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 March 31, 2011

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

FOR THE TRANSITION PERIOD FROM ___TO __.

Commission File Number: 1-32858

Complete Production Services, Inc.

(Exact name of registrant as specified in its charter)

Delaware		72-1503959
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
11700 Katy Freeway, Suite 300 Houston, Texas		77079
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (281) 372-2300

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 Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

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

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

Number of shares of the common stock, par value $0.01 per share, of the registrant outstanding as of April 26, 2011: 78,925,425.

 

 

INDEX TO FINANCIAL STATEMENTS

Complete Production Services, Inc.

		Page
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010			3
Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income for the Quarters Ended March 31, 2011 and 2010			4
Consolidated Statement of Stockholders’ Equity for the Quarter Ended March 31, 2011			5
Consolidated Statements of Cash Flows for the Quarters Ended March 31, 2011 and 2010			6
Notes to Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.			20
Item 3. Quantitative and Qualitative Disclosures About Market Risk.			29
Item 4. Controls and Procedures.			30
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.			31
Item 1A. Risk Factors.			31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.			31
Item 3. Defaults Upon Senior Securities.			32
Item 5. Other Information.			32
Item 6. Exhibits.			32
Signatures
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

COMPLETE PRODUCTION SERVICES, INC.

Consolidated Balance Sheets
March 31, 2011 (unaudited) and December 31, 2010

		2011				2010
		(In thousands, except
		share data)
ASSETS
Current assets:
Cash and cash equivalents		$	144,011			$	126,681
Accounts receivable, net			390,890				345,648
Inventory, net			34,309				33,536
Prepaid expenses			21,288				18,700
Income tax receivable			26,495				23,462
Current deferred tax assets			2,835				2,499
Other current assets			42				1,384
Total current assets			619,870				551,910
Property, plant and equipment, net			958,757				956,028
Intangible assets, net of accumulated amortization of $22,803 and $21,293, respectively			7,753				9,209
Deferred financing costs, net of accumulated amortization of $10,080 and $9,316, respectively			8,931				9,694
Goodwill			250,563				250,533
Restricted cash			17,000				17,000
Other long-term assets			7,803				6,202
Total assets		$	1,870,677			$	1,800,576
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	63,909			$	75,099
Accrued liabilities			42,698				44,291
Accrued payroll and payroll burdens			24,096				26,568
Accrued interest			15,424				2,446
Income taxes payable			1,595				—
Total current liabilities			147,722				148,404
Long-term debt			650,000				650,000
Other long-term liabilities			6,035				5,916
Deferred income taxes			211,219				190,422
Total liabilities			1,014,976				994,742
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.01 par value per share, 200,000,000 shares authorized, 77,552,438 (2010 — 76,443,926) issued and outstanding			776				764
Preferred stock, $0.01 par value per share, 5,000,000 shares authorized, no shares issued and outstanding			—				—
Additional paid-in capital			672,572				657,993
Retained earnings			165,099				126,165
Treasury stock, 368,651 (2010 —167,643) shares at cost			(7,280	)			(1,765	)
Accumulated other comprehensive income			24,534				22,677
Total stockholders’ equity			855,701				805,834
Total liabilities and stockholders’ equity		$	1,870,677			$	1,800,576

See accompanying notes to consolidated financial statements.

COMPLETE PRODUCTION SERVICES, INC.

Consolidated Statements of Operations
Quarters Ended March 31, 2011 and 2010 (unaudited)

		Quarters Ended
		March 31,
		2011				2010
		(In thousands, except per share
		data)
Revenue:
Service		$	487,239			$	301,392
Product			7,978				8,312
			495,217				309,704
Service expenses			314,522				206,820
Product expenses			5,953				6,124
Selling, general and administrative expenses			49,351				40,852
Depreciation and amortization			49,148				45,319
Income before interest and taxes			76,243				10,589
Interest expense			14,143				14,741
Interest income			(95	)			(48	)
Income (loss) before taxes			62,195				(4,104	)
Taxes			23,261				(1,342	)
Net income (loss)		$	38,934			$	(2,762	)
Earnings (loss) per share information:
Basic income (loss) per share		$	0.51			$	(0.04	)
Diluted income (loss) per share		$	0.50			$	(0.04	)
Weighted average shares:
Basic			76,942				75,699
Diluted			78,599				75,699

Consolidated Statements of Comprehensive Income (Loss)
Quarters Ended March 31, 2011 and 2010 (unaudited)

		Quarters Ended
		March 31,
		2011				2010
		(In thousands)
Net income (loss)		$	38,934			$	(2,762	)
Change in cumulative translation adjustment			1,857				1,602
Comprehensive income (loss)		$	40,791			$	(1,160	)

See accompanying notes to consolidated financial statements.

COMPLETE PRODUCTION SERVICES, INC.

Consolidated Statement of Stockholders’ Equity
Quarter Ended March 31, 2011 (unaudited)

																						Accumulated
										Additional												Other
		Number				Common				Paid-in				Retained				Treasury				Comprehensive
		of Shares				Stock				Capital				Earnings				Stock				Income				Total
										(In thousands, except share data)
Balance at December 31, 2010			76,443,926			$	764			$	657,993			$	126,165			$	(1,765	)		$	22,677			$	805,834
Net income			—				—				—				38,934				—				—				38,934
Cumulative translation adjustment			—				—				—				—				—				1,857				1,857
Exercise of stock options			557,169				6				8,456				—				—				—				8,462
Expense related to employee stock options			—				—				565				—				—				—				565
Excess tax benefit from share-based compensation			—				—				2,998				—				—				—				2,998
Purchase of treasury shares			(201,008	)			(2	)			2								(5,515	)			—				(5,515	)
Vested restricted stock			752,351				8				(8	)			—				—				—				—
Amortization of non-vested restricted stock			—				—				2,566				—				—				—				2,566
Balance at March 31, 2011			77,552,438			$	776			$	672,572			$	165,099			$	(7,280	)		$	24,534			$	855,701

See accompanying notes to consolidated financial statements.

COMPLETE PRODUCTION SERVICES, INC.

Consolidated Statements of Cash Flows
Quarters Ended March 31, 2011 and 2010 (unaudited)

		Quarters Ended
		March 31,
		2011				2010
		(In thousands)
Cash provided by (used in):
Operating activities:
Net income (loss)		$	38,934			$	(2,762	)
Items not affecting cash:
Depreciation and amortization			49,148				45,319
Deferred income taxes			20,470				(1,485	)
Excess tax benefit from share-based compensation			(2,998	)			(94	)
Non-cash compensation expense			3,131				2,634
Provision for bad debt expense			470				150
Other			855				794
Changes in operating assets and liabilities:
Accounts receivable			(45,255	)			(34,289	)
Inventory			(826	)			3,391
Prepaid expense and other current assets			(2,208	)			2,835
Accounts payable			(5,876	)			741
Accrued liabilities and other			9,902				23,247
Net cash provided by operating activities			65,747				40,481
Investing activities:
Additions to property, plant and equipment			(55,721	)			(11,343	)
Proceeds from disposal of capital assets			649				518
Other			119				—
Net cash used in investing activities			(54,953	)			(10,825	)
Financing activities:
Repayments of long-term debt			—				(37	)
Repayment of notes payable			—				(1,069	)
Proceeds from issuances of common stock			8,462				696
Purchase of treasury shares			(5,515	)			(1,383	)
Excess tax benefit from share-based compensation			2,998				94
Net cash provided by (used in) financing activities			5,945				(1,699	)
Effect of exchange rate changes on cash			591				122
Change in cash and cash equivalents			17,330				28,079
Cash and cash equivalents, beginning of period			126,681				77,360
Cash and cash equivalents, end of period		$	144,011			$	105,439
Supplemental cash flow information:
Cash paid for interest, net of interest capitalized		$	542			$	1,384
Cash paid (refund received) for income taxes		$	1,313			$	(660	)
Significant non-cash investing activities:
Non-cash capital expenditures		$	14,546			$	—

See accompanying notes to consolidated financial statements.

COMPLETE PRODUCTION SERVICES, INC.

Notes to Consolidated Financial Statements
(Unaudited, in thousands, except share and per share data)

1. General:

(a) Nature of operations:

     Complete Production Services, Inc. is a provider of specialized services and products focused on developing hydrocarbon reserves, reducing operating costs and enhancing production for oil and gas companies. Complete Production Services, Inc. focuses its operations on basins within North America and manages its operations from regional field service facilities located throughout the U.S. Rocky Mountain region, Texas, Oklahoma, Louisiana, Arkansas, Pennsylvania, western Canada and Mexico. We also have operations in Southeast Asia.

     References to “Complete,” the “Company,” “we,” “our” and similar phrases used throughout this Quarterly Report on Form 10-Q relate collectively to Complete Production Services, Inc. and its consolidated affiliates.

     On April 21, 2006, our common stock began trading on the New York Stock Exchange under the symbol “CPX”.

(b) Basis of presentation:

     The unaudited interim consolidated financial statements reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair statement of the financial position of Complete as of March 31, 2011 and the statements of operations and the statements of comprehensive income (loss) for the quarters ended March 31, 2011 and 2010, as well as the statement of stockholders’ equity for the quarter ended March 31, 2011 and the statements of cash flows for the quarters ended March 31, 2011 and 2010. Certain information and disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted. These unaudited interim consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission on February 18, 2011. We believe that these financial statements contain all adjustments necessary so that they are not misleading.

     In preparing financial statements, we make informed judgments and estimates that affect the reported amounts of assets and liabilities as of the date of the financial statements and affect the reported amounts of revenues and expenses during the reporting period. We review our estimates on an on-going basis, including those related to impairment of long-lived assets and goodwill, contingencies, and income taxes. Changes in facts and circumstances may result in revised estimates and actual results may differ from these estimates.

     The results of operations for interim periods are not necessarily indicative of the results of operations that could be expected for the full year.

2. Accounts receivable:

		March 31,				December 31,
		2011				2010
Trade accounts receivable		$	328,792			$	253,662
Related party receivables			23,739				51,046
Unbilled revenue			40,754				42,747
Other receivables			1,384				2,353
			394,669				349,808
Allowance for doubtful accounts			3,779				4,160
		$	390,890			$	345,648

     Of the related party receivables at March 31, 2011 and December 31, 2010, $22,822 and $50,048, respectively, related to amounts due from a company for which one of our directors has an ownership

interest and serves as chief executive officer and chairman of the board.

3. Inventory:

		March 31,				December 31,
		2011				2010
Finished goods		$	19,498			$	18,644
Manufacturing parts, materials and other			16,979				16,063
Work in process			462				1,282
			36,939				35,989
Inventory reserves			2,630				2,453
		$	34,309			$	33,536

4. Property, plant and equipment:

						Accumulated
March 31, 2011		Cost				Depreciation				Net Book Value
Land		$	9,000			$	—			$	9,000
Buildings			33,938				4,971				28,967
Field equipment			1,470,474				679,116				791,358
Vehicles			128,004				66,177				61,827
Office furniture and computers			20,046				12,184				7,862
Leasehold improvements			25,867				7,119				18,748
Construction in progress			40,995				—				40,995
		$	1,728,324			$	769,567			$	958,757

						Accumulated
December 31, 2010		Cost				Depreciation				Net Book Value
Land		$	8,475			$	—			$	8,475
Buildings			32,083				4,456				27,627
Field equipment			1,442,664				643,582				799,082
Vehicles			128,381				58,110				70,271
Office furniture and computers			18,259				11,970				6,289
Leasehold improvements			26,644				6,258				20,386
Construction in progress			23,898				—				23,898
		$	1,680,404			$	724,376			$	956,028

     Construction in progress at March 31, 2011 and December 31, 2010 primarily included progress payments to vendors for equipment to be delivered in future periods and component parts to be used in the final assembly of operating equipment, which in all cases were not yet placed into service at the time. For the quarter ended March 31, 2011, we recorded capitalized interest of $285 related to assets that we are constructing for internal use and amounts paid to vendors under progress payments for assets that are being constructed on our behalf.

     During the review of our property, plant and equipment at December 31, 2010 in conjunction with our impairment testing of long-term assets, we noted approximately $5,814 of salvage value assigned to various coiled tubing and wireline assets at one of our operating divisions. Although we evaluated these assets and the assets of the overall reporting unit for recoverability and noted no significant impairment based on an undiscounted cash flow projection, we believe that the salvage value assigned to these assets is no longer appropriate. These assets were acquired several years ago, and we believe the estimate for salvage value used at that time was appropriate. However, increasingly, our business is focusing on larger-diameter coiled tubing units and more technologically-advanced equipment. As such, effective January 1, 2011, we changed our estimate of salvage value to zero and are depreciating these assets over their remaining useful lives, which we determined to be an average of 1.3 years. This change in estimate has been applied prospectively and is expected to increase our depreciation expense over the next five years as follows: 2011—$4,867; 2012—$789; 2013—$134 and 2014—$24.

5. Notes payable:

     We entered into a note arrangement to finance certain of our annual insurance premiums for the policy term from May 1, 2009 to April 2010. Our accounting policy has been to record a prepaid asset associated

with certain of these policies which is amortized over the term and which takes into account actual premium payments and deposits made to date, to record an accrued liability for premiums which are contractually committed for the policy term and to make monthly premium payments in accordance with our premium commitments and monthly note payments for amounts financed. Effective May 1, 2010, we renewed our annual insurance premiums for the policy term May 1, 2010 through April 30, 2011, but chose to prepay our premiums for certain insurance coverages which had been financed in prior renewals. For the three months ended March 31, 2010, we paid $1,069 under this note payable arrangement.

6. Long-term debt:

     The following table summarizes long-term debt as of March 31, 2011 and December 31, 2010:

		2011				2010
U.S. revolving credit facility (a)		$	—			$	—
Canadian revolving credit facility (a)			—				—
8.0% senior notes (b)			650,000				650,000
		$	650,000			$	650,000

	(a)		We maintain a senior secured facility (the “Credit Agreement”) with Wells Fargo Bank, National Association, as U.S. Administrative Agent, HSBC Bank Canada, as Canadian Administrative Agent, and certain other financial institutions. On October 13, 2009, we entered into the Third Amendment (the Credit Agreement after giving effect to the Third Amendment, the “Amended Credit Agreement”) and modified the structure of our existing credit facility to an asset-based facility subject to borrowing base restrictions. In connection with the Third Amendment, Wells Fargo Capital Finance, LLC (formerly known as Wells Fargo Foothill, LLC) replaced Wells Fargo Bank, National Association, as U.S. Administrative Agent and also serves as U.S. Issuing Lender and U.S. Swingline Lender under the Amended Credit Agreement. The Amended Credit Agreement provides for a U.S. revolving credit facility of up to $225,000 that matures in December 2011 and a Canadian revolving credit facility of up to $15,000 (with Integrated Production Services Ltd., one of our wholly-owned subsidiaries, as the borrower thereof (“Canadian Borrower”)) that matures in December 2011. The Amended Credit Agreement includes a provision for a “commitment increase”, as defined therein, which permits us to effect up to two separate increases in the aggregate commitments under the Amended Credit Agreement by designating one or more existing lenders or other banks or financial institutions, subject to the bank’s sole discretion as to participation, to provide additional aggregate financing up to $75,000, with each committed increase equal to at least $25,000 in the U.S., or $5,000 in Canada, and in accordance with other provisions as stipulated in the Amended Credit Agreement. Certain portions of the credit facilities are available to be borrowed in U.S. dollars, Canadian dollars and other currencies approved by the lenders.
			We were not subject to the fixed charge coverage ratio covenant in the Amended Credit Agreement as of March 31, 2011 since the Excess Availability Amount plus Qualified Cash Amount (each as defined in the Amended Credit Agreement) exceeded $50,000. If we had been subject to the fixed charge coverage ratio covenant at March 31, 2011, we would have been in compliance. For a discussion of the methodology to calculate the borrowing base for the U.S. and Canadian portions of the facility, as well as our debt covenant requirements, prepayment options and potential exposure in the event of a default under the Amended Credit Agreement, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K as of December 31, 2010.
			Subject to certain limitations set forth in the Amended Credit Agreement, we have the ability to elect how interest under the Amended Credit Agreement will be computed. Interest under the Amended Credit Agreement may be determined by reference to (1) the London Inter-bank Offered Rate, or LIBOR, plus an applicable margin between 3.75% and 4.25% per annum (with the applicable margin depending upon our “excess availability amount”, as defined in the Amended Credit Agreement) or (2) the “Base Rate” (which means the higher of the Prime Rate, Federal Funds Rate plus 0.50%, 3-month LIBOR plus 1.00% and 3.50%), plus the applicable margin, as described above. For the period from the effective date of the Third Amendment until the six month anniversary of the effective date of the Third Amendment, interest was computed with an

			applicable margin rate of 4.00%. If an event of default exists or continues under the Amended Credit Agreement, advances will bear interest as described above with an applicable margin rate of 4.25% plus 2.00%. Additionally, if an event of default exists under the Amended Credit Agreement, as defined therein, the lenders could accelerate the maturity of the obligations outstanding thereunder and exercise other rights and remedies. Interest is payable monthly.
			All of the obligations under the U.S. portion of the Amended Credit Agreement are secured by first priority liens on substantially all of our assets and the assets of our U.S. subsidiaries as well as a pledge of approximately 66% of the stock of our first-tier foreign subsidiaries. Additionally, all of the obligations under the U.S. portion of the Amended Credit Agreement are guaranteed by substantially all of our U.S. subsidiaries. The obligations under the Canadian portion of the Amended Credit Agreement are secured by first priority liens on substantially all of our assets and the assets of our subsidiaries (other than our Mexican subsidiary). Additionally, all of the obligations under the Canadian portion of the Amended Credit Agreement are guaranteed by us as well as certain of our subsidiaries.
			There were no borrowings outstanding under our U.S. or Canadian revolving credit facilities as of March 31, 2011. There were letters of credit outstanding under the U.S. revolving portion of the facility totaling $22,278, which reduced the available borrowing capacity as of March 31, 2011. We incurred fees related to our letters of credit as of March 31, 2011 at 3.75% per annum. For the three months ended March 31, 2011, fees related to our letters of credit were calculated using a 360-day provision, at 3.75% per annum. The availability of the U.S. and Canadian revolving credit facilities is determined by our borrowing base less any borrowings and letters of credit outstanding. The net excess availability under our borrowing base calculations for the U.S. and Canadian revolving facilities at March 31, 2011 was $191,472 and $6,723, respectively.
			We will incur unused commitment fees under the Amended Credit Agreement ranging from 0.50% to 1.00% based on the average daily balance of amounts outstanding. The unused commitment fees were calculated at 1.00% as of March 31, 2011.

	(b)		On December 6, 2006, we issued 8.0% senior notes with a face value of $650,000 through a private placement of debt. These notes mature in 10 years, on December 15, 2016, and require semi-annual interest payments, paid in arrears and calculated based on an annual rate of 8.0%, on June 15 and December 15, of each year, which commenced on June 15, 2007. There was no discount or premium associated with the issuance of these notes. The senior notes are guaranteed by all of our current domestic subsidiaries. The senior notes have covenants which, among other things: (1) limit the amount of additional indebtedness we can incur; (2) limit restricted payments such as a dividend; (3) limit our ability to incur liens or encumbrances; (4) limit our ability to purchase, transfer or dispose of significant assets; (5) limit our ability to purchase or redeem stock or subordinated debt; (6) limit our ability to enter into transactions with affiliates; (7) limit our ability to merge with or into other companies or transfer all or substantially all of our assets; and (8) limit our ability to enter into sale and leaseback transactions. We have the option to redeem all or part of these notes on or after December 15, 2011. Additionally, we may redeem some or all of the notes prior to December 15, 2011 at a price equal to 100% of the principal amount of the notes plus a make-whole premium.
			Pursuant to a registration rights agreement with the holders of our 8.0% senior notes, on June 1, 2007, we filed a registration statement on Form S-4 with the SEC which enabled these holders to exchange their notes for publicly registered notes with substantially identical terms. These holders exchanged 100% of the notes for publicly traded notes on July 25, 2007. On August 28, 2007, we entered into a supplement to the indenture governing the 8.0% senior notes, whereby additional domestic subsidiaries became guarantors under the indenture. Effective April 1, 2009, we entered into a second supplement to this indenture whereby additional domestic subsidiaries became guarantors under the indenture.

7. Stockholders’ equity:

(a) Stock-based Compensation—Stock Options:

     We maintain option plans under which we grant stock-based compensation to employees, officers and directors to purchase our common stock. The exercise price of each option is based on the fair value of the company’s stock at the date of grant. Options may be exercised over a five or ten-year period and generally a third of the options vest on each of the first three anniversaries from the grant date. Upon exercise of stock options, we issue our common stock.

     We calculate stock compensation expense for our stock-based compensation awards by measuring the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award, with limited exceptions, by using an option pricing model to determine fair value. A further description can be found in our Annual Report on Form 10-K as of December 31, 2010.

     On January 31, 2011, the Compensation Committee of our Board of Directors approved the annual grant of stock options and non-vested restricted stock to certain employees, officers and directors. Pursuant to this authorization, we issued 428,960 shares of non-vested restricted stock at a grant price of $27.94. We expect to recognize compensation expense associated with this grant of non-vested restricted stock totaling $11,982 ratably over the three-year vesting period. In addition, we granted 231,300 stock options to purchase shares of our common stock at an exercise price of $27.94. These stock options vest ratably over a three-year period. We will recognize compensation expense associated with these stock option grants over the vesting period. The fair value of the stock options granted during the quarter ended March 31, 2011 was determined by applying a Black-Scholes option pricing model based on the following assumptions:

		Quarter Ended
		March 31,
Assumptions:		2011
Risk-free rate		0.96% to 1.92		%
Expected term (in years)			3.7 to 5.1
Volatility			54.1	%
Calculated fair value per option		$	11.32 to $13.53

     We calculated the expected volatility of our common stock based on our historical volatility, adjusted for certain qualitative factors, over the expected term of the options. This volatility factor was used to compute the calculation of the fair market value of stock option grants made during the quarter ended March 31, 2011.

     We projected a rate of stock option forfeitures based upon historical experience and management assumptions related to the expected term of the options. After adjusting for these forfeitures, we expect to recognize expense totaling $2,782 over the vesting period of these 2011 stock option grants. For the quarter ended March 31, 2011, we have recognized expense related to these stock option grants totaling $154, which represents a reduction of net income before taxes. The impact on net income for the quarter ended March 31, 2011 was a decrease of $97, with no impact on diluted earnings per share as reported. The unrecognized compensation costs related to the non-vested portion of these awards was $2,628 as of March 31, 2011 and will be recognized over the applicable remaining vesting periods.

     For the quarters ended March 31, 2011 and 2010, we recognized compensation expense associated with all stock option awards totaling $565 and $750, respectively, resulting in a decrease in net income of $354 and an increase in net loss of $504, with no reduction in earnings per share for the quarter ended March 31, 2011 and a $0.01 reduction in earnings per share for the quarter ended March 31, 2010. Total unrecognized compensation expense associated with outstanding stock option awards at March 31, 2011 was $4,673 or $2,925, net of tax.

     The following tables provide a roll forward of stock options from December 31, 2010 to March 31, 2011 and a summary of stock options outstanding by exercise price range at March 31, 2011:

		Options Outstanding
						Weighted
						Average
						Exercise
		Number				Price
Balance at December 31, 2010			3,141,580			$	12.68
Granted			231,300			$	27.94
Exercised			(557,169	)		$	15.19
Cancelled			—			$	—
Balance at March 31, 2011			2,815,711			$	13.43

		Options Outstanding												Options Exercisable
						Weighted				Weighted								Weighted				Weighted
		Outstanding at				Average				Average				Exercisable at				Average				Average
		March 31,				Remaining				Exercise				March 31,				Remaining				Exercise
Range of Exercise Price		2011				Life (months)				Price				2011				Life (months)				Price
$5.00			60,000				26			$	5.00				60,000				26			$	5.00
$6.41 — $8.16			1,251,984				72			$	6.55				951,174				66			$	6.59
$11.66 — $12.53			483,964				102			$	12.47				143,765				93			$	12.32
$15.90			173,000				82			$	15.90				173,000				70			$	15.90
$17.60 — $19.87			272,396				70			$	19.80				272,396				70			$	19.80
$22.55 — $24.07			246,567				61			$	23.96				246,567				61			$	23.96
$26.26 — $27.94			276,200				111			$	27.68				45,000				74			$	26.35
$29.88			40,000				86			$	29.88				26,667				86			$	29.88
$34.19			11,500				87			$	34.19				7,667				87			$	34.19
			2,815,611				80			$	13.43				1,926,236				67			$	12.79

     The total intrinsic value of stock options exercised during the quarter ended March 31, 2011 was $8,462. The total intrinsic value of all in-the-money vested outstanding stock options at March 31, 2011 was $36,653. Assuming all stock options outstanding at March 31, 2011 were vested, the total intrinsic value of all in-the-money outstanding stock options would have been $52,158.

(b) Non-vested Restricted Stock:

     We present the amortization of non-vested restricted stock as an increase in additional paid-in capital. At March 31, 2011, amounts not yet recognized related to non-vested restricted stock totaled $19,044, which represented the unamortized expense associated with awards of non-vested stock granted to employees, officers and directors under our compensation plans, including $11,950 related to grants during the quarter ended March 31, 2011. We recognized compensation expense associated with non-vested restricted stock totaling $2,566 and $1,884 for the quarters ended March 31, 2011 and 2010, respectively.

     The following table summarizes the change in non-vested restricted stock from December 31, 2010 to March 31, 2011:

		Non-vested
		Restricted Stock
						Weighted
						Average
		Number				Grant Price
Balance at December 31, 2010			1,672,854			$	11.12
Granted			428,960			$	27.94
Vested			(752,351	)		$	10.40
Forfeited			(4,450	)		$	17.74
Balance at March 31, 2011			1,345,013			$	16.87

(c) Treasury Shares:

     In accordance with the provisions of the 2008 Incentive Award Plan, as amended, holders of non-vested restricted stock were given the option to either remit to us the required withholding taxes associated with the vesting of restricted stock, or to authorize us to purchase shares equivalent to the cost of the withholding tax and to remit the withholding taxes on behalf of the holder. Pursuant to this provision, we purchased the following shares in the quarter ended March 31, 2011:

		Shares				Average Price				Extended
Period		Purchased				Paid per Share				Amount
January 1 — 31, 2011			199,634			$	27.43			$	5,476
February 1 — 28, 2011			0				—				0
March 1 — 31, 2011			1,374			$	28.22				39
			201,008							$	5,515

8. Earnings per share:

     We compute basic earnings per share by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per common and potential common share includes the weighted average of additional shares associated with the incremental effect of dilutive employee stock options and non-vested restricted stock, as determined using the treasury stock method prescribed by the Financial Accounting Standards Board (“FASB”) guidance on earnings per share. The following table reconciles basic and diluted weighted average shares used in the computation of earnings (loss) per share for the quarters ended March 31, 2011 and 2010:

		Quarter Ended
		March 31,
		2011				2010
		(In thousands)
Weighted average basic common shares outstanding			76,942				75,699
Effect of dilutive securities:
Employee stock options			1,127				—
Non-vested restricted stock			530				—
Weighted average diluted common and potential common shares outstanding			78,599				75,699

     For the quarter ended March 31, 2010, we incurred a net loss and thus all potential common shares were deemed to be anti-dilutive. We excluded the impact of anti-dilutive potential common shares from the calculation of diluted weighted average shares for the quarters ended March 31, 2011 and 2010. If these potential common shares were included in the calculation, the impact would have been a decrease in diluted weighted average shares outstanding of 37,446 shares and 386,688 shares for the quarters ended March 31, 2011 and 2010, respectively.

9. Segment information:

     We report segment information based on how our management organizes the operating segments to make operational decisions and to assess financial performance. We evaluate performance and allocate resources based on net income (loss) from continuing operations before net interest expense, taxes, depreciation and amortization, non-controlling interest and impairment loss (“Adjusted EBITDA”). The calculation of Adjusted EBITDA should not be viewed as a substitute for calculations under U.S. GAAP, in particular net income. Adjusted EBITDA is included in this Quarterly Report on Form 10-Q because our management considers it an important supplemental measure of our performance and believes that it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry, some of which present EBITDA when reporting their results. We regularly evaluate our performance as compared to other companies in our industry that have different financing and capital structures and/or tax rates by using Adjusted EBITDA. In addition, we use Adjusted EBITDA in evaluating acquisition targets. Management also believes that Adjusted EBITDA is a useful tool for measuring our ability to meet our future debt service, capital expenditures and working capital requirements, and Adjusted EBITDA is commonly used by us and our investors to measure our ability to service indebtedness. Adjusted EBITDA is not a substitute for the U.S. GAAP measures of earnings or cash flow and is not necessarily a measure of our ability to fund our cash needs. It should be noted that companies calculate EBITDA (including Adjusted EBITDA) differently and, therefore, EBITDA has material limitations as a performance measure because it excludes interest expense, taxes, depreciation and amortization. Adjusted EBITDA calculated by us may not be comparable to the EBITDA (or Adjusted EBITDA) calculation of

another company and also differs from the calculation of EBITDA under our credit facilities (see Note 6, Long-term debt, for a description of the calculation of EBITDA under our existing credit facility, as amended). See the table below for a reconciliation of Adjusted EBITDA to operating income (loss) by segment.

     We have three reportable operating segments: completion and production services (“C&PS”), drilling services and product sales. The accounting policies of our reporting segments are the same as those used to prepare our consolidated financial statements as of March 31, 2011. Inter-segment transactions are accounted for on a cost recovery basis.

						Drilling				Product
		C&PS				Services				Sales				Corporate				Total
Quarter Ended March 31, 2011
Revenue from external customers		$	437,087			$	50,152			$	7,978			$	—			$	495,217
Inter-segment revenues		$	5			$	—			$	2,477			$	(2,482	)		$	—
Adjusted EBITDA, as defined		$	121,514			$	12,489			$	1,215			$	(9,827	)		$	125,391
Depreciation and amortization		$	43,257			$	4,749			$	542			$	600			$	49,148
Operating income (loss)		$	78,257			$	7,740			$	673			$	(10,427	)		$	76,243
Capital expenditures(1)		$	48,201			$	1,546			$	112			$	392			$	50,250
As of March 31, 2011
Segment assets		$	1,495,959			$	171,901			$	37,682			$	165,135			$	1,870,677
Quarter Ended March 31, 2010
Revenue from external customers		$	266,288			$	35,104			$	8,312			$	—			$	309,704
Inter-segment revenues		$	27			$	149			$	607			$	(783	)		$	—
Adjusted EBITDA, as defined		$	57,756			$	5,419			$	1,562			$	(8,829	)		$	55,908
Depreciation and amortization		$	39,793			$	4,458			$	576			$	492			$	45,319
Operating income (loss)		$	17,963			$	961			$	986			$	(9,321	)		$	10,589
Capital expenditures		$	8,419			$	2,838			$	86			$	—			$	11,343
As of December 31, 2010
Segment assets		$	1,488,755			$	170,944			$	35,015			$	105,862			$	1,800,576

     We do not allocate net interest expense or tax expense to the operating segments. The following table reconciles operating income as reported above to net income (loss) for the quarters ended March 31, 2011 and 2010:

		Quarters Ended
		March 31,
		2011				2010
Segment operating income		$	76,243			$	10,589
Interest expense			14,143				14,741
Interest income			(95	)			(48	)
Income taxes			23,261				(1,342	)
Net income (loss)		$	38,934			$	(2,762	)

     During the quarter ended March 31, 2011, there was a $30 change in the carrying amount of goodwill for the C&PS segment which increased the balance for the segment to $242,599. At March 31, 2011, goodwill by reportable segment was: C&PS—$242,599, Drilling Services—$5,563; and Product Sales—$2,401, resulting in total goodwill of $250,563.

10. Financial instruments:

     The financial instruments recognized in the balance sheet consist of cash and cash equivalents, trade accounts receivable, certain long-term investments, bank operating loans, accounts payable and accrued liabilities, long-term debt and senior notes. The fair value of all financial instruments approximates their carrying amounts due to their current maturities or market rates of interest, except the senior notes which were issued in December 2006 with a fixed 8% coupon rate. At March 31, 2011, the fair value of these notes was $689,000 based on the published closing price.

     A significant portion of our trade accounts receivable is from companies in the oil and gas industry, and as such, we are exposed to normal industry credit risks. We evaluate the credit-worthiness of our major new and existing customers’ financial condition and generally do not require collateral. For the quarter ended March 31, 2011, we had two customers who provided 17.1% and 9.7% of our total revenue.

11. Legal matters and contingencies:

     In the normal course of our business, we are a party to various pending or threatened claims, lawsuits and administrative proceedings seeking damages or other remedies concerning our commercial operations, products, employees and other matters, including warranty and product liability claims and occasional claims by individuals alleging exposure to hazardous materials, on the job injuries and fatalities as a result of our products or operations. Many of the claims filed against us relate to motor vehicle accidents which can result in the loss of life or serious bodily injury. Some of these claims relate to matters occurring prior to our acquisition of businesses. In certain cases, we are entitled to indemnification from the sellers of such businesses.

     Although we cannot know or predict with certainty the outcome of any claim or proceeding or the effect such outcomes may have on us, we believe that any liability resulting from the resolution of any of these matters, to the extent not otherwise provided for or covered by insurance, will not have a material adverse effect on our financial position, results of operations or liquidity.

     We have historically incurred additional insurance premium related to a cost-sharing provision of our general liability insurance policy, and we cannot be certain that we will not incur additional costs until either existing claims become further developed or until the limitation periods expire for each respective policy year. Any such additional premiums should not have a material adverse effect on our financial position, results of operations or liquidity.

12. Guarantor and Non-Guarantor Condensed Consolidating Financial Statements:

     The following tables present the financial data required pursuant to SEC Regulation S-X Rule 3-10(f), which includes: (1) unaudited condensed consolidating balance sheets as of March 31, 2011 and December 31, 2010; (2) unaudited condensed consolidating statements of operations for the quarters ended March 31, 2011 and 2010 and (3) unaudited condensed consolidating statements of cash flows for the quarters ended March 31, 2011 and 2010.

Condensed Consolidating Balance Sheet
March 31, 2011

						Guarantor				Non-guarantor				Eliminations/
		Parent				Subsidiaries				Subsidiaries				Reclassifications				Consolidated
Current assets
Cash and cash equivalents		$	132,579			$	576			$	31,252			$	(20,396	)		$	144,011
Accounts receivable, net			611				352,239				38,040				—				390,890
Inventory, net			—				23,758				10,551				—				34,309
Prepaid expenses			2,546				15,194				3,548				—				21,288
Income tax receivable			12,818				13,677				—				—				26,495
Current deferred tax assets			2,835				—				—				—				2,835
Other current assets			—				42				—				—				42
Total current assets			151,389				405,486				83,391				(20,396	)			619,870
Property, plant and equipment, net			4,693				902,323				51,741				—				958,757
Investment in consolidated subsidiaries			1,017,478				121,495				—				(1,138,973	)			—
Inter-company receivable			562,183				—				—				(562,183	)			—
Goodwill			15,531				232,174				2,858				—				250,563
Other long-term assets, net			30,204				8,696				2,587				—				41,487
Total assets		$	1,781,478			$	1,670,174			$	140,577			$	(1,721,552	)		$	1,870,677
Current liabilities:
Accounts payable		$	473			$	74,893			$	8,939			$	(20,396	)		$	63,909
Accrued liabilities			19,702				18,011				4,985				—				42,698
Accrued payroll and payroll burdens			503				20,880				2,713				—				24,096
Accrued interest			15,418				—				6				—				15,424
Accrued taxes payable			—				—				1,595				—				1,595
Total current liabilities			36,096				113,784				18,238				(20,396	)			147,722
Long-term debt			650,000				—				—				—				650,000
Inter-company payable			—				561,254				929				(562,183	)			—
Other long-term liabilities			1,001				5,022				12				—				6,035
Deferred income taxes			207,521				3,795				(97	)			—				211,219
Total liabilities			894,618				683,855				19,082				(582,579	)			1,014,976
Stockholders’ equity
Total stockholders’ equity			886,860				986,319				121,495				(1,138,973	)			855,701
Total liabilities and stockholders’ equity		$	1,781,478			$	1,670,174			$	140,577			$	(1,721,552	)		$	1,870,677

Condensed Consolidating Balance Sheet
December 31, 2010

						Guarantor				Non-guarantor				Eliminations/
		Parent				Subsidiaries				Subsidiaries				Reclassifications				Consolidated
Current assets
Cash and cash equivalents		$	111,834			$	569			$	31,046			$	(16,768	)		$	126,681
Accounts receivable, net			696				313,936				31,016				—				345,648
Inventory, net			—				21,935				11,601				—				33,536
Prepaid expenses			6,388				10,980				1,332				—				18,700
Income tax receivable			10,164				13,298				—				—				23,462
Current deferred tax assets			2,499				—				—				—				2,499
Other current assets			882				502				—				—				1,384
Total current assets			132,463				361,220				74,995				(16,768	)			551,910
Property, plant and equipment, net			4,730				898,013				53,285				—				956,028
Investment in consolidated subsidiaries			930,631				115,449				—				(1,046,080	)			—
Inter-company receivable			554,482				—				445				(554,927	)			—
Goodwill			15,531				232,144				2,858				—				250,533
Other long-term assets, net			29,966				10,161				1,978				—				42,105
Total assets		$	1,667,803			$	1,616,987			$	133,561			$	(1,617,775	)		$	1,800,576
Current liabilities
Accounts payable		$	376			$	82,952			$	8,539			$	(16,768	)		$	75,099
Accrued liabilities			18,269				21,355				4,667				—				44,291
Accrued payroll and payroll burdens			4,353				19,325				2,890				—				26,568
Accrued interest			2,439				1				6				—				2,446
Accrued taxes payable			(1,043	)			—				1,043				—				—
Total current liabilities			24,394				123,633				17,145				(16,768	)			148,404
Long-term debt			650,000				—				—				—				650,000
Inter-company payable			—				553,907				1,020				(554,927	)			—
Other long-term liabilities			882				5,022				15				—				190,422
Deferred income taxes			186,693				3,794				(67	)			—				5,916
Total liabilities			861,969				686,356				18,112				(571,695	)			994,742
Stockholders’ equity
Total stockholders’ equity			805,834				930,631				115,449				(1,046,080	)			805,834
Total liabilities and stockholders’ equity		$	1,667,803			$	1,616,987			$	133,561			$	(1,617,775	)		$	1,800,576

Condensed Consolidating Statement of Operations
Quarter Ended March 31, 2011

						Guarantor				Non-guarantor				Eliminations/
		Parent				Subsidiaries				Subsidiaries				Reclassifications				Consolidated
Revenue:
Service		$	—			$	450,361			$	38,490			$	(1,612	)		$	487,239
Product			—				1,947				6,031				—				7,978
			—				452,308				44,521				(1,612	)			495,217
Service expenses			—				287,559				28,575				(1,612	)			314,522
Product expenses			—				1,830				4,123				—				5,953
Selling, general and administrative expenses			9,826				36,511				3,014				—				49,351
Depreciation and amortization			429				45,457				3,262				—				49,148
Income (loss) before interest and taxes			(10,255	)			80,951				5,547				—				76,243
Interest expense			14,448				875				40				(1,220	)			14,143
Interest income			(1,279	)			—				(36	)			1,220				(95	)
Equity in earnings of consolidated affiliates			(53,831	)			(4,192	)			—				58,023				—
Income (loss) before taxes			30,407				84,268				5,543				(58,023	)			62,195
Taxes			(8,527	)			30,437				1,351				—				23,261
Net income (loss)		$	38,934			$	53,831			$	4,192			$	(58,023	)		$	38,934

Condensed Consolidating Statement of Operations
Quarter Ended March 31, 2010

						Guarantor				Non-guarantor				Eliminations/
		Parent				Subsidiaries				Subsidiaries				Reclassifications				Consolidated
Revenue:
Service		$	—			$	268,094			$	35,029			$	(1,731	)		$	301,392
Product			—				975				7,337				—				8,312
			—				269,069				42,366				(1,731	)			309,704
Service expenses			—				183,027				25,524				(1,731	)			206,820
Product expenses			—				710				5,414				—				6,124
Selling, general and administrative expenses			8,830				29,437				2,585				—				40,852
Depreciation and amortization			332				41,706				3,281				—				45,319
Income (loss) before interest and taxes			(9,162	)			14,189				5,562				—				10,589
Interest expense			14,712				1,708				14				(1,693	)			14,741
Interest income			(1,730	)			(3	)			(8	)			1,693				(48	)
Equity in earnings of consolidated affiliates			(13,354	)			(5,929	)			—				19,283				—
Income (loss) before taxes			(8,790	)			18,413				5,556				(19,283	)			(4,104	)
Taxes			(6,028	)			5,059				(373	)			—				(1,342	)
Net income (loss)		$	(2,762	)		$	13,354			$	5,929			$	(19,283	)		$	(2,762	)