Income Taxes

9 Months Ended

Sep. 30, 2011

NOTE 6 — INCOME TAXES

In accordance with generally accepted accounting principles, we estimate the full-year effective tax rate from continuing operations and apply this rate to our year-to-date income from continuing operations. In addition, we separately calculate the tax impact of unusual items, if any. The consolidated effective tax rate for the two months ended February 28, 2011, three and seven months ended September 30, 2011 was (9.9)%, 210.9% and 229.6%, respectively, compared to (169.5)% and 16.9% for the three and nine months ended September 30, 2010. The fluctuations in the tax rates are principally the result of valuation allowances on losses generated in the United States and variances in withholding taxes from foreign operations as a percentage of pretax income (loss).

Income (loss) before income taxes which was subject to United States and non-United States income taxes was as follow (in thousands):


	Successor					Predecessor
	Three Months Ended			Seven Months Ended		Two Months Ended			Three Months Ended			Nine Months Ended
	September 30,			September 30,		February 28,			September 30,			September 30,
	2011			2011		2011			2010			2010

United States	$	(732	)	$	386	$	(17,544	)	$	(4,666	)	$	(36,059	)
Outside United States		2,344			3,070		(17	)		3,714			15,020

	$	1,612		$	3,456	$	(17,561	)	$	( 952	)	$	(21,039	)

The income tax provision consists of the following (in thousands):


	Successor						Predecessor
	Three Months Ended			Seven Months Ended			Two Months Ended			Three Months Ended			Nine Months Ended
	September 30,			September 30,			February 28,			September 30,			September 30,
	2011			2011			2011			2010			2010

Income tax expense (benefit):
United States	$	184		$	424		$	233		$	(810	)	$	(11,323	)
Outside United States		3,216			7,512			1,503			2,424			7,760

	$	3,400		$	7,936		$	1,736		$	1,614		$	(3,563	)


The following table reconciles the statutory tax rates to our actual tax rate:

	Successor						Predecessor
	Three Months Ended			Seven Months Ended			Two Months Ended			Three Months Ended			Nine Months Ended
	September 30,			September 30,			February 28,			September 30,			September 30,
	2011			2011			2011			2010			2010

United States statutory federal income tax rate		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%
United States State income taxes, net of federal benefit		1.2			1.2			0.7			2.2			2.2
Non-United States income taxed at different rates		19.2			31.8			0.3			64.5			10.4
Valuation allowance, permanent differences and other		155.5			161.6			(45.9	)		(271.2	)		(30.7	)

Effective tax rate		210.9	%		229.6	%		(9.9	)%		(169.5	)%		16.9	%

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef

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Reference 3: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

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Reference 4: http://www.xbrl.org/2003/role/presentationRef

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+ Details

Allis Chalmers Energy Inc. 10-Q