e424b5
This prospectus
supplement and the accompanying prospectus relate to an
effective registration statement under the Securities Act of
1933, but are not complete and may be changed. This prospectus
supplement and the accompanying prospectus are not an offer to
sell these securities and are not soliciting an offer to buy
these securities in any state where the offer or sale is not
permitted.
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Filed Pursuant to
Rule 424(b)(5)
Registration
No. 333-139058
Subject to
Completion, dated January 2, 2007
PRELIMINARY PROSPECTUS
SUPPLEMENT
(To Prospectus dated
December 8, 2006)
4,500,000 shares
Allis-Chalmers Energy
Inc.
Common Stock
We are offering 4,500,000 shares of our common stock.
We plan to use the net proceeds to us of this offering to repay
a portion of the debt outstanding under our $300 million
bridge loan facility and for general corporate purposes. We
incurred the debt under our bridge loan facility to finance our
recent acquisition of substantially all the assets of
Oil & Gas Rental Services, Inc.
Our common stock trades on the American Stock Exchange under the
symbol ALY. On December 29, 2006, the last sale
price reported for our common stock on the American Stock
Exchange was $23.04 per share.
Investing in our securities involves risks. See Risk
Factors beginning on
page S-12
of this prospectus supplement and on page 2 of the
accompanying prospectus.
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Per Share
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Total
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Public offering price
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$
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$
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Underwriting discounts
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$
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$
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Proceeds to us before expenses
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$
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$
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We have granted the underwriters a
30-day
option to purchase up to 675,000 additional shares to cover any
over-allotments.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus supplement or the accompanying prospectus. Any
representation to the contrary is a criminal offense.
We expect that delivery of the shares of common stock will be
made on or
about ,
2007.
RBC
Capital Markets
Johnson
Rice & Company L.L.C.
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Morgan
Keegan & Company, Inc.
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Pritchard
Capital Partners, LLC
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January , 2007.
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this
prospectus supplement or the accompanying prospectus. You must
not rely on any unauthorized information or representations.
This prospectus supplement and the accompanying prospectus are
an offer to sell only the shares offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so.
The information contained in this prospectus supplement, the
accompanying prospectus and the documents incorporated by
reference herein is current only as of their respective dates.
TABLE OF
CONTENTS
Prospectus
Supplement
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S-i
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S-ii
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S-iii
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S-iv
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S-iv
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S-v
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S-1
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S-12
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S-18
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S-18
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S-19
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S-20
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S-21
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S-38
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S-51
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S-56
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S-61
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S-64
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S-67
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S-67
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Prospectus
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About This Prospectus
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i
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Where You Can Find More Information
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ii
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Incorporation By Reference
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ii
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Cautionary Statement Regarding
Forward-Looking Statements
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iii
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Industry and Market Data
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iii
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Definitions
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iv
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Allis-Chalmers Energy Inc.
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1
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Risk Factors
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2
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Use of Proceeds
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13
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Ratios of Earnings to Fixed Charges
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13
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Description of Capital Stock
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14
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Description of Debt Securities
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17
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Description of Warrants
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29
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Description of Units
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30
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Plan of Distribution
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31
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Legal Matters
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32
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Experts
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32
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ABOUT
THIS PROSPECTUS SUPPLEMENT
You should rely only on the information contained or
incorporated by reference in this prospectus supplement and in
the accompanying prospectus. We have not, and the underwriters
have not, authorized any other person to provide you with
different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not,
and the underwriters are not, making an offer of the securities
in any state where the offer is not permitted. You should assume
that the information appearing in this prospectus supplement,
the accompanying prospectus and any other document incorporated
by reference is accurate only as of their respective dates, and
in the event any previously disclosed information is updated,
amended or supplemented in this prospectus supplement, the
accompanying prospectus or any of the documents incorporated by
reference herein, you should rely on the most recent disclosure
contained in this prospectus supplement, the accompanying
prospectus or any of the documents incorporated by reference
herein. Our business, financial condition, results of operations
and prospects may have changed since those dates.
S-i
WHERE YOU
CAN FIND MORE INFORMATION
We have filed a registration statement with the Securities and
Exchange Commission, which we refer to as the SEC, under the
Securities Act of 1933, as amended, which we refer to as the
Securities Act, that registers the issuance and sale of the
securities offered by this prospectus supplement and the
accompanying prospectus. The registration statement, including
the attached exhibits, contains additional relevant information
about us. The rules and regulations of the SEC allow us to omit
some information included in the registration statement from
this prospectus supplement and the accompanying prospectus.
We file annual, quarterly, and other reports, proxy statements
and other information with the SEC under the Securities Exchange
Act of 1934, as amended, which we refer to as the Exchange Act.
You may read and copy any materials we file with the SEC at the
SECs public reference room at 100 F Street,
N.E., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330
for further information on the public reference room. Our SEC
filings are also available to the public through the SECs
website at http://www.sec.gov. General
information about us, including our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q
and current reports on
Form 8-K,
as well as any amendments and exhibits to those reports, are
available free of charge through our website at
http://www.alchenergy.com as soon as reasonably
practicable after we file them with, or furnish them to, the
SEC. Information on our website is not incorporated into this
prospectus supplement, the accompanying prospectus or our other
securities filings and is not a part of this prospectus
supplement or the accompanying prospectus.
S-ii
INCORPORATION
BY REFERENCE
The SEC allows us to incorporate by reference
information into this document. This means that we can disclose
important information to you by referring you to another
document filed separately with the SEC. The information
incorporated by reference is considered to be part of this
prospectus supplement and the accompanying prospectus. We
incorporate by reference the documents listed below, other than
any portions of the respective filings that were furnished
(pursuant to Item 2.02 or Item 7.01 of current reports
on
Form 8-K
or other applicable SEC rules) rather than filed:
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our annual report on
Form 10-K
for the year ended December 31, 2005, as filed with the SEC
on March 22, 2006, as amended by Amendment No. 1 to
such report, as filed with the SEC on May 1, 2006, and
Amendment No. 2 to such report, as filed with the SEC on
July 24, 2006, which we refer to collectively as our 2005
Form 10-K;
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our quarterly report on
Form 10-Q
for the quarter ended March 31, 2006, as filed with the SEC
on May 10, 2006, as amended by Amendment No. 1 to such
report, as filed with the SEC on July 24, 2006, which we
refer to collectively as our First Quarter 2006
Form 10-Q;
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our quarterly report on
Form 10-Q
for the quarter ended June 30, 2006, as filed with the SEC
on August 14, 2006, which we refer to as our Second Quarter
2006
Form 10-Q;
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our quarterly report on
Form 10-Q
for the quarter ended September 30, 2006, as filed with the
SEC on November 8, 2006, as amended by Amendment
No. 1 to such report, as filed with the SEC on December
29, 2006, which we refer to collectively as our Third Quarter
2006
Form 10-Q;
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our current reports on
Form 8-K
and 8-K/A,
as filed with the SEC on January 24, 2006, February 1,
2006 (three reports), February 3, 2006, February 24,
2006, April 3, 2006, April 6, 2006, April 25,
2006, April 28, 2006, May 9, 2006, June 16, 2006,
July 17, 2006, July 27, 2006, August 9, 2006,
August 14, 2006 (two reports), August 23, 2006,
September 18, 2006, September 29, 2006,
October 19, 2006, October 26, 2006, December 1,
2006, December 14, 2006, December 19, 2006,
December 26, 2006 and December 29, 2006; and
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our current reports on
Form 8-K
and 8-K/A
containing additional information required by
Rule 3-05
and Article 11 of
Regulation S-X,
as filed with the SEC on April 5, 2005, May 6, 2005,
June 10, 2005, July 15, 2005 and September 2,
2005; and
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the description of our capital stock contained in our
Registration Statement on
Form 8-A
(File
No. 001-02199)
under Section 12(b) of the Exchange Act.
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All documents that we file pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this
prospectus supplement and until our offering hereunder is
completed will be deemed to be incorporated by reference into
this prospectus supplement and the accompanying prospectus and
will be a part of this prospectus supplement and the
accompanying prospectus from the date of the filing of the
document. Any statement contained in a document incorporated or
deemed to be incorporated by reference in this prospectus
supplement and the accompanying prospectus will be deemed to be
modified or superseded for purposes of this prospectus
supplement and the accompanying prospectus to the extent that a
statement contained in this prospectus supplement, the
accompanying prospectus or in any other subsequently filed
document that also is or is deemed to be incorporated by
reference in this prospectus supplement and the accompanying
prospectus modifies or supersedes that statement. Any statement
that is modified or superseded will not constitute a part of
this prospectus supplement or the accompanying prospectus,
except as modified or superseded.
We will provide to each person, including any beneficial owner
to whom this prospectus supplement and the accompanying
prospectus are delivered, a copy of these filings, other than an
exhibit to these
S-iii
filings unless we have specifically incorporated that exhibit by
reference into the filing, upon written or oral request and at
no cost. Requests should be made by writing or telephoning us at
the following address:
Allis-Chalmers Energy Inc.
5075 Westheimer, Suite 890
Houston, Texas 77056
(713) 369-0550
Attn: Investor Relations
SPECIAL
NOTE
REGARDING FORWARD-LOOKING STATEMENTS
This prospectus supplement and the accompanying prospectus
contain forward-looking statements within the meaning of
Section 27A of the Securities Act regarding our business,
financial condition, results of operations and prospects. Words
such as expects, anticipates, intends, plans, believes, seeks,
estimates and similar expressions or variations of such words
are intended to identify forward-looking statements. However,
these are not the exclusive means of identifying forward-looking
statements. Although such forward-looking statements reflect our
good faith judgment, such statements can only be based on facts
and factors currently known to us. Consequently, forward-looking
statements are inherently subject to risks and uncertainties,
and actual outcomes may differ materially from the results and
outcomes discussed in the forward-looking statements. Further
information about the risks and uncertainties that may impact us
are described in Risk Factors beginning on
page S-12
of this prospectus supplement and page 2 of the
accompanying prospectus. You should read those sections
carefully. You should not place undue reliance on
forward-looking statements, which speak only as of the date of
this prospectus supplement. We undertake no obligation to update
publicly any forward-looking statements in order to reflect any
event or circumstance occurring after the date of this
prospectus supplement or currently unknown facts or conditions
or the occurrence of unanticipated events.
NON-GAAP FINANCIAL
MEASURES
The SEC has adopted rules to regulate the use of non-GAAP
financial measures such as EBITDA, that are derived on the
basis of methodologies other than in accordance with generally
accepted accounting principles, or GAAP. EBITDA is a non-GAAP
financial measure that complies with Securities Act regulations
when it is defined as net income (the most directly comparable
GAAP financial measure) before interest, taxes, depreciation and
amortization. We define EBITDA in this prospectus supplement
accordingly.
EBITDA has limitations as an analytical tool, and you should not
consider it in isolation, or as a substitute for analysis of our
results as reported under GAAP. For example, EBITDA:
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does not reflect our cash expenditures, or future requirements
for capital expenditures or contractual commitments;
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does not reflect changes in, or cash requirements for, our
working capital needs;
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does not reflect the significant interest expense, or the cash
requirements necessary to service interest or principal
payments, on our debts; and
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does not reflect the effect of earnings or charges resulting
from matters we consider not to be indicative of our ongoing
operations.
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S-iv
In addition, although depreciation and amortization are non-cash
charges, the assets being depreciated and amortized will often
have to be replaced in the future, and EBITDA does not reflect
any cash requirements for such replacements. Other companies in
our industry and in other industries may calculate EBITDA
differently from the way that we do, limiting its usefulness as
a comparative measure. Because of these limitations, EBITDA
should not be considered as a measure of discretionary cash
available to us to invest in the growth of our business. We
compensate for these limitations by relying primarily on our
GAAP results and using EBITDA only supplementally.
INDUSTRY
AND MARKET DATA
We have obtained some industry and market share data from
third-party sources that we believe are reliable. In many cases,
however, we have made statements in this prospectus supplement
and the accompanying prospectus (or in documents incorporated by
reference) regarding our industry and our position in the
industry based on estimates made based on our experience in the
industry and our own investigation of market conditions. We
believe these estimates to be accurate as of the date of this
prospectus supplement. However, this information may prove to be
inaccurate because of the method by which we obtained some of
the data for our estimates or because this information cannot
always be verified with complete certainty due to the limits on
the availability and reliability of raw data, the voluntary
nature of the data gathering process and other limitations and
uncertainties. As a result, you should be aware that the
industry and market data included or incorporated by reference
in this prospectus supplement and the accompanying prospectus,
and estimates and beliefs based on that data, may not be
reliable. We cannot, and the underwriters cannot, guarantee the
accuracy or completeness of any such information.
S-v
PROSPECTUS
SUPPLEMENT SUMMARY
This summary is not complete. It highlights selected
information contained elsewhere in this prospectus supplement,
the accompanying prospectus or the documents incorporated herein
by reference. You should read this entire prospectus supplement
and the accompanying prospectus carefully, including the
information under the heading Risk Factors and the
information in the documents incorporated herein by reference.
Unless the context requires otherwise, references in this
prospectus supplement to Allis-Chalmers,
we, us, our or
ours refer to Allis-Chalmers Energy Inc., together
with its subsidiaries. In this prospectus supplement (and in the
documents incorporated by reference in this prospectus
supplement), we present pro forma financial information giving
effect to, among other things, the Oil & Gas Rental
transactions, the DLS transactions and the Specialty
transactions. When we refer to the Oil & Gas Rental
transactions, we mean our acquisition of substantially all the
assets of Oil & Gas Rental Services, Inc., or
Oil & Gas Rental, and the related financing of that
acquisition with a bridge loan that was provided by Royal Bank
of Canada and other institutional lenders, all of which closed
on December 18, 2006. When we refer to the DLS
transactions, we mean our acquisition of DLS Drilling,
Logistics & Services Corporation, or DLS, and the
related financing of that acquisition and repayment of
obligations outstanding under a subordinated note payable to M-I
LLC with the proceeds of our offering of $95.0 million
principal amount of our 9.0% senior notes due 2014 and our
concurrent offering of 3,450,000 shares of our common
stock, all of which closed on August 14, 2006. When we
refer to the Specialty transactions, we mean our acquisition of
Specialty Rental Tools, Inc., or Specialty, and the related
financing of that acquisition and repayment of obligations
outstanding under our credit facility with the proceeds of our
offering of $160.0 million principal amount of our
9.0% senior notes due 2014, all of which closed in January
2006.
Our
Business
We are a multi-faceted oilfield services company that provides
services and equipment to oil and natural gas exploration and
production companies, domestically in Texas, Louisiana, New
Mexico, Colorado, Oklahoma, Mississippi, Utah, Wyoming,
Arkansas, offshore in the Gulf of Mexico, and internationally in
Argentina and Mexico. Please see Business beginning
on page S-38 of this prospectus supplement for more
information about our business.
The principal purpose of this offering is to repay a portion of
the amount outstanding under our $300 million bridge loan
facility, which was used to finance our acquisition of
substantially all of the assets of Oil & Gas Rental,
described below. Giving pro forma effect to the Specialty
transactions, the DLS transactions, the Oil & Gas
Rental transactions, and our recent acquisitions of
Petro-Rentals, Incorporated, or Petro Rentals, Rogers Oil Tool
Services, Inc., or Rogers, Delta Rental Service, Inc., Capcoil
Tubing Services, Inc., W.T. Enterprises, Inc., and the minority
interest of M-I LLC in AirComp LLC, and adjusting to give effect
to the completion of this offering and our concurrent offering
of approximately $225 million aggregate principal amount of
senior notes due 2017, we would have generated revenues of
$346.2 million, net income of $2.3 million and EBITDA
of $106.7 million for the fiscal year ended
December 31, 2005. Giving pro forma effect to the DLS
transactions, the Oil & Gas Rental transactions and our
recent acquisitions of Petro Rentals and Rogers, and similarly
adjusting to give effect to the completion of this offering and
our concurrent notes offering, we would have generated revenues
of $370.4 million, net income of $43.0 million and
EBITDA of $123.6 million for the nine months ended
September 30, 2006.
S-1
Business
Segments
Our six business segments are:
Rental Tools. We provide specialized rental
equipment, including premium drill pipe, heavy weight spiral
drill pipe, tubing work strings, blow out preventors, choke
manifolds and various valves and handling tools, for both
onshore and offshore well drilling, completion and workover
operations. For the year ended December 31, 2005, our
rental tools segment had revenues of $5.1 million and
income from operations of $1.3 million, and for the nine
months ended September 30, 2006, this segment had revenues
of $36.3 million and income from operations of
$18.9 million. After giving pro forma effect to the
Oil & Gas Rental transactions, the Specialty
transactions and our acquisition of Delta Rental Service, Inc.,
for the year ended December 31, 2005, our rental tools
segment would have had revenues of $89.9 million and income
from operations of $23.7 million. After giving pro forma
effect to the Oil & Gas Rental transactions, this
segment would have had revenues of $92.9 million and income
from operations of $46.0 million for the nine months ended
September 30, 2006.
International Drilling. With our recent
acquisition of DLS in August 2006, we entered into the contract
drilling and workover services business. DLS provides drilling,
completion, workover and related services for oil and natural
gas wells in Argentina. DLS also offers a wide variety of other
oilfield services such as drilling fluids and completion fluids
and engineering and logistics to complement its customers
field organization. After giving pro forma effect to the DLS
transactions, for the year ended December 31, 2005, our
international drilling segment would have had revenues of
$129.8 million and income from operations of
$11.6 million, and for the nine months ended
September 30, 2006, this segment would have had revenues of
$127.8 million and income from operations of
$17.3 million.
Directional Drilling Services. We employ
approximately 79 full-time directional drillers utilizing
state-of-the-art
equipment for well planning and engineering services,
directional drilling packages, downhole motor technology, well
site directional supervision, exploratory and development
re-entry drilling, downhole guidance services and other drilling
services, including, logging-while-drilling and
measurement-while-drilling services. For the year ended
December 31, 2005, our directional drilling services
segment had revenues of $43.9 million and income from
operations of $7.4 million, and for the nine months ended
September 30, 2006, this segment had revenues of
$52.3 million and income from operations of
$12.1 million.
Casing and Tubing Services. We provide
specialized equipment and trained operators for a variety of
pipe handling services, including installing casing and tubing,
changing out drill pipe and retrieving production tubing for
both onshore and offshore drilling and workover operations. For
the year ended December 31, 2005, our casing and tubing
services segment had revenues of $20.9 million and income
from operations of $5.0 million, and for the nine months
ended September 30, 2006, this segment had revenues of
$37.8 million and income from operations of
$9.9 million. After giving pro forma effect to our
acquisition of Rogers Oil Tool Services, Inc., for the year
ended December 31, 2005, our casing and tubing services
segment would have had revenues of $29.3 million and income
from operations of $5.8 million, and for the nine months
ended September 30, 2006, this segment would have had
revenues of $39.9 million and income from operations of
$9.9 million.
Compressed Air Drilling Services. We provide
compressed air equipment, drilling bits, hammers, drilling
chemicals and other specialized drilling products for
underbalanced drilling applications. With a combined fleet of
over 130 compressors and boosters, we believe we are one of the
largest providers of compressed air or underbalanced drilling
services in the United States. For the year ended
December 31, 2005, our compressed air drilling services
segment had revenues of $25.7 million and income from
operations of $5.6 million, and for the nine months ended
September 30, 2006, this segment had revenues of
$32.0 million and income from operations of
$8.6 million. After giving pro forma effect to
S-2
our acquisition of W.T. Enterprises, Inc., for the year ended
December 31, 2005, our compressed air drilling services
segment would have had revenues of $27.7 million and income
from operations of $5.7 million.
Production Services. We provide a variety of
quality production-related rental tools and equipment and
services, including wire line services, land and offshore
pumping services and coil tubing. We also provide specialized
equipment and trained operators to install and retrieve
capillary tubing, through which chemicals are injected into
producing wells to increase production and reduce corrosion, and
workover services with coiled tubing units. For the year ended
December 31, 2005, our production services segment had
revenues of $9.8 million and a loss from operations of
$99,000, and for the nine months ended September 30, 2006,
this segment had revenues of $10.9 million and income from
operations of $0.7 million. After giving pro forma effect
to the acquisitions of Petro Rentals and Capcoil Tubing
Services, Inc., for the year ended December 31, 2005, our
production services segment would have had revenues of
$25.5 million and income from operations of
$1.7 million. Giving pro forma effect to the acquisition of
Petro Rentals, for the nine months ended September 30,
2006, this segment would have had revenues of $25.5 million
and income from operations of $3.7 million.
Competitive
Strengths
Our competitive strengths are:
Strategic position in high growth markets. We
focus on markets we believe are growing faster than the overall
oilfield services industry. We are a significant provider of
products and services in directional drilling, air drilling and
in production-related services employing coiled tubing and
capillary tubing.
Strong relationships with diversified customer
base. We have strong relationships with many of
the major and independent oil and natural gas producers and
service companies in Texas, Louisiana, New Mexico, Colorado,
Oklahoma, Mississippi, Utah, Wyoming, Arkansas, offshore in the
Gulf of Mexico, Argentina and Mexico. Our largest customers
include Anadarko Petroleum, Apache Corporation,
BHP-Billiton,
BP, Chevron, ConocoPhilips, Dominion Resources, El Paso
Corporation, Materiales y Equipo Petroleo, or Matyep, McMoran
Oil & Gas, Murphy Oil, Newfield Exploration, Occidental
Petroleum Corporation, Pan American Energy, Petrohawk Energy,
Remington Oil and Gas, Repsol-YPF and Total Austral.
Successful execution of growth strategy. Over
the past five years, we have grown both organically and through
successful acquisitions of competing businesses. Since 2001, we
have completed 19 acquisitions. We strive to improve the
operating performance of our acquired businesses by increasing
their asset utilization and operating efficiency.
Diversified and increased cash flow
sources. We operate as a diversified oilfield
service company through our six business segments. We believe
that our product and service offerings and geographical presence
through our six business segments provide us with diverse
sources of cash flow. Our acquisition of DLS provides greater
international presence coupled with relatively stable long-term
drilling contracts. Our acquisition of Petro Rentals
significantly enhances our production-related services and
equipment, and our recent acquisition of substantially all the
assets of Oil & Gas Rental further expands our rental
tools segment significantly and increases our offshore and
international operations.
Experienced management team. Our executive
management team has extensive experience in the energy sector,
and consequently has developed strong and longstanding
relationships with many of the major and independent exploration
and production companies.
S-3
Business
Strategy
Mitigate cyclical risk through balanced
operations. We strive to mitigate cyclical risk
in the oilfield service sector by balancing our operations
between onshore versus offshore; drilling versus production;
rental tools versus service; domestic versus international; and
natural gas versus crude oil. We will continue to shape our
organic and acquisition growth efforts to provide further
balance across these five categories.
Expand geographically to provide greater access and service
to key customer segments. We have locations in
Texas, New Mexico, Colorado, Oklahoma and Louisiana in order to
enhance our proximity to customers and more efficiently serve
their needs. Our recent acquisition of DLS expanded our
geographic footprint into Argentina. We plan to continue to
establish new locations in the United States and internationally.
Prudently pursue strategic acquisitions. To
complement our organic growth, we seek to opportunistically
complete, at attractive valuations, strategic acquisitions that
will be accretive to earnings, complement our products and
services, expand our geographic footprint and market presence,
and further diversify our customer base.
Expand products and services provided in existing operating
locations. Since the beginning of 2003, we have
made approximately $53.5 million in capital expenditures to
grow our business organically by expanding our product and
service offerings.
Increase utilization of assets. We seek to
grow revenues and enhance margins by continuing to increase the
utilization of our rental assets with new and existing customers.
Recent
Developments
Acquisition
of Petro Rentals
On October 17, 2006, we completed the acquisition of all of
the outstanding stock of Petro Rentals, based in Broussard,
Louisiana. The purchase price of Petro Rentals consisted of
$29.8 million in cash, which includes the payment of
approximately $9.5 million of debt, and 246,761 shares
of our common stock. The acquisition was funded with cash on
hand remaining from our recent equity and debt securities
offerings completed in August 2006. Petro Rentals serves both
the onshore and offshore markets from its division offices in
Broussard, Houma and Arcadia, Louisiana as well as from Alvin,
Texas. Petro Rentals provides a variety of quality
production-related rental tools and equipment and services,
including wire line services and equipment, land and offshore
pumping services and coiled tubing.
You should read Petro Rentals historical financial
statements and the pro forma financial information with respect
to our acquisition of Petro Rentals, which are included in our
Current Report on
Form 8-K/A
filed with the SEC on December 14, 2006. That report is
incorporated by reference in this prospectus supplement and the
accompanying prospectus.
Acquisition
of Oil & Gas Rental Assets
On December 18, 2006, we completed the acquisition of
substantially all the assets of Oil & Gas Rental, a
Louisiana-based corporation that provides rental tools to both
offshore and onshore exploration and production companies. The
purchase price consisted of $291.0 million in cash and
3.2 million shares of our common stock. In connection with
this acquisition, we entered into an investor rights agreement
with Oil & Gas Rental that, among other things, grants
Oil & Gas Rental common stock registration rights and
the right to designate one nominee for election to our board of
directors.
S-4
The Oil & Gas Rental assets include an extensive
inventory of premium rental equipment, including drill pipe,
spiral heavy weight drill pipe, tubing work strings, landing
strings, blow out preventors, choke manifolds and various valves
and handling tools for oil and natural gas drilling. Included in
this acquisition were Oil & Gas Rentals
facilities in Morgan City, Louisiana and Victoria, Texas, which
principally serve the Gulf of Mexico. Historically,
Oil & Gas Rental has also provided rental equipment
internationally in Malaysia, Colombia, Russia, Mexico and
Canada. This acquisition has improved our offshore presence with
approximately 61% of Oil & Gas Rentals revenues
for the month of October 2006 being derived from offshore
projects which tend to require heavy capital expenditures over
many years and are the least likely to have rigs laid down if
natural gas or crude oil prices soften. For its fiscal year
ended October 31, 2006, Oil & Gas Rental had
revenues of $71.3 million, income from operations of
$24.1 million, net income of $25.4 million and EBITDA
of $31.8 million. These results give effect to a one-time
compensation related expense of approximately
$19.2 million, relating to the payment by Oil & Gas
Rental of an extraordinary bonus to its senior executive.
EBITDA is a non-GAAP financial measure that we define as net
income before interest, taxes, depreciation and amortization.
The following table reconciles Oil & Gas Rentals
fiscal 2006 net income, which is the most directly
comparable GAAP financial measure, to its fiscal 2006 EBITDA:
|
|
|
|
|
|
|
Year Ended
|
|
|
|
October 31, 2006
|
|
|
|
(In thousands)
|
|
|
Net income(1)
|
|
$
|
25,444
|
|
Interest expense, net(2)
|
|
|
(1,013
|
)
|
Income taxes(3)
|
|
|
|
|
Depreciation and amortization
|
|
|
7,386
|
|
|
|
|
|
|
EBITDA
|
|
$
|
31,817
|
|
|
|
|
(1)
|
|
During its fiscal year ended
October 31, 2006, Oil & Gas Rental incurred a one
time compensation related expense of approximately
$19.2 million, relating to the payment of a one time bonus
to its senior executive, in the form of $7.8 million in
cash and Oil & Gas Rental common stock valued at
$11.4 million.
|
|
(2)
|
|
For its fiscal year ended
October 31, 2006, Oil & Gas Rental had no interest
expense, and had interest and dividend income of
$1.0 million.
|
|
(3)
|
|
Oil & Gas Rentals
shareholders have elected to be taxed as a small business
corporation under the provisions of Subchapter S of the
Internal Revenue Code. Accordingly, federal income tax is the
responsibility of the individual shareholders.
|
You should read Oil & Gas Rentals historical
financial statements and the pro forma financial information
with respect to our acquisition of Oil & Gas
Rentals assets, which are included in our Current Report
on
Form 8-K
filed with the SEC on December 19, 2006. That report is
incorporated by reference in this prospectus supplement and the
accompanying prospectus.
Appointment
of New President and Chief Operating Officer; Increase in Board
Seats
David Wilde, our prior President and Chief Operating Officer,
resigned effective as of December 19, 2006 in order to
pursue other opportunities. Upon Mr. Wildes
resignation, our board of directors appointed Burt A. Adams as
our new President and Chief Operating Officer. Mr. Adams
joined our company as the tenth member and Vice Chairman of our
board of directors on December 18, 2006, when we completed
our acquisition of substantially all the assets of
Oil & Gas Rental, where he served as President and
Chief Executive Officer from 1996 through 2006.
S-5
Pursuant to the corporate governance rules of the American Stock
Exchange, a majority of the members of our board of directors
must be independent in the meaning of such rules.
Following the appointment of Burt A. Adams to the board, we
currently have five independent and five
non-independent
directors. Our board of directors has therefore increased the
number of seats comprising our entire board from ten to eleven
in order to add an additional independent director. The
nominating committee of our board is currently evaluating
candidates to fill the newly created independent director
position, and we expect our board to fill the new position
promptly upon receiving the nomination by the nominating
committee.
Our principal executive offices are located at
5075 Westheimer, Suite 890, Houston, Texas 77056, and
our telephone number at that address is
(800) 997-9534.
Our website address is
www.alchenergy.com. However, information
contained on our website is not incorporated by reference into
this prospectus supplement or the accompanying prospectus, and
you should not consider the information contained on our website
to be part of this prospectus supplement or the accompanying
prospectus.
S-6
The
Offering
|
|
|
Common stock offered by
Allis-Chalmers |
|
4,500,000 shares. |
|
Common stock to be outstanding after this offering |
|
32,733,411 shares. |
|
Use of proceeds |
|
We estimate that the net proceeds to Allis-Chalmers from this
offering will be approximately $98.0 million. We plan to
use the net proceeds to us of this offering to repay a portion
of the debt outstanding under our $300 million bridge loan
facility and for general corporate purposes. We incurred the
debt under our bridge loan facility to finance our recent
acquisition of Oil & Gas Rental Services, Inc. See
Use of Proceeds on
page S-18. |
|
American Stock Exchange symbol |
|
ALY. |
|
Risk factors |
|
See Risk Factors beginning on
page S-12
of this prospectus supplement and on page 2 of the
accompanying prospectus for a discussion of factors you should
carefully consider before deciding to invest in our common stock. |
The number of shares of common stock to be outstanding upon
consummation of this offering is based upon
28,233,411 shares of our common stock outstanding as of
December 31, 2006, and 4,500,000 shares to be issued
in this offering. In addition, the number of shares of common
stock excludes:
|
|
|
|
|
1,596,032 shares reserved for issuance under our 2003
Incentive Stock Plan (of which 1,346,365 shares are
currently issuable upon the exercise of outstanding options with
a weighted average exercise price of $6.86 per share);
|
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|
|
1,500,000 shares reserved for issuance under our 2006
Incentive Plan;
|
|
|
|
4,000 shares issuable upon the exercise of outstanding
warrants with a weighted average exercise price of
$4.65 per share;
|
|
|
|
4,000 shares reserved (of which 4,000 shares are
currently issuable upon the exercise of outstanding options at
an exercise price of $13.75 per share) for options granted
to former and continuing board members in 1999 and 2000; and
|
|
|
|
an aggregate of 21,000 unissued shares of restricted stock
granted to our independent directors.
|
Allis-Chalmers has granted the underwriters a
30-day
option to purchase up to 675,000 additional shares to cover any
over-allotments. Unless otherwise noted, this prospectus
supplement assumes no exercise of the underwriters
over-allotment option.
S-7
Summary
Historical and Pro Forma Consolidated Financial
Information
The following summary historical consolidated financial
information for each of the years in the three-year period ended
December 31, 2005 has been derived from our audited
consolidated financial statements. The following summary
historical consolidated financial information for the nine
months ended September 30, 2006 and 2005 has been derived
from our unaudited consolidated financial statements and, in the
opinion of our management, includes all adjustments, consisting
only of normal recurring adjustments, necessary for a fair
presentation. The summary pro forma as adjusted consolidated
statement of operations and other information for the year ended
December 31, 2005 and the nine months ended
September 30, 2005 gives effect on a pro forma basis to our
acquisitions of Capcoil Tubing Services, Inc., Delta Rental
Service, Inc., the minority interest of M-I LLC in AirComp LLC,
W.T. Enterprises, Inc., and Rogers Oil Tool Services, Inc., or
Rogers, and the consummation of the Specialty transactions, the
DLS transactions, our recent acquisition of Petro Rentals, and
the Oil & Gas Rental transactions, and is adjusted to
give effect to the completion of this offering and our
concurrent offering of approximately $225 million aggregate
principal amount of senior notes due 2017, in each case, as if
consummated on January 1, 2005. The summary pro forma as
adjusted unaudited information for the twelve months ended
September 30, 2006 was derived from our audited and
unaudited historical financial statements and the audited and
unaudited historical financial statements of our recently
acquired companies and of Oil & Gas Rental, and is
adjusted to give effect to the completion of this offering and
our concurrent offering of approximately $225 million
aggregate principal amount of senior notes due 2017, as if
consummated on January 1, 2005. However, the pro forma
statement of operations information presented below for the year
ended December 31, 2005, and for the nine months ended
September 30, 2005, does not give effect to our immaterial
acquisition of Target Energy, Inc., which was acquired effective
August 1, 2005, and our acquisition of certain casing and
tubing assets from Patterson Services, Inc. on September 1,
2005. The summary pro forma as adjusted consolidated statement
of operations and other information for the nine months ended
September 30, 2006 gives effect on a pro forma basis to our
acquisition of Rogers, the DLS transactions, the Petro Rentals
acquisition and the Oil & Gas Rental transactions, and
is adjusted to give effect to the completion of this offering
and our concurrent offering of approximately $225 million
aggregate principal amount of senior notes due 2017, in each
case, as if consummated on January 1, 2005. The summary pro
forma as adjusted consolidated balance sheet information gives
effect on a pro forma basis to the consummation of the Petro
Rentals acquisition and the Oil & Gas Rental
transactions, and is adjusted to give effect to the completion
of this offering and our concurrent offering of approximately
$225 million aggregate principal amount of senior notes due
2017, in each case, as if consummated on September 30,
2006. This information is only a summary and you should read it
in conjunction with Managements Discussion and
Analysis of Financial Condition and Results of Operations,
as set forth in our 2005
Form 10-K
and our Third Quarter 2006
Form 10-Q,
which discuss factors affecting the comparability of the
information presented, and in conjunction with our consolidated
financial statements and related notes incorporated by reference
in this prospectus supplement and the accompanying prospectus,
including the pro forma financial statements. Our historical
consolidated financial statements have been restated for the
period from July 1, 2003 through March 31, 2005, as
described in the notes to our consolidated financial statements
incorporated by reference herein. Results for interim periods
may not be indicative of results for full fiscal years.
S-8
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|
|
|
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|
Historical
|
|
|
Pro Forma As Adjusted(1)
|
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|
|
|
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Twelve
|
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|
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|
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|
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Nine Months
|
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|
|
|
|
Nine Months
|
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|
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
Year Ended December 31,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Statement of Operations
Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
32,724
|
|
|
$
|
47,726
|
|
|
$
|
105,344
|
|
|
$
|
71,830
|
|
|
$
|
193,236
|
|
|
$
|
346,230
|
|
|
$
|
246,796
|
|
|
$
|
370,415
|
|
|
$
|
469,849
|
|
Cost of revenues
|
|
|
24,029
|
|
|
|
35,300
|
|
|
|
74,763
|
|
|
|
51,153
|
|
|
|
123,184
|
|
|
|
244,433
|
|
|
|
177,226
|
|
|
|
238,023
|
|
|
|
305,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
8,695
|
|
|
|
12,426
|
|
|
|
30,581
|
|
|
|
20,677
|
|
|
|
70,052
|
|
|
|
101,797
|
|
|
|
69,570
|
|
|
|
132,392
|
|
|
|
164,619
|
|
Income from operations
|
|
|
2,625
|
|
|
|
4,227
|
|
|
|
13,218
|
|
|
|
8,685
|
|
|
|
43,558
|
|
|
|
49,930
|
|
|
|
30,101
|
|
|
|
86,743
|
|
|
|
106,572
|
|
Interest expense, net
|
|
|
(2,464
|
)
|
|
|
(2,776
|
)
|
|
|
(4,397
|
)
|
|
|
(3,230
|
)
|
|
|
(12,085
|
)
|
|
|
(46,274
|
)
|
|
|
(34,252
|
)
|
|
|
(34,890
|
)
|
|
|
(46,912
|
)
|
Income from continuing operations
|
|
|
2,927
|
|
|
|
888
|
|
|
|
7,175
|
|
|
|
4,629
|
|
|
|
25,270
|
|
|
|
6,464
|
|
|
|
(4,742
|
)
|
|
|
40,603
|
|
|
|
51,809
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,138
|
)
|
|
|
|
|
|
|
2,375
|
|
|
|
(1,763
|
)
|
Net income
|
|
|
2,927
|
|
|
|
888
|
|
|
|
7,175
|
|
|
|
4,629
|
|
|
|
25,270
|
|
|
|
2,326
|
|
|
|
(4,742
|
)
|
|
|
42,978
|
|
|
|
50,046
|
|
Preferred stock dividend
|
|
|
(656
|
)
|
|
|
(124
|
)
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|
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|
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Net income (loss) attributed to
common stockholders
|
|
$
|
2,271
|
|
|
$
|
764
|
|
|
$
|
7,175
|
|
|
$
|
4,629
|
|
|
$
|
25,270
|
|
|
$
|
2,326
|
|
|
$
|
(4,742
|
)
|
|
$
|
42,978
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|
|
$
|
50,046
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Income (loss) per common
share basic
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|
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|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.58
|
|
|
$
|
0.10
|
|
|
$
|
0.48
|
|
|
$
|
0.33
|
|
|
$
|
1.33
|
|
|
$
|
0.22
|
|
|
$
|
(0.17
|
)
|
|
$
|
1.25
|
|
|
$
|
1.58
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.14
|
)
|
|
|
|
|
|
|
0.07
|
|
|
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.58
|
|
|
$
|
0.10
|
|
|
$
|
0.48
|
|
|
$
|
0.33
|
|
|
$
|
1.33
|
|
|
$
|
0.08
|
|
|
$
|
(0.17
|
)
|
|
$
|
1.32
|
|
|
$
|
1.53
|
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|
|
|
|
|
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|
|
|
|
|
|
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|
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|
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|
|
|
|
|
|
|
|
|
|
Income (loss) per common
share diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.50
|
|
|
$
|
0.09
|
|
|
$
|
0.44
|
|
|
$
|
0.30
|
|
|
$
|
1.25
|
|
|
$
|
0.22
|
|
|
$
|
(0.17
|
)
|
|
$
|
1.20
|
|
|
$
|
1.53
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.14
|
)
|
|
|
|
|
|
|
0.07
|
|
|
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.50
|
|
|
$
|
0.09
|
|
|
$
|
0.44
|
|
|
$
|
0.30
|
|
|
$
|
1.25
|
|
|
$
|
0.08
|
|
|
$
|
(0.17
|
)
|
|
$
|
1.27
|
|
|
$
|
1.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common
shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
3,927
|
|
|
|
7,930
|
|
|
|
14,832
|
|
|
|
14,197
|
|
|
|
18,944
|
|
|
|
28,966
|
|
|
|
28,367
|
|
|
|
32,552
|
|
|
|
32,656
|
|
Diluted
|
|
|
5,850
|
|
|
|
9,510
|
|
|
|
16,238
|
|
|
|
15,589
|
|
|
|
20,155
|
|
|
|
30,372
|
|
|
|
28,367
|
|
|
|
33,763
|
|
|
|
33,867
|
|
Other Financial Information
(unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(2)(3)
|
|
$
|
8,697
|
|
|
$
|
7,756
|
|
|
$
|
19,577
|
|
|
$
|
13,087
|
|
|
$
|
58,112
|
|
|
$
|
106,724
|
|
|
$
|
72,395
|
|
|
$
|
123,597
|
|
|
$
|
157,926
|
|
Capital expenditures
|
|
|
5,354
|
|
|
|
4,603
|
|
|
|
17,767
|
|
|
|
9,585
|
|
|
|
25,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30,
|
|
|
|
2006
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
Actual
|
|
|
As Adjusted(4)
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
Balance Sheet
Information:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
50,311
|
|
|
$
|
47,289
|
|
Total assets
|
|
|
537,096
|
|
|
|
923,540
|
|
Long-term debt (including current
portion)
|
|
|
270,959
|
|
|
|
496,375
|
|
Stockholders equity
|
|
|
180,468
|
|
|
|
329,649
|
|
S-9
|
|
|
(1)
|
|
Allis-Chalmers and each of the
companies named in the above paragraph that we have recently
acquired have a fiscal year ending on December 31. However,
Oil & Gas Rentals fiscal year ends on
October 31. The summary pro forma as adjusted consolidated
statement of operations information set forth above:
|
|
|
|
|
|
has been presented using our December 31 fiscal year
end; and
|
|
|
|
has been derived from:
|
|
|
|
|
|
our audited and unaudited historical financial statements and
the audited and unaudited historical financial statements of our
recently acquired companies, with respect to pro forma
information for the year ended December 31, 2005 and for
the nine-month periods ended September 30, 2005 and
September 30,2006;
|
|
|
|
the audited historical financial statements of Oil &
Gas Rental for the year ended October 31, 2005, in the case
of pro forma information for the year ended December 31,
2005;
|
|
|
|
the unaudited historical financial statements of Oil &
Gas Rental for nine months ended July 31, 2005, in the case
of pro forma information for the nine months ended
September 30, 2005, and the unaudited historical financial
statements of Oil & Gas Rental for nine months ended
July 31, 2006, in the case of pro forma information for the
nine months ended September 30, 2006; and
|
|
|
|
our audited historical financial statements for our fiscal year
ended December 31, 2005, our unaudited historical financial
statements for the for the nine-month periods ended
September 30, 2005 and September 30, 2006,
Oil & Gas Rentals audited historical financial
statements for its fiscal year ended October 31, 2005, and
Oil & Gas Rentals unaudited historical financial
statements for the for the nine-month periods ended
July 31, 2005 and July 31, 2006, with respect to pro
forma information for the twelve months ended September 30,
2006.
|
|
|
|
(2)
|
|
EBITDA is a non-GAAP
financial measure that we define as net income before interest,
taxes, depreciation and amortization.
|
|
(3)
|
|
EBITDA, as used and
defined by us, may not be comparable to similarly titled
measures employed by other companies and is not a measure of
performance calculated in accordance with GAAP. EBITDA should
not be considered in isolation or as a substitute for operating
income, net income or loss, cash flows provided by operating,
investing and financing activities, or other income or cash flow
statement data prepared in accordance with GAAP. However, our
management believes EBITDA is useful to an investor in
evaluating our operating performance because this measure:
|
|
|
|
|
|
is widely used by investors in the energy industry to measure a
companys operating performance without regard to items
excluded from the calculation of such term, which can vary
substantially from company to company depending upon accounting
methods and book value of assets, capital structure and the
method by which assets were acquired, among other factors;
|
|
|
|
helps investors to more meaningfully evaluate and compare the
results of our operations from period to period by removing the
effect of our capital structure and asset base from our
operating structure; and
|
|
|
|
is used by our management for various purposes, including as a
measure of operating performance, in presentations to our board
of directors, as a basis for strategic planning and forecasting,
and as a component for setting incentive compensation.
|
There are significant limitations to using EBITDA as a measure
of performance, including the inability to analyze the effect of
certain recurring and non-recurring items that materially affect
our net income or loss, and the lack of comparability of results
of operations of different companies.
S-10
The following table reconciles our net income, the most directly
comparable GAAP financial measure, to EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma As Adjusted
|
|
|
|
Historical
|
|
|
|
|
|
|
|
|
|
|
|
Twelve
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
|
|
Nine Months
|
|
|
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
Year Ended December 31,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
Net income (Loss)
|
|
$
|
2,927
|
|
|
$
|
888
|
|
|
$
|
7,175
|
|
|
$
|
4,629
|
|
|
$
|
25,270
|
|
|
$
|
2,326
|
|
|
$
|
(4,742
|
)
|
|
$
|
42,978
|
|
|
$
|
50,046
|
|
Interest expense, net
|
|
|
2,464
|
|
|
|
2,776
|
|
|
|
4,397
|
|
|
|
3,230
|
|
|
|
12,085
|
|
|
|
46,274
|
|
|
|
34,252
|
|
|
|
34,890
|
|
|
|
46,912
|
|
Income taxes
|
|
|
370
|
|
|
|
514
|
|
|
|
1,344
|
|
|
|
559
|
|
|
|
6,197
|
|
|
|
6,888
|
|
|
|
3,571
|
|
|
|
10,440
|
|
|
|
13,757
|
|
Depreciation and amortization
|
|
|
2,936
|
|
|
|
3,578
|
|
|
|
6,661
|
|
|
|
4,669
|
|
|
|
14,560
|
|
|
|
51,236
|
|
|
|
39,314
|
|
|
|
35,289
|
|
|
|
47,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
8,697
|
|
|
$
|
7,756
|
|
|
$
|
19,577
|
|
|
$
|
13,087
|
|
|
$
|
58,112
|
|
|
$
|
106,724
|
|
|
$
|
72,395
|
|
|
$
|
123,597
|
|
|
$
|
157,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4)
|
|
We derived this summary pro forma
as adjusted consolidated balance sheet information from
September 30, 2006 unaudited historical balance sheets of
Allis-Chalmers, Petro Rentals and Oil & Gas Rental.
|
S-11
RISK
FACTORS
An investment in our common stock is subject to numerous
risks, including those listed below and the risks relating to
our business listed under the caption Risk Factors
beginning on page 2 of the accompanying prospectus. You
should carefully consider these risks, along with the
information provided elsewhere in this prospectus supplement,
the accompanying prospectus and the documents we incorporate by
reference in this document before investing in the common stock.
You could lose all or part of your investment in the common
stock.
Risks
Associated With Our Company
Failure
to maintain effective disclosure controls and procedures and/or
internal controls over financial reporting could have a material
adverse effect on our operations.
As disclosed in the notes to our consolidated financial
statements incorporated by reference to our 2005
Form 10-K,
we understated diluted earnings per share due to an incorrect
calculation of our weighted shares outstanding for the third
quarter of 2003, for each of the first three quarters of 2004,
for the years ended December 31, 2003 and 2004 and for the
quarter ended March 31, 2005. In addition, we understated
basic earnings per share due to an incorrect calculation of our
weighted average basic shares outstanding for the quarter ended
September 30, 2004. Consequently, we have restated our
financial statements for each of those periods. The incorrect
calculation resulted from a mathematical error and an improper
application of Statement of Financial Accounting Standards, or
SFAS, No. 128, Earnings Per Share.
Management has concluded that the need to restate our financial
statements resulted, in part, from the lack of sufficient
experienced accounting personnel, which in turn resulted in a
lack of effective control over the financial reporting process.
In addition, as part of our growth strategy, we have recently
completed several acquisitions of privately-held businesses,
including closely-held entities, and in the future, we may make
additional strategic acquisitions of privately-held businesses.
Prior to becoming part of our consolidated company, these
acquired businesses have not been required to implement or
maintain the disclosure controls and procedures or internal
controls over financial reporting that federal law requires of
publicly-held companies such as ours. Similarly, it is likely
that our future acquired businesses will not have been required
to maintain such disclosure controls and procedures or internal
controls prior to their acquisition. We are in the process of
creating and implementing appropriate disclosure controls and
procedures and internal controls over financial reporting at
each of our recently acquired businesses. However, we have not
yet completed this process and cannot assure you as to when the
process will be complete. Likewise, upon the completion of any
future acquisition, we will be required to integrate the
acquired business into our consolidated companys system of
disclosure controls and procedures and internal controls over
financial reporting, but we cannot assure you as to how long the
integration process may take for any business that we may
acquire. Furthermore, during the integration process, we may not
be able to fully implement our consolidated disclosure controls
and internal controls over financial reporting. With respect to
our acquisition of DLS and our recent acquisition of
substantially all of the assets of Oil & Gas Rental,
this risk is exacerbated by each of DLS and Oil &
Gas Rentals relative size, when compared to the rest of
our consolidated company.
Also, during the fourth quarter of 2005, we failed to timely
file a Current Report on
Form 8-K
relating to the issuance of shares of our common stock in
connection with recent stock option and warrant exercises. The
current report, which was due to be filed in November 2005, was
filed in February 2006.
As a result of the issues described above, our management has
concluded that, as of the end of the periods covered by the
restatements and as of December 31, 2005, our disclosure
controls and procedures
S-12
were not effective to enable us to record, process, summarize
and report information required to be included in our SEC
filings within the required time periods, and to ensure that
such information is accumulated and reported to our management,
including our chief executive officer and chief financial
accounting officer, to allow timely decisions regarding required
disclosure.
As more fully described in our 2005
Form 10-K
under the caption Managements Discussion and
Analysis of Financial Condition and Results of
Operations Restatement, we have implemented a
number of actions that we believe address the existing
deficiencies in our financial reporting process and will improve
our disclosure controls and procedures and our internal controls
over financial reporting. However, we cannot yet assert that the
remediation is or will be effective as we have not yet had
sufficient time to test the newly implemented actions. We are in
the process of documenting and testing our internal control
procedures in order to satisfy the requirements of
Section 404 of the Sarbanes-Oxley Act, which requires
annual management assessments of the effectiveness of our
internal controls over financial reporting and a report by our
independent auditors addressing these assessments. We have also
retained the services of an independent consultant to assist us
with the documenting and testing process. During the course of
our testing we may identify deficiencies
and/or one
or more material weaknesses in our internal controls over
financial reporting, which we may not be able to remediate in
time to meet the deadline imposed by SEC rules under the
Sarbanes-Oxley Act for compliance with the requirements of
Section 404.
Likewise, during the course of our integration of any acquired
business (including DLS and Oil & Gas Rental), we may
identify needed improvements to our or such acquired
business internal controls and may be required to design
enhanced processes and controls in order to make such
improvements. This could result in significant delays and costs
to us and could require us to divert substantial resources,
including management time, from other activities.
If we fail to achieve and maintain the adequacy of our
disclosure controls and procedures
and/or our
internal controls, as such standards are modified, supplemented
or amended from time to time, we may not be able to conclude
that we have effective disclosure controls and procedures
and/or
effective internal controls over financial reporting in
accordance with Section 404 of the Sarbanes-Oxley Act. If:
|
|
|
|
|
we are not successful in improving our financial reporting
process, our disclosure controls and procedures
and/or our
internal controls over financial reporting;
|
|
|
|
we identify deficiencies
and/or one
or more material weaknesses in our internal controls over
financial reporting; or
|
|
|
|
we are not successful in integrating acquired businesses (such
as DLS and Oil & Gas Rental) into our consolidated
companys system of disclosure controls and procedures and
internal controls over financial reporting,
|
then our independent registered public accounting firm may be
unable to attest that our managements assessment of our
internal controls over financial reporting is fairly stated, or
they may be unable to express an opinion on our
managements evaluation of, or on the effectiveness of, our
internal controls.
If it is determined that our disclosure controls and procedures
and/or our
internal controls over financial reporting are not effective
and/or we
fail to satisfy the requirements of Section 404 of the
Sarbanes-Oxley Act on a timely basis, we may not be able to
provide reliable financial and other reports or prevent fraud,
which, in turn, could harm our business and operating results,
cause investors to lose confidence in the accuracy and
completeness of our financial reports, have a material adverse
effect on the trading price of our common stock
and/or
adversely affect our ability to timely file our periodic reports
with the SEC. Any failure to timely file our periodic reports
with the SEC may give rise to a default under the indentures
governing our 9.0% senior notes due 2014, which we refer to
as our
S-13
9.0% senior notes, and any other debt securities we may
offer and, ultimately, an acceleration of amounts due
thereunder. In addition, a default under the indentures
generally will also give rise to a default under our credit
agreement and could cause the acceleration of amounts due under
the credit agreement. If an acceleration of our 9.0% senior
notes or our other debt were to occur, we cannot assure you that
we would have sufficient funds to repay such obligations.
Our
acquisition of DLS has substantially changed the nature of our
operations and business.
Our acquisition of DLS has substantially changed the nature and
geographic location of our operations and business as a result
of the character and location of DLS businesses, which
have substantially different operating characteristics and are
in different geographic locations from our other businesses.
Prior to our acquisition of DLS, we had operated as an oilfield
services company domestically in Texas, Louisiana, New Mexico,
Colorado, Oklahoma, Mississippi, Utah, Wyoming, offshore in the
Gulf of Mexico, and internationally in Mexico. DLS
business is located primarily in Argentina, and we have no
significant operations in South America other than through DLS.
Accordingly, this acquisition has subjected and will continue to
subject us to risks inherent in operating in a foreign country
where we do not have significant prior experience. DLS
business consists of employing drilling and workover rigs for
drilling, completion and repair services for oil and gas wells.
We do not own any drilling rigs or workover rigs other than
through DLS, and have not historically provided such services
prior to our acquisition of DLS. Consequently, we may not be
able to realize the economic benefits of this acquisition as
efficiently as in our prior acquisitions, if at all.
Difficulties
in integrating the newly-acquired businesses of Specialty and
DLS and the recently acquired assets of Oil & Gas
Rental, may result in less than expected revenues and
income.
In January 2006, we completed the acquisition of all the
outstanding capital stock of Specialty. In August 2006, we
completed the acquisition of all the outstanding capital stock
of DLS. On December 18, 2006, we completed the acquisition
of substantially all of the assets of Oil & Gas Rental.
We may encounter difficulty in successfully integrating the
businesses of Specialty, DLS and Oil & Gas Rental with
our existing businesses. This business integration will place a
significant strain on management and our information systems,
and disrupt our existing business. Also, the success of these
acquisitions depends on continuing orders from customers of
Specialty, DLS and Oil & Gas Rental, and we may have
difficulty maintaining Specialty, DLS and Oil & Gas
Rental historical customer relationships. These integration
issues may increase operating expenses, reduce expected revenues
and income, and result in a failure to realize the anticipated
benefits of these acquisitions. The Specialty, DLS and
Oil & Gas Rental acquisitions are our largest
acquisitions to date and, consequently, the inherent integration
risks may have a greater effect on us than the risks posed by
our previous acquisitions. For additional risks relating to
integration of our acquired businesses, including Specialty, DLS
and Oil & Gas Rental, please read the discussion under
the heading Risk Factors Risks Associated With
Our Company We may fail to acquire additional
businesses, which will restrict our growth and may have a
material adverse effect on our ability to meet our obligations
under (and the price of) the securities. and Risk
Factors Risks Associated With Our
Company Difficulties in integrating acquired
businesses may result in reduced revenues and income. in
the accompanying prospectus.
S-14
The loss
of key executives would adversely affect our ability to
effectively finance and manage our business, acquire new
businesses, and obtain and retain customers.
We are dependent upon the efforts and skills of our executives
to finance and manage our business, identify and consummate
additional acquisitions and obtain and retain customers. These
executives include:
|
|
|
|
|
Chairman of the Board and Chief Executive Officer Munawar H.
Hidayatallah; and
|
|
|
|
Vice Chairman of the Board, President and Chief Operating
Officer Burt A. Adams.
|
Recently, our former President and Chief Operating Officer,
David Wilde, resigned. In light of Mr. Wildes
significant contributions to our recent growth, his resignation
could have a material adverse effect on our future financial
performance.
In addition, our development and expansion will require
additional experienced management and operations personnel. No
assurance can be given that we will be able to identify and
retain these employees. Also, the loss of the services of one or
more of our key executives could increase our exposure to the
other risks described in this Risk Factors section
or in the Risk Factors section of the accompanying
prospectus. We do not maintain key man insurance on any of our
personnel.
Risks
Associated With an Investment in Our Common Stock
In
connection with our recent acquisitions of DLS and substantially
all the assets of Oil & Gas Rental, the DLS sellers
have the right to designate two nominees for election to our
board of directors and Oil & Gas Rental has the right
to designate one nominee for election to our board of directors.
The interests of the DLS sellers and Oil & Gas Rental
may be different from yours.
The DLS sellers collectively hold 2.5 million shares of our
common stock, representing approximately 7.6% of our issued and
outstanding shares, after giving effect to this offering. Under
the investors rights agreement that we entered into in
connection with the DLS acquisition, the DLS sellers have the
right to designate two nominees for election to our board of
directors. Oil & Gas Rental holds 3.2 million
shares of our common stock, representing approximately 9.8% of
our issued and outstanding shares, after giving effect to this
offering. Under the investor rights agreement that we entered
into in connection with the Oil & Gas Rental
acquisition, Oil & Gas Rental has the right to
designate one nominee for election to our board of directors. As
a result, the DLS sellers and Oil & Gas Rental have a
greater ability to determine the composition of our board of
directors and to control our future operations and strategy as
compared to the voting power and control that could be exercised
by a stockholder owning the same number of shares and not
benefiting from board designation rights.
Conflicts of interest between the DLS sellers and Oil &
Gas Rental, on the one hand, and other holders of our
securities, on the other hand, may arise with respect to sales
of shares of capital stock owned by the DLS sellers or
Oil & Gas Rental or other matters. In addition, the
interests of the DLS sellers or Oil & Gas Rental
regarding any proposed merger or sale may differ from the
interests of other holders of our securities.
The board designation rights described above could also have the
effect of delaying or preventing a change in our control or
otherwise discouraging a potential acquirer from attempting to
obtain control of us, which in turn could have a material and
adverse effect on the market price of our securities
and/or our
ability to meet our obligations thereunder.
S-15
We may
have a contingent liability arising out of a possible violation
of Section 5 of the Securities Act in connection with
electronic communications sent to potential investors in our
common stock.
On or about July 20, 2006, one of the proposed underwriters
of our common stock offering that closed on August 14,
2006 sent
e-mails
and/or
instant messages to approximately 20 potential investors in our
common stock. Although we did not authorize these
communications, and we believe they were not made or intended to
be made on our behalf, these communications may have constituted
violations of Section 5 of the Securities Act. Accordingly,
if the recipients of these emails purchased shares in our August
2006 common stock offering, they might have the right, under
certain circumstances, to require us to repurchase those shares.
Consequently, we could have a contingent liability arising out
of these possible violations of the Securities Act. The
magnitude of this liability is presently impossible to quantify,
and would depend upon the number of shares purchased by the
recipients of such communications and the trading price of our
common stock. However, the proposed underwriter who sent these
electronic communications did not act as an underwriter in the
August 2006 common stock offering, and we and the underwriters
that did participate in the August 2006 common stock offering
took measures designed to ensure that the recipients of the
communications did not have the opportunity to purchase shares
in that offering. Furthermore, if any investors in our common
stock do assert any such liability, we intend to contest the
matter vigorously, and in light of the remedial measures and our
belief that the communications were not made or intended to be
made on our behalf, we do not believe that any such liability
would be material to our financial condition.
Our stock
price may decrease in response to various factors, which could
adversely affect our business and cause our stockholders to
suffer significant losses. These factors include:
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decreases in prices for oil and natural gas resulting in
decreased demand for our services;
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variations in our operating results and failure to meet
expectations of investors and analysts;
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increases in interest rates;
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the loss of customers;
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failure of customers to pay for our services;
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competition;
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illiquidity of the market for our common stock;
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developments specifically affecting the Argentine economy;
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sales of common stock by existing stockholders; and
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other developments affecting us or the financial markets.
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A reduced stock price will result in a loss to investors and
will adversely affect our ability to issue stock to fund our
activities.
Existing
stockholders interest in us may be diluted by additional
issuances of equity securities.
We expect to issue additional equity securities to fund the
acquisition of additional businesses and pursuant to employee
benefit plans. We may also issue additional equity for other
purposes. These securities may have the same rights as our
common stock or, alternatively, may have dividend, liquidation,
or other preferences to our common stock. The issuance of
additional equity securities will dilute the holdings of
existing stockholders and may reduce the share price of our
common stock.
S-16
We do not
expect to pay dividends on our common stock, and investors will
be able to receive cash in respect of the shares of common stock
only upon the sale of the shares.
We have not paid any cash dividends on our common stock within
the last ten years, and we have no intention in the foreseeable
future to pay any cash dividends on our common stock.
Furthermore, our credit agreement, the indenture governing our
outstanding 9.0% senior notes due 2014 and indenture
governing the new senior notes due 2017 issued concurrently with
this offering restrict our ability to pay dividends on our
common stock. Therefore, an investor in our common stock will
obtain an economic benefit from the common stock only after an
increase in its trading price and only by selling the common
stock.
Substantial
sales of our common stock could adversely affect our stock
price.
Sales of a substantial number of shares of common stock after
this offering, or the perception that such sales could occur,
could adversely affect the market price of our common stock by
introducing a large number of sellers to the market. Such sales
could cause the market price of our common stock to decline.
Based on our shares outstanding as of December 20, 2006, we
will have 32,733,411 shares of common stock outstanding
immediately after this offering. We have reserved an additional
3,096,032 shares of common stock for issuance under our
equity compensation plans, of which 1,346,365 shares are
currently issuable upon the exercise of outstanding options with
a weighted average exercise price of $6.86 per share. In
addition, we have reserved 4,000 shares of common stock for
issuance upon the exercise of outstanding warrants (with a
weighted average exercise price of $4.65 per share) and
4,000 shares for issuance upon the exercise of outstanding
options (with an exercise price of $13.75 per share)
granted to former and continuing board members in 1999 and 2000.
Following this offering, all of the shares of common stock to be
sold in this offering and approximately 9.4 million shares
of common stock that may be sold pursuant to another
registration statement that we have filed with the SEC will be
freely tradable without restriction or further registration
under the federal securities laws unless purchased by our
affiliates, as that term is defined in Rule 144 under the
Securities Act.
In connection with our acquisition of DLS, we entered into an
investors rights agreement with the seller parties to the DLS
stock purchase agreement, who collectively hold 2.5 million
shares of our common stock. In connection with our acquisition
of substantially all the assets of Oil & Gas Rental, we
entered into an investor rights agreement with Oil &
Gas Rental, who holds 3.2 million shares of our common
stock. Under these agreements, the DLS sellers and
Oil & Gas Rental are entitled to certain rights with
respect to the registration of the sale of such shares under the
Securities Act. By exercising their registration rights and
causing a large number of shares to be sold in the public
market, these holders could cause the market price of our common
stock to decline.
We cannot predict whether future sales of our common stock, or
the availability of our common stock for sale, will adversely
affect the market price for our common stock or our ability to
raise capital by offering equity securities.
S-17
USE OF
PROCEEDS
We expect that our net proceeds from the sale of common stock in
the offering will be approximately $98.0 million, or
$112.8 million if the underwriters over-allotment
option is exercised in full, at an assumed offering price of
$23.04 per share and after deducting underwriter discounts
and commissions and estimated transaction fees and expenses
payable by us. We plan to use the net proceeds from this
offering, together with approximately $218.9 million in net
proceeds from our concurrent offering of approximately
$225 million aggregate principal amount of senior notes due
2017, to repay the amount outstanding under our
$300 million bridge loan facility and for general corporate
purposes.
At December 31, 2006, approximately $300 million was
outstanding under our bridge loan facility. As of
December 31, 2006, the weighted average interest rate on
the borrowings outstanding under our bridge loan facility was
10.6%. Our bridge loan facility matures in June 2008. Debt
incurred under this facility was used to finance our recent
acquisition of substantially all the assets of Oil &
Gas Rental.
DIVIDEND
POLICY
We currently intend to continue our policy of retaining earnings
to finance the growth of our business. As a result, we do not
anticipate paying cash dividends on our common stock in the
foreseeable future. In addition, the terms of our credit
agreement, the indenture governing our outstanding 9.0% senior
notes due 2014 and the indenture governing the senior notes due
2017 to be issued concurrently with this offering restrict our
ability to pay dividends on our common stock.
S-18
PRICE
RANGE OF COMMON STOCK
Our common stock is traded on the American Stock Exchange under
the symbol ALY. Prior to September 13, 2004,
our common stock was quoted on the OTC Bulletin Board and
traded sporadically. The following table sets forth, for periods
prior to September 13, 2004, high and low bid information
for the common stock, as reported on the OTC
Bulletin Board, during the periods indicated, and for
periods since September 13, 2004, high and low sale prices
of our common stock reported on the American Stock Exchange. The
quotations reported on the OTC Bulletin Board reflect
inter-dealer prices, without retail
mark-up,
mark-down or commission and may not represent actual
transactions. Share prices for periods prior to June 10,
2004, set forth herein, have been adjusted to give retroactive
effect to a
one-to-five
reverse stock split effected June 10, 2004.
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Calendar Quarter
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High
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Low
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2003
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|
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First Quarter
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$
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4.50
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|
|
$
|
0.55
|
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Second Quarter
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|
$
|
5.00
|
|
|
$
|
1.75
|
|
Third Quarter
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|
$
|
4.50
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|
|
$
|
2.60
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|
Fourth Quarter
|
|
$
|
6.00
|
|
|
$
|
2.60
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2004
|
|
|
|
|
|
|
|
|
First Quarter
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|
$
|
10.05
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|
|
$
|
2.55
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|
Second Quarter
|
|
$
|
10.25
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|
|
$
|
1.75
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|
Third Quarter
|
|
$
|
9.75
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|
|
$
|
4.75
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|
Fourth Quarter
|
|
$
|
5.40
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|
|
$
|
3.25
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|
2005
|
|
|
|
|
|
|
|
|
First Quarter
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|
$
|
7.25
|
|
|
$
|
3.64
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|
Second Quarter
|
|
$
|
6.00
|
|
|
$
|
4.38
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|
Third Quarter
|
|
$
|
14.70
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|
|
$
|
5.65
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|
Fourth Quarter
|
|
$
|
13.75
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|
|
$
|
8.61
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2006
|
|
|
|
|
|
|
|
|
First Quarter
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|
$
|
18.50
|
|
|
$
|
12.46
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|
Second Quarter
|
|
$
|
16.99
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|
|
$
|
10.85
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|
Third Quarter
|
|
$
|
19.33
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|
|
$
|
9.80
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|
Fourth Quarter
|
|
$
|
25.55
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|
|
$
|
12.15
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As of December 31, 2006, there were approximately
1,936 holders of record of our common stock. On
December 29, 2006, the last sale price for our common stock
reported on the American Stock Exchange was $23.04 per
share.
S-19
CAPITALIZATION
The following table sets forth our unaudited cash and cash
equivalents and capitalization as of September 30, 2006:
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on an actual basis; and
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on a pro forma basis giving effect to:
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our recently completed acquisition of Petro Rentals;
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our recently completed acquisition of substantially all of the
assets of Oil & Gas Rental, and the related
(a) issuance of 3.2 million shares of our common stock
as the stock component of the purchase price for such
acquisition, (b) borrowing of $300 million under our
bridge loan and (c) application of approximately
$291 million in bridge loan borrowings to pay the cash
component of such purchase price; and
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this offering and the concurrent offering of approximately
$225 million aggregate principal amount of senior notes due
2017, and the repayment in full of all borrowings under our
bridge loan facility with net proceeds from these offerings.
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You should read this table in conjunction with our financial
statements and the notes to our financial statements included
elsewhere or incorporated by reference in this prospectus
supplement and the accompanying prospectus.
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|
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As of September 30, 2006
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|
Actual
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|
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Pro Forma
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|
|
|
(Unaudited)
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|
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|
(In thousands)
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|
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Cash and cash equivalents
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|
$
|
50,311
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|
|
$
|
47,289
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|
|
|
|
|
|
|
|
|
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Long-term debt, including current
maturities
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|
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|
|
|
|
|
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Credit facility(1)
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|
$
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|
|
|
$
|
|
|
Senior notes due 2014
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|
|
255,000
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|
|
|
255,000
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|
Senior notes due 2017
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|
|
|
|
|
|
225,000
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Other debt(2)
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|
|
15,959
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|
|
|
16,375
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|
|
|
|
|
|
|
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Total debt
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|
$
|
270,959
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|
|
$
|
496,375
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Stockholders equity:
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|
|
|
|
|
|
|
Common stock, $0.01 par
value, 100,000,000 shares authorized,
24,583,881 shares issued and outstanding on an actual
basis; 32,530,642 shares issued and outstanding on a pro
forma basis
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|
$
|
246
|
|
|
$
|
325
|
|
Additional paid-in capital
|
|
|
153,135
|
|
|
|
306,237
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|
Retained earnings
|
|
|
27,087
|
|
|
|
23,087
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
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|
$
|
180,468
|
|
|
$
|
329,649
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
451,427
|
|
|
$
|
826,024
|
|
|
|
|
|
|
|
|
|
|
|
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(1)
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As of September 30, 2006, on
an actual and pro forma basis, we could have borrowed
$11.7 million under our credit facility.
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(2)
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|
Consists primarily of
$7.9 million of other bank term loans, $4.4 million of
miscellaneous rig equipment and vehicle notes and
$1.8 million of insurance premium financing.
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S-20
UNAUDITED
PRO FORMA AS ADJUSTED CONSOLIDATED
FINANCIAL INFORMATION
Introduction
Our unaudited pro forma as adjusted balance sheet as of
September 30, 2006 reflects the following transactions as
if they occurred on September 30, 2006 (in thousands):
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Our acquisition of Petro Rentals, which we completed on
October 16, 2006 for approximately $29.8 million in
cash (including our payment of approximately $9.5 million
of Petro Rentals debt) and 246,761 shares of our common
stock. We funded the cash component of the purchase price with
cash on hand remaining from our August 2006 offerings of our
common stock and our 9.0% senior notes due 2014. The following
table summarizes the preliminary allocation of the purchase
price to the estimated fair value of the assets acquired and
liabilities assumed as if the acquisition occurred on
September 30, 2006 (in thousands):
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|
|
|
|
|
Current assets
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|
$
|
9,017
|
|
Property and equipment
|
|
|
28,200
|
|
Intangibles including goodwill
|
|
|
3,312
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|
Other long-term assets
|
|
|
2
|
|
|
|
|
|
|
Total assets acquired
|
|
|
40,531
|
|
|
|
|
|
|
Current liabilities
|
|
|
2,333
|
|
Other long term liabilities
|
|
|
7,000
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
9,333
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
31,198
|
|
|
|
|
|
|
We expect to incur approximately $82,000 of acquisition costs in
connection with this acquisition. We expect Petro Rentals
historical property and equipment values to increase by
approximately $15.0 million, based on third-party
valuations. We do not expect any material differences from the
preliminary allocation of the purchase price and actual purchase
price allocation;
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|
|
Our acquisition of substantially all of the assets of
Oil & Gas Rental, which we completed in December 2006,
for $291.0 million in cash and 3.2 million shares of
our common stock and the borrowing of $300.0 million under
a bridge loan, with $291.0 million in loan proceeds being
used to fund the cash portion of the acquisition purchase price.
The following table summarizes the preliminary allocation of the
purchase price to the estimated fair value of the assets
acquired and the liabilities assumed as if the acquisition
occurred on September 30, 2006 (in thousands):
|
|
|
|
|
|
Current assets
|
|
$
|
15,497
|
|
Property and equipment
|
|
|
201,651
|
|
Intangibles including goodwill
|
|
|
124,059
|
|
Other long-term assets
|
|
|
4,801
|
|
|
|
|
|
|
Total assets acquired
|
|
|
346,008
|
|
|
|
|
|
|
Current liabilities
|
|
|
2,848
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
2,848
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
343,160
|
|
|
|
|
|
|
S-21
We incurred approximately $0.8 million of acquisition costs
in connection with this acquisition. We expect Oil &
Gas Rentals historical property and equipment values to
increase by approximately $171.0 million, based on
third-party valuations. We do not expect any material
differences from the preliminary allocation of the purchase
price and actual purchase price allocation; and
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|
The issuance of 4.5 million shares of our common stock in
this offering to raise approximately $103.7 million and the
completion of our concurrent offering of $225.0 million
aggregate principal amount of our senior notes due 2017. The net
proceeds from these offerings will be used primarily to repay
the debt outstanding under our $300 million bridge loan
facility.
|
Our unaudited pro forma as adjusted condensed consolidated
statement of operations for the nine months ended
September 30, 2006 reflects the following transactions as
if such transactions occurred on January 1, 2005:
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|
|
|
|
Our acquisition of Rogers Oil Tools, Inc. or Rogers, which
closed on April 3, 2006. The following table summarizes the
allocation of the purchase price to the estimated fair value of
the assets acquired and liabilities assumed at the date of
acquisition (in thousands):
|
|
|
|
|
|
Current assets
|
|
$
|
4,520
|
|
Property and equipment
|
|
|
9,866
|
|
Intangible assets
|
|
|
1,131
|
|
|
|
|
|
|
Total assets acquired
|
|
|
15,517
|
|
|
|
|
|
|
Current liabilities
|
|
|
1,717
|
|
Other long term liabilities
|
|
|
100
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
1,817
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
13,700
|
|
|
|
|
|
|
We paid the purchase price with $11.3 million in cash (of
which we borrowed $5.0 million under our senior secured
credit facility), a $750,000 seller financed note and 125,285
newly issued shares of our common stock, which had a value of
$1.7 million. We incurred approximately $341,000 of
acquisition costs in connection with the Rogers acquisition. We
increased Rogers historical property and equipment book
values by approximately $8.4 million, based on
third-party
valuations. Intangible assets include $981,000 assigned to
patents and $150,000 assigned to a non-compete agreement, based
on third-party valuations and an employment contract. The
intangibles have a weighted-average useful life of 11 years;
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|
|
Our acquisition of DLS Drilling, Logistics & Service
Corporation, or DLS, which we completed in August 2006 for
$93.7 million in cash, 2.5 million shares of our
common stock and the assumption of $9.1 million of DLS
indebtedness. The following table summarizes the allocation of
|
S-22
|
|
|
|
|
the purchase price to the estimated fair value of the assets
acquired and liabilities assumed at the date of acquisition (in
thousands):
|
|
|
|
|
|
Current assets
|
|
$
|
54,370
|
|
Property and equipment
|
|
|
150,441
|
|
Other long-term assets
|
|
|
21
|
|
|
|
|
|
|
Total assets acquired
|
|
|
204,832
|
|
|
|
|
|
|
Current liabilities
|
|
|
36,530
|
|
Long-term debt
|
|
|
6,114
|
|
Intercompany note
|
|
|
17,256
|
|
Other long term liabilities
|
|
|
27,000
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
86,900
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
117,932
|
|
|
|
|
|
|
We funded the cash component of the purchase price with the
proceeds of the August 2006 offerings of our 9.0% senior
notes due 2014 and 3.45 million shares of our common
stock. We incurred approximately $3.4 million of
acquisition costs in connection with the DLS acquisition. We
increased DLS historical property and equipment values were
increased by approximately $42.7 million, based on
third-party valuations;
|
|
|
|
|
The completion in August 2006 of our concurrent offerings of
$95.0 million aggregate principal amount of 9.0% senior
notes due 2014 and 3.45 million shares of our common stock,
with the proceeds of such offerings being used primarily to fund
a portion of the cash component of the purchase price for the
DLS acquisition;
|
|
|
|
Our acquisition of Petro Rentals, for approximately
$29.8 million in cash (including our payment of
approximately $9.5 million of Petro Rentals debt) and
246,761 shares of our common stock;
|
|
|
|
Our acquisition of substantially all of the assets of Oil &
Gas Rental, for approximately $291.0 million in cash and
3.2 million shares of our common stock. The historical
results shown for Oil & Gas Rental are for the nine months
ended July 31, 2006; and
|
|
|
|
The issuance of 4.5 million shares of our common stock in
this offering to raise approximately $103.7 million and the
completion of our concurrent offering of $225.0 million
aggregate principal amount of our senior notes due 2017.
|
S-23
Our unaudited pro forma as adjusted condensed consolidated
statement of operations for the year ended December 31,
2005 reflects the following transactions as if such transactions
occurred on January 1, 2005:
|
|
|
|
|
Our acquisition of Delta Rental Service, Inc., or Delta, which
closed on April 1, 2005. The following table summarizes the
allocation of the purchase price to the estimated fair value of
the assets acquired and liabilities assumed at the date of
acquisition (in thousands):
|
|
|
|
|
|
Current assets
|
|
$
|
1,327
|
|
Property and equipment
|
|
|
5,529
|
|
Intangible assets
|
|
|
150
|
|
|
|
|
|
|
Total assets acquired
|
|
|
7,006
|
|
|
|
|
|
|
Current liabilities
|
|
|
633
|
|
Long-term debt
|
|
|
523
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
1,156
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
5,850
|
|
|
|
|
|
|
We paid the purchase price with approximately $4.5 million
in cash, newly issued shares of our common stock valued at
approximately $1.0 million and two promissory notes
totaling $350,000 in principal amount. We incurred approximately
$28,000 of acquisition costs in connection with the Delta
acquisition. Deltas historical property and equipment
values were increased by approximately $4.2 million based
on third-party valuations. The fair value of the $150,000
non-compete
intangible asset was based on the related employment contract
and has a useful life of 3 years;
|
|
|
|
|
Our acquisition of Capcoil Tubing Services, Inc., or Capcoil,
which closed on May 2, 2005. The following table summarizes
the allocation of the purchase price to the estimated fair value
of the assets acquired and liabilities assumed at the date of
acquisition (in thousands):
|
|
|
|
|
|
Current assets
|
|
$
|
1,706
|
|
Property and equipment
|
|
|
2,908
|
|
Other long-term assets
|
|
|
11
|
|
Intangible assets
|
|
|
1,389
|
|
Goodwill
|
|
|
184
|
|
|
|
|
|
|
Total assets acquired
|
|
|
6,198
|
|
|
|
|
|
|
Current liabilities
|
|
|
847
|
|
Long-term debt
|
|
|
1,851
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
2,698
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
3,500
|
|
|
|
|
|
|
We paid the purchase price with approximately $2.7 million
in cash and newly issued shares of our common stock valued at
approximately $750,000. We incurred approximately $26,000 of
acquisition costs in connection with the Capcoil acquisition. We
increased Capcoils historical property and equipment book
values by approximately $1.0 million, based on third-party
valuations. Intangible assets include $1.0 million assigned
to non-compete agreements included in
S-24
employment contracts and $364,000 assigned to customer lists
based on third-party valuations. The intangibles have a
weighted-average useful life of 5 years;
|
|
|
|
|
Our acquisition of the assets of W.T. Enterprises, Inc., or
W.T., which closed on July 11, 2005. The following table
summarizes the allocation of the purchase price to the estimated
fair value of the assets at the date of acquisition (in
thousands):
|
|
|
|
|
|
Property and equipment
|
|
|
4,500
|
|
Intangible assets
|
|
|
1,481
|
|
Goodwill
|
|
|
82
|
|
|
|
|
|
|
Total assets acquired
|
|
$
|
6,063
|
|
|
|
|
|
|
We paid the purchase price by borrowing under our senior secured
credit facility. We incurred approximately $63,000 of
acquisition costs in connection with the W.T. acquisition. We
increased W.T. historical property and equipment book values by
approximately $3.0 million, based on third-party
valuations. Intangible assets include $600,000 assigned to
non-compete agreements and $881,000 assigned to customer lists
based on third-party valuations. The intangibles have a
weighed-average useful life of 8 years;
|
|
|
|
|
Our acquisition of the minority interest in AirComp LLC from M-I
LLC and a subordinated note in the principal amount of
$4.8 million, which closed on July 11, 2005. We paid
the purchase price with $7.1 million in cash from borrowing
under our line of credit and the issuance of a new
$4.0 million 5.0% subordinated note;
|
|
|
|
Our acquisition of Specialty Rental Tools, Inc., or Specialty,
which closed on January 18, 2006. The following table
summarizes the allocation of the purchase price to the estimated
fair value of the assets acquired and liabilities assumed at the
date of acquisition (in thousands):
|
|
|
|
|
|
Accounts receivable
|
|
$
|
7,167
|
|
Other current assets
|
|
|
425
|
|
Property and equipment
|
|
|
90,540
|
|
|
|
|
|
|
Total assets acquired
|
|
|
98,132
|
|
|
|
|
|
|
Current liabilities
|
|
|
2,058
|
|
Long-term debt
|
|
|
74
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
2,132
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
96,000
|
|
|
|
|
|
|
We paid the purchase price with net proceeds from or issuance of
9.0% senior notes due 2014 in January 2006. We incurred
approximately $453,000 of acquisition costs in connection with
the Specialty acquisition. We increased Specialtys
historical property and equipment book values by approximately
$71.5 million, based on third-party valuations;
|
|
|
|
|
Our issuance of $160.0 million aggregate principal amount
of 9.0% senior notes due 2014 in January 2006;
|
|
|
|
Our acquisition of Rogers, which closed on April 3, 2006,
for $11.3 million cash (of which we borrowed
$5.0 million under our senior secured credit facility), the
issuance of a $750,000 three year promissory note and the
issuance of 125,285 shares of our common stock;
|
S-25
|
|
|
|
|
Our acquisition of DLS, which closed August 14, 2006 for
$93.7 million in cash and the issuance of 2.5 million
shares of our common stock to the sellers as the stock component
of the purchase price;
|
|
|
|
The completion in August 2006 of our concurrent offerings of
$95.0 million aggregate principal amount of 9.0% senior
notes due 2014 and 3.45 million shares of our common stock,
with the proceeds of such offerings being used primarily to fund
a portion of the cash component of the purchase price for the
DLS acquisition;
|
|
|
|
Our acquisition of Petro Rentals, for approximately
$29.8 million in cash (including our payment of
approximately $9.5 million of Petro Rentals debt) and
246,761 shares of our common stock;
|
|
|
|
Our acquisition of substantially all of the assets and
properties of Oil & Gas Rental, for approximately
$291.0 million in cash and 3.2 million shares of our
common stock. The historical results shown for Oil &
Gas Rental are for the year ended October 31, 2005; and
|
|
|
|
The issuance of 4.5 million shares of our common stock in
this offering to raise approximately $103.7 million and the
completion of our concurrent offering of $225.0 million
aggregate principal amount of our senior notes due 2017.
|
However, the pro forma as adjusted statement of operations
information presented for the year ended December 31, 2005
does not give effect to our immaterial acquisition of Target
Energy, Inc., which was acquired effective August 1, 2005,
and our acquisition of certain casing and tubing assets from
Patterson Services, Inc. on September 1, 2005.
Our unaudited pro forma as adjusted condensed consolidated
statement of operations for the twelve months ended
September 30, 2006 reflects the following transactions as
if such transactions occurred on January 1, 2005:
|
|
|
|
|
Our acquisition of Specialty, which closed on January 18,
2006, for $96.0 million in cash;
|
|
|
|
Our issuance of $160.0 million aggregate principal amount
of 9.0% senior notes due 2014 in January 2006;
|
|
|
|
Our acquisition of Rogers, which closed on April 3, 2006,
for $11.3 million cash (of which we borrowed
$5.0 million under our debt facility), the issuance of a
$750,000 three year promissory note and the issuance of
125,285 shares of our common stock;
|
|
|
|
Our acquisition of DLS, which closed August 14, 2006 for
$93.7 million in cash and the issuance of 2.5 million
shares of our common stock to the sellers as the stock component
of the purchase price for DLS;
|
|
|
|
The completion in August 2006 of our concurrent offerings of
$95.0 million aggregate principal amount of 9.0% senior
notes due 2014 and 3.45 million shares of our common stock,
with the proceeds of such offerings being used primarily to fund
a portion of the cash component of the purchase price for the
DLS acquisition;
|
|
|
|
Our acquisition of Petro Rentals, for approximately
$29.8 million in cash and 246,761 shares of our common
stock;
|
|
|
|
Our acquisition of substantially all of the assets and
properties of Oil & Gas Rental, for approximately
$291.0 million in cash and 3.2 million shares of our
common stock. The historical results shown for Oil &
Gas Rental are for the twelve months ended October 31,
2006; and
|
S-26
|
|
|
|
|
The issuance of 4.5 million shares of our common stock in
this offering to raise approximately $103.7 million and the
completion of our concurrent offering of $225.0 million
aggregate principal amount of our senior notes due 2017.
|
Adjustments for the above-listed transactions on an individual
basis are presented in the notes to the unaudited pro forma as
adjusted financial statements.
Some information normally included in the financial statements
prepared in accordance with GAAP has been condensed or omitted
in accordance with the rules and regulations of the SEC. The
unaudited pro forma as adjusted financial statements and
accompanying notes should be read in conjunction with the
historical financial statements and related notes thereto
appearing elsewhere herein. The unaudited pro forma as adjusted
consolidated condensed financial statements do not purport to be
indicative of the results of operations or financial position
that we actually would have achieved if the transactions had
been consummated on the dated indicated, nor do they project our
results of operations or financial position of any future period
or date.
S-27
ALLIS-CHALMERS
ENERGY INC AND SUBSIDIARIES
UNAUDITED
PRO FORMA AS ADJUSTED CONSOLIDATED STATEMENT OF FINANCIAL
POSITION
As of
September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allis-Chalmers
|
|
|
|
|
|
Petro Rentals
|
|
|
|
|
|
|
|
Oil & Gas Rental
|
|
|
|
|
|
|
|
|
|
Allis-Chalmers
|
|
|
|
Consolidated
|
|
|
Petro Rentals
|
|
|
Purchase
|
|
|
|
|
Oil & Gas Rental
|
|
|
Purchase
|
|
|
|
|
Offering
|
|
|
|
|
Consolidated
|
|
|
|
Historical
|
|
|
Historical
|
|
|
Adjustments
|
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
|
|
Adjustments
|
|
|
|
|
Pro Forma
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
50,311
|
|
|
$
|
2,769
|
|
|
$
|
(27,291
|
)
|
|
A
|
|
$
|
4,595
|
|
|
$
|
(1,466
|
)
|
|
H
|
|
$
|
18,371
|
|
|
K
|
|
$
|
47,289
|
|
Investments
|
|
|
|
|
|
|
219
|
|
|
|
|
|
|
|
|
|
19,643
|
|
|
|
(19,643
|
)
|
|
I
|
|
|
|
|
|
|
|
|
219
|
|
Trade receivables, net
|
|
|
85,156
|
|
|
|
4,989
|
|
|
|
|
|
|
|
|
|
13,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103,545
|
|
Inventories
|
|
|
25,813
|
|
|
|
401
|
|
|
|
|
|
|
|
|
|
1,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,563
|
|
Prepaids and other
|
|
|
6,374
|
|
|
|
639
|
|
|
|
|
|
|
|
|
|
319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
167,654
|
|
|
|
9,017
|
|
|
|
(27,291
|
)
|
|
|
|
|
39,306
|
|
|
|
(21,109
|
)
|
|
|
|
|
18,371
|
|
|
|
|
|
185,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
341,483
|
|
|
|
13,187
|
|
|
|
15,013
|
|
|
B
|
|
|
30,694
|
|
|
|
170,957
|
|
|
B
|
|
|
|
|
|
|
|
|
571,334
|
|
Goodwill
|
|
|
12,417
|
|
|
|
|
|
|
|
1,752
|
|
|
C
|
|
|
|
|
|
|
104,059
|
|
|
C
|
|
|
|
|
|
|
|
|
118,228
|
|
Other intangibles, net
|
|
|
6,802
|
|
|
|
|
|
|
|
1,560
|
|
|
C
|
|
|
|
|
|
|
20,000
|
|
|
C
|
|
|
|
|
|
|
|
|
28,362
|
|
Debt issuance costs, net
|
|
|
8,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,500
|
|
|
A
|
|
|
625
|
|
|
L
|
|
|
14,710
|
|
Other assets
|
|
|
155
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
8,320
|
|
|
|
(3,519
|
)
|
|
I
|
|
|
|
|
|
|
|
|
4,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
537,096
|
|
|
$
|
22,206
|
|
|
$
|
(8,966
|
)
|
|
|
|
$
|
78,320
|
|
|
$
|
275,888
|
|
|
|
|
$
|
18,996
|
|
|
|
|
$
|
923,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Stockholders
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$
|
8,493
|
|
|
$
|
2,017
|
|
|
$
|
(1,601
|
)
|
|
A
|
|
$
|
|
|
|
$
|
300,000
|
|
|
A
|
|
$
|
(300,000
|
)
|
|
K
|
|
$
|
8,909
|
|
Trade accounts payable
|
|
|
26,311
|
|
|
|
408
|
|
|
|
|
|
|
|
|
|
916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,635
|
|
Accrued employee benefits
|
|
|
10,050
|
|
|
|
36
|
|
|
|
300
|
|
|
D
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,386
|
|
Accrued interest
|
|
|
4,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,950
|
|
Accrued expenses
|
|
|
16,754
|
|
|
|
1,173
|
|
|
|
82
|
|
|
E
|
|
|
1,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
66,558
|
|
|
|
3,634
|
|
|
|
(1,219
|
)
|
|
|
|
|
2,848
|
|
|
|
300,000
|
|
|
|
|
|
(300,000
|
)
|
|
|
|
|
71,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued postretirement benefit
obligations
|
|
|
304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
304
|
|
Long-term debt, net of current
maturities
|
|
|
262,466
|
|
|
|
5,494
|
|
|
|
(5,494
|
)
|
|
A
|
|
|
|
|
|
|
|
|
|
|
|
|
225,000
|
|
|
K
|
|
|
487,466
|
|
Other long-term liabilities
|
|
|
27,300
|
|
|
|
1,140
|
|
|
|
5,860
|
|
|
F
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
356,628
|
|
|
|
10,268
|
|
|
|
(853
|
)
|
|
|
|
|
2,848
|
|
|
|
300,000
|
|
|
|
|
|
(75,000
|
)
|
|
|
|
|
593,891
|
|
Stockholders
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
246
|
|
|
|
101
|
|
|
|
(99
|
)
|
|
G
|
|
|
115
|
|
|
|
(83
|
)
|
|
J
|
|
|
45
|
|
|
K
|
|
|
325
|
|
Capital in excess of par value
|
|
|
153,135
|
|
|
|
|
|
|
|
3,823
|
|
|
G
|
|
|
20,207
|
|
|
|
31,121
|
|
|
J
|
|
|
97,951
|
|
|
K
|
|
|
306,237
|
|
Accumulated other comprehensive
income
|
|
|
|
|
|
|
7
|
|
|
|
(7
|
)
|
|
G
|
|
|
1,266
|
|
|
|
(1,266
|
)
|
|
J
|
|
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
|
27,087
|
|
|
|
11,830
|
|
|
|
(11,830
|
)
|
|
G
|
|
|
53,884
|
|
|
|
(53,884
|
)
|
|
J
|
|
|
(4,000
|
)
|
|
L
|
|
|
23,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders Equity
|
|
|
180,468
|
|
|
|
11,938
|
|
|
|
(8,113
|
)
|
|
|
|
|
75,472
|
|
|
|
(24,112
|
)
|
|
|
|
|
93,996
|
|
|
|
|
|
329,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and
Stockholders Equity
|
|
$
|
537,096
|
|
|
$
|
22,206
|
|
|
$
|
(8,966
|
)
|
|
|
|
$
|
78,320
|
|
|
$
|
275,888
|
|
|
|
|
$
|
18,996
|
|
|
|
|
$
|
923,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited pro forma
consolidated financial statements.
S-28
ALLIS-CHALMERS
ENERGY INC AND SUBSIDIARIES
UNAUDITED
PRO FORMA AS ADJUSTED CONSOLIDATED STATEMENT OF OPERATIONS
For the
Twelve Months Ended September 30, 2006, Except for Oil
& Gas Rental, Whose Twelve Months Ended July 31,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allis-Chalmers
|
|
|
|
|
|
Specialty
|
|
|
|
|
Specialty
|
|
|
|
|
|
|
|
Rogers
|
|
|
|
|
|
|
|
DLS
|
|
|
|
|
DLS
|
|
|
|
|
|
|
|
Petro Rentals
|
|
|
|
|
|
|
|
Oil & Gas Rental
|
|
|
|
|
|
|
|
|
|
Allis-Chalmers
|
|
|
|
Consolidated
|
|
|
Specialty
|
|
|
Purchase
|
|
|
|
|
Debt
|
|
|
|
|
Rogers
|
|
|
Purchase
|
|
|
|
|
DLS
|
|
|
Purchase
|
|
|
|
|
Debt
|
|
|
|
|
Petro Rentals
|
|
|
Purchase
|
|
|
|
|
Oil & Gas Rental
|
|
|
Purchase
|
|
|
|
|
Offering
|
|
|
|
|
Consolidated
|
|
|
|
Historical
|
|
|
Historical
|
|
|
Adjustments
|
|
|
|
|
Adjustments
|
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
|
|
Adjustments
|
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
|
|
Adjustments
|
|
|
|
|
Pro Forma
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenues
|
|
$
|
226,750
|
|
|
$
|
9,244
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
|
|
$
|
4,870
|
|
|
$
|
|
|
|
|
|
$
|
139,038
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
|
|
$
|
18,518
|
|
|
$
|
|
|
|
|
|
$
|
71,429
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
|
|
$
|
469,849
|
|
Cost of revenues
|
|
|
146,794
|
|
|
|
3,304
|
|
|
|
1,347
|
|
|
AA
|
|
|
|
|
|
|
|
|
2,506
|
|
|
|
252
|
|
|
AA
|
|
|
116,682
|
|
|
|
(909
|
)
|
|
AF
|
|
|
|
|
|
|
|
|
10,291
|
|
|
|
(110
|
)
|
|
AF
|
|
|
18,894
|
|
|
|
6,179
|
|
|
AA
|
|
|
|
|
|
|
|
|
305,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
79,956
|
|
|
|
5,940
|
|
|
|
(1,347
|
)
|
|
|
|
|
|
|
|
|
|
|
2,364
|
|
|
|
(252
|
)
|
|
|
|
|
22,356
|
|
|
|
909
|
|
|
|
|
|
|
|
|
|
|
|
8,227
|
|
|
|
110
|
|
|
|
|
|
52,535
|
|
|
|
(6,179
|
)
|
|
|
|
|
|
|
|
|
|
|
164,619
|
|
General and administrative expense
|
|
|
31,865
|
|
|
|
2,552
|
|
|
|
(96
|
)
|
|
CA
|
|
|
175
|
|
|
BG
|
|
|
1,356
|
|
|
|
67
|
|
|
BB
|
|
|
5,640
|
|
|
|
|
|
|
|
|
|
277
|
|
|
AI
|
|
|
4,606
|
|
|
|
156
|
|
|
BB
|
|
|
9,170
|
|
|
|
6,666
|
|
|
AM
|
|
|
(4,387
|
)
|
|
AQ
|
|
|
58,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
48,091
|
|
|
|
3,388
|
|
|
|
(1,251
|
)
|
|
|
|
|
(175
|
)
|
|
|
|
|
1,008
|
|
|
|
(319
|
)
|
|
|
|
|
16,716
|
|
|
|
909
|
|
|
|
|
|
(277
|
)
|
|
|
|
|
3,621
|
|
|
|
(46
|
)
|
|
|
|
|
43,365
|
|
|
|
(12,845
|
)
|
|
|
|
|
4,387
|
|
|
|
|
|
106,572
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net
|
|
|
(13,252
|
)
|
|
|
26
|
|
|
|
(2,160
|
)
|
|
BF
|
|
|
(341
|
)
|
|
BH
|
|
|
4
|
|
|
|
(218
|
)
|
|
AC
|
|
|
(5,267
|
)
|
|
|
1,706
|
|
|
AG
|
|
|
(6,956
|
)
|
|
AJ
|
|
|
(205
|
)
|
|
|
|
|
|
|
|
|
864
|
|
|
|
(35,065
|
)
|
|
CB
|
|
|
13,952
|
|
|
AR
|
|
|
(46,912
|
)
|
Other
|
|
|
(41
|
)
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
5,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
427
|
|
|
|
(218
|
)
|
|
AO
|
|
|
|
|
|
|
|
|
5,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
|
|
34,798
|
|
|
|
3,486
|
|
|
|
(3,411
|
)
|
|
|
|
|
(516
|
)
|
|
|
|
|
961
|
|
|
|
(537
|
)
|
|
|
|
|
17,166
|
|
|
|
2,615
|
|
|
|
|
|
(7,233
|
)
|
|
|
|
|
3,416
|
|
|
|
(46
|
)
|
|
|
|
|
44,656
|
|
|
|
(48,128
|
)
|
|
|
|
|
18,339
|
|
|
|
|
|
65,566
|
|
Taxes
|
|
|
(6,982
|
)
|
|
|
|
|
|
|
|
|
|
AD
|
|
|
|
|
|
AD
|
|
|
|
|
|
|
|
|
|
AD
|
|
|
(5,864
|
)
|
|
|
(1,060
|
)
|
|
AH
|
|
|
|
|
|
AD
|
|
|
(1,297
|
)
|
|
|
2,144
|
|
|
AD
|
|
|
|
|
|
|
|
|
|
AD
|
|
|
(698
|
)
|
|
AS
|
|
|
(13,757
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
27,816
|
|
|
|
3,486
|
|
|
|
(3,411
|
)
|
|
|
|
|
(516
|
)
|
|
|
|
|
961
|
|
|
|
(537
|
)
|
|
|
|
|
11,302
|
|
|
|
1,555
|
|
|
|
|
|
(7,233
|
)
|
|
|
|
|
2,119
|
|
|
|
2,098
|
|
|
|
|
|
44,656
|
|
|
|
(48,128
|
)
|
|
|
|
|
17,641
|
|
|
|
|
|
51,809
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,763
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,763
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributed to
common shares
|
|
$
|
27,816
|
|
|
$
|
3,486
|
|
|
$
|
(3,411
|
)
|
|
|
|
$
|
(516
|
)
|
|
|
|
$
|
961
|
|
|
$
|
(537
|
)
|
|
|
|
$
|
9,539
|
|
|
$
|
1,555
|
|
|
|
|
$
|
(7,233
|
)
|
|
|
|
$
|
2,119
|
|
|
$
|
2,098
|
|
|
|
|
$
|
44,656
|
|
|
$
|
(48,128
|
)
|
|
|
|
$
|
17,641
|
|
|
|
|
$
|
50,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss) per
common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
1.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.58
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
1.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.53
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
18,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
|
|
|
AG
|
|
|
|
|
|
|
2,396
|
|
|
AG
|
|
|
3,306
|
|
|
AK
|
|
|
|
|
|
|
247
|
|
|
AL
|
|
|
|
|
|
|
3,200
|
|
|
AP
|
|
|
4,500
|
|
|
AT
|
|
|
32,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
20,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
|
|
|
AG
|
|
|
|
|
|
|
2,396
|
|
|
AG
|
|
|
3,306
|
|
|
AK
|
|
|
|
|
|
|
247
|
|
|
AL
|
|
|
|
|
|
|
3,200
|
|
|
AP
|
|
|
4,500
|
|
|
AT
|
|
|
33,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-29
ALLIS-CHALMERS
ENERGY INC AND SUBSIDIARIES
UNAUDITED
PRO FORMA AS ADJUSTED CONSOLIDATED STATEMENT OF OPERATIONS
For the
Nine Months Ended September 30, 2006, Except for Oil &
Gas Rental Whose Nine Months Ended July 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allis-Chalmers
|
|
|
|
|
|
Rogers
|
|
|
|
|
|
|
|
DLS
|
|
|
|
|
DLS
|
|
|
|
|
|
|
|
Petro Rentals
|
|
|
|
|
|
|
|
Oil & Gas Rental
|
|
|
|
|
|
|
|
|
|
Allis-Chalmers
|
|
|
|
Consolidated
|
|
|
Rogers
|
|
|
Purchase
|
|
|
|
|
DLS
|
|
|
Purchase
|
|
|
|
|
Debt
|
|
|
|
|
Petro Rentals
|
|
|
Purchase
|
|
|
|
|
Oil & Gas Rental
|
|
|
Purchase
|
|
|
|
|
Offering
|
|
|
|
|
Consolidated
|
|
|
|
Historical
|
|
|
Historical
|
|
|
Adjustments
|
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
|
|
Adjustments
|
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
|
|
Adjustments
|
|
|
|
|
Pro Forma
|
|
|
|
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
193,236
|
|
|
$
|
2,085
|
|
|
$
|
|
|
|
|
|
$
|
103,898
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
|
|
$
|
14,653
|
|
|
$
|
|
|
|
|
|
$
|
56,543
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
|
|
$
|
370,415
|
|
Cost of revenues
|
|
|
123,184
|
|
|
|
1,105
|
|
|
|
121
|
|
|
AA
|
|
|
86,868
|
|
|
|
(606
|
)
|
|
AF
|
|
|
|
|
|
|
|
|
8,212
|
|
|
|
(172
|
)
|
|
AE
|
|
|
14,813
|
|
|
|
4,498
|
|
|
AA
|
|
|
|
|
|
|
|
|
238,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
70,052
|
|
|
|
980
|
|
|
|
(121
|
)
|
|
|
|
|
17,030
|
|
|
|
606
|
|
|
|
|
|
|
|
|
|
|
|
6,441
|
|
|
|
172
|
|
|
|
|
|
41,730
|
|
|
|
(4,498
|
)
|
|
|
|
|
|
|
|
|
|
|
132,392
|
|
General and administrative expense
|
|
|
26,494
|
|
|
|
820
|
|
|
|
33
|
|
|
AB
|
|
|
4,317
|
|
|
|
|
|
|
|
|
|
198
|
|
|
AI
|
|
|
3,510
|
|
|
|
117
|
|
|
AB
|
|
|
8,451
|
|
|
|
5,333
|
|
|
AM
|
|
|
(3,624
|
)
|
|
AQ
|
|
|
45,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
43,558
|
|
|
|
160
|
|
|
|
(154
|
)
|
|
|
|
|
12,713
|
|
|
|
606
|
|
|
|
|
|
(198
|
)
|
|
|
|
|
2,931
|
|
|
|
55
|
|
|
|
|
|
33,279
|
|
|
|
(9,831
|
)
|
|
|
|
|
3,624
|
|
|
|
|
|
86,743
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net
|
|
|
(12,085
|
)
|
|
|
2
|
|
|
|
(109
|
)
|
|
AC
|
|
|
(3,391
|
)
|
|
|
1,029
|
|
|
AG
|
|
|
(4,969
|
)
|
|
AJ
|
|
|
(179
|
)
|
|
|
|
|
|
|
|
|
730
|
|
|
|
(26,943
|
)
|
|
AN
|
|
|
11,025
|
|
|
AR
|
|
|
(34,890
|
)
|
Other
|
|
|
(6
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
(829
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250
|
|
|
|
(218
|
)
|
|
AO
|
|
|
|
|
|
|
|
|
(810
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
|
|
31,467
|
|
|
|
155
|
|
|
|
(263
|
)
|
|
|
|
|
8,493
|
|
|
|
1,635
|
|
|
|
|
|
(5,167
|
)
|
|
|
|
|
2,752
|
|
|
|
55
|
|
|
|
|
|
34,259
|
|
|
|
(36,992
|
)
|
|
|
|
|
14,649
|
|
|
|
|
|
51,043
|
|
Taxes
|
|
|
(6,197
|
)
|
|
|
|
|
|
|
|
|
|
AD
|
|
|
(4,512
|
)
|
|
|
967
|
|
|
AH
|
|
|
|
|
|
AD
|
|
|
(1,073
|
)
|
|
|
1,073
|
|
|
AD
|
|
|
|
|
|
|
|
|
|
AD
|
|
|
(698
|
)
|
|
AS
|
|
|
(10,440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
25,270
|
|
|
|
155
|
|
|
|
(263
|
)
|
|
|
|
|
3,981
|
|
|
|
2,602
|
|
|
|
|
|
(5,167
|
)
|
|
|
|
|
1,679
|
|
|
|
1,128
|
|
|
|
|
|
34,259
|
|
|
|
(36,992
|
)
|
|
|
|
|
13,951
|
|
|
|
|
|
40,603
|
|
Income from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
25,270
|
|
|
$
|
155
|
|
|
$
|
(263
|
)
|
|
|
|
$
|
6,356
|
|
|
$
|
2,602
|
|
|
|
|
$
|
(5,167
|
)
|
|
|
|
$
|
1,679
|
|
|
$
|
1,128
|
|
|
|
|
$
|
34,259
|
|
|
$
|
(36,992
|
)
|
|
|
|
$
|
13,951
|
|
|
|
|
$
|
42,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss) per
common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
1.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.25
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
1.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.20
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
Basic
|
|
|
18,944
|
|
|
|
|
|
|
|
42
|
|
|
AE
|
|
|
|
|
|
|
2,361
|
|
|
AE
|
|
|
3,258
|
|
|
AK
|
|
|
|
|
|
|
247
|
|
|
AL
|
|
|
|
|
|
|
3,200
|
|
|
AP
|
|
|
4,500
|
|
|
AT
|
|
|
32,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
20,155
|
|
|
|
|
|
|
|
42
|
|
|
AE
|
|
|
|
|
|
|
2,361
|
|
|
AE
|
|
|
3,258
|
|
|
AK
|
|
|
|
|
|
|
247
|
|
|
AL
|
|
|
|
|
|
|
3,200
|
|
|
AP
|
|
|
4,500
|
|
|
AT
|
|
|
33,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-30
ALLIS-CHALMERS
ENERGY INC AND SUBSIDIARIES
UNAUDITED
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the
Nine Months Ended September 30, 2005, Except for Oil &
Gas Rental Whose Nine Months Ended July 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allis-Chalmers
|
|
|
|
|
|
Delta
|
|
|
|
|
|
|
|
Capcoil
|
|
|
|
|
|
|
|
W.T.
|
|
|
|
|
MI
|
|
|
|
|
|
|
|
Specialty
|
|
|
|
|
|
|
|
|
|
|
|
|
Rogers
|
|
|
|
|
|
|
|
DLS
|
|
|
|
|
DLS
|
|
|
|
|
|
|
|
Petro Rental
|
|
|
|
|
|
|
|
|
Oil & Gas Rental
|
|
|
|
|
|
|
|
|
|
ALLIS-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
Delta
|
|
|
Purchase
|
|
|
|
|
Capcoil
|
|
|
Purchase
|
|
|
|
|
W.T.
|
|
|
Purchase
|
|
|
|
|
Purchase
|
|
|
|
|
Specialty
|
|
|
Purchase
|
|
|
|
|
Debt
|
|
|
|
|
Rogers
|
|
|
Purchase
|
|
|
|
|
DLS
|
|
|
Purchase
|
|
|
|
|
Debt
|
|
|
|
|
Petro Rental
|
|
|
Purchase
|
|
|
|
|
|
Oil & Gas Rental
|
|
|
Purchase
|
|
|
|
|
Offering
|
|
|
|
|
CHALMERS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Historical
|
|
|
Adjustments
|
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
|
|
Adjustments
|
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
|
|
Adjustments
|
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
|
|
Adjustments
|
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
|
|
Adjustments
|
|
|
|
|
CONSOLIDATED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenues
|
|
$
|
71,830
|
|
|
$
|
821
|
|
|
$
|
|
|
|
|
|
$
|
2,161
|
|
|
$
|
|
|
|
|
|
$
|
2,057
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
|
|
$
|
23,465
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
|
|
$
|
5,591
|
|
|
$
|
|
|
|
|
|
$
|
94,709
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
|
|
$
|
9,732
|
|
|
$
|
|
|
|
|
|
|
|
$
|
36,430
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
|
|
$
|
246,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
51,153
|
|
|
|
211
|
|
|
|
82
|
|
|
AA
|
|
|
1,458
|
|
|
|
132
|
|
|
AA
|
|
|
1,331
|
|
|
|
187
|
|
|
AA
|
|
|
|
|
|
|
|
|
5,246
|
|
|
|
4,217
|
|
|
AA
|
|
|
|
|
|
|
|
|
3,019
|
|
|
|
368
|
|
|
AA
|
|
|
83,537
|
|
|
|
940
|
|
|
AF
|
|
|
|
|
|
|
|
|
4,820
|
|
|
|
898
|
|
|
|
AF
|
|
|
|
13,634
|
|
|
|
5,993
|
|
|
AA
|
|
|
|
|
|
|
|
|
177,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
20,677
|
|
|
|
610
|
|
|
|
(82
|
)
|
|
|
|
|
703
|
|
|
|
(132
|
)
|
|
|
|
|
726
|
|
|
|
(187
|
)
|
|
|
|
|
|
|
|
|
|
|
18,219
|
|
|
|
(4,217
|
)
|
|
|
|
|
|
|
|
|
|
|
2,572
|
|
|
|
(368
|
)
|
|
|
|
|
11,172
|
|
|
|
(940
|
)
|
|
|
|
|
|
|
|
|
|
|
4,912
|
|
|
|
(898
|
)
|
|
|
|
|
|
|
22,796
|
|
|
|
(5,993
|
)
|
|
|
|
|
|
|
|
|
|
|
69,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expense
|
|
|
11,992
|
|
|
|
985
|
|
|
|
|
|
|
|
|
|
421
|
|
|
|
28
|
|
|
BB
|
|
|
342
|
|
|
|
75
|
|
|
BB
|
|
|
|
|
|
|
|
|
4,680
|
|
|
|
(290
|
)
|
|
BE
|
|
|
525
|
|
|
BG
|
|
|
1,991
|
|
|
|
104
|
|
|
BB
|
|
|
2,610
|
|
|
|
|
|
|
|
|
|
238
|
|
|
AI
|
|
|
2,771
|
|
|
|
117
|
|
|
|
BB
|
|
|
|
7,170
|
|
|
|
4,001
|
|
|
BK
|
|
|
1,709
|
|
|
BM
|
|
|
39,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
8,685
|
|
|
|
(375
|
)
|
|
|
(82
|
)
|
|
|
|
|
282
|
|
|
|
(160
|
)
|
|
|
|
|
384
|
|
|
|
(262
|
)
|
|
|
|
|
|
|
|
|
|
|
13,539
|
|
|
|
(3,927
|
)
|
|
|
|
|
(525
|
)
|
|
|
|
|
581
|
|
|
|
(472
|
)
|
|
|
|
|
8,562
|
|
|
|
(940
|
)
|
|
|
|
|
(238
|
)
|
|
|
|
|
2,141
|
|
|
|
(1,015
|
)
|
|
|
|
|
|
|
15,626
|
|
|
|
(9,994
|
)
|
|
|
|
|
(1,709
|
)
|
|
|
|
|
30,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net
|
|
|
(3,230
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
21
|
|
|
BC
|
|
|
(75
|
)
|
|
|
(6,480
|
)
|
|
BF
|
|
|
(1,022
|
)
|
|
BH
|
|
|
51
|
|
|
|
(329
|
)
|
|
AC
|
|
|
(3,518
|
)
|
|
|
1,501
|
|
|
AG
|
|
|
(5,963
|
)
|
|
AJ
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
480
|
|
|
|
(24,443
|
)
|
|
BL
|
|
|
8,774
|
|
|
BN
|
|
|
(34,252
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
221
|
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
281
|
|
|
|
|
|
|
|
|
|
581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
|
|
5,676
|
|
|
|
(267
|
)
|
|
|
(82
|
)
|
|
|
|
|
256
|
|
|
|
(160
|
)
|
|
|
|
|
367
|
|
|
|
(262
|
)
|
|
|
|
|
21
|
|
|
|
|
|
13,464
|
|
|
|
(10,407
|
)
|
|
|
|
|
(1,547
|
)
|
|
|
|
|
913
|
|
|
|
(801
|
)
|
|
|
|
|
5,625
|
|
|
|
561
|
|
|
|
|
|
(6,201
|
)
|
|
|
|
|
2,173
|
|
|
|
(1,015
|
)
|
|
|
|
|
|
|
17,887
|
|
|
|
(34,437
|
)
|
|
|
|
|
7,065
|
|
|
|
|
|
(1,171
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest
|
|
|
(488
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
488
|
|
|
BD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes
|
|
|
(559
|
)
|
|
|
(142
|
)
|
|
|
142
|
|
|
AD
|
|
|
(87
|
)
|
|
|
87
|
|
|
AD
|
|
|
(111
|
)
|
|
|
111
|
|
|
AD
|
|
|
|
|
|
AD
|
|
|
|
|
|
|
|
|
|
AD
|
|
|
|
|
|
AD
|
|
|
|
|
|
|
|
|
|
AD
|
|
|
(2,195
|
)
|
|
|
30
|
|
|
AH
|
|
|
|
|
|
AD
|
|
|
(847
|
)
|
|
|
|
|
|
|
AD
|
|
|
|
|
|
|
|
|
|
|
AD
|
|
|
|
|
|
AD
|
|
|
(3,571
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
4,629
|
|
|
$
|
(409
|
)
|
|
$
|
60
|
|
|
|
|
$
|
169
|
|
|
$
|
(73
|
)
|
|
|
|
$
|
256
|
|
|
$
|
(151
|
)
|
|
|
|
$
|
509
|
|
|
|
|
$
|
13,464
|
|
|
$
|
(10,407
|
)
|
|
|
|
$
|
(1,547
|
)
|
|
|
|
$
|
913
|
|
|
$
|
(801
|
)
|
|
|
|
$
|
3,430
|
|
|
$
|
591
|
|
|
|
|
$
|
(6,201
|
)
|
|
|
|
$
|
1,326
|
|
|
$
|
(1,015
|
)
|
|
|
|
|
|
$
|
17,887
|
|
|
$
|
(34,437
|
)
|
|
|
|
$
|
7,065
|
|
|
|
|
$
|
(4,742
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss) per
common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
14,197
|
|
|
|
|
|
|
|
74
|
|
|
BA
|
|
|
|
|
|
|
74
|
|
|
BA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125
|
|
|
BI
|
|
|
|
|
|
|
2,500
|
|
|
BI
|
|
|
3,450
|
|
|
BJ
|
|
|
|
|
|
|
247
|
|
|
|
AL
|
|
|
|
|
|
|
|
3,200
|
|
|
AP
|
|
|
4,500
|
|
|
AT
|
|
|
28,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
15,589
|
|
|
|
|
|
|
|
74
|
|
|
BA
|
|
|
|
|
|
|
74
|
|
|
BA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125
|
|
|
BI
|
|
|
|
|
|
|
2,500
|
|
|
BI
|
|
|
3,450
|
|
|
BJ
|
|
|
|
|
|
|
247
|
|
|
|
AL
|
|
|
|
|
|
|
|
3,200
|
|
|
AP
|
|
|
4,500
|
|
|
AT
|
|
|
28,367
|
DA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-31
ALLIS-CHALMERS
ENERGY INC AND SUBSIDIARIES
UNAUDITED
PRO FORMA AS ADJUSTED CONSOLIDATED STATEMENT OF OPERATIONS
For the
Year Ended December 31, 2005, Except for Oil & Gas
Rental Whose Year Ended October 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allis-Chalmers
|
|
|
|
|
|
Delta
|
|
|
|
|
|
|
|
Capcoil
|
|
|
|
|
|
|
|
W.T.
|
|
|
|
|
MI
|
|
|
|
|
|
|
|
Specialty
|
|
|
|
|
|
|
|
|
|
|
|
|
Rogers
|
|
|
|
|
|
|
|
DLS
|
|
|
|
|
DLS
|
|
|
|
|
|
|
|
Petro Rental
|
|
|
|
|
|
|
|
Oil & Gas Rental
|
|
|
|
|
|
|
|
|
|
Allis-Chalmers
|
|
|
|
Consolidated
|
|
|
Delta
|
|
|
Purchase
|
|
|
|
|
Capcoil
|
|
|
Purchase
|
|
|
|
|
W.T.
|
|
|
Purchase
|
|
|
|
|
Purchase
|
|
|
|
|
Specialty
|
|
|
Purchase
|
|
|
|
|
Debt
|
|
|
|
|
Rogers
|
|
|
Purchase
|
|
|
|
|
DLS
|
|
|
Purchase
|
|
|
|
|
Debt
|
|
|
|
|
Petro Rental
|
|
|
Purchase
|
|
|
|
|
Oil & Gas Rental
|
|
|
Purchase
|
|
|
|
|
Offering
|
|
|
|
|
Consolidated
|
|
|
|
Historical
|
|
|
Historical
|
|
|
Adjustments
|
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
|
|
Adjustments
|
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
|
|
Adjustments
|
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
|
|
Adjustments
|
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
|
|
Adjustments
|
|
|
|
|
Pro Forma
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenues
|
|
$
|
105,344
|
|
|
$
|
821
|
|
|
$
|
|
|
|
|
|
$
|
2,161
|
|
|
$
|
|
|
|
|
|
$
|
2,057
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
|
|
$
|
32,709
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
|
|
$
|
8,376
|
|
|
$
|
|
|
|
|
|
$
|
129,849
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
|
|
$
|
13,597
|
|
|
$
|
|
|
|
|
|
$
|
51,316
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
|
|
$
|
346,230
|
|
Cost of revenues
|
|
|
74,763
|
|
|
|
211
|
|
|
|
82
|
|
|
AA
|
|
|
1,458
|
|
|
|
132
|
|
|
AA
|
|
|
1,331
|
|
|
|
187
|
|
|
AA
|
|
|
|
|
|
|
|
|
8,550
|
|
|
|
5,564
|
|
|
AA
|
|
|
|
|
|
|
|
|
4,420
|
|
|
|
499
|
|
|
AA
|
|
|
113,351
|
|
|
|
637
|
|
|
AF
|
|
|
|
|
|
|
|
|
6,899
|
|
|
|
960
|
|
|
AF
|
|
|
17,715
|
|
|
|
7,674
|
|
|
AA
|
|
|
|
|
|
|
|
|
244,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
30,581
|
|
|
|
610
|
|
|
|
(82
|
)
|
|
|
|
|
703
|
|
|
|
(132
|
)
|
|
|
|
|
726
|
|
|
|
(187
|
)
|
|
|
|
|
|
|
|
|
|
|
24,159
|
|
|
|
(5,564
|
)
|
|
|
|
|
|
|
|
|
|
|
3,956
|
|
|
|
(499
|
)
|
|
|
|
|
16,498
|
|
|
|
(637
|
)
|
|
|
|
|
|
|
|
|
|
|
6,698
|
|
|
|
(960
|
)
|
|
|
|
|
33,601
|
|
|
|
(7,674
|
)
|
|
|
|
|
|
|
|
|
|
|
101,797
|
|
General and administrative expense
|
|
|
17,363
|
|
|
|
985
|
|
|
|
|
|
|
|
|
|
421
|
|
|
|
28
|
|
|
BB
|
|
|
342
|
|
|
|
75
|
|
|
BB
|
|
|
|
|
|
|
|
|
7,232
|
|
|
|
(386
|
)
|
|
BE
|
|
|
700
|
|
|
BG
|
|
|
2,527
|
|
|
|
138
|
|
|
BB
|
|
|
3,933
|
|
|
|
|
|
|
|
|
|
317
|
|
|
AI
|
|
|
3,867
|
|
|
|
156
|
|
|
BB
|
|
|
7,889
|
|
|
|
5,334
|
|
|
BK
|
|
|
946
|
|
|
BM
|
|
|
51,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
13,218
|
|
|
|
(375
|
)
|
|
|
(82
|
)
|
|
|
|
|
282
|
|
|
|
(160
|
)
|
|
|
|
|
384
|
|
|
|
(262
|
)
|
|
|
|
|
|
|
|
|
|
|
16,927
|
|
|
|
(5,178
|
)
|
|
|
|
|
(700
|
)
|
|
|
|
|
1,429
|
|
|
|
(637
|
)
|
|
|
|
|
12,565
|
|
|
|
(637
|
)
|
|
|
|
|
(317
|
)
|
|
|
|
|
2,831
|
|
|
|
(1,116
|
)
|
|
|
|
|
25,712
|
|
|
|
(13,008
|
)
|
|
|
|
|
(946
|
)
|
|
|
|
|
49,930
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net
|
|
|
(4,397
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
21
|
|
|
BC
|
|
|
(49
|
)
|
|
|
(8,640
|
)
|
|
BF
|
|
|
(1,363
|
)
|
|
BH
|
|
|
53
|
|
|
|
(438
|
)
|
|
AC
|
|
|
(5,394
|
)
|
|
|
2,178
|
|
|
AG
|
|
|
(7,950
|
)
|
|
AJ
|
|
|
6
|
|
|
|
|
|
|
|
|
|
614
|
|
|
|
(32,565
|
)
|
|
BL
|
|
|
11,701
|
|
|
BN
|
|
|
(46,274
|
)
|
Other
|
|
|
186
|
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
237
|
|
|
|
|
|
|
|
|
|
7,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
|
|
9,007
|
|
|
|
(267
|
)
|
|
|
(82
|
)
|
|
|
|
|
256
|
|
|
|
(160
|
)
|
|
|
|
|
367
|
|
|
|
(262
|
)
|
|
|
|
|
21
|
|
|
|
|
|
16,950
|
|
|
|
(13,818
|
)
|
|
|
|
|
(2,063
|
)
|
|
|
|
|
1,719
|
|
|
|
(1,075
|
)
|
|
|
|
|
14,298
|
|
|
|
1,541
|
|
|
|
|
|
(8,267
|
)
|
|
|
|
|
2,837
|
|
|
|
(1,116
|
)
|
|
|
|
|
28,284
|
|
|
|
(45,573
|
)
|
|
|
|
|
10,755
|
|
|
|
|
|
13,352
|
|
Minority interest
|
|
|
(488
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
488
|
|
|
BD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes
|
|
|
(1,344
|
)
|
|
|
(142
|
)
|
|
|
142
|
|
|
AD
|
|
|
(87
|
)
|
|
|
87
|
|
|
AD
|
|
|
(111
|
)
|
|
|
111
|
|
|
AD
|
|
|
|
|
|
AD
|
|
|
|
|
|
|
|
|
|
AD
|
|
|
|
|
|
AD
|
|
|
|
|
|
|
|
|
|
AD
|
|
|
(3,547
|
)
|
|
|
(1,997
|
)
|
|
AH
|
|
|
|
|
|
AD
|
|
|
(1,071
|
)
|
|
|
1,071
|
|
|
AD
|
|
|
|
|
|
|
|
|
|
AD
|
|
|
|
|
|
AD
|
|
|
(6,888
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing
operations
|
|
|
7,175
|
|
|
|
(409
|
)
|
|
|
60
|
|
|
|
|
|
169
|
|
|
|
(73
|
)
|
|
|
|
|
256
|
|
|
|
(151
|
)
|
|
|
|
|
509
|
|
|
|
|
|
16,950
|
|
|
|
(13,818
|
)
|
|
|
|
|
(2,063
|
)
|
|
|
|
|
1,719
|
|
|
|
(1,075
|
)
|
|
|
|
|
10,751
|
|
|
|
(456
|
)
|
|
|
|
|
(8,267
|
)
|
|
|
|
|
1,766
|
|
|
|
(45
|
)
|
|
|
|
|
28,284
|
|
|
|
(45,573
|
)
|
|
|
|
|
10,755
|
|
|
|
|
|
6,464
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,138
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,138
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
7,175
|
|
|
$
|
(409
|
)
|
|
$
|
60
|
|
|
|
|
$
|
169
|
|
|
$
|
(73
|
)
|
|
|
|
$
|
256
|
|
|
$
|
(151
|
)
|
|
|
|
$
|
509
|
|
|
|
|
$
|
16,950
|
|
|
$
|
(13,818
|
)
|
|
|
|
$
|
(2,063
|
)
|
|
|
|
$
|
1,719
|
|
|
$
|
(1,075
|
)
|
|
|
|
$
|
6,613
|
|
|
$
|
(456
|
)
|
|
|
|
$
|
(8,267
|
)
|
|
|
|
$
|
1,766
|
|
|
$
|
(45
|
)
|
|
|
|
$
|
28,284
|
|
|
$
|
(45,573
|
)
|
|
|
|
$
|
10,755
|
|
|
|
|
$
|
2,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss) per
common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.22
|
|
Discontinued operations
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.22
|
|
Discontinued operations
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
14,832
|
|
|
|
|
|
|
|
56
|
|
|
BA
|
|
|
|
|
|
|
56
|
|
|
BA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125
|
|
|
BI
|
|
|
|
|
|
|
2,500
|
|
|
BI
|
|
|
3,450
|
|
|
BJ
|
|
|
|
|
|
|
247
|
|
|
AL
|
|
|
|
|
|
|
3,200
|
|
|
AP
|
|
|
4,500
|
|
|
AT
|
|
|
28,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
16,238
|
|
|
|
|
|
|
|
56
|
|
|
BA
|
|
|
|
|
|
|
56
|
|
|
BA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125
|
|
|
BI
|
|
|
|
|
|
|
2,500
|
|
|
BI
|
|
|
3,450
|
|
|
BJ
|
|
|
|
|
|
|
247
|
|
|
AL
|
|
|
|
|
|
|
3,200
|
|
|
AP
|
|
|
4,500
|
|
|
AT
|
|
|
30,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-32
Notes to
Unaudited Pro Forma As Adjusted Consolidated Condensed Financial
Statements
The following pro forma adjustments have been made to the
historical financial statements:
|
|
|
|
A)
|
Reflects the cash needed to complete the Petro Rentals
acquisition. The Petro Rentals acquisition required a cash
payment of $20.2 million and the repayment of
Petro Rentals $7.1 million of borrowings under
existing credit facilities. Petro Rentals note related to
insurance premiums will not be repaid at the acquisition date.
|
|
|
B)
|
Reflects the
step-up in
the basis of the fixed assets as a result of the acquisition to
the lower of fair market value or actual cost.
|
|
|
C)
|
Reflects the estimated allocation of the purchase price to
goodwill and other intangibles such as customer lists, patents
and non-competes.
|
|
|
D)
|
Reflects the current portion of payments due to the former owner
and a key member of management of Petro Rentals.
|
|
|
E)
|
Reflects the payment of accrued expenses related to the
acquisition of Petro Rentals.
|
|
|
F)
|
Reflects the deferred taxes related to the difference between
the step-up
basis of the fixed assets compared to the tax basis of those
assets along with the non current portion of payments due to the
former owner of Petro Rentals.
|
|
|
G)
|
Reflects the elimination of the Petro Rentals
stockholders equity and the issuance of common stock worth
$3.8 million in the Petro Rentals acquisition. The
common stock issued to the seller of Petro Rentals was
valued at $15.50 per share, which was the average trading
price of the common stock for the two day period prior to and
after the date of the Petro Rentals acquisition, including
the date of the acquisition.
|
|
|
H)
|
Reflects the cash needed to complete the Oil & Gas
Rental asset acquisition. As part of the Oil & Gas
Rental transaction, the sellers were paid $291.0 million
and retained the existing cash in Oil & Gas Rental. In
addition we expect to incur transaction costs of
$0.8 million. The Oil & Gas Rental transaction was
funded by a $300.0 million bridge loan with net proceeds of
$294.5 million. Also reflects the payment of cash by the
sellers of Oil & Gas Rental as working capital at
September 30, 2006, as defined in the purchase agreement,
was below the required $11.3 million by $429,000.
|
|
|
I)
|
Reflects the assets retained by the sellers in the
Oil & Gas Rental transaction.
|
|
|
|
|
J)
|
Reflects the elimination of the Oil & Gas Rentals
stockholders equity and the issuance of common stock worth
$51.4 million in the Oil & Gas Rental asset
purchase. The common stock issued to the sellers of
Oil & Gas Rental was valued at $16.05 per share,
which was the average trading price of the common stock for the
two day period prior to and after the date of the announcement
of the Oil & Gas Rental asset purchase, including the
date of the announcement.
|
|
|
|
|
K)
|
Reflects the issuance of 4.5 million shares of our common
stock in this offering to raise approximately
$103.7 million and the concurrent offering and sale of
$225.0 million of our senior notes due 2017, and the
application of the net proceeds from these offerings to repay
debt outstanding under our $300.0 million bridge loan
facility. We used a price of $23.04 per share, the market
price of the stock as of December 29, 2006, to determine
the proceeds from the sale of our common stock. We also
estimated fees related to the equity offering to be
$5.7 million and $6.1 million related to the cost of
the sale of the senior notes due 2017, offset by a
$1.5 million reduction on the bridge fees due to the
assumption that the bridge was repaid within 90 days of the
date of borrowing.
|
S-33
|
|
|
|
L)
|
Reflects fees of $6.1 million related to our concurrent
offering of $225.0 million of senior notes due 2017, offset
by the removal of the bridge loan fees reported in the
Oil & Gas Rental purchase adjustment column. The bridge
loan fees reported in the Oil & Gas Rental purchase
adjustment column assumed the bridge loan would not be repaid
until due, but because the loan was repaid within 90 days,
the bridge loan fees were reduced by $1.5 million. The
balance of the bridge loan fees, $4.0 million, would be
written off as the bridge loan was repaid.
|
|
|
|
|
AA)
|
Reflects the increase in depreciation expense as a result of the
step-up in
basis of fixed assets.
|
|
|
AB)
|
Reflects the increase in amortization due to the increase in
other intangible assets in connection with the acquisition of
Rogers and Petro Rentals.
|
|
|
AC)
|
Reflects the interest expense related to cash borrowed to affect
the acquisitions. In conjunction with the Rogers acquisition, we
issued a $750,000 note to the seller bearing interest at 5.0%
fixed and we borrowed $5.0 million under our line of
credit. We assumed an 8.0% interest rate for this
$5.0 million borrowing which was our borrowing rate of our
committed line of credit at that time. Each 0.125% of change in
this interest rate would affect interest expense by $6,250 per
annum.
|
|
|
AD)
|
A statutory federal income tax rate of 35.0% was applied to the
adjustments, but since
Allis-Chalmers
has a net operating loss carryforward no tax expense was
recorded. In addition, the Allis-Chalmers net operating loss
position offsets the historical tax liabilities of the acquired
companies. The net operating loss carryforward, after the
historical results for
Allis-Chalmers
for the year ended December 31, 2005, is approximately
$20.2 million.
|
|
|
AE)
|
Reflects the pro rata issuance of shares of our common stock as
part of the acquisition price for Rogers and DLS. The Rogers
acquisition, completed April 1, 2006, included
consideration of $1,650,000 in stock which equated to
125,285 shares of our common stock. The stock component of
the purchase price for the DLS acquisition, completed
August 14, 2006, was fixed at 2.5 million shares of
our common stock.
|
|
|
AF)
|
Reflects the impact of depreciation expense as a result of the
step-up in
basis of fixed assets and a longer estimated life on the fixed
assets.
|
|
|
AG)
|
Reflects the elimination of interest expense due to historical
debt not being assumed or replaced. Approximately
$8.6 million of pre-acquisition debt of DLS remained
outstanding after the acquisition. The interest rate assumed on
the $8.6 million of DLS debt was 6.21%, which was the
actual average interest rate on this debt up to the acquisition
date. Each 0.125% change in this interest rate would affect
interest expense by $10,770 per annum. The interest expense
category for DLS historical financials also includes other
bank fees and other financial expenses of approximately
$2.0 million up until the acquisition date,
$2.7 million at December 31, 2005 and
$1.6 million at September 30, 2005.
|
|
|
AH)
|
Income taxes for DLS were computed at the Argentina statutory
tax rate of 35.0%.
Allis-Chalmers
has no net operating losses in Argentina to offset the tax
liability.
|
|
|
AI)
|
Reflects the amortization on the financing fees related to the
offering, issuance and sale of an additional $95.0 million
of senior notes in the August 2006 notes offering.
|
|
|
AJ)
|
Reflects the interest expense related to the offering, issuance
and sale of $95.0 million of senior notes in the August
2006 notes offering bearing interest at 9.0% offset by reduction
of interest on existing debt that were repaid in conjunction
with the offerings. We repaid our $4.0 million,
5.0% subordinated note with a portion of the net proceeds
of the August 2006
|
S-34
|
|
|
|
|
notes offering. We also repaid the $5.0 million of
indebtedness borrowed for the Rogers acquisition under our
revolving line of credit with proceeds of the August 2006 notes
offering.
|
|
|
|
|
AK)
|
Reflects the pro rata issuance of shares of our common stock as
a result of our August offering of 3,450,000 shares of our
common stock to fund a portion of the cash component of the
purchase price for the DLS acquisition.
|
|
|
AL)
|
Reflects the issuance of shares of our common stock in October
2006 as part of the acquisition price for Petro Rentals. The
stock component of the purchase price for the Petro Rentals
acquisition is comprised of 246,761 shares of our common
stock.
|
|
|
AM)
|
Reflects the increase in amortization due to the increase in
other intangible assets in connection with the Oil &
Gas Rental asset acquisition. Also reflects the amortization of
the bridge loan fees in connection with the Oil & Gas
Rental asset acquisition. The bridge loan fees totaling
$5.5 million are being amortized over 18 months, the
term of the facility, starting January 1, 2005, the
effective date of the pro formas. An additional bridge
loan fee of $2.3 million is due as the bridge loan was
considered as outstanding for more than one year for purposes of
the pro forma. This additional loan fee was written off during
the period.
|
|
|
|
|
AN)
|
Reflects the interest expense related to $300.0 million
bridge loan obtained to fund the Oil & Gas Rental asset
acquisition. An interest rate of 11.15% was used on the first
$225.0 million of borrowing and a rate of 13.15% was used
on the remaining $75.0 million. The interest rate on the
bridge loan increases 1.0% after 12 months. Each 0.125%
change in this interest rate would affect interest expense by
$375,000 per annum. The historical interest income has also
been eliminated as the assets that produced the income were not
acquired in the Oil & Gas Rental asset purchase.
|
|
|
|
|
AO)
|
Reflects the elimination of investment income related to assets
not acquired as part of the Oil & Gas Rental
transaction.
|
|
|
AP)
|
Reflects the issuance of shares of our common stock as part of
the acquisition price for the Oil & Gas Rental assets.
The stock component of the purchase price for the Oil &
Gas Rental assets is comprised of 3.2 million shares of our
common stock.
|
|
|
AQ)
|
Reflects the amortization of loan fees related to our concurrent
offering of $225.0 million of senior notes due 2017 over
the 10 year term of the notes. Also reflects the reversal
off of all loan fees related to the bridge loan that were
amortized in the Oil & Gas Rental purchase adjustment
column. The bridge loan fees are treated as written off on
January 1, 2005 for purposes of the pro forma.
|
|
|
AR)
|
Reflects the reversal of the interest expense related to the
bridge loan and instead shows the interest expense related to
the $225.0 million of senior notes due 2017 in our
concurrent notes offering. We assumed a 9.0% fixed interest rate
for this borrowing which was our borrowing rate of similar debt
facilities.
|
|
|
AS)
|
Reflects the impact of the pro forma as adjusted income
generated by the Oil & Gas Rental asset acquisition
which utilizes all of the Allis-Chalmers net operating loss for
federal income tax purposes.
|
|
|
|
|
AT)
|
Reflects the issuance of 4.5 million shares of our common
stock in this offering to raise approximately
$103.7 million, the proceeds of which will be used in part
to repay the $300.0 million bridge loan.
|
|
|
BA)
|
Reflects the pro rata issuance of shares of our common stock as
part of the acquisition price for Delta and Capcoil. The Delta
acquisition, completed April 1, 2005, included
consideration
|
S-35
|
|
|
|
|
of $1.0 million in our common stock, or 168,161 shares
of common stock. The Capcoil acquisition, completed May 2,
2005, included consideration of $765,000 in our common stock, or
243,114 shares of our common stock.
|
|
|
|
|
BB)
|
Reflects the increase in amortization due to the increase in
other intangible assets in connection with the acquisitions of
Capcoil, W. T., Rogers and Petro Rentals.
|
|
|
BC)
|
To acquire M-Is 45% interest in AirComp we issued a new
note for $4.0 million to replace a note for
$4.8 million, both notes bore interest at 5.0%.
|
|
|
BD)
|
Reflects the elimination of the 45% minority interest position
of M-I.
|
|
|
BE)
|
Reflects decreased rent expense of $386,000 per annum in
connection with Specialty acquisition: We entered into a new
lease for the Specialty yard with the seller. Entering into this
lease was required by the purchase agreement and was a condition
to the closing of the Specialty acquisition.
|
|
|
BF)
|
Reflects the interest expense on the $96.0 million of the
$160.0 million of senior notes issued in January 2006 used
to complete the acquisition of Specialty. The senior notes have
a fixed interest rate of 9.0%.
|
|
|
BG)
|
Reflects the amortization of the financing fees related to the
$160.0 million senior notes offering in January 2006.
|
|
|
BH)
|
Reflects the interest expense related to the proceeds of the
$160.0 million senior notes offering in January 2006 in
excess of cash needed for the Specialty acquisition. The senior
notes have a fixed interest rate of 9.0%.
|
|
|
BI)
|
Reflects the issuance of shares of our common stock as part of
the acquisition price for Rogers and DLS. The Rogers
acquisition, completed April 1, 2006, included
consideration of $1,650,000 in stock which equated to
125,285 shares of our common stock. The stock component of
the purchase price for the DLS acquisition, completed
August 14, 2006, was fixed at 2.5 million shares of
our common stock.
|
|
|
BJ)
|
Reflects the issuance of shares of our common stock as a result
of our August offering of 3,450,000 shares of our common
stock to fund a portion of the cash component of the purchase
price for the DLS acquisition.
|
|
|
BK)
|
Reflects the increase in amortization due to the increase in
other intangible assets in connection with the Oil & Gas
Rental asset acquisition. Also reflects the amortization of the
bridge loan fees in connection with the Oil & Gas Rental
asset acquisition. The bridge loan fees totaling
$5.5 million are being amortized over 18 months, the
term of the facility, starting January 1, 2005, the
effective date of the pro formas.
|
|
|
BL)
|
Reflects the interest expense related to $300.0 million
bridge loan obtained to fund the Oil & Gas Rental asset
acquisition. An interest rate of 10.15% was used on the first
$225.0 million of borrowing and a rate of 12.15% was used
on the remaining $75.0 million. Each 0.125% change in this
interest rate would affect interest expense by $375,000 per
annum. The historical interest income has also been eliminated
as the assets that produced the income were not acquired in the
Oil & Gas Rental asset purchase
|
|
|
BM)
|
Reflects the amortization of loan fees related to our concurrent
offering of $225.0 million of senior notes due 2017 over
the 10 year term of the notes. Also reflects the write-off
of all loan fees related to the bridge loan less what was
amortized in the Oil & Gas Rental purchase adjustment column.
|
S-36
|
|
|
|
BN)
|
Reflects the reversal of the interest expense related to the
bridge loan and instead shows the interest expense related to
the $225.0 million of senior notes due 2017 in our
concurrent notes offering. We assumed a 9.0% fixed interest rate
for this borrowing which was our borrowing rate of similar debt
facilities.
|
|
|
CA)
|
Reflects one quarter of decreased rent expense of
$386,000 per annum in connection with Specialty
acquisition. In the period from October 1, 2005 to
September 30, 2006, only three months were covered by the
pre-acquisition lease. We entered into a new lease for the
Specialty yard with the seller. Entering into this lease was
required by the purchase agreement and was a condition to the
closing of the Specialty acquisition.
|
|
|
CB)
|
Reflects the interest expense related to $300.0 million
bridge loan obtained to fund the Oil & Gas Rental asset
acquisition. An interest rate of 11.15% was used on the first
$225.0 million of borrowing and a rate of 13.15% was used
on the remaining $75.0 million for three months. The
interest rate on the bridge loan was increased 1.0% for the
other nine months as the loan agreement provides for an increase
in rate after 12 months. Each 0.125% change in this
interest rate would affect interest expense by $375,000 per
annum. The historical interest income has also been eliminated
as the assets that produced the income were not acquired in the
Oil & Gas Rental asset purchase.
|
|
|
DA)
|
The impact of common stock equivalents are anti-dilutive and,
accordingly, are not included herein.
|
S-37
BUSINESS
Our
Company
We provide services and equipment to oil and natural gas
exploration and production companies, domestically in Texas,
Louisiana, New Mexico, Colorado, Oklahoma, Mississippi, Utah,
Wyoming, Arkansas, offshore in the Gulf of Mexico, and
internationally in Argentina and Mexico. We operate in six
sectors of the oil and natural gas service industry: rental
tools; directional drilling services; casing and tubing
services; compressed air drilling services; international
drilling; and production services. Providing high-quality,
technologically advanced services and equipment is central to
our operating strategy. As a result of our commitment to
customer service, we have developed strong relationships with
many of the leading oil and natural gas companies, including
both independents and majors.
Our growth strategy is focused on identifying and pursuing
opportunities in markets we believe are growing faster than the
overall oilfield services industry in which we believe we can
capitalize on our competitive strengths. Over the past several
years, we have significantly expanded the geographic scope of
our operations and the range of services we provide through
organic growth and strategic acquisitions. Our organic growth
has primarily been achieved through expanding our geographic
scope, acquiring complementary property and equipment, hiring
personnel to service new regions and cross-selling our products
and services from existing operating locations. Since 2001, we
have completed 19 acquisitions, including six in 2005 and
five in 2006.
In January 2006, we acquired 100% of the outstanding stock of
Specialty for $96.0 million. Our acquisition of Specialty
not only balanced our revenue mix generated between rental tools
and service operations and between onshore and offshore
operations, but also enhanced the scope, capacity and customer
base in our rental tools business. In April 2006, we acquired
100% of the outstanding stock of Rogers for approximately
$13.7 million. Our acquisition of Rogers not only enhanced
our casing and tubing operations with its service of power drill
pipe tongs and accessories, but also increased our rental tools
operations with its inventory of rental equipment, including
power drill pipe tongs and accessories and rental tools for
snubbing and well control applications. In August 2006, we
acquired all of the outstanding stock of DLS for approximately
$93.2 million of cash, plus 2.5 million shares of our
common stock. With the DLS transactions, we entered into the
contract drilling and workover services business and expanded
our geographic footprint into the Argentine market. In October
2006, we acquired 100% of the outstanding stock of Petro Rentals
for approximately $29.8 million of cash, plus
246,761 shares of our common stock. The acquisition of
Petro Rentals strengthened our production services operations
with its variety of quality production-related rental tools and
equipment and services, including wire line services and
equipment, land and offshore pumping services and coiled tubing.
On December 18, 2006, we completed the acquisition of
substantially all the assets of Oil & Gas Rental, a
Louisiana-based corporation that provides rental tools to both
offshore and onshore exploration and production companies. The
purchase price consisted of $291.0 million in cash and
3.2 million shares of our common stock. The Oil &
Gas Rental assets include an extensive inventory of premium
rental equipment, including drill pipe, spiral heavy weight
drill pipe, tubing work strings, landing strings, blow out
preventors, choke manifolds and various valves and handling
tools for oil and natural gas drilling. Included in this
acquisition were Oil & Gas Rentals facilities in
Morgan City, Louisiana and Victoria, Texas, which principally
serve the Gulf of Mexico. Historically, Oil & Gas
Rental has also provided rental equipment internationally in
Malaysia, Colombia, Russia, Mexico and Canada. This acquisition
has improved our offshore presence with approximately 61% of
Oil & Gas Rentals revenues for the month of
October 2006 being derived from offshore projects which tend to
require heavy capital expenditures over many years and are the
least likely to have rigs laid down if natural gas or crude oil
prices soften.
S-38
Our
History
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We were incorporated in 1913 under Delaware law.
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We reorganized in bankruptcy in 1988 and sold all of our major
businesses. From 1988 to May 2001 we had only one operating
company in the equipment repair business.
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In May 2001, under new management we consummated a merger in
which we acquired OilQuip Rentals, Inc., or OilQuip, and its
wholly-owned subsidiary, Mountain Compressed Air, Inc., or
Mountain Air.
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In December 2001, we sold Houston Dynamic Services, Inc., our
last pre-bankruptcy business.
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In February 2002, we acquired approximately 81% of the capital
stock of Allis-Chalmers Tubular Services Inc., or Tubular,
formerly known as Jens Oilfield Service, Inc. and
substantially all of the capital stock of Strata Directional
Technology, Inc., or Strata.
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In July 2003, we entered into a limited liability company
operating agreement with
M-I LLC, or
M-I, a joint
venture between Smith International and Schlumberger N.V., to
form a Delaware limited liability company named AirComp LLC, or
AirComp. Pursuant to this agreement, we owned 55% and
M-I owned
45% of AirComp.
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In September 2004, we acquired the remaining 19% of the capital
stock of Tubular.
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In September 2004, we acquired all of the outstanding stock of
Safco-Oil Field Products, Inc., or Safco.
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In November 2004, AirComp acquired substantially all of the
assets of Diamond Air Drilling Services, Inc. and Marquis Bit
Co., LLC, which we refer to collectively as Diamond Air.
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In December 2004, we acquired Downhole Injection Services, LLC,
or Downhole.
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In January 2005, we changed our name from Allis-Chalmers
Corporation to Allis-Chalmers Energy Inc.
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In April 2005, we acquired Delta Rental Service, Inc., or Delta,
and, in May 2005, we acquired Capcoil Tubing Services, Inc., or
Capcoil.
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In July 2005, we acquired M-Is interest in AirComp, and
acquired the compressed air drilling assets of W.T. Enterprises,
Inc., or W.T.
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Effective August 2005, we acquired all of the outstanding stock
of Target Energy Inc., or Target.
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In September 2005, we acquired the casing and tubing assets of
IHS/Spindletop, a division of Patterson Services, Inc., or
Patterson, a subsidiary of RPC, Inc.
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In January 2006, we acquired all of the outstanding capital
stock of Specialty.
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In April 2006, we acquired all of the outstanding capital stock
of Rogers.
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In August 2006, we acquired all of the outstanding capital stock
of DLS.
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In October 2006, we acquired all of the outstanding capital
stock of Petro Rentals.
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In December 2006, we acquired substantially all of the assets of
Oil & Gas Rental.
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As a result of these transactions, our prior results may not be
indicative of current or future operations of those sectors.
S-39
Industry
Overview
We provide products and services primarily to domestic onshore
and offshore oil and natural gas exploration and production
companies. The main factor influencing demand for our products
and services is the level of drilling activity by oil and
natural gas companies, which, in turn, depends largely on
current and anticipated future crude oil and natural gas prices
and production depletion rates. According to the Energy
Information Agency of the U.S. Department of Energy, or
EIA, from 1990 to 2005, demand for oil and natural gas in the
United States grew at an average annual rate of 1.5%, while
supply decreased at an average annual rate of just over 2%.
Current industry forecasts suggest an increasing demand for oil
and natural gas coupled with a flat or declining production
curve, which we believe should result in the continuation of
historically high crude oil and natural gas commodity prices.
The EIA forecasts that U.S. oil and natural gas consumption
will increase at an average annual rate of 1.4% and 1.3% through
2025, respectively. Conversely, the EIA estimates that
U.S. oil production will remain flat, and natural gas
production will increase at an average annual rate of 0.6%.
We anticipate that oil and natural gas exploration and
production companies will continue to increase capital spending
for their exploration and drilling programs. In recent years,
much of this expansion has focused on natural gas drilling
activities. According to Baker Hughes rig count data, the
average total rig count in the United States increased 86% from
918 in 2000 to 1,706 in November 2006, while the average natural
gas rig count increased 96% from 720 in 2000 to 1,414 in
November 2006. While the number of rigs drilling for natural gas
has increased by approximately 200% since the beginning of 1996,
natural gas production has only increased by approximately 1.5%
over the same period of time. This is largely a function of
increasing decline rates for natural gas wells in the United
States. We believe that a continued increase in drilling
activity will be required for the natural gas industry to help
meet the expected increased demand for natural gas in the United
States.
We believe oil and natural gas producers are becoming
increasingly focused on their core competencies in identifying
reserves and reducing burdensome capital and maintenance costs.
In addition, we believe our customers are currently
consolidating their supplier bases to streamline their
purchasing operations and benefit from economies of scale.
Competitive
Strengths
We believe the following competitive strengths will enable us to
capitalize on future opportunities:
Strategic position in high growth markets. We
focus on markets we believe are growing faster than the overall
oilfield services industry and in which we can capitalize on our
competitive strengths. Pursuant to this strategy, we have become
a significant provider of products and services in directional
drilling and air drilling and in production-related services
employing coiled tubing and capillary tubing. We employ
approximately 79 full-time directional drillers, and we
believe our ability to attract and retain experienced drillers
has made us a leader in the segment. We also believe we are one
of the largest air drillers based on amount of air drilling
equipment. In addition, we have significant operations in what
we believe will be among the higher growth oil and natural gas
producing regions within the United States and internationally,
including the Barnett Shale in North Texas, onshore and offshore
Louisiana, the Piceance Basin in Southern Colorado, all five oil
and natural gas producing regions in Mexico, and all five major
oil and natural gas producing regions of Argentina.
Strong relationships with diversified customer
base. We have strong relationships with many of
the major and independent oil and natural gas producers and
service companies in Texas, Louisiana, New Mexico, Colorado,
Oklahoma, Mississippi, Utah, Wyoming, Arkansas, offshore in the
Gulf of Mexico, Argentina and Mexico. Our largest customers
include Anadarko Petroleum, Apache Corporation,
BHP-Billiton,
BP, Chevron, ConocoPhilips, Dominion Resources, El Paso
Corporation, Materiales y
S-40
Equipo Petroleo, or Matyep, McMoran Oil & Gas, Murphy
Oil, Newfield Exploration, Occidental Petroleum Corporation, Pan
American Energy, Petrohawk Energy, Remington Oil and Gas,
Repsol-YPF
and Total Austral. Since 2002, we have broadened our customer
base as a result of our acquisitions, technical expertise and
reputation for quality customer service and by providing
customers with technologically advanced equipment and highly
skilled operating personnel.
Successful execution of growth strategy. Over
the past five years, we have grown both organically and through
successful acquisitions of competing businesses. Since 2001, we
have completed 19 acquisitions. We strive to improve the
operating performance of our acquired businesses by increasing
their asset utilization and operating efficiency. These
acquisitions and organic growth have expanded our geographic
presence and customer base and, in turn, have enabled us to
cross-sell various products and services through our existing
operating locations.
Diversified and increased cash flow
sources. We operate as a diversified oilfield
service company through our six business segments. We believe
that our product and service offerings and geographical presence
through our six business segments provide us with diverse
sources of cash flow. Our acquisition of DLS provides greater
international presence coupled with relatively stable long-term
drilling contracts. Our acquisition of Petro Rentals
significantly enhances our production-related services and
equipment, and our recent acquisition of substantially all the
assets of Oil & Gas Rental further expands our rental
tools segment significantly and increases our offshore and
international operations.
Experienced management team. Our executive
management team has extensive experience in the energy sector,
and consequently has developed strong and longstanding
relationships with many of the major and independent exploration
and production companies. We believe that our management team
has demonstrated its ability to grow our businesses organically,
make strategic acquisitions and successfully integrate these
acquired businesses into our operations.
Business
Strategy
The key elements of our growth strategy include:
Mitigate cyclical risk through balanced
operations. We strive to mitigate cyclical risk
in the oilfield service sector by balancing our operations
between onshore versus offshore; drilling versus production;
rental tools versus service; domestic versus international; and
natural gas versus crude oil. We will continue to shape our
organic and acquisition growth efforts to provide further
balance across these five categories.
Expand geographically to provide greater access and service
to key customer segments. We have locations in
Texas, New Mexico, Colorado, Oklahoma and Louisiana in order to
enhance our proximity to customers and more efficiently serve
their needs. Our recent acquisition of DLS expanded our
geographic footprint into Argentina. We plan to continue to
establish new locations in the United States and internationally.
Prudently pursue strategic acquisitions. To
complement our organic growth, we seek to opportunistically
complete, at attractive valuations, strategic acquisitions that
will be accretive to earnings, complement our products and
services, expand our geographic footprint and market presence,
and further diversify our customer base.
Expand products and services provided in existing operating
locations. Since the beginning of 2003, we have
made approximately $53.5 million in capital expenditures to
grow our business organically by expanding our product and
service offerings. This strategy is consistent with our belief
that oil and natural gas producers more heavily favor integrated
suppliers that can provide a broad product and service offering
in many geographic locations.
S-41
Increase utilization of assets. We seek to
grow revenues and enhance margins by continuing to increase the
utilization of our rental assets with new and existing
customers. We expect to accomplish this through leveraging
longstanding relationships with our customers and cross-selling
our suite of services and equipment, while taking advantage of
continued improvements in industry fundamentals. We also expect
to continue to implement this strategy in our recently expanded
rental tools segment, thus improving the utilization and
profitability of this newly acquired business with minimal
additional investment.
Business
Segments
Rental Tools. We provide specialized rental
equipment, including premium drill pipe, heavy weight spiral
drill pipe, tubing work strings, blow out preventors, choke
manifolds and various valves and handling tools, for both
onshore and offshore well drilling, completion and workover
operations. Most wells drilled for oil and natural gas require
some form of rental tools in the completion phase of a well. We
have an inventory of specialized equipment consisting of heavy
weight spiral drill pipe, double studded adaptors, test plugs,
wear bushings, adapter spools, baskets and spacer spools and
other assorted handling tools in various sizes to meet our
customers demands. We charge customers for rental
equipment on a daily basis. Our customers are liable for the
cost of inspection and repairs or lost equipment. We currently
provide rental tool equipment in Texas, Oklahoma, Louisiana,
Mississippi, Colorado and offshore in the Gulf of Mexico.
We recently expanded this segment significantly with the
acquisition of substantially all the assets of Oil &
Gas Rental, a Louisiana-based provider of premium rental tools
to both offshore and onshore exploration and production
companies. The assets we acquired include an extensive inventory
of premium rental equipment, including drill pipe, spiral heavy
weight drill pipe, tubing work strings, landing strings, blow
out preventors, choke manifolds and various valves and handling
tools for oil and natural gas drilling. Included in this
acquisition were Oil & Gas Rentals facilities in
Morgan City, Louisiana and Victoria, Texas, which principally
serve the Gulf of Mexico. Historically, Oil & Gas
Rental has also provided rental equipment internationally in
Malaysia, Colombia, Russia, Mexico and Canada.
Oil & Gas Rental has over 40 years of operating
history with a strong reputation for service and quality and has
a total of approximately 80 employees. Based on Oil &
Gas Rentals unaudited historical financial information for
the month of October 2006, approximately 92% of its revenue was
derived from domestic operations. Of this domestic revenue,
approximately 61% was derived from offshore operations
(typically high pressure and deepwater operations) and 39% was
derived from onshore operations (usually deep wells requiring
premium drill pipe). Approximately 8% of Oil and Gas
Rentals revenue for the month of October 2006 was derived
from international operations in Malaysia, Colombia, Russia,
Mexico, and Canada.
International Drilling. Through DLS, we
provide drilling, completion, workover and related services for
oil and gas wells. Headquartered in Buenos Aires, Argentina, DLS
operates out of the San Jorge, Cuyan, Neuquén, Austral
and Noroeste basins of Argentina. DLS specializes in contract
drilling, oil well completion and workover services. DLS also
offers a wide variety of other oilfield services such as
drilling fluids and completion fluids and engineering and
logistics to complement its customers field organization.
Through DLS, we operate a fleet of 51 rigs, including
20 drilling rigs, 18 workover rigs and 12 pulling
rigs in Argentina and one drilling rig in Bolivia. Argentine rig
operations are generally conducted in remote regions of the
country and require substantial infrastructure and support. As
of December 1, 2006, all of DLS rig fleet was
actively marketed, except for one drilling rig that is presently
inactive and requires approximately $6.0 million in capital
expenditures for upgrades. A land
S-42
drilling rig is composed of a drawworks or hoist, a derrick, a
power plant, rotating equipment, and pumps to circulate the
drilling fluid and the drill string. The workover rigs are quite
similar to the drilling rigs, however, they are smaller than the
drilling rig for the same depth of well. These rigs are used to
complete the drilled wells or to repair them whenever necessary.
A pulling rig is a type of well-servicing rig used to pull
downhole equipment, such as tubing, rods or the pumps from a
well, and replace them when necessary. A pulling rig is also
used to set downhole tools and perform lighter jobs.
DLS currently services several of the major and independent oil
and natural gas producing companies in Argentina, including Pan
American Energy, Repsol-YPF, Apache Corporation (formerly
Pioneer Natural Resources), Occidental Petroleum Corporation
(formerly Vintage Petroleum) and Total Austral SA. Major
competitors of DLS include Pride International, Inc., Servicios
WellTech, S.A., Ensign Energy Services Inc. (formerly ODE),
Nabors Industries Ltd. and Helmerich & Payne, Inc.
Directional Drilling Services. Through Strata,
we utilize
state-of-the-art
equipment to provide well planning and engineering
services, directional drilling packages, downhole motor
technology, well site directional supervision, exploratory
and development re-entry drilling, downhole guidance services
and other drilling services to our customers. We also provide
logging-while-drilling and
measurement-while-drilling
services. We have a team of approximately 79 full-time
directional drillers and maintain a selection of approximately
160 drilling motors. According to Baker Hughes, as of
December 1, 2006, 40% of all wells in the United States are
drilled directionally and/or horizontally. We expect that figure
to grow over the next several years as companies seek to exploit
maturing fields and sensitive formations. Management believes
directional drilling offers several advantages over conventional
drilling including:
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improvement of total cumulative recoverable reserves;
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improved reservoir production performance beyond conventional
vertical wells; and
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reduction of the number of field development wells.
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Since 2002, we have increased our team of directional drillers
from ten to approximately 79. Our straight hole drilling motors
offer opportunity to capture additional market share. We
currently provide our directional drilling services in Texas,
Louisiana, Oklahoma and Colorado. In December of 2006, we merged
Target into Strata.
Casing and Tubing Services. Through Tubular,
we provide specialized equipment and trained operators to
perform a variety of pipe handling services, including
installing casing and tubing, changing out drill pipe and
retrieving production tubing for both onshore and offshore
drilling and workover operations, which we refer to as casing
and tubing services. All wells drilled for oil and natural gas
require casing to be installed for drilling, and if the well is
producing, tubing will be required in the completion phase. We
currently provide casing and tubing services primarily in Texas,
Louisiana and both onshore and offshore in the Gulf of Mexico
and Mexico.
We expanded our casing and tubing services in September 2005 by
acquiring the casing and tubing assets of IHS/Spindletop, a
division of Patterson, a subsidiary of RPC, Inc. We paid
$15.7 million for RPC, Inc.s casing and tubing
assets, which consisted of casing and tubing installation
equipment, including hammers, elevators, trucks, pickups, power
units, laydown machines, casing tools and torque turn equipment.
The acquisition of RPC, Inc.s casing and tubing assets
increased our capability in casing and tubing services and
expanded our geographic capability. We opened new field offices
in Corpus Christi, Texas, Kilgore, Texas, Lafayette, Louisiana
and Houma, Louisiana. The acquisition allowed us to enter the
East Texas and Louisiana market for casing and tubing services
as well as offshore in the Gulf of Mexico. Additionally, the
acquisition greatly expanded our premium tubing services.
S-43
We expanded this segment again in April 2006 with the
acquisition of Rogers for $13.7 million. Historically,
Rogers rented, sold and serviced power drill pipe tongs and
accessories and rental tongs for snubbing and well control
applications and provided specialized tong operators for rental
jobs. In December of 2006, we merged Rogers into Tubular.
We provide equipment used in casing and tubing services in
Mexico to Matyep. Matyep provides equipment and services for
offshore and onshore drilling operations to Petroleos Mexicanos,
known as Pemex, in Villahermosa, Reynosa, Veracruz and Ciudad
del Carmen, Mexico. Matyep provides all personnel, repairs,
maintenance, insurance and supervision for provision of the
casing and tubing crew and torque turn service. The term of the
lease agreement pursuant to which we provide the equipment and
Matyep provides the above listed items continues for as long as
Matyep is successful in maintaining its casing and tubing
business with Pemex. Services to offshore drilling operations in
Mexico are traditionally seasonal, with less activity during the
first quarter of each calendar year due to weather conditions.
Compressed Air Drilling Services. Through
AirComp, we provide compressed air equipment, drilling chemicals
and other specialized drilling products for underbalanced
drilling applications, which we refer to as compressed air
drilling services. With a combined fleet of over
130 compressors and boosters, we believe we are one of the
largest providers of compressed air or underbalanced drilling
services in the United States. We also provide premium air
hammers and bits to oil and natural gas companies for use in
underbalanced drilling. Our broad and diversified product line
enables us to compete in the underbalanced drilling market with
an equipment package engineered and customized to specifically
meet customer requirements.
Underbalanced drilling shortens the time required to drill a
well and enhances production by minimizing formation damage.
There is a trend in the industry to drill, complete and workover
wells with underbalanced drilling operations, and we expect the
market to continue to grow.
In July 2005, we purchased the compressed air drilling assets of
W.T., operating in West Texas, and acquired the remaining 45%
equity interest in AirComp from M-I. The acquired assets include
air compressors, boosters, mist pumps, rolling stock and other
equipment. These assets were integrated into AirComps
assets and complement and add to AirComps product and
service offerings. We currently provide compressed air drilling
services in Texas, Oklahoma, New Mexico, Colorado, Utah, Wyoming
and Arkansas.
Production Services. We provide a variety of
quality production-related rental tools and equipment and
services, including wire line services, land and offshore
pumping services and coil tubing. We also provide specialized
equipment and trained operators to install and retrieve
capillary tubing, through which chemicals are injected into
producing wells to increase production and reduce corrosion. In
addition, we perform workover services with coiled tubing units.
Chemicals are injected through the tubing to targeted zones up
to depths of approximately 20,000 feet. The result is
improved production from treatment of downhole corrosion, scale,
paraffin and salt
build-up in
producing wells. Natural gas wells with low bottom pressures can
experience fluid accumulation in the tubing and well bore. This
injection system can inject a foaming agent which lightens the
fluids allowing them to flow out of the well. Additionally,
corrosion inhibitors can be introduced to reduce corrosion in
the well. Our production services segment was established with
the acquisition of Downhole, in December 2004, and the
acquisition of Capcoil, in May 2005. In February of 2006, we
merged Downhole into Capcoil and named the new entity
Allis-Chalmers Production Services, Inc., or Production Services.
We have an inventory of specialized equipment consisting of
capillary and coil tubing units in various sizes ranging from
1/4
to
11/4
along with nitrogen pumping and transportation equipment. We
recently received two capillary units and four coil tubing units
in 2006, and we have two additional coil
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tubing units on order and scheduled for delivery in 2007. The
new coil tubing units range in size from
11/4
to
13/4.
We also maintain a full range of stainless and carbon steel
coiled tubing and related supplies used in the installation of
the tubing. We sell or rent the tubing and charge a fee for its
installation, servicing and removal, which includes the service
personnel and associated equipment on a turn key or hourly
basis. We do not provide the chemicals injected into the well.
In October 2006, we expanded our production services segment
with the acquisition of Petro Rentals. Petro Rentals serves both
the onshore and offshore markets, providing a variety of quality
rental tools and equipment and services, with an emphasis on
production-related equipment and services, including wire line
services and equipment, land and offshore pumping services and
coiled tubing. We currently provide production services in
Texas, Louisiana, Oklahoma and Mexico.
Cyclical
Nature of Oilfield Services Industry
The oilfield services industry is highly cyclical. The most
critical factor in assessing the outlook for the industry is the
worldwide supply and demand for oil and the domestic supply and
demand for natural gas. The peaks and valleys of demand are
further apart than those of many other cyclical industries. This
is primarily a result of the industry being driven by commodity
demand and corresponding price increases. As demand increases,
producers raise their prices. The price escalation enables
producers to increase their capital expenditures. The increased
capital expenditures ultimately result in greater revenues and
profits for services and equipment companies. The increased
capital expenditures also ultimately result in greater
production which historically has resulted in increased supplies
and reduced prices.
Demand for our services has been strong throughout 2003, 2004,
2005 and 2006. Management believes demand will remain strong
throughout 2007 due to high oil and natural gas prices and the
capital expenditure plans of the exploration and production
companies. Because of these market fundamentals for oil and
natural gas, management believes the long-term trend of activity
in our markets is favorable. However, these factors could be
more than offset by other developments affecting the worldwide
supply and demand for oil and natural gas products.
Customers
In 2005, none of our customers accounted for more than 10% of
our revenues. Our customers are the major independent oil and
natural gas companies operating in the United States, Mexico and
Argentina. In 2004, Matyep in Mexico represented 10.8% and
Burlington Resources Inc. represented 10.1% of our consolidated
revenues. In 2003, Matyep represented 10.2%, Burlington
Resources Inc. represented 11.1% and El Paso Corporation
represented 14.1%, of our revenues. The loss without replacement
of our larger existing customers could have a material adverse
effect on our results of operations.
Suppliers
The equipment utilized in our business is generally available
new from manufacturers or at auction. Currently, due to the high
level of activity in the oilfield services industry, there is a
high demand for new and used equipment. Consequently, there is a
limited amount of many types of equipment available at auction
and significant backlogs on new equipment. However, the cost of
acquiring new equipment to expand our business could increase as
a result of the high demand for equipment in the industry.
S-45
Competition
We experience significant competition in all areas of our
business. In general, the markets in which we compete are highly
fragmented, and a large number of companies offer services that
overlap and are competitive with our services and products. We
believe that the principal competitive factors are technical and
mechanical capabilities, management experience, past performance
and price. While we have considerable experience, there are many
other companies that have comparable skills. Many of our
competitors are larger and have greater financial resources than
we do.
We believe that there are five major directional drilling
companies, Schlumberger, Halliburton, Baker Hughes, W-H Energy
Services (Pathfinder) and Weatherford, that market both
worldwide and in the United States as well as numerous small
regional players.
Our largest competitor for compressed air drilling services is
Weatherford. Weatherford focuses on large projects, but also
competes in the more common compressed air, mist, foam and
aerated mud drilling applications. Other competition comes from
smaller regional companies.
Significant competitors in the casing and tubing markets we
serve include Franks Casing Crew and Rental Tools,
Weatherford, BJ Services, Tesco and Premier Ltd. These markets
remain highly competitive and fragmented with numerous casing
and tubing crew companies working in the United States. Our
primary competitors in Mexico are South American Enterprises and
Weatherford, both of which provide similar products and services.
There are two other significant competitors in the chemical
injection services portion of the production services market,
Weatherford and Dyna Coil. We believe we own approximately 30%
of the capillary tubing units in the southwestern United States
that are used for chemical injection services.
The rental tool business is highly fragmented with hundreds of
companies offering various rental tool services. Our largest
competitors include Weatherford, Quail Rental Tools, Knight
Rental Tools and W-H Energy Services (Thomas Tools).
Our five largest competitors in the contract drilling and
workover services business are Pride International, Inc.,
Servicios WellTech, S.A., Ensign Energy Services Inc. (formerly
ODE), Nabors Industries Ltd. and Helmerich & Payne, Inc.
Employees
Our strategy includes acquiring companies with strong management
and entering into long-term employment contracts with key
employees in order to preserve customer relationships and assure
continuity following acquisition. In general, we believe we have
good relations with our employees. None of our employees, other
than our DLS employees, is represented by a union. We actively
train employees across various functions, which we believe is
crucial to motivate our workforce and maximize efficiency.
Employees showing a higher level of skill are trained on more
technologically complex equipment and given greater
responsibility. All employees are responsible for on-going
quality assurance. At December 1, 2006, we had
approximately 2,477 employees. Almost all of DLS
operations are subject to collective bargaining agreements,
however, we believe that we maintain a satisfactory relationship
with the unions to which DLS employees belong.
Insurance
We carry a variety of insurance coverages for our operations,
and we are partially self-insured for certain claims in amounts
that we believe to be customary and reasonable. However, there
is a risk that our insurance may not be sufficient to cover any
particular loss or that insurance may not cover all
S-46
losses. Finally, insurance rates have in the past been subject
to wide fluctuation, and changes in coverage could result in
less coverage, increases in cost or higher deductibles and
retentions.
Federal
Regulations and Environmental Matters
Our operations are subject to federal, state, local and foreign
laws and regulations relating to the energy industry in general
and the environment in particular. Environmental laws have in
recent years become more stringent and have generally sought to
impose greater liability on a larger number of potentially
responsible parties. Because we provide services to companies
producing oil and natural gas, which are toxic substances, we
may become subject to claims relating to the release of such
substances into the environment. While we are not currently
aware of any situation involving an environmental claim that
would likely have a material adverse effect on us, it is
possible that an environmental claim could arise that could
cause our business to suffer. We do not anticipate any material
expenditures to comply with environmental regulations affecting
our operations.
In addition to claims based on our current operations, we are
from time to time named in environmental claims relating to our
activities prior to our reorganization in 1988. See
Legal Proceedings.
Intellectual
Property Rights
Except for our relationships with our customers and suppliers
described above, we do not own any patents, trademarks,
licenses, franchises or concessions which we believe are
material to the success of our business. As part of our overall
corporate strategy to focus on our core business of providing
services to the oil and natural gas industry and to increase
stockholder value, we are investigating the sale or license of
our worldwide rights to trade names and logos for products and
services outside the energy sector.
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Description
of Properties
The following table describes the location and general character
of the principal physical properties used in each of our
companys businesses as of December 31, 2006. All of
the U.S. properties listed below are leased by us except for our
properties in Edinburg, Texas, Victoria, Texas, Morgan City,
Louisiana and one of our Production Services locations in
Broussard, Louisiana. All of the Argentine and Bolivian
properties listed below are leased by DLS except for the
properties in Comodoro Rivadavia, Neuquén, Rincón de
los Sauces and Tartagal.
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Business Segment
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Location
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Directional Drilling Services
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Houston, Texas
Corpus Christi, Texas
Oklahoma City, Oklahoma
Lafayette, Louisiana
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Compressed Air Drilling Services
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Houston, Texas
San Angelo, Texas
Fort Stockton, Texas
Farmington, New Mexico
Grand Junction, Colorado
Wilburton, Oklahoma
Sonora, Texas
Grandbury, Texas
Denver, Colorado
Carlsbad, New Mexico
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Casing and Tubing Services
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|
Edinburg, Texas
Pearsall, Texas
Corpus Christi, Texas
Kilgore, Texas
Broussard, Louisiana
Houma, Louisiana
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Rental Tools
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Houston, Texas
Broussard, Louisiana
Morgan City, Louisiana
Victoria, Texas
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Production Services
|
|
Midland, Texas
Corpus Christi, Texas
Kilgore, Texas
Carthage, Texas
Alvin, Texas
Broussard, Louisiana
Arcadia, Louisiana
Cordell, Oklahoma
|
International Drilling
|
|
Buenos Aires, Argentina
Comodoro Rivadavia, Argentina
Neuquén, Argentina
Rincón de los Sauces, Argentina
Tartagal, Argentina
Santa Cruz, Bolivia
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General Corporate
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Houston, Texas
|
S-48
Legal
Proceedings
On June 29, 1987, we filed for reorganization under
Chapter 11 of the United States Bankruptcy Code. Our plan
of reorganization was confirmed by the Bankruptcy Court after
acceptance by our creditors and stockholders, and was
consummated on December 2, 1988.
At confirmation of our plan of reorganization, the United States
Bankruptcy Court approved the establishment of the A-C
Reorganization Trust as the primary vehicle for distributions
and the administration of claims under our plan of
reorganization, two trust funds to service health care and life
insurance programs for retired employees and a trust fund to
process and liquidate future product liability claims. The
trusts assumed responsibility for substantially all remaining
cash distributions to be made to holders of claims and interests
pursuant to our plan of reorganization. We were thereby
discharged of all debts that arose before confirmation of our
plan of reorganization.
We do not administer any of the aforementioned trusts and retain
no responsibility for the assets transferred to or distributions
to be made by such trusts pursuant to our plan of reorganization.
As part of our plan of reorganization, we settled
U.S. Environmental Protection Agency claims for cleanup
costs at all known sites where we were alleged to have disposed
of hazardous waste. The EPA settlement included both past and
future cleanup costs at these sites and released us of liability
to other potentially responsible parties in connection with
these specific sites. In addition, we negotiated settlements of
various environmental claims asserted by certain state
environmental protection agencies.
Subsequent to our bankruptcy reorganization, the EPA and state
environmental protection agencies have in a few cases asserted
that we are liable for cleanup costs or fines in connection with
several hazardous waste disposal sites containing products
manufactured by us prior to consummation of our plan of
reorganization. In each instance, we have taken the position
that the cleanup costs and all other liabilities related to
these sites were discharged in the bankruptcy, and the cases
have been disposed of without material cost. A number of Federal
Courts of Appeal have issued rulings consistent with this
position, and based on such rulings, we believe that we will
continue to prevail in our position that our liability to the
EPA and third parties for claims for environmental cleanup costs
that had pre-petition triggers have been discharged. A number of
claimants have asserted claims for environmental cleanup costs
that had pre-petition triggers, and in each event, the A-C
Reorganization Trust, under its mandate to provide plan of
reorganization implementation services to us, has responded to
such claims, generally, by informing claimants that our
liabilities were discharged in the bankruptcy. Each of such
claims has been disposed of without material cost. However,
there can be no assurance that we will not be subject to
environmental claims relating to pre-bankruptcy activities that
would have a material adverse effect on us.
The EPA and certain state agencies continue from time to time to
request information in connection with various waste disposal
sites containing products manufactured by us before consummation
of the plan of reorganization that were disposed of by other
parties. Although we have been discharged of liabilities with
respect to hazardous waste sites, we are under a continuing
obligation to provide information with respect to our products
to federal and state agencies. The A-C Reorganization Trust,
under its mandate to provide plan of reorganization
implementation services to us, has responded to these
informational requests because pre-bankruptcy activities are
involved.
We were advised in late 2005 that the A-C Reorganization Trust
is in the process of terminating and distributing its assets,
and as a result, we will assume the responsibility of responding
to claimants and to the EPA and state agencies previously
undertaken by the A-C Reorganization Trust. However, we have
been advised by the A-C Reorganization Trust that its cost of
providing these services has not been material in the past, and
therefore we do not expect to incur material expenses as a
result of responding
S-49
to such requests. However, there can be no assurance that we
will not be subject to environmental claims relating to
pre-bankruptcy activities that would have a material adverse
effect on us.
We are named as a defendant from time to time in product
liability lawsuits alleging personal injuries resulting from our
activities prior to our reorganization involving asbestos. These
claims are referred to and handled by a special products
liability trust formed to be responsible for such claims in
connection with our reorganization. As with environmental
claims, we do not believe we are liable for product liability
claims relating to our business prior to our bankruptcy;
moreover, the products liability trust continues to defend all
such claims. However, there can be no assurance that we will not
be subject to material product liability claims in the future.
We are involved in various other legal proceedings, including
labor contract litigation, in the ordinary course of businesses.
The legal proceedings are at different stages; however, we
believe that the likelihood of material loss relating to any
such legal proceeding is remote.
S-50
MANAGEMENT
Board of
Directors and Executive Officers
Our executive officers and directors are:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
|
Position
|
|
Munawar H. Hidayatallah
|
|
|
62
|
|
|
Chairman of the Board and Chief
Executive Officer
|
Burt A. Adams
|
|
|
45
|
|
|
Vice Chairman of the Board,
President and Chief Operating Officer
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Victor M. Perez
|
|
|
54
|
|
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Chief Financial Officer
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Theodore F. Pound III
|
|
|
52
|
|
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General Counsel and Secretary
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Bruce Sauers
|
|
|
43
|
|
|
Vice President and Corporate
Controller
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David K. Bryan
|
|
|
49
|
|
|
President and Chief Operating
Officer of Strata Directional Technology, Inc.
|
Steven Collins
|
|
|
55
|
|
|
President of Allis-Chalmers
Production Services, Inc.
|
James Davey
|
|
|
52
|
|
|
President of Allis-Chalmers Rental
Services, Inc. (formerly Allis-Chalmers Rental Tools, Inc.)
|
Gary Edwards
|
|
|
55
|
|
|
President of Allis-Chalmers
Tubular Services Inc.
|
Terrence P. Keane
|
|
|
54
|
|
|
President and Chief Executive
Officer of AirComp L.L.C.
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Ali H. M. Afdhal
|
|
|
62
|
|
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Director(2)
|
Alejandro P. Bulgheroni
|
|
|
63
|
|
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Director
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Carlos A. Bulgheroni
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|
|
61
|
|
|
Director
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John E. McConnaughy, Jr.
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|
|
77
|
|
|
Director(1)
|
Victor F. Germack
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|
|
66
|
|
|
Director(1)
|
Robert E. Nederlander
|
|
|
73
|
|
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Director(1)(3)
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Jeffrey R. Freedman
|
|
|
59
|
|
|
Director(2)(3)
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Leonard Toboroff
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|
|
74
|
|
|
Vice Chairman of the Board
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|
|
(1)
|
Member of Audit Committee.
|
|
(2)
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Member of Compensation Committee.
|
|
(3)
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Member of Nominating Committee.
|
Munawar H. Hidayatallah has served as our Chairman of the
Board and Chief Executive Officer since May 2001, and was
President from May 2001 through February 2003.
Mr. Hidayatallah was Chief Executive Officer of OilQuip
from its formation in February 2000 until it merged with us in
May 2001. From December 1994 until August 1999,
Mr. Hidayatallah was the Chief Financial Officer and a
director of IRI International, Inc., which was acquired by
National Oilwell, Inc. in early 2000. IRI International, Inc.
manufactured, sold and rented oilfield equipment to the oilfield
and natural gas exploration and production sectors. From August
1999 until February 2001, Mr. Hidayatallah worked as a
consultant to IRI International, Inc. and Riddell Sports Inc.
Burt A. Adams was appointed as Vice Chairman of our board
of directors on December 18, 2006 and became our President
and Chief Operating Officer on December 19, 2006.
Mr. Adams has served as President and Chief Executive
Officer of Oil & Gas Rental Services, Inc. since 1996. In
April 2006, Mr. Adams was appointed a director of ATP
Oil & Gas Corporation. He also serves as Chairman of
Offshore Energy Center, Ocean Star Museum, located in Galveston,
Texas and is on the Executive
S-51
Committee of National Ocean Industries Association (NOIA).
Mr. Adams worked for Hydril Company in Houston, Texas from
1988 to 1996.
Victor M. Perez became our Chief Financial Officer in
August 2004. From July 2003 to July 2004, Mr. Perez was a
private consultant engaged in corporate and international
finance advisory. From February 1995 to June 2003,
Mr. Perez was Vice President and Chief Financial Officer of
Trico Marine Services, Inc., a marine transportation company
serving the offshore energy industry. Trico Marine Services,
Inc. filed a petition under the federal bankruptcy laws in
December 2004. Mr. Perez was Vice President of Corporate
Finance with Offshore Pipelines, Inc., an oilfield marine
construction company, from October 1990 to January 1995, when
that company merged with a subsidiary of McDermott
International. Mr. Perez also has 15 years of
experience in international energy banking. Mr. Perez is a
director of Safeguard Security Holdings.
Theodore F. Pound III became our General Counsel in
October 2004 and was elected Secretary in January 2005. For ten
years prior to joining us, he practiced law with the law firm of
Wilson, Cribbs & Goren, P.C., Houston, Texas.
Mr. Pound has practiced law for more than 25 years.
Mr. Pound represented us as our lead counsel in each of our
acquisitions beginning in 2001.
Bruce Sauers has served as our Vice President and
Corporate Controller since July 2005. From January 2005 until
July 2005, Mr. Sauers was Controller of Blast Energy Inc.,
an oilfield services company. From June 2004 until January 2005,
Mr. Sauers worked as a financial and accounting consultant.
From July 2003 until June 2004, Mr. Sauers served as
controller for HMT, Inc., an above ground storage tank company.
From February 2003 until July 2003, Mr. Sauers served as
assistant controller at Todco, an offshore drilling contractor.
From August 2002 until January 2003, Mr. Sauers acted as a
consultant on SEC accounting and financial matters. From
December 2001 through June 2002, Mr. Sauers was corporate
controller at OSCA, Inc., an oilfield services company, which
merged with BJ Service Company. From December 1996 until
December 2001, Mr. Sauers was a corporate controller at UTI
Energy Corp., a land drilling contractor, which merged and
became Patterson-UTI Energy, Inc. Mr. Sauers is a certified
public accountant and has served as an accountant for
approximately 20 years.
David K. Bryan has served as President and Chief
Operating Officer of Strata since February 2005. Mr. Bryan
served as Vice President of Strata from June 2002 until February
2005. From February 2002 to June 2002, he served as General
Manager, and from May 1999 through February 2002, he served as
Operations Manager of Strata. Mr. Bryan has been involved
in the directional drilling sector since 1979.
Steven Collins has served as President of Production
Services since December 2005. Mr. Collins was our corporate
Vice President of Sales and Marketing from June 2005 to December
2005. From 2002 to 2005, Mr. Collins served as Sales
Manager of Well Testing and Corporate Strategic
Accounts Manager for TETRA Technologies. From 1997 to 2002,
Mr. Collins was in sales for Production Well Testers.
Mr. Collins has over 25 years experience in
various sales and management positions in the oilfield services
industry.
James Davey has served as President of Allis-Chalmers
Rental Services, Inc. since April 2005. Mr. Davey was
President of Safco Oilfield Products from September 2004 through
2005 and served as our Executive Vice President of Business
Development and Acquisitions in October 2003 until 2004. Prior
to joining us, Mr. Davey had been employed with
CooperCameron for 28 years in various positions.
Gary Edwards has served as President of Tubular since
December 2005 after serving as Executive Vice President of
Tubular since September 2005. From April 1997 to September 2005,
Mr. Edwards served as Operations Manager for IHS/Spindletop
Tubular Services, a division of Patterson. Mr. Edwards has
been in the casing and tubing industry for the past
29 years.
S-52
Terrence P. Keane has served as President and Chief
Executive Officer of our AirComp subsidiary since its formation
on July 1, 2003, and served as a consultant to M-I in the
area of compressed air drilling from July 2002 until June 2003.
From March 1999 until June 2002, Mr. Keane served as Vice
President and General Manager Exploration,
Production and Processing Services for Gas Technology Institute
where Mr. Keane was responsible for all sales, marketing,
operations and research and development of the exploration,
production and processing business unit. For more than ten years
prior to joining the Gas Technology Institute, Mr. Keane
had various positions with Smith International, Inc., Houston,
Texas, most recently in the position of Vice President Worldwide
Operations and Sales for Smith Tool.
Ali H. M. Afdhal was appointed to our board of directors
on September 12, 2006. Since 2001, Mr. Afdhal has
operated and managed his familys international and
agricultural interests. Mr. Afdhal is a graduate of The
Institute of Chartered Accountants in England and Wales.
Alejandro P. Bulgheroni was appointed to our board of
directors on August 14, 2006. Mr. Bulgheroni has
served as the Chairman of the Management Committee of Pan
American Energy LLC, an oil and gas company, since November
1997. He also served as the Chairman of Bridas SAPIC from 1988
until 1997. He has served as Vice-Chairman and Executive
Vice-President of Bridas Corporation since 1993. He also serves
as Chairman of Associated Petroleum Investors Ltd., an
international oil and gas holding company, and as Chairman and
President of Bridas International Holdings Ltd.
Mr. Bulgheroni is a member of the Petroleum and Gas
Argentine Institute and of the Society of Petroleum Engineers
(USA),
Vice-President
of the Argentine Chamber of Hydrocarbons Producers (CEPH),
Vice-President of the
Argentine-Uruguayan
Chamber of Commerce, Counselor of the Buenos Aires Stock
Exchange and Counselor of the Argentine Business Council for
Sustainable Development (CEADS).
Carlos A. Bulgheroni was appointed to our board of
directors on August 14, 2006. Mr. Bulgheroni has
served as the Chairman and President of Bridas Corporation, an
international oil and gas holding company, since 1993. He has
been a member of the Management Committee of Pan American Energy
LLC since November 1997. He is also a member of the
International Council of the Center for Strategic and
International Studies (CSIS-Washington), of the International
Committee of The Kennedy Center for the Performing Arts and of
the Executive Board of the International Chamber of Commerce
(ICC-Paris).
John E. McConnaughy, Jr. was appointed to our board
of directors in May 2004. Mr. McConnaughy has served as
Chairman and Chief Executive Officer of JEMC Corporation, a
personal holding company, since he founded it in 1985. His
career includes positions of management with Westinghouse
Electric and the Singer Company, as well as service as a
director of numerous public and private companies. In addition,
he previously served as Chairman and Chief Executive Officer of
Peabody International Corp. and Chairman and Chief Executive
Officer of GEO International Corp. He retired from Peabody in
February 1986 and GEO in October 1992. Mr. McConnaughy
currently serves on the boards of Wave Systems Corp., Consumer
Portfolio Services, Inc., Overhill Farms, Inc., Levcor
International, Inc. and Arrow Resources Development Inc. He also
serves as Chairman of the Board of Trustees of the Strang Cancer
Prevention Center and as Chairman Emeritus for the Harlem School
of the Arts.
Victor F. Germack was appointed to our board of directors
in January 2005. Mr. Germack has served since 1980 as
President of Heritage Capital Corp., a company engaged in
investment banking services. In addition, Mr. Germack
formed, and since 2002 has been President of, RateFinancials
Inc., a company that rates and ranks the financial reporting of
U.S. public companies.
Robert E. Nederlander has served as our director since
May 1989. Mr. Nederlander served as our Chairman of the
board of directors from May 1989 to 1993, and as our Vice
Chairman of the board of directors from 1993 to 1996.
Mr. Nederlander has been a Director of Cendant Corp. since
December 1997 and Chairman of the Corporate Governance Committee
of Cendant Corp. since 2002.
S-53
Mr. Nederlander was a director of HFS, Inc. from July 1995
to December 1997. Since November 1981, Mr. Nederlander has
been President and/or Director of the Nederlander Organization,
Inc., owner and operator of legitimate theaters in New York
City. Since December 1998, Mr. Nederlander has been a
managing partner of the Nederlander Company, LLC, operator of
legitimate theaters outside New York City. Mr. Nederlander
was Chairman of the board of directors of Varsity Brands, Inc.
(formerly Riddell Sports Inc.) from April 1988 to September 2003
and was the Chief Executive Officer of such corporation from
1988 through April 1, 1993. Mr. Nederlander has been a
limited partner and a director of the New York Yankees since
1973. Mr. Nederlander has been President of Nederlander
Television and Film Productions, Inc. since October 1985. In
addition, from January 1988 to January 2002,
Mr. Nederlander was Chairman of the Board and Chief
Executive Officer of Mego Financial Corp., beginning in January
1988 and resigned all positions in January 2002. The new
management changed Megos name to Leisure Industries
Corporation of America and later filed a voluntary petition
under Chapter 11 of the U.S. federal bankruptcy code
in July 2003.
Jeffrey R. Freedman was appointed to our board of
directors in January 2005. Mr. Freedman served as our
Executive Vice President Corporate Development from
January 2002 to November 2002. Since January 2003,
Mr. Freedman has been involved in real estate development
in South Florida. From 1994 through March 2002,
Mr. Freedman was Managing Director Oil Services
and Equipment for Prudential Securities with responsibilities
for institutional equity research of oilfield services and
contract drilling companies in the U.S. public markets.
Mr. Freedman has been involved and held various positions
with major institutional brokerage firms in equity research
relating to the oil service sector over the last 20 years.
Leonard Toboroff has served as our director and Vice
Chairman of the board of directors since May 1989 and served as
our Executive Vice President from May 1989 until February 2002.
Mr. Toboroff served as a director and Vice President of
Varsity Brands, Inc. (formerly Riddell Sports Inc.) from April
1988 through October 2003, and he is also a director of Engex
Corp. and NOVT Corporation. Mr. Toboroff is currently a
managing (executive) director of Corinthian Capital, a
private equity firm. Mr. Toboroff has been a practicing
attorney continuously since 1961.
Board of
Directors; Committees
Our board currently has ten members who serve for a term of one
year or until their successors are elected and take office.
Pursuant to the corporate governance rules of the American Stock
Exchange, a majority of the members of our board of directors
must be independent in the meaning of such rules.
Currently, we currently have five independent and five
non-independent directors. Our board of directors has increased
the number of seats comprising our entire board from ten to
eleven in order to add an additional independent director. The
Nominating Committee of our board is evaluating candidates to
fill the newly created independent director position, and we
expect our board to fill the new position promptly upon
receiving the nomination by the Nominating Committee.
Our board of directors currently has three standing committees:
the Audit Committee, the Nominating Committee and the
Compensation Committee.
Our Audit Committee consists of three directors,
Mr. McConnaughy and Mr. Germack, who serve as
Co-Chairmen, and Mr. Nederlander. All of our Audit
Committee members are independent under the
applicable American Stock Exchange and SEC rules regarding audit
committee membership. Our board of directors has determined that
Mr. Germack qualifies as an audit committee financial
expert under applicable SEC rules and regulations
governing the composition of the Audit Committee.
S-54
The Audit Committee assists our board of directors in fulfilling
its oversight responsibility by overseeing and evaluating
(i) the conduct of our accounting and financial reporting
process and the integrity of the financial statements that will
be provided to stockholders and others; (ii) the
functioning of our systems of internal accounting and financial
controls; and (iii) the engagement, compensation,
performance, qualifications and independence of our independent
auditors. Our board of directors adopted a written Audit
Committee charter in March 2002, which was amended in May 2004.
The charter is reviewed annually and revised as appropriate. A
copy of the Audit Committee charter is available on our website
(www.alchenergy.com). Information on our website is not
incorporated into this prospectus supplement or the accompanying
prospectus and is not a part of this prospectus supplement or
the accompanying prospectus.
The independent auditors have unrestricted access and report
directly to the Audit Committee. The Audit Committee meets
privately with, and has unrestricted access to, the independent
auditors and all of our personnel.
The Audit Committee initially selected UHY Mann Frankfort Stein
& Lipp CPAs, LLP as our independent auditors for the fiscal
year ended December 31, 2006. On June 1, 2006, the
partners of UHY Mann Frankfort Stein & Lipp CPAs, LLP
announced that they were joining UHY LLP, a New York limited
liability partnership. UHY LLP is the independent registered
public accounting firm with which UHY Mann Frankfort
Stein & Lipp CPAs, LLP has an affiliation. UHY LLP is a
legal entity that is separate from UHY Mann Frankfort Stein
& Lipp CPAs, LLP. On June 15, 2006, UHY Mann Frankfort
Stein & Lipp CPAs, LLP notified us that it has ceased
to provide audit services to us, and accordingly, resigned as
our independent auditors on that date. On June 15, 2006,
the Audit Committee engaged UHY LLP as our independent auditors
for our fiscal year ending December 31, 2006.
The Compensation Committee currently consists of
Mr. Afdhal, as Chairman, and Mr. Freedman. The
Compensation Committee formulates and oversees the execution of
our compensation strategies, including by making recommendations
to our board of directors with respect to compensation
arrangements for senior management, directors and other key
employees. The Compensation Committee also administers our 2003
Incentive Stock Plan and will administer our 2006 Incentive
Plan. Our board of directors has adopted a charter for the
Compensation Committee, a copy of which is available on our
website (www.alchenergy.com). Information on our website
is not incorporated into this prospectus supplement or the
accompanying prospectus and is not a part of this prospectus
supplement or the accompanying prospectus.
The Nominating Committee of our board of directors was
established in January 2005 to select nominees for the board of
directors. The Nominating Committee consists of
Mr. Nederlander, as Chairman, and Mr. Freedman, both
of whom are independent as defined for such purpose by the
American Stock Exchange. We have no formal procedure pursuant to
which stockholders may recommend nominees to our board of
directors or Nominating Committee, and the board of directors
believes that the lack of a formal procedure will not hinder the
consideration of qualified nominees. The Nominating Committee
utilizes a variety of methods for identifying and evaluating
nominees for directors. Candidates may come to the attention of
the Nominating Committee through current board members,
stockholders and other persons. Our board of directors has
adopted a charter for the Nominating Committee, a copy of which
is available on our website (www.alchenergy.com).
Information on our website is not incorporated into this
prospectus supplement or the accompanying prospectus and is not
a part of this prospectus supplement or the accompanying
prospectus.
S-55
DESCRIPTION
OF OUR INDEBTEDNESS
Senior
Secured Credit Facility
General
On January 18, 2006, we amended and restated our previous
credit agreement (which we signed in July 2005), resulting in a
new four-year, $25.0 million senior secured revolving
credit facility with a syndicate of lenders led by Royal Bank of
Canada, as administrative agent and collateral agent. Our
borrowing capacity under this new facility is available to
finance working capital requirements and other general corporate
purposes, including permitted acquisitions (as defined in the
credit agreement) and the issuance of standby letters of credit.
The terms of this facility are as described below.
Borrowings under the credit agreement will mature on
January 18, 2010. The credit agreement requires us to repay
the facility prior to maturity by an amount equal to
(a) 100% of the net cash proceeds of certain asset sales
(other than inventory and obsolete equipment in the ordinary
course of business) by us or our subsidiaries (including sales
of stock of our subsidiaries) and 100% of insurance proceeds, to
the extent such proceeds exceed a cumulative basket equal to 5%
of our consolidated assets (as determined in accordance with the
credit agreement), subject to a
180-day
reinvestment period, (b) 100% of the net cash proceeds from
the issuance of any unsecured debt after January 18, 2006
(subject to permitted exceptions, including the issuance of our
9.0% senior notes) and (c) 100% of the net cash proceeds
from the issuance of our equity securities after such date
(subject to permitted exceptions). Amounts under the facility
may be repaid and reborrowed prior to the final maturity date.
As of December 31, 2006, we had approximately
$15.3 million of unused availability under our credit
facility.
All borrowings under our new facility are subject to the
satisfaction of usual and customary conditions, including the
accuracy of representations and warranties and the absence of
defaults.
Guarantees
and Security
All of our existing and future direct and indirect subsidiaries
are required to guarantee our obligations under the credit
agreement. Borrowings under the credit facility and any related
guarantees are secured by a first priority lien on (a) all
of our and our subsidiaries fixed assets and (b) all
of our and our subsidiaries accounts receivable,
inventory, equipment, general intangibles, deposit accounts and
other material assets and properties, including the stock and
other outstanding equity interests of our subsidiaries.
Interest
and Fees
The interest under the credit agreement is payable at rates per
annum based on the London Interbank Offered Rate, or LIBOR, or
an alternate base rate, or ABR. Under the credit agreement, ABR
loans may be prepaid at any time without penalty. LIBOR loans
may be prepaid without penalty, subject to our reimbursement of
certain breakage and redeployment costs.
Covenants
and Events of Default
The credit agreement contains covenants customary for agreements
of this type, including, but not limited to, limitations on our
ability to: (a) incur additional indebtedness and
guarantees, (b) create liens and other encumbrances on our
assets, (c) consolidate, merge or sell assets, (d) pay
dividends and other distributions or repurchase stock,
(e) make certain investments, loans and advances,
(f) make capital expenditures, (g) enter into
operating leases and sale/leaseback transactions, (h) enter
into transactions with our affiliates, (i) change the
character of our business, (j) engage in hedging activities
unless certain
S-56
requirements are satisfied and (k) prepay other debt. Also,
we are required to comply with certain financial tests and
maintain certain financial ratios. These financial tests and
ratios include requirements to maintain: (a) a maximum
ratio of total funded debt to EBITDA, (b) a maximum ratio
of senior secured debt to EBITDA, (c) a minimum ratio of
EBITDA to interest expense, (d) a minimum tangible net
worth, (e) a minimum current ratio and (f) a minimum
fixed asset coverage ratio.
The credit agreement also includes customary representations,
warranties and events of default, including events of default
relating to non-payment of principal, interest or fees,
violation of covenants, inaccuracy of representations and
warranties, the termination of or default under any material
agreement, the result of which could reasonably be expected to
have a material adverse effect, material and uncured judgments,
bankruptcy and insolvency events, cross-defaults and a default
in the event of a change of control. An event of default under
the credit agreement will permit the lenders to accelerate the
maturity of the indebtedness under the facility, and may result
in one or more cross-defaults under other indebtedness,
including our 9.0% senior notes. Similarly, a default
generally under the indenture governing our 9.0% senior
notes will constitute an event of default under the credit
agreement.
Recent
Amendments and Waivers
In conjunction with the acquisition of DLS, we amended the
credit agreement to, among other things, provide for the
acquisition of DLS, permit the net proceeds from the August 2006
common stock offering and the issuance of an additional
$95.0 million of our 9.0% senior notes to be used for
the acquisition of DLS, increase the
sub-limit
for the issuance of stand-by letters of credit, increase
permitted capital expenditures and increase permitted
indebtedness at DLS. In connection with our recent acquisition
of substantially all the assets of Oil & Gas Rental, we
received a waiver allowing such acquisition, the related bridge
financing and its refinancing.
9.0% Senior
Notes
On January 18, 2006, we completed the issuance and sale of
$160.0 million aggregate principal amount of our
9.0% senior notes due 2014, which we refer to as our
9.0% senior notes. On August 14, 2006, we completed
the issuance and sale of an additional $95.0 million
aggregate principal amount of our 9.0% senior notes. Our
9.0% senior notes are all jointly and severally, fully and
unconditionally guaranteed by each of our material domestic
restricted subsidiaries. Our 9.0% senior notes and the
related guarantees were offered and sold in private transactions
in conformance with Rule 144A and Regulation S under
the Securities Act.
We issued our 9.0% senior notes pursuant to an indenture,
dated as of January 18, 2006, by and among Allis-Chalmers,
the subsidiary guarantor parties thereto and Wells Fargo Bank,
N.A., as trustee.
We used net proceeds from the January 2006 offering of our
9.0% senior notes to fund our acquisition of Specialty, to
repay existing debt and for general corporate purposes. We used
the net proceeds from our August 2006 offering of our
9.0% senior notes to fund a portion of our acquisition of
DLS.
Interest on our 9.0% senior notes sold in January 2006
began to accrue on January 18, 2006 at a rate of
9.0% per year and is payable semi-annually in arrears on
January 15 and July 15 of each year, commencing on July 15,
2006. Interest on our 9.0% senior notes sold in August 2006
began to accrue on July 15, 2006 at a rate of 9.0% per
year and is payable semi-annually in arrears on January 15 and
July 15 of each year, commencing on January 15, 2007. All
of our 9.0% senior notes will mature on January 15,
2014. Our 9.0% senior notes are our senior unsecured
obligations and rank, in right of payment, equally with all of
our existing and future senior unsecured indebtedness and senior
to our existing and future subordinated indebtedness. Our
9.0% senior notes are effectively subordinated to any
S-57
of our existing or future secured indebtedness, including under
our credit agreement, to the extent of the assets securing such
indebtedness. The related guarantees are senior unsecured
obligations of the guarantors and rank, in right of payment,
equally with all of the guarantors existing and future
senior unsecured indebtedness and senior to any existing and
future subordinated indebtedness of the guarantors. The
guarantees are effectively subordinated to any of the
guarantors existing or future secured indebtedness to the
extent of the assets securing such indebtedness.
The indenture governing our 9.0% senior notes contains
covenants that limit the ability of
Allis-Chalmers
and our restricted subsidiaries to:
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incur additional debt;
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make certain investments or pay dividends or distributions on
such entitys capital stock or purchase or redeem or retire
capital stock;
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sell assets, including capital stock of our restricted
subsidiaries;
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restrict dividends or other payments by restricted subsidiaries;
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create liens;
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enter into transactions with affiliates; and
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merge or consolidate with another company.
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These limitations are subject to a number of important
qualifications and exceptions.
Upon an event of default (as defined in the indenture), the
trustee or the holders of at least 25% in aggregate principal
amount of our 9.0% senior notes then outstanding may
declare the entire principal of all such notes to be due and
payable immediately.
We may, at our option, redeem all or part of our
9.0% senior notes at any time prior to January 15,
2010 at the make-whole price set forth in the indenture
governing such notes, and on or after January 15, 2010 at
fixed redemption prices, plus accrued and unpaid
interest, if any, to the date of redemption.
At any time, which may be more than once, before
January 15, 2009, we may redeem up to 35% of the
outstanding 9.0% senior notes with money that we raise in
one or more equity offerings at a redemption price of 109.0% of
the par value of the 9.0% senior notes redeemed, plus
accrued and unpaid interest, as long as:
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we redeem such notes within 180 days of completing the
equity offering; and
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at least 65% of the aggregate principal amount of our
9.0% senior notes issued in January 2006 remains
outstanding after the redemption.
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If we experience certain kinds of changes of control, we must
give holders of our 9.0% senior notes the opportunity to
sell to us their 9.0% senior notes at 101% of their
principal amount, plus accrued and unpaid interest.
Upon an event of default (as defined in the indenture governing
our 9.0% senior notes), the trustee or the holders of at least
25% in aggregate principal amount of our 9.0% senior notes
then outstanding may declare the entire principal of all our
9.0% senior notes to be due and payable immediately.
Senior
Notes due 2017
Concurrently with this offering, we are offering approximately
$225 million aggregate principal amount of our senior notes
due 2017, which we refer to as our senior notes due 2017, in an
offering exempt from the registration requirements of the
Securities Act of 1933, in conformance with Rule 144A
S-58
and Regulation S under the Securities Act. We plan to use
the net proceeds from such offering of our senior notes due 2017
to repay a portion of the borrowings under our bridge loan,
which we incurred to finance the purchase of substantially all
the assets of Oil & Gas.
The senior notes due 2017 will be our senior unsecured
obligations and rank, in right of payment, equally with all of
our existing and future senior unsecured indebtedness and senior
to our existing and future subordinated indebtedness. Our senior
notes due 2017 will be effectively subordinated to any of our
existing or future secured indebtedness, including under our
credit agreement, to the extent of the assets securing such
indebtedness. These notes will be guaranteed by our domestic
subsidiaries, and the guarantees will be senior unsecured
obligations of the guarantors and rank, in right of payment,
equally with all of the guarantors existing and future
senior unsecured indebtedness and senior to any existing and
future subordinated indebtedness of the guarantors. The
guarantees will be effectively subordinated to any of the
guarantors existing or future secured indebtedness to the
extent of the assets securing such indebtedness.
We expect the indenture governing our senior notes due 2017 to
contain covenants, events of default, remedy and other
provisions that will be substantially similar to those contained
in the indenture governing our 9.0% senior notes.
We expect the redemption provisions applicable to our senior
notes due 2017 to allow us, at our option, to redeem all or part
of these notes at any time prior to a date in 2012 at the
make-whole price set forth in the indenture governing such
notes, and on or after such date at fixed redemption prices,
plus accrued and unpaid interest, if any, to the date of
redemption.
We all expect such redemption provision to provide that at any
time, which may be more than once, before a date in 2010, we may
redeem up to 35% of the outstanding senior notes due 2017 with
money that we raise in one or more equity offerings at a
redemption price equal to the sum of the par value plus half the
interest rate on these notes, plus accrued and unpaid
interest, as long as:
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we redeem such notes within 180 days of completing the
equity offering; and
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at least 65% of the aggregate principal amount of our initially
issued senior notes due 2007 remains outstanding after the
redemption.
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We expect the indenture governing our senior notes due 2017 to
provide that if we experience certain kinds of changes of
control, we must give holders of such notes the opportunity to
sell to us their senior notes due 2017 at 101% of their
principal amount, plus accrued and unpaid interest.
Bridge
Loan Facility
General
On December 18, 2006, we, as borrower, Royal Bank of
Canada, as administrative agent, RBC Capital Markets
Corporation, as exclusive lead arranger and sole bookrunner, the
guarantors party thereto and the lenders party thereto entered
into a Senior Unsecured Bridge Loan Agreement dated as of
December 18, 2006 in order to finance the cash portion of
the purchase price of our acquisition of substantially all of
the assets of Oil & Gas Rental. Under the loan
agreement, we borrowed $300 million, comprised of
(1) a Bridge A Loan in the aggregate principal amount of
$225 million and (2) a Bridge B Loan in the aggregate
principal amount of $75 million. Borrowings under the
bridge loan agreement will mature on June 18, 2006. We
intend to apply the proceeds of this offering and proceeds of
our concurrent offering of senior notes due 2017 to repay these
bridge loan borrowings in full.
S-59
Interest
The Bridge A Loan and the Bridge B Loan will bear interest under
one of two rate options, selected by us, equal to either:
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the greater of (a) the administrative agents base
rate and (b) the federal funds rate plus one-half of
one percent plus (1) in the case of a Bridge A Loan,
3.75% per annum, increasing to 4.75% per annum on
December 18, 2007, and (2) in the case of a Bridge B
Loan, 5.75% per annum, increasing to 6.75% per annum
on December 18, 2007;
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the Adjusted LIBO Rate (as defined in the bridge loan agreement)
for the interest period plus (1) in the case of a
Bridge A Loan, 4.75% per annum, increasing to 5.75% per
annum on December 18, 2007, and (2) in the case of a
Bridge B Loan, 6.75% per annum, increasing to 7.75% per
annum on December 18, 2007.
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Regardless of which interest rate options we select for the
Bridge A Loan and the Bridge B Loan, the bridge loan agreement
provides that the interest rate shall never be less than
(1) 9% per annum for the Bridge A Loan and
(2) 11% per annum for the Bridge B Loan. Borrowings
under the bridge loan agreement may be prepaid prior to the
maturity date without penalty.
Covenants
and Events of Default
The bridge loan agreement contains covenants customary for
agreements of this type, including, but not limited to,
limitations on our and certain of our subsidiaries ability to:
(a) incur additional indebtedness or guarantees,
(b) create liens or other encumbrances on our property,
income or revenue, (c) enter into any sale and lease-back
transactions, (d) make certain investments, loans or
advances, (e) consolidate, merge or sell assets,
(f) declare or make any restricted payments, (g) enter
into transactions with our affiliates, (h) change the
character of our business, (i) change our capital structure
or modify or supplement other loan documents, (j) create or
acquire a new subsidiary, (k) become a general partner in a
limited partnership, (l) change our accounting, reporting
practices and tax reporting treatment or fiscal year, and
(m) make capital expenditures in excess of specified
amounts. The covenants and provisions are subject to a number of
important qualifications and exceptions.
The bridge loan agreement also includes customary
representations, warranties and events of default, including,
but not limited to, events of default relating to non-payment of
principal, interest and fees, violation of covenants, inaccuracy
of representations and warranties, default under related loan
documents, default under hedging agreements, material and
uncured judgments, bankruptcy or insolvency, certain reportable
events under ERISA, any of the guarantees ceasing to be in full
force and effect, related loan documents ceasing to be valid,
change of control, and failure to comply with the terms of any
subordination or intercreditor agreement. An event of default
under the bridge loan agreement will permit the lenders to
accelerate the maturity of the outstanding indebtedness under
the bridge loan agreement.
Guarantees
Some of our domestic subsidiaries are required to guarantee our
obligations under the bridge loan agreement.
S-60
CERTAIN
U.S. FEDERAL INCOME TAX CONSIDERATIONS
FOR
NON-U.S. HOLDERS
The following discussion is a general summary of material
U.S. federal income and estate tax consequences of the
ownership and disposition of our common stock applicable to
Non-U.S. Holders.
As used herein, a
Non-U.S. Holder
means a beneficial owner of our common stock that is not a
U.S. person or a partnership for U.S. federal income
tax purposes, and that will hold shares of our common stock as
capital assets (i.e., generally, for investment). For
U.S. federal income tax purposes, a U.S. person
includes:
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an individual who is a citizen or resident of the United States;
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a corporation or partnership (or other business entity treated
as a corporation or partnership) created or organized in the
United States or under the laws of the United States, any state
thereof or the District of Columbia;
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an estate the income of which is includible in gross income
regardless of source; or
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a trust that (A) is subject to the primary supervision of a
court within the United States and the control of one or more
U.S. persons, or (B) otherwise has validly elected to
be treated as a U.S. domestic trust.
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If a partnership holds shares of our common stock, the
U.S. federal income tax treatment of a partner in the
partnership will generally depend on the status of the partner
and the activities of the partnership.
This summary does not consider specific facts and circumstances
that may be relevant to a particular
Non-U.S. Holders
tax position and does not consider U.S. state and local or
non-U.S. tax
consequences. It also does not consider
Non-U.S. Holders
subject to special tax treatment under the U.S. federal
income tax laws (including partnerships or other pass-through
entities, banks and insurance companies, dealers in securities,
holders of our common stock held as part of a
straddle, hedge, conversion
transaction or other risk-reduction transaction,
controlled foreign corporations, passive foreign investment
companies, companies that accumulate earnings to avoid
U.S. federal income tax, foreign tax-exempt organizations,
former U.S. citizens or residents and persons who hold or
receive common stock as compensation or pursuant to the exercise
of compensatory options). This summary is based on provisions of
the U.S. Internal Revenue Code of 1986, as amended, which
we refer to as the Code, applicable Treasury regulations,
administrative pronouncements of the U.S. Internal Revenue
Service, or IRS, and judicial decisions, all as in effect on the
date hereof, and all of which are subject to change, possibly on
a retroactive basis, and different interpretations.
This summary is included herein as general information only.
Accordingly, each prospective
Non-U.S. Holder
is urged to consult its tax advisor with respect to the
U.S. federal, state, local and
non-U.S. income,
estate and other tax consequences of holding and disposing of
our common stock.
U.S. Trade
or Business Income
For purposes of this discussion, dividend income and gain on the
sale or other taxable disposition of our common stock will be
considered to be U.S. trade or business income
if such income or gain is (i) effectively connected with
the conduct by a
Non-U.S. Holder
of a trade or business within the United States and (ii) in
the case of a
Non-U.S. Holder
that is eligible for the benefits of an income tax treaty with
the United States, attributable to a permanent establishment
(or, for an individual, a fixed base) maintained by the
Non-U.S. Holder
in the United States. Generally, U.S. trade or business
income is not subject to U.S. federal withholding tax
(provided the
Non-U.S. Holder
complies with applicable certification and disclosure
requirements); instead, U.S. trade or business income is
subject to U.S. federal
S-61
income tax on a net income basis at regular U.S. federal
income tax rates in the same manner as a U.S. person. Any
U.S. trade or business income received by a
Non-U.S. Holder
that is a corporation also may be subject to a branch
profits tax at a 30% rate, or at a lower rate prescribed
by an applicable income tax treaty, under specific circumstances.
Distributions
Distributions of cash or property that we pay will constitute
dividends for U.S. federal income tax purposes to the
extent paid from our current or accumulated earnings and profits
(as determined under U.S. federal income tax principles). A
Non-U.S. Holder
generally will be subject to U.S. federal withholding tax
at a 30% rate, or at a reduced rate prescribed by an applicable
income tax treaty, on any dividends received in respect of our
common stock. If the amount of a distribution exceeds our
current and accumulated earnings and profits, such excess first
will be treated as a tax-free return of capital to the extent of
the
Non-U.S. Holders
tax basis in our common stock, and thereafter will be treated as
capital gain. In order to obtain a reduced rate of
U.S. federal withholding tax under an applicable income tax
treaty, a
Non-U.S. Holder
will be required to provide a properly executed IRS
Form W-8BEN
certifying its entitlement to benefits under the treaty. A
Non-U.S. Holder
of our common stock that is eligible for a reduced rate of
U.S. federal withholding tax under an income tax treaty may
obtain a refund or credit of any excess amounts withheld by
filing an appropriate claim for a refund with the IRS. A
Non-U.S. Holder
should consult its own tax advisor regarding its possible
entitlement to benefits under an income tax treaty.
The U.S. federal withholding tax does not apply to
dividends that are U.S. trade or business income, as
defined above, of a
Non-U.S. Holder
who provides a properly executed IRS
Form W-8ECI,
certifying that the dividends are effectively connected with the
Non-U.S. Holders
conduct of a trade or business within the United States.
Dispositions
of Our Common Stock
A
Non-U.S. Holder
generally will not be subject to U.S. federal income or
withholding tax in respect of any gain on a sale or other
disposition of our common stock unless:
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the gain is U.S. trade or business income, as defined above;
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the
Non-U.S. Holder
is an individual who is present in the United States for 183 or
more days in the taxable year of the disposition and meets other
conditions; or
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we are or have been a U.S. real property holding
corporation, or USRPHC, under section 897 of the Code
at any time during the shorter of the five-year period ending on
the date of disposition and the
Non-U.S. Holders
holding period for our common stock.
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In general, a corporation is a USRPHC if the fair market value
of its U.S. real property interests, as defined
in the Code and applicable Treasury regulations, equals or
exceeds 50% of the sum of the fair market value of its worldwide
real property interests and its other assets used or held for
use in a trade or business. If we are determined to be a USRPHC,
the U.S. federal income and withholding taxes relating to
interests in USRPHCs nevertheless will not apply to gains
derived from the sale or other disposition of the common stock
by a
Non-U.S. Holder
whose shareholdings, actual and constructive, at all times
during the applicable period, amount to 5% or less of our common
stock, provided that our common stock is regularly traded on an
established securities market. We do not believe that we
currently are a USRPHC, and we do not anticipate becoming a
USRPHC in the future. However, no assurance can be given that we
will not be a USRPHC, or that our common stock will be
considered regularly traded, when a
Non-U.S. Holder
sells its shares of our common stock.
S-62
U.S. Federal
Estate Taxes
Shares of our common stock owned or treated as owned by an
individual who is a
Non-U.S. Holder
at the time of death will be included in the individuals
gross estate for U.S. federal estate tax purposes, and may
be subject to U.S. federal estate tax, unless an applicable
estate tax treaty provides otherwise.
Information
Reporting and Backup Withholding Requirements
We must annually report to the IRS and to each
Non-U.S. Holder
any dividend income that is subject to U.S. federal
withholding tax, or that is exempt from such withholding tax
pursuant to an income tax treaty. Copies of these information
returns also may be made available under the provisions of a
specific treaty or agreement to the tax authorities of the
country in which the
Non-U.S. Holder
resides. Under certain circumstances, the Code imposes a backup
withholding obligation (currently at a rate of 28%) on certain
reportable payments. Dividends paid to a
Non-U.S. Holder
of our common stock generally will be exempt from backup
withholding if the
Non-U.S. Holder
provides a properly executed IRS
Form W-8BEN
or otherwise establishes an exemption.
The payment of the proceeds from the disposition of common stock
to or through the U.S. office of any broker, U.S. or
foreign, will be subject to information reporting and possible
backup withholding unless the holder certifies as to its
non-U.S. status
under penalties of perjury or otherwise establishes an
exemption, provided that the broker does not have actual
knowledge or reason to know that the holder is a
U.S. person or that the conditions of any other exemption
are not, in fact, satisfied. The payment of the proceeds from
the disposition of common stock to or through a
non-U.S. office
of a
non-U.S. broker
will not be subject to information reporting or backup
withholding unless the
non-U.S. broker
has certain types of relationships with the United States (a
U.S. related person). In the case of the
payment of the proceeds from the disposition of our common stock
to or through a
non-U.S. office
of a broker that is either a U.S. person or a
U.S. related person, the Treasury regulations require
information reporting (but not the backup withholding) on the
payment unless the broker has documentary evidence in its files
that the holder is a
Non-U.S. Holder
and the broker has no knowledge to the contrary.
Non-U.S. Holders
should consult their own tax advisors on the application of
information reporting and backup withholding to them in their
particular circumstances (including upon their disposition of
our common stock).
Backup withholding is not an additional tax. Any amounts
withheld under the backup withholding rules from a payment to a
Non-U.S. Holder
will be refunded or credited against the
Non-U.S. Holders
U.S. federal income tax liability, if any, if the
Non-U.S. Holder
provides the required information to the IRS.
S-63
UNDERWRITING
We are offering the shares of common stock described in this
prospectus supplement and the accompanying prospectus through
several underwriters. RBC Capital Markets Corporation is the
representative of the several underwriters. We plan to enter
into a firm commitment underwriting agreement with RBC Capital
Markets Corporation, as representative of the several
underwriters. Subject to the terms and conditions of the
underwriting agreement, we plan to agree to sell to the
underwriters, and each underwriter plans to agree to purchase,
the number of shares of common stock listed next to its name in
the following table:
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Underwriter
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Number of Shares
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RBC Capital Markets Corporation
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Johnson Rice & Company
L.L.C.
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Morgan Keegan & Company,
Inc.
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Pritchard Capital Partners, LLC
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Total
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4,500,000
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The underwriting agreement will provide that the obligation of
the underwriters to purchase the shares included in this
offering is subject to approval of legal matters by counsel and
to other conditions. The underwriters will be obligated to
purchase all of the shares (other than those covered by the
over-allotment
option described below) if they purchase any of the shares.
The underwriting agreement will provide that the underwriters
will purchase the shares of common stock from us at the public
offering price shown on the cover page of this prospectus
supplement less the underwriting discount shown on the
cover page of this prospectus supplement. The underwriters may
allow a concession of not more than
$ per
share to selected dealers. The underwriters may also allow, and
those dealers may re-allow, a concession of not more than
$ per
share to some other dealers. If all of the shares are not sold
at the public offering price, the underwriters may change the
public offering price and the other selling terms. The common
stock is offered subject to a number of conditions.
The following table summarizes the underwriting discounts the
underwriters are to receive on a per share basis and in total
from us. The information is presented assuming either no
exercise or full exercise of the underwriters option to
purchase additional shares of stock to cover over-allotments.
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Total
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Without
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With
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Per Share
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Option
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Option
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Underwriting discount paid by us
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$
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$
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$
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We estimate that the total expenses of this offering will be
approximately $500,000, excluding underwriters discounts.
We will pay all expenses associated with this offering.
The underwriters propose to offer the shares of our common stock
to the public at the offering price set forth on the cover page
of this prospectus supplement. After the shares are released for
sale to the public, the underwriters may change the offering
price and other selling terms. The underwriters reserve the
right to reject an order for the purchase of shares, in whole or
in part.
We intend to grant the underwriters the option, exercisable for
thirty (30) days from the date of this prospectus
supplement, to purchase up to 675,000 additional shares of
common stock at the price set forth on the cover page of this
prospectus supplement. The underwriters may exercise the option
solely for the purpose of covering over-allotments, if any, in
connection with the offering. If any additional
S-64
shares are purchased, the underwriters will offer the additional
shares on the same terms as those on which the shares are being
offered.
Upon or prior to execution of the underwriting agreement, we and
each of our executive officers and directors will have agreed
that, subject to certain conditions and exceptions, none of us
will issue, sell, transfer or dispose of any shares of our
common stock or securities convertible into or exercisable for
any shares of our common stock, without the prior written
consent of RBC Capital Markets Corporation, which shall not be
unreasonably withheld, for a period of ninety (90) days
after the date of the underwriting agreement, other than in this
offering in accordance with the terms of the underwriting
agreement.
Our shares of common stock are listed on the American Stock
Exchange under the symbol ALY.
In connection with this offering, the underwriters may purchase
and sell shares of our common stock in the open market. These
transactions may include short sales, syndicate covering
transactions and stabilizing transactions in accordance with
Regulation M. Short sales involve syndicate sales of shares
in excess of the number of shares to be purchased by the
underwriters in this offering, which creates a syndicate short
position. Covered short sales are sales made in an
amount up to the number of shares represented by the
underwriters over-allotment option. In determining the
source of shares to close out the covered syndicate short
position, the underwriters will consider, among other things,
the price of shares available for purchase in the open market as
compared to the price at which the underwriters may purchase
shares through the over-allotment option. Transactions to close
out the covered syndicate short position involve either
purchases in the open market after the distribution has been
completed or the exercise of the over-allotment option. The
underwriters may also make naked short sales of
shares in excess of the over-allotment option. The underwriters
must close out any naked short position by purchasing shares of
common stock in the open market. A naked short position is more
likely to be created if the underwriters are concerned that
there may be downward pressure on the price of the shares in the
open market after pricing that could adversely affect investors
who purchase in the offering. Stabilizing transactions consist
of bids for, or purchases of, shares in the open market while
the offering is in progress, subject to a specified maximum
price.
Any of these activities may have the effect of preventing or
retarding a decline in the market price of our common stock.
They may also cause the price of the shares of our common stock
to be higher than the price that would otherwise exist on the
open market in the absence of these transactions. The
underwriters may conduct these transactions on the American
Stock Exchange or otherwise. If the underwriters commence any of
these transactions, it may discontinue them at any time.
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act, or
to contribute to payments the underwriters may be required to
make because of any of those liabilities.
Some of the underwriters, including RBC Capital Markets
Corporation, have from time to time performed, and may in the
future perform, various investment banking, financial advisory,
commercial banking and other services for us for which they has
been paid, or will be paid, customary fees. Also, RBC Capital
Markets Corporation and certain of its affiliates beneficially
own approximately 6,041 shares of our common stock.
As described in Use of Proceeds, we intend to use
the net proceeds to repay a portion of the amount outstanding
under our $300 million bridge loan facility. If the net
proceeds are used in this manner, more than 10% of the net
proceeds of this offering, not including underwriting
compensation, may be received by an affiliate of RBC Capital
Markets Corporation, a member of the National Association of
Securities Dealers, Inc. Consequently, this offering is being
conducted in compliance with NASD Conduct Rule 2710(h).
Pursuant to that rule, the appointment of a qualified
independent
S-65
underwriter is not necessary in connection with this offering,
as the offering is of a class of equity securities for which a
bona fide independent market, as defined by the
NASD, exists.
European
Economic Area
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a
Relevant Member State) the underwriters have
represented and agreed that they have not made and will not make
an offer of the shares of our common stock to the public in that
Relevant Member State except that it may, with effect from and
including the Relevant Implementation Date, make an offer of
shares of our common stock to the public in that Relevant Member
State:
(a) in (or in Germany, where the offer starts within) the
period beginning on the date of publication of a prospectus in
relation to those shares of our common stock which have been
approved by the competent authority in that Relevant Member
State or, where appropriate, approved in another Relevant Member
State and notified to the competent authority in that Relevant
Member State, all in accordance with the Prospectus Directive
and ending on the date which is 12 months after the date of
such publication;
(b) at any time to legal entities which are authorized or
regulated to operate in the financial markets or, if not so
authorized or regulated, whose corporate purpose is solely to
invest in securities;
(c) at any time to any legal entity which has two or more
of (1) an average of at least 250 employees during the last
financial year; (2) a total balance sheet of more than
43,000,000 and (3) an annual net turnover of more
than 50,000,000 as shown in its last annual or
consolidated accounts; or
(d) at any time in any other circumstances which do not
require the publication by the issuer of a prospectus pursuant
to Article 3 of the Prospectus Directive.
For the purposes of this provision, the expression an
offer of shares of our common stock to the public in
relation to any shares of our common stock in any Relevant
Member State means to communication in any form and by any means
of sufficient information on the terms of the offer and the
shares of our common stock to be offered so as to enable an
investor to decide to purchase or subscribe for the shares, as
the same may be varied in that Member State by any measure
implementing the Prospectus Directive in that Member State and
the expression Prospectus Directive means Directive
2003/71/EC and includes any relevant implementing measure in
each Relevant Member State.
United
Kingdom
Each of the underwriters has represented and agreed that:
1. No deposit taking: (a) is a person whose ordinary
activities involve it in acquiring, holding, managing or
disposing of investments (as principal or agent) for the
purposes of its business and (b) it has not offered or sold
and will not offer or sell any shares of our common stock other
than to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or who
it is reasonable to expect will acquire, hold, manage or dispose
of investments (as principal or agent) for the purposes of their
businesses where the issue of the shares of our common stock
would otherwise constitute a contravention of Section 19 of
the Financial Services and Markets Act of 2000, or the FSMA, by
us.
2. Financial promotion: it has only communicated or caused
to be communicated and will only communicate or cause to be
communicated an invitation or inducement to engage in investment
S-66
activity (within the meaning of Section 21 of the FSMA)
received by it in connection with the issue or sale of any
shares of our common stock in circumstances in which
Section 21(1) of the FSMA does not, or in the case of
Allis-Chalmers, would not, if it was not an authorized
institution, apply to Allis-Chalmers; and
3. General compliance: it has complied and will comply with
all applicable provisions of the FSMA with respect to anything
done by it in relation to any shares of our common stock in,
from or otherwise involving the United Kingdom.
Switzerland
The shares of our common stock may not and will not be publicly
offered, distributed or re-distributed on a professional basis
in or from Switzerland and neither this prospectus supplement
nor any other solicitation for investments in the shares of our
common stock may be communicated or distributed in Switzerland
in any way that could constitute a public offering within the
meaning of Articles 1156 or 652a of the Swiss Code of
Obligations or of Article 2 of the Federal Act on
Investment Funds of March 18, 1994. This prospectus
supplement is not a prospectus within the meaning of Articles
1156 and 652a of the Swiss Code of Obligations or a listing
prospectus according to article 32 of the Listing Rules of
the Swiss exchange and may not comply with the information
standards required thereunder. We will not apply for a listing
of our shares of common stock on any Swiss stock exchange or
other Swiss regulated market and this prospectus supplement may
not comply with the information required under the relevant
listing rules. The shares of common stock have not and will not
be registered with the Swiss Federal Banking Commission and have
not and will not be authorized under the Federal Act on
Investment Funds of March 18, 1994. The investor
protection afforded to acquirers of investment fund certificates
by the Federal Act on Investment Funds of March 18, 1994
does not extend to acquirers of the shares of common stock.
LEGAL
MATTERS
The validity of the shares of common stock offered hereby will
be passed upon for us by Andrews Kurth LLP, Houston, Texas.
Certain legal matters in connection with the offering will be
passed upon for the underwriters by Shearman & Sterling
LLP, New York, New York.
EXPERTS
The consolidated financial statements of Allis-Chalmers Energy
Inc. as of and for the years ended December 31, 2005 and
2004 incorporated by reference in this prospectus supplement and
the accompanying prospectus have been audited by UHY Mann
Frankfort Stein & Lipp CPAs, LLP, independent
registered public accounting firm, as set forth in their report
thereon, and are so incorporated by reference in reliance upon
such report given upon the authority of said firm as experts in
auditing and accounting.
The consolidated financial statements of Allis-Chalmers Energy
Inc. as of and for the year ended December 31, 2003
incorporated by reference in this prospectus supplement and the
accompanying prospectus have been audited by Gordon, Hughes and
Banks, LLP, independent registered public accounting firm, as
set forth in their report thereon, and are so incorporated by
reference in reliance upon such report given upon the authority
of said firm as experts in auditing and accounting.
The financial statements of Delta Rental Service, Inc. and
schedules and notes thereto incorporated by reference in this
prospectus supplement and the accompanying prospectus have been
audited by Wright, Moore, Dehart, Dupuis & Hutchinson,
LLC, independent certified public accountants, to the
S-67
extent and for the periods set forth in their report thereon,
and are so incorporated by reference in reliance upon such
report given upon the authority of said firm as experts in
auditing and accounting.
The financial statements of Capcoil Tubing Services, Inc. and
schedules and notes thereto incorporated by reference in this
prospectus supplement and the accompanying prospectus have been
audited by Curtis Blakely & Co., PC, independent
certified public accountants, to the extent and for the periods
set forth in their report thereon, and are so incorporated by
reference in reliance upon such report given upon the authority
of said firm as experts in auditing and accounting.
The financial statements of W.T. Enterprises, Inc. and schedules
and notes thereto incorporated by reference in this prospectus
supplement and the accompanying prospectus have been audited by
Accounting & Consulting Group, LLP, independent
certified public accountants, to the extent and for the periods
set forth in their report thereon, and are so incorporated by
reference in reliance upon such report given upon the authority
of said firm as experts in auditing and accounting.
The financial statements of Specialty Rental Tools Inc.
incorporated by reference in this prospectus supplement and the
accompanying prospectus have been audited by UHY Mann Frankfort
Stein & Lipp CPAs, LLP, independent auditors, to the
extent and for the periods set forth in their report thereon,
and are so incorporated by reference in reliance upon such
report given upon the authority of said firm as experts in
auditing and accounting.
The consolidated financial statements of DLS Drilling,
Logistics & Services Corporation as of
December 31, 2005 and 2004 and for each of the years in the
three-year period ended December 31, 2005, have been
incorporated by reference in this prospectus supplement and the
accompanying prospectus in reliance upon the report of Sibille
(formerly Finsterbusch Pickenhayn Sibille), independent
accountants, and upon the authority of said firm as experts in
accounting and auditing.
The financial statements of Petro Rentals incorporated by
reference in this prospectus supplement and the accompanying
prospectus have been audited by Broussard, Poché,
Lewis & Breaux, L.L.P., certified public accountants,
to the extent and for the periods set forth in their report
thereon, and are so incorporated by reference in reliance upon
such report given upon the authority of said firm as experts in
auditing and accounting.
The financial statements of Oil & Gas Rental Services,
Inc. incorporated by reference in this prospectus supplement and
the accompanying prospectus have been audited by UHY LLP,
independent auditors, to the extent and for the periods set
forth in their report thereon, and are so incorporated by
reference in reliance upon such report given upon the authority
of said firm as experts in auditing and accounting.
S-68
PROSPECTUS
$1,500,000,000
ALLIS-CHALMERS ENERGY
INC.
COMMON STOCK
PREFERRED STOCK
SENIOR DEBT
SECURITIES
SUBORDINATED DEBT
SECURITIES
GUARANTEES
WARRANTS
UNITS
By this prospectus, we may from time to time offer and sell in
one or more offerings up to an aggregate of $1,500,000,000 of
the following securities:
(1) shares of common stock;
(2) shares of preferred stock, in one or more series, which
may be convertible into or exchangeable for debt securities or
common stock;
(3) senior debt securities, which may be convertible into
or exchangeable for common stock or preferred stock;
(4) subordinated debt securities, which may be convertible
into or exchangeable for common stock or preferred stock;
(5) guarantees of debt securities issued by Allis-Chalmers
Energy Inc.;
(6) warrants to purchase common stock, preferred stock,
debt securities (which may or may not be guaranteed pursuant to
guarantees) or units; and/or
(7) units consisting of any combination of common stock,
preferred stock, debt securities (which may or may not be
guaranteed pursuant to guarantees) or warrants.
This prospectus provides a general description of the securities
we may offer. Supplements to this prospectus will provide the
specific terms of the securities that we actually offer,
including the offering prices. You should carefully read this
prospectus, any applicable prospectus supplement and any
information under the headings Where You Can Find More
Information and Incorporation by Reference
before you invest in any of these securities. This prospectus
may not be used to sell securities unless it is accompanied by a
prospectus supplement that describes those securities.
We may sell these securities to or through underwriters, to
other purchasers
and/or
through agents. Supplements to this prospectus will specify the
names of any underwriters or agents.
Our common stock is listed for trading on the American Stock
Exchange under the symbol ALY.
Investing in our securities involves risks. Please read
Risk Factors beginning on page 2 of this
prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The date of this prospectus is December 8, 2006.
TABLE OF
CONTENTS
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ABOUT
THIS PROSPECTUS
This prospectus is part of a registration statement that we
filed with the Securities and Exchange Commission, or SEC,
utilizing a shelf registration process. Under this
shelf registration process, we may sell any combination of the
securities described in this prospectus in one or more offerings
up to a total offering price of $1,500,000,000. This prospectus
provides you with a general description of the securities we may
offer. Each time we offer to sell securities, we will provide a
prospectus supplement that will contain specific information
about the terms of that offering and the securities offered by
us in that offering. The prospectus supplement may also add,
update or change information contained in this prospectus. If
there is any inconsistency between the information in this
prospectus and any prospectus supplement, you should rely on the
information provided in the prospectus supplement. This
prospectus does not contain all of the information included in
the registration statement. The registration statement filed
with the SEC includes exhibits that provide more details about
the matters discussed in this prospectus. You should carefully
read this prospectus, the related exhibits filed with the SEC
and any prospectus supplement, together with the additional
information described below under the headings Where You
Can Find More Information and Incorporation by
Reference.
You should rely only on the information contained or
incorporated by reference in this prospectus and in any
accompanying prospectus supplement. We have not authorized any
other person to provide you with different information. If
anyone provides you with different or inconsistent information,
you should not rely on it. We are not making an offer of the
securities covered by this prospectus in any state where the
offer is not permitted. You should assume that the information
appearing in this prospectus, any prospectus supplement and any
other document incorporated by reference is accurate only as of
the date on the front cover of those documents. Our business,
financial condition, results of operations and prospects may
have changed since those dates.
Under no circumstances should the delivery to you of this
prospectus or any offer or sale made pursuant to this prospectus
create any implication that the information contained in this
prospectus is correct as of any time after the date of this
prospectus.
This prospectus may not be used to sell securities unless it is
accompanied by a prospectus supplement that describes those
securities.
i
Unless otherwise indicated or unless the context otherwise
requires, all references in this prospectus to
Allis-Chalmers, we, us, and
our mean Allis-Chalmers Energy Inc. and its wholly
owned subsidiaries. In this prospectus, we sometimes refer to
the debt securities, common stock, preferred stock, warrants,
units and guarantees collectively as the securities.
WHERE YOU
CAN FIND MORE INFORMATION
We have filed a registration statement with the SEC under the
Securities Act of 1933, as amended, which we refer to as the
Securities Act, that registers the issuance and sale of the
securities offered by this prospectus. The registration
statement, including the attached exhibits, contains additional
relevant information about us. The rules and regulations of the
SEC allow us to omit some information included in the
registration statement from this prospectus.
We file annual, quarterly, and other reports, proxy statements
and other information with the SEC under the Securities Exchange
Act of 1934, as amended, which we refer to as the Exchange Act.
You may read and copy any materials we file with the SEC at the
SECs public reference room at 100 F Street, N.E.,
Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330
for further information on the public reference room. Our SEC
filings are also available to the public through the SECs
website at
http://www.sec.gov.
General information about us, including our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q
and current reports on
Form 8-K,
as well as any amendments and exhibits to those reports, are
available free of charge through our website at
http://www.alchenergy.com as soon as reasonably
practicable after we file them with, or furnish them to, the
SEC. Information on our website is not incorporated into this
prospectus or our other securities filings and is not a part of
this prospectus.
INCORPORATION
BY REFERENCE
The SEC allows us to incorporate by reference
information into this document. This means that we can disclose
important information to you by referring you to another
document filed separately with the SEC. The information
incorporated by reference is considered to be part of this
prospectus. We incorporate by reference the documents listed
below, other than any portions of the respective filings that
were furnished (pursuant to Item 2.02 or Item 7.01 of
current reports on
Form 8-K
or other applicable SEC rules) rather than filed:
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our annual report on
Form 10-K
for the year ended December 31, 2005, as filed with the SEC
on March 22, 2006, as amended by Amendment No. 1 to
such report, as filed with the SEC on May 1, 2006, and
Amendment No. 2 to such report, as filed with the SEC on
July 24, 2006, which we refer to collectively as our 2005
Form 10-K;
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our quarterly report on
Form 10-Q
for the quarter ended March 31, 2006, as filed with the SEC
on May 10, 2006, as amended by Amendment No. 1 to such
report, as filed with the SEC on July 24, 2006, which we
refer to collectively as our First Quarter 2006 Form
10-Q;
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our quarterly report on
Form 10-Q
for the quarter ended June 30, 2006, as filed with the SEC
on August 14, 2006, which we refer to as our Second Quarter
2006
Form 10-Q;
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our quarterly report on
Form 10-Q
for the quarter ended September 30, 2006, as filed with the
SEC on November 8, 2006, which we refer to as our Third
Quarter 2006
Form 10-Q;
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our current reports on
Form 8-K
and 8-K/A,
as filed with the SEC on January 24, 2006, February 1,
2006 (three reports), February 3, 2006, February 24,
2006, April 3, 2006, April 6, 2006, April 25,
2006, April 28, 2006, May 9, 2006, June 16, 2006,
July 17, 2006, July 27, 2006, August 9, 2006,
August 14, 2006 (two reports), August 23, 2006,
September 18, 2006, September 29, 2006,
October 19, 2006, October 26, 2006 and
December 1, 2006;
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our current reports on
Form 8-K
and 8-K/A
containing additional information required by
Rule 3-05
and Article 11 of
Regulation S-X,
as filed with the SEC on April 5, 2005, May 6, 2005,
June 10, 2005, July 15, 2005 and September 2,
2005; and
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the description of our capital stock contained in our
Registration Statement on
Form 8-A
(File No. 001-02199) under Section 12(b) of the
Exchange Act.
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All documents that we file pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this
prospectus and until our offerings hereunder are completed, or
after the date of the registration statement of which this
prospectus forms a part and prior to effectiveness of the
registration statement, will be deemed to be incorporated by
reference into this prospectus and will be a part of this
prospectus from the date of the filing of the document. Any
statement contained in a document incorporated or deemed to be
incorporated by reference in this prospectus will be deemed to
be modified or superseded for purposes of this prospectus to the
extent that a statement contained in this prospectus or in any
other subsequently filed document that also is or is deemed to
be incorporated by reference in this prospectus modifies or
supersedes that statement. Any statement that is modified or
superseded will not constitute a part of this prospectus, except
as modified or superseded.
We will provide to each person, including any beneficial owner
to whom a prospectus is delivered, a copy of these filings,
other than an exhibit to these filings unless we have
specifically incorporated that exhibit by reference into the
filing, upon written or oral request and at no cost. Requests
should be made by writing or telephoning us at the following
address:
Allis-Chalmers Energy Inc.
5075 Westheimer, Suite 890
Houston, Texas 77056
(713) 369-0550
Attn: Investor Relations
CAUTIONARY
STATEMENT
REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the
meaning of Section 27A of the Securities Act regarding our
business, financial condition, results of operations and
prospects. Words such as expects, anticipates, intends, plans,
believes, seeks, estimates and similar expressions or variations
of such words are intended to identify forward-looking
statements. However, these are not the exclusive means of
identifying forward-looking statements. Although forward-looking
statements contained in this prospectus reflect our good faith
judgment, such statements can only be based on facts and factors
currently known to us. Consequently, forward-looking statements
are inherently subject to risks and uncertainties, and actual
outcomes may differ materially from the results and outcomes
discussed in the forward-looking statements. Further information
about the risks and uncertainties that may impact us are
described in Risk Factors beginning on page 2.
You should read that section carefully. You should not place
undue reliance on forward-looking statements, which speak only
as of the date of this prospectus. We undertake no obligation to
update publicly any forward-looking statements in order to
reflect any event or circumstance occurring after the date of
this prospectus or currently unknown facts or conditions or the
occurrence of unanticipated events.
INDUSTRY
AND MARKET DATA
We have obtained some industry and market share data from
third-party sources that we believe are reliable. In many cases,
however, we have made statements in this prospectus (or in
documents incorporated by reference in this prospectus)
regarding our industry and our position in the industry based on
estimates made based on our experience in the industry and our
own investigation of market conditions. We believe these
estimates to be accurate as of the date of this prospectus.
However, this information may prove to be inaccurate because of
the method by which we obtained some of the data for our
estimates or because this
iii
information cannot always be verified with complete certainty
due to the limits on the availability and reliability of raw
data, the voluntary nature of the data gathering process and
other limitations and uncertainties. As a result, you should be
aware that the industry and market data included or incorporated
by reference in this prospectus, and estimates and beliefs based
on that data, may not be reliable. We cannot, and the
underwriters cannot, guarantee the accuracy or completeness of
any such information.
DEFINITIONS
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air drilling |
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A technique in which oil, natural gas, or geothermal wells are
drilled by creating a pressure within the well that is lower
than the reservoir pressure. The result is increased rate of
penetration, reduced formation damage, and reduced drilling
costs. |
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blow out preventors |
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A large safety device placed on the surface of an oil or natural
gas well to control high pressure well bores. |
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booster |
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A machine that increases the pressure
and/or
volume of air when used in conjunction with a compressor or a
group of compressors. |
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capillary tubing |
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A small diameter tubing installed in producing wells and through
which chemicals are injected to enhance production and reduce
corrosion and other problems. |
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casing |
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A pipe placed in a drilled well to secure the well bore and
formation. |
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choke manifolds |
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An arrangement of pipes, valves and special valves on the rig
floor that controls pressure during drilling by diverting
pressure away from the blow out preventors and the annulus of
the well. |
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coiled tubing |
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A small diameter tubing used to service producing and
problematic wells and to work in high pressure applications
during drilling, production and workover operations. |
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directional drilling |
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The technique of drilling a well while varying the angle of
direction of a well and changing the direction of a well to hit
a specific target. |
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double studded adapter |
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A device that joins two dissimilar connections on certain
equipment, including valves, piping, and blow out preventors. |
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drill pipe |
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A pipe that attaches to the drill bit to drill a well. |
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heavy weight spiral drill pipe |
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A heavy drill pipe used for special applications primarily in
directional drilling. The spiral design increases
flexibility and penetration of the pipe. |
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horizontal drilling |
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The technique of drilling wells at a
90-degree
angle. |
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laydown machines |
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A truck mounted machine used to move drill pipe, casing and
tubing onto a pipe rack (from which a derrick crane lifts the
drill pipe, casing and tubing and inserts it into the well). |
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mist pump |
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A drilling pump that uses mist as the circulation medium for
injecting small amounts of foaming agent, corrosion agent and
other chemical solutions into the well. |
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spacer spools |
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High pressure connections which are stacked to elevate the
blow-out preventors to the drilling rig floor. |
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straight hole drilling |
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The technique of drilling that allows very little or no vertical
deviation. |
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test plugs |
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A device used to test the connections of well heads and blow out
preventors. |
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torque turn service or
torque turn equipment |
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A monitoring device to insure proper makeup of the casing. |
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tubing |
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A pipe placed inside the casing to allow the well to produce. |
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tubing work strings |
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The tubing used on workover rigs through which high pressure
liquids, gases or mixtures are pumped into a well to perform
production operations. |
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wear bushings |
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A device placed inside a wellhead to protect the wellhead from
wear. |
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ALLIS-CHALMERS
ENERGY INC.
We are a multi-faceted oilfield services company that provides
services and equipment to oil and natural gas exploration and
production companies, domestically in Texas, Louisiana, New
Mexico, Colorado, Oklahoma, Mississippi, Utah, Wyoming, offshore
in the Gulf of Mexico, and internationally in Argentina and
Mexico.
Our existing business segments are:
Directional Drilling Services. We employ
approximately 75 full-time directional drillers utilizing
state-of-the-art
equipment for well planning and engineering services,
directional drilling packages, downhole motor technology, well
site directional supervision, exploratory and development
re-entry drilling, downhole guidance services and other drilling
services, including, logging-while-drilling and
measurement-while-drilling services.
Rental Tools. We provide specialized rental
equipment, including premium drill pipe, heavy weight spiral
drill pipe, tubing work strings, blow out preventors, choke
manifolds and various valves and handling tools, for both
onshore and offshore well drilling, completion and workover
operations.
International Drilling. With our recent
acquisition of DLS Drilling, Logistics & Services
Corporation, or DLS, in August 2006, we entered into the
contract drilling and repair services business. DLS provides
drilling, completion, repair and related services for oil and
gas wells in Argentina. DLS also offers a wide variety of other
oilfield services such as drilling fluids and completion fluids,
engineering, field maintenance and logistics to complement its
customers field organization.
Casing and Tubing Services. We provide
specialized equipment and trained operators for a variety of
pipe handling services, including installing casing and tubing,
changing out drill pipe and retrieving production tubing for
both onshore and offshore drilling and workover operations.
Compressed Air Drilling Services. We provide
compressed air equipment, drilling bits, hammers, drilling
chemicals and other specialized drilling products for
underbalanced drilling applications. With a combined fleet of
over 130 compressors and boosters, we believe we are one of the
largest providers of compressed air or underbalanced drilling
services in the United States.
Production Services. We provide specialized
equipment and trained operators to install and retrieve
capillary tubing, through which chemicals are injected into
producing wells to increase production and reduce corrosion, and
workover services with coiled tubing units.
Our principal executive offices are located at
5075 Westheimer, Suite 890, Houston, Texas 77056, and
our telephone number at that address is
(800) 997-9534.
Our website address is
http://www.alchenergy.com. However,
information contained on our website is not incorporated by
reference into this prospectus, and you should not consider the
information contained on our website to be part of this
prospectus.
RISK
FACTORS
The securities to be offered by this prospectus may involve a
high degree of risk. When considering an investment in any of
the securities, you should consider carefully all of the risk
factors described below and any similar information contained in
any annual report on
Form 10-K
or other document filed by us with the SEC after the date of
this prospectus. If applicable, we will include in any
prospectus supplement a description of those significant factors
that could make the offering described in the prospectus
supplement speculative or risky.
Risks
Associated With Our Company
We may
fail to acquire additional businesses, which will restrict our
growth and may have a material adverse effect on our ability to
meet our obligations under (and the price of) the
securities.
Our business strategy is to acquire companies operating in the
oilfield services industry. However, there can be no assurance
that we will be successful in acquiring any additional
companies. Successful acquisition of new companies will depend
on various factors, including but not limited to:
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our ability to obtain financing;
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the competitive environment for acquisitions; and
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the integration and synergy issues described in the next risk
factor.
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There can be no assurance that we will be able to acquire and
successfully operate any particular business or that we will be
able to expand into areas that we have targeted. If we fail to
acquire additional businesses, our financial condition, our
results of operations and our ability to meet our obligations
under (and the price of) the securities may be materially
adversely affected.
Difficulties
in integrating acquired businesses may result in reduced
revenues and income.
We may not be able to successfully integrate the businesses of
our operating subsidiaries or any business we may acquire in the
future. The integration of the businesses will be complex and
time consuming, will place a significant strain on management
and our information systems, and this strain could disrupt our
businesses. Furthermore, if our combined businesses continue to
grow rapidly, we may be required to replace our current
information and accounting systems with systems designed for
companies that are larger than ours. We may be adversely
impacted by unknown liabilities of acquired businesses. We may
encounter substantial difficulties, costs and delays involved in
integrating common accounting, information and communication
systems, operating procedures, internal controls and human
resources practices, including incompatibility of business
cultures and the loss of key employees and customers. These
difficulties may reduce our ability to gain customers or retain
existing customers, and may increase operating expenses,
resulting in reduced revenues and income and a failure to
realize the anticipated benefits of acquisitions.
We have made numerous acquisitions during the past five years.
As a result of these transactions, our past performance is not
indicative of future performance, and investors should not base
their expectations as to our future performance on our
historical results.
The
loss of key executives would adversely affect our ability to
effectively finance and manage our business, acquire new
businesses, and obtain and retain customers.
We are dependent upon the efforts and skills of our executives
to finance and manage our business, identify and consummate
additional acquisitions and obtain and retain customers. These
executives include:
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Chairman of the Board and Chief Executive Officer Munawar H.
Hidayatallah; and
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President and Chief Operating Officer David Wilde.
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In addition, our development and expansion will require
additional experienced management and operations personnel. No
assurance can be given that we will be able to identify and
retain these employees.
2
The loss of the services of one or more of our key executives
could increase our exposure to the other risks described in this
Risk Factors section. We do not maintain key man
insurance on any of our personnel.
Historically,
we have been dependent on a few customers operating in a single
industry; the loss of one or more customers could adversely
affect our financial condition and results of
operations.
Our customers are engaged in the oil and natural gas drilling
business in the United States, Mexico and elsewhere.
Historically, we have been dependent upon a few customers for a
significant portion of our revenues. In 2005, no single customer
generated over 10% of our revenues. In 2004, Matyep represented
10.8% of our revenues, and Burlington Resources represented
10.1% of our revenues. In 2003, Matyep represented 10.2% of our
revenues, Burlington represented 11.1% of our revenues and
El Paso Corporation represented 14.1% of our revenues.
Additionally, DLS currently relies on two customers for a
majority of its revenue. In 2005, Pan American Energy LLC
Sucursal Argentina, or Pan American Energy, represented 55% of
DLS revenues and Repsol-YPF represented 15% of DLS
revenues. This concentration of customers may increase our
overall exposure to credit risk, and customers will likely be
similarly affected by changes in economic and industry
conditions. Our financial condition and results of operations
will be materially adversely affected if one or more of our
significant customers fails to pay us or ceases to contract with
us for our services on terms that are favorable to us or at all.
Our
international operations may expose us to political and other
uncertainties, including risks of:
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terrorist acts, war and civil disturbances;
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changes in laws or policies regarding the award of
contracts; and
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the inability to collect or repatriate currency, income, capital
or assets.
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Part of our strategy is to prudently and opportunistically
acquire businesses and assets that complement our existing
products and services, and to expand our geographic footprint.
If we make acquisitions in other countries, we may increase our
exposure to the risks discussed above.
Environmental
liabilities could result in substantial losses.
Since our reorganization under the U.S. federal bankruptcy
laws in 1988, a number of parties, including the Environmental
Protection Agency, have asserted that we are responsible for the
cleanup of hazardous waste sites with respect to our
pre-bankruptcy activities. We believe that such claims are
barred by applicable bankruptcy law, and we have not experienced
any material expense in relation to any such claims. However, if
we do not prevail with respect to these claims in the future, or
if additional environmental claims are asserted against us
relating to our current or future activities in the oil and
natural gas industry, we could become subject to material
environmental liabilities that could have a material adverse
effect on our financial condition and results of operations.
Products
liability claims relating to discontinued operations could
result in substantial losses.
Since our reorganization under the U.S. federal bankruptcy
laws in 1988, we have been regularly named in products liability
lawsuits primarily resulting from the manufacture of products
containing asbestos. In connection with our bankruptcy, a
special products liability trust was established to address
products liability claims. We believe that claims against us are
barred by applicable bankruptcy law, and that the products
liability trust will continue to be responsible for products
liability claims. Since 1988, no court has ruled that we are
responsible for products liability claims. However, if we are
held responsible for product liability claims, we could suffer
substantial losses that could have a material adverse effect on
our financial condition and results of operations. We have not
manufactured products containing asbestos since our
reorganization in 1988.
3
We may
be subject to claims for personal injury and property damage,
which could materially adversely affect our financial condition
and results of operations.
Our products and services are used for the exploration and
production of oil and natural gas. These operations are subject
to inherent hazards that can cause personal injury or loss of
life, damage to or destruction of property, equipment, the
environment and marine life, and suspension of operations.
Litigation arising from an accident at a location where our
products or services are used or provided may cause us to be
named as a defendant in lawsuits asserting potentially large
claims. We maintain customary insurance to protect our business
against these potential losses. Our insurance has deductibles or
self-insured retentions and contains certain coverage
exclusions. However, we could become subject to material
uninsured liabilities that could have a material adverse effect
on our financial condition and results of operations.
Risks
Associated With Our Industry
Cyclical
declines in oil and natural gas prices may result in reduced use
of our services, affecting our business, financial condition and
results of operations and our ability to meet our capital
expenditure obligations and financial commitments.
The oil and natural gas exploration and drilling business is
highly cyclical. Generally, as oil and natural gas prices
decrease, exploration and drilling activity declines as
marginally profitable projects become uneconomic and are either
delayed or eliminated. Declines in the number of operating
drilling rigs result in reduced use of and prices for our
services. Accordingly, when oil and natural gas prices are
relatively low, our revenues and income will suffer. Oil and
natural gas prices depend on many factors beyond our control,
including the following:
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economic conditions in the United States and elsewhere;
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changes in global supply and demand for oil and natural gas;
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the level of production of the Organization of Petroleum
Exporting Countries, commonly called OPEC;
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the level of production of non-OPEC countries;
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the price and quantity of imports of foreign oil and natural gas;
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political conditions, including embargoes, in or affecting other
oil and natural gas producing activities;
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the level of global oil and natural gas inventories; and
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advances in exploration, development and production technologies.
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Depending on the market prices of oil and natural gas, companies
exploring for oil and natural gas may cancel or curtail their
drilling programs, thereby reducing demand for drilling
services. Our contracts are generally short-term, and oil and
natural gas companies tend to respond quickly to upward or
downward changes in prices. Any reduction in the demand for
drilling services may materially erode both pricing and
utilization rates for our services and adversely affect our
financial results. As a result, we may suffer losses, be unable
to make necessary capital expenditures and be unable to meet our
financial obligations.
Our
industry is highly competitive, with intense price
competition.
The markets in which we operate are highly competitive.
Contracts are traditionally awarded on a competitive bid basis.
Pricing is often the primary factor in determining which
qualified contractor is awarded a job. The competitive
environment has intensified as recent mergers among oil and
natural gas companies have reduced the number of available
customers. Many other oilfield services companies are larger
than we are and have resources that are significantly greater
than our resources. These competitors are better able to
withstand industry downturns, compete on the basis of price and
acquire new equipment and technologies, all of which could
affect our revenues and profitability. These competitors compete
with us both for customers and for acquisitions of other
businesses. This competition may cause our business to suffer.
We believe that competition for contracts will continue to be
intense in the foreseeable future.
4
We may
experience increased labor costs or the unavailability of
skilled workers and the failure to retain key personnel could
hurt our operations.
Companies in our industry, including us, are dependent upon the
available labor pool of skilled employees. We compete with other
oilfield services businesses and other employers to attract and
retain qualified personnel with the technical skills and
experience required to provide our customers with the highest
quality service. We are also subject to the Fair Labor Standards
Act, which governs such matters as minimum wage, overtime and
other working conditions. A shortage in the labor pool of
skilled workers or other general inflationary pressures or
changes in applicable laws and regulations could make it more
difficult for us to attract and retain personnel and could
require us to enhance our wage and benefits packages. There can
be no assurance that labor costs will not increase. Any increase
in our operating costs could cause our business to suffer.
Severe
weather could have a material adverse impact on our
business.
Our business could be materially and adversely affected by
severe weather. Repercussions of severe weather conditions may
include:
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curtailment of services;
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weather-related damage to facilities and equipment resulting in
suspension of operations;
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inability to deliver materials to job sites in accordance with
contract schedules; and
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loss of productivity.
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In addition, oil and natural gas operations of our customers
located offshore and onshore in the Gulf of Mexico and in Mexico
may be adversely affected by hurricanes and tropical storms,
resulting in reduced demand for our services. Further, our
customers operations in the Mid-Continent and Rocky
Mountain regions of the United States are also adversely
affected by seasonal weather conditions. This limits our access
to these job sites and our ability to service wells in these
areas. These constraints decrease drilling activity and the
resulting shortages or high costs could delay our operations and
materially increase our operating and capital costs.
Our
business may be affected by terrorist activity and by security
measures taken in response to terrorism.
We may experience loss of business or delays or defaults in
payments from payers that have been affected by actual or
potential terrorist activities. Some oil and natural gas
drilling companies have implemented security measures in
response to potential terrorist activities, including access
restrictions, that could adversely affect our ability to market
our services to new and existing customers and could increase
our costs. Terrorist activities and potential terrorist
activities and any resulting economic downturn could adversely
impact our results of operations, impair our ability to raise
capital or otherwise adversely affect our ability to grow our
business.
We are
subject to government regulations.
We are subject to various federal, state, local and foreign laws
and regulations relating to the energy industry in general and
the environment in particular. Environmental laws have in recent
years become more stringent and have generally sought to impose
greater liability on a larger number of potentially responsible
parties. Although we are not aware of any proposed material
changes in any federal, state, local or foreign statutes, rules
or regulations, any changes could materially affect our
financial condition and results of operations.
5
Risks
Associated With Our Indebtedness
We are
a holding company, and as a result we are dependent on dividends
from our subsidiaries to meet our obligations, including with
respect to the debt securities.
We are a holding company and do not conduct any business
operations of our own. Our principal assets are the equity
interests we own in our operating subsidiaries, either directly
or indirectly. As a result, we are dependent upon cash
dividends, distributions or other transfers we receive from our
subsidiaries in order to make dividend payments to our
stockholders, to repay any debt we may incur, and to meet our
other obligations. The ability of our subsidiaries to pay
dividends and make payments to us will depend on their operating
results and may be restricted by, among other things, applicable
corporate, tax and other laws and regulations and agreements of
those subsidiaries, as well as by the terms of our credit
agreement and the indentures governing our 9.0% senior
notes due 2014, which we refer to as our existing
9.0% senior notes, and any other debt securities we may
offer. For example, the corporate laws of some jurisdictions
prohibit the payment of dividends by any subsidiary unless the
subsidiary has a capital surplus or net profits in the current
or immediately preceding fiscal year. Payments or distributions
from our subsidiaries also could be subject to restrictions on
dividends or repatriation of earnings under applicable local
law, and monetary transfer restrictions in the jurisdictions in
which our subsidiaries operate. Our subsidiaries are separate
and distinct legal entities. Any right that we have to receive
any assets of or distributions from any subsidiary upon its
bankruptcy, dissolution, liquidation or reorganization, or to
realize proceeds from the sale of the assets of any subsidiary,
will be junior to the claims of that subsidiarys
creditors, including trade creditors.
We
have a substantial amount of debt, which could adversely affect
our financial health and prevent us from making principal and
interest payments on the debt securities and our other
debt.
As of September 30, 2006, we had approximately
$271.0 million of consolidated total indebtedness
outstanding and approximately $11.7 million of additional
secured borrowing capacity available under our credit agreement
as of September 30, 2006.
Our substantial debt could have important consequences for you.
For example, it could:
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make it more difficult for us to satisfy our obligations with
respect to our existing 9.0% senior notes, any other debt
securities we may offer and our other debt;
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increase our vulnerability to general adverse economic and
industry conditions, including declines in oil and natural gas
prices and declines in drilling activities;
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limit our ability to obtain additional financing for future
working capital, capital expenditures, mergers and other general
corporate purposes;
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require us to dedicate a substantial portion of our cash flow
from operations to payments on our debt, thereby reducing the
availability of our cash flow for operations and other purposes;
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limit our flexibility in planning for, or reacting to, changes
in our business and the industry in which we operate;
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make us more vulnerable to increases in interest rates;
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place us at a competitive disadvantage compared to our
competitors that have less debt; and
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have a material adverse effect on us if we fail to comply with
the covenants in the indentures relating to our existing 9.0%
senior notes and any other debt securities we may offer or in
the instruments governing our other debt.
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In addition, we may incur substantial additional debt in the
future. The indenture governing our existing 9.0% senior
notes permits (and we anticipate that the indentures governing
any other debt securities we may offer will also permit) us to
incur additional debt, and our credit agreement permits
additional borrowings. If new debt is added to our current debt
levels, these related risks could increase.
6
We may not maintain sufficient revenues to sustain profitability
or to meet our capital expenditure requirements and our
financial obligations. Also, we may not be able to generate a
sufficient amount of cash flow to meet our debt service
obligations.
Our ability to make scheduled payments or to refinance our
obligations with respect to our debt will depend on our
financial and operating performance, which, in turn, is subject
to prevailing economic conditions and to certain financial,
business, and other factors beyond our control. If our cash flow
and capital resources are insufficient to fund our debt service
obligations, we may be forced to reduce or delay scheduled
expansion and capital expenditures, sell material assets or
operations, obtain additional capital or restructure our debt.
We cannot assure you that our operating performance, cash flow
and capital resources will be sufficient for payment of our debt
in the future. In the event that we are required to dispose of
material assets or operations or restructure our debt to meet
our debt service and other obligations, we cannot assure you
that the terms of any such transaction would be satisfactory to
us or if or how soon any such transaction could be completed.
If we
fail to obtain additional financing, we may be unable to
refinance our existing debt, expand our current operations or
acquire new businesses, which could result in a failure to grow
or result in defaults in our obligations under our credit
agreement, our existing 9.0% senior notes or our other debt
securities.
In order to refinance indebtedness, expand existing operations
and acquire additional businesses, we will require substantial
amounts of capital. There can be no assurance that financing,
whether from equity or debt financings or other sources, will be
available or, if available, will be on terms satisfactory to us.
If we are unable to obtain such financing, we will be unable to
acquire additional businesses and may be unable to meet our
obligations under our credit agreement, our existing
9.0% senior notes or any other debt securities we may offer.
The
indenture governing our existing 9.0% senior notes and our
credit agreement impose (and we anticipate that the indentures
governing any other debt securities we may offer will also
impose) restrictions on us that may limit the discretion of
management in operating our business and that, in turn, could
impair our ability to meet our obligations.
The indenture governing our existing 9.0% senior notes and
our credit agreement contain (and we anticipate that the
indentures governing any other debt securities we may offer will
also contain) various restrictive covenants that limit
managements discretion in operating our business. In
particular, these covenants limit our ability to, among other
things:
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incur additional debt;
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make certain investments or pay dividends or distributions on
our capital stock or purchase or redeem or retire capital stock;
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sell assets, including capital stock of our restricted
subsidiaries;
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restrict dividends or other payments by restricted subsidiaries;
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create liens;
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enter into transactions with affiliates; and
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merge or consolidate with another company.
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The credit agreement also requires us to maintain specified
financial ratios and satisfy certain financial tests. Our
ability to maintain or meet such financial ratios and tests may
be affected by events beyond our control, including changes in
general economic and business conditions, and we cannot assure
you that we will maintain or meet such ratios and tests or that
the lenders under the credit agreement will waive any failure to
meet such ratios or tests.
These covenants could materially and adversely affect our
ability to finance our future operations or capital needs.
Furthermore, they may restrict our ability to expand, to pursue
our business strategies and
7
otherwise to conduct our business. Our ability to comply with
these covenants may be affected by circumstances and events
beyond our control, such as prevailing economic conditions and
changes in regulations, and we cannot assure you that we will be
able to comply with them. A breach of these covenants could
result in a default under the indentures governing our existing
9.0% senior notes and any other debt securities we may
offer and/or
the credit agreement. If there were an event of default under
any of the indentures
and/or the
credit agreement, the affected creditors could cause all amounts
borrowed under these instruments to be due and payable
immediately. Additionally, if we fail to repay indebtedness
under our credit agreement when it becomes due, the lenders
under the credit agreement could proceed against the assets
which we have pledged to them as security. Our assets and cash
flow might not be sufficient to repay our outstanding debt in
the event of a default.
Risks
Associated With DLS Business and Industry
A
material or extended decline in expenditures by oil and gas
companies due to a decline or volatility in oil and gas prices,
a decrease in demand for oil and gas or other factors may reduce
demand for DLS services and substantially reduce DLS
revenues, profitability, cash flows
and/or
liquidity.
The profitability of DLS operations depends upon
conditions in the oil and gas industry and, specifically, the
level of exploration and production expenditures of oil and gas
company customers. The oil and gas industry is cyclical and
subject to governmental price controls. The demand for contract
drilling and related services is directly influenced by many
factors beyond DLS control, including:
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oil and gas prices and expectations about future prices;
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the demand for oil and gas, both in Latin America and globally;
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the cost of producing and delivering oil and gas;
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advances in exploration, development and production technology;
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government regulations, including governmental imposed commodity
price controls, export controls and renationalization of a
countrys oil and gas industry;
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local and international political and economic conditions;
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the ability of OPEC to set and maintain production levels and
prices;
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the level of production by non-OPEC countries; and
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the policies of various governments regarding exploration and
development of their oil and gas reserves.
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Depending on the factors outlined above, companies exploring for
oil and gas may cancel or curtail their drilling programs,
thereby reducing demand for drilling services. Such a reduction
in demand may erode daily rates and utilization of DLS
rigs. Any significant decrease in daily rates or utilization of
DLS rigs could materially reduce DLS revenues,
profitability, cash flows
and/or
liquidity.
A
majority of DLS revenues are derived from one customer.
The termination of the contract with this customer could have a
significant negative effect on the revenues, results of
operations and financial condition of DLS.
A majority of DLS revenues are currently received pursuant
to a strategic agreement with Pan American Energy. Pan American
Energy is a joint venture that is owned 60% by British Petroleum
and 40% by Bridas Corporation, an affiliate of the former DLS
stockholders from which we acquired DLS, and which we refer to
collectively as the DLS sellers. This agreement terminates on
June 30, 2008. However, Pan American Energy may terminate
the agreement (i) without cause at any time with
60 days notice, or (ii) in the event of a breach
of the agreement by DLS if such breach is not cured within
20 days of notice of the breach. DLS is currently in
negotiations to extend this agreement to December 2010.
8
Because a majority of DLS revenues are currently generated
under this agreement, DLS revenues and earnings will be
materially adversely affected if this agreement is terminated
unless DLS is able to enter into a satisfactory substitute
arrangement. We cannot assure you that in the event of such a
termination DLS would be able to enter into a substitute
arrangement on terms similar to those contained in the current
agreement with Pan American Energy.
DLS
operations and financial condition could be affected by union
activity and general labor unrest. Additionally, DLS labor
expenses could increase as a result of governmental regulation
of payments to employees.
In Argentina, labor organizations have substantial support and
have considerable political influence. The demands of labor
organizations have increased in recent years as a result of the
general labor unrest and dissatisfaction resulting from the
disparity between the cost of living and salaries in Argentina
as a result of the devaluation of the Argentine peso. There can
be no assurance that DLS will not face labor disruptions in the
future or that any such disruptions will not have a material
adverse effect on DLS financial condition or results of
operations.
The Argentine government has in the past and may in the future
promulgate laws, regulations and decrees requiring companies in
the private sector to maintain minimum wage levels and provide
specified benefits to employees, including significant mandatory
severance payments. In the aftermath of the Argentine economic
crisis of 2001 and 2002, both the government and private sector
companies have experienced significant pressure from employees
and labor organizations relating to wage levels and employee
benefits. In early 2005, the Argentine government promised not
to order salary increases by decree. However, there has been no
abatement of pressure to mandate salary increases, and it is
possible the government will adopt measures that will increase
salaries or require DLS to provide additional benefits, which
would increase DLS costs and potentially reduce DLS
profitability, cash flow
and/or
liquidity.
Rig
upgrade, refurbishment and construction projects are subject to
risks, including delays and cost overruns, which could have an
adverse effect on DLS results of operations and cash
flows.
DLS often has to make upgrade and refurbishment expenditures for
its rig fleet to comply with DLS quality management and
preventive maintenance system or contractual requirements or
when repairs are required in response to an inspection by a
governmental authority. DLS may also make significant
expenditures when it moves rigs from one location to another.
Additionally, DLS may make substantial expenditures for the
construction of new rigs. Rig upgrade, refurbishment and
construction projects are subject to the risks of delay or cost
overruns inherent in any large construction project, including
the following:
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shortages of material or skilled labor;
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unforeseen engineering problems;
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unanticipated change orders;
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work stoppages;
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adverse weather conditions;
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long lead times for manufactured rig components;
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unanticipated cost increases; and
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inability to obtain the required permits or approvals.
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Significant cost overruns or delays could adversely affect
DLS financial condition and results of operations.
Additionally, capital expenditures for rig upgrade,
refurbishment or construction projects could exceed DLS
planned capital expenditures, impairing DLS ability to
service its debt obligations.
9
An
oversupply of comparable rigs in the geographic markets in which
DLS competes could depress the utilization rates and dayrates
for DLS rigs and materially reduce DLS revenues and
profitability.
Utilization rates, which are the number of days a rig actually
works divided by the number of days the rig is available for
work, and dayrates, which are the contract prices customers pay
for rigs per day, are also affected by the total supply of
comparable rigs available for service in the geographic markets
in which DLS competes. Improvements in demand in a geographic
market may cause DLS competitors to respond by moving
competing rigs into the market, thus intensifying price
competition. Significant new rig construction could also
intensify price competition. In the past, there have been
prolonged periods of rig oversupply with correspondingly
depressed utilization rates and dayrates largely due to earlier,
speculative construction of new rigs. Improvements in dayrates
and expectations of longer-term, sustained improvements in
utilization rates and dayrates for drilling rigs may lead to
construction of new rigs. These increases in the supply of rigs
could depress the utilization rates and dayrates for DLS
rigs and materially reduce DLS revenues and profitability.
Worldwide
political and economic developments may hurt DLS
operations materially.
Currently, DLS derives substantially all of its revenues from
operations in Argentina and a small portion from operations in
Bolivia. DLS operations are subject to the following
risks, among others:
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expropriation of assets;
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nationalization of components of the energy industry in the
geographic areas where DLS operates;
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foreign currency fluctuations and devaluation;
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new economic and tax policies;
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restrictions on currency, income, capital or asset repatriation;
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political instability, war and civil disturbances;
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uncertainty or instability resulting from armed hostilities or
other crises in the Middle East or the geographic areas in which
DLS operates; and
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acts of terrorism.
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DLS attempts to limit the risks of currency fluctuation and
restrictions on currency repatriation where possible by
obtaining contracts providing for payment of a percentage of the
contract in U.S. dollars or freely convertible foreign
currency. To the extent possible, DLS seeks to limit its
exposure to local currencies by matching the acceptance of local
currencies to DLS expense requirements in those
currencies. Although DLS has done this in the past, DLS may not
be able to take these actions in the future, thereby exposing
DLS to foreign currency fluctuations that could cause its
results of operations, financial condition and cash flows to
deteriorate materially.
Over the past several years, Argentina and Bolivia have
experienced political and economic instability that resulted in
significant changes in their general economic policies and
regulations.
DLS derives a small portion of its revenues from operating one
drilling rig in Bolivia. Recently, Bolivian President Evo
Morales announced the nationalization of Bolivias natural
gas industry and ordered the Bolivian military to occupy
Bolivias natural gas fields. This measure will likely
adversely affect the Bolivian operations of foreign oil and gas
companies operating in Bolivia, including DLS customers
and potential future customers, and accordingly, DLS
prospects for future business in Bolivia may be harmed. In
addition, in light of these recent political developments in
Bolivia, DLS assets in Bolivia may be subject to an
increased risk of expropriation or government imposed
restrictions on movement to a new location.
In light of the early stage and uncertainty of political
developments affecting the energy industry in Bolivia, we are
unable to predict the effect that recent events may have on
DLS operations, financial results or business plans. There
is a risk that the changes resulting from the recent events in
Bolivia will adversely affect DLS financial position or
results of operations, and DLS operations may be further
adversely affected by continuing economic and political
instability in Bolivia. Furthermore, if nationalistic measures
similar to
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those developing in Bolivia were to be adopted in other
countries where DLS may in the future seek drilling contracts,
DLS prospects in such countries may be adversely affected.
DLS operations are also subject to other risks, including
foreign monetary and tax policies, expropriation,
nationalization and nullification or modification of contracts.
Additionally, DLS ability to compete may be limited by
foreign governmental regulations that favor or require the
awarding of contracts to local contractors or by regulations
requiring foreign contractors to employ citizens of, or purchase
supplies from, a particular jurisdiction. Furthermore, DLS may
face governmentally imposed restrictions from time to time on
its ability to transfer funds.
Devaluation
of the Argentine peso will adversely affect DLS results of
operations.
The Argentine peso has been subject to significant devaluation
in the past and may be subject to significant fluctuations in
the future. Given the economic and political uncertainties in
Argentina, it is impossible to predict whether, and to what
extent, the value of the Argentine peso may depreciate or
appreciate against the U.S. dollar. We cannot predict how
these uncertainties will affect DLS financial results, but
there is a risk that DLS financial performance could be
adversely affected. Moreover, we cannot predict whether the
Argentine government will further modify its monetary policy
and, if so, what effect any of these changes could have on the
value of the Argentine peso. Such changes could have an adverse
effect on DLS financial condition and results of
operations.
Argentina
continues to face considerable political and economic
uncertainty.
Although general economic conditions have shown improvement and
political protests and social disturbances have diminished
considerably since the economic crisis of 2001 and 2002, the
rapid and radical nature of the changes in the Argentine social,
political, economic and legal environment over the past several
years and the absence of a clear political consensus in favor of
any particular set of economic policies have given rise to
significant uncertainties about the countrys economic and
political future. It is currently unclear whether the economic
and political instability experienced over the past several
years will continue and it is possible that, despite recent
economic growth, Argentina may return to a deeper recession,
higher inflation and unemployment and greater social unrest. If
instability persists, there could be a material adverse effect
on DLS results of operations and financial condition.
In the event of further social or political crisis, companies in
Argentina may also face the risk of further civil and social
unrest, strikes, expropriation, nationalization, forced
renegotiation or modification of existing contracts and changes
in taxation policies, including royalty and tax increases and
retroactive tax claims.
In addition, investments in Argentine companies may be further
affected by changes in laws and policies of the United States
affecting foreign trade, taxation and investment.
An
increase in inflation could have a material adverse effect on
DLS results of operations.
The devaluation of the Argentine peso created pressures on the
domestic price system that generated high rates of inflation in
2002 before substantially stabilizing in 2003 and remaining
stable in 2004. In 2005, however, inflation rates began to
increase. In addition, in response to the economic crisis in
2002, the federal government granted the Central Bank greater
control over monetary policy than was available to it under the
previous monetary regime, known as the
Convertibility regime, including the ability to
print currency, to make advances to the federal government to
cover its anticipated budget deficit and to provide financial
assistance to financial institutions with liquidity problems. We
cannot assure you that inflation rates will remain stable in the
future. Significant inflation could have a material adverse
effect on DLS results of operations and financial
condition.
11
DLS
customers may seek to cancel or renegotiate some of DLS
drilling contracts during periods of depressed market conditions
or if DLS experiences operational difficulties.
Substantially all of DLS contracts with major customers
are dayrate contracts, where DLS charges a fixed charge per day
regardless of the number of days needed to drill the well.
During depressed market conditions, a customer may no longer
need a rig that is currently under contract or may be able to
obtain a comparable rig at a lower daily rate. As a result,
customers may seek to renegotiate the terms of their existing
drilling contracts or avoid their obligations under those
contracts. In addition, DLS customers may have the right
to terminate existing contracts if DLS experiences operational
problems. The likelihood that a customer may seek to terminate a
contract for operational difficulties is increased during
periods of market weakness. The cancellation of a number of
DLS drilling contracts could materially reduce DLS
revenues and profitability.
DLS is
subject to numerous governmental laws and regulations, including
those that may impose significant liability on DLS for
environmental and natural resource damages.
Many aspects of DLS operations are subject to laws and
regulations that may relate directly or indirectly to the
contract drilling and well servicing industries, including those
requiring DLS to control the discharge of oil and other
contaminants into the environment or otherwise relating to
environmental protection. The countries where DLS operates have
environmental laws and regulations covering the discharge of oil
and other contaminants and protection of the environment in
connection with operations. Failure to comply with these laws
and regulations may result in the assessment of administrative,
civil and even criminal penalties, the imposition of remedial
obligations, and the issuance of injunctions that may limit or
prohibit DLS operations. Laws and regulations protecting
the environment have become more stringent in recent years and
may in certain circumstances impose strict liability, rendering
DLS liable for environmental and natural resource damages
without regard to negligence or fault on DLS part. These
laws and regulations may expose DLS to liability for the conduct
of, or conditions caused by, others or for acts that were in
compliance with all applicable laws at the time the acts were
performed. The application of these requirements, the
modification of existing laws or regulations or the adoption of
new laws or regulations curtailing exploratory or development
drilling for oil and gas could materially limit future contract
drilling opportunities or materially increase DLS costs or
both.
DLS is
subject to hazards customary for drilling operations, which
could adversely affect its financial performance if DLS is not
adequately indemnified or insured.
Substantially all of DLS operations are subject to hazards
that are customary for oil and gas drilling operations,
including blowouts, reservoir damage, loss of well control,
cratering, oil and gas well fires and explosions, natural
disasters, pollution and mechanical failure. Any of these risks
could result in damage to or destruction of drilling equipment,
personal injury and property damage, suspension of operations or
environmental damage. Generally, drilling contracts provide for
the division of responsibilities between a drilling company and
its customer, and DLS generally obtains indemnification from its
customers by contract for some of these risks. However, there
may be limitations on the enforceability of indemnification
provisions that allow a contractor to be indemnified for damages
resulting from the contractors fault. To the extent that
DLS is unable to transfer such risks to customers by contract or
indemnification agreements, DLS generally seeks protection
through insurance. However, DLS has a significant amount of
self-insured retention or deductible for certain losses relating
to workers compensation, employers liability,
general liability and property damage. There is no assurance
that such insurance or indemnification agreements will
adequately protect DLS against liability from all of the
consequences of the hazards and risks described above. The
occurrence of an event not fully insured or for which DLS is not
indemnified against, or the failure of a customer or insurer to
meet its indemnification or insurance obligations, could result
in substantial losses. In addition, there can be no assurance
that insurance will continue to be available to cover any or all
of these risks, or, even if available, that insurance premiums
or other costs will not rise significantly in the future, so as
to make the cost of such insurance prohibitive.
12
USE OF
PROCEEDS
Unless otherwise specified in an accompanying prospectus
supplement, we expect to use the net proceeds from the sale of
the securities offered by this prospectus to fund:
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working capital needs; and
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expenditures related to general corporate purposes.
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The actual application of proceeds from the sale of any
particular tranche of securities issued hereunder will be
described in the applicable prospectus supplement relating to
such tranche of securities. We may invest funds not required
immediately for these purposes in marketable securities and
short-term investments. The precise amount and timing of the
application of these proceeds will depend upon our funding
requirements and the availability and cost of other funds.
RATIOS OF
EARNINGS TO FIXED CHARGES
The following table sets forth our ratios of earnings to fixed
charges on a consolidated basis for the periods shown. You
should read these ratios of earnings to fixed charges in
connection with our consolidated financial statements, including
the notes to those statements, incorporated by reference into
this prospectus.
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Nine Months
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Ended
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Years Ended December 31,
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September 30,
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2001
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2002
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2003
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2004
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2005
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2006
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Ratio of earnings to fixed
charges(1)
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(1.6
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(0.4
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2.2
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1.5
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2.9
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2.3x
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For purposes of determining the ratio of earnings to fixed
charges, earnings are defined as net income before income taxes,
extraordinary items, amortization of capitalized interest and
fixed charges, less capitalized interest. Fixed charges consist
of interest (whether expensed or capitalized), amortization of
debt expenses and discount or premium relating to any
indebtedness and dividends on preferred stock and the interest
component of leases represents the portion of rental expense
which we estimate as an interest component. For the years ended
December 31, 2001 and December 31, 2002, earnings were
inadequate to cover fixed charges due to a deficiency of
approximately $2.3 million and $3.7 million,
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13
DESCRIPTION
OF CAPITAL STOCK
Our authorized capital stock consists of 100,000,000 shares
of common stock, $0.01 par value per share and
25,000,000 shares of preferred stock, $0.01 par value
per share.
The following summary of the rights, preferences and privileges
of our capital stock and certificate of incorporation and
by-laws does not purport to be complete and is qualified in its
entirety by reference to the provisions of applicable law and to
our certificate of incorporation and by-laws.
Common
Stock
Holders of our common stock are entitled to one vote for each
share held on all matters submitted to a vote of stockholders
and do not have cumulative voting rights. Accordingly, holders
of a majority of the shares of our common stock entitled to vote
in any election of directors may elect all of the directors
standing for election. Holders of our common stock are entitled
to receive proportionately any dividends if and when such
dividends are declared by our board of directors, subject to any
preferential dividend rights of outstanding preferred stock.
Upon the liquidation, dissolution or winding up of our company,
the holders of our common stock are entitled to receive ratably
our net assets available after the payment of all debts and
other liabilities and subject to the prior rights of any
outstanding preferred stock. Holders of our common stock have no
preemptive, subscription, redemption or conversion rights. The
rights, preferences and privileges of holders of our common
stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of preferred stock
that we may designate and issue in the future.
Preferred
Stock
Under the terms of our certificate of incorporation, our board
of directors is authorized to designate and issue shares of
preferred stock in one or more series without stockholder
approval. Our board of directors has discretion to determine the
rights, preferences, privileges and restrictions, including
voting rights, dividend rights, conversion rights, redemption
privileges and liquidation preferences, of each series of
preferred stock. It is not possible to state the actual effect
of the issuance of any shares of preferred stock upon the rights
of holders of our common stock until the board of directors
determines the specific rights of the holders of the preferred
stock. However, these effects might include:
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restricting dividends on the common stock;
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diluting the voting power of the common stock;
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impairing the liquidation rights of the common stock; and
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delaying or preventing a change in control of our company.
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We have no present plans to issue any shares of preferred stock.
Shares Eligible
for Future Sale
Sales of substantial amounts of shares of common stock in the
public market could have an adverse effect on the market value
of our common stock. With the exception of certain shares issued
in connection with acquisitions consummated during the past
year, substantially all outstanding shares of our common stock
are either freely tradable or tradable pursuant to Rule 144
or pursuant to the registration statement described below.
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We have reserved an additional 1,843,633 shares of common
stock for issuance under our equity compensation plans, of which
1,600,534 shares are currently issuable upon the exercise
of outstanding options with a weighted average exercise price of
$6.40 per share. In addition, we have reserved
71,000 shares of common stock for issuance upon the
exercise of outstanding warrants (with a weighted average
exercise price of $4.98 per share) and 4,000 shares
for issuance upon the exercise of outstanding options (with an
exercise price of $13.75 per share) granted to former and
continuing board members in 1999 and 2000.
We have an effective registration statement with the SEC
registering the resale of approximately 9.4 million shares
of our currently outstanding common stock. Also, pursuant to
Rule 144, shares of our common stock that have been held
for at least one year may generally be sold in brokers
transactions, provided that the amount of shares sold by any
stockholder (and the stockholders transferees under
certain circumstances) in any three-month period does not exceed
the greater of 1% of the outstanding stock (currently
approximately 180,000 shares) or the four-week average
weekly trading volume of the common stock. Such sales may be
effected provided the requirements of Rule 144 are met,
including the requirement that at the time of the sale we have
filed all reports required to be filed under the Exchange Act.
Pursuant to Rule 144, shares of our common stock that have
been held by persons who are not our affiliates for at least two
years may generally be sold without restriction under
Rule 144.
Delaware
Anti-Takeover Law and Charter and By-Law Provisions
We are subject to the provisions of Section 203 of the
Delaware General Corporation Law. In general, the statute
prohibits a publicly held Delaware corporation from engaging in
a business combination with an interested
stockholder for a period of three years after the date of
the transaction in which the person became an interested
stockholder, unless the business combination or the transaction
by which the person became an interested stockholder is approved
by the corporations board of directors
and/or
stockholders in a prescribed manner or the person owns at least
85% of the corporations outstanding voting stock after
giving effect to the transaction in which the person became an
interested stockholder. The term business
combination includes mergers, asset sales and other
transactions resulting in a financial benefit to the interested
stockholder. Subject to certain exceptions, an interested
stockholder is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of
the corporations voting stock. A Delaware corporation may
opt out from the application of Section 203
through a provision in its certificate of incorporation or
by-laws. We have not opted out from the application
of Section 203.
Under our certificate of incorporation and by-laws, our board of
directors is not divided into classes, and each director serves
for a term of one year. Any vacancies on the board of directors
shall be filled by vote of the board of directors until the next
meeting of stockholders when the election of directors is in the
regular course of business, and until a successor has been duly
elected and qualified. Our certificate of incorporation and
by-laws also provide that any director may be removed from
office, with or without cause, by the affirmative vote of the
holders of a majority of the voting power of our then
outstanding capital stock entitled to vote generally in the
election of directors.
Our by-laws provide that meetings of stockholders may be called
only by a majority of our board of directors.
The foregoing provisions of our certificate of incorporation and
by-laws and the provisions of Section 203 of the Delaware
General Corporation Law could have the effect of delaying,
deferring or preventing a change of control of our company.
Liability
and Indemnification of Officers and Directors
Our certificate of incorporation provides that our directors
will not be personally liable to us or our stockholders for
monetary damages for breach of fiduciary duty as a director,
except for liability (1) for any breach of a
directors duty of loyalty to us or our stockholders,
(2) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law,
(3) under Section 174 of the Delaware General
Corporation Law, or (4) for any transaction from which the
director derives an improper personal benefit. If the Delaware
General Corporation Law is amended to authorize the further
elimination or limitation
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of directors liability, then the liability of our
directors will automatically be limited to the fullest extent
provided by law. Our certificate of incorporation and by-laws
also contain provisions to indemnify our directors and officers
to the fullest extent permitted by the Delaware General
Corporation Law. We also maintain indemnification insurance on
behalf of our directors. In addition, our board of directors has
approved and we are in the process of entering into
indemnification agreements with all of our directors and
executive officers. These provisions and agreements may have the
practical effect in certain cases of eliminating the ability of
stockholders to collect monetary damages from our directors and
officers. We believe that these contractual agreements and the
provisions in our certificate of incorporation and by-laws are
necessary to attract and retain qualified persons as directors
and officers.
Transfer
Agent and Registrar
The transfer agent and registrar for our common stock is
Continental Stock Transfer and Trust Company, 17 Battery
Place, New York, New York
10004-1123,
(212) 509-4000.
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DESCRIPTION
OF DEBT SECURITIES
Any debt securities that we offer under a prospectus supplement
will be direct, unsecured general obligations. The debt
securities will be either senior debt securities or subordinated
debt securities. The debt securities will be issued under one or
more separate indentures between us and a banking or financial
institution, as trustee. Senior debt securities will be issued
under a senior indenture and subordinated debt securities will
be issued under a subordinated indenture. Together, the senior
indenture and the subordinated indenture are called
indentures. The indentures will be supplemented by
supplemental indentures, the material provisions of which will
be described in a prospectus supplement.
As used in this description, the words
Allis-Chalmers, we, us and
our refer to Allis-Chalmers Energy Inc., and not to
any of its subsidiaries or affiliates.
We have summarized some of the material provisions of the
indentures below. This summary does not restate those agreements
in their entirety. A form of senior indenture and a form of
subordinated indenture have been filed as exhibits to the
registration statement of which this prospectus is a part. We
urge you to read each of the indentures because each one, and
not this description, defines the rights of holders of debt
securities.
Capitalized terms defined in the indentures have the same
meanings when used in this prospectus.
General
The debt securities issued under the indentures will be our
direct, unsecured general obligations. The senior debt
securities will rank equally with all of our other senior and
unsubordinated debt. The subordinated debt securities will have
a junior position to all of our senior debt.
A substantial portion of our assets are held by our operating
subsidiaries. With respect to these assets, holders of senior
debt securities that are not guaranteed by our operating
subsidiaries and holders of subordinated debt securities will
have a position junior to the prior claims of creditors of these
subsidiaries, including trade creditors, debtholders, secured
creditors, taxing authorities and guarantee holders, and any
preferred stockholders, except to the extent that we may ourself
be a creditor with recognized claims against any subsidiary. Our
ability to pay the principal, premium, if any, and interest on
any debt securities is, to a large extent, dependent upon the
payment to us by our subsidiaries of dividends, debt principal
and interest or other charges.
The following description sets forth the general terms and
provisions that could apply to debt securities that we may offer
to sell. A prospectus supplement and an indenture relating to
any series of debt securities being offered will include
specific terms relating to the offering. These terms will
include some or all of the following:
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the title and type of the debt securities;
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the total principal amount of the debt securities;
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the percentage of the principal amount at which the debt
securities will be issued and any payments due if the maturity
of the debt securities is accelerated;
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the dates on which the principal of the debt securities will be
payable;
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the interest rate which the debt securities will bear and the
interest payment dates for the debt securities;
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any conversion or exchange features;
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any optional redemption periods;
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any sinking fund or other provisions that would obligate us to
repurchase or otherwise redeem some or all of the debt
securities;
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any provisions granting special rights to holders when a
specified event occurs;
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any changes to or additional events of default or covenants;
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any special tax implications of the debt securities, including
provisions for original issue discount securities, if
offered; and
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any other terms of the debt securities.
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None of the indentures will limit the amount of debt securities
that may be issued. Each indenture will allow debt securities to
be issued up to the principal amount that may be authorized by
us and may be in any currency or currency unit designated by us.
Debt securities of a series may be issued in registered, coupon
or global form.
Subsidiary
Guarantees
If the applicable prospectus supplement relating to a series of
our senior debt securities provides that those senior debt
securities will have the benefit of a guarantee by any or all of
our operating subsidiaries, payment of the principal, premium,
if any, and interest on those senior debt securities will be
unconditionally guaranteed on an unsecured, unsubordinated basis
by such subsidiary or subsidiaries. The guarantee of senior debt
securities will rank equally in right of payment with all of the
unsecured and unsubordinated indebtedness of such subsidiary or
subsidiaries.
If the applicable prospectus supplement relating to a series of
our subordinated debt securities provides that those
subordinated debt securities will have the benefit of a
guarantee by any or all of our operating subsidiaries, payment
of the principal, premium, if any, and interest on those
subordinated debt securities will be unconditionally guaranteed
on an unsecured, subordinated basis by such subsidiary or
subsidiaries. The guarantee of the subordinated debt securities
will be subordinated in right of payment to all of such
subsidiarys or subsidiaries existing and future
senior indebtedness (as defined in the related prospectus
supplement), including any guarantee of the senior debt
securities, to the same extent and in the same manner as the
subordinated debt securities are subordinated to our senior
indebtedness (as defined in the related prospectus supplement).
See Subordination below.
The obligations of our operating subsidiaries under any such
guarantee will be limited as necessary to prevent the guarantee
from constituting a fraudulent conveyance or fraudulent transfer
under applicable law.
Covenants
Under the indentures, we:
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will pay the principal of, interest and any premium on, the debt
securities when due;
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will maintain a place of payment;
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will deliver a certificate to the trustee at the end of each
fiscal year reviewing our obligations under the indentures;
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will preserve our corporate existence; and
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will deposit sufficient funds with any paying agent on or before
the due date for any principal, interest or premium.
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Mergers
and Sale of Assets
Each of the indentures will provide that we may not consolidate
with or merge into any other person or sell, convey, transfer or
lease all or substantially all of our properties and assets (on
a consolidated basis) to another person, unless:
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either: (a) Allis-Chalmers is the surviving corporation; or
(b) the person or entity formed by or surviving any such
consolidation, amalgamation or merger or resulting from such
conversion (if other than Allis-Chalmers) or to which such sale,
assignment, transfer, conveyance or other disposition has
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been made is a corporation, limited liability company or limited
partnership organized or existing under the laws of the United
States, any state of the United States or the District of
Columbia;
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the person or entity formed by or surviving any such conversion,
consolidation, amalgamation or merger (if other than
Allis-Chalmers) or the person or entity to which such sale,
assignment, transfer, conveyance or other disposition has been
made assumes all of the obligations of Allis-Chalmers under such
indenture and the debt securities governed thereby pursuant to
agreements reasonably satisfactory to the trustee; provided
that, unless such person or entity is a corporation, a
corporate co-issuer of such debt securities will be added to the
applicable indenture by agreements reasonably satisfactory to
the trustee;
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we or the successor will not immediately be in default under
such indenture; and
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we deliver an officers certificate and opinion of counsel
to the trustee stating that such consolidation or merger
complies with such indenture and that all conditions precedent
set forth in such indenture have been complied with.
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Upon the assumption of our obligations under each indenture by a
successor, we will be discharged from all obligations under such
indenture.
Events of
Default
Event of default, when used in the
indentures, with respect to debt securities of any series, will
mean any of the following:
(1) default in the payment of any interest upon any debt
security of that series when it becomes due and payable, and
continuance of such default for a period of 30 days;
(2) default in the payment of the principal of (or premium,
if any, on) any debt security of that series at its maturity;
(3) default in the performance, or breach, of any covenant
set forth in Article Ten of the applicable indenture (other
than a covenant a default in whose performance or whose breach
is elsewhere specifically dealt with as an event of default or
which has expressly been included in such indenture solely for
the benefit of one or more series of debt securities other than
that series), and continuance of such default or breach for a
period of 90 days after there has been given, by registered
or certified mail, to Allis-Chalmers by the trustee or to
Allis-Chalmers and the trustee by the holders of at least 25% in
principal amount of the then-outstanding debt securities of that
series a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a
Notice of Default thereunder;
(4) default in the performance, or breach, of any covenant
in the applicable indenture (other than a covenant set forth in
Article Ten of such indenture or any other covenant a
default in whose performance or whose breach is elsewhere
specifically dealt with as an event of default or which has
expressly been included in such indenture solely for the benefit
of one or more series of debt securities other than that
series), and continuance of such default or breach for a period
of 180 days after there has been given, by registered or
certified mail, to Allis-Chalmers by the trustee or to
Allis-Chalmers and the trustee by the holders of at least 25% in
principal amount of the then-outstanding debt securities of that
series a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a
Notice of Default thereunder;
(5) Allis-Chalmers, pursuant to or within the meaning of
any bankruptcy law, (i) commences a voluntary case,
(ii) consents to the entry of any order for relief against
it in an involuntary case, (iii) consents to the
appointment of a custodian of it or for all or substantially all
of its property, or (iv) makes a general assignment for the
benefit of its creditors;
(6) a court of competent jurisdiction enters an order or
decree under any bankruptcy law that (i) is for relief
against Allis-Chalmers in an involuntary case,
(ii) appoints a custodian of Allis-Chalmers or for
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all or substantially all of its property, or (iii) orders
the liquidation of Allis-Chalmers, and the order or decree
remains unstayed and in effect for 60 consecutive days;
(7) default in the deposit of any sinking fund payment when
due; or
(8) any other event of default provided with respect to
debt securities of that series in accordance with provisions of
the indenture related to the issuance of such debt securities.
An event of default for a particular series of debt securities
does not necessarily constitute an event of default for any
other series of debt securities issued under an indenture. The
trustee may withhold notice to the holders of debt securities of
any default (except in the payment of principal, interest or any
premium) if it considers the withholding of notice to be in the
interests of the holders.
If an event of default for any series of debt securities occurs
and continues, the trustee or the holders of a specified
percentage in aggregate principal amount of the debt securities
of the series may declare the entire principal of all of the
debt securities of that series to be due and payable
immediately. If this happens, subject to certain conditions, the
holders of a specified percentage of the aggregate principal
amount of the debt securities of that series can void the
declaration.
Other than its duties in case of a default, a trustee is not
obligated to exercise any of its rights or powers under any
indenture at the request, order or direction of any holders,
unless the holders offer the trustee reasonable indemnity. If
they provide this reasonable indemnification, the holders of a
majority in principal amount outstanding of any series of debt
securities may direct the time, method and place of conducting
any proceeding or any remedy available to the trustee, or
exercising any power conferred upon the trustee, for any series
of debt securities.
Amendments
and Waivers
Subject to certain exceptions, the indentures, the debt
securities issued thereunder or the subsidiary guarantees may be
amended or supplemented with the consent of the holders of a
majority in aggregate principal amount of the then-outstanding
debt securities of each series affected by such amendment or
supplemental indenture, with each such series voting as a
separate class (including, without limitation, consents obtained
in connection with a purchase of, or tender offer or exchange
offer for, debt securities) and, subject to certain exceptions,
any past default or compliance with any provisions may be waived
with respect to each series of debt securities with the consent
of the holders of a majority in principal amount of the
then-outstanding debt securities of such series voting as a
separate class (including consents obtained in connection with a
purchase of, or tender offer or exchange offer for, debt
securities).
Without the consent of each holder of the outstanding debt
securities affected, an amendment or waiver may not, among other
things:
(1) change the stated maturity of the principal of, or any
installment of principal of or interest on, any debt security,
or reduce the principal amount thereof or the rate of interest
thereon or any premium payable upon the redemption thereof, or
reduce the amount of the principal of an original issue discount
security that would be due and payable upon a declaration of
acceleration of the maturity thereof pursuant to the applicable
indenture, or change any place of payment where, or the coin or
currency in which, any debt security or any premium or the
interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment on or after the
stated maturity thereof (or, in the case of redemption, on or
after the redemption date therefor),
(2) reduce the percentage in principal amount of the
then-outstanding debt securities of any series, the consent of
whose holders is required for any such supplemental indenture,
or the consent of whose holders is required for any waiver (of
compliance with certain provisions of the applicable indenture
or certain defaults thereunder and their consequences) provided
for in the applicable indenture,
(3) modify any of the provisions set forth in
(i) sections related to matters addressed in items
(1) through (15) of this caption,
Amendments and Waivers, immediately
below, (ii) the provisions of the applicable indenture
related to the holders unconditional right to receive
principal, premium, if any,
20
and interest on the debt securities or (iii) the provisions
of the applicable indenture related to the waiver of past
defaults under such indenture except to increase any such
percentage or to provide that certain other provisions of such
indenture cannot be modified or waived without the consent of
the holder of each then-outstanding debt security affected
thereby; provided, however, that this clause shall
not be deemed to require the consent of any holder with respect
to changes in the references to the trustee and
concomitant changes in this section of such indenture, or the
deletion of this proviso in such indenture, in accordance with
the requirements of such indenture;
(4) waive a redemption payment with respect to any debt
security; provided, however, that any purchase or
repurchase of debt securities shall not be deemed a redemption
of the debt securities;
(5) release any guarantor from any of its obligations under
its guarantee or the applicable indenture, except in accordance
with the terms of such indenture (as supplemented by any
supplemental indenture); or
(6) make any change in the foregoing amendment and waiver
provisions.
Notwithstanding the foregoing, without the consent of any holder
of debt securities, Allis-Chalmers, the guarantors and the
trustee may amend each of the indentures or the debt securities
issued thereunder to:
(1) cure any ambiguity or to correct or supplement any
provision therein that may be inconsistent with any other
provision therein;
(2) evidence the succession of another person or entity to
Allis-Chalmers and the assumption by any such successor of the
covenants of Allis-Chalmers therein and, to the extent
applicable, to the debt securities;
(3) provide for uncertificated debt securities in addition
to or in place of certificated debt securities; provided
that the uncertificated debt securities are issued in
registered form for purposes of Section 163(f) of the
Internal Revenue Code of 1986, as amended (the
Code), or in the manner such that the
uncertificated debt securities are described in
Section 163(f)(2)(B) of the Code;
(4) add a guarantee and cause any person or entity to
become a guarantor,
and/or to
evidence the succession of another person or entity to a
guarantor and the assumption by any such successor of the
guarantee of such guarantor therein and, to the extent
applicable, endorsed upon any debt securities of any series;
(5) secure the debt securities of any series;
(6) add to the covenants of Allis-Chalmers such further
covenants, restrictions, conditions or provisions as
Allis-Chalmers shall consider to be appropriate for the benefit
of the holders of all or any series of debt securities (and if
such covenants, restrictions, conditions or provisions are to be
for the benefit of less than all series of debt securities,
stating that such covenants are expressly being included solely
for the benefit of such series) or to surrender any right or
power therein conferred upon Allis-Chalmers and to make the
occurrence, or the occurrence and continuance, of a default in
any such additional covenants, restrictions, conditions or
provisions an event of default permitting the enforcement of all
or any of the several remedies provided in the applicable
indenture as set forth therein; provided, that in respect
of any such additional covenant, restriction, condition or
provision, such supplemental indenture may provide for a
particular period of grace after default (which period may be
shorter or longer than that allowed in the case of other
defaults) or may provide for an immediate enforcement upon such
an event of default or may limit the remedies available to the
trustee upon such an event of default or may limit the right of
the holders of a majority in aggregate principal amount of the
debt securities of such series to waive such an event of default;
(7) make any change to any provision of the applicable
indenture that does not adversely affect the rights or interests
of any holder of debt securities issued thereunder;
(8) provide for the issuance of additional debt securities
in accordance with the provisions set forth in the applicable
indenture on the date of such indenture;
21
(9) add any additional defaults or events of default in
respect of all or any series of debt securities;
(10) add to, change or eliminate any of the provisions of
the applicable indenture to such extent as shall be necessary to
permit or facilitate the issuance of debt securities in bearer
form, registrable or not registrable as to principal, and with
or without interest coupons;
(11) change or eliminate any of the provisions of the
applicable indenture; provided that any such change or
elimination shall become effective only when there is no debt
security outstanding of any series created prior to the
execution of such supplemental indenture that is entitled to the
benefit of such provision;
(12) establish the form or terms of debt securities of any
series as permitted thereunder, including to reopen any series
of any debt securities as permitted thereunder;
(13) evidence and provide for the acceptance of appointment
thereunder by a successor trustee with respect to the debt
securities of one or more series and to add to or change any of
the provisions of the applicable indenture as shall be necessary
to provide for or facilitate the administration of the trusts
thereunder by more than one trustee, pursuant to the
requirements of such indenture;
(14) conform the text of the applicable indenture (and/or
any supplemental indenture) or any debt securities issued
thereunder to any provision of a description of such debt
securities appearing in a prospectus or prospectus supplement or
an offering memorandum or offering circular to the extent that
such provision was intended to be a verbatim recreation of a
provision of such indenture (and/or any supplemental indenture)
or any debt securities issued thereunder; or
(15) modify, eliminate or add to the provisions of the
applicable indenture to such extent as shall be necessary to
effect the qualification of such indenture under the Trust
Indenture Act of 1939, as amended (the Trust Indenture
Act), or under any similar federal statute
subsequently enacted, and to add to such indenture such other
provisions as may be expressly required under the Trust
Indenture Act.
The consent of the holders is not necessary under either
indenture to approve the particular form of any proposed
amendment. It is sufficient if such consent approves the
substance of the proposed amendment. After an amendment under an
indenture becomes effective, Allis-Chalmers is required to mail
to the holders of debt securities thereunder a notice briefly
describing such amendment. However, the failure to give such
notice to all such holders, or any defect therein, will not
impair or affect the validity of the amendment.
Legal
Defeasance and Covenant Defeasance
Each indenture provides that Allis-Chalmers may, at its option
and at any time, elect to have all of its obligations discharged
with respect to the debt securities outstanding thereunder and
all obligations of any guarantors of such debt securities
discharged with respect to their guarantees (Legal
Defeasance), except for:
(1) the rights of holders of outstanding debt securities to
receive payments in respect of the principal of, or interest or
premium, if any, on such debt securities when such payments are
due from the trust referred to below;
(2) Allis-Chalmers obligations with respect to the
debt securities concerning issuing temporary debt securities,
registration of debt securities, mutilated, destroyed, lost or
stolen debt securities and the maintenance of an office or
agency for payment and money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of
the trustee, and Allis-Chalmers and each guarantors
obligations in connection therewith; and
(4) the Legal Defeasance and Covenant Defeasance provisions
of the applicable indenture.
In addition, Allis-Chalmers may, at its option and at any time,
elect to have the obligations of Allis-Chalmers released with
respect to certain provisions of each indenture, including
certain provisions set forth in any supplemental indenture
thereto (such release and termination being referred to as
Covenant
22
Defeasance), and thereafter any omission to comply
with such obligations or provisions will not constitute a
default or event of default. In the event Covenant Defeasance
occurs in accordance with the applicable indenture, the events
of default described under clauses (3) and (4) under
the caption Events of Default, in each
case, will no longer constitute an event of default thereunder.
In order to exercise either Legal Defeasance or Covenant
Defeasance:
(1) Allis-Chalmers must irrevocably deposit with the
trustee, in trust, for the benefit of the holders of the debt
securities, cash in U.S. dollars, non-callable government
securities, or a combination of cash in U.S. dollars and
non-callable U.S. government securities, in amounts as will
be sufficient, in the opinion of a nationally recognized
investment bank, appraisal firm or firm of independent public
accountants to pay the principal of, or interest and premium, if
any, on the outstanding debt securities on the stated date for
payment thereof or on the applicable redemption date, as the
case may be, and Allis-Chalmers must specify whether the debt
securities are being defeased to such stated date for payment or
to a particular redemption date;
(2) in the case of Legal Defeasance, Allis-Chalmers has
delivered to the trustee an opinion of counsel reasonably
acceptable to the trustee confirming that
(a) Allis-Chalmers has received from, or there has been
published by, the Internal Revenue Service a ruling or
(b) since the issue date of the debt securities, there has
been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion
of counsel will confirm that, the holders of the outstanding
debt securities will not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance
and will be subject to federal income tax on the same amounts,
in the same manner and at the same time as would have been the
case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, Allis-Chalmers has
delivered to the trustee an opinion of counsel reasonably
acceptable to the trustee confirming that the holders of the
outstanding debt securities will not recognize income, gain or
loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not
occurred;
(4) no default or event of default has occurred and is
continuing on the date of such deposit (other than a default or
event of default resulting from the borrowing of funds to be
applied to such deposit);
(5) the deposit will not result in a breach or violation
of, or constitute a default under, any other instrument to which
Allis-Chalmers or any guarantor is a party or by which
Allis-Chalmers or any guarantor is bound;
(6) such Legal Defeasance or Covenant Defeasance will not
result in a breach or violation of, or constitute a default
under, any material agreement or instrument (other than the
applicable indenture) to which Allis-Chalmers or any of its
subsidiaries is a party or by which Allis-Chalmers or any of its
subsidiaries is bound;
(7) Allis-Chalmers must deliver to the trustee an
officers certificate stating that the deposit was not made
by Allis-Chalmers with the intent of preferring the holders of
debt securities over the other creditors of Allis-Chalmers with
the intent of defeating, hindering, delaying or defrauding
creditors of Allis-Chalmers or others;
(8) Allis-Chalmers must deliver to the trustee an
officers certificate, stating that all conditions
precedent set forth in clauses (1) through (7) of this
paragraph have been complied with; and
(9) Allis-Chalmers must deliver to the trustee an opinion
of counsel (which opinion of counsel may be subject to customary
assumptions, qualifications, and exclusions), stating that all
conditions precedent set forth in clauses (2), (3) and
(5) of this paragraph have been complied with; provided
that the opinion of counsel with respect to clause (5)
of this paragraph may be to the knowledge of such counsel.
23
Satisfaction
and Discharge
Each of the indentures will be discharged and will cease to be
of further effect (except as to surviving rights of registration
of transfer or exchange of debt securities, as expressly
provided for in such indenture) as to all outstanding debt
securities issued thereunder and the guarantees issued
thereunder when:
(1) either (a) all of the debt securities theretofore
authenticated and delivered under such indenture (except lost,
stolen or destroyed debt securities that have been replaced or
paid and debt securities for whose payment money or certain
United States governmental obligations have theretofore been
deposited in trust or segregated and held in trust by
Allis-Chalmers and thereafter repaid to Allis-Chalmers or
discharged from such trust) have been delivered to the trustee
for cancellation or (b) all debt securities not theretofore
delivered to the trustee for cancellation have become due and
payable or will become due and payable at their stated maturity
within one year, or are to be called for redemption within one
year under arrangements satisfactory to the trustee for the
giving of notice of redemption by the trustee in the name, and
at the expense, of Allis-Chalmers, and Allis-Chalmers or the
guarantors have irrevocably deposited or caused to be deposited
with the trustee funds or U.S. government obligations, or a
combination thereof, in an amount sufficient to pay and
discharge the entire indebtedness on the debt securities not
theretofore delivered to the trustee for cancellation, for
principal of and premium, if any, on and interest on the debt
securities to the date of deposit (in the case of debt
securities that have become due and payable) or to the stated
maturity or redemption date, as the case may be, together with
instructions from Allis-Chalmers irrevocably directing the
trustee to apply such funds to the payment thereof at maturity
or redemption, as the case may be;
(2) Allis-Chalmers or the guarantors have paid all other
sums then due and payable under such indenture by
Allis-Chalmers; and
(3) Allis-Chalmers has delivered to the trustee an
officers certificate and an opinion of counsel, which,
taken together, state that all conditions precedent under such
indenture relating to the satisfaction and discharge of such
indenture have been complied with.
No
Personal Liability of Directors, Officers, Employees, Partners
and Stockholders
No director, officer, employee, incorporator, partner or
stockholder of Allis-Chalmers or any guarantor, as such, shall
have any liability for any obligations of Allis-Chalmers or the
guarantors under the debt securities, the indentures, the
guarantees or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each holder, upon
Allis-Chalmers issuance of the debt securities and
execution of the indentures, waives and releases all such
liability. The waiver and release are part of the consideration
for issuance of the debt securities. Such waiver may not be
effective to waive liabilities under the federal securities laws
and it is the view of the SEC that such a waiver is against
public policy.
Denominations
Unless stated otherwise in the prospectus supplement for each
issuance of debt securities, the debt securities will be issued
in denominations of $1,000 each or integral multiples of $1,000.
Paying
Agent and Registrar
The trustee will initially act as paying agent and registrar for
the debt securities. Allis-Chalmers may change the paying agent
or registrar without prior notice to the holders of the debt
securities, and Allis-Chalmers may act as paying agent or
registrar.
Transfer
and Exchange
A holder may transfer or exchange debt securities in accordance
with the applicable indenture. The registrar and the trustee may
require a holder, among other things, to furnish appropriate
endorsements and transfer documents, and Allis-Chalmers may
require a holder to pay any taxes and fees required by law or
permitted by the applicable indenture. Allis-Chalmers is not
required to transfer or exchange any debt security
24
selected for redemption. In addition, Allis-Chalmers is not
required to transfer or exchange any debt security for a period
of 15 days before a selection of debt securities to be
redeemed.
Subordination
The payment of principal of, premium, if any, and interest on,
subordinated debt securities and any other payment obligations
of Allis-Chalmers in respect of subordinated debt securities
(including any obligation to repurchase subordinated debt
securities) is subordinated in certain circumstances in right of
payment, as set forth in the subordinated indenture, to the
prior payment in full in cash of all senior debt.
Allis-Chalmers also may not make any payment, whether by
redemption, purchase, retirement, defeasance or otherwise, upon
or in respect of subordinated debt securities, except from the
trust described under Legal Defeasance and
Covenant Defeasance, if
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a default in the payment of all or any portion of the
obligations on any senior debt (payment
default) occurs, or
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any other default occurs and is continuing with respect to
designated senior debt pursuant to which the maturity thereof
may be accelerated (non-payment default) and,
solely with respect to this clause, the trustee for the
subordinated debt securities receives a notice of the default (a
Payment Blockage Notice) from the trustee or
other representative for the holders of such designated senior
debt.
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Cash payments on subordinated debt securities will be resumed
(a) in the case of a payment default, upon the date on
which such default is cured or waived and (b) in case of a
nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the
date on which the applicable Payment Blockage Notice is
received, unless the maturity of any designated senior debt has
been accelerated or a bankruptcy event of default has occurred
and is continuing. No new period of payment blockage may be
commenced unless and until 360 days have elapsed since the
date of commencement of the payment blockage period resulting
from the immediately prior Payment Blockage Notice. No
nonpayment default in respect of designated senior debt that
existed or was continuing on the date of delivery of any Payment
Blockage Notice to the trustee for the subordinated debt
securities will be, or be made, the basis for a subsequent
Payment Blockage Notice unless such default shall have been
cured or waived for a period of no less than 90 consecutive
days.
The subordinated indenture also requires that we promptly notify
holders of senior debt if payment of subordinated debt
securities is accelerated because of an event of default.
Upon any payment or distribution of assets or securities of
Allis-Chalmers, in connection with any dissolution or winding up
or total or partial liquidation or reorganization of
Allis-Chalmers, whether voluntary or involuntary, or in
bankruptcy, insolvency, receivership or other proceedings or
other marshalling of assets for the benefit of creditors, all
amounts due or to become due upon all senior debt shall first be
paid in full, in cash or cash equivalents, before the holders of
the subordinated debt securities or the trustee on their behalf
shall be entitled to receive any payment by Allis-Chalmers on
account of the subordinated debt securities, or any payment to
acquire any of the subordinated debt securities for cash,
property or securities, or any distribution with respect to the
subordinated debt securities of any cash, property or
securities. Before any payment may be made by, or on behalf of,
Allis-Chalmers on any subordinated debt security (other than
with the money, securities or proceeds held under any defeasance
trust established in accordance with the subordinated
indenture), in connection with any such dissolution, winding up,
liquidation or reorganization, any payment or distribution of
assets or securities for Allis-Chalmers, to which the holders of
subordinated debt securities or the trustee on their behalf
would be entitled shall be made by Allis-Chalmers or by any
receiver, trustee in bankruptcy, liquidating trustee, agent or
other similar person or entity making such payment or
distribution or by the holders or the trustee if received by
them or it, directly to the holders of senior debt or their
representatives or to any trustee or trustees under any
indenture pursuant to which any such senior debt may have been
issued, as their respective interests appear, to the extent
necessary to pay all such senior debt in full, in cash or cash
equivalents, after giving effect to any concurrent payment,
distribution or provision therefor to or for the holders of such
senior debt.
25
As a result of these subordination provisions, in the event of
the liquidation, bankruptcy, reorganization, insolvency,
receivership or similar proceeding or an assignment for the
benefit of the creditors of Allis-Chalmers or a marshalling of
assets or liabilities of Allis-Chalmers, holders of subordinated
debt securities may receive ratably less than other creditors.
Payment
and Transfer
Principal, interest and any premium on fully registered debt
securities will be paid at designated places. Payment will be
made by check mailed to the persons in whose names the debt
securities are registered on days specified in the indentures or
any prospectus supplement. Debt securities payments in other
forms will be paid at a place designated by us and specified in
a prospectus supplement.
Fully registered debt securities may be transferred or exchanged
at the corporation trust office of the trustee or at any other
office or agency maintained by us for such purposes, without the
payment of any service charge except for any tax or governmental
charge.
Global
Securities
The debt securities of a series may be issued in whole or in
part in the form of one or more global certificates that we will
deposit with a depositary identified in the applicable
prospectus supplement. Unless and until it is exchanged in whole
or in part for the individual debt securities that it
represents, a global security may not be transferred except as a
whole:
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by the applicable depositary to a nominee of the depositary;
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by any nominee to the depositary itself or another
nominee; or
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by the depositary or any nominee to a successor depositary or
any nominee of the successor.
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We will describe the specific terms of the depositary
arrangement with respect to a series of debt securities in the
applicable prospectus supplement. We anticipate that the
following provisions will generally apply to depositary
arrangements.
When we issue a global security in registered form, the
depositary for the global security or its nominee will credit,
on its book-entry registration and transfer system, the
respective principal amounts of the individual debt securities
represented by that global security to the accounts of persons
that have accounts with the depositary
(participants). Those accounts will be
designated by the dealers, underwriters or agents with respect
to the underlying debt securities or by us if those debt
securities are offered and sold directly by us. Ownership of
beneficial interests in a global security will be limited to
participants or persons that may hold interests through
participants. For interests of participants, ownership of
beneficial interests in the global security will be shown on
records maintained by the applicable depositary or its nominee.
For interests of persons other than participants, that ownership
information will be shown on the records of participants.
Transfer of that ownership will be effected only through those
records. The laws of some states require that certain purchasers
of securities take physical delivery of securities in definitive
form. These limits and laws may impair our ability to transfer
beneficial interests in a global security.
As long as the depositary for a global security, or its nominee,
is the registered owner of that global security, the depositary
or nominee will be considered the sole owner or holder of the
debt securities represented by the global security for all
purposes under the applicable indenture. Except as provided
below, owners of beneficial interests in a global security:
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will not be entitled to have any of the underlying debt
securities registered in their names;
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will not receive or be entitled to receive physical delivery of
any of the underlying debt securities in definitive
form; and
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will not be considered the owners or holders under the indenture
relating to those debt securities.
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26
Payments of principal of, any premium on and any interest on
individual debt securities represented by a global security
registered in the name of a depositary or its nominee will be
made to the depositary or its nominee as the registered owner of
the global security representing such debt securities. Neither
we, the trustee for the debt securities, any paying agent nor
the registrar for the debt securities will be responsible for
any aspect of the records relating to or payments made by the
depositary or any participants on account of beneficial
interests in the global security.
We expect that the depositary or its nominee, upon receipt of
any payment of principal, any premium or interest relating to a
global security representing any series of debt securities,
immediately will credit participants accounts with the
payments. Those payments will be credited in amounts
proportional to the respective beneficial interests of the
participants in the principal amount of the global security as
shown on the records of the depositary or its nominee. We also
expect that payments by participants to owners of beneficial
interests in the global security held through those participants
will be governed by standing instructions and customary
practices. This is now the case with securities held for the
accounts of customers registered in street name.
Those payments will be the sole responsibility of those
participants.
If the depositary for a series of debt securities is at any time
unwilling, unable or ineligible to continue as depositary and we
do not appoint a successor depositary within 90 days, we
will issue individual debt securities of that series in exchange
for the global security or securities representing that series.
In addition, we may at any time in our sole discretion determine
not to have any debt securities of a series represented by one
or more global securities. In that event, we will issue
individual debt securities of that series in exchange for the
global security or securities. Furthermore, if we specify, an
owner of a beneficial interest in a global security may, on
terms acceptable to us, the trustee and the applicable
depositary, receive individual debt securities of that series in
exchange for those beneficial interests. The foregoing is
subject to any limitations described in the applicable
prospectus supplement. In any such instance, the owner of the
beneficial interest will be entitled to physical delivery of
individual debt securities equal in principal amount to the
beneficial interest and to have the debt securities registered
in its name. Those individual debt securities will be issued in
any authorized denominations.
Governing
Law
Each indenture and the debt securities will be governed by and
construed in accordance with the laws of the State of New York.
Notices
Notices to holders of debt securities will be given by mail to
the addresses of such holders as they appear in the security
register for such debt securities.
No
Personal Liability of Officers, Directors, Employees or
Stockholders
No officer, director, employee or stockholder, as such, of ours
or any of our affiliates shall have any personal liability in
respect of our obligations under any indenture or the debt
securities by reason of his, her or its status as such.
Information
Concerning the Trustee
A banking or financial institution will be the trustee under the
indentures. A successor trustee may be appointed in accordance
with the terms of the indentures.
27
The indentures and the provisions of the Trust Indenture Act
incorporated by reference therein, will contain certain
limitations on the rights of the trustee, should it become a
creditor of us, to obtain payment of claims in certain cases, or
to realize on certain property received in respect of any such
claim as security or otherwise. The trustee will be permitted to
engage in other transactions; however, if it acquires any
conflicting interest (within the meaning of the Trust Indenture
Act), it must eliminate such conflicting interest or resign.
A single banking or financial institution may act as trustee
with respect to both the subordinated indenture and the senior
indenture. If this occurs, and should a default occur with
respect to either the subordinated debt securities or the senior
debt securities, such banking or financial institution would be
required to resign as trustee under one of the indentures within
90 days of such default, pursuant to the Trust Indenture
Act, unless such default were cured, duly waived or otherwise
eliminated.
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DESCRIPTION
OF WARRANTS
We may issue warrants to purchase common stock, preferred stock,
debt securities (which may or may not be guaranteed pursuant to
guarantees) or units. Warrants may be issued independently or
together with any other securities and may be attached to, or
separate from, such securities. Each series of warrants will be
issued under a separate warrant agreement to be entered into
between us and a warrant agent. The terms of any warrants to be
issued and a description of the material provisions of the
applicable warrant agreement will be set forth in the applicable
prospectus supplement.
The applicable prospectus supplement will specify the following
terms of any warrants in respect of which this prospectus is
being delivered:
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the title of such warrants;
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the aggregate number of such warrants;
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the price or prices at which such warrants will be issued;
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the securities purchasable upon exercise of such warrants;
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the price at which, and the currency or currencies in which the
securities purchasable upon exercise of, such warrants may be
purchased;
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the date on which the right to exercise such warrants shall
commence and the date on which such right shall expire;
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if applicable, the minimum or maximum amount of such warrants
which may be exercised at any one time;
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if applicable, the designation and terms of the securities with
which such warrants are issued and the number of such warrants
issued with each such security;
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if applicable, the date on and after which such warrants and the
related securities will be separately transferable;
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information with respect to book-entry procedures, if any;
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if applicable, a discussion of any material U.S. federal
income tax considerations; and
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any other terms of such warrants, including terms, procedures
and limitations relating to the exchange and exercise of such
warrants.
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As of November 30, 2006, we have issued and outstanding
warrants to purchase 4,000 shares of common stock. The
warrants do not confer upon holders thereof any voting or other
rights of stockholders.
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DESCRIPTION
OF UNITS
As specified in the applicable prospectus supplement, we may
issue units consisting of one or more debt securities (which may
or may not be guaranteed pursuant to guarantees), shares of
common stock, shares of preferred stock or warrants or any
combination of such securities.
The applicable prospectus supplement will specify the following
terms of any units in respect of which this prospectus is being
delivered:
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the terms of the units and of any of the debt securities (which
may or may not be guaranteed pursuant to guarantees), common
stock, preferred stock and warrants comprising the units,
including whether and under what circumstances the securities
comprising the units may be traded separately;
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a description of the terms of any unit agreement governing the
units; and
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a description of the provisions for the payment, settlement,
transfer or exchange of the units.
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PLAN OF
DISTRIBUTION
We may sell the securities through agents, underwriters or
dealers, or directly to one or more purchasers without using
underwriters or agents.
We may designate agents to solicit offers to purchase our
securities. We will name any agent involved in offering or
selling our securities, and any commissions that we will pay to
the agent, in the applicable prospectus supplement. Unless we
indicate otherwise in our prospectus supplement, our agents will
act on a best efforts basis for the period of their appointment.
If underwriters are used in the sale, the securities will be
acquired by the underwriters for their own account. The
underwriters may resell the securities in one or more
transactions (including block transactions), at negotiated
prices, at a fixed public offering price or at varying prices
determined at the time of sale. We will include the names of the
managing underwriter(s), as well as any other underwriters, and
the terms of the transaction, including the compensation the
underwriters and dealers will receive, in our prospectus
supplement. If we use an underwriter, we will execute an
underwriting agreement with the underwriter(s) at the time that
we reach an agreement for the sale of our securities. The
obligations of the underwriters to purchase the securities will
be subject to certain conditions contained in the underwriting
agreement. The underwriters will be obligated to purchase all
the securities of the series offered if any of the securities
are purchased. Any public offering price and any discounts or
concessions allowed or re-allowed or paid to dealers may be
changed from time to time. The underwriters will use a
prospectus supplement to sell our securities.
If we use a dealer, we, as principal, will sell our securities
to the dealer. The dealer will then sell our securities to the
public at varying prices that the dealer will determine at the
time it sells our securities. We will include the name of the
dealer and the terms of our transactions with the dealer in the
applicable prospectus supplement.
We may directly solicit offers to purchase our securities, and
we may directly sell our securities to institutional or other
investors. In this case, no underwriters or agents would be
involved. We will describe the terms of our direct sales in the
applicable prospectus supplement.
Underwriters, dealers and agents that participate in the
distribution of the securities may be underwriters as defined in
the Securities Act and any discounts or commissions received by
them from us and any profit on their resale of the securities
may be treated as underwriting discounts and commissions under
the Securities Act. In connection with the sale of the
securities offered by this prospectus, underwriters may receive
compensation from us or from the purchasers of the securities,
for whom they may act as agents, in the form of discounts,
concessions or commissions, which will not exceed 7% of the
proceeds from the sale of the securities. Any underwriters,
dealers or agents will be identified and their compensation
described in the applicable prospectus supplement. We may have
agreements with the underwriters, dealers and agents to
indemnify them against certain civil liabilities, including
liabilities under the Securities Act, or to contribute with
respect to payments which the underwriters, dealers or agents
may be required to make. Underwriters, dealers and agents may
engage in transactions with, or perform services for, us or our
subsidiaries in the ordinary course of their business.
Unless otherwise specified in the applicable prospectus
supplement, all securities offered under this prospectus will be
a new issue of securities with no established trading market,
other than the common stock, which is currently listed and
traded on the American Stock Exchange. We may elect to list any
other class or series of securities on a national securities
exchange or a foreign securities exchange but are not obligated
to do so. Any common stock sold by this prospectus will be
listed for trading on the American Stock Exchange subject to
official notice of issuance. We cannot give you any assurance as
to the liquidity of the trading markets for any of the
securities.
Any underwriter to whom securities are sold by us for public
offering and sale may engage in over-allotment transactions,
stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the
Exchange Act. Over-allotment transactions involve sales by the
underwriters of the securities in excess of the offering size,
which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so
long as the stabilizing bids do not exceed a specified
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maximum. Syndicate covering transactions involve purchases of
the securities in the open market after the distribution has
been completed in order to cover syndicate short positions.
Penalty bids permit the underwriters to reclaim a selling
concession from a syndicate member when the securities
originally sold by the syndicate member are purchased in a
stabilizing or syndicate covering transaction to cover syndicate
short positions. These activities may cause the price of the
securities to be higher than it would otherwise be. The
underwriters will not be obligated to engage in any of the
aforementioned transactions and may discontinue such
transactions at any time without notice.
LEGAL
MATTERS
The validity of the securities will be passed upon for us by
Andrews Kurth LLP, Houston, Texas. Any underwriter will be
advised about other issues relating to any offering by its own
legal counsel.
EXPERTS
The consolidated financial statements of Allis-Chalmers Energy
Inc. as of and for the years ended December 31, 2005 and
2004 incorporated by reference in this prospectus have been
audited by UHY Mann Frankfort Stein & Lipp CPAs, LLP,
independent registered public accounting firm, as set forth in
their report thereon, and are incorporated by reference herein
in reliance upon such report given upon the authority of said
firm as experts in auditing and accounting.
The consolidated financial statements of Allis-Chalmers Energy
Inc. as of and for the year ended December 31, 2003
incorporated by reference in this prospectus have been audited
by Gordon, Hughes and Banks, LLP, independent registered public
accounting firm, as set forth in their report thereon, and are
incorporated by reference in reliance upon such report given
upon the authority of said firm as experts in auditing and
accounting.
The financial statements of Delta Rental Service, Inc. and
schedules and notes thereto incorporated by reference in this
prospectus have been audited by Wright, Moore, Dehart,
Dupuis & Hutchinson, LLC, independent certified public
accountants, to the extent and for the periods set forth in
their report thereon, and are incorporated by reference herein
in reliance upon such report given upon the authority of said
firm as experts in auditing and accounting.
The financial statements of Capcoil Tubing Services, Inc. and
schedules and notes thereto incorporated by reference in this
prospectus have been audited by Curtis Blakely & Co.,
PC, independent certified public accountants, to the extent and
for the periods set forth in their report thereon, and are
incorporated by reference herein in reliance upon such report
given upon the authority of said firm as experts in auditing and
accounting.
The financial statements of W.T. Enterprises, Inc. and schedules
and notes thereto incorporated by reference in this prospectus
have been audited by Accounting & Consulting Group,
LLP, independent certified public accountants, to the extent and
for the periods set forth in their report thereon, and are
incorporated by reference herein in reliance upon such report
given upon the authority of said firm as experts in auditing and
accounting.
The financial statements of Specialty Rental Tools Inc.
incorporated by reference in this prospectus have been audited
by UHY Mann Frankfort Stein & Lipp CPAs, LLP,
independent auditors, to the extent and for the periods set
forth in their report thereon, and are incorporated by reference
herein in reliance upon such report given upon the authority of
said firm as experts in auditing and accounting.
The consolidated financial statements of DLS Drilling, Logistics
and Services Corporation as of December 31, 2005 and 2004
and for each of the years in the three-year period ended
December 31, 2005, have been incorporated by reference
herein in reliance upon the report of Sibille (formerly
Finsterbusch Pickenhayn Sibille), independent public accounting
firm, and upon the authority of said firm as experts in
accounting and auditing.
32
4,500,000 shares
Allis-Chalmers Energy
Inc.
Common Stock
PROSPECTUS SUPPLEMENT
RBC
Capital Markets
Johnson
Rice & Company L.L.C.
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Morgan
Keegan & Company, Inc.
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Pritchard
Capital Partners, LLC
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January , 2007