##### 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 JUNE 30, 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
(State or Other Jurisdiction of 
Incorporation or Organization)
    
    72-1503959
(I.R.S. Employer
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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##### Table of Contents



INDEX TO FINANCIAL STATEMENTS
 Complete Production Services, Inc.
 PagePART IFINANCIAL INFORMATIONItem 1.
    
    Financial Statements.Consolidated Balance Sheets as of June 30, 2007 and December 31, 2006
    
    
    3Consolidated Statements of Operations and Consolidated Statements of
Comprehensive Income for the Quarters and Six Months Ended June 30, 2007
and 2006
    
    
    4Consolidated Statement of Stockholders Equity for the Six Months Ended
June 30, 2007
    
    
    5Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2007
and 2006
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations.
    
    
    24Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk.
    
    
    35Item 4.
    
    Controls and Procedures.
    
    
    35PART IIOTHER INFORMATIONItem 1.
    
    Legal Proceedings.
    
    
    36Item 1A.
    
    Risk Factors.
    
    
    36Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds.
    
    
    36Item 3.
    
    Defaults Upon Senior Securities.
    
    
    36Item 4.
    
    Submission of Matters to a Vote of Security Holders.
    
    
    37Item 5.
    
    Other Information.
    
    
    37Item 6.
    
    Exhibits.
    
    
    37Signature
    
    
    38First Amendment to Second Amended and Restated Credit 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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##### Table of Contents



PART IFINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 COMPLETE PRODUCTION SERVICES, INC.
 
 Consolidated Balance Sheets
 June 30, 2007 (unaudited) and December 31, 2006
 2007
    
    
    2006(In thousands, exceptshare data)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    9,661
    
    
    $
    19,874Trade accounts receivable, net
    
    
    313,610
    
    
    
    301,764Inventory, net
    
    
    59,090
    
    
    
    43,930Prepaid expenses
    
    
    18,248
    
    
    
    24,998Other current assets
    
    
    48
    
    
    
    74Total current assets
    
    
    400,657
    
    
    
    390,640Property, plant and equipment, net
    
    
    927,484
    
    
    
    771,703Intangible
assets, net of accumulated amortization of $5,271 and $3,623, respectively
    
    
    10,876
    
    
    
    7,765Deferred financing costs, net of accumulated amortization of
$1,449 and $547, respectively
    
    
    14,898
    
    
    
    15,729Goodwill
    
    
    571,644
    
    
    
    552,671Other long-term assets
    
    
    2,564
    
    
    
    1,816Total assets
    
    $
    1,928,123
    
    
    $
    1,740,324LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    1,124
    
    
    $
    1,064Accounts payable
    
    
    61,371
    
    
    
    71,370Accrued liabilities
    
    
    62,265
    
    
    
    57,280Accrued interest
    
    
    4,314
    
    
    
    4,085Notes payable
    
    
    2,482
    
    
    
    17,087Taxes payable
    
    
    3,147
    
    
    
    10,519Total current liabilities
    
    
    134,703
    
    
    
    161,405Long-term debt
    
    
    839,813
    
    
    
    750,577Deferred income taxes
    
    
    105,496
    
    
    
    90,805Minority interest
    
    
    2,631
    
    
    
    2,316Total liabilities
    
    
    1,082,643
    
    
    
    1,005,103Commitments and contingenciesStockholders equity:Common stock, $0.01 par value per share, 200,000,000 shares
authorized, 72,132,405 (2006  71,418,473) issued
    
    
    721
    
    
    
    714Preferred stock, $0.01 par value per share, 5,000,000 shares
authorized, no shares issued and outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    574,273
    
    
    
    563,006Retained earnings
    
    
    247,104
    
    
    
    155,971Treasury stock, 35,570 shares at cost
    
    
    (202
    )
    
    
    (202
    )Accumulated other comprehensive income
    
    
    23,584
    
    
    
    15,732Total stockholders equity
    
    
    845,480
    
    
    
    735,221Total liabilities and stockholders equity
    
    $
    1,928,123
    
    
    $
    1,740,324
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COMPLETE PRODUCTION SERVICES, INC.
 
 Consolidated Statements of Operations
 Quarters and Six Months Ended June 30, 2007 and 2006 (unaudited)
 Quarter Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands, except per
    
    
    (In thousands, except pershare data)
    
    
    share data)Revenue:Service
    
    $
    367,405
    
    
    $
    234,420
    
    
    $
    733,440
    
    
    $
    469,539Product
    
    
    43,310
    
    
    
    30,116
    
    
    
    84,342
    
    
    
    57,343410,715
    
    
    
    264,536
    
    
    
    817,782
    
    
    
    526,882Service expenses
    
    
    204,364
    
    
    
    139,323
    
    
    
    407,877
    
    
    
    274,834Product expenses
    
    
    33,654
    
    
    
    21,942
    
    
    
    65,465
    
    
    
    41,825Selling, general and administrative expenses
    
    
    55,344
    
    
    
    35,752
    
    
    
    105,914
    
    
    
    72,198Depreciation and amortization
    
    
    33,492
    
    
    
    16,999
    
    
    
    62,462
    
    
    
    32,606Income from continuing operations before interest,
taxes and minority interest
    
    
    83,861
    
    
    
    50,520
    
    
    
    176,064
    
    
    
    105,419Interest expense
    
    
    15,064
    
    
    
    9,488
    
    
    
    30,689
    
    
    
    20,170Interest income
    
    
    (316
    )
    
    
    (1,015
    )
    
    
    (528
    )
    
    
    (1,022
    )Income from continuing operations before taxes
and minority interest
    
    
    69,113
    
    
    
    42,047
    
    
    
    145,903
    
    
    
    86,271Taxes
    
    
    25,535
    
    
    
    15,607
    
    
    
    54,714
    
    
    
    32,611Income from continuing operations before minority
interest
    
    
    43,578
    
    
    
    26,440
    
    
    
    91,189
    
    
    
    53,660Minority interest
    
    
    (205
    )
    
    
    (161
    )
    
    
    56
    
    
    
    144Income from continuing operations
    
    
    43,783
    
    
    
    26,601
    
    
    
    91,133
    
    
    
    53,516Income from discontinued operations
(net of tax expense of $0, $329, $0 and $742,
respectively)
    
    
    
    
    
    
    553
    
    
    
    
    
    
    
    1,751Net income
    
    $
    43,783
    
    
    $
    27,154
    
    
    $
    91,133
    
    
    $
    55,267Earnings per share information:Continuing operations
    
    $
    0.61
    
    
    $
    0.40
    
    
    $
    1.27
    
    
    $
    0.87Discontinued operations
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    0.03Basic earnings per share
    
    $
    0.61
    
    
    $
    0.40
    
    
    $
    1.27
    
    
    $
    0.90Continuing operations
    
    $
    0.60
    
    
    $
    0.39
    
    
    $
    1.25
    
    
    $
    0.84Discontinued operations
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    0.02Diluted earnings per share
    
    $
    0.60
    
    
    $
    0.39
    
    
    $
    1.25
    
    
    $
    0.86Weighted average shares:Basic
    
    
    71,916
    
    
    
    67,067
    
    
    
    71,711
    
    
    
    61,366Diluted
    
    
    73,367
    
    
    
    69,065
    
    
    
    73,195
    
    
    
    63,953
 Consolidated Statements of Comprehensive Income
Quarters and Six Months Ended June 30, 2007 and 2006 (unaudited)
 Quarter Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)
    
    
    (In thousands)Net income
    
    $
    43,783
    
    
    $
    27,154
    
    
    $
    91,133
    
    
    $
    55,267Change in cumulative translation adjustment
    
    
    7,096
    
    
    
    3,080
    
    
    
    7,852
    
    
    
    2,962Comprehensive income
    
    $
    50,879
    
    
    $
    30,234
    
    
    $
    98,985
    
    
    $
    58,229
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COMPLETE PRODUCTION SERVICES, INC.
 
 Consolidated Statement of Stockholders Equity
 Six Months Ended June 30, 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    91,133
    
    
    
    
    
    
    
    
    
    
    
    91,133Cumulative translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,852
    
    
    
    7,852Issuance of common stock:Exercise of stock options
    
    
    653,872
    
    
    
    7
    
    
    
    2,937
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,944Expense related to employee
stock options
    
    
    
    
    
    
    
    
    
    
    2,259
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,259Excess tax benefit from
share-based compensation
    
    
    
    
    
    
    
    
    
    
    4,599
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,599Vested restricted stock
    
    
    60,060
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of non-vested
restricted stock
    
    
    
    
    
    
    
    
    
    
    1,472
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,472Balance at June 30, 2007
    
    
    72,132,405
    
    
    $
    721
    
    
    $
    574,273
    
    
    $
    247,104
    
    
    $
    (202
    )
    
    $
    23,584
    
    
    $
    845,480
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COMPLETE PRODUCTION SERVICES, INC.
 
 Consolidated Statements of Cash Flows
 Six Months Ended June 30, 2007 and 2006 (unaudited)
 Six Months EndedJune 30,2007
    
    
    2006(In thousands)Cash provided by (used in):Operating activities:Net income
    
    $
    91,133
    
    
    $
    55,267Items not affecting cash:Depreciation and amortization
    
    
    62,462
    
    
    
    32,852Deferred income taxes
    
    
    7,665
    
    
    
    4,853Minority interest
    
    
    56
    
    
    
    144Excess tax benefit from share-based compensation
    
    
    (4,599
    )
    
    
    (109
    )Non-cash compensation expense
    
    
    3,731
    
    
    
    1,706Other
    
    
    4,354
    
    
    
    1,150Changes in operating assets and liabilities:Accounts receivable
    
    
    (12,463
    )
    
    
    (29,909
    )Inventory
    
    
    (13,929
    )
    
    
    (9,609
    )Prepaid expense and other current assets
    
    
    6,997
    
    
    
    5,451Accounts payable
    
    
    (948
    )
    
    
    13,161Accrued liabilities and other
    
    
    (4,535
    )
    
    
    (1,517
    )Net cash provided by operating activities
    
    
    139,924
    
    
    
    73,440Investing activities:Business acquisitions, net of cash acquired
    
    
    (40,468
    )
    
    
    (36,163
    )Additions to property, plant and equipment
    
    
    (194,479
    )
    
    
    (132,423
    )Purchase of short-term securities
    
    
    
    
    
    
    (165,000
    )Proceeds from sale of short-term securities
    
    
    
    
    
    
    52,841Proceeds from disposal of capital assets/other
    
    
    3,840
    
    
    
    3,232Net cash used in investing activities
    
    
    (231,107
    )
    
    
    (277,513
    )Financing activities:Issuances of long-term debt
    
    
    192,901
    
    
    
    180,646Repayments of long-term debt
    
    
    (103,605
    )
    
    
    (256,278
    )Repayment of notes payable
    
    
    (14,604
    )
    
    
    (11,272
    )Proceeds from issuances of common stock
    
    
    2,944
    
    
    
    290,407Excess tax benefit from share-based compensation
    
    
    4,599
    
    
    
    109Net cash provided by financing activities
    
    
    82,235
    
    
    
    203,612Effect of exchange rate changes on cash
    
    
    (1,265
    )
    
    
    (571
    )Change in cash and cash equivalents
    
    
    (10,213
    )
    
    
    (1,032
    )Cash and cash equivalents, beginning of period
    
    
    19,874
    
    
    
    11,405Cash and cash equivalents, end of period
    
    $
    9,661
    
    
    $
    10,373Supplemental cash flow information:Cash paid for interest, net of interest capitalized
    
    $
    27,750
    
    
    $
    19,652Cash paid for taxes
    
    $
    44,340
    
    
    $
    16,385Significant 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
 (Unaudited, 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 Six Months Ended June 30, 2007:
       Net assets acquired:Property, plant and equipment
    
    $
    21,833Non-cash working capital
    
    
    229Intangible assets
    
    
    1,100Goodwill
    
    
    16,848Net assets acquired
    
    $
    40,010Consideration:Cash, net of cash and cash equivalents acquired
    
    $
    40,010
 8




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3. Accounts receivable:
 June 30,
    
    
    December 31,2007
    
    
    2006Trade accounts receivable
    
    $
    265,708
    
    
    $
    260,733Related party receivables
    
    
    12,606
    
    
    
    12,478Unbilled revenue
    
    
    32,780
    
    
    
    27,096Other receivables
    
    
    6,401
    
    
    
    3,888317,495
    
    
    
    304,195Allowance for doubtful accounts
    
    
    3,885
    
    
    
    2,431$
    313,610
    
    
    $
    301,764
 4. Inventory:
 June 30,
    
    
    December 31,2007
    
    
    2006Finished goods
    
    $
    50,582
    
    
    $
    38,877Manufacturing parts, materials and other
    
    
    10,194
    
    
    
    6,77260,776
    
    
    
    45,649Inventory reserves
    
    
    1,686
    
    
    
    1,719$
    59,090
    
    
    $
    43,930
 5. Property, plant and equipment:
 AccumulatedCost
    
    
    Depreciation
    
    
    Net Book ValueJune 30, 2007Land
    
    $
    7,330
    
    
    $
    
    
    
    $
    7,330Building
    
    
    16,032
    
    
    
    1,267
    
    
    
    14,765Field equipment
    
    
    904,947
    
    
    
    182,174
    
    
    
    722,773Vehicles
    
    
    78,493
    
    
    
    18,609
    
    
    
    59,884Office furniture and computers
    
    
    11,903
    
    
    
    3,830
    
    
    
    8,073Leasehold improvements
    
    
    14,377
    
    
    
    1,580
    
    
    
    12,797Construction in progress
    
    
    101,862
    
    
    
    
    
    
    
    101,862$
    1,134,944
    
    
    $
    207,460
    
    
    $
    927,484
 AccumulatedCost
    
    
    Depreciation
    
    
    Net Book ValueDecember 31, 2006Land
    
    $
    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
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6. Notes payable:
  7. Long-term debt:
  2007
    
    
    2006U.S. revolving credit facility (a)
    
    $
    173,821
    
    
    $
    78,668Canadian revolving credit facility (a)
    
    
    11,989
    
    
    
    17,5758.0% senior notes (b)
    
    
    650,000
    
    
    
    650,000Subordinated seller notes
    
    
    3,450
    
    
    
    3,450Capital leases and other
    
    
    1,677
    
    
    
    1,948840,937
    
    
    
    751,641Less: current maturities of long-term debt and capital leases
    
    
    1,124
    
    
    
    1,064$
    839,813
    
    
    $
    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 10




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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 June 30, 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 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 rates ranging from 6.6% to
8.5% and the Canadian revolving credit facility bore interest at 6.0% at June 30, 2007.
For the quarter and six months ended June 30, 2007, the weighted average interest rate on
average borrowings under the amended Credit Agreement was approximately 6.5%. There were
letters of credit outstanding under the U.S. revolving portion of the facility totaling
$20,599, which reduced the available borrowing capacity as of June 30, 2007. We incurred
fees calculated at 1.25% of the total amount outstanding under letter of credit
arrangements through June 30, 2007. Our available borrowing capacity under the U.S. and
Canadian revolving facilities at June 30, 2007 was $115,580 and $28,011, respectively.On June 29, 2007, we amended our Credit Agreement in conjunction with the restructuring of
certain legal entities for tax purposes with no material changes to the financial
provisions or covenants.(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. On June 15, 2007, we paid
interest associated with these senior notes totaling $27,300.Pursuant to a registration rights agreement with the holders of our 8.0% senior notes, on
June 1, 2007, we filed a registration statement on Form S-4 with the Securities and
Exchange Commission which enabled these holders to exchange their notes for publicly
registered notes with identical terms. See Note 16, Subsequent Events. 11




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##### Table of Contents



8. Stockholders equity (unaudited):
 (a) Initial Public Offering:
   Quarter
    
    
    Six MonthsEnded
    
    
    EndedJune 30, 2006
    
    
    June 30, 2006Net income as reported
    
    $
    27,154
    
    
    $
    55,267Basic earnings per share, as reported:Continuing operations
    
    $
    0.40
    
    
    $
    0.87Discontinued operations
    
    $
    0.00
    
    
    $
    0.03$
    0.40
    
    
    $
    0.90Basic earnings per share, pro forma:Continuing operations
    
    $
    0.38
    
    
    $
    0.77Discontinued operations
    
    $
    0.01
    
    
    $
    0.03$
    0.39
    
    
    $
    0.80Diluted earnings per share, as reported:Continuing operations
    
    $
    0.39
    
    
    $
    0.84Discontinued operations
    
    $
    0.00
    
    
    $
    0.02$
    0.39
    
    
    $
    0.86Diluted earnings per share, pro forma:Continuing operations
    
    $
    0.37
    
    
    $
    0.75Discontinued operations
    
    $
    0.01
    
    
    $
    0.02$
    0.38
    
    
    $
    0.77
 (b) Stock-based CompensationStock Options:
    12




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##### Table of Contents



Six MonthsEndedJune 30,2007Assumptions:Risk-free rate
    
    4.47% to 4.98%Expected term (in years)
    
    2.23 to 5.08Volatility
    
    30% to 31%Calculated fair value per option
    
    $4.21 to $9.33
     Options OutstandingWeightedAverageExerciseNumber
    
    PriceBalance at December 31, 2006
    
    
    3,864,560
    
    
    $
    9.67Granted
    
    
    920,700
    
    
    $
    20.18Exercised
    
    
    (653,872
    )
    
    $
    4.39Cancelled
    
    
    (87,106
    )
    
    $
    17.60Balance at June 30, 2007
    
    
    4,044,282
    
    
    $
    12.75
 13




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##### Table of Contents



Options Outstanding
    
    Options ExercisableWeighted
    
    Weighted
    
    
    
    
    
    Weighted
    
    WeightedOutstanding at
    
    Average
    
    Average
    
    Exercisable at
    
    Average
    
    AverageJune 30,
    
    Remaining
    
    Exercise
    
    June 30,
    
    Remaining
    
    ExerciseRange of Exercise Price
    
    2007
    
    Life (months)
    
    Price
    
    2007
    
    Life (months)
    
    Price$2.00
    
    
    303,806
    
    
    
    23
    
    
    $
    2.00
    
    
    
    298,875
    
    
    
    23
    
    
    $
    2.00$4.48  $4.80
    
    
    698,444
    
    
    
    25
    
    
    $
    4.68
    
    
    
    536,185
    
    
    
    24
    
    
    $
    4.66$5.00
    
    
    283,817
    
    
    
    49
    
    
    $
    5.00
    
    
    
    101,711
    
    
    
    30
    
    
    $
    5.00$6.69
    
    
    630,175
    
    
    
    93
    
    
    $
    6.69
    
    
    
    373,887
    
    
    
    94
    
    
    $
    6.69$11.66
    
    
    448,137
    
    
    
    99
    
    
    $
    11.66
    
    
    
    149,379
    
    
    
    99
    
    
    $
    11.66$17.60  $19.87
    
    
    858,200
    
    
    
    115
    
    
    $
    19.84
    
    
    
    
    
    
    
    
    
    
    
    $23.27  $24.07
    
    
    776,703
    
    
    
    106
    
    
    $
    23.97
    
    
    
    246,401
    
    
    
    106
    
    
    $
    24.00$26.26  $27.11
    
    
    45,000
    
    
    
    110
    
    
    $
    26.35
    
    
    
    
    
    
    
    
    
    
    
    4,044,282
    
    
    
    81
    
    
    $
    12.75
    
    
    
    1,706,438
    
    
    
    58
    
    
    $
    8.06
  (b) Non-vested Restricted Stock:
   Non-vestedRestricted StockWeightedAverageNumber
    
    Grant PriceBalance at December 31, 2006
    
    
    690,073
    
    
    $
    8.67Granted
    
    
    96,254
    
    
    $
    21.30Vested
    
    
    (60,060
    )
    
    $
    18.12Forfeited
    
    
    (3,512
    )
    
    $
    23.50Balance at June 30, 2007
    
    
    722,755
    
    
    $
    9.50
 9. Earnings per share:
  14




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##### Table of Contents



Quarter Ended
    
    Six MonthsJune 30,
    
    Ended June 30,2007
    
    2006
    
    2007
    
    2006(in thousands)Weighted average basic common shares
outstanding
    
    
    71,916
    
    
    
    67,067
    
    
    
    71,711
    
    
    
    61,366Effect of dilutive securities:Employee stock options
    
    
    1,190
    
    
    
    1,715
    
    
    
    1,218
    
    
    
    1,684Non-vested restricted stock
    
    
    261
    
    
    
    283
    
    
    
    266
    
    
    
    295Contingent shares (a)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    608Weighted average diluted common and potential
common shares outstanding
    
    
    73,367
    
    
    
    69,065
    
    
    
    73,195
    
    
    
    63,953
 
 (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:
   Quarter
    
    Six MonthsEnded
    
    EndedJune 30, 2006
    
    June 30, 2006Revenue
    
    $
    10,890
    
    
    $
    24,280Income before taxes and minority interest
    
    $
    882
    
    
    $
    2,493Net income
    
    $
    553
    
    
    $
    1,751
 11. Segment information:
  15




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##### Table of Contents



Drilling
    
    
    ProductC&PS
    
    
    Services
    
    
    Sales
    
    
    Corporate
    
    
    TotalQuarter Ended June 30, 2007Revenue from external customers
    
    $
    307,212
    
    
    $
    60,193
    
    
    $
    43,310
    
    
    $
    
    
    
    $
    410,715Inter-segment revenues
    
    $
    261
    
    
    $
    1,517
    
    
    $
    18,648
    
    
    $
    (20,426
    )
    
    $
    EBITDA, as defined
    
    $
    101,180
    
    
    $
    19,004
    
    
    $
    5,440
    
    
    $
    (8,271
    )
    
    $
    117,353Depreciation and amortization
    
    $
    28,134
    
    
    $
    4,017
    
    
    $
    702
    
    
    $
    639
    
    
    $
    33,492Operating income (loss)
    
    $
    73,046
    
    
    $
    14,987
    
    
    $
    4,738
    
    
    $
    (8,910
    )
    
    $
    83,861Capital expenditures
    
    $
    70,561
    
    
    $
    22,714
    
    
    $
    454
    
    
    $
    848
    
    
    $
    94,577Six Months Ended June 30, 2007Revenue from external customers
    
    $
    614,851
    
    
    $
    118,589
    
    
    $
    84,342
    
    
    $
    
    
    
    $
    817,782Inter-segment revenues
    
    $
    332
    
    
    $
    1,866
    
    
    $
    29,781
    
    
    $
    (31,979
    )
    
    $
    EBITDA, as defined
    
    $
    205,342
    
    
    $
    37,072
    
    
    $
    10,596
    
    
    $
    (14,484
    )
    
    $
    238,526Depreciation and amortization
    
    $
    52,418
    
    
    $
    7,652
    
    
    $
    1,380
    
    
    $
    1,012
    
    
    $
    62,462Operating income (loss)
    
    $
    152,924
    
    
    $
    29,420
    
    
    $
    9,216
    
    
    $
    (15,496
    )
    
    $
    176,064Capital expenditures
    
    $
    158,911
    
    
    $
    29,986
    
    
    $
    4,495
    
    
    $
    1,087
    
    
    $
    194,479As of June 30, 2007Segment assets
    
    $
    1,554,655
    
    
    $
    252,892
    
    
    $
    97,673
    
    
    $
    22,903
    
    
    $
    1,928,123Quarter Ended June 30, 2006Revenue from external customers
    
    $
    183,270
    
    
    $
    51,150
    
    
    $
    30,116
    
    
    $
    
    
    
    $
    264,536Inter-segment revenues
    
    $
    96
    
    
    $
    1,202
    
    
    $
    13,485
    
    
    $
    (14,783
    )
    
    $
    EBITDA, as defined
    
    $
    49,291
    
    
    $
    18,236
    
    
    $
    3,988
    
    
    $
    (3,996
    )
    
    $
    67,519Depreciation and amortization
    
    $
    14,001
    
    
    $
    2,284
    
    
    $
    449
    
    
    $
    265
    
    
    $
    16,999Operating income (loss)
    
    $
    35,290
    
    
    $
    15,952
    
    
    $
    3,539
    
    
    $
    (4,261
    )
    
    $
    50,520Capital expenditures
    
    $
    57,483
    
    
    $
    12,990
    
    
    $
    2,575
    
    
    $
    379
    
    
    $
    73,427Six Months Ended June 30, 2006Revenue from external customers
    
    $
    374,359
    
    
    $
    95,180
    
    
    $
    57,343
    
    
    $
    
    
    
    $
    526,882Inter-segment revenues
    
    $
    105
    
    
    $
    1,638
    
    
    $
    20,951
    
    
    $
    (22,694
    )
    
    $
    EBITDA, as defined
    
    $
    103,901
    
    
    $
    34,257
    
    
    $
    7,794
    
    
    $
    (7,927
    )
    
    $
    138,025Depreciation and amortization
    
    $
    26,835
    
    
    $
    4,302
    
    
    $
    832
    
    
    $
    637
    
    
    $
    32,606Operating income (loss)
    
    $
    77,066
    
    
    $
    29,955
    
    
    $
    6,962
    
    
    $
    (8,564
    )
    
    $
    105,419Capital expenditures
    
    $
    97,832
    
    
    $
    25,706
    
    
    $
    6,138
    
    
    $
    2,747
    
    
    $
    132,423As of December 31, 2006Segment assets
    
    $
    1,369,906
    
    
    $
    245,806
    
    
    $
    96,537
    
    
    $
    28,075
    
    
    $
    1,740,324
  Quarter Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Segment operating income
    
    $
    83,861
    
    
    $
    50,520
    
    
    $
    176,064
    
    
    $
    105,419Interest expense
    
    
    15,064
    
    
    
    9,488
    
    
    
    30,689
    
    
    
    20,170Interest income
    
    
    (316
    )
    
    
    (1,015
    )
    
    
    (528
    )
    
    
    (1,022
    )Income taxes
    
    
    25,535
    
    
    
    15,607
    
    
    
    54,714
    
    
    
    32,611Minority interest
    
    
    (205
    )
    
    
    (161
    )
    
    
    56
    
    
    
    144Net income from continuing operations
    
    $
    43,783
    
    
    $
    26,601
    
    
    $
    91,133
    
    
    $
    53,516
  Original
    
    
    Discontinued
    
    
    RevisedPresentation
    
    
    Operations
    
    
    PresentationQuarter Ended June 30, 2006Revenue from external customers
    
    $
    41,006
    
    
    $
    10,890
    
    
    $
    30,116EBITDA, as defined
    
    $
    4,996
    
    
    $
    1,008
    
    
    $
    3,988Depreciation and amortization
    
    $
    575
    
    
    $
    126
    
    
    $
    449Operating income
    
    $
    4,421
    
    
    $
    882
    
    
    $
    3,539
 16




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##### Table of Contents



Original
    
    
    Discontinued
    
    
    RevisedPresentation
    
    
    Operations
    
    
    PresentationSix Months Ended June 30, 2006Revenue from external customers
    
    $
    81,623
    
    
    $
    24,280
    
    
    $
    57,343EBITDA, as defined
    
    $
    10,533
    
    
    $
    2,739
    
    
    $
    7,794Depreciation and amortization
    
    $
    1,078
    
    
    $
    246
    
    
    $
    832Operating income
    
    $
    9,455
    
    
    $
    2,493
    
    
    $
    6,962
  Drilling
    
    
    ProductC&PS
    
    
    Services
    
    
    Sales
    
    
    TotalBalance at December 31, 2006
    
    $
    505,763
    
    
    $
    34,876
    
    
    $
    12,032
    
    
    $
    552,671Acquisitions
    
    
    16,848
    
    
    
    
    
    
    
    
    
    
    
    16,848Contingency adjustment and other (a)
    
    
    (2,125
    )
    
    
    
    
    
    
    
    
    
    
    (2,125
    )Foreign currency translation
    
    
    4,250
    
    
    
    
    
    
    
    
    
    
    
    4,250Balance at June 30, 2007
    
    $
    524,736
    
    
    $
    34,876
    
    
    $
    12,032
    
    
    $
    571,644
 
 (a)
    
    The contingency adjustment includes a reclassification of $2,823 from goodwill to
identifiable intangible assets, primarily non-compete agreements and customer relationships,
which were identified upon acquisition but for which the fair value was recently determined
based upon estimates calculated by a third-party appraiser. Of this amount, $2,017 related to
the acquisition of Pumpco Services, Inc. in November 2006. Partially offsetting this
reclassification of goodwill to identifiable intangibles was additional goodwill associated
with the final working capital adjustments for several 2006 acquisitions. 12. Legal matters and contingencies:
    13. Adoption of FASB Interpretation No. 48:
  17




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##### Table of Contents



14. Guarantor and Non-Guarantor Condensed Consolidating Financial Statements:
  Unaudited Condensed Consolidating Balance Sheet
June 30, 2007
 Guarantor
    
    
    Non-guarantor
    
    
    Eliminations/Parent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Reclassifications
    
    
    Consolidated(in thousands)Current assetsCash and cash equivalents
    
    $
    4,568
    
    
    $
    3,671
    
    
    $
    4,408
    
    
    $
    (2,986
    )
    
    $
    9,661Trade accounts receivable, net
    
    
    2
    
    
    
    284,779
    
    
    
    28,829
    
    
    
    
    
    
    
    313,610Inventory
    
    
    
    
    
    
    47,839
    
    
    
    11,251
    
    
    
    
    
    
    
    59,090Prepaid expenses and other current assets
    
    
    1,765
    
    
    
    13,831
    
    
    
    2,700
    
    
    
    
    
    
    
    18,296Total current assets
    
    
    6,335
    
    
    
    350,120
    
    
    
    47,188
    
    
    
    (2,986
    )
    
    
    400,657Property, plant and equipment, net
    
    
    4,063
    
    
    
    863,397
    
    
    
    60,024
    
    
    
    
    
    
    
    927,484Investment in consolidated subsidiaries
    
    
    517,482
    
    
    
    92,419
    
    
    
    
    
    
    
    (609,901
    )
    
    
    Inter-company receivable
    
    
    1,111,711
    
    
    
    
    
    
    
    
    
    
    
    (1,111,711
    )
    
    
    Goodwill
    
    
    93,792
    
    
    
    431,206
    
    
    
    46,646
    
    
    
    
    
    
    
    571,644
 18




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##### Table of Contents



Guarantor
    
    
    Non-guarantor
    
    
    Eliminations/Parent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Reclassifications
    
    
    Consolidated(in thousands)Other long-term assets, net
    
    
    15,501
    
    
    
    9,445
    
    
    
    3,392
    
    
    
    
    
    
    
    28,338Total assets
    
    $
    1,748,884
    
    
    $
    1,746,587
    
    
    $
    157,250
    
    
    $
    (1,724,598
    )
    
    $
    1,928,123Current liabilitiesCurrent maturities of long-term debt
    
    $
    
    
    
    $
    1,059
    
    
    $
    65
    
    
    $
    
    
    
    $
    1,124Accounts payable
    
    
    1,409
    
    
    
    55,080
    
    
    
    7,868
    
    
    
    (2,986
    )
    
    
    61,371Accrued liabilities
    
    
    9,935
    
    
    
    50,124
    
    
    
    6,520
    
    
    
    
    
    
    
    66,579Notes payable
    
    
    2,482
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,482Taxes payable
    
    
    (2,549
    )
    
    
    
    
    
    
    5,696
    
    
    
    
    
    
    
    3,147Total current liabilities
    
    
    11,277
    
    
    
    106,263
    
    
    
    20,149
    
    
    
    (2,986
    )
    
    
    134,703Long-term debt
    
    
    823,822
    
    
    
    3,898
    
    
    
    12,093
    
    
    
    
    
    
    
    839,813Inter-company payable
    
    
    
    
    
    
    1,094,629
    
    
    
    17,082
    
    
    
    (1,111,711
    )
    
    
    Deferred income taxes
    
    
    68,305
    
    
    
    24,315
    
    
    
    12,876
    
    
    
    
    
    
    
    105,496Minority interest
    
    
    
    
    
    
    
    
    
    
    2,631
    
    
    
    
    
    
    
    2,631Total liabilities
    
    
    903,404
    
    
    
    1,229,105
    
    
    
    64,831
    
    
    
    (1,114,697
    )
    
    
    1,082,643Stockholders equityTotal stockholders equity
    
    
    845,480
    
    
    
    517,482
    
    
    
    92,419
    
    
    
    (609,901
    )
    
    
    845,480Total liabilities and stockholders equity
    
    $
    1,748,884
    
    
    $
    1,746,587
    
    
    $
    157,250
    
    
    $
    (1,724,598
    )
    
    $
    1,928,123
 Unaudited Condensed Consolidating Balance Sheet
December 31, 2006
 Guarantor
    
    
    Non-guarantor
    
    
    Eliminations/Parent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Reclassifications
    
    
    Consolidated(in thousands)Current assetsCash and cash equivalents
    
    $
    6,517
    
    
    $
    9,533
    
    
    $
    7,312
    
    
    $
    (3,488
    )
    
    $
    19,874Trade accounts receivable, net
    
    
    32
    
    
    
    273,990
    
    
    
    27,742
    
    
    
    
    
    
    
    301,764Inventory
    
    
    
    
    
    
    33,899
    
    
    
    10,031
    
    
    
    
    
    
    
    43,930Prepaid expenses and other current assets
    
    
    1,495
    
    
    
    21,307
    
    
    
    2,270
    
    
    
    
    
    
    
    25,072Total current assets
    
    
    8,044
    
    
    
    338,729
    
    
    
    47,355
    
    
    
    (3,488
    )
    
    
    390,640Property, plant and equipment, net
    
    
    3,384
    
    
    
    713,952
    
    
    
    54,367
    
    
    
    
    
    
    
    771,703Investment in consolidated subsidiaries
    
    
    398,414
    
    
    
    91,903
    
    
    
    
    
    
    
    (490,317
    )
    
    
    Inter-company receivable
    
    
    1,007,052
    
    
    
    
    
    
    
    
    
    
    
    (1,007,052
    )
    
    
    Goodwill
    
    
    93,792
    
    
    
    416,515
    
    
    
    42,364
    
    
    
    
    
    
    
    552,671Other long-term assets, net
    
    
    16,473
    
    
    
    5,725
    
    
    
    3,112
    
    
    
    
    
    
    
    25,310Total assets
    
    $
    1,527,159
    
    
    $
    1,566,824
    
    
    $
    147,198
    
    
    $
    (1,500,857
    )
    
    $
    1,740,324Current liabilitiesCurrent maturities of long-term debt
    
    $
    
    
    
    $
    923
    
    
    $
    141
    
    
    $
    
    
    
    $
    1,064Accounts payable
    
    
    1,545
    
    
    
    64,958
    
    
    
    8,355
    
    
    
    (3,488
    )
    
    
    71,370Accrued liabilities
    
    
    7,361
    
    
    
    46,509
    
    
    
    7,495
    
    
    
    
    
    
    
    61,365Notes payable
    
    
    17,087
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,087Taxes payable
    
    
    8,065
    
    
    
    
    
    
    
    2,454
    
    
    
    
    
    
    
    10,519Total current liabilities
    
    
    34,058
    
    
    
    112,390
    
    
    
    18,445
    
    
    
    (3,488
    )
    
    
    161,405Long-term debt
    
    
    728,668
    
    
    
    4,093
    
    
    
    17,816
    
    
    
    
    
    
    
    750,577Inter-company payable
    
    
    
    
    
    
    1,000,870
    
    
    
    6,182
    
    
    
    (1,007,052
    )
    
    
    Deferred income taxes
    
    
    29,212
    
    
    
    51,057
    
    
    
    10,536
    
    
    
    
    
    
    
    90,805Minority interest
    
    
    
    
    
    
    
    
    
    
    2,316
    
    
    
    
    
    
    
    2,316Total liabilities
    
    
    791,938
    
    
    
    1,168,410
    
    
    
    55,295
    
    
    
    (1,010,540
    )
    
    
    1,005,103Stockholders equityTotal stockholders equity
    
    
    735,221
    
    
    
    398,414
    
    
    
    91,903
    
    
    
    (490,317
    )
    
    
    735,221Total liabilities and stockholders equity
    
    $
    1,527,159
    
    
    $
    1,566,824
    
    
    $
    147,198
    
    
    $
    (1,500,857
    )
    
    $
    1,740,324
 19




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##### Table of Contents



Unaudited Condensed Consolidated Statement of Operations
Quarter Ended June 30, 2007
 Guarantor
    
    
    Non-guarantor
    
    
    Eliminations/Parent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Reclassifications
    
    
    Consolidated(in thousands)Revenue:Service
    
    $
    
    
    
    $
    347,530
    
    
    $
    20,779
    
    
    
    (904
    )
    
    $
    367,405Product
    
    
    
    
    
    
    33,531
    
    
    
    9,779
    
    
    
    
    
    
    
    43,310
    
    
    
    381,061
    
    
    
    30,558
    
    
    
    (904
    )
    
    
    410,715Service expenses
    
    
    
    
    
    
    187,735
    
    
    
    17,533
    
    
    
    (904
    )
    
    
    204,364Product expenses
    
    
    
    
    
    
    27,002
    
    
    
    6,652
    
    
    
    
    
    
    
    33,654Selling, general and administrative expenses
    
    
    8,632
    
    
    
    43,345
    
    
    
    3,367
    
    
    
    
    
    
    
    55,344Depreciation and amortization
    
    
    377
    
    
    
    30,683
    
    
    
    2,432
    
    
    
    
    
    
    
    33,492Income from continuing operations before
interest, taxes and minority interest
    
    
    (9,009
    )
    
    
    92,296
    
    
    
    574
    
    
    
    
    
    
    
    83,861Interest expense
    
    
    15,591
    
    
    
    5,887
    
    
    
    368
    
    
    
    (6,782
    )
    
    
    15,064Interest income
    
    
    (6,803
    )
    
    
    (200
    )
    
    
    (95
    )
    
    
    6,782
    
    
    
    (316
    )Equity in earnings of consolidated affiliates
    
    
    (53,845
    )
    
    
    (497
    )
    
    
    
    
    
    
    54,342
    
    
    
    Income from continuing operations before
taxes and minority interest
    
    
    36,048
    
    
    
    87,106
    
    
    
    301
    
    
    
    (54,342
    )
    
    
    69,113Taxes
    
    
    (7,735
    )
    
    
    33,261
    
    
    
    9
    
    
    
    
    
    
    
    25,535Income from continuing operations before
minority interest
    
    
    43,783
    
    
    
    53,845
    
    
    
    292
    
    
    
    (54,342
    )
    
    
    43,578Minority interest
    
    
    
    
    
    
    
    
    
    
    (205
    )
    
    
    
    
    
    
    (205
    )Net income
    
    $
    43,783
    
    
    $
    53,845
    
    
    $
    497
    
    
    $
    (54,342
    )
    
    $
    43,783
 Unaudited Condensed Consolidated Statement of Operations
Quarter Ended June 30, 2006
 Guarantor
    
    
    Non-guarantor
    
    
    Eliminations/Parent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Reclassifications
    
    
    Consolidated(in thousands)Revenue:Service
    
    $
    
    
    
    $
    216,039
    
    
    $
    18,621
    
    
    
    (240
    )
    
    $
    234,420Product
    
    
    
    
    
    
    23,213
    
    
    
    6,903
    
    
    
    
    
    
    
    30,116
    
    
    
    239,252
    
    
    
    25,524
    
    
    
    (240
    )
    
    
    264,536Service expenses
    
    
    
    
    
    
    123,080
    
    
    
    16,483
    
    
    
    (240
    )
    
    
    139,323Product expenses
    
    
    
    
    
    
    18,325
    
    
    
    3,617
    
    
    
    
    
    
    
    21,942Selling, general and administrative expenses
    
    
    3,996
    
    
    
    29,253
    
    
    
    2,503
    
    
    
    
    
    
    
    35,752Depreciation and amortization
    
    
    170
    
    
    
    14,447
    
    
    
    2,382
    
    
    
    
    
    
    
    16,999Income from continuing operations before
interest, taxes and minority interest
    
    
    (4,166
    )
    
    
    54,147
    
    
    
    539
    
    
    
    
    
    
    
    50,520Interest expense
    
    
    9,071
    
    
    
    4,187
    
    
    
    440
    
    
    
    (4,210
    )
    
    
    9,488Interest income
    
    
    (5,212
    )
    
    
    
    
    
    
    (13
    )
    
    
    4,210
    
    
    
    (1,015
    )Equity in earnings of consolidated affiliates
    
    
    (32,294
    )
    
    
    (1,032
    )
    
    
    
    
    
    
    33,326
    
    
    
    Income from continuing operations before
taxes and minority interest
    
    
    24,269
    
    
    
    50,992
    
    
    
    112
    
    
    
    (33,326
    )
    
    
    42,047Taxes
    
    
    (2,885
    )
    
    
    18,698
    
    
    
    (206
    )
    
    
    
    
    
    
    15,607Income from continuing operations before
minority interest
    
    
    27,154
    
    
    
    32,294
    
    
    
    318
    
    
    
    (33,326
    )
    
    
    26,440Minority interest
    
    
    
    
    
    
    
    
    
    
    (161
    )
    
    
    
    
    
    
    (161
    )Net income from continuing operations
    
    
    27,154
    
    
    
    32,294
    
    
    
    479
    
    
    
    (33,326
    )
    
    
    26,601Discontinued operations (net of tax)
    
    
    
    
    
    
    
    
    
    
    553
    
    
    
    
    
    
    
    553Net income
    
    $
    27,154
    
    
    $
    32,294
    
    
    $
    1,032
    
    
    $
    (33,326
    )
    
    $
    27,154
 20




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##### Table of Contents



Unaudited Condensed Consolidated Statement of Operations
Six Months Ended June 30, 2007
 Guarantor
    
    
    Non-guarantor
    
    
    Eliminations/Parent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Reclassifications
    
    
    Consolidated(in thousands)Revenue:Service
    
    $
    
    
    
    $
    675,259
    
    
    $
    60,334
    
    
    
    (2,153
    )
    
    $
    733,440Product
    
    
    
    
    
    
    63,413
    
    
    
    20,929
    
    
    
    
    
    
    
    84,342
    
    
    
    738,672
    
    
    
    81,263
    
    
    
    (2,153
    )
    
    
    817,782Service expenses
    
    
    
    
    
    
    364,761
    
    
    
    45,269
    
    
    
    (2,153
    )
    
    
    407,877Product expenses
    
    
    
    
    
    
    50,940
    
    
    
    14,525
    
    
    
    
    
    
    
    65,465Selling, general and administrative expenses
    
    
    14,846
    
    
    
    84,374
    
    
    
    6,694
    
    
    
    
    
    
    
    105,914Depreciation and amortization
    
    
    574
    
    
    
    57,289
    
    
    
    4,599
    
    
    
    
    
    
    
    62,462Income from continuing operations before
interest, taxes and minority interest
    
    
    (15,420
    )
    
    
    181,308
    
    
    
    10,176
    
    
    
    
    
    
    
    176,064Interest expense
    
    
    31,041
    
    
    
    12,296
    
    
    
    673
    
    
    
    (13,321
    )
    
    
    30,689Interest income
    
    
    (13,380
    )
    
    
    (321
    )
    
    
    (148
    )
    
    
    13,321
    
    
    
    (528
    )Equity in earnings of consolidated affiliates
    
    
    (110,584
    )
    
    
    (6,924
    )
    
    
    
    
    
    
    117,508
    
    
    
    Income from continuing operations before
taxes and minority interest
    
    
    77,503
    
    
    
    176,257
    
    
    
    9,651
    
    
    
    (117,508
    )
    
    
    145,903Taxes
    
    
    (13,630
    )
    
    
    65,673
    
    
    
    2,671
    
    
    
    
    
    
    
    54,714Income before minority interest
    
    
    91,133
    
    
    
    110,584
    
    
    
    6,980
    
    
    
    (117,508
    )
    
    
    91,189Minority interest
    
    
    
    
    
    
    
    
    
    
    56
    
    
    
    
    
    
    
    56Net income
    
    $
    91,133
    
    
    $
    110,584
    
    
    $
    6,924
    
    
    $
    (117,508
    )
    
    $
    91,133
 Unaudited Condensed Consolidated Statement of Operations
Six Months Ended June 30, 2006
 Guarantor
    
    
    Non-guarantor
    
    
    Eliminations/Parent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Reclassifications
    
    
    Consolidated(in thousands)Revenue:Service
    
    $
    
    
    
    $
    413,857
    
    
    $
    55,922
    
    
    
    (240
    )
    
    $
    469,539Product
    
    
    
    
    
    
    44,036
    
    
    
    13,307
    
    
    
    
    
    
    
    57,343
    
    
    
    457,893
    
    
    
    69,229
    
    
    
    (240
    )
    
    
    526,882Service expenses
    
    
    
    
    
    
    234,487
    
    
    
    40,587
    
    
    
    (240
    )
    
    
    274,834Product expenses
    
    
    
    
    
    
    34,357
    
    
    
    7,468
    
    
    
    
    
    
    
    41,825Selling, general and administrative expenses
    
    
    7,927
    
    
    
    58,664
    
    
    
    5,607
    
    
    
    
    
    
    
    72,198Depreciation and amortization
    
    
    443
    
    
    
    27,488
    
    
    
    4,675
    
    
    
    
    
    
    
    32,606Income from continuing operations before
interest, taxes and minority interest
    
    
    (8,370
    )
    
    
    102,897
    
    
    
    10,892
    
    
    
    
    
    
    
    105,419Interest expense
    
    
    19,137
    
    
    
    8,515
    
    
    
    940
    
    
    
    (8,422
    )
    
    
    20,170Interest income
    
    
    (9,424
    )
    
    
    (7
    )
    
    
    (13
    )
    
    
    8,422
    
    
    
    (1,022
    )Equity in earnings of consolidated affiliates
    
    
    (66,822
    )
    
    
    (8,356
    )
    
    
    
    
    
    
    75,178
    
    
    
    Income from continuing operations before
taxes and minority interest
    
    
    48,739
    
    
    
    102,745
    
    
    
    9,965
    
    
    
    (75,178
    )
    
    
    86,271Taxes
    
    
    (6,528
    )
    
    
    35,923
    
    
    
    3,216
    
    
    
    
    
    
    
    32,611Income from continuing operations before
minority interest
    
    
    55,267
    
    
    
    66,822
    
    
    
    6,749
    
    
    
    (75,178
    )
    
    
    53,660Minority interest
    
    
    
    
    
    
    
    
    
    
    144
    
    
    
    
    
    
    
    144Net income from continuing operations
    
    
    55,267
    
    
    
    66,822
    
    
    
    6,605
    
    
    
    (75,178
    )
    
    
    53,516Discontinued operations (net of tax)
    
    
    
    
    
    
    
    
    
    
    1,751
    
    
    
    
    
    
    
    1,751Net income
    
    $
    55,267
    
    
    $
    66,822
    
    
    $
    8,356
    
    
    $
    (75,178
    )
    
    $
    55,267
 21




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##### Table of Contents



Unaudited Condensed Consolidated Statement of Cash Flows
For the Six Months Ended June 30, 2007
 Guarantor
    
    
    Non-guarantor
    
    
    Eliminations/Parent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Reclassifications
    
    
    Consolidated(in thousands)Cash provided by:Net income
    
    $
    91,133
    
    
    $
    110,584
    
    
    $
    6,924
    
    
    $
    (117,508
    )
    
    $
    91,133Items not affecting cash:Equity in earnings of consolidated affiliates
    
    
    (110,584
    )
    
    
    (6,924
    )
    
    
    
    
    
    
    117,508
    
    
    
    Depreciation and amortization
    
    
    574
    
    
    
    57,289
    
    
    
    4,599
    
    
    
    
    
    
    
    62,462Other
    
    
    7,239
    
    
    
    3,252
    
    
    
    716
    
    
    
    
    
    
    
    11,207Changes in operating assets and liabilities,
net of effect of acquisitions
    
    
    27,341
    
    
    
    (38,311
    )
    
    
    (14,410
    )
    
    
    502
    
    
    
    (24,878
    )Net cash provided by operating activities
    
    
    15,703
    
    
    
    125,890
    
    
    
    (2,171
    )
    
    
    502
    
    
    
    139,924Investing activities:Business acquisitions
    
    
    
    
    
    
    (40,468
    )
    
    
    
    
    
    
    
    
    
    
    (40,468
    )Additions to property, plant and equipment
    
    
    (1,084
    )
    
    
    (188,143
    )
    
    
    (5,252
    )
    
    
    
    
    
    
    (194,479
    )Inter-company advances
    
    
    (104,659
    )
    
    
    
    
    
    
    
    
    
    
    104,659
    
    
    
    Other
    
    
    
    
    
    
    3,302
    
    
    
    538
    
    
    
    
    
    
    
    3,840Net cash used for investing activities
    
    
    (105,743
    )
    
    
    (225,309
    )
    
    
    (4,714
    )
    
    
    104,659
    
    
    
    (231,107
    )Financing activities:Issuances of long-term debt
    
    
    186,225
    
    
    
    341
    
    
    
    6,335
    
    
    
    
    
    
    
    192,901Repayments of long-term debt
    
    
    (91,073
    )
    
    
    (535
    )
    
    
    (11,997
    )
    
    
    
    
    
    
    (103,605
    )Issuances (repayments) of notes payable
    
    
    (14,604
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,604
    )Inter-company borrowings (repayments)
    
    
    
    
    
    
    93,751
    
    
    
    10,908
    
    
    
    (104,659
    )
    
    
    Proceeds from issuances of common stock
    
    
    2,944
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,944Other
    
    
    4,599
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,599Net cash provided by financing activities
    
    
    88,091
    
    
    
    93,557
    
    
    
    5,246
    
    
    
    (104,659
    )
    
    
    82,235Effect of exchange rate changes on cash
    
    
    
    
    
    
    
    
    
    
    (1,265
    )
    
    
    
    
    
    
    (1,265
    )Change in cash and cash equivalents
    
    
    (1,949
    )
    
    
    (5,862
    )
    
    
    (2,904
    )
    
    
    502
    
    
    
    (10,213
    )Cash and cash equivalents, beginning of period
    
    
    6,517
    
    
    
    9,533
    
    
    
    7,312
    
    
    
    (3,488
    )
    
    
    19,874Cash and cash equivalents, end of period
    
    $
    4,568
    
    
    $
    3,671
    
    
    $
    4,408
    
    
    $
    (2,986
    )
    
    $
    9,661
 Unaudited Condensed Consolidated Statement of Cash Flows
For the Six Months Ended June 30, 2006
 Guarantor
    
    
    Non-guarantor
    
    
    Eliminations/Parent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Reclassifications
    
    
    Consolidated(in thousands)Cash provided by:Net income
    
    $
    55,267
    
    
    $
    66,822
    
    
    $
    8,356
    
    
    
    (75,178
    )
    
    $
    55,267Items not affecting cash:Equity in earnings of consolidated affiliates
    
    
    (66,822
    )
    
    
    (8,356
    )
    
    
    
    
    
    
    75,178
    
    
    
    Depreciation and amortization
    
    
    443
    
    
    
    27,488
    
    
    
    4,921
    
    
    
    
    
    
    
    32,852Other
    
    
    5,830
    
    
    
    1,166
    
    
    
    748
    
    
    
    
    
    
    
    7,744Changes in operating assets and liabilities,
net of effect of acquisitions
    
    
    36,415
    
    
    
    (45,634
    )
    
    
    (9,223
    )
    
    
    (3,981
    )
    
    
    (22,423
    )Net cash provided by operating activities
    
    
    31,133
    
    
    
    41,486
    
    
    
    4,802
    
    
    
    (3,981
    )
    
    
    73,440Investing activities:Business acquisitions
    
    
    
    
    
    
    (36,163
    )
    
    
    
    
    
    
    
    
    
    
    (36,163
    )Additions to property, plant and equipment
    
    
    (1,574
    )
    
    
    (125,888
    )
    
    
    (4,961
    )
    
    
    
    
    
    
    (132,423
    )Inter-company advances
    
    
    (134,363
    )
    
    
    
    
    
    
    
    
    
    
    134,363
    
    
    
    Investment in short-term securities
    
    
    (165,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (165,000
    )Proceeds from sale of short-term securities
    
    
    52,841
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52,841Other
    
    
    
    
    
    
    3,037
    
    
    
    195
    
    
    
    
    
    
    
    3,232Net cash used for investing activities
    
    
    (248,096
    )
    
    
    (159,014
    )
    
    
    (4,766
    )
    
    
    134,363
    
    
    
    (277,513
    )
 22




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##### Table of Contents



Guarantor
    
    
    Non-guarantor
    
    
    Eliminations/Parent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Reclassifications
    
    
    Consolidated(in thousands)Financing activities:Issuances of long-term debt
    
    
    180,646
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    180,646Repayments of long-term debt
    
    
    (240,381
    )
    
    
    (5,756
    )
    
    
    (10,141
    )
    
    
    
    
    
    
    (256,278
    )Issuances (repayments) of notes payable
    
    
    (11,272
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,272
    )Inter-company borrowings (repayments)
    
    
    
    
    
    
    122,540
    
    
    
    11,823
    
    
    
    (134,363
    )
    
    
    Proceeds from issuances of common stock
    
    
    290,407
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    290,407Other
    
    
    109
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    109Net cash provided by financing activities
    
    
    219,509
    
    
    
    116,784
    
    
    
    1,682
    
    
    
    (134,363
    )
    
    
    203,612Effect of exchange rate changes on cash
    
    
    
    
    
    
    
    
    
    
    (571
    )
    
    
    
    
    
    
    (571
    )Change in cash and cash equivalents
    
    
    2,546
    
    
    
    (744
    )
    
    
    1,147
    
    
    
    (3,981
    )
    
    
    (1,032
    )Cash and cash equivalents, beginning of period
    
    
    1,635
    
    
    
    6,043
    
    
    
    3,727
    
    
    
    
    
    
    
    11,405Cash and cash equivalents, end of period
    
    $
    4,181
    
    
    $
    5,299
    
    
    $
    4,874
    
    
    $
    (3,981
    )
    
    $
    10,373
 15. Recent accounting pronouncements and authoritative literature:
    16. Subsequent events:
  23




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##### 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
 24




---



##### Table of Contents



Drilling Services.
 Product Sales.
  General
   AVERAGE RIG COUNTS
 Quarter
    
    Quarter
    
    Six Months
    
    Six MonthsEnded
    
    Ended
    
    Ended
    
    Ended6/30/07
    
    6/30/06
    
    6/30/07
    
    6/30/06BHI Rotary Rig Count:U.S. Land
    
    
    1,680
    
    
    
    1,539
    
    
    
    1,666
    
    
    
    1,489U.S. Offshore
    
    
    77
    
    
    
    96
    
    
    
    80
    
    
    
    89Total U.S.
    
    
    1,757
    
    
    
    1,635
    
    
    
    1,746
    
    
    
    1,578Canada
    
    
    145
    
    
    
    292
    
    
    
    333
    
    
    
    477Total North America
    
    
    1,902
    
    
    
    1,927
    
    
    
    2,079
    
    
    
    2,055BHI Workover Rig Count:United States
    
    
    1,526
    
    
    
    1,624
    
    
    
    1,507
    
    
    
    1,576Canada
    
    
    386
    
    
    
    535
    
    
    
    570
    
    
    
    621Total U.S. and Canada
    
    
    1,912
    
    
    
    2,159
    
    
    
    2,077
    
    
    
    2,197
 
 (www.BakerHughes.com)
  25




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##### Table of Contents



Outlook
       26




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##### Table of Contents



Acquisitions
  
    
    On January 4, 2007, we acquired substantially all of the assets of a company located in
LaSalle, Colorado which provides frac tank rental and fresh water hauling services to
customers in the Wattenburg Field of the DJ Basin, which supplements our fluid handling
and rental business in the Rocky Mountain region.
    
    On February 28, 2007, we acquired substantially all of the assets of a company located
in Greeley, Colorado which provides fluid handling and fresh frac water heating services
to customers in the Wattenburg Field of the DJ Basin, which also supplements our fluid
handling business in the Rocky Mountain region.
    
    On April 1, 2007, we acquired substantially all of the assets of a company located in
Borger, Texas which provides fluid handling and disposal services to customers in the
Texas panhandle. We believe this acquisition complements certain operations that we
acquired in 2006 within the Texas panhandle area and broadens our ability to provide fluid
handling and disposal services throughout the Mid-continent region.
    
    On June 8, 2007, we acquired all the membership interests in a business located in
Rangely, Colorado which provides rig workover and roustabout services to customers in the
Rangely Weber Sand Unit and northern Piceance Basin area. This acquisition expands our
geographic reach in the northern Piceance Basin, expands our workover rig capabilities and
provides a beneficial customer relationship.
  Critical Accounting Policies and Estimates
   27




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##### Table of Contents



Results of Operations
 PercentQuarter
    
    
    Quarter
    
    
    Change
    
    
    ChangeEnded
    
    
    Ended
    
    
    2007/
    
    
    2007/6/30/07
    
    
    6/30/06
    
    
    2006
    
    
    2006(unaudited, in thousands)Revenue:Completion and production services
    
    $
    307,212
    
    
    $
    183,270
    
    
    $
    123,942
    
    
    
    68
    %Drilling services
    
    
    60,193
    
    
    
    51,150
    
    
    
    9,043
    
    
    
    18
    %Product sales
    
    
    43,310
    
    
    
    30,116
    
    
    
    13,194
    
    
    
    44
    %Total
    
    $
    410,715
    
    
    $
    264,536
    
    
    $
    146,179
    
    
    
    55
    %EBITDA:Completion and production services
    
    $
    101,180
    
    
    $
    49,291
    
    
    $
    51,889
    
    
    
    105
    %Drilling services
    
    
    19,004
    
    
    
    18,236
    
    
    
    768
    
    
    
    4
    %Product sales
    
    
    5,440
    
    
    
    3,988
    
    
    
    1,452
    
    
    
    36
    %Corporate
    
    
    (8,271
    )
    
    
    (3,996
    )
    
    
    (4,275
    )
    
    
    107
    %Total
    
    $
    117,353
    
    
    $
    67,519
    
    
    $
    49,834
    
    
    
    74
    %
 PercentSix Months
    
    
    Six Months
    
    
    Change
    
    
    ChangeEnded
    
    
    Ended
    
    
    2007/
    
    
    2007/6/30/07
    
    
    6/30/06
    
    
    2006
    
    
    2006Revenue:Completion and production services
    
    $
    614,851
    
    
    $
    374,359
    
    
    $
    240,492
    
    
    
    64
    %Drilling services
    
    
    118,589
    
    
    
    95,180
    
    
    
    23,409
    
    
    
    25
    %Product sales
    
    
    84,342
    
    
    
    57,343
    
    
    
    26,999
    
    
    
    47
    %Total
    
    $
    817,782
    
    
    $
    526,882
    
    
    $
    290,900
    
    
    
    55
    %EBITDA:Completion and production services
    
    $
    205,342
    
    
    $
    103,901
    
    
    $
    101,441
    
    
    
    98
    %Drilling services
    
    
    37,072
    
    
    
    34,257
    
    
    
    2,815
    
    
    
    8
    %Product sales
    
    
    10,596
    
    
    
    7,794
    
    
    
    2,802
    
    
    
    36
    %Corporate
    
    
    (14,484
    )
    
    
    (7,927
    )
    
    
    (6,557
    )
    
    
    83
    %Total
    
    $
    238,526
    
    
    $
    138,025
    
    
    $
    100,501
    
    
    
    73
    %
   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 June 30, 2007EBITDA, as defined
    
    $
    101,180
    
    
    $
    19,004
    
    
    $
    5,440
    
    
    $
    (8,271
    )
    
    $
    117,353Depreciation and amortization
    
    $
    28,134
    
    
    $
    4,017
    
    
    $
    702
    
    
    $
    639
    
    
    $
    33,492Operating income (loss)
    
    $
    73,046
    
    
    $
    14,987
    
    
    $
    4,738
    
    
    $
    (8,910
    )
    
    $
    83,861Quarter Ended June 30, 2006EBITDA, as defined
    
    $
    49,291
    
    
    $
    18,236
    
    
    $
    3,988
    
    
    $
    (3,996
    )
    
    $
    67,519Depreciation and amortization
    
    $
    14,001
    
    
    $
    2,284
    
    
    $
    449
    
    
    $
    265
    
    
    $
    16,999Operating income (loss)
    
    $
    35,290
    
    
    $
    15,952
    
    
    $
    3,539
    
    
    $
    (4,261
    )
    
    $
    50,520
 28




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##### Table of Contents



CompletionandProduction
    
    
    Drilling
    
    
    ProductServices
    
    
    Services
    
    
    Sales
    
    
    Corporate
    
    
    Total(unaudited, in thousands)Six Months Ended June 30, 2007EBITDA, as defined
    
    $
    205,342
    
    
    $
    37,072
    
    
    $
    10,596
    
    
    $
    (14,484
    )
    
    $
    238,526Depreciation and amortization
    
    $
    52,418
    
    
    $
    7,652
    
    
    $
    1,380
    
    
    $
    1,012
    
    
    $
    62,462Operating income (loss)
    
    $
    152,924
    
    
    $
    29,420
    
    
    $
    9,216
    
    
    $
    (15,496
    )
    
    $
    176,064Six Months Ended June 30, 2006EBITDA, as defined
    
    $
    103,901
    
    
    $
    34,257
    
    
    $
    7,794
    
    
    $
    (7,927
    )
    
    $
    138,025Depreciation and amortization
    
    $
    26,835
    
    
    $
    4,302
    
    
    $
    832
    
    
    $
    637
    
    
    $
    32,606Operating income (loss)
    
    $
    77,066
    
    
    $
    29,955
    
    
    $
    6,962
    
    
    $
    (8,564
    )
    
    $
    105,419
  Original
    
    
    Discontinued
    
    
    RevisedPresentation
    
    
    Operations
    
    
    Presentation(unaudited, in thousands)Quarter Ended June 30, 2006Revenue from external customers
    
    $
    41,006
    
    
    $
    10,890
    
    
    $
    30,116EBITDA, as defined
    
    $
    4,996
    
    
    $
    1,008
    
    
    $
    3,988Depreciation and amortization
    
    $
    575
    
    
    $
    126
    
    
    $
    449Operating income
    
    $
    4,421
    
    
    $
    882
    
    
    $
    3,539Six Months Ended June 30, 2006Revenue from external customers
    
    $
    81,623
    
    
    $
    24,280
    
    
    $
    57,343EBITDA, as defined
    
    $
    10,533
    
    
    $
    2,739
    
    
    $
    7,794Depreciation and amortization
    
    $
    1,078
    
    
    $
    246
    
    
    $
    832Operating income
    
    $
    9,455
    
    
    $
    2,493
    
    
    $
    6,962
  Quarter and Six Months Ended June 30, 2007 Compared to the Quarter and Six Months Ended June 30,
2006 (Unaudited)
 Revenue
  
    
    Completion and Production Services.Segment revenue increased $123.9 million, or 68%,
for the quarter, and $240.5 million, or 64%, for the six months, 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 2006 and during the six months ended June 30, 2007; (3) a favorable pricing
environment for our services, particularly the well servicing and coiled tubing business;
(4) investment in acquisitions during the first six months 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 the third and fourth quarters, which contributed
to the results for the six months ended June 30, 2007, but provided no revenue for the same
period in 2006. These incremental revenue increases were partially offset by less
favorable results in Canada in 2007, primarily due to seasonality, and adverse weather
conditions during May and June 2007 in several of our key operating areas, including the
Barnett Shale region of north Texas and the Mid-continent region.
    
    Drilling Services.Segment revenue increased $9.0 million, or 18%, for the quarter,
and $23.4 million, or 25% for the six months, primarily due to: (1) favorable pricing; and
(2) capital investment in our Barnett Shale-focused drilling business throughout 2006 and,
to a lesser extent, during the first six months of 2007, as well as investment in drilling
logistics equipment throughout our service area. These incremental revenues were partially
offset by an increase in rig downtime in
 29




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##### Table of Contents



2007 for mechanical repairs and slightly lower utilization rates.
    
    Product Sales.Segment revenue increased $13.2 million, or 44%, for the quarter, and
$27.0 million, or 47%, for the six months, 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 Ended
    
    Six Months Ended6/30/07
    
    6/30/06
    
    Change
    
    6/30/07
    
    6/30/06
    
    ChangeSegment:Completion and production services
    
    
    55
    %
    
    
    61
    %
    
    
    (6
    )%
    
    
    55
    %
    
    
    60
    %
    
    
    (5
    )%Drilling services
    
    
    58
    %
    
    
    55
    %
    
    
    3
    %
    
    
    58
    %
    
    
    55
    %
    
    
    3
    %Product sales
    
    
    78
    %
    
    
    73
    %
    
    
    5
    %
    
    
    78
    %
    
    
    73
    %
    
    
    5
    %Total
    
    
    58
    %
    
    
    61
    %
    
    
    (3
    )%
    
    
    58
    %
    
    
    60
    %
    
    
    (2
    )%
  Selling, General and Administrative Expenses
  30




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##### Table of Contents



Depreciation and Amortization
  Interest Expense
  Taxes
  Discontinued Operations
  Liquidity and Capital Resources
   31




---



##### Table of Contents



Six Months EndedJune 30,2007
    
    2006Cash flows provided by (used in):Operating activities
    
    $
    139,924
    
    
    $
    73,440Investing activities
    
    
    (231,107
    )
    
    
    (277,513
    )Financing activities
    
    
    82,235
    
    
    
    203,612
    Dividends
  Description of Our Indebtedness
  32




---



##### Table of Contents



33




---



##### Table of Contents



Outstanding Debt and Commitments
    Recent Accounting Pronouncements and Authoritative Guidance
    34




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
      
 Item 4. Controls and Procedures.
  35




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##### Table of Contents



PART IIOTHER INFORMATION
 
 Item 1. Legal Proceedings.
    
 Item 1A. Risk Factors.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults Upon Senior Securities.
  36




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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders.
   (1)
    
    The election of three directors of Complete Production Services, Inc. for the ensuing
year or until a successor is elected or qualified.
 Number of Voting SharesBrokerDirectors Name
    
    For
    
    Withheld
    
    Non-VotesHarold G. Hamm
    
    
    53,559,285
    
    
    
    13,276,885
    
    
    
    W. Matt Ralls
    
    
    66,238,269
    
    
    
    597,901
    
    
    
    James D. Woods
    
    
    63,660,771
    
    
    
    3,175,399
    
    
    
    
  
 (2)
    
    The ratification of Grant Thornton LLP as our independent registered public
accountants for the fiscal year ended December 31, 2007. BrokerFor
    
    Against
    
    Abstained
    
    Non-Votes66,417,655
    
    12,520
    
    405,995
    
    
 
 Item 5. Other Information.
  
 Item 6. Exhibits.
 EXHIBIT INDEX
 ExhibitNo.
    
    
    
    Exhibit Title10.1*
    
    
    
    First Amendment to Second Amended and Restated Credit
Agreement dated December 6, 2006 between Complete
Production Services, Inc., Integrated Production
Services, Inc. and the lenders named therein, with Wells
Fargo Bank, National Association, as Administrative
Agent, effective June 29, 2007.31.1*
    
    
    
    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 37




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##### Table of Contents



SIGNATURE
  COMPLETE PRODUCTION SERVICES, INC.August 3, 2007
    
    By:
    /s/ J. Michael MayerDate
    
    
    J. Michael MayerSenior Vice President and
Chief Financial Officer 38




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNo.
    
    
    
    Exhibit Title10.1*
    
    
    
    First Amendment to Second Amended and Restated Credit
Agreement dated December 6, 2006 between Complete
Production Services, Inc., Integrated Production
Services, Inc. and the lenders named therein, with Wells
Fargo Bank, National Association, as Administrative
Agent, effective June 29, 2007.31.1*
    
    
    
    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