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 JUNE 30, 2008
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 1-02199
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
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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5075 WESTHEIMER, SUITE 890, HOUSTON, TEXAS
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77056 |
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(Address of principal executive offices)
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(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,
a non-accelerated filer, or a smaller reporting company.
See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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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 August 1, 2008 there were 35,511,072 shares of common stock, par value $0.01 per share,
outstanding.
ALLIS-CHALMERS ENERGY INC.
FORM 10-Q
For the Quarterly Period Ended June 30, 2008
TABLE OF CONTENTS
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALLIS-CHALMERS ENERGY INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except for share and per share amounts)
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June 30, |
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December 31, |
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2008 |
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2007 |
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(unaudited) |
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Assets |
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Cash and cash equivalents |
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$ |
10,080 |
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$ |
43,693 |
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Trade receivables, net |
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143,345 |
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130,094 |
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Inventories |
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36,707 |
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32,209 |
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Prepaid expenses and other |
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14,843 |
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11,898 |
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Total current assets |
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204,975 |
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217,894 |
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Property and equipment, net |
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668,563 |
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626,668 |
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Goodwill |
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138,398 |
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138,398 |
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Other intangible assets, net |
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33,093 |
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35,180 |
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Debt issuance costs, net |
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13,211 |
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14,228 |
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Note receivable |
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40,000 |
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Other assets |
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28,221 |
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21,217 |
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Total assets |
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$ |
1,126,461 |
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$ |
1,053,585 |
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Liabilities and Stockholders Equity |
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Current maturities of long-term debt |
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$ |
9,127 |
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$ |
6,434 |
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Trade accounts payable |
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46,131 |
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37,464 |
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Accrued salaries, benefits and payroll taxes |
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20,295 |
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15,283 |
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Accrued interest |
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18,136 |
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17,817 |
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Accrued expenses |
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25,078 |
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20,545 |
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Total current liabilities |
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118,767 |
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97,543 |
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Long-term debt, net of current maturities |
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532,218 |
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508,300 |
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Deferred income taxes |
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34,399 |
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30,090 |
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Other long-term liabilities |
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3,074 |
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3,323 |
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Total liabilities |
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688,458 |
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639,256 |
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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, $0.01 par value (100,000,000 shares authorized;
35,421,072 issued and outstanding at June 30, 2008 and
35,116,035 issued and outstanding at December 31, 2007) |
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354 |
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351 |
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Capital in excess of par value |
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331,158 |
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326,095 |
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Retained earnings |
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106,491 |
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87,883 |
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Total stockholders equity |
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438,003 |
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414,329 |
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Total liabilities and stockholders equity |
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$ |
1,126,461 |
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$ |
1,053,585 |
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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 Six Months Ended |
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June 30, |
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June 30, |
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2008 |
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2007 |
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2008 |
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2007 |
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Revenues |
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$ |
163,135 |
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$ |
143,362 |
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$ |
316,317 |
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$ |
279,262 |
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Cost of revenues |
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Direct costs |
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105,034 |
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83,218 |
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204,232 |
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160,823 |
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Depreciation |
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15,225 |
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12,248 |
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29,727 |
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24,064 |
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Gross margin |
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42,876 |
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47,896 |
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82,358 |
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94,375 |
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General and administrative |
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14,137 |
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14,302 |
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28,921 |
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28,273 |
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Gain on capillary asset sale |
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(8,868 |
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(8,868 |
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Amortization |
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1,071 |
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988 |
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2,187 |
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2,026 |
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Income from operations |
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27,668 |
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41,474 |
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51,250 |
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72,944 |
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Other income (expense): |
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Interest expense |
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(12,036 |
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(11,845 |
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(24,077 |
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(25,866 |
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Interest income |
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1,538 |
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1,108 |
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2,690 |
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1,867 |
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Other |
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369 |
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92 |
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476 |
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276 |
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Total other income (expense) |
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(10,129 |
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(10,645 |
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(20,911 |
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(23,723 |
) |
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Income before income taxes |
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17,539 |
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30,829 |
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30,339 |
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49,221 |
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Provision for income taxes |
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(6,981 |
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(11,325 |
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(11,731 |
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(17,552 |
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Net income |
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$ |
10,558 |
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$ |
19,504 |
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$ |
18,608 |
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$ |
31,669 |
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Net income per common share: |
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Basic |
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$ |
0.30 |
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$ |
0.56 |
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$ |
0.53 |
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$ |
0.95 |
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Diluted |
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$ |
0.30 |
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$ |
0.55 |
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$ |
0.53 |
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$ |
0.93 |
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Weighted average shares outstanding: |
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Basic |
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35,018 |
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34,662 |
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34,928 |
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33,502 |
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Diluted |
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35,534 |
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35,193 |
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35,386 |
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34,116 |
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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 Six Months Ended |
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June 30, |
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2008 |
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2007 |
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Cash Flows from Operating Activities: |
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Net income |
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$ |
18,608 |
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$ |
31,669 |
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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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31,914 |
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26,090 |
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Amortization and write-off of deferred financing fees |
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1,038 |
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2,182 |
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Stock-based compensation |
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4,385 |
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1,104 |
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Allowance for bad debts |
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636 |
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279 |
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Deferred taxes |
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4,309 |
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6,746 |
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Gain on sale of property and equipment |
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(537 |
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(37 |
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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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(13,887 |
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(25,472 |
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(Increase) in inventories |
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(4,498 |
) |
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(3,849 |
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(Increase) decrease in prepaid expenses and other current assets |
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(178 |
) |
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9,495 |
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(Increase) decrease in other assets |
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(3,657 |
) |
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109 |
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Increase in trade accounts payable |
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8,667 |
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3,991 |
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Increase in accrued interest |
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319 |
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7,856 |
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Increase in accrued expenses |
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4,533 |
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3,002 |
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Increase in accrued salaries, benefits and payroll taxes |
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5,012 |
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2,128 |
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(Decrease) in other long-term liabilities |
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(249 |
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(43 |
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Net Cash Provided By Operating Activities |
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56,415 |
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56,382 |
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Cash Flows from Investing Activities: |
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Investment in note receivable |
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(40,000 |
) |
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Deposits on asset commitments |
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(3,447 |
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Acquisition of businesses, net of cash received |
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(3,550 |
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Purchase of investment interests |
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(440 |
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Proceeds from sale of property and equipment |
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3,578 |
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3,679 |
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Proceeds from sale of capillary assets |
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16,250 |
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Purchase of property and equipment |
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(74,663 |
) |
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(47,181 |
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Net Cash Used In Investing Activities |
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(114,532 |
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(31,242 |
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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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Proceeds from exercises of options |
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609 |
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3,138 |
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Proceeds from long-term debt |
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17,946 |
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250,000 |
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Net borrowings under line of credit |
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10,000 |
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Payments on long-term debt |
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(4,102 |
) |
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(305,199 |
) |
Tax benefits on stock-based compensation plans |
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72 |
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1,464 |
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Debt issuance costs |
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(21 |
) |
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(7,581 |
) |
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Net Cash Provided By Financing Activities |
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24,504 |
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41,877 |
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Net change in cash and cash equivalents |
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(33,613 |
) |
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|
67,017 |
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Cash and cash equivalents at beginning of year |
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43,693 |
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39,745 |
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Cash and cash equivalents at end of period |
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$ |
10,080 |
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$ |
106,762 |
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|
The accompanying Notes are an integral part of the Consolidated Condensed Financial Statements.
5
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1
- NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Allis-Chalmers Energy Inc. and subsidiaries (Allis-Chalmers, we, our or us) is a
multi-faceted oilfield service company that provides services and equipment to oil and natural gas
exploration and production companies, 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 three sectors of the
oil and natural gas service industry: Oilfield Services; Drilling and Completion and Rental
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.
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, 2007. 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.
On January 31, 2008, we created the positions of Senior Vice President Oilfield Services and
Senior Vice President Rental Services. In conjunction with this organizational change, we
reviewed the presentation of our reporting segments during the first quarter of 2008. Based on
this review, we determined that our operational performance would be segmented and reviewed by the
Oilfield Services, Drilling and Completion and Rental Services segments. The Oilfield Services
segment includes our underbalanced drilling, directional drilling, tubular services and production
services operations. The Drilling and Completion segment includes our international drilling
operations. As a result, we realigned our financial reporting segments and now report the
following operations as separate, distinct reporting segments: (1) Oilfield Services, (2) Drilling
and Completion and (3) Rental Services. Our historical segment data previously reported for the
three and six months ended June 30, 2007 and year ended December 31, 2007 have been restated to
conform to the new presentation (see Note 10).
6
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
In September 2006, the Financial Accounting Standards Board, or FASB, issued Statement of Financial
Accounting Standards No. 157, Fair Value Measurements, or SFAS No. 157. SFAS No. 157 clarifies the
principle that fair value should be based on the assumptions that market participants would use
when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the
information used to develop those assumptions. Under the standard, fair value measurements would
be separately disclosed by level within the fair value hierarchy. SFAS No. 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007, and interim periods
within those fiscal years, with early adoption permitted. Subsequently, the FASB provided for a
one-year deferral of the provisions of SFAS No. 157 for non-financial assets and liabilities that
are recognized or disclosed at fair value in the consolidated financial statements on a
non-recurring basis. We adopted with no impact on our financial statements all requirements of
SFAS No. 157 on January 1, 2008, except as they relate to nonfinancial assets and liabilities,
which will be adopted on January 1, 2009, as allowed under SFAS No. 157. We have not yet
determined the impact, if any, on our financial statements for nonfinancial assets and liabilities.
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities, or SFAS No. 159, which permits
entities to elect to measure many financial instruments and certain other items at fair value.
Upon adoption of SFAS No. 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 No. 159 is
effective as of the beginning of each reporting entitys first fiscal year that begins after
November 15, 2007. We adopted SFAS No. 159 on January 1, 2008 and there was no impact on our
financial statements.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised
2007), Business Combinations, or SFAS No. 141(R). SFAS No. 141(R) changes the requirements for an
acquirers recognition and measurement of the assets acquired and the liabilities assumed in a
business combination. SFAS No. 141(R) is effective for annual periods beginning after December 15,
2008 and should be applied prospectively for all business combinations entered into after the date
of adoption.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160,
Non-controlling Interests in Consolidated Financial Statements an amendment of ARB No. 51, or
SFAS No. 160. SFAS No. 160 requires (i) that non-controlling (minority) interests be reported as a
component of shareholders equity, (ii) that net income attributable to the parent and to the
non-controlling interest be separately identified in the consolidated statement of operations,
(iii) that changes in a parents ownership interest while the parent retains its controlling
interest be accounted for as equity transactions, (iv) that any retained non-controlling equity
investment upon the deconsolidation of a subsidiary be initially measured at fair value, and
(v) that sufficient disclosures are provided that clearly identify and distinguish between the
interests of the parent and the interests of the non-controlling owners. SFAS No. 160 is effective
for annual periods beginning after December 15, 2008 and should be applied prospectively. The
presentation and disclosure requirements of the statement shall be applied retrospectively for all
periods presented. We will adopt SFAS No. 160 on January 1, 2009 and have not yet determined the
impact, if any, on our financial statements.
In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures
about Derivative Instruments and Hedging Activities an amendment of FASB Statement No. 133, or
SFAS No. 161. SFAS No. 161 requires qualitative disclosures about objectives and strategies for
using derivatives, quantitative data about the fair value of and gains and losses on derivative
contracts, and details of credit-risk-related contingent features in hedged positions. The
statement also requires enhanced disclosures regarding how and why entities use derivative
instruments, how derivative instruments and related hedged items are accounted and how derivative
instruments and related hedged items affect entities financial position, financial performance,
and cash flows. SFAS No. 161 is effective for fiscal years beginning after November 15, 2008. We
will adopt SFAS No. 161 on January 1, 2009 and do not expect the adoption to have a material impact
on our financial statements.
7
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
In April 2008, the FASB issued FASB Staff Position SFAS 142-3, Determination of the Useful Life of
Intangible Assets or FSP SFAS 142-3. FSP SFAS 142-3 amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of a recognized
intangible asset under FASB Statement No. 142, Goodwill and Other Intangible Assets. The objective
of this FSP is to improve the consistency between the useful life of a recognized intangible asset
under Statement 142 and the period of expected cash flows used to measure the fair value of the
asset under SFAS 141R, Business Combinations, and other U.S. GAAP principles. FSP SFAS 142-3 is
effective for fiscal years beginning after December 15, 2008. We will adopt FSP SFAS 142-3 on
January 1, 2009 and have not yet determined the impact, if any, on our financial statements.
NOTE 2 STOCK-BASED COMPENSATION
We adopted Statement of Financial Accounting Standards 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 estimated forfeiture rates for the first six months of 2008 and 2007 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 June 30, 2008 and 2007 includes approximately $1.8
million and $650,000, respectively, of compensation costs related to share-based payments. Our net
income for the six months ended June 30, 2008 and 2007 includes approximately $4.4 million and $1.1
million, respectively, of compensation costs related to share-based payments. As of June 30, 2008,
there is $1.9 million of unrecognized compensation expense related to non-vested stock option
grants. We expect approximately $461,000 to be recognized over the remainder of 2008, and
approximately $918,000 and $532,000 to be recognized during the years ended 2009 and 2010,
respectively.
A summary of our stock option activity and related information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
Weighted |
|
|
|
|
Shares |
|
Average |
|
Average |
|
Aggregate |
|
|
Under |
|
Exercise |
|
Contractual |
|
Intrinsic Value |
|
|
Option |
|
Price |
|
Life (Years) |
|
(millions) |
Balance at December 31, 2007 |
|
|
986,763 |
|
|
$ |
10.77 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canceled |
|
|
(7,328 |
) |
|
|
10.53 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(66,703 |
) |
|
|
9.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2008 |
|
|
912,732 |
|
|
|
10.89 |
|
|
|
7.46 |
|
|
$ |
7.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2008 |
|
|
693,066 |
|
|
$ |
7.43 |
|
|
|
6.94 |
|
|
$ |
7.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 second
quarter of 2008 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
June 30, 2008. The total intrinsic value of options exercised during the three months and six
months ended June 30, 2008 was $449,000 and $478,000, respectively. The total cash received from
option exercises during the three months and six months ended June 30, 2008 was $548,000 and
$609,000, respectively.
8
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
No options were granted during the six months ended June 30, 2008 or for the three months ended
March 31, 2007. The following summarizes the assumptions used for the options granted in the three
months ended June 30, 2007 Black-Scholes model:
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
June 30, |
|
|
2007 |
Expected dividend yield |
|
|
|
|
Expected price volatility |
|
|
68.06 |
% |
Risk free interest rate |
|
|
4.48 |
% |
Expected life of options |
|
7 years |
Weighted
average fair value of options granted at market value |
|
$ |
11.33 |
|
Restricted stock awards, or RSAs, activity during the six months ended June 30, 2008 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
Number of |
|
|
Grant-Date Fair Value |
|
|
|
Shares |
|
|
Per Share |
|
Nonvested at December 31, 2007 |
|
|
993,203 |
|
|
$ |
17.45 |
|
Granted |
|
|
10,000 |
|
|
|
11.73 |
|
Vested |
|
|
(249,574 |
) |
|
|
17.00 |
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at June 30, 2008 |
|
|
753,629 |
|
|
$ |
17.52 |
|
|
|
|
|
|
|
|
|
We determine the fair value of RSAs based on the market price of our common stock on the date of
grant. Compensation cost for RSAs is primarily recognized on a straight-line basis over the
vesting or service period and is net of forfeitures. As of June 30, 2008, there was $10.2 million
of total unrecognized compensation cost related to nonvested RSAs. We expect approximately $2.8
million to be recognized over the remainder of 2008, and approximately $5.1 million, $1.8 million,
$278,000 and $209,000 to be recognized during fiscal years 2009, 2010, 2011 and 2012, respectively.
NOTE 3 INCOME PER COMMON SHARE
We compute income per common share in accordance with the provisions of Statement of Financial
Accounting Standards No. 128, Earnings Per Share, or SFAS No. 128. 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.
9
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
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 Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
10,558 |
|
|
$ |
19,504 |
|
|
$ |
18,608 |
|
|
$ |
31,669 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding excluding nonvested
restricted stock |
|
|
35,018 |
|
|
|
34,662 |
|
|
|
34,928 |
|
|
|
33,502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of potentially dilutive common shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants and employee and director
stock options and restricted shares |
|
|
516 |
|
|
|
531 |
|
|
|
458 |
|
|
|
614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding and assumed
conversions |
|
|
35,534 |
|
|
|
35,193 |
|
|
|
35,386 |
|
|
|
34,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.30 |
|
|
$ |
0.56 |
|
|
$ |
0.53 |
|
|
$ |
0.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.30 |
|
|
$ |
0.55 |
|
|
$ |
0.53 |
|
|
$ |
0.93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potentially dilutive securities
excluded as anti-dilutive |
|
|
472 |
|
|
|
91 |
|
|
|
548 |
|
|
|
92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 4 GOODWILL AND INTANGIBLE ASSETS
In accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets, or SFAS No. 142, 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 $138.4 million at June 30, 2008 and December 31, 2007. Based
on impairment testing performed during 2007 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 six
months ended June 30, 2008 were $1.1 million and $2.2 million, respectively, compared to $1.0
million and $2.0 million for the same periods last year. At June 30, 2008, intangible assets
totaled $33.1 million, net of $7.7 million of accumulated amortization.
10
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
NOTE 5
- INVENTORIES
Inventories consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
Manufactured |
|
|
|
|
|
|
|
|
Finished goods |
|
$ |
2,671 |
|
|
$ |
2,198 |
|
Work in process |
|
|
2,247 |
|
|
|
1,781 |
|
Raw materials |
|
|
4,511 |
|
|
|
4,464 |
|
|
|
|
|
|
|
|
Total manufactured |
|
|
9,429 |
|
|
|
8,443 |
|
Hammers |
|
|
1,967 |
|
|
|
1,434 |
|
Drive pipe |
|
|
530 |
|
|
|
420 |
|
Rental supplies |
|
|
2,262 |
|
|
|
2,261 |
|
Chemicals and drilling fluids |
|
|
4,097 |
|
|
|
3,236 |
|
Rig parts and related inventory |
|
|
10,747 |
|
|
|
9,985 |
|
Coiled tubing and related inventory |
|
|
1,317 |
|
|
|
1,014 |
|
Shop supplies and related inventory |
|
|
6,358 |
|
|
|
5,416 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total inventories |
|
$ |
36,707 |
|
|
$ |
32,209 |
|
|
|
|
|
|
|
|
NOTE 6- NOTE RECEIVABLE
We invested $40.0 million in cash in BCH Ltd., or BCH, in the form of a 15% Convertible
Subordinated Secured debenture. The debenture is convertible, at any time, at our option into 49%
of the common equity of BCH. At the end of two years, we have the option to acquire the remaining
51% of BCH from its parent, BrazAlta Resources Corp., or BrazAlta, based on an independent
valuation from a mutually acceptable investment bank. BrazAlta is a publicly traded Canadian-based
international oil and gas corporation with operations in Brazil, Northern Ireland, and Canada
(TSX.V:BRX).
BCH is a Canadian-based oilfield services company engaged in contract drilling operations
exclusively in Brazil. BCH has six drilling rigs under two to three year contracts with Petroleo
Brasileiro S.A., and a contract for one service rig with BrazAlta for a term of three years.
NOTE 7- DEBT
Our long-term debt consisted of the following: (in thousands)
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
Senior notes |
|
$ |
505,000 |
|
|
$ |
505,000 |
|
Bank term loans |
|
|
21,684 |
|
|
|
4,926 |
|
Revolving line of credit |
|
|
10,000 |
|
|
|
|
|
Seller notes |
|
|
2,000 |
|
|
|
2,350 |
|
Notes payable to former directors |
|
|
32 |
|
|
|
32 |
|
Equipment and vehicle installment notes |
|
|
|
|
|
|
595 |
|
Insurance premium financing |
|
|
2,629 |
|
|
|
1,707 |
|
Obligations under non-compete agreements |
|
|
|
|
|
|
110 |
|
Capital lease obligations |
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
|
Total debt |
|
|
541,345 |
|
|
|
514,734 |
|
|
|
|
|
|
|
|
|
|
Less: current maturities |
|
|
9,127 |
|
|
|
6,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt obligations |
|
$ |
532,218 |
|
|
$ |
508,300 |
|
|
|
|
|
|
|
|
11
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (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. and DLS Drilling, Logistics & Services Corporation, or DLS, to repay existing
debt and for general corporate purposes.
In January 2007, we closed on a private offering, to qualified institutional buyers pursuant to
Rule 144A under the Securities Act of 1933, of $250.0 million aggregate 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 Oil & Gas Rental Services, Inc., or OGR.
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. 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. On December 3, 2007, we
entered into a First Amendment to the Second Amended and Restated Credit Agreement, which increased
our revolving line of credit to $90.0 million. The 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. We were in compliance with all debt covenants as of June 30,
2008. The credit agreement loan rates are based on prime or LIBOR plus a margin. The interest
rate was 4.5% at June 30, 2008. The outstanding amount as of June 30, 2008 and December 31, 2007,
was $10.0 million and $0, respectively.
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 two to five years. The weighted average interest
rates were 4.3% and 6.7% at June 30, 2008 and December 31, 2007, respectively. The bank loans are
denominated in U.S. dollars and the outstanding amount as of June 30, 2008 and December 31, 2007
were $3.7 million and $4.9 million, respectively.
On February 15, 2008, through our DLS subsidiary in Argentina, we entered into a $25.0 million
import finance facility with a bank. Borrowings under this facility will be used to fund a portion
of the purchase price of the new drilling and service rigs ordered for our Drilling and Completion
segment. The facility is available for borrowings until December 31, 2008. Each drawdown shall be
repaid over four years in equal semi-annual installments beginning one year after each disbursement
with the final principal payment due not later than March 15, 2013. The import finance facility is
unsecured and contains customary events of default and financial covenants and limits DLS ability
to incur additional indebtedness, make capital expenditures, create liens and sell assets. We were
in compliance with all debt covenants as of June 30, 2008. The bank loan rates are based on LIBOR
plus a margin. The interest rate was 6.6% at June 30, 2008. The bank loans are denominated in
U.S. dollars and the outstanding amount as of June 30, 2008 was $17.9 million.
Notes payable
In connection with the acquisition of Rogers Oil Tool Services, Inc., 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 interest rate on the note was 8.25% and was repaid on June 29, 2008. In
connection with the acquisition of Diggar Tools, LLC, we issued to the seller a note in the amount
of $750,000. The interest rate on the note was 6.0% and was repaid on July 28, 2008. In
connection with the acquisition of Rebel Rentals, Inc., we issued to the sellers notes in the
aggregate amount of $500,000. The notes bear interest at 5.0% and are due October 23, 2008.
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 June 30, 2008 and
December 31, 2007, the principal and accrued interest on these notes totaled approximately $32,000.
We had various equipment and vehicle financing loans with interest rates ranging from 8.3% to 8.7%
and two year terms. As of June 30, 2008 and December 31, 2007, the outstanding balances for
equipment and vehicle financing loans were $0 and $595,000, respectively.
12
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
In April and August 2007, we obtained insurance premium financings in the aggregate amount of $4.4
million with a fixed weighted average interest rate of 5.9%. Under terms of the agreements,
amounts outstanding are paid over 10 month and 11 month repayment schedules. The outstanding
balance of these notes was approximately $124,000 and $1.7 million as of June 30, 2008 and December
31, 2007, respectively. In April 2008, we obtained an insurance premium financing in the amount of
$2.8 million with a fixed interest rate of 4.9%. Under terms of the agreement, the amount
outstanding is paid over a 10 month repayment schedule. The outstanding balance of this note was
approximately $2.5 million as of June 30, 2008.
Other debt
In connection with the purchase of Capcoil Tubing Services, Inc., we agreed to pay a total of
$500,000 to two management employees in exchange for non-compete agreements. We were required to
make annual payments of $110,000 through May 2008. Total amounts due under these non-compete
agreements at June 30, 2008 and December 31, 2007 were $0 and $110,000, respectively.
We also had various capital leases with terms that expire in 2008. As of June 30, 2008 and
December 31, 2007, amounts outstanding under capital leases were $0 and $14,000, respectively.
NOTE 8 STOCKHOLDERS EQUITY
We had options exercised in the first six months of 2008, which resulted in 66,703 shares of our
common stock being issued for approximately $609,000. We recognized approximately $4.4 million of
compensation expense related to share-based payments in the first six months of 2008 that was
recorded as capital in excess of par value (see Note 2). We also recorded approximately $72,000 of
tax benefit related to our stock compensation plans.
NOTE 9 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).
13
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
CONDENSED CONSOLIDATING BALANCE SHEETS
June 30, 2008 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allis-Chalmers |
|
|
|
|
|
|
Subsidiary |
|
|
|
|
|
|
|
|
|
(Parent/ |
|
|
Subsidiary |
|
|
Non- |
|
|
Consolidating |
|
|
Consolidated |
|
|
|
Guarantor) |
|
|
Guarantors |
|
|
Guarantors |
|
|
Adjustments |
|
|
Total |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
7,666 |
|
|
$ |
2,414 |
|
|
$ |
|
|
|
$ |
10,080 |
|
Trade receivables, net |
|
|
|
|
|
|
88,678 |
|
|
|
54,669 |
|
|
|
(2 |
) |
|
|
143,345 |
|
Inventories |
|
|
|
|
|
|
18,785 |
|
|
|
17,922 |
|
|
|
|
|
|
|
36,707 |
|
Intercompany receivables |
|
|
21,293 |
|
|
|
|
|
|
|
|
|
|
|
(21,293 |
) |
|
|
|
|
Note receivable from affiliate |
|
|
14,235 |
|
|
|
|
|
|
|
|
|
|
|
(14,235 |
) |
|
|
|
|
Prepaid expenses and other |
|
|
7,730 |
|
|
|
4,020 |
|
|
|
3,093 |
|
|
|
|
|
|
|
14,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
43,258 |
|
|
|
119,149 |
|
|
|
78,098 |
|
|
|
(35,530 |
) |
|
|
204,975 |
|
Property and equipment, net |
|
|
|
|
|
|
485,816 |
|
|
|
182,747 |
|
|
|
|
|
|
|
668,563 |
|
Goodwill |
|
|
|
|
|
|
136,875 |
|
|
|
1,523 |
|
|
|
|
|
|
|
138,398 |
|
Other intangible assets, net |
|
|
529 |
|
|
|
32,525 |
|
|
|
39 |
|
|
|
|
|
|
|
33,093 |
|
Debt issuance costs, net |
|
|
13,211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,211 |
|
Note receivable from affiliates |
|
|
13,490 |
|
|
|
|
|
|
|
|
|
|
|
(13,490 |
) |
|
|
|
|
Investments in affiliates |
|
|
868,110 |
|
|
|
|
|
|
|
|
|
|
|
(868,110 |
) |
|
|
|
|
Note receivable |
|
|
40,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000 |
|
Other assets |
|
|
4,912 |
|
|
|
3,888 |
|
|
|
19,421 |
|
|
|
|
|
|
|
28,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
983,510 |
|
|
$ |
778,253 |
|
|
$ |
281,828 |
|
|
$ |
(917,130 |
) |
|
$ |
1,126,461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt |
|
$ |
782 |
|
|
$ |
3,879 |
|
|
$ |
4,466 |
|
|
$ |
|
|
|
$ |
9,127 |
|
Trade accounts payable |
|
|
|
|
|
|
16,607 |
|
|
|
29,526 |
|
|
|
(2 |
) |
|
|
46,131 |
|
Accrued salaries, benefits and
payroll taxes |
|
|
|
|
|
|
3,569 |
|
|
|
16,726 |
|
|
|
|
|
|
|
20,295 |
|
Accrued interest |
|
|
17,759 |
|
|
|
58 |
|
|
|
319 |
|
|
|
|
|
|
|
18,136 |
|
Accrued expenses |
|
|
55 |
|
|
|
12,729 |
|
|
|
12,294 |
|
|
|
|
|
|
|
25,078 |
|
Intercompany payables |
|
|
|
|
|
|
377,826 |
|
|
|
1,185 |
|
|
|
(379,011 |
) |
|
|
|
|
Note payable to affiliate |
|
|
|
|
|
|
|
|
|
|
14,235 |
|
|
|
(14,235 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
18,596 |
|
|
|
414,668 |
|
|
|
78,751 |
|
|
|
(393,248 |
) |
|
|
118,767 |
|
Long-term debt, net of current
maturities |
|
|
515,000 |
|
|
|
|
|
|
|
17,218 |
|
|
|
|
|
|
|
532,218 |
|
Note payable to affiliate |
|
|
|
|
|
|
|
|
|
|
13,490 |
|
|
|
(13,490 |
) |
|
|
|
|
Deferred income taxes |
|
|
11,911 |
|
|
|
13,696 |
|
|
|
8,792 |
|
|
|
|
|
|
|
34,399 |
|
Other long-term liabilities |
|
|
|
|
|
|
186 |
|
|
|
2,888 |
|
|
|
|
|
|
|
3,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
545,507 |
|
|
|
428,550 |
|
|
|
121,139 |
|
|
|
(406,738 |
) |
|
|
688,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
354 |
|
|
|
3,526 |
|
|
|
42,963 |
|
|
|
(46,489 |
) |
|
|
354 |
|
Capital in excess of par value |
|
|
331,158 |
|
|
|
167,508 |
|
|
|
74,969 |
|
|
|
(242,477 |
) |
|
|
331,158 |
|
Retained earnings |
|
|
106,491 |
|
|
|
178,669 |
|
|
|
42,757 |
|
|
|
(221,426 |
) |
|
|
106,491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders
equity |
|
|
438,003 |
|
|
|
349,703 |
|
|
|
160,689 |
|
|
|
(510,392 |
) |
|
|
438,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity |
|
$ |
983,510 |
|
|
$ |
778,253 |
|
|
$ |
281,828 |
|
|
$ |
(917,130 |
) |
|
$ |
1,126,461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
CONDENSED CONSOLIDATING INCOME STATEMENTS
For the Six Months Ended June 30, 2008 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allis-Chalmers |
|
|
|
|
|
|
Subsidiary |
|
|
|
|
|
|
|
|
|
(Parent/ |
|
|
Subsidiary |
|
|
Non- |
|
|
Consolidating |
|
|
Consolidated |
|
|
|
Guarantor) |
|
|
Guarantors |
|
|
Guarantors |
|
|
Adjustments |
|
|
Total |
|
Revenues |
|
$ |
|
|
|
$ |
183,451 |
|
|
$ |
132,879 |
|
|
$ |
(13 |
) |
|
$ |
316,317 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs |
|
|
|
|
|
|
101,245 |
|
|
|
103,000 |
|
|
|
(13 |
) |
|
|
204,232 |
|
Depreciation |
|
|
|
|
|
|
23,167 |
|
|
|
6,560 |
|
|
|
|
|
|
|
29,727 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
|
|
|
|
59,039 |
|
|
|
23,319 |
|
|
|
|
|
|
|
82,358 |
|
General and administrative |
|
|
3,890 |
|
|
|
19,988 |
|
|
|
5,043 |
|
|
|
|
|
|
|
28,921 |
|
Amortization |
|
|
23 |
|
|
|
2,147 |
|
|
|
17 |
|
|
|
|
|
|
|
2,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
operations |
|
|
(3,913 |
) |
|
|
36,904 |
|
|
|
18,259 |
|
|
|
|
|
|
|
51,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity earnings in
affiliates, net of tax |
|
|
43,700 |
|
|
|
|
|
|
|
|
|
|
|
(43,700 |
) |
|
|
|
|
Interest, net |
|
|
(21,221 |
) |
|
|
60 |
|
|
|
(226 |
) |
|
|
|
|
|
|
(21,387 |
) |
Other |
|
|
42 |
|
|
|
24 |
|
|
|
410 |
|
|
|
|
|
|
|
476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
(expense) |
|
|
22,521 |
|
|
|
84 |
|
|
|
184 |
|
|
|
(43,700 |
) |
|
|
(20,911 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)before
income taxes |
|
|
18,608 |
|
|
|
36,988 |
|
|
|
18,443 |
|
|
|
(43,700 |
) |
|
|
30,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
|
|
|
|
(4,449 |
) |
|
|
(7,282 |
) |
|
|
|
|
|
|
(11,731 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
18,608 |
|
|
$ |
32,539 |
|
|
$ |
11,161 |
|
|
$ |
(43,700 |
) |
|
$ |
18,608 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
CONDENSED CONSOLIDATING INCOME STATEMENTS
For the Three Months Ended June 30, 2008 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allis-Chalmers |
|
|
|
|
|
|
Subsidiary |
|
|
|
|
|
|
|
|
|
(Parent/ |
|
|
Subsidiary |
|
|
Non- |
|
|
Consolidating |
|
|
Consolidated |
|
|
|
Guarantor) |
|
|
Guarantors |
|
|
Guarantors |
|
|
Adjustments |
|
|
Total |
|
Revenues |
|
$ |
|
|
|
$ |
93,323 |
|
|
$ |
69,818 |
|
|
$ |
(6 |
) |
|
$ |
163,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs |
|
|
|
|
|
|
50,693 |
|
|
|
54,347 |
|
|
|
(6 |
) |
|
|
105,034 |
|
Depreciation |
|
|
|
|
|
|
11,834 |
|
|
|
3,391 |
|
|
|
|
|
|
|
15,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
|
|
|
|
30,796 |
|
|
|
12,080 |
|
|
|
|
|
|
|
42,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
1,514 |
|
|
|
9,942 |
|
|
|
2,681 |
|
|
|
|
|
|
|
14,137 |
|
Amortization |
|
|
11 |
|
|
|
1,052 |
|
|
|
8 |
|
|
|
|
|
|
|
1,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
operations |
|
|
(1,525 |
) |
|
|
19,802 |
|
|
|
9,391 |
|
|
|
|
|
|
|
27,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity earnings in
affiliates, net of tax |
|
|
22,477 |
|
|
|
|
|
|
|
|
|
|
|
(22,477 |
) |
|
|
|
|
Interest, net |
|
|
(10,409 |
) |
|
|
(16 |
) |
|
|
(73 |
) |
|
|
|
|
|
|
(10,498 |
) |
Other |
|
|
15 |
|
|
|
(20 |
) |
|
|
374 |
|
|
|
|
|
|
|
369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
(expense) |
|
|
12,083 |
|
|
|
(36 |
) |
|
|
301 |
|
|
|
(22,477 |
) |
|
|
(10,129 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)before
income taxes |
|
|
10,558 |
|
|
|
19,766 |
|
|
|
9,692 |
|
|
|
(22,477 |
) |
|
|
17,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
|
|
|
|
(2,938 |
) |
|
|
(4,043 |
) |
|
|
|
|
|
|
(6,981 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
10,558 |
|
|
$ |
16,828 |
|
|
$ |
5,649 |
|
|
$ |
(22,477 |
) |
|
$ |
10,558 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
For the Six Months Ended June 30, 2008 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allis- |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Chalmers |
|
|
|
|
|
|
Subsidiaries |
|
|
|
|
|
|
|
|
|
(Parent/ |
|
|
Subsidiary |
|
|
(Non- |
|
|
Consolidating |
|
|
Consolidated |
|
|
|
Guarantor) |
|
|
Guarantors |
|
|
Guarantors) |
|
|
Adjustments |
|
|
Total |
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
18,608 |
|
|
$ |
32,539 |
|
|
$ |
11,161 |
|
|
$ |
(43,700 |
) |
|
$ |
18,608 |
|
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
23 |
|
|
|
25,314 |
|
|
|
6,577 |
|
|
|
|
|
|
|
31,914 |
|
Amortization and write-off of
deferred financing fees |
|
|
1,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,038 |
|
Stock based compensation |
|
|
4,385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,385 |
|
Allowance for bad debts |
|
|
|
|
|
|
636 |
|
|
|
|
|
|
|
|
|
|
|
636 |
|
Equity earnings in affiliates |
|
|
(43,700 |
) |
|
|
|
|
|
|
|
|
|
|
43,700 |
|
|
|
|
|
Deferred taxes |
|
|
3,254 |
|
|
|
(114 |
) |
|
|
1,169 |
|
|
|
|
|
|
|
4,309 |
|
(Gain) on sale of property and
equipment |
|
|
|
|
|
|
(495 |
) |
|
|
(42 |
) |
|
|
|
|
|
|
(537 |
) |
Changes in operating assets and
liabilities, net of acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) in trade receivables |
|
|
|
|
|
|
(6,191 |
) |
|
|
(7,696 |
) |
|
|
|
|
|
|
(13,887 |
) |
(Increase) in inventories |
|
|
|
|
|
|
(3,086 |
) |
|
|
(1,412 |
) |
|
|
|
|
|
|
(4,498 |
) |
(Increase) decrease in prepaid
expenses and other current assets |
|
|
|
|
|
|
1,312 |
|
|
|
(1,490 |
) |
|
|
|
|
|
|
(178 |
) |
(Increase) decrease in other assets |
|
|
(4,897 |
) |
|
|
989 |
|
|
|
251 |
|
|
|
|
|
|
|
(3,657 |
) |
(Decrease) increase in trade
accounts payable |
|
|
|
|
|
|
(205 |
) |
|
|
8,872 |
|
|
|
|
|
|
|
8,667 |
|
Increase in accrued interest |
|
|
50 |
|
|
|
25 |
|
|
|
244 |
|
|
|
|
|
|
|
319 |
|
(Decrease) increase in accrued
expenses |
|
|
(1,605 |
) |
|
|
5,602 |
|
|
|
536 |
|
|
|
|
|
|
|
4,533 |
|
(Decrease) increase in accrued
salaries, benefits and payroll
taxes |
|
|
|
|
|
|
(143 |
) |
|
|
5,155 |
|
|
|
|
|
|
|
5,012 |
|
(Decrease) in other long- term
liabilities |
|
|
(31 |
) |
|
|
(56 |
) |
|
|
(162 |
) |
|
|
|
|
|
|
(249 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided By (Used In)
Operating Activities |
|
|
(22,875 |
) |
|
|
56,127 |
|
|
|
23,163 |
|
|
|
|
|
|
|
56,415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable from affiliates |
|
|
(3,075 |
) |
|
|
|
|
|
|
|
|
|
|
3,075 |
|
|
|
|
|
Investment in note receivable |
|
|
(40,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40,000 |
) |
Deposits on asset commitments |
|
|
|
|
|
|
|
|
|
|
(3,447 |
) |
|
|
|
|
|
|
(3,447 |
) |
Proceeds from sale of property and
equipment |
|
|
|
|
|
|
3,535 |
|
|
|
43 |
|
|
|
|
|
|
|
3,578 |
|
Purchase of property and equipment |
|
|
|
|
|
|
(34,968 |
) |
|
|
(39,695 |
) |
|
|
|
|
|
|
(74,663 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided By (Used in)
Investing Activities |
|
|
(43,075 |
) |
|
|
(31,433 |
) |
|
|
(43,099 |
) |
|
|
3,075 |
|
|
|
(114,532 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
For the Six Months Ended June 30, 2008 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allis- |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Chalmers |
|
|
|
|
|
|
Subsidiaries |
|
|
|
|
|
|
|
|
|
(Parent/ |
|
|
Subsidiary |
|
|
(Non- |
|
|
Consolidating |
|
|
Consolidated |
|
|
|
Guarantor) |
|
|
Guarantors |
|
|
Guarantors) |
|
|
Adjustments |
|
|
Total |
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable from affiliates |
|
|
55,290 |
|
|
|
|
|
|
|
|
|
|
|
(55,290 |
) |
|
|
|
|
Accounts payable to affiliates |
|
|
|
|
|
|
(55,290 |
) |
|
|
|
|
|
|
55,290 |
|
|
|
|
|
Note payable to affiliate |
|
|
|
|
|
|
|
|
|
|
3,075 |
|
|
|
(3,075 |
) |
|
|
|
|
Proceeds from exercises of options |
|
|
609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
609 |
|
Tax benefit on stock-based
compensation plans |
|
|
72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72 |
|
Proceeds from long-term debt |
|
|
|
|
|
|
|
|
|
|
17,946 |
|
|
|
|
|
|
|
17,946 |
|
Net borrowing under line of credit |
|
|
10,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
|
Payments on long-term debt |
|
|
|
|
|
|
(2,914 |
) |
|
|
(1,188 |
) |
|
|
|
|
|
|
(4,102 |
) |
Debt issuance costs |
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided By (Used
In) Financing Activities |
|
|
65,950 |
|
|
|
(58,204 |
) |
|
|
19,833 |
|
|
|
(3,075 |
) |
|
|
24,504 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash
equivalents |
|
|
|
|
|
|
(33,510 |
) |
|
|
(103 |
) |
|
|
|
|
|
|
(33,613 |
) |
Cash and cash equivalents at
beginning of year |
|
|
|
|
|
|
41,176 |
|
|
|
2,517 |
|
|
|
|
|
|
|
43,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end
of period |
|
$ |
|
|
|
$ |
7,666 |
|
|
$ |
2,414 |
|
|
$ |
|
|
|
$ |
10,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
CONDENSED CONSOLIDATING BALANCE SHEETS
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allis-Chalmers |
|
|
|
|
|
|
Subsidiary |
|
|
|
|
|
|
|
|
|
(Parent/ |
|
|
Subsidiary |
|
|
Non- |
|
|
Consolidating |
|
|
Consolidated |
|
|
|
Guarantor) |
|
|
Guarantors |
|
|
Guarantors |
|
|
Adjustments |
|
|
Total |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
41,176 |
|
|
$ |
2,517 |
|
|
$ |
|
|
|
$ |
43,693 |
|
Trade receivables, net |
|
|
|
|
|
|
83,126 |
|
|
|
46,973 |
|
|
|
(5 |
) |
|
|
130,094 |
|
Inventories |
|
|
|
|
|
|
15,699 |
|
|
|
16,510 |
|
|
|
|
|
|
|
32,209 |
|
Intercompany receivables |
|
|
76,583 |
|
|
|
|
|
|
|
|
|
|
|
(76,583 |
) |
|
|
|
|
Note receivable from affiliate |
|
|
8,270 |
|
|
|
|
|
|
|
|
|
|
|
(8,270 |
) |
|
|
|
|
Prepaid expenses and other |
|
|
7,731 |
|
|
|
2,564 |
|
|
|
1,603 |
|
|
|
|
|
|
|
11,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
92,584 |
|
|
|
142,565 |
|
|
|
67,603 |
|
|
|
(84,858 |
) |
|
|
217,894 |
|
Property and equipment, net |
|
|
|
|
|
|
477,055 |
|
|
|
149,613 |
|
|
|
|
|
|
|
626,668 |
|
Goodwill |
|
|
|
|
|
|
136,875 |
|
|
|
1,523 |
|
|
|
|
|
|
|
138,398 |
|
Other intangible assets, net |
|
|
552 |
|
|
|
34,572 |
|
|
|
56 |
|
|
|
|
|
|
|
35,180 |
|
Debt issuance costs, net |
|
|
14,228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,228 |
|
Note receivable from affiliates |
|
|
16,380 |
|
|
|
|
|
|
|
|
|
|
|
(16,380 |
) |
|
|
|
|
Investments in affiliates |
|
|
824,410 |
|
|
|
|
|
|
|
|
|
|
|
(824,410 |
) |
|
|
|
|
Other assets |
|
|
15 |
|
|
|
4,977 |
|
|
|
16,225 |
|
|
|
|
|
|
|
21,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
948,169 |
|
|
$ |
796,044 |
|
|
$ |
235,020 |
|
|
$ |
(925,648 |
) |
|
$ |
1,053,585 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt |
|
$ |
32 |
|
|
$ |
4,026 |
|
|
$ |
2,376 |
|
|
$ |
|
|
|
$ |
6,434 |
|
Trade accounts payable |
|
|
|
|
|
|
16,815 |
|
|
|
20,654 |
|
|
|
(5 |
) |
|
|
37,464 |
|
Accrued salaries, benefits and payroll taxes |
|
|
|
|
|
|
3,712 |
|
|
|
11,571 |
|
|
|
|
|
|
|
15,283 |
|
Accrued interest |
|
|
17,709 |
|
|
|
33 |
|
|
|
75 |
|
|
|
|
|
|
|
17,817 |
|
Accrued expenses |
|
|
1,660 |
|
|
|
7,127 |
|
|
|
11,758 |
|
|
|
|
|
|
|
20,545 |
|
Intercompany payables |
|
|
|
|
|
|
433,116 |
|
|
|
1,185 |
|
|
|
(434,301 |
) |
|
|
|
|
Note payable to affiliate |
|
|
|
|
|
|
|
|
|
|
8,270 |
|
|
|
(8,270 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
19,401 |
|
|
|
464,829 |
|
|
|
55,889 |
|
|
|
(442,576 |
) |
|
|
97,543 |
|
Long-term debt, net of current maturities |
|
|
505,750 |
|
|
|
|
|
|
|
2,550 |
|
|
|
|
|
|
|
508,300 |
|
Note payable to affiliate |
|
|
|
|
|
|
|
|
|
|
16,380 |
|
|
|
(16,380 |
) |
|
|
|
|
Deferred income taxes |
|
|
8,658 |
|
|
|
13,809 |
|
|
|
7,623 |
|
|
|
|
|
|
|
30,090 |
|
Other long-term liabilities |
|
|
31 |
|
|
|
242 |
|
|
|
3,050 |
|
|
|
|
|
|
|
3,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
533,840 |
|
|
|
478,880 |
|
|
|
85,492 |
|
|
|
(458,956 |
) |
|
|
639,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
351 |
|
|
|
3,526 |
|
|
|
42,963 |
|
|
|
(46,489 |
) |
|
|
351 |
|
Capital in excess of par value |
|
|
326,095 |
|
|
|
167,508 |
|
|
|
74,969 |
|
|
|
(242,477 |
) |
|
|
326,095 |
|
Retained earnings |
|
|
87,883 |
|
|
|
146,130 |
|
|
|
31,596 |
|
|
|
(177,726 |
) |
|
|
87,883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
414,329 |
|
|
|
317,164 |
|
|
|
149,528 |
|
|
|
(466,692 |
) |
|
|
414,329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity |
|
$ |
948,169 |
|
|
$ |
796,044 |
|
|
$ |
235,020 |
|
|
$ |
(925,648 |
) |
|
$ |
1,053,585 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
CONDENSED CONSOLIDATING INCOME STATEMENTS
For the Six Months Ended June 30, 2007 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allis-Chalmers |
|
|
|
|
|
|
Subsidiary |
|
|
|
|
|
|
|
|
|
(Parent/ |
|
|
Subsidiary |
|
|
Non- |
|
|
Consolidating |
|
|
Consolidated |
|
|
|
Guarantor) |
|
|
Guarantors |
|
|
Guarantors |
|
|
Adjustments |
|
|
Total |
|
Revenues |
|
$ |
|
|
|
$ |
177,540 |
|
|
$ |
101,749 |
|
|
$ |
(27 |
) |
|
$ |
279,262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs |
|
|
|
|
|
|
88,549 |
|
|
|
72,301 |
|
|
|
(27 |
) |
|
|
160,823 |
|
Depreciation |
|
|
|
|
|
|
18,633 |
|
|
|
5,431 |
|
|
|
|
|
|
|
24,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
|
|
|
|
70,358 |
|
|
|
24,017 |
|
|
|
|
|
|
|
94,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
1,017 |
|
|
|
23,088 |
|
|
|
4,168 |
|
|
|
|
|
|
|
28,273 |
|
Gain on capillary asset sale |
|
|
|
|
|
|
(8,868 |
) |
|
|
|
|
|
|
|
|
|
|
(8,868 |
) |
Amortization |
|
|
23 |
|
|
|
1,986 |
|
|
|
17 |
|
|
|
|
|
|
|
2,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
(1,040 |
) |
|
|
54,152 |
|
|
|
19,832 |
|
|
|
|
|
|
|
72,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity earnings in
affiliates, net of tax |
|
|
57,629 |
|
|
|
|
|
|
|
|
|
|
|
(57,629 |
) |
|
|
|
|
Interest, net |
|
|
(24,945 |
) |
|
|
1,628 |
|
|
|
(682 |
) |
|
|
|
|
|
|
(23,999 |
) |
Other |
|
|
25 |
|
|
|
115 |
|
|
|
136 |
|
|
|
|
|
|
|
276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
(expense) |
|
|
32,709 |
|
|
|
1,743 |
|
|
|
(546 |
) |
|
|
(57,629 |
) |
|
|
(23,723 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before income
taxes |
|
|
31,669 |
|
|
|
55,895 |
|
|
|
19,286 |
|
|
|
(57,629 |
) |
|
|
49,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
|
|
|
|
(11,012 |
) |
|
|
(6,540 |
) |
|
|
|
|
|
|
(17,552 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
31,669 |
|
|
$ |
44,883 |
|
|
$ |
12,746 |
|
|
$ |
(57,629 |
) |
|
$ |
31,669 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
CONDENSED CONSOLIDATING INCOME STATEMENTS
For the Three Months Ended June 30, 2007 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allis-Chalmers |
|
|
|
|
|
|
Subsidiary |
|
|
|
|
|
|
|
|
|
(Parent/ |
|
|
Subsidiary |
|
|
Non- |
|
|
Consolidating |
|
|
Consolidated |
|
|
|
Guarantor) |
|
|
Guarantors |
|
|
Guarantors |
|
|
Adjustments |
|
|
Total |
|
Revenues |
|
$ |
|
|
|
$ |
90,511 |
|
|
$ |
52,861 |
|
|
$ |
(10 |
) |
|
$ |
143,362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs |
|
|
|
|
|
|
45,514 |
|
|
|
37,714 |
|
|
|
(10 |
) |
|
|
83,218 |
|
Depreciation |
|
|
|
|
|
|
9,516 |
|
|
|
2,732 |
|
|
|
|
|
|
|
12,248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
|
|
|
|
35,481 |
|
|
|
12,415 |
|
|
|
|
|
|
|
47,896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
599 |
|
|
|
11,515 |
|
|
|
2,188 |
|
|
|
|
|
|
|
14,302 |
|
Gain on capillary asset sale |
|
|
|
|
|
|
(8,868 |
) |
|
|
|
|
|
|
|
|
|
|
(8,868 |
) |
Amortization |
|
|
11 |
|
|
|
968 |
|
|
|
9 |
|
|
|
|
|
|
|
988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
(610 |
) |
|
|
31,866 |
|
|
|
10,218 |
|
|
|
|
|
|
|
41,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity earnings in
affiliates, net of tax |
|
|
31,507 |
|
|
|
|
|
|
|
|
|
|
|
(31,507 |
) |
|
|
|
|
Interest, net |
|
|
(11,406 |
) |
|
|
976 |
|
|
|
(307 |
) |
|
|
|
|
|
|
(10,737 |
) |
Other |
|
|
13 |
|
|
|
68 |
|
|
|
11 |
|
|
|
|
|
|
|
92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
(expense) |
|
|
20,114 |
|
|
|
1,044 |
|
|
|
(296 |
) |
|
|
(31,507 |
) |
|
|
(10,645 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before income
taxes |
|
|
19,504 |
|
|
|
32,910 |
|
|
|
9,922 |
|
|
|
(31,507 |
) |
|
|
30,829 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
|
|
|
|
(7,817 |
) |
|
|
(3,508 |
) |
|
|
|
|
|
|
(11,325 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
19,504 |
|
|
$ |
25,093 |
|
|
$ |
6,414 |
|
|
$ |
(31,507 |
) |
|
$ |
19,504 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
For the Six Months Ended June 30, 2007 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allis- |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Chalmers |
|
|
|
|
|
|
Subsidiaries |
|
|
|
|
|
|
|
|
|
(Parent/ |
|
|
Subsidiary |
|
|
(Non- |
|
|
Consolidating |
|
|
Consolidated |
|
|
|
Guarantor) |
|
|
Guarantors |
|
|
Guarantors) |
|
|
Adjustments |
|
|
Total |
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
31,669 |
|
|
$ |
44,883 |
|
|
$ |
12,746 |
|
|
$ |
(57,629 |
) |
|
$ |
31,669 |
|
Adjustments to reconcile net income to
net cash provided by operating
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
22 |
|
|
|
20,620 |
|
|
|
5,448 |
|
|
|
|
|
|
|
26,090 |
|
Amortization and write-off of
deferred financing fees |
|
|
2,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,182 |
|
Stock-based compensation |
|
|
1,104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,104 |
|
Allowance for bad debts |
|
|
|
|
|
|
279 |
|
|
|
|
|
|
|
|
|
|
|
279 |
|
Equity earnings in affiliates |
|
|
(57,629 |
) |
|
|
|
|
|
|
|
|
|
|
57,629 |
|
|
|
|
|
Deferred income taxes |
|
|
6,699 |
|
|
|
1 |
|
|
|
46 |
|
|
|
|
|
|
|
6,746 |
|
(Gain) on sale of equipment |
|
|
|
|
|
|
(34 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
(37 |
) |
Gain on capillary asset sale |
|
|
|
|
|
|
(8,868 |
) |
|
|
|
|
|
|
|
|
|
|
(8,868 |
) |
Changes in operating assets and
liabilities, net of acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) in trade receivables |
|
|
|
|
|
|
(19,084 |
) |
|
|
(6,388 |
) |
|
|
|
|
|
|
(25,472 |
) |
(Increase) in inventories |
|
|
|
|
|
|
(2,170 |
) |
|
|
(1,679 |
) |
|
|
|
|
|
|
(3,849 |
) |
(Increase) decrease in other
current assets |
|
|
(271 |
) |
|
|
9,631 |
|
|
|
135 |
|
|
|
|
|
|
|
9,495 |
|
(Increase) decrease in other assets |
|
|
237 |
|
|
|
(98 |
) |
|
|
(30 |
) |
|
|
|
|
|
|
109 |
|
Increase in accounts payable |
|
|
3 |
|
|
|
2,089 |
|
|
|
1,899 |
|
|
|
|
|
|
|
3,991 |
|
Increase (Decrease) in accrued
interest |
|
|
7,873 |
|
|
|
|
|
|
|
(17 |
) |
|
|
|
|
|
|
7,856 |
|
(Decrease) increase in accrued
expenses |
|
|
(46 |
) |
|
|
2,307 |
|
|
|
741 |
|
|
|
|
|
|
|
3,002 |
|
Increase in accrued salaries,
benefits and payroll taxes |
|
|
|
|
|
|
2 |
|
|
|
2,126 |
|
|
|
|
|
|
|
2,128 |
|
(Decrease) in other long- term
liabilities |
|
|
(15 |
) |
|
|
(28 |
) |
|
|
|
|
|
|
|
|
|
|
(43 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided By (Used In)
Operating Activities |
|
|
(8,172 |
) |
|
|
49,530 |
|
|
|
15,024 |
|
|
|
|
|
|
|
56,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable from affiliates |
|
|
1,768 |
|
|
|
|
|
|
|
|
|
|
|
(1,768 |
) |
|
|
|
|
Acquisition of businesses, net of cash
received |
|
|
|
|
|
|
(3,550 |
) |
|
|
|
|
|
|
|
|
|
|
(3,550 |
) |
Purchase of investment interests |
|
|
|
|
|
|
(440 |
) |
|
|
|
|
|
|
|
|
|
|
(440 |
) |
Proceeds from sale of capillary assets |
|
|
|
|
|
|
16,250 |
|
|
|
|
|
|
|
|
|
|
|
16,250 |
|
Proceeds from sale of property and
equipment |
|
|
|
|
|
|
3,672 |
|
|
|
7 |
|
|
|
|
|
|
|
3,679 |
|
Purchase of property and equipment |
|
|
|
|
|
|
(41,311 |
) |
|
|
(5,870 |
) |
|
|
|
|
|
|
(47,181 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided By (Used in)
Investing Activities |
|
|
1,768 |
|
|
|
(25,379 |
) |
|
|
(5,863 |
) |
|
|
(1,768 |
) |
|
|
(31,242 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
For the Six Months Ended June 30, 2007 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allis- |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Chalmers |
|
|
|
|
|
|
Subsidiaries |
|
|
|
|
|
|
|
|
|
(Parent/ |
|
|
Subsidiary |
|
|
(Non- |
|
|
Consolidating |
|
|
Consolidated |
|
|
|
Guarantor) |
|
|
Guarantors |
|
|
Guarantors) |
|
|
Adjustments |
|
|
Total |
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt |
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,000 |
|
Payments on long-term debt |
|
|
(300,000 |
) |
|
|
(3,229 |
) |
|
|
(1,970 |
) |
|
|
|
|
|
|
(305,199 |
) |
Accounts receivable from affiliates |
|
|
(40,672 |
) |
|
|
10,859 |
|
|
|
|
|
|
|
29,813 |
|
|
|
|
|
Accounts payable to affiliates |
|
|
|
|
|
|
29,830 |
|
|
|
(17 |
) |
|
|
(29,813 |
) |
|
|
|
|
Note payable to affiliate |
|
|
|
|
|
|
|
|
|
|
(1,768 |
) |
|
|
1,768 |
|
|
|
|
|
Proceeds from issuance of common
stock |
|
|
100,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,055 |
|
Proceeds from exercises of options
and warrants |
|
|
3,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,138 |
|
Tax benefits on stock plans |
|
|
1,464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,464 |
|
Debt issuance costs |
|
|
(7,581 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,581 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided By (Used
In) Financing Activities |
|
|
6,404 |
|
|
|
37,460 |
|
|
|
(3,755 |
) |
|
|
1,768 |
|
|
|
41,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash
equivalents |
|
|
|
|
|
|
61,611 |
|
|
|
5,406 |
|
|
|
|
|
|
|
67,017 |
|
Cash and cash equivalents at
beginning of year |
|
|
|
|
|
|
37,769 |
|
|
|
1,976 |
|
|
|
|
|
|
|
39,745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end
of period |
|
$ |
|
|
|
$ |
99,380 |
|
|
$ |
7,382 |
|
|
$ |
|
|
|
$ |
106,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
NOTE 10- SEGMENT INFORMATION
On January 31, 2008, we created the positions of Senior Vice President Oilfield Services and
Senior Vice President Rental Services. In conjunction with this organizational change, we
reviewed the presentation of our reporting segments during the first quarter of 2008. Based on
this review, we determined that our operational performance would be segmented and reviewed by the
Oilfield Services, Drilling and Completion and Rental Services segments. The Oilfield Services
segment includes our underbalanced drilling, directional drilling, tubular services and production
services operations. The Drilling and Completion segment includes our international drilling
operations. As a result, we realigned our financial reporting segments and now report the
following operations as separate, distinct reporting segments: (1) Oilfield Services, (2) Drilling
and Completion and (3) Rental Services. Our historical segment data previously reported for the
three and six months ended June 30, 2007 and year ended December 31, 2007 have been restated to
conform to the new presentation.
All of the segments provide services to the energy industry. The revenues, operating income
(loss), depreciation and amortization, capital expenditures and assets of each of the reporting
segments, plus the corporate function, are reported below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
For the Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oilfield Services |
|
$ |
68,653 |
|
|
$ |
58,122 |
|
|
$ |
136,556 |
|
|
$ |
113,553 |
|
Drilling and Completion |
|
|
69,818 |
|
|
|
52,861 |
|
|
|
132,879 |
|
|
|
101,749 |
|
Rental Services |
|
|
24,664 |
|
|
|
32,379 |
|
|
|
46,882 |
|
|
|
63,960 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
163,135 |
|
|
$ |
143,362 |
|
|
$ |
316,317 |
|
|
$ |
279,262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oilfield Services |
|
$ |
13,090 |
|
|
$ |
20,595 |
|
|
$ |
26,387 |
|
|
$ |
32,287 |
|
Drilling and Completion |
|
|
9,391 |
|
|
|
10,218 |
|
|
|
18,259 |
|
|
|
19,832 |
|
Rental Services |
|
|
9,266 |
|
|
|
14,770 |
|
|
|
15,488 |
|
|
|
28,693 |
|
General corporate |
|
|
(4,079 |
) |
|
|
(4,109 |
) |
|
|
(8,884 |
) |
|
|
(7,868 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
27,668 |
|
|
$ |
41,474 |
|
|
$ |
51,250 |
|
|
$ |
72,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oilfield Services |
|
$ |
5,961 |
|
|
$ |
3,877 |
|
|
$ |
11,591 |
|
|
$ |
7,665 |
|
Drilling and Completion |
|
|
3,399 |
|
|
|
2,741 |
|
|
|
6,577 |
|
|
|
5,448 |
|
Rental Services |
|
|
6,795 |
|
|
|
6,490 |
|
|
|
13,464 |
|
|
|
12,751 |
|
General corporate |
|
|
141 |
|
|
|
128 |
|
|
|
282 |
|
|
|
226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
16,296 |
|
|
$ |
13,236 |
|
|
$ |
31,914 |
|
|
$ |
26,090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oilfield Services |
|
$ |
9,390 |
|
|
$ |
11,091 |
|
|
$ |
23,817 |
|
|
$ |
21,854 |
|
Drilling and Completion |
|
|
21,165 |
|
|
|
3,150 |
|
|
|
39,694 |
|
|
|
5,870 |
|
Rental Services |
|
|
4,415 |
|
|
|
10,369 |
|
|
|
11,106 |
|
|
|
18,882 |
|
General corporate |
|
|
16 |
|
|
|
226 |
|
|
|
46 |
|
|
|
575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
34,986 |
|
|
$ |
24,836 |
|
|
$ |
74,663 |
|
|
$ |
47,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
Goodwill: |
|
|
|
|
|
|
|
|
Oilfield Services |
|
$ |
30,493 |
|
|
$ |
30,493 |
|
Drilling and Completion |
|
|
1,523 |
|
|
|
1,523 |
|
Rental Services |
|
|
106,382 |
|
|
|
106,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
138,398 |
|
|
$ |
138,398 |
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
Oilfield Services |
|
$ |
324,074 |
|
|
$ |
299,300 |
|
Drilling and Completion |
|
|
281,829 |
|
|
|
235,020 |
|
Rental Services |
|
|
444,113 |
|
|
|
454,216 |
|
General corporate |
|
|
76,445 |
|
|
|
65,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,126,461 |
|
|
$ |
1,053,585 |
|
|
|
|
|
|
|
|
Long Lived Assets: |
|
|
|
|
|
|
|
|
United States |
|
$ |
652,096 |
|
|
$ |
655,513 |
|
International |
|
|
269,390 |
|
|
|
180,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
921,486 |
|
|
$ |
835,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
For the Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
88,959 |
|
|
$ |
86,232 |
|
|
$ |
172,942 |
|
|
$ |
170,466 |
|
International |
|
|
74,176 |
|
|
|
57,130 |
|
|
|
143,375 |
|
|
|
108,796 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
163,135 |
|
|
$ |
143,362 |
|
|
$ |
316,317 |
|
|
$ |
279,262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE
11 - SUPPLEMENTAL CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended |
|
|
June 30, |
|
|
2008 |
|
2007 |
Cash paid for interest and income taxes: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
23,087 |
|
|
$ |
15,819 |
|
Income taxes |
|
|
12,595 |
|
|
|
6,639 |
|
|
Non-cash activities: |
|
|
|
|
|
|
|
|
Insurance premium financed |
|
|
2,767 |
|
|
|
3,150 |
|
Note payable issued for acquisition of business |
|
|
|
|
|
|
350 |
|
25
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
NOTE
12 - 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 have been named as a defendant in three lawsuits in connection with our proposed merger with
Bronco Drilling Company, Inc., or Bronco. We do not believe that the suits have any merit.
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 13
SUBSQUENT EVENTS
On July 25, 2008, we announced our intent to offer $350.0 million of senior notes in a private
placement. We plan to use the net proceeds of the offering to fund the cash consideration payable
by us in connection with our previously announced pending acquisition of Bronco. We would also use
the proceeds to repay Broncos outstanding debt and working capital and other general corporate
purposes. The notes are being offered to qualified institutional buyers in accordance with Rule
144A under the Securities Act of 1933, and outside the United States to person other than U.S.
persons, in reliance on Regulation S.
26
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with our consolidated financial
statements and the notes thereto included elsewhere in this report. This report contains
forward-looking statements that involve risks and uncertainties. Our actual results may differ
materially from the results discussed in such forward-looking statements. Factors that might cause
such differences include, but are not limited to, the general condition of the oil and natural gas
drilling industry, demand for our oil and natural gas service and rental products, and competition.
For more information on forward-looking statements please refer to the section entitled
Forward-Looking Statements on
page 37.
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 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 currently operate
in three sectors of the oil and natural gas service industry: Oilfield Services; Drilling and
Completion and Rental 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 1,782 as of December 31, 2007 and to 1,957 on
July 25, 2008, according to the Baker Hughes rig count. Furthermore, directional and horizontal
rig counts increased from 283 as of December 31, 2002 to 967 on July 25, 2008, which accounted for
32.8% and 49.4% of the total U.S. rig count, respectively. The offshore Gulf of Mexico rig count
however, decreased 14% to 67 rigs on July 25, 2008 compared to 78 rigs one year ago as oil and gas
operators mobilized drilling rigs to the international markets.
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.
27
Demand for our services has been strong for approximately the past four years, 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.
Results of Operations
In June 2007, we acquired all of the outstanding stock of Coker Directional, Inc., or Coker. In
July 2007, we acquired all of the outstanding stock of Diggar Tools, LLC, or Diggar. In October
2007, we acquired all of the outstanding stock of Rebel Rentals, Inc., or Rebel. We report the
operations of Coker, Diggar and Rebel in our Oilfield Services segment. We consolidated the
results of these acquisitions from the day they were acquired.
The foregoing acquisitions affect the comparability from period to period of our historical
results, and our historical results may not be indicative of our future results.
Comparison of Three Months Ended June 30, 2008 and 2007
Our revenues for the three months ended June 30, 2008 were $163.1 million, an increase of 13.8%
compared to $143.4 million for the three months ended June 30, 2007. The increase in revenues is
due to the increase in revenues in our Oilfield Services and Drilling and Completion segments,
partly offset by a decrease in revenues in our Rental Services segment. Revenues increased by
$10.5 million in our Oilfield Services segment due to our investment in new equipment in 2007 and
in the first quarter of 2008, the opening of new operating locations and small acquisitions
completed in 2007, which added downhole motors, measurement-while-drilling, or MWD tools, and
directional drilling personnel. Revenues increased in our Drilling and Completion segment by $17.0
million due to increased pricing for our drilling and workover services in Argentina and the
activation of eight new service rigs during the first quarter of 2008 and two new service rigs
during the second quarter of 2008. The $7.7 million decrease in revenues in our Rental Services
segment is due to decreased utilization of our equipment and more competitive pricing due to the
decrease in drilling activity in the Gulf of Mexico.
Our gross margin for the quarter ended June 30, 2008 decreased 10.5% to $42.9 million, or 26.3% of
revenues, compared to $47.9 million, or 33.4%, of revenues for the three months ended June 30,
2007. The decrease in gross profit is principally due to the decrease in Rental Services revenue.
Our gross margin also decreased due to the increase in depreciation expense associated with our
capital expenditures. The decrease in gross profit as a percentage of revenues is primarily due to
the decrease in Rental Services revenues, the decrease in our gross margin percentage in our
Drilling and Completion segment and the increase in depreciation expense. The decrease in the
gross margin in our Drilling and Completion segment is due to higher wages and the impact of labor
strikes and work slowdowns as a result of the labor and political environment in Argentina and the
significant increase in our labor force and labor related expenses in connection with the delivery
of new rigs prior to their activation. Depreciation expense increased 24.3% to $15.2 million for
the second quarter of 2008 compared to $12.2 million for the second quarter of 2007. The increase
is due to additional depreciable assets resulting from capital expenditures and acquisitions. Our
cost of revenues consists principally of our labor costs and benefits, equipment rentals,
maintenance and repairs of our equipment, depreciation, insurance and fuel. Because many of our
costs are fixed, our gross profit as a percentage of revenues is generally affected by our level of
revenues.
General and administrative expense was $14.1 million in the three months ended June 30, 2008
compared to $14.3 million for the three months ended June 30, 2007. As a percentage of revenues,
general and administrative expenses decreased to 8.7% in the second quarter of 2008 compared to
10.0% in the second quarter of 2007.
We recorded an expense of $1.8 million related to share-based compensation expense for the three
months ended June 30, 2008 compared to $650,000 for the three months ended June 30, 2007. The
amount of shared-based compensation expense recorded in general and administrative expense was $1.8
million for the second quarter of 2008 and $622,000 for the second quarter of 2007 with the balance
being recorded as a direct cost.
On June 29, 2007, we sold our capillary tubing assets that were part of our Oilfield 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.
28
Amortization expense was $1.1 million in the three months ended June 30, 2008 compared to $1.0
million in the three months ended June 30, 2007. The increase in amortization expense is due to
the amortization of intangible assets in connection with our acquisitions.
Income from operations for the three months ended June 30, 2008 totaled $27.7 million, a decrease
of 33.3% compared to income from operations of $41.5 million for the three months ended June 30,
2007, due to the $8.9 million gain from the sale of our capillary tubing assets recognized in the
second quarter of 2007 and the decrease in our gross margin in the second quarter of 2008. Our
income from operations as a percentage of revenues decreased to 17.0% for the second quarter of
2008, from 28.9% for the second quarter of 2007, due to the $8.9 million gain in the second quarter
of 2007 and the decrease in our gross margin as a percentage of revenues offset partially by the
decrease in general and administrative expenses as a percentage of revenues.
Our net interest expense was $10.5 million in the three months ended June 30, 2008, compared to
$10.7 million for the three months ended June 30, 2007. Interest expense decreased in the second
quarter of 2008 due to an increase in interest income offset in part by an increase in our average
outstanding debt. Our net interest expense includes interest income of $1.5 million in the second
quarter of 2008 from our 15% $40.0 million subordinated convertible debenture due from BCH Ltd.
which closed on January 31, 2008.
Our provision for income taxes for the three months ended June 30, 2008 was $7.0 million, or 39.8%
of our net income before income taxes, compared to $11.3 million, or 36.7% of our net income before
income taxes for the three months ended June 30, 2007. The increase in our effective tax rate is
primarily attributable to our Drilling and Completion operations, which had an effective tax rate
of 41.7% for the three months ended June 30, 2008 compared to 35.4% for three months ended June 30,
2007. This increase in effective tax rate percentage is attributable to the change in mix of
operations by taxing jurisdictions.
We had net income of $10.6 million for the three months ended June 30, 2008, a decrease of 45.9%
compared to net income of $19.5 million for the three months ended June 30, 2007.
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 |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
|
(in thousands) |
|
Oilfield Services |
|
$ |
68,653 |
|
|
$ |
58,122 |
|
|
$ |
10,531 |
|
|
$ |
13,090 |
|
|
$ |
20,595 |
|
|
$ |
(7,505 |
) |
Drilling and Completion |
|
|
69,818 |
|
|
|
52,861 |
|
|
|
16,957 |
|
|
|
9,391 |
|
|
|
10,218 |
|
|
|
(827 |
) |
Rental Services |
|
|
24,664 |
|
|
|
32,379 |
|
|
|
(7,715 |
) |
|
|
9,266 |
|
|
|
14,770 |
|
|
|
(5,504 |
) |
General corporate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,079 |
) |
|
|
(4,109 |
) |
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
163,135 |
|
|
$ |
143,362 |
|
|
$ |
19,773 |
|
|
$ |
27,668 |
|
|
$ |
41,474 |
|
|
$ |
(13,806 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oilfield Services
Revenues were $68.7 million for the three months ended June 30, 2008, an increase of 18.1% compared
to $58.1 million in revenues for the three months ended June 30, 2007. Our Oilfield Services
segment revenues for the second quarter of 2008 increased compared to the second quarter of 2007
due primarily to our investment in new equipment in 2007 and the first quarter of 2008, including
air-drilling compressors, foam units, casing and tubing tools and coil tubing units. Results in
the Oilfield Services segment also improved due to small acquisitions completed in 2007 which added
downhole motors, MWD tools and directional drillers and enabled us to expand our directional
drilling business in the Northern Rocky Mountains and the Mid-Continent areas. Income from
operations decreased to $13.1 million in the second quarter of 2008 compared to $20.6 million in
the second quarter of 2007 due to the $8.9 million gain on the sale of capillary assets recognized
in the three months ended June 30, 2007. Without this gain in the year-ago quarter, operating
income would have increased period over period for the reasons enumerated above.
29
Drilling and Completion
Revenues for the quarter ended June 30, 2008 for the Drilling and Completion segment were $69.8
million, an increase from $52.9 million in revenues for the quarter ended June 30, 2007. Income
from operations decreased to $9.4 million in the second quarter of 2008 compared to $10.2 million
in the second quarter of 2007. Our Drilling and Completion segment revenues increased in the
second quarter of 2008 due to increased pricing for our drilling and workover services in Argentina
and the activation of eight new service rigs during the first quarter of 2008 and two new service
rigs during the second quarter of 2008. The ten new service rigs are part of our 20 rig order (16
service and 4 drilling rigs), which we expect to place in service throughout 2008. Operating
income for the second quarter of 2008 decreased compared to the prior year. This was due primarily
to higher wages, which included other payroll expenses, and the increase in administrative costs
all relating to labor concessions in Argentina granted by the oil industry in the last half of 2007
and the impact of labor strikes and work slow-downs as a result of the labor and political
environment in Argentina. Additionally, operating income was also impacted by a significant
increase in our labor force and labor-related expenses in connection with the delivery of new rigs
prior to their activation.
Rental Services
Revenues for the quarter ended June 30, 2008 for the Rental Services segment were $24.7 million, a
decrease from $32.4 million in revenues for the quarter ended June 30, 2007. Income from
operations decreased to $9.3 million in the second quarter of 2008 compared to $14.8 million in the
second quarter of 2007. Our Rental Services segment revenues and operating income for the second
quarter of 2008 decreased compared to the prior year due primarily to the decrease in utilization
of our rental equipment and a more competitive pricing environment due to a decrease in drilling
activity in the Gulf of Mexico.
General Corporate
General corporate expenses were flat at $4.1 million for the three months ended June 30, 2008 and
for the three months ended June 30, 2007.
Comparison of Six Months Ended June 30, 2008 and 2007
Our revenues for the six months ended June 30, 2008 were $316.3 million, an increase of 13.3%
compared to $279.3 million for the six months ended June 30, 2007. The increase in revenues is due
to the increase in revenues in our Oilfield Services and Drilling and Completion segments, partly
offset by a decrease in revenues in our Rental Services segment. Revenues increased in our
Oilfield Services segment by $23.0 million due to our investment in new equipment in 2007 and in
2008, the opening of new operating locations and small acquisitions completed in 2007 which added
downhole motors, MWD tools and directional drilling personnel. Revenues increased in our Drilling
and Completion segment by $31.1 million due to increased pricing for our drilling and workover
services in Argentina and the activation of eight new service rigs during the first quarter of 2008
and two new service rigs in the second quarter of 2008. The decrease of $17.1 million in revenues
in our Rental Services segment is due to decreased utilization of our equipment and more
competitive pricing due to the decrease in drilling activity in the Gulf of Mexico.
Our gross margin for the six months ended June 30, 2008 decreased 12.7% to $82.4 million, or 26.0%
of revenues, compared to $94.4 million, or 33.8%, of revenues for the six months ended June 30,
2007. The decrease in gross profit is principally due to the decrease in Rental Services revenue.
Our gross margin also decreased due to the increase in depreciation expense due to our capital
expenditures. The decrease in gross profit as a percentage of revenues is primarily due to the
decrease in Rental Services revenues, the decrease in our gross margin percentage in our Drilling
and Completion segment and the increase in depreciation expense. The decrease in the gross margin
in our Drilling and Completion segment is due to higher wages and the impact of labor strikes and
work slowdowns as a result of the labor and political environment in Argentina and the significant
increase in our labor force and labor related expenses in connection with the delivery of new rigs
prior to their activation. Depreciation expense increased 23.5% to $29.7 million for the first six
months of 2008 compared to $24.1 million for the first six months of 2007. The increase is due to
additional depreciable assets resulting from capital expenditures and acquisitions. 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 $28.9 million in the first six months of 2008 compared to
$28.3 million for the first six months of 2007. General and administrative expense increased due
to the additional expenses associated with acquisitions, and the hiring of additional sales and
administrative personnel. As a percentage of revenues, general and administrative expenses
decreased to 9.1% in the first six months of 2008 compared to 10.1% in the first six months of
2007.
30
We recorded an expense of $4.4 million related to share-based compensation expense for the six
months ended June 30, 2008 compared to $1.1 million for the six months ended June 30, 2007. The
amount of share-based compensation expense recorded in general and administrative expense was $4.4
million for the first six months of 2008 and $1.0 million for the first six months of 2007 with the
balance being recorded as a direct cost.
On June 29, 2007, we sold our capillary tubing assets that were part of our Oilfield 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 $2.2 million in the first six months of 2008 compared to $2.0 million in
the first six months of 2007. The increase in amortization expense is due to the amortization of
intangible assets in connection with our acquisitions.
Income from operations for the six months ended June 30, 2008 totaled $51.3 million, a decrease of
29.7% compared to income from operations of $72.9 million for the six months ended June 30, 2007,
reflecting the decrease in our gross margin and increased general and administrative expenses. Our
income from operations as a percentage of revenues decreased to 16.2% for the first six months of
2008, from 26.1% for the first six months of 2007, due to the decrease in our gross margin as a
percentage of revenues offset partially by the decrease in general and administrative expenses as a
percentage of revenues.
Our net interest expense was $21.4 million in the first six months of 2008, compared to $24.0
million for the first six months of 2007. Interest expense decreased in the first six months of
2008 due to an increase in interest income, offset in part by an increase in our average
outstanding debt. Our net interest expense includes interest income of $2.5 million in the first
six months of 2008 from our 15% $40.0 million subordinated convertible debenture due from BCH Ltd.
which closed on January 31, 2008. 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 acquisition
of the assets of Oil & Gas Rental Services, Inc., or OGR, 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 six months of 2007 includes the write-off of deferred financing fees of $1.2 million
related to the repayment of the bridge loan.
Our provision for income taxes for the six months ended June 30, 2008 was $11.7 million, or 38.7%
of our net income before income taxes, compared to $17.6 million, or 35.7% of our net income before
income taxes for the six months ended June 30, 2007. The increase in our effective tax rate is
primarily attributable to our Drilling and Completion operations, which had an effective tax rate
of 39.5% for the six months ended June 30, 2008 compared to 33.9% for six months ended June 30,
2007. This increase in effective tax rate percentage is attributable to the change in mix of
operations by taxing jurisdictions.
We had net income of $18.6 million for the six months ended June 30, 2008, a decrease of 41.2%
compared to net income of $31.7 million for the six months ended June 30, 2007.
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 |
|
|
|
Six Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
|
(in thousands) |
|
Oilfield Services |
|
$ |
136,556 |
|
|
$ |
113,553 |
|
|
$ |
23,003 |
|
|
$ |
26,387 |
|
|
$ |
32,287 |
|
|
$ |
(5,900 |
) |
Drilling and Completion |
|
|
132,879 |
|
|
|
101,749 |
|
|
|
31,130 |
|
|
|
18,259 |
|
|
|
19,832 |
|
|
|
(1,573 |
) |
Rental Services |
|
|
46,882 |
|
|
|
63,960 |
|
|
|
(17,078 |
) |
|
|
15,488 |
|
|
|
28,693 |
|
|
|
(13,205 |
) |
General corporate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,884 |
) |
|
|
(7,868 |
) |
|
|
(1,016 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
316,317 |
|
|
$ |
279,262 |
|
|
$ |
37,055 |
|
|
$ |
51,250 |
|
|
$ |
72,944 |
|
|
$ |
(21,694 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
Oilfield Services
Revenues were $136.6 million for the six months ended June 30, 2008, an increase of 20.3% compared
to $113.6 million in revenues for the six months ended June 30, 2007. Our Oilfield Services
segment revenues for the first six months of 2008 increased compared to the first six months of
2007 due primarily to our investment in new equipment in 2007 and in 2008, including air-drilling
compressors, foam units, casing and tubing tools and coil tubing units. Results in the Oilfield
Services segment also improved due to small acquisitions completed in 2007 which added downhole
motors, MWD tools and directional drillers and enabled us to expand our directional drilling
business in the Northern Rocky Mountains and the Mid-Continent areas. Income from operations
decreased to $26.4 million in the first six months of 2008 compared to $32.3 million in the first
six months of 2007 due to the $8.9 million gain on the sale of capillary assets recognized in the
three months ended June 30, 2007. Without this gain in the prior year, operating income would have
increased period over period for the reasons enumerated above.
Drilling and Completion
Revenues for the six months ended June 30, 2008 for the Drilling and Completion segment were $132.9
million, an increase from $101.7 million in revenues for the six months ended June 30, 2007.
Income from operations decreased to $18.3 million in the first six months of 2008 compared to $19.8
million in the first six months of 2007. Our Drilling and Completion segment revenues increased in
the first six months of 2008 due to increased pricing for our drilling and workover services in
Argentina and the activation of eight new service rigs during the first quarter of 2008 and two new
service rigs during the second quarter of 2008. The ten new service rigs are part of our 20 rig
order (16 service and 4 drilling rigs), which we expect to place in service throughout 2008.
Operating income for the first six months of 2008 decreased compared to the prior year. This was
due primarily to higher wages, other payroll expenses and the increase in administrative costs all
relating to labor concessions in Argentina granted by the oil industry in the last half of 2007 and
the impact of labor strikes and work slow-downs as a result of the labor and political environment
in Argentina. Additionally, operating income was also impacted by a significant increase in our
labor force and labor-related expenses in connection with the delivery of new rigs prior to their
activation.
Rental Services
Revenues for the six months ended June 30, 2008 for the Rental Services segment were $46.9 million,
a decrease from $64.0 million in revenues for the six months ended June 30, 2007. Income from
operations decreased to $15.5 million in the first six months of 2008 compared to $28.7 million in
the first six months of 2007. Our Rental Services segment revenues and operating income for the
first six months of 2008 decreased compared to the prior year due primarily to the decrease in
utilization of our rental equipment and a more competitive pricing environment due to a decrease in
drilling activity in the Gulf of Mexico.
General Corporate
General corporate expenses increased $1.0 million to $8.9 million for the six months ended June 30,
2008 compared to $7.9 million for the six months ended June 30, 2007. The increase was due to the
increase in payroll costs and benefits for additional management and accounting and administrative
staff as a result of the acquisitions and the increase in share-based compensation expense.
Company Outlook
We believe the level of our revenues are sustainable dependent on a favorable oil and natural gas
price environment, a stable rig count and the level of capital expenditures of our customers. All
of our segments experienced an increase in revenue for the three months ended June 30, 2008
compared to the three months ended March 31, 2008, Drilling and Completion revenue increased $6.8
million, Rental Services increased $2.4 million and Oilfield Services increased $750,000. We
expect our Rental Services revenues to continue to improve as we develop new markets for our
equipment. Our gross margin for the three months ended June 30, 2008 compared to the three months
ended March 31, 2008 increased $2.8 million for our Rental Services segment, and by $842,000 for
our Drilling and Completion segment, while our Oilfield Services segment had a decrease of
$255,000. We believe the increases in margin are evidence of improved utilization and pricing,
while the decrease in Oilfield Services was related to a drop in our directional drilling activity
and increased depreciation expense for the whole segment. The sustainability and future growth in
our gross margin is principally dependent on our level of revenues and the pricing environment of
our services. We expect our general and administrative and amortization expenses to remain stable
throughout the balance of 2008, absent any significant acquisitions. Our net interest expense is
dependent upon our level of debt and cash on hand, which are principally dependent on acquisitions
we complete, our capital expenditures and our cash flows from operations.
32
Liquidity and Capital Resources
Our on-going capital requirements arise primarily from our need to service our debt, complete
acquisitions, acquire and maintain equipment, and 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 $10.1 million at June 30, 2008 compared
to $43.7 million at December 31, 2007.
Operating Activities
In the six months ended June 30, 2008, our operating activities provided $56.4 million in cash.
Net income for the six months ended June 30, 2008 was $18.6 million. Non-cash expenses totaled
$41.7 million during the first six months of 2008 consisting of $31.9 million of depreciation and
amortization, $4.3 million for deferred income taxes related to timing differences, $1.0 in
amortization of deferred financing fees, $4.4 million from the expensing of stock based
compensation, $636,000 related to increases to the allowance for doubtful accounts receivables,
less $537,000 on the gain from asset disposals.
During the six months ended June 30, 2008, changes in operating assets and liabilities used $3.9
million in cash, principally due to an increase of $13.9 million in accounts receivable, an
increase of $4.5 million in inventories, an increase of $3.7 million in other assets, offset in
part by an increase of $8.7 million in accounts payable, an increase of $5.0 million in accrued
salaries, benefits and payroll taxes and an increase of $4.5 million in accrued expenses. Accounts
receivable increased primarily due to the increase in our revenues in the first six months of 2008.
The increase in inventories is related to the additional supplies needed to support our increasing
rig and coiled tubing fleets. The increase in other assets primarily relates to $2.5 million of
interest income on our $40.0 million note receivable from BCH Ltd. and $2.2 million of costs
incurred to date on our pending acquisition of Bronco Drilling Company, Inc. The increase in
accounts payable can be attributed to additional expenses related to the growth of our Drilling and
Completion segments rig fleet. The increase in accrued salaries, benefits and payroll taxes is
primarily related to a retroactive pay increase granted to our Drilling and Completion segments
workers based in Argentina due to labor negotiations. The increase in accrued expenses is
primarily related to an additional operational activities and new rig purchases in our Drilling and
Completion segment and in our Oilfield Services segment.
In the six months ended June 30, 2007, our operating activities provided $56.4 million in cash.
Net income for the six months ended June 30, 2007 was $31.7 million. Non-cash expenses totaled
$27.5 million during the first six months of 2007 consisting of $26.1 million of depreciation and
amortization, $6.7 million for deferred taxes related to timing differences, $1.2 million for the
write-off of loan fees related to the bridge loan that was repaid, $1.0 million in amortization of
deferred financing fees, $1.1 million from the expensing of stock based compensation, $279,000
related to increases to the allowance for doubtful accounts receivables, less $8.9 million on the
gain from asset disposals.
During the six months ended June 30, 2007, changes in operating assets and liabilities used $2.8
million in cash, principally due to an increase of $25.5 million in accounts receivable, an
increase of $3.8 million in inventories, offset in part by a decrease in other current assets of
$9.5 million, an increase of $4.0 million in accounts payable, an increase of $7.9 million in
accrued interest, an increase of $3.0 million in accrued expenses and an increase in accrued
salaries, benefits and payroll taxes of $2.1 million. Accounts receivable increased primarily due
to the increase in our revenues in the first six months of 2007. Other inventory increased
primarily due to the build-up of inventory to meet the demands of increased activity levels in our
Drilling and Completion segment. 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. The increase in accrued interest is due to the semi-annual payment of interest on
our 9.0% senior notes due in July 2007.
Investing Activities
During the six months ended June 30, 2008, we used $114.5 million in investing activities,
consisting of a $74.7 million for capital expenditures, $40.0 million convertible subordinated
secured note from BCH Ltd, $3.4 million for deposits on equipment purchases for our Drilling and
Completion segment, offset by $3.6 million of proceeds from equipment sales. Included in the $74.7
million for capital expenditures was $23.8 million for our Oilfield Services segment, including
additional casing and tubing equipment and coiled tubing support equipment, $39.7 million for
additional equipment in our Drilling and Completion segment and $11.1 million for drill pipe and
other equipment used in our Rental Services segment. A majority of our equipment sales relate to
items lost in hole or damaged beyond repair by our customers.
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During the six months ended June 30, 2007, we used $31.2 million in investing activities,
consisting of $47.2 million for capital expenditures, $3.6 million for business acquisition and
$440,000 for investment in oilfield prospects, offset by $19.9 million of proceeds from asset
sales. Included in the $47.2 million for capital expenditures was $18.9 million for drill pipe and
other equipment used in our Rental Services segment, $5.9 million for additional equipment in our
Drilling and Completion segment and $21.9 million for our Oilfield Services segment, including
additional MWD equipment and new compressor packages. We received proceeds of $16.3 million from
the sale of our capillary assets and $3.7 million from the proceeds from asset sales in connection
with items lost in hole by our customers or other asset sales.
Financing Activities
During the six months ended June 30, 2008, financing activities provided $24.5 million in cash. We
received $10.0 million from net borrowings under our revolving line of credit and an additional
$17.9 million in proceeds from long-term debt and repaid $4.1 million in borrowings under long-term
debt facilities. Proceeds from the additional $17.9 million in long-term borrowing were used for a
portion of the purchase price of the new drilling and service rigs ordered for our Drilling and
Completion segment. We also financed our renewal of $2.8 million in insurance policy premiums in a
non-cash transaction. The $4.1 million of repayment of long-term debt facilities were scheduled
repayments. We also received $609,000 in proceeds from the exercise of options and warrants.
During the six months ended June 30, 2007, financing activities provided $41.9 million in cash. We
received $250.0 million in proceeds from long-term debt, repaid $305.2 million in borrowings under
long-term debt facilities, including repayments 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 $3.1 million in proceeds from the exercise of options and
warrants. We recognized a tax benefit of $1.5 million related to our stock compensation plans.
At June 30, 2008, we had $541.3 million in outstanding indebtedness, of which $532.2 million was
long-term debt and $9.1 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
Rental Tools, Inc. and DLS Drilling, Logistics & Services Corporation, or DLS, to repay existing
debt and for general corporate purposes.
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 aggregate 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 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. 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. On December 3, 2007, we
entered into a First Amendment to the Second Amended and Restated Credit Agreement, which increased
our revolving line of credit to $90.0 million. The 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. We were in compliance with all debt covenants as of June 30,
2008. The credit agreement loan rates are based on prime or LIBOR plus a margin. The interest
rate was 4.5% at June 30, 2008. The outstanding amount as of June 30, 2008 and December 31, 2007,
was $10.0 million and $0, respectively.
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 two to five years. The weighted average interest
rates were 4.3% and 6.7% at June 30, 2008 and December 31, 2007, respectively. The bank loans are
denominated in U.S. dollars and the outstanding amount as of June 30, 2008 and December 31, 2007
were $3.7 million and $4.9 million, respectively.
34
On February 15, 2008, through our DLS subsidiary in Argentina, we entered into a $25.0 million
import finance facility with a bank. Borrowings under this facility will be used to fund a portion
of the purchase price of the new drilling and service rigs ordered for our Drilling and Completion
segment. The facility is available for borrowings until December 31, 2008. Each drawdown shall be
repaid over four years in equal semi-annual installments beginning one year after each disbursement
with the final principal payment due not later than March 15, 2013. The import finance facility is
unsecured and contains customary events of default and financial covenants and limits DLS ability
to incur additional indebtedness, make capital expenditures, create liens and sell assets. We were
in compliance with all debt covenants as of June 30, 2008. The bank loan rates are based on LIBOR
plus a margin. The interest rate was 6.6% at June 30, 2008. The bank loans are denominated in
U.S. dollars and the outstanding amount as of June 30, 2008 was $17.9 million.
Notes payable
In connection with the acquisition of Rogers Oil Tool Services, Inc., 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 interest rate on the note was 8.25% and was repaid on June 29, 2008. In
connection with the acquisition of Diggar Tools, LLC, we issued to the seller a note in the amount
of $750,000. The interest rate on the note was 6.0% and was repaid on July 28, 2008. In
connection with the acquisition of Rebel Rentals, Inc., we issued to the sellers notes in the
aggregate amount of $500,000. The notes bear interest at 5.0% and are due October 23, 2008.
In 2000 we compensated directors, including current directors, 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 June 30, 2008 and December 31, 2007, the principal
and accrued interest on these notes totaled approximately $32,000.
We had various equipment and vehicle financing loans with interest rates ranging from 8.3% to 8.7%
and two year terms. As of June 30, 2008 and December 31, 2007, the outstanding balances for
equipment and vehicle financing loans were $0 and $595,000, respectively.
In April and August 2007, we obtained insurance premium financings in the aggregate amount of $4.4
million with a fixed weighted average interest rate of 5.9%. Under terms of the agreements,
amounts outstanding are paid over 10 month and 11 month repayment schedules. The outstanding
balance of these notes was approximately $124,000 and $1.7 million as of June 30, 2008 and December
31, 2007, respectively. In April 2008, we obtained an insurance premium financing in the amount of
$2.8 million with a fixed interest rate of 4.9%. Under terms of the agreement, the amount
outstanding is paid over a 10 month repayment schedule. The outstanding balance of this note was
approximately $2.5 million as of June 30, 2008.
Other debt
In connection with the purchase of Capcoil Tubing Services, Inc., we agreed to pay a total of
$500,000 to two management employees in exchange for non-compete agreements. We were required to
make annual payments of $110,000 through May 2008. Total amounts due under these non-compete
agreements at June 30, 2008 and December 31, 2007 were $0 and $110,000, respectively.
We also had various capital leases with terms that expire in 2008. As of June 30, 2008 and
December 31, 2007, amounts outstanding under capital leases were $0 and $14,000, 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 June 30, 2008, we had a $90.0 million revolving line of credit with a maturity of
April 2012 and we had borrowed $10.0 million on the facility and availability was further reduced
by outstanding letters of credit of $7.0 million.
Capital Requirements
We have identified capital expenditure projects that will require approximately $75.0 million for
the remainder of 2008, 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.
35
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 July 25, 2008, we announced our intent to offer $350.0 million of senior notes in a private
placement. We plan to use the net proceeds of the offering to fund the cash consideration payable
by us in connection with our previously announced pending acquisition of Bronco. We would also use
the proceeds to repay Broncos outstanding debt and working capital and other general corporate
purposes. The notes are being offered to qualified institutional buyers in accordance with Rule
144A under the Securities Act of 1933, and outside the United States to person other than U.S.
persons, in reliance on Regulation S.
On June 1, 2008, we and Bronco entered into an amendment to our previously announced merger which
provides that stockholders of Bronco will receive aggregate merger consideration comprised of
$200.0 million in cash and 16,846,500 shares of our common stock.
Critical Accounting Policies
Please see our Annual Report on Form 10-K for the year ended December 31, 2007 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 six months ended June 30, 2008.
In September 2006, the Financial Accounting Standards Board, or FASB, issued Statement of Financial
Accounting Standards No. 157, Fair Value Measurements, or SFAS No. 157. SFAS No. 157 clarifies the
principle that fair value should be based on the assumptions that market participants would use
when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the
information used to develop those assumptions. Under the standard, fair value measurements would
be separately disclosed by level within the fair value hierarchy. SFAS No. 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007, and interim periods
within those fiscal years, with early adoption permitted. Subsequently, the FASB provided for a
one-year deferral of the provisions of SFAS No. 157 for non-financial assets and liabilities that
are recognized or disclosed at fair value in the consolidated financial statements on a
non-recurring basis. We adopted with no impact on our financial statements all requirements of
SFAS No. 157 on January 1, 2008, except as they relate to nonfinancial assets and liabilities,
which will be adopted on January 1, 2009, as allowed under SFAS No. 157. We have not yet
determined the impact, if any, on our financial statements for nonfinancial assets and liabilities.
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities, or SFAS No. 159, which permits
entities to elect to measure many financial instruments and certain other items at fair value.
Upon adoption of SFAS No. 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 No. 159 is
effective as of the beginning of each reporting entitys first fiscal year that begins after
November 15, 2007. We adopted SFAS No. 159 on January 1, 2008 and there was no impact on our
financial statements.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised
2007), Business Combinations, or SFAS No. 141(R). SFAS No. 141(R) changes the requirements for an
acquirers recognition and measurement of the assets acquired and the liabilities assumed in a
business combination. SFAS No. 141(R) is effective for annual periods beginning after December 15,
2008 and should be applied prospectively for all business combinations entered into after the date
of adoption.
36
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160,
Non-controlling Interests in Consolidated Financial Statements an amendment of ARB No. 51, or
SFAS No. 160. SFAS No. 160 requires (i) that non-controlling (minority) interests be reported as a
component of shareholders equity, (ii) that net income attributable to the parent and to the
non-controlling interest be separately identified in the consolidated statement of operations,
(iii) that changes in a parents ownership interest while the parent retains its controlling
interest be accounted for as equity transactions, (iv) that any retained non-controlling equity
investment upon the deconsolidation of a subsidiary be initially measured at fair value, and
(v) that sufficient disclosures are provided that clearly identify and distinguish between the
interests of the parent and the interests of the non-controlling owners. SFAS No. 160 is effective
for annual periods beginning after December 15, 2008 and should be applied prospectively. The
presentation and disclosure requirements of the statement shall be applied retrospectively for all
periods presented. We will adopt SFAS No. 160 on January 1, 2009 and have not yet determined the
impact, if any, on our financial statements.
In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures
about Derivative Instruments and Hedging Activities an amendment of FASB Statement No. 133, or
SFAS No. 161. SFAS No. 161 requires qualitative disclosures about objectives and strategies for
using derivatives, quantitative data about the fair value of and gains and losses on derivative
contracts, and details of credit-risk-related contingent features in hedged positions. The
statement also requires enhanced disclosures regarding how and why entities use derivative
instruments, how derivative instruments and related hedged items are accounted and how derivative
instruments and related hedged items affect entities financial position, financial performance,
and cash flows. SFAS No. 161 is effective for fiscal years beginning after November 15, 2008. We
will adopt SFAS No. 161 on January 1, 2009 and do not expect the adoption to have a material impact
on our financial statements.
In April 2008, the FASB issued FASB Staff Position SFAS 142-3, Determination of the Useful Life of
Intangible Assets or FSP SFAS 142-3. FSP SFAS 142-3 amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of a recognized
intangible asset under FASB Statement No. 142, Goodwill and Other Intangible Assets. The objective
of this FSP is to improve the consistency between the useful life of a recognized intangible asset
under Statement 142 and the period of expected cash flows used to measure the fair value of the
asset under SFAS 141R, Business Combinations, and other U.S. GAAP principles. FSP SFAS 142-3 is
effective for fiscal years beginning after December 15, 2008. We will adopt FSP SFAS 142-3 on
January 1, 2009 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, 2007. You should read those sections carefully. You should not place undue reliance
on forward-looking statements, which speak only as of the date of this quarterly report. We
undertake no obligation to update publicly any forward-looking statements in order to reflect any
event or circumstance occurring after the date of this quarterly report or currently unknown facts
or conditions or the occurrence of unanticipated events.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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. We have approximately $31.7 million of adjustable rate debt with a
weighted average interest rate of 5.6% at June 30, 2008.
37
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 June 30, 2008, 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 period covered by this
report that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
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.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized on August 8,
2008.
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Allis-Chalmers Energy Inc.
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(Registrant) |
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/s/ Munawar H. Hidayatallah
Munawar H. Hidayatallah
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Chief Executive Officer and
Chairman |
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EXHIBIT INDEX
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3.1
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Second Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the
Registrants Form 8-K filed on April 3, 2008). |
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10.1
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First Amendment, dated June 1, 2008, to the Agreement and Plan of Merger by and among
Allis-Chalmers Energy Inc., Elway Merger Sub, Inc. and Bronco Drilling Company, Inc.
(incorporated by reference to Exhibit 10.1 to the Registrants Form 8-K filed on June 2,
2008). |
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10.2
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First Amendment to Investor Rights Agreement, by and among Allis-Chalmers Energy Inc. and the
holders named thereto, dated June 23, 2008. (incorporated by reference to Exhibit 10.1 to the
Registrants Form 8-K filed on June 26, 2008). |
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10.3
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Amendment to Employment Agreement among Allis-Chalmers Energy Inc., AirComp LLC and Terrence
P. Keane, effective April 1, 2008 (incorporated by reference to Exhibit 10.1 to the
Registrants Form 8-K filed on May 1, 2008). |
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31.1*
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Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2*
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Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32.1*
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Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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