##### 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, 2010
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission file number: 001-08038
 KEY ENERGY SERVICES, INC.
  Maryland
    
    04-2648081(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 1301 McKinney Street, Suite 1800, Houston, Texas 77010
  (713) 651-4300
 None
  þ o
  o o
  Large accelerated filer  þ
    
    Accelerated filer  o
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
  o þ




---



##### 



KEY ENERGY SERVICES, INC.
 QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended March 31, 2010
 Part IFinancial Information
    
    
    4Item 1. Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    26Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    37Item 4. Controls and Procedures
    
    
    37Part IIOther Information
    
    
    37Item 1. Legal Proceedings
    
    
    37Item 1A. Risk Factors
    
    
    37Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    37Item 3. Defaults Upon Senior Securities
    
    
    38Item 5. Other Information
    
    
    38Item 6. Exhibits
    
    
    38Exhibit 31.1Exhibit 31.2Exhibit 32
   2




---



##### Table of Contents



CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
 Item 1A. Risk
Factors
   3




---



##### Table of Contents



PART IFINANCIAL INFORMATION
 
 ITEM 1.
    
    FINANCIAL STATEMENTS
 Key Energy Services, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share amounts)
 March 31,
    
    
    December 31,2010
    
    
    2009(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    66,814
    
    
    $
    37,394Accounts
receivable, net of allowance for doubtful accounts of $7,810 and $5,441,
respectively
    
    
    255,275
    
    
    
    214,662Inventories
    
    
    28,236
    
    
    
    27,452Other current assets
    
    
    56,046
    
    
    
    104,624Total current assets
    
    
    406,371
    
    
    
    384,132Property and equipment
    
    
    1,736,559
    
    
    
    1,728,174Accumulated depreciation
    
    
    (873,909
    )
    
    
    (863,566
    )Property and equipment, net
    
    
    862,650
    
    
    
    864,608Goodwill
    
    
    346,831
    
    
    
    346,102Other intangible assets, net
    
    
    39,045
    
    
    
    41,048Deferred financing costs, net
    
    
    9,768
    
    
    
    10,421Equity method investments
    
    
    5,848
    
    
    
    5,203Other non-current assets
    
    
    12,579
    
    
    
    12,896TOTAL ASSETS
    
    $
    1,683,092
    
    
    $
    1,664,410LIABILITIES AND EQUITYCurrent liabilities:Accounts payable
    
    $
    57,738
    
    
    $
    46,086Other current liabilities
    
    
    148,687
    
    
    
    133,531Current
portion of capital leases, notes payable and long-term debt
    
    
    8,863
    
    
    
    10,152Total current liabilities
    
    
    215,288
    
    
    
    189,769Capital leases, notes payable, and long-term debt
    
    
    522,665
    
    
    
    523,949Other non-current liabilities
    
    
    207,730
    
    
    
    207,552Commitments and contingenciesEquity:Common stock, $0.10 par value; 200,000,000
shares authorized, 125,393,247 and 123,993,480
shares issued and outstanding, respectively
    
    
    12,539
    
    
    
    12,399Additional paid-in capital
    
    
    610,185
    
    
    
    608,223Accumulated other comprehensive loss
    
    
    (50,569
    )
    
    
    (50,763
    )Retained earnings
    
    
    129,578
    
    
    
    137,158Total
equity attributable to Key
    
    
    701,733
    
    
    
    707,017Noncontrolling interest
    
    
    35,676
    
    
    
    36,123Total equity
    
    
    737,409
    
    
    
    743,140TOTAL LIABILITIES AND EQUITY
    
    $
    1,683,092
    
    
    $
    1,664,410
 See the accompanying notes which are an integral part of these condensed consolidated financial statements.
  4




---



##### Table of Contents



Key Energy Services, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
 Three Months Ended March 31,2010
    
    
    2009REVENUES
    
    $
    302,071
    
    
    $
    331,989COSTS AND EXPENSES:Direct operating expenses
    
    
    230,920
    
    
    
    227,227Depreciation and amortization expense
    
    
    36,703
    
    
    
    44,756General and administrative expenses
    
    
    40,952
    
    
    
    48,706Interest expense, net of amounts capitalized
    
    
    10,247
    
    
    
    9,648Other, net
    
    
    (1,253
    )
    
    
    523Total costs and expenses, net
    
    
    317,569
    
    
    
    330,860(Loss) income before tax
    
    
    (15,498
    )
    
    
    1,129Income tax benefit (expense)
    
    
    6,491
    
    
    
    (225
    )Net (loss) income
    
    
    (9,007
    )
    
    
    904Net loss attributable to noncontrolling interest
    
    
    1,427
    
    
    
    (LOSS) INCOME ATTRIBUTABLE TO KEY
    
    $
    (7,580
    )
    
    $
    904(Loss) earnings per share attributable to Key:Basic
    
    $
    (0.06
    )
    
    $
    0.01Diluted
    
    $
    (0.06
    )
    
    $
    0.01Weighted average shares outstanding:Basic
    
    
    124,952
    
    
    
    120,665Diluted
    
    
    124,952
    
    
    
    121,436
 See the accompanying notes which are an integral part of these condensed consolidated financial statements.
  5




---



##### Table of Contents



Key Energy Services, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)
 Three Months Ended March 31,2010
    
    
    2009NET (LOSS) INCOME
    
    $
    (9,007
    )
    
    $
    904Other comprehensive income (loss), net of tax:Foreign currency translation gain (loss)
    
    
    194
    
    
    
    (5,254
    )Deferred gain from available for sale investments
    
    
    
    
    
    
    30Total other comprehensive income (loss), net of tax
    
    
    194
    
    
    
    (5,224
    )COMPREHENSIVE LOSS, NET OF TAX
    
    
    (8,813
    )
    
    
    (4,320
    )Comprehensive loss attributable to noncontrolling interest
    
    
    1,444
    
    
    
    COMPREHENSIVE LOSS ATTRIBUTABLE TO KEY
    
    $
    (7,369
    )
    
    $
    (4,320
    )
 See the accompanying notes which are an integral part of these condensed consolidated financial statements.
  6




---



##### Table of Contents



Key Energy Services, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 Three Months Ended March 31,2010
    
    
    2009CASH FLOWS FROM OPERATING ACTIVITIES:Net (loss) income
    
    $
    (9,007
    )
    
    $
    904Adjustments to reconcile net (loss) income to
net cash provided by operating activities:Depreciation and amortization expense
    
    
    36,703
    
    
    
    44,756Bad debt expense
    
    
    (32
    )
    
    
    843Accretion of asset retirement obligations
    
    
    128
    
    
    
    139(Income) loss from equity-method investments
    
    
    (577
    )
    
    
    262Amortization of deferred financing costs and discount
    
    
    662
    
    
    
    522Deferred income tax (benefit) expense
    
    
    (4,579
    )
    
    
    524Capitalized interest
    
    
    (952
    )
    
    
    (1,945
    )Loss on disposal of assets, net
    
    
    335
    
    
    
    689Share-based compensation
    
    
    2,679
    
    
    
    489Changes in working capital:Accounts receivable
    
    
    (38,040
    )
    
    
    115,026Other current assets
    
    
    55,132
    
    
    
    649Accounts payable, accrued interest and accrued expenses
    
    
    21,972
    
    
    
    (31,471
    )Share-based compensation liability awards
    
    
    438
    
    
    
    (730
    )Other assets and liabilities
    
    
    892
    
    
    
    (1,274
    )Net cash provided by operating activities
    
    
    65,754
    
    
    
    129,383CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    (32,415
    )
    
    
    (44,797
    )Proceeds from sale of fixed assets
    
    
    1,006
    
    
    
    797Dividend from equity-method investment
    
    
    165
    
    
    
    Net cash used in investing activities
    
    
    (31,244
    )
    
    
    (44,000
    )CASH FLOWS FROM FINANCING ACTIVITIES:Repayments of long-term debt
    
    
    (513
    )
    
    
    (513
    )Repayments of capital lease obligations
    
    
    (2,077
    )
    
    
    (2,635
    )Borrowings on revolving credit facility
    
    
    30,000
    
    
    
    Repayments on revolving credit facility
    
    
    (30,000
    )
    
    
    Repurchases of common stock
    
    
    (2,180
    )
    
    
    (38
    )Proceeds from exercise of stock options
    
    
    1,600
    
    
    
    Net cash used in investing activities
    
    
    (3,170
    )
    
    
    (3,186
    )Effect of changes in exchange rates on cash
    
    
    (1,920
    )
    
    
    (714
    )Net increase in cash and cash equivalents
    
    
    29,420
    
    
    
    81,483Cash and cash equivalents, beginning of period
    
    
    37,394
    
    
    
    92,691Cash and cash equivalents, end of period
    
    $
    66,814
    
    
    $
    174,174
 See the accompanying notes which are an integral part of these condensed consolidated financial statements.
  7




---



##### Table of Contents



Key Energy Services, Inc., and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
 NOTE 1. GENERAL
    Note 16. Subsequent Event
 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
   New Accounting Standards Adopted in this Report
 ASU 2009-16 Transfers and Servicing (Topic 860) – Accounting for
Transfers of Financial Assets Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities,
  8




---



##### Table of Contents



ASU 2009-17. Consolidations (Topic 810) 
Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.
 ASU 2010-02. Consolidation (Topic 810) 
Accounting and Reporting for Decreases in Ownership of a Subsidiary  A Scope Clarification.
 ASU 2010-06. Fair Value Measurements and
Disclosures (Topic 820)  Improving Disclosures About Fair Value Measurements.
 ASU 2010-09. Subsequent Events (Topic 855):
Amendments to Certain Recognition and Disclosure Requirements.
  9




---



##### Table of Contents



Accounting Standards Not Yet Adopted in this Report
 ASU 2009-13. Revenue Recognition (Topic 605) 
Multiple-Deliverable Revenue Arrangements, a consensus of the FASB Emerging Issues Task Force
 NOTE 3. OTHER BALANCE SHEET INFORMATION
  March 31,
    
    
    December 31,2010
    
    
    2009(in thousands)Other Current Assets:Deferred tax assets
    
    $
    23,020
    
    
    $
    25,323Prepaid current assets
    
    
    14,005
    
    
    
    14,212Income tax refund receivable
    
    
    5,083
    
    
    
    50,025Other
    
    
    13,938
    
    
    
    15,064Total
    
    $
    56,046
    
    
    $
    104,624
  March 31,
    
    
    December 31,2010
    
    
    2009(in thousands)Other Current Liabilities:Accrued payroll, taxes and employee benefits
    
    $
    37,428
    
    
    $
    33,953Accrued operating expenditures
    
    
    35,456
    
    
    
    24,194Income, sales, use and other taxes
    
    
    24,805
    
    
    
    30,447Self-insurance reserve
    
    
    23,947
    
    
    
    24,366Accrued interest
    
    
    11,914
    
    
    
    3,014Insurance premium financing
    
    
    4,843
    
    
    
    7,282Unsettled legal claims
    
    
    1,700
    
    
    
    2,665Share-based compensation liabilities
    
    
    1,045
    
    
    
    1,518Other
    
    
    7,549
    
    
    
    6,092Total
    
    $
    148,687
    
    
    $
    133,531
  10




---



##### Table of Contents



March 31,
    
    
    December 31,2010
    
    
    2009(in thousands)Other Non-Current Liabilities:Deferred tax liabilities
    
    $
    146,497
    
    
    $
    146,980Accrued insurance costs
    
    
    41,533
    
    
    
    40,855Asset retirement obligations
    
    
    10,237
    
    
    
    10,045Environmental liabilities
    
    
    3,210
    
    
    
    3,353Accrued rent
    
    
    2,309
    
    
    
    2,399Accrued income taxes
    
    
    2,813
    
    
    
    2,813Share-based compensation liabilities
    
    
    613
    
    
    
    508Other
    
    
    518
    
    
    
    599Total
    
    $
    207,730
    
    
    $
    207,552
 NOTE 4. GOODWILL AND OTHER INTANGIBLE ASSETS
  ProductionWell Servicing
    
    
    Services
    
    
    Total(in thousands)December 31, 2009
    
    $
    342,023
    
    
    $
    4,079
    
    
    $
    346,102Impact of foreign currency translation
    
    
    609
    
    
    
    120
    
    
    
    729March 31, 2010
    
    $
    342,632
    
    
    $
    4,199
    
    
    $
    346,831
  (in thousands)December 31, 2009
    
    $
    41,048Additions
    
    
    404Amortization expense
    
    
    (2,766
    )Impact of foreign currency translation
    
    
    359March 31, 2010
    
    $
    39,045
   11




---



##### Table of Contents



NOTE 5. EQUITY METHOD INVESTMENTS
 IROC Energy Services Corp.
   Advanced Flow Technologies, Inc.
  NOTE 6.
    
    LONG-TERM DEBT
  March 31, 2010
    
    
    December 31, 2009(in thousands)8.375% Senior Notes due 2014
    
    $
    425,000
    
    
    $
    425,000Senior Secured Credit Facility revolving loans due 2012
    
    
    87,813
    
    
    
    87,813Other long-term indebtedness
    
    
    511
    
    
    
    1,044Notes payable  related parties, net of discount of
$59 and $69, respectively
    
    
    5,941
    
    
    
    5,931Capital lease obligations
    
    
    12,263
    
    
    
    14,313531,528
    
    
    
    534,101Less current portion
    
    
    (8,863
    )
    
    
    (10,152
    )Total capital leases, notes payable and long-term debt
    
    $
    522,665
    
    
    $
    523,949
  12




---



##### Table of Contents

\

8.375% Senior Notes due 2014
    Senior Secured Credit Facility
       13




---



##### Table of Contents



NOTE 7. OTHER INCOME AND EXPENSE
  Three Months Ended March 31,2010
    
    
    2009(in thousands)Loss on disposal of assets, net
    
    $
    335
    
    
    $
    689Interest income
    
    
    (15
    )
    
    
    (248
    )Foreign exchange (gain) loss
    
    
    (1,363
    )
    
    
    917Other income, net
    
    
    (210
    )
    
    
    (835
    )Total
    
    $
    (1,253
    )
    
    $
    523
 NOTE 8. INCOME TAXES
     NOTE 9. COMMITMENTS AND CONTINGENCIES
 Litigation
 Note 16. Subsequent Event.
  14




---



##### Table of Contents



Litigation with Former Officers and Employees
  Self-Insurance Reserves
  Environmental Remediation Liabilities
    15




---



##### Table of Contents



NOTE 10. EARNINGS PER SHARE
   Three Months Ended March 31,2010
    
    
    2009(in thousands, except per share data)Basic EPS Computation:NumeratorNet (loss) income attributable to Key
    
    $
    (7,580
    )
    
    $
    904DenominatorWeighted average shares outstanding
    
    
    124,952
    
    
    
    120,665Basic (loss) earnings per share
    
    $
    (0.06
    )
    
    $
    0.01Diluted EPS Computation:NumeratorNet (loss) income attributable to Key
    
    $
    (7,580
    )
    
    $
    904DenominatorBasic weighted average shares outstanding
    
    
    124,952
    
    
    
    120,665Stock options
    
    
    
    
    
    
    24Unvested restricted stock
    
    
    
    
    
    
    747Diluted weighted average shares outstanding
    
    
    124,952
    
    
    
    121,436Diluted (loss) earnings per share
    
    $
    (0.06
    )
    
    $
    0.01
  NOTE 11. SHARE-BASED COMPENSATION
     16




---



##### Table of Contents



NOTE 12. TRANSACTIONS WITH RELATED PARTIES
 Employee Loans and Advances
  Related Party Notes Payable
  Transactions with Employees
  Board of Director Relationship with Customer
  NOTE 13. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
  Cash, cash equivalents, accounts payable and accrued liabilities.
 March 31, 2010
    
    
    December 31, 2009Carrying Value
    
    
    Fair Value
    
    
    Carrying Value
    
    
    Fair Value(in thousands)Financial assets:Notes and accounts receivable  related parties
    
    $
    350
    
    
    $
    350
    
    
    $
    281
    
    
    $
    281Financial liabilities:8.375% Senior Notes
    
    $
    425,000
    
    
    $
    435,625
    
    
    $
    425,000
    
    
    $
    422,875Senior Secured Credit Facility revolving loans
    
    
    87,813
    
    
    
    87,813
    
    
    
    87,813
    
    
    
    87,813Note payable  related parties
    
    
    5,941
    
    
    
    5,941
    
    
    
    5,931
    
    
    
    5,931
 Notes and accounts receivable  related parties.
  17




---



##### Table of Contents



8.375% Senior Notes due 2014.
 Senior Secured Credit Facility Revolving Loans.
 Note payable  related parties.
  NOTE 14. SEGMENT INFORMATION
 Note 1. Organization and Summary of
Significant Accounting Policies
 Well Servicing Segment
 Rig-Based Services
 ®
    18




---



##### Table of Contents



Fluid Management Services
   Production Services Segment
 Pressure Pumping Services
  Fishing and Rental Services
 ®
 Wireline Services
   19




---



##### Table of Contents



Functional Support Segment
   Production
    
    
    Functional
    
    
    ReconcilingWell Servicing
    
    
    Services
    
    
    Support
    
    
    Eliminations
    
    
    Total(in thousands)As of and for the three months ended
March 31, 2010:Revenues from external customers
    
    $
    223,991
    
    
    $
    78,080
    
    
    $
    
    
    
    $
    
    
    
    $
    302,071Intersegment revenues
    
    
    21
    
    
    
    906
    
    
    
    
    
    
    
    (927
    )
    
    
    Depreciation and amortization
    
    
    25,782
    
    
    
    8,641
    
    
    
    2,280
    
    
    
    
    
    
    
    36,703Operating income (loss)
    
    
    15,011
    
    
    
    2,586
    
    
    
    (24,101
    )
    
    
    
    
    
    
    (6,504
    )Interest expense, net of amounts capitalized
    
    
    (629
    )
    
    
    (6
    )
    
    
    10,882
    
    
    
    
    
    
    
    10,247Income (loss) before taxes
    
    
    16,643
    
    
    
    2,687
    
    
    
    (34,828
    )
    
    
    
    
    
    
    (15,498
    )Total assets
    
    
    1,234,944
    
    
    
    265,119
    
    
    
    633,187
    
    
    
    (450,158
    )
    
    
    1,683,092Capital expenditures, excluding acquisitions
    
    
    19,500
    
    
    
    7,321
    
    
    
    5,594
    
    
    
    
    
    
    
    32,415
 Production
    
    
    Functional
    
    
    ReconcilingWell Servicing
    
    
    Services
    
    
    Support
    
    
    Eliminations
    
    
    Total(in thousands)As of and for the three months ended
March 31, 2009:Revenues from external customers
    
    $
    256,261
    
    
    $
    75,728
    
    
    $
    
    
    
    $
    
    
    
    $
    331,989Intersegment revenues
    
    
    7
    
    
    
    1,481
    
    
    
    
    
    
    
    (1,488
    )
    
    
    Depreciation and amortization
    
    
    30,779
    
    
    
    11,651
    
    
    
    2,326
    
    
    
    
    
    
    
    44,756Operating income (loss)
    
    
    41,015
    
    
    
    (3,560
    )
    
    
    (26,155
    )
    
    
    
    
    
    
    11,300Interest expense, net of amounts capitalized
    
    
    (556
    )
    
    
    (618
    )
    
    
    10,822
    
    
    
    
    
    
    
    9,648Income (loss) before taxes
    
    
    41,414
    
    
    
    (3,851
    )
    
    
    (36,434
    )
    
    
    
    
    
    
    1,129Total assets
    
    
    1,579,905
    
    
    
    368,854
    
    
    
    2,125,948
    
    
    
    (2,096,060
    )
    
    
    1,978,647Capital expenditures, excluding acquisitions
    
    
    24,200
    
    
    
    17,789
    
    
    
    2,808
    
    
    
    
    
    
    
    44,797
  20




---



##### Table of Contents



U.S.
    
    
    International
    
    
    Eliminations
    
    
    Total(in thousands)As of and for the
three months
ended March 31,
2010:Revenue from
external customers
    
    $
    246,420
    
    
    $
    55,651
    
    
    $
    
    
    
    $
    302,071Long-lived assets
    
    
    1,256,721
    
    
    
    148,681
    
    
    
    (128,682
    )
    
    
    1,276,720As of and for the
three months
ended March 31,
2009:Revenue from
external customers
    
    $
    284,743
    
    
    $
    47,246
    
    
    $
    
    
    
    $
    331,989Long-lived assets
    
    
    2,243,792
    
    
    
    88,186
    
    
    
    (875,445
    )
    
    
    1,456,533
 NOTE 15. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
  Financial
Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered
  21




---



##### Table of Contents



CONDENSED CONSOLIDATING BALANCE SHEETS
 March 31, 2010Parent
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Assets:Current assets
    
    $
    24,837
    
    
    $
    252,038
    
    
    $
    129,339
    
    
    $
    157
    
    
    $
    406,371Property and equipment, net
    
    
    
    
    
    
    817,685
    
    
    
    44,965
    
    
    
    
    
    
    
    862,650Goodwill
    
    
    
    
    
    
    316,514
    
    
    
    30,317
    
    
    
    
    
    
    
    346,831Deferred financing costs, net
    
    
    9,768
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,768Intercompany notes and accounts receivable
and investment in subsidiaries
    
    
    1,840,365
    
    
    
    584,570
    
    
    
    7,300
    
    
    
    (2,432,235
    )
    
    
    Other assets
    
    
    4,763
    
    
    
    38,224
    
    
    
    14,485
    
    
    
    
    
    
    
    57,472TOTAL ASSETS
    
    $
    1,879,733
    
    
    $
    2,009,031
    
    
    $
    226,406
    
    
    $
    (2,432,078
    )
    
    $
    1,683,092Liabilities and equity:Current liabilities
    
    $
    15,560
    
    
    $
    147,990
    
    
    $
    51,738
    
    
    $
    
    
    
    $
    215,288Long-term debt and capital leases, less current portion
    
    
    512,812
    
    
    
    9,826
    
    
    
    27
    
    
    
    
    
    
    
    522,665Intercompany notes and accounts payable
    
    
    459,188
    
    
    
    1,543,173
    
    
    
    92,851
    
    
    
    (2,095,212
    )
    
    
    Deferred tax liabilities
    
    
    151,624
    
    
    
    
    
    
    
    (5,127
    )
    
    
    
    
    
    
    146,497Other long-term liabilities
    
    
    3,140
    
    
    
    58,093
    
    
    
    
    
    
    
    
    
    
    
    61,233Stockholders and members equity
    
    
    737,409
    
    
    
    249,949
    
    
    
    86,917
    
    
    
    (336,866
    )
    
    
    737,409TOTAL LIABILITIES AND EQUITY
    
    $
    1,879,733
    
    
    $
    2,009,031
    
    
    $
    226,406
    
    
    $
    (2,432,078
    )
    
    $
    1,683,092
 December 31, 2009Parent
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Assets:Current assets
    
    $
    72,021
    
    
    $
    189,935
    
    
    $
    122,018
    
    
    $
    158
    
    
    $
    384,132Property and equipment, net
    
    
    
    
    
    
    822,882
    
    
    
    41,726
    
    
    
    
    
    
    
    864,608Goodwill
    
    
    
    
    
    
    316,513
    
    
    
    29,589
    
    
    
    
    
    
    
    346,102Deferred financing costs, net
    
    
    10,421
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,421Intercompany notes and accounts receivable
and investment in subsidiaries
    
    
    1,782,002
    
    
    
    577,546
    
    
    
    7,462
    
    
    
    (2,367,010
    )
    
    
    Other assets
    
    
    4,033
    
    
    
    40,198
    
    
    
    14,916
    
    
    
    
    
    
    
    59,147TOTAL ASSETS
    
    $
    1,868,477
    
    
    $
    1,947,074
    
    
    $
    215,711
    
    
    $
    (2,366,852
    )
    
    $
    1,664,410Liabilities and equity:Current liabilities
    
    $
    6,468
    
    
    $
    145,040
    
    
    $
    38,261
    
    
    $
    
    
    
    $
    189,769Long-term debt and capital leases, less current portion
    
    
    512,812
    
    
    
    11,105
    
    
    
    32
    
    
    
    
    
    
    
    523,949Intercompany notes and accounts payable
    
    
    451,361
    
    
    
    1,487,950
    
    
    
    87,568
    
    
    
    (2,026,879
    )
    
    
    Deferred tax liabilities
    
    
    151,624
    
    
    
    
    
    
    
    (4,644
    )
    
    
    
    
    
    
    146,980Other long-term liabilities
    
    
    3,072
    
    
    
    57,500
    
    
    
    
    
    
    
    
    
    
    
    60,572Stockholders and members equity
    
    
    743,140
    
    
    
    245,479
    
    
    
    94,494
    
    
    
    (339,973
    )
    
    
    743,140TOTAL LIABILITIES AND EQUITY
    
    $
    1,868,477
    
    
    $
    1,947,074
    
    
    $
    215,711
    
    
    $
    (2,366,852
    )
    
    $
    1,664,410
  22




---



##### Table of Contents



CONDENSED CONSOLIDATING UNAUDITED STATEMENTS OF OPERATIONS
 Three Months Ended March 31, 2010Parent
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Revenues
    
    $
    
    
    
    $
    261,306
    
    
    $
    56,011
    
    
    $
    (15,246
    )
    
    $
    302,071Costs and expenses:Direct operating expenses
    
    
    
    
    
    
    187,065
    
    
    
    55,136
    
    
    
    (11,281
    )
    
    
    230,920Depreciation and amortization expense
    
    
    
    
    
    
    34,340
    
    
    
    2,363
    
    
    
    
    
    
    
    36,703General and administrative expenses
    
    
    1,228
    
    
    
    35,667
    
    
    
    5,239
    
    
    
    (1,182
    )
    
    
    40,952Interest expense, net of amounts capitalized
    
    
    11,187
    
    
    
    (901
    )
    
    
    (39
    )
    
    
    
    
    
    
    10,247Other, net
    
    
    (697
    )
    
    
    676
    
    
    
    2,482
    
    
    
    (3,714
    )
    
    
    (1,253
    )Total costs and expenses, net
    
    
    11,718
    
    
    
    256,847
    
    
    
    65,181
    
    
    
    (16,177
    )
    
    
    317,569(Loss) income before taxes
    
    
    (11,718
    )
    
    
    4,459
    
    
    
    (9,170
    )
    
    
    931
    
    
    
    (15,498
    )Income tax benefit (expense)
    
    
    6,089
    
    
    
    
    
    
    
    402
    
    
    
    
    
    
    
    6,491Net (loss) income
    
    
    (5,629
    )
    
    
    4,459
    
    
    
    (8,768
    )
    
    
    931
    
    
    
    (9,007
    )Net loss attributable to noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    1,427
    
    
    
    
    
    
    
    1,427(LOSS) INCOME ATTRIBUTABLE TO KEY
    
    $
    (5,629
    )
    
    $
    4,459
    
    
    $
    (7,341
    )
    
    $
    931
    
    
    $
    (7,580
    )
 Three Months Ended March 31, 2009Parent
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Revenues
    
    $
    
    
    
    $
    294,273
    
    
    $
    48,203
    
    
    $
    (10,487
    )
    
    $
    331,989Costs and expenses:Direct operating expenses
    
    
    
    
    
    
    201,641
    
    
    
    32,983
    
    
    
    (7,397
    )
    
    
    227,227Depreciation and amortization
expense
    
    
    
    
    
    
    43,256
    
    
    
    1,500
    
    
    
    
    
    
    
    44,756General and administrative
expenses
    
    
    185
    
    
    
    44,226
    
    
    
    4,267
    
    
    
    28
    
    
    
    48,706Interest expense, net of
amounts capitalized
    
    
    11,132
    
    
    
    (1,556
    )
    
    
    72
    
    
    
    
    
    
    
    9,648Other, net
    
    
    367
    
    
    
    (395
    )
    
    
    3,011
    
    
    
    (2,460
    )
    
    
    523Total costs and expenses, net
    
    
    11,684
    
    
    
    287,172
    
    
    
    41,833
    
    
    
    (9,829
    )
    
    
    330,860(Loss) income before income taxes
    
    
    (11,684
    )
    
    
    7,101
    
    
    
    6,370
    
    
    
    (658
    )
    
    
    1,129Income tax benefit (expense)
    
    
    1,475
    
    
    
    
    
    
    
    (1,700
    )
    
    
    
    
    
    
    (225
    )(LOSS) INCOME ATTRIBUTABLE TO KEY
    
    $
    (10,209
    )
    
    $
    7,101
    
    
    $
    4,670
    
    
    $
    (658
    )
    
    $
    904
  23




---



##### Table of Contents



CONDENSED CONSOLIDATING UNAUDITED STATEMENTS OF CASH FLOWS
 Three Months Ended March 31, 2010Parent
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Net cash provided by operating
activities
    
    $
    
    
    
    $
    57,629
    
    
    $
    8,125
    
    
    $
    
    
    
    $
    65,754Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (27,493
    )
    
    
    (4,922
    )
    
    
    
    
    
    
    (32,415
    )Intercompany notes and accounts
    
    
    (165
    )
    
    
    (580
    )
    
    
    
    
    
    
    745
    
    
    
    Other investing activities, net
    
    
    165
    
    
    
    1,006
    
    
    
    
    
    
    
    
    
    
    
    1,171Net cash (used in) provided by
investing activities
    
    
    
    
    
    
    (27,067
    )
    
    
    (4,922
    )
    
    
    745
    
    
    
    (31,244
    )Cash flows from financing activities:Repayments on long-term debt
    
    
    
    
    
    
    (2,590
    )
    
    
    
    
    
    
    
    
    
    
    (2,590
    )Repurchases of common stock
    
    
    (2,180
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,180
    )Intercompany notes and accounts
    
    
    580
    
    
    
    165
    
    
    
    
    
    
    
    (745
    )
    
    
    Other financing activities, net
    
    
    1,600
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,600Net cash used in financing activities
    
    
    
    
    
    
    (2,425
    )
    
    
    
    
    
    
    (745
    )
    
    
    (3,170
    )Effect of changes in exchange rates
on cash
    
    
    
    
    
    
    
    
    
    
    (1,920
    )
    
    
    
    
    
    
    (1,920
    )Net increase in cash and cash
equivalents
    
    
    
    
    
    
    28,137
    
    
    
    1,283
    
    
    
    
    
    
    
    29,420Cash and cash equivalents at
beginning of period
    
    
    
    
    
    
    19,391
    
    
    
    18,003
    
    
    
    
    
    
    
    37,394Cash and cash equivalents at end of
period
    
    $
    
    
    
    $
    47,528
    
    
    $
    19,286
    
    
    $
    
    
    
    $
    66,814
 Three Months Ended March 31, 2009Parent
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Net cash provided by (used in)
operating activities
    
    $
    
    
    
    $
    132,499
    
    
    $
    (3,116
    )
    
    $
    
    
    
    $
    129,383Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (43,231
    )
    
    
    (1,566
    )
    
    
    
    
    
    
    (44,797
    )Intercompany notes and accounts
    
    
    
    
    
    
    (7,679
    )
    
    
    393
    
    
    
    7,286
    
    
    
    Other investing activities, net
    
    
    
    
    
    
    797
    
    
    
    
    
    
    
    
    
    
    
    797Net cash (used in) provided by
investing activities
    
    
    
    
    
    
    (50,113
    )
    
    
    (1,173
    )
    
    
    7,286
    
    
    
    (44,000
    )Cash flows from financing activities:Repayment of long-term debt
    
    
    (513
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (513
    )Repurchases of common stock
    
    
    (38
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (38
    )Intercompany notes and accounts
    
    
    551
    
    
    
    (393
    )
    
    
    7,128
    
    
    
    (7,286
    )
    
    
    Other financing activities, net
    
    
    
    
    
    
    (2,635
    )
    
    
    
    
    
    
    
    
    
    
    (2,635
    )Net cash (used in) provided by
financing activities
    
    
    
    
    
    
    (3,028
    )
    
    
    7,128
    
    
    
    (7,286
    )
    
    
    (3,186
    )Effect of changes in exchange rates
on cash
    
    
    
    
    
    
    
    
    
    
    (714
    )
    
    
    
    
    
    
    (714
    )Net increase in cash
    
    
    
    
    
    
    79,358
    
    
    
    2,125
    
    
    
    
    
    
    
    81,483Cash and cash equivalents at
beginning of period
    
    
    
    
    
    
    75,848
    
    
    
    16,843
    
    
    
    
    
    
    
    92,691Cash and cash equivalents at end of
period
    
    $
    
    
    
    $
    155,206
    
    
    $
    18,968
    
    
    $
    
    
    
    $
    174,174
  24




---



##### Table of Contents



NOTE 16. SUBSEQUENT EVENT
   25




---



##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 OVERVIEW
   Note 14. Segment Information Item 1. Financial Statements
 PERFORMANCE MEASURES
  Average BakerNYMEX Henry
    
    
    Hughes U.S.WTI Cushing Oil
    
    
    Hub Natural Gas
    
    
    Land Drilling(1)
    
    
    (1)
    
    
    Rigs (2)2010:First Quarter
    
    $
    74.78
    
    
    $
    5.14
    
    
    
    1,3542009:First Quarter
    
    $
    40.16
    
    
    $
    4.60
    
    
    
    1,344Second Quarter
    
    $
    55.84
    
    
    $
    3.71
    
    
    
    934Third Quarter
    
    $
    66.02
    
    
    $
    3.17
    
    
    
    970Fourth Quarter
    
    $
    71.67
    
    
    $
    4.38
    
    
    
    1,108
 (1)
    
    Represents the average of the monthly average prices for each of the periods presented.
Source: EIA / Bloomberg(2)
    
    Source: www.bakerhughes.com  26




---



##### Table of Contents



Rig Hours
    
    
    Trucking Hours2010:First Quarter
    
    
    485,183
    
    
    
    459,2922009:First Quarter
    
    
    489,819
    
    
    
    499,247Second Quarter
    
    
    415,520
    
    
    
    416,269Third Quarter
    
    
    416,810
    
    
    
    398,027Fourth Quarter
    
    
    439,552
    
    
    
    422,253Total 2009
    
    
    1,761,701
    
    
    
    1,735,796
 MARKET CONDITIONS AND OUTLOOK
 Market Conditions  Quarter Ended March 31, 2010
      27




---



##### Table of Contents



Market Outlook
     28




---



##### Table of Contents



RESULTS OF OPERATIONS
  Three Months Ended March 31,2010
    
    
    2009REVENUES
    
    $
    302,071
    
    
    $
    331,989COSTS AND EXPENSES:Direct operating expenses
    
    
    230,920
    
    
    
    227,227Depreciation and amortization expense
    
    
    36,703
    
    
    
    44,756General and administrative expenses
    
    
    40,952
    
    
    
    48,706Interest expense, net of amounts capitalized
    
    
    10,247
    
    
    
    9,648Other, net
    
    
    (1,253
    )
    
    
    523Total costs and expenses, net
    
    
    317,569
    
    
    
    330,860(Loss) income before tax
    
    
    (15,498
    )
    
    
    1,129Income tax benefit (expense)
    
    
    6,491
    
    
    
    (225
    )Net (loss) income
    
    
    (9,007
    )
    
    
    904Net loss attributable to noncontrolling interest
    
    
    1,427
    
    
    
    (LOSS) INCOME ATTRIBUTABLE TO KEY
    
    $
    (7,580
    )
    
    $
    904(Loss) earnings per share attributable to Key:Basic
    
    $
    (0.06
    )
    
    $
    0.01Diluted
    
    $
    (0.06
    )
    
    $
    0.01Weighted average shares outstanding:Basic
    
    
    124,952
    
    
    
    120,665Diluted
    
    
    124,952
    
    
    
    121,436
 Consolidated Results of Operations  Three Months Ended March 31, 2010 and 2009
 Revenues
 Segment Operating Results  Three Months Ended March 31,
2010 and 2009
 Direct Operating Expenses
   29




---



##### Table of Contents



Depreciation and Amortization Expense
  General and Administrative Expenses
  Interest Expense, net of Amounts Capitalized
  Other, net
  Three Months Ended March 31,2010
    
    
    2009(in thousands)Loss on disposal of assets, net
    
    $
    335
    
    
    $
    689Interest income
    
    
    (15
    )
    
    
    (248
    )Foreign exchange (gain) loss
    
    
    (1,363
    )
    
    
    917Other income, net
    
    
    (210
    )
    
    
    (835
    )Total
    
    $
    (1,253
    )
    
    $
    523
 Income Tax Benefit (Expense)
  Noncontrolling Interest
   30




---



##### Table of Contents



Production
    
    
    FunctionalWell Servicing
    
    
    Services
    
    
    SupportFor the Three Months ended March 31, 2010:Revenues from external customers
    
    $
    223,991
    
    
    $
    78,080
    
    
    $
    Intersegment revenues
    
    
    21
    
    
    
    906
    
    
    
    Operating expenses*
    
    
    209,001
    
    
    
    76,400
    
    
    
    24,101Operating income (loss)
    
    
    15,011
    
    
    
    2,586
    
    
    
    (24,101
    )Operating income (loss), as a percentage
of revenue from external customers
    
    
    6.7
    %
    
    
    3.3
    %
    
    
    n/a
 Production
    
    
    FunctionalWell Servicing
    
    
    Services
    
    
    SupportFor the Three Months Ended March 31, 2009:Revenues from external customers
    
    $
    256,261
    
    
    $
    75,728
    
    
    $
    Intersegment revenues
    
    
    7
    
    
    
    1,481
    
    
    
    Operating expenses*
    
    
    215,253
    
    
    
    80,769
    
    
    
    26,155Operating income (loss)
    
    
    41,015
    
    
    
    (3,560
    )
    
    
    (26,155
    )Operating
income (loss) as a percentage of revenue from external customers
    
    
    16.0
    %
    
    
    (4.7
    )%
    
    
    n/a
 
 *
    
    Intersegment expenses have not been eliminated from the amounts shown above. Segment Operating Results  Three Months Ended March 31, 2010 and 2009
 Well Servicing
   Production Services
    31




---



##### Table of Contents



Functional Support
  LIQUIDITY AND CAPITAL RESOURCES
 Current Financial Condition and Liquidity
  Cash Flows
  Three Months Ended March 31,2010
    
    
    2009(in thousands)Net cash provided by operating activities
    
    $
    65,754
    
    
    $
    129,383Cash paid for capital expenditures
    
    
    (32,415
    )
    
    
    (44,797
    )Other investing activities, net
    
    
    1,171
    
    
    
    797Repayments of capital lease obligations
    
    
    (2,077
    )
    
    
    (2,635
    )Repayments on long-term debt
    
    
    (513
    )
    
    
    (513
    )Repurchases of common stock
    
    
    (2,180
    )
    
    
    (38
    )Other financing activities, net
    
    
    1,600
    
    
    
    Effect of exchange rates on cash
    
    
    (1,920
    )
    
    
    (714
    )Net increase in cash and cash equivalents
    
    $
    29,420
    
    
    $
    81,483
    32




---



##### Table of Contents



Sources of Liquidity and Capital Resources
  Debt Service
  Principal Payments(in thousands)2010
    
    $
    3,0442011
    
    
    2,0002012
    
    
    89,8132013
    
    
    2014
    
    
    425,000Total principal payments
    
    $
    519,857
  8.375% Senior Notes
    Year
    
    Percentage2011
    
    
    104.19
    %2012
    
    
    102.09
    %2013
    
    
    100.00
    %
  33




---



##### Table of Contents




    
    sell assets;
    
    pay dividends or make other distributions on capital stock or subordinated indebtedness;
    
    make investments;
    
    incur additional indebtedness or issue preferred stock;
    
    create certain liens;
    
    enter into agreements that restrict dividends or other payments from our subsidiaries to us;
    
    consolidate, merge or transfer all or substantially all of our assets;
    
    engage in transactions with affiliates; and
    
    create unrestricted subsidiaries.
  Senior Secured Credit Facility
     34




---



##### Table of Contents




    
    that our consolidated funded indebtedness be no greater than 45% of our adjusted total
capitalization;
    
    that our senior secured leverage ratio of senior secured funded debt to trailing four
quarters of earnings before interest, taxes, depreciation and amortization (as calculated
pursuant to the terms of the Senior Secured Credit Facility, EBITDA) be no greater than
(i) 2.50 to 1.00 for the fiscal quarter ended December 31, 2009 through and including the
fiscal quarter ending December 31, 2010 and, (ii) thereafter, 2.00 to 1.00;
    
    that we maintain a consolidated interest coverage ratio of trailing four quarters EBITDA
to interest expense of at least the following amounts during each corresponding period:
 from the fiscal quarter ended December 31, 2009
through and including the fiscal quarter ending
June 30, 2010
    
    
    1.75 to 1.00through the fiscal quarter ending September 30, 2010
    
    
    2.00 to 1.00for the fiscal quarter ending December 31, 2010
    
    
    2.50 to 1.00thereafter
    
    
    3.00 to 1.00;
 
    
    that we limit our capital expenditures (not including any made by foreign subsidiaries
that are not wholly-owned) to (i) $135.0 million during fiscal year 2009 and $120.0 million
during each subsequent fiscal year if our consolidated leverage ratio of total funded debt
to trailing four quarters EBITDA is greater than 3.50 to 1.00; or (ii) $250.0 million if
our consolidated leverage ratio of total funded debt to trailing four quarters EBITDA is
equal to or less than 3.50 to 1.00, subject to certain adjustments;
 
    
    that we only make acquisitions that either (i) are completed for equity consideration,
without regard to leverage, or (ii) are completed for cash consideration, but only (A) if
the consolidated leverage ratio of total funded debt to trailing four quarters EBITDA is
2.75 to 1.00 or less, (x) there is an aggregate amount of $25.0 million in unused credit
commitments under the facility and (y) we are in pro forma compliance with the financial
covenants contained in the credit agreement; and (B) if the consolidated leverage ratio of
total funded debt to trailing four quarters EBITDA is greater than 2.75 to 1.00, in
addition to the requirements in subclauses (x) and (y) in clause (A) above, the cash amount
paid with respect to acquisitions is limited to $25.0 million per fiscal year (subject to
potential increase using amounts then available for capital expenditures and any net cash
proceeds we receive after October 27, 2009 in connection with the issuance or sale of
equity interests or the incurrence or issuance of certain unsecured debt securities that
are identified as being used for such purpose); and
    
    that we limit our investment in foreign subsidiaries (including by way of loans made by
us and our domestic subsidiaries to foreign subsidiaries and guarantees made by us and our
domestic subsidiaries of debt of foreign subsidiaries) to $75.0 million during any fiscal
year or an aggregate amount after October 27, 2009 equal to (i) the greater of $200.0
million or 25% of our consolidated net worth, plus (ii) any net cash proceeds we receive
after October 27, 2009, in connection with the issuance or sale of equity interests or the
incurrence of certain unsecured debt securities that are identified as being used for such
purpose.
   35




---



##### Table of Contents



Related Party Notes Payable
  Capital Lease Agreements
  Off-Balance Sheet Arrangements
  Liquidity Outlook and Future Capital Requirements
  Capital Expenditures
   36




---



##### Table of Contents



ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Item
7A. Quantitative and Qualitative Disclosures about Market Risk
 
 ITEM 4.
    
    CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  
 PART IIOTHER INFORMATION
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
 Note 9. Commitments and Contingencies Item 1. Financial Statements Part I
 
 ITEM 1A.
    
    RISK FACTORS
 Item 1A. Risk Factors
 
 ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  ISSUER PURCHASES OF EQUITY SECURITIES
 ApproximateTotal Number of
    
    
    Dollar Amount ofShares Purchased
    
    
    Shares that mayWeighted
    
    
    as Part of Publicly
    
    
    yet be PurchasedNumber of
    
    
    Average Price
    
    
    Announced Plans
    
    
    Under the PlansPeriod
    
    Shares Purchased (1)
    
    
    Paid per Share (2)
    
    
    or Programs
    
    
    or ProgramsJanuary 1,
2010 to January 31,
2010
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    February 1, 2010 to
February 28, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    March 1, 2010 to
March 31, 2010
    
    
    206,981
    
    
    
    10.52
    
    
    
    
    
    
    
    Total
    
    
    206,981
    
    
    $
    10.52
    
    
    
    
    
    
    $
    
 (1)
    
    Represents shares repurchased to satisfy tax withholding obligations upon the vesting of
restricted stock awards.(2)
    
    The price paid per share on the vesting date with respect to the tax withholding repurchases
was determined using the closing price as quoted on the NYSE on the vesting date for awards
granted under the Key Energy Services, Inc. 2007 Equity and Cash Incentive Plan.  37




---



##### Table of Contents



ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 5.
    
    OTHER INFORMATION
  
 ITEM 6.
    
    EXHIBITS
 3.1
    
    Articles of Restatement of Key Energy Services, Inc. (Incorporated by reference to Exhibit 3.1 of
our Annual Report on Form 10-K for the fiscal year ended December 31, 2006, File No. 001-08038.)3.2
    
    Unanimous consent of the Board of Directors of Key Energy Services, Inc. dated January 11, 2000,
limiting the designation of the additional authorized shares to common stock. (Incorporated by
reference to Exhibit 3.2 of our Quarterly Report on Form 10-Q for the quarter ended March 31,
2000, File No. 001-08038.)3.3
    
    Second Amended and Restated By-laws of Key Energy Services, Inc. (Incorporated by reference to
Exhibit 3.1 of our Current Report on Form 8-K filed on September 22, 2006, File No. 001-08038.)3.4
    
    Amendment to Second Amended and Restated By-laws of Key Energy Services, Inc. (Incorporated by
reference to Exhibit 3.1 of our Current Report on Form 8-K filed on November 2, 2007, File No.
001-08038.)3.5
    
    Amendments to Second Amended and Restated By-laws of Key Energy Services, Inc. adopted April 4,
2008. (Incorporated by reference to Exhibit 3.1 of our Current Report on Form 8-K filed on April
9, 2008, File No. 001-08038.)3.6
    
    Amendment to Second Amended and Restated By-laws of Key Energy Services, Inc. adopted June 4,
2009. (Incorporated by reference to Exhibit 3.1 of our Current Report on Form 8-K filed on June
10, 2009, File No. 001-08038.)4.1
    
    Indenture, dated as of November 29, 2007, among Key Energy Services, Inc., the guarantors party
thereto and The Bank of New York Trust Company, N.A., as trustee. (Incorporated by reference to
Exhibit 4.1 of our Form 8-K filed on November 30, 2007, File No. 001-08038.)4.2
    
    Registration Rights Agreement, dated as of November 29, 2007, among Key Energy Services, Inc., the
subsidiary guarantors of the Company party thereto, and Lehman Brothers Inc., Banc of America
Securities LLC and Morgan Stanley & Co. Incorporated, as representatives of the several initial
purchasers named therein. (Incorporated by reference to Exhibit 4.2 of our Form 8-K filed on
November 30, 2007, File No. 001-08038.)4.3
    
    First Supplemental Indenture, dated as of January 22, 2008, among Key Marine Services, LLC, the
existing guarantors party thereto and The Bank of New York Trust Company, N.A., as trustee.
(Incorporated by reference to Exhibit 4.5 of our Quarterly Report on Form 10-Q for the quarter
ended March 31, 2008, File No. 001-08038.)4.4
    
    Second Supplemental Indenture, dated as of January 13, 2009, among Key Energy Mexico, LLC, the
existing Guarantors and The Bank of New York Trust Company, N.A., as trustee. (Incorporated by
reference to Exhibit 4.6 of our Annual Report on Form 10-K for the fiscal year ended December 31,
2009, File No. 001-08038.)4.5
    
    Third Supplemental Indenture, dated as of July 31, 2009, among Key Energy Services California,
Inc., the existing Guarantors and The Bank of New York Trust Company, N.A., as trustee.
(Incorporated by reference to Exhibit 4.5 of our Quarterly Report on Form 10-Q for the quarter
ended September 30, 2009, File No. 001-08038.)10.1
    
    Form of Performance Unit Award Agreement under the Key Energy Services, Inc. 2009 Equity and Cash
Incentive Plan (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K dated
March 5, 2010, File No. 001-08038.)10.2
    
    Form of Amendment to Employment Agreement, in the form executed on March 29, 2010, by and between
Key Energy Services, Inc., Key Energy Shared Services, LLC, and each of Richard J. Alario, T.M.
Whichard III, Newton W. Wilson III, Kim B. Clarke and Kimberly R. Frye (Incorporated by reference
to Exhibit 10.1 of our Current Report on Form 8-K dated April 1, 2010, File No. 001-08038.)31.1*
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2*
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32*
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 18 U.S.C.
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
    
    Indicates a management contract or compensatory plan, contract or arrangement in which any
director or any executive officer participates.*
    
    Filed herewith  38




---



##### Table of Contents



SIGNATURE
  KEY ENERGY SERVICES, INC.
(Registrant)By:
    /s/ Richard J. AlarioRichard J. AlarioPresident and Chief Executive Officer
(Principal Executive Officer)   39




---



##### Table of Contents



EXHIBITS INDEX
 3.1
    
    Articles of Restatement of Key Energy Services, Inc. (Incorporated by reference to Exhibit 3.1 of
our Annual Report on Form 10-K for the fiscal year ended December 31, 2006, File No. 001-08038.)3.2
    
    Unanimous consent of the Board of Directors of Key Energy Services, Inc. dated January 11, 2000,
limiting the designation of the additional authorized shares to common stock. (Incorporated by
reference to Exhibit 3.2 of our Quarterly Report on Form 10-Q for the quarter ended March 31,
2000, File No. 001-08038.)3.3
    
    Second Amended and Restated By-laws of Key Energy Services, Inc. (Incorporated by reference to
Exhibit 3.1 of our Current Report on Form 8-K filed on September 22, 2006, File No. 001-08038.)3.4
    
    Amendment to Second Amended and Restated By-laws of Key Energy Services, Inc. (Incorporated by
reference to Exhibit 3.1 of our Current Report on Form 8-K filed on November 2, 2007, File No.
001-08038.)3.5
    
    Amendments to Second Amended and Restated By-laws of Key Energy Services, Inc. adopted April 4,
2008. (Incorporated by reference to Exhibit 3.1 of our Current Report on Form 8-K filed on April
9, 2008, File No. 001-08038.)3.6
    
    Amendment to Second Amended and Restated By-laws of Key Energy Services, Inc. adopted June 4,
2009. (Incorporated by reference to Exhibit 3.1 of our Current Report on Form 8-K filed on June
10, 2009, File No. 001-08038.)4.1
    
    Indenture, dated as of November 29, 2007, among Key Energy Services, Inc., the guarantors party
thereto and The Bank of New York Trust Company, N.A., as trustee. (Incorporated by reference to
Exhibit 4.1 of our Form 8-K filed on November 30, 2007, File No. 001-08038.)4.2
    
    Registration Rights Agreement, dated as of November 29, 2007, among Key Energy Services, Inc., the
subsidiary guarantors of the Company party thereto, and Lehman Brothers Inc., Banc of America
Securities LLC and Morgan Stanley & Co. Incorporated, as representatives of the several initial
purchasers named therein. (Incorporated by reference to Exhibit 4.2 of our Form 8-K filed on
November 30, 2007, File No. 001-08038.)4.3
    
    First Supplemental Indenture, dated as of January 22, 2008, among Key Marine Services, LLC, the
existing guarantors party thereto and The Bank of New York Trust Company, N.A., as trustee.
(Incorporated by reference to Exhibit 4.5 of our Quarterly Report on Form 10-Q for the quarter
ended March 31, 2008, File No. 001-08038.)4.4
    
    Second Supplemental Indenture, dated as of January 13, 2009, among Key Energy Mexico, LLC, the
existing Guarantors and The Bank of New York Trust Company, N.A., as trustee. (Incorporated by
reference to Exhibit 4.6 of our Annual Report on Form 10-K for the fiscal year ended December 31,
2009, File No. 001-08038.)4.5
    
    Third Supplemental Indenture, dated as of July 31, 2009, among Key Energy Services California,
Inc., the existing Guarantors and The Bank of New York Trust Company, N.A., as trustee.
(Incorporated by reference to Exhibit 4.5 of our Quarterly Report on Form 10-Q for the quarter
ended September 30, 2009, File No. 001-08038.)10.1
    
    Form of Performance Unit Award Agreement under the Key Energy Services, Inc. 2009 Equity and Cash
Incentive Plan (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K dated
March 5, 2010, File No. 001-08038.)10.2
    
    Form of Amendment to Employment Agreement, in the form executed on March 29, 2010, by and between
Key Energy Services, Inc., Key Energy Shared Services, LLC, and each of Richard J. Alario, T.M.
Whichard III, Newton W. Wilson III, Kim B. Clarke and Kimberly R. Frye (Incorporated by reference
to Exhibit 10.1 of our Current Report on Form 8-K dated April 1, 2010, File No. 001-08038.)31.1*
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2*
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32*
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 18 U.S.C.
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
    
    Indicates a management contract or compensatory plan, contract or arrangement in which any
director or any executive officer participates.*
    
    Filed herewith