e10vkza
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D. C.
20549
Form 10-K/A
Amendment No. 2
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(Mark One)
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2005
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE TRANSITION PERIOD
FROM
TO
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Commission file number 1-2199
ALLIS-CHALMERS ENERGY
INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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39-0126090
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(State or other jurisdiction
of
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(I.R.S. Employer
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incorporation or
organization)
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Identification No.)
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5075 WESTHEIMER, SUITE 890,
HOUSTON, TEXAS
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77056
(Zip code)
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(Address of principal executive
offices)
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(713)
369-0550
Registrants telephone
number, including area code
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE
ACT:
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Title of Security:
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Name of Exchange:
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Common Stock, par value
$0.01 per share
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American Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE
ACT:
NONE
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or
15(d). Yes o No þ
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 if disclosure of delinquent filers
pursuant to ITEM 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer or a non-accelerated
filer. See definition of accelerated filer and
large accelerated filer in
Rule 12b-2
of the Exchange Act (Check one):
Large accelerated
filer o Accelerated
filer o Non-accelerated
filer þ
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
The aggregate market value of the common equity held by
non-affiliates of the registrant, computed using the average of
the closing price of the common stock of $5.65 per share on
June 30, 2005, as reported on the American Stock Exchange,
was approximately $46,064,970 (affiliates included for this
computation only: directors, executive officers and holders of
more than 5% of the registrants common stock).
At June 1, 2006 there were 18,492,760 shares of common
stock outstanding.
EXPLANATORY
NOTE
This
Form 10-K/A-2
is being filed by Allis-Chalmers Energy Inc. to provide
additional accounting disclosures under Item 8 and to
correct the issued and expiration dates of certain warrants
previously disclosed under Item 5.
As required by
Rule 12b-15
under the Securities Exchange Act of 1934, as amended, which we
refer to as the Exchange Act, new certifications by our Chief
Executive Officer and Chief Financial Officer are being filed as
exhibits to this
Form 10-K/A-2
under Item 15 of Part IV.
For purposes of this
Form 10-K/A-2,
and in accordance with
Rule 12b-15
under the Exchange Act, each item of our Annual Report on
Form 10-K
for the year ended December 31, 2005, as originally filed
on March 22, 2006, that is affected by this amendment, has
been amended and restated in its entirety. No attempt has been
made in this
Form 10-K/A-2
to modify or update other disclosures as presented in the
original
Form 10-K,
except as required to reflect such amendments.
As used herein, Allis-Chalmers, we,
our and us may refer to Allis-Chalmers
Energy Inc. or its subsidiaries. The use of these terms is not
intended to connote any particular corporate status or
relationships.
2005
FORM 10-K/A-2
CONTENTS
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PART
II
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ITEM 5.
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MARKET
FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
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MARKET
PRICE INFORMATION
Our common stock is traded on the American Stock Exchange under
the symbol ALY. Prior to September 13, 2004,
our common stock was quoted on the OTC Bulletin Board and
traded sporadically. The following table sets forth, for periods
prior to September 13, 2004, high and low bid information
for the common stock, as reported on the OTC
Bulletin Board, during the periods indicated, and for
periods since September 13, 2004, high and low sale prices
of our common stock reported on the American Stock Exchange. The
quotations reported on the OTC Bulletin Board reflect
inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions. Share
prices for periods prior to June 10, 2004, set forth herein
have been adjusted to give retroactive effect to a
one-to-five
reverse stock split effected June 10, 2004.
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Calendar Quarter
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High
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Low
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2003
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First Quarter
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4.50
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.55
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Second Quarter
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5.00
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2.25
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Third Quarter
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4.50
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2.60
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Fourth Quarter
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6.00
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2.60
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2004
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First Quarter
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10.05
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2.55
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Second Quarter
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10.25
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4.25
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Third Quarter
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9.75
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4.75
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Fourth Quarter
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5.40
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3.25
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2005
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First Quarter
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7.25
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3.64
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Second Quarter
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6.00
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4.38
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Third Quarter
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14.70
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5.65
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Fourth Quarter
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13.75
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8.61
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Holders
As of March 14, 2006, there were approximately 2,040
holders of record of our common stock. On March 14, 2006,
the last sale price for our common stock reported on the
American Stock Exchange was $13.55 per share.
Dividends
No dividends were declared or paid during the past three years,
and no dividends are anticipated to be declared or paid in the
foreseeable future. Our credit facilities and the indenture
governing our senior notes restrict our ability to pay dividends
on our common stock.
1
EQUITY
COMPENSATION PLAN INFORMATION
The following table provides information as of December 31,
2005 with respect to the shares of our common stock that may be
issued under our existing equity compensation plans.
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Number of
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Securities to be
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Weighted
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Issued Upon
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Average Exercise
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Number of Securities
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Exercise of
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Price of
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Remaining Available
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Outstanding
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Outstanding
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for Future Issuance
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Options, Warrants
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Options, Warrants
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Under Equity
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Plan Category
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and Rights
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and Rights
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Compensation Plans
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Equity compensation plans approved
by security holders
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2,756,067
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$
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5.18
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210,100
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Equity compensation plans not
approved by security holders
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489,243
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$
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2.97
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Total
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3,245,310
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$
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4.85
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210,100
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Equity
Compensation Plans Not Approved By Security
Holders
These plans comprise the following:
In 1999 and 2000, the Board compensated former and continuing
Board members who had served from 1989 to March 31, 1999
without compensation by issuing promissory notes totaling
$325,000 and by granting stock options to these same
individuals. Options to purchase 4,800 shares of common
stock were granted with an exercise price of $13.75. These
options vested immediately and expire in March 2010. As of
December 31, 2005, none of these options had been exercised.
On May 31, 2001, our Board granted to one of our directors,
Leonard Toboroff, an option to purchase 100,000 shares of
common stock at $2.50 per share, expiring in October 2011.
The option was granted for services provided by
Mr. Toboroff to OilQuip prior to our merger with OilQuip
Rentals, Inc., including providing financial advisory services,
assisting in OilQuips capital structure and assisting
OilQuip in finding strategic acquisition opportunities. None of
these options have been exercised.
In February 2002, we issued warrants to purchase
233,000 shares of our common stock at an exercise price of
$0.75 per share and warrants to purchase 67,000 shares
of our common stock at an exercise price of $5.00 per share
in connection with a subordinated debt financing. The warrants
to purchase 233,000 shares were redeemed during December
2004 for $1.5 million. The remaining 67,000 warrants are
currently outstanding and expire in February 2012.
In connection with the private placement in April 2004, we
issued warrants for the purchase of 800,000 shares of our
common stock at an exercise price of $2.50 per share. A total of
486,557 of these warrants were exercised in 2005. Warrants for
4,000 shares of our common stock at an exercise price of $4.65
were also issued in May 2004 and remain outstanding as of
December 31, 2005.
2
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ITEM 8.
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FINANCIAL
STATEMENTS.
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REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Allis-Chalmers Energy Inc.
Houston, Texas
We have audited the accompanying consolidated balance sheets of
Allis-Chalmers Energy Inc. and subsidiaries as of
December 31, 2005 and 2004, and the related consolidated
statements of operations, stockholders equity and cash
flows for the years then ended. These consolidated financial
statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Allis-Chalmers Energy Inc.
and subsidiaries as of December 31, 2005 and 2004, and the
consolidated results of their operations and their cash flows
for the years then ended, in conformity with accounting
principles generally accepted in the United States of America.
/s/ UHY
Mann Frankfort Stein & Lipp CPAs, LLP
Houston, Texas
March 21, 2006
3
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Allis-Chalmers Energy Inc.
Houston, Texas
We have audited the accompanying consolidated statements of
operations, stockholders equity and cash flows for the
year ended December 31, 2003 of Allis-Chalmers Energy Inc.
These consolidated financial statements are the responsibility
of the Companys management. Our responsibility is to
express an opinion on these consolidated financial statements
based on our audit.
We conducted our audit in accordance with the Standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the results
of its consolidated operations and cash flows for the year ended
December 31, 2003 of Allis-Chalmers Energy Inc., in
conformity with accounting principles generally accepted in the
United States of America.
As discussed in Note-2 to the consolidated financial statements,
the Company restated the consolidated financial statements as of
and for the year ended December 31, 2003.
/s/ GORDON,
HUGHES & BANKS, LLP
Greenwood Village, Colorado
March 3, 2004, except as to Note 11 which date is
June 10, 2004 and Notes 2 and 17 which date is
February 10, 2005 and
Note 2 which date is August 5, 2005.
4
ALLIS-CHALMERS
ENERGY INC.
CONSOLIDATED
BALANCE SHEETS
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December 31,
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2005
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2004
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(In thousands, except for share amounts)
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ASSETS
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Cash and cash equivalents
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$
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1,920
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$
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7,344
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Trade receivables, net of
allowance for doubtful accounts of $383 and $265 at
December 31, 2005 and 2004, respectively
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26,964
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12,986
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Inventory
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5,945
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2,373
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Lease receivable, current
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180
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Prepaid expenses and other
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823
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1,495
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Total current assets
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35,652
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24,378
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Property and equipment, at costs
net of accumulated depreciation of $9,996 and $5,251 at
December 31, 2005 and 2004, respectively
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80,574
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37,679
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Goodwill
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12,417
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11,776
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Other intangible assets, net of
accumulated amortization of $3,163 and $2,036 at
December 31, 2005 and 2004, respectively
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6,783
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5,057
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Debt issuance costs, net of
accumulated amortization of $299 and $828 at December 31,
2005 and 2004, respectively
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1,298
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685
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Lease receivable, less current
portion
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558
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Other assets
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631
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59
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Total assets
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$
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137,355
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$
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80,192
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LIABILITIES AND
STOCKHOLDERS EQUITY
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Current maturities of long-term
debt
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$
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5,632
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$
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5,541
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Trade accounts payable
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9,018
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5,694
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Accrued salaries, benefits and
payroll taxes
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1,271
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615
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Accrued interest
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289
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470
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Accrued expenses
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4,350
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1,852
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Accounts payable, related parties
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60
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740
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Total current liabilities
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20,620
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14,912
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Accrued postretirement benefit
obligations
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335
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687
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Long-term debt, net of current
maturities
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54,937
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24,932
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Other long-term liabilities
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588
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129
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Total liabilities
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76,480
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40,660
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Commitments and Contingencies
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Minority interest
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4,423
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Stockholders
Equity
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Preferred stock, $0.01 par
value (25,000,000 shares authorized, none issued)
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Common stock, $0.01 par value
(100,000,000 shares authorized;16,859,988 issued and
outstanding at December 31, 2005 and 20,000,000 shares
authorized and 13,611,525 issued and outstanding at
December 31, 2004)
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169
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136
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Capital in excess of par value
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58,889
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40,331
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Retained earnings (deficit)
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1,817
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(5,358
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)
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Total stockholders equity
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60,875
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35,109
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Total liabilities and
stockholders equity
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$
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137,355
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$
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80,192
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The accompanying Notes are an integral part of the Consolidated
Financial Statements.
5
ALLIS-CHALMERS
ENERGY INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
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Years Ended December 31,
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2005
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2004
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2003
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(Restated)
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(Restated)
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(In thousands, except per
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share amounts)
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Revenues
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$
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105,344
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$
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47,726
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$
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32,724
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Cost of revenues
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Direct costs
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69,889
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32,598
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21,977
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Depreciation
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4,874
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2,702
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2,052
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Gross margin
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30,581
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12,426
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8,695
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General and administrative expense
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15,928
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7,135
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5,285
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Amortization
|
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1,787
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876
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884
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Post-retirement medical costs
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(352
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)
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188
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(99
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)
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Income from operations
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13,218
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4,227
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2,625
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Other income (expense):
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Interest expense
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(4,397
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)
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(2,808
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)
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(2,467
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)
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Settlement on lawsuit
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1,034
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Gain on sale of interest in AirComp
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2,433
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Other
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186
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304
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15
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Total other income (expense)
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(4,211
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)
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(2,504
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)
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1,015
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Income before minority interest
and income taxes
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9,007
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1,723
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3,640
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Minority interest in income of
subsidiaries
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(488
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)
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(321
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)
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(343
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)
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Provision for income taxes
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(1,344
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)
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(514
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)
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(370
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)
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Net income
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7,175
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|
|
|
888
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2,927
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Preferred stock dividend
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(124
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)
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(656
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)
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|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributed to common
stockholders
|
|
$
|
7,175
|
|
|
$
|
764
|
|
|
$
|
2,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per common
share basic
|
|
$
|
0.48
|
|
|
$
|
0.10
|
|
|
$
|
0.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per common
share diluted
|
|
$
|
0.44
|
|
|
$
|
0.09
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common
shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
14,832
|
|
|
|
7,930
|
|
|
|
3,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
16,238
|
|
|
|
9,510
|
|
|
|
5,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes are an integral part of the Consolidated
Financial Statements.
6
ALLIS-CHALMERS
ENERGY INC.
CONSOLIDATED
STATEMENT OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital in
|
|
|
Retained
|
|
|
|
|
|
|
Common Stock
|
|
|
Excess of
|
|
|
Earnings
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Par Value
|
|
|
(Deficit)
|
|
|
Total
|
|
|
|
(In thousands, except share amounts)
|
|
|
Balances, December 31, 2002
|
|
|
3,926,668
|
|
|
$
|
39
|
|
|
$
|
10,143
|
|
|
$
|
(9,173
|
)
|
|
$
|
1,009
|
|
Net income (restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,927
|
|
|
|
2,927
|
|
Effect of consolidation of AirComp
|
|
|
|
|
|
|
|
|
|
|
955
|
|
|
|
|
|
|
|
955
|
|
Accrual of preferred dividends
|
|
|
|
|
|
|
|
|
|
|
(350
|
)
|
|
|
|
|
|
|
(350
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2003,
as restated
|
|
|
3,926,668
|
|
|
|
39
|
|
|
|
10,748
|
|
|
|
(6,246
|
)
|
|
|
4,541
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
888
|
|
|
|
888
|
|
Issuance of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions
|
|
|
1,868,466
|
|
|
|
19
|
|
|
|
8,592
|
|
|
|
|
|
|
|
8,611
|
|
Private placement
|
|
|
6,081,301
|
|
|
|
61
|
|
|
|
15,600
|
|
|
|
|
|
|
|
15,661
|
|
Services
|
|
|
17,000
|
|
|
|
|
|
|
|
99
|
|
|
|
|
|
|
|
99
|
|
Conversion of preferred stock
|
|
|
1,718,090
|
|
|
|
17
|
|
|
|
4,278
|
|
|
|
|
|
|
|
4,295
|
|
Issuance of stock purchase warrants
|
|
|
|
|
|
|
|
|
|
|
1,138
|
|
|
|
|
|
|
|
1,138
|
|
Accrual of preferred dividends
|
|
|
|
|
|
|
|
|
|
|
(124
|
)
|
|
|
|
|
|
|
(124
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2004
|
|
|
13,611,525
|
|
|
|
136
|
|
|
|
40,331
|
|
|
|
(5,358
|
)
|
|
|
35,109
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,175
|
|
|
|
7,175
|
|
Issuance of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions
|
|
|
411,275
|
|
|
|
4
|
|
|
|
1,746
|
|
|
|
|
|
|
|
1,750
|
|
Secondary public offering
|
|
|
1,761,034
|
|
|
|
18
|
|
|
|
15,441
|
|
|
|
|
|
|
|
15,459
|
|
Stock options and warrants
exercised
|
|
|
1,076,154
|
|
|
|
11
|
|
|
|
1,371
|
|
|
|
|
|
|
|
1,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2005
|
|
|
16,859,988
|
|
|
$
|
169
|
|
|
$
|
58,889
|
|
|
$
|
1,817
|
|
|
$
|
60,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes are an integral part of the Consolidated
Financial Statements.
7
ALLIS-CHALMERS
ENERGY INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
(Restated)
|
|
|
|
(In thousands)
|
|
|
Cash Flows from Operating
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
7,175
|
|
|
$
|
888
|
|
|
$
|
2,927
|
|
Adjustments to reconcile net
income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
4,874
|
|
|
|
2,702
|
|
|
|
2,052
|
|
Amortization
|
|
|
1,787
|
|
|
|
876
|
|
|
|
884
|
|
Write-off of deferred financing
fees due to refinancing
|
|
|
653
|
|
|
|
|
|
|
|
|
|
Issuance of stock options for
services
|
|
|
|
|
|
|
14
|
|
|
|
|
|
Amortization of discount on debt
|
|
|
9
|
|
|
|
350
|
|
|
|
516
|
|
(Gain) on change in PBO liability
|
|
|
(352
|
)
|
|
|
|
|
|
|
(125
|
)
|
(Gain) on settlement of lawsuit
|
|
|
|
|
|
|
|
|
|
|
(1,034
|
)
|
(Gain) on sale of interest in
AirComp
|
|
|
|
|
|
|
|
|
|
|
(2,433
|
)
|
Minority interest in income of
subsidiaries
|
|
|
488
|
|
|
|
321
|
|
|
|
343
|
|
(Gain) loss on sale of property
|
|
|
(669
|
)
|
|
|
|
|
|
|
82
|
|
Changes in working capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) in accounts receivable
|
|
|
(10,437
|
)
|
|
|
(2,292
|
)
|
|
|
(4,414
|
)
|
(Increase) in due from related
party
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
(Increase) in other current assets
|
|
|
(2,143
|
)
|
|
|
(612
|
)
|
|
|
(1,260
|
)
|
Decrease (increase) in other assets
|
|
|
(936
|
)
|
|
|
(19
|
)
|
|
|
1
|
|
Decrease in lease deposit
|
|
|
|
|
|
|
|
|
|
|
525
|
|
Increase in accounts payable
|
|
|
2,373
|
|
|
|
1,140
|
|
|
|
2,251
|
|
(Decrease) increase in accrued
interest
|
|
|
324
|
|
|
|
299
|
|
|
|
(126
|
)
|
(Decrease) increase in accrued
expenses
|
|
|
(97
|
)
|
|
|
(276
|
)
|
|
|
397
|
|
(Decrease) increase in other
long-term liabilities
|
|
|
86
|
|
|
|
(141
|
)
|
|
|
|
|
Increase in accrued
salaries,benefits and payroll taxes
|
|
|
443
|
|
|
|
19
|
|
|
|
1,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
|
3,578
|
|
|
|
3,262
|
|
|
|
1,879
|
|
Cash Flows from Investing
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired
|
|
|
(36,888
|
)
|
|
|
(4,459
|
)
|
|
|
|
|
Purchase of property and equipment
|
|
|
(17,767
|
)
|
|
|
(4,603
|
)
|
|
|
(5,354
|
)
|
Proceeds from sale of property and
equipment
|
|
|
1,579
|
|
|
|
|
|
|
|
843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
|
(53,076
|
)
|
|
|
(9,062
|
)
|
|
|
(4,511
|
)
|
Cash Flows from Financing
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of
long-term debt
|
|
|
56,251
|
|
|
|
8,169
|
|
|
|
14,127
|
|
Payments on long-term debt
|
|
|
(28,202
|
)
|
|
|
(13,259
|
)
|
|
|
(10,826
|
)
|
Payments on related party debt
|
|
|
(1,522
|
)
|
|
|
(246
|
)
|
|
|
(246
|
)
|
Net borrowings on lines of credit
|
|
|
2,527
|
|
|
|
689
|
|
|
|
1,138
|
|
Proceeds from issuance of common
stock
|
|
|
15,459
|
|
|
|
16,883
|
|
|
|
|
|
Proceeds from exercise of options
and warrants
|
|
|
1,382
|
|
|
|
|
|
|
|
|
|
Debt issuance costs
|
|
|
(1,821
|
)
|
|
|
(391
|
)
|
|
|
(408
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing
activities
|
|
|
44,074
|
|
|
|
11,845
|
|
|
|
3,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
and cash equivalents
|
|
|
(5,424
|
)
|
|
|
6,045
|
|
|
|
1,153
|
|
Cash and cash equivalents at
beginning of year
|
|
|
7,344
|
|
|
|
1,299
|
|
|
|
146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end
of year
|
|
$
|
1,920
|
|
|
$
|
7,344
|
|
|
$
|
1,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes are an integral part of the Consolidated
Financial Statements.
8
ALLIS-CHALMERS
ENERGY INC.
Notes to
Consolidated Financial Statements
|
|
NOTE 1
|
NATURE OF
BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
Organization
of Business
Allis-Chalmers Energy Inc. (Allis-Chalmers or
We) was incorporated in Delaware in 1913. OilQuip
Rentals, Inc. (OilQuip), an oil and gas rental
company, was incorporated on February 4, 2000 to find and
acquire acquisition targets to operate as subsidiaries.
On February 6, 2001, OilQuip, through its subsidiary,
Mountain Compressed Air Inc. (Mountain Air), a Texas
corporation, acquired certain assets of Mountain Air Drilling
Service Co., Inc, whose business consisted of providing
equipment and trained personnel in the Four Corners area of the
southwestern United States. Mountain Air primarily provided
compressed air equipment and related products and services and
trained operators to companies in the business of drilling for
natural gas. On May 9, 2001, OilQuip merged into a
subsidiary of Allis-Chalmers Energy Inc. In the merger, all of
OilQuips outstanding common stock was converted into
2.0 million shares of Allis-Chalmers common stock.
For legal purposes, Allis-Chalmers acquired OilQuip, the parent
company of Mountain Air. However, for accounting purposes,
OilQuip was treated as the acquiring company in a reverse
acquisition of Allis-Chalmers.
On February 6, 2002, we acquired 81% of the outstanding
stock of Allis-Chalmers Tubular Services Inc.
(Tubular), formerly known as Jens Oilfield
Service, Inc., which supplies highly specialized equipment and
operations to install casing and production tubing required to
drill and complete oil and gas wells. On February 2, 2002,
we also purchased substantially all of the outstanding common
stock and preferred stock of Strata Directional Technology, Inc.
(Strata), which provides high-end directional and
horizontal drilling services for specific targeted reservoirs
that cannot be reached vertically.
In July 2003, through its subsidiary Mountain Air, we entered
into a limited liability company operating agreement with a
division of M-I L.L.C. (M-I), a joint venture
between Smith International and Schlumberger N.V. (Schlumberger
Limited), to form a Texas limited liability company named
AirComp LLC (AirComp). The assets contributed by
Mountain Air were recorded at Mountain Airs historical
cost of $6.3 million, and the assets contributed by M-I
were recorded at fair market value of $10.3 million. We
originally owned 55% and M-I originally owned 45% of AirComp. As
a result of our controlling interest and operating control, we
consolidated AirComp in our financial statements. AirComp is in
the compressed air drilling services segment.
On September 23, 2004, we acquired 100% of the outstanding
stock of Safco-Oil Field Products, Inc. (Safco) for
$1.0 million. Safco leases spiral drill pipe and provides
related oilfield services to the oil drilling industry.
On September 30, 2004, we acquired the remaining 19% of
Tubular in exchange for 1.3 million shares of our
common stock. The total value of the consideration paid to the
seller, Jens Mortensen, was $6.4 million which was equal to
the number of shares of common stock issued to
Mr. Mortensen multiplied by the last sale price ($4.95) of
the common stock as reported on the American Stock Exchange on
the date of issuance.
On November 10, 2004, AirComp acquired substantially all
the assets of Diamond Air Drilling Services, Inc. and Marquis
Bit Co., L.L.C. collectively (Diamond Air) for
$4.6 million in cash and the assumption of approximately
$450,000 of accrued liabilities. We contributed
$2.5 million and M-I L.L.C. contributed $2.1 million
to AirComp LLC in order to fund the purchase. Diamond Air
provides air drilling technology and products to the oil and gas
industry in West Texas, New Mexico and Oklahoma. Diamond Air is
a leading provider of air hammers and hammer bit products.
On December 10, 2004, we acquired Downhole Injection
Services, LLC (Downhole) for approximately
$1.1 million in cash, 568,466 shares of common stock
and payment or assumption of $950,000 of debt. Downhole is
headquartered in Midland, Texas, and provides chemical
treatments to wells by inserting small diameter, stainless steel
coiled tubing into producing oil and gas wells.
9
ALLIS-CHALMERS
ENERGY INC.
Notes to
Consolidated Financial
Statements (Continued)
On April 1, 2005, we acquired 100% of the outstanding stock
of Delta Rental Service, Inc. (Delta) for
$4.6 million in cash, 223,114 shares of our common
stock and two promissory notes totaling $350,000. Delta, located
in Lafayette, Louisiana, is a rental tool company providing
specialty rental items to the oil and gas industry such as
spiral heavy weight drill pipe, test plugs used to test blow-out
preventors, well head retrieval tools, spacer spools and
assorted handling tools.
On May 1, 2005, we acquired 100% of the outstanding capital
stock of Capcoil Tubing Services, Inc. (Capcoil) for
$2.7 million in cash, 168,161 shares of our common
stock and the payment or assumption of approximately
$1.3 million of debt. Capcoil, located in Kilgore, Texas,
is engaged in downhole well servicing by providing coil tubing
services to enhance production from existing wells.
On July 11, 2005, we acquired the compressed air drilling
assets of W.T. Enterprises, Inc. (W.T.), based in
South Texas, for $6.0 million in cash. The equipment
includes compressors, boosters, mist pumps and vehicles.
On July 11, 2005, we acquired from M-I its 45% interest in
AirComp and subordinated note in the principal amount of
$4.8 million issued by AirComp, for which we paid M-I
$7.1 million in cash and issued to M-I a $4.0 million
subordinated note bearing interest at 5% per annum. As a
result, we now own 100% of AirComp.
Effective August 1, 2005, we acquired 100% of the
outstanding capital stock of Target Energy Inc.
(Target) for $1.3 million in cash and
forgiveness of a lease receivable of approximately
$0.6 million. The results of Target are included in our
directional and horizontal drilling segment as their Measure
While Drilling equipment is utilized in that segment.
On September 1, 2005, we acquired the casing and tubing
service assets of Patterson Services, Inc. for approximately
$15.6 million. These assets are located in Corpus Christi,
Texas; Kilgore, Texas; Lafayette, Louisiana and Houma, Louisiana.
Vulnerabilities
and Concentrations
We provide oilfield services in several regions, including the
states of Texas, Utah, Louisiana, Colorado, Oklahoma, and New
Mexico, the Gulf of Mexico and southern portions of Mexico. The
nature of our operations and the many regions in which we
operate subject us to changing economic, regulatory and
political conditions. We are vulnerable to near-term and
long-term changes in the demand for and prices of oil and
natural gas and the related demand for oilfield service
operations.
Use
of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues
and expenses during the reporting period. Future events and
their effects cannot be perceived with certainty. Accordingly,
our accounting estimates require the exercise of judgment. While
management believes that the estimates and assumptions used in
the preparation of the consolidated financial statements are
appropriate, actual results could differ from those estimates.
Estimates are used for, but are not limited to, determining the
following: allowance for doubtful accounts, recoverability of
long-lived assets and intangibles, useful lives used in
depreciation and amortization, income taxes and valuation
allowances. The accounting estimates used in the preparation of
the consolidated financial statements
10
ALLIS-CHALMERS
ENERGY INC.
Notes to
Consolidated Financial
Statements (Continued)
may change as new events occur, as more experience is acquired,
as additional information is obtained and as our operating
environment changes.
Principles
of Consolidation
The consolidated financial statements include the accounts of
Allis-Chalmers and its subsidiaries. Our subsidiaries at
December 31, 2005 are Oil Quip, Mountain Air, Tubular,
Strata, AirComp, Safco, Downhole, Delta, Capcoil and Target. All
significant inter-company transactions have been eliminated.
Revenue
Recognition
We provide rental equipment and drilling services to our
customers at per day and per job contractual rates and recognize
the drilling related revenue as the work progresses and when
collectibility is reasonably assured. Payments from customers
for the cost of oilfield rental equipment that is damaged or
lost-in-hole are reflected as revenues. We recognized revenue
from damaged or lost-in-hole equipment of $970,000, $41,000 and
$252,000 for the years ended December 31, 2005, 2004 and
2003, respectively. The Securities and Exchange
Commissions (SEC) Staff Accounting Bulletin (SAB)
No. 104, Revenue Recognition In Financial Statements
(SAB No. 104), provides guidance on
the SEC staffs views on the application of generally
accepted accounting principles to selected revenue recognition
issues. Our revenue recognition policy is in accordance with
generally accepted accounting principles and
SAB No. 104.
Allowance
for Doubtful Accounts
Accounts receivable are customer obligations due under normal
trade terms. We sell our services to oil and natural gas
exploration and production companies. We perform continuing
credit evaluations of its customers financial condition
and although we generally does not require collateral, letters
of credit may be required from customers in certain
circumstances.
We record an allowance for doubtful accounts based on
specifically identified amounts that are determined
uncollectible. We have a limited number of customers with
individually large amounts due at any given date. Any
unanticipated change in any one of these customers credit
worthiness or other matters affecting the collectibility of
amounts due from such customers could have a material effect on
the results of operations in the period in which such changes or
events occur. After all attempts to collect a receivable have
failed, the receivable is written off against the allowance. As
of December 31, 2005 and 2004, we had recorded an allowance
for doubtful accounts of $383,000 and $265,000 respectively. Bad
debt expense was $219,000, $104,000 and $136,000 for the years
ended December 31, 2005, 2004 and 2003, respectively.
Cash
Equivalents
We consider all highly liquid investments with an original
maturity of three months or less at the time of purchase to be
cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the first in, first out
(FIFO) method or the average cost method, which
approximates FIFO, and includes the cost of materials, labor and
manufacturing overhead.
Property
and Equipment
Property and equipment is recorded at cost less accumulated
depreciation. Certain equipment held under capital leases are
classified as equipment and the related obligations are recorded
as liabilities.
11
ALLIS-CHALMERS
ENERGY INC.
Notes to
Consolidated Financial
Statements (Continued)
Maintenance and repairs, which do not improve or extend the life
of the related assets, are charged to operations when incurred.
Refurbishments and renewals are capitalized when the value of
the equipment is enhanced for an extended period. When property
and equipment are sold or otherwise disposed of, the asset
account and related accumulated depreciation account are
relieved, and any gain or loss is included in operations.
The cost of property and equipment currently in service is
depreciated over the estimated useful lives of the related
assets, which range from three to twenty years. Depreciation is
computed on the straight-line method for financial reporting
purposes. Capital leases are amortized using the straight-line
method over the estimated useful lives of the assets and lease
amortization is included in depreciation expense. Depreciation
expense charged to operations was $4.9 million,
$2.7 million and $2.1 million for the years ended
December 31, 2005, 2004 and 2003, respectively.
Goodwill,
Intangible Assets and Amortization
Goodwill, including goodwill associated with equity method
investments, 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.
We perform impairment tests on the carrying value of our
goodwill on an annual basis as of December 31st for each of
our reportable segments. As of December 31, 2005 and 2004,
no evidence of impairment exists.
|
|
|
Impairment
of Long-Lived Assets
|
Long-lived assets, which include property, plant and equipment
and other intangible assets, and certain other assets are
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is recorded in the period in
which it is determined that the carrying amount is not
recoverable. The determination of recoverability is made based
upon the estimated undiscounted future net cash flows, excluding
interest expense. The impairment loss is determined by comparing
the fair value, as determined by a discounted cash flow
analysis, with the carrying value of the related assets.
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 would
not be materially different due to the instruments
interest rates approximating market rates for similar borrowings
at December 31, 2005 and 2004.
Concentration
of Credit and Customer Risk
Financial instruments that potentially subject us to
concentrations of credit risk consist principally of cash and
cash equivalents and trade accounts receivable. We transact our
business with several financial institutions. However, the
amount on deposit in two financial institutions exceeded the
$100,000 federally insured limit at December 31, 2005 by a
total of $2.0 million. Management believes that the
financial institutions are financially sound and the risk of
loss is minimal.
We sell our services to major and independent domestic and
international oil and gas companies. We perform ongoing credit
valuations of our customers and provide allowances for probable
credit losses where
12
ALLIS-CHALMERS
ENERGY INC.
Notes to
Consolidated Financial
Statements (Continued)
appropriate. In 2005, none of our customers accounted for more
than 10% of our consolidated revenues. In the year ended
December 31, 2004, Matyep in Mexico represented 10.8%, and
Burlington Resources represented 10.1% of our consolidated
revenues, respectively. In the year ended December 31,
2003, Matyep, Burlington Resources, Inc., and El Paso
Energy Corporation represented 10.2%, 11.1% and 14.1%,
respectively, of our consolidated revenues. Revenues from Matyep
represented 94.5%, 98.0% and 100% of our international revenues
in 2005, 2004 and 2003, respectively.
Debt
Issuance Costs
The costs related to the issuance of debt are capitalized and
amortized to interest expense using the straight-line method,
which approximates the interest method, over the maturity
periods of the related debt.
Income
Taxes
We use the liability method for determining our income taxes,
under which current and deferred tax liabilities and assets are
recorded in accordance with enacted tax laws and rates. Under
this method, the amounts of deferred tax liabilities and assets
at the end of each period are determined using the tax rate
expected to be in effect when taxes are actually paid or
recovered. Future tax benefits are recognized to the extent that
realization of such benefits is more likely than not.
Deferred income taxes are provided for the estimated income tax
effect of temporary differences between financial and tax bases
in assets and liabilities. Deferred tax assets are also provided
for certain tax credit carryforwards. A valuation allowance to
reduce deferred tax assets is established when it is more likely
than not that some portion or all of the deferred tax assets
will not be realized.
Stock-Based
Compensation
We account for our stock-based compensation using Accounting
Principle Board Opinion No. 25 (APB
No. 25). Under APB No. 25, compensation expense
is recognized for stock options with an exercise price that is
less than the market price on the grant date of the option. For
stock options with exercise prices at or above the market value
of the stock on the grant date, we adopted the disclosure-only
provisions of Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting For Stock-Based
Compensation (SFAS 123). We also adopted
the disclosure-only provisions of SFAS No. 123 for the
stock options granted to our employees and directors.
Accordingly, no compensation cost has been recognized under APB
No. 25. Had compensation expense for the options granted
been recorded based on the fair value at the grant date for the
options, consistent with the provisions of SFAS 123, our
net income/(loss) and net income/(loss) per share
13
ALLIS-CHALMERS
ENERGY INC.
Notes to
Consolidated Financial
Statements (Continued)
for the years ended December 31, 2005, 2004, and 2003 would
have been decreased to the pro forma amounts indicated below (in
thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
Net income attributed to common
stockholders as reported:
|
|
|
|
$
|
7,175
|
|
|
$
|
764
|
|
|
$
|
2,271
|
|
Less total stock based employee
compensation expense determined under fair value based method
for all awards net of tax related effects
|
|
|
|
|
(4,284
|
)
|
|
|
(1,072
|
)
|
|
|
(2,314
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro-forma net income (loss)
attributed to common stockholders
|
|
|
|
$
|
2,891
|
|
|
$
|
(308
|
)
|
|
$
|
(43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
As reported
|
|
$
|
0.48
|
|
|
$
|
0.10
|
|
|
$
|
0.58
|
|
|
|
Pro forma
|
|
$
|
0.19
|
|
|
$
|
(0.04
|
)
|
|
$
|
(0.01
|
)
|
Diluted
|
|
As reported
|
|
$
|
0.44
|
|
|
$
|
0.09
|
|
|
$
|
0.50
|
|
|
|
Pro forma
|
|
$
|
0.18
|
|
|
$
|
(0.04
|
)
|
|
$
|
(0.01
|
)
|
Options were granted in 2005, 2004 and 2003. See Note 12
for further disclosures regarding stock options. The following
assumptions were applied in determining the pro forma
compensation costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Expected dividend yield
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected price volatility
|
|
|
84.28%
|
|
|
|
89.76%
|
|
|
|
265.08%
|
|
Risk-free interest rate
|
|
|
5.6%
|
|
|
|
7.00%
|
|
|
|
6.25%
|
|
Expected life of options
|
|
|
7 years
|
|
|
|
7 years
|
|
|
|
7 years
|
|
Weighted average fair value of
options
|
|
|
|
|
|
|
|
|
|
|
|
|
granted at market value
|
|
$
|
5.02
|
|
|
$
|
3.19
|
|
|
$
|
2.78
|
|
Segments
of an Enterprise and Related Information
We disclose the results of our segments in accordance with
SFAS No. 131, Disclosures About Segments Of An
Enterprise And Related Information
(SFAS No. 131). We designate the
internal organization that is used by management for allocating
resources and assessing performance as the source of our
reportable segments. SFAS No. 131 also requires
disclosures about products and services, geographic areas and
major customers Please see Note 18 for further disclosure
of segment information in accordance with SFAS No. 131.
Pension
and Other Post Retirement Benefits
SFAS No. 132, Employers Disclosures About
Pension And Other Post Retirement Benefits
(SFAS No. 132), requires certain
disclosures about employers pension and other post
retirement benefit plans and specifies the accounting and
measurement or recognition of those plans.
SFAS No. 132 requires disclosure of information on
changes in the benefit obligations and fair values of the plan
assets that facilitates financial analysis. Please see
Note 3 for further disclosure in accordance with
SFAS No. 132.
Income
Per Common Share
We compute income per common share in accordance with the
provisions of SFAS No. 128, Earnings Per Share
(SFAS No. 128). SFAS No. 128
requires companies with complex capital structures to present
14
ALLIS-CHALMERS
ENERGY INC.
Notes to
Consolidated Financial
Statements (Continued)
basic and diluted earnings per share. Basic earnings per share
are computed on the basis of the weighted average number of
shares of common stock outstanding during the period. For
periods through April 12, 2004, preferred dividends are
deducted from net income and have been considered in the
calculation of income available to common stockholders in
computing basic earnings per share. Diluted earnings per share
is similar to basic earnings per share, but presents the
dilutive effect on a per share basis of potential common shares
(e.g., convertible preferred stock, stock options, etc.) as if
they had been converted. Potential dilutive common shares that
have an anti-dilutive effect (e.g., those that increase income
per share) are excluded from diluted earnings per share.
The components of basic and diluted earnings per share are as
follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available for common
stockholders
|
|
$
|
7,175
|
|
|
$
|
764
|
|
|
$
|
2,271
|
|
Plus income impact of assumed
conversions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends/interest
|
|
|
|
|
|
|
124
|
|
|
|
656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common
stockholders plus assumed conversions
|
|
$
|
7,175
|
|
|
$
|
888
|
|
|
$
|
2,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per
share weighted average shares outstanding
|
|
|
14,832
|
|
|
|
7,930
|
|
|
|
3,927
|
|
Effect of potentially dilutive
common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock and
employee and director stock options
|
|
|
1,406
|
|
|
|
1,580
|
|
|
|
1,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding and assumed conversions
|
|
|
16,238
|
|
|
|
9,510
|
|
|
|
5,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.48
|
|
|
$
|
0.10
|
|
|
$
|
0.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.44
|
|
|
$
|
0.09
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification
Certain prior period balances have been reclassified to conform
to current year presentation.
New
Accounting Pronouncements
In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections.
SFAS No. 154 requires retroactive application of a
voluntary change in accounting principle to prior period
financial statements unless it is impracticable.
SFAS No. 154 also requires that a change in the method
of depreciation, amortization or depletion for long-lived,
non-financial assets be accounted for as a change in accounting
estimate that is affected by a change in accounting principle.
SFAS No. 154 replaces APB Opinion No. 20,
Accounting Changes and SFAS No. 3,
Reporting Accounting Changes in Interim Financial
Statements. SFAS No. 154 is effective for fiscal
years beginning after December 15, 2005. We will adopt the
provisions of SFAS No. 154 as of January 1, 2006
and do not expect that its adoption will have a material impact
on our results of operations or financial condition.
15
ALLIS-CHALMERS
ENERGY INC.
Notes to
Consolidated Financial
Statements (Continued)
In December 2004, the FASB issued SFAS No. 123R,
Share-Based Payment. SFAS No. 123R revises
SFAS No. 123, Accounting for Stock-Based
Compensation, and focuses on accounting for share-based
payments for services by employer to employee. The statement
requires all share-based payments to employees, including grants
of employee stock options, to be recognized in the financial
statements based on their fair values. We will adopt
SFAS No. 123R as of January 1, 2006 and will use
the modified prospective transition method, utilizing the
Black-Scholes option pricing model for the calculation of the
fair value of our employee stock options. Under the modified
prospective method, stock option awards that are granted,
modified or settled after January 1, 2006 will be measured
and accounted for in accordance with SFAS No. 123R.
Compensation cost for awards granted prior to, but not vested,
as of January 1, 2006 would be based on the grant date
attributes originally used to value those awards for pro forma
purposes under SFAS No. 123. We believe that the
adoption of this standard will result in an expense of
approximately $3.2 million, or a reduction in diluted
earnings per share of approximately $0.18 per share. This
estimate assumes no additional grants of stock options beyond
those outstanding as of December 31, 2005. This estimate is
based on many assumptions including the level of stock option
grants expected in 2006, our stock price, and significant
assumptions in the option valuation model including volatility
and the expected life of options. Actual expenses could differ
from the estimate.
In November 2004, the FASB issued SFAS No. 151,
Inventory Costs an Amendment of ARB
No. 43, Chapter 4, which amends the guidance in ARB
No. 43 to clarify the accounting for abnormal amounts of
idle facility expense, freight, handling costs and wasted
material. SFAS No. 151 requires that these items be
recognized as current period charges. In addition,
SFAS No. 151 requires the allocation of fixed
production overheads to inventory based on the normal capacity
of the production facilities. We are required to adopt
provisions of SFAS 151, on a prospective basis, as of
January 1, 2006. We do not believe the adoption of
SFAS 151 will have a material impact on our future results
of operations.
Earnings
Per Share
We understated diluted earnings per share due to an incorrect
calculation of our weighted shares outstanding for the third
quarter of 2003, for each of the first three quarters of 2004,
for the years ended December 31, 2003 and 2004 and for the
quarter ended March 31, 2005. In addition, we understated
basic earnings per share due to an incorrect calculation of our
weighted average basic shares outstanding for the quarter ended
September 30, 2004. Consequently, we have restated our
financial statements for each of those periods. The incorrect
calculation resulted from a mathematical error and an improper
application of SFAS No. 128. The effect of the
restatement is to reduce weighted average basic and diluted
shares outstanding for the three and nine months ended
September 30, 2004. Consequently, weighted average basic
and diluted earnings per share for the three and nine months
ended September 30, 2004 were increased.
A restated earnings per share calculation for all affected
periods reflecting the above adjustments to our results as
previously restated (see following section), is presented below
(amounts in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2005
|
|
|
|
As
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
|
Income per common share- diluted
|
|
$
|
0.09
|
|
|
$
|
0.02
|
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common
shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
17,789
|
|
|
|
(3,094
|
)
|
|
|
14,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
ALLIS-CHALMERS
ENERGY INC.
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2004
|
|
|
|
As
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
|
Income per common share- diluted
|
|
$
|
0.07
|
|
|
$
|
0.02
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common
shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
11,959
|
|
|
|
(2,449
|
)
|
|
|
9,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2004
|
|
|
|
As
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
|
Income per common
share basic
|
|
$
|
0.04
|
|
|
$
|
0.02
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per common share- diluted
|
|
$
|
0.04
|
|
|
$
|
0.01
|
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common
shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
11,599
|
|
|
|
(3,301
|
)
|
|
|
8,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
14,407
|
|
|
|
(4,579
|
)
|
|
|
9,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2004
|
|
|
|
As
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
|
Income per common share- diluted
|
|
$
|
0.04
|
|
|
$
|
0.01
|
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common
shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
10,237
|
|
|
|
(2,618
|
)
|
|
|
7,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2004
|
|
|
|
As
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
|
Income per common share- diluted
|
|
$
|
0.05
|
|
|
$
|
0.03
|
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common
shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
5,762
|
|
|
|
478
|
|
|
|
6,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2003
|
|
|
|
As
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
|
Income per common share- diluted
|
|
$
|
0.39
|
|
|
$
|
0.11
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common
shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
5,761
|
|
|
|
89
|
|
|
|
5,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
ALLIS-CHALMERS
ENERGY INC.
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2003
|
|
|
|
As
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
|
Income per common share- diluted
|
|
$
|
0.60
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common
shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
5,761
|
|
|
|
208
|
|
|
|
5,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AirComp
Acquisition
In connection with the formation of AirComp LLC in 2003, we,
along with M-I L.L.C. contributed assets to AirComp in exchange
for a 55% interest and 45% interest, respectively, in AirComp.
We originally accounted for the formation of AirComp as a joint
venture. However in February 2005, we determined that the
transaction should have been accounted for using purchase
accounting pursuant to SFAS No. 141, Business
Combinations and recorded the sale of an interest in a
subsidiary, in accordance with SEC Staff Accounting
Bulletin No. 51, Accounting for Sales of Stock by a
Subsidiary. Consequently, we restated our financial
statements for the quarter ended September 30, 2003, for
the year ended December 31, 2003 and for the three quarters
ended September 30, 2004, to reflect the following
adjustments:
Increase
in Book Value of Fixed Assets.
Under joint venture accounting, we originally recorded the value
of the assets contributed by M-I to AirComp at M-Is
historical cost of $6.9 million. Under purchase accounting,
we increased the recorded value of the assets contributed by M-I
by approximately $3.3 million to $10.3 million to
reflect their fair market value as determined by a third party
appraisal. In addition, under joint venture accounting, we
established negative goodwill which reduced fixed assets in the
amount of $1.6 million. The negative goodwill was amortized
by us over the lives of the related fixed assets. Under purchase
accounting, we increased fixed assets by $1.6 million to
reverse the negative goodwill previously recorded and reversed
amortization expenses recorded in 2004. Therefore, the cost of
fixed assets was increased by a total of $4.9 million at
the time of acquisition. As a result of the increase in fixed
assets and the reversal of amortization of negative goodwill,
depreciation expense increased by $98,000 for the year ended
December 31, 2003.
Increase
in Minority Interest and Capital in Excess of Par
Value.
Under purchase accounting, minority interest was increased by
$1.5 million, which was partially offset by minority
interest expense of $44,000 for the year ended December 31,
2003. Under purchase accounting, the capital in excess of par
was increased by $955,000.
18
ALLIS-CHALMERS
ENERGY INC.
Notes to
Consolidated Financial
Statements (Continued)
A restated consolidated balance sheet, reflecting the above
adjustments follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2003
|
|
|
|
As
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
Restatement
|
|
|
As
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,299
|
|
|
$
|
|
|
|
$
|
1,299
|
|
Trade receivables, net
|
|
|
8,823
|
|
|
|
|
|
|
|
8,823
|
|
Lease receivable, current
|
|
|
180
|
|
|
|
|
|
|
|
180
|
|
Prepaid expenses and other
|
|
|
887
|
|
|
|
|
|
|
|
887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
11,189
|
|
|
|
|
|
|
|
11,189
|
|
Property and equipment, net
|
|
|
26,339
|
|
|
|
4,789
|
|
|
|
31,128
|
|
Goodwill
|
|
|
7,661
|
|
|
|
|
|
|
|
7,661
|
|
Other intangible assets, net
|
|
|
2,290
|
|
|
|
|
|
|
|
2,290
|
|
Debt issuance costs, net
|
|
|
567
|
|
|
|
|
|
|
|
567
|
|
Lease receivable, less current
portion
|
|
|
787
|
|
|
|
|
|
|
|
787
|
|
Other
|
|
|
40
|
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
48,873
|
|
|
$
|
4,789
|
|
|
$
|
53,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Stockholders Equity
|
Current maturities of long-term
debt
|
|
$
|
3,992
|
|
|
$
|
|
|
|
$
|
3,992
|
|
Trade accounts payable
|
|
|
3,133
|
|
|
|
|
|
|
|
3,133
|
|
Accrued salaries, benefits and
payroll taxes
|
|
|
591
|
|
|
|
|
|
|
|
591
|
|
Accrued interest
|
|
|
152
|
|
|
|
|
|
|
|
152
|
|
Accrued expenses
|
|
|
1,761
|
|
|
|
|
|
|
|
1,761
|
|
Accounts payable, related parties
|
|
|
787
|
|
|
|
|
|
|
|
787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
10,416
|
|
|
|
|
|
|
|
10,416
|
|
Accrued postretirement benefit
obligations
|
|
|
545
|
|
|
|
|
|
|
|
545
|
|
Long-term debt, net of current
maturities
|
|
|
28,241
|
|
|
|
|
|
|
|
28,241
|
|
Other long-term liabilities
|
|
|
270
|
|
|
|
|
|
|
|
270
|
|
Redeemable warrants
|
|
|
1,500
|
|
|
|
|
|
|
|
1,500
|
|
Redeemable convertible preferred
stock and dividends
|
|
|
4,171
|
|
|
|
|
|
|
|
4,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
45,143
|
|
|
|
|
|
|
|
45,143
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
2,523
|
|
|
|
1,455
|
|
|
|
3,978
|
|
Stockholders
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
39
|
|
|
|
|
|
|
|
39
|
|
Capital in excess of par value
|
|
|
9,793
|
|
|
|
955
|
|
|
|
10,748
|
|
Accumulated (deficit)
|
|
|
(8,625
|
)
|
|
|
2,379
|
|
|
|
(6,246
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders Equity
|
|
|
1,207
|
|
|
|
3,334
|
|
|
|
4,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and
Stockholders Equity
|
|
$
|
48,873
|
|
|
$
|
4,789
|
|
|
$
|
53,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
ALLIS-CHALMERS
ENERGY INC.
Notes to
Consolidated Financial
Statements (Continued)
Increase
in Net Income.
Under joint venture accounting, no gain or loss was recognized
in connection with the formation of AirComp. Under purchase
accounting, we recorded a $2.4 million non-operating gain
in the third quarter of 2003.
As a result of the increase in fixed assets, depreciation
expense was increased for the year ended December 31, 2003
by $98,000 and minority interest expense decreased by $44,000,
resulting in a reduction in net income attributable to common
stockholders of $54,000. However, as a result of recording the
non-operating gain, net income attributed to common stockholders
increased by $2.4 million for the year ended
December 31, 2003.
A restated consolidated income statement reflecting the above
adjustments follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2003
|
|
|
|
As
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
Restatement
|
|
|
As
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
|
Revenue
|
|
$
|
32,724
|
|
|
$
|
|
|
|
$
|
32,724
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs
|
|
|
21,977
|
|
|
|
|
|
|
|
21,977
|
|
Depreciation
|
|
|
1,954
|
|
|
|
98
|
|
|
|
2,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
8,793
|
|
|
|
(98
|
)
|
|
|
8,695
|
|
General and administrative expense
|
|
|
5,285
|
|
|
|
|
|
|
|
5,285
|
|
Amortization
|
|
|
884
|
|
|
|
|
|
|
|
884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
2,624
|
|
|
|
(98
|
)
|
|
|
2,526
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net
|
|
|
(2,464
|
)
|
|
|
|
|
|
|
(2,464
|
)
|
Settlement on lawsuit
|
|
|
1,034
|
|
|
|
|
|
|
|
1,034
|
|
Gain on sale of stock in a
subsidiary
|
|
|
|
|
|
|
2,433
|
|
|
|
2,433
|
|
Other
|
|
|
111
|
|
|
|
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(1,319
|
)
|
|
|
2,433
|
|
|
|
1,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before minority
interest and income taxes
|
|
|
1,305
|
|
|
|
2,335
|
|
|
|
3,640
|
|
Minority interest in income of
subsidiaries
|
|
|
(387
|
)
|
|
|
44
|
|
|
|
(343
|
)
|
Provision for foreign income tax
|
|
|
(370
|
)
|
|
|
|
|
|
|
(370
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
548
|
|
|
|
2,379
|
|
|
|
2,927
|
|
Preferred stock dividend
|
|
|
(656
|
)
|
|
|
|
|
|
|
(656
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributed to
common stockholders
|
|
$
|
(108
|
)
|
|
$
|
2,379
|
|
|
$
|
2,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common
share basic
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
$
|
0.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common
share diluted
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
$
|
0.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common
shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
3,927
|
|
|
|
|
|
|
|
3,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
5,761
|
|
|
|
|
|
|
|
5,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
ALLIS-CHALMERS
ENERGY INC.
Notes to
Consolidated Financial
Statements (Continued)
A restated consolidated statement of cash flows reflecting the
adjustments follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2003
|
|
|
|
As
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
Restatement
|
|
|
As
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
|
Cash Flows From Operating
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
548
|
|
|
$
|
2,379
|
|
|
$
|
2,927
|
|
Adjustments to reconcile net
income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
expense
|
|
|
2,838
|
|
|
|
98
|
|
|
|
2,936
|
|
Amortization of discount on debt
|
|
|
516
|
|
|
|
|
|
|
|
516
|
|
(Gain) on change PBO liability
|
|
|
(125
|
)
|
|
|
|
|
|
|
(125
|
)
|
(Gain) on settlement of lawsuit
|
|
|
(1,034
|
)
|
|
|
|
|
|
|
(1,034
|
)
|
(Gain) on sale of interest in
AirComp
|
|
|
|
|
|
|
(2,433
|
)
|
|
|
(2,433
|
)
|
Minority interest in income of
subsidiaries
|
|
|
387
|
|
|
|
(44
|
)
|
|
|
343
|
|
Loss on sale of property
|
|
|
82
|
|
|
|
|
|
|
|
82
|
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) in accounts receivable
|
|
|
(4,414
|
)
|
|
|
|
|
|
|
(4,414
|
)
|
(Increase) in other current assets
|
|
|
(1,260
|
)
|
|
|
|
|
|
|
(1,260
|
)
|
Decrease in other assets
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Decrease in lease deposit
|
|
|
525
|
|
|
|
|
|
|
|
525
|
|
Increase in accounts payable
|
|
|
2,251
|
|
|
|
|
|
|
|
2,251
|
|
(Decrease) in accrued interest
|
|
|
(126
|
)
|
|
|
|
|
|
|
(126
|
)
|
Increase in accrued expenses
|
|
|
397
|
|
|
|
|
|
|
|
397
|
|
Increase in accrued employee
benefits and payroll taxes
|
|
|
1,293
|
|
|
|
|
|
|
|
1,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
|
1,879
|
|
|
|
|
|
|
|
1,879
|
|
Cash Flows From Investing
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of equipment
|
|
|
(5,354
|
)
|
|
|
|
|
|
|
(5,354
|
)
|
Proceeds from sale of equipment
|
|
|
843
|
|
|
|
|
|
|
|
843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing
activities
|
|
|
(4,511
|
)
|
|
|
|
|
|
|
(4,511
|
)
|
Cash Flows From Financing
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of
long-term debt
|
|
|
14,127
|
|
|
|
|
|
|
|
14,127
|
|
Repayments of long-term debt
|
|
|
(10,826
|
)
|
|
|
|
|
|
|
(10,826
|
)
|
Repayments on related party debt
|
|
|
(246
|
)
|
|
|
|
|
|
|
(246
|
)
|
Borrowing on lines of credit
|
|
|
30,537
|
|
|
|
|
|
|
|
30,537
|
|
Repayments on lines of credit
|
|
|
(29,399
|
)
|
|
|
|
|
|
|
(29,399
|
)
|
Debt issuance costs
|
|
|
(408
|
)
|
|
|
|
|
|
|
(408
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing
activities
|
|
|
3,785
|
|
|
|
|
|
|
|
3,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash
equivalents
|
|
|
1,153
|
|
|
|
|
|
|
|
1,153
|
|
Cash and cash equivalents at
beginning of the year
|
|
|
146
|
|
|
|
|
|
|
|
146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end
of the period
|
|
$
|
1,299
|
|
|
$
|
|
|
|
$
|
1,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
2,341
|
|
|
$
|
|
|
|
$
|
2,341
|
|
21
ALLIS-CHALMERS
ENERGY INC.
Notes to
Consolidated Financial
Statements (Continued)
In addition, the 2004 financial statements have been restated
from the previously filed interim financial statements included
in
Form 10-Q
for the first, second and third quarters of 2004. The effect of
the restatement on the individual quarterly financial statements
is as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
|
2004
|
|
|
2004
|
|
|
2004
|
|
|
Net income (loss) attributed to
common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
Previously reported
|
|
$
|
501
|
|
|
$
|
434
|
|
|
$
|
576
|
|
Adjustment
depreciation expense
|
|
|
(139
|
)
|
|
|
(79
|
)
|
|
|
(79
|
)
|
Adjustment minority
interest expense
|
|
|
22
|
|
|
|
22
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated
|
|
$
|
384
|
|
|
$
|
377
|
|
|
$
|
519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share, basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Previously reported
|
|
$
|
0.13
|
|
|
$
|
0.07
|
|
|
$
|
0.05
|
|
Total adjustments
|
|
|
(0.03
|
)
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated
|
|
$
|
0.10
|
|
|
$
|
0.06
|
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition, the accompanying 2003 financial statements have
been restated from the previously filed interim financial
statements included in
Form 10-Q
for the first, second and third quarters of 2003. An adjustment
was recorded in the fourth quarter of 2003 to reflect a change
in estimate of the recoverability of foreign taxes paid in 2002
and 2003. The effect of the significant fourth quarter
adjustment on the individual quarterly financial statements is
as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
|
2003
|
|
|
2003
|
|
|
2003
|
|
|
Net income (loss) attributed to
common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
Previously reported
|
|
$
|
(183
|
)
|
|
$
|
(330
|
)
|
|
$
|
1,136
|
|
Adjustment gain on
sale of stock in a subsidiary
|
|
|
|
|
|
|
|
|
|
|
2,433
|
|
Adjustment
depreciation expense
|
|
|
|
|
|
|
|
|
|
|
(49
|
)
|
Adjustment minority
interest expense
|
|
|
|
|
|
|
|
|
|
|
22
|
|
Adjustment foreign tax
expense
|
|
|
(158
|
)
|
|
|
(92
|
)
|
|
|
(93
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated
|
|
$
|
(341
|
)
|
|
$
|
(422
|
)
|
|
$
|
3,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share, basic
and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Previously reported
|
|
$
|
(0.05
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
0.29
|
|
Total adjustments
|
|
|
(0.04
|
)
|
|
|
(0.03
|
)
|
|
|
0.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated
|
|
$
|
(0.09
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
0.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 3
|
POST
RETIREMENT BENEFIT OBLIGATIONS
|
Medical
And Life
Pursuant to the Plan of Reorganization that was confirmed by the
Bankruptcy Court after acceptances by our creditors and
stockholders and was consummated on December 2, 1988, we
assumed the contractual obligation to Simplicity Manufacturing,
Inc. (SMI) to reimburse SMI for 50% of the actual cost of
medical and life insurance claims for a select group of retirees
(SMI Retirees) of the prior Simplicity Manufacturing
22
ALLIS-CHALMERS
ENERGY INC.
Notes to
Consolidated Financial
Statements (Continued)
Division of Allis-Chalmers. The actuarial present value of the
expected retiree benefit obligation is determined by an actuary
and is the amount that results from applying actuarial
assumptions to (1) historical claims-cost data,
(2) estimates for the time value of money (through
discounts for interest) and (3) the probability of payment
(including decrements for death, disability, withdrawal, or
retirement) between today and expected date of benefit payments.
As of December 31, 2005, 2004 and 2003, we have
post-retirement benefit obligations of $335,000, $687,000 and
$545,000, respectively.
401(k)
Savings Plan
On June 30, 2003, we adopted the 401(k) Profit Sharing Plan
(the Plan). The Plan is a defined contribution
savings plan designed to provide retirement income to our
eligible employees. The Plan is intended to be qualified under
Section 401(k) of the Internal Revenue Code of 1986, as
amended. It is funded by voluntary pre-tax contributions from
eligible employees who may contribute a percentage of their
eligible compensation, limited and subject to statutory limits.
The Plan is also funded by discretionary matching employer
contributions from us. Eligible employees cannot participate in
the Plan until they have attained the age of 21 and completed
six-months of service with us. Each participant is 100% vested
with respect to the participants contributions while our
matching contributions are vested over a three-year period in
accordance with the Plan document. Contributions are invested,
as directed by the participant, in investment funds available
under the Plan. Matching contributions of approximately
$114,000, $35,000 and $10,000 were paid in 2005, 2004 and 2003,
respectively.
In July 2003, through our subsidiary Mountain Air, we entered
into a limited liability company operating agreement with a
division of M-I, a joint venture between Smith International and
Schlumberger N.V. (Schlumberger Limited), to form AirComp,
a Texas limited liability company. The assets contributed by
Mountain Air were recorded at Mountain Airs historical
cost of $6.3 million, and the assets contributed by M-I
were recorded at a fair market value of $10.3 million. We
originally owned 55% and M-I originally owned 45% of AirComp. As
a result of our controlling interest and operating control, we
consolidated AirComp in our financial statements. AirComp
comprises the compressed air drilling services segment.
In September 2004, we acquired 100% of the outstanding stock of
Safco for $1.0 million. Safco leases spiral drill pipe and
provides related oilfield services to the oil drilling industry.
In September 2004, we acquired the remaining 19% of Tubular in
exchange for 1.3 million shares of our common stock. The
total value of the consideration paid to the seller, Jens
Mortensen, was $6.4 million which was equal to the number
of shares of common stock issued to Mr. Mortensen
(1.3 million) multiplied by the last sale price ($4.95) of
the common stock as reported on the American Stock Exchange on
the date of issuance. This amount was treated as a contribution
to stockholders equity. On the balance sheet, the
$1.9 million minority interest in Tubular was eliminated.
The balance of the contribution of $4.4 million was
allocated as follows: In June 2004, we obtained an appraisal of
the fixed assets of Tubular which valued the fixed assets at
$20.1 million. The book value of the fixed assets was
$15.8 million and the fixed assets appraised value was
$4.3 million over the book value. We increased the value of
our fixed assets by 19% of the amount of the excess of the
appraised value over the book value, or $.8 million. The
remaining balance of $3.6 million was allocated to goodwill.
In November 2004, AirComp acquired substantially all the assets
of Diamond Air for $4.6 million in cash and the assumption
of approximately $450,000 of accrued liabilities. We contributed
$2.5 million and
M-I L.L.C.
contributed $2.1 million to AirComp LLC in order to fund
the purchase. Goodwill of $375,000 and other intangible assets
of $2.3 million were recorded in connection with the
acquisition. Diamond Air provides air drilling technology and
products to the oil and gas industry in West Texas, New Mexico
and Oklahoma. Diamond Air is a leading provider of air hammers
and hammer bit products.
23
ALLIS-CHALMERS
ENERGY INC.
Notes to
Consolidated Financial
Statements (Continued)
In December 2004, we acquired Downhole for approximately
$1.1 million in cash, 568,466 shares of our common
stock and the assumption of approximately $950,000 of debt.
Goodwill of $442,000 and other intangible assets of $795,000
were recorded in connection with the acquisition. Downhole
provides economical chemical treatments to wells by inserting
small diameter, stainless steel coiled tubing into producing oil
and gas wells.
On April 1, 2005, we acquired 100% of the outstanding stock
of Delta for $4.6 million in cash, 223,114 shares of
our common stock and two promissory notes totaling $350,000. The
purchase price was allocated to fixed assets and inventory.
Delta, located in Lafayette, Louisiana, is a rental tool company
providing specialty rental items to the oil and gas industry
such as spiral heavy weight drill pipe, test plugs used to test
blow-out preventors, well head retrieval tools, spacer spools
and assorted handling tools.
On May 1, 2005, we acquired 100% of the outstanding capital
stock of Capcoil for $2.7 million in cash,
168,161 shares of our common stock and the payment or
assumption of approximately $1.3 million of debt. Capcoil,
located in Kilgore, Texas, is engaged in downhole well servicing
by providing coil tubing services to enhance production from
existing wells. Goodwill of $184,000 and other identifiable
intangible assets of $1.4 million were recorded in
connection with the acquisition.
On July 11, 2005, we acquired the compressed air drilling
assets of W.T., based in South Texas, for $6.0 million in
cash. The equipment includes compressors, boosters, mist pumps
and vehicles. Goodwill of $82,000 and other identifiable
intangible assets of $1.5 million were recorded in
connection with the acquisition.
On July 11, 2005, we acquired from M-I its 45% interest in
AirComp and subordinated note in the principal amount of
$4.8 million issued by AirComp, for which we paid M-I
$7.1 million in cash and issued to M-I a $4.0 million
subordinated note bearing interest at 5% per annum. As a
result, we now own 100% of AirComp
Effective August 1, 2005, we acquired 100% of the
outstanding capital stock of Target for $1.3 million in
cash and forgiveness of a lease receivable of approximately
$0.6 million. The purchase price was allocated to the fixed
assets of Target and resulted in the recording of a
$0.8 million deferred tax liability. The results of Target
are included in our directional and horizontal drilling segment
as their Measure While Drilling equipment is utilized in that
segment.
On September 1, 2005, we acquired the casing and tubing
service assets of Patterson Services, Inc. for approximately
$15.6 million. These assets are located in Corpus Christi,
Texas; Kilgore, Texas; Lafayette, Louisiana and Houma, Louisiana.
The acquisitions were accounted for using the purchase method of
accounting. The results of operations of the acquired entities
since the date of acquisition are included in our consolidated
income statement.
The following unaudited pro forma consolidated summary financial
information for the year ended December 31, 2005
illustrates the effects of the acquisitions of Delta, Capcoil,
W.T. and the minority interest in AirComp as if the acquisitions
had occurred as of January 1, 2005, based on the historical
results of the acquisitions. The following unaudited pro forma
consolidated summary financial information for the years ended
December 31, 2004 and 2003 illustrates the effects of the
acquisitions of Diamond Air, Downhole, Delta, Capcoil, W.T. and
the minority interest in AirComp as if the acquisitions had
occurred as of beginning
24
ALLIS-CHALMERS
ENERGY INC.
Notes to
Consolidated Financial
Statements (Continued)
of the period, based on the historical results of the
acquisitions (unaudited) (in thousands, except per share
amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Revenues
|
|
$
|
110,383
|
|
|
$
|
70,988
|
|
|
$
|
52,588
|
|
Operating income
|
|
$
|
14,143
|
|
|
$
|
8,233
|
|
|
$
|
4,276
|
|
Net income
|
|
$
|
8,180
|
|
|
$
|
4,000
|
|
|
$
|
2,459
|
|
Net income per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.55
|
|
|
$
|
0.46
|
|
|
$
|
0.53
|
|
Diluted
|
|
$
|
0.50
|
|
|
$
|
0.48
|
|
|
$
|
0.48
|
|
Inventories are comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
Hammer bits
|
|
|
|
|
|
|
|
|
Finished goods
|
|
$
|
1,402
|
|
|
$
|
857
|
|
Work in process
|
|
|
787
|
|
|
|
385
|
|
Raw materials
|
|
|
233
|
|
|
|
151
|
|
|
|
|
|
|
|
|
|
|
Total hammer bits
|
|
|
2,422
|
|
|
|
1,393
|
|
Hammers
|
|
|
584
|
|
|
|
417
|
|
Drive pipe
|
|
|
666
|
|
|
|
|
|
Rental supplies
|
|
|
64
|
|
|
|
|
|
Chemicals
|
|
|
201
|
|
|
|
254
|
|
Coiled tubing and related inventory
|
|
|
1,145
|
|
|
|
309
|
|
Shop supplies and related inventory
|
|
|
863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total inventory
|
|
$
|
5,945
|
|
|
$
|
2,373
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 6
|
PROPERTY
AND OTHER INTANGIBLE ASSETS
|
Property and equipment is comprised of the following at
December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
Period
|
|
2005
|
|
|
2004
|
|
|
Land
|
|
|
|
$
|
27
|
|
|
$
|
27
|
|
Building and improvements
|
|
15-20 years
|
|
|
637
|
|
|
|
633
|
|
Transportation equipment
|
|
3-7 years
|
|
|
7,772
|
|
|
|
4,854
|
|
Machinery and equipment
|
|
3-20 years
|
|
|
77,002
|
|
|
|
36,411
|
|
Furniture, computers, software and
leasehold improvements
|
|
3-7 years
|
|
|
2,073
|
|
|
|
1,005
|
|
Construction in
progress equipment
|
|
N/A
|
|
|
3,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
90,570
|
|
|
|
42,930
|
|
Less: accumulated depreciation
|
|
|
|
|
(9,996
|
)
|
|
|
(5,251
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
$
|
80,574
|
|
|
$
|
37,679
|
|
|
|
|
|
|
|
|
|
|
|
|
25
ALLIS-CHALMERS
ENERGY INC.
Notes to
Consolidated Financial
Statements (Continued)
The net book value of equipment recorded under capital leases
was $908 and $0 at December 31, 2005 and 2004, respectively.
Intangible assets are as follows at December 31 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
|
|
|
|
|
|
Period
|
|
2005
|
|
|
2004
|
|
|
Intellectual property
|
|
20 years
|
|
$
|
1,009
|
|
|
$
|
1,009
|
|
Non-compete agreements
|
|
3-5 years
|
|
|
4,630
|
|
|
|
2,856
|
|
Patent
|
|
15 years
|
|
|
496
|
|
|
|
496
|
|
Other intangible assets
|
|
3-10
years
|
|
|
3,811
|
|
|
|
2,732
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
9,946
|
|
|
$
|
7,093
|
|
Less: accumulated amortization
|
|
|
|
|
(3,163
|
)
|
|
|
(2,036
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles assets, net
|
|
|
|
$
|
6,783
|
|
|
$
|
5,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Current Year
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Current Year
|
|
|
|
Value
|
|
|
Amortization
|
|
|
Amortization
|
|
|
Value
|
|
|
Amortization
|
|
|
Amortization
|
|
|
Intellectual property
|
|
$
|
1,009
|
|
|
$
|
293
|
|
|
$
|
54
|
|
|
$
|
1,009
|
|
|
$
|
239
|
|
|
$
|
56
|
|
Non-compete agreements
|
|
|
4,630
|
|
|
|
1,916
|
|
|
|
884
|
|
|
|
2,856
|
|
|
|
1,032
|
|
|
|
300
|
|
Patent
|
|
|
496
|
|
|
|
39
|
|
|
|
33
|
|
|
|
496
|
|
|
|
6
|
|
|
|
6
|
|
Other intangible assets
|
|
|
3,811
|
|
|
|
915
|
|
|
|
277
|
|
|
|
2,732
|
|
|
|
759
|
|
|
|
420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,946
|
|
|
$
|
3,163
|
|
|
$
|
1,248
|
|
|
$
|
7,093
|
|
|
$
|
2,036
|
|
|
$
|
782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future amortization of intangible assets at December 31,
2005 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible Amortization by Period
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 and
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Thereafter
|
|
|
Intellectual property
|
|
$
|
55
|
|
|
$
|
55
|
|
|
$
|
55
|
|
|
$
|
55
|
|
|
$
|
496
|
|
Non-compete agreements
|
|
|
1,043
|
|
|
|
804
|
|
|
|
480
|
|
|
|
327
|
|
|
|
60
|
|
Patent
|
|
|
33
|
|
|
|
33
|
|
|
|
33
|
|
|
|
33
|
|
|
|
325
|
|
Other intangible assets
|
|
|
395
|
|
|
|
370
|
|
|
|
359
|
|
|
|
359
|
|
|
|
1,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Intangible Amortization
|
|
$
|
1,526
|
|
|
$
|
1,262
|
|
|
$
|
927
|
|
|
$
|
774
|
|
|
$
|
2,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
ALLIS-CHALMERS
ENERGY INC.
Notes to
Consolidated Financial
Statements (Continued)
The income tax provision consists of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Current Provision
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
123
|
|
|
$
|
|
|
|
$
|
|
|
State
|
|
|
595
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
626
|
|
|
|
514
|
|
|
|
370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,344
|
|
|
$
|
514
|
|
|
$
|
370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We are required to file a consolidated U.S. federal income
tax return. We pay foreign income taxes in Mexico related to
Allis-Chalmers Tubular Services Mexico revenues. There are
approximately $1.6 million of U.S. foreign tax credits
available to us and of that amount, the available
U.S. foreign tax credits may or may not be recoverable by
us depending upon the availability of taxable income in future
years and therefore, have not been recorded as an asset as of
December 31, 2005. Our foreign tax credits begin to expire
in the year 2007.
The following table reconciles the U.S. statutory tax rate
to our actual tax rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Income tax expense based on the
U.S. statutory tax rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
State taxes, net of federal benefit
|
|
|
6.1
|
|
|
|
|
|
|
|
|
|
Foreign income at other than
U.S. rate
|
|
|
7.3
|
|
|
|
36.6
|
|
|
|
11.2
|
|
Valuation allowances
|
|
|
(98.7
|
)
|
|
|
(209.4
|
)
|
|
|
28.6
|
|
Nondeductible items, permanent
differences and other
|
|
|
67.1
|
|
|
|
175.4
|
|
|
|
(62.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
15.8
|
%
|
|
|
36.6
|
%
|
|
|
11.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Temporary differences are differences between the tax basis of
assets and liabilities and their reported amounts in the
financial statements that will result in differences between
income for tax purposes and income for financial statement
purposes in future years. A valuation allowance is established
for deferred tax assets when management, based upon available
information, considers it more likely than not that a benefit
from such assets will not be realized. We have recorded a
valuation allowance equal to the excess of deferred tax assets
over deferred tax liabilities as we were unable to determine
that it is more likely than not that the deferred tax asset will
be realized.
The Tax Reform Act of 1986 contains provisions that limit the
utilization of net operating loss and tax credit carry forwards
if there has been a change of ownership as described
in Section 382 of the Internal Revenue Code. Such a change
of ownership may limit the our utilization of our net operating
loss and tax credit carry forwards, and could be triggered by a
public offering or by subsequent sales of securities by us or
our stockholders.
27
ALLIS-CHALMERS
ENERGY INC.
Notes to
Consolidated Financial
Statements (Continued)
Deferred income tax assets and the related allowance as of
December 31, were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
Deferred non-current income tax
assets:
|
|
|
|
|
|
|
|
|
Net future (taxable) deductible
items
|
|
$
|
384
|
|
|
$
|
533
|
|
Net operating loss carry forwards
|
|
|
5,656
|
|
|
|
4,894
|
|
A-C Reorganization Trust claims
|
|
|
29,098
|
|
|
|
30,112
|
|
|
|
|
|
|
|
|
|
|
Total deferred non-current income
tax assets
|
|
|
35,138
|
|
|
|
35,539
|
|
Valuation allowance
|
|
|
(27,131
|
)
|
|
|
(30,367
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred non-current income
taxes
|
|
$
|
8,007
|
|
|
$
|
5,172
|
|
Deferred non-current income tax
liabilities
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
(8,007
|
)
|
|
$
|
(5,172
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred income tax assets
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carry forwards for tax purposes at
December 31, 2005 and 2004 were estimated to be
$16.6 million and $14.5 million, respectively,
expiring through 2024.
Net future tax-deductible items relate primarily to timing
differences. Our 1988 Plan of Reorganization established the A-C
Reorganization Trust to settle claims and to make distributions
to creditors and certain stockholders. We transferred cash and
certain other property to the A-C Reorganization Trust on
December 2, 1988. Payments made by us to the A-C
Reorganization Trust did not generate tax deductions for us upon
the transfer but generate deductions for us as the A-C
Reorganization Trust makes payments to holders of claims.
The Plan of Reorganization also created a trust to process and
liquidate product liability claims. Payments made by the A-C
Reorganization Trust to the product liability trust did not
generate current tax deductions for us upon the payment but
generate deductions for us as the product liability trust makes
payments to liquidate claims or incurs other expenses.
We believe the above-named trusts are grantor trusts and
therefore we include the income or loss of these trusts in our
income or loss for tax purposes, resulting in an adjustment of
the tax basis of net operating and capital loss carry forwards.
The income or loss of these trusts is not included in our
results of operations for financial reporting purposes.
28
ALLIS-CHALMERS
ENERGY INC.
Notes to
Consolidated Financial
Statements (Continued)
Our long-term debt consists of the following: (in thousands)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
Bank term loans
|
|
$
|
42,090
|
|
|
$
|
13,373
|
|
Revolving line of credit
|
|
|
6,400
|
|
|
|
3,873
|
|
Subordinated note payable to M-I
LLC
|
|
|
4,000
|
|
|
|
4,818
|
|
Subordinated seller note
|
|
|
3,031
|
|
|
|
4,000
|
|
Seller note
|
|
|
850
|
|
|
|
1,600
|
|
Notes payable under non-compete
agreements
|
|
|
698
|
|
|
|
664
|
|
Notes payable to former directors
|
|
|
96
|
|
|
|
402
|
|
Notes payable to former
shareholders
|
|
|
|
|
|
|
49
|
|
Real estate loan
|
|
|
548
|
|
|
|
|
|
Vendor financing
|
|
|
|
|
|
|
1,164
|
|
Equipment & vehicle
installment notes
|
|
|
1,939
|
|
|
|
530
|
|
Capital lease obligations
|
|
|
917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
60,569
|
|
|
|
30,473
|
|
Less: short-term debt and current
maturities
|
|
|
5,632
|
|
|
|
5,541
|
|
|
|
|
|
|
|
|
|
|
Long-term debt obligations
|
|
$
|
54,937
|
|
|
$
|
24,932
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2005 and 2004, our debt was
approximately $60.6 million and $30.5 million,
respectively. Our weighted average interest rate for all of our
outstanding debt was approximately 7.5% at December 31,
2005 and 7.3% at December 31, 2004.
Maturities of debt obligations at December 31, 2005 are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
|
Capital Leases
|
|
|
Total
|
|
|
Year Ending:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
$
|
5,158
|
|
|
$
|
474
|
|
|
$
|
5,632
|
|
December 31, 2007
|
|
|
49,620
|
|
|
|
443
|
|
|
|
50,063
|
|
December 31, 2008
|
|
|
4,267
|
|
|
|
|
|
|
|
4,267
|
|
December 31, 2009
|
|
|
69
|
|
|
|
|
|
|
|
69
|
|
December 31, 2010
|
|
|
538
|
|
|
|
|
|
|
|
538
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
59,652
|
|
|
$
|
917
|
|
|
$
|
60,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
loans and line of credit agreements
On July 11, 2005, we replaced our previous credit agreement
with a new agreement that provided for the following senior
secured credit facilities:
|
|
|
|
|
A $13.0 million revolving line of credit. Borrowings were
limited to 85% of eligible accounts receivable plus 50% of
eligible inventory (up to a maximum of $2.0 million of
borrowings based on inventory). This line of credit was used to
finance working capital requirements and other general corporate
purposes, including the issuance of standby letters of credit.
Outstanding borrowings under
|
29
ALLIS-CHALMERS
ENERGY INC.
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
|
|
this line of credit were $6.4 million at a margin above
prime and LIBOR rates plus margin averaging approximately 8.1%
as of December 31, 2005.
|
|
|
|
|
|
Two term loans totaling $42.0 million. Outstanding
borrowings under these term loans were $42.0 million as of
December 31, 2005. These loans were at LIBOR rates plus a
margin which averages approximately 7.8%.
|
We borrowed against the July 2005 facilities to refinance our
prior credit facility and the AirComp credit facility, to fund
the acquisition of M-Is interest in AirComp and the air
drilling assets of W.T. and to pay transaction costs related to
the refinancing and the acquisitions. We incurred debt
retirement expense of $1.1 million related to the
refinancing. This amount includes prepayment penalties and the
write-off of deferred financing fees of the previous financing,
which has been included in interest expense in the consolidated
statement of operations.
Borrowings under the July 2005 credit facilities were to mature
in July 2007. Amounts outstanding under the term loans as of
July 2006 were to be repaid in monthly principal payments based
on a 48 month repayment schedule with the remaining balance
due at maturity. Additionally, during the second year, we were
to be required to prepay the remaining balance of the term loans
by 75% of excess cash flow, if any, after debt service and
capital expenditures. The interest rate payable on borrowings
was based on a margin over the London Interbank Offered Rate,
referred to as LIBOR, or the prime rate, and there was a 0.5%
fee on the undrawn portion of the revolving line of credit. The
margin over LIBOR was to increase by 1.0% in the second year.
The credit facilities were secured by substantially all of our
assets and contain customary events of default and financial and
other covenants, including limitations on our ability to incur
additional indebtedness, make capital expenditures, pay
dividends or make other distributions, create liens and sell
assets.
All amounts outstanding under our July 2005 credit agreement
were paid off with the proceeds of our senior notes offering in
January 2006. We executed an amended and restated credit
agreement which provides a $25.0 million revolving line of
credit (See Note 22).
Prior to July 11, 2005, we had a credit agreement dated
December 7, 2004 that provided for the following credit
facilities:
|
|
|
|
|
A $10.0 million revolving line of credit. Borrowings were
limited to 85% of eligible accounts receivables, as defined.
Outstanding borrowings under this line of credit were
$2.4 million as of December 31, 2004.
|
|
|
|
A term loan in the amount of $6.3 million to be repaid in
monthly payments of principal of $105,583 per month. We
were also required to prepay this term loan by an amount equal
to 20% of receipts from our largest customer in Mexico. Proceeds
of the term loan were used to prepay the term loan owed by
Tubular Services and to prepay the 12% $2.4 million
subordinated note and retire its related warrants. The
outstanding balance was $6.3 million as of
December 31, 2004.
|
|
|
|
A $6.0 million capital expenditure and acquisition line of
credit. Borrowings under this facility were payable monthly over
four years beginning in January 2006. Availability of this
capital expenditure term loan facility was subject to security
acceptable to the lender in the form of equipment or other
acquired collateral. There were no outstanding borrowings as of
December 31, 2004.
|
These credit facilities were to mature on December 31, 2007
and were secured by liens on substantially all of our assets.
The agreement governing these credit facilities contained
customary events of default and financial covenants. It also
limited our ability to incur additional indebtedness, make
capital expenditures, pay dividends or make other distributions,
create liens and sell assets. Interest accrued at an adjustable
rate based on the prime rate and was 6.25% as of
December 31, 2004. We paid a 0.5% per annum fee on the
undrawn portion of the revolving line of credit and the capital
expenditure line.
30
ALLIS-CHALMERS
ENERGY INC.
Notes to
Consolidated Financial
Statements (Continued)
In connection with the acquisition of Tubular and Strata in
2002, we issued a 12% secured subordinated note in the original
amount of $3.0 million. In connection with this
subordinated note, we issued redeemable warrants valued at
$1.5 million, which were recorded as a discount to the
subordinated debt and as a liability. The discount was amortized
over the life of the subordinated note beginning
February 6, 2002 as additional interest expense of which
$350,000 and $300,000 were recognized in the years ended
December 31, 2004 and December 31, 2003, respectively.
The debt was recorded at $2.7 million at December 31,
2003, net of the unamortized portion of the put obligation. On
December 7, 2004, we prepaid the $2.4 million balance
of the 12% subordinated note and retired the
$1.5 million of warrants, with a portion of the proceeds
from our $6.3 million bank term loan.
Prior to July 11, 2005, our AirComp subsidiary had the
credit facilities described below. These credit facilities were
repaid in connection with our acquisition of the minority
interest in AirComp and the refinancing of our bank credit
facilities described above.
|
|
|
|
|
A $3.5 million bank line of credit. Interest accrued at an
adjustable rate based on the prime rate. We paid a 0.5% per
annum fee on the undrawn portion. Borrowings under the line of
credit were subject to a borrowing base consisting of 80% of
eligible accounts receivable. The balance at December 31,
2004 was $1.5 million.
|
|
|
|
A $7.1 million term loan that accrued interest at an
adjustable rate based on either LIBOR or the prime rate.
Principal payments of $286,000 plus interest were due quarterly,
with a final maturity date of June 27, 2007. The balance at
December 31, 2004 was $6.8 million.
|
|
|
|
A delayed draw term loan facility in the amount of
$1.5 million to be used for capital expenditures. Interest
accrued at an adjustable rate based on either the LIBOR or the
prime rate. Quarterly principal payments were to commence on
March 31, 2006 in an amount equal to 5.0% of the
outstanding balance as of December 31, 2005, with a final
maturity of June 27, 2007. There were no borrowings
outstanding under this facility as of December 31, 2004.
|
The AirComp credit facilities were secured by liens on
substantially all of AirComps assets. The agreement
governing these credit facilities contained customary events of
default and required that AirComp satisfy various financial
covenants. It also limited AirComps ability to incur
additional indebtedness, make capital expenditures, pay
dividends or make other distributions, create liens and sell
assets. We guaranteed 55% of the obligations of AirComp under
these facilities.
Tubular had two bank term loans with a remaining balance
totaling $90,000 and $263,000 at December 31, 2005 and
2004, with interest accruing at a floating interest rate based
on prime plus 2.0%. The interest rate was 9.25% and 7.25% at
December 31, 2005 and 2004. Monthly principal payments are
$13,000 plus interest. The maturity date of one of the loans,
with a balance of $60,000, was September 17, 2006, while
the second loan, with a balance of $30,000, had a final maturity
of January 12, 2007. The balances of these two loans were
repaid in full in January 2006 with the proceeds from our senior
notes offering.
Notes
payable and real estate loan
AirComp had a subordinated note payable to M-I in the amount of
$4.8 million bearing interest at an annual rate of 5.0%. In
2007 each party had the right to cause AirComp to sell its
assets (or the other party may buy out such partys
interest), and in such event this note (including accrued
interest) was due and payable. The note was also due and payable
if M-I sells its interest in AirComp or upon a termination of
AirComp. At December 31, 2004, $376,000 of interest was
included in accrued interest. On July 11, 2005, we acquired
from M-I its 45% equity interest in AirComp and the subordinated
note in the principal amount of $4.8 million issued by
AirComp, for which we paid M-I $7.1 million in cash and
issued a new $4.0 million subordinated note bearing
interest at 5% per annum. The subordinated note issued to
M-I requires quarterly interest payments and the principal
amount is due October 9, 2007. Contingent upon a future
equity offering,
31
ALLIS-CHALMERS
ENERGY INC.
Notes to
Consolidated Financial
Statements (Continued)
the subordinated note is convertible into up to
700,000 shares of our common stock at a conversion price
equal to the market value of the common stock at the time of
conversion.
Tubular had a subordinated note payable to Jens Mortensen, the
seller of Tubular and one of our directors, in the amount of
$4.0 million with a fixed interest rate of 7.5%. Interest
was payable quarterly and the final maturity of the note is
January 31, 2006. The subordinated note was subordinated to
the rights of our bank lenders. The balance outstanding for this
note at December 31, 2005 and 2004 was $3.0 and
$4.0 million, respectively. The balance of this
subordinated note was repaid in full in January 2006 with
proceeds from our senior notes offering.
As part of the acquisition of Mountain Air in 2001, we issued a
note to the sellers of Mountain Air in the original amount of
$2.2 million accruing interest at a rate of 5.75% per
annum. The note was reduced to $1.5 million as a result of
the settlement of a legal action against the sellers in 2003. In
March 2005, we reached an agreement with the sellers and holders
of the note as a result of an action brought against us by the
sellers. Under the terms of the agreement, we paid the holders
of the note $1.0 million in cash, and agreed to pay an
additional $350,000 on June 1, 2006, and an additional
$150,000 on June 1, 2007, in settlement of all claims. (See
Note 16). At December 31, 2005 and 2004 the
outstanding amounts due were $500,000 and $1.6 million,
including accrued interest.
In connection with the purchase of Delta, we issued to the
sellers a note in the amount of $350,000. The note bears
interest at 2% and the principal and accrued interest is due on
April 1, 2006.
In connection with the purchase of Tubular, we agreed to pay a
total of $1.2 million to Mr. Mortensen in exchange for
a non-compete agreement. Monthly payments of $20,576 are due
under this agreement through January 31, 2007. In
connection with the purchase of Safco, we also agreed to pay a
total of $150,000 to the sellers in exchange for a non-compete
agreement. We are required to make annual payments of $50,000
through September 30, 2007. In connection with the purchase
of Capcoil, we agreed to pay a total of $500,000 to two
management employees in exchange for non-compete agreements. We
are required to make annual payments of $110,000 through May
2008. Total amounts due under non-compete agreements at
December 31, 2005 and 2004 were $698,000 and $664,000,
respectively.
In 2000 we compensated directors, including current directors
Nederlander and Toboroff, who served on the board of directors
from 1989 to March 31, 1999 without compensation, by
issuing promissory notes totaling $325,000. The notes bear
interest at the rate of 5.0%. At December 31, 2005 and
2004, the principal and accrued interest on these notes totaled
approximately $96,000 and $402,000, respectively.
Our subsidiary, Downhole, had notes payable to two former
shareholders totaling $49,000. We were required to make monthly
payments of $8,878 through June 30, 2005. At
December 31, 2005 and 2004, the amounts outstanding were $0
and $49,000.
We also have a real estate loan which is payable in equal
monthly installments of $4,344 with the remaining outstanding
balance due on January 1, 2010. The loan has a floating
interest rate based on prime plus 2.0%. The outstanding
principal balance was $548,000 at December 31, 2005. The
balance of this loan was prepaid in full in January 2006 with
proceeds from our senior notes offering.
Other
debt
In December 2003, Strata, our directional drilling subsidiary,
entered into a financing agreement with a major supplier of
downhole motors for repayment of motor lease and repair cost
totaling $1.7 million. The agreement provided for repayment
of all amounts not later than December 30, 2005. Payment of
interest was due monthly and principal payments of $582,000 were
due on April 2005 and December 2005. The interest rate was fixed
at 8.0%. As of December 31, 2005 and 2004, the outstanding
balance was $0 and $1.2 million.
32
ALLIS-CHALMERS
ENERGY INC.
Notes to
Consolidated Financial
Statements (Continued)
We have various equipment financing loans with interest rates
ranging from 5% to 11.5% and terms ranging from 2 to
5 years. As of December 31, 2005 and 2004, the
outstanding balances for equipment financing loans were
$1.9 million and $530,000, respectively. We also have
various capital leases with terms that expire in 2008. As of
December 31, 2005 and 2004, amounts outstanding under
capital leases were $917,000 and $0, respectively. In January
2006, we prepaid $350,000 of the outstanding equipment loans
with proceeds from our senior notes offering.
|
|
NOTE 9
|
COMMITMENTS
AND CONTINGENCIES
|
We have placed orders for capital equipment totaling
$6.8 million to be received and paid for through 2006. Of
this amount, $3.1 million is for six measurement while
drilling kits and ancillary equipment for our directional
drilling segment and $3.7 million is for two new capillary
tubing units and two new coil tubing units for our production
services segment. Of the $6.8 million in orders, we are
firmly committed to approximately $4.4 million as the
balance may be subject to cancellation with minimal loss of
prior cash deposits, if any.
We rent office space on a five-year lease which expires November
2009. We also rent certain other facilities and shop yards for
equipment storage and maintenance. Facility rent expense for the
years ended December 31, 2005, 2004 and 2003 was $987,000,
$577,000, and $370,000, respectively.
At December 31, 2005, future minimum rental commitments for
all operating leases are as follows (in thousands):
|
|
|
|
|
Years Ending:
|
|
|
|
|
December 31, 2006
|
|
$
|
926
|
|
December 31, 2007
|
|
|
833
|
|
December 31, 2008
|
|
|
629
|
|
December 31, 2009
|
|
|
446
|
|
December 31, 2010
|
|
|
44
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,878
|
|
|
|
|
|
|
|
|
NOTE 10
|
STOCKHOLDERS
EQUITY
|
In connection with the formation of AirComp in July 2003, we
eliminated $955,000 of our negative investment in the assets
contributed to AirComp. Under purchase accounting, we recognized
a $955,000 increase in stockholders equity. For the year ended
December 31, 2003, we accrued $350,000 of dividends payable
to the Preferred Stock holders. No dividends were declared or
paid.
On March 3, 2004, we entered into an agreement with an
investment banking firm whereby they would provide underwriting
and fundraising activities on our behalf. In exchange for their
services, the investment banking firm received a stock purchase
warrant to purchase 340,000 shares of common stock at an
exercise price of $2.50 per share. The warrant was
exercised in August of 2005. The fair value of the total
warrants issued in connection with the fundraising activities
was established in accordance with the Black-Scholes valuation
model and as a result, $641,000 was added to stockholders
equity. The following assumptions were utilized to determine
fair value: no dividend yield; expected volatility of 89.7%;
risk free interest rate of 7.00%; and expected life of five
years.
During 2004, we issued two warrants (Warrants A and
B) for the purchase of 233,000 total shares of our common
stock at an exercise price of $0.75 per share and one
warrant for the purchase of 67,000 shares of our common
stock at an exercise price of $5.00 per share
(Warrant C) in connection with their
33
ALLIS-CHALMERS
ENERGY INC.
Notes to
Consolidated Financial
Statements (Continued)
subordinated debt financing. Warrants A and B were redeemed for
a total of $1,500,000 on December 7, 2004. The fair value
of Warrant C was established in accordance with the
Black-Scholes valuation model and as a result, $47,000 was added
to stockholders equity. The following assumptions were
utilized to determine fair value: no dividend yield; expected
volatility of 67.24%; risk free interest rate of 5.00%; and
expected life of four years.
On April 2, 2004, we completed the following transactions:
|
|
|
|
|
In exchange for an investment of $2.0 million, we issued
620,000 shares of our common stock for a purchase price
equal to $2.50 per share, and issued warrants to purchase
800,000 shares of our common stock at an exercise price of
$2.50 per share, expiring on April 1, 2006, to an
investor group (the Investor Group) consisting of
entities affiliated with Donald and Christopher Engel and
directors Robert Nederlander and Leonard Toboroff. The aggregate
purchase price for the common stock was $1.55 million and
the fair value for the warrants was $450,000.
|
|
|
|
Energy Spectrum converted its 3,500,000 shares of
Series A 10% Cumulative Convertible Preferred Stock,
including accrued dividend rights, into 1,718,090 shares of
common stock. Energy Spectrum was granted the preferred stock in
connection with the Strata acquisition.
|
On August 10, 2004, we completed the private placement of
3,504,667 shares of our common stock at a price of
$3.00 per share. Our net proceeds, after selling
commissions and expenses, were approximately $9.6 million.
We issued shares pursuant to an exemption from the Securities
Act of 1933, and agreed to subsequently register the common
stock under the Securities Act of 1933 to allow investors to
resell the common stock in public markets.
On September 30, 2004, we completed the private placement
of 1,956,634 shares of our common stock at a price of
$3.00 per share. Our net proceeds, after selling commission
and expenses, were approximately $5.3 million. We issued
shares pursuant to an exemption from the Securities Act of 1933,
and agreed to subsequently register the common stock under the
Securities Act of 1933 to allow investors to resell the common
stock in public markets.
On September 30, 2004, we issued 1.3 million shares of
common stock to Jens Mortensen, a director, in exchange for his
19% interest in Tubular. As a result of this transaction, we own
100% of Tubular. The total value of the consideration paid to
Jens was $6.4 million, which was equal to the number of
shares of common stock issued to Mr. Mortensen multiplied
by the last sale price ($4.95) of the common stock as reported
on the American Stock Exchange on the date of issuance. This
amount was treated as a contribution to stockholders equity.
On December 10, 2004, we acquired Downhole for
approximately $1.1 million in cash, 568,466 shares of
our common stock and payment or assumption of $950,000 of debt.
Approximately $2.2 million, the value of the common stock
issued to Downholes sellers based on the closing price of
our common stock issued at the date of the acquisition, was
added to stockholders equity.
As of January 1, 2005, in relation to the acquisition of
Downhole, we executed a business development agreement with CTTV
Investments LLC, an affiliate of ChevronTexaco Inc., whereby we
issued 20,000 shares of our common stock to CTTV and
further agreed to issue up to an additional 60,000 shares
to CTTV contingent upon our subsidiaries receiving certain
levels of revenues in 2005 from ChevronTexaco and its
affiliates. CTTV was a minority owner of Downhole, which we
acquired in 2004. Based on the terms of the agreement, no
additional shares were issued in 2005.
On April 1, 2005, we acquired 100% of the outstanding stock
of Delta, for $4.6 million in cash, 223,114 shares of
our common stock and two promissory notes totaling $350,000.
Approximately $1.0 million, the value of the common stock
issued to Deltas sellers based on the closing price of our
common stock issued at the date of the acquisition, was added to
stockholders equity.
34
ALLIS-CHALMERS
ENERGY INC.
Notes to
Consolidated Financial
Statements (Continued)
On May 1, 2005, we acquired 100% of the outstanding capital
stock of Capcoil for $2.7 million in cash,
168,161 shares of our common stock and the payment or
assumption of approximately $1.3 million of debt.
Approximately $750,000, the value of the common stock issued to
Capcoils sellers based on the closing price of our common
stock issued at the date of the acquisition, was added to
stockholders equity.
In August 2005, our stockholders approved an amendment to our
certificate of incorporation to increase the authorized number
of shares of our common stock from 20 million to
100 million and to increase our authorized preferred stock
from 10 million shares to 25 million shares and, we
completed a secondary public offering in which we sold
1,761,034 shares for approximately $15.5 million, net
of expenses.
We also had options and warrants exercised during 2005. Those
exercises resulted in 1,076,154 shares of our common stock
being issued for $1.4 million.
NOTE 11
REVERSE STOCK SPLIT
We effected a reverse stock split on June 10, 2004. As a
result of the reverse stock split, every five shares of our
common stock was combined into one share of common stock. The
reverse stock split reduced the number of shares of outstanding
common stock from 31,393,789 to approximately 6,265,000 and
reduced the number of our stockholders from 6,070 to
approximately 2,140. All share and related amounts presented
have been retroactively adjusted for the stock split.
NOTE 12
STOCK OPTIONS
In 2000, we issued stock options and promissory notes to certain
current and former directors as compensation for services as
directors (See Note 8), and our Board of Directors granted
stock options to these same individuals. Options to purchase
4,800 shares of our common stock were granted with an
exercise price of $13.75 per share. These options vested
immediately and may be exercised any time prior to
March 28, 2010. As of December 31, 2005, none of the
stock options had been exercised. No compensation expense has
been recorded for these options that were issued with an
exercise price equal to the fair value of the common stock at
the date of grant.
On May 31, 2001, the Board granted to Leonard Toboroff, one
of our directors, an option to purchase 100,000 shares of
our common stock at $2.50 per share, exercisable for
10 years from October 15, 2001. The option was granted
for services provided by Mr. Toboroff to OilQuip prior to
the merger, including providing financial advisory services,
assisting in OilQuips capital structure and assisting
OilQuip in finding strategic acquisition opportunities. We
recorded compensation expense of $500,000 for the issuance of
the option for the year ended December 31, 2001.
The 2003 Incentive Stock Plan, as amended, permits us to grant
to our key employees and outside directors various forms of
stock incentives, including, among others, incentive and
non-qualified stock options and restricted stock. Stock
incentive terms are not to be in excess of ten years. As
disclosed in Note 1, we account for our stock-based
compensation using APB No. 25. We have adopted the
disclosure-only provisions of SFAS No. 123 for the
stock options granted to our employees and directors.
Accordingly, no compensation cost has been recognized for these
options.
35
ALLIS-CHALMERS
ENERGY INC.
Notes to
Consolidated Financial
Statements (Continued)
A summary of our stock option activity and related information
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005
|
|
|
December 31, 2004
|
|
|
December 31, 2003
|
|
|
|
Shares
|
|
|
Weighted Ave.
|
|
|
Shares
|
|
|
Weighted Avg.
|
|
|
Shares
|
|
|
Weighted Avg.
|
|
|
|
Under
|
|
|
Exercise
|
|
|
Under
|
|
|
Exercise
|
|
|
Under
|
|
|
Exercise
|
|
|
|
Option
|
|
|
Price
|
|
|
Option
|
|
|
Price
|
|
|
Option
|
|
|
Price
|
|
|
Beginning balance
|
|
|
1,215,000
|
|
|
$
|
3.20
|
|
|
|
973,300
|
|
|
$
|
2.78
|
|
|
|
104,800
|
|
|
$
|
3.00
|
|
Granted
|
|
|
1,695,000
|
|
|
|
6.44
|
|
|
|
248,000
|
|
|
|
4.85
|
|
|
|
868,500
|
|
|
|
2.75
|
|
Canceled
|
|
|
(15,300
|
)
|
|
|
3.33
|
|
|
|
(6,300
|
)
|
|
|
2.78
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(33,833
|
)
|
|
|
2.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
|
2,860,867
|
|
|
$
|
5.10
|
|
|
|
1,215,000
|
|
|
$
|
3.20
|
|
|
|
973,300
|
|
|
$
|
2.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes additional information about our
stock options outstanding as of December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
Shares Under
|
|
|
Remaining
|
|
|
|
|
|
|
Exercise Price
|
|
|
Option
|
|
|
Contractual Life
|
|
Options Exercisable
|
|
|
Exercise Price
|
|
|
$
|
2.50
|
|
|
|
100,000
|
|
|
5.79 years
|
|
|
100,000
|
|
|
$
|
2.50
|
|
$
|
2.75
|
|
|
|
829,067
|
|
|
7.96 years
|
|
|
829,067
|
|
|
$
|
2.75
|
|
$
|
3.86
|
|
|
|
920,000
|
|
|
9.09 years
|
|
|
306,667
|
|
|
$
|
3.86
|
|
$
|
4.85
|
|
|
|
259,000
|
|
|
8.73 years
|
|
|
172,667
|
|
|
$
|
4.85
|
|
$
|
4.87
|
|
|
|
154,000
|
|
|
9.40 years
|
|
|
51,333
|
|
|
$
|
4.87
|
|
$
|
10.85
|
|
|
|
594,000
|
|
|
9.96 years
|
|
|
198,000
|
|
|
$
|
10.85
|
|
$
|
13.75
|
|
|
|
4,800
|
|
|
4.24 years
|
|
|
4,800
|
|
|
$
|
13.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5.11
|
|
|
|
2,860,867
|
|
|
8.82 years
|
|
|
1,662,534
|
|
|
$
|
4.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 13 STOCK
PURCHASE WARRANTS
In conjunction with the Mountain Air purchase by OilQuip in
February of 2001, Mountain Air issued a common stock warrant for
620,000 shares to a third-party investment firm that
assisted us in its initial identification and purchase of the
Mountain Air assets. The warrant entitles the holder to acquire
up to 620,000 shares of common stock of Mountain Air at an
exercise price of $.01 per share over a nine-year period
commencing on February 7, 2001. The fair value of the
warrants was established in accordance with the Black-Scholes
valuation model and as a result $200,000 was added to
stockholders equity.
We issued two warrants (Warrants A and B) for the
purchase of 233,000 total shares of our common stock at an
exercise price of $0.75 per share and one warrant for the
purchase of 67,000 shares of our common stock at an
exercise price of $5.00 per share (Warrant C)
in connection with our subordinated debt financing for Mountain
Air in 2001. Warrants A and B were subject to cash redemption
provisions (puts) of $600,000 and $900,000,
respectively. The warrants were recorded at their redemption
value and were recorded as a discount to the subordinated debt
and as a liability. The discount was amortized as additional
interest expense over the life of the debt instrument. The fair
value of Warrant C was established in accordance with the
Black-Scholes valuation model and as a result $47,000 was added
to stockholders equity. Warrant C is still
outstanding at December 31, 2005.
On February 6, 2002, in connection with the acquisition of
substantially all of the outstanding stock of Strata, we issued
a warrant for the purchase of 87,500 shares of our common
stock at an exercise price of $0.75 per share over the term
of four years. The fair value of the warrant was established in
accordance with
36
ALLIS-CHALMERS
ENERGY INC.
Notes to
Consolidated Financial
Statements (Continued)
the Black-Scholes valuation model and as a result $267,000 was
added to stockholders equity. The warrants were exercised
and sold in our August 2005 public offering.
In connection with the Strata Acquisition, on February 19,
2003, we issued Energy Spectrum an additional warrant to
purchase 175,000 shares of our common stock at an exercise
price of $0.75 per share. The fair value of the warrant was
established in accordance with the Black-Scholes valuation model
and as a result $306,000 was added to stockholders equity.
This transaction was recorded similar to a preferred share
dividend. The warrants were exercised and sold in our August
2005 public offering.
In March 2004, we issued a warrant to purchase
340,000 shares of our common stock at an exercise price of
$2.50 per share to Morgan Joseph & Co., in
consideration of financial advisory services provided by Morgan
Joseph pursuant to the April 2004 private placement. The fair
value of the warrants was established in accordance with the
Black-Scholes valuation model and as a result $626,000 was
included as a cost of the private placement and an increase in
stockholders equity. The warrants were exercised and sold
in our August 2005 public offering.
In April 2004, we issued warrants to purchase 20,000 shares
of common stock at an exercise price of $0.75 per share to
Wells Fargo Credit, Inc., in connection with the extension of
credit by Wells Fargo Credit Inc. The fair value of the warrants
was established in accordance with the Black-Scholes valuation
model and as a result $48,000 was added to stockholders
equity. The related debt discount was amortized over the life of
the credit agreement. The warrants were exercised in our August
2005 public offering.
In April 2004, we completed a private placement of
620,000 shares of common stock and warrants to purchase
800,000 shares of common stock to the following investors:
Christopher Engel; Donald Engel; the Engel Defined Benefit Plan;
RER Corp., a corporation wholly-owned by director Robert
Nederlander; and Leonard Toboroff, a director. The investors
invested $1,550,000 in exchange for 620,000 shares of
common stock for a purchase price equal to $2.50 per share,
and invested $450,000 in exchange for warrants to purchase
800,000 shares of common stock at an exercise of
$2.50 per share, expiring on April 1, 2006. A total of
486,557 of these warrants were exercised in 2005.
In May 2004, we issued a warrant to purchase 3,000 shares
of our common stock at an exercise price of $4.75 per share
to Jeffrey R. Freedman in consideration of financial advisory
services to be provided by Mr. Freedman pursuant to a
consulting agreement. The warrants were exercised in May 2004.
Mr. Freedman was also granted 16,000 warrants in May of
2004 exercisable at $4.65 per share. These warrants were
exercised in November of 2005.
Warrants for 4,000 shares of our common stock at an
exercise price of $4.65 were also issued in May 2004 and remain
outstanding as of December 31, 2005.
NOTE 14 LEASE
RECEIVABLE
In June 2002, our subsidiary, Strata, sold its MWD assets to a
third party for $1.3 million. Under the terms of the sale,
we would receive at least $15,000 per month for thirty-six
months. After thirty-six months, the purchaser had the option to
pay the remaining balance or continue paying a minimum of
$15,000 per month for twenty-four additional months. After the
expiration of the additional twenty-four months, the purchaser
would repay any remaining balance. This transaction had been
accounted for as a direct financing lease with the nominal
residual gain from the asset sale deferred into income over the
life of the lease. In August of 2005, we acquired 100% of the
outstanding stock of the buyer and the balance of the lease
receivable was part of the consideration of the acquisition.
During the years ended December 31, 2005, 2004 and 2003, we
received a total of $146,000, $229,000, and $251,000,
respectively, in payments from the third party related to this
lease.
37
ALLIS-CHALMERS
ENERGY INC.
Notes to
Consolidated Financial
Statements (Continued)
NOTE 15 RELATED
PARTY TRANSACTIONS
In July 2005, we entered into a lease of a yard in Buffalo,
Texas which is part owned by our Chief Operating Officer, David
Wilde. The monthly rent is $3,500.
Alya H. Hidayatallah, the daughter of our Chairman and Chief
Executive Officer, Munawar H. Hidayatallah, has served as our
Vice President-Planning and Development since April 2005. In
2005, we paid Ms. Hidayatallah a salary at a rate of
$80,000 per annum.
At December 31, 2005 and 2004, we owed our Chief Executive
Officer, $0 and $175,000, respectively, related to deferred
compensation. In March and April of 2005 we paid all amounts due
Mr. Hidayatallah.
Until December 2004, our Chief Executive Officer and Chairman,
Munawar H. Hidayatallah and his wife were personal guarantors of
substantially all of the financing extended to us by commercial
banks. In December 2004, we refinanced most of our outstanding
bank debt and obtained the release of certain guarantees. After
the refinancing, Mr. Hidayatallah continued to guarantee
the Tubular $4.0 million subordinated seller note until
July 2005. We paid Mr. Hidayatallah an annual guarantee fee
equal to one-quarter of one percent of the total amount of the
debt guaranteed by Mr. Hidayatallah. These fees aggregated
to $7,250 during 2005 and were paid quarterly, in arrears, based
upon the average amount of debt outstanding in the prior quarter.
In April 2004, we entered into an oral consulting agreement with
Leonard Toboroff, one of our directors, pursuant to which we pay
him $10,000 per month to advise us regarding financing and
acquisition opportunities.
Jens Mortensen, one of our directors, is the former owner of
Tubular and held a 19% minority interest in Tubular until
September 30, 2004. He was also the holder of a
$4.0 million subordinated note payable issued by Tubular
and at December 31, 2005 was owed $60,000 in accrued
interest and $267,000 related to a non-compete agreement. (See
Note 8). The subordinated note was repaid in January of
2006 (See Note 22) and the accrued interest was paid
in January 2006. Mr. Mortensen, formerly the sole
proprietor of Tubular, owns a shop yard which he leases to
Jens on a monthly basis. Lease payments made under the
terms of the lease were $16,800, $28,800 and $28,800 for the
years ended December 31, 2005, 2004 and 2003, respectively.
In addition, Mr. Mortensen and members of his family own
100% of Tex-Mex Rental & Supply Co., a Texas
corporation, that sold approximately $0, $167,000 and $173,000
of equipment and other supplies to Tubular for the years ended
December 31, 2005, 2004 and 2003, respectively.
As described in Note 8, several of our former directors
were issued promissory notes in 2000 in lieu of compensation for
services. Our current maturities of long-term debt includes
$96,000 and $402,000 as of December 31, 2005 and 2004,
respectively, relative to these notes.
NOTE 16 SETTLEMENT
OF LAWSUIT
In June 2003, our subsidiary, Mountain Air, filed a lawsuit
against the former owners of Mountain Air Drilling Service
Company for breach of the asset purchase agreement pursuant to
which Mountain Air acquired Mountain Air Drilling Services
Company, alleging that the sellers stored hazardous materials on
the property leased by us without our consent and violated the
non-compete clause in the asset purchase agreement. On
July 15, 2003, we entered into a settlement agreement with
the sellers. As of the date of the agreement, we owed the
sellers a total of $2.6 million including $2.2 million
in principal and approximately $363,000 in accrued interest. As
part of the settlement agreement, the note payable to the
sellers was reduced from $2.2 million to $1.5 million
and the due date of the note payable was extended from
February 6, 2006 to September 30, 2007. The lump-sum
payment due the sellers at that date was $1.9 million. We
recorded a one-time gain on the reduction of the note payable to
the sellers of $1.0 million in the third quarter of 2003.
The gain was calculated by discounting the note payable to
$1.5 million using a present value calculation and
38
ALLIS-CHALMERS
ENERGY INC.
Notes to
Consolidated Financial
Statements (Continued)
accreting the note payable to $1.9 million the amount due
in September 2007. In March 2005, we reached an agreement with
the sellers to settle an action brought by the sellers under the
note. Under the terms of the agreement, we paid
$1.0 million in April of 2005 and will pay $350,000 on
June 1, 2006 and the remaining $150,000 on June 1,
2007, in settlement of all claims.
NOTE 17 GAIN
ON SALE OF INTEREST IN A SUBSIDIARY
In July 2003, through the subsidiary Mountain Air, we entered
into a limited liability company operating agreement with a
division of M-I to form a Texas limited liability company named
AirComp. Both companies contributed assets with a combined value
of $16.6 million to AirComp. The contributed assets from
Mountain Air were contributed at a historical book value of
approximately $6.3 million and the assets contributed by
M-I were
contributed at a fair market value of approximately
$10.3 million. Prior to the formation of AirComp, we owned
100% of Mountain Air and after the formation of AirComp,
Mountain Air owned 55% and M-I owned 45% of the business
combination. The business combination was accounted for as a
purchase and we recorded a one-time non-operating gain on the
sale of the 45% interest in the subsidiary of approximately
$2,433,000. The gain was calculated after recording the assets
contributed by M-I of approximately $10.3 million less the
subordinated note issued to M-I in the amount of approximately
$4.8 million, recording minority interest of approximately
$2,049,000 and an increase in equity of $955,000 in accordance
with Staff Accounting Bulletin No. 51
(SAB 51). We have not recorded any deferred
income taxes because the increase in assets and gain is a
permanent timing difference. We have adopted a policy that any
gain or loss in the future incurred on the sale in the stock or
an interest of a subsidiary would be recognized as such in the
income statement.
39
ALLIS-CHALMERS
ENERGY INC.
Notes to
Consolidated Financial
Statements (Continued)
NOTE 18 SEGMENT
INFORMATION
At December 31, 2005, we had five operating segments
including: Directional Drilling Services (Strata and Target),
Compressed Air Drilling Services (AirComp), Casing and Tubing
Services (Tubular), Rental Tools (Safco and Delta) and
Production Services (Downhole and Capcoil). All of the segments
provide services to the energy industry. The revenues, operating
income (loss), depreciation and amortization, capital
expenditures and assets of each of the reporting segments plus
the Corporate function are reported below for (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
(Restated)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Directional drilling services
|
|
$
|
43,901
|
|
|
$
|
24,787
|
|
|
$
|
16,008
|
|
Compressed air drilling services
|
|
|
25,662
|
|
|
|
11,561
|
|
|
|
6,679
|
|
Casing and tubing services
|
|
|
20,932
|
|
|
|
10,391
|
|
|
|
10,037
|
|
Rental tools
|
|
|
5,059
|
|
|
|
611
|
|
|
|
|
|
Production services
|
|
|
9,790
|
|
|
|
376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
105,344
|
|
|
$
|
47,726
|
|
|
$
|
32,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
(Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Directional drilling services
|
|
$
|
7,389
|
|
|
$
|
3,061
|
|
|
$
|
1,103
|
|
Compressed air drilling services
|
|
|
5,612
|
|
|
|
1,169
|
|
|
|
17
|
|
Casing and tubing services
|
|
|
4,994
|
|
|
|
3,217
|
|
|
|
3,628
|
|
Rental tools
|
|
|
1,300
|
|
|
|
(71
|
)
|
|
|
|
|
Production services
|
|
|
(99
|
)
|
|
|
4
|
|
|
|
|
|
General corporate
|
|
|
(5,978
|
)
|
|
|
(3,153
|
)
|
|
|
(2,123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income from operations
|
|
$
|
13,218
|
|
|
$
|
4,227
|
|
|
$
|
2,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Directional drilling services
|
|
$
|
887
|
|
|
$
|
466
|
|
|
$
|
275
|
|
Compressed air drilling services
|
|
|
1,946
|
|
|
|
1,329
|
|
|
|
1,139
|
|
Casing and tubing services
|
|
|
2,006
|
|
|
|
1,597
|
|
|
|
1,413
|
|
Rental tools
|
|
|
492
|
|
|
|
40
|
|
|
|
|
|
Production services
|
|
|
912
|
|
|
|
26
|
|
|
|
|
|
General corporate
|
|
|
418
|
|
|
|
120
|
|
|
|
109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and
amortization expense
|
|
$
|
6,661
|
|
|
$
|
3,578
|
|
|
$
|
2,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
ALLIS-CHALMERS
ENERGY INC.
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
(Restated)
|
|
|
Capital Expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Directional drilling services
|
|
$
|
2,922
|
|
|
$
|
1,552
|
|
|
$
|
1,066
|
|
Compressed air drilling services
|
|
|
7,008
|
|
|
|
1,399
|
|
|
|
2,093
|
|
Casing and tubing services
|
|
|
5,207
|
|
|
|
1,285
|
|
|
|
2,176
|
|
Rental tools
|
|
|
435
|
|
|
|
232
|
|
|
|
|
|
Production services
|
|
|
1,514
|
|
|
|
106
|
|
|
|
|
|
General corporate
|
|
|
681
|
|
|
|
29
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$
|
17,767
|
|
|
$
|
4,603
|
|
|
$
|
5,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill:
|
|
|
|
|
|
|
|
|
|
|
|
|
Directional drilling services
|
|
$
|
4,168
|
|
|
$
|
4,168
|
|
|
$
|
4,168
|
|
Compressed air drilling services
|
|
|
3,950
|
|
|
|
3,510
|
|
|
|
3,493
|
|
Casing and tubing services
|
|
|
3,673
|
|
|
|
3,673
|
|
|
|
|
|
Rental tools
|
|
|
|
|
|
|
|
|
|
|
|
|
Production services
|
|
|
626
|
|
|
|
425
|
|
|
|
|
|
General corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill
|
|
$
|
12,417
|
|
|
$
|
11,776
|
|
|
$
|
7,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Directional drilling services
|
|
$
|
20,960
|
|
|
$
|
14,166
|
|
|
$
|
11,529
|
|
Compressed air drilling services
|
|
|
46,045
|
|
|
|
29,147
|
|
|
|
22,735
|
|
Casing and tubing services
|
|
|
45,351
|
|
|
|
21,197
|
|
|
|
18,191
|
|
Rental tools
|
|
|
8,034
|
|
|
|
1,291
|
|
|
|
|
|
Production services
|
|
|
12,282
|
|
|
|
5,806
|
|
|
|
|
|
General corporate
|
|
|
4,683
|
|
|
|
8,585
|
|
|
|
1,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
137,355
|
|
|
$
|
80,192
|
|
|
$
|
53,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
98,583
|
|
|
$
|
42,466
|
|
|
$
|
28,995
|
|
International
|
|
|
6,761
|
|
|
|
5,260
|
|
|
|
3,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
105,344
|
|
|
$
|
47,726
|
|
|
$
|
32,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
ALLIS-CHALMERS
ENERGY INC.
Notes to
Consolidated Financial
Statements (Continued)
NOTE 19 SUPPLEMENTAL
CASH FLOWS INFORMATION (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(Restated)
|
|
|
Interest paid
|
|
$
|
3,924
|
|
|
$
|
2,159
|
|
|
$
|
2,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
676
|
|
|
$
|
514
|
|
|
$
|
370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-cash investing and
financing transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of property &
equipment in connection with direct financing lease
(Note 14)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain) on settlement of debt
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1,034
|
)
|
Amortization of discount on debt
|
|
|
|
|
|
|
|
|
|
|
442
|
|
Purchase of equipment financed
through assumption of debt or accounts payable
|
|
|
592
|
|
|
|
|
|
|
|
906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
592
|
|
|
$
|
|
|
|
$
|
314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AirComp formation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of debt to joint venture
by M-I
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(4,818
|
)
|
Contribution of property, plant
and equipment by M-I to joint venture
|
|
|
|
|
|
|
|
|
|
|
10,268
|
|
Increase in minority interest
|
|
|
|
|
|
|
|
|
|
|
(2,063
|
)
|
(Gain) on sale of stock in a
subsidiary
|
|
|
|
|
|
|
|
|
|
|
(2,433
|
)
|
Difference of our investment cost
basis in AirComp and their share of underlying equity of net
assets of AirComp
|
|
|
|
|
|
|
|
|
|
|
(954
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash paid in connection with
the joint venture
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing
transactions in connection with acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of net assets acquired
|
|
$
|
|
|
|
$
|
(4,867
|
)
|
|
$
|
|
|
Goodwill and other intangibles
|
|
|
|
|
|
|
(3,839
|
)
|
|
|
|
|
Value of common stock, issued
|
|
|
1,750
|
|
|
|
2,177
|
|
|
|
|
|
Value of minority interest
contribution
|
|
|
|
|
|
|
2,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,750
|
|
|
$
|
(4,459
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of the remaining 19%
of Jens:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of net assets acquired
|
|
$
|
|
|
|
$
|
(813
|
)
|
|
$
|
|
|
Goodwill and other intangibles
|
|
|
|
|
|
|
(3,676
|
)
|
|
|
|
|
Value of common stock issued
|
|
|
|
|
|
|
6,434
|
|
|
|
|
|
Value of minority interest
retirement
|
|
|
|
|
|
|
(1,945
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
ALLIS-CHALMERS
ENERGY INC.
Notes to
Consolidated Financial
Statements (Continued)
NOTE 20 QUARTERLY
RESULTS (UNAUDITED) (in thousands, except per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
(Restated)
|
|
|
|
|
|
|
|
|
|
|
|
Year 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
19,334
|
|
|
$
|
23,588
|
|
|
$
|
28,908
|
|
|
$
|
33,514
|
|
Operating income
|
|
|
2,247
|
|
|
|
2,914
|
|
|
|
3,524
|
|
|
|
4,533
|
|
Net income
|
|
|
1,567
|
|
|
|
1,769
|
|
|
|
1,293
|
|
|
|
2,546
|
|
Preferred stock dividend
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributed to common
shares
|
|
$
|
1,567
|
|
|
$
|
1,769
|
|
|
$
|
1,293
|
|
|
$
|
2,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.12
|
|
|
$
|
0.13
|
|
|
$
|
0.09
|
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.11
|
|
|
$
|
0.12
|
|
|
$
|
0.08
|
|
|
$
|
0.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
(Restated)
|
|
|
Year 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
9,661
|
|
|
$
|
11,422
|
|
|
$
|
11,906
|
|
|
$
|
14,737
|
|
Operating income
|
|
|
1,030
|
|
|
|
1,150
|
|
|
|
1,237
|
|
|
|
810
|
|
Net income (loss)
|
|
|
472
|
|
|
|
413
|
|
|
|
515
|
|
|
|
(512
|
)
|
Preferred stock dividend
|
|
|
(88
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributed to
common shares
|
|
$
|
384
|
|
|
$
|
377
|
|
|
$
|
515
|
|
|
$
|
(512
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.10
|
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.08
|
|
|
$
|
0.05
|
|
|
$
|
0.05
|
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We are named from time to time in legal proceedings related to
our activities prior to our bankruptcy in 1988; however, we
believe that we were discharged from liability for all such
claims in the bankruptcy and believe the likelihood of a
material loss relating to any such legal proceeding is remote.
We are involved in various other legal proceedings in the
ordinary course of business. The legal proceedings are at
different stages; however, we believe that the likelihood of
material loss relating to any such legal proceeding is remote.
|
|
NOTE 22
|
SUBSEQUENT
EVENTS
|
In January of 2006, we acquired 100% of the outstanding stock of
Specialty Rental Tools, Inc. (Specialty) for
$96.0 million in cash. Specialty, located in Lafayette,
Louisiana, is engaged in the rental of high quality drill pipe,
heavy weight spiral drill pipe, tubing work strings, blow-out
preventors, choke manifolds and various valves and handling
tools for oil and natural gas drilling. During the nine months
ended September 30, 2005, Specialty generated aggregate
revenues of $21.8 million.
43
ALLIS-CHALMERS
ENERGY INC.
Notes to
Consolidated Financial
Statements (Continued)
In January of 2006, we closed on a private offering, to
qualified institutional buyers pursuant to Rule 144A under
the Securities Act of 1933, of $160.0 million principal
amount of our 9.0% senior notes due 2014, which we refer to
as our senior notes. The proceeds of the offering were used to
fund the acquisition of Specialty, to repay existing debt and
for general corporate purposes.
In January of 2006, we amended and restated our July 2005 credit
agreement to increase our borrowing capacity by exchanging the
existing two year $55.0 million facility for a new four
year $25.0 million facility. We refer to the July 2005
credit agreement, as so amended and restated, as our new credit
agreement. All amounts outstanding under the previous
$55.0 million credit facility were repaid with proceeds
from the issuance of our senior notes. The new credit
agreements interest rate is based on a margin over LIBOR
or the prime rate, and there is a 0.5% fee for the undrawn
portion. The credit facility is secured by a first priority lien
on substantially all of our assets.
In January 2006, with proceeds from the sale of our senior notes
we also prepaid the $3.0 million subordinated seller note
due to Jens Mortensen, the $548,000 real estate loan and
$430,000 in various outstanding term and equipment loans.
In February of 2006, David Groshoff resigned from our Board of
Directors and the Audit Committee. Mr. Groshoff served on
our Board since 1999, initially under an agreement on behalf of
the Pension Benefit Guaranty Corporation, which is a client of
Mr. Groshoffs employer. That agreement permitted the
PBGC to appoint a member to our Board so long as the PBGC held a
minimum number of shares of our stock. The PBGC sold all its
holdings in our stock in August 2005. As an investment
management employee of JPMorgan Asset Management, Mr. Groshoff
is subject to his employers policies which generally
prohibit employees from serving on public company boards of
directors without a meaningful client interest in such
companies. In light of the PBGCs sale of our stock, these
policies required Mr. Groshoffs resignation from our
Board. In March 2006, Robert Nederlander was appointed to the
Audit Committee to replace Mr. Groshoff.
Through March 13, 2006, we received proceeds of
approximately $784,000 from the exercise of 313,000 warrants.
44
PART IV
|
|
ITEM 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
(b) Exhibits
The exhibits listed on the Exhibit Index set forth
immediately following the signature page of this Annual Report
on
Form 10-K/A-2
are filed as part of this
Form 10-K/A-2.
45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the registrant has
duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on July 21, 2006.
/s/ MUNAWAR
H. HIDAYATALLAH
Munawar H. Hidayatallah
Chief Executive Officer and Chairman
46
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
Description
|
|
|
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.
|