##### 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 MARCH 31, 2007
 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 No. 1-32858
 
 Complete Production Services, Inc.
 (Exact name of registrant as specified in its charter)
 
 Delaware
    
    72-1503959(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)11700 Old Katy Road,Suite 300Houston, Texas
    
    77079(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (281) 372-2300
 
 þ o
  o o þ
 o þ




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##### 



INDEX TO FINANCIAL STATEMENTS
 Complete Production Services, Inc.
 PART IFINANCIAL INFORMATIONPageItem 1.
    
    Financial Statements.Consolidated Balance Sheets as of March 31, 2007 and December 31, 2006
    
    
    3Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2007 and 2006
    
    
    4Consolidated Statement of Stockholders Equity for the Three Months Ended March 31, 2007
    
    
    5Consolidated Statements of Cash Flows for the Three Months March 31, 2007 and 2006
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations.
    
    
    18Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk.
    
    
    28Item 4.
    
    Controls and Procedures.
    
    
    28PART IIOTHER INFORMATIONItem 1.
    
    Legal Proceedings.
    
    
    29Item 1A.
    
    Risk Factors.
    
    
    29Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds.
    
    
    29Item 3.
    
    Defaults Upon Senior Securities.
    
    
    29Item 4.
    
    Submission of Matters to a Vote of Security Holders.
    
    
    29Item 5.
    
    Other Information.
    
    
    30Item 6.
    
    Exhibits.
    
    
    30Signature
    
    
    31Form of Executive AgreementAmendment to Employment AgreementCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
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PART IFINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 COMPLETE PRODUCTION SERVICES, INC.
 
 Consolidated Balance Sheets
March 31, 2007 (unaudited) and December 31, 2006
 2007
    
    
    2006(In thousands, exceptshare data)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    20,100
    
    
    $
    19,874Trade accounts receivable, net
    
    
    325,570
    
    
    
    301,764Inventory, net
    
    
    61,363
    
    
    
    43,930Prepaid expenses
    
    
    21,876
    
    
    
    24,998Other current assets
    
    
    212
    
    
    
    74Total current assets
    
    
    429,121
    
    
    
    390,640Property, plant and equipment, net
    
    
    847,988
    
    
    
    771,703Intangible assets, net of accumulated amortization of $4,435 and $3,623,
respectively
    
    
    9,302
    
    
    
    7,765Deferred financing costs, net of accumulated amortization of $986 and $547,
respectively
    
    
    15,361
    
    
    
    15,729Goodwill
    
    
    556,685
    
    
    
    552,671Other long-term assets
    
    
    1,939
    
    
    
    1,816Total assets
    
    $
    1,860,396
    
    
    $
    1,740,324LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    881
    
    
    $
    1,064Accounts payable
    
    
    88,545
    
    
    
    71,370Accrued liabilities
    
    
    55,662
    
    
    
    57,280Accrued interest
    
    
    17,717
    
    
    
    4,085Notes payable
    
    
    5,131
    
    
    
    17,087Taxes payable
    
    
    19,375
    
    
    
    10,519Total current liabilities
    
    
    187,311
    
    
    
    161,405Long-term debt
    
    
    786,170
    
    
    
    750,577Deferred income taxes
    
    
    96,933
    
    
    
    90,805Minority interest
    
    
    2,609
    
    
    
    2,316Total liabilities
    
    
    1,073,023
    
    
    
    1,005,103Commitments and contingenciesStockholders equity:Common stock, $0.01 par value per share, 200,000,000 shares
authorized, 71,661,635 (2006  71,418,473) issued
    
    
    717
    
    
    
    714Preferred stock, $0.01 par value per share, 5,000,000 shares
authorized, no shares issued and outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    567,049
    
    
    
    563,006Retained earnings
    
    
    203,321
    
    
    
    155,971Treasury stock, 35,570 shares at cost
    
    
    (202
    )
    
    
    (202
    )Accumulated other comprehensive income
    
    
    16,488
    
    
    
    15,732Total stockholders equity
    
    
    787,373
    
    
    
    735,221Total liabilities and stockholders equity
    
    $
    1,860,396
    
    
    $
    1,740,324
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COMPLETE PRODUCTION SERVICES, INC.
 
 Consolidated Statements of Operations
Three Months Ended March 31, 2007 and 2006 (unaudited)
 Three Months EndedMarch 31,2007
    
    
    2006(In thousands, except pershare data)Revenue:Service
    
    $
    366,035
    
    
    $
    235,119Product
    
    
    41,032
    
    
    
    27,227407,067
    
    
    
    262,346Service expenses
    
    
    203,513
    
    
    
    135,511Product expenses
    
    
    31,811
    
    
    
    19,883Selling, general and administrative expenses
    
    
    50,570
    
    
    
    36,446Depreciation and amortization
    
    
    28,970
    
    
    
    15,607Income from continuing operations before interest,
taxes and minority interest
    
    
    92,203
    
    
    
    54,899Interest expense
    
    
    15,625
    
    
    
    10,682Interest income
    
    
    (212
    )
    
    
    (7
    )Income from continuing operations before taxes
and minority interest
    
    
    76,790
    
    
    
    44,224Taxes
    
    
    29,179
    
    
    
    17,004Income from continuing operations before minority
interest
    
    
    47,611
    
    
    
    27,220Minority interest
    
    
    261
    
    
    
    305Income from continuing operations
    
    
    47,350
    
    
    
    26,915Income from discontinued operations
(net of tax expense of $413)
    
    
    
    
    
    
    1,198Net income
    
    $
    47,350
    
    
    $
    28,113Earnings per share information:Continuing operations
    
    $
    0.66
    
    
    $
    0.49Discontinued operations
    
    $
    
    
    
    $
    0.02Basic earnings per share
    
    $
    0.66
    
    
    $
    0.51Continuing operations
    
    $
    0.65
    
    
    $
    0.46Discontinued operations
    
    $
    
    
    
    $
    0.02Diluted earnings per share
    
    $
    0.65
    
    
    $
    0.48Weighted average shares:Basic
    
    
    71,503
    
    
    
    55,601Diluted
    
    
    73,021
    
    
    
    58,783
 Consolidated Statements of Comprehensive Income
Three Months Ended March 31, 2007 and 2006 (unaudited)
 Three Months EndedMarch 31,2007
    
    
    2006(In thousands)Net income
    
    $
    47,350
    
    
    $
    28,113Change in cumulative translation adjustment
    
    
    756
    
    
    
    (118
    )Comprehensive income
    
    $
    48,106
    
    
    $
    27,995
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COMPLETE PRODUCTION SERVICES, INC.
 
 Consolidated Statement of Stockholders Equity
Three Months Ended March 31, 2007 (unaudited)
 AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    OtherNumber
    
    
    Common
    
    
    Paid-in
    
    
    Retained
    
    
    Treasury
    
    
    Comprehensiveof Shares
    
    
    Stock
    
    
    Capital
    
    
    Earnings
    
    
    Stock
    
    
    Income
    
    
    Total(In thousands, except share data)Balance at December 31, 2006
    
    
    71,418,473
    
    
    $
    714
    
    
    $
    563,006
    
    
    $
    155,971
    
    
    $
    (202
    )
    
    $
    15,732
    
    
    $
    735,221Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,350
    
    
    
    
    
    
    
    
    
    
    
    47,350Cumulative translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    756
    
    
    
    756Issuance of common stock:Exercise of stock options
    
    
    221,374
    
    
    
    3
    
    
    
    978
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    981Expense related to employee
stock options
    
    
    
    
    
    
    
    
    
    
    1,110
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,110Excess tax benefit from
share-based compensation
    
    
    
    
    
    
    
    
    
    
    1,270
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,270Vested restricted stock
    
    
    21,788
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of non-vested
restricted stock
    
    
    
    
    
    
    
    
    
    
    685
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    685Balance at March 31, 2007
    
    
    71,661,635
    
    
    $
    717
    
    
    $
    567,049
    
    
    $
    203,321
    
    
    $
    (202
    )
    
    $
    16,488
    
    
    $
    787,373
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COMPLETE PRODUCTION SERVICES, INC.
 
 Consolidated Statements of Cash Flows
Three Months Ended March 31, 2007 and 2006 (unaudited)
 Three Months EndedMarch 31,2007
    
    
    2006(In thousands)Cash provided by (used in):Operating activities:Net income
    
    $
    47,350
    
    
    $
    28,113Items not affecting cash:Depreciation and amortization
    
    
    28,970
    
    
    
    15,727Deferred income taxes
    
    
    6,104
    
    
    
    2,422Minority interest
    
    
    261
    
    
    
    305Excess tax benefit from share-based compensation
    
    
    (1,270
    )
    
    
    (109
    )Non-cash compensation expense
    
    
    1,795
    
    
    
    699Other
    
    
    1,881
    
    
    
    862Changes in operating assets and liabilities:Accounts receivable
    
    
    (24,503
    )
    
    
    (30,426
    )Inventory
    
    
    (17,323
    )
    
    
    (4,104
    )Prepaid expense and other current assets
    
    
    3,020
    
    
    
    2,005Accounts payable
    
    
    18,517
    
    
    
    18,240Accrued liabilities and other
    
    
    20,389
    
    
    
    (2,427
    )Net cash provided by operating activities
    
    
    85,191
    
    
    
    31,307Investing activities:Business acquisitions, net of cash acquired
    
    
    (12,148
    )
    
    
    (18,410
    )Additions to property, plant and equipment
    
    
    (99,902
    )
    
    
    (58,882
    )Proceeds from disposal of capital assets/other
    
    
    1,608
    
    
    
    1,944Net cash used in investing activities
    
    
    (110,442
    )
    
    
    (75,348
    )Financing activities:Issuances of long-term debt
    
    
    107,624
    
    
    
    116,295Repayments of long-term debt
    
    
    (72,214
    )
    
    
    (63,977
    )Repayment of notes payable
    
    
    (11,956
    )
    
    
    (7,691
    )Proceeds from issuances of common stock
    
    
    981
    
    
    
    69Excess tax benefit from share-based compensation
    
    
    1,270
    
    
    
    109Net cash provided by financing activities
    
    
    25,705
    
    
    
    44,805Effect of exchange rate changes on cash
    
    
    (228
    )
    
    
    (104
    )Change in cash and cash equivalents
    
    
    226
    
    
    
    660Cash and cash equivalents, beginning of period
    
    
    19,874
    
    
    
    11,405Cash and cash equivalents, end of period
    
    $
    20,100
    
    
    $
    12,065Supplemental cash flow information:Cash paid for interest, net of interest capitalized
    
    $
    1,264
    
    
    $
    10,360Cash paid for taxes
    
    $
    13,455
    
    
    $
    5,484Significant non-cash investing and financing activities:Common stock issued for acquisitions
    
    $
    
    
    
    $
    27,359Debt acquired in acquisition
    
    $
    
    
    
    $
    534
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COMPLETE PRODUCTION SERVICES, INC.
 
 Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
 1. General:
 (a) Nature of operations:
     (b) Basis of presentation:
     7




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2. Business combinations:
 Acquisitions During the Three Months Ended March 31, 2007:
   Net assets acquired:Property, plant and equipment
    
    $
    6,095Non-cash working capital
    
    
    13Intangible assets
    
    
    300Goodwill
    
    
    5,740Net assets acquired
    
    $
    12,148Consideration:Cash, net of cash and cash equivalents acquired
    
    $
    12,148
 3. Accounts receivable:
 March 31,
    
    
    December 31,2007
    
    
    2006(unaudited)Trade accounts receivable
    
    $
    283,143
    
    
    $
    260,733Related party receivables
    
    
    12,770
    
    
    
    12,478Unbilled revenue
    
    
    28,806
    
    
    
    27,096Notes receivable
    
    
    3
    
    
    
    78Other receivables
    
    
    4,611
    
    
    
    3,810329,333
    
    
    
    304,195Allowance for doubtful accounts
    
    
    3,763
    
    
    
    2,431$
    325,570
    
    
    $
    301,764
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4. Inventory:
 March 31,
    
    
    December 31,2007
    
    
    2006(unaudited)Finished goods
    
    $
    49,816
    
    
    $
    38,877Manufacturing parts, materials and other
    
    
    13,360
    
    
    
    6,77263,176
    
    
    
    45,649Inventory reserves
    
    
    1,813
    
    
    
    1,719$
    61,363
    
    
    $
    43,930
 5. Property, plant and equipment (unaudited):
 AccumulatedMarch 31, 2007
    
    Cost
    
    
    Depreciation
    
    
    Net Book ValueLand
    
    $
    5,816
    
    
    $
    
    
    
    $
    5,816Building
    
    
    7,373
    
    
    
    898
    
    
    
    6,475Field equipment
    
    
    820,399
    
    
    
    152,593
    
    
    
    667,806Vehicles
    
    
    60,720
    
    
    
    15,680
    
    
    
    45,040Office furniture and computers
    
    
    10,453
    
    
    
    3,297
    
    
    
    7,156Leasehold improvements
    
    
    13,383
    
    
    
    2,028
    
    
    
    11,355Construction in progress
    
    
    104,340
    
    
    
    
    
    
    
    104,340$
    1,022,484
    
    
    $
    174,496
    
    
    $
    847,988
 AccumulatedDecember 31, 2006
    
    Cost
    
    
    Depreciation
    
    
    Net Book ValueLand
    
    $
    5,816
    
    
    $
    
    
    
    $
    5,816Building
    
    
    7,140
    
    
    
    840
    
    
    
    6,300Field equipment
    
    
    746,314
    
    
    
    128,553
    
    
    
    617,761Vehicles
    
    
    60,505
    
    
    
    14,152
    
    
    
    46,353Office furniture and computers
    
    
    9,891
    
    
    
    2,712
    
    
    
    7,179Leasehold improvements
    
    
    12,895
    
    
    
    1,164
    
    
    
    11,731Construction in progress
    
    
    76,563
    
    
    
    
    
    
    
    76,563$
    919,124
    
    
    $
    147,421
    
    
    $
    771,703
  6. Notes payable:
  9




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7. Long-term debt:
  2007
    
    
    2006U.S. revolving credit facility (a)
    
    $
    110,000
    
    
    $
    78,668Canadian revolving credit facility (a)
    
    
    22,060
    
    
    
    17,5758.0% senior notes (b)
    
    
    650,000
    
    
    
    650,000Subordinated seller notes
    
    
    3,450
    
    
    
    3,450Capital leases and other
    
    
    1,541
    
    
    
    1,948787,051
    
    
    
    751,641Less: current maturities of long-term debt and capital leases
    
    
    881
    
    
    
    1,064$
    786,170
    
    
    $
    750,577
 
 (a)
    
    We maintain a credit agreement related to a syndicated senior secured credit facility
(the Credit Agreement). The Credit Agreement is comprised of a $310,000 U.S. revolving
credit facility that is to mature in December 2011, and a $40,000 Canadian revolving
credit facility (with Integrated Production Services, Ltd., one of our wholly-owned
subsidiaries, as the borrower thereof) that is to mature in December 2011. The Credit
Agreement is secured by substantially all of our assets.Subject to certain limitations, we have the ability to elect how interest under the Credit
Agreement will be computed. Interest under the Credit Agreement may be determined by
reference to (1) the London Inter-bank Offered Rate, or LIBOR, plus an applicable margin
between 0.75% and 1.75% per annum (with the applicable margin depending upon our ratio of
total debt to EBITDA (as defined in the agreement)), or (2) the Base Rate (i.e., the higher
of the Canadian banks prime rate or the CDOR rate plus 1.0%, in the case of Canadian loans
or the greater of the prime rate and the federal funds rate plus 0.5%, in the case of U.S.
loans), plus an applicable margin between 0.00% and 0.75% per annum. If an event of default
exists under the Credit Agreement, advances will bear interest at the then-applicable rate
plus 2%. Interest is payable quarterly for base rate loans and at the end of applicable
interest periods for LIBOR loans, except that if the interest period for a LIBOR loan is
six months, interest will be paid at the end of each three-month period.The Credit Agreement also contains various covenants that limit our and our subsidiaries
ability to: (1) grant certain liens; (2) make certain loans and investments; (3) make
capital expenditures; (4) make distributions; (5) make acquisitions; (6) enter into hedging
transactions; (7) merge or consolidate; or (8) engage in certain asset dispositions.
Additionally, the Credit Agreement limits our and our subsidiaries ability to incur
additional indebtedness if: (1) we are not in pro forma compliance with all terms under the
Credit Agreement, (2) certain covenants of the additional indebtedness are more onerous
than the covenants set forth in the Credit Agreement, or (3) the additional indebtedness
provides for amortization, mandatory prepayment or repurchases of senior unsecured or
subordinated debt during the duration of the Credit Agreement with certain exceptions. The
Credit Agreement also limits additional secured debt to 10% of our consolidated net worth
(i.e., the excess of our assets over the sum of our liabilities plus the minority
interests). The Credit Agreement contains covenants which, among other things, require us
and our subsidiaries, on a consolidated basis, to maintain specified ratios or conditions
as follows (with such ratios tested at the end of each fiscal quarter): (1) total debt to
EBITDA, as defined in the Credit Agreement, of not more than 3.0 to 1.0; and (2) EBITDA, as
defined, to total interest expense of not less than 3.0 to 1.0. We were in compliance with
all debt covenants under the amended and restated Credit Agreement as of March 31, 2007.Under the Credit Agreement, we are permitted to prepay our borrowings.All of the obligations under the U.S. portion of the Credit Agreement are secured by first
priority liens on substantially all of 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 Credit Agreement are
guaranteed by substantially all of our U.S. subsidiaries. All of the obligations under the
Canadian portions of the Credit Agreement are secured by first priority liens on
substantially all of the assets of our subsidiaries. Additionally, all of the 10




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obligations under the Canadian portions of the Credit Agreement are guaranteed by us as
well as certain of our subsidiaries.If an event of default exists under the Credit Agreement, as defined, the lenders may
accelerate the maturity of the obligations outstanding under the Credit Agreement and
exercise other rights and remedies. While an event of default is continuing, advances will
bear interest at the then-applicable rate plus 2%. For a description of an event of
default, see our Credit Agreement which was filed with the Securities and Exchange
Commission on December 8, 2006 as an exhibit to a Current Report on Form 8-K.Borrowings under the U.S. revolving facility bore interest at 6.57% and the Canadian
revolving credit facility bore interest at 6.00% at March 31, 2007. For the three months
ended March 31, 2007, the weighted average interest rate on average borrowings under the
amended Credit Agreement was approximately 6.47%. There were letters of credit outstanding
under the U.S. revolving portion of the facility totaling $20,549 which reduced the
available borrowing capacity as of March 31, 2007. We incurred fees calculated at 1.25% of
the total amount outstanding under letter of credit arrangements through March 31, 2007.
Our borrowing capacity under the U.S. and Canadian revolving facilities at March 31, 2007
was $179,451 and $17,940, respectively.(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, commencing on June 15,
2007. There was no discount or premium associated with the issuance of these notes. The
senior notes are guaranteed on a senior unsecured basis 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) purchase or redeem stock or
subordinated debt; (6) enter into transactions with affiliates; (7) merge with or into
other companies or transfer all or substantially all 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. We can redeem 35% of these notes on or
before December 15, 2009 using the proceeds of certain equity offerings. 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. 8. Stockholders equity (unaudited):
 (a) Initial Public Offering:
   Three MonthsEndedMarch 31, 2006Net income as reported
    
    $
    28,113Basic earnings per share, as reported:Continuing operations
    
    $
    0.49Discontinued operations
    
    $
    0.02$
    0.51
 11




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Three MonthsEndedMarch 31, 2006Basic earnings per share, pro forma:Continuing operations
    
    $
    0.39Discontinued operations
    
    $
    0.02$
    0.41Diluted earnings per share, as reported:Continuing operations
    
    $
    0.46Discontinued operations
    
    $
    0.02$
    0.48Diluted earnings per share, pro forma:Continuing operations
    
    $
    0.37Discontinued operations
    
    $
    0.02$
    0.39
 (b) Stock-based CompensationStock Options:
    Three MonthsEndedMarch 31,2007Assumptions:Risk-free rate
    
    4.47% to 4.94%Expected term (in years)
    
    
    2.23 to 5.08Volatility
    
    
    31
    %Calculated fair value per option
    
    $
    4.21 to $7.25
  12




---



##### Table of Contents



Options OutstandingWeightedAverageExerciseNumber
    
    PriceBalance at December 31, 2006
    
    
    3,864,560
    
    
    $
    9.67Granted
    
    
    867,700
    
    
    $
    19.85Exercised
    
    
    (221,374
    )
    
    $
    4.43Cancelled
    
    
    (41,858
    )
    
    $
    18.26Balance at March 31, 2007
    
    
    4,469,028
    
    
    $
    11.83
 Options Outstanding
    
    Options ExercisableWeighted
    
    Weighted
    
    
    
    
    
    Weighted
    
    WeightedOutstanding at
    
    Average
    
    Average
    
    Exercisable at
    
    Average
    
    AverageMarch 31,
    
    Remaining
    
    Exercise
    
    March 31,
    
    Remaining
    
    ExerciseRange of Exercise Price
    
    2007
    
    Life (months)
    
    Price
    
    2007
    
    Life (months)
    
    Price$2.00  $3.94
    
    
    503,045
    
    
    
    26
    
    
    $
    2.04
    
    
    
    339,013
    
    
    
    26
    
    
    $
    2.06$4.48  $4.80
    
    
    891,958
    
    
    
    27
    
    
    $
    4.68
    
    
    
    635,396
    
    
    
    24
    
    
    $
    4.64$5.00
    
    
    302,648
    
    
    
    53
    
    
    $
    5.00
    
    
    
    105,099
    
    
    
    33
    
    
    $
    5.00$6.69
    
    
    630,175
    
    
    
    96
    
    
    $
    6.69
    
    
    
    192,366
    
    
    
    95
    
    
    $
    6.69$11.66
    
    
    469,802
    
    
    
    102
    
    
    $
    11.66
    
    
    
    156,601
    
    
    
    102
    
    
    $
    11.66$17.60  $19.87
    
    
    871,700
    
    
    
    118
    
    
    $
    19.84
    
    
    
    
    
    
    
    
    
    
    
    $23.27  $24.00
    
    
    799,700
    
    
    
    109
    
    
    $
    23.97
    
    
    
    
    
    
    
    
    
    
    
    4,469,028
    
    
    
    79
    
    
    $
    11.83
    
    
    
    1,428,475
    
    
    
    43
    
    
    $
    5.10
 The total intrinsic value of stock options exercised during the three months ended March
31, 2007 was $3,343. The total intrinsic value of all vested outstanding stock options at
March 31, 2007 was $21,155.
 (b) Non-vested Restricted Stock:
  13




---



##### Table of Contents



Non-vestedRestricted StockWeightedAverageNumber
    
    Grant PriceBalance at December 31, 2006
    
    
    690,073
    
    
    $
    8.67Granted
    
    
    67,118
    
    
    $
    19.82Vested
    
    
    (21,788
    )
    
    $
    7.80Forfeited
    
    
    (3,512
    )
    
    $
    23.50Balance at March 31, 2007
    
    
    731,891
    
    
    $
    9.65
 9. Earnings per share:
  Three Months EndedMarch 31,2007
    
    2006(unaudited, in thousands)Weighted average basic common shares
outstanding
    
    
    71,503
    
    
    
    55,601Effect of dilutive securities:Employee stock options
    
    
    1,246
    
    
    
    1,652Non-vested restricted stock
    
    
    272
    
    
    
    293Contingent shares (a)
    
    
    
    
    
    
    1,237Weighted average diluted common and potential
common shares outstanding
    
    
    73,021
    
    
    
    58,783
 
 (a)
    
    Contingent shares represent potential common stock issuable to the former owners of
Parchman and MGM pursuant to the respective purchase agreements based upon 2005 operating
results. On March 31, 2006, we calculated and issued the actual shares earned totaling
1,214 shares.  10. Discontinued operations:
  14




---



##### Table of Contents



Three MonthsEndedMarch 31, 2006(unaudited)Revenue
    
    $
    13,390Income before taxes and minority interest
    
    $
    1,611Net income
    
    $
    1,198
 11. Segment information:
   Drilling
    
    
    ProductC&PS
    
    
    Services
    
    
    Sales
    
    
    Corporate
    
    
    TotalThree Months Ended March 31, 2007Revenue from external customers
    
    $
    307,639
    
    
    $
    58,396
    
    
    $
    41,032
    
    
    $
    
    
    
    $
    407,067Inter-segment revenues
    
    $
    71
    
    
    $
    349
    
    
    $
    11,133
    
    
    $
    (11,553
    )
    
    $
    EBITDA, as defined
    
    $
    104,162
    
    
    $
    18,068
    
    
    $
    5,157
    
    
    $
    (6,214
    )
    
    $
    121,173Depreciation and amortization
    
    $
    24,284
    
    
    $
    3,635
    
    
    $
    678
    
    
    $
    373
    
    
    $
    28,970Operating income (loss)
    
    $
    79,878
    
    
    $
    14,433
    
    
    $
    4,479
    
    
    $
    (6,587
    )
    
    $
    92,203Capital expenditures
    
    $
    88,350
    
    
    $
    7,272
    
    
    $
    4,041
    
    
    $
    239
    
    
    $
    99,902As of March 31, 2007Segment assets
    
    $
    1,494,859
    
    
    $
    235,212
    
    
    $
    108,652
    
    
    $
    21,673
    
    
    $
    1,860,396Three Months Ended March 31, 2006Revenue from external customers
    
    $
    192,021
    
    
    $
    44,030
    
    
    $
    26,295
    
    
    $
    
    
    
    $
    262,346Inter-segment revenues
    
    $
    9
    
    
    $
    436
    
    
    $
    7,466
    
    
    $
    (7,911
    )
    
    $
    EBITDA, as defined
    
    $
    54,602
    
    
    $
    16,020
    
    
    $
    3,816
    
    
    $
    (3,932
    )
    
    $
    70,506Depreciation and amortization
    
    $
    12,834
    
    
    $
    2,018
    
    
    $
    383
    
    
    $
    372
    
    
    $
    15,607Operating income (loss)
    
    $
    41,768
    
    
    $
    14,002
    
    
    $
    3,433
    
    
    $
    (4,304
    )
    
    $
    54,899Capital expenditures
    
    $
    39,603
    
    
    $
    12,716
    
    
    $
    4,194
    
    
    $
    2,369
    
    
    $
    58,882As of December 31, 2006Segment assets
    
    $
    1,369,906
    
    
    $
    245,806
    
    
    $
    96,537
    
    
    $
    28,075
    
    
    $
    1,740,324
  Three Months EndedMarch 31,2007
    
    
    2006Segment operating income
    
    $
    92,203
    
    
    $
    54,899Interest expense
    
    
    15,625
    
    
    
    10,682Interest income
    
    
    (212
    )
    
    
    (7
    )Income taxes
    
    
    29,179
    
    
    
    17,004Minority interest
    
    
    261
    
    
    
    305Net income from continuing operations
    
    $
    47,350
    
    
    $
    26,915
 15




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##### Table of Contents



Original
    
    
    Discontinued
    
    
    RevisedPresentation
    
    
    Operations
    
    
    PresentationThree Months Ended March 31, 2006Revenue from external customers
    
    $
    39,685
    
    
    $
    13,390
    
    
    $
    26,295EBITDA, as defined
    
    $
    5,547
    
    
    $
    1,731
    
    
    $
    3,816Depreciation and amortization
    
    $
    503
    
    
    $
    120
    
    
    $
    383Operating income
    
    $
    5,044
    
    
    $
    1,611
    
    
    $
    3,433
  Drilling
    
    
    ProductC&PS
    
    
    Services
    
    
    Sales
    
    
    TotalBalance at December 31, 2006
    
    $
    505,763
    
    
    $
    34,876
    
    
    $
    12,032
    
    
    $
    552,671Acquisitions
    
    
    5,740
    
    
    
    
    
    
    
    
    
    
    
    5,740Contingency adjustment and other (a)
    
    
    (2,109
    )
    
    
    
    
    
    
    
    
    
    
    (2,109
    )Foreign currency translation
    
    
    383
    
    
    
    
    
    
    
    
    
    
    
    383Balance at March 31, 2007
    
    $
    509,777
    
    
    $
    34,876
    
    
    $
    12,032
    
    
    $
    556,685
 
 (a)
    
    The contingency adjustment includes a reclassification of $2,017 associated with the
Pumpco acquisition in November 2006. During the three months ended March 31, 2007, we
obtained an estimate from a third-party appraiser related to the value of certain non-compete
agreements, resulting in an increase in the value assigned to the non-compete intangible
asset, and a corresponding reduction of goodwill. The non-compete agreements are being
amortized over a term of 5 years from the date of acquisition. 12. Legal matters and contingencies:
   13. Adoption of FASB Interpretation No. 48:
  16




---



##### Table of Contents



14. Recent accounting pronouncements and authoritative literature:
   15. Subsequent events:
  17




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
   Overview
   Completion and Production Services.
 
    
    Intervention Services.Well intervention requires the use of specialized equipment to
perform an array of wellbore services. Our fleet of intervention service equipment
includes coiled tubing units, pressure pumping units, nitrogen units, well service rigs,
snubbing units and a variety of support equipment. Our intervention services provide
customers with innovative solutions to increase production of oil and gas. For example, in
the Barnett Shale region of north Texas we operate advanced coiled tubing units that have
electric-line conductors within the units coiled tubing string. These specially
configured units can deploy perforating guns, logging tools and plugs, without a separate
electric-line unit in high inclination and horizontal wells that are prevalent
throughout that basin.
    
    Downhole and Wellsite Services.Our downhole and wellsite services include
electric-line, slickline, production optimization, production testing, rental and fishing
services. We also offer several proprietary services and products that we believe create
significant value for our customers. Examples of these proprietary services and products
include: (1) our Green Flowback system, which permits the flow of gas to our customers
while performing drill-outs and flowback operations, increasing production, accelerating
time to production and eliminating the need to flare gas, and (2) our patented plunger
lift system that, when combined with our diagnostic and installation services, removes
fluids from gas wells resulting in increased production and the extension of the life of
the well.
    
    Fluid Handling.We provide a variety of services to help our customers obtain, move,
store and dispose of fluids that are involved in the development and production of their
reservoirs. Through
 18




---



##### Table of Contents



our fleet of specialized trucks, frac tanks and other assets, we provide fluid transportation,
heating, pumping and disposal services for our customers.
 Drilling Services.
 Product Sales.
  General
   AVERAGE RIG COUNTS
 Quarter
    
    QuarterEnded
    
    Ended3/31/07
    
    3/31/06BHI Rotary Rig Count:U.S. Land
    
    
    1,651
    
    
    
    1,440U.S. Offshore
    
    
    83
    
    
    
    82Total U.S
    
    
    1,734
    
    
    
    1,522Canada
    
    
    521
    
    
    
    661Total North America
    
    
    2,255
    
    
    
    2,183BHI Workover Rig Count:United States
    
    
    1,485
    
    
    
    1,512Canada
    
    
    751
    
    
    
    808Total U.S. and Canada
    
    
    2,236
    
    
    
    2,320
 
 Source: BHI (www.BakerHughes.com) 19




---



##### Table of Contents



Outlook
       20




---



##### Table of Contents



Acquisitions
    Critical Accounting Policies and Estimates
    21




---



##### Table of Contents



Results of Operations
 PercentQuarter
    
    
    Quarter
    
    
    Change
    
    
    ChangeEnded
    
    
    Ended
    
    
    2007/
    
    
    2007/3/31/07
    
    
    3/31/06
    
    
    2006
    
    
    2006(unaudited, in thousands)Revenue:Completion and production services
    
    $
    307,639
    
    
    $
    192,021
    
    
    $
    115,618
    
    
    
    60
    %Drilling services
    
    
    58,396
    
    
    
    44,030
    
    
    
    14,366
    
    
    
    33
    %Product sales
    
    
    41,032
    
    
    
    26,295
    
    
    
    14,737
    
    
    
    56
    %Total
    
    $
    407,067
    
    
    $
    262,346
    
    
    $
    144,721
    
    
    
    55
    %EBITDA:Completion and production services
    
    $
    104,162
    
    
    $
    54,602
    
    
    $
    49,560
    
    
    
    91
    %Drilling services
    
    
    18,068
    
    
    
    16,020
    
    
    
    2,048
    
    
    
    13
    %Product sales
    
    
    5,157
    
    
    
    3,816
    
    
    
    1,341
    
    
    
    35
    %Corporate
    
    
    (6,214
    )
    
    
    (3,932
    )
    
    
    (2,282
    )
    
    
    58
    %Total
    
    $
    121,173
    
    
    $
    70,506
    
    
    $
    50,667
    
    
    
    72
    %
 
 Corporate includes amounts related to corporate personnel costs and other general expenses.  Reconciliation of EBITDA to Most Comparable U.S. GAAP MeasureOperating Income (Loss)
 CompletionandProduction
    
    
    Drilling
    
    
    ProductServices
    
    
    Services
    
    
    Sales
    
    
    Corporate
    
    
    Total(unaudited, in thousands)Quarter Ended March 31, 2007EBITDA, as defined
    
    $
    104,162
    
    
    $
    18,068
    
    
    $
    5,157
    
    
    $
    (6,214
    )
    
    $
    121,173Depreciation and amortization
    
    $
    24,284
    
    
    $
    3,635
    
    
    $
    678
    
    
    $
    373
    
    
    $
    28,970Operating income (loss)
    
    $
    79,878
    
    
    $
    14,433
    
    
    $
    4,479
    
    
    $
    (6,587
    )
    
    $
    92,203Quarter Ended March 31, 2006EBITDA, as defined
    
    $
    54,602
    
    
    $
    16,020
    
    
    $
    3,816
    
    
    $
    (3,932
    )
    
    $
    70,506Depreciation and amortization
    
    $
    12,834
    
    
    $
    2,018
    
    
    $
    383
    
    
    $
    372
    
    
    $
    15,607Operating income (loss)
    
    $
    41,768
    
    
    $
    14,002
    
    
    $
    3,433
    
    
    $
    (4,304
    )
    
    $
    54,899
 22




---



##### Table of Contents



Original
    
    
    Discontinued
    
    
    RevisedPresentation
    
    
    Operations
    
    
    Presentation(unaudited, in thousands)Three Months Ended March 31, 2006Revenue from external customers
    
    $
    39,685
    
    
    $
    13,390
    
    
    $
    26,295EBITDA, as defined
    
    $
    5,547
    
    
    $
    1,731
    
    
    $
    3,816Depreciation and amortization
    
    $
    503
    
    
    $
    120
    
    
    $
    383Operating income
    
    $
    5,044
    
    
    $
    1,611
    
    
    $
    3,433
  Quarter Ended March 31, 2007 Compared to the Quarter Ended March 31, 2006 (Unaudited)
 Revenue
  
    
    Completion and Production Services.Segment revenue increased $115.6 million, or 60%,
for the quarter, primarily due to: (1) higher activity levels; (2) an increase in revenues
earned as a result of additional capital investment in the coiled tubing, well servicing,
rental and fluid-handling businesses in 2007, as well as the benefit of a full-quarter of
operations for equipment placed into service throughout 2006; (3) a more favorable pricing
environment for our services; (4) investment in acquisitions during the first quarter of
2007, each of which provided incremental revenues for 2007 compared to 2006; and (5) a
series of acquisitions during the year ended December 31, 2006, primarily in third and
fourth quarters, which contributed to the overall 2007 results.
    
    Drilling Services.Segment revenue increased $14.4 million, or 33%, for the quarter,
primarily due to: (1) more favorable pricing; (2) capital investment in our Barnett
Shale-focused drilling business throughout 2006 and, to a lesser extent, during the first
quarter of 2007, as well as investment in drilling logistics equipment throughout our
service area; and (3) an acquisition on August 1, 2006 through which we acquired three
additional drilling rigs.
    
    Product Sales.Segment revenue increased $14.7 million, or 56%, for the quarter,
primarily due to an increase in product sales in Southeast Asia and an increase in sales of
tubular goods though our supply stores in 2007 compared to 2006.
 Service and Product Expenses
  Service and Product Expenses as a Percentage of Revenue
 Quarter Ended3/31/07
    
    3/31/06
    
    ChangeSegment:Completion and production services
    
    
    55
    %
    
    
    59
    %
    
    
    (4
    )%Drilling services
    
    
    59
    %
    
    
    53
    %
    
    
    6
    %Product sales
    
    
    78
    %
    
    
    73
    %
    
    
    5
    %Total
    
    
    58
    %
    
    
    59
    %
    
    
    (1
    )%
  23




---



##### Table of Contents



Selling, General and Administrative Expenses
  Depreciation and Amortization
  Interest Expense
  Taxes
   24




---



##### Table of Contents



Discontinued Operations
  Liquidity and Capital Resources
     Three Months EndedMarch 31,2007
    
    2006Cash flows provided by (used in):Operating activities
    
    $
    85,191
    
    
    $
    31,307Investing activities
    
    
    (110,442
    )
    
    
    (75,348
    )Financing activities
    
    
    25,705
    
    
    
    44,805
    25




---



##### Table of Contents



Dividends
  Description of Our Indebtedness
     26




---



##### Table of Contents



Outstanding Debt and Commitments
    Recent Accounting Pronouncements and Authoritative Guidance
   27




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
      
 Item 4. Controls and Procedures.
  28




---



##### Table of Contents



PART IIOTHER INFORMATION
 
 Item 1. Legal Proceedings.
   
 Item 1A. Risk Factors.
  We are self-insured for certain health care benefits for our employees:
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  29




---



##### Table of Contents



Item 5. Other Information.
  Base Salary
    
    Base SalaryPrior to
    
    As ofExecutive Officer
    
    Title
    
    April 1, 2007
    
    April 1, 2007Joseph C. Winkler
    
    Chief Executive Officer
    
    $
    520,000
    
    
    $
    552,000J. Michael Mayer
    
    Senior Vice President
and Chief Financial
Officer
    
    $
    290,000
    
    
    $
    305,000James F. Maroney, III
    
    Vice President,
Secretary and General
Counsel
    
    $
    240,000
    
    
    $
    254,400Kenneth L. Nibling
    
    Vice President  Human
Resources and
Administration
    
    $
    225,000
    
    
    $
    238,500Robert L. Weisgarber
    
    Vice President 
Accounting and
Controller
    
    $
    185,000
    
    
    $
    195,000
 
 Item 6. Exhibits.
 EXHIBIT INDEX
 ExhibitNo.
    
    
    
    Exhibit Title10.1*
    
    
    
    Form of Executive Agreement10.2*
    
    
    
    Amendment to Employment Agreement dated March 21, 2007
between Complete Production Services, Inc. and Mr.
Joseph C. Winkler31.1*
    
    
    
    Certification of Chief Executive Officer Pursuant to
Rule 13a  14 of the Securities and Exchange Act of
1934, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2*
    
    
    
    Certification of Chief Financial Officer Pursuant to
Rule 13a  14 of the Securities and Exchange Act of
1934, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232.1*
    
    
    
    Certification of Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 200232.2*
    
    
    
    Certification of Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
 
 *
    
    Filed herewith 30




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##### Table of Contents



SIGNATURE
  COMPLETE PRODUCTION SERVICES, INC.May 4, 2007
    
    
    By:
    
    /s/ J. Michael MayerDate
    
    
    
    
    J. Michael MayerSenior Vice President andChief Financial Officer
 31




---



##### Table of Contents



EXHIBIT INDEX
 ExhibitNo.
    
    
    
    Exhibit Title10.1*
    
    
    
    Form of Executive Agreement10.2*
    
    
    
    Amendment to Employment Agreement dated March 21, 2007
between Complete Production Services, Inc. and Mr.
Joseph C. Winkler31.1*
    
    
    
    Certification of Chief Executive Officer Pursuant to
Rule 13a  14 of the Securities and Exchange Act of
1934, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2*
    
    
    
    Certification of Chief Financial Officer Pursuant to
Rule 13a  14 of the Securities and Exchange Act of
1934, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232.1*
    
    
    
    Certification of Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 200232.2*
    
    
    
    Certification of Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
 
 *
    
    Filed herewith