e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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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 SEPTEMBER 30, 2007
OR
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o |
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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 October 31, 2007 there were 35,049,245 shares of common stock, par value $0.01 per share,
outstanding.
ALLIS-CHALMERS ENERGY INC.
FORM 10-Q
For the Quarterly Period Ended September 30, 2007
TABLE OF CONTENTS
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALLIS-CHALMERS ENERGY INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except for share and per share amounts)
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September 30, |
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December 31, |
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2007 |
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2006 |
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(unaudited) |
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Assets |
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Cash and cash equivalents |
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$ |
63,091 |
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$ |
39,745 |
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Trade receivables, net |
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132,561 |
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95,766 |
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Inventories |
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31,832 |
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28,615 |
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Prepaid expenses and other |
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10,519 |
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16,636 |
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Total current assets |
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238,003 |
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180,762 |
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Property and equipment, net |
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601,434 |
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554,258 |
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Goodwill |
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130,326 |
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125,835 |
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Other intangible assets, net |
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30,929 |
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32,840 |
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Debt issuance costs, net |
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14,528 |
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9,633 |
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Other assets |
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5,054 |
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4,998 |
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Total assets |
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$ |
1,020,274 |
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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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$ |
7,579 |
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$ |
6,999 |
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Trade accounts payable |
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27,118 |
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25,666 |
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Accrued salaries, benefits and payroll taxes |
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13,576 |
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10,888 |
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Accrued interest |
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6,774 |
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11,867 |
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Accrued expenses |
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27,132 |
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16,951 |
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Total current liabilities |
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82,179 |
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72,371 |
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Long-term debt, net of current maturities |
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508,858 |
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561,446 |
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Deferred income taxes |
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23,095 |
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19,953 |
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Other long-term liabilities |
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555 |
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623 |
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Total liabilities |
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614,687 |
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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, $0.01 par value (100,000,000 shares authorized;
34,812,666 issued and outstanding at September 30, 2007 and
28,233,411 issued and outstanding at December 31, 2006) |
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348 |
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282 |
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Capital in excess of par value |
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323,140 |
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216,208 |
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Retained earnings |
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82,099 |
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37,443 |
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Total stockholders equity |
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405,587 |
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253,933 |
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Total liabilities and stockholders equity |
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$ |
1,020,274 |
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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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For the Nine Months Ended |
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September 30, |
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September 30, |
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2007 |
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2006 |
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2007 |
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2006 |
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Revenues |
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$ |
147,881 |
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$ |
86,772 |
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$ |
427,143 |
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$ |
196,066 |
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Cost of revenues |
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Direct costs |
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89,120 |
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52,531 |
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249,943 |
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113,408 |
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Depreciation |
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13,168 |
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5,448 |
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37,232 |
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12,606 |
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Total cost of revenues |
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102,288 |
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57,979 |
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287,175 |
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126,014 |
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Gross margin |
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45,593 |
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28,793 |
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139,968 |
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70,052 |
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General and administrative |
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13,456 |
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9,058 |
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41,729 |
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24,540 |
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Gain on capillary asset sale |
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(8,868 |
) |
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Amortization |
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989 |
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399 |
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3,015 |
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1,212 |
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Income from operations |
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31,148 |
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19,336 |
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104,092 |
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44,300 |
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Other income (expense): |
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Interest expense |
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(11,805 |
) |
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(5,330 |
) |
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(37,671 |
) |
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(13,342 |
) |
Interest income |
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851 |
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388 |
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2,718 |
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515 |
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Other |
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32 |
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(26 |
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308 |
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(6 |
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Total other income (expense) |
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(10,922 |
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(4,968 |
) |
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(34,645 |
) |
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(12,833 |
) |
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Income before income taxes |
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20,226 |
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14,368 |
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69,447 |
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31,467 |
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Provision for taxes |
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(7,239 |
) |
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(3,116 |
) |
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(24,791 |
) |
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(6,197 |
) |
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Net income |
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$ |
12,987 |
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$ |
11,252 |
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$ |
44,656 |
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$ |
25,270 |
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Net income per common share: |
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Basic |
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$ |
0.37 |
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$ |
0.52 |
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$ |
1.32 |
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$ |
1.33 |
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Diluted |
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$ |
0.37 |
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$ |
0.50 |
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$ |
1.29 |
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$ |
1.25 |
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Weighted average shares outstanding: |
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Basic |
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34,784 |
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21,644 |
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33,934 |
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18,944 |
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Diluted |
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35,286 |
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22,453 |
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34,512 |
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20,155 |
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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 Nine Months Ended |
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September 30, |
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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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$ |
44,656 |
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$ |
25,270 |
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Adjustments to reconcile net income to net cash
provided by operating activities: |
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Depreciation and amortization |
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40,247 |
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13,818 |
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Amortization and write-off of deferred financing fees |
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2,686 |
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|
742 |
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Imputed interest |
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|
355 |
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Stock-based
compensation expense |
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2,132 |
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2,638 |
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Allowance for bad debts |
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441 |
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|
353 |
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Deferred income taxes |
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|
3,142 |
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|
494 |
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(Gain) on sale of property and equipment |
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(1,085 |
) |
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(728 |
) |
Gain on capillary asset sale |
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(8,868 |
) |
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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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(36,801 |
) |
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|
(17,161 |
) |
(Increase) in inventories |
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(4,998 |
) |
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|
(2,161 |
) |
Decrease in other current assets |
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10,551 |
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|
1,322 |
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Decrease in other assets |
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|
173 |
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|
530 |
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Increase (decrease) in accounts payable |
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1,326 |
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|
(1,609 |
) |
(Decrease) increase in accrued interest |
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(5,093 |
) |
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|
4,661 |
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Increase in accrued expenses |
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9,957 |
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|
2,516 |
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Increase in accrued salaries, benefits and payroll taxes |
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2,412 |
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3,110 |
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(Decrease) in other long-term liabilities |
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(68 |
) |
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(813 |
) |
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Net Cash Provided By Operating Activities |
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60,810 |
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|
33,337 |
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Cash Flows from Investing Activities: |
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Acquisition of businesses, net of cash received |
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(12,860 |
) |
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(203,189 |
) |
Purchase of investment interests |
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(498 |
) |
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Proceeds from sale of capillary assets |
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16,250 |
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Proceeds from sale of property and equipment |
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5,988 |
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|
3,516 |
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Purchase of property and equipment |
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(86,087 |
) |
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|
(25,811 |
) |
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Net Cash Used In Investing Activities |
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|
(77,207 |
) |
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(225,484 |
) |
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Cash Flows from Financing Activities: |
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Proceeds from issuance of stock, net |
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100,055 |
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|
46,484 |
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Proceeds from exercises of options and warrants |
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3,252 |
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|
5,406 |
|
Proceeds from long-term debt |
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|
250,000 |
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|
|
257,820 |
|
Proceeds from line of credit |
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|
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|
|
5,000 |
|
Repayments on long-term debt |
|
|
(307,542 |
) |
|
|
(51,712 |
) |
Repayments on related party debt |
|
|
|
|
|
|
(3,031 |
) |
Repayments on line of credit |
|
|
|
|
|
|
(11,400 |
) |
Tax benefits on stock plans |
|
|
1,559 |
|
|
|
|
|
Debt issuance costs |
|
|
(7,581 |
) |
|
|
(8,029 |
) |
|
|
|
|
|
|
|
Net Cash Provided By Financing Activities |
|
|
39,743 |
|
|
|
240,538 |
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
23,346 |
|
|
|
48,391 |
|
|
Cash and cash equivalents at beginning of year |
|
|
39,745 |
|
|
|
1,920 |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
63,091 |
|
|
$ |
50,311 |
|
|
|
|
|
|
|
|
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 its 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, throughout the United States including Texas, Louisiana, New
Mexico, Colorado, Oklahoma, Mississippi, Wyoming, Arkansas, 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
ACQUISITIONS
In June 2007, we acquired Coker Directional, Inc., or Coker, for a purchase price of approximately
$3.5 million in cash and a promissory note for $350,000. Coker operated in the Gulf Coast and
Central Texas regions and will be included in our Directional Drilling segment.
In July 2007, we acquired Diggar Tools, LLC, or Diggar, for a purchase price of approximately $9.6
million in cash and a promissory note for $750,000. Diggar operated in the Rocky Mountains and
owned 115 downhole motors and will be included in our Directional Drilling segment.
NOTE 3
SALE OF CAPILLARY ASSETS
On June 29, 2007, we sold our capillary tubing units and related equipment for approximately $16.3
million. We reported a gain of approximately $8.9 million. The assets sold represented a small
portion of our Production Services segment. Our Production Services segment will continue to
provide a variety of production-related rental tools, equipment and services.
7
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 4
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 nine 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 September 30, 2007 and 2006 includes approximately $1.0
million and $860,000, respectively of compensation costs related to share-based payments. Our net
income for the nine months ended September 30, 2007 and 2006 includes approximately $2.1 million
and $2.6 million, respectively of compensation costs related to share-based payments. As of
September 30, 2007 there is $2.8 million of unrecognized compensation expense related to non-vested
stock option grants. We expect to recognize approximately $364,000 over the remainder of 2007,
approximately $939,000, $918,000 and $532,000 to be recognized during the years ended 2008, 2009
and 2010, respectively.
A summary of our stock option activity and related information as of and for the nine months ended
September 30, 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 |
|
|
220,000 |
|
|
|
21.83 |
|
|
|
|
|
|
|
|
|
Canceled |
|
|
(9,000 |
) |
|
|
6.89 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(552,102 |
) |
|
|
5.89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period |
|
|
1,009,263 |
|
|
|
10.68 |
|
|
|
8.19 |
|
|
$ |
8.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period |
|
|
626,931 |
|
|
$ |
6.69 |
|
|
|
7.60 |
|
|
$ |
7.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 third
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
September 30, 2007. The total intrinsic value of options exercised during the three and nine
months ended September 30, 2007 was $362,000 and $6.5 million, respectively. The total cash
received from option exercises during the three and nine months ended September 30, 2007 was
$114,000 and $3.2 million, respectively.
The following summarizes the assumptions used for the Black-Scholes model:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
For the Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
Expected dividend yield |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected price volatility |
|
|
66.17 |
% |
|
|
72.28 |
% |
|
|
66.21 |
% |
|
|
72.28 |
% |
Risk free interest rate |
|
|
4.82 |
% |
|
|
5.07 |
% |
|
|
4.81 |
% |
|
|
5.07 |
% |
Expected life of options |
|
5 years |
|
7 years |
|
5 years |
|
7 years |
Weighted average fair
value of options granted
at market value |
|
$ |
12.90 |
|
|
$ |
10.58 |
|
|
$ |
12.86 |
|
|
$ |
10.58 |
|
8
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 4
STOCK-BASED COMPENSATION (Continued)
For options granted since June 2007, we decreased the expected option life to 5 years from 7 years
to reflect recent option exercise experience.
Restricted stock awards, or RSAs, activity during the nine months ended September 30, 2007 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
Number of |
|
Grant-Date Fair Value |
|
|
shares |
|
per Share |
Nonvested at December 31, 2006 |
|
|
27,000 |
|
|
$ |
18.30 |
|
Granted |
|
|
831,200 |
|
|
|
17.34 |
|
Vested |
|
|
(24,000 |
) |
|
|
18.30 |
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at September 30, 2007 |
|
|
834,200 |
|
|
$ |
17.34 |
|
|
|
|
|
|
|
|
|
|
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. The total fair value of shares vested during
the three and nine months ended September 30, 2007 was $485,000. As of September 30, 2007, there
was approximately $13.4 million of total unrecognized compensation cost related to nonvested RSAs.
We expect approximately $2.1 million to be recognized over the remainder of 2007, approximately
$5.6 million, $4.5 million and $1.2 million to be recognized during the years ended 2008, 2009 and
2010, respectively.
NOTE 5
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 |
|
|
For the Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
12,987 |
|
|
$ |
11,252 |
|
|
$ |
44,656 |
|
|
$ |
25,270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share weighted
average shares outstanding |
|
|
34,784 |
|
|
|
21,644 |
|
|
|
33,934 |
|
|
|
18,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of potentially dilutive common shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants and employee and director
stock options |
|
|
502 |
|
|
|
809 |
|
|
|
578 |
|
|
|
1,211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
weighted average shares
outstanding and assumed
conversions |
|
|
35,286 |
|
|
|
22,453 |
|
|
|
34,512 |
|
|
|
20,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share basic |
|
$ |
0.37 |
|
|
$ |
0.52 |
|
|
$ |
1.32 |
|
|
$ |
1.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share diluted |
|
$ |
0.37 |
|
|
$ |
0.50 |
|
|
$ |
1.29 |
|
|
$ |
1.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 6
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
$130.3 million and $125.8 million at September 30, 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 and nine
months ended September 30, 2007 were $989,000 and $3.0 million, respectively, compared to $399,000
and $1.2 million, respectively for the same periods in the prior year. At September 30, 2007,
intangible assets totaled $30.9 million, net of $5.3 million of accumulated amortization.
NOTE 7 INVENTORIES
Inventories are comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
Chemicals and drilling fluids |
|
$ |
2,822 |
|
|
$ |
2,673 |
|
Coiled tubing and related inventory |
|
|
1,827 |
|
|
|
1,627 |
|
Drive pipe |
|
|
565 |
|
|
|
716 |
|
Finished goods |
|
|
2,033 |
|
|
|
1,476 |
|
Hammers |
|
|
1,245 |
|
|
|
1,016 |
|
Raw materials |
|
|
3,955 |
|
|
|
2,638 |
|
Rental supplies |
|
|
1,854 |
|
|
|
1,845 |
|
Rig parts and related inventory |
|
|
10,385 |
|
|
|
9,762 |
|
Shop supplies and related inventory |
|
|
5,190 |
|
|
|
4,596 |
|
Work in process |
|
|
1,956 |
|
|
|
2,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total inventory |
|
$ |
31,832 |
|
|
$ |
28,615 |
|
|
|
|
|
|
|
|
NOTE 8 DEBT
Our long-term debt consists of the following: (in thousands)
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
Senior notes |
|
$ |
505,000 |
|
|
$ |
255,000 |
|
Bridge loan |
|
|
|
|
|
|
300,000 |
|
Bank term loans |
|
|
5,484 |
|
|
|
7,302 |
|
Revolving line of credit |
|
|
|
|
|
|
|
|
Seller notes |
|
|
1,850 |
|
|
|
900 |
|
Obligations under non-compete agreements |
|
|
160 |
|
|
|
270 |
|
Notes payable to former directors |
|
|
32 |
|
|
|
32 |
|
Equipment and vehicle installment notes |
|
|
942 |
|
|
|
3,502 |
|
Insurance premium financing |
|
|
2,927 |
|
|
|
1,025 |
|
Capital lease obligations |
|
|
42 |
|
|
|
414 |
|
|
|
|
|
|
|
|
Total debt |
|
|
516,437 |
|
|
|
568,445 |
|
Less: current maturities |
|
|
7,579 |
|
|
|
6,999 |
|
|
|
|
|
|
|
|
Long-term debt obligations |
|
$ |
508,858 |
|
|
$ |
561,446 |
|
|
|
|
|
|
|
|
10
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 8
DEBT (continued)
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 provided for a
$25.0 million revolving line of credit with a maturity of January 2010. Our January 2006 amended
and restated credit agreement contained 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 were 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 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.
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.
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 6.72% and 7.0% at September 30, 2007 and December 31, 2006, respectively. The bank loans are
denominated in U.S. dollars and the outstanding amounts due as of September 30, 2007 and December
31, 2006 were $5.5 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. At September 30, 2007 and December 31, 2006 the
outstanding amounts due were $0 and $150,000, respectively.
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 acquisition of Coker we issued to the seller a note in the amount of
$350,000. The note bears interest at 8.25% and is due June 29, 2008. In connection with the
acquisition of Diggar we issued to the seller a note in the amount of $750,000. The note bears
interest at 6.0% and is due July 26, 2008.
In connection with the purchase of Safco-Oil Field Products, Inc., or Safco, we also 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 September 30,
2007 and December 31, 2006 were $160,000 and $270,000, respectively.
11
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 8
DEBT (continued)
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 September 30, 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 7.85% to
8.7% and terms of 2 to 3 years. As of September 30, 2007 and December 31, 2006, the outstanding
balances for equipment and vehicle financing loans were $942,000 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. In April
2007, we renewed the insurance premium financing in an amount of $3.2 million with a fixed interest
rate of 5.9% and a repayment schedule of 11 months. The outstanding balance of these notes was
approximately $2.9 million and $1.0 million as of September 30, 2007 and December 31, 2006,
respectively. We also have various capital leases with terms that expire in 2008. As of September
30, 2007 and December 31, 2006, amounts outstanding under capital leases were $42,000 and $414,000,
respectively.
NOTE 9 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 nine months of 2007, which resulted in
579,255 shares of our common stock being issued for approximately $3.2 million. We recognized
approximately $2.1 million of compensation expense related to share based payments in the first
nine months of 2007 that was recorded as capital in excess of par value (see Note 4). We also
recorded approximately $1.6 million of tax benefit related to our stock compensation plans.
NOTE
10 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
10 CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATING BALANCE SHEETS
September 30, 2007 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allis-Chalmers |
|
|
|
|
|
|
Subsidiary |
|
|
|
|
|
|
|
|
|
(Parent/ |
|
|
Subsidiary |
|
|
Non- |
|
|
Consolidating |
|
|
Consolidated |
|
|
|
Guarantor) |
|
|
Guarantors |
|
|
Guarantors |
|
|
Adjustments |
|
|
Total |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
61,260 |
|
|
$ |
1,831 |
|
|
$ |
|
|
|
$ |
63,091 |
|
Trade receivables, net |
|
|
|
|
|
|
83,759 |
|
|
|
48,806 |
|
|
|
(4 |
) |
|
|
132,561 |
|
Inventory |
|
|
|
|
|
|
15,435 |
|
|
|
16,397 |
|
|
|
|
|
|
|
31,832 |
|
Intercompany receivables |
|
|
82,001 |
|
|
|
|
|
|
|
|
|
|
|
(82,001 |
) |
|
|
|
|
Note receivable from affiliate |
|
|
7,406 |
|
|
|
|
|
|
|
|
|
|
|
(7,406 |
) |
|
|
|
|
Prepaid expenses and other |
|
|
5,417 |
|
|
|
3,064 |
|
|
|
2,038 |
|
|
|
|
|
|
|
10,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
94,824 |
|
|
|
163,518 |
|
|
|
69,072 |
|
|
|
(89,411 |
) |
|
|
238,003 |
|
Property and equipment, net |
|
|
|
|
|
|
460,905 |
|
|
|
140,529 |
|
|
|
|
|
|
|
601,434 |
|
Goodwill |
|
|
|
|
|
|
128,803 |
|
|
|
1,523 |
|
|
|
|
|
|
|
130,326 |
|
Other intangible assets, net |
|
|
563 |
|
|
|
30,302 |
|
|
|
64 |
|
|
|
|
|
|
|
30,929 |
|
Debt issuance costs, net |
|
|
14,528 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,528 |
|
Note receivable from affiliates |
|
|
8,895 |
|
|
|
|
|
|
|
|
|
|
|
(8,895 |
) |
|
|
|
|
Investments in affiliates |
|
|
805,066 |
|
|
|
|
|
|
|
|
|
|
|
(805,066 |
) |
|
|
|
|
Other assets |
|
|
23 |
|
|
|
4,989 |
|
|
|
42 |
|
|
|
|
|
|
|
5,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
923,899 |
|
|
$ |
788,517 |
|
|
$ |
211,230 |
|
|
$ |
(903,372 |
) |
|
$ |
1,020,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt |
|
$ |
32 |
|
|
$ |
5,171 |
|
|
$ |
2,376 |
|
|
$ |
|
|
|
$ |
7,579 |
|
Trade accounts payable |
|
|
|
|
|
|
12,158 |
|
|
|
14,964 |
|
|
|
(4 |
) |
|
|
27,118 |
|
Accrued
salaries, benefits and payroll taxes |
|
|
|
|
|
|
2,559 |
|
|
|
11,017 |
|
|
|
|
|
|
|
13,576 |
|
Accrued interest |
|
|
6,705 |
|
|
|
15 |
|
|
|
54 |
|
|
|
|
|
|
|
6,774 |
|
Accrued expenses |
|
|
432 |
|
|
|
15,906 |
|
|
|
10,794 |
|
|
|
|
|
|
|
27,132 |
|
Intercompany payables |
|
|
|
|
|
|
438,534 |
|
|
|
1,185 |
|
|
|
(439,719 |
) |
|
|
|
|
Note payable to affiliate |
|
|
|
|
|
|
|
|
|
|
7,406 |
|
|
|
(7,406 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
7,169 |
|
|
|
474,343 |
|
|
|
47,796 |
|
|
|
(447,129 |
) |
|
|
82,179 |
|
Long-term
debt, net of current maturities |
|
|
505,750 |
|
|
|
|
|
|
|
3,108 |
|
|
|
|
|
|
|
508,858 |
|
Note payable to affiliate |
|
|
|
|
|
|
|
|
|
|
8,895 |
|
|
|
(8,895 |
) |
|
|
|
|
Deferred income taxes |
|
|
5,110 |
|
|
|
10,714 |
|
|
|
7,271 |
|
|
|
|
|
|
|
23,095 |
|
Other long-term liabilities |
|
|
283 |
|
|
|
272 |
|
|
|
|
|
|
|
|
|
|
|
555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
518,312 |
|
|
|
485,329 |
|
|
|
67,070 |
|
|
|
(456,024 |
) |
|
|
614,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
348 |
|
|
|
3,526 |
|
|
|
42,963 |
|
|
|
(46,489 |
) |
|
|
348 |
|
Capital in excess of par value |
|
|
323,140 |
|
|
|
167,508 |
|
|
|
74,969 |
|
|
|
(242,477 |
) |
|
|
323,140 |
|
Retained earnings |
|
|
82,099 |
|
|
|
132,154 |
|
|
|
26,228 |
|
|
|
(158,382 |
) |
|
|
82,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
405,587 |
|
|
|
303,188 |
|
|
|
144,160 |
|
|
|
(447,348 |
) |
|
|
405,587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity |
|
$ |
923,899 |
|
|
$ |
788,517 |
|
|
$ |
211,230 |
|
|
$ |
(903,372 |
) |
|
$ |
1,020,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE
10 CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATING BALANCE SHEETS
December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allis-Chalmers |
|
|
|
|
|
|
Subsidiary |
|
|
|
|
|
|
|
|
|
(Parent/ |
|
|
Subsidiary |
|
|
Non- |
|
|
Consolidating |
|
|
Consolidated |
|
|
|
Guarantor) |
|
|
Guarantors |
|
|
Guarantors |
|
|
Adjustments |
|
|
Total |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
37,769 |
|
|
$ |
1,976 |
|
|
$ |
|
|
|
$ |
39,745 |
|
Trade receivables, net |
|
|
|
|
|
|
62,089 |
|
|
|
33,971 |
|
|
|
(294 |
) |
|
|
95,766 |
|
Inventory |
|
|
|
|
|
|
13,194 |
|
|
|
15,421 |
|
|
|
|
|
|
|
28,615 |
|
Intercompany receivables |
|
|
67,909 |
|
|
|
|
|
|
|
|
|
|
|
(67,909 |
) |
|
|
|
|
Note receivable from affiliate |
|
|
5,502 |
|
|
|
|
|
|
|
|
|
|
|
(5,502 |
) |
|
|
|
|
Prepaid expenses and other |
|
|
5,703 |
|
|
|
10,200 |
|
|
|
733 |
|
|
|
|
|
|
|
16,636 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
79,114 |
|
|
|
123,252 |
|
|
|
52,101 |
|
|
|
(73,705 |
) |
|
|
180,762 |
|
Property and equipment, net |
|
|
|
|
|
|
422,297 |
|
|
|
131,961 |
|
|
|
|
|
|
|
554,258 |
|
Goodwill |
|
|
|
|
|
|
124,331 |
|
|
|
1,504 |
|
|
|
|
|
|
|
125,835 |
|
Other intangible assets, net |
|
|
598 |
|
|
|
32,153 |
|
|
|
89 |
|
|
|
|
|
|
|
32,840 |
|
Debt issuance costs, net |
|
|
9,633 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,633 |
|
Note receivable from affiliates |
|
|
12,339 |
|
|
|
|
|
|
|
|
|
|
|
(12,339 |
) |
|
|
|
|
Investments in affiliates |
|
|
722,202 |
|
|
|
|
|
|
|
|
|
|
|
(722,202 |
) |
|
|
|
|
Other assets |
|
|
257 |
|
|
|
4,719 |
|
|
|
22 |
|
|
|
|
|
|
|
4,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
824,143 |
|
|
$ |
706,752 |
|
|
$ |
185,677 |
|
|
$ |
(808,246 |
) |
|
$ |
908,326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt |
|
$ |
32 |
|
|
$ |
3,809 |
|
|
$ |
3,158 |
|
|
$ |
|
|
|
$ |
6,999 |
|
Trade accounts payable |
|
|
31 |
|
|
|
13,510 |
|
|
|
12,125 |
|
|
|
|
|
|
|
25,666 |
|
Accrued
salaries, benefits and payroll taxes |
|
|
|
|
|
|
2,993 |
|
|
|
7,895 |
|
|
|
|
|
|
|
10,888 |
|
Accrued interest |
|
|
11,755 |
|
|
|
|
|
|
|
112 |
|
|
|
|
|
|
|
11,867 |
|
Accrued expenses |
|
|
135 |
|
|
|
9,247 |
|
|
|
7,863 |
|
|
|
(294 |
) |
|
|
16,951 |
|
Intercompany payables |
|
|
|
|
|
|
425,610 |
|
|
|
17 |
|
|
|
(425,627 |
) |
|
|
|
|
Note payable to affiliate |
|
|
|
|
|
|
|
|
|
|
5,502 |
|
|
|
(5,502 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
11,953 |
|
|
|
455,169 |
|
|
|
36,672 |
|
|
|
(431,423 |
) |
|
|
72,371 |
|
Long-term
debt, net of current maturities |
|
555,750 |
|
|
770 |
|
|
|
4,926 |
|
|
|
|
|
|
|
561,446 |
|
Note payable to affiliate |
|
|
|
|
|
|
|
|
|
|
12,339 |
|
|
|
(12,339 |
) |
|
|
|
|
Deferred income tax liability |
|
|
2,203 |
|
|
|
10,714 |
|
|
|
7,036 |
|
|
|
|
|
|
|
19,953 |
|
Other long-term liabilities |
|
|
304 |
|
|
|
319 |
|
|
|
|
|
|
|
|
|
|
|
623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
570,210 |
|
|
|
466,972 |
|
|
|
60,973 |
|
|
|
(443,762 |
) |
|
|
654,393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
282 |
|
|
|
3,526 |
|
|
|
42,963 |
|
|
|
(46,489 |
) |
|
|
282 |
|
Capital in excess of par value |
|
|
216,208 |
|
|
|
167,508 |
|
|
|
74,969 |
|
|
|
(242,477 |
) |
|
|
216,208 |
|
Retained earnings |
|
|
37,443 |
|
|
|
68,746 |
|
|
|
6,772 |
|
|
|
(75,518 |
) |
|
|
37,443 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
253,933 |
|
|
|
239,780 |
|
|
|
124,704 |
|
|
|
(364,484 |
) |
|
|
253,933 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stock
holders equity |
|
$ |
824,143 |
|
|
$ |
706,752 |
|
|
$ |
185,677 |
|
|
$ |
(808,246 |
) |
|
$ |
908,326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE
10 CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATING INCOME STATEMENTS
For the Nine Months Ended September 30, 2007 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allis-Chalmers |
|
|
|
|
|
|
Subsidiary |
|
|
|
|
|
|
|
|
|
(Parent/ |
|
|
Subsidiary |
|
|
Non- |
|
|
Consolidating |
|
|
Consolidated |
|
|
|
Guarantor) |
|
|
Guarantors |
|
|
Guarantors |
|
|
Adjustments |
|
|
Total |
|
Revenues |
|
$ |
|
|
|
$ |
266,883 |
|
|
$ |
160,295 |
|
|
$ |
(35 |
) |
|
$ |
427,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs |
|
|
|
|
|
|
134,492 |
|
|
|
115,486 |
|
|
|
(35 |
) |
|
|
249,943 |
|
Depreciation |
|
|
|
|
|
|
28,929 |
|
|
|
8,303 |
|
|
|
|
|
|
|
37,232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues |
|
|
|
|
|
|
163,421 |
|
|
|
123,789 |
|
|
|
(35 |
) |
|
|
287,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
|
|
|
|
103,462 |
|
|
|
36,506 |
|
|
|
|
|
|
|
139,968 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
1,856 |
|
|
|
33,486 |
|
|
|
6,387 |
|
|
|
|
|
|
|
41,729 |
|
Gain on capillary asset sale |
|
|
|
|
|
|
(8,868 |
) |
|
|
|
|
|
|
|
|
|
|
(8,868 |
) |
Amortization |
|
|
35 |
|
|
|
2,955 |
|
|
|
25 |
|
|
|
|
|
|
|
3,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
(1,891 |
) |
|
|
75,889 |
|
|
|
30,094 |
|
|
|
|
|
|
|
104,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity earnings in
affiliates, net of tax |
|
|
82,864 |
|
|
|
|
|
|
|
|
|
|
|
(82,864 |
) |
|
|
|
|
Interest, net |
|
|
(36,356 |
) |
|
|
2,364 |
|
|
|
(961 |
) |
|
|
|
|
|
|
(34,953 |
) |
Other |
|
|
39 |
|
|
|
224 |
|
|
|
45 |
|
|
|
|
|
|
|
308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
(expense) |
|
|
46,547 |
|
|
|
2,588 |
|
|
|
(916 |
) |
|
|
(82,864 |
) |
|
|
(34,645 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before income
taxes |
|
|
44,656 |
|
|
|
78,477 |
|
|
|
29,178 |
|
|
|
(82,864 |
) |
|
|
69,447 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
|
|
|
|
(15,069 |
) |
|
|
(9,722 |
) |
|
|
|
|
|
|
(24,791 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
44,656 |
|
|
$ |
63,408 |
|
|
$ |
19,456 |
|
|
$ |
(82,864 |
) |
|
$ |
44,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE
10 CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATING INCOME STATEMENTS
For the Three Months Ended September 30, 2007 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allis-Chalmers |
|
|
|
|
|
|
Subsidiary |
|
|
|
|
|
|
|
|
|
(Parent/ |
|
|
Subsidiary |
|
|
Non- |
|
|
Consolidating |
|
|
Consolidated |
|
|
|
Guarantor) |
|
|
Guarantors |
|
|
Guarantors |
|
|
Adjustments |
|
|
Total |
|
Revenues |
|
$ |
|
|
|
$ |
89,343 |
|
|
$ |
58,546 |
|
|
$ |
(8 |
) |
|
$ |
147,881 |
|
|
Cost of revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs |
|
|
|
|
|
|
45,943 |
|
|
|
43,185 |
|
|
|
(8 |
) |
|
|
89,120 |
|
Depreciation |
|
|
|
|
|
|
10,296 |
|
|
|
2,872 |
|
|
|
|
|
|
|
13,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues |
|
|
|
|
|
|
56,239 |
|
|
|
46,057 |
|
|
|
(8 |
) |
|
|
102,288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
|
|
|
|
33,104 |
|
|
|
12,489 |
|
|
|
|
|
|
|
45,593 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
839 |
|
|
|
10,398 |
|
|
|
2,219 |
|
|
|
|
|
|
|
13,456 |
|
Amortization |
|
|
12 |
|
|
|
969 |
|
|
|
8 |
|
|
|
|
|
|
|
989 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
(851 |
) |
|
|
21,737 |
|
|
|
10,262 |
|
|
|
|
|
|
|
31,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity earnings in
affiliates, net of tax |
|
|
25,235 |
|
|
|
|
|
|
|
|
|
|
|
(25,235 |
) |
|
|
|
|
Interest, net |
|
|
(11,411 |
) |
|
|
736 |
|
|
|
(279 |
) |
|
|
|
|
|
|
(10,954 |
) |
Other |
|
|
14 |
|
|
|
109 |
|
|
|
(91 |
) |
|
|
|
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
(expense) |
|
|
13,838 |
|
|
|
845 |
|
|
|
(370 |
) |
|
|
(25,235 |
) |
|
|
(10,922 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before income
taxes |
|
|
12,987 |
|
|
|
22,582 |
|
|
|
9,892 |
|
|
|
(25,235 |
) |
|
|
20,226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
|
|
|
|
(4,057 |
) |
|
|
(3,182 |
) |
|
|
|
|
|
|
(7,239 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
12,987 |
|
|
$ |
18,525 |
|
|
$ |
6,710 |
|
|
$ |
(25,235 |
) |
|
$ |
12,987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE
10 CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATING INCOME STATEMENTS
For the Nine Months Ended September 30, 2006 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allis-Chalmers |
|
|
|
|
|
|
Subsidiary |
|
|
|
|
|
|
|
|
|
(Parent/ |
|
|
Subsidiary |
|
|
Non- |
|
|
Consolidating |
|
|
Consolidated |
|
|
|
Guarantor) |
|
|
Guarantors |
|
|
Guarantors |
|
|
Adjustments |
|
|
Total |
|
Revenues |
|
$ |
|
|
|
$ |
172,213 |
|
|
$ |
23,853 |
|
|
$ |
|
|
|
$ |
196,066 |
|
|
Cost of revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs |
|
|
|
|
|
|
96,084 |
|
|
|
17,324 |
|
|
|
|
|
|
|
113,408 |
|
Depreciation |
|
|
|
|
|
|
11,107 |
|
|
|
1,499 |
|
|
|
|
|
|
|
12,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues |
|
|
|
|
|
|
107,191 |
|
|
|
18,823 |
|
|
|
|
|
|
|
126,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
|
|
|
|
65,022 |
|
|
|
5,030 |
|
|
|
|
|
|
|
70,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
2,032 |
|
|
|
21,621 |
|
|
|
887 |
|
|
|
|
|
|
|
24,540 |
|
Amortization |
|
|
35 |
|
|
|
1,174 |
|
|
|
3 |
|
|
|
|
|
|
|
1,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
(2,067 |
) |
|
|
42,227 |
|
|
|
4,140 |
|
|
|
|
|
|
|
44,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity earnings in
affiliates,
net of
tax |
|
|
39,644 |
|
|
|
|
|
|
|
|
|
|
|
(39,644 |
) |
|
|
|
|
Interest, net |
|
|
(12,343 |
) |
|
|
(261 |
) |
|
|
(223 |
) |
|
|
|
|
|
|
(12,827 |
) |
Other |
|
|
36 |
|
|
|
(25 |
) |
|
|
(17 |
) |
|
|
|
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
(expense) |
|
|
27,337 |
|
|
|
(286 |
) |
|
|
(240 |
) |
|
|
(39,644 |
) |
|
|
(12,833 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before income
taxes |
|
|
25,270 |
|
|
|
41,941 |
|
|
|
3,900 |
|
|
|
(39,644 |
) |
|
|
31,467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
|
|
|
|
(4,957 |
) |
|
|
(1,240 |
) |
|
|
|
|
|
|
(6,197 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
25,270 |
|
|
$ |
36,984 |
|
|
$ |
2,660 |
|
|
$ |
(39,644 |
) |
|
$ |
25,270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 10
CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATING INCOME STATEMENTS
For the Three Months Ended September 30, 2006 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allis-Chalmers |
|
|
|
|
|
|
Subsidiary |
|
|
|
|
|
|
|
|
|
(Parent/ |
|
|
Subsidiary |
|
|
Non- |
|
|
Consolidating |
|
|
Consolidated |
|
|
|
Guarantor) |
|
|
Guarantors |
|
|
Guarantors |
|
|
Adjustments |
|
|
Total |
|
Revenues |
|
$ |
|
|
|
$ |
62,919 |
|
|
$ |
23,853 |
|
|
$ |
|
|
|
$ |
86,772 |
|
|
Cost of revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs |
|
|
|
|
|
|
35,207 |
|
|
|
17,324 |
|
|
|
|
|
|
|
52,531 |
|
Depreciation |
|
|
|
|
|
|
3,949 |
|
|
|
1,499 |
|
|
|
|
|
|
|
5,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues |
|
|
|
|
|
|
39,156 |
|
|
|
18,823 |
|
|
|
|
|
|
|
57,979 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
|
|
|
|
23,763 |
|
|
|
5,030 |
|
|
|
|
|
|
|
28,793 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
637 |
|
|
|
7,534 |
|
|
|
887 |
|
|
|
|
|
|
|
9,058 |
|
Amortization |
|
|
11 |
|
|
|
385 |
|
|
|
3 |
|
|
|
|
|
|
|
399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
(648 |
) |
|
|
15,844 |
|
|
|
4,140 |
|
|
|
|
|
|
|
19,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity earnings in
affiliates, net of tax |
|
|
16,872 |
|
|
|
|
|
|
|
|
|
|
|
(16,872 |
) |
|
|
|
|
Interest, net |
|
|
(4,983 |
) |
|
|
264 |
|
|
|
(223 |
) |
|
|
|
|
|
|
(4,942 |
) |
Other |
|
|
11 |
|
|
|
(20 |
) |
|
|
(17 |
) |
|
|
|
|
|
|
(26 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
(expense) |
|
|
11,900 |
|
|
|
244 |
|
|
|
(240 |
) |
|
|
(16,872 |
) |
|
|
(4,968 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before income
taxes |
|
|
11,252 |
|
|
|
16,088 |
|
|
|
3,900 |
|
|
|
(16,872 |
) |
|
|
14,368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
|
|
|
|
(1,876 |
) |
|
|
(1,240 |
) |
|
|
|
|
|
|
(3,116 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
11,252 |
|
|
$ |
14,212 |
|
|
$ |
2,660 |
|
|
$ |
(16,872 |
) |
|
$ |
11,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 10 CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
For the Nine Months Ended September 30, 2007 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allis- |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Chalmers |
|
|
|
|
|
|
Subsidiaries |
|
|
|
|
|
|
|
|
|
(Parent/ |
|
|
Subsidiary |
|
|
(Non- |
|
|
Consolidating |
|
|
Consolidated |
|
|
|
Guarantor) |
|
|
Guarantors |
|
|
Guarantors) |
|
|
Adjustments |
|
|
Total |
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
44,656 |
|
|
$ |
63,408 |
|
|
$ |
19,456 |
|
|
$ |
(82,864 |
) |
|
$ |
44,656 |
|
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
35 |
|
|
|
31,884 |
|
|
|
8,328 |
|
|
|
|
|
|
|
40,247 |
|
Amortization and write-off of
deferred financing fees |
|
|
2,686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,686 |
|
Stock-based
compensation expense |
|
|
2,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,132 |
|
Allowance for bad debts |
|
|
|
|
|
|
441 |
|
|
|
|
|
|
|
|
|
|
|
441 |
|
Equity earnings in affiliates |
|
|
(82,864 |
) |
|
|
|
|
|
|
|
|
|
|
82,864 |
|
|
|
|
|
Deferred income taxes |
|
|
2,907 |
|
|
|
|
|
|
|
235 |
|
|
|
|
|
|
|
3,142 |
|
(Gain) on sale of equipment |
|
|
|
|
|
|
(1,011 |
) |
|
|
(74 |
) |
|
|
|
|
|
|
(1,085 |
) |
(Gain) on capillary asset sale |
|
|
|
|
|
|
(8,868 |
) |
|
|
|
|
|
|
|
|
|
|
(8,868 |
) |
Changes in operating assets and
liabilities, net of acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) in trade receivables |
|
|
|
|
|
|
(21,966 |
) |
|
|
(14,835 |
) |
|
|
|
|
|
|
(36,801 |
) |
(Increase) in inventories |
|
|
|
|
|
|
(4,022 |
) |
|
|
(976 |
) |
|
|
|
|
|
|
(4,998 |
) |
(Increase) decrease in other
current assets |
|
|
286 |
|
|
|
11,570 |
|
|
|
(1,305 |
) |
|
|
|
|
|
|
10,551 |
|
(Increase) decrease in other assets |
|
|
234 |
|
|
|
(22 |
) |
|
|
(39 |
) |
|
|
|
|
|
|
173 |
|
(Decrease) increase in accounts
payable |
|
|
(31 |
) |
|
|
(1,482 |
) |
|
|
2,839 |
|
|
|
|
|
|
|
1,326 |
|
(Decrease) increase in accrued
interest |
|
|
(5,050 |
) |
|
|
15 |
|
|
|
(58 |
) |
|
|
|
|
|
|
(5,093 |
) |
Increase in accrued expenses |
|
|
297 |
|
|
|
6,729 |
|
|
|
2,931 |
|
|
|
|
|
|
|
9,957 |
|
(Decrease) increase in accrued
salaries, benefits and payroll
taxes |
|
|
|
|
|
|
(710 |
) |
|
|
3,122 |
|
|
|
|
|
|
|
2,412 |
|
(Decrease) in other long- term
liabilities |
|
|
(21 |
) |
|
|
(47 |
) |
|
|
|
|
|
|
|
|
|
|
(68 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided By (Used In)
Operating Activities |
|
|
(34,733 |
) |
|
|
75,919 |
|
|
|
19,624 |
|
|
|
|
|
|
|
60,810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable from affiliates |
|
|
1,540 |
|
|
|
|
|
|
|
|
|
|
|
(1,540 |
) |
|
|
|
|
Acquisition of businesses, net of cash
received |
|
|
|
|
|
|
(12,860 |
) |
|
|
|
|
|
|
|
|
|
|
(12,860 |
) |
Purchase of investment interests |
|
|
|
|
|
|
(498 |
) |
|
|
|
|
|
|
|
|
|
|
(498 |
) |
Proceeds from sale of capillary assets |
|
|
|
|
|
|
16,250 |
|
|
|
|
|
|
|
|
|
|
|
16,250 |
|
Proceeds from sale of property and
equipment |
|
|
|
|
|
|
5,910 |
|
|
|
78 |
|
|
|
|
|
|
|
5,988 |
|
Purchase of property and equipment |
|
|
|
|
|
|
(69,212 |
) |
|
|
(16,875 |
) |
|
|
|
|
|
|
(86,087 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided By (Used in)
Investing Activities |
|
|
1,540 |
|
|
|
(60,410 |
) |
|
|
(16,797 |
) |
|
|
(1,540 |
) |
|
|
(77,207 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt |
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,000 |
|
Payments on long-term debt |
|
|
(300,000 |
) |
|
|
(4,942 |
) |
|
|
(2,600 |
) |
|
|
|
|
|
|
(307,542 |
) |
19
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 10
CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allis- |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Chalmers |
|
|
|
|
|
|
Subsidiaries |
|
|
|
|
|
|
|
|
|
(Parent/ |
|
|
Subsidiary |
|
|
(Non- |
|
|
Consolidating |
|
|
Consolidated |
|
|
|
Guarantor) |
|
|
Guarantors |
|
|
Guarantors) |
|
|
Adjustments |
|
|
Total |
|
Cash Flows from Financing
Activities: (continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable from affiliates |
|
|
(14,092 |
) |
|
|
|
|
|
|
|
|
|
|
14,092 |
|
|
|
|
|
Accounts payable to affiliates |
|
|
|
|
|
|
12,924 |
|
|
|
1,168 |
|
|
|
(14,092 |
) |
|
|
|
|
Note payable to affiliate |
|
|
|
|
|
|
|
|
|
|
(1,540 |
) |
|
|
1,540 |
|
|
|
|
|
Proceeds from issuance of common
stock |
|
|
100,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,055 |
|
Proceeds from exercises of options
and warrants |
|
|
3,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,252 |
|
Tax benefits on stock plans |
|
|
1,559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,559 |
|
Debt issuance costs |
|
|
(7,581 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,581 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided By (Used
In) Financing Activities |
|
|
33,193 |
|
|
|
7,982 |
|
|
|
(2,972 |
) |
|
|
1,540 |
|
|
|
39,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash
equivalents |
|
|
|
|
|
|
23,491 |
|
|
|
(145 |
) |
|
|
|
|
|
|
23,346 |
|
Cash and cash equivalents at
beginning of year |
|
|
|
|
|
|
37,769 |
|
|
|
1,976 |
|
|
|
|
|
|
|
39,745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
of period |
|
$ |
|
|
|
$ |
61,260 |
|
|
$ |
1,831 |
|
|
|
|
|
|
$ |
63,091 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 10
CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
September 30, 2006 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allis- |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Chalmers |
|
|
|
|
|
|
Subsidiaries |
|
|
|
|
|
|
|
|
|
(Parent/ |
|
|
Subsidiary |
|
|
(Non- |
|
|
Consolidating |
|
|
Consolidated |
|
|
|
Guarantor) |
|
|
Guarantors |
|
|
Guarantors) |
|
|
Adjustments |
|
|
Total |
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
25,270 |
|
|
$ |
36,984 |
|
|
$ |
2,660 |
|
|
$ |
(39,644 |
) |
|
$ |
25,270 |
|
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
35 |
|
|
|
12,281 |
|
|
|
1,502 |
|
|
|
|
|
|
|
13,818 |
|
Amortization of deferred financing
fees |
|
|
742 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
742 |
|
Imputed interest |
|
|
|
|
|
|
355 |
|
|
|
|
|
|
|
|
|
|
|
355 |
|
Stock-based
compensation expense |
|
|
1,655 |
|
|
|
983 |
|
|
|
|
|
|
|
|
|
|
|
2,638 |
|
Allowance for bad debts |
|
|
|
|
|
|
353 |
|
|
|
|
|
|
|
|
|
|
|
353 |
|
Equity earnings in affiliates |
|
|
(39,644 |
) |
|
|
|
|
|
|
|
|
|
|
39,644 |
|
|
|
|
|
Deferred taxes |
|
|
281 |
|
|
|
213 |
|
|
|
|
|
|
|
|
|
|
|
494 |
|
(Gain) loss on sale of equipment |
|
|
|
|
|
|
(729 |
) |
|
|
1 |
|
|
|
|
|
|
|
(728 |
) |
Changes in operating assets and
liabilities, net of acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in trade
receivables |
|
|
|
|
|
|
(17,883 |
) |
|
|
722 |
|
|
|
|
|
|
|
(17,161 |
) |
(Increase) decrease in inventory |
|
|
|
|
|
|
(2,325 |
) |
|
|
164 |
|
|
|
|
|
|
|
(2,161 |
) |
Decrease in other current assets |
|
|
396 |
|
|
|
660 |
|
|
|
266 |
|
|
|
|
|
|
|
1,322 |
|
Decrease (increase) in other assets |
|
|
548 |
|
|
|
82 |
|
|
|
(100 |
) |
|
|
|
|
|
|
530 |
|
(Decrease) in accounts payable |
|
|
(82 |
) |
|
|
(1,159 |
) |
|
|
(368 |
) |
|
|
|
|
|
|
(1,609 |
) |
Increase (decrease) in accrued
interest |
|
|
4,703 |
|
|
|
(42 |
) |
|
|
|
|
|
|
|
|
|
|
4,661 |
|
(Decrease) increase in accrued
expenses |
|
|
(387 |
) |
|
|
3,560 |
|
|
|
(657 |
) |
|
|
|
|
|
|
2,516 |
|
(Decrease) increase in accrued
salaries, benefits and payroll
taxes |
|
|
(1,957 |
) |
|
|
2,988 |
|
|
|
2,079 |
|
|
|
|
|
|
|
3,110 |
|
Increase in other long- term
liabilities |
|
|
(31 |
) |
|
|
(782 |
) |
|
|
|
|
|
|
|
|
|
|
(813 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided By (Used In)
Operating Activities |
|
|
(8,471 |
) |
|
|
35,539 |
|
|
|
6,269 |
|
|
|
|
|
|
|
33,337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of businesses, net of cash |
|
|
(191,940 |
) |
|
|
(11,667 |
) |
|
|
418 |
|
|
|
|
|
|
|
(203,189 |
) |
Notes receivable from affiliates |
|
|
1,005 |
|
|
|
|
|
|
|
|
|
|
|
(1,005 |
) |
|
|
|
|
Proceeds from sale of equipment |
|
|
|
|
|
|
3,516 |
|
|
|
|
|
|
|
|
|
|
|
3,516 |
|
Purchase of property and equipment |
|
|
|
|
|
|
(22,721 |
) |
|
|
(3,090 |
) |
|
|
|
|
|
|
(25,811 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used In Investing
Activities |
|
|
(190,935 |
) |
|
|
(30,872 |
) |
|
|
(2,672 |
) |
|
|
(1,005 |
) |
|
|
(225,484 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercises of
options/warrants |
|
|
5,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,406 |
|
Proceeds from issuance of common stock |
|
|
46,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,484 |
|
Accounts receivable from affiliates |
|
|
(51,691 |
) |
|
|
|
|
|
|
|
|
|
|
51,691 |
|
|
|
|
|
21
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE
10 CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
September 30, 2006 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allis- |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Chalmers |
|
|
|
|
|
|
Subsidiaries |
|
|
|
|
|
|
|
|
|
(Parent/ |
|
|
Subsidiary |
|
|
(Non- |
|
|
Consolidating |
|
|
Consolidated |
|
|
|
Guarantor) |
|
|
Guarantors |
|
|
Guarantors) |
|
|
Adjustments |
|
|
Total |
|
Cash Flows from Financing Activities: (continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable to affiliates |
|
|
|
|
|
|
51,691 |
|
|
|
|
|
|
|
(51,691 |
) |
|
|
|
|
Note payable to affiliate |
|
|
|
|
|
|
|
|
|
|
(1,005 |
) |
|
|
1,005 |
|
|
|
|
|
Proceeds from long-term debt |
|
|
256,064 |
|
|
|
1,756 |
|
|
|
|
|
|
|
|
|
|
|
257,820 |
|
Proceeds from line of credit |
|
|
5,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
Repayments on long-term debt |
|
|
(43,478 |
) |
|
|
(7,274 |
) |
|
|
(960 |
) |
|
|
|
|
|
|
(51,712 |
) |
Repayments on related party debt |
|
|
|
|
|
|
(3,031 |
) |
|
|
|
|
|
|
|
|
|
|
(3,031 |
) |
Repayments on line of credit |
|
|
(11,400 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,400 |
) |
Debt issuance costs |
|
|
(8,029 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,029 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided By (Used In)
Financing Activities |
|
|
198,356 |
|
|
|
43,142 |
|
|
|
(1,965 |
) |
|
|
1,005 |
|
|
|
240,538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
(1,050 |
) |
|
|
47,809 |
|
|
|
1,632 |
|
|
|
|
|
|
|
48,391 |
|
Cash and cash equivalents at beginning of
year |
|
|
1,050 |
|
|
|
870 |
|
|
|
|
|
|
|
|
|
|
|
1,920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and
cash equivalents at end of period |
|
$ |
|
|
|
$ |
48,679 |
|
|
$ |
1,632 |
|
|
$ |
|
|
|
$ |
50,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 11 SUPPLEMENTAL CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended |
|
|
September 30, |
|
|
2007 |
|
2006 |
|
|
(in thousands) |
Cash paid for interest and income taxes: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
40,493 |
|
|
$ |
7,584 |
|
Income taxes |
|
|
8,639 |
|
|
|
6,171 |
|
|
|
|
|
|
|
|
|
|
Non cash activities: |
|
|
|
|
|
|
|
|
Insurance premium financed |
|
|
4,434 |
|
|
|
2,871 |
|
Common stock issued for acquisition of business |
|
|
|
|
|
|
39,795 |
|
Notes payable issued for acquisition of businesses |
|
|
1,100 |
|
|
|
750 |
|
Non-compete payable in the future |
|
|
|
|
|
|
250 |
|
22
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 12 SEGMENT INFORMATION
At September 30, 2007, we had six operating segments: 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 identifiable assets of each of the
reporting segments, plus the corporate function, are reported below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental Services |
|
$ |
28,903 |
|
|
$ |
13,203 |
|
|
$ |
92,863 |
|
|
$ |
36,331 |
|
International Drilling |
|
|
58,546 |
|
|
|
23,853 |
|
|
|
160,295 |
|
|
|
23,853 |
|
Directional Drilling |
|
|
27,556 |
|
|
|
19,996 |
|
|
|
69,352 |
|
|
|
55,161 |
|
Tubular Services |
|
|
12,582 |
|
|
|
13,762 |
|
|
|
41,029 |
|
|
|
37,790 |
|
Underbalanced Drilling |
|
|
12,927 |
|
|
|
12,000 |
|
|
|
36,448 |
|
|
|
32,048 |
|
Production Services |
|
|
7,367 |
|
|
|
3,958 |
|
|
|
27,156 |
|
|
|
10,883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
147,881 |
|
|
$ |
86,772 |
|
|
$ |
427,143 |
|
|
$ |
196,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental Services |
|
$ |
12,519 |
|
|
$ |
6,575 |
|
|
$ |
41,212 |
|
|
$ |
18,881 |
|
International Drilling |
|
|
10,262 |
|
|
|
4,139 |
|
|
|
30,094 |
|
|
|
4,139 |
|
Directional Drilling |
|
|
5,963 |
|
|
|
5,125 |
|
|
|
14,252 |
|
|
|
12,097 |
|
Tubular Services |
|
|
2,313 |
|
|
|
3,734 |
|
|
|
8,673 |
|
|
|
9,899 |
|
Underbalanced Drilling |
|
|
3,104 |
|
|
|
3,176 |
|
|
|
9,240 |
|
|
|
8,617 |
|
Production Services |
|
|
402 |
|
|
|
119 |
|
|
|
11,904 |
|
|
|
737 |
|
General corporate |
|
|
(3,415 |
) |
|
|
(3,532 |
) |
|
|
(11,283 |
) |
|
|
(10,070 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
31,148 |
|
|
$ |
19,336 |
|
|
$ |
104,092 |
|
|
$ |
44,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental Services |
|
$ |
6,841 |
|
|
$ |
1,735 |
|
|
$ |
19,592 |
|
|
$ |
5,121 |
|
International Drilling |
|
|
2,880 |
|
|
|
1,502 |
|
|
|
8,328 |
|
|
|
1,502 |
|
Directional Drilling |
|
|
837 |
|
|
|
406 |
|
|
|
1,849 |
|
|
|
1,054 |
|
Tubular Services |
|
|
1,298 |
|
|
|
968 |
|
|
|
3,734 |
|
|
|
2,736 |
|
Underbalanced Drilling |
|
|
942 |
|
|
|
821 |
|
|
|
2,604 |
|
|
|
2,236 |
|
Production Services |
|
|
1,224 |
|
|
|
329 |
|
|
|
3,779 |
|
|
|
921 |
|
General corporate |
|
|
135 |
|
|
|
86 |
|
|
|
361 |
|
|
|
248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
14,157 |
|
|
$ |
5,847 |
|
|
$ |
40,247 |
|
|
$ |
13,818 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental Services |
|
$ |
12,174 |
|
|
$ |
1,715 |
|
|
$ |
31,056 |
|
|
$ |
2,816 |
|
International Drilling |
|
|
11,005 |
|
|
|
3,090 |
|
|
|
16,875 |
|
|
|
3,090 |
|
Directional Drilling |
|
|
800 |
|
|
|
384 |
|
|
|
6,741 |
|
|
|
3,789 |
|
Tubular Services |
|
|
2,103 |
|
|
|
2,300 |
|
|
|
6,861 |
|
|
|
7,800 |
|
Underbalanced Drilling |
|
|
8,725 |
|
|
|
3,286 |
|
|
|
15,250 |
|
|
|
6,302 |
|
Production Services |
|
|
3,987 |
|
|
|
686 |
|
|
|
8,617 |
|
|
|
1,732 |
|
General corporate |
|
|
112 |
|
|
|
104 |
|
|
|
687 |
|
|
|
282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
38,906 |
|
|
$ |
11,565 |
|
|
$ |
86,087 |
|
|
$ |
25,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE
12 SEGMENT INFORMATION (Continued)
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
Goodwill: |
|
|
|
|
|
|
|
|
Rental Services |
|
$ |
106,382 |
|
|
$ |
106,132 |
|
International Drilling |
|
|
1,523 |
|
|
|
1,504 |
|
Directional Drilling |
|
|
8,689 |
|
|
|
4,168 |
|
Tubular Services |
|
|
6,103 |
|
|
|
6,464 |
|
Underbalanced Drilling |
|
|
3,950 |
|
|
|
3,950 |
|
Production Services |
|
|
3,679 |
|
|
|
3,617 |
|
General corporate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
130,326 |
|
|
$ |
125,835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable Assets: |
|
|
|
|
|
|
|
|
Rental Services |
|
$ |
462,178 |
|
|
$ |
453,802 |
|
International Drilling |
|
|
211,230 |
|
|
|
185,677 |
|
Directional Drilling |
|
|
58,254 |
|
|
|
28,585 |
|
Tubular Services |
|
|
77,859 |
|
|
|
74,372 |
|
Underbalanced Drilling |
|
|
69,833 |
|
|
|
54,288 |
|
Production Services |
|
|
56,934 |
|
|
|
57,954 |
|
General corporate |
|
|
83,986 |
|
|
|
53,648 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,020,274 |
|
|
$ |
908,326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long Lived Assets: |
|
|
|
|
|
|
|
|
United States |
|
$ |
628,232 |
|
|
$ |
574,302 |
|
International |
|
|
154,039 |
|
|
|
153,262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
782,271 |
|
|
$ |
727,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
85,160 |
|
|
$ |
61,142 |
|
|
$ |
255,626 |
|
|
$ |
166,600 |
|
International |
|
|
62,721 |
|
|
|
25,630 |
|
|
|
171,517 |
|
|
|
29,466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
147,881 |
|
|
$ |
86,772 |
|
|
$ |
427,143 |
|
|
$ |
196,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 13 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.
NOTE 14 SUBSEQUENT EVENTS
On October 23, 2007, we purchased all of the issued and outstanding stock of Rebel Rentals, Inc.,
or Rebel Rentals, for an aggregate purchase price of $6.75 million. The acquisition of Rebel
Rentals adds additional equipment and support to our casing and tubing operations in our Tubular
Services segment.
24
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE
14 SUBSEQUENT EVENTS (continued)
On November 1, 2007, we purchased substantially all the assets of Diamondback Oilfield Services,
Inc., or Diamondback, for a purchase price of $22.0 million. This acquisition expands the operations of Allis-Chalmers
Directional Drilling segment further into the Texas Panhandle and Oklahoma. The acquisition of
Diamondback adds additional personnel and equipment, including approximately 18 directional
drillers, 30 downhole motors, five measurement-while-drilling tools, and eight wireline steering
vehicles
25
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 30.
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, throughout domestically primarily in Texas,
Louisiana, New Mexico, Colorado, Oklahoma, Mississippi, Wyoming, Arkansas, 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 1,760 on October 26, 2007 according to the
Baker Hughes rig count. Furthermore, directional and horizontal rig counts increased from 283 as
of December 31, 2002 to 767 on October 26, 2007, which accounted for 32.8% and 43.6% of the total
U.S. rig count, respectively. However, the U.S. Gulf of Mexico rig count has decreased to 51 as of
October 26, 2007 from 87 one year ago.
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 for approximately the past three years beginning in 2004,
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. The price for natural gas in the U.S. can have a
significant impact on the capital expenditures of our customers operating in the U.S. domestic
market. Natural gas prices can be affected by such factors as the U.S. economy, new production or
pipeline capacity and weather.
26
Results of Operations
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. 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 June of 2007, we acquired all of the
outstanding stock of Coker Directional, Inc., or Coker. In July of 2007, we acquired all of the
outstanding stock of Diggar Tools, LLC, or Diggar. We report the operations of Coker and Diggar in
our Directional Drilling 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 September 30, 2007 and 2006
Our revenues for the three months ended September 30, 2007 were $147.9 million, an increase of
70.4% compared to $86.8 million for the three months ended September 30, 2006. Revenues increased
in all of our business segments, except for Tubular Services, due to acquisitions completed in
2006, the investment in new capital 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 asset
acquisition on December 18, 2006. Our Directional Drilling segment revenues increased in the 2007
period compared to the 2006 period due to improved pricing for directional drilling, the purchase
of additional downhole motors and measurement-while-drilling, or MWD, tools and the addition of
directional drilling personnel. 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 and one additional unit in the first quarter of 2007. 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 September 30, 2007 increased 58.3% to $45.6 million, or
30.8% of revenues, compared to $28.8 million, or 33.2%, of revenues for the three months ended
September 30, 2006. The increase in gross margin is due to the increase in revenues in five of our
business segments. The increase in gross margin was due primarily to the acquisition of the OGR
assets on December 18, 2006 and the acquisition of DLS on August 14, 2006. Also, contributing to
our gross margin was the purchase of additional MWD tools and downhole motors, the addition of
directional drilling personnel, the acquisition of Petro Rentals, and the addition of two coil
tubing units in the fourth quarter of 2006 and one additional unit in the first quarter of 2007.
The decrease in gross margin as a percentage of revenues is primarily due to the lower gross margin
percentage that DLS achieves in the International Drilling segment partly offset by the acquisition
of the OGR assets in the high margin rental services business. Also contributing to the decrease
in our gross margin percentage was the increase in downhole motor rental and repairs and increased
personnel expenses in our Directional Drilling segment, a more competitive pricing environment in
our domestic Tubular Services segment and decreased sales of power tongs. The increase in gross
margin was partially offset by an increase in depreciation expense of 141.7% to $13.2 million for
the third quarter of 2007 compared to $5.5 million for the third 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 $13.5 million in the third quarter of 2007 compared to $9.1
million for the third 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. As a percentage of revenues, general and administrative expenses were
9.1% in the third quarter of 2007 compared to 10.4% in the third quarter of 2006.
27
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 and restricted stock. Therefore,
we recorded an expense of $1.0 million and $860,000 related to stock options and restricted stock
for the three months ended September 30, 2007 and 2006, respectively. The amount of option and
restricted stock expense recorded in general and administrative expense was $1.0 million for the
third quarter of 2007 and $727,000 for the third quarter of 2006 with the balance being recorded as
a direct cost.
Amortization expense was $989,000 in the third quarter of 2007 compared to $399,000 in the third
quarter of 2006. The increase in amortization expense is due to the amortization of intangible
assets obtained in connection with our acquisitions.
Income from operations for the three months ended September 30, 2007 totaled $31.1 million, a 61.1%
increase over income from operations of $19.3 million for the three months ended September 30,
2006, reflecting the increase in our revenues and gross margin, offset in part by increased general
and administrative expenses and amortization. Our income from operations as a percentage of
revenues decreased to 21.1% for the third quarter of 2007 from 22.3% for the third quarter of 2006,
due principally to the decrease in our gross margin as a percentage of revenues.
Our interest expense was $11.8 million in the third quarter of 2007, compared to $5.3 million for
the third quarter of 2006. Interest expense increased in the third quarter of 2007 due to our
increased debt. In August 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. In January 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. Interest expense includes amortization
expense of deferred financing costs of $506,000 and $282,000 for the three months ended September
30, 2007 and September 30, 2006, respectively.
Our provision for income taxes for the quarter ended September 30, 2007 was $7.2 million, or 35.8%
of our net income before income taxes, compared to $3.1 million, or 21.7% of our net income before
income taxes for the three months ended September 30, 2006. The increase in income taxes is
attributable to our higher operating income and a higher effective tax rate. The effective tax
rate in the 2006 period was favorably impacted by the reversal of the valuation allowance on our
deferred tax assets. The valuation allowance was reversed due to operating results that allowed
for the realization of our deferred tax assets. As of January 1, 2007, no valuation allowance
remained and had no impact on the 2007 effective tax rate.
We had net income of $13.0 million for the three months ended September 30, 2007, an increase of
15.4%, compared to net income of $11.3 million for the third 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 |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
Change |
|
|
2007 |
|
|
2006 |
|
|
Change |
|
|
|
(in thousands) |
|
Rental Services |
|
$ |
28,903 |
|
|
$ |
13,203 |
|
|
$ |
15,700 |
|
|
$ |
12,519 |
|
|
$ |
6,575 |
|
|
|
|
|
|
$ |
5,944 |
|
International Drilling |
|
|
58,546 |
|
|
|
23,853 |
|
|
|
34,693 |
|
|
|
10,262 |
|
|
|
4,139 |
|
|
|
|
|
|
|
6,123 |
|
Directional Drilling |
|
|
27,556 |
|
|
|
19,996 |
|
|
|
7,560 |
|
|
|
5,963 |
|
|
|
5,125 |
|
|
|
|
|
|
|
838 |
|
Tubular Services |
|
|
12,582 |
|
|
|
13,762 |
|
|
|
(1,180 |
) |
|
|
2,313 |
|
|
|
3,734 |
|
|
|
|
|
|
|
(1,421 |
) |
Underbalanced Drilling |
|
|
12,927 |
|
|
|
12,000 |
|
|
|
927 |
|
|
|
3,104 |
|
|
|
3,176 |
|
|
|
|
|
|
|
(72 |
) |
Production Services |
|
|
7,367 |
|
|
|
3,958 |
|
|
|
3,409 |
|
|
|
402 |
|
|
|
119 |
|
|
|
|
|
|
|
283 |
|
General corporate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,415 |
) |
|
|
(3,532 |
) |
|
|
|
|
|
|
117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
147,881 |
|
|
$ |
86,772 |
|
|
$ |
61,109 |
|
|
$ |
31,148 |
|
|
$ |
19,336 |
|
|
|
|
|
|
$ |
11,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
Rental Services Segment
Revenues for the quarter ended September 30, 2007 for the Rental Services segment were $28.9
million, an increase from $13.2 million in revenues for the quarter ended September 30, 2006.
Income from operations increased to $12.5 million in the third quarter of 2007 compared to $6.6
million in the third quarter of 2006. Our Rental Services segment revenues and operating income
for the third quarter of 2007 increased compared to the prior year due primarily to the OGR
acquisition on December 18, 2006. Income from operations as a percentage of revenues decreased to
43.3% for the quarter ended September 30, 2007 compared to 49.8% for the quarter ended September
30, 2006 as a result of higher depreciation expense associated with OGR acquisition and capital
expenditures. The increase in revenues and operating income which resulted from the OGR
acquisition was partially offset by the impact of decreased U.S. Gulf of Mexico drilling activity
in the third quarter of 2007 compared to the previous year, including the impact of hurricanes
during the quarter.
International Drilling Segment
On August 14, 2006, we acquired DLS which established our International Drilling segment. Revenues
for the quarter ended September 30, 2007 for the International Drilling segment were $58.5 million,
an increase from $23.9 million in revenues for the quarter ended September 30, 2006. Income from
operations increased to $10.3 million in the third quarter of 2007 compared to $4.1 million in the
third quarter of 2006.
Directional Drilling Segment
Revenues for the quarter ended September 30, 2007 for our Directional Drilling segment were $27.6
million, an increase of 37.8% from the $20.0 million in revenues for the quarter ended September
30, 2006. Income from operations increased 16.4% to $6.0 million for the third quarter of 2007
from $5.1 million for the comparable 2006 period. The increase in revenues and operating income is
due to the purchase of additional MWD tools and downhole motors and the addition of directional
drillers. Operating income as a percentage of revenues decreased to 21.6% for the third quarter of
2007 compared to 25.6% for the prior year period due to increased expenses for downhole motor
rentals and repairs along with increased personnel costs.
Tubular Services Segment
Revenues for the quarter ended September 30, 2007 for the Tubular Services segment were $12.6
million, a decrease of 8.6% from the $13.8 million in revenues for the quarter ended September 30,
2006. Revenues from domestic operations decreased to $10.4 million in the third quarter of 2007
from $12.3 million in the third quarter of 2006. Revenues from operations in Mexico were $2.2
million for the third quarter of 2007 compared to $1.5 million for the third quarter of 2006.
Income from operations decreased 38.1% to $2.3 million in the third quarter of 2007 from $3.7
million in the third quarter of 2006. The decrease in this segments revenues and operating income
was due to an increased competitive pricing environment domestically for casing and tubing
services, and decreased sales of power tongs in the third quarter of 2007 compared to the third
quarter of 2006.
Underbalanced Drilling Segment
Revenues for the quarter ended September 30, 2007 for the Underbalanced Drilling segment were $12.9
million, an increase of 7.7% compared to $12.0 million in revenues for the quarter ended September
30, 2006. Income from operations decreased to $3.1 million in the third quarter of 2007 compared
to income from operations of $3.2 million in the third quarter of 2006. Revenues and operating
income in our Underbalanced Drilling segment were affected by a decrease in drilling activity in
certain geographic areas by some of our customers, partially offset by an increased market presence
and growth in drilling activity in other geographic areas and the benefits of our investment in
additional equipment.
Production Services Segment
Revenues were $7.4 million for the quarter ended September 30, 2007 for the Production Services
segment, an increase of 86.1% compared to $4.0 million in revenues for the quarter ended September
30, 2006. Income from operations increased to $402,000 in the third quarter of 2007 compared to
$119,000 in the third quarter of 2006. Our Production Services segment revenues and operating
income for the third quarter of 2007 increased compared to the third quarter of 2006 due primarily
to our acquisition of Petro Rentals on October 17, 2006, the addition of two coil tubing units in
the fourth quarter of 2006 and one additional unit in the first quarter of 2007, offset in part by
the sale of our capillary tubing assets in June 2007, and an increase in personnel and training
expenses for the crews in anticipation of the delivery and activation of new coil tubing units
which were delayed in being delivered.
29
General Corporate
General corporate expenses decreased $117,000 to $3.4 million for the quarter ended September 30,
2007 compared to $3.5 million for the quarter ended September 30, 2006. The decrease was due to
reduced consulting fees in connection with our Sarbanes Oxley compliance efforts and reduced
expenses for stock options.
Comparison of Nine Months Ended September 30, 2007 and 2006
Our revenues for the nine months ended September 30, 2007 were $427.1 million, an increase of
117.9% compared to $196.1 million for the nine months ended September 30, 2006. Revenues increased
in all of our business segments due to acquisitions completed in 2006, the investment in new
capital 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 asset acquisition on
December 18, 2006. 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 and one in the first quarter of 2007. 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 downhole motors and MWD tools which increased our capacity
and market presence. Our Tubular Services segment also had an increase in revenue, primarily due
to the acquisition of Rogers as of April 3, 2006 and the purchase of additional equipment.
Revenues increased at our Underbalanced Drilling segment due to the purchase of additional
equipment, principally new compressor packages.
Our gross margin for the nine months ended September 30, 2007 increased 99.9% to $140.0 million, or
32.8% of revenues, compared to $70.1 million, or 35.7% of revenues for the nine months ended
September 30, 2006. The increase in gross margin is due to the increase in revenues in all of our
business segments, but primarily due to the acquisition of the OGR assets on December 18, 2006 and
the acquisition of DLS on August 14, 2006. Also, contributing to our gross margin was the purchase
of additional MWD tools and downhole motors, the acquisition of Rogers and Petro Rentals, and the
addition of two coil tubing units in the fourth quarter of 2006. The decrease in gross margin as a
percentage of revenues is primarily due to the lower gross margin percentage that DLS achieves in
the International Drilling segment partly offset by the acquisition of the OGR assets in the high
margin rental services business and the improved pricing for our services generally. Also
contributing to the decrease in our gross margin percentage was the increase in downhole motor
rental and repairs and increased personnel expenses in our Directional Drilling segment, a more
competitive pricing environment in our domestic Tubular Services segment and decreased sales of
power tongs. The increase in gross margin was partially offset by an increase in depreciation
expense of 195.4% to $37.2 million for the nine months ended September 30, 2007 compared to $12.6
million for the nine months ended September 30, 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
margin as a percentage of revenues is generally affected by our level of revenues.
General and administrative expense was $41.7 million in the first nine months of 2007 compared to
$24.5 million for the first nine months 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
corporate accounting and administrative staff. As a percentage of revenues, general and
administrative expenses were 9.8% for the nine months ended September 30, 2007 compared to 12.5% in
the same period 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 and restricted stock. Therefore,
we recorded an expense of $2.1 million and $2.6 million related to stock options and restricted
stock for the nine months ended September 30, 2007 and 2006, respectively. The amount of option
and restricted stock expense recorded in general and administrative expense was $2.0 million for
the first nine months of 2007 and $2.3 million for the first nine months of 2006 with the balance
being recorded as a direct cost.
On June 29, 2007, we sold our capillary tubing assets that were part of our Production Services
segment. The total sale agreement was $16.3 million in cash. We recognized a gain of $8.9 million
related to the sale of these assets.
Amortization expense was $3.0 million in the first nine months of 2007 compared to $1.2 million in
the first nine months of 2006. The increase in amortization expense is due to the amortization of
intangible assets in connection with our acquisitions.
30
Income from operations for the nine months ended September 30, 2007 totaled $104.1 million, a
135.0% increase over income from operations of $44.3 million for the nine months ended September
30, 2006, reflecting the increase in our revenues and gross margin, the gain from the sale of
assets, offset in part by increased general and administrative expenses and amortization. Our
income from operations as a percentage of revenues increased to 24.4% for the first nine months of
2007 from 22.6% for the first nine months of 2006, due principally to the decrease in general,
administrative and amortization expenses as a percentage of revenue and the gain from the sale of
assets.
Our interest expense was $37.7 million in the first nine months of 2007, compared to $13.3 million
for the first nine months of 2006. Interest expense increased in the first nine months of 2007,
compared to the first nine months of 2006, due to our increased debt. In August 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. In January 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%. Interest expense for the first nine months of 2007 includes the write-off of deferred
financing fees of $1.2 million related to the repayment of the bridge loan. Interest expense
includes amortization expense of deferred financing costs of $1.5 million and $742,000 for the nine
months ended September 30, 2007 and September 30, 2006, respectively.
Our provision for income taxes for the nine months ended September 30, 2007 was $24.8 million, or
35.7% of our net income before income taxes, compared to $6.2 million, or 19.7% of our net income
before income taxes for the nine months ended September 30, 2006. The increase in income taxes is
attributable to our higher operating income and a higher effective tax rate. The effective tax
rate in the 2006 period was favorably impacted by the reversal of the valuation allowance on our
deferred tax assets. The valuation allowance was reversed due to operating results that allowed
for the realization of our deferred tax assets. As of January 1, 2007, no valuation allowance
remained and had no impact on the 2007 effective tax rate.
We had net income of $44.7 million for the nine months ended September 30, 2007, an increase of
76.7%, compared to net income of $25.3 million for the nine months ended September 30, 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 |
|
|
|
Nine Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
Change |
|
|
2007 |
|
|
2006 |
|
|
Change |
|
|
|
(in thousands) |
|
Rental Services |
|
$ |
92,863 |
|
|
$ |
36,331 |
|
|
$ |
56,532 |
|
|
$ |
41,212 |
|
|
$ |
18,881 |
|
|
$ |
22,331 |
|
International Drilling |
|
|
160,295 |
|
|
|
23,853 |
|
|
|
136,442 |
|
|
|
30,094 |
|
|
|
4,139 |
|
|
|
25,955 |
|
Directional Drilling |
|
|
69,352 |
|
|
|
55,161 |
|
|
|
14,191 |
|
|
|
14,252 |
|
|
|
12,097 |
|
|
|
2,155 |
|
Tubular Services |
|
|
41,029 |
|
|
|
37,790 |
|
|
|
3,239 |
|
|
|
8,673 |
|
|
|
9,899 |
|
|
|
(1,226 |
) |
Underbalanced Drilling |
|
|
36,448 |
|
|
|
32,048 |
|
|
|
4,400 |
|
|
|
9,240 |
|
|
|
8,617 |
|
|
|
623 |
|
Production Services |
|
|
27,156 |
|
|
|
10,883 |
|
|
|
16,273 |
|
|
|
11,904 |
|
|
|
737 |
|
|
|
11,167 |
|
General corporate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,283 |
) |
|
|
(10,070 |
) |
|
|
(1,213 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
427,143 |
|
|
$ |
196,066 |
|
|
$ |
231,077 |
|
|
$ |
104,092 |
|
|
$ |
44,300 |
|
|
$ |
59,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental Services Segment
Revenues for the nine months ended September 30, 2007 for the Rental Services segment were $92.9
million, an increase from $36.3 million in revenues for the nine months ended September 30, 2006.
Income from operations increased to $41.2 million in the first nine months of 2007 compared to
$18.9 million in the first nine months of 2006. Our Rental Services segment revenues and operating
income for the first nine months of 2007 increased compared to the prior year due primarily to the
OGR acquisition on December 18, 2006. Income from operations as a percentage of revenues decreased
to 44.4% for the nine months ended September 30, 2007 compared to 52.0% for the nine months ended
September 30, 2006 as a result of higher depreciation expense associated with OGR acquisition and
capital expenditures. The increase in revenues and operating income which resulted from the OGR
acquisition was partially offset by the impact of decreased U.S. Gulf of Mexico drilling activity
in 2007 compared to the previous year, including the impact of hurricanes during the 2007 third
quarter.
31
International Drilling Segment
On August 14, 2006, we acquired DLS which established our International Drilling segment. Revenues
for the nine months ended September 30, 2007 for the International Drilling segment were $160.3
million, an increase from $23.9 million in revenues for the nine months ended September 30, 2006.
Income from operations increased to $30.1 million for the nine months ended September 30, 2007
compared to $4.1 million for the nine months ended September 30, 2006.
Directional Drilling Segment
Revenues for the nine months ended September 30, 2007 for our Directional Drilling segment were
$69.4 million, an increase of 25.7% from the $55.2 million in revenues for the nine months ended
September 30, 2006. Income from operations increased 17.8% to $14.3 million for the first nine
months of 2007 from $12.1 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
additional MWD tools and downhole motors, offset in part by increased expenses for the downhole
motor rentals and repairs and increased labor costs.
Tubular Services Segment
Revenues for the nine months ended September 30, 2007 for the Tubular Services segment were $41.0
million, an increase of 8.6% from the $37.8 million in revenues for the nine months ended September
30, 2006. Revenues from domestic operations increased to $34.8 million in the first nine months of
2007 from $33.1 million in the first nine months of 2006 as a result of the acquisition of Rogers.
Revenues from operations in Mexico were $6.2 million for the first nine months of 2007 and $4.7
million for the first nine months of 2006. Income from operations decreased 12.4% to $8.7 million
in the first nine months of 2007 from $9.9 million in the first nine months of 2006. The decrease
in this segments operating income was due to an increased competitive pricing environment
domestically and decreased sales of power tongs from the same period in the preceding year.
Underbalanced Drilling Segment
Our Underbalanced Drilling segment revenues were $36.4 million for the nine months ended September
30, 2007, an increase of 13.7% compared to $32.0 million in revenues for the nine months ended
September 30, 2006. Income from operations increased to $9.2 million in the first nine months of
2007 compared to income from operations of $8.6 million in the first nine months of 2006. Our
Underbalanced Drilling segment revenues and operating income for the first nine months of 2007
increased compared to the first nine months of 2006 primarily due to our investment in additional
equipment.
Production Services Segment
Revenues were $27.2 million for the nine months ended September 30, 2007 for the Production
Services segment, an increase of 149.5% compared to $10.9 million in revenues for the nine months
ended September 30, 2006. Income from operations increased to $11.9 million in the first nine
months of 2007 compared to $737,000 in the first nine months of 2006. Our Production Services
segment revenues and operating income for the first nine months of 2007 increased compared to the
first nine months of 2006 due primarily to our acquisition of Petro Rentals on October 17, 2006,
the gain from the sale of capillary assets and the addition of two coil tubing units in the fourth
quarter of 2006 and one additional unit in the first quarter of 2007. Operating results for this
segment for the first nine months of 2007 were impacted by the sale of our capillary tubing assets
and an increase in personnel and training expenses for the crews in anticipation of the delivery
and activation of new coil tubing units which were delayed in their delivery.
General Corporate
General corporate expenses increased $1.2 million to $11.3 million for the nine months ended
September 30, 2007 compared to $10.1 million for the nine months ended September 30, 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 and increased franchise taxes based on our increased authorized shares.
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 $63.1 million at September 30, 2007
compared to $39.7 million at December 31, 2006.
32
Operating Activities
In the nine months ended September 30, 2007, our operating activities provided $60.8 million in
cash. Net income for the nine months ended September 30, 2007 was $44.7 million. Net non-cash
expenses totaled $38.7 million during the first nine months of 2007 consisting of $40.2 million of
depreciation and amortization, $3.1 million for deferred income taxes, $2.7 million for the
amortization and write-off of financing fees, $2.1 million from the expensing of stock options,
$441,000 from increases to the allowance for doubtful accounts receivables, less $10.0 million on
the gain from asset disposals.
During the nine months ended September 30, 2007, changes in operating assets and liabilities used
$22.5 million in cash, principally due to an increase of $36.8 million in accounts receivable, an
increase of $5.0 million in inventory, and a decrease of $5.1 million in accrued interest, offset
in part by a decrease in other current assets of $10.6 million, an increase of $1.3 million in
accounts payable, an increase of $10.0 million in accrued expenses and an increase in accrued
salaries, benefits and payroll taxes of $2.4 million. Accounts receivable increased primarily due
to the increase in our revenues in the first nine months of 2007. Other inventory increased
primarily due to the build-up of inventory to meet the demands of increased activity levels in our
International Drilling segment. The decrease in accrued interest is due to the semi-annual payment
of interest on our 9.0% senior notes. The decrease in other current assets is principally due to
the collection of the working capital adjustment from the OGR acquisition for approximately $7.1
million in the first quarter of 2007. The increase in accounts payable, accrued expenses and
accrued salaries, benefits and payroll taxes is attributed to additional expenses related to higher
activity levels.
In the nine months ended September 30, 2006, our operating activities provided $33.3 million in
cash. Net income for the nine months ended September 30, 2006 was $25.3 million. Non-cash
expenses totaled $17.7 million during the first nine months of 2006 consisting of $13.8 million of
depreciation and amortization, $494,000 for deferred income taxes, $2.6 million from the expensing
of stock options, $742,000 of amortization of financing fees, $355,000 of imputed interest related
to the effective date of the Specialty acquisition, $353,000 related to increases to the allowance
for doubtful accounts receivables, less $728,000 on the gain from asset retirements.
During the nine months ended September 30, 2006, changes in operating assets and liabilities used
$9.6 million in cash, principally due to an increase of $17.2 million in accounts receivable, an
increase of $2.2 million in inventory, a decrease of $1.6 million in accounts payable, offset in
part by an increase of $4.7 million in accrued interest and an increase of $2.5 million in accrued
expenses. Accounts receivable increased due to the increase in our revenues in the first nine
months of 2006. Other inventory increased primarily due to increased activity levels. The
increase in accrued interest relates to our 9.0% senior notes issued in 2006 which is only payable
in January and July. The increase in accrued expenses can be attributed to additional income tax
liability due to profitability and additional expenses related to higher activity levels.
Investing Activities
During the nine months ended September 30, 2007, we used $77.2 million in investing activities,
consisting of $86.1 million for capital expenditures, $12.9 million for business acquisitions and
$498,000 for oil and gas investments, offset by $22.2 million of proceeds from asset sales.
Included in the $86.1 million for capital expenditures was $31.1 million for drill pipe and other
equipment used in our Rental Services segment, $16.9 million for additional equipment in our
International Drilling segment, $15.3 million for additional equipment in our Underbalanced
Drilling segment, $8.6 million for additional equipment in our Production Services segment, $6.9
million for additional equipment in our Tubular Services segment and $6.7 million primarily for
additional MWD equipment used in the Directional Drilling segment,. We received proceeds of $16.3
million from the sale of our capillary assets and $6.0 million from the proceeds from asset sales
in connection with items lost in hole by our customers or other asset sales.
During the nine months ended September 30, 2006, we used $225.5 million in investing activities,
consisting of $95.8 million for the acquisition of Specialty, net of cash received, $10.7 million
for the acquisition of Rogers, net of cash received, $96.6 million for the acquisition of DLS, net
of cash received and $25.8 million for capital expenditures, offset by $3.5 million of proceeds
from equipment sales. Included in the $25.8 million for capital expenditures was $ 7.8 million for
equipment used in our casing and tubing segment, $3.0 million for the expansion of our MWD
equipment used in the directional drilling segment, $6.3 million for additional equipment in our
compressed air drilling services segment and $3.1 million for our international drilling segment.
A majority of our equipment sales relate to items lost in hole by our customers.
33
Financing Activities
During the nine months ended September 30, 2007, financing activities provided $39.7 million in
cash. We received $250.0 million in proceeds from long-term debt, repaid $307.5 million in
borrowings under long-term debt facilities, including the repayment of the bridge loan, and paid
$7.6 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 $3.3 million in proceeds from the
exercise of options and warrants. We recognized a tax benefit of $1.6 million related to our stock
compensation plans.
During the nine months ended September 30, 2006, financing activities provided $240.5 million in
cash. We received $257.8 million in proceeds from long-term debt, repaid $51.7 million in
borrowings under long-term debt facilities, repaid $3.0 million in related party debt, repaid $6.4
million net under our line of credit and paid $8.0 million in debt issuance costs. We also
received $46.5 million from the issuance of our common stock in a public offering, net of expenses
along with $5.4 million in proceeds from the exercise of options and warrants..
At September 30, 2007, we had $516.5 million in outstanding indebtedness, of which $508.9 million
was long term debt and $7.6 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 provided for a
$25.0 million revolving line of credit with a maturity of January 2010. Our January 2006 amended
and restated credit agreement contained 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 were 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.
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.
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 6.72% and 7.0% at September 30, 2007 and December 31, 2006, respectively. The bank loans are
denominated in U.S. dollars and the outstanding amounts due as of September 30, 2007 and December
31, 2006 were $5.5 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. At September 30, 2007 and December 31, 2006 the
outstanding amounts due were $0 and $150,000, respectively.
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 acquisition of Coker Directional Inc., we issued to the seller a note in
the amount of $350,000. The note bears interest at 8.25% and is due June 29, 2008. In connection
with the acquisition of Diggar we issued to the seller a note in the amount of $750,000. The note
bears interest at 6.0% and is due July 26, 2008.
34
In connection with the purchase of Safco-Oil Field Products, Inc., or Safco, we also 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 September 30,
2007 and December 31, 2006 were $160,000 and $270,000, respectively.
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 September 30 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 7.85% to
8.7% and terms of 2 to 3 years. As of September 30, 2007 and December 31, 2006, the outstanding
balances for equipment and vehicle financing loans were $942,000 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. In April
2007, we renewed the insurance premium financing in an amount of $3.2 million with a fixed interest
rate of 5.9% and a repayment schedule of 11 months. The outstanding balance of these notes was
approximately $2.9 million and $1.0 million as of September 30, 2007 and December 31, 2006,
respectively. We also have various capital leases with terms that expire in 2008. As of September
30, 2007 and December 31, 2006, amounts outstanding under capital leases were $42,000 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 September 30, 2007, we had a $62.0 million revolving line of credit with a maturity
of April 2012. At September 30, 2007, no amounts were borrowed on the facility but availability is
reduced by outstanding letters of credit of $8.8 million.
Capital Requirements
We have identified capital expenditure projects that will require approximately $38.0 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 October 23, 2007, we purchased all of the issued and outstanding stock of Rebel Rentals, Inc.,
or Rebel Rentals, for an aggregate purchase price of $6.75 million. The acquisition of Rebel
Rentals adds additional equipment and support to our casing and tubing operations in our Tubular
Services segment.
On November 1, 2007, we purchased substantially all the assets of Diamondback Oilfield Services,
Inc., or Diamondback, for a purchase price of $22.0 million. This acquisition expands the operations of Allis-Chalmers
Directional Drilling segment further into the Texas Panhandle and Oklahoma. The acquisition of
Diamondback adds additional personnel and equipment, including approximately 18 directional
drillers, 30 downhole motors, five measurement-while-drilling tools, and eight wireline steering
vehicles
35
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 nine months ended September 30, 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.
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.
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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 $5.5 million as of September 30, 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 September 30, 2007, we had $63.7 million
invested in short-term investments.
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 September 30, 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.
There have not been any changes 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 quarter ended September
30, 2007 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
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PART II. OTHER INFORMATION
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.
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 November 6, 2007.
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Allis-Chalmers Energy Inc.
(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
10.1 |
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Employment Agreement, effective July 1, 2007, by and between Strata Directional Technology,
Inc. and David K. Bryan (incorporated by reference to Exhibit 10.1 to the Current Report on
Form 8-K filed July 13, 2007). |
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10.2 |
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Employment Agreement, effective April 1, 2007, by and between AirComp, LLC and Terrence P.
Keane (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed July
24, 2007). |
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10.3* |
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Employment Agreement, effective April 1, 2007, by and between Allis-Chalmers Energy Inc. and
Munawar H. Hidayatallah. |
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10.4* |
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Employment Agreement, effective April 3, 2007, by and between Allis-Chalmers Energy Inc.
and Victor M. Perez. |
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10.5* |
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Form of Performance Award Agreement under the Allis-Chalmers Energy Inc. 2006 Incentive Plan. |
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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. |