UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________________________

Form 10-Q

_____________________________________________

(Mark One)



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

For the Quarterly Period Ended September 30, ~~2017~~2018



¨	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.

(Exact name of registrant as specified in its charter)

_____________________________________________



Delaware		04-2648081
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1301 McKinney Street, Suite 1800, Houston, Texas		77010
(Address of principal executive offices)		(Zip Code)

(713) 651-4300

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

____________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

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



Large accelerated filer	¨	Accelerated filer	¨ý

Non-accelerated filer	¨ ~~(Do not check if a smaller reporting company)~~	Smaller reporting company	ý ¨

		Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. No ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨No ý

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ý No ¨

As of November ~~3, 2017,~~5, 2018, the number of outstanding shares of common stock of the registrant was ~~20,109,885.~~20,297,359.

KEY ENERGY SERVICES, INC.

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended September 30, ~~2017~~2018



Part I — Financial Information

Item 1.	Financial Statements	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3233

Item 4.	Controls and Procedures	33

Part II — Other Information

Item 1.	Legal Proceedings	34

Item 1A.	Risk Factors	34

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34

Item 3.	Defaults Upon Senior Securities	34

Item 4.	Mine Safety Disclosures	34

Item 5.	Other Information	34

Item 6.	Exhibits	34

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are not historical in nature or that relate to future events and conditions are, or may be deemed to be, forward-looking statements. These forward-looking statements are based on our current expectations, estimates and projections and management’s beliefs and assumptions concerning future events and financial trends affecting our financial condition and results of operations. In some cases, you can identify these statements by terminology such as “may,” “will,” “should,” “predicts,” “expects,” “believes,” “anticipates,” “projects,” “potential” or “continue” or the negative of such terms and other comparable terminology. These statements are only predictions and are subject to substantial risks and uncertainties and are not guarantees of performance. Future actions, events and conditions and future results of operations may differ materially from those expressed in these statements. In evaluating those statements, you should carefully consider the information above as well as the risks outlined in Part I “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017, Part II, “Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the three months ended March 31, 2018 and in the other reports we file with the Securities and Exchange Commission.

We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date of this report except as required by law. All of our written and oral forward-looking statements are expressly qualified by these cautionary statements and any other cautionary statements that may accompany such forward-looking statements.

Important factors that may affect our expectations, estimates or projections include, but are not limited to, the following:

conditions in the oil and natural gas industry, especially oil and natural gas prices and capital expenditures by oil and natural gas companies;

volatility in oil and natural gas prices;

our ability to implement price increases or maintain pricing on our core services;

risks that we may not be able to reduce, and could even experience increases in, the costs of labor, fuel, equipment and supplies employed in our businesses;

industry capacity;

asset impairments or other charges;

the periodic low demand for our services and resulting operating losses and negative cash flows;

our highly competitive industry as well as operating risks, which are primarily self-insured, and the possibility that our insurance may not be adequate to cover all of our losses or liabilities;

significant costs and potential liabilities resulting from compliance with applicable laws, including those resulting from environmental, health and safety laws and regulations, specifically those relating to hydraulic fracturing, as well as climate change legislation or initiatives;

our historically high employee turnover rate and our ability to replace or add workers, including executive officers and skilled workers;

our ability to incur debt or long-term lease obligations;

our ability to implement technological developments and enhancements;

severe weather impacts on our business, including from hurricane activity;

our ability to successfully identify, make and integrate acquisitions and our ability to finance future growth of our operations or future acquisitions;

our ability to achieve the benefits expected from disposition transactions;

the loss of one or more of our larger customers;

our ability to generate sufficient cash flow to meet debt service obligations;

the amount of our debt and the limitations imposed by the covenants in the agreements governing our debt, including our ability to comply with covenants under our debt agreements;

an increase in our debt service obligations due to variable rate indebtedness;

our inability to achieve our financial, capital expenditure and operational projections, including quarterly and annual projections of revenue, operating income and/or ~~operating income~~loss margin and our inaccurate assessment of future activity levels, customer demand, and pricing stability which may not materialize (whether for Key as a whole or for geographic regions and/or business segments individually);

our ability to respond to changing or declining market ~~conditions, including our ability to reduce the costs of labor, fuel, equipment and supplies employed and used in our businesses;~~conditions;

our ability to maintain sufficient liquidity;

adverse impact of litigation; and

other factors affecting our business described in Part I “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017, in Part II, “Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the three-month period ended March 31, 2018 and in the other reports we file with the Securities and Exchange Commission.

PART I — FINANCIAL INFORMATION


ITEM 1.	FINANCIAL STATEMENTS

Key Energy Services, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share amounts)


	September 30, 2017			December 31, 2016			September 30, 2018			December 31, 2017
	(unaudited)						(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	77,657		$	90,505		$	43,294		$	73,065
Restricted cash	8,700			24,707			—			4,000
Accounts receivable, net of allowance for doubtful accounts of $1,251 and $168, respectively	69,693			71,327
Accounts receivable, net of allowance for doubtful accounts of $926 and $875, respectively							89,926			69,319
Inventories	19,846			22,269			18,112			20,942
Other current assets	17,418			25,762			13,942			19,477
Total current assets	193,314			234,570			165,274			186,803
Property and equipment	407,536			408,716			432,691			413,127
Accumulated depreciation	(64,829		)	(3,565		)	(145,085		)	(85,813		)
Property and equipment, net	342,707			405,151			287,606			327,314
Intangible assets, net	477			520			419			462
Other non-current assets	14,607			17,740			9,434			14,542
TOTAL ASSETS	$	551,105		$	657,981		$	462,733		$	529,121
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	11,967		$	10,357		$	18,444		$	13,697
Current portion of long-term debt	2,500			2,500			2,500			2,500
Other current liabilities	82,383			103,938			79,275			87,579
Total current liabilities	96,850			116,795			100,219			103,776
Long-term debt	243,610			245,477			241,585			243,103
Workers’ compensation, vehicular and health insurance liabilities	26,545			23,313			25,194			25,393
Other non-current liabilities	28,488			29,779			28,456			28,166
Commitments and contingencies
Equity:
Preferred stock, $0.01 par value; 10,000,000 shares authorized, none issued	—			—
Common stock, $0.01 par value; 100,000,000 shares authorized, 20,109,885 and 20,096,462 shares issued and outstanding	201			201
Preferred stock, $0.01 par value; 10,000,000 authorized and one share issued and outstanding							—			—
Common stock, $0.01 par value; 100,000,000 shares authorized, 20,297,359 and 20,217,641 outstanding							203			202
Additional paid-in capital	263,917			252,421			263,627			259,314
Accumulated other comprehensive loss	—			239
Retained deficit	(108,506		)	(10,244		)	(196,551		)	(130,833		)
Total equity	155,612			242,617			67,279			128,683
TOTAL LIABILITIES AND EQUITY	$	551,105		$	657,981		$	462,733		$	529,121

See the accompanying notes which are an integral part of these condensed consolidated financial statements.

Key Energy Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)



													Three Months Ended						Nine Months Ended
	Successor			Predecessor			Successor			Predecessor			September 30,						September 30,
	Three Months Ended September 30, 2017			Three Months Ended September 30, 2016			Nine Months Ended September 30, 2017			Nine Months Ended September 30, 2016			2018			2017			2018			2017
REVENUES	$	110,653		$	102,406		$	319,885		$	308,506		$	134,721		$	110,653		$	404,442		$	319,885
COSTS AND EXPENSES:
Direct operating expenses	87,115			96,071			237,981			276,088			106,103			87,115			314,061			237,981
Depreciation and amortization expense	21,114			33,467			63,325			105,075			21,808			21,114			62,881			63,325
General and administrative expenses	37,168			42,456			98,498			129,604			23,925			37,168			71,353			98,498
Impairment expense	—			40,000			187			40,000			—			—			—			187
Operating loss	(34,744		)	(109,588		)	(80,106		)	(242,261		)	(17,115		)	(34,744		)	(43,853		)	(80,106		)
Interest expense, net of amounts capitalized	8,090			21,120			23,672			64,061			8,708			8,090			25,425			23,672
Other (income) loss, net	(4,578		)	154			(5,779		)	(665		)
Other income, net													(213		)	(4,578		)	(1,972		)	(5,779		)
Reorganization items, net	60			—			1,501			—			—			60			—			1,501
Loss before income taxes	(38,316		)	(130,862		)	(99,500		)	(305,657		)	(25,610		)	(38,316		)	(67,306		)	(99,500		)
Income tax benefit	96			110			1,238			489			1,750			96			1,588			1,238
NET LOSS	$	(38,220	)	$	(130,752	)	$	(98,262	)	$	(305,168	)	$	(23,860	)	$	(38,220	)	$	(65,718	)	$	(98,262	)
Loss per share:
Basic and diluted	$	(1.90	)	$	(0.81	)	$	(4.89	)	$	(1.90	)	$	(1.18	)	$	(1.90	)	$	(3.25	)	$	(4.89	)
Weighted average shares outstanding:
Basic and diluted	20,106			160,846			20,101			160,626			20,252			20,106			20,234			20,101

See the accompanying notes which are an integral part of these condensed consolidated financial statements.

Key Energy Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive ~~Income~~Loss

(in thousands)

(unaudited)



													Three Months Ended						Nine Months Ended
	Successor			Predecessor			Successor			Predecessor			September 30,						September 30,
	Three Months Ended September 30, 2017			Three Months Ended September 30, 2016			Nine Months Ended September 30, 2017			Nine Months Ended September 30, 2016			2018			2017			2018			2017
NET LOSS	$	(38,220	)	$	(130,752	)	$	(98,262	)	$	(305,168	)	$	(23,860	)	$	(38,220	)	$	(65,718	)	$	(98,262	)
Other comprehensive income (loss):
Foreign currency translation income (loss)	(1,257		)	(156		)	(239		)	1,458
Other comprehensive income loss:
Foreign currency translation loss													—			(1,257		)	—			(239		)
COMPREHENSIVE LOSS	$	(39,477	)	$	(130,908	)	$	(98,501	)	$	(303,710	)	$	(23,860	)	$	(39,477	)	$	(65,718	)	$	(98,501	)

See the accompanying notes which are an integral part of these condensed consolidated financial statements.

Key Energy Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)



							Nine Months Ended
	Successor			Predecessor			September 30,
	Nine Months Ended September 30, 2017			Nine Months Ended September 30, 2016			2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(98,262	)	$	(305,168	)	$	(65,718	)	$	(98,262	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense	63,325			105,075			62,881			63,325
Impairment expense	187			40,000			—			187
Bad debt expense	631			1,674			387			631
Accretion of asset retirement obligations	146			431			121			146
Loss from equity method investments	560			105			—			560
Amortization and write-off of deferred financing costs and premium	358			3,901
Amortization of deferred financing costs							357			358
Deferred income tax benefit	(27		)	(501		)	—			(27		)
Loss (gain) on disposal of assets, net	(26,987		)	5,011
Income on disposal of assets, net							(7,402		)	(26,987		)
Share-based compensation	11,581			3,652			4,582			11,581
Excess tax expense from share-based compensation	—			3,164
Changes in working capital:
Accounts receivable	1,084			50,240			(20,994		)	1,084
Other current assets	10,920			3,589			8,365			10,920
Accounts payable, accrued interest and accrued expenses	(19,943		)	(3,983		)	(4,392		)	(19,943		)
Share-based compensation liability awards	—			(227		)	835			—
Other assets and liabilities	7,794			(11,772		)	5,916			7,794
Net cash used in operating activities	(48,633		)	(104,809		)	(15,062		)	(48,633		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(9,610		)	(7,420		)	(28,521		)	(9,610		)
Proceeds from sale of assets	31,844			13,376			11,955			31,844
Net cash provided by investing activities	22,234			5,956
Net cash provided by (used in) investing activities							(16,566		)	22,234
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt	(1,875		)	(24,548		)	(1,875		)	(1,875		)
Restricted cash	16,007			(18,605		)
Payment of deferred financing costs	(350		)	—			—			(350		)
Repurchases of common stock	(85		)	(165		)	(271		)	(85		)
Excess tax expense from share-based compensation	—			(3,164		)
Net cash provided by (used in) financing activities	13,697			(46,482		)
Proceeds from exercise of warrants							3			—
Net cash used in financing activities							(2,143		)	(2,310		)
Effect of changes in exchange rates on cash	(146		)	(1,908		)	—			(146		)
Net decrease in cash and cash equivalents	(12,848		)	(147,243		)
Cash and cash equivalents, beginning of period	90,505			204,354
Cash and cash equivalents, end of period	$	77,657		$	57,111
Net decrease in cash, cash equivalents and restricted cash							(33,771		)	(28,855		)
Cash, cash equivalents, and restricted cash, beginning of period							77,065			115,212
Cash, cash equivalents, and restricted cash, end of period							$	43,294		$	86,357

See the accompanying notes which are an integral part of these condensed consolidated financial statements.

Key Energy Services, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

NOTE 1. GENERAL

Key Energy Services, Inc., and its wholly owned subsidiaries (collectively, “Key,” the “Company,” “we,” “us,” “its,” and “our”) provide a full range of well services to major oil companies and independent oil and natural gas production companies. Our services include rig-based and coiled tubing-based well maintenance and workover services, well completion and recompletion services, fluid management services, fishing and rental services, and other ancillary oilfield services. Additionally, certain of our rigs are capable of specialty drilling applications. We operate in most major oil and natural gas producing regions of the continental United States. An important component of the Company’s growth strategy is to make acquisitions that will strengthen its core services or presence in selected markets, and the Company also makes strategic divestitures from time to time. The Company expects that the industry in which it operates will experience consolidation, and the Company expects to explore opportunities and engage in discussions regarding these opportunities, which could include mergers, consolidations or acquisitions or further dispositions or other transactions, although there can be no assurance that any such activities will be consummated.

The accompanying unaudited condensed consolidated financial statements were prepared using generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”). The condensed December 31, ~~2016~~2017 balance sheet was prepared from audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017 (the ~~“2016~~“2017 Form 10-K”). Certain information relating to our organization and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted in this Quarterly Report on Form 10-Q. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our ~~2016~~2017 Form 10-K.

The unaudited condensed consolidated financial statements contained in this report include all normal and recurring material adjustments that, in the opinion of management, are necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods presented herein. The results of operations for the nine months ended September 30, ~~2017~~2018 are not necessarily indicative of the results expected for the full year or any other interim period, due to fluctuations in demand for our services, timing of maintenance and other expenditures, and other factors.

On October 24, 2016, Key and certain of our domestic subsidiaries filed voluntary petitions for reorganization under chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware pursuant to a prepackaged plan of reorganization (“the Plan”). The Plan was confirmed by the Bankruptcy Court on December 6, 2016, and the Company emerged from the bankruptcy proceedings on December 15, 2016 (“the Effective Date”).

Upon emergence on the Effective Date, the Company adopted fresh start accounting which resulted in the creation of a new entity for financial reporting purposes. As a result of the application of fresh start accounting, as well as the effects of the implementation of the Plan, the Consolidated Financial Statements on or after December 16, 2016 are not comparable with the Consolidated Financial Statements prior to that date.

References to “Successor” or “Successor Company” relate to the financial position and results of operations of the reorganized Company subsequent to December 15, 2016. References to “Predecessor” or “Predecessor Company” refer to the financial position and results of operations of the Company on and prior to December 15, 2016.

We have evaluated events occurring after the balance sheet date included in this Quarterly Report on Form 10-Q and through the date on which the unaudited condensed consolidated financial statements were issued, for possible disclosure of a subsequent event.

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

The preparation of these unaudited condensed consolidated financial statements requires us to develop estimates and to make assumptions that affect our financial position, results of operations and cash flows. These estimates may also impact the nature and extent of our disclosure, if any, of our contingent liabilities. Among other things, we use estimates to (i) analyze assets for possible impairment, (ii) determine depreciable lives for our assets, (iii) assess future tax exposure and realization of deferred tax assets, (iv) determine amounts to accrue for contingencies, (v) value tangible and intangible assets, (vi) assess workers’ compensation, vehicular liability, self-insured risk accruals and other insurance reserves, (vii) provide allowances for our uncollectible accounts receivable, (viii) value our asset retirement obligations, and (ix) value our equity-based compensation. We review all significant estimates on a recurring basis and record the effect of any necessary adjustments prior to publication of our financial statements. Adjustments made with respect to the use of estimates relate to improved information not previously available.

Because of the limitations inherent in this process, our actual results may differ materially from these estimates. We believe that the estimates used in the preparation of these interim financial statements are reasonable.

Revenue Recognition

We recognize revenues to depict the transfer of control of promised goods or services to our customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. See “Note 3. Adoption of ASC 606, Revenue from Contracts with Customers” for further discussion on Revenues.

We recognize revenue based on the ASC 606 model, comprising the following five steps: (i) a contract with the customer exists, (ii) performance obligations have been identified, (iii) the price to the customer has been determined, (iv) the price has been allocated to the performance obligations, and (v) the performance obligation is satisfied. We generally determine that these steps have been satisfied as follows:

A contract with the customer exists when a final understanding between us and our customer has occurred, and can be evidenced by a completed customer purchase order, field ticket, supplier contract, or master service agreement.

Performance obligations have been identified when we have determined the contractual requirements pursuant to the terms of the arrangement. We have a process to determine performance obligations for our contracts.

The price to the customer is determinable and allocated when the amount that is required to be paid is estimated. A price that is determinable is evidenced by contractual terms, our price book, a completed customer purchase order, or a field ticket.

The performance obligation is satisfied in a manner that best depicts the transfer of goods or services to the customer. The control over services is transferred as the services are rendered to the customer. Specifically, we recognize revenue as the services are provided, typically daily, as we have the right to invoice the customer for the services performed.

As an accounting policy election, the Company excludes from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the Company from a customer.

There have been no material changes or developments in our evaluation of accounting estimates and underlying assumptions or methodologies that we believe to be a “Critical Accounting Policy or Estimate” as disclosed in our ~~2016~~2017 Form 10-K.

Recent Accounting Developments

ASU 2018-02. In February 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This standard allows a reclassification from accumulated other comprehensive income (loss) to retained earnings for stranded tax effects resulting from the U.S. Tax Cuts and Jobs Act (the “2017 Tax Act”) that was enacted on December 22, 2017. We adopted this guidance as of January 1, 2018. The adoption of this standard did not have an impact on our consolidated financial statements.

ASU 2016-18. In November 2016, the FASB issued ASU, ~~No.~~ 2016-18 Statement of Cash Flows (Topic 230), Restricted Cash. This standard provides guidance on the presentation of restricted cash and restricted cash equivalents in the statement of cash flows. Restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period amounts shown on the statements of cash flows. The amendments of this ASU should be applied using a retrospective transition method and are effective for reporting periods beginning after December 15, 2017, with early adoption permitted. ~~Other~~We adopted the new standard effective January 1, 2018 and other than the revised statement of cash flows presentation of restricted cash, the adoption of this standard isdid not ~~expected to~~ have an impact on our consolidated financial statements.

ASU 2016-15. In August 2016 the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments ~~(a consensus of the FASB Emerging Issues Task Force) (ASU 2016-15)~~, that clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows. The guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. The guidance will be effective for annual periods beginning after December 15, 2017 and interim periods within those annual periods. Early adoption is permitted. ~~The Company is evaluating~~We adopted the ~~effect~~new standard effective January 1, 2018 and the adoption of this standard did not have a material impact on ~~its~~our consolidated financial statements.

ASU 2016-13. In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326),Measurement of Credit Losses on Financial Instruments that will change how companies measure credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income. The standard will replace today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. For available-for-sale debt securities, entities will be required to record allowances rather than reduce the carrying amount. The amendments in this update will be effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods. Early adoption is permitted for annual periods beginning after December 15, 2018. The Company is evaluating the effect of this standard on our consolidated financial statements.

~~ASU 2016-09.~~ ~~In March 2016, the FASB Issued ASU 2016-09~~ ~~Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.~~ This standard changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The Company adopted the accounting guidance as of January 1, 2017 on a prospective basis. We have elected to account for forfeitures of equity awards as they occur. The adoption of this guidance did not have a material impact our consolidated financial statements, with the exception of excess tax benefits and tax deficiencies now being recognized as income tax expense or benefit on the income statement rather than as additional paid in capital on the balance sheet and their classification on the statement of cash flow as operating activity rather than financing activity,

ASU 2016-02. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which will replace the existing lease guidance. The new standard is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet. Additional disclosure requirements include qualitative disclosures along with specific quantitative disclosures with the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for the Company for annual reporting periods beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. ~~The~~As part of our assessment work to-date, we have formed an implementation work team, conducted training for the relevant staff regarding the potential impacts of the new ASU and are continuing our contract analysis and policy review. We have engaged external resources to assist us in our efforts to complete the analysis of potential changes to current accounting practices. Additionally, we have not yet determined the effect of the ASU on our internal control over financial reporting or other changes

in business practices and processes. Key has elected the new prospective “Comparatives Under 840” transition method as defined in ASU 2018-11 and will adopt the new standard ~~is required to be applied with a modified retrospective approach to each prior reporting period presented. We are currently evaluating the standard to determine the impact~~as of ~~its adoption on the consolidated financial statements.~~January 1, 2019.

ASU ~~2014-09.~~ 2014-09. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The objective of this ASU is to establish the principles to report useful information to users of financial statements about the nature, amount, timing, and uncertainty of revenue from contracts with customers. The core principle is to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 must be adopted using either a full retrospective method or a modified retrospective method. We ~~plan to adopt~~adopted the new standard effective January 1, 2018 ~~applying~~using the full retrospective ~~method. We~~method and the adoption of this standard did not have ~~assembled~~ a ~~team~~material impact on our consolidated financial statements.

NOTE 3. ADOPTION OF ASC 606, "REVENUE FROM CONTRACTS WITH CUSTOMERS"

On January 1, 2018, we adopted ASC 606 using the full retrospective method applied to ~~scope the project, identify relevant revenue streams and understand the revenue recognition implications~~those contracts that were not completed as of December 15, 2016. As noted in prior periods, we emerged from voluntary reorganization under Chapter 11 of the ~~new guidance. We~~United States Bankruptcy Code on December 15, 2016 and therefore applied fresh-start accounting and adopted ASC 606 in effect at the fresh-start accounting date. As a result of electing to use the full retrospective adoption approach as described above, results for reporting periods beginning after December 15, 2016 are ~~currently evaluating the standard to determine the~~presented under ASC 606.

The adoption of ASC 606 did not have a material impact ~~of its adoption~~ on ~~the~~our consolidated financial statements, ~~however, management’s preliminary assessment~~and we did not record any adjustments to opening retained earnings as of December 15, 2016, because our services and rental contracts are principally charged on an hourly or daily rate basis and are primarily short-term in nature, typically less than 30 days.

Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. The following table presents our revenues disaggregated by revenue source (in thousands). Sales taxes are excluded from revenues.



	Nine Months Ended
	September 30,
	2018		2017
Rig Services	$	227,913	$	184,026
Fishing and Rental Services	47,801		45,808
Coiled Tubing Services	60,513		27,005
Fluid Management Services	68,215		57,475
International	—		5,571
Total	$	404,442	$	319,885

Disaggregation of Revenue

We have disaggregated our revenues by our reportable segments including Rig Services, Fishing & Rental Services, Coiled Tubing Services and Fluid Management Services.

Rig Services

Our Rig Services include the completion of newly drilled wells, workover and recompletion of existing oil and natural gas wells, well maintenance, and the plugging and abandonment of wells at the end of their useful lives. We also provide specialty drilling services to oil and natural gas producers with certain of our larger rigs that are capable of providing conventional and horizontal drilling services. Our rigs encompass various sizes and capabilities, allowing us to service all types of oil and gas wells.

We recognize revenue within the Rig Services segment by measuring progress toward satisfying the performance obligation in a manner that best depicts the transfer of goods or services to the customer. The control over services is transferred as the services are rendered to the customer. Specifically, we recognize revenue as the services are provided, typically daily, as we have the right to invoice the customer for the services performed. Rig Services are billed and paid monthly. Payment terms for Rig Services are usually 30 days from invoice receipt.

Fishing and Rental Services

We offer a full line of services and rental equipment designed for use in providing drilling and workover services. Fishing services involve recovering lost or stuck equipment in the wellbore utilizing a broad array of “fishing tools.” Our rental tool inventory consists of drill pipe, tubulars, handling tools (including our patented Hydra-Walk® pipe-handling units and services), pressure-control equipment, pumps, power swivels, reversing units, foam air units.

We recognize revenue within the Fishing and Rental Services segment by measuring progress toward satisfying the performance obligation in a manner that best depicts the transfer of goods or services to the customer. The control over services is transferred as the services are rendered to the customer. Specifically, we recognize revenue as the services are provided, typically daily, as we have the right to invoice the customer for the services performed. Fishing and Rental Services are billed and paid monthly. Payment terms for Fishing and Rental Services are usually 30 days from invoice receipt.

Coiled Tubing Services

Coiled Tubing Services involve the use of a continuous metal pipe spooled onto a large reel, which is then deployed into oil and natural gas wells to perform various applications, such as wellbore clean-outs, nitrogen jet lifts, through-tubing fishing, and formation stimulations utilizing acid and chemical treatments. Coiled tubing is also used for a number of horizontal well applications such as milling temporary isolation plugs that separate frac zones, and various other pre- and post-hydraulic fracturing well preparation services.

We recognize revenue within the Coiled Tubing Services segment by measuring progress toward satisfying the performance obligation in a manner that best depicts the transfer of goods or services to the customer. The control over services is transferred as the services are rendered to the customer. Specifically, we recognize revenue, typically daily, as the services are provided as we have the right to invoice the customer for the services performed. Coiled Tubing Services are billed and paid monthly. Payment terms for Coiled Tubing Services are usually 30 days from invoice receipt.

Fluid Management Services

We recognize revenue within the Fluid Management Services segment by measuring progress toward satisfying the performance obligation in a manner that best depicts the transfer of goods or services to the customer. The control over services is transferred as the services are rendered to the customer. Specifically, we recognize revenue as the services are provided, typically daily, as we have the right to invoice the customer for the services performed. Fluid Management Services are billed and paid monthly. Payment terms for Fluid Management Services are usually 30 days from invoice receipt.

International

Our former International segment included our former operations in Canada and Russia. Our services in Russia consisted of rig-based services such as the maintenance, workover, and recompletion of existing oil wells, completion of newly-drilled wells, and plugging and abandonment of wells at the end of their useful lives. We also had a technology development and control systems business based in Canada, which was focused on the development of hardware and software related to oilfield service equipment controls, data acquisition and digital information flow.

We recognized revenue within the International segment by measuring progress toward satisfying the performance obligation in a manner that best depicted the transfer of goods or services to the customer. The control over services was transferred as the services were rendered to the customer. Specifically, we recognized revenue as the services were provided, typically daily, as we had the right to invoice the customer for the services performed. Services within the international segment were billed and paid monthly. Payment terms for services within the International segment were usually 30 days from invoice receipt.

Arrangements with Multiple Performance Obligations

Our contracts with customers may include multiple performance obligations. For such arrangements, we allocate revenues to each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices based on the prices charged to customers or using expected cost-plus margin. For combined products and services within a contract, we account for individual products and services separately if they are distinct- i.e. if a product or service is separately identifiable from other items in the contract and if a customer can benefit from it on its own or with other resources that are readily available to the customer. The consideration (including any discounts) is allocated between separate products and services within a contract based on the prices at which we separately sell our services. For items that are not sold separately, we estimate the standalone selling prices using the expected cost-plus margin approach.

Contract Balances

Under our revenue contracts, we invoice customers once our performance obligations have been satisfied, at which point payment is unconditional. Accordingly, our revenue contracts do not give rise to contract assets or liabilities under ASC 606.

Practical Expedients and Exemptions

We generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within general and administrative expenses.

The majority of our services are short-term in nature with a contract term of one year or less. For those contracts, we have utilized the practical expedient in ASC 606-10-50-14 exempting the Company from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.

Additionally, our payment terms are short-term in nature with settlements of one year or less. We have, therefore, utilized the practical expedient in ASC 606-10-32-18 exempting the Company from adjusting the promised amount of consideration for the effects of a significant financing component given that the ~~impact~~period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.

Further, in many of our service contracts we have a right to consideration from a customer in an amount that corresponds directly with the value to the ~~financial statements will not be material.~~

~~NOTE 3. ASSETS HELD FOR SALE~~

~~In April 2015, we announced our decision~~customer of the entity’s performance completed to ~~exit markets~~date (for example, a service contract in which an entity bills a fixed amount for each hour of service provided). For those contracts, we ~~participate outside of North America. Our strategy was to sell or relocate~~have utilized the ~~assets~~practical expedient in ASC 606-10-55-18 exempting the Company from disclosure of the businesses operating in these markets. During the fourth quarter of 2015, the assets and related liabilities of our Russian business unit, which were included in our International reporting segment, met the criteria for assets held for sale. The sale of our Russian business unit was completedentity to recognize revenue in the ~~third quarter~~amount to which the Company has a right to invoice.

Accordingly, we do not disclose the value of ~~2017.~~unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

NOTE 4. EQUITY

A reconciliation of the total carrying amount of our equity accounts for the nine months ended September 30, ~~2017~~2018 is as follows (in thousands):


	COMMON STOCKHOLDERS																		COMMON STOCKHOLDERS
	Common Stock			Additional Paid-in Capital				Accumulated Other Comprehensive Income				Retained Deficit				Total			Common Stock				Additional Paid-in Capital			Retained Deficit			Total
	Number of Shares	Amount at Par						Accumulated Other Comprehensive Income			Number of Shares					Total			Amount at Par				Additional Paid-in Capital			Retained Deficit			Total
Balance at December 31, 2016 (Successor)	20,096	$	201	Additional Paid-in Capital		$	252,421			$	239	Retained Deficit			$	(10,244	)		$	242,617
Foreign currency translation	—	—		—				(239		)		—				(239		)
Balance at December 31, 2017																			20,217		$	202	$	259,314		$	(130,833	)	$	128,683
Common stock purchases	—	—		(85		)		—				—				(85		)	—		—		(271		)	—			(271		)
Exercise of warrants																			—		—		3			—			3
Share-based compensation	13	—		11,581				—				—				11,581			80		1		4,581			—			4,582
Net loss	—	—		—				—				(98,262		)		(98,262		)	—		—		—			(65,718		)	(65,718		)
Balance at September 30, 2017 (Successor)	20,109	$	201	$	263,917			$	—			$	(108,506	)		$	155,612
Balance at September 30, 2018																			20,297		$	203	$	263,627		$	(196,551	)	$	67,279

NOTE 5. OTHER BALANCE SHEET INFORMATION

The table below presents comparative detailed information about other current assets at September 30, ~~2017~~2018 and December 31, ~~2016~~2017 (in thousands):



	September 30, 2017		December 31, 2016		September 30, 2018		December 31, 2017
Other current assets:
Prepaid current assets	$	5,069	$	10,291	$	5,490	$	9,598
Reinsurance receivable	9,451		7,922		7,209		7,328
Current assets held for sale	—		3,667
Other	2,898		3,882		1,243		2,551
Total	$	17,418	$	25,762	$	13,942	$	19,477

The table below presents comparative detailed information about other non-current assets at September 30, ~~2017~~2018 and December 31, ~~2016~~2017 (in thousands):



	September 30, 2017		December 31, 2016		September 30, 2018		December 31, 2017
Other non-current assets:
Reinsurance receivable	$	8,110	$	8,393	$	7,605	$	7,768
Deposits	1,331		8,292		1,228		1,246
Equity method investments	—		560
Non-current assets held for sale	—		360
Other	5,166		135		601		5,528
Total	$	14,607	$	17,740	$	9,434	$	14,542

The table below presents comparative detailed information about other current liabilities at September 30, ~~2017~~2018 and December 31, ~~2016~~2017 (in thousands):



	September 30, 2017		December 31, 2016		September 30, 2018		December 31, 2017
Other current liabilities:
Accrued payroll, taxes and employee benefits	$	16,219	$	23,224	$	16,304	$	19,874
Accrued operating expenditures	10,313		16,669		15,312		11,644
Income, sales, use and other taxes	11,105		10,748		8,881		12,151
Self-insurance reserve	26,994		35,484		26,693		26,761
Accrued interest	6,586		1,419		7,069		6,605
Accrued insurance premiums	127		2,347		12		4,077
Unsettled legal claims	10,686		5,398		3,381		4,747
Accrued severance	250		2,219		567		250
Current liabilities held for sale	—		371
Other	103		6,059		1,056		1,470
Total	$	82,383	$	103,938	$	79,275	$	87,579

The table below presents comparative detailed information about other non-current liabilities at September 30, ~~2017~~2018 and December 31, ~~2016~~2017 (in thousands):



	September 30, 2017		December 31, 2016		September 30, 2018		December 31, 2017
Other non-current liabilities:
Asset retirement obligations	$	8,891	$	9,035	$	8,972	$	8,931
Environmental liabilities	2,075		3,446		1,980		1,977
Accrued sales, use and other taxes	17,321		16,735		17,123		17,142
Deferred tax liabilities	—		35
Other	201		528		381		116
Total	$	28,488	$	29,779	$	28,456	$	28,166

NOTE 6. INTANGIBLE ASSETS

The components of our other intangible assets as of September 30, ~~2017~~2018 and December 31, ~~2016~~2017 are as follows (in thousands):



	September 30, 2017		December 31, 2016	September 30, 2018			December 31, 2017
Trademark:
Gross carrying value	520		520	$	520		$	520
Accumulated amortization	(43	)	—	(101		)	(58		)
Net carrying value	477		520	$	419		$	462

The weighted average remaining amortization periods and expected amortization expense for the next five years for our definite lived intangible assets are as follows:

Weighted
average
remaining
amortization
period (years)
Expected amortization expense (in thousands)

Remainder
of 2017
2018 2019 2020 2021 2022
Trademarks 8.3 15
58
58
58
58
58



	Weighted average remaining amortization period (years)	Expected amortization expense (in thousands)
	Weighted average remaining amortization period (years)	Remainder of 2018		2019		2020		2021		2022		2023
Trademarks	7.3	$	14	$	58	$	58	$	58	$	58	$	58

Amortization expense for our intangible assets was less than $0.1 million ~~and $0.4 million~~ for the three ~~months ended September 30, 2017~~ and ~~2016, respectively, and less than $0.1 million and $1.3 million for the~~ nine months ended September 30, ~~2017~~2018 and ~~2016, respectively.~~2017.

NOTE 7. DEBT

As of September 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the components of our debt were as follows (in thousands):



	September 30, 2017			December 31, 2016			September 30, 2018			December 31, 2017
Term Loan Facility due 2021	$	248,125		$	250,000		$	245,625		$	247,500
Unamortized debt issuance costs	(2,015		)	(2,023		)	(1,540		)	(1,897		)
Total	246,110			247,977			244,085			245,603
Less current portion	(2,500		)	(2,500		)	(2,500		)	(2,500		)
Long-term debt	$	243,610		$	245,477		$	241,585		$	243,103

ABL Facility

On December 15, 2016, the Company and Key Energy Services, LLC, as borrowers (the “ABL Borrowers”), entered into the ABL Facility with the financial institutions party thereto from time to time as lenders (the “ABL Lenders”), Bank of America, N.A., as administrative agent for the lenders (the “Administrative Agent”) and Bank of America, N.A. and Wells Fargo Bank, National Association, as co-collateral agents for the lenders. The ABL Facility provides for aggregate initial commitments from the ABL Lenders of $80 million, which, on February 3, 2017 was increased to $100 million, and matures on June 15, 2021.

The ABL Facility provides the ABL Borrowers with the ability to borrow up to an aggregate principal amount equal to the lesser of (i) the aggregate revolving commitments then in effect and (ii) the sum of (a) 85% of the value of eligible accounts receivable plus (b) 80% of the value of eligible unbilled accounts receivable, subject to a limit equal to the greater of (x) $35 million and (y) 25% of the commitments. The amount that may be borrowed under the ABL Facility is subject to increase or reduction based on certain segregated cash or reserves provided for by the ABL Facility. In addition, the percentages of accounts receivable and unbilled accounts receivable included in the calculation described above is subject to reduction to the extent of certain bad debt write-downs and other dilutive items provided in the ABL Facility.

Borrowings under the ABL Facility will bear interest, at the ABL Borrowers’ option, at a per annum rate equal to (i) LIBOR for 30, 60, 90, 180, or, with the consent of the ABL Lenders, 360 days, plus an applicable margin that varies from 2.5% to 4.5% depending on the Borrowers’ fixed charge coverage ratio at such time or (ii) a base rate equal to the sum of (a) the greatest of (x) the prime rate, (y) the federal funds rate, plus 0.50% or (z) 30-day LIBOR, plus 1.0% plus (b) an applicable margin that varies from 1.50% to 3.50% depending on the Borrowers’ fixed charge coverage ratio at such time. In addition, the ABL Facility provides for unused line fees of 1.00% to 1.25% per year, depending on utilization, letter of credit fees and certain other factors.

The ABL Facility may in the future be guaranteed by certain of the Company’s existing and future subsidiaries (the “ABL Guarantors,” and together with the ABL Borrowers, the “ABL Loan Parties”). To secure their obligations under the ABL Facility, each of the ABL Loan Parties has granted or will grant, as applicable, to the Administrative Agent a first-priority security interest for the benefit of the ABL Lenders in its present and future accounts receivable, inventory and related assets and proceeds of the foregoing (the “ABL Priority Collateral”). In addition, the obligations of the ABL Loan Parties under the ABL Facility are secured by second-priority liens on the Term Priority Collateral (as described below under “Term Loan Facility”).

The revolving loans under the ABL Facility may be voluntarily prepaid, in whole or in part, without premium or penalty, subject to breakage or similar costs.

the sale of assets. The ABL Facility also contains a requirement that the ABL Borrowers comply, during certain periods, with a fixed charge coverage ratio of 1.00 to 1.00.

As of September 30, ~~2017,~~2018, we have no borrowings outstanding and ~~$33.7~~$35.6 million of letters of credit outstanding with borrowing capacity of ~~$26.5~~$29.5 million available subject to covenant constraints under our ABL Facility.

Term Loan Facility

On December 15, 2016, the Company entered into the Term Loan Facility among the Company, as borrower, certain subsidiaries of the Company named as guarantors therein, the financial institutions party thereto from time to time as Lenders (collectively, the “Term Loan Lenders”) and Cortland Capital Market Services LLC and Cortland Products Corp., as agent for the Lenders. The Term Loan Facility had an initial outstanding principal amount of $250 million.

The Term Loan Facility will mature on December 15, 2021, although such maturity date may, at the Company’s request, be extended by one or more of the Term Loan Lenders pursuant to the terms of the Term Loan Facility. Borrowings under the Term Loan Facility will bear interest, at the Company’s option, at a per annum rate equal to (i) LIBOR for one, two, three, six, or, with the consent of the Term Loan Lenders, 12 months, plus 10.25% or (ii) a base rate equal to the sum of (a) the greatest of (x) the prime rate, (y) the Federal Funds rate, plus 0.50% and (z) 30-day LIBOR, plus 1.0% plus (b) 9.25%.

The Term Loan Facility is guaranteed by certain of the Company’s existing and future subsidiaries (the “Term Loan Guarantors,” and together with the Company, the “Term Loan Parties”). To secure their obligations under the Term Loan Facility, each of the Term Loan Parties has granted or will grant, as applicable, to the agent a first-priority security interest for the benefit of the Term Loan Lenders in substantially all of each Term Loan Party’s assets other than certain excluded assets and the ABL Priority Collateral (the “Term Priority Collateral”). In addition, the obligations of the Term Loan Parties under the Term Loan Facility are secured by second-priority liens on the ABL Priority Collateral (as described above under “ABL Facility”).

The loans under the Term Loan Facility may be prepaid at the Company’s option, subject to the payment of a prepayment premium in certain circumstances as provided in the Term Loan Facility. ~~If a~~A prepayment ~~is made~~ prior to the first anniversary of the loan ~~such prepayment must be~~would have been required to have been made with a make-whole amount with the calculation of the make-whole amount as specified in the Term Loan Facility. If a prepayment is made after the first anniversary of the loan but prior to the second anniversary, such prepayment must be made at 106% of the principle amount, if a prepayment is made after the second anniversary but prior to the third anniversary, such prepayment must be made at 103% of the principle amount. After the third anniversary, if a prepayment is made, no prepayment premium is due. The Company is required to make principal payments in the amount of $625,000 per ~~quarter commencing with the quarter ending March 31, 2017.~~quarter. In addition, pursuant to the Term Loan Facility, the Company must prepay or offer to prepay, as applicable, term loans with the net cash proceeds of certain debt incurrences and asset sales, excess cash flow, and upon certain change of control transactions, subject in each case to certain exceptions.

The Term Loan Facility contains certain affirmative and negative covenants, including covenants that restrict the ability of the Term Loan Parties to take certain actions including, among other things and subject to certain significant exceptions, the incurrence of debt, the granting of liens, the making of investments, entering into transactions with affiliates, the payment of dividends and the sale of assets. The Term Loan Facility also contains financial covenants requiring that the Company maintain an asset coverage ratio of at least 1.35 to 1.0 and that Liquidity (as defined in the Term Loan Facility) must not be less than $37.5 million (of which at least $20.0 million must be in cash or cash equivalents held in deposit accounts) as of the last day of any fiscal quarter, subject to certain exceptions and cure rights.

The weighted average interest rates on the outstanding borrowings under the Term Loan Facility for the three and nine month periods ended September 30, ~~2017~~2018 were as follows:

Three Months Ended Nine Months Ended
September 30, 2017 September 30, 2017
Term Loan Facility 11.53 % 11.40 %



	Three Months Ended		Nine Months Ended
	September 30, 2018		September 30, 2018
Term Loan Facility	12.59	%	12.34	%

Debt Compliance

At September 30, 2018, we were in compliance with all the financial covenants under our ABL Facility and the Term Loan Facility. Based on management’s current projections, we expect to be in compliance with all the covenants under our ABL Facility and Term Loan Facility for the next twelve months. A breach of any of these covenants, ratios or tests could result in a default under our indebtedness.

NOTE 8. OTHER ~~(INCOME) LOSS~~INCOME

The table below presents comparative detailed information about our other income and expense, shown on the condensed consolidated statements of operations as “other ~~(income) loss,~~income, net” for the periods indicated (in thousands):



													Three Months Ended						Nine Months Ended
	Successor			Predecessor			Successor			Predecessor			September 30,						September 30,
	Three Months Ended September 30, 2017			Three Months Ended September 30, 2016			Nine Months Ended September 30, 2017			Nine Months Ended September 30, 2016			2018			2017			2018			2017
Interest income	$	(182	)	$	(104	)	$	(534	)	$	(371	)	$	(201	)	$	(182	)	$	(580	)	$	(534	)
Foreign exchange (gain) loss	(15		)	351			(29		)	1,112
Other, net	(4,381		)	(93		)	(5,216		)	(1,406		)
Other													(12		)	(4,396		)	(1,392		)	(5,245		)
Total	$	(4,578	)	$	154		$	(5,779	)	$	(665	)	$	(213	)	$	(4,578	)	$	(1,972	)	$	(5,779	)

NOTE 9. INCOME TAXES

The 2017 Tax Act was enacted on December 22, 2017. It is comprehensive tax reform legislation that contains significant changes to corporate taxation. Provisions on the enacted law include a permanent reduction of the corporate income tax rate from 35% to 21%, imposing a mandatory one-time tax on un-repatriated accumulated earnings of foreign subsidiaries, a partial limitation on the deductibility of business interest expense, a limitation on net operating losses to 80% of taxable income each year, a shift of the U.S. taxation of multinational corporations from a tax on worldwide income to a partial territorial system (along with rules that create a new U.S. minimum tax on earnings of foreign subsidiaries), and other related provisions to maintain the U.S. tax base.

We recognized the income tax effects of the 2017 Tax Act in accordance with Staff Accounting Bulletin No. 118, which provides SEC staff guidance for the application of ASC Topic 740, Income Taxes. The guidance allows for a measurement period of up to one year after the enactment date to finalize the recording of the related tax impacts. We believe the provisional amounts recorded during the fourth quarter of 2017 continue to represent a reasonable estimate of the accounting implications of the 2017 Tax Act. We did not identify any items for which the income tax effects of the 2017 Tax Act could not be reasonably estimated as of September 30, 2018. However, tax laws and regulations are subject to interpretation and the outcomes of tax disputes are inherently uncertain, and therefore our assessments can involve a series of complex judgments about future events and rely heavily on estimates and assumptions.

We are subject to U.S. federal income tax as well as income taxes in multiple state and foreign jurisdictions. Our effective tax rates for the three months ended September 30, 2018 and 2017 were 6.8% and ~~2016 were~~ 0.3% ~~and 0.1%~~, respectively, and ~~1.2%~~2.4% and ~~0.2%~~1.2% for the nine months ended September 30, ~~2017~~2018 and ~~2016,~~2017, respectively. The variance between our effective rate and the U.S. statutory rate is due to the mix of pre-tax profit between the U.S. and international taxing jurisdictions with varying statutory rates, the impact of permanent differences, and other tax adjustments, such as valuation allowances against deferred tax assets, and tax expense or benefit recognized for uncertain tax positions.

We continued recording income taxes using a year-to-date effective tax rate method for the ~~three-~~three and ~~nine-month periods~~nine months ended September 30, 2018 and 2017. The use of this method was based on our expectations ~~at September 30, 2017~~ that a small change in our estimated ordinary income could result in a large change in the estimated annual effective tax rate. We will re-evaluate our use of this method each quarter until such time as a return to the annualized effective tax rate method is deemed appropriate.

The Company assesses the realizability of its deferred tax assets each period by considering whether it is more likely than not that all or a portion of the deferred tax assets will not be realized. Due to the history of losses in recent years and the continued challenges affecting the oil and gas industry, management continues to believe it is more likely than not that we will not be able to realize our net deferred tax assets. No release of our deferred tax asset valuation allowance was made during the three or nine months ended September 30, ~~2017.~~2018.

As of September 30, ~~2017,~~2018, we had ~~$0.3~~$0.1 million of unrecognized tax benefits, net of federal tax benefit, which, if recognized, would impact our effective tax rate. We record interest and penalties related to unrecognized tax benefits as income tax expense. We have accrued a liability of less than $0.1 million for the payment of interest and penalties as of September 30, ~~2017.~~2018. We believe that it is reasonably possible that ~~$0.2 million of our currently~~all remaining unrecognized tax positions may be recognized in the next twelve months as a result of a lapse of statute of limitations and settlement of ongoing audits.

NOTE 10. COMMITMENTS AND CONTINGENCIES

Litigation

Various suits and claims arising in the ordinary course of business are pending against us. We conduct business throughout the continental United States and may be subject to jury verdicts or arbitrations that result in outcomes in favor of the plaintiffs. We are also exposed to various claims abroad. We continually assess our contingent liabilities, including potential litigation liabilities, as well as the adequacy of our accruals and our need for the disclosure of these items, if any. We establish a provision for a contingent liability when it is probable that a liability has been incurred and the amount is reasonably estimable. We have ~~$10.7~~$3.4 million of other liabilities related to litigation that is deemed probable and reasonably estimable as of September 30, ~~2017.~~2018. We do not believe that the disposition of any of these matters will result in an additional loss materially in excess of amounts that have been recorded.

In November 2015, the Santa Barbara County District Attorney filed a criminal complaint against two former employees and Key, specifically alleging three counts of violations of California Labor Code section 6425(a) against Key. The complaint sought unspecified penalties against Key related to an October 12, 2013 accident which resulted in the death of one Key employee at a drilling site near Santa Maria, California. An arraignment was held on February 10, 2016, where Key and its former employees pleaded not guilty to all charges.

On or about January 10, 2017, Key entered into a settlement with the Santa Barbara County District Attorney. Key agreed to plead no contest to one felony count (Count 2), a violation of California Labor Code 6425(a). The Santa Barbara County District Attorney also agreed to recommend total restitution, fines, fees, and surcharges not to exceed $450,000. The court dismissed the remaining charges (Counts 1 and 3) against Key. The parties agreed to postpone sentencing in the matter until January 20, 2018. The parties agreed that if Key pays all of the total restitution, fines, fees, and surcharges by January 20, 2018, the Santa Barbara County District Attorney will not object to Key withdrawing its plea to a felony count on Count 2 and entering a plea to a misdemeanor.

Self-Insurance Reserves

We maintain reserves for workers’ compensation and vehicle liability on our balance sheet based on our judgment and estimates using an actuarial method based on claims incurred. We estimate general liability claims on a case-by-case basis. We maintain insurance policies for workers’ compensation, vehicle liability and general liability claims. These insurance policies carry self-insured retention limits or deductibles on a per occurrence basis. The retention limits or deductibles are accounted for in our accrual process for all workers’ compensation, vehicular liability and general liability claims. The deductibles have a $5 million maximum per vehicular liability claim, and a $2 million maximum per general liability claim and a $1 million maximum per workers’ compensation claim. As of September 30, ~~2017~~2018 and December 31, ~~2016,~~2017, we have recorded ~~$53.5~~$51.9 million and ~~$58.7~~$52.2 million, respectively, of self-insurance reserves related to workers’ compensation, vehicular liabilities and general liability claims. Partially offsetting these liabilities, we had ~~$17.6~~$14.8 million and ~~$16.3~~$15.1 million of insurance receivables as of September 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively. We believe that the liabilities we have recorded are appropriate based on the known facts and circumstances and do not expect further losses materially in excess of the amounts already accrued for existing claims.

Environmental Remediation Liabilities

For environmental reserve matters, including remediation efforts for current locations and those relating to previously disposed properties, we record liabilities when our remediation efforts are probable and the costs to conduct such remediation efforts can be reasonably estimated. As of each of September 30, ~~2017~~2018 and December 31, ~~2016,~~2017, we have recorded ~~$2.1~~$2.0 million ~~and $3.4 million, respectively,~~ for our environmental remediation liabilities. We believe that the liabilities we have recorded are appropriate based on the known facts and circumstances and do not expect further losses materially in excess of the amounts already accrued.

NOTE 11. LOSS PER SHARE

Basic loss per share is determined by dividing net loss attributable to Key by the weighted average number of common shares actually outstanding during the period. Diluted loss per common share is based on the increased number of shares that would be outstanding assuming conversion of potentially dilutive outstanding securities using the treasury stock and “as if converted” methods.

The components of our loss per share are as follows (in thousands, except per share amounts):



													Three Months Ended						Nine Months Ended
	Successor			Predecessor			Successor			Predecessor			September 30,						September 30,
	Three Months Ended September 30, 2017			Three Months Ended September 30, 2016			Nine Months Ended September 30, 2017			Nine Months Ended September 30, 2016			2018			2017			2018			2017
Basic and Diluted EPS Calculation:
Numerator
Net loss	$	(38,220	)	$	(130,752	)	$	(98,262	)	$	(305,168	)	$	(23,860	)	$	(38,220	)	$	(65,718	)	$	(98,262	)
Denominator
Weighted average shares outstanding	20,106			160,846			20,101			160,626			20,252			20,106			20,234			20,101
Basic and diluted loss per share	$	(1.90	)	$	(0.81	)	$	(4.89	)	$	(1.90	)	$	(1.18	)	$	(1.90	)	$	(3.25	)	$	(4.89	)

Restricted stock units (“RSUs”), stock options, ~~stock appreciation rights (“SARs”)~~ and warrants are included in the computation of diluted earnings per share using the treasury stock method. Restricted stock awards are legally considered issued and outstanding when granted and are included in basic weighted average shares outstanding.

The company has issued potentially dilutive instruments such as RSUs, stock options, ~~SARs~~ and warrants. However, the company did not include these instruments in its calculation of diluted loss per share during the periods presented, because to include them would be anti-dilutive. The following table shows potentially dilutive instruments (in thousands):



					Three Months Ended		Nine Months Ended
	Successor	Predecessor	Successor	Predecessor	September 30,		September 30,
	Three Months Ended September 30, 2017	Three Months Ended September 30, 2016	Nine Months Ended September 30, 2017	Nine Months Ended September 30, 2016	2018	2017	2018	2017
RSUs	641	60	641	60	1,078	641	1,367	641
Stock options	645	301	645	812	159	645	163	645
SARs	—	240	—	240
Warrants	1,838	—	1,838	—	1,838	1,838	1,838	1,838
Total	3,124	601	3,124	1,112	3,075	3,124	3,368	3,124

No events occurred after September 30, ~~2017~~2018 that would materially affect the number of weighted average shares outstanding.

NOTE 12. SHARE-BASED COMPENSATION

Common Stock Awards

We recognized employee share-based compensation expense of ~~$2.5~~$1.6 million and ~~$0.5~~$2.5 million during the three months ended September 30, ~~2017~~2018 and ~~2016,~~2017, respectively. We recognized employee share-based compensation expense of ~~$10.9~~$4.0 million and ~~$3.4~~$8.2 million during the nine months ended September 30, ~~2017~~2018 and ~~2016,~~2017, respectively. Our employee share-based awards, including common stock awards, stock option awards and phantom shares, vest in equal installments over a ~~four-year~~three-year period. Additionally, we recognized share-based compensation expense related to our outside directors of $0.1 million ~~and zero~~ during the three months ended September 30, ~~2017~~2018 and ~~2016, respectively.~~2017. We recognized share-based compensation expense related to our outside directors of $0.6 million ~~and zero~~ during the nine months ended September 30, ~~2017~~2018 and ~~2016, respectively.~~2017. The unrecognized compensation cost related to our unvested share-based awards as of September 30, ~~2017~~2018 is estimated to be ~~$12.3~~$8.3 million and is expected to be recognized over a weighted-average period of ~~1.7~~1.5 years.

Stock Option Awards

We recognized compensation expense related to our stock options of zero and $0.8 million ~~and zero~~ during the three months ended September 30, ~~2017~~2018 and ~~2016,~~2017, respectively. We recognized compensation expense related to our stock options of zero and $2.7 million during the nine months ended September 30, 2018 and 2017, respectively. As of September 30, 2018, all outstanding stock options are vested and there are no unrecognized costs related to our stock options.

Phantom Share Plan

We recognized compensation expense related to our phantom shares of less than $0.1 million and zero during the three months ended September 30, 2018 and 2017, respectively. We recognized compensation expense related to our phantom shares of $0.8 million and zero during the nine months ended September 30, 2018 and 2017, ~~and 2016,~~ respectively. ~~Our employee stock options vest in equal installments over a four-year period.~~ The unrecognized compensation cost related to our unvested ~~stock options~~phantom shares as of September 30, ~~2017~~2018 is estimated to be ~~$4.2~~$0.9 million and is expected to be recognized over a weighted-average period of ~~1.7~~1.3 years.

NOTE 13. TRANSACTIONS WITH RELATED PARTIES

The Company has purchased or sold equipment ~~and~~or services from a few affiliates of certain directors. Additionally, the Company has a corporate advisory services agreement between with Platinum Equity Advisors, LLC (“Platinum”) pursuant to which Platinum provides certain business advisory services to the Company. The dollar amounts related to these related party activities are not material to the Company’s condensed consolidated financial statements.

NOTE 14. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

Cash, cash equivalents, accounts receivable, accounts payable and accrued liabilities. These carrying amounts approximate fair value because of the short maturity of the instruments or because the carrying value is equal to the fair value of those instruments on the balance sheet date.

Term Loan Facility due 2021. Because the variable interest rates of these loans approximate current market rates, the fair values of the loans borrowed under this facility approximate their carrying values.

NOTE 15. SEGMENT INFORMATION

Our reportable business segments are ~~U.S.~~ Rig ~~Services, Fluid Management Services, Coiled Tubing~~ Services, Fishing and Rental Services, Coiled Tubing Services, Fluid Management Services and, in 2017, International. We also have a “Functional Support” segment associated with overhead and other costs in support of our reportable segments. Our ~~U.S.~~ Rig Services, ~~Fluid Management~~Fishing and Rental Services, Coiled Tubing Services ~~Fishing~~ and ~~Rental~~Fluid Management Services operate geographically within the United States. The International reportable segment includes our former operations in Canada ~~Mexico~~ and Russia. ~~During the third quarter of 2017, second quarter of 2017 and the fourth quarter of 2016, we~~We completed the sale of our ~~businesses~~Canadian subsidiary and Russian subsidiary in ~~Russia, Canada~~the second and ~~Mexico,~~third quarters of 2017, respectively. We evaluate the performance of our segments based on gross margin measures. All inter-segment sales pricing is based on current market conditions.

~~U.S.~~ Rig Services

Our ~~U.S.~~ Rig Services include the completion of newly drilled wells, workover and recompletion of existing oil and natural gas wells, well maintenance, and the plugging and abandonment of wells at the end of their useful lives. We also provide specialty drilling services to oil and natural gas producers with certain of our larger rigs that are capable of providing conventional and horizontal drilling services. Our rigs encompass various sizes and capabilities, allowing us to service all types of wells. Many of our rigs are outfitted with our proprietary KeyView® technology, which captures and reports well site operating data and provides safety control systems. We believe that this technology allows our customers and our crews to better monitor well site operations, improves efficiency and safety, and adds value to the services that we offer.

The completion and recompletion services provided by our rigs prepare wells for production, whether newly drilled, or recently extended through a workover operation. The completion process may involve selectively perforating the well casing to access production zones, stimulating and testing these zones, and installing tubular and downhole equipment. We typically provide a well service rig and may also provide other equipment to assist in the completion process. Completion services vary by well and our work may take a few days to several weeks to perform, depending on the nature of the completion.

The workover services that we provide are designed to enhance the production of existing wells and generally are more complex and time consuming than normal maintenance services. Workover services can include deepening or extending wellbores

into new formations by drilling horizontal or lateral wellbores, sealing off depleted production zones and accessing previously bypassed production zones, converting former production wells into injection wells for enhanced recovery operations and conducting major subsurface repairs due to equipment failures. Workover services may last from a few days to several weeks, depending on the complexity of the workover.

Maintenance services provided with our rig fleet are generally required throughout the life cycle of an oil or natural gas well. Examples of these maintenance services include routine mechanical repairs to the pumps, tubing and other equipment, removing debris and formation material from wellbores, and pulling rods and other downhole equipment from wellbores to identify and resolve production problems. Maintenance services are generally less complicated than completion and workover related services and require less time to perform.

Our rig fleet is also used in the process of permanently shutting-in oil or natural gas wells that are at the end of their productive lives. These plugging and abandonment services generally require auxiliary equipment in addition to a well servicing rig. The demand for plugging and abandonment services is not significantly impacted by the demand for oil and natural gas because well operators are required by state regulations to plug wells that are no longer productive.

Fishing and Rental Services

We offer a full line of fishing services and rental equipment designed for use in providing drilling and workover services. Fishing services involve recovering lost or stuck equipment in the wellbore utilizing a broad array of “fishing tools.” Our rental tool inventory consists of drill pipe, tubulars, handling tools (including our patented Hydra-Walk^® pipe-handling units and services), pressure-control equipment, pumps, power swivels, reversing units and foam air units. We sold our well testing assets and our frac stack equipment used to support hydraulic fracturing operations and the associated flowback of frac fluids in the second quarter of 2017.

Demand for our fishing and rental services is closely related to capital spending by oil and natural gas producers, which is generally a function of oil and natural gas prices.

Coiled Tubing Services

Coiled Tubing Services involve the use of a continuous metal pipe spooled onto a large reel which is then deployed into oil and natural gas wells to perform various applications, such as wellbore clean-outs, nitrogen jet lifts, through-tubing fishing, and formation stimulations utilizing acid and chemical treatments. Coiled tubing is also used for a number of horizontal well applications such as milling temporary isolation plugs that separate frac zones, and various other pre- and post-hydraulic fracturing well preparation services.

Fluid Management Services

We provide transportation and well-site storage services for various fluids utilized in connection with drilling, completions, workover and maintenance activities. We also provide disposal services for fluids produced subsequent to well completion. These fluids are removed from the well site and transported for disposal in saltwater disposal wells owned by us or a third party. In addition, we operate a fleet of hot oilers capable of pumping heated fluids used to clear soluble restrictions in a wellbore. Demand and pricing for these services generally correspond to demand for our well service rigs.

~~Coiled Tubing Services~~

~~Fishing and Rental Services~~

We offer a full line of fishing services and rental equipment designed for use in providing drilling and workover services. Fishing services involve recovering lost or stuck equipment in the wellbore utilizing a broad array of “fishing tools.” Our rental tool inventory consists of drill pipe, tubulars, handling tools (including our patented Hydra-Walk^® pipe-handling units and services), pressure-control equipment, pumps, power swivels, reversing units, foam air units, proppants, oil and natural gas. We sold our well testing assets and our frac stack equipment used to support hydraulic fracturing operations and the associated flowback of frac fluids in the second quarter of 2017.

~~Demand for our fishing and rental services is closely related to capital spending by oil and natural gas producers, which is generally a function of oil and natural gas prices.~~

International

Our former International segment included our former operations in Russia and Canada. In April 2015, we announced our decision to exit markets in which we participate outside of North America. ~~During the third quarter of 2017, second quarter of 2017 and the fourth quarter of 2016,~~To this end, we completed the sale of our ~~businesses~~Canadian subsidiary and Russian subsidiary in the second and third quarters of 2017, respectively. Our services in Russia ~~Canada and Mexico, respectively. We provided~~consisted of rig-based services such as the maintenance, workover, and recompletion of existing oil wells, completion of newly-drilled wells, and plugging and abandonment of wells at the end of their useful ~~lives~~lives. Our services in ~~each~~Canada consisted of ~~our international markets. In addition, in Mexico we provided drilling, coiled tubing, wireline~~technology development and ~~project management and consulting services. Our Canadian business~~control systems, which was focused on the development of hardware and software related to oilfield service equipment controls, data acquisition and digital information flow.

Functional Support

Our Functional Support segment includes unallocated overhead costs associated with administrative support for our U.S. and International reporting segments.

Financial Summary

The following tables set forth our unaudited segment information as of and for the three and nine months ended September 30, ~~2017~~2018 and ~~2016~~2017 (in thousands):


Successor company as of and for the three months ended September 30, 2017
As of and for the three months ended September 30, 2018																								As of and for the three months ended September 30, 2018
	U.S. Rig Services			Fluid Management Services			Coiled Tubing Services		Fishing and Rental Services			International			Functional Support(2)			Reconciling Eliminations			Total			Rig Services		Fishing and Rental Services			Coiled Tubing Services		Fluid Management Services			Functional Support(2)			Reconciling Eliminations			Total
Revenues from external customers	$	61,933		$	20,713		$	12,499	$	14,177		$	1,331		$	—		$	—		$	110,653		$	77,153	$	17,477		$	18,220	$	21,871		$	—		$	—		$	134,721
Intersegment revenues	135			249			27		846			—			—			(1,257		)	—			183		621			—		328			—			(1,132		)	—
Depreciation and amortization	8,009			5,350			1,259		5,855			234			407			—			21,114			8,212		6,012			1,403		5,262			919			—			21,808
Other operating expenses	54,426			22,625			9,386		10,688			2,225			24,933			—			124,283			64,471		12,855			16,404		19,441			16,857			—			130,028
Operating income (loss)	(502		)	(7,262		)	1,854		(2,366		)	(1,128		)	(25,340		)	—			(34,744		)	4,470		(1,390		)	413		(2,832		)	(17,776		)	—			(17,115		)
Reorganization items, net	—			—			—		—			—			60			—			60
Interest expense, net of amounts capitalized	—			—			—		—			—			8,090			—			8,090			—		—			—		—			8,708			—			8,708
Income (loss) before income taxes	(495		)	(7,249		)	1,854		(2,355		)	3,212			(33,283		)	—			(38,316		)	4,488		(1,378		)	413		(2,827		)	(26,306		)	—			(25,610		)
Long-lived assets(1)	166,993			78,718			19,856		68,200			7			56,462			(32,445		)	357,791			147,050		49,436			18,083		60,360			22,109			421			297,459
Total assets	287,305			41			38,450		363,879			10,117			(77,212		)	(71,475		)	551,105			204,823		65,798			36,493		75,811			70,927			8,881			462,733
Capital expenditures	1,288			735			37		124			119			71			—			2,374			5,602		1,891			563		433			2,859			—			11,348


Predecessor company as of and for the three months ended September 30, 2016
As of and for the three months ended September 30, 2017																									As of and for the three months ended September 30, 2017
	U.S. Rig Services			Fluid Management Services			Coiled Tubing Services			Fishing and Rental Services			International			Functional Support(2)			Reconciling Eliminations			Total			Rig Services			Fishing and Rental Services			Coiled Tubing Services		Fluid Management Services			International			Functional Support(2)			Reconciling Eliminations			Total
Revenues from external customers	$	59,137		$	18,969		$	7,146		$	14,078		$	3,076		$	—		$	—		$	102,406		$	61,933		$	14,177		$	12,499	$	20,713		$	1,331		$	—		$	—		$	110,653
Intersegment revenues	293			203			—			1,194			34			—			(1,724		)	—			135			846			27		249			—			—			(1,257		)	—
Depreciation and amortization	14,602			5,867			2,683			6,623			1,719			1,973			—			33,467			8,009			5,855			1,259		5,350			234			407			—			21,114
Impairment expense	—			—			—			—			40,000			—			—			40,000
Other operating expenses	53,539			26,327			8,835			14,406			5,746			29,674			—			138,527			54,426			10,688			9,386		22,625			2,225			24,933			—			124,283
Operating loss	(9,004		)	(13,225		)	(4,372		)	(6,951		)	(44,389		)	(31,647		)	—			(109,588		)
Operating income (loss)																									(502		)	(2,366		)	1,854		(7,262		)	(1,128		)	(25,340		)	—			(34,744		)
Reorganization items, net																									—			—			—		—			—			60			—			60
Interest expense, net of amounts capitalized	—			—			—			—			—			21,120			—			21,120			—			—			—		—			—			8,090			—			8,090
Loss before income taxes	(8,986		)	(13,216		)	(4,372		)	(6,938		)	(44,711		)	(52,639		)	—			(130,862		)
Income (loss) before income taxes																									(495		)	(2,355		)	1,854		(7,249		)	3,212			(33,283		)	—			(38,316		)
Long-lived assets(1)	450,384			111,697			45,705			106,055			10,334			160,835			(115,326		)	769,684			166,993			68,200			19,856		78,718			7			56,462			(32,445		)	357,791
Total assets	1,304,552			241,422			114,259			467,392			33,145			(840,066		)	(325,083		)	995,621			287,305			363,879			38,450		41			10,117			(77,212		)	(71,475		)	551,105
Capital expenditures	521			865			—			954			—			13			—			2,353			1,288			124			37		735			119			71			—			2,374


Successor company as of and for the nine months ended September 30, 2017
As of and for the nine months ended September 30, 2018																								As of and for the nine months ended September 30, 2018
	U.S. Rig Services			Fluid Management Services			Coiled Tubing Services			Fishing and Rental Services		International			Functional Support(2)			Reconciling Eliminations			Total			Rig Services		Fishing and Rental Services			Coiled Tubing Services		Fluid Management Services			Functional Support(2)			Reconciling Eliminations			Total
Revenues from external customers	$	184,026		$	57,475		$	27,005		$	45,808	$	5,571		$	—		$	—		$	319,885		$	227,913	$	47,801		$	60,513	$	68,215		$	—		$	—		$	404,442
Intersegment revenues	235			887			49			2,472		—			—			(3,643		)	—			439		1,692			19		1,025			—			(3,175		)	—
Depreciation and amortization	23,228			16,627			3,956			17,655		791			1,068			—			63,325			23,869		17,657			3,887		15,581			1,887			—			62,881
Impairment expense	—			—			—			—		187			—			—			187
Other operating expenses	163,564			58,274			23,155			16,902		9,373			65,211			—			336,479			188,570		37,627			49,128		60,136			49,953			—			385,414
Operating income (loss)	(2,766		)	(17,426		)	(106		)	11,251		(4,780		)	(66,279		)	—			(80,106		)	15,474		(7,483		)	7,498		(7,502		)	(51,840		)	—			(43,853		)
Reorganization items, net	—			—			—			—		—			1,501			—			1,501
Interest expense, net of amounts capitalized	—			—			—			—		—			23,672			—			23,672			—		—			—		—			25,425			—			25,425
Income (loss) before income taxes	(2,605		)	(17,485		)	(94		)	11,485		(74		)	(90,727		)	—			(99,500		)	15,584		(7,458		)	7,501		(7,432		)	(75,501		)	—			(67,306		)
Long-lived assets(1)	166,993			78,718			19,856			68,200		7			56,462			(32,445		)	357,791			147,050		49,436			18,083		60,360			22,109			421			297,459
Total assets	287,305			41			38,450			363,879		10,117			(77,212		)	(71,475		)	551,105			204,823		65,798			36,493		75,811			70,927			8,881			462,733
Capital expenditures	5,956			1,828			216			654		475			481			—			9,610			13,350		2,671			4,461		2,569			5,470			—			28,521


Predecessor company as of and for the nine months ended September 30, 2016
As of and for the nine months ended September 30, 2017																									As of and for the nine months ended September 30, 2017
	U.S. Rig Services			Fluid Management Services			Coiled Tubing Services			Fishing and Rental Services			International			Functional Support(2)			Reconciling Eliminations			Total			Rig Services			Fishing and Rental Services		Coiled Tubing Services			Fluid Management Services			International			Functional Support(2)			Reconciling Eliminations			Total
Revenues from external customers	$	169,627		$	61,230		$	24,294		$	43,773		$	9,582		$	—		$	—		$	308,506		$	184,026		$	45,808	$	27,005		$	57,475		$	5,571		$	—		$	—		$	319,885
Intersegment revenues	737			733			43			3,448			284			—			(5,245		)	—			235			2,472		49			887			—			—			(3,643		)	—
Depreciation and amortization	44,278			17,725			8,574			21,385			6,067			7,046			—			105,075			23,228			17,655		3,956			16,627			791			1,068			—			63,325
Impairment expense	—			—			—			—			40,000			—			—			40,000			—			—		—			—			187			—			—			187
Other operating expenses	154,393			70,557			32,298			42,127			17,865			88,452			—			405,692			163,564			16,902		23,155			58,274			9,373			65,211			—			336,479
Operating loss	(29,044		)	(27,052		)	(16,578		)	(19,739		)	(54,350		)	(95,498		)	—			(242,261		)
Operating income (loss)																									(2,766		)	11,251		(106		)	(17,426		)	(4,780		)	(66,279		)	—			(80,106		)
Reorganization items, net																									—			—		—			—			—			1,501			—			1,501
Interest expense, net of amounts capitalized	—			—			—			—			—			64,061			—			64,061			—			—		—			—			—			23,672			—			23,672
Loss before income taxes	(29,011		)	(27,003		)	(16,455		)	(19,719		)	(54,986		)	(158,483		)	—			(305,657		)
Income (loss) before income taxes																									(2,605		)	11,485		(94		)	(17,485		)	(74		)	(90,727		)	—			(99,500		)
Long-lived assets(1)	450,384			111,697			45,705			106,055			10,334			160,835			(115,326		)	769,684			166,993			68,200		19,856			78,718			7			56,462			(32,445		)	357,791
Total assets	1,304,552			241,422			114,259			467,392			33,145			(840,066		)	(325,083		)	995,621			287,305			363,879		38,450			41			10,117			(77,212		)	(71,475		)	551,105
Capital expenditures	1,025			2,885			101			2,470			711			228			—			7,420			5,956			654		216			1,828			475			481			—			9,610


(1)	Long-lived assets include fixed assets, intangibles and other non-current assets.


(2)	Functional Support is geographically located in the United States.

~~NOTE 16. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS~~

The senior notes of the Predecessor Company were registered securities. As a result of these registered securities, we are required to present the following condensed consolidating financial information pursuant to SEC Regulation S-X Rule 3-10, “~~Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.”~~ Our ABL Facility and Term Loan Facility of the Successor Company are not registered securities, so the presentation of condensed consolidating financial information is not required for the Successor period. The following is our condensed consolidated statement of operations and statement of cash flows for the Predecessor periods (in thousands):

CONDENSED CONSOLIDATING UNAUDITED STATEMENTS OF OPERATIONS
Predecessor
Three Months Ended September 30, 2016

Parent
Company

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries
Eliminations Consolidated
Revenues $ —
$ 99,332
$ 3,110
$ (36 ) $ 102,406
Direct operating expense —
92,643
3,456
(28 ) 96,071
Depreciation and amortization expense —
32,347
1,120
—
33,467
General and administrative expense 417
39,738
2,301
—
42,456
Impairment expense —
19,597
20,403
—
40,000
Operating loss (417 ) (84,993 ) (24,170 ) (8 ) (109,588 )
Interest expense, net of amounts capitalized 21,120
—
—
—
21,120
Other (income) loss, net (636 ) 375
325
90
154
Loss before income taxes (20,901 ) (85,368 ) (24,495 ) (98 ) (130,862 )
Income tax benefit —
—
110
—
110
Net loss $ (20,901 ) $ (85,368 ) $ (24,385 ) $ (98 ) $ (130,752 )

CONDENSED CONSOLIDATING UNAUDITED STATEMENTS OF OPERATIONS
Predecessor
Nine Months Ended September 30, 2016

Parent
Company

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries
Eliminations Consolidated
Revenues $ —
$ 298,926
$ 9,866
$ (286 ) $ 308,506
Direct operating expense —
265,869
10,481
(262 ) 276,088
Depreciation and amortization expense —
101,557
3,518
—
105,075
General and administrative expense 815
121,427
7,362
—
129,604
Impairment expense —
19,597
20,403
—
40,000
Operating loss (815 ) (209,524 ) (31,898 ) (24 ) (242,261 )
Interest expense, net of amounts capitalized 64,061
—
—
—
64,061
Other (income) loss, net (1,926 ) 281
657
323
(665 )
Loss before income taxes (62,950 ) (209,805 ) (32,555 ) (347 ) (305,657 )
Income tax (expense) benefit (12 ) —
501
—
489
Net loss $ (62,962 ) $ (209,805 ) $ (32,054 ) $ (347 ) $ (305,168 )

CONDENSED CONSOLIDATING UNAUDITED STATEMENTS OF CASH FLOWS
Predecessor
Nine Months Ended September 30, 2016

Parent
Company

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries
Eliminations Consolidated
Net cash provided by (used in) operating activities $ —
$ (108,229 ) $ 3,420
$ —
$ (104,809 )
Cash flows from investing activities:

Capital expenditures —
(7,073 ) (347 ) —
(7,420 )
Intercompany notes and accounts —
92,033
—
(92,033 ) —
Other investing activities, net —
13,376
—
—
13,376
Net cash provided by (used in) investing activities —
98,336
(347 ) (92,033 ) 5,956
Cash flows from financing activities:

Repayments of long-term debt (24,548 ) —
—
—
(24,548 )
Restricted stock (18,605 ) —
—
—
(18,605 )
Repurchases of common stock (165 ) —
—
—
(165 )
Intercompany notes and accounts (92,033 ) —
—
92,033
—
Other financing activities, net (3,164 ) —
—
—
(3,164 )
Net cash used in financing activities (138,515 ) —
—
92,033
(46,482 )
Effect of changes in exchange rates on cash —
—
(1,908 ) —
(1,908 )
Net increase (decrease) in cash and cash equivalents (138,515 ) (9,893 ) 1,165
—
(147,243 )
Cash and cash equivalents at beginning of period 191,065
10,024
3,265
—
204,354
Cash and cash equivalents at end of period $ 52,550
$ 131
$ 4,430
$ —
$ 57,111


ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Key Energy Services, Inc., and its wholly owned subsidiaries provide a full range of well services to major oil companies and independent oil and natural gas production companies. Our services include rig-based and coiled tubing-based well maintenance and workover services, well completion and recompletion services, fluid management services, fishing and rental services, and

other ancillary oilfield services. Additionally, certain of our rigs are capable of specialty drilling applications. We operate in most major oil and natural gas producing regions of the continental United States. ~~We formerly had operations in Russia, which were sold in the third quarter of 2017.~~ An important component of the Company’s growth strategy is to make acquisitions that will strengthen its core services or presence in selected markets, and the Company also makes strategic divestitures from time to time. To that end, we completed the sale of our Canadian subsidiary and Russian subsidiary in the second and third quarters of 2017, respectively. The Company expects that the industry in which it operates will experience consolidation, and the Company expects to explore opportunities and engage in discussions regarding these opportunities, which could include mergers, consolidations or acquisitions or further dispositions or other transactions, although there can be no assurance that any such activities will be consummated.

The following discussion and analysis should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes as of and for the three and nine months ended September 30, ~~2017~~2018 and ~~2016,~~2017, included elsewhere herein, and the audited consolidated financial statements and notes thereto included in our ~~2016~~2017 Form 10-K and Part I, Item 1A. Risk Factors of our ~~2016~~2017 Form ~~10-K.~~10-K and Part II, Item 1A. Risk Factors of our Quarterly Report on Form 10-Q for the three-month period ended March 31, 2018.

We provide information regarding five business segments: ~~U.S.~~ Rig ~~Services, Fluid Management Services, Coiled Tubing~~ Services, Fishing and Rental Services, Coiled Tubing Services, Fluid Management Services and, in 2017, International. We also have a “Functional Support” segment associated with managing our U.S. business segments and previously, our International business ~~segments.~~segment. Our former International segment included our former operations in Canada and Russia, which were sold in the second and third quarters of 2017, respectively. See “Note 15. Segment Information” in “Item 1. Financial Statements” of Part I of this report for a summary of our business segments.

PERFORMANCE MEASURES

The Baker Hughes U.S. rig count data, which is publicly available on a weekly basis, is often used as an indicator of overall Exploration and Production (“E&P”) company spending and broader oilfield activity. In assessing overall activity in the U.S. onshore oilfield service industry in which we operate, we believe that the Baker Hughes U.S. land drilling rig count is the best available barometer of E&P companies’ capital spending and resulting activity levels. Historically, our activity levels have been highly correlated with U.S. onshore capital spending by our E&P company customers as a group.


						WTI Cushing Oil(1)		NYMEX Henry Hub Natural Gas(1)		Average Baker Hughes U.S. Land Drilling Rigs(2)	Average AESC Well Service Active Rig Count(3)
2018:
First Quarter						$	62.91	$	3.08	951	1,220
Second Quarter						$	68.07	$	2.85	1,021	1,297
Third Quarter						$	69.69	$	2.93	1,032	1,337
	WTI Cushing Oil(1)		NYMEX Henry Hub Natural Gas(1)		Average Baker Hughes U.S. Land Drilling Rigs(2)
2017:
First Quarter	$	51.60	$	3.02	729	$	51.60	$	3.02	729	1,128
Second Quarter	$	48.07	$	3.07	878	$	48.07	$	3.07	878	1,210
Third Quarter	$	48.18	$	2.95	927	$	48.18	$	2.95	927	1,206

2016:
First Quarter	$	33.35	$	1.99	524
Second Quarter	$	45.46	$	2.15	398
Third Quarter	$	44.85	$	2.88	461
Fourth Quarter	$	49.14	$	3.04	567	$	55.27	$	2.90	902	1,205


(1)	Represents the average of the monthly average prices for each of the periods presented. Source: EIA and Bloomberg


(2)	Source: www.bakerhughes.com


(3)	Source: www.aesc.net

Internally, we measure activity levels for our well servicing operations primarily through our rig and trucking hours. Generally, as capital spending by E&P companies increases, demand for our services also rises, resulting in increased rig and trucking services and more hours worked. Conversely, when activity levels decline due to lower spending by E&P companies, we generally provide fewer rig and trucking services, which results in fewer hours worked.

In the U.S., our rig activity occurs primarily on weekdays during daylight hours. Accordingly, we track U.S. rig activity on a “per U.S. working day” basis. Key’s U.S. working days per quarter, which exclude national holidays, are indicated in the table below. Our domestic trucking activity tends to occur on a 24/7 basis, as did our international rig activity prior to the sale of our international operations. Accordingly, we track our international rig activity and our domestic trucking activity on a “per calendar day” basis. The following table presents our quarterly rig and trucking hours from ~~2016~~2017 through the third quarter of ~~2017:~~2018:


						Rig Hours			Trucking Hours	Key’s U.S. Working Days(1)
2018:						U.S.	International	Total
First Quarter						175,232	—	175,232	214,194	63
Second Quarter						187,578	—	187,578	201,427	64
Third Quarter						180,943	—	180,943	184,310	63
Total 2018						543,753	—	543,753	599,931	190
	Rig Hours			Trucking Hours	Key’s U.S. Working Days(1)
2017:	U.S.	International	Total
First Quarter	165,968	2,462	168,430	179,215	64	165,968	2,462	168,430	179,215	64
Second Quarter	163,966	1,701	165,667	185,398	63	163,966	1,701	165,667	185,398	63
Third Quarter	161,725	2,937	164,662	197,319	63	161,725	2,937	164,662	197,319	63
Fourth Quarter						164,480	—	164,480	223,478	61
Total 2017	491,659	7,100	498,759	561,932	190	656,139	7,100	663,239	785,410	251

2016:
First Quarter	153,417	5,715	159,132	217,429	63
Second Quarter	144,587	6,913	151,500	199,527	64
Third Quarter	163,206	6,170	169,376	198,362	64
Fourth Quarter	169,087	4,341	173,428	192,049	61
Total 2016	630,297	23,139	653,436	807,367	252


(1)	Key’s U.S. working days are the number of weekdays during the quarter minus national holidays.

MARKET AND BUSINESS CONDITIONS AND OUTLOOK

Our core businesses depend on our customers’ willingness to make expenditures to produce, develop and explore for oil and natural ~~gas.~~gas in onshore U.S. basins. Industry conditions are influenced by numerous factors, such as oil and natural gas prices, the supply of and demand for oil and natural gas, domestic and worldwide economic conditions, ~~and~~ political instability in oil producing countries, and available supply of and demand for the services we provide. ~~Oil and natural gas~~Higher oil prices began a rapid and substantial decline in the fourth quarter of 2014. Depressed commodity price conditions persisted and worsened during 2015 and into 2016. As a result, the Baker Hughes U.S. rig count and the AESC well service rig count, along withgenerally spur additional demand for our ~~products and~~ services declined substantially, and the prices we are able to charge our customers for our products and services also declined substantially. While we sought to anticipate activity declines and reshaped our organizational and cost structure to mitigate the negative impact of these declines, we have continued to experience negative operating results and cash flows from operations. In 2017, oil prices recovered off the lows of 2016 and spurred an increase in the Baker Hughes U.S. rig count and related well completion activity, however, the same magnitude of activity increase did not occur in our principal Rig Services business, as measured by the AESC well service rig count, as oil and gas ~~producer’s~~producers increase spending on production maintenance ~~spending has not recovered to the same extent as new well~~ drilling and completion ~~spending.~~of new wells.

~~While we saw continued~~Over the first nine months of 2018, strengthening oil prices led to improvement in demand ~~and pricing~~ for our services, particularly those driven by the completion of oil and natural gas wells, ~~through~~and we were able to increase prices for most of our service offerings. While the ~~first nine months~~oil price has increased to levels not experienced since the end of ~~2017, continued uncertainty around the stability of oil prices dampened the pace of~~2014 and we have seen improvement in ~~well services~~demand across all of our service offerings, we have not yet seen a substantial change in activity ~~particularly~~ as it relates to our ~~customers~~customer’s spending for the maintenance of existing oil and gas wells, particularly conventional wells. We believe that a continued stabilization of oil prices at a ~~price attractive to our customers~~level consistent with current pricing will ~~be necessary~~result in increases in demand for ~~the demand and associated pricing of~~ our services ~~related~~in future periods.

During the third quarter of 2018, we experienced a decline in our completion driven revenues, primarily in our coiled tubing services, due to ~~conventional well maintenance work~~a reduction in completion activities that we believe occurred as a result of the lack of take away pipeline capacity for operators in the Permian Basin. We expect that as take away capacity is added to ~~improve significantly.~~the Permian Basin over 2019 demand for completion driven services will increase. Additionally, we believe that continued aging of horizontal wells and customers choosing to increase production through ~~return~~ accretive regular well maintenance in these horizontal wells will strengthen demand and pricing for ~~and increase the price of~~ our well maintenance services over the next several years. With increased demand for oilfield services broadly and specifically in the services we offer, however, the demand for qualified employees will also ~~increase, which~~increase. This may impact our ability to meet the needs of our customers and constrain our growth or offset price increases realized due to inflation in labor ~~costs.~~costs necessary to attract and retain employees.

RESULTS OF OPERATIONS

The following tables set forth consolidated results of operations and financial information by operating segment and other selected information of the Successor Company and the Predecessor Company for the periods ending September 30, 2017 and 2016, respectively. Upon emergence on the Effective Date, the Company adopted fresh start accounting which resulted in the creation of a new entity for financial reporting purposes. As a result of the application of fresh start accounting, as well as the effects of the implementation of the Plan, the Consolidated Financial Statements on or after December 16, 2016 are not comparable with the Consolidated Financial Statements prior to that date. While the comparison of these periods is not presented according

~~to GAAP and no comparable GAAP measures are presented, management believes that providing this financial information is the most relevant and useful method for making comparisons between the periods.~~

The following table shows our consolidated results of operations for the three and nine months ended September 30, ~~2017~~2018 and ~~2016~~2017, respectively (in thousands):



													Three Months Ended						Nine Months Ended
	Successor			Predecessor			Successor			Predecessor			September 30,						September 30,
	Three Months Ended September 30, 2017			Three Months Ended September 30, 2016			Nine Months Ended September 30, 2017			Nine Months Ended September 30, 2016			2018			2017			2018			2017
REVENUES	$	110,653		$	102,406		$	319,885		$	308,506		$	134,721		$	110,653		$	404,442		$	319,885
COSTS AND EXPENSES:
Direct operating expenses	87,115			96,071			237,981			276,088			106,103			87,115			314,061			237,981
Depreciation and amortization expense	21,114			33,467			63,325			105,075			21,808			21,114			62,881			63,325
General and administrative expenses	37,168			42,456			98,498			129,604			23,925			37,168			71,353			98,498
Impairment expense	—			40,000			187			40,000			—			—			—			187
Operating loss	(34,744		)	(109,588		)	(80,106		)	(242,261		)	(17,115		)	(34,744		)	(43,853		)	(80,106		)
Interest expense, net of amounts capitalized	8,090			21,120			23,672			64,061			8,708			8,090			25,425			23,672
Other (income) loss, net	(4,578		)	154			(5,779		)	(665		)
Other income, net													(213		)	(4,578		)	(1,972		)	(5,779		)
Reorganization items, net	60			—			1,501			—			—			60			—			1,501
Loss before income taxes	(38,316		)	(130,862		)	(99,500		)	(305,657		)	(25,610		)	(38,316		)	(67,306		)	(99,500		)
Income tax benefit	96			110			1,238			489			1,750			96			1,588			1,238
NET LOSS	$	(38,220	)	$	(130,752	)	$	(98,262	)	$	(305,168	)	$	(23,860	)	$	(38,220	)	$	(65,718	)	$	(98,262	)

Consolidated Results of Operations — Three Months Ended September 30, ~~2017~~2018 and ~~2016~~2017

Revenues

Our revenues for the three months ended September 30, ~~2017~~2018 increased ~~$8.2~~$24.1 million, or ~~8.1%~~21.8%, to ~~$110.7~~$134.7 million from ~~$102.4~~$110.7 million for the three months ended September 30, ~~2016,~~2017, due to an increase in spending from our customers as they react to improving commodity ~~prices, particularly in our Coiled Tubing segment.~~prices. Internationally, we had ~~lower~~no revenue ~~primarily due to~~in 2018 as a ~~decrease in customer activity in Russia and due to~~result of the sale ~~during the third quarter~~ of ~~2017 of these operations.~~our operations in Canada and Russia. See “Segment Operating Results — Three Months Ended September 30, ~~2017~~2018 and ~~2016”~~2017” below for a more detailed discussion of the change in our revenues.

Direct Operating Expenses

Our direct operating expenses ~~decreased $9.0~~increased $19.0 million, to ~~$87.1~~$106.1 million ~~(78.7%~~(78.8% of revenues), for the three months ended September 30, ~~2017,~~2018, compared to ~~$96.1~~$87.1 million ~~(93.8%~~(78.7% of revenues) for the three months ended September 30, ~~2016. The decrease~~2017. This increase is primarily ~~related to~~ a ~~decrease~~result of an increase in ~~insurance~~employee compensation costs, fuel expense and repair and maintenance ~~expense as we took steps to reduce our cost structure.~~expense.

Depreciation and Amortization Expense

Depreciation and amortization expense ~~decreased $12.4~~increased $0.7 million, or ~~36.9%~~3.3%, to ~~$21.1~~$21.8 million during the three months ended September 30, ~~2017,~~2018, compared to ~~$33.5~~$21.1 million for the three months ended September 30, ~~2016. The decrease~~2017. This increase is primarily ~~attributable to the reduction of property, plant and equipment~~ due to ~~the implementation of fresh start accounting~~depreciation expense related to equipment acquired in the ~~fourth quarter of 2016.~~last year.

General and Administrative Expenses

General and administrative expenses decreased ~~$5.3~~$13.2 million, to ~~$37.2~~$23.9 million ~~(33.6%~~(17.8% of revenues), for the three months ended September 30, ~~2017,~~2018, compared to ~~$42.5~~$37.2 million ~~(41.5%~~(33.6% of revenues) for the three months ended September 30, ~~2016.~~2017. The decrease is primarily due to lower employee compensation costs due to reduced staffing levels and a ~~$13.1 million~~ decrease ~~in professional fees related to our 2016 corporate restructuring partially offset by a $11.6 million increase~~ in legal settlement ~~accruals.~~

~~Impairment Expense~~

There were no impairments recorded in the three months ended September 30, 2017. During the three months ended September 30, 2016, we recorded a $40.0 million impairment to reduce the carrying value of the assets and related liabilities of our Mexican business unit, which was at the time being held for sale, to fair market value.expenses.

Interest Expense, Net of Amounts Capitalized

Interest expense ~~decreased $13.0~~increased $0.6 million, or ~~61.7%~~7.6%, to ~~$8.1~~$8.7 million for the three months ended September 30, ~~2017,~~2018, compared to ~~$21.1~~$8.1 million for the same period in ~~2016. The decrease~~2017. This increase is primarily related to the ~~elimination of~~increase in the ~~Predecessor Company’s senior secured notes in connection with~~variable interest rate on our ~~emergence from voluntary reorganization.~~long-term debt.

Other ~~(Income) Loss,~~Income, Net

During the quarter ended September 30, ~~2017,~~2018, we recognized other income, net, of ~~$4.6~~$0.2 million, compared to other ~~loss,~~income, net, of ~~$0.2~~$4.6 million for the quarter ended September 30, ~~2016. Our foreign exchange loss relates~~2017. Other income, net for the quarter ended September 30, 2017 includes a $4.7 million gain on sale related to ~~U.S. dollar-denominated transactions~~our Russian subsidiary which was disposed of in ~~our foreign businesses and fluctuations in exchange rates between local currencies and~~ the ~~U.S. dollar.~~third quarter of 2017.

The following table summarizes the components of other ~~(income) loss,~~income, net for the periods indicated:



							Three Months Ended
	Successor			Predecessor			September 30,
	Three Months Ended September 30, 2017			Three Months Ended September 30, 2016			2018			2017
Interest income	$	(182	)	$	(104	)	$	(201	)	$	(182	)
Foreign exchange (gain) loss	(15		)	351
Other, net	(4,381		)	(93		)
Other							(12		)	(4,396		)
Total	$	(4,578	)	$	154		$	(213	)	$	(4,578	)

Reorganization Items, Net

~~Reorganization~~There were no reorganization item expenses ~~were $0.1 million~~ for the three months ended September 30, ~~2017, and there were no~~2018, compared to $0.1 million of reorganization item expenses for the same period in ~~2016.~~2017. Reorganization items expenses consist of professional fees incurred in connection with our emergence from voluntary reorganization.

Income Tax Benefit

We recorded an income tax benefit of $1.8 million on a pre-tax loss of $25.6 million in the three months ended September 30, 2018, compared to an income tax benefit of $0.1 million on a pre-tax loss of $38.3 million in the three months ended September 30, ~~2017, compared to an income~~2017. Our effective tax ~~benefit of $0.1 million on a pre-tax loss of $130.9 million in~~rate was 6.8% for the three months ended September 30, ~~2016. Our effective tax rate was~~2018, compared to 0.3% for the three months ended September 30, ~~2017, compared to 0.1% for~~2017. Our effective tax rates differ from the applicable U.S. statutory rates during the three months ended September 30, ~~2016. Our effective tax rates for such periods differ from~~2018 (21%) and during the ~~U.S. statutory rate of 35%~~three months ended September 30, 2017 (35%) due to a number of factors, including the mix of profit and loss between domestic and international taxing jurisdictions and the impact of permanent items, including expenses subject to statutorily imposed limitations such as meals and entertainment expenses, that affect book income but do not affect taxable income and discrete tax adjustments, such as valuation allowances against deferred tax assets and tax expense or benefit recognized for uncertain tax positions.

Segment Operating Results — Three Months Ended September 30, ~~2017~~2018 and ~~2016~~2017

The following table shows operating results for each of our segments for the three months ended September 30, ~~2017~~2018 and ~~2016~~2017 (in thousands):


Successor company as of and for the three months ended September 30, 2017
For the three months ended September 30, 2018																					For the three months ended September 30, 2018
	U.S. Rig Services			Fluid Management Services			Coiled Tubing Services		Fishing and Rental Services			International			Functional Support			Total				Rig Services		Fishing and Rental Services			Coiled Tubing Services		Fluid Management Services			Functional Support			Total
Revenues from external customers	$	61,933		$	20,713		$	12,499	$	14,177		$	1,331		$	—		$	110,653			$	77,153	$	17,477		$	18,220	$	21,871		$	—		$	134,721
Operating expenses	62,435			27,975			10,645		16,543			2,459			25,340			145,397				72,683		18,867			17,807		24,703			17,776			151,836
Operating loss	(502		)	(7,262		)	1,854		(2,366		)	(1,128		)	(25,340		)	(34,744		)
Operating income (loss)																						4,470		(1,390		)	413		(2,832		)	(17,776		)	(17,115		)


Predecessor company as of and for the three months ended September 30, 2016
For the three months ended September 30, 2017																						For the three months ended September 30, 2017
	U.S. Rig Services			Fluid Management Services			Coiled Tubing Services			Fishing and Rental Services			International			Functional Support			Total				Rig Services			Fishing and Rental Services			Coiled Tubing Services		Fluid Management Services			International			Functional Support			Total
Revenues from external customers	$	59,137		$	18,969		$	7,146		$	14,078		$	3,076		$	—		$	102,406			$	61,933		$	14,177		$	12,499	$	20,713		$	1,331		$	—		$	110,653
Operating expenses	68,141			32,194			11,518			21,029			47,465			31,647			211,994				62,435			16,543			10,645		27,975			2,459			25,340			145,397
Operating loss	(9,004		)	(13,225		)	(4,372		)	(6,951		)	(44,389		)	(31,647		)	(109,588		)
Operating income (loss)																							(502		)	(2,366		)	1,854		(7,262		)	(1,128		)	(25,340		)	(34,744		)

~~U.S.~~ Rig Services

Revenues for our ~~U.S.~~ Rig Services segment increased ~~$2.8~~$15.2 million, or ~~4.7%~~24.6%, to $77.2 million for the three months ended September 30, 2018, compared to $61.9 million for the three months ended September 30, ~~2017, compared to $59.1 million for the three months ended September 30, 2016.~~2017. The increase for this segment is primarily due to an increase in completion and production spending from our customers as they react to improving commodity prices.

Operating expenses for our ~~U.S.~~ Rig Services segment were ~~$62.4~~$72.7 million during the three months ended September 30, ~~2017,~~ 2018,

which represented ~~a decrease~~an increase of ~~$5.7~~$10.2 million, or ~~8.4%~~16.4%, compared to ~~$68.1~~$62.4 million for the same period in ~~2016. These expenses decreased~~2017. This increase is primarily as a result of ~~reduced depreciation expense and a decrease~~an increase in employee compensation oncosts, fuel expense and repair and maintenance expense due to an increase in activity levels.

Fishing and Rental Services

Revenues for our Fishing and Rental Services segment increased $3.3 million, or 23.3%, to $17.5 million for the three months ended September 30, 2018, compared to $14.2 million for the three months ended September 30, 2017. The increase for this segment is primarily due to an increase in completion and production spending from our customers as they react to improving commodity prices.

Operating expenses for our Fishing and Rental Services segment were $18.9 million during the three months ended September 30, 2018, which represented an increase of $2.3 million, or 14.0%, compared to $16.5 million for the same period in 2017. This increase is primarily a ~~per hour basis~~result of an increase in employee compensation costs, fuel expense and repair and maintenance expense due to an increase in activity levels.

Coiled Tubing Services

Revenues for our Coiled Tubing Services segment increased $5.7 million, or 45.8%, to $18.2 million for the three months ended September 30, 2018, compared to $12.5 million for the three months ended September 30, 2017. The increase for this segment is primarily due to an increase in completion spending from our customers as ~~we took steps~~they react to ~~reduce~~improving commodity prices.

Operating expenses for our ~~cost structure.~~Coiled Tubing Services segment were $17.8 million during the three months ended September 30, 2018, which represented an increase of $7.2 million, or 67.3%, compared to $10.6 million for the same period in 2017. This increase is primarily a result of an increase in employee compensation costs, fuel expense and repair and maintenance expense due to an increase in activity levels.

Fluid Management Services

Revenues for our Fluid Management Services segment increased ~~$1.7~~$1.2 million, or ~~9.2%~~5.6%, to $21.9 million for the three months ended September 30, 2018, compared to $20.7 million for the three months ended September 30, ~~2017, compared to $19.0 million for the three months ended September 30, 2016.~~2017. The increase for this segment is primarily due to an increase in spending from our customers as they react to improving commodity prices.

Operating expenses for our Fluid Management Services segment were ~~$28.0~~$24.7 million during the three months ended September 30, ~~2017,~~2018, which represented a decrease of ~~$4.2~~$3.3 million, or ~~13.1%~~11.7%, compared to ~~$32.2~~$28.0 million for the same period in ~~2016. These expenses decreased~~2017. This decrease is primarily as a result of a decrease in legal settlement expenses partially offset by an increase in employee compensation ~~costs~~costs.

International

We sold the remaining businesses of our former International segment, our Canadian subsidiary and ~~equipment expense as~~our Russian subsidiary, in the second and third quarters of 2017, respectively. Accordingly, for 2018, we ~~took steps to reduce our cost structure.~~

~~Coiled Tubing Services~~no longer have an International segment.

Revenues for our ~~Coiled Tubing Services~~former International segment ~~increased $5.4 million, or 74.9%, to $12.5 million~~ for the three months ended September 30, 2017 compared to $7.1 million for the three months ended September 30, 2016. The increase for this segment is primarily due to an increase in drilling and completion spending from our customers as they react to improving commodity prices.

were $1.3 million. Operating expenses for our ~~Coiled Tubing Services~~former International segment were $10.6 million during the three months ended September 30, 2017, which represented a decrease of $0.9 million, or 7.6%, compared to $11.5 million for the same period in 2016. These expenses decreased primarily as a result of reduced depreciation expense and a decrease in employee compensation costs and equipment expense as we took steps to reduce our cost structure.

~~Fishing and Rental Services~~

~~Revenues for our Fishing and Rental Services segment increased $0.1 million, or 0.7%, to $14.2 million~~ for the three months ended September 30, 2017 compared to $14.1 million for the three months ended September 30, 2016. The increase for this segment is primarily due to an increase in completion and production spending from our customers as they react to improving commodity prices.

~~Operating expenses for our Fishing and Rental Services segment~~ were ~~$16.5 million during the three months ended September 30, 2017, which represented a decrease of $4.5 million, or 21.3%, compared to $21.0 million for the same period in 2016.~~$2.5 million. These expenses ~~decreased primarily as a result of reduced depreciation expense and a decrease in and a decrease in employee compensation on a per hour basis as we took steps~~were related to ~~reduce our cost structure.~~

~~International~~

Revenues for our International segment decreased $1.7 million, or 56.7%, to $1.3 million for the three months ended September 30, 2017, compared to $3.1 million for the three months ended September 30, 2016. The decrease was primarily attributable to lower customer activity in Russia and due to the sale during the third quarter of 2017 of these operations and our exit from operations in Mexico which was sold in 2016.

Operating expenses for our International segment decreased $45.0 million, or 94.8%, to $2.5 million for the three months ended September 30, 2017, compared to $47.5 million for the three months ended September 30, 2016. These expenses decreased primarily as a result of a decrease in employee compensation costs and equipment expense primarily related to the exit from operations in Mexico and Russia and a $40.0 million impairment to reduce the carrying value of the assets and related liabilities of our Mexican business unit, which was sold in 2016, to fair market value.expense.

Functional Support

Operating expenses for Functional Support, which represent expenses associated with managing our U.S. and former International reporting segments, decreased ~~$6.3~~$7.6 million, or ~~19.9%~~29.9%, to ~~$25.3~~$17.8 million ~~(22.9%~~(13.2% of consolidated revenues) for the three months ended September 30, ~~2017~~2018 compared to ~~$31.6~~$25.3 million ~~(30.9%~~(22.9% of consolidated revenues) for the same period in ~~2016.~~2017. The decrease is primarily due to lower employee compensation costs due to reduced staffing levels and a decrease ~~of $13.1 million~~ in ~~professional fees related to the 2016 corporate restructuring.~~legal settlement expenses.

Consolidated Results of Operations — Nine Months Ended September 30, ~~2017~~2018 and ~~2016~~2017

Revenues

Our revenues for the nine months ended September 30, ~~2017~~2018 increased ~~$11.4~~$84.6 million, or ~~3.7%~~26.4%, to ~~$319.9~~$404.4 million from ~~$308.5~~$319.9 million for the nine months ended September 30, ~~2016,~~2017, due to an increase in spending from our customers as they react to improving commodity prices. Internationally, we had ~~lower~~no revenue in 2018 as a result of the sale our operations in ~~Mexico, a decrease in activity in Russia~~Canada and ~~the sale during the third quarter of 2017 of our Russian operations.~~Russia. See “Segment Operating Results — Nine Months Ended September 30, ~~2017~~2018 and ~~2016”~~2017” below for a more detailed discussion of the change in our revenues.

Direct Operating Expenses

Our direct operating expenses ~~decreased $38.1~~increased $76.1 million, to ~~$238.0~~$314.1 million ~~(74.4%~~(77.7% of revenues), for the nine months ended September 30, ~~2017,~~2018, compared to ~~$276.1~~$238.0 million ~~(89.5%~~(74.4% of revenues) for the nine months ended September 30, ~~2016. The decrease~~2017. This increase is primarily ~~related to~~ a ~~$21.0 million gain on the sale~~result of ~~certain assets and a decrease~~an increase in employee compensation costs, fuel expense and repair and maintenance expense, ~~as we took steps~~due to ~~reduce~~an increase in activity levels and, with respect to the increase in repair and maintenance expense, due to costs associated with making idle equipment ready for work and the decrease in gain on sale of assets related to the sale of our ~~cost structure.~~frac stack equipment and well testing services business which was sold in the second quarter of 2017.

Depreciation and Amortization Expense

Depreciation and amortization expense decreased ~~$41.8~~$0.4 million, or ~~39.7%~~0.7%, to ~~$63.3~~$62.9 million during the nine months ended September 30, ~~2017,~~2018, compared to ~~$105.1~~$63.3 million for the nine months ended September 30, ~~2016. The~~2017. This decrease is primarily ~~attributable to the reduction of property, plant and equipment~~ due to the ~~implementation~~sale businesses of ~~fresh start accounting in the fourth quarter of 2016.~~our former International segment and our frac stack equipment and well testing services business.

General and Administrative Expenses

General and administrative expenses decreased ~~$31.1~~$27.1 million, to ~~$98.5~~$71.4 million ~~(30.8%~~(17.6% of revenues), for the nine months ended September 30, ~~2017,~~2018, compared to ~~$129.6~~$98.5 million ~~(42.0%~~(30.8% of revenues) for the nine months ended September 30, ~~2016.~~2017. The decrease is primarily due to ~~a $20.9 million decrease in professional fees related to our 2016 corporate restructuring and~~ lower employee compensation costs due to reduced staffing levels and a ~~reduction in wages partially offset by a $11.6 million increase~~decrease in legal settlement ~~accruals.~~

expenses.

Impairment Expense

During the nine months ended September 30, 2018, we did not record an impairment. During the nine months ended September 30, 2017, we recorded a $0.2 million impairment to reduce the carrying value of the assets and related liabilities of our Russian business unit, which was sold in the third quarter of 2017, to fair market value. During the nine months ended September 30, 2016, we recorded a $40.0 million impairment to reduce the carrying value of the assets and related liabilities of our Mexican business unit, which was sold in 2016, to fair market value.

Interest Expense, Net of Amounts Capitalized

Interest expense ~~decreased $40.4~~increased $1.8 million, or ~~63.0%~~7.4%, to ~~$23.7~~$25.4 million for the nine months ended September 30, ~~2017,~~2018, compared to ~~$64.1~~$23.7 million for the same period in ~~2016. The decrease~~2017. This increase is primarily related to the ~~elimination of~~increase in the ~~Predecessor Company’s senior secured notes in connection with~~variable interest rate on our ~~emergence from voluntary reorganization.~~long-term debt.

Other Income, Net

During the nine months ended September 30, ~~2017,~~2018, we recognized other income, net, of ~~$5.8~~$2.0 million, compared to other income, net, of ~~$0.7~~$5.8 million for the nine months ended September 30, ~~2016. Our foreign exchange loss relates~~2017. Other income, net for the nine months ended September 30, 2017 includes a $4.7 million gain on sale related to ~~U.S. dollar-denominated transactions~~our Russian subsidiary which was disposed of in ~~our foreign locations and fluctuations in exchange rates between local currencies and~~ the ~~U.S. dollar.~~third quarter of 2017.

The following table summarizes the components of other income, net for the periods indicated (in thousands):



							Nine Months Ended
	Successor			Predecessor			September 30,
	Nine Months Ended September 30, 2017			Nine Months Ended September 30, 2016			2018			2017
Interest income	$	(534	)	$	(371	)	$	(580	)	$	(534	)
Foreign exchange (gain) loss	(29		)	1,112
Other, net	(5,216		)	(1,406		)
Other							(1,392		)	(5,245		)
Total	$	(5,779	)	$	(665	)	$	(1,972	)	$	(5,779	)

Reorganization Items, Net

~~Reorganization~~There were no reorganization item expenses ~~were $1.5 million~~ for the nine months ended September 30, ~~2017, and there were no~~2018, compared to $1.5 million of reorganization item expenses for the same period in ~~2016.~~2017. Reorganization items expenses consist of professional fees incurred in connection with our emergence from voluntary reorganization.

Income Tax Benefit

We recorded an income tax benefit of $1.6 million on a pre-tax loss of $67.3 million for the nine months ended September 30, 2018, compared to an income tax benefit of $1.2 million on a pre-tax loss of $99.5 million for the same period in 2017. Our effective tax rate was 2.4% for the nine months ended September 30, ~~2017,~~2018, compared to ~~an income tax benefit of $0.5 million on a pre-tax loss of $305.7 million for the same period in 2016. Our effective tax rate was~~ 1.2% for the nine months ended September 30, ~~2017, compared to 0.2% for~~2017. Our effective tax rates differ from the applicable U.S. statutory rates during the nine months ended September 30, ~~2016. Our effective tax rates for such periods differ from~~2018, (21%) and during the ~~U.S. statutory rate of 35%~~nine months ended September 30, 2017, (35%) due to a number of factors, including the mix of profit and loss between domestic and international taxing jurisdictions and the impact of permanent items, including expenses subject to statutorily imposed limitations such as meals and entertainment expenses, that affect book income but do not affect taxable income and discrete tax adjustments, such as valuation allowances against deferred tax assets and tax expense or benefit recognized for uncertain tax positions.

Segment Operating Results — Nine Months Ended September 30, ~~2017~~2018 and ~~2016~~2017

The following table shows operating results for each of our segments for the nine months ended September 30, ~~2017~~2018 and ~~2016~~2017 (in thousands):


Successor company as of and for the nine months ended September 30, 2017
For the nine months ended September 30, 2018																					For the nine months ended September 30, 2018
	U.S. Rig Services			Fluid Management Services			Coiled Tubing Services			Fishing and Rental Services		International			Functional Support			Total				Rig Services		Fishing and Rental Services			Coiled Tubing Services		Fluid Management Services			Functional Support			Total
Revenues from external customers	$	184,026		$	57,475		$	27,005		$	45,808	$	5,571		$	—		$	319,885			$	227,913	$	47,801		$	60,513	$	68,215		$	—		$	404,442
Operating expenses	186,792			74,901			27,111			34,557		10,351			66,279			399,991				212,439		55,284			53,015		75,717			51,840			448,295
Operating loss	(2,766		)	(17,426		)	(106		)	11,251		(4,780		)	(66,279		)	(80,106		)
Operating income (loss)																						15,474		(7,483		)	7,498		(7,502		)	(51,840		)	(43,853		)


Predecessor company as of and for the nine months ended September 30, 2016
For the nine months ended September 30, 2017																						For the nine months ended September 30, 2017
	U.S. Rig Services			Fluid Management Services			Coiled Tubing Services			Fishing and Rental Services			International			Functional Support			Total				Rig Services			Fishing and Rental Services		Coiled Tubing Services			Fluid Management Services			International			Functional Support			Total
Revenues from external customers	$	169,627		$	61,230		$	24,294		$	43,773		$	9,582		$	—		$	308,506			$	184,026		$	45,808	$	27,005		$	57,475		$	5,571		$	—		$	319,885
Operating expenses	198,671			88,282			40,872			63,512			63,932			95,498			550,767				186,792			34,557		27,111			74,901			10,351			66,279			399,991
Operating loss	(29,044		)	(27,052		)	(16,578		)	(19,739		)	(54,350		)	(95,498		)	(242,261		)
Operating income (loss)																							(2,766		)	11,251		(106		)	(17,426		)	(4,780		)	(66,279		)	(80,106		)

~~U.S.~~ Rig Services

Revenues for our ~~U.S.~~ Rig Services segment increased ~~$14.4~~$43.9 million, or ~~8.5%~~23.8%, to $227.9 million for the nine months ended September 30, 2018, compared to $184.0 million for the nine months ended September 30, ~~2017, compared to $169.6 million for the nine months ended September 30, 2016.~~2017. The increase for this segment is primarily due to an increase in completion and production spending from our customers as they react to improving commodity prices.

Operating expenses for our ~~U.S.~~ Rig Services segment were ~~$186.8~~$212.4 million for the nine months ended September 30, ~~2017,~~2018, which represented ~~a decrease~~an increase of ~~$11.9~~$25.6 million, or ~~6.0%~~13.7%, compared to ~~$198.7~~$186.8 million for the same period in ~~2016. These expenses decreased~~2017. This increase is primarily as a result of ~~a decrease in depreciation expense and a decrease~~an increase in employee compensation costs, ~~and equipment~~fuel expense ~~as we took steps to reduce our cost structure.~~

~~Fluid Management Services~~

Revenues for our Fluid Management Services segment decreased $3.8 million, or 6.1%, to $57.5 million for the nine months ended September 30, 2017, compared to $61.2 million for the nine months ended September 30, 2016. The decrease for this segment is primarily due to our exit from unprofitable locations.

Operating expenses for our Fluid Management Services segment were $74.9 million for the nine months ended September 30, 2017, which represented a decrease of $13.4 million, or 15.2%, compared to $88.3 million for the same period in 2016. These expenses decreased primarily due to a decrease in equipment expense and ~~employee compensation costs as we took steps to reduce our cost structure and as a result of lower activity levels.~~

~~Coiled Tubing Services~~

Revenues for our Coiled Tubing Services segment increased $2.7 million, or 11.2%, to $27.0 million for the nine months ended September 30, 2017, compared to $24.3 million for the nine months ended September 30, 2016. The increase for this segment is primarily due an increase in drilling and completion spending from our customers as they react to improving commodity prices.

Operating expenses for our Coiled Tubing Services segment were $27.1 million for the nine months ended September 30, 2017, which represented a decrease of $13.8 million, or 33.7%, compared to $40.9 million for the same period in 2016. These expenses decreased primarily due to reduced depreciation expense and a decrease in employee compensation costs, repair and maintenance expense ~~and fuel costs as we took steps~~due to ~~reduce our cost structure and as a result of lower~~an increase in activity levels.

Fishing and Rental Services

Revenues for our Fishing and Rental Services segment increased $2.0 million, or ~~4.6%~~4.4%, to $47.8 million for the nine months ended September 30, 2018, compared to $45.8 million for the nine months ended September 30, ~~2017, compared to $43.8 million for the nine months ended September 30, 2016.~~2017. The increase for this segment is primarily due to an increase in completion and production spending from our customers as they react to improving commodity ~~prices.~~prices partially offset by the sale of our frac stack equipment and well testing services business which was sold in the second quarter of 2017.

Operating expenses for our Fishing and Rental Services segment were ~~$34.6~~$55.3 million for the nine months ended September 30, ~~2017,~~2018, which represented ~~a decrease~~an increase of ~~$29.0~~$20.7 million, or ~~45.6%,~~60.0% compared to ~~$63.5~~$34.6 million for the same period in ~~2016. These expenses decreased~~2017. The increase for this segment is primarily due to ~~a $21.0 million~~the decrease in gain on sale of assets related to the sale of ~~certain assets, as a result~~our frac stack equipment and well testing services business in the second quarter of ~~reduced depreciation expense and a decrease in employee compensation on a per hour basis as we took steps to reduce our cost structure.~~2017.

~~International~~Coiled Tubing Services

Revenues for our ~~International~~Coiled Tubing Services segment ~~decreased $4.0~~increased $33.5 million, or ~~41.9%~~124.1%, to ~~$5.6~~$60.5 million for the nine months ended September 30, ~~2017,~~2018, compared to ~~$9.6~~$27.0 million for the nine months ended September 30, ~~2016.~~2017. The ~~decrease was~~increase for this segment is primarily ~~attributable the exit of operations~~due an increase in ~~Mexico and a decrease in activity in Russia and the sale during the third quarter of 2017 of~~completion spending from our ~~Russian operations.~~customers as they react to improving commodity prices.

Operating expenses for our ~~International~~Coiled Tubing Services segment ~~decreased $53.6 million, or 83.8%, to $10.4~~were $53.0 million for the nine months ended September 30, ~~2017,~~2018, which represented an increase of $25.9 million, or 95.5%, compared to ~~$63.9~~$27.1 million for the same period in 2017. This increase is primarily a result of an increase in employee compensation costs, fuel expense and repair and maintenance expense due to an increase in activity levels.

Fluid Management Services

Revenues for our Fluid Management Services segment increased $10.7 million, or 18.7%, to $68.2 million for the nine months ended September 30, ~~2016. These~~2018, compared to $57.5 million for the nine months ended September 30, 2017. The increase for this segment is primarily due an increase in spending from our customers as they react to improving commodity prices.

Operating expenses ~~decreased~~for our Fluid Management Services segment were $75.7 million for the nine months ended September 30, 2018, which represented an increase of $0.8 million, or 1.1%, compared to $74.9 million for the same period in 2017. This increase is primarily as a result of an increase in employee compensation costs, fuel expense and repair and maintenance expense due to an increase in activity levels partially offset by a decrease in legal settlement expenses.

International

We sold the remaining businesses of our former International segment, our Canadian subsidiary and our Russian subsidiary, in the second and third quarters of 2017, respectively. Accordingly, for 2018, we no longer have an International segment.

Revenues for our former International segment for the nine months ended September 30, 2017 were $5.6 million. Operating expenses for our former International segment for the nine months ended September 30, 2017 were $10.4 million. These expenses were related to employee compensation costs and equipment expense ~~related to our exit from operations in~~

~~Mexico and Russia~~ and a ~~$40.0~~$0.2 million impairment to reduce the carrying value of the assets and related liabilities of our ~~Mexican~~Russian business unit ~~which was sold in 2016,~~ to fair market value.

Functional Support

Operating expenses for Functional Support, which represent expenses associated with managing our U.S. and International reporting segments, decreased ~~$29.2~~$14.4 million, or ~~30.6%~~21.8%, to ~~$66.3~~$51.8 million ~~(20.7%~~(12.8% of consolidated revenues) for the nine months ended September 30, ~~2017~~2018 compared to ~~$95.5~~$66.3 million ~~(31.0%~~(20.7% of consolidated revenues) for the same period in ~~2016.~~2017. The decrease is primarily due to lower employee compensation costs due to reduced staffing levels and ~~reduction in wages, a $5.0 million FCPA settlement accrual and~~ a decrease ~~of $20.9 million~~ in ~~professional fees related to the 2016 corporate restructuring.~~legal settlement expenses.

LIQUIDITY AND CAPITAL RESOURCES

Current Financial Condition and Liquidity

As of September 30, ~~2017,~~2018, we had total liquidity of ~~$104.2~~$72.8 million which consists of ~~$77.7~~$43.3 million cash and cash equivalents and ~~$26.5~~$29.5 million of borrowing capacity available under our ABL Facility. This compares to total liquidity of ~~$118.2~~$97.8 million which ~~consists~~consisted of ~~$90.5~~$73.1 million cash and cash equivalents and ~~$27.7~~$24.7 million of borrowing capacity available under our ABL Facility as of December 31, ~~2016.~~2017. Our working capital was ~~$99.0~~$65.1 million as of September 30, ~~2017,~~2018, compared to ~~$120.3~~$83.0 million as of December 31, ~~2016.~~2017. Our working capital decreased from the prior year end primarily as a result of a decrease in cash, cash equivalents, restricted cash, prepaid assets and inventories and an increase in accounts payable, partially offset by an increase in accounts receivable and ~~other current assets partially offset by~~ a decrease in ~~other current liabilities.~~accrued payroll and insurance. As of September 30, ~~2017,~~2018, we had no borrowings outstanding and ~~$33.7~~$35.6 million in committed letters of credit outstanding under our ABL Facility.

The following table summarizes our cash flows for the nine months ended September 30, ~~2017~~2018 and ~~2016~~2017 (in thousands):



							Nine Months Ended
	Successor			Predecessor			September 30,
	Nine Months Ended September 30, 2017			Nine Months Ended September 30, 2016			2018			2017
Net cash used in operating activities	$	(48,633	)	$	(104,809	)	$	(15,062	)	$	(48,633	)
Cash paid for capital expenditures	(9,610		)	(7,420		)	(28,521		)	(9,610		)
Proceeds received from sale of fixed assets	31,844			13,376			11,955			31,844
Repayments of long-term debt	(1,875		)	(24,548		)	(1,875		)	(1,875		)
Restricted cash	16,007			(18,605		)
Payment of deferred financing costs	(350		)	—			—			(350		)
Other financing activities, net	(85		)	(3,329		)	(268		)	(85		)
Effect of exchange rates on cash	(146		)	(1,908		)	—			(146		)
Net decrease in cash and cash equivalents	$	(12,848	)	$	(147,243	)
Net decrease in cash, cash equivalents and restricted cash							$	(33,771	)	$	(28,855	)

Cash used in operating activities was $15.1 million for the nine months ended September 30, 2018 compared to cash used in operating activities of $48.6 million for the nine months ended September 30, ~~2017 compared to cash~~2017. Cash used in operating activities ~~of $104.8 million~~ for the nine months ended September 30, ~~2016.~~2018 was primarily related to an increase in accounts receivable and net loss adjusted for noncash items, partially offset by a decrease in prepaid assets, inventories and other non-current assets. Cash used in operating activities for the nine months ended September 30, 2017 was primarily related to net loss adjusted for noncash items and a decrease in accrued ~~liabilities.~~ liabilities, partially offset by a decrease in prepaid assets, inventories and other non-current assets.

Cash used in ~~operating~~investing activities was $16.6 million for the nine months ended September 30, ~~2016 was primarily related~~2018 compared to ~~net loss adjusted for noncash items partially offset by a decrease in accounts receivable.~~

~~Cash~~cash provided by investing activities ~~was~~of $22.2 million for the nine months ended September 30, ~~2017 compared~~2017. Cash outflows during these periods consisted primarily of capital expenditures. Our capital expenditures are primarily related to ~~cash provided by investing activities~~the addition of ~~$6.0 million for~~new equipment and the ~~nine months ended September 30, 2016.~~ongoing maintenance of our equipment. Cash inflows during these periods consisted primarily of proceeds from sales of fixed assets. ~~Cash outflows during these periods consisted primarily of capital expenditures. Our capital expenditures primarily relate to maintenance of our equipment.~~

Cash ~~provided by~~used in financing activities was ~~$13.7~~$2.1 million for the nine months ended September 30, ~~2017~~2018 compared to cash used in financing activities of ~~$46.5~~$2.3 million for the nine months ended September 30, ~~2016. Overall financing cash inflows for the nine months ended September 30, 2017 primarily relate to the decrease in restricted cash. Overall financing~~2017. Financing cash outflows for the nine months ended September 30, ~~2016~~2018 and September 30, 2017 primarily relate to the ~~increase in restricted cash and~~ repayment of long-term debt.

Sources of Liquidity and Capital Resources

We believe that our internally generated cash flows from operations, current reserves of cash and availability under our ABL Facility are sufficient to finance our cash requirements for current and future operations, budgeted capital expenditures, debt service and other obligations for the next twelve months.

At September 30, ~~2017,~~2018, our annual debt maturities for our 2021 Term Loan Facility were as follows (in thousands):



Year	Principal Payments		Principal Payments
2017	$	625
2018	2,500		$	625
2019	2,500		2,500
2020	2,500		2,500
2021 and thereafter	240,000
2021			240,000
Total principal payments	$	248,125	$	245,625

ABL Facility

Borrowings under the ABL Facility bear interest, at the ABL Borrowers’ option, at a per annum rate equal to (i) LIBOR for 30, 60, 90, 180, or, with the consent of the ABL Lenders, 360 days, plus an applicable margin that varies from 2.50% to 4.50% depending on the Borrowers’ fixed charge coverage ratio at such time or (ii) a base rate equal to the sum of (a) the greatest of (x) the prime rate, (y) the federal funds rate, plus 0.50% or (z) 30-day LIBOR, plus 1.0% plus (b) an applicable margin that varies from 1.50% to 3.50% depending of the Borrowers’ fixed charge coverage ratio at such time. In addition, the ABL Facility provides for unused line fees of 1.00% to 1.25% per year, depending on utilization, letter of credit fees and certain other factors.

The revolving loans under the ABL Facility may be voluntarily prepaid, in whole or in part, without premium or penalty, subject to breakage or similar costs.

The ABL Facility contains certain affirmative and negative covenants, including covenants that restrict the ability of the ABL Loan Parties to take certain actions including, among other things and subject to certain significant exceptions, the incurrence of debt, the granting of liens, the making of investments, entering into transactions with affiliates, the payment of dividends and the sale of assets. The ABL Facility also contains a requirement that the ABL Borrowers comply, during certain periods with a fixed charge coverage ratio of 1.00 to 1.00.

As of September 30, ~~2017,~~2018, we have no borrowings outstanding under the ABL Facility and ~~$33.7~~$35.6 million of letters of credit outstanding with borrowing capacity of ~~$26.5~~$29.5 million available subject to covenant constraints under our ABL Facility.

Term Loan Facility

the consent of the Term Loan Lenders, 12 months, plus 10.25% or (ii) a base rate equal to the sum of (a) the greatest of (x) the prime rate, (y) the Federal Funds rate, plus 0.50% and (z) 30-day LIBOR, plus 1.0% plus (b) 9.25%.

The Term Loan Facility is guaranteed by certain of the Company’s existing and future subsidiaries (the “Term Loan Guarantors,” and together with the Company, the “Term Loan Parties”). To secure their obligations under the Term Loan Facility, each of the Term Loan Parties has granted or will grant, as applicable, to the Agent a first-priority security interest for the benefit of the Term Loan Lenders in substantially all of each Term Loan Party’s assets other than certain excluded assets and the ABL Priority Collateral (the “Term Priority Collateral”). In addition, the obligations of the Term Loan Parties under the Term Loan Facility are secured by second-priority liens on the ABL Priority Collateral (as described above under “ABL Facility”).

The loans under the Term Loan Facility may be prepaid at the Company’s option, subject to the payment of a prepayment premium in certain circumstances as provided in the Term Loan Facility. ~~If a~~A prepayment ~~is made~~ prior to the first anniversary of the loan ~~such prepayment must be~~would have been required to have been made with a make-whole amount with the calculation of the make-whole amount as specified in the Term Loan Facility. If a prepayment is made after the first anniversary of the loan but prior to the second anniversary, such prepayment must be made at 106% of the principle amount, if a prepayment is made after the second anniversary but prior to the third anniversary, such prepayment must be made at 103% of the principle amount. After the third anniversary, if a prepayment is made, no prepayment premium is due. The Company is required to make principal payments in the amount of $625,000 per ~~quarter, which principal payments commenced with the quarter ended March 31, 2017.~~quarter. In addition, pursuant to the Term Loan Facility, the Company must prepay or offer to prepay, as applicable, term loans with the net cash proceeds of certain debt incurrences and asset sales, excess cash flow, and upon certain change of control transactions, subject in each case to certain exceptions.

Debt Compliance

At September 30, ~~2017,~~2018, we were in compliance with all the financial covenants under our ABL Facility and the Term Loan Facility. Based on management’s current projections, we expect to be in compliance with all the covenants under our ABL Facility and Term Loan Facility for the next twelve months. A breach of any of these covenants, ratios or tests could result in a default under our indebtedness.

Capital Expenditures

During the nine months ended September 30, ~~2017,~~2018, our capital expenditures totaled ~~$9.6~~$28.5 million, primarily related to the ~~ongoing maintenance~~addition of ~~our equipment.~~new equipment needed to take advantage of the increases in activity. Our capital expenditure plan for ~~2017~~2018 contemplates spending between ~~$10~~$35 million and ~~$15~~$40 million, subject to market conditions. This is primarily related to the addition of new equipment ~~replacement needs, including~~needed to take advantage of the increases in activity and the ongoing ~~replacements to~~maintenance of our ~~rig services fleet.~~equipment. Our capital expenditure program for ~~2017~~2018 is subject to market conditions, including activity levels, commodity prices, industry capacity and

specific customer needs as well as cash ~~flows.~~flows, including cash generated from asset sales. Our focus for ~~2017 will be~~2018 has been the maximization of our current equipment fleet, but we may choose to increase our capital expenditures in ~~2017~~the remainder of 2018 to expand our presence in a market. We currently anticipate funding our ~~2017~~2018 capital expenditures through a combination of cash on hand, operating cash flow, proceeds from sales of assets and borrowings under our ABL Facility. Should our operating cash flows or activity levels prove to be insufficient to fund our currently planned capital spending levels, management expects that it will adjust our capital spending plans accordingly. We may also incur capital expenditures for strategic investments and acquisitions.

Off-Balance Sheet Arrangements

At September 30, ~~2017~~2018 we did not, and we currently do not, have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our quantitative and qualitative disclosures about market risk from those disclosed in our ~~2016~~2017 Form 10-K. More detailed information concerning market risk can be found in “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” in our ~~2016~~2017 Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, management performed, with the participation of our Chief Executive Officer and our Chief Financial Officer, an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosures. Based on this evaluation, management concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the third quarter of ~~2017~~2018 that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS

We are subject to various suits and claims that have arisen in the ordinary course of business. We do not believe that the disposition of any of our ordinary course litigation will result in a material adverse effect on our consolidated financial position, results of operations or cash flows. For additional information on legal proceedings, see “Note 10. Commitments and Contingencies” in “Item 1. Financial Statements” of Part I of this report, which is incorporated herein by reference.


ITEM 1A.	RISK FACTORS

~~Reference is made to~~As of the date of this filing, there have been no material changes in the risk factors previously disclosed in Part I, “Item 1A. Risk Factors” of ~~the 2016~~our 2017 Form 10-K and Part II, “Item 1A. Risk Factors” of our Quarterly Report on Form 10-Q for ~~information concerning risk factors.~~the three months ended March 31, 2018.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

During the three months ended September 30, ~~2017,~~2018, we repurchased the shares shown in the table below to satisfy tax withholding obligations upon the vesting of restricted stock awarded to certain of our employees:


Period	Number of Shares Purchased	Average Price Paid per Share(1)		Number of Shares Purchased	Average Price Paid per Share(1)
July 1, Period to July 31, Period	—	$	—	—	$	—
August 1, Period to August 31, Period	2,432	12.83		—	—
September 1, Period to September 30, Period	—	—		20,610	13.17
Total	2,432	$	12.83	20,610	$	13.17


(1)	The price paid per share with respect to the tax withholding repurchases was determined using the closing prices on the applicable vesting date.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.


ITEM 4.	MINE SAFETY DISCLOSURES

Not applicable.


ITEM 5.	OTHER INFORMATION

None.


ITEM 6.	EXHIBITS

The Exhibit Index, which follows the signature pages to this report and is incorporated by reference herein, sets forth a list of exhibits to this report.

EXHIBIT INDEX



Exhibit No.		Description

~~3.1~~10.1		~~Certificate~~Employment Agreement, dated as of ~~Incorporation of Key Energy Services, Inc.~~August 17, 2018, between the Company and Robert Saltiel (incorporated herein by reference to Exhibit ~~3.1~~10.1 to the Company’s Current Report on Form ~~8-A~~8-K filed with the SEC on ~~December 15, 2016,~~August 20, 2018, File No. 001-08038).

~~3.2~~10.2		~~Amended and Restated By-laws~~Form of ~~Key Energy Services, Inc.~~Time-Vested Restricted Stock Unit Award Agreement (incorporated herein by reference to Exhibit ~~3.2~~10.2 to the Company’s ~~Annual~~Current Report on Form ~~10-K for the fiscal year ended December 31, 2016,~~8-K filed with the SEC on ~~March 2, 2017,~~August 20, 2018, 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.

101*		Interactive Data File.




*	Filed herewith

**	Furnished herewith

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

November ~~9, 2017~~7, 2018

/s/ J. MARSHALL DODSON

J. Marshall Dodson

Senior Vice President and Chief Financial Officer
(As duly authorized officer and Principal Financial Officer)