##### Table of Contents









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, 2005                                           
|          
|           |  | or                                                                                          
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from           to                                             

Commission file number: 001-31346


W-H Energy Services, Inc.


(Exact name of registrant as specified in its charter)


|                                                                    |  |                                      
|------------------------------------------------------------------- |  | -------------------------------------
|Texas                                                               |  | 76-0281502                           
|(State or other jurisdiction of
     incorporation or organization) |  | (IRS Employer
    Identification No.)

10370 Richmond Avenue


Suite 990


Houston, Texas 77042


(Address of principal executive offices and zip code)


(713) 974-9071


(Registrants telephone number, including area code)


þ o


þ o


o o












---










W-H ENERGY SERVICES, INC.


INDEX


|                                              |  |                                                                                                                                              |    |      |    | 
|--------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                                              |  |                                                                                                                                              |    | Page |   
|                                              |  |                                                                                                                                              |    |      |   
|PART I
    FINANCIAL INFORMATION             
|Item 1.                                       |  | Financial Statements                                                                                                                         |    |      | 1  | 
|                                              |  | Consolidated Balance Sheets 
    September 30, 2005 (unaudited) and December 31,
    2004                                                   |    |      | 1  | 
|                                              |  | Consolidated Statements of Operations and
    Comprehensive Income (unaudited)  Three and nine
    months ended September 30, 2005 and 2004 |    |      | 2  | 
|                                              |  | Consolidated Statements of Cash Flows
    (unaudited)  Nine months ended September 30,
    2005 and 2004                                    |    |      | 3  | 
|                                              |  | Notes to Consolidated Financial Statements
    (unaudited)                                                                                   |    |      | 4  | 
|Item 2.                                       |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                                                    |    |      | 11 | 
|Item 3.                                       |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                                               |    |      | 18 | 
|Item 4.                                       |  | Controls and Procedures                                                                                                                      |    |      | 18 | 
|PART II
    OTHER INFORMATION                
|Item 2.                                       |  | Unregistered Sales of Equity Securities and
    Use of Proceeds                                                                              |    |      | 19 | 
|Item 6.                                       |  | Exhibits                                                                                                                                     |    |      | 19 | 
|Signatures                                    |  |                                                                                                                                              | 20 |     
|Certification of CEO pursuant to Section 302 
|Certification of CFO pursuant to Section 302 
|Certification of CEO pursuant to Section 1350
|Certification of CFO pursuant to Section 1350



i



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##### Table of Contents






PART I


FINANCIAL INFORMATION







|        |                     
|------- | --------------------
|Item 1. | Financial Statements

W-H ENERGY SERVICES, INC.





CONSOLIDATED BALANCE SHEETS


(In thousands, except share and per share amounts)


|                                     |                                                                                                                                               |                                            |         |         |              |  |         |         |         | 
|------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ------- | ------------ |  | ------- | ------- | ------- | 
|                                     |                                                                                                                                               | September 30,                              |         |         | December 31, | 
|                                     |                                                                                                                                               | 2005                                       |         |         | 2004         | 
|                                     |                                                                                                                                               |                                            |         |         |              | 
|                                     |                                                                                                                                               | (Unaudited)                                |         |         |             
|ASSETS                              
|Current Assets:                      |                                                                                                                                               |                                            |         |         |              |  |         |        
|                                     | Cash and cash equivalents                                                                                                                     |                                            | $       | 16,398  |              |  | $       | 10,448  |        
|                                     | Accounts receivable, net of allowance of $4,619 and $3,890,
    respectively                                                                  |                                            |         | 140,130 |              |  |         | 111,728 |        
|                                     | Inventories                                                                                                                                   |                                            |         | 54,362  |              |  |         | 48,317  |        
|                                     | Deferred income taxes                                                                                                                         |                                            |         | 5,989   |              |  |         | 5,601   |        
|                                     | Prepaid expenses and other                                                                                                                    |                                            |         | 7,587   |              |  |         | 9,965   |        
|                                     |                                                                                                                                               |                                            |         |         |              | 
|                                     |                                                                                                                                               | Total current assets                       |         |         | 224,466      |  |         |         | 186,059 | 
|Property and equipment, net          |                                                                                                                                               |                                            | 252,500 |         |              |  | 235,317 |        
|Goodwill and other intangibles, net  |                                                                                                                                               |                                            | 119,408 |         |              |  | 117,801 |        
|Other assets, net                    |                                                                                                                                               |                                            | 11,790  |         |              |  | 9,434   |        
|                                     |                                                                                                                                               |                                            |         |         |              | 
|                                     |                                                                                                                                               | Total assets                               |         | $       | 608,164      |  |         | $       | 548,611 | 
|                                     |                                                                                                                                               |                                            |         |         |              | 
|                                    
|LIABILITIES AND SHAREHOLDERS EQUITY
|Current Liabilities:                 |                                                                                                                                               |                                            |         |         |              |  |         |        
|                                     | Accrued liabilities                                                                                                                           |                                            | $       | 42,643  |              |  | $       | 34,926  |        
|                                     | Accounts payable                                                                                                                              |                                            |         | 27,282  |              |  |         | 29,572  |        
|                                     |                                                                                                                                               |                                            |         |         |              | 
|                                     |                                                                                                                                               | Total current liabilities                  |         |         | 69,925       |  |         |         | 64,498  | 
|Long-term debt                       |                                                                                                                                               |                                            | 185,000 |         |              |  | 180,805 |        
|Deferred income taxes                |                                                                                                                                               |                                            | 34,317  |         |              |  | 30,849  |        
|Other long-term obligations          |                                                                                                                                               |                                            | 4,696   |         |              |  | 3,864   |        
|Commitments and Contingencies        |                                                                                                                                               |                                            |         |         |              |  |         |        
|Shareholders Equity:                |                                                                                                                                               |                                            |         |         |              |  |         |        
|                                     | Preferred stock, $0.01 par value, 10,000,000 shares
    authorized, none issued and outstanding                                               |                                            |         |        |              |  |         |        |        
|                                     | Common stock, $0.0001 par value, 100,000,000 shares
    authorized, 28,535,934 and 27,803,130 shares issued and
    outstanding, respectively |                                            |         | 3       |              |  |         | 3       |        
|                                     | Additional paid-in capital                                                                                                                    |                                            |         | 227,378 |              |  |         | 214,846 |        
|                                     | Deferred compensation                                                                                                                         |                                            |         | (372    | )            |  |         | (806    | )      
|                                     | Other comprehensive income                                                                                                                    |                                            |         | 7,435   |              |  |         | 7,522   |        
|                                     | Retained earnings                                                                                                                             |                                            |         | 79,782  |              |  |         | 47,030  |        
|                                     |                                                                                                                                               |                                            |         |         |              | 
|                                     |                                                                                                                                               | Total shareholders equity                 |         |         | 314,226      |  |         |         | 268,595 | 
|                                     |                                                                                                                                               |                                            |         |         |              | 
|                                     |                                                                                                                                               | Total liabilities and shareholders equity |         | $       | 608,164      |  |         | $       | 548,611 | 
|                                     |                                                                                                                                               |                                            |         |         |              | 



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##### Table of Contents



W-H ENERGY SERVICES, INC.





CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME


(In thousands, except share and per share amounts)


(Unaudited)


|                                                            |                                         |                                                        |         |            |                           |      |         |            |         |      |         |            |         |      |         |            |         |      | 
|----------------------------------------------------------- | --------------------------------------- | ------------------------------------------------------ | ------- | ---------- | ------------------------- | ---- | ------- | ---------- | ------- | ---- | ------- | ---------- | ------- | ---- | ------- | ---------- | ------- | ---- | 
|                                                            |                                         | For the Three Months Ended                             |         |            | For the Nine Months Ended |     
|                                                            |                                         | September 30,                                          |         |            | September 30,             |     
|                                                            |                                         |                                                        |         |            |                           |     
|                                                            |                                         | 2005                                                   |         |            | 2004                      |      |         | 2005       |         |      | 2004    |           
|                                                            |                                         |                                                        |         |            |                           |      |         |            |         |      |         |           
|Revenues                                                    |                                         | $                                                      | 161,343 |            |                           | $    | 115,453 |            |         | $    | 461,060 |            |         | $    | 331,431 |           
|Costs and expenses:                                         |                                         |                                                        |         |            |                           |      |         |            |         |      |         |            |         |      |         |           
|                                                            | Cost of revenues                        |                                                        |         | 92,501     |                           |      |         | 67,544     |         |      |         | 261,308    |         |      |         | 193,991    |        
|                                                            | Selling, general and administrative     |                                                        |         | 26,859     |                           |      |         | 22,288     |         |      |         | 80,266     |         |      |         | 64,159     |        
|                                                            | Warehouse fire related costs            |                                                        |         |           |                           |      |         |           |         |      |         | 3,690      |         |      |         |           |        
|                                                            | Research and development                |                                                        |         | 3,363      |                           |      |         | 3,871      |         |      |         | 12,624     |         |      |         | 10,214     |        
|                                                            | Depreciation and amortization           |                                                        |         | 14,367     |                           |      |         | 11,785     |         |      |         | 42,132     |         |      |         | 33,554     |        
|                                                            |                                         |                                                        |         |            |                           |      |         |            |         |      |         |           
|                                                            |                                         | Total costs and expenses                               |         |            | 137,090                   |      |         |            | 105,488 |      |         |            | 400,020 |      |         |            | 301,918 |     
|                                                            |                                         |                                                        |         |            |                           |      |         |            |         |      |         |           
|                                                            |                                         | Operating income                                       |         |            | 24,253                    |      |         |            | 9,965   |      |         |            | 61,040  |      |         |            | 29,513  |     
|Other (income) expense:                                     |                                         |                                                        |         |            |                           |      |         |            |         |      |         |            |         |      |         |           
|                                                            | Interest expense, net                   |                                                        |         | 2,874      |                           |      |         | 1,619      |         |      |         | 7,879      |         |      |         | 9,188      |        
|                                                            | Other (income) expense, net             |                                                        |         | 70         |                           |      |         | 21         |         |      |         | 356        |         |      |         | (67        | )      
|                                                            |                                         |                                                        |         |            |                           |      |         |            |         |      |         |           
|                                                            |                                         | Income before income taxes                             |         |            | 21,309                    |      |         |            | 8,325   |      |         |            | 52,805  |      |         |            | 20,392  |     
|                                                            | Provision for income taxes              |                                                        |         | 8,487      |                           |      |         | 3,205      |         |      |         | 20,053     |         |      |         | 7,851      |        
|                                                            |                                         |                                                        |         |            |                           |      |         |            |         |      |         |           
|                                                            |                                         | Income from continuing operations                      |         |            | 12,822                    |      |         |            | 5,120   |      |         |            | 32,752  |      |         |            | 12,541  |     
|                                                            |                                         | Income (loss) from discontinued operations, net of tax |         |            |                          |      |         |            | 135     |      |         |            |        |      |         |            | (724    | )   
|                                                            |                                         |                                                        |         |            |                           |      |         |            |         |      |         |           
|                                                            |                                         | Net income                                             |         | $          | 12,822                    |      |         | $          | 5,255   |      |         | $          | 32,752  |      |         | $          | 11,817  |     
|                                                            |                                         |                                                        |         |            |                           |      |         |            |         |      |         |           
|Comprehensive income:                                       |                                         |                                                        |         |            |                           |      |         |            |         |      |         |            |         |      |         |           
|                                                            | Net income                              |                                                        | $       | 12,822     |                           |      | $       | 5,255      |         |      | $       | 32,752     |         |      | $       | 11,817     |        
|                                                            | Interest rate swap valuations           |                                                        |         | 2,073      |                           |      |         |           |         |      |         | 1,190      |         |      |         |           |        
|                                                            | Foreign currency translation adjustment |                                                        |         | (221       | )                         |      |         | (20        | )       |      |         | (1,277     | )       |      |         | (34        | )      
|                                                            |                                         |                                                        |         |            |                           |      |         |            |         |      |         |           
|                                                            | Comprehensive income                    |                                                        | $       | 14,674     |                           |      | $       | 5,235      |         |      | $       | 32,665     |         |      | $       | 11,783     |        
|                                                            |                                         |                                                        |         |            |                           |      |         |            |         |      |         |           
|Earnings (loss) per share:                                  |                                         |                                                        |         |            |                           |      |         |            |         |      |         |            |         |      |         |           
|                                                            | Basic                                   |                                                        |         |            |                           |      |         |            |         |      |         |            |         |      |         |            |        
|                                                            |                                         | From continuing operations                             |         | $          | 0.45                      |      |         | $          | 0.19    |      |         | $          | 1.17    |      |         | $          | 0.46    |     
|                                                            |                                         | From discontinued operations                           |         |            |                          |      |         |            |        |      |         |            |        |      |         |            | (0.03   | )   
|                                                            |                                         |                                                        |         |            |                           |      |         |            |         |      |         |           
|                                                            |                                         |                                                        | Total   |            | $                         | 0.45 |         |            | $       | 0.19 |         |            | $       | 1.17 |         |            | $       | 0.43 | 
|                                                            |                                         |                                                        |         |            |                           |      |         |            |         |      |         |           
|                                                            | Diluted                                 |                                                        |         |            |                           |      |         |            |         |      |         |            |         |      |         |            |        
|                                                            |                                         | From continuing operations                             |         | $          | 0.44                      |      |         | $          | 0.18    |      |         | $          | 1.13    |      |         | $          | 0.45    |     
|                                                            |                                         | From discontinued operations                           |         |            |                          |      |         |            | 0.01    |      |         |            |        |      |         |            | (0.03   | )   
|                                                            |                                         |                                                        |         |            |                           |      |         |            |         |      |         |           
|                                                            |                                         |                                                        | Total   |            | $                         | 0.44 |         |            | $       | 0.19 |         |            | $       | 1.13 |         |            | $       | 0.42 | 
|                                                            |                                         |                                                        |         |            |                           |      |         |            |         |      |         |           
|Number of shares used in calculation of earnings per share: |                                         |                                                        |         |            |                           |      |         |            |         |      |         |            |         |      |         |           
|                                                            | Basic                                   |                                                        |         | 28,236,364 |                           |      |         | 27,561,912 |         |      |         | 27,983,198 |         |      |         | 27,474,113 |        
|                                                            | Diluted                                 |                                                        |         | 29,284,755 |                           |      |         | 28,321,330 |         |      |         | 28,897,057 |         |      |         | 28,146,237 |        



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W-H ENERGY SERVICES, INC.





CONSOLIDATED STATEMENTS OF CASH FLOWS


(In thousands)


(Unaudited)


|                                               |                                                                                                                  |                                                                                                                  |                                                                           |                                                     |        |         |         |          |        |         |         |  
|---------------------------------------------- | ---------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------- | --------------------------------------------------- | ------ | ------- | ------- | -------- | ------ | ------- | ------- | -
|                                               |                                                                                                                  | For the Nine Months                                                                                              |                                                                          
|                                               |                                                                                                                  | Ended September 30,                                                                                              |                                                                          
|                                               |                                                                                                                  |                                                                                                                  |                                                                          
|                                               |                                                                                                                  | 2005                                                                                                             |                                                                           |                                                     | 2004   |        
|                                               |                                                                                                                  |                                                                                                                  |                                                                           |                                                     |        |        
|Cash Flows from Operating Activities:          |                                                                                                                  |                                                                                                                  |                                                                           |                                                     |        |         |         |         
|                                               | Net income                                                                                                       |                                                                                                                  | $                                                                         | 32,752                                              |        |         | $       | 11,817   |       
|                                               | Adjustments to reconcile net income to cash provided by
    operating activities  Depreciation and amortization |                                                                                                                  |                                                                           | 42,132                                              |        |         |         | 33,554   |       
|                                               |                                                                                                                  | Gain on the sale of assets                                                                                       |                                                                           |                                                     | (8,969 | )       |         |          | (7,096 | )      
|                                               |                                                                                                                  | Deferred tax provision                                                                                           |                                                                           |                                                     | 2,536  |         |         |          | 1,692  |        
|                                               |                                                                                                                  | Amortization of deferred compensation                                                                            |                                                                           |                                                     | 434    |         |         |          | 311    |        
|                                               |                                                                                                                  | Write-off of deferred financing costs                                                                            |                                                                           |                                                     |       |         |         |          | 3,123  |        
|                                               |                                                                                                                  | Amortization of deferred financing costs                                                                         |                                                                           |                                                     | 352    |         |         |          | 757    |        
|                                               |                                                                                                                  | Tax benefit from employee stock option plan                                                                      |                                                                           |                                                     | 3,395  |         |         |          | 1,002  |        
|                                               |                                                                                                                  | Changes in operating assets and liabilities, excluding effects
    of acquisitions and discontinued operations  |                                                                           |                                                     |        |         |         |          |        |        
|                                               |                                                                                                                  |                                                                                                                  | Accounts receivable, net                                                  |                                                     |        | (27,922 | )       |          |        | (12,575 | )      
|                                               |                                                                                                                  |                                                                                                                  | Inventories                                                               |                                                     |        | (5,785  | )       |          |        | (8,432  | )      
|                                               |                                                                                                                  |                                                                                                                  | Prepaid expenses and other                                                |                                                     |        | 2,544   |         |          |        | (590    | )      
|                                               |                                                                                                                  |                                                                                                                  | Other assets, net                                                         |                                                     |        | (923    | )       |          |        | (2,052  | )      
|                                               |                                                                                                                  |                                                                                                                  | Accounts payable, accrued liabilities and other long-term
    liabilities |                                                     |        | 6,030   |         |          |        | 16,314  |        
|                                               |                                                                                                                  |                                                                                                                  |                                                                           |                                                     |        |        
|                                               |                                                                                                                  |                                                                                                                  |                                                                           | Net cash provided by operating activities           |        |         | 46,576  |          |        |         | 37,825  |  
|                                               |                                                                                                                  |                                                                                                                  |                                                                           |                                                     |        |        
|Cash Flows from Investing Activities:          |                                                                                                                  |                                                                                                                  |                                                                           |                                                     |        |         |         |         
|                                               | Additions of property and equipment                                                                              |                                                                                                                  |                                                                           | (66,487                                             | )      |         |         | (60,666  | )     
|                                               | Proceeds from sale of property and equipment                                                                     |                                                                                                                  |                                                                           | 16,237                                              |        |         |         | 12,336   |       
|                                               | Acquisition of business, net of cash acquired                                                                    |                                                                                                                  |                                                                           | (2,496                                              | )      |         |         | (2,354   | )     
|                                               |                                                                                                                  |                                                                                                                  |                                                                           |                                                     |        |        
|                                               |                                                                                                                  |                                                                                                                  |                                                                           | Net cash used in investing activities               |        |         | (52,746 | )        |        |         | (50,684 | )
|                                               |                                                                                                                  |                                                                                                                  |                                                                           |                                                     |        |        
|Cash Flows from Financing Activities:          |                                                                                                                  |                                                                                                                  |                                                                           |                                                     |        |         |         |         
|                                               | Proceeds from the issuance of debt                                                                               |                                                                                                                  |                                                                           | 62,071                                              |        |         |         | 190,802  |       
|                                               | Payments on debt                                                                                                 |                                                                                                                  |                                                                           | (57,876                                             | )      |         |         | (199,527 | )     
|                                               | Proceeds from the exercise of stock options                                                                      |                                                                                                                  |                                                                           | 8,255                                               |        |         |         | 1,020    |       
|                                               |                                                                                                                  |                                                                                                                  |                                                                           |                                                     |        |        
|                                               |                                                                                                                  |                                                                                                                  |                                                                           | Net cash provided by (used in) financing activities |        |         | 12,450  |          |        |         | (7,705  | )
|                                               |                                                                                                                  |                                                                                                                  |                                                                           |                                                     |        |        
|Effect of exchange rate changes on cash        |                                                                                                                  |                                                                                                                  | (330                                                                      | )                                                   |        |         | 188     |         
|Effect of discontinued operations on cash      |                                                                                                                  |                                                                                                                  |                                                                          |                                                     |        |         | 21,672  |         
|                                               |                                                                                                                  |                                                                                                                  |                                                                           |                                                     |        |        
|Net increase in Cash and Cash Equivalents      |                                                                                                                  |                                                                                                                  | 5,950                                                                     |                                                     |        |         | 1,296   |         
|Cash and Cash Equivalents, beginning of period |                                                                                                                  |                                                                                                                  | 10,448                                                                    |                                                     |        |         | 11,878  |         
|                                               |                                                                                                                  |                                                                                                                  |                                                                           |                                                     |        |        
|Cash and Cash Equivalents, end of period       |                                                                                                                  | $                                                                                                                | 16,398                                                                    |                                                     |        | $       | 13,174  |         
|                                               |                                                                                                                  |                                                                                                                  |                                                                           |                                                     |        |        



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W-H ENERGY SERVICES, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)




|   |                      
|-- | ---------------------
|1. | Business Organization



| |                       
| | ----------------------
| | Description of Company





| |                      
| | ---------------------
| | Basis of Presentation





| |                        
| | -----------------------
| | Discontinued Operations



|                  |  |               |   |  |               |   |       |      |  |  |      |  |  |   |        |  
|----------------- |  | ------------- | - |  | ------------- | - | ----- | ---- |  |  | ---- |  |  | - | ------ | -
|                  |  | Three Months  |   |  | Nine Months   |  
|                  |  | Ended         |   |  | Ended         |  
|                  |  | September 30, |   |  | September 30, |  
|                  |  |               |   |  |               |  
|                  |  | 2005          |   |  | 2004          |   |       | 2005 |  |  | 2004 | 
|                  |  |               |   |  |               |   |       |      |  |  |      | 
|Revenues          |  |               |  |  |               | $ | 1,701 |      |  |  |     |  |  | $ | 14,939 |  
|Loss before taxes |  |               |  |  |               | $ | (80   | )    |  |  |     |  |  | $ | (1,442 | )



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W-H ENERGY SERVICES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                  
| | -----------------
| | Reclassifications





| |               
| | --------------
| | Warehouse Fire





| |                                   
| | ----------------------------------
| | Accounting Policies and Procedures







|   |            
|-- | -----------
|2. | Acquisition





|   |                   
|-- | ------------------
|3. | Earnings per Share



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##### Table of Contents



W-H ENERGY SERVICES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|   |          
|-- | ---------
|4. | Inventory



|                           |             |                    |        |        |                   |   |        |        | 
|-------------------------- | ----------- | ------------------ | ------ | ------ | ----------------- | - | ------ | ------ | 
|                           |             | September 30, 2005 |        |        | December 31, 2004 |  
|                           |             |                    |        |        |                   |  
|Finished goods             |             | $                  | 47,943 |        |                   | $ | 43,380 |       
|Work-in-process            |             |                    | 4,587  |        |                   |   | 3,646  |       
|Raw materials and supplies |             |                    | 8,949  |        |                   |   | 7,152  |       
|Inventory reserve          |             |                    | (7,117 | )      |                   |   | (5,861 | )     
|                           |             |                    |        |        |                   |  
|                           | Inventories |                    | $      | 54,362 |                   |   | $      | 48,317 | 
|                           |             |                    |        |        |                   |  



|   |     
|-- | ----
|5. | Debt



| |                
| | ---------------
| | Credit Facility











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W-H ENERGY SERVICES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|   |                              
|-- | -----------------------------
|6. | Interest Rate Swap Agreements





|   |                             
|-- | ----------------------------
|7. | Commitment and Contingencies





|   |              
|-- | -------------
|8. | Stock Options



|                                     |  |           |           |                  |                 |   |       | 
|------------------------------------ |  | --------- | --------- | ---------------- | --------------- | - | ----- | 
|                                     |  |           |           | Weighted Average |                
|                                     |  | Number of |           |                  | Exercise        |  
|                                     |  | Options   |           |                  | Price per Share |  
|                                     |  |           |           |                  |                 |  
|Outstanding December 31, 2004        |  |           | 3,745,192 |                  |                 | $ | 14.43 | 
|Granted                              |  |           | 475,000   |                  |                 |   | 22.95 | 
|Exercised/exchanged                  |  |           | (707,582  | )                |                 |   | 11.75 | 
|Expired/canceled                     |  |           | (76,981   | )                |                 |   | 20.68 | 
|                                     |  |           |           |                  |                 |  
|Outstanding September 30, 2005       |  |           | 3,435,629 |                  |                 |   | 16.02 | 
|                                     |  |           |           |                  |                 |  
|Exercisable as of September 30, 2005 |  |           | 2,252,879 |                  |                 |   | 13.86 | 
|                                     |  |           |           |                  |                 |  





7



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##### Table of Contents



W-H ENERGY SERVICES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                                                                                   |              |                     |        |   |                     |   |       |      |      |   |        |   |      |   |        |   |      | 
|-------------------------------------------------------------------------------------------------------------------------------------------------- | ------------ | ------------------- | ------ | - | ------------------- | - | ----- | ---- | ---- | - | ------ | - | ---- | - | ------ | - | ---- | 
|                                                                                                                                                   |              | Three Months        |        |   | Nine Months         |  
|                                                                                                                                                   |              | Ended September 30, |        |   | Ended September 30, |  
|                                                                                                                                                   |              |                     |        |   |                     |  
|                                                                                                                                                   |              | 2005                |        |   | 2004                |   |       | 2005 |      |   | 2004   |  
|                                                                                                                                                   |              |                     |        |   |                     |   |       |      |      |   |        |  
|Net income, as reported                                                                                                                            |              | $                   | 12,822 |   |                     | $ | 5,255 |      |      | $ | 32,752 |   |      | $ | 11,817 |  
|Add: Total stock-based employee compensation expense included in
    reported net income, net of related tax effect                                |              |                     | 55     |   |                     |   | 124   |      |      |   | 269    |   |      |   | 191    |  
|Deduct: Total stock-based employee compensation expense
    determined under fair value based method for all awards, net of
    related tax effect |              |                     | (783   | ) |                     |   | (685  | )    |      |   | (1,715 | ) |      |   | (2,055 | )
|                                                                                                                                                   |              |                     |        |   |                     |   |       |      |      |   |        |  
|Pro forma net income                                                                                                                               |              | $                   | 12,094 |   |                     | $ | 4,694 |      |      | $ | 31,306 |   |      | $ | 9,953  |  
|                                                                                                                                                   |              |                     |        |   |                     |   |       |      |      |   |        |  
|Earnings per share:                                                                                                                                |              |                     |        |   |                     |   |       |      |      |   |        |   |      |   |        |  
|                                                                                                                                                   | As reported: |                     |        |   |                     |   |       |      |      |   |        |   |      |   |        |   |     
|                                                                                                                                                   |              | Basic               |        | $ | 0.45                |   |       | $    | 0.19 |   |        | $ | 1.17 |   |        | $ | 0.43 | 
|                                                                                                                                                   |              | Diluted             |        | $ | 0.44                |   |       | $    | 0.19 |   |        | $ | 1.13 |   |        | $ | 0.42 | 
|                                                                                                                                                   | Pro forma:   |                     |        |   |                     |   |       |      |      |   |        |   |      |   |        |   |     
|                                                                                                                                                   |              | Basic               |        | $ | 0.43                |   |       | $    | 0.17 |   |        | $ | 1.12 |   |        | $ | 0.36 | 
|                                                                                                                                                   |              | Diluted             |        | $ | 0.41                |   |       | $    | 0.17 |   |        | $ | 1.08 |   |        | $ | 0.35 | 



|   |             
|-- | ------------
|9. | Income Taxes

Accounting for Income
Taxes Accounting for Income Taxes




|    |                   
|--- | ------------------
|10. | Operating Segments





| |                                       
| | --------------------------------------
| | Drilling Related Products and Services



8



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##### Table of Contents



W-H ENERGY SERVICES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                                                          
| | ---------------------------------------------------------
| | Completion and Workover Related Products and
    Services





| |                    
| | -------------------
| | Summary Information





|                              |  |          |         |  |            |   |         |           |  |   |        |   |  |   |         | 
|----------------------------- |  | -------- | ------- |  | ---------- | - | ------- | --------- |  | - | ------ | - |  | - | ------- | 
|                              |  | Drilling |         |  | Completion |   |         | Corporate |  |   | Total  |  
|                              |  |          |         |  |            |   |         |           |  |   |        |  
|Revenues                      |  | $        | 105,414 |  |            | $ | 55,929  |           |  | $ |       |   |  | $ | 161,343 | 
|Operating income              |  |          | 16,736  |  |            |   | 10,622  |           |  |   | (3,105 | ) |  |   | 24,253  | 
|Depreciation and amortization |  |          | 9,112   |  |            |   | 5,196   |           |  |   | 59     |   |  |   | 14,367  | 
|Total assets                  |  |          | 360,169 |  |            |   | 221,441 |           |  |   | 26,554 |   |  |   | 608,164 | 
|Capital expenditures          |  |          | 9,678   |  |            |   | 5,960   |           |  |   | 61     |   |  |   | 15,699  | 



|                                          |  |          |         |  |            |   |         |           |  |   |        |   |  |   |         | 
|----------------------------------------- |  | -------- | ------- |  | ---------- | - | ------- | --------- |  | - | ------ | - |  | - | ------- | 
|                                          |  | Drilling |         |  | Completion |   |         | Corporate |  |   | Total  |  
|                                          |  |          |         |  |            |   |         |           |  |   |        |  
|Revenues                                  |  | $        | 73,865  |  |            | $ | 41,588  |           |  | $ |       |   |  | $ | 115,453 | 
|Operating income                          |  |          | 4,816   |  |            |   | 7,818   |           |  |   | (2,669 | ) |  |   | 9,965   | 
|Depreciation and amortization             |  |          | 7,559   |  |            |   | 4,153   |           |  |   | 73     |   |  |   | 11,785  | 
|Total assets, net of assets held for sale |  |          | 303,162 |  |            |   | 191,628 |           |  |   | 19,554 |   |  |   | 514,344 | 
|Capital expenditures                      |  |          | 16,475  |  |            |   | 7,850   |           |  |   | 109    |   |  |   | 24,434  | 



|                              |  |          |         |  |            |   |         |           |  |   |        |   |  |   |         | 
|----------------------------- |  | -------- | ------- |  | ---------- | - | ------- | --------- |  | - | ------ | - |  | - | ------- | 
|                              |  | Drilling |         |  | Completion |   |         | Corporate |  |   | Total  |  
|                              |  |          |         |  |            |   |         |           |  |   |        |  
|Revenues                      |  | $        | 297,955 |  |            | $ | 163,105 |           |  | $ |       |   |  | $ | 461,060 | 
|Operating income              |  |          | 33,504  |  |            |   | 36,457  |           |  |   | (8,921 | ) |  |   | 61,040  | 
|Depreciation and amortization |  |          | 26,918  |  |            |   | 15,025  |           |  |   | 189    |   |  |   | 42,132  | 
|Total assets                  |  |          | 360,169 |  |            |   | 221,441 |           |  |   | 26,554 |   |  |   | 608,164 | 
|Capital expenditures          |  |          | 40,809  |  |            |   | 25,594  |           |  |   | 84     |   |  |   | 66,487  | 



|                                          |  |          |         |  |            |   |         |           |  |   |        |   |  |   |         | 
|----------------------------------------- |  | -------- | ------- |  | ---------- | - | ------- | --------- |  | - | ------ | - |  | - | ------- | 
|                                          |  | Drilling |         |  | Completion |   |         | Corporate |  |   | Total  |  
|                                          |  |          |         |  |            |   |         |           |  |   |        |  
|Revenues                                  |  | $        | 214,758 |  |            | $ | 116,673 |           |  | $ |       |   |  | $ | 331,431 | 
|Operating income                          |  |          | 14,787  |  |            |   | 22,452  |           |  |   | (7,726 | ) |  |   | 29,513  | 
|Depreciation and amortization             |  |          | 21,665  |  |            |   | 11,685  |           |  |   | 204    |   |  |   | 33,554  | 
|Total assets, net of assets held for sale |  |          | 303,162 |  |            |   | 191,628 |           |  |   | 19,554 |   |  |   | 514,344 | 
|Capital expenditures                      |  |          | 40,695  |  |            |   | 19,774  |           |  |   | 197    |   |  |   | 60,666  | 

9



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##### Table of Contents



W-H ENERGY SERVICES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |         
| | --------
| | Revenues

|              |       |                      |         |         |                     |   |         |         |  |   |         |         |  |   |         |         | 
|------------- | ----- | -------------------- | ------- | ------- | ------------------- | - | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|              |       | For the Three Months |         |         | For the Nine Months |  
|              |       | Ended September 30,  |         |         | Ended September 30, |  
|              |       |                      |         |         |                     |  
|              |       | 2005                 |         |         | 2004                |   |         | 2005    |  |   | 2004    |        
|              |       |                      |         |         |                     |   |         |         |  |   |         |        
|United States |       | $                    | 141,286 |         |                     | $ | 106,293 |         |  | $ | 410,296 |         |  | $ | 295,035 |        
|North Sea     |       |                      | 10,376  |         |                     |   | 4,397   |         |  |   | 24,457  |         |  |   | 15,949  |        
|Other         |       |                      | 9,681   |         |                     |   | 4,763   |         |  |   | 26,307  |         |  |   | 20,447  |        
|              |       |                      |         |         |                     |   |         |         |  |   |         |        
|              | Total |                      | $       | 161,343 |                     |   | $       | 115,453 |  |   | $       | 461,060 |  |   | $       | 331,431 | 
|              |       |                      |         |         |                     |   |         |         |  |   |         |        



| |                        
| | -----------------------
| | Operating Income (Loss)

|              |       |                      |        |        |                     |   |        |       |  |   |        |        |  |   |        |        | 
|------------- | ----- | -------------------- | ------ | ------ | ------------------- | - | ------ | ----- |  | - | ------ | ------ |  | - | ------ | ------ | 
|              |       | For the Three Months |        |        | For the Nine Months |  
|              |       | Ended September 30,  |        |        | Ended September 30, |  
|              |       |                      |        |        |                     |  
|              |       | 2005                 |        |        | 2004                |   |        | 2005  |  |   | 2004   |       
|              |       |                      |        |        |                     |   |        |       |  |   |        |       
|United States |       | $                    | 21,760 |        |                     | $ | 10,539 |       |  | $ | 58,095 |        |  | $ | 30,939 |       
|North Sea     |       |                      | 1,386  |        |                     |   | (882   | )     |  |   | 632    |        |  |   | (4,153 | )     
|Other         |       |                      | 1,107  |        |                     |   | 308    |       |  |   | 2,313  |        |  |   | 2,727  |       
|              |       |                      |        |        |                     |   |        |       |  |   |        |       
|              | Total |                      | $      | 24,253 |                     |   | $      | 9,965 |  |   | $      | 61,040 |  |   | $      | 29,513 | 
|              |       |                      |        |        |                     |   |        |       |  |   |        |       



| |                  
| | -----------------
| | Long-lived Assets

|              |       |               |         |         |              |   |         |         | 
|------------- | ----- | ------------- | ------- | ------- | ------------ | - | ------- | ------- | 
|              |       | September 30, |         |         | December 31, |  
|              |       | 2005          |         |         | 2004         |  
|              |       |               |         |         |              |  
|United States |       | $             | 362,918 |         |              | $ | 336,740 |        
|North Sea     |       |               | 11,021  |         |              |   | 15,494  |        
|Other         |       |               | 9,759   |         |              |   | 10,318  |        
|              |       |               |         |         |              |  
|              | Total |               | $       | 383,698 |              |   | $       | 362,552 | 
|              |       |               |         |         |              |  

10



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##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations

Forward-Looking Statements




Overview of Our Products and Services








| |                                       
| | --------------------------------------
| | Drilling Related Products and Services





11



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##### Table of Contents











1 4 1 2






| |                                                          
| | ---------------------------------------------------------
| | Completion and Workover Related Products and
    Services





12



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##### Table of Contents







| |                        
| | -----------------------
| | Discontinued Operations





| |                   
| | ------------------
| | Recent Development

Adverse Weather Conditions.


Results of Operations






| |                                                                                                
| | -----------------------------------------------------------------------------------------------
| | Three Months Ended September 30, 2005 Compared to the
    Three Months Ended September 30, 2004

Revenues.






13



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##### Table of Contents





Cost of Revenues.


Selling, General and Administrative Expenses.


Research and Development Expenses.


Depreciation and Amortization.


Interest and Other Expense.


Provision for income taxes.




| |                                                                                              
| | ---------------------------------------------------------------------------------------------
| | Nine Months Ended September 30, 2005 Compared to the
    Nine Months Ended September 30, 2004

Revenues.




14



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##### Table of Contents





Cost of Revenues.


Selling, General and Administrative Expenses.


Warehouse Fire Related Costs.


Research and Development Expenses. 1 2


Depreciation and Amortization.


Interest and Other Expense.


Provision for income taxes.


15



---



##### Table of Contents



Recent Accounting Pronouncements




Liquidity and Capital Resources






| |          
| | ---------
| | Cash flow











| |                  
| | -----------------
| | Capital resources





16



---



##### Table of Contents















| |                            
| | ---------------------------
| | Future capital requirements







17



---



##### Table of Contents







| |                               
| | ------------------------------
| | Off balance sheet arrangements








|        |                                                               
|------- | --------------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures about Market
    Risk



Interest Rate Risk.


Foreign Currency Exchange Risk.


Stock Price Volatility.







|        |                        
|------- | -----------------------
|Item 4. | Controls and Procedures

Disclosure Controls and Procedures.


Internal Control over Financial Reporting.




18



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##### Table of Contents






PART II


OTHER INFORMATION







|        |                                                                
|------- | ---------------------------------------------------------------
|Item 2. | Unregistered Sales of Equity Securities and Use of
    Proceeds








|        |         
|------- | --------
|Item 6. | Exhibits



19



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##### Table of Contents






SIGNATURES




|                       |  |                                                                                                                                      
|---------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------
|                       |  | W-H Energy Services, Inc.                                                                                                            
|                      
|Date: November 7, 2005 |  | By: /s/ Jeffrey L.
    TeperaJeffrey
    L. TeperaVice President and Chief Financial Officer
     (Principal Financial Officer)      
|                      
|Date: November 7, 2005 |  | By: /s/ Ernesto
    Bautista, IIIErnesto
    Bautista, IIIVice President and Corporate Controller
     (Principal Accounting Officer)

20



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##### Table of Contents






EXHIBIT INDEX


|       |    |     |  |               |  |                                                                                                                                        
|------ | -- | --- |  | ------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------
|Number |    |     |  | Exhibit Title
|       |    |     |  |              
|       | 31 | .1* |  |              |  | Certification of Chief Executive Officer of W-H Energy Services,
    Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of
    2002
|      
|       | 31 | .2* |  |              |  | Certification of Chief Financial Officer of W-H Energy Services,
    Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of
    2002
|      
|       | 32 | .1* |  |              |  | Certification of Chief Executive Officer of W-H Energy Services,
    Inc. pursuant 18 U.S.C. Section 1350                              
|      
|       | 32 | .2* |  |              |  | Certification of Chief Financial Officer of W-H Energy Services,
    Inc. pursuant 18 U.S.C. Section 1350                              






|  |               
|- | --------------
|* | Filed herewith