e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2007 OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM To
Commission file number 1-2199
ALLIS-CHALMERS ENERGY INC.
(Exact name of registrant as specified in its charter)
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DELAWARE
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39-0126090 |
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
5075 WESTHEIMER, SUITE 890, HOUSTON, TEXAS 77056
(Address of principal executive offices) (Zip code)
(713) 369-0550
Registrants telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and larger accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o Accelerated filer þ Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
At May 1, 2007 there were 34,644,510 shares of common stock, par value $0.01 per share,
outstanding.
ALLIS-CHALMERS ENERGY INC.
FORM 10-Q
For the Quarterly Period Ended March 31, 2007
TABLE OF CONTENTS
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALLIS-CHALMERS ENERGY INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except for share and per share amounts)
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March 31, |
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December 31, |
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2007 |
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2006 |
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(unaudited) |
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Assets |
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Cash and cash equivalents |
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$ |
75,287 |
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$ |
39,745 |
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Trade receivables, net |
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117,595 |
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95,766 |
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Inventories |
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30,440 |
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28,615 |
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Prepaid expenses and other |
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9,321 |
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16,636 |
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Total current assets |
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232,643 |
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180,762 |
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Property and equipment, net |
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562,951 |
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554,258 |
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Goodwill |
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125,854 |
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125,835 |
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Other intangible assets, net |
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31,801 |
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32,840 |
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Debt issuance costs, net |
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14,991 |
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9,633 |
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Other assets |
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5,020 |
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4,998 |
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Total assets |
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$ |
973,260 |
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$ |
908,326 |
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Liabilities and Stockholders Equity |
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Current maturities of long-term debt |
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$ |
5,248 |
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$ |
6,999 |
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Trade accounts payable |
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29,024 |
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25,666 |
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Accrued salaries, benefits and payroll taxes |
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11,845 |
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10,888 |
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Accrued interest |
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8,636 |
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11,867 |
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Accrued expenses |
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19,075 |
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16,951 |
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Total current liabilities |
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73,828 |
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72,371 |
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Long-term debt, net of current maturities |
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510,423 |
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561,446 |
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Deferred income taxes |
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21,491 |
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19,953 |
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Other long-term liabilities |
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588 |
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623 |
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Total liabilities |
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606,330 |
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654,393 |
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Commitments and contingencies |
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Stockholders Equity |
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Preferred stock, $0.01 par value (25,000,000 shares authorized, no shares issued) |
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Common stock, $0.01 par value (100,000,000 shares authorized;
34,309,797 issued and outstanding at March 31, 2007 and
28,233,411 issued and outstanding at December 31, 2006) |
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343 |
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282 |
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Capital in excess of par value |
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316,979 |
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216,208 |
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Retained earnings |
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49,608 |
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37,443 |
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Total stockholders equity |
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366,930 |
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253,933 |
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Total liabilities and stockholders equity |
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$ |
973,260 |
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$ |
908,326 |
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The accompanying Notes are an integral part of the Consolidated Condensed Financial Statements.
3
ALLIS-CHALMERS ENERGY INC.
CONSOLIDATED CONDENSED INCOME STATEMENTS
(in thousands, except per share amounts)
(unaudited)
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For the Three Months Ended |
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March 31, |
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2007 |
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2006 |
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Revenues |
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$ |
135,900 |
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$ |
47,911 |
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Cost of revenues |
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Direct costs |
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77,605 |
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27,998 |
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Depreciation |
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11,816 |
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3,330 |
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Total cost of revenues |
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89,421 |
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31,328 |
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Gross margin |
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46,479 |
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16,583 |
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General and administrative |
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13,971 |
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7,343 |
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Amortization |
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1,488 |
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607 |
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Income from operations |
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31,020 |
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8,633 |
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Other income (expense): |
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Interest expense |
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(13,571 |
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(3,705 |
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Interest income |
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759 |
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77 |
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Other |
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184 |
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25 |
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Total other income (expense) |
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(12,628 |
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(3,603 |
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Income before income taxes |
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18,392 |
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5,030 |
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Provision for taxes |
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(6,227 |
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(607 |
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Net income |
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$ |
12,165 |
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$ |
4,423 |
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Net income per common share: |
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Basic |
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$ |
0.38 |
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$ |
0.26 |
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Diluted |
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$ |
0.37 |
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$ |
0.23 |
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Weighted average shares outstanding: |
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Basic |
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32,330 |
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17,105 |
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Diluted |
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33,011 |
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19,113 |
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The accompanying Notes are an integral part of the Consolidated Condensed Financial Statements.
4
ALLIS-CHALMERS ENERGY INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
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For the Three Months Ended |
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March 31, |
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2007 |
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2006 |
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Cash Flows from Operating Activities: |
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Net income |
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$ |
12,165 |
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$ |
4,423 |
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Adjustments to reconcile net income to net cash
used in operating activities: |
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Depreciation |
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11,816 |
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3,330 |
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Amortization |
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1,488 |
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607 |
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Write-off of deferred financing fees due to refinancing |
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1,225 |
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Imputed interest |
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355 |
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Stock option expense |
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453 |
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942 |
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Allowance for bad debts |
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172 |
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180 |
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Deferred taxes |
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1,538 |
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Gain on sale of property and equipment |
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(862 |
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(514 |
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Changes in operating assets and liabilities, net of acquisitions: |
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(Increase) in trade receivable |
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(22,001 |
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(4,288 |
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(Increase) in inventories |
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(1,825 |
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(1,484 |
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Decrease in other current assets |
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7,315 |
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7 |
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(Increase) in other assets |
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(41 |
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(88 |
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Increase (decrease) in accounts payable |
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3,358 |
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(1,286 |
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Increase (decrease) in accrued interest |
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(3,231 |
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2,764 |
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Increase (decrease) in accrued expenses |
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2,124 |
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(11,017 |
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Increase in accrued salaries, benefits and payroll taxes |
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957 |
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483 |
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Increase (decrease) in other long-term liabilities |
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(35 |
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27 |
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Net Cash Provided By (Used In) Operating Activities |
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14,616 |
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(5,559 |
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Cash Flows from Investing Activities: |
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Acquisition of businesses, net of cash received |
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(83,447 |
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Proceeds from sale of property and equipment |
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2,698 |
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1,200 |
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Purchase of property and equipment |
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(22,345 |
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(7,586 |
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Net Cash Used In Investing Activities |
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(19,647 |
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(89,833 |
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Cash Flows from Financing Activities: |
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Proceeds from issuance of stock, net |
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100,078 |
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Proceeds from exercises of options and warrants |
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301 |
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972 |
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Proceeds from long-term debt |
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250,000 |
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161,412 |
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Repayments on long-term debt |
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(302,774 |
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(43,481 |
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Repayments on related party debt |
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(3,031 |
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Repayments on line of credit |
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(6,400 |
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Debt issuance costs |
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(7,032 |
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(5,339 |
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Net Cash Provided By Financing Activities |
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40,573 |
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104,133 |
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Net change in cash and cash equivalents |
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35,542 |
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8,741 |
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Cash and cash equivalents at beginning of year |
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39,745 |
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1,920 |
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Cash and cash equivalents at end of period |
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$ |
75,287 |
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$ |
10,661 |
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Supplemental information: |
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Interest paid |
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$ |
15,566 |
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$ |
586 |
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Income taxes paid |
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$ |
178 |
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$ |
232 |
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The accompanying Notes are an integral part of the Consolidated Condensed Financial Statements.
5
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1 NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Allis-Chalmers Energy Inc. and subsidiaries (Allis-Chalmers, we, our or us) is a
multi-faceted oilfield service 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, Alabama, West Virginia, offshore in the Gulf of
Mexico, and internationally, primarily in Argentina and Mexico. We operate in six sectors of the
oil and natural gas service industry: Rental Services; International Drilling; Directional
Drilling; Tubular Services; Underbalanced Drilling; and Production Services.
We derive operating revenues from rates per day and rates per job that we charge for the labor and
equipment required to provide a service and rates per day for equipment and tools that we rent to
our customers. The price we charge for our services depends upon several factors, including the
level of oil and natural gas drilling activity and the competitive environment in the particular
geographic regions in which we operate. Contracts are awarded based on price, quality of service
and equipment and general reputation and experience of our personnel. The principal operating
costs are direct and indirect labor and benefits, repairs and maintenance of our equipment,
insurance, equipment rentals, fuel, depreciation and general and administrative expenses.
On October 25, 2006 our Board of Directors approved the transfer of the listing of our common stock
from the American Stock Exchange (AMEX) to the New York Stock Exchange (NYSE). Our common
stock continued to trade on the AMEX under the symbol ALY until the transfer was completed on
March 22, 2007, at which time we began trading on the NYSE under the symbol ALY.
Basis of Presentation
Our unaudited consolidated condensed financial statements included herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission, or SEC.
Accordingly, certain information and disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been condensed or omitted. We
believe that the presentations and disclosures herein are adequate to make the information not
misleading. The unaudited consolidated condensed financial statements reflect all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation of the interim
periods. These unaudited consolidated condensed financial statements should be read in conjunction
with our audited consolidated financial statements included in our Annual Report on Form 10-K for
the year ended December 31, 2006. The results of operations for the interim periods are not
necessarily indicative of the results of operations to be expected for the full year.
Certain reclassifications have been made to the prior years consolidated condensed financial
statements to conform with the current period presentation.
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period. Future events and their effects cannot be perceived with certainty.
Accordingly, our accounting estimates require the exercise of judgment. While management believes
that the estimates and assumptions used in the preparation of the consolidated financial statements
are appropriate, actual results could differ from those estimates. Estimates are used for, but are
not limited to, determining the following: allowance for doubtful accounts, recoverability of
long-lived assets and intangibles, useful lives used in depreciation and amortization, income taxes
and valuation allowances. The accounting estimates used in the preparation of the consolidated
financial statements may change as new events occur, as more experience is acquired, as additional
information is obtained and as our operating environment changes.
6
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1 NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the accounting
for uncertainty in income taxes recognized in an enterprises financial statements in accordance
with SFAS No. 109, Accounting for Income Taxes. It prescribes a recognition threshold and
measurement attribute for financial statement recognition and measurement of a tax position taken
or expected to be taken in a tax return. We adopted the provisions of FIN 48 effective January 1,
2007 and such adoption did not have a material effect on our financial statements.
Our policy is that we recognize interest and penalties accrued on any unrecognized tax benefits as
a component of income tax expense. As of the date of adoption of FIN 48, we did not have any
accrued interest or penalties associated with any unrecognized tax
benefits. For United States federal tax purposes, our tax returns for
the tax years 2001 through 2006 remain open for examination by the
tax authorities. Our foreign tax returns remain open for examination
for the tax years 2001 through 2006. Generally, for state tax
purposes, our 2002 through 2006 tax years remain open for examination
by the tax authorities under a four year statute of limitations,
however, certain states may keep their statute open for six to ten
years.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157), which is
intended to increase consistency and comparability in fair value measurements by defining fair
value, establishing a framework for measuring fair value and expanding disclosures about fair value
measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. We are currently evaluating the provisions of SFAS 157
and have not yet determined the impact, if any, on our financial statements.
In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities (SFAS 159), which permits entities to elect to measure many financial
instruments and certain other items at fair value. Upon adoption of SFAS 159, an entity may elect
the fair value option for eligible items that exist at the adoption date. Subsequent to the initial
adoption, the election of the fair value option should only be made at the initial recognition of
the asset or liability or upon a re-measurement event that gives rise to the new-basis of
accounting. All subsequent changes in fair value for that instrument are reported in earnings.
SFAS No. 159 does not affect any existing accounting literature that requires certain assets and
liabilities to be recorded at fair value nor does it eliminate disclosure requirements included in
other accounting standards. SFAS 159 is effective as of the beginning of each reporting entitys
first fiscal year that begins after November 15, 2007. We are currently evaluating the provisions
of SFAS 159 and have not yet determined the impact, if any, on our financial statements.
NOTE 2 STOCK-BASED COMPENSATION
We adopted SFAS No. 123R, Share-Based Payment, effective January 1, 2006. This statement requires
all share-based payments to employees, including grants of employee stock options, to be recognized
in the financial statements based on their grant-date fair values. Compensation cost for awards
granted prior to, but not vested, as of January 1, 2006 would be based on the grant date attributes
originally used to value those awards for pro forma purposes under SFAS No. 123. We adopted SFAS
No. 123R using the modified prospective transition method, utilizing the Black-Scholes option
pricing model for the calculation of the fair value of our employee stock options. Under the
modified prospective method, we record compensation cost related to unvested stock awards as of
December 31, 2005 by recognizing the unamortized grant date fair value of these awards over the
remaining vesting periods of those awards with no change in historical reported earnings. We
estimated forfeiture rates for the first three months of 2007 and 2006 based on our historical
experience.
The Black-Scholes model incorporates assumptions to value stock-based awards. The risk-free rate
of interest is the related U.S. Treasury yield curve for periods within the expected term of the
option at the time of grant. The dividend yield on our common stock is assumed to be zero as we
have historically not paid dividends and have no current plans to do so in the future. The
expected volatility is based on historical volatility of our common stock.
Our net income for the three months ended March 31, 2007 and 2006 includes approximately $453,000
and $0.9 million, respectively of compensation costs related to share-based payments. As of March
31, 2007 there is $623,000 of unrecognized compensation expense related to non-vested stock option
grants. We expect approximately $609,000 to be recognized over the remainder of 2007,
approximately $14,000 to be recognized in 2008.
7
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 2 STOCK-BASED COMPENSATION (Continued)
A summary of our stock option activity and related information as of March 31, 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
Weighted |
|
|
|
|
Shares |
|
Average |
|
Average |
|
Aggregate |
|
|
Under |
|
Exercise |
|
Contractual |
|
Intrinsic Value |
|
|
Option |
|
Price |
|
Life (Years) |
|
(millions) |
Balance at beginning of period |
|
|
1,350,365 |
|
|
$ |
6.88 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canceled |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(73,233 |
) |
|
|
4.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period |
|
|
1,277,132 |
|
|
|
7.04 |
|
|
|
8.14 |
|
|
$ |
11.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period |
|
|
1,037,115 |
|
|
$ |
6.34 |
|
|
|
8.03 |
|
|
$ |
9.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the
difference between the closing price of our common stock on the last trading day of the first
quarter of 2007 and the exercise price, multiplied by the number of in-the-money options) that
would have been received by the option holders had all option holders exercised their options on
March 31, 2007. The total intrinsic value of options exercised during the three months ended March
31, 2007 was $987,000. The total cash received from option exercises during the three months ended
March 31, 2007 was $301,000.
No options were granted in the three months ended March 31, 2007 and 2006.
Restricted stock awards activity during the three months ended March 31, 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
|
Grant-Date Fair Value |
|
|
|
Number of shares |
|
|
per Share |
|
Nonvested at December 31, 2006 |
|
|
27,000 |
|
|
$ |
18.30 |
|
Granted |
|
|
13,700 |
|
|
|
16.16 |
|
Vested |
|
|
|
|
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at March 31, 2007 |
|
|
40,700 |
|
|
$ |
17.58 |
|
|
|
|
|
|
|
|
|
We determine the fair value of RSAs based on the market price of our common stock on the date of
grant. Compensation cost for RSAs is primarily recognized on a straight-line basis over the vesting
or service period and is net of forfeitures. As of March 31, 2007, there was $444,000 of
total unrecognized compensation cost related to nonvested RSAs. We expect approximately $330,000
to be recognized over the remainder of 2007, approximately $68,000 to be recognized in 2008 and
approximately $46,000 to be recognized in 2009.
8
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 3 INCOME PER COMMON SHARE
We compute income per common share in accordance with the provisions of SFAS No. 128, Earnings Per
Share. SFAS No. 128 requires companies with complex capital structures to present basic and
diluted earnings per share. Basic earnings per share are computed on the basis of the weighted
average number of shares of common stock outstanding during the period. Diluted earnings per share
is similar to basic earnings per share, but presents the dilutive effect on a per share basis of
potential common shares (e.g., convertible preferred stock, stock options, etc.) as if they had
been converted. Potential dilutive common shares that have an anti-dilutive effect (e.g., those
that increase income per share) are excluded from diluted earnings per share.
The components of basic and diluted earnings per share are as follows (in thousands, except per
share amounts):
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
March 31, |
|
|
|
2007 |
|
|
2006 |
|
Numerator: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
12,165 |
|
|
$ |
4,423 |
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Basic earnings per share weighted
average shares outstanding |
|
|
32,330 |
|
|
|
17,105 |
|
|
Effect of potentially dilutive common shares: |
|
|
|
|
|
|
|
|
Warrants and employee and director
stock options |
|
|
681 |
|
|
|
2,008 |
|
|
|
|
|
|
|
|
|
Diluted earnings per share -
weighted average shares
outstanding and assumed
conversions |
|
|
33,011 |
|
|
|
19,113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share basic |
|
$ |
0.38 |
|
|
$ |
0.26 |
|
|
|
|
|
|
|
|
Net income per share diluted |
|
$ |
0.37 |
|
|
$ |
0.23 |
|
|
|
|
|
|
|
|
NOTE 4 GOODWILL AND INTANGIBLE ASSETS
In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, goodwill and
indefinite-lived intangible assets are not permitted to be amortized. Goodwill and
indefinite-lived intangible assets remain on the balance sheet and are tested for impairment on an
annual basis, or when there is reason to suspect that their values may have been diminished or
impaired. Goodwill and indefinite-lived intangible assets listed on the balance sheet totaled
$125.9 million and $125.8 million at March 31, 2007 and December 31, 2006, respectively. Based on
impairment testing performed during 2006 pursuant to the requirements of SFAS No. 142, these assets
were not impaired.
Intangible assets with definite lives continue to be amortized over their estimated useful lives.
Definite-lived intangible assets that continue to be amortized under SFAS No. 142 relate to our
purchase of customer-related and marketing-related intangibles. These intangibles have useful
lives ranging from five to ten years. Amortization of intangible assets for the three months ended
March 31, 2007 were $1.0 million, compared to $384,000 for the same period last year. At March 31,
2007, intangible assets totaled $31.8 million, net of $4.1 million of accumulated amortization.
9
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 5 INVENTORIES
Inventories are comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
Hammer bits |
|
|
|
|
|
|
|
|
Finished goods |
|
$ |
1,839 |
|
|
$ |
1,476 |
|
Work in process |
|
|
2,129 |
|
|
|
2,266 |
|
Raw materials |
|
|
3,318 |
|
|
|
2,638 |
|
|
|
|
|
|
|
|
Total hammer bits |
|
|
7,286 |
|
|
|
6,380 |
|
Hammers |
|
|
1,088 |
|
|
|
1,016 |
|
Drive pipe |
|
|
607 |
|
|
|
716 |
|
Rental supplies |
|
|
1,828 |
|
|
|
1,845 |
|
Chemicals and drilling fluids |
|
|
2,702 |
|
|
|
2,673 |
|
Rig parts and related inventory |
|
|
10,169 |
|
|
|
9,762 |
|
Coiled tubing and related inventory |
|
|
2,268 |
|
|
|
1,627 |
|
Shop supplies and related inventory |
|
|
4,492 |
|
|
|
4,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total inventory |
|
$ |
30,440 |
|
|
$ |
28,615 |
|
|
|
|
|
|
|
|
NOTE 6 DEBT
Our long-term debt consists of the following: (in thousands)
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
Senior notes |
|
$ |
505,000 |
|
|
$ |
255,000 |
|
Bridge loan |
|
|
|
|
|
|
300,000 |
|
Bank term loans |
|
|
6,672 |
|
|
|
7,302 |
|
Revolving line of credit |
|
|
|
|
|
|
|
|
Seller notes |
|
|
900 |
|
|
|
900 |
|
Obligations under non-compete agreements |
|
|
270 |
|
|
|
270 |
|
Notes payable to former directors |
|
|
32 |
|
|
|
32 |
|
Equipment and vehicle installment notes |
|
|
2,184 |
|
|
|
3,502 |
|
Insurance premium financing |
|
|
331 |
|
|
|
1,025 |
|
Capital lease obligations |
|
|
282 |
|
|
|
414 |
|
|
|
|
|
|
|
|
Total debt |
|
|
515,671 |
|
|
|
568,445 |
|
Less: current maturities |
|
|
5,248 |
|
|
|
6,999 |
|
|
|
|
|
|
|
|
Long-term debt obligations |
|
$ |
510,423 |
|
|
$ |
561,446 |
|
|
|
|
|
|
|
|
Senior notes, bank loans and line of credit agreements
On January 18, 2006 and August 14, 2006, we closed on private offerings, to qualified institutional
buyers pursuant to Rule 144A under the Securities Act of 1933, of $160.0 and $95.0 million
aggregate principal amount of our senior notes, respectively. The senior notes are due January 15,
2014 and bear interest at 9.0%. The proceeds were used to fund the acquisitions of Specialty
Rental Tools, Inc., or Specialty, and DLS Drilling, Logistics & Services Corporation, or DLS, to
repay existing debt and for general corporate purposes.
On January 18, 2006, we also executed an amended and restated credit agreement which provides for a
$25.0 million revolving line of credit with a maturity of January 2010. Our January 2006 amended
and restated credit agreement contains customary events of default and financial covenants and
limits our ability to incur additional indebtedness, make capital expenditures, pay dividends or
make other distributions, create liens and sell assets. Our obligations under the January 2006
amended and restated credit agreement are secured by substantially all of our assets located in the
United States.
10
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 6 DEBT (Continued)
On December 18, 2006, we closed on a $300.0 million senior unsecured bridge loan. The bridge loan
was due 18 months after closing and bore a weighted average interest rate of 10.6%. The bridge
loan, which was repaid on January 29, 2007, was used to fund the acquisition of substantially all
of the assets of Oil & Gas Rental Services, Inc., or OGR.
In January 2007, we closed on a private offering, to qualified institutional buyers pursuant to
Rule 144A under the Securities Act, of $250.0 million principal amount of 8.5% senior notes due
2017. The proceeds of the senior notes offering, together with a portion of the proceeds of our
concurrent common stock offering, were used to repay the debt outstanding under our $300.0 million
bridge loan facility which we incurred to finance our acquisition of substantially all the assets
of OGR.
As part of our acquisition of DLS, we assumed various bank loans with floating interest rates based
on LIBOR plus a margin and terms ranging from 2 to 5 years. The weighted average interest rates
were 6.9% and 7.0% at March 31, 2007 and December 31, 2006, respectively. The bank loans are
denominated in U.S. dollars and the outstanding amount due as of March 31, 2007 and December 31,
2006 were $6.7 million and $7.3 million, respectively.
Notes payable
As part of the acquisition of Mountain Compressed Air Inc., or Mountain Air, in 2001, we issued a
note to the sellers of Mountain Air in the original amount of $2.2 million accruing interest at a
rate of 5.75% per annum. The note was reduced to $1.5 million as a result of the settlement of a
legal action against the sellers in 2003. In March 2005, we reached an agreement with the sellers
and holders of the note as a result of an action brought against us by the sellers. Under the
terms of the agreement, we paid the holders of the note $1.0 million in cash, and agreed to pay an
additional $350,000 on June 1, 2006, and an additional $150,000 on June 1, 2007, in settlement of
all claims. At March 31, 2007 and December 31, 2006 the outstanding amounts due were $150,000.
In connection with the acquisition of Rogers Oil Tool Services, Inc., or Rogers, we issued to the
seller a note in the amount of $750,000. The note bears interest at 5.0% and is due April 3, 2009.
In connection with the purchase of Safco-Oil Field Products, Inc., or Safco, we agreed to pay a
total of $150,000 to the sellers in exchange for a non-compete agreement. We are required to make
annual payments of $50,000 through September 30, 2007. In connection with the purchase of Capcoil
Tubing Services, Inc., or Capcoil, we agreed to pay a total of $500,000 to two management employees
in exchange for non-compete agreements. We are required to make annual payments of $110,000
through May 2008. Total amounts due under these non-compete agreements at March 31, 2007 and
December 31, 2006 were $270,000.
In 2000 we compensated directors, including current directors Nederlander and Toboroff, who served
on the board of directors from 1989 to March 31, 1999 without compensation, by issuing promissory
notes totaling $325,000. The notes bore interest at the rate of 5.0%. At March 31, 2007 and
December 31, 2006, the principal and accrued interest on these notes totaled approximately $32,000.
Other debt
We have various equipment and vehicle financing loans with interest rates ranging from 5.0% to 8.7%
and terms of 2 to 5 years. As of March 31, 2007 and December 31, 2006, the outstanding balances
for equipment and vehicle financing loans were $2.2 million and $3.5 million, respectively. In
April 2006 and August 2006, we obtained insurance premium financings in the amount of $1.9 million
and $896,000 with fixed interest rates of 5.6% and 6.0%, respectively. Under terms of the
agreements, amounts outstanding are paid over 10 month and 11 month repayment schedules. The
outstanding balance of these notes was approximately $331,000 and $1.0 million as of March 31, 2007
and December 31, 2006, respectively. We also have various capital leases with terms that expire in
2008. As of March 31, 2007 and December 31, 2006, amounts outstanding under capital leases were
$282,000 and $414,000, respectively.
11
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 7 STOCKHOLDERS EQUITY
In January 2007 we closed on a public offering of 6.0 million shares of our common stock at a
public offering price of $17.65 per share. Net proceeds from the public offering, together with
the proceeds of our concurrent senior notes offering, were used to repay the debt outstanding under
our $300.0 million bridge loan facility, which we incurred to finance the OGR acquisition and for
general corporate purposes.
We also had options and warrants exercised in the first three months of 2007, which resulted in
76,386 shares of our common stock being issued for approximately $301,000. We recognized
approximately $453,000 of compensation expense related to stock options in the first three months
of 2007 that was recorded as capital in excess of par value (see Note 2).
NOTE 8 CONDENSED CONSOLIDATING FINANCIAL INFORMATION
Set forth on the following pages are the condensed consolidating financial statements of (i)
Allis-Chalmers Energy Inc., (ii) its subsidiaries that are guarantors of the senior notes and
revolving credit facility and (iii) the subsidiaries that are not guarantors of the senior notes
and revolving credit facility (in thousands, except for share and per share amounts). Prior to the
acquisition of DLS, all of our subsidiaries were guarantors of our senior notes and revolving
credit facility, the parent company had no independent assets or operations, the guarantees were
full and unconditional and joint and several.
12
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 8 CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATING BALANCE SHEETS
March 31, 2007 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allis-Chalmers |
|
|
|
|
|
|
Subsidiary |
|
|
|
|
|
|
|
|
|
(Parent/ |
|
|
Subsidiary |
|
|
Non- |
|
|
Consolidating |
|
|
Consolidated |
|
|
|
Guarantor) |
|
|
Guarantors |
|
|
Guarantors |
|
|
Adjustments |
|
|
Total |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
70,246 |
|
|
$ |
5,041 |
|
|
$ |
|
|
|
$ |
75,287 |
|
Trade receivables, net |
|
|
|
|
|
|
78,892 |
|
|
|
39,131 |
|
|
|
(428 |
) |
|
|
117,595 |
|
Inventory |
|
|
|
|
|
|
14,645 |
|
|
|
15,795 |
|
|
|
|
|
|
|
30,440 |
|
Intercompany receivables |
|
|
97,722 |
|
|
|
|
|
|
|
|
|
|
|
(97,722 |
) |
|
|
|
|
Note receivable from affiliate |
|
|
6,666 |
|
|
|
|
|
|
|
|
|
|
|
(6,666 |
) |
|
|
|
|
Prepaid expenses and other |
|
|
5,703 |
|
|
|
2,729 |
|
|
|
889 |
|
|
|
|
|
|
|
9,321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
110,091 |
|
|
|
166,512 |
|
|
|
60,856 |
|
|
|
(104,816 |
) |
|
|
232,643 |
|
Property and equipment, net |
|
|
|
|
|
|
430,969 |
|
|
|
131,982 |
|
|
|
|
|
|
|
562,951 |
|
Goodwill |
|
|
|
|
|
|
124,331 |
|
|
|
1,523 |
|
|
|
|
|
|
|
125,854 |
|
Other intangible assets, net |
|
|
586 |
|
|
|
31,134 |
|
|
|
81 |
|
|
|
|
|
|
|
31,801 |
|
Debt issuance costs, net |
|
|
14,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,991 |
|
Note receivable from affiliates |
|
|
11,457 |
|
|
|
|
|
|
|
|
|
|
|
(11,457 |
) |
|
|
|
|
Investments in affiliates |
|
|
748,324 |
|
|
|
|
|
|
|
|
|
|
|
(748,324 |
) |
|
|
|
|
Other assets |
|
|
10 |
|
|
|
4,989 |
|
|
|
21 |
|
|
|
|
|
|
|
5,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
885,459 |
|
|
$ |
757,935 |
|
|
$ |
194,463 |
|
|
$ |
(864,597 |
) |
|
$ |
973,260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt |
|
$ |
32 |
|
|
$ |
2,840 |
|
|
$ |
2,376 |
|
|
$ |
|
|
|
$ |
5,248 |
|
Trade accounts payable |
|
|
31 |
|
|
|
14,728 |
|
|
|
14,266 |
|
|
|
(1 |
) |
|
|
29,024 |
|
Accrued salaries, benefits and payroll taxes |
|
|
|
|
|
|
3,346 |
|
|
|
8,499 |
|
|
|
|
|
|
|
11,845 |
|
Accrued interest |
|
|
8,565 |
|
|
|
|
|
|
|
71 |
|
|
|
|
|
|
|
8,636 |
|
Accrued expenses |
|
|
101 |
|
|
|
10,622 |
|
|
|
8,779 |
|
|
|
(427 |
) |
|
|
19,075 |
|
Intercompany payables |
|
|
|
|
|
|
455,440 |
|
|
|
|
|
|
|
(455,440 |
) |
|
|
|
|
Note payable to affiliate |
|
|
|
|
|
|
|
|
|
|
6,666 |
|
|
|
(6,666 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
8,729 |
|
|
|
486,976 |
|
|
|
40,657 |
|
|
|
(462,534 |
) |
|
|
73,828 |
|
Long-term debt, net of current maturities |
|
|
505,750 |
|
|
|
377 |
|
|
|
4,296 |
|
|
|
|
|
|
|
510,423 |
|
Note payable to affiliate |
|
|
|
|
|
|
|
|
|
|
11,457 |
|
|
|
(11,457 |
) |
|
|
|
|
Deferred income taxes |
|
|
3,761 |
|
|
|
10,713 |
|
|
|
7,017 |
|
|
|
|
|
|
|
21,491 |
|
Other long-term liabilities |
|
|
289 |
|
|
|
299 |
|
|
|
|
|
|
|
|
|
|
|
588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
518,529 |
|
|
|
498,365 |
|
|
|
63,427 |
|
|
|
(473,991 |
) |
|
|
606,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
343 |
|
|
|
3,526 |
|
|
|
42,963 |
|
|
|
(46,489 |
) |
|
|
343 |
|
Capital in excess of par value |
|
|
316,979 |
|
|
|
167,508 |
|
|
|
74,969 |
|
|
|
(242,477 |
) |
|
|
316,979 |
|
Retained earnings |
|
|
49,608 |
|
|
|
88,536 |
|
|
|
13,104 |
|
|
|
(101,640 |
) |
|
|
49,608 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
366,930 |
|
|
|
259,570 |
|
|
|
131,036 |
|
|
|
(390,606 |
) |
|
|
366,930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity |
|
$ |
885,459 |
|
|
$ |
757,935 |
|
|
$ |
194,463 |
|
|
$ |
(864,597 |
) |
|
$ |
973,260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 8 CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATING INCOME STATEMENTS
For the Three Months Ended March 31, 2007 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allis-Chalmers |
|
|
|
|
|
|
Subsidiary |
|
|
|
|
|
|
|
|
|
(Parent/ |
|
|
Subsidiary |
|
|
Non- |
|
|
Consolidating |
|
|
Consolidated |
|
|
|
Guarantor) |
|
|
Guarantors |
|
|
Guarantors |
|
|
Adjustments |
|
|
Total |
|
Revenues |
|
$ |
|
|
|
$ |
87,029 |
|
|
$ |
48,888 |
|
|
$ |
(17 |
) |
|
$ |
135,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs |
|
|
|
|
|
|
43,035 |
|
|
|
34,587 |
|
|
|
(17 |
) |
|
|
77,605 |
|
Depreciation |
|
|
|
|
|
|
9,117 |
|
|
|
2,699 |
|
|
|
|
|
|
|
11,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues |
|
|
|
|
|
|
52,152 |
|
|
|
37,286 |
|
|
|
(17 |
) |
|
|
89,421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
|
|
|
|
34,877 |
|
|
|
11,602 |
|
|
|
|
|
|
|
46,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
418 |
|
|
|
11,573 |
|
|
|
1,980 |
|
|
|
|
|
|
|
13,971 |
|
Amortization |
|
|
462 |
|
|
|
1,018 |
|
|
|
8 |
|
|
|
|
|
|
|
1,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
(880 |
) |
|
|
22,286 |
|
|
|
9,614 |
|
|
|
|
|
|
|
31,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity earnings in
affiliates, net of tax |
|
|
26,122 |
|
|
|
|
|
|
|
|
|
|
|
(26,122 |
) |
|
|
|
|
Interest, net |
|
|
(13,089 |
) |
|
|
652 |
|
|
|
(375 |
) |
|
|
|
|
|
|
(12,812 |
) |
Other |
|
|
12 |
|
|
|
47 |
|
|
|
125 |
|
|
|
|
|
|
|
184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
(expense) |
|
|
13,045 |
|
|
|
699 |
|
|
|
(250 |
) |
|
|
(26,122 |
) |
|
|
(12,628 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before income
taxes |
|
|
12,165 |
|
|
|
22,985 |
|
|
|
9,364 |
|
|
|
(26,122 |
) |
|
|
18,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
|
|
|
|
(3,195 |
) |
|
|
(3,032 |
) |
|
|
|
|
|
|
(6,227 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
12,165 |
|
|
$ |
19,790 |
|
|
$ |
6,332 |
|
|
$ |
(26,122 |
) |
|
$ |
12,165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 8 CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
For the Three Months Ended March 31, 2007 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allis- |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Chalmers |
|
|
|
|
|
|
Subsidiaries |
|
|
|
|
|
|
|
|
|
(Parent/ |
|
|
Subsidiary |
|
|
(Non- |
|
|
Consolidating |
|
|
Consolidated |
|
|
|
Guarantor) |
|
|
Guarantors |
|
|
Guarantors) |
|
|
Adjustments |
|
|
Total |
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
12,165 |
|
|
$ |
19,790 |
|
|
$ |
6,332 |
|
|
$ |
(26,122 |
) |
|
$ |
12,165 |
|
Adjustments to reconcile net income to
net cash provided by operating
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
|
|
|
|
9,117 |
|
|
|
2,699 |
|
|
|
|
|
|
|
11,816 |
|
Amortization |
|
|
461 |
|
|
|
1,019 |
|
|
|
8 |
|
|
|
|
|
|
|
1,488 |
|
Bridge Fees |
|
|
1,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,225 |
|
Stock option expense |
|
|
453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
453 |
|
Provision for bad debts |
|
|
|
|
|
|
172 |
|
|
|
|
|
|
|
|
|
|
|
172 |
|
Equity earnings in affiliates |
|
|
(26,122 |
) |
|
|
|
|
|
|
|
|
|
|
26,122 |
|
|
|
|
|
Deferred taxes |
|
|
1,558 |
|
|
|
(1 |
) |
|
|
(19 |
) |
|
|
|
|
|
|
1,538 |
|
(Gain) on sale of equipment |
|
|
|
|
|
|
(862 |
) |
|
|
|
|
|
|
|
|
|
|
(862 |
) |
Changes in operating assets and
liabilities, net of acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) in trade receivables |
|
|
|
|
|
|
(17,055 |
) |
|
|
(4,946 |
) |
|
|
|
|
|
|
(22,001 |
) |
(Increase) in inventories |
|
|
|
|
|
|
(1,451 |
) |
|
|
(374 |
) |
|
|
|
|
|
|
(1,825 |
) |
(Increase) decrease in other
current assets |
|
|
|
|
|
|
7,685 |
|
|
|
(370 |
) |
|
|
|
|
|
|
7,315 |
|
(Increase) decrease in other assets |
|
|
247 |
|
|
|
(270 |
) |
|
|
(18 |
) |
|
|
|
|
|
|
(41 |
) |
Increase in accounts payable |
|
|
|
|
|
|
1,217 |
|
|
|
2,141 |
|
|
|
|
|
|
|
3,358 |
|
(Decrease) in accrued interest |
|
|
(3,190 |
) |
|
|
|
|
|
|
(41 |
) |
|
|
|
|
|
|
(3,231 |
) |
(Decrease) increase in accrued
expenses |
|
|
(34 |
) |
|
|
1,242 |
|
|
|
916 |
|
|
|
|
|
|
|
2,124 |
|
Increase in accrued salaries,
benefits and payroll taxes |
|
|
|
|
|
|
353 |
|
|
|
604 |
|
|
|
|
|
|
|
957 |
|
(Decrease) in other long- term
liabilities |
|
|
(15 |
) |
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
(35 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided By (Used In)
Operating Activities |
|
|
(13,252 |
) |
|
|
20,936 |
|
|
|
6,932 |
|
|
|
|
|
|
|
14,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable from affiliates |
|
|
(282 |
) |
|
|
|
|
|
|
|
|
|
|
282 |
|
|
|
|
|
Purchase of property and equipment |
|
|
|
|
|
|
(19,625 |
) |
|
|
(2,720 |
) |
|
|
|
|
|
|
(22,345 |
) |
Proceeds from sale of equipment |
|
|
|
|
|
|
2,698 |
|
|
|
|
|
|
|
|
|
|
|
2,698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided By (Used in)
Investing Activities |
|
|
(282 |
) |
|
|
(16,927 |
) |
|
|
(2,720 |
) |
|
|
282 |
|
|
|
(19,647 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt |
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,000 |
|
Payments on long-term debt |
|
|
(300,000 |
) |
|
|
(1,362 |
) |
|
|
(1,412 |
) |
|
|
|
|
|
|
(302,774 |
) |
Accounts receivable from affiliates |
|
|
(29,813 |
) |
|
|
|
|
|
|
|
|
|
|
29,813 |
|
|
|
|
|
15
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 8 CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allis- |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Chalmers |
|
|
|
|
|
|
Subsidiaries |
|
|
|
|
|
|
|
|
|
(Parent/ |
|
|
Subsidiary |
|
|
(Non- |
|
|
Consolidating |
|
|
Consolidated |
|
|
|
Guarantor) |
|
|
Guarantors |
|
|
Guarantors) |
|
|
Adjustments |
|
|
Total |
|
Cash Flows from Financing
Activities: (continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable to affiliates |
|
|
|
|
|
|
29,830 |
|
|
|
(17 |
) |
|
|
(29,813 |
) |
|
|
|
|
Note payable to affiliate |
|
|
|
|
|
|
|
|
|
|
282 |
|
|
|
(282 |
) |
|
|
|
|
Proceeds from issuance of
common stock |
|
|
100,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,078 |
|
Proceeds from exercises of
options/warrants |
|
|
301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
301 |
|
Debt issuance costs |
|
|
(7,032 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,032 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided By
(Used In) Financing
Activities |
|
|
13,534 |
|
|
|
28,468 |
|
|
|
(1,147 |
) |
|
|
(282 |
) |
|
|
40,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash
equivalents |
|
|
|
|
|
|
32,477 |
|
|
|
3,065 |
|
|
|
|
|
|
|
35,542 |
|
Cash and cash equivalents at
beginning of year |
|
|
|
|
|
|
37,769 |
|
|
|
1,976 |
|
|
|
|
|
|
|
39,745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at
end of period |
|
$ |
|
|
|
$ |
70,246 |
|
|
$ |
5,041 |
|
|
$ |
|
|
|
$ |
75,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 9 SEGMENT INFORMATION
At March 31, 2007, we had six operating segments including Rental Services, International Drilling,
Directional Drilling, Tubular Services, Underbalanced Drilling and Production Services. All of the
segments provide services to the energy industry. The revenues, operating income (loss),
depreciation and amortization, capital expenditures and assets of each of the reporting segments,
plus the corporate function, are reported below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
March 31, |
|
|
|
2007 |
|
|
2006 |
|
Revenues |
|
|
|
|
|
|
|
|
Rental Services |
|
$ |
31,581 |
|
|
$ |
10,421 |
|
International Drilling |
|
|
48,888 |
|
|
|
|
|
Directional Drilling |
|
|
20,489 |
|
|
|
15,937 |
|
Tubular Services |
|
|
14,386 |
|
|
|
9,459 |
|
Underbalanced Drilling |
|
|
10,555 |
|
|
|
9,099 |
|
Production Services |
|
|
10,001 |
|
|
|
2,995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
135,900 |
|
|
$ |
47,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss): |
|
|
|
|
|
|
|
|
Rental Services |
|
$ |
13,923 |
|
|
$ |
4,998 |
|
International Drilling |
|
|
9,614 |
|
|
|
|
|
Directional Drilling |
|
|
4,285 |
|
|
|
2,605 |
|
Tubular Services |
|
|
3,193 |
|
|
|
1,851 |
|
Underbalanced Drilling |
|
|
2,611 |
|
|
|
2,237 |
|
Production Services |
|
|
1,603 |
|
|
|
277 |
|
General corporate |
|
|
(4,209 |
) |
|
|
(3,335 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
31,020 |
|
|
$ |
8,633 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization: |
|
|
|
|
|
|
|
|
Rental Services |
|
$ |
6,261 |
|
|
$ |
1,671 |
|
International Drilling |
|
|
2,707 |
|
|
|
|
|
Directional Drilling |
|
|
465 |
|
|
|
289 |
|
Tubular Services |
|
|
1,203 |
|
|
|
699 |
|
Underbalanced Drilling |
|
|
823 |
|
|
|
684 |
|
Production Services |
|
|
1,297 |
|
|
|
293 |
|
General corporate |
|
|
548 |
|
|
|
301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
13,304 |
|
|
$ |
3,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures: |
|
|
|
|
|
|
|
|
Rental Services |
|
$ |
8,513 |
|
|
$ |
684 |
|
International Drilling |
|
|
2,720 |
|
|
|
|
|
Directional Drilling |
|
|
4,283 |
|
|
|
2,698 |
|
Tubular Services |
|
|
2,664 |
|
|
|
1,127 |
|
Underbalanced Drilling |
|
|
1,458 |
|
|
|
2,224 |
|
Production Services |
|
|
2,358 |
|
|
|
681 |
|
General corporate |
|
|
349 |
|
|
|
172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
22,345 |
|
|
$ |
7,586 |
|
|
|
|
|
|
|
|
17
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 9
SEGMENT INFORMATION (Continued)
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
Goodwill: |
|
|
|
|
|
|
|
|
Rental Services |
|
$ |
106,132 |
|
|
$ |
106,132 |
|
International Drilling |
|
|
1,523 |
|
|
|
1,504 |
|
Directional Drilling |
|
|
4,168 |
|
|
|
4,168 |
|
Tubular Services |
|
|
6,464 |
|
|
|
6,464 |
|
Underbalanced Drilling |
|
|
3,950 |
|
|
|
3,950 |
|
Production Services |
|
|
3,617 |
|
|
|
3,617 |
|
General corporate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
125,854 |
|
|
$ |
125,835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
Rental Services |
|
$ |
461,684 |
|
|
$ |
453,802 |
|
International Drilling |
|
|
194,462 |
|
|
|
185,677 |
|
Directional Drilling |
|
|
35,562 |
|
|
|
28,585 |
|
Tubular Services |
|
|
77,247 |
|
|
|
74,372 |
|
Underbalanced Drilling |
|
|
55,163 |
|
|
|
54,288 |
|
Production Services |
|
|
61,692 |
|
|
|
57,954 |
|
General corporate |
|
|
87,450 |
|
|
|
53,648 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
973,260 |
|
|
$ |
908,326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long Lived Assets: |
|
|
|
|
|
|
|
|
United States |
|
$ |
596,243 |
|
|
$ |
574,302 |
|
International |
|
|
144,374 |
|
|
|
153,262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
740,617 |
|
|
$ |
727,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
March 31, |
|
|
|
2007 |
|
|
2006 |
|
Revenues: |
|
|
|
|
|
|
|
|
United States |
|
$ |
84,234 |
|
|
$ |
45,972 |
|
International |
|
|
51,666 |
|
|
|
1,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
135,900 |
|
|
$ |
47,911 |
|
|
|
|
|
|
|
|
NOTE 10 LEGAL MATTERS
We are named from time to time in legal proceedings related to our activities prior to our
bankruptcy in 1988. However, we believe that we were discharged from liability for all such claims
in the bankruptcy and believe the likelihood of a material loss relating to any such legal
proceeding is remote.
We are also involved in various other legal proceedings in the ordinary course of business. The
legal proceedings are at different stages; however, we believe that the likelihood of material loss
relating to any such legal proceeding is remote.
18
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 11 SUBSEQUENT EVENTS
On April 26, 2007, we entered into a Second Amended and Restated Credit Agreement, which increased
our revolving line of credit to $62.0 million, and has a final maturity date of April 26, 2012.
The amended and restated credit agreement contains customary events of default and financial
covenants and limits our ability to incur additional indebtedness, make capital expenditures, pay
dividends or make other distributions, create liens and sell assets. Our obligations under the
amended and restated credit agreement are secured by substantially all of our assets located in the
United States.
19
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion and analysis should be read in conjunction with our consolidated financial
statements and the notes thereto included elsewhere in this report. This report contains
forward-looking statements that involve risks and uncertainties. Our actual results may differ
materially from the results discussed in such forward-looking statements. Factors that might cause
such differences include, but are not limited to, the general condition of the oil and natural gas
drilling industry, demand for our oil and natural gas service and rental products, and competition.
For more information on forward-looking statements please refer to the section
entitledForward-Looking Statements on page 27.
Overview of 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, Alabama, West Virginia, offshore in the
Gulf of Mexico and internationally primarily in Argentina and Mexico. We currently operate in six
sectors of the oil and natural gas service industry: Rental Services; International Drilling;
Directional Drilling; Tubular Services; Underbalanced Drilling; and Production Services.
We derive operating revenues from rates per day and rates per job that we charge for the labor and
equipment required to provide a service and rates per day for equipment and tools that we rent to
our customers. The price we charge for our services depends upon several factors, including the
level of oil and natural gas drilling activity and the competitive environment in the particular
geographic regions in which we operate. Contracts are awarded based on price, quality of service
and equipment, and the general reputation and experience of our personnel. The demand for drilling
services has historically been volatile and is affected by the capital expenditures of oil and
natural gas exploration and development companies, which can fluctuate based upon the prices of oil
and natural gas, or the expectation for the prices of oil and natural gas.
The number of working drilling rigs, typically referred to as the rig count, is an important
indicator of activity levels in the oil and natural gas industry. The rig count in the United
States increased from 862 as of December 31, 2002 to 1,747 on April 30, 2007 according to the Baker
Hughes rig count. Furthermore, directional and horizontal rig counts increased from 283 as of
December 31, 2002 to 740 on April 30, 2007, which accounted for 32.8% and 42.3% of the total U.S.
rig count, respectively.
Our cost of revenues represents all direct and indirect costs associated with the operation and
maintenance of our equipment. The principal elements of these costs are direct and indirect labor
and benefits, repairs and maintenance of our equipment, insurance, equipment rentals, fuel and
depreciation. Operating expenses do not fluctuate in direct proportion to changes in revenues
because, among other factors, we have a fixed base of inventory of equipment and facilities to
support our operations, and in periods of low drilling activity we may also seek to preserve labor
continuity to market our services and maintain our equipment.
Cyclical Nature of Equipment Rental and 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 2004, 2005, 2006 and 2007, due to high oil
and natural gas prices and increased demand and declining production costs for natural gas as
compared to other energy sources. Management believes the current market fundamentals are
indicative of a favorable long-term trend of activity in our markets. However, these factors could
be more than offset by other developments affecting the worldwide supply and demand for oil and
natural gas products.
20
Results of Operations
In December 2006, we acquired substantially all of the assets of Oil & Gas Rental Services,
Inc., or OGR. We report the operations of OGR in our Rental Services segment. In April 2006, we
acquired all of the outstanding stock of Rogers Oil Tool Services, Inc., or Rogers. We report the
operations of Rogers in our Tubular Services segment. In August 2006, we acquired all of the
outstanding stock of DLS Drilling, Logistics & Services Corporation, or DLS, and in December 2006,
we acquired all of the outstanding stock of Tanus Argentina S.A., or Tanus. We report the
operations of DLS and Tanus in our International Drilling segment. In October 2006, we acquired
all of the outstanding stock of Petro-Rentals, Incorporated, or Petro Rentals. We report the
operations of Petro Rentals in our Production Services segment. We consolidated the results of
these acquisitions from the day they were acquired.
The foregoing acquisitions affect the comparability from period to period of our historical
results, and our historical results may not be indicative of our future results.
Comparison of Three Months Ended March 31, 2007 and 2006
Our revenues for the three months ended March 31, 2007 were $135.9 million, an increase of 183.7%
compared to $47.9 million for the three months ended March 31, 2006. Revenues increased in all of
our business segments due to acquisitions completed in 2006, the investment in new capital
equipment, increased utilization of our rental equipment, improved pricing and the opening of new
operating locations. The most significant increase in revenues was due to the acquisition of DLS
on August 14, 2006 which expanded our operations to a sixth operating segment, International
Drilling. Revenues also increased significantly at our Rental Services segment due to the OGR
acquisition on December 18, 2006 and increased utilization of our rental equipment. Revenues for
our Production Services segment increased due to the acquisition of Petro-Rentals on October 17,
2006 and the addition of two coil tubing units in the fourth quarter of 2006. Our Tubular Services
segment also had a substantial increase in revenue, primarily due to the acquisition of Rogers as
of April 3, 2006, along with improved market conditions. Our Directional Drilling segment revenues
increased in the 2007 period compared to the 2006 period due to improved pricing for directional
drilling and the purchase of additional down-hole motors and measurement-while-drilling tools, or
MWD, tools which increased our capacity and market presence. Revenues increased at our
Underbalanced Drilling segment due to the purchase of additional equipment, principally new
compressor packages.
Our gross margin for the quarter ended March 31, 2007 increased 180.3% to $46.5 million, or 34.2%
of revenues, compared to $16.6 million, or 34.6%, of revenues for the three months ended March 31,
2006. The increase in gross profit is due to the increase in revenues in all of our business
segments. The decrease in gross profit as a percentage of revenues is primarily due to the lower
gross margin that DLS achieves in the international drilling segment. The lower margin from DLS
was partly offset by the acquisition of OGR on December 18, 2006, in the high margin rental
services business, increased utilization of our rental equipment and the improved pricing for our
services generally. Also, contributing to our gross profit margin was the purchase of additional
MWD tools, the acquisition of Rogers and Petro Rentals, and the addition of two coil tubing units
in the fourth quarter of 2006. The increase in gross profit was partially offset by an increase in
depreciation expense of 254.8% to $11.8 million for the first quarter of 2007 compared to $3.3
million for the first quarter of 2006. The increase is due to additional depreciable assets
resulting from the acquisitions and capital expenditures. Our cost of revenues consists
principally of our labor costs and benefits, equipment rentals, maintenance and repairs of our
equipment, depreciation, insurance and fuel. Because many of our costs are fixed, our gross profit
as a percentage of revenues is generally affected by our level of revenues.
General and administrative expense was $14.0 million in the first quarter of 2007 compared to $7.3
million for the first quarter of 2006. General and administrative expense increased due to the
additional expenses associated with the acquisitions, and the hiring of additional sales and
administrative personnel. General and administrative expense also increased because of increased
accounting fees and other expenses in connection with initiatives to strengthen our internal
control processes, costs related to Sarbanes Oxley compliance efforts and increased corporate
accounting and administrative staff. As a percentage of revenues, general and administrative
expenses were 10.3% in the first quarter of 2007 compared to 15.3% in the first quarter of 2006.
We adopted SFAS No. 123R, Share-Based Payment, effective January 1, 2006. This statement requires
all share-based payments to employees, including grants of employee stock options, to be recognized
in the financial statements based on their grant-date fair values. We adopted SFAS No. 123R using
the modified prospective transition method, utilizing the Black-Scholes option pricing model for
the calculation of the fair value of our employee stock options. Therefore, we recorded an expense
of $453,000 and $0.9 million related to stock options for the three months ended March 31, 2007 and
2006, respectively. The amount of option expense recorded in general and administrative expense
was $391,000 for the first quarter of 2007 and $859,000 for the first quarter of 2006 with the
balance being recorded as a direct cost.
21
Amortization expense was $1.5 million in the first quarter of 2007 compared to $607,000 in the
first quarter of 2006. The increase in amortization expense is due to the amortization of
intangible assets in connection with our acquisitions and the amortization of deferred financing
costs.
Income from operations for the three months ended March 31, 2007 totaled $31.0 million, a 259.3%
increase over income from operations of $8.6 million for the three months ended March 31, 2006,
reflecting the increase in our revenues and gross profit, offset in part by increased general and
administrative expenses and amortization. Our income from operations as a percentage of revenues
increased to 22.8% for the first quarter of 2007 from 18.0% for the first quarter of 2006, due
principally to the decrease in general, administrative and amortization expenses as a percentage of
revenue.
Our net interest expense was $12.8 million in the first quarter of 2007, compared to $3.6 million
for the first quarter of 2006. Interest expense increased in the first quarter of 2007 due to our
increased debt at a higher average interest rate. In January of 2007 we issued $250.0 million of
senior notes bearing interest at 8.5% to pay off, in part, the bridge loan utilized to complete the
OGR acquisition and for working capital. The bridge loan was outstanding until January 29, 2007
and had an average interest rate of 10.6%. In August of 2006 we issued an additional $95.0 million
of senior notes bearing interest at 9.0% to fund a portion of the acquisition of DLS. Interest
expense for the first quarter of 2007 includes the write-off of deferred financing fees of $1.2
million related to the repayment of the bridge loan.
Our provision for income taxes for the quarter ended March 31, 2007 was $6.2 million, or 33.9% of
our net income before income taxes, compared to $607,000, or 12.1% of our net income before income
taxes for the three months ended March 31, 2006. The increase in income taxes is attributable to
our higher operating income and a higher effective tax rate. The increase in our effective tax
rate is primarily attributable to our operations in Argentina which had an effective tax rate of
32.4% and the release of the valuation allowance against income taxes in United States in the
fourth quarter of 2006, which has resulted in deferred tax expense.
We had net income of $12.2 million for the first quarter of 2007, an increase of 175.0%, compared
to net income of $4.4 million for the first quarter of 2006.
The following table compares revenues and income from operations for each of our business segments
and loss of income for general corporate purposes. Income (loss) from operations consists of
revenues less cost of revenues, general and administrative expenses, and depreciation and
amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
Income (Loss) from Operations |
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2007 |
|
|
2006 |
|
|
Change |
|
|
2007 |
|
|
2006 |
|
|
Change |
|
|
|
(in thousands) |
|
Rental Services |
|
$ |
31,581 |
|
|
$ |
10,421 |
|
|
$ |
21,160 |
|
|
$ |
13,923 |
|
|
$ |
4,998 |
|
|
$ |
8,925 |
|
International Drilling |
|
|
48,888 |
|
|
|
|
|
|
|
48,888 |
|
|
|
9,614 |
|
|
|
|
|
|
|
9,614 |
|
Directional Drilling |
|
|
20,489 |
|
|
|
15,937 |
|
|
|
4,552 |
|
|
|
4,285 |
|
|
|
2,605 |
|
|
|
1,680 |
|
Tubular Services |
|
|
14,386 |
|
|
|
9,459 |
|
|
|
4,927 |
|
|
|
3,193 |
|
|
|
1,851 |
|
|
|
1,342 |
|
Underbalanced Drilling |
|
|
10,555 |
|
|
|
9,099 |
|
|
|
1,456 |
|
|
|
2,611 |
|
|
|
2,237 |
|
|
|
374 |
|
Production Services |
|
|
10,001 |
|
|
|
2,995 |
|
|
|
7,006 |
|
|
|
1,603 |
|
|
|
277 |
|
|
|
1,326 |
|
General corporate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,209 |
) |
|
|
(3,335 |
) |
|
|
(874 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
135,900 |
|
|
$ |
47,911 |
|
|
$ |
87,989 |
|
|
$ |
31,020 |
|
|
$ |
8,633 |
|
|
$ |
22,387 |
|
|
|
|
|
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Rental Services Segment
Revenues for the quarter ended March 31, 2007 for the Rental Services segment were $31.6 million,
an increase from $10.4 million in revenues for the quarter ended March 31, 2006. Income from
operations increased to $13.9 million in the first quarter of 2007 compared to $5.0 million in the
first quarter of 2006. Our Rental Services revenues and operating income for the first quarter of
2007 increased compared to the prior year due primarily to the OGR acquisition and the increase in
utilization of our rental equipment. The OGR acquisition was completed on December 18, 2006.
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International Drilling Segment
On August 14, 2006, we acquired DLS which established our International Drilling segment. Revenues
for the quarter ended March 31, 2007 for the International Drilling segment were $48.9 million and
the income from operations was $9.6 million.
Directional Drilling Segment
Revenues for the quarter ended March 31, 2007 for our Directional Drilling segment were $20.5
million, an increase of 28.6% from the $15.9 million in revenues for the quarter ended March 31,
2006. Income from operations increased 64.5% to $4.3 million for the first quarter of 2007 from
$2.6 million for the comparable 2006 period. The improved results for this segment are due to
improved pricing for directional and horizontal drilling and the purchase of an additional six MWD
tools. Our increased operating expenses as a result of the addition of operations and personnel
were more than offset by the growth in revenues and improved pricing for our services.
Tubular Services Segment
Revenues for the quarter ended March 31, 2007 for the Tubular Services segment were $14.4 million,
an increase of 52.1% from the $9.5 million in revenues for the quarter ended March 31, 2006.
Revenues from domestic operations increased to $12.6 million in the first quarter of 2007 from $8.0
million in the first quarter of 2006 as a result of the acquisition of Rogers. Revenues from
operations in Mexico were $1.8 million for the first quarter of 2007 and $1.5 million for the first
quarter of 2006. Income from operations increased 72.5% to $3.2 million in the first quarter of
2007 from $1.9 million in the first quarter of 2006. The increase in this segments operating
income was due to our increased revenues from domestic operations.
Underbalanced Drilling Segment
Our Underbalanced Drilling revenues were $10.6 million for the three months ended March 31, 2007,
an increase of 16.0% compared to $9.1 million in revenues for the three months ended March 31,
2006. Income from operations increased to $2.6 million in the first quarter of 2007 compared to
income from operations of $2.2 million in the first quarter of 2006. Our Underbalanced Drilling
revenues and operating income for the first quarter of 2007 increased compared to the first quarter
of 2006 primarily due to our investment in additional equipment.
Production Services Segment
Revenues were $10.0 million for the three months ended March 31, 2007, an increase of 233.9%
compared to $3.0 million in revenues for the three months ended March 31, 2006. Income from
operations increased to $1.6 million in the first quarter of 2007 compared to $277,000 in the first
quarter of 2006. Our Production Services revenues and operating income for the first quarter of
2007 increased compared to the first quarter of 2006 due primarily to our acquisition of Petro
Rentals on October 17, 2006 and the addition of two coil tubing units in the fourth quarter of
2006.
General Corporate
General corporate expenses increased $0.9 million to $4.2 million for the three months ended March
31, 2007 compared to $3.3 million for the three months ended March 31, 2006. The increase was due
to the increase in payroll costs and benefits for additional management, accounting and
administrative staff as a result of the acquisitions and to support our growing organization,
increased franchise taxes based on our increased authorized shares and increased audit fees and
professional services related to our Sarbanes-Oxley compliance effort.
Liquidity and Capital Resources
Our on-going capital requirements arise primarily from our need to service our debt, to complete
acquisitions, to acquire and maintain equipment, and to fund our working capital requirements. Our
primary sources of liquidity are proceeds from the issuance of debt and equity securities and cash
flows from operations. We had cash and cash equivalents of $75.3 million at March 31, 2007
compared to $39.7 million at December 31, 2006.
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Operating Activities
In the three months ended March 31, 2007, our operating activities provided $14.6 million in cash.
Net income for the three months ended March 31, 2007 was $12.2 million. Non-cash expenses totaled
$15.8 million during the first three months of 2007 consisting of $13.3 million of depreciation and
amortization, $1.5 million for deferred taxes related to timing differences, $1.2 million for the
write-off of loan fees related to the bridge loan that was repaid, $453,000 from the expensing of
stock options, $172,000 related to increases to the allowance for doubtful accounts receivables,
less $862,000 on the gain from asset disposals.
During the three months ended March 31, 2007, changes in operating assets and liabilities used
$13.4 million in cash, principally due to an increase of $22.0 million in accounts receivable, an
increase of $1.8 million in inventory, a decrease of $3.2 million in accrued interest, offset in
part by a decrease in other current assets of $7.3 million, an increase of $3.4 million in accounts
payable and an increase of $2.1 million in accrued expenses. Accounts receivable increased
primarily due to the increase in our revenues in the first three months of 2007. Other inventory
increased primarily due to the build-up of inventory to meet the demands of increased activity
levels. The decrease in accrued interest relates to the semi-annual payment of interest on our
9.0% senior notes issued in 2006 in January 2007. The decrease in other current assets primarily
relates to the collection of the working capital adjustment of the OGR acquisition for
approximately $7.1 million in the first quarter of 2007. The increase in accounts payable and
accrued expenses can be attributed to additional expenses related to higher activity levels.
In the three months ended March 31, 2006, we used $5.6 million in cash from operating activities.
Net income for the three months ended March 31, 2006 was $4.4 million. Non-cash additions to net
income totaled $4.9 million during the first three months of 2006 consisting of $3.9 million of
depreciation and amortization, $0.9 million from the expensing of stock options, $355,000 of
imputed interest related to the effective date of the Specialty Rental Tools, Inc., or Specialty,
acquisition, $180,000 related to increases to the allowance for doubtful accounts receivables,
offset by $514,000 on the gain from asset disposals.
During the three months ended March 31, 2006, changes in operating assets and liabilities used
$14.9 million in cash, principally due to an increase of $4.3 million in accounts receivable, an
increase of $1.5 million in inventory, a decrease of $1.3 million in accounts payable and a
decrease of $11.0 million in an accrued expense, offset in part by an increase of $2.8 million in
accrued interest. Accounts receivable increased from the December 31, 2005 level, due to the
increase in our revenues in the first three months of 2006, which is primarily attributable to the
Specialty acquisition. Inventory increased primarily due to the build-up of inventory to meet the
demands of our increased activity levels. The decrease in accrued expenses can be attributed to
accrued bonuses of Specialty that we paid in connection with the acquisition. The increase in
accrued interest relates to the interest on our 9.0% senior notes that is only paid semi-annually.
Investing Activities
During the three months ended March 31, 2007, we used $19.6 million in investing activities,
consisting of $22.3 million for capital expenditures, offset by $2.7 million of proceeds from
equipment sales. Included in the $22.3 million for capital expenditures was $ 8.5 million for
drill pipe and other equipment used in our Rental Services segment, $4.3 million primarily for
additional MWD equipment used in the Directional Drilling segment, $2.7 million for additional
equipment in our International Drilling segment, $2.7 million for our Tubular Services segment and
$1.5 million for our Underbalanced Drilling segment, principally new compressor packages. A
majority of our equipment sales relate to items lost in hole by our customers.
During the three months ended March 31, 2006, we used $89.8 million in investing activities,
consisting of $83.4 million for the acquisition of Specialty, net of cash received and $7.6 million
for capital expenditures, offset by $1.2 million of proceeds from equipment sales. Included in the
$7.6 million for capital expenditures was $2.6 million for the expansion of our MWD equipment used
in the Directional Drilling segment and $2.2 million for additional equipment in our Underbalanced
Drilling segment. A majority of our equipment sales relate to items lost in hole by our
customers.
Financing Activities
During the three months ended March 31, 2007, financing activities provided $40.6 million in cash.
We received $250.0 million in proceeds from long-term debt, repaid $302.8 million in borrowings
under long-term debt facilities, including repayments of the bridge loan, and paid $7.0 million in
debt issuance costs. We also received $100.1 million from the issuance of our common stock in a
public offering, net of expenses along with $301,000 in proceeds from the exercise of options and
warrants.
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During the three months ended March 31, 2006, financing activities provided a net of $104.1 million
in cash. We received $161.4 million in proceeds from long-term debt, repaid $43.5 million in
borrowings under long-term facilities, repaid $3.0 million in related party debt, repaid $6.4
million under our line of credit and paid $5.3 million in debt issuance costs. We also received
$972,000 in proceeds from the exercise of options and warrants. On January 18, 2006, we closed on
a private offering of $160.0 million aggregate principal amount of our senior notes. The notes are
due January 15, 2014 and bear interest at 9.0%. The proceeds from the sale of the notes were used
to fund the acquisition of Specialty.
At March 31, 2007, we had $515.7 million in outstanding indebtedness, of which $510.4 million was
long term debt and $5.3 million is due within one year.
On January 18, 2006 and August 14, 2006, we closed on private offerings, to qualified institutional
buyers pursuant to Rule 144A under the Securities Act of 1933, of $160.0 and $95.0 million
aggregate principal amount of our senior notes, respectively. The senior notes are due January 15,
2014 and bear interest at 9.0%. The proceeds were used to fund the acquisitions of Specialty and
DLS, to repay existing debt and for general corporate purposes.
On January 18, 2006, we also executed an amended and restated credit agreement which provides for a
$25.0 million revolving line of credit which matures in January 2010. In April 2007 we entered
into a second amended and restated credit agreement which increased our revolving line of credit to
$62.0 million, which matures in April 2012. Our amended and restated credit agreement contains
customary events of default and financial covenants and limits our ability to incur additional
indebtedness, make capital expenditures, pay dividends or make other distributions, create liens
and sell assets. Our obligations under the amended and restated credit agreement are secured by
substantially all of our assets located in the United States.
On December 18, 2006, we closed on a $300.0 million senior unsecured bridge loan. The bridge loan
was due 18 months after closing and bore a weighted average interest rate of 10.6%. The bridge
loan, which was repaid on January 29, 2007, was used to fund the acquisition of substantially all
of the assets of OGR.
In January 2007, we closed on a private offering, to qualified institutional buyers pursuant to
Rule 144A under the Securities Act, of $250.0 million principal amount of 8.5% senior notes due
2017. The proceeds of the senior notes offering, together with a portion of the proceeds of our
concurrent common stock offering, were used to repay the debt outstanding under our $300.0 million
bridge loan facility which we incurred to finance our acquisition of substantially all the assets
of OGR.
As part of our acquisition of DLS, we assumed various bank loans with floating interest rates based
on LIBOR plus a margin and terms ranging from 2 to 5 years. The weighted average interest rates
were 6.9% and 7.0% at March 31, 2007 and December 31, 2006, respectively. The bank loans are
denominated in U.S. dollars and the outstanding amount due as of March 31, 2007 and December 31,
2006 were $6.7 million and $7.3 million, respectively.
As part of the acquisition of Mountain Compressed Air Inc., or Mountain Air, in 2001, we issued a
note to the sellers of Mountain Air in the original amount of $2.2 million accruing interest at a
rate of 5.75% per annum. The note was reduced to $1.5 million as a result of the settlement of a
legal action against the sellers in 2003. In March 2005, we reached an agreement with the sellers
and holders of the note as a result of an action brought against us by the sellers. Under the
terms of the agreement, we paid the holders of the note $1.0 million in cash, and agreed to pay an
additional $350,000 on June 1, 2006, and an additional $150,000 on June 1, 2007, in settlement of
all claims. At March 31, 2007 and December 31, 2006 the outstanding amounts due were $150,000.
In connection with the acquisition of Rogers, we issued to the seller a note in the amount of
$750,000. The note bears interest at 5.0% and is due April 3, 2009.
In connection with the purchase of Safco-Oil Field Products, Inc., or Safco, we agreed to pay a
total of $150,000 to the sellers in exchange for a non-compete agreement. We are required to make
annual payments of $50,000 through September 30, 2007. In connection with the purchase of Capcoil
Tubing Services, Inc., or Capcoil, we agreed to pay a total of $500,000 to two management employees
in exchange for non-compete agreements. We are required to make annual payments of $110,000
through May 2008. Total amounts due under these non-compete agreements at March 31, 2007 and
December 31, 2006 were $270,000.
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In 2000 we compensated directors, including current directors Nederlander and Toboroff, who served
on the board of directors from 1989 to March 31, 1999 without compensation, by issuing promissory
notes totaling $325,000. The notes bore interest at the rate of 5.0%. At March 31, 2007 and
December 31, 2006, the principal and accrued interest on these notes totaled approximately $32,000.
We have various equipment and vehicle financing loans with interest rates ranging from 5.0% to
8.7% and terms of 2 to 5 years. As of March 31, 2007 and December 31, 2006, the outstanding
balances for equipment and vehicle financing loans were $2.2 million and $3.5 million,
respectively. In April 2006 and August 2006, we obtained insurance premium financings in the
amount of $1.9 million and $896,000 with fixed interest rates of 5.6% and 6.0%, respectively.
Under the terms of the agreements, amounts outstanding are paid over 10 month and 11 month
repayment schedules. The outstanding balance of these notes was approximately $331,000 and $1.0
million as of March 31, 2007 and December 31, 2006, respectively. We also have various capital
leases with terms that expire in 2008. As of March 31, 2007 and December 31, 2006, amounts
outstanding under capital leases were $282,000 and $414,000, respectively.
Off Balance Sheet Arrangements
We have no off balance sheet arrangements, other than normal operating leases and employee
contracts, that have or are likely to have a current or future material effect on our financial
condition, changes in financial condition, revenues, expenses, results of operations, liquidity,
capital expenditures or capital resources. We do not guarantee obligations of any unconsolidated
entities. At March 31, 2007, we had a $25.0 million revolving line of credit with a maturity of
January 2010. At March 31, 2007, no amounts were borrowed on the facility but availability is
reduced by outstanding letters of credit of $9.5 million.
Capital Requirements
We have identified capital expenditure projects that will require approximately $58.0 million for
the remainder of 2007, exclusive of any acquisitions. We believe that our current cash generated
from operations, cash available under our credit facilities and cash on hand will provide
sufficient funds for our identified projects.
We intend to implement a growth strategy of increasing the scope of services through both internal
growth and acquisitions. We are regularly involved in discussions with a number of potential
acquisition candidates. The acquisition of assets could require additional financing. We also
expect to make capital expenditures to acquire and to maintain our existing equipment. Our
performance and cash flow from operations will be determined by the demand for our services which
in turn are affected by our customers expenditures for oil and gas exploration and development,
and industry perceptions and expectations of future oil and natural gas prices in the areas where
we operate. We will need to refinance our existing debt facilities as they become due and provide
funds for capital expenditures and acquisitions. To effect our expansion plans, we may require
additional equity or debt financing. There can be no assurance that we will be successful in
raising the additional debt or equity capital or that we can do so on terms that will be acceptable
to us.
Recent Developments
On April 26, 2007, we entered into a Second Amended and Restated Credit Agreement, which increased
our revolving line of credit to $62.0 million, and has a final maturity date of April 26, 2012.
The amended and restated credit agreement contains customary events of default and financial
covenants and limits our ability to incur additional indebtedness, make capital expenditures, pay
dividends or make other distributions, create liens and sell assets. Our obligations under the
amended and restated credit agreement are secured by substantially all of our assets located in the
United States.
Critical Accounting Policies
Please see our Annual Report on Form 10-K for the year ended December 31, 2006 for a description of
other policies that are critical to our business operations and the understanding of our results of
operations. The impact and any associated risks related to these policies on our business
operations is discussed throughout Managements Discussion and Analysis of Financial Condition and
Results of Operations where such policies affect our reported and expected financial results. No
material changes to such information have occurred during the three months ended March 31, 2007.
In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the accounting
for uncertainty in income taxes recognized in an enterprises financial statements in accordance
with SFAS No. 109, Accounting for Income Taxes. It prescribes a recognition threshold and
measurement attribute for financial statement recognition and measurement of a tax position taken
or expected to be taken in a tax return. We adopted the provisions of FIN 48 effective January 1,
2007 and such adoption did not have a material effect on our financial statements.
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Our policy is that we recognize interest and penalties accrued on any unrecognized tax benefits as
a component of income tax expense. As of the date of adoption of FIN 48, we did not have any
accrued interest or penalties associated with any unrecognized tax benefits. For United States federal tax purposes, our tax returns for
the tax years 2001 through 2006 remain open for examination by the
tax authorities. Our foreign tax returns remain open for examination
for the tax years 2001 through 2006. Generally, for state tax
purposes, our 2002 through 2006 tax years remain open for examination
by the tax authorities under a four year statute of limitations,
however, certain states may keep their statute open for six to ten
years.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157), which is
intended to increase consistency and comparability in fair value measurements by defining fair
value, establishing a framework for measuring fair value and expanding disclosures about fair value
measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. We are currently evaluating the provisions of SFAS 157
and have not yet determined the impact, if any, on our financial statements.
In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities (SFAS 159), which permits entities to elect to measure many financial
instruments and certain other items at fair value. Upon adoption of SFAS 159, an entity may elect
the fair value option for eligible items that exist at the adoption date. Subsequent to the initial
adoption, the election of the fair value option should only be made at the initial recognition of
the asset or liability or upon a re-measurement event that gives rise to the new-basis of
accounting. All subsequent changes in fair value for that instrument are reported in earnings.
SFAS No. 159 does not affect any existing accounting literature that requires certain assets and
liabilities to be recorded at fair value nor does it eliminate disclosure requirements included in
other accounting standards. SFAS 159 is effective as of the beginning of each reporting entitys
first fiscal year that begins after November 15, 2007. We are currently evaluating the provisions
of SFAS 159 and have not yet determined the impact, if any, on our financial statements.
Forward-Looking Statements
This quarterly report contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, or 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 under Item 1ARisk Factors in our Annual Report on Form 10-K for the year ended
December 31, 2006. 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 quarterly report. 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 quarterly report or currently unknown facts
or conditions or the occurrence of unanticipated events.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
We are exposed to market risk primarily from changes in interest rates and foreign currency
exchange risks.
Interest Rate Risk.
Fluctuations in the general level of interest rates on our current and future fixed and variable
rate debt obligations expose us to market risk. We are vulnerable to significant fluctuations in
interest rates affecting our adjustable rate debt, and any future refinancing of our fixed rate
debt and our future debt.
As part of our acquisition of DLS, we assumed various bank loans carrying variable interest rates
with an outstanding balance of $6.7 million as of March 31, 2007.
We have also been subject to interest rate market risk for short-term invested cash and cash
equivalents. The principal of such invested funds would not be subject to fluctuating value
because of their highly liquid short-term nature. As of March 31, 2007, we had $64.2 million
invested in short-term investments.
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Foreign Currency Exchange Rate Risk.
We have designated the U.S. dollar as the functional currency for our operations in international
locations as we contract with customers, purchase equipment and finance capital using the U.S.
dollar. Local currency transaction gains and losses, arising from remeasurement of certain assets
and liabilities denominated in local currency, are included in our consolidated statements of
income. We conduct business in Mexico through our Mexican partner, Matyep. This business exposes
us to foreign exchange risk. To control this risk, we provide for payment in U.S. dollars.
However, we have historically provided our partner a discount upon payment equal to 50% of any loss
suffered by our partner as a result of devaluation of the Mexican peso between the date of
invoicing and the date of payment. To date, such payments have not been material in amount.
ITEM 4. CONTROLS AND PROCEDURES.
(a) Evaluation of Disclosure Controls and Procedures.
As of the end of the period covered by this quarterly report, we have evaluated the effectiveness
of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e)
and 15d 15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. This
evaluation was carried out under the supervision and with the participation of our management,
including our chief executive officer and chief financial officer. Based on this evaluation, these
officers have concluded that, as of March 31, 2007, our disclosure controls and procedures are
effective at a reasonable assurance level in ensuring that the information required to be disclosed
by us in reports filed under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission, or SEC, rules and
forms.
We maintain disclosure controls and procedures that are designed to ensure that information
required to be disclosed in our reports under the Exchange Act, are recorded, processed, summarized
and reported within the time periods specified in the SECs rules and forms, and that such
information is accumulated and communicated to management, including our chief executive officer
and chief financial officer, as appropriate, to allow timely decisions regarding required
disclosures.
(b) Change in Internal Control Over Financial Reporting.
The following changes were made in our internal control over financial reporting (as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period covered by this
report that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting:
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We started the foundation of an internal audit department. We have written a charter
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PART II. OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On January 12, 2007, we issued 3,153 shares to Capital Growth Financial LLLC (Capital Growth)
pursuant to a cashless exercise of a warrant to purchase 4,000 shares of our common stock, par
value $0.01 per share, at an exercise price of $4.65 per share. We received no cash proceeds from
this transaction. The issuance of the shares to Capital Growth was exempt from the registration
requirements of the Securities Act under Section 4(2) of the Securities act, which did not involve
a public offering.
ITEM 6. EXHIBITS
(a) The exhibits listed on the Exhibit Index immediately following the signature page of this
Quarterly Report on Form 10-Q are filed as part of this report.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized on May 10, 2007.
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Allis-Chalmers Energy Inc.
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(Registrant) |
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/s/ Munawar H. Hidayatallah |
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Munawar H. Hidayatallah |
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Chief Executive Officer and
Chairman |
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EXHIBIT INDEX
4.1 |
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Second Supplemental Indenture dated as of January 23, 2007 by and among Petro-Rentals,
Incorporated, Allis-Chalmers Energy Inc., the other Guarantor parties thereto and Wells Fargo
Bank, N.A., as trustee (incorporated by reference to Exhibit 10.1 to the Registrants Form 8-K
filed on January 24, 2007). |
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4.2 |
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Indenture, dated as of January 29, 2007, by and among Allis-Chalmers Energy Inc., the
Guarantors named therein and Wells Fargo Bank, N.A. (incorporated by reference to Exhibit 4.1
to the Registrants Form 8-K filed on January 29, 2007). |
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4.3 |
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Form of 8.5% Senior Note due 2017 (included in Exhibit 4.2). |
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10.1* |
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Second Amended and Restated Credit Agreement dated as of April 26, 2007 by and among
Allis-Chalmers Energy Inc., as borrower, Royal Bank of Canada, as administrative agent and
Collateral Agent, RBC Capital Markets, as lead arranger and sole bookrunner, and the lenders
party thereto. |
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10.2* |
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Amended and Restated Guaranty, dated as of April 26, 2007, by each of the guarantors named
thereto, in favor of Royal Bank of Canada, as administrative agent for the lenders thereto,
which is also the form of Guaranty for Petro-Rentals, Inc., as set forth on the schedule
thereto. |
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10.3* |
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Amended and Restated Pledge and Security Agreement, dated as of April 26, 2007, by
Allis-Chalmers Energy Inc., for the benefit of Royal Bank of Canada, as administrative agent
and collateral agent for the lenders named thereto, which is also the form of Pledge and
Security Agreement for each of AirComp L.L.C., Allis-Chalmers GP, LLC, Allis-Chalmers LP, LLC,
Allis-Chalmers Management, LP, Allis-Chalmers Production Services, Inc., Allis-Chalmers Rental
Services, Inc., Allis-Chalmers Tubular Services, Inc., Mountain Compressed Air, Inc.,
Petro-Rentals, Inc., OilQuip Rentals, Inc., and Strata Directional Technology, Inc. as set
forth on the schedule thereto. |
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10.4 |
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Purchase Agreement dated as of January 24, 2007 by and among Allis-Chalmers Energy Inc., the
Guarantors named therein and the Initial Purchasers named therein (incorporated by reference
to Exhibit 10.1 to the Registrants Form 8-K filed on January 29, 2007). |
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10.5 |
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Registration Rights Agreement dated as of January 29, 2007 by and among Allis-Chalmers Energy
Inc., the Guarantors named therein and the Initial Purchasers named therein (incorporated by
reference to Exhibit 10.2 to the Registrants Form 8-K filed on January 29, 2007). |
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10.6 |
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Agreement, dated April 1, 2007, between Allis-Chalmers Energy Inc. and David Wilde
(incorporated by reference to Exhibit 99.1 to the Registrants Form 8-K filed on April 3,
2007). |
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31.1* |
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Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2* |
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Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32.1* |
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Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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