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EXCEL - IDEA: XBRL DOCUMENT - Allis Chalmers Energy Inc. | Financial_Report.xls |
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EX-31.2 - EX-31.2 - Allis Chalmers Energy Inc. | h85370exv31w2.htm |
EX-32.1 - EX-32.1 - Allis Chalmers Energy Inc. | h85370exv32w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED September 30, 2011
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM TO
Commission
file number 1-02199
ALLIS-CHALMERS
ENERGY INC.
(Exact name of registrant as specified in its charter)
DELAWARE | 27-3321250 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
10613 W Sam Houston Parkway, Suite 600, HOUSTON, TEXAS | 77064 | |
(Address of principal executive offices) | (Zip Code) |
(713) 856-4222
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 has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such files).
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:
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
As of November 18, 2011, the 1,000 issued and outstanding shares of Allis-Chalmers Energy Inc. were
held by Archer Limited.
Allis-Chalmers Energy Inc. meets the conditions set forth in general instruction H(1)(a)
and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format.
ALLIS-CHALMERS ENERGY INC.
FORM 10-Q
For the Quarterly Period Ended September 30, 2011
TABLE OF CONTENTS
2
Table of Contents
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)
Successor | Predecessor | ||||||||
September 30, | December 31, | ||||||||
2011 | 2010 | ||||||||
(Unaudited) | |||||||||
Assets |
|||||||||
Cash and cash equivalents |
$ | 10,191 | $ | 20,940 | |||||
Trade receivables, net |
173,742 | 144,960 | |||||||
Inventories |
56,357 | 42,140 | |||||||
Prepaid expenses and other |
15,019 | 9,273 | |||||||
Total current assets |
255,309 | 217,313 | |||||||
Property and equipment, net |
670,785 | 723,234 | |||||||
Goodwill |
267,428 | 46,333 | |||||||
Other intangible assets, net |
91,957 | 33,899 | |||||||
Debt issuance costs, net |
| 7,405 | |||||||
Deferred income tax asset |
| 1,969 | |||||||
Other assets |
6,188 | 8,116 | |||||||
Total assets |
$ | 1,291,667 | $ | 1,038,269 | |||||
Liabilities and Stockholders Equity |
|||||||||
Current maturities of long-term debt |
$ | 6,915 | $ | 15,215 | |||||
Trade accounts payable |
53,395 | 46,042 | |||||||
Accrued salaries, benefits and payroll taxes |
32,879 | 32,790 | |||||||
Accrued interest |
3,525 | 15,524 | |||||||
Accrued expenses |
35,476 | 30,676 | |||||||
Total current liabilities |
132,190 | 140,247 | |||||||
Deferred income tax liability |
17,054 | 8,240 | |||||||
Long-term debt, net of current maturities |
454,693 | 478,225 | |||||||
Payable to parent |
91,322 | | |||||||
Other long-term liabilities |
3 | 233 | |||||||
Total liabilities |
695,262 | 626,945 | |||||||
Commitments and Contingencies |
|||||||||
Stockholders Equity |
|||||||||
Preferred stock, $0.01 par value (0 shares
authorized, 0 issued and outstanding at
September 30, 2011 and 25,000,000 shares
authorized, 36,393 issued and outstanding at
December 31, 2010) |
| 34,183 | |||||||
Common stock, $0.01 par value (1,000 shares
authorized, 1,000 issued and outstanding at
September 30, 2011 and 200,000,000
authorized, 73,722,347 issued and
outstanding at December 31, 2010) |
| 737 | |||||||
Capital in excess of par value |
600,885 | 429,924 | |||||||
Accumulated deficit |
(4,480 | ) | (53,520 | ) | |||||
Total stockholders equity |
596,405 | 411,324 | |||||||
Total liabilities and stockholders equity |
$ | 1,291,667 | $ | 1,038,269 | |||||
The accompanying Notes are an integral part of the Consolidated Condensed Financial Statements.
3
Table of Contents
ALLIS-CHALMERS ENERGY INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
(In thousands)
(Unaudited)
Successor | Predecessor | ||||||||||||||||||||
Three Months | Seven Months | Two Months | Three Months | Nine Months | |||||||||||||||||
Ended | Ended | Ended | Ended | Ended | |||||||||||||||||
September 30, | September 30, | February 28, | September 30, | September 30, | |||||||||||||||||
2011 | 2011 | 2011 | 2010 | 2010 | |||||||||||||||||
Revenues |
$ | 222,408 | $ | 513,272 | $ | 126,885 | $ | 174,288 | $ | 473,302 | |||||||||||
Operating costs and expenses: |
|||||||||||||||||||||
Direct costs |
164,729 | 378,493 | 97,130 | 127,622 | 356,060 | ||||||||||||||||
Depreciation |
24,785 | 55,131 | 15,026 | 21,094 | 61,799 | ||||||||||||||||
Selling, general and administrative |
18,600 | 38,777 | 23,752 | 12,772 | 36,949 | ||||||||||||||||
Impairment of intangible assets |
| 5,100 | | | | ||||||||||||||||
Amortization |
2,933 | 8,743 | 811 | 1,255 | 3,567 | ||||||||||||||||
Total operating costs and expenses |
211,047 | 486,244 | 136,719 | 162,743 | 458,375 | ||||||||||||||||
Income (loss) from operations |
11,361 | 27,028 | (9,834 | ) | 11,545 | 14,927 | |||||||||||||||
Other income (expense): |
|||||||||||||||||||||
Interest expense |
(9,327 | ) | (23,140 | ) | (7,854 | ) | (11,881 | ) | (33,986 | ) | |||||||||||
Interest income |
9 | 20 | 5 | 45 | 499 | ||||||||||||||||
Other |
(431 | ) | (452 | ) | 122 | (661 | ) | (2,479 | ) | ||||||||||||
Total other expense |
(9,749 | ) | (23,572 | ) | (7,727 | ) | (12,497 | ) | (35,966 | ) | |||||||||||
Income (loss) before income taxes |
1,612 | 3,456 | (17,561 | ) | (952 | ) | (21,039 | ) | |||||||||||||
Income tax benefit (expense) |
(3,400 | ) | (7,936 | ) | (1,736 | ) | (1,614 | ) | 3,563 | ||||||||||||
Net loss |
(1,788 | ) | (4,480 | ) | (19,297 | ) | (2,566 | ) | (17,476 | ) | |||||||||||
Preferred stock dividend |
| | (375 | ) | (637 | ) | (1,911 | ) | |||||||||||||
Net loss attributed to common stockholders |
$ | (1,788 | ) | $ | (4,480 | ) | $ | (19,672 | ) | $ | (3,203 | ) | $ | (19,387 | ) | ||||||
The accompanying Notes are an integral part of the Consolidated Condensed Financial Statements.
4
Table of Contents
ALLIS-CHALMERS ENERGY INC.
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS EQUITY
(In thousands, except share amounts)
(Unaudited)
Capital in | Retained | Total | ||||||||||||||||||||||||||
Preferred Stock | Common Stock | Excess of | Earnings | Stockholders | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Par Value | (Deficit) | Equity | ||||||||||||||||||||||
Predecessor |
||||||||||||||||||||||||||||
Balances, December 31, 2010 |
36,393 | $ | 34,183 | 73,722,347 | $ | 737 | $ | 429,924 | $ | (53,520 | ) | $ | 411,324 | |||||||||||||||
Net loss |
| | | | | (19,297 | ) | (19,297 | ) | |||||||||||||||||||
Preferred stock dividend |
| | | | | (375 | ) | (375 | ) | |||||||||||||||||||
Issuance of common stock: |
||||||||||||||||||||||||||||
Issuance under stock plans, net of tax |
| | 650,727 | 7 | (1,828 | ) | | (1,821 | ) | |||||||||||||||||||
Stock-based compensation |
| | | | 6,084 | | 6,084 | |||||||||||||||||||||
Balances, February 28, 2011 |
36,393 | $ | 34,183 | 74,373,074 | $ | 744 | $ | 434,180 | $ | (73,192 | ) | $ | 395,915 | |||||||||||||||
Successor |
||||||||||||||||||||||||||||
Capitalization at Merger |
| $ | | 1,000 | $ | | $ | 600,885 | $ | | $ | 600,885 | ||||||||||||||||
Net loss |
| | | | | (4,480 | ) | (4,480 | ) | |||||||||||||||||||
Balances, September 30, 2011 |
| $ | | 1,000 | $ | | $ | 600,885 | $ | (4,480 | ) | $ | 596,405 | |||||||||||||||
The accompanying Notes are an integral part of the Consolidated Condensed Financial Statements.
5
Table of Contents
ALLIS-CHALMERS ENERGY INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Successor | Predecessor | ||||||||||||
Seven Months | Two Months | Nine Months | |||||||||||
Ended | Ended | Ended | |||||||||||
September 30, | February 28, | September 30, | |||||||||||
2011 | 2011 | 2010 | |||||||||||
Cash Flows from Operating Activities: |
|||||||||||||
Net loss |
$ | (4,480 | ) | $ | (19,297 | ) | $ | (17,476 | ) | ||||
Adjustments to reconcile net loss to net cash provided by operating activities: |
|||||||||||||
Depreciation and amortization |
63,874 | 15,837 | 65,366 | ||||||||||
Amortization of deferred issuance costs |
| 366 | 1,661 | ||||||||||
Debt premium amortization |
(1,900 | ) | | | |||||||||
Stock-based compensation |
| 6,084 | 4,374 | ||||||||||
Impairment of intangible assets |
5,100 | | | ||||||||||
Allowance for bad debts |
75 | 195 | 43 | ||||||||||
Deferred income taxes |
229 | 140 | (12,016 | ) | |||||||||
Loss on investment |
| | 1,466 | ||||||||||
Equity in loss (income) of unconsolidated affiliates |
(258 | ) | | 409 | |||||||||
Loss on debt extinguishment |
351 | | | ||||||||||
Loss on sale of property and equipment |
509 | 416 | 150 | ||||||||||
Changes in operating assets and liabilities, net of acquisitions: |
|||||||||||||
Increase in trade receivable |
(14,345 | ) | (15,944 | ) | (30,361 | ) | |||||||
Increase in inventories |
(12,407 | ) | (1,810 | ) | (2,697 | ) | |||||||
Decrease (increase) in prepaid expenses and other assets |
(6,443 | ) | 550 | 8,024 | |||||||||
Decrease (increase) in other assets |
(756 | ) | 674 | 1,265 | |||||||||
(Decrease) increase in trade accounts payable |
(5,601 | ) | 12,954 | 8,380 | |||||||||
Decrease in accrued interest |
(8,106 | ) | (3,893 | ) | (8,904 | ) | |||||||
(Decrease) increase in accrued expenses |
(3,493 | ) | 8,555 | 5,488 | |||||||||
Decrease in other liabilities |
(89 | ) | (141 | ) | (690 | ) | |||||||
(Decrease) increase in accrued salaries, benefits and payroll taxes |
1,768 | (1,679 | ) | 2,401 | |||||||||
Net cash provided by operating activities |
14,028 | 3,007 | 26,883 | ||||||||||
Cash Flows from Investing Activities: |
|||||||||||||
Decrease (increase) in restricted cash |
4,141 | (4,141 | ) | | |||||||||
Purchases of investment interests |
| (1,177 | ) | | |||||||||
Business acquisition, net of cash acquired |
| | (18,237 | ) | |||||||||
Proceeds from sale of investments |
| | 368 | ||||||||||
Purchases of property and equipment |
(48,125 | ) | (22,758 | ) | (50,893 | ) | |||||||
Deposits on asset commitments |
(225 | ) | 82 | (12,967 | ) | ||||||||
Proceeds from sale of property and equipment |
4,106 | 1,009 | 5,284 | ||||||||||
Net cash used in investing activities |
(40,103 | ) | (26,985 | ) | (76,445 | ) | |||||||
Cash Flows from Financing Activities: |
|||||||||||||
Proceeds from issuance of long-term debt |
64 | | 4,000 | ||||||||||
Payments on long-term debt |
(135,305 | ) | (7,819 | ) | (14,588 | ) | |||||||
Net borrowings (repayments) on lines of credit |
130,000 | (36,500 | ) | 36,500 | |||||||||
Proceeds from parent |
19,872 | 71,450 | |||||||||||
Payment of preferred stock dividend |
| (637 | ) | (1,911 | ) | ||||||||
Exercise of options and restricted stock awards, net of tax |
| (1,821 | ) | | |||||||||
Debt issuance costs |
| | (189 | ) | |||||||||
Net cash provided by financing activities |
14,631 | 24,673 | 23,812 | ||||||||||
Net increase (decrease) in cash and cash equivalents |
(11,444 | ) | 695 | (25,750 | ) | ||||||||
Cash and cash equivalents at beginning of period |
21,635 | 20,940 | 41,072 | ||||||||||
Cash and cash equivalents at end of period |
$ | 10,191 | $ | 21,635 | $ | 15,322 | |||||||
Supplemental information: |
|||||||||||||
Interest paid (net of capitalized interest) |
$ | 28,263 | $ | 10,991 | $ | 40,680 | |||||||
Income taxes paid (refunds) |
$ | 10,529 | $ | (580 | ) | $ | 667 |
The accompanying Notes are an integral part of the Consolidated Condensed Financial Statements.
6
Table of Contents
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,
Pennsylvania, Arkansas, West Virginia, Oklahoma, Colorado, offshore in the Gulf of Mexico, and
internationally, primarily in Argentina, Brazil, Bolivia and Mexico. We operate in two sectors of
the oil and natural gas service industry: Well Services and Drilling 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
On February 23, 2011, Allis-Chalmers Energy Inc., a Delaware corporation, completed its merger (the
Merger) with and into Wellco Sub Company (Wellco), a Delaware corporation and wholly owned
subsidiary of Seawell Limited (Seawell), with Wellco continuing as the surviving entity under the
name Allis-Chalmers Energy Inc. The Merger was effected pursuant to the Agreement and Plan of
Merger, dated as of August 10, 2010, by and among Allis-Chalmers, Seawell and Wellco, as amended by
the Amendment Agreement, dated as of October 10, 2010, by and among Allis-Chalmers, Seawell and
Wellco (as so amended, the Merger Agreement). Following the Merger, Seawell began operating
under the name Archer Limited (Archer or Parent). As of the Merger date, our assets and
liabilities have been adjusted to their fair values (see Note 2) based on the purchase price
resulting in changes to depreciation, amortization and interest in the successor period; therefore,
the financial information for the period subsequent to the Merger is not fully comparable. The
financial statements and accompanying footnotes have been separated with a black line to present
pre-merger activity as the Predecessor company and post-merger activity as the Successor
company. Predecessor refers to the operations of Allis-Chalmers prior to the consummation of the
Merger and Successor refers to the operations of Allis-Chalmers subsequent to the Merger. The
Merger date for accounting purposes has been designated as March 1, 2011.
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 statement of the interim periods.
These unaudited consolidated condensed financial statements should be read in conjunction with our
restated audited consolidated financial statements included in Amendment No. 1 to our Annual Report
on Form 10-K for the year ended December 31, 2010 filed with the SEC on September 1, 2011 (the
Form 10-K/A). The results of operations for the interim periods are not necessarily indicative
of the results of operations to be expected for the full year.
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States 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; stock-based
compensation; 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 or as our operating environment
changes.
7
Table of Contents
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1 NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Financial Instruments
Financial instruments consist of cash and cash equivalents, accounts receivable and payable, and
debt. The carrying value of cash and cash equivalents and accounts receivable and payable
approximate fair value due to their short-term nature. We believe the fair values and the carrying
value of our debt, excluding the senior notes, would not be materially different due to the
instruments interest rates approximating market rates for similar borrowings at September 30,
2011. Our senior notes, in the approximate aggregate amount of $318.3 million, trade over the
counter in limited amounts and on an infrequent basis. In connection with the Merger, the
recorded fair value of our senior notes was increased by $19.3 million based on the traded value at
Merger date. The price at which our senior notes trade is based on many factors such as the level
of interest rates, the economic environment, the outlook for the oilfield services industry and the
perceived credit risk.
Recent Accounting Pronouncements
We consider all newly issued but not yet adopted accounting pronouncements applicable to our
operations and the preparation of our consolidated condensed financial statements. We do not
believe that any issued accounting pronouncements not yet adopted by us will have a material impact
on our consolidated condensed financial statements.
NOTE 2 BUSINESS COMBINATIONS
Merger with Archer
Pursuant to the Merger, each outstanding share of common stock of Allis-Chalmers was converted into
the right to receive either $4.25 cash or 1.15 fully paid and nonassessable Archer common shares.
The fair value of total consideration was approximately $600.9 million with approximately 95% of
Allis-Chalmers stockholders electing to receive 97.1 million Archer common shares in the Merger and
the remainder receiving an aggregate of approximately $18 million in cash. The following table
summarizes the preliminary allocation of the purchase price to the estimated fair value of the
assets at Merger (in thousands):
Current assets |
$ | 237,873 | ||
Property and equipment |
682,406 | |||
Intangible assets, including goodwill |
373,227 | |||
Other long-term assets |
4,949 | |||
Total assets acquired |
1,298,455 | |||
Current liabilities |
148,360 | |||
Long-term liabilities |
549,210 | |||
Merger net assets |
$ | 600,885 | ||
Our historical property and equipment values were decreased by $47.1 million, our senior notes were
increased by $19.3 million, other assets were decreased by $13.8 million and other long-term
liabilities were increased by $8.6 million. The fair value assigned to the debt was based on
actively traded prices and changes in other assets and liabilities were based on third-party
valuations or other market based approaches. Goodwill of $267.4 million was recognized for this
acquisition and was calculated as the excess of the consideration transferred over the fair value
of the net assets acquired. It includes the expected synergies and other benefits that we believe
will result from the combined operations and intangible assets that do not qualify for separate
recognition such as assembled workforce. Other intangible assets included approximately $91.2
million assigned to customer lists, $6.7 million to trade name, $5.6 million to patents and $2.3
million to backlogs (see note 4). Goodwill is not tax deductible. The amortizable intangibles
have a weighted-average useful life of 8.9 years. The allocation of the purchase price has been
based upon preliminary fair values. Estimates and assumptions are subject to change upon
managements review of the final valuation.
8
Table of Contents
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 2 BUSINESS COMBINATIONS (Continued)
Acquisition of AWC
On July 12, 2010, we acquired AWC Frac Valves Inc. (formerly known as American Well Control, Inc.),
which we refer to herein as AWC, for a total consideration of approximately $19.2 million, which
included approximately $17.2 million in cash and 1.0 million shares of our common stock. AWC is a
leading manufacturer of premium high-pressure valves used in hydraulic fracturing in the
unconventional gas shale plays. The following table summarizes the allocation of the purchase
price to the estimated fair value of the assets acquired at the date of acquisition (in thousands):
Current assets |
$ | 7,585 | ||
Property and equipment |
2,756 | |||
Intangible assets, including goodwill |
11,749 | |||
Other long-term assets |
2 | |||
Total assets acquired |
22,092 | |||
Current liabilities |
1,527 | |||
Long-term liabilities |
1,401 | |||
Net assets acquired |
$ | 19,164 | ||
AWCs historical property and equipment values were increased by approximately $27,000 based on
third-party valuations. Goodwill of $5.7 million was recognized for this acquisition and was
calculated as the excess of the consideration transferred over the fair value of the net assets
acquired. It includes the expected synergies and other benefits that we believe will result from
the combined operations and intangible assets that do not qualify for separate recognition such as
assembled workforce. Other intangible assets included approximately $5.6 million assigned to
customer lists, $400,000 to trade name and $55,000 to non-competes. Goodwill is not tax
deductible. The amortizable intangibles have a weighted-average useful life of 9.9 years.
NOTE 3 STOCK-BASED COMPENSATION
Under the Merger Agreement, holders of our outstanding stock options, whether or not then
exercisable or vested, had the option to elect to receive, at the effective time of the Merger,
either cash or fully exercisable and vested stock options to purchase Archer common shares. In
addition, all restrictions on time-lapse and performance-based restricted stock awards were deemed
to have lapsed and each restricted share was deemed to be an unrestricted share of our common
stock. Our Incentive Stock Plans were terminated in connection with the Merger. Our net loss for
the two months ended February 28, 2011 includes approximately $6.1 million of compensation costs
related to share-based payments with approximately $5.4 million of this amount relating to the
acceleration of stock based compensation expense associated with the Merger.
We recognize all share-based payments to employees and directors in the financial statements based
on their grant-date fair values. We utilize the Black-Scholes model to determine fair value, which
incorporates assumptions to value stock-based awards. 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. The
risk-free interest rate is the related United States Treasury yield curve for periods within the
expected term of the option at the time of grant. We estimate forfeiture rates based on our
historical experience.
The following summarizes the Black-Scholes model assumptions used for the options granted in the
nine months ended September 30, 2010 (no options were granted during the three and nine months
ended September 30, 2011 and the three months ended September 30, 2010):
Nine Months | ||||
Ended | ||||
September 30, | ||||
2010 | ||||
Expected dividend yield |
| |||
Expected price volatility |
89.81 | % | ||
Risk free interest rate |
1.41 | % | ||
Expected life of options |
5 years | |||
Weighted average fair value of options granted at market value |
$ | 2.63 |
9
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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 3 STOCK-BASED COMPENSATION (Continued)
A summary of our stock option activity and related information is as follows:
Weighted | ||||||||
Shares | Average | |||||||
Under | Exercise | |||||||
Option | Price | |||||||
Balance at December 31, 2010 |
1,751,018 | $ | 4.74 | |||||
Granted |
| | ||||||
Converted at Merger |
(1,750,018 | ) | 4.74 | |||||
Exercised |
(1,000 | ) | 1.23 | |||||
Outstanding at September 30, 2011 |
| | ||||||
Restricted stock awards, or RSAs, activity during the nine months ended September 30, 2011 is as
follows:
Weighted | ||||||||
Average Grant- | ||||||||
Date Fair Value | ||||||||
Number of Shares | Per Share | |||||||
Nonvested at December 31, 2010 |
1,702,067 | $ | 6.09 | |||||
Granted |
| | ||||||
Vested |
(1,702,067 | ) | 6.09 | |||||
Forfeited |
| | ||||||
Nonvested at September 30, 2011 |
| $ | | |||||
NOTE 4 GOODWILL AND INTANGIBLE ASSETS
Goodwill and other intangible assets with infinite lives are not amortized, but tested for
impairment annually or more frequently if circumstances indicate that impairment may exist.
Intangible assets with finite useful lives are amortized either on a straight-line basis over the
assets estimated useful life or on a basis that reflects the pattern in which the economic
benefits of the intangible assets are realized. Goodwill was $267.4 million and $46.3 million at
September 30, 2011 and December 31, 2010, respectively.
Definite-lived intangible assets that continue to be amortized relate to our purchase of
customer-related and marketing-related intangibles patents and backlogs. These intangibles have
useful lives ranging from four months to twenty years. Amortization of intangible assets for the
three and seven months ended September 30, 2011 and two months ended February 28, 2011 was $2.9
million, $8.7 million and $811,000, respectively, compared to $1.3 million and $3.6 million for the
three and nine months ended September 30, 2010, respectively. In connection with the Merger, a
$5.1 million value was assigned to the Allis-Chalmers tradename. Following the Merger, Seawell and
its subsidiaries, including us, have begun operating under the name Archer. As a result, it was
determined that there was no material remaining value associated with the Allis-Chalmers tradename
and the results for the seven months ended September 30, 2011 includes an intangible asset
impairment charge of $5.1 million. At September 30, 2011, intangible assets totaled $92.0 million,
net of $8.7 million of accumulated amortization. Future amortization of intangible assets at
September 30, 2011 is approximately $2.9 million for the remainder of 2011 and an average of
approximately $11.6 million during the years ended 2012 through 2015.
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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 5 INVENTORIES
Inventories consisted of the following (in thousands):
Successor | Predecessor | ||||||||
September 30, | December 31, | ||||||||
2011 | 2010 | ||||||||
Manufactured |
|||||||||
Finished goods |
$ | 5,086 | $ | 4,238 | |||||
Work in process |
4,358 | 2,990 | |||||||
Raw materials |
5,667 | 3,600 | |||||||
Total manufactured |
15,111 | 10,828 | |||||||
Rig parts and related inventory |
16,391 | 11,565 | |||||||
Shop supplies and related inventory |
12,030 | 9,620 | |||||||
Chemicals and drilling fluids |
6,267 | 4,814 | |||||||
Rental supplies |
1,427 | 1,761 | |||||||
Hammers |
3,101 | 2,380 | |||||||
Coiled tubing and related inventory |
1,921 | 1,046 | |||||||
Drive pipe |
109 | 126 | |||||||
Total inventories |
$ | 56,357 | $ | 42,140 | |||||
NOTE 6 INCOME TAXES
In accordance with generally accepted accounting principles, we estimate the full-year effective
tax rate from continuing operations and apply this rate to our year-to-date income from continuing
operations. In addition, we separately calculate the tax impact of unusual items, if any. The
consolidated effective tax rate for the two months ended February 28, 2011, three and seven months
ended September 30, 2011 was (9.9)%, 210.9% and 229.6%, respectively, compared to (169.5)% and
16.9% for the three and nine months ended September 30, 2010. The fluctuations in the tax rates are
principally the result of valuation allowances on losses generated in the United States and
variances in withholding taxes from foreign operations as a percentage of pretax income (loss).
Income (loss) before income taxes which was subject to United States and non-United States income
taxes was as follow (in thousands):
Successor | Predecessor | ||||||||||||||||||||
Three Months Ended | Seven Months Ended | Two Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||
September 30, | September 30, | February 28, | September 30, | September 30, | |||||||||||||||||
2011 | 2011 | 2011 | 2010 | 2010 | |||||||||||||||||
United States |
$ | (732 | ) | $ | 386 | $ | (17,544 | ) | $ | (4,666 | ) | $ | (36,059 | ) | |||||||
Outside United States |
2,344 | 3,070 | (17 | ) | 3,714 | 15,020 | |||||||||||||||
$ | 1,612 | $ | 3,456 | $ | (17,561 | ) | $ | ( 952 | ) | $ | (21,039 | ) | |||||||||
11
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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 6 INCOME TAXES (Continued)
The income tax provision consists of the following (in thousands):
Successor | Predecessor | ||||||||||||||||||||||
Three Months Ended | Seven Months Ended | Two Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||
September 30, | September 30, | February 28, | September 30, | September 30, | |||||||||||||||||||
2011 | 2011 | 2011 | 2010 | 2010 | |||||||||||||||||||
Income tax expense (benefit): |
|||||||||||||||||||||||
United States |
$ | 184 | $ | 424 | $ | 233 | $ | (810 | ) | $ | (11,323 | ) | |||||||||||
Outside United States |
3,216 | 7,512 | 1,503 | 2,424 | 7,760 | ||||||||||||||||||
$ | 3,400 | $ | 7,936 | $ | 1,736 | $ | 1,614 | $ | (3,563 | ) | |||||||||||||
The following table reconciles the statutory tax rates to our actual tax rate: | |||||||||||||||||||||||
Successor | Predecessor | ||||||||||||||||||||||
Three Months Ended | Seven Months Ended | Two Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||
September 30, | September 30, | February 28, | September 30, | September 30, | |||||||||||||||||||
2011 | 2011 | 2011 | 2010 | 2010 | |||||||||||||||||||
United States statutory federal income tax rate |
35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | |||||||||||||
United States State income taxes, net of federal benefit |
1.2 | 1.2 | 0.7 | 2.2 | 2.2 | ||||||||||||||||||
Non-United States income taxed at different rates |
19.2 | 31.8 | 0.3 | 64.5 | 10.4 | ||||||||||||||||||
Valuation allowance, permanent differences and other |
155.5 | 161.6 | (45.9 | ) | (271.2 | ) | (30.7 | ) | |||||||||||||||
Effective tax rate |
210.9 | % | 229.6 | % | (9.9 | )% | (169.5 | )% | 16.9 | % | |||||||||||||
NOTE 7 DEBT
Our long-term debt consisted of the following (in thousands):
Successor | Predecessor | ||||||||
September 30, | December 31, | ||||||||
2011 | 2010 | ||||||||
Senior notes |
$ | 318,331 | $ | 430,238 | |||||
Revolving line of credit |
130,000 | 36,500 | |||||||
Bank term loans |
13,216 | 25,723 | |||||||
Other debt |
61 | 979 | |||||||
Total debt |
461,608 | 493,440 | |||||||
Less: current maturities of long-term debt |
6,915 | 15,215 | |||||||
Long-term debt |
$ | 454,693 | $ | 478,225 | |||||
Senior notes, bank loans and line of credit agreements
In January 2006 and August 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, to repay existing debt and for general corporate purposes. In June 2009, we closed
on a tender offer in which we purchased $30.6 million aggregate principal of our 9.0% senior notes
for a total consideration of $650 per $1,000 principal amount. In connection with the Merger and
based on actively traded prices of our senior notes, we increased the fair value of the 9.0% senior
notes to $1,022 per $1,000 principal amount. In May 2011, pursuant to the terms of change of
12
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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 7 DEBT (Continued)
control provisions in the indentures governing the senior notes and as a result of the Merger,
holders had the right to require us to purchase, all or a portion of such holders Notes.
Accordingly we purchased $1.8 million aggregate principal of our 9.0% senior notes for a total
consideration of $1,010 per $1,000 principal amount. In July 2011, pursuant to the terms of the
senior notes indenture, we redeemed $125.0 million aggregate principal of our 9.0% senior notes for
a total consideration of $1,023 per $1,000 principal amount. In connection with this redemption we
have drawn $130.0 million on our Parents $1.2 billion Multicurrency Term and Revolving Facility.
The $1.2 billion facility is divided into tranches with $350.0 million having a final maturity date
of December 31, 2011 and the remainder having a final maturity date of November 11, 2015. The
interest rate is based on LIBOR plus a margin.
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 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. On June 29, 2009, we closed on a tender offer in which
we purchased $44.2 million aggregate principal of our 8.5% senior notes for a total consideration
of $600 per $1,000 principal amount. In connection with the Merger and based on actively traded
prices of our senior notes, we increased the fair value of the 8.5% senior notes to $1,070 per
$1,000 principal amount. In May 2011, pursuant to the terms of change of control provisions in the
indentures governing the senior notes and as a result of the Merger, we purchased $92,000 aggregate
principal of our 8.5% senior notes for a total consideration of $1,010 per $1,000 principal amount.
We had a $90.0 million revolving line of credit with a final maturity date of April 26, 2012
pursuant to a revolving credit agreement that contained customary events of default and financial
covenants and limited our ability to incur additional indebtedness, make capital expenditures, pay
dividends or make other distributions, create liens and sell assets. Effective December 31, 2009,
we amended the leverage and interest coverage ratio covenants of the revolving credit agreement.
This amendment relaxed the required financial ratios for the quarter ended December 31, 2009 and
for each of the quarters in 2010. 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 December 31, 2010. As of December 31, 2010, we had $36.5 million of
borrowings outstanding and $4.1 million in outstanding letters of credit under our revolving credit
facility. The weighted-average interest rate was 7.8% at December 31, 2010. The revolving line of
credit was repaid and terminated in connection with the Merger.
As part of our acquisition of DLS, we assumed various bank loans with floating interest rates based
on LIBOR plus a margin and terms ranging from 2 to 5 years. The weighted average interest rate on
these loans was 2.0% as of December 31, 2010. The outstanding amount due under these bank loans as
of September 30, 2011 and December 31, 2010 was $0 and $350,000, 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 were used to fund a portion of
the purchase price of the new drilling and service rigs ordered for our Drilling Services segment.
The loan is repayable 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 September 30, 2011 and December
31, 2010. The bank loan rates are based on LIBOR plus a margin. The weighted average interest
rate was 5.2% at September 30, 2011 and 4.2% at December 31, 2010. The outstanding amount under
the import finance facility as of September 30, 2011 and December 31, 2010 was $9.8 million and
$14.4 million, respectively.
As part of our acquisition of BCH, we assumed a $23.6 million term loan credit facility with a
bank. The credit agreement was dated June 2007 and contained customary events of default and
financial covenants which were based on BCHs stand-alone financial statements. The facility was
repayable in quarterly principal installments plus interest and was to mature in August 2012.
Obligations under the facility were secured by substantially all of the BCH assets. The bank
waived certain financial ratio covenants for the December 31, 2010 measurement period and we
classified the entire outstanding balance of the loan in the current portion of long-term debt.
The interest rates were based on LIBOR plus a margin and the interest rate was 3.5% at December 31,
2010. The outstanding amount of the loan as of December 31, 2010 was $7.0 million. The term loan
credit facility was paid in full in connection with the Merger.
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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 7 DEBT (Continued)
On February 9, 2010, through our DLS subsidiary, we entered into a $4.0 million term loan facility.
The loan is repayable in semi-annual installments beginning April 14, 2011 and bears interest at
8.5% per annum. The final maturity date is April 14, 2014 and the loan is unsecured. The
outstanding amount under the term loan facility as of September 30, 2011 and December 31, 2010 was
$3.4 million and $4.0 million, respectively.
Other Debt
In 2010, we obtained insurance premium financings in the aggregate amount of $2.9 million with a
fixed weighted-average interest rate of 4.8%. Under terms of the agreements, amounts outstanding
are paid over eight and 11 month repayment schedules. The outstanding balance of these notes was
approximately $0 and $1.0 million at September 30, 2011 and December 31, 2010, respectively. We
also have amounts outstanding under a capital lease that will expire in 2013. As of September 30,
2011, the amount outstanding under the capital lease was $61,000.
NOTE 8 STOCKHOLDERS EQUITY
During the two months ended February 28, 2011, we had option exercises and certain vesting in
restricted stock grants which resulted in the issuance of 933,083 shares of our common stock. We
retained 282,356 shares from employees in connection with the settlement of tax obligations arising
from the vesting of restricted stock grants. We recognized approximately $6.1 million of
compensation expense related to share-based payments during the two months ended February 28, 2011
that was recorded as capital in excess of par value (see Note 3).
Pursuant to the Merger, each share of our convertible preferred stock was converted to common stock
and each outstanding share of common stock of Allis-Chalmers was converted into the right to
receive either $4.25 cash or 1.15 fully paid and nonassessable Archer common shares. Holders of
our outstanding stock options, whether or not then exercisable or vested, elected to receive, at
the effective time of the Merger, either cash or fully exercisable and vested stock options to
purchase Archer common shares. In addition, all restrictions on time-lapse and performance-based
restricted stock awards were deemed to have lapsed and each restricted share was deemed to be an
unrestricted share of our common stock. Subsequent to the Merger, we have 1,000 shares authorized
all of which have been issued to Archer Limited at a par value of $0.01 per share.
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 (iii)
the subsidiaries that are not guarantors of the senior notes (in thousands):
14
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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 9 CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATING BALANCE SHEETS
September 30, 2011 (Successor)
(Unaudited)
September 30, 2011 (Successor)
(Unaudited)
Allis-Chalmers | Subsidiary | Subsidiary | Consolidating | Consolidated | ||||||||||||||||
(Guarantor) | Guarantors | Non-Guarantors | Adjustments | Total | ||||||||||||||||
Assets |
||||||||||||||||||||
Cash and cash equivalents |
$ | | $ | 6,810 | $ | 3,381 | $ | | $ | 10,191 | ||||||||||
Trade receivables, net |
| 105,720 | 100,358 | (32,336 | ) | 173,742 | ||||||||||||||
Inventories |
| 29,662 | 26,695 | | 56,357 | |||||||||||||||
Intercompany receivables |
| 105,122 | | (105,122 | ) | | ||||||||||||||
Note receivable from affiliate |
18,862 | | | (18,862 | ) | | ||||||||||||||
Prepaid expenses and other |
12 | 5,306 | 9,701 | | 15,019 | |||||||||||||||
Total current assets |
18,874 | 252,620 | 140,135 | (156,320 | ) | 255,309 | ||||||||||||||
Property and equipment, net |
| 396,804 | 273,981 | | 670,785 | |||||||||||||||
Goodwill |
| 179,697 | 87,731 | | 267,428 | |||||||||||||||
Other intangible assets, net |
| 55,948 | 36,009 | | 91,957 | |||||||||||||||
Note receivable from affiliates |
1,500 | | | (1,500 | ) | | ||||||||||||||
Investments in affiliates |
1,177,161 | | | (1,177,161 | ) | | ||||||||||||||
Other assets |
| 5,328 | 860 | | 6,188 | |||||||||||||||
Total assets |
$ | 1,197,535 | $ | 890,397 | $ | 538,716 | $ | (1,334,981 | ) | $ | 1,291,667 | |||||||||
Liabilities and Stockholders Equity |
||||||||||||||||||||
Current maturities of long-term debt |
$ | | $ | | $ | 6,915 | $ | | $ | 6,915 | ||||||||||
Trade accounts payable |
| 20,991 | 64,740 | (32,336 | ) | 53,395 | ||||||||||||||
Accrued salaries, benefits and payroll taxes |
| 5,548 | 27,331 | | 32,879 | |||||||||||||||
Accrued interest |
3,296 | | 229 | | 3,525 | |||||||||||||||
Accrued expenses |
265 | 15,720 | 19,491 | | 35,476 | |||||||||||||||
Intercompany payables |
57,916 | | 47,206 | (105,122 | ) | | ||||||||||||||
Note payable to affiliate |
| | 18,862 | (18,862 | ) | | ||||||||||||||
Total current liabilities |
61,477 | 42,259 | 184,774 | (156,320 | ) | 132,190 | ||||||||||||||
Long-term debt, net of current maturities |
448,331 | | 6,362 | | 454,693 | |||||||||||||||
Note payable to affiliate |
| | 1,500 | (1,500 | ) | | ||||||||||||||
Payable to parent |
91,322 | | | | 91,322 | |||||||||||||||
Other long-term liabilities |
| | 17,057 | | 17,057 | |||||||||||||||
Total liabilities |
601,130 | 42,259 | 209,693 | (157,820 | ) | 695,262 | ||||||||||||||
Commitments and Contingencies |
||||||||||||||||||||
Stockholders Equity |
||||||||||||||||||||
Common stock |
| 3,527 | 42,963 | (46,490 | ) | | ||||||||||||||
Capital in excess of par value |
600,885 | 823,395 | 290,090 | (1,113,485 | ) | 600,885 | ||||||||||||||
Retained earnings (deficit) |
(4,480 | ) | 21,216 | (4,030 | ) | (17,186 | ) | (4,480 | ) | |||||||||||
Total stockholders equity |
596,405 | 848,138 | 329,023 | (1,177,161 | ) | 596,405 | ||||||||||||||
Total liabilities and
stockholders equity |
$ | 1,197,535 | $ | 890,397 | $ | 538,716 | $ | (1,334,981 | ) | $ | 1,291,667 | |||||||||
15
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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 9 CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Three Months Ended September 30, 2011 (Successor)
(Unaudited)
For the Three Months Ended September 30, 2011 (Successor)
(Unaudited)
Allis-Chalmers | Subsidiary | Subsidiary | Consolidating | Consolidated | ||||||||||||||||
(Guarantor) | Guarantors | Non-Guarantors | Adjustments | Total | ||||||||||||||||
Revenues |
$ | | $ | 95,677 | $ | 126,794 | $ | (63 | ) | $ | 222,408 | |||||||||
Operating costs and expenses: |
||||||||||||||||||||
Direct costs |
| 58,215 | 106,577 | (63 | ) | 164,729 | ||||||||||||||
Depreciation ` |
| 17,370 | 7,415 | | 24,785 | |||||||||||||||
Selling, general and
administrative |
67 | 10,861 | 7,672 | | 18,600 | |||||||||||||||
Amortization |
| 1,591 | 1,342 | | 2,933 | |||||||||||||||
Total operating costs
and expenses |
67 | 88,037 | 123,006 | (63 | ) | 211,047 | ||||||||||||||
Income (loss) from
operations |
(67 | ) | 7,640 | 3,788 | | 11,361 | ||||||||||||||
Other income (expense): |
||||||||||||||||||||
Equity earnings in
affiliates, net of tax |
6,995 | | | (6,995 | ) | | ||||||||||||||
Interest, net |
(8,379 | ) | (1 | ) | (938 | ) | | (9,318 | ) | |||||||||||
Other |
(337 | ) | 237 | (331 | ) | | (431 | ) | ||||||||||||
Total other
income (expense) |
(1,721 | ) | 236 | (1,269 | ) | (6,995 | ) | (9,749 | ) | |||||||||||
Net income (loss) before
income taxes |
(1,788 | ) | 7,876 | 2,519 | (6,995 | ) | 1,612 | |||||||||||||
Provision for income taxes |
| (184 | ) | (3,216 | ) | | (3,400 | ) | ||||||||||||
Net income (loss) |
$ | (1,788 | ) | $ | 7,692 | $ | (697 | ) | $ | (6,995 | ) | $ | (1,788 | ) | ||||||
16
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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 9 CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Seven Months Ended September 30, 2011 (Successor)
(Unaudited)
For the Seven Months Ended September 30, 2011 (Successor)
(Unaudited)
Allis-Chalmers | Subsidiary | Subsidiary | Consolidating | Consolidated | ||||||||||||||||
(Guarantor) | Guarantors | Non-Guarantors | Adjustments | Total | ||||||||||||||||
Revenues |
$ | | $ | 226,559 | $ | 287,065 | $ | (352 | ) | $ | 513,272 | |||||||||
Operating costs and expenses: |
||||||||||||||||||||
Direct costs |
| 137,094 | 241,751 | (352 | ) | 378,493 | ||||||||||||||
Depreciation ` |
| 38,167 | 16,964 | | 55,131 | |||||||||||||||
Selling, general and
administrative |
167 | 21,858 | 16,752 | | 38,777 | |||||||||||||||
Impairment of intangible
assets |
| 4,400 | 700 | | 5,100 | |||||||||||||||
Amortization |
| 3,714 | 5,029 | | 8,743 | |||||||||||||||
Total operating costs
and expenses |
167 | 205,233 | 281,196 | (352 | ) | 486,244 | ||||||||||||||
Income (loss) from
operations |
(167 | ) | 21,326 | 5,869 | | 27,028 | ||||||||||||||
Other income (expense): |
||||||||||||||||||||
Equity earnings in
affiliates, net of tax |
17,186 | | | (17,186 | ) | | ||||||||||||||
Interest, net |
(21,180 | ) | (3 | ) | (1,937 | ) | | (23,120 | ) | |||||||||||
Other |
(319 | ) | 317 | (450 | ) | | (452 | ) | ||||||||||||
Total other
income (expense) |
(4,313 | ) | 314 | (2,387 | ) | (17,186 | ) | (23,572 | ) | |||||||||||
Net income (loss) before
income taxes |
(4,480 | ) | 21,640 | 3,482 | (17,186 | ) | 3,456 | |||||||||||||
Provision for income taxes |
| (424 | ) | (7,512 | ) | | (7,936 | ) | ||||||||||||
Net income (loss) |
$ | (4,480 | ) | $ | 21,216 | $ | (4,030 | ) | $ | (17,186 | ) | $ | (4,480 | ) | ||||||
17
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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 9 CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Two Months Ended February 28, 2011 (Predecessor)
(Unaudited)
For the Two Months Ended February 28, 2011 (Predecessor)
(Unaudited)
Allis-Chalmers | Subsidiary | Subsidiary | Consolidating | Consolidated | ||||||||||||||||
(Guarantor) | Guarantors | Non-Guarantors | Adjustments | Total | ||||||||||||||||
Revenues |
$ | | $ | 59,044 | $ | 67,923 | $ | (82 | ) | $ | 126,885 | |||||||||
Operating costs and expenses: |
||||||||||||||||||||
Direct costs |
| 37,335 | 59,877 | (82 | ) | 97,130 | ||||||||||||||
Depreciation |
| 10,174 | 4,852 | | 15,026 | |||||||||||||||
Selling, general and
administrative |
5,998 | 15,034 | 2,720 | | 23,752 | |||||||||||||||
Amortization |
8 | 678 | 125 | | 811 | |||||||||||||||
Total operating costs
and expenses |
6,006 | 63,221 | 67,574 | (82 | ) | 136,719 | ||||||||||||||
Income (loss) from
operations |
(6,006 | ) | (4,177 | ) | 349 | | (9,834 | ) | ||||||||||||
Other income (expense): |
||||||||||||||||||||
Equity earnings in
affiliates, net of tax |
(6,057 | ) | | | 6,057 | | ||||||||||||||
Interest, net |
(7,253 | ) | (8 | ) | (588 | ) | | (7,849 | ) | |||||||||||
Other |
19 | (232 | ) | 335 | | 122 | ||||||||||||||
Total other expense |
(13,291 | ) | (240 | ) | (253 | ) | 6,057 | (7,727 | ) | |||||||||||
Net income (loss) before
income taxes |
(19,297 | ) | (4,417 | ) | 96 | 6,057 | (17,561 | ) | ||||||||||||
Provision for income taxes |
| (233 | ) | (1,503 | ) | | (1,736 | ) | ||||||||||||
Net loss |
(19,297 | ) | (4,650 | ) | (1,407 | ) | 6,057 | (19,297 | ) | |||||||||||
Preferred stock dividend |
(375 | ) | | | | (375 | ) | |||||||||||||
Net loss attributed to
common stockholders |
$ | (19,672 | ) | $ | (4,650 | ) | $ | (1,407 | ) | $ | 6,057 | $ | (19,672 | ) | ||||||
18
Table of Contents
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 9 CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
For the Seven Months Ended September 30, 2011 (Successor)
(Unaudited)
For the Seven Months Ended September 30, 2011 (Successor)
(Unaudited)
Allis-Chalmers | Subsidiary | Subsidiary | Consolidating | Consolidated | ||||||||||||||||
(Guarantor) | Guarantors | Non-Guarantors | Adjustments | Total | ||||||||||||||||
Cash Flows from Operating Activities: |
||||||||||||||||||||
Net income (loss) |
$ | (4,480 | ) | $ | 21,216 | $ | (4,030 | ) | $ | (17,186 | ) | $ | (4,480 | ) | ||||||
Adjustments to reconcile net
income (loss) to net cash (used)
provided by operating activities: |
||||||||||||||||||||
Depreciation and amortization |
| 41,881 | 21,993 | | 63,874 | |||||||||||||||
Debt premium amortization |
(1,900 | ) | | | | (1,900 | ) | |||||||||||||
Equity earnings in affiliates |
(17,186 | ) | | | 17,186 | | ||||||||||||||
Impairment of intangible assets |
| 4,400 | 700 | | 5,100 | |||||||||||||||
Allowance for bad debts |
| 75 | | | 75 | |||||||||||||||
Deferred income taxes |
| | 229 | | 229 | |||||||||||||||
Loss on debt extinguishment |
351 | | | | 351 | |||||||||||||||
Loss on sale of equipment |
| 469 | 40 | | 509 | |||||||||||||||
Equity in income of
unconsolidated affiliates |
| (258 | ) | | | (258 | ) | |||||||||||||
Changes in operating assets and
liabilities, net of
acquisitions: |
||||||||||||||||||||
Increase in trade receivables |
| (3,614 | ) | (10,731 | ) | | (14,345 | ) | ||||||||||||
Increase in inventories |
| (6,162 | ) | (6,245 | ) | | (12,407 | ) | ||||||||||||
Increase in prepaid expenses
and other current assets |
(6 | ) | (2,322 | ) | (4,115 | ) | | (6,443 | ) | |||||||||||
Increase in other assets |
| (523 | ) | (233 | ) | | (756 | ) | ||||||||||||
(Decrease) increase in trade
accounts payable |
| (6,650 | ) | 1,049 | | (5,601 | ) | |||||||||||||
Decrease in accrued interest |
(7,983 | ) | | (123 | ) | | (8,106 | ) | ||||||||||||
Decrease in accrued expenses |
(650 | ) | (1,647 | ) | (1,196 | ) | | (3,493 | ) | |||||||||||
(Decrease) increase in accrued
salaries, benefits and payroll
taxes |
| (3,418 | ) | 5,186 | | 1,768 | ||||||||||||||
Decrease in other long- term
liabilities |
| | (89 | ) | | (89 | ) | |||||||||||||
Net cash (used) provided
by operating activities |
(31,854 | ) | 43,447 | 2,435 | | 14,028 | ||||||||||||||
Cash Flows from Investing Activities: |
||||||||||||||||||||
Notes receivable from affiliates |
(89 | ) | | | 89 | | ||||||||||||||
Decrease in restricted cash |
| 4,141 | | | 4,141 | |||||||||||||||
Deposits on asset commitments |
| | (225 | ) | | (225 | ) | |||||||||||||
Proceeds from sale of property and
equipment |
| 3,319 | 787 | | 4,106 | |||||||||||||||
Purchases of property and equipment |
| (27,498 | ) | (20,627 | ) | | (48,125 | ) | ||||||||||||
Net cash used in investing
activities |
(89 | ) | (20,038 | ) | (20,065 | ) | 89 | (40,103 | ) | |||||||||||
19
Table of Contents
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 9 CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
For the Seven Months Ended September 30, 2011 (Successor)
(Unaudited)
For the Seven Months Ended September 30, 2011 (Successor)
(Unaudited)
Allis-Chalmers | Subsidiary | Subsidiary | Consolidating | Consolidated | ||||||||||||||||
(Guarantor) | Guarantors | Non-Guarantors | Adjustments | Total | ||||||||||||||||
Cash Flows from Financing Activities: |
||||||||||||||||||||
Accounts receivable from affiliates |
| (33,113 | ) | | 33,113 | | ||||||||||||||
Accounts payable to affiliates |
11,768 | | 21,345 | (33,113 | ) | | ||||||||||||||
Note payable to affiliate |
| | 89 | (89 | ) | | ||||||||||||||
Proceeds from issuance of
long-term debt |
| | 64 | | 64 | |||||||||||||||
Borrowings on lines of credit |
130,000 | | | | 130,000 | |||||||||||||||
Payments on long-term debt |
(129,697 | ) | (350 | ) | (5,258 | ) | | (135,305 | ) | |||||||||||
Proceeds from Parent |
19,872 | | | | 19,872 | |||||||||||||||
Net cash (used) provided
by financing activities |
31,943 | (33,463 | ) | 16,240 | (89 | ) | 14,631 | |||||||||||||
Net change in cash and cash
equivalents |
| (10,054 | ) | (1,390 | ) | | (11,444 | ) | ||||||||||||
Cash and cash equivalents at
beginning of year |
| 16,864 | 4,771 | | 21,635 | |||||||||||||||
Cash and cash equivalents at end
of period |
$ | | $ | 6,810 | $ | 3,381 | $ | | $ | 10,191 | ||||||||||
20
Table of Contents
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 9 CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
For the Two Months Ended February 28, 2011 (Predecessor)
(Unaudited)
For the Two Months Ended February 28, 2011 (Predecessor)
(Unaudited)
Allis- | Subsidiary | |||||||||||||||||||
Chalmers | Subsidiary | Non- | Consolidating | Consolidated | ||||||||||||||||
(Guarantor) | Guarantors | Guarantors | Adjustments | Total | ||||||||||||||||
Cash Flows from Operating Activities: |
||||||||||||||||||||
Net loss |
$ | (19,297 | ) | $ | (4,650 | ) | $ | (1,407 | ) | $ | 6,057 | $ | (19,297 | ) | ||||||
Adjustments to reconcile net loss
to net cash (used) provided by
operating activities: |
||||||||||||||||||||
Depreciation and amortization |
8 | 10,852 | 4,977 | | 15,837 | |||||||||||||||
Amortization of deferred
issuance costs |
366 | | | | 366 | |||||||||||||||
Stock based compensation |
6,084 | | | | 6,084 | |||||||||||||||
Equity earnings in affiliates |
6,057 | | | (6,057 | ) | | ||||||||||||||
Allowance for bad debts |
| 195 | | | 195 | |||||||||||||||
Deferred income taxes |
| 34 | 106 | | 140 | |||||||||||||||
Loss on sale of equipment |
| 352 | 64 | | 416 | |||||||||||||||
Changes in operating assets
and liabilities, net of
acquisitions: |
||||||||||||||||||||
Increase in trade receivables |
| (3,714 | ) | (12,230 | ) | | (15,944 | ) | ||||||||||||
Increase in inventories |
| (1,434 | ) | (376 | ) | | (1,810 | ) | ||||||||||||
Decrease (increase) in
prepaid expenses and other
current assets |
2,057 | 235 | (1,742 | ) | | 550 | ||||||||||||||
Decrease in other assets |
| 432 | 242 | | 674 | |||||||||||||||
Increase in trade accounts
payable |
| 8,417 | 4,537 | | 12,954 | |||||||||||||||
(Decrease) increase in
accrued interest |
(4,031 | ) | | 138 | | (3,893 | ) | |||||||||||||
(Decrease) increase in
accrued expenses |
(15 | ) | (1,137 | ) | 9,707 | | 8,555 | |||||||||||||
Decrease in accrued salaries,
benefits and payroll taxes |
| (17 | ) | (1,662 | ) | | (1,679 | ) | ||||||||||||
Decrease in other long- term
liabilities |
| | (141 | ) | | (141 | ) | |||||||||||||
Net cash (used) provided
by operating activities |
(8,771 | ) | 9,565 | 2,213 | | 3,007 | ||||||||||||||
Cash Flows from Investing Activities: |
||||||||||||||||||||
Notes receivable from affiliates |
(114 | ) | | | 114 | | ||||||||||||||
Increase in restricted cash |
| (4,141 | ) | | | (4,141 | ) | |||||||||||||
Purchases of investment interests |
| (1,177 | ) | | | (1,177 | ) | |||||||||||||
Deposits on asset commitments |
| | 82 | | 82 | |||||||||||||||
Proceeds from sale of property
and equipment |
| 924 | 85 | | 1,009 | |||||||||||||||
Purchase of property and equipment |
| (16,931 | ) | (5,827 | ) | | (22,758 | ) | ||||||||||||
Net cash used in
investing activities |
(114 | ) | (21,325 | ) | (5,660 | ) | 114 | (26,985 | ) | |||||||||||
21
Table of Contents
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 9 CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
For the Two Months Ended February 28, 2011 (Predecessor)
(Unaudited)
For the Two Months Ended February 28, 2011 (Predecessor)
(Unaudited)
Allis- | Subsidiary | |||||||||||||||||||
Chalmers | Subsidiary | Non- | Consolidating | Consolidated | ||||||||||||||||
(Guarantor) | Guarantors | Guarantors | Adjustments | Total | ||||||||||||||||
Cash Flows from Financing Activities: |
||||||||||||||||||||
Accounts receivable from affiliates |
| 12,811 | | (12,811 | ) | | ||||||||||||||
Accounts payable to affiliates |
(23,607 | ) | | 10,796 | 12,811 | | ||||||||||||||
Note payable to affiliate |
| | 114 | (114 | ) | | ||||||||||||||
Payments on long-term debt |
| (567 | ) | (7,252 | ) | | (7,819 | ) | ||||||||||||
Net borrowings (repayments) on
line of credit |
(36,500 | ) | | | | (36,500 | ) | |||||||||||||
Proceeds from Parent |
71,450 | | | | 71,450 | |||||||||||||||
Payment of preferred stock dividend |
(637 | ) | | | | (637 | ) | |||||||||||||
Exercise of options and restricted
stock awards, net of tax |
(1,821 | ) | | | | (1,821 | ) | |||||||||||||
Net cash provided by
financing activities |
8,885 | 12,244 | 3,658 | (114 | ) | 24,673 | ||||||||||||||
Net change in cash and cash
equivalents |
| 484 | 211 | | 695 | |||||||||||||||
Cash and cash equivalents at
beginning of year |
| 16,380 | 4,560 | | 20,940 | |||||||||||||||
Cash and cash equivalents at end
of period |
$ | | $ | 16,864 | $ | 4,771 | $ | | $ | 21,635 | ||||||||||
22
Table of Contents
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 9 CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATING BALANCE SHEETS
December 31, 2010 (Predecessor)
December 31, 2010 (Predecessor)
Subsidiary | ||||||||||||||||||||
Allis-Chalmers | Subsidiary | Non- | Consolidating | Consolidated | ||||||||||||||||
(Guarantor) | Guarantors | Guarantors | Adjustments | Total | ||||||||||||||||
Assets | ||||||||||||||||||||
Cash and cash equivalents |
$ | | $ | 16,380 | $ | 4,560 | $ | | $ | 20,940 | ||||||||||
Trade receivables, net |
| 79,100 | 77,397 | (11,537 | ) | 144,960 | ||||||||||||||
Inventories |
| 22,066 | 20,074 | | 42,140 | |||||||||||||||
Intercompany receivables |
| 84,766 | | (84,766 | ) | | ||||||||||||||
Note receivable from affiliate |
18,359 | | | (18,359 | ) | | ||||||||||||||
Prepaid expenses and other |
2,068 | 3,280 | 3,925 | | 9,273 | |||||||||||||||
Total current assets |
20,427 | 205,592 | 105,956 | (114,662 | ) | 217,313 | ||||||||||||||
Property and equipment, net |
| 461,187 | 262,047 | | 723,234 | |||||||||||||||
Goodwill |
| 28,944 | 17,389 | | 46,333 | |||||||||||||||
Other intangible assets, net |
414 | 27,278 | 6,207 | | 33,899 | |||||||||||||||
Debt issuance costs, net |
7,405 | | | | 7,405 | |||||||||||||||
Note receivable from affiliates |
1,800 | | | (1,800 | ) | | ||||||||||||||
Investments in affiliates |
934,274 | | | (934,274 | ) | | ||||||||||||||
Other assets |
| 7,390 | 2,695 | | 10,085 | |||||||||||||||
Total assets |
$ | 964,320 | $ | 730,391 | $ | 394,294 | $ | (1,050,736 | ) | $ | 1,038,269 | |||||||||
Liabilities and Stockholders
Equity |
||||||||||||||||||||
Current maturities of long-term
debt |
$ | | $ | 979 | $ | 14,236 | $ | | $ | 15,215 | ||||||||||
Trade accounts payable |
| 18,634 | 38,945 | (11,537 | ) | 46,042 | ||||||||||||||
Accrued salaries, benefits and
payroll taxes |
| 8,983 | 23,807 | | 32,790 | |||||||||||||||
Accrued interest |
15,310 | | 214 | | 15,524 | |||||||||||||||
Accrued expenses |
1,192 | 18,504 | 10,980 | | 30,676 | |||||||||||||||
Intercompany payables |
69,756 | | 15,010 | (84,766 | ) | | ||||||||||||||
Note payable to affiliate |
| | 18,359 | (18,359 | ) | | ||||||||||||||
Total current
liabilities |
86,258 | 47,100 | 121,551 | (114,662 | ) | 140,247 | ||||||||||||||
Long-term debt, net of current
maturities |
466,738 | | 11,487 | | 478,225 | |||||||||||||||
Note payable to affiliate |
| | 1,800 | (1,800 | ) | | ||||||||||||||
Other long-term liabilities |
| | 8,473 | | 8,473 | |||||||||||||||
Total liabilities |
552,996 | 47,100 | 143,311 | (116,462 | ) | 626,945 | ||||||||||||||
Commitments and contingencies |
||||||||||||||||||||
Stockholders Equity |
||||||||||||||||||||
Preferred Stock |
34,183 | | | | 34,183 | |||||||||||||||
Common stock |
737 | 3,527 | 42,963 | (46,490 | ) | 737 | ||||||||||||||
Capital in excess of par value |
429,924 | 589,676 | 137,439 | (727,115 | ) | 429,924 | ||||||||||||||
Retained earnings (deficit) |
(53,520 | ) | 90,088 | 70,581 | (160,669 | ) | (53,520 | ) | ||||||||||||
Total stockholders
equity |
411,324 | 683,291 | 250,983 | (934,274 | ) | 411,324 | ||||||||||||||
Total liabilities
and stock holders
equity |
$ | 964,320 | $ | 730,391 | $ | 394,294 | $ | (1,050,736 | ) | $ | 1,038,269 | |||||||||
23
Table of Contents
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 9 CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Three Months Ended September 30, 2010 (Predecessor)
(Unaudited)
For the Three Months Ended September 30, 2010 (Predecessor)
(Unaudited)
Subsidiary | ||||||||||||||||||||
Allis-Chalmers | Subsidiary | Non- | Consolidating | Consolidated | ||||||||||||||||
(Guarantor) | Guarantors | Guarantors | Adjustments | Total | ||||||||||||||||
Revenues |
$ | | $ | 78,034 | $ | 96,325 | $ | (71 | ) | $ | 174,288 | |||||||||
Operating costs and expenses |
||||||||||||||||||||
Direct costs |
| 47,152 | 80,541 | (71 | ) | 127,622 | ||||||||||||||
Selling, general and
administrative |
1,176 | 7,677 | 3,919 | | 12,772 | |||||||||||||||
Depreciation and
amortization |
12 | 15,547 | 6,790 | | 22,349 | |||||||||||||||
Total operating costs
and expenses |
1,188 | 70,376 | 91,250 | (71 | ) | 162,743 | ||||||||||||||
Income (loss) from
operations |
(1,188 | ) | 7,658 | 5,075 | | 11,545 | ||||||||||||||
Other income (expense): |
||||||||||||||||||||
Equity earnings in
affiliates, net of tax |
9,376 | | | (9,376 | ) | | ||||||||||||||
Interest, net |
(10,769 | ) | (505 | ) | (562 | ) | | (11,836 | ) | |||||||||||
Other |
15 | (166 | ) | (510 | ) | | (661 | ) | ||||||||||||
Total other expense |
(1,378 | ) | (671 | ) | (1,072 | ) | (9,376 | ) | (12,497 | ) | ||||||||||
Net income (loss) before
income taxes |
(2,566 | ) | 6,987 | 4,003 | (9,376 | ) | (952 | ) | ||||||||||||
Provision for income taxes |
| 811 | (2,425 | ) | | (1,614 | ) | |||||||||||||
Net income (loss) |
(2,566 | ) | 7,798 | 1,578 | (9,376 | ) | (2,566 | ) | ||||||||||||
Preferred stock dividend |
(637 | ) | | | | (637 | ) | |||||||||||||
Net income (loss)
attributed to common
stockholders |
$ | (3,203 | ) | $ | 7,798 | $ | 1,578 | $ | (9,376 | ) | $ | (3,203 | ) | |||||||
24
Table of Contents
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 9 CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Nine Months Ended September 30, 2010 (Predecessor)
(Unaudited)
For the Nine Months Ended September 30, 2010 (Predecessor)
(Unaudited)
Subsidiary | ||||||||||||||||||||
Allis-Chalmers | Subsidiary | Non- | Consolidating | Consolidated | ||||||||||||||||
(Guarantor) | Guarantors | Guarantors | Adjustments | Total | ||||||||||||||||
Revenues |
$ | | $ | 192,676 | $ | 282,025 | $ | (1,399 | ) | $ | 473,302 | |||||||||
Operating costs and expenses |
||||||||||||||||||||
Direct costs |
| 124,528 | 232,931 | (1,399 | ) | 356,060 | ||||||||||||||
Selling, general and
administrative |
3,708 | 22,033 | 11,208 | | 36,949 | |||||||||||||||
Depreciation and
amortization |
35 | 45,779 | 19,552 | | 65,366 | |||||||||||||||
Total operating costs
and expenses |
3,743 | 192,340 | 263,691 | (1,399 | ) | 458,375 | ||||||||||||||
Income (loss) from
operations |
(3,743 | ) | 336 | 18,334 | | 14,927 | ||||||||||||||
Other income (expense): |
||||||||||||||||||||
Equity earnings in
affiliates, net of tax |
17,643 | | | (17,643 | ) | | ||||||||||||||
Interest, net |
(31,421 | ) | (291 | ) | (1,775 | ) | | (33,487 | ) | |||||||||||
Other |
45 | (1,944 | ) | (580 | ) | | (2,479 | ) | ||||||||||||
Total other expense |
(13,733 | ) | (2,235 | ) | (2,355 | ) | (17,643 | ) | (35,966 | ) | ||||||||||
Net income (loss) before
income taxes |
(17,476 | ) | (1,899 | ) | 15,979 | (17,643 | ) | (21,039 | ) | |||||||||||
Provision for income taxes |
| 11,323 | (7,760 | ) | | 3,563 | ||||||||||||||
Net income (loss) |
(17,476 | ) | 9,424 | 8,219 | (17,643 | ) | (17,476 | ) | ||||||||||||
Preferred stock dividend |
(1,911 | ) | | | | (1,911 | ) | |||||||||||||
Net income (loss)
attributed to common
stockholders |
$ | (19,387 | ) | $ | 9,424 | $ | 8,219 | $ | (17,643 | ) | $ | (19,387 | ) | |||||||
25
Table of Contents
ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 9 CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
For the Nine Months Ended September 30, 2010 (Predecessor)
(Unaudited)
For the Nine Months Ended September 30, 2010 (Predecessor)
(Unaudited)
Other | ||||||||||||||||||||
Allis- | Subsidiaries | |||||||||||||||||||
Chalmers | Subsidiary | (Non- | Consolidating | Consolidated | ||||||||||||||||
(Guarantor) | Guarantors | Guarantors) | Adjustments | Total | ||||||||||||||||
Cash Flows from Operating Activities: |
||||||||||||||||||||
Net income (loss) |
$ | (17,476 | ) | $ | 9,424 | $ | 8,219 | $ | (17,643 | ) | $ | (17,476 | ) | |||||||
Adjustments to reconcile net
income (loss) to net cash provided
by operating activities: |
||||||||||||||||||||
Depreciation and amortization |
35 | 45,779 | 19,552 | | 65,366 | |||||||||||||||
Amortization and write-off of
debt issuance costs |
1,643 | 18 | | | 1,661 | |||||||||||||||
Stock-based compensation |
4,374 | | | | 4,374 | |||||||||||||||
Allowance for bad debts |
| 43 | | | 43 | |||||||||||||||
Equity earnings in affiliates |
(17,643 | ) | | | 17,643 | | ||||||||||||||
Deferred taxes |
(11,847 | ) | (332 | ) | 163 | | (12,016 | ) | ||||||||||||
Loss on sale of equipment |
| 74 | 76 | | 150 | |||||||||||||||
Loss on investment |
| 1,466 | | | 1,466 | |||||||||||||||
Equity in losses of
unconsolidated affiliates |
| 409 | | | 409 | |||||||||||||||
Changes in operating assets and
liabilities, net of
acquisitions: |
||||||||||||||||||||
(Increase) in trade receivables |
| (15,869 | ) | (14,492 | ) | | (30,361 | ) | ||||||||||||
(Increase) in inventories |
| (867 | ) | (1,830 | ) | | (2,697 | ) | ||||||||||||
Decrease in prepaid expenses
and other current assets |
129 | 3,791 | 4,104 | | 8,024 | |||||||||||||||
Decrease in other assets |
| 549 | 716 | | 1,265 | |||||||||||||||
(Decrease) increase in trade
accounts payable |
| (4,637 | ) | 13,017 | | 8,380 | ||||||||||||||
(Decrease) increase in accrued
interest |
(9,016 | ) | (25 | ) | 137 | | (8,904 | ) | ||||||||||||
Increase in accrued expenses |
258 | 3,430 | 1,800 | | 5,488 | |||||||||||||||
(Decrease) increase in accrued
salaries, benefits and payroll
taxes |
| (850 | ) | 3,251 | | 2,401 | ||||||||||||||
(Decrease) in other long-term
liabilities |
| | (690 | ) | | (690 | ) | |||||||||||||
Net Cash Provided By (Used
In) Operating Activities |
(49,543 | ) | 42,403 | 34,023 | | 26,883 | ||||||||||||||
Cash Flows from Investing Activities: |
||||||||||||||||||||
Investment in affiliates |
(19,467 | ) | | | 19,467 | | ||||||||||||||
Notes receivable from affiliates |
8,328 | | | (8,328 | ) | | ||||||||||||||
Deposits on asset commitments |
| (12,694 | ) | (273 | ) | | (12,967 | ) | ||||||||||||
Proceeds from sale of investments |
| 368 | | | 368 | |||||||||||||||
Proceeds from sale of property and
equipment |
| 4,911 | 373 | | 5,284 | |||||||||||||||
Business acquisitions |
| (18,237 | ) | | | (18,237 | ) | |||||||||||||
Purchase of property and equipment |
| (30,158 | ) | (20,735 | ) | | (50,893 | ) | ||||||||||||
Net Cash Used in Investing
Activities |
(11,139 | ) | (55,810 | ) | (20,635 | ) | 11,139 | (76,445 | ) | |||||||||||
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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 9 CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
For the Nine Months Ended September 30, 2010 (Predecessor)
(Unaudited)
For the Nine Months Ended September 30, 2010 (Predecessor)
(Unaudited)
Other | ||||||||||||||||||||
Allis- | Subsidiaries | |||||||||||||||||||
Chalmers | Subsidiary | (Non- | Consolidating | Consolidated | ||||||||||||||||
(Guarantor) | Guarantors | Guarantors) | Adjustments | Total | ||||||||||||||||
Cash Flows from Financing Activities: |
||||||||||||||||||||
Accounts receivable from affiliates |
| (25,492 | ) | (790 | ) | 26,282 | | |||||||||||||
Accounts payable to affiliates |
26,282 | | | (26,282 | ) | | ||||||||||||||
Notes payable to affiliates |
| | (8,328 | ) | 8,328 | | ||||||||||||||
Proceeds from parent contributions |
| 19,467 | | (19,467 | ) | | ||||||||||||||
Proceeds from long-term debt |
| | 4,000 | | 4,000 | |||||||||||||||
Borrowings under line of credit |
36,500 | | | | 36,500 | |||||||||||||||
Payments on long-term debt |
| (4,646 | ) | (9,942 | ) | | (14,588 | ) | ||||||||||||
Payment of preferred stock dividend |
(1,911 | ) | | | | (1,911 | ) | |||||||||||||
Debt issuance costs |
(189 | ) | | | | (189 | ) | |||||||||||||
Net Cash Provided By (Used
In) Financing Activities |
60,682 | (10,671 | ) | (15,060 | ) | (11,139 | ) | 23,812 | ||||||||||||
Net change in cash and cash
equivalents |
| (24,078 | ) | (1,672 | ) | | (25,750 | ) | ||||||||||||
Cash and cash equivalents at
beginning of period |
| 31,858 | 9,214 | | 41,072 | |||||||||||||||
Cash and cash equivalents at end
of period |
$ | | $ | 7,780 | $ | 7,542 | $ | | $ | 15,322 | ||||||||||
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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 10 SEGMENT INFORMATION
In conjunction with the Merger, we reviewed the presentation of our operating segments. Based on
this review, we determined that our operational performance would be segmented and reviewed by the
Drilling Services and Well Services segments. The split of our organization and aggregation of our
business into two segments was based on differences in management structure and reporting, economic
characteristics, customer base, asset class and contract structure. The Drilling Services segment
includes our international and domestic drilling, directional drilling, underbalanced drilling,
tubular services and rental services operations. The Well Services segment includes our production
services and valve manufacturing operations. As a result, we realigned our financial reporting
segments and now report the Drilling Services and Well Services operations as separate, distinct
reporting segments. Our historical segment data previously reported for the three and nine months
ended September 30, 2010 and as of December 31, 2010 have been restated to conform to the new
presentation.
All of our segments provide services to the energy industry. Indirect general and administrative
expenses are allocated to each segment based on estimated use. The revenues, operating income
(loss), depreciation and amortization, capital expenditures and assets of each of the reporting
segments are reported below (in thousands):
Successor | Predecessor | ||||||||||||||||||||
Three Months | Seven Months | Two Months | Three Months | Nine Months | |||||||||||||||||
Ended | Ended | Ended | Ended | Ended | |||||||||||||||||
September 30, | September 30, | February 28, | September 30, | September 30, | |||||||||||||||||
2011 | 2011 | 2011 | 2010 | 2010 | |||||||||||||||||
Revenues: |
|||||||||||||||||||||
Drilling Services |
$ | 195,446 | $ | 442,723 | $ | 106,050 | $ | 151,536 | $ | 428,977 | |||||||||||
Well Services |
26,962 | 70,549 | 20,835 | 22,752 | 44,325 | ||||||||||||||||
Total revenues |
$ | 222,408 | $ | 513,272 | $ | 126,885 | $ | 174,288 | $ | 473,302 | |||||||||||
Operating Income (Loss): |
|||||||||||||||||||||
Drilling Services |
$ | 8,206 | $ | 16,694 | $ | (9,943 | ) | $ | 6,969 | $ | 11,276 | ||||||||||
Well Services |
3,155 | 10,334 | 109 | 4,576 | 3,651 | ||||||||||||||||
Total income (loss) from operations |
$ | 11,361 | $ | 27,028 | $ | (9,834 | ) | $ | 11,545 | $ | 14,927 | ||||||||||
Depreciation and Amortization Expense: |
|||||||||||||||||||||
Drilling Services |
$ | 24,569 | $ | 56,346 | $ | 13,792 | $ | 19,781 | $ | 58,362 | |||||||||||
Well Services |
3,149 | 7,528 | 2,045 | 2,568 | 7,004 | ||||||||||||||||
Total depreciation and amortization expense |
$ | 27,718 | $ | 63,874 | $ | 15,837 | $ | 22,349 | $ | 65,366 | |||||||||||
Capital Expenditures: |
|||||||||||||||||||||
Drilling Services |
$ | 17,767 | $ | 39,386 | $ | 19,939 | $ | 17,350 | $ | 44,537 | |||||||||||
Well Services |
4,786 | 8,739 | 2,819 | 2,554 | 6,356 | ||||||||||||||||
Total capital expenditures |
$ | 22,533 | $ | 48,125 | $ | 22,758 | $ | 19,904 | $ | 50,893 | |||||||||||
Revenues: |
|||||||||||||||||||||
United States |
$ | 92,950 | $ | 219,685 | $ | 57,651 | $ | 75,833 | $ | 182,756 | |||||||||||
Argentina |
105,805 | 243,123 | 57,458 | 77,115 | 226,140 | ||||||||||||||||
Brazil |
12,035 | 24,038 | 5,250 | 10,031 | 30,033 | ||||||||||||||||
Other international |
11,618 | 26,426 | 6,526 | 11,309 | 34,373 | ||||||||||||||||
Total revenues |
$ | 222,408 | $ | 513,272 | $ | 126,885 | $ | 174,288 | $ | 473,302 | |||||||||||
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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 10 SEGMENT INFORMATION (Continued)
Successor | Predecessor | ||||||||
September 30, | December 31, | ||||||||
2011 | 2010 | ||||||||
Goodwill: |
|||||||||
Drilling Services |
$ | 206,441 | $ | 40,639 | |||||
Well Services |
60,987 | 5,694 | |||||||
Total goodwill |
$ | 267,428 | $ | 46,333 | |||||
Assets: |
|||||||||
Drilling Services |
$ | 1,133,183 | $ | 940,481 | |||||
Well Services |
158,484 | 97,788 | |||||||
Total assets |
$ | 1,291,667 | $ | 1,038,269 | |||||
Long Lived Assets: |
|||||||||
United States |
$ | 611,551 | $ | 501,117 | |||||
Argentina |
293,848 | 167,137 | |||||||
Brazil |
69,395 | 86,949 | |||||||
Other international |
61,564 | 65,753 | |||||||
Total long lived assets |
$ | 1,036,358 | $ | 820,956 | |||||
NOTE 11 LEGAL MATTERS
We are named from time to time in legal proceedings related
to our activities prior to our predecessors bankruptcy in 1988. However, we believe that we were discharged from
liability for all such claims in the bankruptcy and believe the likelihood of a material loss relating to any such
legal proceeding is remote.
We are also involved in litigation or proceedings that have
arisen in our ordinary business activities. We insure against these risks to the extent deemed prudent by our management
and to the extent insurance is available, but no assurance can be given that the nature and amount of that insurance will
be sufficient to fully indemnify us against liabilities arising out of pending and future legal proceedings.
Many of these insurance policies contain deductibles or self-insured retentions in amounts we deem prudent and for
which we are responsible for payment. If there is a claim, dispute or pending litigation in which we believe a negative
outcome is probable and a loss by the Company can be reasonably estimated, we record a liability for the expected loss
but at this time any such expected loss are immaterial to our financial condition and results of operations. In addition
we have certain claims, disputes and pending litigation in which we do not believe a negative outcome is probable or for
which the loss cannot be reasonably estimated.
Shortly following the announcement of the Merger Agreement with
Seawell (now Archer) in August 2010, multiple stockholder class-action lawsuits were filed in Delaware and in Texas
against various combinations of us, members of our board of directors and the Archer parties to the Merger Agreement.
These lawsuits had challenged the Merger and generally alleged that our directors had breached their fiduciary duties
owed to our public stockholders by approving the Merger and failing to take steps to maximize our value to our public
stockholders. In February 2011, the Delaware court denied plaintiffs request for an injunction and the Merger closed
on February 23, 2011. After the Merger, the consolidated Delaware lawsuit was dismissed as moot and several of the
Texas lawsuits have also been dismissed. Two Texas lawsuits remain on file, but both are entirely inactive and we believe
both will be dismissed in due course.
The case
of Nexen Petroleum U.S.A., Inc. et al v. Allis-Chalmers
Rental Services, LLC, Cameron, Hydril and Tri-City Pipe & Machine involved a blow out on a well operated by Nexen in
Vermilion Parish, Louisiana and was settled in September 2011. The settlement was funded by our insurers and we were
responsible for our standard insurance deductible amount. We have no further liability under these claims.
29
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ALLIS-CHALMERS ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 12 TRANSACTIONS WITH PARENT
In connection with the Merger, we received approximately $71.4 million in funding from our Parent.
The proceeds were mainly used to pay off debt, debt related interest and Merger related expenses.
The Merger related expenses were primarily for legal and professional fees and change of control
provisions. The three and seven months ended September 30, 2011 includes Parent allocations of
interest charges of approximately $1.2 million and $2.5 million, respectively, and other
administrative charges of approximately $5.9 million and $7.7 million. Parent administrative
charges are allocated proportional to the average EBIT and revenue contribution. The allocation
method used is considered reasonable by management and our estimated costs that would have been
incurred on a standalone basis would not have been materially different. The amount due to Parent
was approximately $91.3 million at September 30, 2011 and balance is classified as a long-term
liability. The interest rate used for allocation of interest charges was 6.2% as of September 30,
2011.
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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 39.
Overview of Our Business
We are 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, Pennsylvania, Arkansas, West Virginia, Oklahoma, Colorado, offshore in the Gulf of
Mexico and internationally primarily in Argentina, Brazil, Bolivia and Mexico. We operate in two
sectors of the oil and natural gas service industry: Well Services and Drilling 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.
Our operating costs do not fluctuate in direct proportion to changes in revenues. Our operating
expenses consist 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 operating income as a percentage of revenues is generally affected by our level of revenues.
Merger with Archer
On February 23, 2011, we merged with and into Wellco Sub Company, a wholly owned subsidiary of
Archer, and each share of our common stock was converted into the right to receive either 1.15
Archer common shares or $4.25 in cash. In connection with the Merger, Wellco Sub Company changed
its name to Allis-Chalmers Energy Inc.
We recorded approximately $14.7 million and $2.5 million of costs related to the Merger during the
two months ended February 28, 2011 and the seven months ended September 30, 2011, respectively,
which are included in selling, general and administrative expense on our Consolidated Condensed
Statements of Operations. Approval of the Merger resulted in certain of our contractual
obligations being triggered or accelerated under the change of control provisions of such
contractual arrangements. Examples of such arrangements include stock-based compensation awards,
severance and retirement plan agreements applicable to executive officers, directors and certain
employees and certain other debt obligations, including our senior notes.
Results of Operations
In July 2010, we acquired all of the outstanding stock of American Well Control, Inc., or AWC,
which is reported as part of our Well Services segment. We consolidated the results of this
transaction from the date it was effective.
In connection with the Merger with Archer, our assets and liabilities have been adjusted to their
fair values based on the purchase price resulting in changes to depreciation, amortization and
interest in the successor period.
The foregoing business combinations affect the comparability from period to period of our
historical results, and our historical results may not be indicative of our future results.
Comparison of Three Months Ended September 30, 2011 and 2010
Our revenues for the three months ended September 30, 2011 were $222.4 million, an increase of
27.6% compared to $174.3 million for the three months ended September 30, 2010. The increase in
revenues is due to the increase in revenues in both of our operating segments. Our Drilling
Services segment revenues increased 29.0% to $195.4 million for the three
31
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months ended September
30, 2011 compared to $151.5 million for the three months ended September 30, 2010 due to capital
expenditures,
increased utilization and rig rates in Argentina, Bolivia and Brazil and increased utilization of
our equipment and improved pricing domestically. Revenues for our Well Services segment increased
18.5% to $27.0 million for the three months ended September 30, 2011 compared to $22.8 million for
the three months ended September 30, 2010 due to capital expenditures, increased demand from our
valve manufacturing operations and improved pricing which was partially offset by a decrease in
equipment utilization for our coiled tubing operations. The decrease in equipment utilization was
primarily associated with additional repairs and maintenance on our coil tubing units.
Our direct costs for the three months ended September 30, 2011 increased 29.1% to $164.7 million,
or 74.1% of revenues, compared to $127.6 million, or 73.2%, of revenues for the three months ended
September 30, 2010. Our direct costs in all of our segments increased in absolute dollars in the
three months ended September 30, 2011 compared to the three months ended September 30, 2010. Our
Drilling Services segment revenues for the three months ended September 30, 2011 increased 29.0%
from revenues for the three months ended September 30, 2010 and direct costs increased 28.5% over
that same period. Our Well Services segment revenues for the three months ended September 30, 2011
increased 18.5% from revenues for the three months ended September 30, 2010, while direct costs
increased 34.2% over that same period. The reduction in gross margin was due to the decreased
utilization of equipment in our coiled tubing operations and related increase in repairs and
maintenance costs.
Depreciation expense increased 17.5% to $24.8 million for the three months ended September 30, 2011
from $21.1 million for the three months ended September 30, 2010. The primary increase in
depreciation expense is due to our capital expenditure programs for our Drilling Services segment.
Depreciation expense as a percentage of revenues decreased to 11.1% for the third quarter of 2011,
compared to 12.1% for the third quarter of 2010, due to the noted increases in revenues.
Selling, general and administrative expense was $18.6 million for the three months ended September
30, 2011 compared to $12.8 million for the three months ended September 30, 2010. Selling, general
and administrative expense increased primarily due to $5.9 million allocated general and
administrative expenses from our Parent and a general increase relating to additional operational
activities which was partially offset by a reduction in stock based compensation expense. Stock
based compensation for the three months ended September 30, 2010 was $1.4 million with no related
expense for the three months ended September 30, 2011 due to the acceleration of stock based
compensation expense as of the Merger date. As a percentage of revenues, selling, general and
administrative expense was 8.4% for the three months ended September 30, 2011 compared to 7.3% for
the same period in the prior year.
Amortization expense for the three months ended September 30, 2011 increased $1.6 million to $2.9
million compared to $1.3 million for the three months ended September 30, 2010. The increase is
primarily related to the amortization of intangibles recorded in connection with the Merger.
We had income from operations of $11.4 million for the three months ended September 30, 2011,
compared to income from operations of $11.5 million for the three months ended September 30, 2010.
The decrease in income from operations was mainly due to the slight reduction in gross margin, the
increases in depreciation, amortization and selling, general and administrative expenses.
Our interest expense was $9.3 million for the three months ended September 30, 2011, compared to
$11.9 million for the three months ended September 30, 2010. Approximately $51.5 million of our
debt was paid in connection with the Merger. Interest expense for the three months ended
September 30, 2011 was reduced by approximately $849,000 in connection with debt premium
amortization and interest expense for the three months ended September 30, 2010 includes
amortization expense of deferred financing costs of $555,000. Interest expense for the three
months ended September 30, 2011 included approximately $1.2 million of allocated interest charges
from our Parent.
Income tax expense for the three months ended September 30, 2011 was $3.4 million or 210.9% of our
income before income taxes compared to an income tax expense of $1.6 million or (169.5)% of our net
loss before income taxes from 2010. The change in the tax rate is principally the result of
valuation allowances on losses generated in the United States and variances in withholding taxes
from foreign operations as a percentage of pretax income (loss).
We had a net loss of $1.8 million for the three months ended September 30, 2011, compared to net
loss of $2.6 million for the three months ended September 30, 2010 due to the foregoing reasons.
The net loss attributed to common stockholders for the three months ended September 30, 2010 was
$3.2 million after $637,000 in preferred stock dividends. The preferred stock dividend related to
36,393 preferred shares of $1,000 par value at 7.0%.
32
Table of Contents
The following table compares revenues and income from operations for each of our business segments
for the quarter ended September 30, 2011 and 2010. Income from operations consists of our revenues
less direct costs, selling, general and administrative expenses, depreciation and amortization:
Revenues | Income from Operations | |||||||||||||||||||||||
Successor | Predecessor | Successor | Predecessor | |||||||||||||||||||||
Three Months Ended | Three Months Ended | Three Months Ended | Three Months Ended | |||||||||||||||||||||
September 30, 2011 |
September 30, 2010 |
Change | September 30, 2011 |
September 30, 2010 |
Change | |||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Revenues: |
||||||||||||||||||||||||
Drilling Services |
$ | 195,446 | $ | 151,536 | $ | 43,910 | $ | 8,206 | $ | 6,969 | $ | 1,237 | ||||||||||||
Well Services |
26,962 | 22,752 | 4,210 | 3,155 | 4,576 | (1,421 | ) | |||||||||||||||||
Total |
$ | 222,408 | $ | 174,288 | $ | 48,120 | $ | 11,361 | $ | 11,545 | $ | (184 | ) | |||||||||||
Drilling Services
Revenues for the quarter ended September 30, 2011 for the Drilling Services segment were $195.4
million, an increase of 29.0% compared to $151.5 million in revenues for the quarter ended
September 30, 2010. Income from operations increased $1.2 million and resulted in income from
operations of $8.2 million for the quarter ended September 30, 2011 compared to income from
operations of $7.0 million in the three months ended September 30, 2010. The revenue increase was
due to our investment in new equipment, increased utilization and rig rates in Argentina, Bolivia
and Brazil and improved pricing and utilization for our directional drilling services,
underbalanced services, rental services and tubular services domestically. The increase in income
from operations was mainly due to the noted revenue increases which were partially offset by
allocations of $4.6 million of Parent general and administration charges and an increase of $4.8
million, or 24.2%, in depreciation and amortization in the third quarter of 2011 compared to the
third quarter of 2010. The increase in depreciation and amortization expense was the result of
capital expenditure programs and Merger related adjustments to the fair value of intangible assets.
Well Services
Revenues for the quarter ended September 30, 2011 for the Well Services segment were $27.0 million,
an increase of 18.5% compared to $22.8 million in revenues for the quarter ended September 30,
2010. Income from operations decreased $1.4 million and resulted in income from operations of $3.2
million for the quarter ended September 30, 2011 compared to $4.6 million in the three months ended
September 30, 2010. The revenue increase was due to capital expenditures, increased demand from
our valve manufacturing operations and improved pricing which was partially offset by a decrease in
equipment utilization for our coiled tubing operations. The reduction in income from operations
was primarily due to a decrease in equipment utilization for our coiled tubing operations,
allocations of $1.3 million of Parent general and administration charges and an increase of
$581,000, or 22.6%, in depreciation and amortization in the third quarter of 2011 compared to the
third quarter of 2010. The increase in depreciation and amortization expense was the result of
capital expenditure programs and Merger related adjustments to the fair value of intangible assets.
Comparison of Nine Months Ended September 30, 2011 and 2010
Our revenues for the nine months ended September 30, 2011 were $640.2 million, an increase of 35.3%
compared to $473.3 million for the nine months ended September 30, 2010. The increase in revenues
is due to the increase in revenues in both of our operating segments. Our Drilling Services
segment revenues increased 27.9% to $548.8 million for the nine months ended September 30, 2011
compared to $429.0 million for the nine months ended September 30, 2010 due to our investment in
new equipment, increased utilization and rig rates in Argentina and Bolivia and increased
utilization of our equipment and improved pricing domestically. Revenues for our Well Services
segment increased 106.2% to $91.4 million for the nine months ended September 30, 2011 compared to
$44.3 million for the nine months ended September 30, 2010 due to a $21.9 million increase in
revenues from AWC, increased utilization of our equipment and improved pricing. AWC was acquired
in July 2010.
Our direct costs for the nine months ended September 30, 2011 increased 33.6% to $475.6 million, or
74.3% of revenues, compared to $356.1 million, or 75.2%, of revenues for the nine months ended
September 30, 2010. Our direct costs in all of our segments increased in absolute dollars in the
nine months ended September 30, 2011 compared to the nine months ended September 30, 2010. Our
Drilling Services segment revenues for the nine months ended September 30, 2011 increased 27.9%
from revenues for the nine months ended September 30, 2010, while direct costs increased 28.1% over
that same period, resulting in a minor reduction in gross margin as a percentage of revenues to
23.7% for the nine months ended September 30,
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2011 compared to 23.9% for the nine months ended
September 30, 2010. The domestic operations in our Drilling Services segment realized price
increases starting in the later part of the first quarter of 2010 and our domestic land drilling
operations began in the first quarter of 2011 with the related improvement being offset by a
decrease in utilization for our land drilling services in Brazil and increased compensation costs
and other inflationary cost increases in Argentina and Brazil. Our Well
Services segment revenues for the nine months ended September 30, 2011 increased 106.2% from
revenues for the nine months ended September 30, 2010, while direct costs increased 93.9% over that
same period. The improvement in gross margin is due to improved utilization of equipment and
pricing.
Depreciation expense increased 13.5% to $70.2 million for the nine months ended September 30, 2011
from $61.8 million for the nine months ended September 30, 2010. The primary increase in
depreciation expense is due to our capital expenditure programs for our Drilling Services segment.
Depreciation expense as a percentage of revenues decreased to 11.0% for the nine months ended
September 30, 2011, compared to 13.1% for the same period in the prior year, due to the noted
increases in revenues.
Selling, general and administrative expense was $62.5 million for the nine months ended September
30, 2011 compared to $36.9 million for the nine months ended September 30, 2010. Selling, general
and administrative expense increased primarily due to an increase in stock based compensation
expense, severance expenses and professional and other fees for the nine months ended September 30,
2011 compared to the same period of the prior year all due principally to the Merger. Stock based
compensation for the nine months ended September 30, 2011 was $6.1 million with approximately $5.4
million of this amount relating to the acceleration of stock based compensation expense associated
with the Merger and was $4.4 million in the same period of the prior year. The nine months ended
September 30, 2011 includes approximately $4.6 million of severance expense relating to the
separation of certain executives after the Merger. Professional and other fees for the nine months
ended September 30, 2011 included $7.1 million of costs related to the Merger. The nine months
ended September 30, 2011 also includes $7.7 million of allocated general and administrative
expenses from our Parent and other increases related to additional operating activities. As a
percentage of revenues, selling, general and administrative expense was 9.8% for the nine months
ended September 30, 2011 compared to 7.8% for the same period in the prior year.
During the nine months ended September 30, 2011, we recorded a $5.1 million loss on the impairment
of intangible assets. In connection with the Merger, a $5.1 million value was assigned to the
Allis-Chalmers tradename. Following the Merger, Seawell and its subsidiaries, including us, have
begun operating under the name Archer. As a result, it was determined that there was no material
remaining value associated with the Allis-Chalmers tradename.
Amortization expense for the nine months ended September 30, 2011 increased $6.0 million to $9.6
million compared to $3.6 million for the nine months ended September 30, 2010. The increase is
primarily related to the amortization of intangibles recorded in connection with the Merger.
Income from operations was $17.2 million for the nine months ended September 30, 2011 compared to
$14.9 million for the nine months ended September 30, 2010. The increase in income from operations
was mainly due to the increase in revenues and improved margins which was partially offset by the
impairment of intangible assets and increases in depreciation, amortization and selling, general
and administrative expenses.
Our interest expense was $31.0 million for the nine months ended September 30, 2011, compared to
$34.0 million for the nine months ended September 30, 2010. Approximately $51.5 million of our
debt was paid in connection with the Merger. Interest expense for the nine months ended September
30, 2011 was reduced by approximately $1.9 million in connection with debt premium amortization and
interest expense for the nine months ended September 30, 2010 includes amortization expense of
deferred financing costs of $1.7 million. Interest expense for the three months ended September
30, 2011 included approximately $2.5 million of allocated interest charges from our Parent.
Other expense was $330,000 for the nine months ended
September 30, 2011 compared to other expense
of $2.5 million for the nine months ended September 30,
2010. Results for the nine months ended September 30, 2010
include a pre-tax non-cash loss of $1.5 million on the sale of an investment in a private oil and
gas company that was assumed as part of an acquisition in 2006.
Income tax expense for the nine months ended September 30, 2011 was $9.7 million or (68.6)% of our
net loss before income taxes compared to an income tax benefit of $3.6 million or 16.9% of our net
loss before income taxes from 2010. The change in the tax rate is principally the result of
valuation allowances on losses generated in the United States and variances in withholding taxes
from foreign operations as a percentage of pretax income (loss).
We had a net loss of $23.8 million for the nine months ended September 30, 2011, compared to net
loss of $17.5 million for the nine months ended September 30, 2010 due to the foregoing reasons.
The net loss attributed to common stockholders for the nine months ended September 30, 2011 and
2010 was $24.2 and $19.4 million after $375,000 and $1.9 million in preferred stock dividends,
respectively. The preferred stock dividend related to 36,393 preferred shares of $1,000 par value
at 7.0%.
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The following table compares revenues and income (loss) from operations for each of our business
segments for the nine months ended September 30, 2011 and 2010. Income (loss) from operations
consists of our revenues less direct costs, selling, general and administrative expenses,
impairment of intangible assets, depreciation and amortization:
Successor | Predecessor | |||||||||||||||||||
Seven Months | Two Months | |||||||||||||||||||
Ended | Ended | |||||||||||||||||||
September 30, | February 28, | |||||||||||||||||||
2011 | 2011 | Combined 2011 | Predecessor 2010 | Change | ||||||||||||||||
Revenues: |
||||||||||||||||||||
Drilling Services |
$ | 442,723 | $ | 106,050 | $ | 548,773 | $ | 428,977 | $ | 119,796 | ||||||||||
Well Services |
70,549 | 20,835 | 91,384 | 44,325 | 47,059 | |||||||||||||||
Total |
$ | 513,272 | $ | 126,885 | $ | 640,157 | $ | 473,302 | $ | 166,855 | ||||||||||
Income (Loss) from Operations: |
||||||||||||||||||||
Drilling Services |
$ | 16,694 | $ | (9,943 | ) | $ | 6,751 | $ | 11,276 | $ | (4,525 | ) | ||||||||
Well Services |
10,334 | 109 | 10,443 | 3,651 | 6,792 | |||||||||||||||
Total |
$ | 27,028 | $ | (9,834 | ) | $ | 17,194 | $ | 14,927 | $ | 2,267 | |||||||||
Drilling Services
Revenues for the Drilling Services segment for the nine months ended September 30, 2011 were $548.8
million, an increase of 27.9% compared to $429.0 million in revenues for the nine months ended
September 30, 2010. Income from operations for the nine months ended September 30, 2011 was $6.8
million compared to $11.3 million in the nine months ended September 30, 2010. The revenue
increase was due to our investment in new equipment, increased utilization and rig rates in
Argentina and Bolivia and improved pricing and utilization for our directional drilling services,
underbalanced services, rental services and tubular services domestically. The decrease in income
from operations was mainly due to: (1) allocations of Merger related costs consisting of
accelerated stock based compensation expense of $3.9 million, severance expense of $3.4 million and
professional and other fees of $5.1 million for the nine months ended September 30, 2011; (2)
allocations of $5.9 million of Parent general and administration charges; (3) decrease in
utilization and pricing for our land drilling services in Brazil; (4) a $2.9 million non-cash loss
recorded in the nine months ended September 30, 2011 on an intangible asset impairment (5)
increased compensation costs and other inflationary cost increases in Argentina and Brazil and (6)
an increase of $11.8 million, or 20.2%, in depreciation and amortization for the nine months ended
September 30, 2011 compared to the same period of the prior year. The increase in depreciation and
amortization expense was the result of capital expenditure programs and Merger related adjustments
to the fair value of intangible assets.
Well Services
Revenues for the Well Services segment for the nine months ended September 30, 2011 were $91.4
million, an increase of 106.2% compared to $44.3 million in revenues for the nine months ended
September 30, 2010. Income from operations was $10.4 million for the nine months ended September
30, 2011 compared to $3.7 million in the nine months ended September 30, 2010. The acquisition of
AWC provided our Well Services segment with $28.8 million of revenues and $6.3 million of operating
income during the nine months ended September 30, 2011 compared to $6.8 million of revenues and
$2.4 million of operating income during the nine months ended
September 30, 2010. AWC was acquired
in July 2010. We also had improved utilization and pricing for our coil tubing units. Partially
offsetting the improved results in the nine months ended September 30, 2011 were: (1) allocations
of Merger related costs consisting of accelerated stock based compensation expense of $1.5 million,
severance expense of $1.2 million and professional and other fees of $2.0 million for the nine
months ended September 30, 2011; (2) allocations of $1.8 million of Parent general and
administration charges; (3) a $2.2 million non-cash loss recorded in the nine months ended September
30, 2011 on an intangible asset impairment and (4) an increase of $2.6 million, or 36.7%, in
depreciation and amortization for the nine months ended September 30, 2011 compared to the same
period of the prior year. The increase in depreciation and amortization expense was the result of
capital expenditure programs and Merger related adjustments to the fair value of intangible assets.
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Liquidity
Our on-going capital requirements arise primarily from our need to service our debt, to acquire and
maintain equipment, to fund our working capital requirements and to complete acquisitions. Our
primary sources of liquidity are proceeds from Parent
contributions and cash flows from operations. Cash flows from operations are expected to be our
primary source of liquidity in fiscal 2011. We had cash and cash equivalents of $10.2 million at
September 30, 2011 compared to $20.9 million at December 31, 2010.
Operating Activities
During the nine months ended September 30, 2011, our operating activities provided $17.0 million in
cash. Our net loss for the nine months ended September 30, 2011 was $23.8 million. Non-cash
expenses totaled $91.0 million during the first nine months of 2011 primarily consisting of $79.7
million of depreciation and amortization, $5.1 million on an impairment of intangible assets, $6.1
million for share based compensation expense, $366,000 in amortization of deferred
financing fees, $925,000 loss on sale of property and equipment and $369,000 for deferred income
taxes relating to timing differences net of $1.9 million of debt premium amortization.
During the nine months ended September 30, 2011, changes in operating assets and liabilities used
$50.2 million in cash, principally due to an increase in accounts receivable of $30.3 million, an
increase in inventories of 14.2 million, an increase in prepaid expenses and other assets of $5.9
million, a decrease in accrued interest of $12.0 million, offset by an increase in accounts payable
of $7.4 million and an increase in accrued expenses of $5.1 million. Accounts receivable,
inventory, accounts payable and accrued expense increases primarily related to the increase in our
activity in the first nine months of 2011. The increase in prepaid expenses primarily relates to
additional prepaid taxes in Argentina and Brazil. The decrease in accrued interest was due to the
scheduled interest payments on our senior notes.
During the nine months ended September 30, 2010, our operating activities provided $26.9 million in
cash. Our net loss for the nine months ended September 30, 2010 was $17.5 million. Non-cash
expenses totaled $61.5 million during the first nine months of 2010 consisting of $65.4 million of
depreciation and amortization, $4.4 million for share-based compensation expense, $1.7 million in
amortization of debt issuance costs, $1.5 million loss on the sale of an investment, $150,000 of
losses from asset disposals, $409,000 equity in loss of unconsolidated affiliates, partly offset by
deferred income tax benefit of $12.0 million related to timing differences.
During the nine months ended September 30, 2010, changes in operating assets and liabilities used
$17.1 million in cash, principally due to an increase in accounts receivable of $30.4 million, an
increase in inventories of $2.7 million, a decrease in accrued interest of $8.9 million and a
decrease in other long-term liabilities of $0.7 million, offset in part by an increase in accounts
payable of $8.4 million, a decrease in prepaid expenses and other current assets of $8.0 million,
an increase in accrued expenses of $5.5 million, an increase in accrued salaries, benefits and
payroll taxes of $2.4 million and a decrease in other assets of $1.3 million. Accounts receivable,
inventory, accounts payable, accrued expenses and accrued salaries, benefits and payroll taxes
increased primarily due to the increase in our activity in the first nine months of 2010. The
decrease in prepaid expense assets was the result of current operations in Argentina utilizing the
prepaid taxes that existed at December 31, 2009, offset by a non-cash increase in prepaid expenses
from the financing of $2.6 million of insurance premiums. Accrued interest decreased due to the
scheduled interest payment on our senior notes in July of 2010.
Investing Activities
During the nine months ended September 30, 2011, we used $67.1 million in investing activities,
consisting of $70.9 million for capital expenditures, $1.2 million cash contribution into our
investment in our Saudi Arabia joint venture, offset by $5.2 million of proceeds from equipment
sales. Included in the $70.9 million for capital expenditures were $59.3 million for additional
equipment in our Drilling Services segment and $11.6 million for additional equipment in our Well
Services segment. A majority of our equipment sales relate to items lost in hole or damaged
beyond repair by our customers.
During the nine months ended September 30, 2010, we used $76.4 million in investing activities,
consisting of $50.9 million for capital expenditures, $18.2 million net for the acquisition of AWC,
$13.0 million for other assets, offset in part by $5.3 million of proceeds from equipment sales and
$368,000 from the sale of an investment. Included in the $50.9 million for capital expenditures
were $44.5 million for additional equipment in our Drilling Services segment and $6.4 million for
additional equipment in our Well Services segment. A majority of our equipment sales relate to
items lost in hole or damaged beyond repair by our customers. The increase in other assets was
primarily due to $12.7 million of advance payments made toward the construction of two drilling
rigs. A majority of our equipment sales relate to items lost in hole or damaged beyond repair
by our customers.
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Financing Activities
During the nine months ended September 30, 2011, financing activities provided $39.3 million in
cash. In connection with the
Merger, we received approximately $71.4 million in funding from our Parent. Proceeds were mainly
used to pay off debt, debt related interest and Merger related expenses. The Merger related
expenses were primarily for legal and professional fees and change of control provisions. An
additional $19.9 million in funding was subsequently received from our Parent. We repaid $143.3
million in borrowings under long-term debt facilities and borrowed $130.0 million under our
Parents Multicurrency Term and Revolving Facility. We had a net cash outlay of $1.8 million
related to the payment of payroll taxes as a result of net exercises of restricted stock vestings
and paid $637,000 in preferred stock dividends.
During the nine months ended September 30, 2010, financing activities provided $23.8 million in
cash. We borrowed $36.5 million under our revolving credit facility and borrowed an additional
$4.0 million under a long-term debt facility and repaid $14.6 million in borrowings under long-term
debt facilities. We also incurred $189,000 in debt issuance costs related to an amendment to our
revolving credit facility to modify our loan covenants, and we paid $1.9 million in preferred stock
dividends. In addition, we financed our renewal of $2.6 million in insurance policy premiums and
issued $2.0 million of our common stock in the acquisition of AWC in non-cash transactions.
At September 30, 2011, we had $461.6 million in outstanding indebtedness, of which $454.7 million
was long-term debt and $6.9 million was due within one year.
In January 2006 and August 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, to repay existing debt and for general corporate purposes. In June 2009, we closed
on a tender offer in which we purchased $30.6 million aggregate principal of our 9.0% senior notes
for a total consideration of $650 per $1,000 principal amount. In connection with the Merger and
based on actively traded prices of our senior notes, we increased the fair value of the 9.0% senior
notes to $1,022 per $1,000 principal amount. In May 2011, pursuant to the terms of change of
control provisions in the indentures governing the senior notes and as a result of the Merger,
holders had the right to require us to purchase, all or a portion of such holders Notes.
Accordingly we purchased $1.8 million aggregate principal of our 9.0% senior notes for a total
consideration of $1,010 per $1,000 principal amount. In July 2011, pursuant to the terms of the
senior notes indenture, we redeemed $125.0 million aggregate principal of our 9.0% senior notes for
a total consideration of $1,023 per $1,000 principal amount. In connection with this redemption we
have drawn $130.0 million on our Parents $1.2 billion Multicurrency Term and Revolving Facility.
The $1.2 billion facility is divided into tranches with $350.0 million having a final maturity date
of December 31, 2011 and the remainder having a final maturity date of November 11, 2015. The
interest rate is based on LIBOR plus a margin.
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 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. On June 29, 2009, we closed on a tender offer in which
we purchased $44.2 million aggregate principal of our 8.5% senior notes for a total consideration
of $600 per $1,000 principal amount. In connection with the Merger and based on actively traded
prices of our senior notes, we increased the fair value of the 8.5% senior notes to $1,070 per
$1,000 principal amount. In May 2011, pursuant to the terms of change of control provisions in the
indentures governing the senior notes and as a result of the Merger, we purchased $92,000 aggregate
principal of our 8.5% senior notes for a total consideration of $1,010 per $1,000 principal amount.
We had a $90.0 million revolving line of credit with a final maturity date of April 26, 2012
pursuant to a revolving credit agreement that contained customary events of default and financial
covenants and limited our ability to incur additional indebtedness, make capital expenditures, pay
dividends or make other distributions, create liens and sell assets. Effective December 31, 2009,
we amended the leverage and interest coverage ratio covenants of the revolving credit agreement.
This amendment relaxed the required financial ratios for the quarter ended December 31, 2009 and
for each of the quarters in 2010. 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 December 31, 2010. As of December 31, 2010, we had $36.5 million of
borrowings outstanding and $4.1 million in outstanding letters of credit under our revolving credit
facility. The weighted-average interest rate was 7.8% at December 31, 2010. The revolving line of
credit was repaid and terminated in connection with the Merger.
As part of our acquisition of DLS, we assumed various bank loans with floating interest rates based
on LIBOR plus a margin
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and terms ranging from 2 to 5 years. The weighted average interest rate on
these loans was 2.0% as of December 31, 2010. The outstanding amount due under these bank loans as
of September 30, 2011 and December 31, 2010 was $0 and $350,000, 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 were used to fund a portion of the purchase price of the new
drilling and service rigs ordered for our Drilling Services segment. The loan is repayable 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 September 30, 2011 and December 31, 2010. The bank
loan rates are based on LIBOR plus a margin. The weighted average interest rate was 5.2% at
September 30, 2011 and 4.2% at December 31, 2010. The outstanding amount under the import finance
facility as of September 30, 2011 and December 31, 2010 was $9.8 million and $14.4 million,
respectively.
As part of our acquisition of BCH, we assumed a $23.6 million term loan credit facility with a
bank. The credit agreement was dated June 2007 and contained customary events of default and
financial covenants which were based on BCHs stand-alone financial statements. The facility was
repayable in quarterly principal installments plus interest and was to mature in August 2012.
Obligations under the facility were secured by substantially all of the BCH assets. The bank
waived certain financial ratio covenants for the December 31, 2010 measurement period and we
classified the entire outstanding balance of the loan in the current portion of long-term debt.
The interest rates were based on LIBOR plus a margin and the interest rate was 3.5% at December 31,
2010. The outstanding amount of the loan as of December 31, 2010 was $7.0 million. The term loan
credit facility was paid in full in connection with the Merger.
On February 9, 2010, through our DLS subsidiary, we entered into a $4.0 million term loan facility.
The loan is repayable in semi-annual installments beginning April 14, 2011 and bears interest at
8.5% per annum. The final maturity date is April 14, 2014 and the loan is unsecured. The
outstanding amount under the term loan facility as of September 30, 2011 and December 31, 2010 was
$3.4 million and $4.0 million, respectively.
In 2010, we obtained insurance premium financings in the aggregate amount of $2.9 million with a
fixed weighted-average interest rate of 4.8%. Under terms of the agreements, amounts outstanding
are paid over eight and 11 month repayment schedules. The outstanding balance of these notes was
approximately $0 and $1.0 million at September 30, 2011 and December 31, 2010, respectively. We
also have amounts outstanding under a capital lease that will expire in 2013. As of September 30,
2011, the amount outstanding under the capital lease was $61,000.
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 have $4.7 million of outstanding letters of credit
under our Parents Multicurrency Term and Revolving Facility.
Critical Accounting Policies
Please see our Form 10-K/A for a description of other policies that are critical to our business
operations and the understanding of our results of operations. The impact and any associated risks
related to these policies on our business operations is discussed throughout Managements
Discussion and Analysis of Financial Condition and Results of Operations where such policies affect
our reported and expected financial results. No material changes to such information have occurred
during the nine months ended September 30, 2011.
Recently Issued Accounting Standards
For a discussion of new accounting standards, see the applicable section in Note 1 to our Unaudited
Consolidated Condensed Financial Statements included in Item 1. Financial Statements.
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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. These factors include, but are not limited to, the following:
| the impact of the weak economic conditions and the future impact of such conditions on the oil and gas industry and demand for our services; | ||
| unexpected future capital expenditures (including the amount and nature thereof); | ||
| unexpected difficulties in integrating our operations as a result of any significant acquisitions; | ||
| adverse weather conditions in certain regions; | ||
| the impact of political disturbances, war, or terrorist attacks and changes in global trade policies; | ||
| the availability (or lack thereof) of capital to fund our business strategy and/or operations; | ||
| the potential impact of the loss of one or more key employees; | ||
| the effect of environmental liabilities that are not covered by an effective indemnity or insurance; | ||
| the impact of current and future laws; | ||
| the impact of customer defaults and related bad debt expense; | ||
| the potential impairment in the carrying value of goodwill and other acquired intangible assets; | ||
| the risks associated with doing business outside the United States, including currency exchange rates; the effects of competition; and | ||
| the effects of our indebtedness, which could adversely restrict our ability to operate, could make us vulnerable to general adverse economic and industry conditions, could place us at a competitive disadvantage compared to competitors that have less debt, and could have other adverse consequences |
Further information about the risks and uncertainties that may impact us are described under Item
1ARisk Factors in our Form 10-K/A. You should read those sections carefully. You should not
place undue reliance on forward-looking statements, which speak only as of the date of this
quarterly report. We undertake no obligation to update publicly any forward-looking statements in
order to reflect any event or circumstance occurring after the date of this quarterly report or
currently unknown facts or conditions or the occurrence of unanticipated events.
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ITEM 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.
Management recognizes that any disclosure controls and procedures no matter how well designed and
operated, can only provide reasonable assurance of achieving their objectives and management
necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls
and procedures. 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 concluded that, for the period ending September 30, 2011, our
disclosure controls and procedures were not effective to provide a reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles because of a material weakness
in our internal control over financial reporting described below.
Material Weakness in Internal Control over Financial Reporting
A material weakness is a deficiency, or a combination of deficiencies, in internal control over
financial reporting, such that there is a reasonable possibility that a material misstatement of
the Companys annual or interim financial statements will not be prevented or detected on a timely
basis. Based on this assessment, management has concluded that we did not maintain effective
internal control over financial reporting for the period ending September 30, 2011, because of a
material weakness relating to accounting for income taxes. Specifically, we did not maintain
effective controls over the identification and proper accounting treatment of the calculation and
valuation of deferred tax assets. This material weakness resulted in a material misstatement of our
income tax expense, deferred tax asset, net loss and accumulated deficit with accompanying notes
and the restatement of our consolidated financial statements for the year ended December 31, 2010
as discussed in Note 2 to the consolidated financial statements included in our Form 10-K/A.
Additionally, this deficiency could result in misstatements of the aforementioned accounts and
disclosures that would result in a material misstatement of the consolidated financial statements
that would not be prevented or detected.
Plan for Remediation of Material Weakness
Management has developed a plan to remediate the material weakness noted above. Controls over the
preparation of tax calculations and associated deferred tax balances have been enhanced through the
implementation of external advisory services from an independent source, under the oversight of
management. In the third quarter the Company hired a dedicated employee with tax expertise to
oversee this area, along with enhanced procedural and review controls.
(b) Changes in Internal Control Over Financial Reporting.
Except as described above, there were not 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.
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PART II. OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS |
See Note
11 to our Unaudited Consolidated Condensed Financial Statements
included in Item 1. Financial Statements.
ITEM 6. | EXHIBITS |
(a) The exhibits listed on the Exhibit Index immediately following the signature page of this
Quarterly Report on Form 10-Q are filed as part of this report.
SIGNATURES
Pursuant to the requirements of 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 November
22, 2011.
Allis-Chalmers Energy Inc. | ||||
(Registrant) | ||||
/s/ Christoph Bausch | ||||
Christoph Bausch | ||||
Chief Financial Officer |
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EXHIBIT INDEX
31.1*
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2*
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1*
|
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
101.INS*
|
XBRL Instance Document | |
101.SCH*
|
XBRL Taxonomy Extension Schema Document | |
101.CAL*
|
XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF*
|
XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB*
|
XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE*
|
XBRL Taxonomy Extension Presentation Linkbase Document |
* | Filed herewith |
42