UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2009

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-8038

KEY ENERGY SERVICES, INC.

(Exact name of registrant as specified in its charter)

Maryland		04-2648081
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

1301 McKinney Street, Suite 1800, Houston, Texas 77010
(Address of principal executive offices) (Zip Code)

(713) 651-4300
(Registrant’s telephone number, including area code)

None
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ   No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o   No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o   No þ

As of October 28, 2009, the number of outstanding shares of common stock of the registrant was 123,942,776.

 

 

KEY ENERGY SERVICES, INC.

QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended September 30, 2009

Part I—Financial Information
Item 1. Financial Statements			4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			32
Item 3. Quantitative and Qualitative Disclosures About Market Risk			47
Item 4. Controls and Procedures			47
Part II—Other Information
Item 1. Legal Proceedings			49
Item 1A. Risk Factors			49
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			49
Item 3. Defaults Upon Senior Securities			49
Item 4. Submission of Matters to a Vote of Security Holders			50
Item 5. Other Information			50
Item 6. Exhibits			50
Exhibit 4.5
Exhibit 10.1
Exhibit 10.2
Exhibit 31.1
Exhibit 31.2
Exhibit 32

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

In addition to statements of historical fact, this report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are not historical in nature or that relate to future events and conditions are, or may be deemed to be, forward-looking statements. These “forward-looking statements” are based on our current expectations, estimates and projections about Key Energy Services, Inc. and its subsidiaries, our industry and management’s beliefs and assumptions concerning future events and financial trends affecting our financial condition and results of operations. In some cases, you can identify these statements by terminology such as “may,” “will,” “predicts,” “projects,” “expects,” “potential” or “continue” or the negative of such terms and other comparable terminology. These statements are only predictions and are subject to substantial risks and uncertainties. In evaluating those statements, you should carefully consider the information above as well as the risks outlined in this Quarterly Report on Form 10-Q, in our Annual Report on Form 10-K for the year ended December 31, 2008, in our Quarterly Reports on Form 10-Q for the periods ended March 31, 2009 and June 30, 2009, in our recent Current Reports on Form 8-K and in our other filings with the Securities and Exchange Commission. Actual performance or results may differ materially and adversely.

We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date of this report except as required by law. All of our forward-looking statements are expressly qualified by these cautionary statements and any other cautionary statements that may accompany such forward-looking statements.

PART I—FINANCIAL INFORMATION

ITEM 1.		FINANCIAL STATEMENTS

(In thousands, except share amounts)

		September 30, 2009				December 31, 2008
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	93,083			$	92,691
Accounts receivable, net of allowance for doubtful accounts of $14,513 and $11,468			184,913				377,353
Inventories			28,898				34,756
Prepaid expenses			8,409				15,513
Deferred tax assets			25,729				26,623
Income taxes receivable			36,150				4,848
Other current assets			7,741				7,338
Total current assets			384,923				559,122
Property and equipment, gross			1,751,063				1,858,307
Accumulated depreciation			(879,482	)			(806,624	)
Property and equipment, net			871,581				1,051,683
Goodwill			345,228				320,992
Other intangible assets, net			45,138				42,345
Deferred financing costs, net			9,018				10,489
Notes and accounts receivable — related parties			593				336
Equity-method investments			5,271				24,220
Other assets			7,075				7,736
TOTAL ASSETS		$	1,668,827			$	2,016,923
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	41,311			$	46,185
Accrued liabilities			124,740				197,116
Accrued interest			12,206				4,368
Current portion of capital lease obligations			7,943				9,386
Current portion of notes payable — related parties, net of discount			14,416				14,318
Current portion of long-term debt			1,522				2,000
Total current liabilities			202,138				273,373
Capital lease obligations, less current portion			8,717				13,763
Notes payable — related parties, less current portion			6,000				6,000
Long-term debt, less current portion			512,812				613,828
Workers’ compensation, vehicular, health and other insurance liabilities			35,205				43,151
Deferred tax liabilities			132,501				188,581
Other non-current accrued liabilities			17,976				17,495
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.10 par value; 200,000,000 shares authorized, 123,960,074 and 121,305,289 shares issued and outstanding			12,396				12,131
Additional paid-in capital			607,431				601,872
Accumulated other comprehensive loss			(52,035	)			(46,550	)
Retained earnings			150,768				293,279
Noncontrolling interest			34,918				—
Total stockholders’ equity attributable to common stockholders			753,478				860,732
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	1,668,827			$	2,016,923

See the accompanying notes which are an integral part of these condensed consolidated financial statements.

(In thousands, except per share data)
(Unaudited)

		Three Months Ended September 30,								Nine Months Ended September 30,
		2009				2008				2009				2008
REVENUES		$	237,671			$	535,620			$	811,118			$	1,494,022
COSTS AND EXPENSES:
Direct operating expenses			179,901				342,195				580,981				946,324
Depreciation and amortization expense			44,477				42,676				132,424				124,923
General and administrative expenses			41,071				62,477				135,172				188,458
Asset retirements and impairments			159,802				—				159,802				—
Interest expense, net of amounts capitalized			9,082				10,475				28,911				30,594
Loss (gain) on disposal of assets, net			1,945				(1,683	)			1,284				(2,309	)
Interest income			(42	)			(213	)			(459	)			(903	)
Other (income) expense, net			(359	)			2,152				(789	)			1,240
Total costs and expenses, net			435,877				458,079				1,037,326				1,288,327
(Loss) income before taxes and noncontrolling interest			(198,206	)			77,541				(226,208	)			205,695
Income tax benefit (expense)			73,189				(29,079	)			83,622				(78,982	)
Net (Loss) Income			(125,017	)			48,462				(142,586	)			126,713
Noncontrolling interest			75				—				75				245
(LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS		$	(124,942	)		$	48,462			$	(142,511	)		$	126,958
(Loss) earnings per share attributable to common stockholders:
Basic		$	(1.03	)		$	0.39			$	(1.18	)		$	1.01
Diluted		$	(1.03	)		$	0.39			$	(1.18	)		$	1.00
Weighted average shares outstanding:
Basic			121,277				123,518				120,983				125,304
Diluted			121,277				125,377				120,983				127,062

See the accompanying notes which are an integral part of these condensed consolidated financial statements.

(In thousands)
(Unaudited)

		Three Months Ended September 30,								Nine Months Ended September 30,
		2009				2008				2009				2008
Net (Loss) Income		$	(125,017	)		$	48,462			$	(142,586	)		$	126,713
Other comprehensive (loss) income, net of tax:
Foreign currency translation (loss) gain, net of tax of $(303),$0, $(347) and $0			(1,026	)			(1,739	)			(5,516	)			489
Deferred (loss) gain from available for sale investments, net of tax of $0, $0, $0 and $0			—				(8	)			30				(8	)
Total other comprehensive (loss) income, net of tax			(1,026	)			(1,747	)			(5,486	)			481
Comprehensive (loss) income, net of tax			(126,043	)			46,715				(148,072	)			127,194
Comprehensive loss attributable to noncontrolling interest			206				28				206				274
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS		$	(125,837	)		$	46,743			$	(147,866	)		$	127,468

See the accompanying notes which are an integral part of these condensed consolidated financial statements.

Key Energy Services, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

		Nine Months Ended September 30,
		2009				2008
CASH FLOWS FROM OPERATING ACTIVITIES:
(Loss) income attributable to common stockholders		$	(142,511	)		$	126,958
Adjustments to reconcile (loss) income attributable to common stockholders to net cash provided by operating activities:
Noncontrolling interest			(75	)			(245	)
Depreciation and amortization expense			132,424				124,923
Asset retirements and impairments			159,802				—
Bad debt expense			3,293				860
Accretion of asset retirement obligations			405				456
Loss (income) from equity-method investments			796				(73	)
Amortization of deferred financing costs and discount			1,568				1,592
Deferred income tax (benefit) expense			(55,359	)			19,787
Capitalized interest			(3,556	)			(4,841	)
Loss (gain) on disposal of assets, net			1,284				(2,309	)
Loss on sale of available for sale investments, net			30				—
Share-based compensation			4,881				11,024
Excess tax benefits from share-based compensation			—				(1,695	)
Changes in working capital:
Accounts receivable			195,976				(77,852	)
Other current assets			11,798				(3,861	)
Accounts payable, accrued interest and accrued expenses			(113,069	)			47,281
Share-based compensation liability awards			517				(516	)
Other assets and liabilities			(623	)			(651	)
Net cash provided by operating activities			197,581				240,838
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures			(102,971	)			(130,213	)
Proceeds from sale of fixed assets			5,184				5,614
Acquisitions, net of cash acquired of $28,362 and $2,017			12,007				(63,200	)
Acquisition of Leader fixed assets			—				(34,448	)
Acquisition of intangible assets			—				(1,086	)
Dividend from equity-method investments			199				—
Proceeds from sale of short-term investments			—				268
Net cash used in investing activities			(85,581	)			(223,065	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt			(1,539	)			—
Repayments of capital lease obligations			(8,505	)			(8,645	)
Borrowings on revolving credit facility			—				155,000
Repayments on revolving credit facility			(100,000	)			(35,000	)
Repurchases of common stock			(248	)			(124,815	)
Proceeds from exercise of stock options			1,192				6,688
Proceeds paid for deferred financing costs			—				(314	)
Excess tax benefits from share-based compensation			—				1,695
Net cash used in financing activities			(109,100	)			(5,391	)
Effect of changes in exchange rates on cash			(2,508	)			326
Net increase in cash and cash equivalents			392				12,708
Cash and cash equivalents, beginning of period			92,691				58,503
Cash and cash equivalents, end of period		$	93,083			$	71,211

See the accompanying notes which are an integral part of these condensed consolidated financial statements.

Key Energy Services, Inc., and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

NOTE 1. GENERAL

Key Energy Services, Inc., its wholly-owned subsidiaries and its controlled subsidiaries (collectively, “Key,” the “Company,” “we,” “us,” “its,” and “our”) provide a complete range of services to major oil companies, foreign national oil companies and independent oil and natural gas production companies, including rig-based services, fluid management services, pressure pumping services, fishing and rental services, and cased-hole electric wireline services. We operate in most major oil and natural gas producing regions of the United States as well as internationally in Argentina, Mexico and Russia. We also own a technology development company based in Canada and have an equity interest in a Canadian-based oilfield service company.

The accompanying unaudited condensed consolidated financial statements were prepared using generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”). The condensed December 31, 2008 balance sheet was prepared from audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2008. Certain information relating to our organization and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted in this Quarterly Report on Form 10-Q. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2008.

The unaudited condensed consolidated financial statements contained in this report include all normal and recurring material adjustments that, in the opinion of management, are necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods presented herein. The results of operations for the three and nine month periods ended September 30, 2009 are not necessarily indicative of the results expected for the full year or any other interim period, due to fluctuations in demand for our services, timing of maintenance and other expenditures, and other factors.

We have evaluated events occurring after the balance sheet date included in this Quarterly Report on Form 10-Q for possible disclosure as a subsequent event. Management monitored for subsequent events through October 30, 2009 as this was the date that these financial statements were available to be issued. See “Note 17. Subsequent Events” for discussion of the subsequent events requiring disclosure.

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

The preparation of these condensed consolidated financial statements requires us to develop estimates and to make assumptions that affect our financial position, results of operations and cash flows. These estimates also impact the nature and extent of our disclosure, if any, of our commitments and contingencies. Among other things, we use estimates to (i) analyze assets for possible impairment, (ii) determine depreciable lives for our assets, (iii) assess future tax exposure and realization of deferred tax assets, (iv) determine amounts to accrue for contingencies, (v) value tangible and intangible assets and (vi) assess workers’ compensation, vehicular liability, self-insured risk accruals and other insurance reserves. We believe that our estimates are reasonable; however, our actual results may differ materially from these estimates. There have been no material changes in our evaluation of the accounting estimates or underlying assumptions to the significant accounting policies and estimates as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2008.

New Accounting Standards Adopted in this Report

ASU 2009-01. In June 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2009-01, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162 (“ASU 2009-01”). ASU 2009-01 established the Accounting Standards Codification (the “Codification”) as the source of authoritative GAAP recognized by the FASB to be applied to nongovernmental entities. The Codification supersedes all prior non-SEC accounting and reporting standards. Following ASU 2009-01, the FASB will not issue new accounting standards in the form of FASB Statements, FASB Staff Positions, or Emerging Issues Task Force abstracts. ASU 2009-01 also modifies the existing hierarchy of GAAP to include only two levels — authoritative and non-authoritative. ASU 2009-01 is effective for financial statements issued for interim and annual periods ending after September 15, 2009, and early adoption was not permitted. The adoption of this standard did not have an impact on our financial position, results of operations or cash flows.

Accounting Standards Not Yet Adopted in this Report

SFAS 166. In June 2009, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 166, Accounting for Transfers of Financial Assets, an amendment of FASB Statement No. 140 (“SFAS 166”). SFAS 166 amends the application and disclosure requirements of SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities — a Replacement of FASB Statement 125 (“SFAS 140”), removes the concept of a “qualifying special purpose entity” from SFAS 140 and removes the exception from applying FASB Interpretation (“FIN”) No. 46(R), Consolidation of Variable Interest Entities — an Interpretation of ARB No. 51 (“FIN 46(R)”) to qualifying special purpose entities. SFAS 166 is effective for the first annual reporting period that begins after November 15, 2009, and early adoption is not permitted. The Company does not believe that the adoption of this standard will have a material impact on its financial position, results of operations or cash flows.

SFAS 167. In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (“SFAS 167”). SFAS 167 amends the scope of FIN 46(R) to include entities previously considered qualifying special-purpose entities by FIN 46(R), as the concept of a qualifying special-purpose entity was eliminated in SFAS 166. This standard shifts the guidance for determining which enterprise in a Variable Interest Entity consolidates that entity from a quantitative consideration of who is the primary beneficiary to a qualitative focus of which entity has the power to direct activities and the obligation to absorb losses. This standard is to be effective for the first annual reporting period that begins after November 15, 2009, and early adoption is not permitted. The Company does not believe that the adoption of this standard will have a material impact on its financial position, results of operations or cash flows.

ASU 2009-05. In August 2009, the FASB issued ASU 2009-05, Fair Value Measurements and Disclosures (Topic 820) — Measuring Liabilities at Fair Value (“ASU 2009-05”). ASU 2009-05 addresses concerns in situations where there may be a lack of observable market information to measure the fair value of a liability, and provides clarification in circumstances where a quoted market price in an active market for an identical liability is not available. In these cases, reporting entities should measure fair value using a valuation technique that uses the quoted price of the identical liability when that liability is traded as an asset, quoted prices for similar liabilities, or another valuation technique, such as an income or market approach. ASU 2009-05 also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability. ASU 2009-05 is effective for the first reporting period of the entity subsequent to August 2009 and the adoption of this update is not anticipated to have a material impact on our financial position, results of operations, or cash flows.

ASU 2009-13. In October 2009, the FASB issued ASU 2009-13, Revenue Recognition (Topic 605) — Multiple-Deliverable Revenue Arrangements, a consensus of the FASB Emerging Issues Task Force (“ASU 2009-13”). ASU 2009-13 addresses the accounting for multiple-deliverable arrangements where products or services are accounted for separately rather than as a combined unit, and addresses how to separate deliverables and how to measure and allocate arrangement consideration to one or more units of accounting. Existing GAAP requires an entity to use Vendor-Specific Objective Evidence (“VSOE”) or third-party evidence of a selling price to separate deliverables in a multiple-deliverable selling arrangement. As a result of ASU 2009-13, multiple-deliverable arrangements will be separated in more circumstances than under current guidance. ASU 2009-13 establishes a selling price hierarchy for determining the selling price of a deliverable. The selling price will be based on VSOE if it is available, on third-party evidence if VSOE is not available, or on an estimated selling price if neither VSOE nor third-party evidence is available. ASU 2009-13 also requires that an entity determine its best estimate of selling price in a manner that is consistent with that used to determine the selling price of the deliverable on a stand-alone basis, and increases the disclosure requirements related to an entity’s multiple-deliverable revenue arrangements. ASU 2009-13 must be prospectively applied to all revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, and early adoption is permitted. Entities may elect, but are not required, to adopt the amendments retrospectively for all periods presented. We expect to adopt the provisions of ASU 2009-13 on January 1, 2011 and do not believe that the adoption of this standard will have a material impact on our financial position, results of operations, or cash flows.

ASU 2009-14. In October 2009, the FASB issued ASU 2009-14, Software (Topic 985) — Certain Revenue Arrangements That Include Software Elements — a consensus of the FASB Emerging Issues Task Force (“ASU 2009-14”). ASU 2009-14 was issued to address concerns relating to the accounting for revenue arrangements that contain tangible products and software that is “more than incidental” to the product as a whole. Existing guidance in such circumstances requires entities to use VSOE of a selling price to separate deliverables in a multiple-deliverable arrangement. Reporting entities raised concerns that the current accounting model does not appropriately reflect the economics of the underlying transactions and that more software-enabled products now fall or will fall within the scope of the current guidance than originally intended. ASU 2009-14 changes the current accounting model for revenue arrangements that include both tangible products and software elements to exclude those where the software components are essential to the tangible products’ core functionality. In addition, ASU 2009-14 also requires that hardware components of a tangible product containing software components always be excluded from the software revenue recognition guidance, and provides guidance on how to determine which software, if any, relating to tangible products is considered essential to the tangible products’ functionality and should be excluded from the scope of software revenue recognition guidance. ASU 2009-14 also provides guidance on how to allocate arrangement consideration to deliverables in an arrangement that contains tangible products and software that is not essential to the product’s functionality. ASU 2009-14 was issued concurrently with ASU 2009-13 and also requires entities to provide the disclosures required by ASU 2009-13 for arrangements that are included within the scope of ASU 2009-14. ASU 2009-14 will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, and early adoption is permitted. Entities may also elect, but are not required, to adopt ASU 2009-14 retrospectively to prior periods, and must adopt ASU 2009-14 in the same period and using the same transition methods that it uses to adopt ASU 2009-13. We expect to adopt the provisions of ASU 2009-14 on January 1, 2011 and do not believe that the adoption of this standard will have a material impact on our financial position, results of operations, or cash flows.

NOTE 3. ASSET RETIREMENTS AND IMPAIRMENTS

Asset Retirements

During the three months ended September 30, 2009, we took out of service and retired a portion of our U.S. rig fleet and associated support equipment, resulting in the recording of a pre-tax asset retirement charge of approximately $65.9 million. Included in the retirement were approximately 250 of our older, less efficient rigs, leaving a remaining U.S. rig fleet of 743 rigs, consisting of 610 actively marketed rigs and 133 currently idled rigs. We retired these rigs in order to better align supply with demand for well servicing as market activity remains low. The asset retirement charge is included in the line item “asset retirements and impairments” in the consolidated statements of operations for the three and nine months ended September 30, 2009. For the rigs we retired, certain of these assets were stacked and will be harvested for spare parts and certain of these assets are to be cut up and sold for scrap. The carrying value for stacked rigs and associated support equipment was reduced to salvage value of 10%, based on expected fair value for these assets. The carrying value for scrapped rigs and components was reduced to quoted market prices for scrap metal. These assets are reported under our Well Servicing segment.

Impairments

A long-lived asset or asset group should be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. For purposes of testing for impairment, we group our long-lived assets along our lines of business based on the services provided, which is the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.

We determined that the retirement of the rigs described above was an event requiring assessment of the asset groups within our Well Servicing segment. Based on our analysis, the expected undiscounted cash flows for these asset groups exceeded carrying value, and no indication of impairment existed.

However, during the three months ended September 30, 2009, due to market overcapacity, continued and prolonged depression of natural gas prices, decreased activity levels from our major customer base related to stimulation work and consecutive quarterly operating losses in our Production Services segment, we determined that events and changes in circumstances occurred indicating that the carrying value of the asset groups under this segment may not be recoverable. We performed an assessment of the fair value of these asset groups using an expected present value technique. We used discounted cash flow models involving assumptions based on utilization of the equipment, revenues, direct expenses, general and administrative expenses, applicable income taxes, capital expenditures and working capital requirements. Our discounted cash flow projections were based on financial forecasts and were discounted using a discount rate of 14%. Based on this assessment, our pressure pumping assets were impaired. This assessment resulted in the recording of a pre-tax impairment charge of approximately $93.4 million during the third quarter of 2009. The asset impairment charge is included in the line item “asset retirements and impairments” in the consolidated statements of operations for the three and nine months ended September 30, 2009. These assets are reported under our Production Services segment.

Due to the recoverability tests and impairments recorded for our long-lived assets, we were required to test goodwill impairment during the third quarter rather than delaying testing until our annual assessment performed at year-end. The test to identify a potential goodwill impairment and to measure the amount of the impairment loss to be recognized, if any, is a two-step test. In the first step, we determine the fair value of the associated reporting unit tested as the present value of its future net cash flows. During step two, we would record an impairment charge, reducing the carrying value of the reporting unit’s goodwill to fair value, if the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill.

Under the first step of the goodwill impairment test, we compared the fair value of each reporting unit to its carrying amount, including goodwill. No impairment was indicated by this test for our Well Servicing segment, thus the second step of the impairment test was unnecessary. However, this test concluded that the fair value of the fishing and rental services reporting unit under our Production Services segment did not exceed its carrying value. Therefore, the second step of the goodwill impairment test was performed to measure the amount of the impairment loss, if any. As a result of our calculation of step two of the test, we determined that the goodwill of this reporting unit was impaired. As such, we recorded a pre-tax impairment charge of approximately $0.5 million to our Production Services segment during the third quarter of 2009. The impairment charge is included in the line item “asset retirements and impairments” in the consolidated statements of operations for the three and nine months ended September 30, 2009.

NOTE 4. ACQUISITIONS

From time to time, we acquire businesses or assets that are consistent with our long-term growth strategy. Results of operations for acquisitions are included in our financial statements beginning on the date of acquisition. Acquisitions made after January 1, 2009 are accounted for using the acquisition method. The acquisition method differs from previous accounting guidance related to business combinations by expanding the scope of what constitutes a “business” and must therefore be accounted for as a business combination. For all business combinations (whether partial, full or step acquisitions), the acquirer records 100% of all assets and liabilities of the acquired business, including goodwill, at their fair values; contingent consideration is recognized at its fair value on the acquisition date, and for certain arrangements, changes in fair value must be recognized in earnings until settlement; and acquisition-related transaction and restructuring costs must be expensed rather than treated as part of the cost of the acquisition. The acquisition method also establishes new disclosure requirements to enable users of the financial statements to evaluate the nature and financial effects of the business combination. Final valuations of assets and liabilities are obtained and recorded as soon as practicable and within one year after the date of the acquisition.

Geostream Services Group

On September 1, 2009, we acquired an additional 24% interest in OOO Geostream Services Group (“Geostream”) for approximately $16.4 million. This was our second investment in Geostream pursuant to an agreement dated August 26, 2008, as amended. This second investment brings our total investment in Geostream to 50%. Prior to the acquisition of the additional interest, we accounted for our ownership in Geostream as an equity-method investment. On the acquisition date, we also obtained majority representation on Geostream’s board of directors and therefore a controlling interest. We accounted for this acquisition as a business combination achieved in stages. The results of Geostream have been included in our consolidated financial statements since the acquisition date.

Geostream is an oilfield services company in the Russian Federation providing drilling and workover services and sub-surface engineering and modeling in Russia. As a result of this acquisition, we expect to expand our international presence, specifically in Russia where oil wells are shallow and suited for services that we perform.

The acquisition date fair value of the consideration transferred totaled approximately $35.0 million, which consisted of cash consideration in the second investment on September 1, 2009 and the fair value of our previous equity interest. The acquisition date fair value of our previous equity interest was approximately $18.3 million. We recognized a loss of approximately $0.2 million as a result of remeasuring our prior equity interest in Geostream held before the business combination. The loss is included in the line item “other (income) expense, net” in the consolidated statements of operations for the three and nine months ended September 30, 2009.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date. We are in the process of obtaining a third-party valuation of intangible and certain tangible assets; thus, the preliminary measurements of intangible assets, goodwill and certain tangible assets are subject to change.

At September 1, 2009:		(in thousands)
Cash and cash equivalents		$	28,362
Other current assets			8,545
Property and equipment			2,959
Intangible assets			11,470
Other assets			194
Total identifiable assets acquired			51,530
Current liabilities			5,456
Other liabilities			8
Total liabilities assumed			5,464
Noncontrolling interest			34,994
Net identifiable assets acquired			11,072
Goodwill			23,918
Net assets acquired		$	34,990

Of the $11.5 million of acquired intangible assets, $8.4 million was preliminarily assigned to trade name intangibles that are not subject to amortization. Of the remaining $3.1 million of acquired intangible assets, $1.2 million relates to three customer contracts that are preliminarily subject to a weighted-average useful life of approximately 1.0 year, and $1.9 million relates to customer relationships that will be amortized as the value of the relationships are realized using rates of 15%, 35%, 21%, 12%, 7%, 4%, 3%, 2%, and 1% for the remainder of 2009 through 2017, respectively. As noted above, the fair value of the acquired identifiable intangible assets is preliminary pending receipt of the final valuation for these assets. The fair value and contractual obligations of the acquired accounts receivable on the acquisition date were approximately $6.3 million.

The $23.9 million of goodwill was assigned to the rig services line of business of our Well Servicing segment. The goodwill recognized is attributable primarily to international diversification and the assembled workforce of Geostream. None of the goodwill is expected to be deductible for income tax purposes. As of September 30, 2009, there were no changes in the recognized amount of goodwill resulting from the acquisition of Geostream.

We recognized approximately $0.1 million of acquisition related costs that were expensed during the nine months ended September 30, 2009. These costs are included in the statements of operations in the line item “general and administrative expenses” for the three and nine months ended September 30, 2009.

Included in our consolidated statements of operations for the three and nine months ended September 30, 2009 are revenues of approximately $1.3 million and a net loss of $0.2 million attributable to Geostream from the acquisition date to the period ended September 30, 2009.

The fair value of the 50% noncontrolling interest in Geostream is estimated to be approximately $35.0 million. The fair value of the noncontrolling interest was estimated using a combination of the income approach and a market approach. As Geostream is a private company, the fair value measurement is based on significant inputs that are not observable in the market and thus represents a Level 3 measurement. The fair value estimates are based on (i) a discount rate range of 16% to 19%, (ii) a terminal value based on a long-term constant growth rate between two and three percent, (iii) financial data of historical and forecasted operating results of Geostream and (iv) adjustments because of the lack of control or lack of marketability that market participants would consider when estimating the fair value of the noncontrolling interest in Geostream.

In conjunction with the second investment, Geostream agreed to purchase from us a customized suite of equipment, including two workover rigs, two drilling rigs, associated complimentary support equipment, cementing equipment, and fishing tools for approximately $23.0 million, a portion of which will be financed by us. Concurrently with the second investment, Geostream paid us approximately $16.0 million in cash, representing a down payment on the equipment that we will deliver to them.

NOTE 5. OTHER CURRENT AND NON-CURRENT LIABILITIES

The table below presents comparative detailed information about our current accrued liabilities at September 30, 2009 and December 31, 2008:

		September 30, 2009				December 31, 2008
		(in thousands)
Current Accrued Liabilities:
Accrued payroll, taxes and employee benefits		$	43,062			$	67,408
Accrued operating expenditures			23,111				50,833
Income, sales, use and other taxes			27,189				41,003
Self-insurance reserves			22,097				25,724
Unsettled legal claims			2,520				4,550
Phantom share liability			1,031				902
Other			5,730				6,696
Total		$	124,740			$	197,116

The table below presents comparative detailed information about our other non-current accrued liabilities at September 30, 2009 and December 31, 2008:

		September 30, 2009				December 31, 2008
		(in thousands)
Non-Current Accrued Liabilities:
Asset retirement obligations		$	9,666			$	9,348
Environmental liabilities			2,919				3,004
Accrued rent			2,249				2,497
Accrued income taxes			1,669				1,359
Phantom share liability			865				478
Other			608				809
Total		$	17,976			$	17,495

NOTE 6. GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the carrying amount of our goodwill for the nine months ended September 30, 2009 are as follows:

		Well				Production
		Servicing				Services				Total
		(in thousands)
December 31, 2008		$	317,490			$	3,502			$	320,992
Purchase price allocation and other adjustments, net			(155	)			500				345
Acquisition of Geostream			23,918				—				23,918
Impairment of goodwill			—				(500	)			(500	)
Impact of foreign currency translation			35				438				473
September 30, 2009		$	341,288			$	3,940			$	345,228

During the quarter ended September 30, 2009, we determined that the goodwill of the reporting units comprising our Production Services segment was impaired; as such, we recorded a pre-tax impairment charge of approximately $0.5 million to our Production Services segment. See “Note 3. Asset Retirements and Impairments.”

The components of our other intangible assets as of September 30, 2009 and December 31, 2008 are as follows:

		September 30, 2009				December 31, 2008
		(in thousands)
Noncompete agreements:
Gross carrying value		$	14,007			$	16,309
Accumulated amortization			(4,951	)			(4,699	)
Net carrying value		$	9,056			$	11,610
Patents, trademarks and tradename:
Gross carrying value		$	10,695			$	4,391
Accumulated amortization			(982	)			(3,114	)
Net carrying value		$	9,713			$	1,277
Customer relationships:
Gross carrying value		$	41,226			$	39,225
Accumulated amortization			(18,444	)			(12,359	)
Net carrying value		$	22,782			$	26,866
Customer backlog:
Gross carrying value		$	1,932			$	622
Accumulated amortization			(365	)			(207	)
Net carrying value		$	1,567			$	415
Developed technology:
Gross carrying value		$	4,396			$	3,598
Accumulated amortization			(2,376	)			(1,421	)
Net carrying value		$	2,020			$	2,177

Certain of our intangible assets are denominated in currencies other than U.S. dollars and, as such, the values of these assets are subject to fluctuations associated with changes in exchange rates. Additionally, certain of these assets are also subject to purchase accounting adjustments. The estimated fair values of intangible assets obtained through acquisitions consummated from the fourth quarter of 2008 through September 30, 2009 are based on preliminary information which is subject to change until final valuations are obtained. Amortization expense for our intangible assets was $3.1 million and $4.8 million for the three months ended September 30, 2009 and 2008, respectively. Amortization expense for our intangible assets was $9.9 million and $12.9 million for the nine months ended September 30, 2009 and 2008, respectively.

NOTE 7. EQUITY METHOD INVESTMENTS

IROC Energy Services Corp.

As of September 30, 2009 and December 31, 2008 we owned approximately 8.7 million shares of IROC Energy Services Corp. (“IROC”), an Alberta-based oilfield services company. This represented approximately 19.8% and 19.7% of IROC’s outstanding common stock on September 30, 2009 and December 31, 2008, respectively.

The carrying value of our investment in IROC totaled $4.1 million and $3.7 million as of September 30, 2009 and December 31, 2008, respectively. We recorded $0.2 million and $1.0 million of equity losses related to our investment in IROC for the three months ended September 30, 2009 and 2008, respectively, and $0.1 million and $0.1 million of equity income for the nine months ended September 30, 2009 and 2008, respectively. During the second quarter of 2009, IROC declared a dividend which was paid to us in June of 2009, reducing the value of our investment by approximately $0.2 million. Additionally, during the nine months ended September 30, 2009, the value of our investment in IROC increased by approximately $0.5 million due to changes in exchange rates between the U.S. and Canadian dollar.

Advanced Flow Technologies, Inc.

In September 2007, we completed the acquisition of Advanced Measurements, Inc. (“AMI”), a privately-held Canadian company focused on oilfield technology. AMI owns a portion of another Canadian company, Advanced Flow Technologies, Inc. (“AFTI”). As of September 30, 2009, AMI’s ownership percentage was 48.63%, and we account for the interest in AFTI using the equity method. We recorded losses of approximately $0.1 million and $0.2 million associated with our investment in AFTI for the three and nine months ended September 30, 2009, respectively. The carrying value of our investment in AFTI totaled approximately $1.2 million as of September 30, 2009 and December 31, 2008, respectively. Additionally, during the nine months ended September 30, 2009 the value of our investment in AFTI increased by approximately $0.2 million due to changes in exchange rates between the U.S. and Canadian dollar.

NOTE 8. LONG-TERM DEBT

As of September 30, 2009 and December 31, 2008, the components of our long-term debt were as follows:

		September 30, 2009				December 31, 2008
		(in thousands)
8.375% Senior Notes due 2014		$	425,000			$	425,000
Senior Secured Credit Facility revolving loans due 2012			87,812				187,813
Other long-term indebtedness			1,522				3,015
Notes payable — related parties, net of discount of $84 and $182, respectively			20,416				20,318
Capital lease obligations			16,660				23,149
		$	551,410			$	659,295
Less current portion			(23,881	)			(25,704	)
Total long-term debt and capital lease obligations, net of discount		$	527,529			$	633,591

8.375% Senior Notes due 2014

On November 29, 2007, we issued $425.0 million aggregate principal amount of 8.375% Senior Notes due 2014 (the “Senior Notes”), under an indenture, dated as of November 29, 2007, among us, the guarantors party thereto and The Bank of New York Trust Company, N.A., as trustee. The Senior Notes were priced at 100% of their face value to yield 8.375%. Net proceeds, after deducting initial purchasers’ fees and offering expenses, were approximately $416.1 million. We used approximately $394.9 million of the net proceeds to retire then-existing term loans, including accrued and unpaid interest, with the balance used for general corporate purposes.

The Senior Notes are general unsecured senior obligations of the Company. Accordingly, they rank effectively subordinate to all of our existing and future secured indebtedness. The Senior Notes are or will be jointly and severally guaranteed on a senior unsecured basis by certain of our existing and future domestic subsidiaries. Interest on the Senior Notes is payable on June 1 and December 1 of each year. The Senior Notes mature on December 1, 2014.

Senior Secured Credit Facility

The Company maintains a revolving credit agreement with a syndicate of banks of which Bank of America Securities LLC and Wells Fargo Bank, N.A. are the administrative agents (“Senior Secured Credit Facility”). The Senior Secured Credit Facility consists of a revolving credit facility, letter of credit sub-facility and swing line facility, originally of up to an aggregate principal amount of $400.0 million (which has since been reduced as described below), all of which will mature no later than November 29, 2012. There were borrowings of $87.8 million and letters of credit of $43.2 million outstanding under the Senior Secured Credit Facility at September 30, 2009. The weighted average interest rate on the outstanding borrowings of the Senior Secured Credit Facility was 2.0% at September 30, 2009. Under the terms of the Senior Secured Credit Facility, committed letters of credit count against our borrowing capacity. All obligations under the Senior Secured Credit Facility are guaranteed by most of our subsidiaries and are secured by most of our assets, including our accounts receivable, inventory and equipment.

As of September 30, 2009, we had approximately $239.8 million available under its Senior Secured Credit Facility. This availability does not include approximately $29.4 million of unfunded commitments of Lehman Commercial Paper, Inc. (“LCPI”), a former member of the syndicate of lenders under the Senior Secured Credit Facility. On September 15, 2008, Lehman Brothers Holdings Inc. (“Lehman”), the parent company of LCPI, filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. As of September 30, 2009, LCPI had a commitment of approximately 11% of the Company’s total facility.

On October 27, 2009, we entered into an amendment (the “Amendment”) to the Senior Secured Credit Facility. The Amendment reduced the total credit commitments under the facility from $400.0 million to $300.0 million, which was effected by a pro rata reduction to the commitment of each lender under the facility. The pre-Amendment $400.0 million total does not take into account the approximately $29.4 million of unfunded commitments of LCPI. Immediately after the execution of the Amendment, LCPI assigned to UBS Loan Finance LLC its commitment and outstanding loan amount under the Senior Secured Credit Facility. Therefore, the full $300.0 million under the amended facility will be available. The Senior Secured Credit Facility also provides that we may request increases in the total commitments under the facility by up to $100.0 million in the aggregate, any such increases being subject to certain requirements as well as lenders’ approval.

After giving effect to the Amendment, the interest rate per annum applicable to the Senior Secured Credit Facility is, at the Company’s option (i) LIBOR plus the applicable margin or, (ii) the base rate (defined as the higher of (x) Bank of America’s prime rate and (y) the Federal Funds rate plus 0.5%), plus the applicable margin. In addition to the amended provisions summarized below, the Amendment increased the applicable margin for LIBOR loans from a range of 150 to 200 basis points to a range of 350 to 450 basis points, and increased the applicable margin for base rate loans from a range of 50 to 100 basis points to a range of 250 to 350 basis points, depending upon the Company’s consolidated leverage ratio. Unused commitment fees were also increased from a range of 0.30% to 0.50% to a range of 0.50% to 0.75%, depending upon the Company’s consolidated leverage ratio. We expect to pay fees totaling approximately $2.5 million in connection with the closing of the Amendment, which consists of legal, administrative, closing and other fees.

The Amendment also modifies the Senior Secured Credit Facility by, among other things:

•

removing the requirement that the Company maintain a consolidated leverage ratio of total funded debt to trailing four quarters earnings before interest, tax, depreciation and amortization (as calculated pursuant to the terms of the Senior Secured Credit Facility, “EBITDA”) of no more than 3.50 to 1.00, and replacing it with the following two requirements: (i) that the Company’s consolidated funded indebtedness be no greater than 45% of the Company’s adjusted total capitalization, and (ii) that the Company’s senior secured leverage ratio of senior secured funded debt to trailing four quarters EBITDA be no greater than (A) 2.50 to 1.00 for the fiscal quarter ended September 30, 2009 through and including the fiscal quarter ending September 30, 2010 and, (B) thereafter, 2.00 to 1.00;

•

amending the requirement that the Company maintain a consolidated interest coverage ratio of trailing four quarters EBITDA to interest expense of at least 3.00 to 1.00, by replacing such requirement with a new requirement that the Company maintain such ratio of at least the following amounts during each corresponding period:

from the fiscal quarter ended September 30, 2009 through and including the fiscal quarter ending June 30, 2010		1.75 to 1.00
for the fiscal quarter ending September 30, 2010		2.00 to 1.00
for the fiscal quarter ending December 31, 2010		2.50 to 1.00
thereafter		3.00 to 1.00;

•

amending the $250.0 million per fiscal year capital expenditures limitation by (i) making the requirement inapplicable to foreign subsidiaries of the Company that are not wholly-owned, (ii) if the Company’s consolidated leverage ratio of total funded debt to trailing four quarters EBITDA is greater than 3.50 to 1.00, reducing the amount of capital expenditures that may be made to $135.0 million during fiscal year 2009 and $120.0 million during each subsequent fiscal year, (iii) allowing, subject to certain restrictions, carry over of a portion of unused amounts from prior fiscal years, (iv) allowing an increase based on net cash proceeds received by the Company after October 27, 2009 in connection with the issuance or sale of equity interests or the incurrence or issuance of certain unsecured debt securities, and (v) allowing amounts to be added back to the annual limitation if capital expenditures are made for assets that the Company or a guarantor later sells to a foreign subsidiary or joint venture, to the extent of any cash or promissory note received from the foreign subsidiary or joint venture in connection with such sale;

•

amending the negative covenant related to acquisitions to permit acquisitions that either (i) are completed for equity consideration, without regard to leverage, or (ii) are completed for cash consideration, but only (A) if the consolidated leverage ratio of total funded debt to trailing four quarters EBITDA is 2.75 to 1.00 or less, (x) there is an aggregate amount of $25.0 million in unused credit commitments under the facility and (y) the Company is in pro forma compliance with the financial covenants contained in the credit agreement; or (B) if the consolidated leverage ratio of total funded debt to trailing four quarters EBITDA is greater than 2.75 to 1.00, in addition to the requirements in subclauses (x) and (y) in clause (A) above, the cash amount paid with respect to acquisitions is limited to $25.0 million per fiscal year (subject to potential increase using amounts then available for capital expenditures and any net cash proceeds received by the Company after October 27, 2009 in connection with the issuance or sale of equity interests or the incurrence or issuance of certain unsecured debt securities that are identified as being used for such purpose);

•

increasing the basket for amounts that may be invested, after October 27, 2009, in foreign subsidiaries (including by way of loans made by the Company and its domestic subsidiaries to foreign subsidiaries and guaranties made by the Company and its domestic subsidiaries of debt of foreign subsidiaries) to $75.0 million during any fiscal year or an aggregate amount equal to (i) the greater of $200.0 million or 25% of the Company’s consolidated net worth, plus (ii) any net cash proceeds received by the Company since October 27, 2009, in connection with the issuance or sale of equity interests or the incurrence of certain unsecured debt securities that are identified as being used for such purpose;

•

amending the negative covenant related to permitted unsecured indebtedness that has no maturity earlier than twelve months after November 29, 2012, that does not require scheduled payments of principal prior to maturity and is subject to covenants no more onerous than those contained in the Senior Secured Credit Facility, to provide that if the consolidated leverage ratio of total funded debt to trailing four quarters EBITDA is greater than 3.50 to 1.00, or if the Company would not be in pro forma compliance with the consolidated interest coverage ratio described in the second bullet point listed above, the amount of such permitted unsecured indebtedness incurred after October 27, 2009 may not exceed $100.0 million;

•

amending the negative covenant related to share repurchases to allow such repurchases in an aggregate amount of up to $200.0 million only if (i) the Company’s consolidated funded indebtedness to total capitalization is less than 50% and (ii) the Company’s consolidated leverage ratio of total funded debt to trailing four quarters EBITDA is not greater than 2.00 to 1.00;

•

amending the limitation on the ability of the Company and domestic subsidiaries to have assets located outside the United States to allow assets (other than equity interests) outside the United States with a book value (exclusive of assets located outside the United States on October 27, 2009) of up to the greater of (i) $150.0 million or (ii) 17.5% of the Company’s consolidated net worth; and

•

amending the events of default provisions to provide that the insolvency or bankruptcy of an insignificant foreign subsidiary (as defined in the Amendment) is not an event of default under the Senior Secured Credit Facility.

Except as amended by the Amendment, the Senior Secured Credit Facility remains in full force and effect as originally executed, and the Company is subject to the various other affirmative and negative covenants included in the Senior Secured Credit Facility, as amended, including without limitation restrictions related to (i) liens; (ii) debt, guarantees and other contingent obligations; (iii) mergers and consolidations; (iv) sales, transfers and other dispositions of property or assets; (v) loans, acquisitions, joint ventures and other investments; (vi) dividends and other distributions to, and redemptions and repurchases from, equity holders; (vii) prepaying, redeeming or repurchasing the Senior Notes or other unsecured debt incurred pursuant to the sixth bullet point listed above; (viii) granting negative pledges other than to the lenders; (ix) changes in the nature of the Company’s business; (x) amending organizational documents, or amending or otherwise modifying any debt if such amendment or modification would have a material adverse effect, or amending the Senior Notes or any other unsecured debt incurred pursuant to the sixth bullet point listed above if the effect of such amendment is to shorten the maturity of the Senior Notes or such other unsecured debt; and (xi) changes in accounting policies or reporting practices; in each of the foregoing cases, with certain exceptions.

The Company may prepay the Senior Secured Credit Facility in whole or in part at any time without premium or penalty, subject to its obligation to reimburse the lenders for breakage and redeployment costs. Pursuant to the terms of the Amendment, we were required to calculate our compliance with the covenants for the September 30, 2009 quarterly determination date according to the amended covenants discussed above. We were in compliance with these covenants at September 30, 2009.

After giving effect to the Amendment, including the reduction in the total credit commitments and the replacement of LCPI under the facility, as of October 27, 2009, the Company had approximately $169.0 million available under the Senior Secured Credit Facility, with $87.8 million in outstanding borrowings and $43.2 million in committed letters of credit.

Notes Payable to Related Parties

On October 25, 2007, we entered into two promissory notes with related parties. The first is an unsecured note in the amount of $12.5 million, which was due and paid in lump-sum, together with accrued interest, on October 25, 2009. The second unsecured note in the amount of $10.0 million is payable in annual installments of $2.0 million, plus accrued interest, on each anniversary date of its issue through October 2012. Each of the notes bears interest at the Federal Funds Rate, adjusted annually on the anniversary date of the note. As of September 30, 2009, the interest rate on these notes was 1.5%.

NOTE 9. INCOME TAXES

Our effective tax rate for the three months ended September 30, 2009 and 2008 was 36.9% and 37.5%, respectively. Our effective tax rate for the nine months ended September 30, 2009 and 2008 was 37.0% and 38.4%, respectively. The primary difference between the statutory rate of 35.0% and our effective tax rate relates to state and foreign taxes.

As of September 30, 2009 and December 31, 2008, we had approximately $3.6 million and $5.6 million, respectively, of unrecognized tax benefits, net of federal tax benefit, which, if recognized, would impact our effective tax rate. We recognized tax benefits of $1.6 million and zero due to statute expirations for the nine months ended September 30, 2009 and September 30, 2008, respectively. We are subject to U.S. Federal Income Tax as well as income taxes in multiple state and foreign jurisdictions. We have substantially concluded all U.S. federal and state tax matters through the year ended December 31, 2004.

We record interest and penalties related to unrecognized tax benefits as income tax expense. We have accrued a liability of approximately $1.3 million and $2.1 million for the payment of interest and penalties as of September 30, 2009 and December 31, 2008, respectively. We believe that it is reasonably possible that approximately $0.5 million of our currently remaining unrecognized tax positions, each of which are individually insignificant, may be recognized in the next twelve months as a result of a lapse of statute of limitations. No release of our deferred tax asset valuation allowance was made during the three or nine months ended September 30, 2009.

NOTE 10. COMMITMENTS AND CONTINGENCIES

Litigation

Various suits and claims arising in the ordinary course of business are pending against us. Due in part to the locations where we conduct business in the continental United States, we are often subject to jury verdicts and arbitration hearings that result in outcomes in favor of the plaintiffs. We continually assess our contingent liabilities, including potential litigation liabilities, as well as the adequacy of our accruals and our need for the disclosure of these items. We establish a provision for a contingent liability when it is probable that a liability has been incurred and the amount is reasonably estimable. As of September 30, 2009, the aggregate amount of our provisions for losses related to litigation that are deemed probable and reasonably estimable is approximately $2.5 million. We do not believe that the disposition of any of these matters will have a material impact on our financial position, results of operations, or cash flows. During the third quarter of 2009, we recorded a net decrease in our reserves of $0.9 million related to the settlement of ongoing legal matters and the continued refinement of liabilities recognized for litigation deemed probable and estimable.

Litigation with Former Officers and Employees

We were named in a lawsuit by our former general counsel, Jack D. Loftis, Jr., filed in the U.S. District Court, District of New Jersey, on April 21, 2006, in which he alleges a “whistle-blower” claim under the Sarbanes-Oxley Act, breach of contract, breach of duties of good faith and fair dealing, breach of fiduciary duty and wrongful termination. On August 17, 2007, we filed counterclaims against Mr. Loftis alleging attorney malpractice, breach of contract and breach of fiduciary duties. In our counterclaims, we are seeking repayment of all severance paid to Mr. Loftis to date (approximately $0.8 million) plus benefits paid during the period July 8, 2004 to September 21, 2004, and damages relating to the allegations of malpractice and breach of fiduciary duties. The case is now pending in the U.S. District Court for the Eastern District of Pennsylvania and is currently set for trial in the second quarter of 2010. We recorded a liability for this matter in the fourth quarter of 2008.

On October 17, 2006, Jane John, the ex-wife of our former chief executive officer, Francis John, filed a complaint in Bucks County, Pennsylvania against her ex-husband and the Company. Ms. John alleges breach of marital agreement, breach of options agreements, civil conspiracy and fraud. She alleges that Mr. John and the Company defrauded her with regard to Mr. John’s compensation, as well as in the disclosures of marital property. By virtue of assignments, Ms. John held 375,000 stock options which expired unexercised during a period in which the Company was not current in its financial statements, when such options could not be exercised. Mr. John has previously agreed to indemnify the Company with respect to damages attributable to any and all of Ms. John’s claims, other than damages attributable to any alleged breach of Ms. John’s stock option agreements. We recently reached a settlement with Ms. John regarding the alleged breach of stock option agreements, and recorded an additional charge related to the settlement in the third quarter of 2009. We initially recorded a liability for this matter in the third quarter of 2008.

On September 3, 2006, our former controller and former assistant controller filed a joint complaint against the Company in the 133rd District Court, Harris County, Texas, alleging constructive termination and breach of contract. We anticipate trial by arbitration late in the fourth quarter of 2009. Based upon an agreement between the parties regarding certain procedural matters, we recorded a liability for this matter in the third quarter of 2009.

Self-Insurance Reserves

We maintain reserves for workers’ compensation and vehicle liability on our balance sheet based on our judgment and estimates using an actuarial method based on claims incurred. We estimate general liability claims on a case-by-case basis. We maintain insurance policies for workers’ compensation and vehicular liability claims. These insurance policies carry self-insured retention limits or deductibles on a per occurrence basis. The retention limits or deductibles are accounted for in our accrual process for all workers’ compensation and vehicular liability claims. As of September 30, 2009 and December 31, 2008, we have recorded $57.3 million and $68.9 million, respectively, of self-insurance reserves related to workers’ compensation, health insurance, and vehicular liability claims. Partially offsetting these liabilities, we had approximately $7.7 million and $10.8 million of insurance receivables as of September 30, 2009 and December 31, 2008 respectively. We feel that the liabilities we have recorded are appropriate based on the known facts and circumstances and do not expect further losses materially in excess of the amounts already accrued for existing claims.

Environmental Remediation Liabilities

For environmental reserve matters, including remediation efforts for current locations and those relating to previously disposed properties, we record liabilities when our remediation efforts are probable and the costs to conduct such remediation efforts can be reasonably estimated. While our litigation reserves reflect the application of our insurance coverage, our environmental reserves do not reflect management’s assessment of the insurance coverage that may apply to the matters at issue. As of September 30, 2009 and December 31, 2008, we have recorded approximately $2.9 million and $3.0 million, respectively, for our environmental remediation liabilities. We feel that the liabilities we have recorded are appropriate based on the known facts and circumstances and do not expect further losses materially in excess of the amounts already accrued.

We provide performance bonds to provide financial surety assurances for the remediation and maintenance of our saltwater disposal (“SWD”) properties, in order to comply with environmental protection standards. Costs for SWD properties may be mandatory (to comply with applicable laws and regulations), in the future (required to divest or cease operations), or for optimization (to improve operations, but not for safety or regulatory compliance).

NOTE 11. EARNINGS PER SHARE

Basic earnings per common share is determined by dividing net earnings applicable to common stock by the weighted average number of common shares actually outstanding during the period. Diluted earnings per common share is based on the increased number of shares that would be outstanding assuming conversion of potentially dilutive outstanding securities using the treasury stock and “as if converted” methods.

		Three Months Ended September 30,								Nine Months Ended September 30,
		2009				2008				2009				2008
		(in thousands, except per share data)
Basic EPS Computation:
Numerator
(Loss) income attributable to common stockholders		$	(124,942	)		$	48,462			$	(142,511	)		$	126,958
Denominator
Weighted average shares outstanding			121,277				123,518				120,983				125,304
Basic (loss) earnings per share		$	(1.03	)		$	0.39			$	(1.18	)		$	1.01
Diluted EPS Computation:
Numerator
(Loss) income attributable to common stockholders		$	(124,942	)		$	48,462			$	(142,511	)		$	126,958
Denominator
Weighted average shares outstanding			121,277				123,518				120,983				125,304
Stock options			—				757				—				739
Restricted stock			—				346				—				339
Warrants			—				740				—				675
Stock appreciation rights			—				16				—				5
			121,277				125,377				120,983				127,062
Diluted (loss) earnings per share		$	(1.03	)		$	0.39			$	(1.18	)		$	1.00

The diluted earnings per share calculations for the quarters ended September 30, 2009 and 2008 exclude the potential exercise of 4.1 million and 1.3 million stock options, respectively, because the effects of such exercises on earnings per share in those periods would be anti-dilutive. The diluted earnings per share calculations for the quarter ended September 30, 2009 also exclude the potential exercise of 0.4 million stock appreciation rights (“SARs”), because the effects of such exercises on earnings per share in those periods would be anti-dilutive. For 2009, these options and SARs would be anti-dilutive because of our net loss for the period. For 2008, the exercise prices for these awards exceeded the average stock price for the Company during the period, and would therefore be anti-dilutive. None of our SARs were anti-dilutive for the three months ended September 30, 2008.

The diluted earnings per share calculations for the nine months ended September 30, 2009 and 2008 exclude the potential exercise of 4.7 million and 1.8 million stock options, respectively, because the effects of such exercises on earnings per share in those periods would be anti-dilutive. The diluted earnings per share calculations for the nine months ended September 30, 2009 and 2008 also exclude the potential exercise of 0.5 million and 0.4 million SARs, respectively, because the effects of such exercises on earnings per share in those periods would be anti-dilutive. For 2009, these options and SARs would be anti-dilutive because of our net loss for the period. For 2008, the exercise prices for these awards exceeded the average stock price for the Company during the period, and would therefore be anti-dilutive.

NOTE 12. SHARE-BASED COMPENSATION

We recognized employee share-based compensation expense of $2.4 million and $2.9 million during the three months ended September 30, 2009 and 2008, respectively. The related income tax benefit recognized for employee share-based compensation was $0.8 million for the three months ended September 30, 2009 and 2008, respectively. We recognized employee share-based compensation expense of $5.3 million and $11.8 million during the nine months ended September 30, 2009 and 2008, respectively. The related income tax benefit recognized for employee share-based compensation was $1.9 million and $3.6 million for the nine months ended September 30, 2009 and 2008, respectively. We did not capitalize any share-based compensation during the three or nine month periods ended September 30, 2009 and 2008.

The unrecognized compensation cost related to our outstanding unvested stock options, restricted shares and phantom shares as of September 30, 2009 was less than $0.1 million, $7.0 million and $1.2 million, respectively, and is expected to be recognized over a weighted average period of 1.7 years, 1.4 years and 1.2 years, respectively.

NOTE 13. TRANSACTIONS WITH RELATED PARTIES

Transactions with Employees

In connection with an acquisition in 2008, the former owner of the acquiree became an employee of the Company. At the time of and subsequent to the acquisition, the employee also owns an exploration and production company. Subsequent to the acquisition, the Company continued to provide services to this exploration and production company. The prices charged for these services are at rates that are an average of the prices charged to our other customers in the California market. As of September 30, 2009, our receivables with this company totaled approximately $0.4 million. For the three and nine months ended September 30, 2009, revenues from this company totaled approximately $0.7 million and $3.1 million, respectively.

Board of Director Relationship with Customer

In October 2007, we added a member to our board of directors who is the Senior Vice President, General Counsel and Chief Administrative Officer of Anadarko Petroleum Corporation (“Anadarko”), which is one of our customers. Sales to Anadarko comprised less than 2% of our total revenues for the three and nine months ended September 30, 2009 and 2008, respectively. Our sales to Anadarko were less than 1% of Anadarko’s revenues for the twelve months ended December 31, 2008 and we expect that our sales to Anadarko will be less than 1% of its revenues for 2009. Transactions with Anadarko for our services are made on terms consistent with other customers.

NOTE 14. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

The following is a summary of the carrying amounts and estimated fair values of our financial instruments as of September 30, 2009 and December 31, 2008. The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. No material changes have occurred to the methodologies or assumptions regarding the fair values of our financial instruments from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2008. The carrying values of our cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair values at the respective balance sheet dates because of the short maturity and highly liquid nature of these instruments and are not included in the table below.

		September 30, 2009								December 31, 2008
		Carrying Value				Fair Value				Carrying Value				Fair Value
		(in thousands)
Financial assets:
Notes and accounts receivable — related parties		$	593			$	593			$	336			$	336
Financial liabilities:
8.375% Senior Notes		$	425,000			$	405,875			$	425,000			$	282,115
Senior Secured Credit Facility revolving loans			87,812				87,812				187,813				187,813
Notes payable — related parties			20,416				20,416				20,318				20,318

Notes and accounts receivable — related parties. The amounts reported relate to notes receivable from certain employees of the Company related to relocation loans and retention agreements, as well as our trade accounts receivable with related parties. The carrying values of these instruments approximate their fair values as of the respective balance sheet dates due to their short maturity dates.

8.375% Senior Notes. The fair value of our Senior Notes is based on quoted market prices as of the respective balance sheet dates.

Senior Secured Credit Facility revolving loans. Because of their variable interest rates and the underlying security, the fair values of the revolving loans borrowed under our Senior Secured Credit Facility approximate their carrying values as of the respective balance sheet dates.

Notes payable — related parties. The amounts reported relate to a seller financing arrangement that we entered into in connection with an acquisition we made during 2007. The carrying values of these notes approximate their fair values as of the respective balance sheet dates due to their variable interest rates.

NOTE 15. SEGMENT INFORMATION

We revised our reportable business segments effective in the first quarter of 2009. The new operating segments are now Well Servicing and Production Services. Financial results as of and for the three and nine months ended September 30, 2008 have been restated to reflect the change in operating segments. We revised our segments to reflect changes in management’s resource allocation and performance assessment in making decisions regarding the Company. Our rig services and fluid management operations are aggregated within our Well Servicing segment. Our pressure pumping, fishing and rental and cased-hole electric wireline operations, as well as our technology development group in Canada, are now aggregated within our Production Services segment. These changes reflect our current operating focus. The accounting policies for our segments are the same as those described in “Note 1. Organization and Summary of Significant Accounting Policies” included in our Annual Report on Form 10-K for the year ended December 31, 2008. We evaluate the performance of our operating segments based on revenue and earnings before interest, taxes, depreciation and amortization (“EBITDA”), which is a non-GAAP measure and is not disclosed below. All inter-segment sales pricing is based on current market conditions. Additionally, we have aggregated all of our operating components that do not meet the aggregation criteria to form a “Functional Support” segment. Functional Support expenses include corporate overhead and expenses associated with managing all of our other reportable segments.

The following is a description of our reportable segments:

Well Servicing

Rig Services

This segment includes the maintenance of existing wells, workover of existing wells, completion of newly drilled wells, drilling of horizontal wells, recompletion of existing wells (re-entering a well to complete the well in a new geologic zone or formation) and plugging and abandonment of wells at the end of their useful lives.

Workover services are performed to enhance the production of existing wells. Such services include extensions of existing wells to drain new formations either by deepening wellbores to new zones or by drilling horizontal or lateral wellbores to improve reservoir drainage. In less extensive workovers, our rigs are used to seal off depleted zones in existing wellbores and access previously bypassed productive zones.

Our completion services prepare a newly drilled oil or natural gas well for production. We typically provide a well service rig and may also provide other equipment such as a workover package to assist in the completion process.

Fluid Management Services

The Well Servicing segment also provides fluid management services, including oilfield transportation and produced-water disposal services. Our oilfield transportation and produced-water disposal services include vacuum truck services, fluid transportation services and disposal services for operators whose oil or natural gas wells produce saltwater and other fluids. In addition, we are a supplier of frac tanks which are used for temporary storage of fluids in conjunction with the fluid hauling operations. Our fluid management services will collect, transport and dispose of saltwater. These fluids are removed from the well site and transported for disposal in an SWD facility.

Production Services

This segment provides multiple services as described below:

Pressure Pumping Services

We provide well stimulation and cementing services to oil and natural gas producers. Well stimulation services include fracturing, nitrogen, coiled tubing and acidizing services. These services (which may be completion or workover services) are used to enhance the production of oil and natural gas wells from formations which exhibit restricted flow of oil and natural gas. In the fracturing process, we typically pump fluid and sized sand, or proppants, into a well at high pressure in order to fracture the formation and thereby increase the flow of oil and natural gas. With our cementing services, we pump cement into a well between the casing and the wellbore.

Fishing and Rental Services

We provide fishing and rental services to major and independent oil and natural gas production companies in the Gulf Coast, Central and Permian Basin marketplaces, as well as in California. We also provided limited services offshore in the Gulf of Mexico. Fishing services involve recovering lost or stuck equipment in the wellbore utilizing a “fishing tool.” We offer a full line of services and rental equipment designed for use both onshore and offshore for drilling and workover services. Our rental tool inventory consists of drill pipe, tubulars, handling tools (including our patented Hydra-Walk ^® pipe-handling units and services), pressure-control equipment, power swivels and foam air units.

Cased-hole Electric Wireline Services

We perform activities at various times throughout the life of the well including perforating, completion logging, production logging and casing integrity services. After the wellbore is cased and cemented, we can provide a number of services. Perforating creates the flow path between the reservoir and the wellbore. Production logging can be performed throughout the life of the well to measure temperature, fluid type, flow rate, pressure and other reservoir characteristics. This service helps the operator analyze and monitor well performance and determine when a well may need a workover or further stimulation.

The following tables set forth our segment information as of and for the three and nine month periods ended September 30, 2009 and 2008 (in thousands):

As of and for the three months ended September 30, 2009:

		Well				Production				Functional
		Servicing				Services				Support				Eliminations				Total
Revenues from external customers		$	194,071			$	43,600			$	—			$	—			$	237,671
Intersegment revenue			—				2,158				—				(2,158	)			—
Operating expenses			186,155				52,819				26,475				—				265,449
Asset retirements and impairments			65,869				93,933				—				—				159,802
Operating loss			(57,953	)			(103,152	)			(26,475	)			—				(187,580	)
Interest expense			(607	)			(117	)			9,806				—				9,082
Loss before income taxes			(58,889	)			(102,862	)			(36,455	)			—				(198,206	)
Total assets			1,155,860				252,483				648,956				(388,472	)			1,668,827
Capital expenditures, excluding acquisitions			24,125				7,705				3,732				—				35,562

As of and for the three months ended September 30, 2008:

		Well				Production				Functional
		Servicing				Services				Support				Eliminations				Total
Revenues from external customers		$	399,586			$	136,034			$	—			$	—			$	535,620
Intersegment revenue			—				1,574				—				(1,574	)			—
Operating expenses			302,225				112,435				32,688				—				447,348
Operating income (loss)			97,361				23,599				(32,688	)			—				88,272
Interest expense			(668	)			(466	)			11,609				—				10,475
Income (loss) before income taxes			98,537				24,291				(45,287	)			—				77,541
Total assets			1,406,040				484,376				540,058				(377,229	)			2,053,245
Capital expenditures, excluding acquisitions			36,205				21,247				1,390				—				58,842

As of and for the nine months ended September 30, 2009:

		Well				Production				Functional
		Servicing				Services				Support				Eliminations				Total
Revenues from external customers		$	648,277			$	162,841			$	—			$	—			$	811,118
Intersegment revenue			6				4,113				—				(4,119	)			—
Operating expenses			583,824				184,490				80,263				—				848,577
Asset retirements and impairments			65,869				93,933				—				—				159,802
Operating loss			(1,416	)			(115,582	)			(80,263	)			—				(197,261	)
Interest expense			(1,494	)			(719	)			31,124				—				28,911
Loss before income taxes			(617	)			(114,648	)			(110,943	)			—				(226,208	)
Total assets			1,155,860				252,483				648,956				(388,472	)			1,668,827
Capital expenditures, excluding acquisitions			56,709				36,532				9,730				—				102,971

As of and for the nine months ended September 30, 2008:

		Well				Production				Functional
		Servicing				Services				Support				Eliminations				Total
Revenues from external customers		$	1,108,958			$	385,064			$	—			$	—			$	1,494,022
Intersegment revenue			—				2,479				—				(2,479	)			—
Operating expenses			840,724				308,544				110,437				—				1,259,705
Operating income (loss)			268,234				76,520				(110,437	)			—				234,317
Interest expense			(1,849	)			(1,328	)			33,771				—				30,594
Income (loss) before income taxes			268,851				81,102				(144,258	)			—				205,695
Total assets			1,406,040				484,376				540,058				(377,229	)			2,053,245
Capital expenditures, excluding acquisitions			89,011				37,367				3,835				—				130,213

The following tables present information related to our operations on a geographical basis as of and for the three and nine month periods ended September 30, 2009 and 2008 (in thousands):

		U.S.				Argentina				Mexico				Canada				Russia				Eliminations				Total
As of and for the three months ended September 30, 2009:
Revenue from external customers		$	190,924			$	16,464			$	28,809			$	166			$	1,308			$	—			$	237,671
Long-lived assets			1,240,845				20,393				64,532				7,684				39,331				(88,881	)			1,283,904
Capital expenditures, excluding acquisitions			25,347				83				10,115				17				—				—				35,562
As of and for the three months ended September 30, 2008:
Revenue from external customers		$	487,568			$	32,173			$	14,294			$	1,585			$	—			$	—			$	535,620
Long-lived assets			1,471,282				27,569				27,996				5,084				—				(55,703	)			1,476,228
Capital expenditures, excluding acquisitions			53,920				144				4,763				15				—								58,842
As of and for the nine months ended September 30, 2009:
Revenue from external customers		$	672,941			$	51,877			$	84,379			$	613			$	1,308			$	—			$	811,118
Long-lived assets			1,240,845				20,393				64,532				7,684				39,331				(88,881	)			1,283,904
Capital expenditures, excluding acquisitions			73,696				1,649				27,596				30				—				—				102,971
As of and for the nine months ended September 30, 2008:
Revenue from external customers		$	1,368,400			$	88,779			$	29,755			$	7,088			$	—			$	—			$	1,494,022
Long-lived assets			1,471,282				27,569				27,996				5,084				—				(55,703	)			1,476,228
Capital expenditures, excluding acquisitions			110,435				1,139				18,498				141				—				—				130,213

NOTE 16. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

During the fourth quarter of 2007, we issued the Senior Notes, which are guaranteed by virtually all of our domestic subsidiaries, all of which are wholly-owned. These guarantees are joint and several, full, complete and unconditional. There are no restrictions on the ability of subsidiary guarantors to transfer funds to the parent company. As a result of these guarantee arrangements, we are required to present the following condensed consolidating financial information.

CONDENSED CONSOLIDATING BALANCE SHEETS

		September 30, 2009
		Parent				Guarantor				Non-Guarantor
		Company				Subsidiaries				Subsidiaries				Eliminations				Consolidated
		(in thousands)
Assets:
Current assets		$	57,961			$	227,173			$	99,631			$	158			$	384,923
Property and equipment, net			—				844,596				26,985				—				871,581
Goodwill			—				316,514				28,714				—				345,228
Deferred financing costs, net			9,018				—				—				—				9,018
Intercompany notes and accounts receivable and investments in subsidiaries			1,780,173				538,715				16,341				(2,335,229	)			—
Other assets			4,065				38,194				15,818				—				58,077
TOTAL ASSETS		$	1,851,217			$	1,965,192			$	187,489			$	(2,335,071	)		$	1,668,827
Liabilities and equity:
Current liabilities		$	17,087			$	155,142			$	29,909			$	—			$	202,138
Capital lease obligations, less current portion			—				8,680				37				—				8,717
Notes payable — related parties, less current portion			—				6,000				—				—				6,000
Long-term debt			512,812				—				—				—				512,812
Intercompany notes and accounts payable			430,448				1,491,204				66,645				(1,988,297	)			—
Deferred tax liabilities			135,464				—				(2,963	)			—				132,501
Other long-term liabilities			1,928				51,253				—				—				53,181
Stockholders’ and members’ equity			753,478				252,913				93,861				(346,774	)			753,478
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	1,851,217			$	1,965,192			$	187,489			$	(2,335,071	)		$	1,668,827