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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 SEPTEMBER 30, 2007
 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 1-2199
 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
 (713) 369-0550  Registrants telephone number, including area code
 þ o
  o þ o
 o þ




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ALLIS-CHALMERS ENERGY INC.
 FORM 10-Q
 For the Quarterly Period Ended September 30, 2007
 TABLE OF CONTENTS
 PAGEPART IITEM1.
Financial StatementsConsolidated Condensed Balance Sheets as of September 30, 2007 and December 31, 2006
    
    
    3Consolidated Condensed Income Statements for the three and nine months ended September 30, 2007 and 2006
    
    
    4Consolidated Condensed Statements of Cash Flows for the nine months ended September 30, 2007 and 2006
    
    
    5Notes to Consolidated Condensed Financial Statements
    
    
    62. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    263. Quantitative and Qualitative Disclosures about Market Risk
    
    
    374. Controls and Procedures
    
    
    37PART II6. Exhibits
    
    
    38Signatures
    
    
    38Employment Agreement - Munawar H. HidayatallahEmployment Agreement - Victor M. PerezForm of Performance Award AgreementCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO & CFO Pursuant to Section 906
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PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 ALLIS-CHALMERS ENERGY INC.
 
 CONSOLIDATED CONDENSED BALANCE SHEETS
  September 30,
    
    
    December 31,2007
    
    
    2006(unaudited)AssetsCash and cash equivalents
    
    $
    63,091
    
    
    $
    39,745Trade receivables, net
    
    
    132,561
    
    
    
    95,766Inventories
    
    
    31,832
    
    
    
    28,615Prepaid expenses and other
    
    
    10,519
    
    
    
    16,636Total current assets
    
    
    238,003
    
    
    
    180,762Property and equipment, net
    
    
    601,434
    
    
    
    554,258Goodwill
    
    
    130,326
    
    
    
    125,835Other intangible assets, net
    
    
    30,929
    
    
    
    32,840Debt issuance costs, net
    
    
    14,528
    
    
    
    9,633Other assets
    
    
    5,054
    
    
    
    4,998Total assets
    
    $
    1,020,274
    
    
    $
    908,326Liabilities and Stockholders EquityCurrent maturities of long-term debt
    
    $
    7,579
    
    
    $
    6,999Trade accounts payable
    
    
    27,118
    
    
    
    25,666Accrued salaries, benefits and payroll taxes
    
    
    13,576
    
    
    
    10,888Accrued interest
    
    
    6,774
    
    
    
    11,867Accrued expenses
    
    
    27,132
    
    
    
    16,951Total current liabilities
    
    
    82,179
    
    
    
    72,371Long-term debt, net of current maturities
    
    
    508,858
    
    
    
    561,446Deferred income taxes
    
    
    23,095
    
    
    
    19,953Other long-term liabilities
    
    
    555
    
    
    
    623Total liabilities
    
    
    614,687
    
    
    
    654,393Commitments 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;
34,812,666 issued and outstanding at September 30, 2007 and
28,233,411 issued and outstanding at December 31, 2006)
    
    
    348
    
    
    
    282Capital in excess of par value
    
    
    323,140
    
    
    
    216,208Retained earnings
    
    
    82,099
    
    
    
    37,443Total stockholders equity
    
    
    405,587
    
    
    
    253,933Total liabilities and stockholders equity
    
    $
    1,020,274
    
    
    $
    908,326
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ALLIS-CHALMERS ENERGY INC.
 
 CONSOLIDATED CONDENSED INCOME STATEMENTS
   For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues
    
    $
    147,881
    
    
    $
    86,772
    
    
    $
    427,143
    
    
    $
    196,066Cost of revenuesDirect costs
    
    
    89,120
    
    
    
    52,531
    
    
    
    249,943
    
    
    
    113,408Depreciation
    
    
    13,168
    
    
    
    5,448
    
    
    
    37,232
    
    
    
    12,606Total cost of revenues
    
    
    102,288
    
    
    
    57,979
    
    
    
    287,175
    
    
    
    126,014Gross margin
    
    
    45,593
    
    
    
    28,793
    
    
    
    139,968
    
    
    
    70,052General and administrative
    
    
    13,456
    
    
    
    9,058
    
    
    
    41,729
    
    
    
    24,540Gain on capillary asset sale
    
    
    
    
    
    
    
    
    
    
    (8,868
    )
    
    
    Amortization
    
    
    989
    
    
    
    399
    
    
    
    3,015
    
    
    
    1,212Income from operations
    
    
    31,148
    
    
    
    19,336
    
    
    
    104,092
    
    
    
    44,300Other income (expense):Interest expense
    
    
    (11,805
    )
    
    
    (5,330
    )
    
    
    (37,671
    )
    
    
    (13,342
    )Interest income
    
    
    851
    
    
    
    388
    
    
    
    2,718
    
    
    
    515Other
    
    
    32
    
    
    
    (26
    )
    
    
    308
    
    
    
    (6
    )Total other income (expense)
    
    
    (10,922
    )
    
    
    (4,968
    )
    
    
    (34,645
    )
    
    
    (12,833
    )Income before income taxes
    
    
    20,226
    
    
    
    14,368
    
    
    
    69,447
    
    
    
    31,467Provision for taxes
    
    
    (7,239
    )
    
    
    (3,116
    )
    
    
    (24,791
    )
    
    
    (6,197
    )Net income
    
    $
    12,987
    
    
    $
    11,252
    
    
    $
    44,656
    
    
    $
    25,270Net income per common share:Basic
    
    $
    0.37
    
    
    $
    0.52
    
    
    $
    1.32
    
    
    $
    1.33Diluted
    
    $
    0.37
    
    
    $
    0.50
    
    
    $
    1.29
    
    
    $
    1.25Weighted average shares outstanding:Basic
    
    
    34,784
    
    
    
    21,644
    
    
    
    33,934
    
    
    
    18,944Diluted
    
    
    35,286
    
    
    
    22,453
    
    
    
    34,512
    
    
    
    20,155
  4




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ALLIS-CHALMERS ENERGY INC.
 
 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
   For the Nine Months EndedSeptember 30,2007
    
    
    2006Cash Flows from Operating Activities:Net income
    
    $
    44,656
    
    
    $
    25,270Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    40,247
    
    
    
    13,818Amortization and write-off of deferred financing fees
    
    
    2,686
    
    
    
    742Imputed interest
    
    
    
    
    
    
    355Stock-based
compensation expense
    
    
    2,132
    
    
    
    2,638Allowance for bad debts
    
    
    441
    
    
    
    353Deferred income taxes
    
    
    3,142
    
    
    
    494(Gain) on sale of property and equipment
    
    
    (1,085
    )
    
    
    (728
    )Gain on capillary asset sale
    
    
    (8,868
    )
    
    
    Changes in operating assets and liabilities, net of acquisitions:(Increase) in trade receivable
    
    
    (36,801
    )
    
    
    (17,161
    )(Increase) in inventories
    
    
    (4,998
    )
    
    
    (2,161
    )Decrease in other current assets
    
    
    10,551
    
    
    
    1,322Decrease in other assets
    
    
    173
    
    
    
    530Increase (decrease) in accounts payable
    
    
    1,326
    
    
    
    (1,609
    )(Decrease) increase in accrued interest
    
    
    (5,093
    )
    
    
    4,661Increase in accrued expenses
    
    
    9,957
    
    
    
    2,516Increase in accrued salaries, benefits and payroll taxes
    
    
    2,412
    
    
    
    3,110(Decrease) in other long-term liabilities
    
    
    (68
    )
    
    
    (813
    )Net Cash Provided By Operating Activities
    
    
    60,810
    
    
    
    33,337Cash Flows from Investing Activities:Acquisition of businesses, net of cash received
    
    
    (12,860
    )
    
    
    (203,189
    )Purchase of investment interests
    
    
    (498
    )
    
    
    Proceeds from sale of capillary assets
    
    
    16,250
    
    
    
    Proceeds from sale of property and equipment
    
    
    5,988
    
    
    
    3,516Purchase of property and equipment
    
    
    (86,087
    )
    
    
    (25,811
    )Net Cash Used In Investing Activities
    
    
    (77,207
    )
    
    
    (225,484
    )Cash Flows from Financing Activities:Proceeds from issuance of stock, net
    
    
    100,055
    
    
    
    46,484Proceeds from exercises of options and warrants
    
    
    3,252
    
    
    
    5,406Proceeds from long-term debt
    
    
    250,000
    
    
    
    257,820Proceeds from line of credit
    
    
    
    
    
    
    5,000Repayments on long-term debt
    
    
    (307,542
    )
    
    
    (51,712
    )Repayments on related party debt
    
    
    
    
    
    
    (3,031
    )Repayments on line of credit
    
    
    
    
    
    
    (11,400
    )Tax benefits on stock plans
    
    
    1,559
    
    
    
    Debt issuance costs
    
    
    (7,581
    )
    
    
    (8,029
    )Net Cash Provided By Financing Activities
    
    
    39,743
    
    
    
    240,538Net change in cash and cash equivalents
    
    
    23,346
    
    
    
    48,391Cash and cash equivalents at beginning of year
    
    
    39,745
    
    
    
    1,920Cash and cash equivalents at end of period
    
    $
    63,091
    
    
    $
    50,311
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ALLIS-CHALMERS ENERGY INC
 
 NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 1  NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Nature of Operations
    Basis of Presentation
    6




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ALLIS-CHALMERS ENERGY INC  NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 1  NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 Accounting for Uncertainty in Income
Taxes  an interpretation of FASB Statement No. 109 Accounting for Income Taxes
  Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities
 NOTE 2
 ACQUISITIONS
   NOTE 3
 SALE OF CAPILLARY ASSETS
  7




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ALLIS-CHALMERS ENERGY INC  NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 4
 STOCK-BASED COMPENSATION
 Share-Based Payment
    Weighted
    
    WeightedShares
    
    Average
    
    Average
    
    AggregateUnder
    
    Exercise
    
    Contractual
    
    Intrinsic ValueOption
    
    Price
    
    Life (Years)
    
    (millions)Balance at beginning of period
    
    
    1,350,365
    
    
    $
    6.88Granted
    
    
    220,000
    
    
    
    21.83Canceled
    
    
    (9,000
    )
    
    
    6.89Exercised
    
    
    (552,102
    )
    
    
    5.89Outstanding at end of period
    
    
    1,009,263
    
    
    
    10.68
    
    
    
    8.19
    
    
    $
    8.34Exercisable at end of period
    
    
    626,931
    
    
    $
    6.69
    
    
    
    7.60
    
    
    $
    7.68
   For the Three Months Ended
    
    For the Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expected price volatility
    
    
    66.17
    %
    
    
    72.28
    %
    
    
    66.21
    %
    
    
    72.28
    %Risk free interest rate
    
    
    4.82
    %
    
    
    5.07
    %
    
    
    4.81
    %
    
    
    5.07
    %Expected life of options
    
    5 years
    
    7 years
    
    5 years
    
    7 yearsWeighted average fair
value of options granted
at market value
    
    $
    12.90
    
    
    $
    10.58
    
    
    $
    12.86
    
    
    $
    10.58
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ALLIS-CHALMERS ENERGY INC  NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 4
 STOCK-BASED COMPENSATION (Continued)
   Weighted AverageNumber of
    
    Grant-Date Fair Valueshares
    
    per ShareNonvested at December 31, 2006
    
    
    27,000
    
    
    $
    18.30Granted
    
    
    831,200
    
    
    
    17.34Vested
    
    
    (24,000
    )
    
    
    18.30Forfeited
    
    
    
    
    
    
    Nonvested at September 30, 2007
    
    
    834,200
    
    
    $
    17.34
  NOTE 5
 INCOME PER COMMON SHARE
 Earnings Per
Share
  For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Numerator:Net income
    
    $
    12,987
    
    
    $
    11,252
    
    
    $
    44,656
    
    
    $
    25,270Denominator:Basic earnings per share  weighted
average shares outstanding
    
    
    34,784
    
    
    
    21,644
    
    
    
    33,934
    
    
    
    18,944Effect of potentially dilutive common shares:Warrants and employee and director
stock options
    
    
    502
    
    
    
    809
    
    
    
    578
    
    
    
    1,211Diluted earnings per share 
weighted average shares
outstanding and assumed
conversions
    
    
    35,286
    
    
    
    22,453
    
    
    
    34,512
    
    
    
    20,155Net income per share  basic
    
    $
    0.37
    
    
    $
    0.52
    
    
    $
    1.32
    
    
    $
    1.33Net income per share  diluted
    
    $
    0.37
    
    
    $
    0.50
    
    
    $
    1.29
    
    
    $
    1.25
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ALLIS-CHALMERS ENERGY INC  NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 6
 GOODWILL AND INTANGIBLE ASSETS
 Goodwill and Other Intangible Assets
  NOTE 7  INVENTORIES
  September 30,
    
    
    December 31,2007
    
    
    2006Chemicals and drilling fluids
    
    $
    2,822
    
    
    $
    2,673Coiled tubing and related inventory
    
    
    1,827
    
    
    
    1,627Drive pipe
    
    
    565
    
    
    
    716Finished goods
    
    
    2,033
    
    
    
    1,476Hammers
    
    
    1,245
    
    
    
    1,016Raw materials
    
    
    3,955
    
    
    
    2,638Rental supplies
    
    
    1,854
    
    
    
    1,845Rig parts and related inventory
    
    
    10,385
    
    
    
    9,762Shop supplies and related inventory
    
    
    5,190
    
    
    
    4,596Work in process
    
    
    1,956
    
    
    
    2,266Total inventory
    
    $
    31,832
    
    
    $
    28,615
 NOTE 8  DEBT
  September 30,
    
    
    December 31,2007
    
    
    2006Senior notes
    
    $
    505,000
    
    
    $
    255,000Bridge loan
    
    
    
    
    
    
    300,000Bank term loans
    
    
    5,484
    
    
    
    7,302Revolving line of credit
    
    
    
    
    
    
    Seller notes
    
    
    1,850
    
    
    
    900Obligations under non-compete agreements
    
    
    160
    
    
    
    270Notes payable to former directors
    
    
    32
    
    
    
    32Equipment and vehicle installment notes
    
    
    942
    
    
    
    3,502Insurance premium financing
    
    
    2,927
    
    
    
    1,025Capital lease obligations
    
    
    42
    
    
    
    414Total debt
    
    
    516,437
    
    
    
    568,445Less: current maturities
    
    
    7,579
    
    
    
    6,999Long-term debt obligations
    
    $
    508,858
    
    
    $
    561,446
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ALLIS-CHALMERS ENERGY INC  NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 8
 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 8
 DEBT (continued)
  Other debt
  NOTE 9  STOCKHOLDERS EQUITY
   NOTE
10  CONDENSED CONSOLIDATING FINANCIAL INFORMATION
  12




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ALLIS-CHALMERS ENERGY INC  NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE
10  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING BALANCE SHEETS
 Allis-Chalmers
    
    
    
    
    
    
    Subsidiary(Parent/
    
    
    Subsidiary
    
    
    Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    TotalAssetsCash and cash equivalents
    
    $
    
    
    
    $
    61,260
    
    
    $
    1,831
    
    
    $
    
    
    
    $
    63,091Trade receivables, net
    
    
    
    
    
    
    83,759
    
    
    
    48,806
    
    
    
    (4
    )
    
    
    132,561Inventory
    
    
    
    
    
    
    15,435
    
    
    
    16,397
    
    
    
    
    
    
    
    31,832Intercompany receivables
    
    
    82,001
    
    
    
    
    
    
    
    
    
    
    
    (82,001
    )
    
    
    Note receivable from affiliate
    
    
    7,406
    
    
    
    
    
    
    
    
    
    
    
    (7,406
    )
    
    
    Prepaid expenses and other
    
    
    5,417
    
    
    
    3,064
    
    
    
    2,038
    
    
    
    
    
    
    
    10,519Total current assets
    
    
    94,824
    
    
    
    163,518
    
    
    
    69,072
    
    
    
    (89,411
    )
    
    
    238,003Property and equipment, net
    
    
    
    
    
    
    460,905
    
    
    
    140,529
    
    
    
    
    
    
    
    601,434Goodwill
    
    
    
    
    
    
    128,803
    
    
    
    1,523
    
    
    
    
    
    
    
    130,326Other intangible assets, net
    
    
    563
    
    
    
    30,302
    
    
    
    64
    
    
    
    
    
    
    
    30,929Debt issuance costs, net
    
    
    14,528
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,528Note receivable from affiliates
    
    
    8,895
    
    
    
    
    
    
    
    
    
    
    
    (8,895
    )
    
    
    Investments in affiliates
    
    
    805,066
    
    
    
    
    
    
    
    
    
    
    
    (805,066
    )
    
    
    Other assets
    
    
    23
    
    
    
    4,989
    
    
    
    42
    
    
    
    
    
    
    
    5,054Total Assets
    
    $
    923,899
    
    
    $
    788,517
    
    
    $
    211,230
    
    
    $
    (903,372
    )
    
    $
    1,020,274Liabilities and Stockholders EquityCurrent maturities of long-term debt
    
    $
    32
    
    
    $
    5,171
    
    
    $
    2,376
    
    
    $
    
    
    
    $
    7,579Trade accounts payable
    
    
    
    
    
    
    12,158
    
    
    
    14,964
    
    
    
    (4
    )
    
    
    27,118Accrued
salaries, benefits and payroll taxes
    
    
    
    
    
    
    2,559
    
    
    
    11,017
    
    
    
    
    
    
    
    13,576Accrued interest
    
    
    6,705
    
    
    
    15
    
    
    
    54
    
    
    
    
    
    
    
    6,774Accrued expenses
    
    
    432
    
    
    
    15,906
    
    
    
    10,794
    
    
    
    
    
    
    
    27,132Intercompany payables
    
    
    
    
    
    
    438,534
    
    
    
    1,185
    
    
    
    (439,719
    )
    
    
    Note payable to affiliate
    
    
    
    
    
    
    
    
    
    
    7,406
    
    
    
    (7,406
    )
    
    
    Total current liabilities
    
    
    7,169
    
    
    
    474,343
    
    
    
    47,796
    
    
    
    (447,129
    )
    
    
    82,179Long-term
debt, net of current maturities
    
    
    505,750
    
    
    
    
    
    
    
    3,108
    
    
    
    
    
    
    
    508,858Note payable to affiliate
    
    
    
    
    
    
    
    
    
    
    8,895
    
    
    
    (8,895
    )
    
    
    Deferred income taxes
    
    
    5,110
    
    
    
    10,714
    
    
    
    7,271
    
    
    
    
    
    
    
    23,095Other long-term liabilities
    
    
    283
    
    
    
    272
    
    
    
    
    
    
    
    
    
    
    
    555Total liabilities
    
    
    518,312
    
    
    
    485,329
    
    
    
    67,070
    
    
    
    (456,024
    )
    
    
    614,687Commitments and contingenciesStockholders EquityCommon stock
    
    
    348
    
    
    
    3,526
    
    
    
    42,963
    
    
    
    (46,489
    )
    
    
    348Capital in excess of par value
    
    
    323,140
    
    
    
    167,508
    
    
    
    74,969
    
    
    
    (242,477
    )
    
    
    323,140Retained earnings
    
    
    82,099
    
    
    
    132,154
    
    
    
    26,228
    
    
    
    (158,382
    )
    
    
    82,099Total stockholders equity
    
    
    405,587
    
    
    
    303,188
    
    
    
    144,160
    
    
    
    (447,348
    )
    
    
    405,587Total liabilities and
stockholders equity
    
    $
    923,899
    
    
    $
    788,517
    
    
    $
    211,230
    
    
    $
    (903,372
    )
    
    $
    1,020,274
 13




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC  NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE
10  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING BALANCE SHEETS
 Allis-Chalmers
    
    
    
    
    
    
    Subsidiary(Parent/
    
    
    Subsidiary
    
    
    Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    TotalAssetsCash and cash equivalents
    
    $
    
    
    
    $
    37,769
    
    
    $
    1,976
    
    
    $
    
    
    
    $
    39,745Trade receivables, net
    
    
    
    
    
    
    62,089
    
    
    
    33,971
    
    
    
    (294
    )
    
    
    95,766Inventory
    
    
    
    
    
    
    13,194
    
    
    
    15,421
    
    
    
    
    
    
    
    28,615Intercompany receivables
    
    
    67,909
    
    
    
    
    
    
    
    
    
    
    
    (67,909
    )
    
    
    Note receivable from affiliate
    
    
    5,502
    
    
    
    
    
    
    
    
    
    
    
    (5,502
    )
    
    
    Prepaid expenses and other
    
    
    5,703
    
    
    
    10,200
    
    
    
    733
    
    
    
    
    
    
    
    16,636Total current assets
    
    
    79,114
    
    
    
    123,252
    
    
    
    52,101
    
    
    
    (73,705
    )
    
    
    180,762Property and equipment, net
    
    
    
    
    
    
    422,297
    
    
    
    131,961
    
    
    
    
    
    
    
    554,258Goodwill
    
    
    
    
    
    
    124,331
    
    
    
    1,504
    
    
    
    
    
    
    
    125,835Other intangible assets, net
    
    
    598
    
    
    
    32,153
    
    
    
    89
    
    
    
    
    
    
    
    32,840Debt issuance costs, net
    
    
    9,633
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,633Note receivable from affiliates
    
    
    12,339
    
    
    
    
    
    
    
    
    
    
    
    (12,339
    )
    
    
    Investments in affiliates
    
    
    722,202
    
    
    
    
    
    
    
    
    
    
    
    (722,202
    )
    
    
    Other assets
    
    
    257
    
    
    
    4,719
    
    
    
    22
    
    
    
    
    
    
    
    4,998Total assets
    
    $
    824,143
    
    
    $
    706,752
    
    
    $
    185,677
    
    
    $
    (808,246
    )
    
    $
    908,326Liabilities and Stockholders EquityCurrent maturities of long-term debt
    
    $
    32
    
    
    $
    3,809
    
    
    $
    3,158
    
    
    $
    
    
    
    $
    6,999Trade accounts payable
    
    
    31
    
    
    
    13,510
    
    
    
    12,125
    
    
    
    
    
    
    
    25,666Accrued
salaries, benefits and payroll taxes
    
    
    
    
    

    
    2,993
    

    
    
    7,895
    
    
    
    
    
    
    
    10,888Accrued interest
    
    
    11,755
    
    
    
    
    
    
    
    112
    
    
    
    
    
    
    
    11,867Accrued expenses
    
    
    135
    
    
    
    9,247
    
    
    
    7,863
    
    
    
    (294
    )
    
    
    16,951Intercompany payables
    
    
    
    
    
    
    425,610
    
    
    
    17
    
    
    
    (425,627
    )
    
    
    Note payable to affiliate
    
    
    
    
    
    
    
    
    
    
    5,502
    
    
    
    (5,502
    )
    
    
    Total current liabilities
    
    
    11,953
    
    
    
    455,169
    
    
    
    36,672
    
    
    
    (431,423
    )
    
    
    72,371Long-term
debt, net of current maturities
    
    555,750
    
    
    770
    
    
    
    4,926
    
    
    
    
    
    
    
    561,446Note payable to affiliate
    
    
    
    
    
    
    
    
    
    
    12,339
    
    
    
    (12,339
    )
    
    
    Deferred income tax liability
    
    
    2,203
    
    
    
    10,714
    
    
    
    7,036
    
    
    
    
    
    
    
    19,953Other long-term liabilities
    
    
    304
    
    
    
    319
    
    
    
    
    
    
    
    
    
    
    
    623Total liabilities
    
    
    570,210
    
    
    
    466,972
    
    
    
    60,973
    
    
    
    (443,762
    )
    
    
    654,393Commitments and contingenciesStockholders EquityCommon stock
    
    
    282
    
    
    
    3,526
    
    
    
    42,963
    
    
    
    (46,489
    )
    
    
    282Capital in excess of par value
    
    
    216,208
    
    
    
    167,508
    
    
    
    74,969
    
    
    
    (242,477
    )
    
    
    216,208Retained earnings
    
    
    37,443
    
    
    
    68,746
    
    
    
    6,772
    
    
    
    (75,518
    )
    
    
    37,443Total stockholders equity
    
    
    253,933
    
    
    
    239,780
    
    
    
    124,704
    
    
    
    (364,484
    )
    
    
    253,933Total liabilities and stock
holders equity
    
    $
    824,143
    
    
    $
    706,752
    
    
    $
    185,677
    
    
    $
    (808,246
    )
    
    $
    908,326
 14




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC  NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE
10  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING INCOME STATEMENTS
 Allis-Chalmers
    
    
    
    
    
    
    Subsidiary(Parent/
    
    
    Subsidiary
    
    
    Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    TotalRevenues
    
    $
    
    
    
    $
    266,883
    
    
    $
    160,295
    
    
    $
    (35
    )
    
    $
    427,143Cost of revenuesDirect costs
    
    
    
    
    
    
    134,492
    
    
    
    115,486
    
    
    
    (35
    )
    
    
    249,943Depreciation
    
    
    
    
    
    
    28,929
    
    
    
    8,303
    
    
    
    
    
    
    
    37,232Total cost of revenues
    
    
    
    
    
    
    163,421
    
    
    
    123,789
    
    
    
    (35
    )
    
    
    287,175Gross margin
    
    
    
    
    
    
    103,462
    
    
    
    36,506
    
    
    
    
    
    
    
    139,968General and administrative
    
    
    1,856
    
    
    
    33,486
    
    
    
    6,387
    
    
    
    
    
    
    
    41,729Gain on capillary asset sale
    
    
    
    
    
    
    (8,868
    )
    
    
    
    
    
    
    
    
    
    
    (8,868
    )Amortization
    
    
    35
    
    
    
    2,955
    
    
    
    25
    
    
    
    
    
    
    
    3,015Income from operations
    
    
    (1,891
    )
    
    
    75,889
    
    
    
    30,094
    
    
    
    
    
    
    
    104,092Other income (expense):Equity earnings in
affiliates, net of tax
    
    
    82,864
    
    
    
    
    
    
    
    
    
    
    
    (82,864
    )
    
    
    Interest, net
    
    
    (36,356
    )
    
    
    2,364
    
    
    
    (961
    )
    
    
    
    
    
    
    (34,953
    )Other
    
    
    39
    
    
    
    224
    
    
    
    45
    
    
    
    
    
    
    
    308Total other income
(expense)
    
    
    46,547
    
    
    
    2,588
    
    
    
    (916
    )
    
    
    (82,864
    )
    
    
    (34,645
    )Net income before income
taxes
    
    
    44,656
    
    
    
    78,477
    
    
    
    29,178
    
    
    
    (82,864
    )
    
    
    69,447Provision for income taxes
    
    
    
    
    
    
    (15,069
    )
    
    
    (9,722
    )
    
    
    
    
    
    
    (24,791
    )Net income
    
    $
    44,656
    
    
    $
    63,408
    
    
    $
    19,456
    
    
    $
    (82,864
    )
    
    $
    44,656
 15




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC  NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE
10  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING INCOME STATEMENTS
 Allis-Chalmers
    
    
    
    
    
    
    Subsidiary(Parent/
    
    
    Subsidiary
    
    
    Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    TotalRevenues
    
    $
    
    
    
    $
    89,343
    
    
    $
    58,546
    
    
    $
    (8
    )
    
    $
    147,881Cost of revenuesDirect costs
    
    
    
    
    
    
    45,943
    
    
    
    43,185
    
    
    
    (8
    )
    
    
    89,120Depreciation
    
    
    
    
    
    
    10,296
    
    
    
    2,872
    
    
    
    
    
    
    
    13,168Total cost of revenues
    
    
    
    
    
    
    56,239
    
    
    
    46,057
    
    
    
    (8
    )
    
    
    102,288Gross margin
    
    
    
    
    
    
    33,104
    
    
    
    12,489
    
    
    
    
    
    
    
    45,593General and administrative
    
    
    839
    
    
    
    10,398
    
    
    
    2,219
    
    
    
    
    
    
    
    13,456Amortization
    
    
    12
    
    
    
    969
    
    
    
    8
    
    
    
    
    
    
    
    989Income from operations
    
    
    (851
    )
    
    
    21,737
    
    
    
    10,262
    
    
    
    
    
    
    
    31,148Other income (expense):Equity earnings in
affiliates, net of tax
    
    
    25,235
    
    
    
    
    
    
    
    
    
    
    
    (25,235
    )
    
    
    Interest, net
    
    
    (11,411
    )
    
    
    736
    
    
    
    (279
    )
    
    
    
    
    
    
    (10,954
    )Other
    
    
    14
    
    
    
    109
    
    
    
    (91
    )
    
    
    
    
    
    
    32Total other income
(expense)
    
    
    13,838
    
    
    
    845
    
    
    
    (370
    )
    
    
    (25,235
    )
    
    
    (10,922
    )Net income before income
taxes
    
    
    12,987
    
    
    
    22,582
    
    
    
    9,892
    
    
    
    (25,235
    )
    
    
    20,226Provision for income taxes
    
    
    
    
    
    
    (4,057
    )
    
    
    (3,182
    )
    
    
    
    
    
    
    (7,239
    )Net income
    
    $
    12,987
    
    
    $
    18,525
    
    
    $
    6,710
    
    
    $
    (25,235
    )
    
    $
    12,987
 16




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC  NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE
10  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING INCOME STATEMENTS
 Allis-Chalmers
    
    
    
    
    
    
    Subsidiary(Parent/
    
    
    Subsidiary
    
    
    Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    TotalRevenues
    
    $
    
    
    
    $
    172,213
    
    
    $
    23,853
    
    
    $
    
    
    
    $
    196,066Cost of revenuesDirect costs
    
    
    
    
    
    
    96,084
    
    
    
    17,324
    
    
    
    
    
    
    
    113,408Depreciation
    
    
    
    
    
    
    11,107
    
    
    
    1,499
    
    
    
    
    
    
    
    12,606Total cost of revenues
    
    
    
    
    
    
    107,191
    
    
    
    18,823
    
    
    
    
    
    
    
    126,014Gross margin
    
    
    
    
    
    
    65,022
    
    
    
    5,030
    
    
    
    
    
    
    
    70,052General and administrative
    
    
    2,032
    
    
    
    21,621
    
    
    
    887
    
    
    
    
    
    
    
    24,540Amortization
    
    
    35
    
    
    
    1,174
    
    
    
    3
    
    
    
    
    
    
    
    1,212Income from operations
    
    
    (2,067
    )
    
    
    42,227
    
    
    
    4,140
    
    
    
    
    
    
    
    44,300Other income (expense):Equity earnings in
affiliates,
net of
tax
    
    
    39,644
    
    
    
    
    
    
    
    
    
    
    
    (39,644
    )
    
    
    Interest, net
    
    
    (12,343
    )
    
    
    (261
    )
    
    
    (223
    )
    
    
    
    
    
    
    (12,827
    )Other
    
    
    36
    
    
    
    (25
    )
    
    
    (17
    )
    
    
    
    
    
    
    (6
    )Total other income
(expense)
    
    
    27,337
    
    
    
    (286
    )
    
    
    (240
    )
    
    
    (39,644
    )
    
    
    (12,833
    )Net income before income
taxes
    
    
    25,270
    
    
    
    41,941
    
    
    
    3,900
    
    
    
    (39,644
    )
    
    
    31,467Provision for income taxes
    
    
    
    
    
    
    (4,957
    )
    
    
    (1,240
    )
    
    
    
    
    
    
    (6,197
    )Net income
    
    $
    25,270
    
    
    $
    36,984
    
    
    $
    2,660
    
    
    $
    (39,644
    )
    
    $
    25,270
 17




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC  NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 10
 CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
 CONDENSED CONSOLIDATING INCOME STATEMENTS
 Allis-Chalmers
    
    
    
    
    
    
    Subsidiary(Parent/
    
    
    Subsidiary
    
    
    Non-
    
    
    Consolidating
    
    
    ConsolidatedGuarantor)
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    TotalRevenues
    
    $
    
    
    
    $
    62,919
    
    
    $
    23,853
    
    
    $
    
    
    
    $
    86,772Cost of revenuesDirect costs
    
    
    
    
    
    
    35,207
    
    
    
    17,324
    
    
    
    
    
    
    
    52,531Depreciation
    
    
    
    
    
    
    3,949
    
    
    
    1,499
    
    
    
    
    
    
    
    5,448Total cost of revenues
    
    
    
    
    
    
    39,156
    
    
    
    18,823
    
    
    
    
    
    
    
    57,979Gross margin
    
    
    
    
    
    
    23,763
    
    
    
    5,030
    
    
    
    
    
    
    
    28,793General and administrative
    
    
    637
    
    
    
    7,534
    
    
    
    887
    
    
    
    
    
    
    
    9,058Amortization
    
    
    11
    
    
    
    385
    
    
    
    3
    
    
    
    
    
    
    
    399Income from operations
    
    
    (648
    )
    
    
    15,844
    
    
    
    4,140
    
    
    
    
    
    
    
    19,336Other income (expense):Equity earnings in
affiliates, net of tax
    
    
    16,872
    
    
    
    
    
    
    
    
    
    
    
    (16,872
    )
    
    
    Interest, net
    
    
    (4,983
    )
    
    
    264
    
    
    
    (223
    )
    
    
    
    
    
    
    (4,942
    )Other
    
    
    11
    
    
    
    (20
    )
    
    
    (17
    )
    
    
    
    
    
    
    (26
    )Total other income
(expense)
    
    
    11,900
    
    
    
    244
    
    
    
    (240
    )
    
    
    (16,872
    )
    
    
    (4,968
    )Net income before income
taxes
    
    
    11,252
    
    
    
    16,088
    
    
    
    3,900
    
    
    
    (16,872
    )
    
    
    14,368Provision for income taxes
    
    
    
    
    
    
    (1,876
    )
    
    
    (1,240
    )
    
    
    
    
    
    
    (3,116
    )Net income
    
    $
    11,252
    
    
    $
    14,212
    
    
    $
    2,660
    
    
    $
    (16,872
    )
    
    $
    11,252
 18




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC  NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 10  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
    
    $
    44,656
    
    
    $
    63,408
    
    
    $
    19,456
    
    
    $
    (82,864
    )
    
    $
    44,656Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:Depreciation and amortization
    
    
    35
    
    
    
    31,884
    
    
    
    8,328
    
    
    
    
    
    
    
    40,247Amortization and write-off of
deferred financing fees
    
    
    2,686
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,686Stock-based
compensation expense
    
    
    2,132
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,132Allowance for bad debts
    
    
    
    
    
    
    441
    
    
    
    
    
    
    
    
    
    
    
    441Equity earnings in affiliates
    
    
    (82,864
    )
    
    
    
    
    
    
    
    
    
    
    82,864
    
    
    
    Deferred income taxes
    
    
    2,907
    
    
    
    
    
    
    
    235
    
    
    
    
    
    
    
    3,142(Gain) on sale of equipment
    
    
    
    
    
    
    (1,011
    )
    
    
    (74
    )
    
    
    
    
    
    
    (1,085
    )(Gain) on capillary asset sale
    
    
    
    
    
    
    (8,868
    )
    
    
    
    
    
    
    
    
    
    
    (8,868
    )Changes in operating assets and
liabilities, net of acquisitions:(Increase) in trade receivables
    
    
    
    
    
    
    (21,966
    )
    
    
    (14,835
    )
    
    
    
    
    
    
    (36,801
    )(Increase) in inventories
    
    
    
    
    
    
    (4,022
    )
    
    
    (976
    )
    
    
    
    
    
    
    (4,998
    )(Increase) decrease in other
current assets
    
    
    286
    
    
    
    11,570
    
    
    
    (1,305
    )
    
    
    
    
    
    
    10,551(Increase) decrease in other assets
    
    
    234
    
    
    
    (22
    )
    
    
    (39
    )
    
    
    
    
    
    
    173(Decrease) increase in accounts
payable
    
    
    (31
    )
    
    
    (1,482
    )
    
    
    2,839
    
    
    
    
    
    
    
    1,326(Decrease) increase in accrued
interest
    
    
    (5,050
    )
    
    
    15
    
    
    
    (58
    )
    
    
    
    
    
    
    (5,093
    )Increase in accrued expenses
    
    
    297
    
    
    
    6,729
    
    
    
    2,931
    
    
    
    
    
    
    
    9,957(Decrease) increase in accrued
salaries, benefits and payroll
taxes
    
    
    
    
    
    
    (710
    )
    
    
    3,122
    
    
    
    
    
    
    
    2,412(Decrease) in other long- term
liabilities
    
    
    (21
    )
    
    
    (47
    )
    
    
    
    
    
    
    
    
    
    
    (68
    )Net Cash Provided By (Used In)
Operating Activities
    
    
    (34,733
    )
    
    
    75,919
    
    
    
    19,624
    
    
    
    
    
    
    
    60,810Cash Flows from Investing Activities:Notes receivable from affiliates
    
    
    1,540
    
    
    
    
    
    
    
    
    
    
    
    (1,540
    )
    
    
    Acquisition of businesses, net of cash
received
    
    
    
    
    
    
    (12,860
    )
    
    
    
    
    
    
    
    
    
    
    (12,860
    )Purchase of investment interests
    
    
    
    
    
    
    (498
    )
    
    
    
    
    
    
    
    
    
    
    (498
    )Proceeds from sale of capillary assets
    
    
    
    
    
    
    16,250
    
    
    
    
    
    
    
    
    
    
    
    16,250Proceeds from sale of property and
equipment
    
    
    
    
    
    
    5,910
    
    
    
    78
    
    
    
    
    
    
    
    5,988Purchase of property and equipment
    
    
    
    
    
    
    (69,212
    )
    
    
    (16,875
    )
    
    
    
    
    
    
    (86,087
    )Net Cash Provided By (Used in)
Investing Activities
    
    
    1,540
    
    
    
    (60,410
    )
    
    
    (16,797
    )
    
    
    (1,540
    )
    
    
    (77,207
    )Cash Flows from Financing Activities:Proceeds from long-term debt
    
    
    250,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250,000Payments on long-term debt
    
    
    (300,000
    )
    
    
    (4,942
    )
    
    
    (2,600
    )
    
    
    
    
    
    
    (307,542
    )
 19




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC  NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 10
 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 receivable from affiliates
    
    
    (14,092
    )
    
    
    
    
    
    
    
    
    
    
    14,092
    
    
    
    Accounts payable to affiliates
    
    
    
    
    
    
    12,924
    
    
    
    1,168
    
    
    
    (14,092
    )
    
    
    Note payable to affiliate
    
    
    
    
    
    
    
    
    
    
    (1,540
    )
    
    
    1,540
    
    
    
    Proceeds from issuance of common
stock
    
    
    100,055
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,055Proceeds from exercises of options
and warrants
    
    
    3,252
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,252Tax benefits on stock plans
    
    
    1,559
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,559Debt issuance costs
    
    
    (7,581
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,581
    )Net Cash Provided By (Used
In) Financing Activities
    
    
    33,193
    
    
    
    7,982
    
    
    
    (2,972
    )
    
    
    1,540
    
    
    
    39,743Net change in cash and cash
equivalents
    
    
    
    
    
    
    23,491
    
    
    
    (145
    )
    
    
    
    
    
    
    23,346Cash and cash equivalents at
beginning of year
    
    
    
    
    
    
    37,769
    
    
    
    1,976
    
    
    
    
    
    
    
    39,745Cash and cash equivalents at end
    
    
    
    
    
    
    
    
    
    
    
    
    
    $of period
    
    $
    
    
    
    $
    61,260
    
    
    $
    1,831
    
    
    
    
    
    
    $
    63,091
 20




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC  NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 10
 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
    
    $
    25,270
    
    
    $
    36,984
    
    
    $
    2,660
    
    
    $
    (39,644
    )
    
    $
    25,270Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:Depreciation and amortization
    
    
    35
    
    
    
    12,281
    
    
    
    1,502
    
    
    
    
    
    
    
    13,818Amortization of deferred financing
fees
    
    
    742
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    742Imputed interest
    
    
    
    
    
    
    355
    
    
    
    
    
    
    
    
    
    
    
    355Stock-based
compensation expense
    
    
    1,655
    
    
    
    983
    
    
    
    
    
    
    
    
    
    
    
    2,638Allowance for bad debts
    
    
    
    
    
    
    353
    
    
    
    
    
    
    
    
    
    
    
    353Equity earnings in affiliates
    
    
    (39,644
    )
    
    
    
    
    
    
    
    
    
    
    39,644
    
    
    
    Deferred taxes
    
    
    281
    
    
    
    213
    
    
    
    
    
    
    
    
    
    
    
    494(Gain) loss on sale of equipment
    
    
    
    
    
    
    (729
    )
    
    
    1
    
    
    
    
    
    
    
    (728
    )Changes in operating assets and
liabilities, net of acquisitions:(Increase) decrease in trade
receivables
    
    
    
    
    
    
    (17,883
    )
    
    
    722
    
    
    
    
    
    
    
    (17,161
    )(Increase) decrease in inventory
    
    
    
    
    
    
    (2,325
    )
    
    
    164
    
    
    
    
    
    
    
    (2,161
    )Decrease in other current assets
    
    
    396
    
    
    
    660
    
    
    
    266
    
    
    
    
    
    
    
    1,322Decrease (increase) in other assets
    
    
    548
    
    
    
    82
    
    
    
    (100
    )
    
    
    
    
    
    
    530(Decrease) in accounts payable
    
    
    (82
    )
    
    
    (1,159
    )
    
    
    (368
    )
    
    
    
    
    
    
    (1,609
    )Increase (decrease) in accrued
interest
    
    
    4,703
    
    
    
    (42
    )
    
    
    
    
    
    
    
    
    
    
    4,661(Decrease) increase in accrued
expenses
    
    
    (387
    )
    
    
    3,560
    
    
    
    (657
    )
    
    
    
    
    
    
    2,516(Decrease) increase in accrued
salaries, benefits and payroll
taxes
    
    
    (1,957
    )
    
    
    2,988
    
    
    
    2,079
    
    
    
    
    
    
    
    3,110Increase in other long- term
liabilities
    
    
    (31
    )
    
    
    (782
    )
    
    
    
    
    
    
    
    
    
    
    (813
    )Net Cash Provided By (Used In)
Operating Activities
    
    
    (8,471
    )
    
    
    35,539
    
    
    
    6,269
    
    
    
    
    
    
    
    33,337Cash Flows from Investing Activities:Acquisition of businesses, net of cash
    
    
    (191,940
    )
    
    
    (11,667
    )
    
    
    418
    
    
    
    
    
    
    
    (203,189
    )Notes receivable from affiliates
    
    
    1,005
    
    
    
    
    
    
    
    
    
    
    
    (1,005
    )
    
    
    Proceeds from sale of equipment
    
    
    
    
    
    
    3,516
    
    
    
    
    
    
    
    
    
    
    
    3,516Purchase of property and equipment
    
    
    
    
    
    
    (22,721
    )
    
    
    (3,090
    )
    
    
    
    
    
    
    (25,811
    )Net Cash Used In Investing
Activities
    
    
    (190,935
    )
    
    
    (30,872
    )
    
    
    (2,672
    )
    
    
    (1,005
    )
    
    
    (225,484
    )Cash Flows from Financing Activities:Proceeds from exercises of
options/warrants
    
    
    5,406
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,406Proceeds from issuance of common stock
    
    
    46,484
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,484Accounts receivable from affiliates
    
    
    (51,691
    )
    
    
    
    
    
    
    
    
    
    
    51,691
    
    
    
    
 21




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC  NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE
10  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
    
    
    
    
    
    
    51,691
    
    
    
    
    
    
    
    (51,691
    )
    
    
    Note payable to affiliate
    
    
    
    
    
    
    
    
    
    
    (1,005
    )
    
    
    1,005
    
    
    
    Proceeds from long-term debt
    
    
    256,064
    
    
    
    1,756
    
    
    
    
    
    
    
    
    
    
    
    257,820Proceeds from line of credit
    
    
    5,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000Repayments on long-term debt
    
    
    (43,478
    )
    
    
    (7,274
    )
    
    
    (960
    )
    
    
    
    
    
    
    (51,712
    )Repayments on related party debt
    
    
    
    
    
    
    (3,031
    )
    
    
    
    
    
    
    
    
    
    
    (3,031
    )Repayments on line of credit
    
    
    (11,400
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,400
    )Debt issuance costs
    
    
    (8,029
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,029
    )Net Cash Provided By (Used In)
Financing Activities
    
    
    198,356
    
    
    
    43,142
    
    
    
    (1,965
    )
    
    
    1,005
    
    
    
    240,538Net change in cash and cash equivalents
    
    
    (1,050
    )
    
    
    47,809
    
    
    
    1,632
    
    
    
    
    
    
    
    48,391Cash and cash equivalents at beginning of
year
    
    
    1,050
    
    
    
    870
    
    
    
    
    
    
    
    
    
    
    
    1,920Cash and
cash equivalents at end of period
    
    $
    
    
    
    $
    48,679
    
    
    $
    1,632
    
    
    $
    
    
    
    $
    50,311
 NOTE 11  SUPPLEMENTAL CASH FLOW INFORMATION
 For the Nine Months EndedSeptember 30,2007
    
    2006(in thousands)Cash paid for interest and income taxes:Interest
    
    $
    40,493
    
    
    $
    7,584Income taxes
    
    
    8,639
    
    
    
    6,171Non cash activities:Insurance premium financed
    
    
    4,434
    
    
    
    2,871Common stock issued for acquisition of business
    
    
    
    
    
    
    39,795Notes payable issued for acquisition of businesses
    
    
    1,100
    
    
    
    750Non-compete payable in the future
    
    
    
    
    
    
    250
 22




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC  NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE 12  SEGMENT INFORMATION
  For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006RevenuesRental Services
    
    $
    28,903
    
    
    $
    13,203
    
    
    $
    92,863
    
    
    $
    36,331International Drilling
    
    
    58,546
    
    
    
    23,853
    
    
    
    160,295
    
    
    
    23,853Directional Drilling
    
    
    27,556
    
    
    
    19,996
    
    
    
    69,352
    
    
    
    55,161Tubular Services
    
    
    12,582
    
    
    
    13,762
    
    
    
    41,029
    
    
    
    37,790Underbalanced Drilling
    
    
    12,927
    
    
    
    12,000
    
    
    
    36,448
    
    
    
    32,048Production Services
    
    
    7,367
    
    
    
    3,958
    
    
    
    27,156
    
    
    
    10,883$
    147,881
    
    
    $
    86,772
    
    
    $
    427,143
    
    
    $
    196,066Operating Income (Loss):Rental Services
    
    $
    12,519
    
    
    $
    6,575
    
    
    $
    41,212
    
    
    $
    18,881International Drilling
    
    
    10,262
    
    
    
    4,139
    
    
    
    30,094
    
    
    
    4,139Directional Drilling
    
    
    5,963
    
    
    
    5,125
    
    
    
    14,252
    
    
    
    12,097Tubular Services
    
    
    2,313
    
    
    
    3,734
    
    
    
    8,673
    
    
    
    9,899Underbalanced Drilling
    
    
    3,104
    
    
    
    3,176
    
    
    
    9,240
    
    
    
    8,617Production Services
    
    
    402
    
    
    
    119
    
    
    
    11,904
    
    
    
    737General corporate
    
    
    (3,415
    )
    
    
    (3,532
    )
    
    
    (11,283
    )
    
    
    (10,070
    )$
    31,148
    
    
    $
    19,336
    
    
    $
    104,092
    
    
    $
    44,300Depreciation and Amortization:Rental Services
    
    $
    6,841
    
    
    $
    1,735
    
    
    $
    19,592
    
    
    $
    5,121International Drilling
    
    
    2,880
    
    
    
    1,502
    
    
    
    8,328
    
    
    
    1,502Directional Drilling
    
    
    837
    
    
    
    406
    
    
    
    1,849
    
    
    
    1,054Tubular Services
    
    
    1,298
    
    
    
    968
    
    
    
    3,734
    
    
    
    2,736Underbalanced Drilling
    
    
    942
    
    
    
    821
    
    
    
    2,604
    
    
    
    2,236Production Services
    
    
    1,224
    
    
    
    329
    
    
    
    3,779
    
    
    
    921General corporate
    
    
    135
    
    
    
    86
    
    
    
    361
    
    
    
    248$
    14,157
    
    
    $
    5,847
    
    
    $
    40,247
    
    
    $
    13,818Capital Expenditures:Rental Services
    
    $
    12,174
    
    
    $
    1,715
    
    
    $
    31,056
    
    
    $
    2,816International Drilling
    
    
    11,005
    
    
    
    3,090
    
    
    
    16,875
    
    
    
    3,090Directional Drilling
    
    
    800
    
    
    
    384
    
    
    
    6,741
    
    
    
    3,789Tubular Services
    
    
    2,103
    
    
    
    2,300
    
    
    
    6,861
    
    
    
    7,800Underbalanced Drilling
    
    
    8,725
    
    
    
    3,286
    
    
    
    15,250
    
    
    
    6,302Production Services
    
    
    3,987
    
    
    
    686
    
    
    
    8,617
    
    
    
    1,732General corporate
    
    
    112
    
    
    
    104
    
    
    
    687
    
    
    
    282$
    38,906
    
    
    $
    11,565
    
    
    $
    86,087
    
    
    $
    25,811
 23




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##### Table of Contents



ALLIS-CHALMERS ENERGY INC  NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE
12  SEGMENT INFORMATION (Continued)
 As ofSeptember 30,
    
    
    December 31,2007
    
    
    2006Goodwill:Rental Services
    
    $
    106,382
    
    
    $
    106,132International Drilling
    
    
    1,523
    
    
    
    1,504Directional Drilling
    
    
    8,689
    
    
    
    4,168Tubular Services
    
    
    6,103
    
    
    
    6,464Underbalanced Drilling
    
    
    3,950
    
    
    
    3,950Production Services
    
    
    3,679
    
    
    
    3,617General corporate
    
    
    
    
    
    
    $
    130,326
    
    
    $
    125,835Identifiable Assets:Rental Services
    
    $
    462,178
    
    
    $
    453,802International Drilling
    
    
    211,230
    
    
    
    185,677Directional Drilling
    
    
    58,254
    
    
    
    28,585Tubular Services
    
    
    77,859
    
    
    
    74,372Underbalanced Drilling
    
    
    69,833
    
    
    
    54,288Production Services
    
    
    56,934
    
    
    
    57,954General corporate
    
    
    83,986
    
    
    
    53,648$
    1,020,274
    
    
    $
    908,326Long Lived Assets:United States
    
    $
    628,232
    
    
    $
    574,302International
    
    
    154,039
    
    
    
    153,262$
    782,271
    
    
    $
    727,564
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:United States
    
    $
    85,160
    
    
    $
    61,142
    
    
    $
    255,626
    
    
    $
    166,600International
    
    
    62,721
    
    
    
    25,630
    
    
    
    171,517
    
    
    
    29,466$
    147,881
    
    
    $
    86,772
    
    
    $
    427,143
    
    
    $
    196,066
 NOTE 13  LEGAL MATTERS
   NOTE 14  SUBSEQUENT EVENTS
  24




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ALLIS-CHALMERS ENERGY INC  NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 NOTE
14  SUBSEQUENT EVENTS (continued)
  25




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
 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
   26




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Results of Operations
   Comparison of Three Months Ended September 30, 2007 and 2006
    27




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Share-Based Payment,
       Revenues
    
    
    Income (Loss) from OperationsThree Months Ended
    
    
    Three Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    Change
    
    
    2007
    
    
    2006
    
    
    Change(in thousands)Rental Services
    
    $
    28,903
    
    
    $
    13,203
    
    
    $
    15,700
    
    
    $
    12,519
    
    
    $
    6,575
    
    
    
    
    
    
    $
    5,944International Drilling
    
    
    58,546
    
    
    
    23,853
    
    
    
    34,693
    
    
    
    10,262
    
    
    
    4,139
    
    
    
    
    
    
    
    6,123Directional Drilling
    
    
    27,556
    
    
    
    19,996
    
    
    
    7,560
    
    
    
    5,963
    
    
    
    5,125
    
    
    
    
    
    
    
    838Tubular Services
    
    
    12,582
    
    
    
    13,762
    
    
    
    (1,180
    )
    
    
    2,313
    
    
    
    3,734
    
    
    
    
    
    
    
    (1,421
    )Underbalanced Drilling
    
    
    12,927
    
    
    
    12,000
    
    
    
    927
    
    
    
    3,104
    
    
    
    3,176
    
    
    
    
    
    
    
    (72
    )Production Services
    
    
    7,367
    
    
    
    3,958
    
    
    
    3,409
    
    
    
    402
    
    
    
    119
    
    
    
    
    
    
    
    283General corporate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,415
    )
    
    
    (3,532
    )
    
    
    
    
    
    
    117Total
    
    $
    147,881
    
    
    $
    86,772
    
    
    $
    61,109
    
    
    $
    31,148
    
    
    $
    19,336
    
    
    
    
    
    
    $
    11,812
 28




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Rental Services Segment
  International Drilling Segment
  Directional Drilling Segment
  Tubular Services Segment
  Underbalanced Drilling Segment
  Production Services Segment
  29




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General Corporate
  Comparison of Nine Months Ended September 30, 2007 and 2006
    Share-Based Payment,
   30




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Revenues
    
    
    Income (Loss) from OperationsNine Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    Change
    
    
    2007
    
    
    2006
    
    
    Change(in thousands)Rental Services
    
    $
    92,863
    
    
    $
    36,331
    
    
    $
    56,532
    
    
    $
    41,212
    
    
    $
    18,881
    
    
    $
    22,331International Drilling
    
    
    160,295
    
    
    
    23,853
    
    
    
    136,442
    
    
    
    30,094
    
    
    
    4,139
    
    
    
    25,955Directional Drilling
    
    
    69,352
    
    
    
    55,161
    
    
    
    14,191
    
    
    
    14,252
    
    
    
    12,097
    
    
    
    2,155Tubular Services
    
    
    41,029
    
    
    
    37,790
    
    
    
    3,239
    
    
    
    8,673
    
    
    
    9,899
    
    
    
    (1,226
    )Underbalanced Drilling
    
    
    36,448
    
    
    
    32,048
    
    
    
    4,400
    
    
    
    9,240
    
    
    
    8,617
    
    
    
    623Production Services
    
    
    27,156
    
    
    
    10,883
    
    
    
    16,273
    
    
    
    11,904
    
    
    
    737
    
    
    
    11,167General corporate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,283
    )
    
    
    (10,070
    )
    
    
    (1,213
    )Total
    
    $
    427,143
    
    
    $
    196,066
    
    
    $
    231,077
    
    
    $
    104,092
    
    
    $
    44,300
    
    
    $
    59,792
 Rental Services Segment
  31




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International Drilling Segment
  Directional Drilling Segment
  Tubular Services Segment
  Underbalanced Drilling Segment
  Production Services Segment
  General Corporate
  Liquidity and Capital Resources
  32




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Operating Activities
     Investing Activities
   33




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Financing Activities
            34




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Off Balance Sheet Arrangements
  Capital Requirements
   Recent Developments
   35




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Critical Accounting Policies
  Accounting for Uncertainty in Income
Taxes  an interpretation of FASB Statement No. 109 Accounting for Income Taxes
  Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Forward-Looking Statements
  36




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
  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.
  37




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PART II. OTHER INFORMATION
 
 ITEM 6. EXHIBITS
  
 SIGNATURES
  Allis-Chalmers Energy Inc.

                    (Registrant)/s/ Munawar H. HidayatallahMunawar H. HidayatallahChief Executive Officer and
Chairman
 38




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##### Table of Contents



EXHIBIT INDEX
 10.1
    
    Employment Agreement, effective July 1, 2007, by and between Strata Directional Technology,
Inc. and David K. Bryan (incorporated by reference to Exhibit 10.1 to the Current Report on
Form 8-K filed July 13, 2007).10.2
    
    Employment Agreement, effective April 1, 2007, by and between AirComp, LLC and Terrence P.
Keane (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed July
24, 2007).10.3*
    
    Employment Agreement, effective April 1, 2007, by and between Allis-Chalmers Energy Inc. and
Munawar H. Hidayatallah.10.4*
    
    Employment Agreement, effective April 3, 2007, by and between Allis-Chalmers Energy Inc.
and Victor M. Perez.10.5*
    
    Form of Performance Award Agreement under the Allis-Chalmers Energy Inc. 2006 Incentive Plan.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