulnerable to general adverse economic and industry conditions,
could place us at a competitive disadvantage compared to our competitors that have
less debt, and could have other adverse consequences.
  
 ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
   41




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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.
   42




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PART II. OTHER INFORMATION
 
 ITEM 1A.
    
    RISK FACTORS.
  The DLS sellers and Lime Rock control substantial ownership stakes in us and have board nomination
rights, and they are therefore able to exert significant influence on our affairs and actions,
including matters submitted for a stockholder vote.
     
 ITEM 6.
    
    EXHIBITS
   43




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SIGNATURES
  Allis-Chalmers Energy Inc.
(Registrant)/s/ Munawar H. HidayatallahMunawar H. HidayatallahChief Executive Officer and
Chairman  44




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EXHIBIT INDEX
 3.1
    
    
    Certificate of Designations of 7% Convertible Perpetual Preferred Stock (incorporated by
reference to Exhibit 3.1 to the Registrants Form 8-K filed on July 1, 2009).4.1
    
    
    Investment Agreement, dated May 20, 2009, between Allis-Chalmers Energy Inc. and Lime Rock
Partners V, L.P. (incorporated by reference to Exhibit 4.1 to the Registrants Form 8-K filed
on May 27, 2009).4.2
    
    
    First Amendment to Investment Agreement, dated June 25, 2006, between Allis-Chalmers Energy
Inc. and Lime Rock Partners V, L.P. (incorporated by reference to Exhibit 4.1 to the
Registrants Form 8-K filed on July 1, 2009).4.3
    
    
    Registration Rights Agreement, dated June 26, 2009, between Allis-Chalmers Energy Inc. and
Lime Rock Partners V, L.P. (incorporated by reference to Exhibit 4.2 to the Registrants Form
8-K filed on July 1, 2009).10.1
    
    
    Third Amendment to Second Amended and Restated Credit Agreement, dated as of April 9, 2009,
by and among Allis-Chalmers Energy Inc., as borrower, certain subsidiaries of Allis-Chalmers
Energy Inc., 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
April 9, 2009).10.2
    
    
    Fourth Amendment to Second Amended and Restated Credit Agreement, dated May 20, 2009, by and
among Allis-Chalmers Energy Inc., the subsidiary guarantors party thereto, Royal Bank of
Canada, as Administrative Agent and Collateral Agent, and the lenders party thereto
(incorporate by reference to Exhibit 10.1 to the Registrants Form 8-K filed on May 27, 2009).10.3
    
    
    Master Loan and Security Agreement, dated as of January 23, 2009, by and among Allis-Chalmers
Drilling LLC, as borrower, Allis-Chalmers Energy Inc., as guarantor, and Caterpillar Financial
Services Corporation, as lender (incorporated by reference to Exhibit 10.2 to the Registrants
Form 8-K filed on May 27, 2009).31.1
    *
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    *
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    *
    
    Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith  45