KEY ENERGY SERVICES, INC.

QUARTERLY REPORT ON FORM 10-Q

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

2020



Part I — Financial Information

Item 1.	Financial Statements	4 5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22 30

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32 43

Item 4.	Controls and Procedures	33 43

Part II — Other Information

Item 1.	Legal Proceedings	34 45

Item 1A.	Risk Factors	34 45

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34 45

Item 3.	Defaults Upon Senior Securities	34 45

Item 4.	Mine Safety Disclosures	34 46

Item 5.	Other Information	34 46

Item 6.	~~Exhibits~~	34Exhibits	46

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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~~herein 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~~2019 (the “2019 Form 10-K”), and in Part II “Item 1A. Risk Factors” our Quarterly Report on Form 10-Q for the ~~other~~quarter ended March 31, 2020 (the “Q1 2020 Form 10-Q”) and our information in the reports we file with the Securities and Exchange Commission.

We undertake no obligation to update or withdraw 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:

●

public health crises, such as the COVID-19 pandemic, including its impact on economic and other conditions globally, demand for oil and natural gas, and any related actions taken by businesses and governments, among others;

●

adverse conditions in the services and oil and natural gas industries, especially declines or volatility in oil and natural gas prices and capital expenditures by oil and natural gas companies;

●

our ability to satisfy our cash and liquidity needs, including our ability to generate sufficient liquidity or cash flow from operations or to obtain adequate financing to fund our operations or otherwise meet our obligations as they come due;

●

our ability to retain employees, customers or suppliers as a result of our financial condition generally or as a result of our recent Restructuring (as defined below);

●

our inability to achieve the potential benefits of the Restructuring;

●

our ability to achieve the benefits of cost-cutting initiatives, including our plan to optimize our geographic footprint (including exiting certain locations and reducing our regional and corporate overhead costs);

●

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;

●

actions by OPEC and non-OPEC oil producing countries;

●

asset impairments or other charges;

●

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

●

the highly competitive nature of our industry;

~~conditions~~

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●

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 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 business combinations, disposition or acquisition transactions;

●

the loss of one or more of our larger customers;

●

the amount of our debt, the limitations imposed by the covenants in the agreements governing our debt, and 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, and/or operating income and the possibility of 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;

●

adverse impact of litigation or disputes; and

●

other factors affecting our business and financial condition described under “Risk Factors” in the 2019 Form 10-K and in the Q1 2020 Form 10-Q.

The unprecedented nature of the ~~oil~~COVID-19 pandemic 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~~recent market decline may make it more difficult to ~~implement price increases or maintain pricing on our core services;~~

identify potential risks, give rise to risks that ~~we may not be able to reduce, and could even experience increases in,~~are currently unknown, or amplify 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 and/or operating income 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;~~

~~our ability to maintain sufficient liquidity;~~

~~adverse~~ impact of ~~litigation; and~~known risks.

other factors affecting our business described in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016 and in the other reports we file with the Securities and Exchange Commission.

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PART I — FINANCIAL INFORMATION


~~ITEM 1.~~	~~FINANCIAL STATEMENTS~~

ITEM 1. FINANCIAL STATEMENTS

Key Energy Services, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share amounts)


	September 30,		December 31,
	2020		2019
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	4,542	$	14,426
Restricted cash		250		250
Accounts receivable, net of allowance for doubtful accounts of $420 and $881, respectively		26,433		51,091
Inventories		13,415		13,565
Other current assets		10,504		22,260
Total current assets		55,144		101,592
Property and equipment		381,385		432,917
Accumulated depreciation		(219,626)		(205,352)
Property and equipment, net		161,759		227,565
Intangible assets, net		303		347
Other non-current assets		39,354		18,366
TOTAL ASSETS	$	256,560	$	347,870
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	8,361	$	8,700
Current portion of long-term debt		1,089		2,919
Other current liabilities		52,160		90,715
Total current liabilities		61,610		102,334
Long-term debt		55,291		240,007
Workers’ compensation, vehicular and health insurance liabilities		26,617		26,072
Interest payable		14,913		—
Other non-current liabilities		20,436		30,710
Commitments and contingencies
Equity:
Common stock, $0.01 par value; 150,000,000 and 2,000,000 shares authorized, 13,781,347 and 410,990 outstanding		340		206
Additional paid-in capital		308,427		265,588
Retained deficit		(231,074)		(317,047)
Total equity		77,693		(51,253)
TOTAL LIABILITIES AND EQUITY	$	256,560	$	347,870

September 30,
2017 December 31,
2016
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 77,657
$ 90,505
Restricted cash 8,700
24,707
Accounts receivable, net of allowance for doubtful accounts of $1,251 and $168, respectively
69,693
71,327
Inventories 19,846
22,269
Other current assets 17,418
25,762
Total current assets 193,314
234,570
Property and equipment 407,536
408,716
Accumulated depreciation (64,829 ) (3,565 )
Property and equipment, net 342,707
405,151
Intangible assets, net 477
520
Other non-current assets 14,607
17,740
TOTAL ASSETS $ 551,105
$ 657,981
LIABILITIES AND EQUITY

Current liabilities:

Accounts payable $ 11,967
$ 10,357
Current portion of long-term debt 2,500
2,500
Other current liabilities 82,383
103,938
Total current liabilities 96,850
116,795
Long-term debt 243,610
245,477
Workers’ compensation, vehicular and health insurance liabilities 26,545
23,313
Other non-current liabilities 28,488
29,779
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
Additional paid-in capital 263,917
252,421
Accumulated other comprehensive loss —
239
Retained deficit (108,506 ) (10,244 )
Total equity 155,612
242,617
TOTAL LIABILITIES AND EQUITY $ 551,105
$ 657,981

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

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Key Energy Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)


	Three Months Ended					Nine Months Ended
		September 30,				September 30,
		2020		2019		2020		2019
REVENUES		$	42,911	$	106,523	$	152,969	$	328,739
COSTS AND EXPENSES:
Direct operating expenses			33,556		87,956		125,121		266,714
Depreciation and amortization expense			7,107		14,584		25,387		43,142
General and administrative expenses			12,269		21,375		41,159		66,014
Impairment expense			—		—		41,242		—
Operating loss			(10,021)		(17,392)		(79,940)		(47,131)
Gain on debt restructuring			—		—		(170,648)		—
Interest expense, net of amounts capitalized			2,238		8,411		12,525		26,164
Other income, net			(8,362)		(351)		(8,762)		(1,732)
Income (loss) before income taxes			(3,897)		(25,452)		86,945		(71,563)
Income tax benefit (expense)			1		(37)		(972)		4,330
NET INCOME (LOSS)		$	(3,896)	$	(25,489)	$	85,973	$	(67,233)
Income (loss) per share:
Basic		$	(0.28)	$	(62.32)	$	8.14	$	(164.79)
Diluted		$	(0.28)	$	(62.32)	$	8.08	$	(164.79)
Weighted average shares outstanding:
Basic			13,781		409		10,562		408
Diluted			13,781		409		10,638		408

~~(unaudited)~~

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

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

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Key Energy Services, Inc. and Subsidiaries

Condensed Consolidated Statements of ~~Comprehensive Income~~

Cash Flows

(in thousands)

(unaudited)


	Nine Months Ended
	September 30,
	2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	85,973	$	(67,233)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization expense		25,387		43,142
Impairment expense		41,242		—
Bad debt expense		1,156		538
Accretion of asset retirement obligations		128		126
Gain on debt restructuring		(170,648)		—
Amortization of deferred financing costs		451		346
Gain on disposal of assets, net		(1,280)		(3,785)
Share-based compensation		697		3,499
Changes in working capital:
Accounts receivable		23,502		6,469
Other current assets		11,906		5,224
Accounts payable, accrued interest and accrued expenses		(26,417)		(9,077)
Share-based compensation liability awards		1		5
Cash collateral		(22,400)		—
Other assets and liabilities		(11,364)		3,961
Net cash used in operating activities		(41,666)		(16,785)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(1,220)		(16,483)
Proceeds from sale of assets		5,002		8,362
Net cash provided by (used in) investing activities		3,782		(8,121)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt		30,000		—
Repayments of long-term debt		(6)		(1,875)
Repayments of finance lease obligations		(601)		(59)
Payment of deferred financing costs		(1,385)		(828)
Repurchases of common stock		(8)		(37)
Net cash provided by (used in) financing activities		28,000		(2,799)
Net decrease in cash, cash equivalents and restricted cash		(9,884)		(27,705)
Cash, cash equivalents, and restricted cash, beginning of period		14,676		50,311
Cash, cash equivalents, and restricted cash, end of period	$	4,792	$	22,606

~~(unaudited)~~

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

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

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Key Energy Services, Inc. and Subsidiaries

~~Condensed Consolidated Statements of Cash Flows~~

~~(in thousands)~~

~~(unaudited)~~

Successor Predecessor
Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (98,262 ) $ (305,168 )
Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization expense 63,325
105,075
Impairment expense 187
40,000
Bad debt expense 631
1,674
Accretion of asset retirement obligations 146
431
Loss from equity method investments 560
105
Amortization and write-off of deferred financing costs and premium 358
3,901
Deferred income tax benefit (27 ) (501 )
Loss (gain) on disposal of assets, net (26,987 ) 5,011
Share-based compensation 11,581
3,652
Excess tax expense from share-based compensation —
3,164
Changes in working capital:

Accounts receivable 1,084
50,240
Other current assets 10,920
3,589
Accounts payable, accrued interest and accrued expenses (19,943 ) (3,983 )
Share-based compensation liability awards —
(227 )
Other assets and liabilities 7,794
(11,772 )
Net cash used in operating activities (48,633 ) (104,809 )
CASH FLOWS FROM INVESTING ACTIVITIES:

Capital expenditures (9,610 ) (7,420 )
Proceeds from sale of assets 31,844
13,376
Net cash provided by investing activities 22,234
5,956
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (1,875 ) (24,548 )
Restricted cash 16,007
(18,605 )
Payment of deferred financing costs (350 ) —
Repurchases of common stock (85 ) (165 )
Excess tax expense from share-based compensation —
(3,164 )
Net cash provided by (used in) financing activities 13,697
(46,482 )
Effect of changes in exchange rates on cash (146 ) (1,908 )
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

~~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~~our growth strategy is to make acquisitions that will strengthen ~~its~~our core services or presence in selected markets, and ~~the Company~~that we also ~~makes~~make strategic divestitures from time to time. ~~The Company expects~~We expect that the industry in which ~~it operates~~we operate will experience consolidation, and ~~the Company expects~~we expect 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~~2019 balance sheet was prepared from audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2019 (the ~~“2016~~“2019 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~~2019 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~~2020 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.

Market Conditions and COVID-19

As a company that provides services to oil and gas exploration and development companies, we are exposed to a number of risks and uncertainties that are inherent to our industry. In addition to such industry-specific risks, the global public health crisis associated with the novel coronavirus (“COVID-19”) has, and is anticipated to continue to have, an adverse effect on global economic activity for the immediate future and has resulted in travel restrictions, business closures and the institution of quarantining and other restrictions on movement in many communities. The slowdown in global economic activity attributable to COVID-19 has resulted in a dramatic decline in the demand for energy, which directly impacts our industry and the Company. In addition, global crude oil prices experienced a decline in late 2019 and a collapse starting in early March 2020 as a direct result of failed negotiations between the Organization of the Petroleum Exporting Countries (“OPEC”) and Russia regarding reduced supply of oil. As the breadth of the COVID-19 health crisis expanded throughout the month of March 2020 and governmental authorities implemented more restrictive measures to limit person-to-person contact, global economic activity continued to decline commensurately. The associated impact on the energy industry has been adverse and continued to be exacerbated by the unresolved conflict regarding production. In the second week of April, OPEC, Russia and certain other petroleum producing nations (“OPEC+”) reconvened to discuss the matter of production cuts in light of unprecedented disruption and supply and demand imbalances that expanded since the failed negotiations in early March 2020. Agreements were reached to cut production by up to 10 million barrels of oil per day with allocations to be made among the OPEC+ participants. In early June, these agreements were further extended through July 2020. These production cuts, other voluntary production curtailments and reduced drilling have helped to bring demand and supply closer to balance and stabilized commodity prices. However, US and international crude oil stocks remain volatile and relatively high, commodity prices remain depressed relative to 2019 levels, and there remains continued uncertainty around the timing of any recovery in economic activity, the amount of future oil and gas

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production and the demand for energy. Additionally, certain communities around the world have recently experienced increases in COVID-19 infection rates, which has resulted in the reinstatement of travel restrictions and business closures to curtail the spread of COVID-19.

Despite a significant decline in drilling by U.S. producers starting in mid-March 2020, domestic supply continued to exceed demand through May 2020, which led to significant operational stress due to capacity limitations associated with storage, pipeline and refining infrastructure, particularly within the Gulf Coast region. While these trends began to reverse in June 2020 due to production curtailments, natural well decline and reduced drilling activity, there remains a historically high amount of crude oil in storage. The combined effect of the aforementioned factors has had an adverse impact on the industry in general and our operations specifically.

These conditions and events have adversely affected the demand for oil and natural gas, as well as for our services. The collapse in the demand for oil caused by this unprecedented global health and economic crisis, coupled with oil oversupply, has had, and is reasonably likely to continue to have, a material adverse impact on the demand for our services and the prices we can charge for our services. The decline in our customers’ demand for our services has had, and is likely to continue to have, a material adverse impact on our financial condition, results of operations and cash flows.

To date, we have enhanced the cost control measures related to operational and general and administrative expenses to optimize cost during this time period with the goal of ensuring that margins are preserved as well as increased efforts on improving working capital until customer spend increases.

Restructuring and Reverse Stock Split

On March 6, 2020, we closed the previously announced restructuring of our capital structure and indebtedness (the “Restructuring”) pursuant to the Restructuring Support Agreement, dated as of January 24, 2020 (the “RSA”), with lenders under our Prior Term Loan Facility (as defined below) collectively holding over 99.5% (the “Supporting Term Lenders”) of the principal amount of the Company’s then outstanding term loans. Pursuant to the RSA and the Restructuring contemplated thereby, among other things, we effected the following transactions and changes to our capital structure and governance:

●

pursuant to exchange agreements entered into at the closing of the Restructuring, we exchanged approximately $241.9 million aggregate outstanding principal of our term loans (together with accrued interest thereon) held by Supporting Term Lenders under our Prior Term Loan Facility into (i) approximately 13.4 million newly issued shares of common stock representing 97% of the Company’s outstanding shares after giving effect to such issuance (and without giving effect to dilution by the New Warrants and MIP (each as defined below)) and (ii) $20 million of term loans under our new $51.2 million term loan facility (the “New Term Loan Facility”), each on a pro rata basis based on their holdings of term loans under the Prior Term Loan Facility;

●

completed a 1-for-50 reverse stock split of our outstanding common stock. All pre-Restructuring shares prices, including shares outstanding and earnings per share, have been adjusted to reflect the 1-for-50 reverse stock split;

●

distributed to our common stockholders of record as of February 18, 2020 two series of warrants (the “New Warrants”);

●

entered into the $51.2 million New Term Loan Facility, of which (i) $30 million was funded at closing of the Restructuring with new cash proceeds from the Supporting Term Lenders and $20 million was issued in exchange for term loans held by the Supporting Term Lenders under the Prior Term Loan Facility as described above and (ii) an approximate $1.2 million was a senior secured term loan tranche in respect of term loans held by lenders under the Prior Term Loan Facility who were not Supporting Term Lenders;

●

entered into the New ABL Facility (as defined below);

●

adopted a new management incentive plan (the “MIP”) representing up to 9% of the Company’s outstanding shares after giving effect to the issuance of shares described above; and

●

made certain changes to the Company’s governance, including changes to our Board of Directors (the “Board”), amendments to our governing documents and entry into the Stockholders Agreement (as defined below) with the Supporting Term Lenders.

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In accordance with the RSA at the closing of the Restructuring, the Company amended and restated its certificate of incorporation and entered into a stockholders agreement (the “Stockholders Agreement”) with the Supporting Term Lenders in order to, among other things, provide for a Board of seven members. Pursuant to the Stockholders Agreement, our Board consists of our chief executive officer and six other members appointed by various Supporting Term Lenders. Specifically, pursuant to the Stockholders Agreement, Supporting Term Lenders who hold more than 25% of the Company’s outstanding shares as of the closing of the Restructuring are entitled to nominate two directors and Supporting Term Lenders who hold between 10% and 25% of the Company’s outstanding shares as of the closing of the Restructuring are entitled to nominate one director. All appointees or nominees of Supporting Term Lenders, other than any director appointed or nominated by Soter Capital LLC (“Soter”), must meet the “independent director” requirements set forth in Section 303A of the NYSE Listed Company Manual. In addition, pursuant to the Stockholders Agreement, Supporting Term Lenders are entitled to appoint a non-voting board observer subject to specified ownership thresholds.

In accordance with the RSA and following the closing of the Restructuring, the Company distributed to stockholders of record as of February 18, 2020 the New Warrants. The New Warrants were issued in two series, each with a four-year exercise period. The first series entitles the holders to purchase in the aggregate 1,669,730 newly issued shares of common stock, representing 10% of the Company’s common shares at the closing of the Restructuring on an as-exercised basis (after giving effect to the exercise of all New Warrants, but subject to dilution by issuances under the MIP). The aggregate exercise price of the first series of New Warrants is $19.23 and was determined based on the aggregate outstanding principal amount of term loans under the Prior Term Loan Facility plus accrued interest thereon at the default rate as of the closing of the Restructuring. The second series of New Warrants entitles the holders to purchase in the aggregate 1,252,297 newly issued shares of common stock, representing 7.5% of the Company’s common shares at the closing of the Restructuring on an as-exercised basis (after giving effect to the exercise of all New Warrants, but subject to dilution by issuances under the MIP). The aggregate strike price of the second series of New Warrants is $28.85 and was determined based on the product of (i) the aggregate outstanding principal amount of term loans under the Prior Term Loan Facility plus accrued interest thereon at the default rate as of the closing of the Restructuring, multiplied by (ii) 1.50.

For more information on our New Term Loan Facility and New ABL Facility entered into in connection with the Restructuring, see “Note 7. Debt.”

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.

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~~2019 Form 10-K.

Recent Accounting Developments

~~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 than the revised statement of cash flows presentation of restricted cash, the adoption of this standard is 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 the effect of this standard on its consolidated financial statements.

ASU 2016-13. In June 2016, the ~~FASB~~Financial Accounting Standards Board issued ~~ASU~~Accounting Standards Update (“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~~are not 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~~were effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods. ~~Early~~We adopted the new standard effective January 1, 2020 and the 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 on our consolidated financial ~~statements, with~~statements.

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ASU 2019-12. In December 2019, 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~~Financial Accounting Standards Board issued ASU ~~2016-02,~~ ~~Leases~~2019-12, Income Taxes (Topic ~~842),~~ ~~which~~740): Simplifying the Accounting for Income Taxes that will ~~replace~~simplify accounting for income taxes by eliminating certain exceptions to the ~~existing lease guidance. The~~guidance for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also simplifies aspects of the accounting for franchise taxes that are partially based on income and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. We adopted the new standard effective April 1, 2020. Most of the changes were not applicable to Key and there was no significant impact to the Company’s financial statements upon adoption of this standard.

Coronavirus Aid, Relief and Economic Security Act (“CARES Act”)

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. It is a large tax-and-spending package intended to provide ~~enhanced transparency and comparability by requiring lessees~~additional economic relief 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 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 determineaddress the impact of the COVID-19 pandemic. The CARES Act includes several significant business tax provisions that, among other things, eliminate the taxable income limit for certain net operating losses (NOL) and allow businesses to carry back NOLs arising in 2018, 2019, and 2020 to the five prior tax years; accelerate refunds of previously generated corporate alternative minimum tax (AMT) credits; and generally increased the business interest limitation under section 163(j) from 30 percent to 50 percent. Key has analyzed the income tax provisions under the CARES Act, and concluded that none of the provisions have a significant impact to the Company’s income tax positions. Future regulatory guidance under the CARES Act or additional legislation enacted by Congress in connection with the COVID-19 pandemic could impact our tax provision in future periods. In addition to income tax provisions, the CARES Act also includes tax provisions relating to refundable payroll tax credits and deferment of employer’s social security tax payments. Specifically, the CARES Act permits an employer to defer 50 percent of its ~~adoption~~2020 social security tax payments to the end of 2021 and the remaining 50 percent to the end of 2022. Beginning in April of 2020, we began deferring our employer social security payments (“payroll tax”) and approximately $2.4 million of payroll tax has been deferred as of September 30, 2020. Also, the Company qualifies for the refundable payroll tax credits (“employee retention credit”) and has recognized approximately $1.6 million of an employee retention credit for the period ending September 30, 2020. The Company continues to evaluate the impact of the CARES Act on ~~the consolidated~~our financial ~~statements.~~

~~ASU 2014-09.~~ ~~In May 2014,~~position, results of operations and cash flows.

NOTE 3. REVENUE FROM CONTRACTS WITH CUSTOMERS

Revenues are recognized when control of 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 is transferred to our customers, and in an amount that reflects the consideration ~~to which the entity expects~~we expect to be entitled to in exchange for those goods or services. ~~ASU 2014-09 must be adopted using either~~The following table presents our revenues disaggregated by revenue source (in thousands). Sales taxes are excluded from revenues.


	Nine Months Ended
	September 30,
	2020		2019
Rig Services	$	98,332	$	197,375
Fishing and Rental Services		17,648		43,534
Coiled Tubing Services		8,418		32,134
Fluid Management Services		28,571		55,696
Total	$	152,969	$	328,739

Disaggregation of Revenue

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

Rig Services

Our Rig Services segment 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.

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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 monthly, and payment terms are usually 30 days from invoice receipt.

Fishing and Rental Services

We offer a full ~~retrospective method~~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 and 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 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 ~~modified retrospective method.~~ third party.

We ~~plan~~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 ~~adopt~~ the ~~standard January 1, 2018 applying~~customer. The control over services is transferred as the ~~full retrospective method.~~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.

Arrangements with Multiple Performance Obligations

While not typical for our business, 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.

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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 ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“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, ~~assembled~~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 ~~team~~significant financing component given that the period between when the entity transfers a promised good or service to ~~scope~~a customer and when the ~~project, identify relevant revenue streams and understand~~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 ~~revenue recognition implications~~value to the customer of the ~~new guidance. We are currently evaluating~~entity’s performance completed to date (for example, a service contract in which an entity bills a fixed amount for each hour of service provided). For those contracts, we have utilized the ~~standard to determine~~practical expedient in ASC 606-10-55-18 exempting the ~~impact~~Company from disclosure of ~~its adoption on~~ the ~~consolidated financial statements, however, management’s preliminary assessment is~~recognition of revenue in the amount that the ~~impact~~Company has a right to invoice.

Accordingly, we do not disclose the ~~financial statements will not be material.~~

~~NOTE 3. ASSETS HELD FOR SALE~~

~~In April 2015, we announced our decision to exit markets in~~value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we ~~participate outside of North America. Our strategy was~~recognize revenue at the amount to ~~sell or relocate~~which we have the assets 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 criteriaright to invoice for ~~assets held for sale. The sale of our Russian business unit was completed in the third quarter of 2017.~~

services performed.

NOTE 4. EQUITY

A reconciliation of the total carrying amount of our equity accounts for the nine months ended September 30, ~~2017~~2020 is as follows (in thousands):


	COMMON STOCKHOLDERS
	Common Stock			Additional
	Number of			Paid-in
	Shares	Amount at Par		Capital		Retained Deficit		Total
Balance at December 31, 2019	411	$	206	$	265,588	$	(317,047)	$	(51,253)
Common stock purchases	(1)		(1)		(7)		—		(8)
Share-based compensation	3		2		(75)		—		(73)
Issuance of shares pursuant to the Restructuring Support Agreement	13,368		133		41,855		—		41,988
Issuance of warrants pursuant to the Restructuring Support Agreement	—		—		296		—		296
Net income	—		—		—		108,994		108,994
Balance at March 31, 2020	13,781		340		307,657		(208,053)		99,944
Share-based compensation	—		—		325		—		325
Net loss	—		—		—		(19,125)		(19,125)
Balance at June 30, 2020	13,781		340		307,982		(227,178)		81,144
Share-based compensation	—		—		445		—		445
Net loss	—		—		—		(3,896)		(3,896)
Balance at September 30, 2020	13,781	$	340	$	308,427	$	(231,074)	$	77,693

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COMMON STOCKHOLDERS
Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income Retained Deficit Total
Number of Shares Amount at Par
Balance at December 31, 2016 (Successor) 20,096
$ 201
$ 252,421
$ 239
$ (10,244 ) $ 242,617
Foreign currency translation —
—
—
(239 ) —
(239 )
Common stock purchases —
—
(85 ) —
—
(85 )
Share-based compensation 13
—
11,581
—
—
11,581
Net loss —
—
—
—
(98,262 ) (98,262 )
Balance at September 30, 2017 (Successor) 20,109
$ 201
$ 263,917
$ —
$ (108,506 ) $ 155,612

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A reconciliation of the total carrying amount of our equity accounts for the nine months ended September 30, 2019 is as follows (in thousands):


	COMMON STOCKHOLDERS
	Common Stock			Additional
	Number of			Paid-in
	Shares	Amount at Par		Capital		Retained Deficit		Total
Balance at December 31, 2018	407	$	204	$	264,945	$	(219,629)	$	45,520
Share-based compensation	—		—		816		—		816
Net loss	—		—		—		(23,441)		(23,441)
Balance at March 31, 2019	407		204		265,761		(243,070)		22,895
Common stock purchases	—		—		(4)		—		(4)
Share-based compensation	1		—		1,414		—		1,414
Net loss	—		—		—		(18,303)		(18,303)
Balance at June 30, 2019	408		204		267,171		(261,373)		6,002
Common stock purchases	—		—		(33)		—		(33)
Share-based compensation	2		1		1,268		—		1,269
Net loss	—		—		—		(25,489)		(25,489)
Balance at September 30, 2019	410	$	205	$	268,406	$	(286,862)	$	(18,251)

NOTE 5. OTHER BALANCE SHEET INFORMATION

The table below presents comparative detailed information about other current assets at September 30, ~~2017~~2020 and December 31, ~~2016~~2019 (in thousands):


		September 30, 2020		December 31, 2019
Other current assets:
Prepaid current assets	$	3,008	$	13,118
Reinsurance receivable		6,442		6,475
Operating lease right-of-use assets		1,054		2,394
Other		—		273
Total	$	10,504	$	22,260

September 30, 2017 December 31, 2016
Other current assets:
Prepaid current assets $ 5,069
$ 10,291
Reinsurance receivable 9,451
7,922
Current assets held for sale —
3,667
Other 2,898
3,882
Total $ 17,418
$ 25,762

The table below presents comparative detailed information about other non-current assets at September 30, ~~2017~~2020 and December 31, ~~2016~~2019 (in thousands):


	September 30, 2020		December 31, 2019
Other non-current assets:
Reinsurance receivable	$	6,875	$	6,887
Deposits		29,851		8,689
Operating lease right-of-use assets		2,332		2,404
Other		296		386
Total	$	39,354	$	18,366

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September 30, 2017 December 31, 2016
Other non-current assets:
Reinsurance receivable $ 8,110
$ 8,393
Deposits 1,331
8,292
Equity method investments —
560
Non-current assets held for sale —
360
Other 5,166
135
Total $ 14,607
$ 17,740

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The table below presents comparative detailed information about other current liabilities at September 30, ~~2017~~2020 and December 31, ~~2016~~2019 (in thousands):


	September 30, 2020		December 31, 2019
Other current liabilities:
Accrued payroll, taxes and employee benefits	$	7,954	$	14,463
Accrued operating expenditures		8,199		12,919
Income, sales, use and other taxes		6,553		5,115
Self-insurance reserve		23,503		25,366
Accrued interest		1,607		15,476
Accrued insurance premiums		118		4,990
Unsettled legal claims		2,061		7,020
Accrued severance		—		2,636
Operating leases		2,114		2,502
Other		51		228
Total	$	52,160	$	90,715

September 30, 2017 December 31, 2016
Other current liabilities:
Accrued payroll, taxes and employee benefits $ 16,219
$ 23,224
Accrued operating expenditures 10,313
16,669
Income, sales, use and other taxes 11,105
10,748
Self-insurance reserve 26,994
35,484
Accrued interest 6,586
1,419
Accrued insurance premiums 127
2,347
Unsettled legal claims 10,686
5,398
Accrued severance 250
2,219
Current liabilities held for sale —
371
Other 103
6,059
Total $ 82,383
$ 103,938

The table below presents comparative detailed information about other non-current liabilities at September 30, ~~2017~~2020 and December 31, ~~2016~~2019 (in thousands):


	September 30, 2020		December 31, 2019
Other non-current liabilities:
Asset retirement obligations	$	8,842	$	9,035
Environmental liabilities		1,820		2,047
Accrued sales, use and other taxes		5,344		17,005
Deferred tax liabilities		468		—
Operating leases		1,540		2,590
Federal insurance contributions act tax		2,390		—
Other		32		33
Total	$	20,436	$	30,710

September 30, 2017 December 31, 2016
Other non-current liabilities:
Asset retirement obligations $ 8,891
$ 9,035
Environmental liabilities 2,075
3,446
Accrued sales, use and other taxes 17,321
16,735
Deferred tax liabilities —
35
Other 201
528
Total $ 28,488
$ 29,779

NOTE 6. INTANGIBLE ASSETS

The components of our other intangible assets as of September 30, ~~2017~~2020 and December 31, ~~2016~~2019 are as follows (in thousands):


	September 30, 2020		December 31, 2019
Trademark:
Gross carrying value	$	520	$	520
Accumulated amortization		(217)		(173)
Net carrying value	$	303	$	347

September 30, 2017 December 31, 2016
Trademark:
Gross carrying value 520
520
Accumulated amortization (43 ) —
Net carrying value 477
520

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	Expected amortization expense (in thousands)
	amortization	Remainder of
	period (years)	2020		2021		2022		2023		2024
Trademarks	5.3	$	14	$	58	$	58	$	58	$	58

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

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~~2020 and ~~2016, respectively.~~2019.

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NOTE 7. DEBT

As of September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the components of our debt were as follows (in thousands):


	September 30, 2020		December 31, 2019
Term Loan Facility due 2025	$	50,000	$	—
Term Loan Facility due 2021		1,204		243,125
Interest in kind		3,423		—
Unamortized debt issuance costs		(2,732)		(1,799)
Finance lease obligation		4,485		1,600
Total		56,380		242,926
Less current portion(1)		(1,089)		(2,919)
Long-term debt	$	55,291	$	240,007

(1)	Of the current portion of debt, $1.1 million and $0.4 million is related to finance leases as of September 30, 2020 and December 31, 2019, respectively.

September 30, 2017 December 31, 2016
Term Loan Facility due 2021 $ 248,125
$ 250,000
Unamortized debt issuance costs (2,015 ) (2,023 )
Total 246,110
247,977
Less current portion (2,500 ) (2,500 )
Long-term debt $ 243,610
$ 245,477

~~ABL Facility~~

~~On December 15, 2016,~~

Prior Long-Term Debt Arrangements

Prior to the Restructuring, the Company was party to two credit facilities. The Company and Key Energy Services, LLC, aswere borrowers (the “ABL Borrowers”)~~, entered into the~~ under an 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~~sole collateral agent for the ~~lenders. The ABL Facility provides~~lenders, providing for aggregate ~~initial~~ commitments from the ABL Lenders of $80 million (the “Prior ABL Facility”). In addition, 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 “Prior Term Loan Facility”).

As previously announced, on October 29, 2019, the Company entered into a forbearance agreement (as amended on December 6, 2019, December 20, 2019, January 10, 2020 and January 31, 2020, the “ABL Forbearance Agreement”) with Bank of America, N.A., as administrative agent (the “Administrative Agent”), and all of the lenders party thereto (the “Lenders”) regarding a cross-default under the Loan and Security Agreement, dated as of December 15, 2016, by and among Key, the Administrative Agent and the Lenders.

On February 28, 2020, the Company and the Lenders party thereto amended the ABL Forbearance Agreement (the “Forbearance Agreement Amendment”). Pursuant to the Forbearance Agreement Amendment, the Lenders party thereto agreed, among other things, to extend the forbearance period until the earliest of (i) March 6, 2020, (ii) the occurrence of certain specified early termination events and (iii) the date on which ~~on February~~the previously announced RSA between the Company and certain lenders under the Company’s term loan facility is terminated in accordance with its terms. In connection with the ABL Forbearance Agreement, the Company elected not to make scheduled interest payments due October 18, 2019 and January 20, 2020 under the Prior Term Loan Facility. The Company’s failure to make these interest payments resulted in a default under the Prior Term Loan Facility and a cross-default under the Prior ABL Facility.

Effective March 6, 2020, upon the closing of the Restructuring, we entered into the New Term Loan Facility and the New ABL Facility, which superseded the Prior Term Loan Facility and Prior ABL Facility. A description of each of the new and prior facilities follows.

New ABL Facility

On March 6, 2020, the Company and Key Energy Services, LLC, as borrowers (the “ABL Borrowers”), entered into Amendment No. 3 ~~2017 was increased~~ to ~~$100~~the Company’s existing ABL facility, dated as of December 15, 2016 (as amended, the “New ABL Facility”) with the financial institutions party thereto from time to time as lenders (the “ABL Lenders”) and Bank of America, N.A., as administrative agent and collateral agent (the “ABL Agent”) for the ABL Lenders. The New ABL Facility provided for aggregate commitments from the ABL Lenders of $70 million and matures on ~~June 15, 2021.~~the earlier of (x) April 5, 2024 and (y) 181 days prior to the scheduled maturity date of

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the Company’s term loan facility or the scheduled maturity date of the Company’s other material debt in an aggregate principal amount exceeding $15 million.

The New 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~~$30 million and (y) 25% of the commitments. The amount that may be borrowed under the New ABL Facility is subject to increase or reduction based on certain segregated cash or reserves provided for by the New 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 New ABL Facility.

Borrowings under the New 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%~~2.75% to ~~4.5%~~3.25% depending on the ABL 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%~~1.75% to ~~3.50%~~2.25% depending on the ABL Borrowers’ fixed charge coverage ratio at such time. The New ABL Facility provides that, in the event LIBOR becomes unascertainable for the requested interest period or otherwise becomes unavailable or replaced by other benchmark interest rates, then the Company and the ABL Agent may amend the New ABL Facility for the purpose of replacing LIBOR with one or more SOFR-based rates or another alternate benchmark rate giving consideration to the general practice in similar U.S. dollar denominated syndicated credit facilities.

In addition, the New ABL Facility provides for unused line fees of ~~1.00%~~0.5% to ~~1.25%~~0.375% per year, depending on utilization, letter of credit fees and certain other factors.

The New 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 New ABL Facility, each of the ABL Loan Parties has granted or will grant, as applicable, to the ~~Administrative~~ABL 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~~“New Term Loan Facility”).

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

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

On May 20, 2020, the ABL Borrowers, the ABL Lenders and Administrative Agent, entered into Amendment No. 4 to the New ABL Facility. Pursuant to the Fourth Amendment, the parties agreed, among other things, to (i) reduce the Lenders’ aggregate commitments to make revolving loans to $50 million, (ii) increase the applicable interest rate margin by 100 basis points to 375-425 basis points for LIBOR borrowings (with a 1.00% LIBOR floor) and 275-325 basis points for base rate borrowings (with a 2.00% base rate floor), in each case depending on the fixed charge coverage ratio at the time of determination, (iii) lower the availability thresholds for triggering certain covenants and (iv) add certain reporting requirements.

On August 28, 2020, the ABL Borrowers, the ABL Lenders and the Administrative Agent, entered into Amendment No. 5 to the New ABL Facility to, among other things, permit the ABL Borrowers to undertake sale and leaseback transactions with an aggregate fair market value of up to $5.0 million during the term of the New ABL Agreement.

As of September 30, ~~2017,~~2020, we ~~have~~had no borrowings outstanding, ~~and $33.7~~$36.3 million of letters of credit, ~~outstanding with~~$27.4 million posted as additional collateral recorded in deposits on our balance sheet and $8.7 million of borrowing capacity ~~of $26.5 million~~ available ~~subject to covenant constraints~~ under our New ABL Facility. The letters of credit are related to our workers’ compensation and auto insurance costs. The additional collateral is required to collateralize our outstanding letters of credit and maintain compliance with the current minimum borrowing capacity availability requirement of $7.5 million under our New ABL Facility.

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As of September 30, 2020, we were in compliance with all covenants under our New ABL Facility.

New Term Loan Facility

On ~~December 15, 2016,~~March 6, 2020, the Company entered into an amendment and restatement agreement with the Supporting Term Lenders and Cortland Capital Market Services LLC and Cortland Products Corp., as agent (the “Term Agent”), which amended and restated the Prior 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 and the Term Agent (as amended and restated by the amendment and restatement agreement, the “New Term Loan Facility”). Prior to the closing of the Restructuring, there was approximately $243.1 million aggregate principal amount of term loans outstanding under the Prior Term Loan Facility. Following the closing of the Restructuring, the New Term Loan Facility is comprised of (i) $30 million new money term loans funded by the Supporting Term Lenders and $20 million new term loans excluding new money issued in exchange for existing term loans held by the Supporting Term Lenders (collectively, the ~~“Term Loan Lenders”~~“New Term Loans”) and ~~Cortland Capital Market Services LLC and Cortland Products Corp., as agent for~~(ii) an approximate $1.2 million senior secured term loan tranche in respect of the ~~Lenders. The~~existing term loans held by lenders who are not Supporting Term Lenders (the “Continuing Term Loans”). As of September 30, 2020, there was $54.6 million outstanding under the New Term Loan Facility ~~had an initial outstanding principal~~including interest in kind.

For the $20 million new term loans excluding new money which were accounted for as a troubled debt restructuring with a modification of terms in accordance with ASC 470-60, “Troubled Debt Restructurings by Debtors”, which addresses certain aspects of the accounting for debt, a total of $16.3 million of estimated future undiscounted interest payments ($14.9 million at September 30, 2020) has been accrued per ASC 470-60 and presented as Interest Payable in the accompanying balance sheet. Interest payments made in the future associated with the modified $20 million new term loans will be a reduction to interest payable, which is recorded as a long-term liability on our consolidated balance sheet, and not to interest expense. Fluctuations in the effective interest rate used to estimate future cash flows will be accounted for as changes in estimates for the period in which the change occurred. However, the carrying amount of ~~$250 million.~~

the restructured payable will remain unchanged, and future cash payments will reduce the carrying amount until the time that any gain recognized cannot be offset by future cash payments.

The New Term Loan Facility will mature on August 28, 2025, with respect to the New Term Loans, and on December 15, 2021 ~~although such~~with respect to the Continuing Term Loans. Such maturity date may, at the Company’s request, be extended by one or more of the ~~Term Loan Lenders~~term loan lenders pursuant to the terms of the New Term Loan Facility. The New Term Loans will bear interest at a per annum rate equal to LIBOR for six months, plus 10.25%. The Company has the option to pay interest in kind at an annual rate of LIBOR plus 12.25% on the outstanding principal amount of the New Term Loans for the first two years following the closing of the Restructuring. The Continuing Term Loans will bear interest at a per annum rate equal to LIBOR for one, two, three, six or, with the consent of all term loan lenders, up to 12 months, and the Company has the option to pay interest in kind of up to 100 basis points of the per annum interest due on the Continuing Term Loans.

The New 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 ensure their obligations under the New Term Loan Facility, each of the Term Loan Parties has granted to the Term 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 New Term Loan Facility are secured by second-priority liens on the ABL Priority Collateral (as described above under “ABL Facility”).

The New Term Loans may be prepaid at the Company’s option, subject to the payment of a prepayment premium (which may be waived by lenders holding New Term Loans under the New Term Loan Facility representing at least two-thirds of the aggregate outstanding principal amount of the New Term Loans) in certain circumstances as provided in the New Term Loan Facility. If a prepayment is made prior to the first anniversary of the closing of the Restructuring, such prepayment premium is equal to 3% of the principal amount of the New Term Loans prepaid; if a prepayment is made from the first anniversary to the second anniversary of the closing of the Restructuring, the prepayment premium is equal to 2% of the principal amount of the New Term Loans prepaid; if a prepayment is made from the second anniversary to the third anniversary of the closing of the Restructuring, the prepayment premium is equal to 1% of the principal amount of the New Term Loans prepaid; and there is no prepayment premium thereafter. The Company is required to make principal payments in respect of the Continuing Term Loans in the amount of $3,125 per quarter commencing with the quarter ended March 31, 2020 and is required to pay $1,190,625 on the maturity date of the Continuing Term Loans.

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In addition, pursuant to the New 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, receipt of extraordinary cash proceeds (e.g., tax and insurance) and upon certain change of control transactions, subject in each case to certain exceptions.

The New 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 New Term Loan Facility also contains a financial covenant requiring that the Company maintain Liquidity (as defined in the New Term Loan Facility) of not less than $10 million as of the last day of any fiscal quarter, subject to certain exceptions and cure rights.

On August 26, 2020, the Company as borrower, Key Energy LLC, certain lenders party thereto and the Term Agent entered into Amendment No. 1 to the New Term Loan Facility to, among other things, permit the Company and Key Energy LLC to undertake sale and leaseback transactions with an aggregate fair market value of up to $5 million during the term of the New Term Loan Facility.

As of September 30, 2020, we were in compliance with all covenants under our New Term Loan Facility.

The weighted average interest rate on the outstanding borrowings under the New Term Loan Facility for the three month period ended September 30, 2020 and from March 6, 2020, the beginning of the New Term Loan Facility, to September 30, 2020 was 13.17%.

Prior ABL Facility

As described above, the Company and Key Energy Services, LLC were borrowers under the Prior ABL Facility that provided for aggregate commitments from the ABL Lenders of $80 million.

On April 5, 2019, the ABL Borrowers, as borrowers, the financial institutions party thereto as lenders and Bank of America, N.A. (the “ABL Agent”), as administrative agent for the lenders, entered into Amendment No. 1 (“Amendment No. 1”) to the Prior ABL Facility, among the ABL Borrowers, the financial institutions party thereto from time to time as lenders, the ABL Agent and the co-collateral agents for the lenders, Bank of America, N.A. and Wells Fargo Bank, National Association. The amendment, among other things, lowered the applicable margin for borrowings to (i) from between 2.50% and 4.50% to between 2.00% and 2.50% for LIBOR borrowings and (ii) from 1.50% and 3.50% to between 1.00% and 1.50% for base rate borrowings. On December 20, 2019, the Company and the Lenders amended the ABL Forbearance Agreement and the Loan Agreement to, among other things, (i) reduce the minimum availability Key is required to maintain under the ABL Forbearance Agreement from $12.5 million to $10 million and (ii) reduce the aggregate revolving commitments under the Loan Agreement from $100 million to $80 million.

The Prior ABL Facility provided 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 contractual interest rates under the Prior ABL Facility were, 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 ABL 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 varied from 1.50% to 3.50% depending on the ABL Borrowers’ fixed charge coverage ratio at such time. In addition, the Prior ABL Facility provided for unused line fees of 1.0% to 1.25% per year, depending on utilization, letter of credit fees and certain other factors.

Prior Term Loan Facility

As described above, the Company and certain subsidiaries were parties to the Prior Term Loan Facility, which had an initial outstanding principal amount of $250 million.

Borrowings under the Prior Term Loan Facility ~~will bear~~bore 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~~

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Table 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”).Contents

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 prepayment is made prior to the first anniversary of the loan, such prepayment must be made with 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. 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~~rate on the outstanding borrowings under the Prior Term Loan Facility ~~for~~in 2020, prior to the ~~three and nine month periods ended September 30, 2017 were as follows:~~

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

Restructuring, was 15.45%.

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
	September 30,				September 30,
	2020		2019		2020		2019
Interest income	$	(2)	$	(122)	$	(84)	$	(639)
Gain on settlement of a legal matter		(8,005)		—		(8,005)		—
Other		(355)		(229)		(673)		(1,093)
Total	$	(8,362)	$	(351)	$	(8,762)	$	(1,732)

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

NOTE 9. INCOME TAXES

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, ~~2017~~2020 and ~~2016~~2019 were ~~0.3%~~0.02% and ~~0.1%~~(0.1)%, respectively, and ~~1.2%~~1.1% and ~~0.2%~~6.1% for the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, 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 a true-up adjustment to income tax ~~expense or benefit recognized for uncertain tax positions.~~

receivable.

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, ~~2017.~~2020 and 2019. 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 and global economy, 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 nine months ended September 30, 2020.

The Company did not recognize any unrecognized tax benefits during three or nine months ended September 30, ~~2017.~~

2020. As of September 30, ~~2017,~~2020, we had ~~$0.3~~no unrecognized tax benefits.

Cancellation of Indebtedness Income (“CODI”)

Under the RSA, a substantial portion of the Company’s term loans were exchanged for newly issued shares and new term loans of the Company. Absent an exception, a debtor recognizes CODI upon discharge of its outstanding indebtedness for an amount of consideration that is less than the adjusted issue price. The Internal Revenue Code of 1986, as amended (“IRC”), provides that an insolvent debtor may exclude CODI from taxable income up to the amount of insolvency but must reduce certain of its tax attributes by the amount of any CODI excluded pursuant to the insolvency exception. The amount of CODI realized by a taxpayer is the adjusted issue price of any indebtedness discharged less the sum of (i) the amount of cash paid, (ii) the issue price of any new indebtedness issued and (iii) the fair market value of any other consideration, including equity, issued. Based on the market value of the Company’s equity, and the adjusted issue price of the term loans issued in the exchange, the estimated amount of U.S. CODI is approximately $206.0 million, $197.8 million of ~~unrecognized tax benefits,~~which is excluded pursuant to the insolvency exception and $8.2 million of which will be included in taxable income. Due to the application of the insolvency exception, the Company will reduce the value of its U.S. net operating losses that had a value 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$476.8 million ~~for the payment of interest and penalties~~ as of September 30, ~~2017. We believe~~2020. The actual reduction in tax attributes does not occur until the first day of the Company’s tax year subsequent to the date of the restructuring, or January 1, 2021. Further, any remaining net operating losses, tax credits, and certain built-in-losses or deductions existing as of the date of the ownership change will be limited under IRC Section 382 due to the change in control resulting from the restructuring.

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The CARES Act

As noted above in Note 2 under the heading—Significant Accounting Policies Coronavirus Aid, Relief and Economic Security Act, the CARES Act includes several significant business tax provisions that, ~~it is reasonably possible~~among other things, eliminate the taxable income limit for certain net operating losses (NOL) and allow businesses to carry back NOLs arising in 2018, 2019, and 2020 to the five prior tax years; accelerate refunds of previously generated corporate alternative minimum tax (AMT) credits; and generally increased the business interest limitation under section 163(j) from 30 percent to 50 percent. Key has analyzed the income tax provisions under the CARES Act, and concluded that ~~$0.2~~none of the provisions have a significant impact to the Company’s income tax positions. Future regulatory guidance under the CARES Act or additional legislation enacted by Congress in connection with the COVID-19 pandemic could impact our tax provision in future periods. In addition to income tax provisions, the CARES Act also includes tax provisions relating to refundable payroll tax credits and deferment of employer’s social security tax payments. Specifically, the CARES Act permits an employer to defer 50 percent of its 2020 social security tax payments to the end of 2021 and the remaining 50 percent to the end of 2022. Beginning in April of 2020, we began deferring our employer social security payments (“payroll tax”) and approximately $2.4 million of payroll tax has been deferred as of September 30, 2020. Also, the Company qualifies for the refundable payroll tax credits (“employee retention credit”) and has recognized approximately $1.6 million of an employee retention credit for the period ending September 30, 2020. The Company continues to evaluate the impact of the CARES Act on our ~~currently remaining unrecognized tax positions may be recognized in the next twelve months as a result~~financial position, results of ~~a lapse of statute of limitations~~operations and ~~settlement of ongoing audits.~~

cash flows.

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~~$2.1 million of other liabilities related to litigation that is deemed probable and reasonably estimable as of September 30, ~~2017.~~2020. 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~~2020 and December 31, ~~2016,~~2019, we have recorded ~~$53.5~~$50.1 million and ~~$58.7~~$51.4 million, respectively, of self-insurance reserves related to workers’ compensation, vehicular liabilities and general liability claims. Partially offsetting these liabilities, we had ~~$17.6~~$13.3 million and ~~$16.3~~$13.4 million of insurance receivables as of September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, 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~~2020 and December 31, ~~2016,~~2019, we have recorded ~~$2.1~~$1.8 million and ~~$3.4~~$2.0 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.

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NOTE 11. ~~LOSS~~EARNINGS (LOSS) PER SHARE

Basic ~~loss~~earnings (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~~earnings (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~~income (loss) per share are as follows (in thousands, except per share amounts):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019

Basic EPS Calculation:
Numerator
Net income (loss)	$	(3,896)	$	(25,489)	$	85,973	$	(67,233)
Denominator
Weighted average shares outstanding		13,781		409		10,562		408
Basic earnings (loss) per share	$	(0.28)	$	(62.32)	$	8.14	$	(164.79)
Diluted EPS Calculation:
Numerator
Net income (loss)	$	(3,896)	$	(25,489)	$	85,973	$	(67,233)
Denominator
Weighted average shares outstanding		13,781		409		10,562		408
RSUs		—		—		76		—
Total		13,781		409		10,638		408
Diluted earnings (loss) per share	$	(0.28)	$	(62.32)	$	8.08	$	(164.79)

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

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~~Company has issued potentially dilutive instruments such as RSUs, stock options ~~SARs~~ and ~~warrants~~.warrants. However, the ~~company~~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
	September 30,		September 30,
	2020	2019	2020	2019
RSUs	529	38	171	40
Stock options	1	1	1	1
Warrants	2,924	37	2,230	37
Total	3,454	76	2,402	78

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

No events occurred after September 30, ~~2017~~2020 that would materially affect the number of weighted average shares outstanding.

NOTE 12. SHARE-BASED COMPENSATION

Common Stock Awards

Our employee share-based awards, including common stock awards, stock option awards and phantom shares, vest in equal installments over a three-year period or vest in a 40%-60% split respectively over a two-year period. We calculate the fair value of the awards on the grant date and amortize that fair value to compensation expense ratably over the vesting period of the award, net of forfeitures. The grant-date fair value of our time-based restricted stock units and restricted stock awards is determined using our stock price on the grant date. The grant-date fair value of our performance-based restricted stock units is determined using our stock price on

22

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the grant date assuming a 1.0x payout target, however, a maximum 2.0x payout could be achieved if certain EBITDA-based performance measures are met.

Fair value of performance-based restricted stock units is estimated in the same manner as our time-based awards and assumes that performance goals will be achieved and the awards will vest. If the performance based awards do not vest, any previously recognized compensation costs will be reversed. We record share-based compensation as a component of general and administrative or direct operating expense based on the role of the applicable individual.

We recognized employee share-based compensation expense of ~~$2.5~~$0.1 million and ~~$0.5~~$1.2 million during the three months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively. We recognized employee share-based compensation expense of ~~$10.9~~$0.4 million and ~~$3.4~~$3.3 million during the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively. ~~Our employee share-based awards vest in equal installments over a four-year period.~~ Additionally, we recognized share-based compensation expense related to our outside directors of ~~$0.1~~$0.3 million and ~~zero~~$0.1 million during the three months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively. We recognized share-based compensation expense related to our outside directors of ~~$0.6~~$0.3 million and ~~zero~~$0.2 million during the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively. The unrecognized compensation cost related to our unvested share-based awards as of September 30, ~~2017~~2020 is estimated to be ~~$12.3~~$2.8 million and is expected to be recognized over a weighted-average period of ~~1.7~~1.0 years.

Stock Option Awards

As of September 30, 2020, 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 ~~stock options~~phantom shares of ~~$0.8~~less than negative $0.1 million and ~~zero~~less than negative $0.1 million during the three months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively. We recognized compensation expense related to our ~~stock options~~phantom shares of ~~$2.7~~less than $0.1 million and ~~zero~~less than $0.1 million during the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, 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~~2020 is estimated to be ~~$4.2~~less than $0.1 million and is expected to be recognized over a weighted-average period of ~~1.7~~0.3 years.

NOTE 13. TRANSACTIONS WITH RELATED PARTIES

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

In March 2020, the Company and Platinum, entered into a letter agreement (the “CASA Letter Agreement”) regarding outstanding payments owed to Platinum by the Company under the Corporate Advisory Services Agreement, dated as of December 15, 2016 (the “Advisory Agreement”). Pursuant to the CASA Letter Agreement, Platinum agreed to release the Company from its outstanding payment obligations under the Advisory Agreement in exchange for the right to a potential payment of $4.0 million upon the occurrence of certain reorganization events involving the Company and ceased providing any business advisory services to the Company.

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.~~

these instruments.

New Term Loan Facility ~~due 2021~~. Because of the variable interest rates feature and recent initiation of these loans, ~~approximate current market rates,~~we believe the carrying value approximates the fair ~~values~~value of the loans borrowed under this ~~facility approximate their carrying values.~~facility.

NOTE 15. LEASES

We have operating leases for certain corporate offices and operating locations and finance leases for certain vehicles. We determine if a contract is a lease or contains an embedded lease at the inception of the contract. Operating lease right-of-use (“ROU”) assets are included in other current and other non-current assets, and operating lease liabilities are included in other current and other

23

Table of Contents

non-current liabilities in our consolidated balance sheets. Finance lease ROU assets are included in property and equipment, net, and finance lease liabilities are included in our current portion of long-term debt and long-term debt on our consolidated balance sheets.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating and finance lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our risk adjusted incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. Our lease terms may include options to extend or terminate the lease. Our leases have remaining lease terms of less than one year to five years, some of which include options to extend the leases for up to five years, and some of which include options to terminate the leases within one year. Lease expense for lease payments is recognized on a straight-line basis over the non-cancelable term of the lease.

We recognized $0.8 million and $0.8 million of costs related to our operating leases during the three months ended September 30, 2020 and September 30, 2019, respectively. We recognized $2.2 million and $2.2 million of costs related to our operating leases during the nine months ended September 30, 2020 and September 30, 2019, respectively. As of September 30, 2020, our operating leases have a weighted average remaining lease term of 2.3 years and a weighted average discount rate of 5.57%.

We recognized $0.4 million and less than $0.1 million of costs related to our finance leases during the three months ended September 30, 2020 and September 30, 2019, respectively. We recognized $0.8 million and less than $0.1 million of costs related to our finance leases during the nine months ended September 30, 2020 and September 30, 2019, respectively. As of September 30, 2020, our finance leases have a weighted average remaining lease term of 4.1 years and a weighted average discount rate of 5.12%.

Supplemental balance sheet information related to leases as of September 30, 2020 and December 31, 2019 are as follows (in thousands):


	September 30, 2020		December 31, 2019
Right-of-use assets under operating leases
Operating lease right-of-use assets, current portion	$	1,054	$	2,394
Operating lease right-of-use assets, non-current portion		2,332		2,404
Total operating lease assets	$	3,386	$	4,798

Operating lease liabilities, current portion	$	2,114	$	2,502
Operating lease liabilities, non-current portion		1,540		2,590
Total operating lease liabilities	$	3,654	$	5,092

Right-of-use assets under finance leases
Property and equipment, at cost	$	5,246	$	1,760
Less accumulated depreciation		838		183
Property and equipment, net	$	4,408	$	1,577

Current portion of long-term debt	$	1,076	$	419
Long-term debt		3,409		1,181
Total finance lease liabilities	$	4,485	$	1,600

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Table of Contents

The maturities of our operating and finance lease liabilities as of September 30, 2020 are as follows (in thousands):


	September 30, 2020
	Operating Leases		Finance Leases
Remainder of 2020	$	705	$	319
2021		1,752		1,277
2022		705		1,277
2023		528		1,075
2024		189		792
Thereafter		—		224
Total lease payments		3,879		4,964
Less imputed interest		(225)		(479)
Total	$	3,654	$	4,485

NOTE ~~15.~~16. SEGMENT INFORMATION

Our reportable business segments are ~~U.S.~~ Rig ~~Services, Fluid Management Services, Coiled Tubing~~ Services, Fishing and Rental Services, Coiled Tubing Services and ~~International.~~Fluid Management Services. 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 Services, Coiled Tubing Services, Fishing and Rental 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 completed the sale of our businesses in Russia, Canada and Mexico, 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.

25

Table of Contents

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.

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~~

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.

~~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~~

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, we completed the sale of our businesses in Russia, Canada and Mexico, respectively. We provided rig-based services such as the maintenance, workover, recompletion of existing oil wells, completion of newly-drilled wells and plugging and abandonment of wells at the end of their useful lives in each of our international markets. In addition, in Mexico we provided drilling, coiled tubing, wireline and project management and consulting services. Our Canadian business 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~~2020 and ~~2016~~2019 (in thousands):

As of and for the three months ended September 30, 2020


			Fishing and		Coiled		Fluid
			Rental		Tubing		Management		Functional		Reconciling
	Rig Services		Services		Services		Services		Support		Eliminations		Total
Revenues from external customers	$	29,598	$	4,085	$	1,714	$	7,514	$	—	$	—	$	42,911
Intersegment revenues		25		220		—		59		—		(304)		—
Depreciation and amortization		4,108		843		1,008		470		678		—		7,107
Other operating expenses		23,578		3,675		2,023		7,046		9,503		—		45,825
Operating income (loss)		1,912		(433)		(1,317)		(2)		(10,181)		—		(10,021)
Interest expense, net of amounts capitalized		70		5		12		10		2,141		—		2,238
Income (loss) before income taxes		1,845		(438)		(1,325)		(12)		(3,967)		—		(3,897)
Long-lived assets(1)		110,750		15,868		12,126		14,829		47,843		—		201,416
Total assets		136,289		22,043		15,536		19,818		55,106		7,768		256,560
Capital expenditures		207		—		18		—		16		—		241

26

Successor company 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
Revenues from external customers $ 61,933
$ 20,713
$ 12,499
$ 14,177
$ 1,331
$ —
$ —
$ 110,653
Intersegment revenues 135
249
27
846
—
—
(1,257 ) —
Depreciation and amortization 8,009
5,350
1,259
5,855
234
407
—
21,114
Other operating expenses 54,426
22,625
9,386
10,688
2,225
24,933
—
124,283
Operating income (loss) (502 ) (7,262 ) 1,854
(2,366 ) (1,128 ) (25,340 ) —
(34,744 )
Reorganization items, net —
—
—
—
—
60
—
60
Interest expense, net of amounts capitalized —
—
—
—
—
8,090
—
8,090
Income (loss) before income taxes (495 ) (7,249 ) 1,854
(2,355 ) 3,212
(33,283 ) —
(38,316 )
Long-lived assets(1) 166,993
78,718
19,856
68,200
7
56,462
(32,445 ) 357,791
Total assets 287,305
41
38,450
363,879
10,117
(77,212 ) (71,475 ) 551,105
Capital expenditures 1,288
735
37
124
119
71
—
2,374

Table of Contents

As of and for the three months ended September 30, 2019


			Fishing and		Coiled		Fluid
			Rental		Tubing		Management		Functional		Reconciling
	Rig Services		Services		Services		Services		Support		Eliminations		Total
Revenues from external customers	$	64,465	$	14,135	$	9,714	$	18,209	$	—	$	—	$	106,523
Intersegment revenues		87		241		—		58		—		(386)		—
Depreciation and amortization		6,289		4,139		1,397		2,294		465		—		14,584
Other operating expenses		55,424		11,713		9,862		16,338		15,994		—		109,331
Operating income (loss)		2,752		(1,717)		(1,545)		(423)		(16,459)		—		(17,392)
Interest expense, net of amounts capitalized		33		7		13		12		8,346		—		8,411
Income (loss) before income taxes		2,734		(1,724)		(1,558)		(424)		(24,480)		—		(25,452)
Long-lived assets(1)		124,078		41,897		17,165		47,980		24,464		—		255,584
Total assets		173,079		55,625		26,174		59,827		50,000		9,441		374,146
Capital expenditures		932		418		1,246		33		1,492		—		4,121

As of and for the nine months ended September 30, 2020


			Fishing and		Coiled		Fluid
			Rental		Tubing		Management		Functional		Reconciling
	Rig Services		Services		Services		Services		Support		Eliminations		Total
Revenues from external customers	$	98,332	$	17,648	$	8,418	$	28,571	$	—	$	—	$	152,969
Intersegment revenues		150		445		—		93		5		(693)		—
Depreciation and amortization		12,275		5,025		3,346		2,698		2,043		—		25,387
Impairment expense		—		17,551		—		23,691		—		—		41,242
Other operating expenses		83,124		16,973		9,163		25,935		31,085		—		166,280
Operating income (loss)		2,933		(21,901)		(4,091)		(23,753)		(33,128)		—		(79,940)
Gain on debt restructuring		—		—		—		—		(170,648)		—		(170,648)
Interest expense, net of amounts capitalized		170		17		39		33		12,266		—		12,525
Income (loss) before income taxes		2,786		(21,906)		(4,125)		(23,781)		133,971		—		86,945
Long-lived assets(1)		110,750		15,868		12,126		14,829		47,843		—		201,416
Total assets		136,289		22,043		15,536		19,818		55,106		7,768		256,560
Capital expenditures		597		106		290		123		104		—		1,220

As of and for the nine months ended September 30, 2019


			Fishing and		Coiled		Fluid
			Rental		Tubing		Management		Functional		Reconciling
	Rig Services		Services		Services		Services		Support		Eliminations		Total
Revenues from external customers	$	197,375	$	43,534	$	32,134	$	55,696	$	—	$	—	$	328,739
Intersegment revenues		341		1,436		—		133		—		(1,910)		—
Depreciation and amortization		18,419		12,493		3,923		6,917		1,390		—		43,142
Other operating expenses		165,866		35,703		33,343		48,894		48,922		—		332,728
Operating income (loss)		13,090		(4,662)		(5,132)		(115)		(50,312)		—		(47,131)
Interest expense, net of amounts capitalized		69		20		43		33		25,999		—		26,164
Income (loss) before income taxes		13,070		(4,671)		(5,172)		(133)		(74,657)		—		(71,563)
Long-lived assets(1)		124,078		41,897		17,165		47,980		24,464		—		255,584
Total assets		173,079		55,625		26,174		59,827		50,000		9,441		374,146
Capital expenditures		3,745		2,491		3,163		2,088		4,996		—		16,483

Predecessor company as of and for the three months ended September 30, 2016
U.S. Rig Services Fluid Management Services Coiled Tubing Services Fishing and Rental Services International
Functional
Support(2)

Reconciling
Eliminations
Total
Revenues from external customers $ 59,137
$ 18,969
$ 7,146
$ 14,078
$ 3,076
$ —
$ —
$ 102,406
Intersegment revenues 293
203
—
1,194
34
—
(1,724 ) —
Depreciation and amortization 14,602
5,867
2,683
6,623
1,719
1,973
—
33,467
Impairment expense —
—
—
—
40,000
—
—
40,000
Other operating expenses 53,539
26,327
8,835
14,406
5,746
29,674
—
138,527
Operating loss (9,004 ) (13,225 ) (4,372 ) (6,951 ) (44,389 ) (31,647 ) —
(109,588 )
Interest expense, net of amounts capitalized —
—
—
—
—
21,120
—
21,120
Loss before income taxes (8,986 ) (13,216 ) (4,372 ) (6,938 ) (44,711 ) (52,639 ) —
(130,862 )
Long-lived assets(1) 450,384
111,697
45,705
106,055
10,334
160,835
(115,326 ) 769,684
Total assets 1,304,552
241,422
114,259
467,392
33,145
(840,066 ) (325,083 ) 995,621
Capital expenditures 521
865
—
954
—
13
—
2,353

Successor company 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
Revenues from external customers $ 184,026
$ 57,475
$ 27,005
$ 45,808
$ 5,571
$ —
$ —
$ 319,885
Intersegment revenues 235
887
49
2,472
—
—
(3,643 ) —
Depreciation and amortization 23,228
16,627
3,956
17,655
791
1,068
—
63,325
Impairment expense —
—
—
—
187
—
—
187
Other operating expenses 163,564
58,274
23,155
16,902
9,373
65,211
—
336,479
Operating income (loss) (2,766 ) (17,426 ) (106 ) 11,251
(4,780 ) (66,279 ) —
(80,106 )
Reorganization items, net —
—
—
—
—
1,501
—
1,501
Interest expense, net of amounts capitalized —
—
—
—
—
23,672
—
23,672
Income (loss) before income taxes (2,605 ) (17,485 ) (94 ) 11,485
(74 ) (90,727 ) —
(99,500 )
Long-lived assets(1) 166,993
78,718
19,856
68,200
7
56,462
(32,445 ) 357,791
Total assets 287,305
41
38,450
363,879
10,117
(77,212 ) (71,475 ) 551,105
Capital expenditures 5,956
1,828
216
654
475
481
—
9,610

Predecessor company as of and for the nine months ended September 30, 2016
U.S. Rig Services Fluid Management Services Coiled Tubing Services Fishing and Rental Services International
Functional
Support(2)

Reconciling
Eliminations
Total
Revenues from external customers $ 169,627
$ 61,230
$ 24,294
$ 43,773
$ 9,582
$ —
$ —
$ 308,506
Intersegment revenues 737
733
43
3,448
284
—
(5,245 ) —
Depreciation and amortization 44,278
17,725
8,574
21,385
6,067
7,046
—
105,075
Impairment expense —
—
—
—
40,000
—
—
40,000
Other operating expenses 154,393
70,557
32,298
42,127
17,865
88,452
—
405,692
Operating loss (29,044 ) (27,052 ) (16,578 ) (19,739 ) (54,350 ) (95,498 ) —
(242,261 )
Interest expense, net of amounts capitalized —
—
—
—
—
64,061
—
64,061
Loss before income taxes (29,011 ) (27,003 ) (16,455 ) (19,719 ) (54,986 ) (158,483 ) —
(305,657 )
Long-lived assets(1) 450,384
111,697
45,705
106,055
10,334
160,835
(115,326 ) 769,684
Total assets 1,304,552
241,422
114,259
467,392
33,145
(840,066 ) (325,083 ) 995,621
Capital expenditures 1,025
2,885
101
2,470
711
228
—
7,420


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


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

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NOTE ~~16. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS~~

17. ASSET IMPAIRMENT

Asset Impairments

During the nine months ended September 30, 2020 the Company recognized an asset impairment of $41.2 million. The ~~senior notes~~COVID-19 pandemic has resulted in significant economic disruption globally. Government action to restrict travel and suspend business operations has significantly reduced global economic activity. In addition, the recent steep and sustained decline in the price of crude oil has decreased the value in some of our long-lived assets.

The Company assesses triggering events in accordance with ASC 360-10-35-21. Triggering events that were deemed to be present included: a significant adverse change in the extent or manner in which a long-lived asset (asset group) is being used or in its physical location, an accumulation of costs significantly in excess of the ~~Predecessor Company~~amount originally expected for the acquisition or construction of a long-lived asset (asset group), and a current expectation that, more likely than not, a long-lived asset (asset group) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. During the first quarter of 2020, we recognized an impairment expense to long-lived assets.

Impairment of Long-Lived Assets

The Company’s long-lived assets are reviewed for impairment in accordance with ASC 360, “Property, Plant and Equipment”, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Long-lived assets used in operations are assessed for impairment whenever changes in circumstances indicate that the carrying value of the assets may not be recoverable based on the expected undiscounted future cash flow of an asset group. Long-lived assets must be grouped at the lowest level for which independent cash flows can be identified (asset groups). If the sum of the undiscounted cash flows is less than the carrying value of an asset group, the fair value of each asset group must be calculated and the carrying value is written down to the calculated fair value if necessary. If the fair value of an asset group exceeds the carrying value, no impairment expense is necessary for that asset group.

During the first quarter of 2020, we identified long-lived asset impairment triggers relating to all five of our asset groups as a result of the significant economic impacts and the effects of COVID-19 on oil and gas prices and demand for our services. The five asset groups were ~~registered securities.~~determined to be Rigs, Fluid Management Services - Trucks, Fluid Management Services - Saltwater Disposal Wells, Fishing & Rental Services, and Coiled Tubing Services. We assessed each asset group for impairment by comparing the undiscounted pretax cash flows to the carrying value of each asset group. We determined that all our asset groups, excluding Rigs, had carrying values that exceeded the undiscounted cash flows. The determination of undiscounted cash flows included management’s best estimates of the expected future cash flows per asset group for the next five years. The determinations of expected future cash flows and the salvage value of long-lived assets require considerable judgement and are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for the purposes of ~~these registered securities,~~this impairment analysis will prove to be an accurate prediction of the future. Should our assumptions change significantly in future periods, it is possible we ~~are required~~may determine the carrying values of the Rigs asset group exceeds the undiscounted pretax cashflows, which would result in an impairment expense.

It was determined that the fair value of the Fluid Management Services - Trucks, Fluid Management Services - Saltwater Disposal Wells, and Fishing & Rental Service asset groups was less than the carrying value of the respective asset groups by approximately $8.8 million, $14.8 million and $17.6 million, respectively, as of March 31, 2020. As a result, we recorded a total impairment charge of $41.2 million to ~~present~~asset impairment on the ~~following condensed consolidating financial information~~consolidated statements of income at March 31, 2020. We determined that the fair value of our Coiled Tubing Services asset group exceeded the carrying value. As such, no impairment expense was charged to the Coiled Tubing Services asset group.

The Company incorporated the income, market, and cost approaches to determine the fair value of each asset group. The income approach utilized significant assumptions including management’s best estimates of the expected future cash flows and the estimated useful life of the asset group. The market approach was utilized when there was an observable secondary market or where there was ample asset data available. The cost approach utilized assumptions for the current replacement costs of similar assets adjusted for estimated depreciation and deterioration of the existing equipment and economic obsolescence. Fair value determination requires a considerable amount of judgement and is sensitive to changes in underlying assumptions and economic factors. As a result, there can be no assurance that the fair value estimates made for the impairment analysis will prove to be an accurate prediction for the future.

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NOTE 18. SUBSEQUENT EVENT

On October 15, 2020, the Company completed the sale and leaseback of certain light duty vehicles for cash proceeds of approximately $1.5 million.

On October 21, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Tri-State Water Logistics, LLC, a Texas limited liability company (“Tri-State”), pursuant to ~~SEC Regulation S-X Rule 3-10, “Financial Statements of Guarantors~~which Tri-State acquired certain assets related to the Company’s waste water management division, which provides water management services to oil and ~~Issuers of Guaranteed Securities Registered or Being Registered.”~~ ~~Our ABL Facility~~gas operators in East Texas, Arkansas and ~~Term Loan Facility~~Louisiana (the “Assets”).

Under the terms of the ~~Successor~~Purchase Agreement, the Company sold the Assets in exchange for cash consideration of $6,000,000 and a $940,000 seller secured promissory note. The Assets, which were part of our Fluid Management Services sgment include, among other things: (i) saltwater disposal wells, (ii) real property, (iii) government permits, (iv) equipment related to the Assets, and (v) service vehicles. The Purchase Agreement contains negotiated representations, warranties and covenants by the Company and Tri-State, which are believed to be customary for transactions of this kind. These representations and warranties (i) may be intended not ~~registered securities, so~~as statements of fact, but rather as a way of allocating risk to one of the ~~presentation~~parties if those statements prove to be inaccurate, (ii) may apply materiality standards different from what may be viewed as material to investors and (iii) were made only as of ~~condensed consolidating financial information is not required~~the date of the Purchase Agreement or as of such other date or dates as may be specified in the Purchase Agreement.

In addition, the Purchase Agreement contains indemnification provisions which are believed to be customary for ~~the Successor period.~~transactions of this type. The ~~following is our condensed consolidated statement~~Company’s and Tri-State’s obligations for a breach of ~~operations~~representations and ~~statement~~warranties and related indemnification, in some cases, only apply with respect to aggregate liabilities in excess of ~~cash flows~~specified thresholds, are subject to caps and are only effective for ~~the Predecessor~~specified periods ~~(in thousands):~~of time.

29

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 )

Table of Contents

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~~

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. 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~~2020 and ~~2016,~~2019, included elsewhere herein, and the audited consolidated financial statements and notes thereto included in ~~our 2016~~the 2019 Form 10-K, Q1 2020 Form 10-Q and ~~Part 1A.~~ ~~Risk Factors~~ ~~of our 2016~~the Q2 2020 Form ~~10-K.~~

10-Q.

We provide information regarding ~~five~~four business segments: ~~U.S.~~ Rig ~~Services, Fluid Management Services, Coiled Tubing~~ Services, Fishing and Rental Services, Coiled Tubing Services and ~~International.~~Fluid Management Services. We also have a “Functional Support” segment associated with ~~managing~~overhead and other costs in support of our ~~U.S. and International business~~reportable segments. See “Note ~~15.~~16. Segment Information” in “Item 1. Financial Statements” of Part I of this report for a summary of our business segments.

Restructuring and Reverse Stock Split

On March 6, 2020, we closed the previously announced restructuring of our capital structure and indebtedness (the “Restructuring”) pursuant to the Restructuring Support Agreement, dated as of January 24, 2020 (the “RSA”), with lenders under our Prior Term Loan Facility (as defined below) collectively holding over 99.5% (the “Supporting Term Lenders”) of the principal amount of the Company’s then outstanding term loans. Pursuant to the RSA and the Restructuring contemplated thereby, among other things we effected the following transactions and changes to our capital structure and governance:

●

pursuant to exchange agreements entered into at the closing of the Restructuring, we exchanged approximately $241.9 million aggregate outstanding principal of our term loans (together with accrued interest thereon) held by Supporting Term Lenders under our Prior Term Loan Facility into (i) approximately 13.4 million newly issued shares of common stock representing 97% of the Company’s outstanding shares after giving effect to such issuance (and without giving effect to dilution by the New Warrants and MIP (each as defined below)) and (ii) $20 million of term loans under our new $51.2 million term loan facility (the “New Term Loan Facility”), each on a pro rata basis based on their holdings of term loans under the Prior Term Loan Facility;

●

completed a 1-for-50 reverse stock split of our outstanding common stock. All pre-Restructuring shares prices, including shares outstanding and earnings per share, have been adjusted to reflect the 1-for-50 reverse stock split;

●

distributed to our common stockholders of record as of February 18, 2020 two series of warrants (the “New Warrants”);

●

entered into the $51.2 million New Term Loan Facility, of which (i) $30 million was funded at closing of the Restructuring with new cash proceeds from the Supporting Term Lenders and $20 million was issued in exchange for term loans held by the Supporting Term Lenders under the Prior Term Loan Facility as described above and (ii) an approximate $1.2 million was a senior secured term loan tranche in respect of term loans held by lenders under the Prior Term Loan Facility who were not Supporting Term Lenders;

●

entered into the New ABL Facility (as defined below);

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●

adopted a new management incentive plan (the “MIP”) representing up to 9% of the Company’s outstanding shares after giving effect to the issuance of shares described above; and

●

made certain changes to the Company’s governance, including changes to our Board of Directors (the “Board”), amendments to our governing documents and entry into the Stockholders Agreement (as defined below) with the Supporting Term Lenders.

In accordance with the RSA at the closing of the Restructuring, the Company amended and restated its certificate of incorporation and entered into a stockholders agreement (the “Stockholders Agreement”) with the Supporting Term Lenders in order to, among other things, provide for a Board of seven members. Pursuant to the Stockholders Agreement, our Board consists of our chief executive officer and six other members appointed by various Supporting Term Lenders. Specifically, pursuant to the Stockholders Agreement, Supporting Term Lenders who hold more than 25% of the Company’s outstanding shares as of the closing of the Restructuring are entitled to nominate two directors and Supporting Term Lenders who hold between 10% and 25% of the Company’s outstanding shares as of the closing of the Restructuring are entitled to nominate one director. All appointees or nominees of Supporting Term Lenders, other than any director appointed or nominated by Soter Capital LLC (“Soter”), must meet the “independent director” requirements set forth in Section 303A of the NYSE Listed Company Manual. In addition, pursuant to the Stockholders Agreement, Supporting Term Lenders are entitled to appoint a non-voting board observer subject to specified ownership thresholds.

In accordance with the RSA and following the closing of the Restructuring, the Company distributed to stockholders of record as of February 18, 2020 the New Warrants. The New Warrants were issued in two series, each with a four-year exercise period. The first series entitles the holders to purchase in the aggregate 1,669,730 newly issued shares of common stock, representing 10% of the Company’s common shares at the closing of the Restructuring on an as-exercised basis (after giving effect to the exercise of all New Warrants, but subject to dilution by issuances under the MIP). The aggregate exercise price of the first series of New Warrants is $19.23 and was determined based on the aggregate outstanding principal amount of term loans under the Prior Term Loan Facility plus accrued interest thereon at the default rate as of the closing of the Restructuring. The second series of New Warrants entitles the holders to purchase in the aggregate 1,252,297 newly issued shares of common stock, representing 7.5% of the Company’s common shares at the closing of the Restructuring on an as-exercised basis (after giving effect to the exercise of all New Warrants, but subject to dilution by issuances under the MIP). The aggregate strike price of the second series of New Warrants is $28.85 and was determined based on the product of (i) the aggregate outstanding principal amount of term loans under the Prior Term Loan Facility plus accrued interest thereon at the default rate as of the closing of the Restructuring, multiplied by (ii) 1.50.

For more information on our New Term Loan Facility and New ABL Facility entered into in connection with the Restructuring, see “Note 7. Debt” in Part I, Item 1 of this report.

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, which is publicly available on a weekly basis, is the best available barometer of exploration and production (“E&P&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.


					Average Baker	Average AESC Well
			NYMEX Henry		Hughes U.S. Land	Service Active Rig
	WTI Cushing Oil(1)		Hub Natural Gas(1)		Drilling Rigs(2)	Count(3)
2020:
First Quarter	$	41.00	$	1.90	764	978
Second Quarter	$	27.96	$	1.70	378	498
Third Quarter	$	40.89	$	2.00	241	677

2019:
First Quarter	$	54.82	$	2.92	1,023	1,295
Second Quarter	$	59.88	$	2.57	967	1,311
Third Quarter	$	56.34	$	2.38	894	1,263
Fourth Quarter	$	56.82	$	2.40	797	1,143

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
Second Quarter $ 48.07
$ 3.07
878
Third Quarter $ 48.18
$ 2.95
927

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

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

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~~(1)~~(2)

Represents the average of the weekly average prices for each of the periods presented. Source: www.bakerhughes.com

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


~~(2)~~	~~Source: www.bakerhughes.com~~Association of Energy Service Companies data at 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~~

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.~~basis. 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~~2019 through the third quarter of ~~2017:~~2020:


			Key’s
	Rig Hours	Trucking Hours	Working Days(1)
2020:
First Quarter	101,341	106,786	64
Second Quarter	43,526	71,007	63
Third Quarter	65,376	68,875	64
Total 2020	210,243	246,668	191

2019:
First Quarter	151,309	150,740	63
Second Quarter	154,017	144,996	63
Third Quarter	142,151	150,518	64
Fourth Quarter	114,727	121,152	62
Total 2019	562,204	567,406	252

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
Second Quarter 163,966
1,701
165,667
185,398
63
Third Quarter 161,725
2,937
164,662
197,319
63
Total 2017 491,659
7,100
498,759
561,932
190

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~~

The outbreak of COVID-19 has caused an unprecedented global health crisis and significant economic disruption. National, state and local governments have instituted various measures including quarantining, stay-at-home orders and travel restrictions designed to ~~make expenditures to produce, develop~~slow the spread of COVID-19 and ~~explore for oil~~protect their populations and ~~natural gas. Industry conditions are influenced by numerous factors, such as oil~~economies, including in the areas in which the Company operates. These actions have significantly curtailed economic activity, disrupted global supply chains and ~~natural gas prices, the supply of and~~materially reduced demand for oil and natural gas, ~~domestic and worldwide economic conditions, and political instability in oil producing countries and available~~creating a supply of and demand imbalance that has negatively impacted commodity prices. The decline in the demand and pricing for ~~the services we provide. Oil~~oil and natural gas has negatively impacted our customers and the demand for and pricing we receive for our services. Production cuts, other voluntary production curtailments and reduced new well drilling have helped to bring supply and demand closer to balance and stabilized commodity prices. However, US and international crude stocks remain at historically high levels and there remains a high degree of uncertainty regarding the timing and extent of any recovery in economic activity and energy demand. Although commodity prices have recovered from the lows of April 2020, pricing remains depressed compared to 2019 levels. Additionally, recent increases in COVID-19 infections have resulted in the re-implementation of travel and other restrictions on economic activity that were recently relaxed, which could further delay any improvement in energy demand. COVID-19 has also impacted how we conduct our business. While we have taken steps to keep our employees safe by supporting those affected, permitting employees or employees with family members with higher susceptibility to COVID-19 to work from home, and monitoring those who cannot do so and are required to be at work, our ability to serve our customers and execute our business could be adversely affected should a significant number of our employees contract COVID-19 and require quarantine. The extent to which our future results are affected by the COVID-19 pandemic and related economic downturn will depend on various factors and consequences beyond our control, such as the duration and scope of the pandemic; additional actions by businesses and governments in response to the pandemic, our ability to continue to staff our operations and the speed and effectiveness of responses to combat the virus. COVID-19 may also adversely affect our results in a manner that is either not currently known or that we do not currently consider to be a significant risk to our business. For additional detail, please refer to Risk Factors in our 2019 Form 10-K and our Q1 2020 Form 10-Q.

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We experienced a downturn in demand for our services in 2019, and this decline has increased in 2020 for the reasons discussed above. The macroeconomic events that began in March 2020 resulted in significant revisions to our customers’ capital spending programs for 2020. We expect reduced demand for our services and pricing pressure to continue for the foreseeable future, particularly as compared to the previous year. While activity levels have improved to 89 average well service rigs working in September 2020 as compared to 47 average well service rigs working in May 2020, as of the date of this filing, we have limited visibility into whether our customers will continue to resume their production maintenance activities, the timing of any increase in activity, or the extent of any improvement in demand for our services. However, as oil supply adjusts to demand and commodity prices stabilize, we expect demand for our services to increase as our customers begin to bring shut-in wells back on line and resume normal well maintenance work.

We initiated a ~~rapid and substantial decline~~number of actions in the fourth quarter 2019 aimed at conserving cash and protecting our liquidity, and these actions have continued into the third quarter of ~~2014. Depressed commodity price~~2020, including: completing the refinancing of our capital structure, internally realigning our operations, exiting operations and areas to focus on certain markets where we had the best competitive positions, and reducing our overhead costs, including suspension of our 401K match, given the reduced operating footprint. We remain focused on maximizing our current equipment fleet, but we may further reduce our planned expenditures and defer acquisition of new equipment or maintenance if market conditions ~~persisted and worsened during 2015 and into 2016. As a result,~~decline further.

Given the ~~Baker Hughes U.S. rig count and~~dynamic nature of the ~~AESC well service rig count, along with demand for our products and services declined substantially, and the prices~~macroeconomic events discussed above, we are ~~able~~unable to ~~charge~~reasonably estimate the period of time that these market conditions will exist, the extent of the impact they will have on 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 production maintenance spending has not recovered to the same extent as new well drilling and completion spending.~~

While we saw continued improvement in demand and pricing for our services, particularly those driven by the completion of oil and natural gas wells, through the first nine months of 2017, continued uncertainty around the stability of oil prices dampened the pace of improvement in well services activity particularly as it relates to our customers spending for the maintenance of existing oil and gas wells. We believe that a stabilization of oil prices at a price attractive to our customers will be necessary for the demand and associated pricing of our services related to conventional well maintenance work to improve significantly. 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 for and increase the price of our services over the next several years. With increased demand for oilfield services broadly, however, the demand for qualified employees will also increase, which may impact our ability to meet the needs of our customers or offset price increases realized due to inflation in labor costs.

~~RESULTS OF OPERATIONS~~

~~The following tables set forth consolidated~~liquidity, results of operations, ~~and~~ financial ~~information by operating segment and other selected information~~condition, or the timing 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.~~

any subsequent recovery.

RESULTS OF OPERATIONS

The following table shows our consolidated results of operations for the three and nine months ended September 30, ~~2017~~2020 and ~~2016, respectively~~2019 (in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
REVENUES	$	42,911	$	106,523	$	152,969	$	328,739
COSTS AND EXPENSES:
Direct operating expenses		33,556		87,956		125,121		266,714
Depreciation and amortization expense		7,107		14,584		25,387		43,142
General and administrative expenses		12,269		21,375		41,159		66,014
Impairment expense		—		—		41,242		—
Operating loss		(10,021)		(17,392)		(79,940)		(47,131)
Gain on debt restructuring		—		—		(170,648)		—
Interest expense, net of amounts capitalized		2,238		8,411		12,525		26,164
Other income, net		(8,362)		(351)		(8,762)		(1,732)
Income (loss) before income taxes		(3,897)		(25,452)		86,945		(71,563)
Income tax benefit (expense)		1		(37)		(972)		4,330
NET INCOME (LOSS)	$	(3,896)	$	(25,489)	$	85,973	$	(67,233)

Successor Predecessor Successor Predecessor
Three Months Ended September 30, 2017 Three Months Ended September 30, 2016 Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016
REVENUES $ 110,653
$ 102,406
$ 319,885
$ 308,506
COSTS AND EXPENSES:

Direct operating expenses 87,115
96,071
237,981
276,088
Depreciation and amortization expense 21,114
33,467
63,325
105,075
General and administrative expenses 37,168
42,456
98,498
129,604
Impairment expense —
40,000
187
40,000
Operating loss (34,744 ) (109,588 ) (80,106 ) (242,261 )
Interest expense, net of amounts capitalized 8,090
21,120
23,672
64,061
Other (income) loss, net (4,578 ) 154
(5,779 ) (665 )
Reorganization items, net 60
—
1,501
—
Loss before income taxes (38,316 ) (130,862 ) (99,500 ) (305,657 )
Income tax benefit 96
110
1,238
489
NET LOSS $ (38,220 ) $ (130,752 ) $ (98,262 ) $ (305,168 )

Consolidated Results of Operations — Three Months Ended September 30, ~~2017~~2020 and ~~2016~~

2019

Revenues

Our revenues for the three months ended September 30, ~~2017 increased $8.2~~2020 decreased $63.6 million, or ~~8.1%~~59.7%, to ~~$110.7~~$42.9 million from ~~$102.4~~$106.5 million for the three months ended September 30, ~~2016,~~2019, due to ~~an increase~~lower customer spending and activity as a result of lower oil prices and the negative impact the COVID-19 pandemic has had on the economy. Additionally, in spending from our customers as they react to improving commodity prices, particularly in our Coiled Tubing segment. Internationally, we had lower revenue primarily due to a decrease in customer activity in Russia and due to the ~~sale during the third~~fourth quarter of ~~2017~~2019, the Company strategically exited a number of ~~these operations.~~non-core and underperforming locations. See “Segment Operating Results — Three Months Ended September 30, ~~2017~~2020 and ~~2016”~~2019” below for a more detailed discussion of the change in our revenues.

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Table of Contents

Direct Operating Expenses

Our direct operating expenses decreased ~~$9.0~~$54.4 million, to ~~$87.1~~$33.6 million ~~(78.7%~~(78.2% of revenues), for the three months ended September 30, ~~2017,~~2020, compared to ~~$96.1~~$88.0 million ~~(93.8%~~(82.6% of revenues) for the three months ended September 30, ~~2016. The~~2019. This decrease is primarily ~~related to~~a result of a decrease in ~~insurance~~employee headcount and related compensation costs, fuel expense and repair and maintenance expense ~~as we took steps~~due to ~~reduce our cost structure.~~

the decrease in activity levels discussed above.

Depreciation and Amortization Expense

Depreciation and amortization expense decreased ~~$12.4~~$7.5 million, or ~~36.9%~~51.3%, to ~~$21.1~~$7.1 million during the three months ended September 30, ~~2017,~~2020, compared to ~~$33.5~~$14.6 million for the three months ended September 30, ~~2016. The~~2019. This decrease is primarily ~~attributable to the reduction of property, plant and equipment~~ due to certain assets becoming fully depreciated in December of 2019 and the ~~implementation~~$41.2 million impairment of ~~fresh start accounting~~certain assets in the ~~fourth~~first quarter of ~~2016.~~

2020 that reduced their depreciable base for future periods.

General and Administrative Expenses

General and administrative expenses decreased ~~$5.3~~$9.1 million, or 42.6%, to ~~$37.2~~$12.3 million ~~(33.6%~~(28.6% of revenues), for the three months ended September 30, ~~2017,~~2020, compared to ~~$42.5~~$21.4 million ~~(41.5%~~(20.1% of revenues) for the three months ended September 30, ~~2016.~~2019. The decrease is primarily due to lower employee compensation costs of $6.0 million due to reduced staffing levels and a ~~$13.1~~$0.9 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.

fees.

Interest Expense, Net of Amounts Capitalized

Interest expense ~~decreased $13.0~~decrease $6.2 million, or ~~61.7%~~73.4%, to ~~$8.1~~$2.2 million for the three months ended September 30, ~~2017,~~2020, compared to ~~$21.1~~$8.4 million for the same period in ~~2016. The~~2019. This decrease is primarily related to the ~~elimination of~~March 2020 restructuring that reduced debt balances by approximately $190.7 million and the ~~Predecessor Company’s senior secured notes~~related decrease in ~~connection with our emergence from voluntary reorganization.~~

interest expense under the New Term Loan Facility.

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

During the quarter ended September 30, ~~2017,~~2020, we recognized other income, net, of ~~$4.6~~$8.4 million, compared to other ~~loss,~~income, net, of ~~$0.2~~$0.4 million for the quarter ended September 30, ~~2016. Our foreign exchange loss relates~~2019. This increase is primarily related to ~~U.S. dollar-denominated transactions in our foreign businesses and fluctuations in exchange rates between local currencies and~~an $8.0 million gain on the ~~U.S. dollar.~~

settlement of a legal matter.

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


	Three Months Ended
	September 30,
	2020		2019
Interest income	$	(2)	$	(122)
Gain on settlement of a legal matter		(8,005)		—
Other		(355)		(229)
Total	$	(8,362)	$	(351)

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

~~Reorganization Items, Net~~

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

Income Tax Benefit

(Expense)

We recorded an income tax benefit of less than $0.1 million on a pre-tax loss of ~~$38.3~~$3.9 million in the three months ended September 30, ~~2017,~~2020, compared to an income tax ~~benefit~~expense of less than $0.1 million on a pre-tax loss of ~~$130.9~~$25.5 million in the three months ended September 30, ~~2016.~~2019. Our effective tax rate was ~~0.3%~~0.02% for the three months ended September 30, ~~2017,~~2020, compared to ~~0.1%~~(0.1%) for the three months ended September 30, ~~2016. Our~~2019. The variance between our effective ~~tax rates for such periods differ from~~rate and the U.S. statutory rate ~~of 35%~~is 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~~differences and ~~entertainment expenses, that affect book income but do not affect taxable income and discrete~~other tax adjustments, such as valuation allowances against deferred tax assets, and a true-up adjustment to income tax ~~expense or benefit recognized for uncertain tax positions.~~receivable.

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Table of Contents

Segment Operating Results — Three Months Ended September 30, ~~2017~~2020 and ~~2016~~

2019

The following table shows operating results for each of our segments for the three months ended September 30, ~~2017~~2020 and ~~2016~~2019 (in thousands):

For the three months ended September 30, 2020


			Fishing and		Coiled		Fluid
			Rental		Tubing		Management		Functional
	Rig Services		Services		Services		Services		Support		Total
Revenues from external customers	$	29,598	$	4,085	$	1,714	$	7,514	$	—	$	42,911
Operating expenses		27,686		4,518		3,031		7,516		10,181		52,932
Operating income (loss)		1,912		(433)		(1,317)		(2)		(10,181)		(10,021)

For the three months ended September 30, 2019


			Fishing and		Coiled		Fluid
			Rental		Tubing		Management		Functional
	Rig Services		Services		Services		Services		Support		Total
Revenues from external customers	$	64,465	$	14,135	$	9,714	$	18,209	$	—	$	106,523
Operating expenses		61,713		15,852		11,259		18,632		16,459		123,915
Operating income (loss)		2,752		(1,717)		(1,545)		(423)		(16,459)		(17,392)

Successor company 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 Total
Revenues from external customers $ 61,933
$ 20,713
$ 12,499
$ 14,177
$ 1,331
$ —
$ 110,653
Operating expenses 62,435
27,975
10,645
16,543
2,459
25,340
145,397
Operating loss (502 ) (7,262 ) 1,854
(2,366 ) (1,128 ) (25,340 ) (34,744 )

Predecessor company as of and for the three months ended September 30, 2016
U.S. Rig Services Fluid Management Services Coiled Tubing Services Fishing and Rental Services International Functional
Support Total
Revenues from external customers $ 59,137
$ 18,969
$ 7,146
$ 14,078
$ 3,076
$ —
$ 102,406
Operating expenses 68,141
32,194
11,518
21,029
47,465
31,647
211,994
Operating loss (9,004 ) (13,225 ) (4,372 ) (6,951 ) (44,389 ) (31,647 ) (109,588 )

~~U.S.~~

Rig Services

Revenues for our ~~U.S.~~ Rig Services segment ~~increased $2.8~~decreased $34.9 million, or ~~4.7%~~54.1%, to ~~$61.9~~$29.6 million for the three months ended September 30, ~~2017,~~2020, compared to ~~$59.1~~$64.5 million for the three months ended September 30, ~~2016.~~2019. The ~~increase~~decrease for this segment is primarily due to ~~an increase~~lower customer activity and spending as a result of lower oil prices and the negative impact the COVID-19 pandemic has had on the economy. Additionally, in ~~completion~~the fourth quarter of 2019, the Company strategically exited a number of non-core and ~~production spending from our customers as they react to improving commodity prices.~~

underperforming locations which represented $6.8 million of revenue in the corresponding 2019 period that did not re-occur in 2020.

Operating expenses for our ~~U.S.~~ Rig Services segment were ~~$62.4~~$27.7 million during the three months ended September 30, ~~2017,~~2020, which represented a decrease of ~~$5.7~~$34.0 million, or ~~8.4%~~55.1%, compared to ~~$68.1~~$61.7 million for the same period in ~~2016. These expenses decreased~~2019. This decrease is primarily as a result of ~~reduced depreciation~~a decrease in employee headcount and related compensation costs, lower equipment expense due to a decrease in activity levels and a decrease in ~~employee compensation on a per hour basis as we took steps~~depreciation expense of due to ~~reduce our cost structure.~~

~~Fluid Management~~certain assets becoming fully depreciated in December of 2019.

Fishing and Rental Services

Revenues for our ~~Fluid Management~~Fishing and Rental Services segment ~~increased $1.7~~decreased $10.0 million, or ~~9.2%~~71.1%, to ~~$20.7~~$4.1 million for the three months ended September 30, 2017, compared to $19.0 million for the three months ended September 30, 2016. 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 million during the three months ended September 30, 2017, which represented a decrease of $4.2 million, or 13.1%, compared to $32.2 million for the same period in 2016. These expenses decreased primarily as a result of a decrease in employee compensation costs and equipment expense as we took steps to reduce our cost structure.

~~Coiled Tubing Services~~

Revenues for our Coiled Tubing Services 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.

Operating expenses for our Coiled Tubing Services 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,~~2020, compared to $14.1 million for the three months ended September 30, ~~2016.~~2019. The ~~increase~~decrease for this segment is primarily due to ~~an increase in completion~~lower customer activity and ~~production~~ spending ~~from our customers~~ as ~~they react to improving commodity prices.~~

a result of lower oil prices and the negative impact the COVID-19 pandemic has had on the economy.

Operating expenses for our Fishing and Rental Services segment were ~~$16.5~~$4.5 million during the three months ended September 30, ~~2017,~~2020, which represented a decrease of ~~$4.5~~$11.4 million, or ~~21.3%~~71.5%, compared to ~~$21.0~~$15.9 million for the same period in ~~2016. These expenses decreased~~2019. This decrease is primarily as a result of ~~reduced depreciation~~a decrease in employee headcount and related compensation costs, lower equipment expense due to a decrease in activity levels, and a decrease in depreciation expense due to certain assets becoming fully depreciated in December of 2019 and ~~a decrease~~the impairment of certain assets in ~~employee compensation on a per hour basis as we took steps to reduce our cost structure.~~

~~International~~

the first quarter of 2020 that reduced their depreciable base for future periods.

Coiled Tubing Services

Revenues for our ~~International~~Coiled Tubing Services segment decreased ~~$1.7~~$8.0 million, or ~~56.7%~~82.4%, to ~~$1.3~~$1.7 million for the three months ended September 30, ~~2017,~~2020, compared to ~~$3.1~~$9.7 million for the three months ended September 30, ~~2016.~~2019. The decrease ~~was~~for this segment is primarily ~~attributable~~due to lower ~~customer activity~~spending from our customers on drilling and completions as a result of lower oil prices and the negative impact the COVID-19 pandemic has had on the economy. These market conditions also reduced the price we received for our services.

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Table of Contents

Additionally, in ~~Russia and due to~~ the ~~sale during the third~~fourth quarter of ~~2017~~2019, the Company strategically exited a number of ~~these operations~~non-core and ~~our exit from operations~~underperforming locations which represented $3.5 million of revenue in ~~Mexico which was sold in 2016.~~

the corresponding 2019 period.

Operating expenses for our ~~International~~Coiled Tubing Services segment were $3.0 million during the three months ended September 30, 2020, which represented a decrease of $8.3 million, or 73.1%, compared to $11.3 million for the same period in 2019. This decrease is primarily a result of a decrease in employee headcount and related compensation costs, fuel expense and repair and maintenance expense due to lower activity levels.

Fluid Management Services

Revenues for our Fluid Management Services segment decreased ~~$45.0~~$10.7 million, or ~~94.8%~~58.7%, to ~~$2.5~~$7.5 million for the three months ended September 30, ~~2017,~~2020, compared to ~~$47.5~~$18.2 million for the three months ended September 30, ~~2016. These~~2019. The decrease for this segment is primarily due to lower spending from our customers on drilling and completions as a result of lower oil prices and the negative impact the COVID-19 pandemic has had on the economy. Additionally, in the fourth quarter of 2019, the Company strategically exited a number of non-core and underperforming locations which represented $2.1 million of revenue in the corresponding 2019 period that did not re-occur in 2020.

Operating expenses ~~decreased~~for our Fluid Management Services segment were $7.5 million during the three months ended September 30, 2020, which represented a decrease of $11.1 million, or 59.7%, compared to $18.6 million for the same period in 2019. This decrease is primarily as a result of a decrease in employee headcount and related compensation costs, fuel expense and ~~equipment~~repair and maintenance expense ~~primarily related~~due to ~~the exit from operations in Mexico and Russia~~lower activity levels and a ~~$40.0 million~~decrease in depreciation expense due to certain assets becoming fully depreciated in December of 2019 and the impairment ~~to reduce~~of certain assets in the ~~carrying value~~first quarter of ~~the assets and related liabilities of our Mexican business unit, which was sold in 2016, to fair market value.~~

2020 that reduced their depreciable base for future periods.

Functional Support

Operating expenses for Functional Support, which represent expenses associated with managing our ~~U.S. and International~~ reporting segments, decreased $6.3 million, or ~~19.9%~~38.1%, to ~~$25.3~~$10.2 million ~~(22.9%~~(23.7% of consolidated revenues) for the three months ended September 30, ~~2017~~2020 compared to ~~$31.6~~$16.5 million ~~(30.9%~~(15.5% of consolidated revenues) for the same period in ~~2016.~~2019. The decrease is primarily due to ~~decrease~~lower employee compensation costs of ~~$13.1~~$4.3 million due to reduced staffing levels and a $0.9 million decrease in professional ~~fees related to the 2016 corporate restructuring.~~

fees.

Consolidated Results of Operations — Nine Months Ended September 30, ~~2017~~2020 and ~~2016~~

2019

Revenues

Our revenues for the nine months ended September 30, ~~2017 increased $11.4~~2020 decreased $175.7 million, or ~~3.7%~~53.5%, to ~~$319.9~~$153.0 million from ~~$308.5~~$328.7 million for the nine months ended September 30, ~~2016,~~2019, due to ~~an increase in~~lower customer activity and spending ~~from our customers as they react to improving commodity prices. Internationally, we had lower revenue~~ as a result of ~~the sale our operations in Mexico, a decrease in activity in Russia~~lower oil prices and the ~~sale during~~negative impact the ~~third~~COVID-19 pandemic has had on the economy. Additionally, in the fourth quarter of ~~2017~~2019, the Company strategically exited a number of ~~our Russian operations.~~non-core and underperforming locations. See “Segment Operating Results — Nine Months Ended September 30, ~~2017~~2020 and ~~2016”~~2019” below for a more detailed discussion of the change in our revenues.

Direct Operating Expenses

Our direct operating expenses decreased ~~$38.1~~$141.6 million, to ~~$238.0~~$125.1 million ~~(74.4%~~(81.8% of revenues), for the nine months ended September 30, ~~2017,~~2020, compared to ~~$276.1~~$266.7 million ~~(89.5%~~(81.1% of revenues) for the nine months ended September 30, ~~2016. The~~2019. This decrease is primarily ~~related to~~ a ~~$21.0 million gain on the sale~~result of ~~certain assets and~~ a decrease in employee headcount and related compensation costs, fuel expense and repair and maintenance expense due to lower activity levels as ~~we took steps~~compared to ~~reduce our cost structure.~~

the corresponding 2019 period.

Depreciation and Amortization Expense

Depreciation and amortization expense decreased ~~$41.8~~$17.7 million, or ~~39.7%~~41.2%, to ~~$63.3~~$25.4 million during the nine months ended September 30, ~~2017,~~2020, compared to ~~$105.1~~$43.1 million for the nine months ended September 30, ~~2016. The~~2019. This decrease is primarily ~~attributable to the reduction of property, plant and equipment~~ due to certain assets becoming fully depreciated in December of 2019 and the ~~implementation~~$41.2 million impairment of ~~fresh start accounting~~certain assets in the ~~fourth~~first quarter of ~~2016.~~2020 that reduced their depreciable base for future periods.

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Table of Contents

General and Administrative Expenses

General and administrative expenses decreased ~~$31.1~~$24.8 million, or 37.7%, to ~~$98.5~~$41.2 million ~~(30.8%~~(26.9% of revenues), for the nine months ended September 30, ~~2017,~~2020, compared to ~~$129.6~~$66.0 million ~~(42.0%~~(20.1% of revenues) for the nine months ended September 30, ~~2016.~~2019. 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 of $11.8 million due to reduced staffing levels and a ~~reduction~~$14.5 million decrease in ~~wages partially offset by a $11.6 million increase in legal settlement accruals.~~

professional fees.

Impairment Expense

During the nine months ended September 30, ~~2017, we recorded a $0.2 million~~2020, the Company recognized an asset impairment ~~to reduce~~of $41.2 million. It was determined that the fair value of the assets of Fluid Management Services and Fishing & Rental Services was less than the carrying value of ~~the assets~~those respective segment’s assets. As a result, we recorded an impairment of $23.7 million and ~~related liabilities of our Russian business unit, which was sold in the third quarter of 2017, to fair market value.~~ $17.6 million at those segments, respectively.

Gain on debt restructuring

During the nine months ended September 30, ~~2016, we recorded~~2020 the Company recognized a ~~$40.0~~gain of $170.6 million ~~impairment~~related to ~~reduce~~ the ~~carrying value~~recent restructuring of corporate debt. For more information on our New Term Loan Facility and New ABL Facility entered into in connection with the ~~assets~~ Restructuring, see “Note 1. General” and ~~related liabilities of our Mexican business unit, which was sold in 2016, to fair market value.~~

“Note 7. Debt.”

Interest Expense, Net of Amounts Capitalized

Interest expense decreased ~~$40.4~~$13.7 million, or ~~63.0%~~52.1%, to ~~$23.7~~$12.5 million for the nine months ended September 30, ~~2017,~~2020, compared to ~~$64.1~~$26.2 million for the same period in ~~2016. The~~2019. This decrease is primarily related to the ~~elimination of~~March 2020 restructuring that reduced debt balances by approximately $190.7 million and the ~~Predecessor Company’s senior secured notes~~related decrease in ~~connection with our emergence from voluntary reorganization.~~

interest expense under the New Term Loan Facility.

Other Income, Net

During the nine months ended September 30, ~~2017,~~2020, we recognized other income, net, of ~~$5.8~~$8.8 million, compared to other income, net, of ~~$0.7~~$1.7 million for the nine months ended September 30, ~~2016. Our foreign exchange loss relates~~2019. This increase is primarily related to ~~U.S. dollar-denominated transactions in our foreign locations and fluctuations in exchange rates between local currencies and~~an $8.0 million gain on the ~~U.S. dollar.~~

settlement of a legal matter.

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


	Nine Months Ended
	September 30,
	2020		2019
Interest income	$	(84)	$	(639)
Gain on settlement of a legal matter		(8,005)		—
Other		(673)		(1,093)
Total	$	(8,762)	$	(1,732)

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

~~Reorganization Items, Net~~

~~Reorganization item expenses were $1.5~~

Income Tax Benefit (Expense)

We recorded an income tax expense of $1.0 million on pre-tax income of $86.9 million for the nine months ended September 30, 2017, and there were no reorganization item expenses for the same period in 2016. Reorganization items consist of professional fees incurred in connection with our emergence from voluntary reorganization.

~~Income Tax Benefit~~

~~We recorded~~2020, compared to an income tax benefit of ~~$1.2~~$4.3 million on a pre-tax loss of ~~$99.5~~$71.6 million for the same period in 2019. Our effective tax rate was 1.1% for the nine months ended September 30, ~~2017,~~2020, 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%~~6.1% for the nine months ended September 30, ~~2017, compared to 0.2% for the nine months ended September 30, 2016.~~2019. Our variance between our effective ~~tax rates for such periods differ from~~rate and the U.S. statutory rate ~~of 35%~~is 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~~differences, and ~~entertainment expenses, that affect book income but do not affect taxable income and discrete~~other tax adjustments, such as valuation allowances against deferred tax assets and a true-up adjustment to an income tax ~~expense or benefit recognized for uncertain tax positions.~~receivable.

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Table of Contents

Segment Operating Results — Nine Months Ended September 30, ~~2017~~2020 and ~~2016~~

2019

The following table shows operating results for each of our segments for the nine months ended September 30, ~~2017~~2020 and ~~2016~~2019 (in thousands):

For the nine months ended September 30, 2020


			Fishing and		Coiled		Fluid
			Rental		Tubing		Management		Functional
	Rig Services		Services		Services		Services		Support			Total
Revenues from external customers	$	98,332	$	17,648	$	8,418	$	28,571	$	—	$	152,969
Operating expenses		95,399		39,549		12,509		52,324		33,128		232,909
Operating income (loss)		2,933		(21,901)		(4,091)		(23,753)		(33,128)		(79,940)

For the nine months ended September 30, 2019


			Fishing and		Coiled		Fluid
			Rental		Tubing		Management		Functional
	Rig Services		Services		Services		Services		Support			Total
Revenues from external customers	$	197,375	$	43,534	$	32,134	$	55,696	$	—	$	328,739
Operating expenses		184,285		48,196		37,266		55,811		50,312		375,870
Operating income (loss)		13,090		(4,662)		(5,132)		(115)		(50,312)		(47,131)

Successor company 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 Total
Revenues from external customers $ 184,026
$ 57,475
$ 27,005
$ 45,808
$ 5,571
$ —
$ 319,885
Operating expenses 186,792
74,901
27,111
34,557
10,351
66,279
399,991
Operating loss (2,766 ) (17,426 ) (106 ) 11,251
(4,780 ) (66,279 ) (80,106 )

Predecessor company as of and for the nine months ended September 30, 2016
U.S. Rig Services Fluid Management Services Coiled Tubing Services Fishing and Rental Services International Functional
Support Total
Revenues from external customers $ 169,627
$ 61,230
$ 24,294
$ 43,773
$ 9,582
$ —
$ 308,506
Operating expenses 198,671
88,282
40,872
63,512
63,932
95,498
550,767
Operating loss (29,044 ) (27,052 ) (16,578 ) (19,739 ) (54,350 ) (95,498 ) (242,261 )

~~U.S.~~

Rig Services

Revenues for our ~~U.S.~~ Rig Services segment ~~increased $14.4~~decreased $99.1 million, or ~~8.5%~~50.2%, to ~~$184.0~~$98.3 million for the nine months ended September 30, ~~2017,~~2020, compared to ~~$169.6~~$197.4 million for the nine 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 U.S. Rig Services segment were $186.8 million for the nine months ended September 30, 2017, which represented a decrease of $11.9 million, or 6.0%, compared to $198.7 million for the same period in 2016. These expenses decreased primarily as a result of a decrease in depreciation expense and a decrease in employee compensation costs and equipment 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, 2016.2019. The decrease for this segment is primarily due to ~~our exit from unprofitable locations.~~

lower customer activity and spending as a result of lower oil prices and the negative impact the COVID-19 pandemic has had on the economy. Additionally, in the fourth quarter of 2019, the Company strategically exited a number of non-core and underperforming locations which represented $24.1 million of revenue in the corresponding 2019 period that did not re-occur in 2020.

Operating expenses for our ~~Fluid Management~~Rig Services segment were ~~$74.9~~$95.4 million for the nine months ended September 30, ~~2017,~~2020, which represented a decrease of ~~$13.4~~$88.9 million, or ~~15.2%~~48.2%, as compared to ~~$88.3~~$184.3 million for the same period in ~~2016. These expenses decreased~~2019. This decrease is primarily a result of a decrease in employee headcount and related compensation costs, lower equipment expense due to a decrease in ~~equipment~~activity levels and a decrease in depreciation expense due to certain assets becoming fully depreciated in December of 2019.

Fishing and ~~employee compensation costs as we took steps to reduce our cost structure and as a result of lower activity levels.~~

~~Coiled Tubing~~Rental Services

Revenues for our ~~Coiled Tubing~~Fishing and Rental Services segment ~~increased $2.7~~decreased $25.9 million, or ~~11.2%~~59.5%, to ~~$27.0~~$17.6 million for the nine months ended September 30, ~~2017,~~2020, compared to ~~$24.3~~$43.5 million for the nine months ended September 30, ~~2016.~~2019. 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 to reduce our cost structure and as a result of lower activity levels.

~~Fishing and Rental Services~~

Revenues for our Fishing and Rental Services segment increased $2.0 million, or 4.6%, 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. The increase for this segment is primarily due to ~~an increase in completion~~lower customer activity and ~~production~~ spending ~~from our customers~~on drilling and completions as ~~they react to improving commodity prices.~~

a result of lower oil prices and the negative impact the COVID-19 pandemic has had on the economy.

Operating expenses for our Fishing and Rental Services segment were ~~$34.6~~$39.5 million for the nine months ended September 30, ~~2017,~~2020, which represented a decrease of ~~$29.0~~$8.6 million, or ~~45.6%,~~17.9% compared to ~~$63.5~~$48.2 million for the same period in ~~2016. These expenses decreased~~2019. This decrease is primarily a result of a decrease in employee headcount and related compensation costs due to a ~~$21.0 million gain on~~decrease in activity levels, a decrease in depreciation expense due to certain assets becoming fully depreciated in December of 2019 and the ~~sale~~impairment of certain assets ~~as a result~~in the first quarter of 2020 that reduced ~~depreciation expense~~their depreciable base for future periods and a decrease in ~~employee compensation on~~repair and maintenance expense due to lower activity levels. This decrease was partially offset by a ~~per hour basis as we took steps to reduce our cost structure.~~

~~International~~

$17.6 million impairment of assets in the first quarter of 2020.

Coiled Tubing Services

Revenues for our ~~International~~Coiled Tubing Services segment decreased ~~$4.0~~$23.7 million, or ~~41.9%~~73.8%, to ~~$5.6~~$8.4 million for the nine months ended September 30, ~~2017,~~2020, compared to ~~$9.6~~$32.1 million for the nine months ended September 30, ~~2016.~~2019. The decrease ~~was~~for this segment is primarily ~~attributable the exit~~due to lower spending from our customers on drilling and completions as a result of ~~operations in Mexico and a decrease in activity in Russia~~lower oil prices and the ~~sale during~~negative impact the ~~third~~COVID-19 pandemic has had on the economy. These market conditions also reduced the price we received for our services.

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Additionally, in the fourth quarter of ~~2017~~2019, the Company strategically exited a number of ~~our Russian operations.~~

non-core and underperforming locations which represented $10.2 million of revenue in the corresponding 2019 period that did not re-occur in 2020.

Operating expenses for our ~~International~~Coiled Tubing Services segment ~~decreased $53.6 million, or 83.8%, to $10.4~~were $12.5 million for the nine months ended September 30, ~~2017,~~2020, which represented a decrease of $24.8 million, or 66.4%, compared to ~~$63.9~~$37.3 million for the same period in 2019. This decrease is primarily a result of a decrease in employee headcount and related compensation costs, fuel expense and repair and maintenance expense due to lower activity levels as compared to the prior year.

Fluid Management Services

Revenues for our Fluid Management Services segment decreased $27.1 million, or 48.7%, to $28.6 million for the nine months ended September 30, ~~2016. These~~2020, compared to $55.7 million for the nine months ended September 30, 2019. The decrease for this segment is primarily due to lower spending from our customers on drilling and completions as a result of lower oil prices and the negative impact the COVID-19 pandemic has had on the economy. Additionally, in the fourth quarter of 2019, the Company strategically exited a number of non-core and underperforming locations which represented $6.7 million of revenue in the corresponding 2019 period that did not re-occur in 2020.

Operating expenses ~~decreased~~for our Fluid Management Services segment were $52.3 million for the nine months ended September 30, 2020, which represented a decrease of $3.5 million, or 6.2%, compared to $55.8 million for the same period in 2019. This decrease is primarily as a result of a decrease in employee headcount and related compensation costs, fuel expense and ~~equipment~~repair and maintenance expense ~~related~~due to ~~our exit from operations in~~

~~Mexico and Russia~~lower activity levels versus the prior year and a ~~$40.0~~decrease in depreciation expense due to certain assets becoming fully depreciated in December of 2019 and the impairment of certain assets in the first quarter of 2020 that reduced their depreciable base for future periods. This decrease was substantially offset by a $23.7 million impairment ~~to reduce~~of assets recorded in the ~~carrying value~~first quarter of ~~the assets and related liabilities of our Mexican business unit, which was sold in 2016, to fair market value.~~

2020.

Functional Support

Operating expenses for Functional Support, which represent expenses associated with managing our ~~U.S. and International~~ reporting segments, decreased ~~$29.2~~$17.2 million, or ~~30.6%~~34.2%, to ~~$66.3~~$33.1 million ~~(20.7%~~(21.7% of consolidated revenues) for the nine months ended September 30, ~~2017~~2020 compared to ~~$95.5~~$50.3 million ~~(31.0%~~(15.3% of consolidated revenues) for the same period in ~~2016.~~2019. The decrease is primarily ~~due~~related to a credit of $4.3 million recorded in March 2020 related to a restructuring related concession on accrued professional fees, lower employee compensation costs of $7.5 due to reduced staffing levels and ~~reduction in wages,~~ a ~~$5.0~~$14.5 million ~~FCPA settlement accrual and a~~ decrease ~~of $20.9 million~~ in professional fees, ~~related to the 2016 corporate restructuring.~~

partially offset by an increase in insurance claims of $5.1 million.

LIQUIDITY AND CAPITAL RESOURCES

~~Current Financial Condition and Liquidity~~

As of September 30, 2017, we had total liquidity of $104.2 million which consists of $77.7 million cash and cash equivalents and $26.5 million of borrowing capacity available under our ABL Facility. This compares to total liquidity of $118.2 million which consists of $90.5 million cash and cash equivalents and $27.7 million of borrowing capacity available under our ABL Facility

Effective as of ~~December 31, 2016. Our working~~March 6, 2020, we completed the Restructuring of our capital ~~was $99.0 million as of September 30, 2017, compared to $120.3~~structure and indebtedness and, among other things, reduced our outstanding debt from $241.9 million as of December 31, ~~2016. Our working~~2019 to $51.2 million as of the closing of the Restructuring. For more information on the Restructuring, see “--Restructuring and Reverse Stock Split” above.

We require capital ~~decreased from the prior year end primarily as a result of a decrease in restricted cash, accounts receivable~~to fund our ongoing operations, including maintenance expenditures on our existing fleet and equipment, organic growth initiatives, investments and acquisitions, our debt service payments and our other current assets partially offset by a decrease in other current liabilities. As of September 30, 2017, we had no borrowings outstanding and $33.7 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~~ ~~and~~ ~~2016~~ ~~(in thousands):~~

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

~~Cash used in operating activities was $48.6 million for the nine months ended September 30, 2017 compared~~obligations. We expect to cash used in operating activities of $104.8 million for the nine months ended September 30, 2016. Cash used in operating activities for the nine months ended September 30, 2017 was primarily related to net loss adjusted for noncash items and decrease in accrued liabilities. Cash used in operating activities for the nine months ended September 30, 2016 was primarily related to net loss adjusted for noncash items partially offset by a decrease in accounts receivable.

Cash provided by investing activities was $22.2 million for the nine months ended September 30, 2017 compared to cash provided by investing activities of $6.0 million for the nine months ended September 30, 2016. 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 financing activities was $13.7 million for the nine months ended September 30, 2017 compared to cash used in financing activities of $46.5 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 cash outflows for the nine months ended September 30, 2016 primarily relate to the increase in restricted cash and repayment of long-term debt.

~~Sources of Liquidity and Capital Resources~~

~~We believe that~~utilize our internally generated cash flows from operations, current reserves of cash, ~~and~~ availability under ~~our~~the New ABL Facility ~~are sufficient~~and proceeds from the sale of assets to finance our cash requirements for current and future operations, budgeted capital expenditures, debt service and other ~~obligations~~obligations.

The conditions and events discussed in “Note 1. General-Market Conditions and COVID-19” in “Item 1. Financial Statements” and in “Market and Business Conditions and Outlook” above have adversely affected the demand for oil and natural gas, as well as for our services. The collapse in the demand for oil caused by this unprecedented global health and economic crisis, coupled with oil oversupply, has had, and is reasonably likely to continue to have, a material adverse impact on the demand for our services and the prices we can charge for our services. The decline in our customers’ demand for our services has had, and is likely to continue to have, a material adverse impact on our financial condition, results of operations and cash flows.

The decrease in oil and natural gas prices has adversely affected our customers and resulted in a decrease in the creditworthiness of some of our customers. While we historically have not experienced significant losses related to customer creditworthiness, our

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allowance for doubtful accounts as a percentage of accounts receivable has increased and if current conditions persist, there is no assurance that we will not experience losses in the future or delays in collecting our receivables.

Beginning in the fourth quarter of 2019, we have focused on cost control measures related to operational and general and administrative expenses to reduce cash costs during this time period with the goal of preserving margins and improving working capital until our customers increase spending.

Current Financial Condition and Liquidity

As of September 30, 2020, we had total liquidity of $13.2 million which consisted of $4.5 million cash and cash equivalents and $8.7 million of borrowing capacity available under our ABL Facility. As of December 31, 2019, prior to the Restructuring, we had $14.4 million of cash and cash equivalents and, although we had $11.9 million of borrowing capacity available, we were unable to borrow any amounts under the ABL Facility.

Our working capital was ($6.5) million as of September 30, 2020, compared to $(0.7) million as of December 31, 2019. Our working capital decreased from the prior year end primarily as a result of a decreases in cash and cash equivalents, accounts receivable and prepaid assets partially offset by decreases in accrued interest, accrued payroll and other accrued expenses. As of September 30, 2020, we had no borrowings outstanding, $36.3 million of letters of credit outstanding, $27.4 million of cash posted as cash collateral recorded in deposits on our balance sheet and $8.7 million of borrowing capacity available under our ABL Facility. The additional collateral is required to support our outstanding letters of credit and to maintain compliance with the minimum borrowing capacity covenant under our New ABL Facility.

The following table summarizes our cash flows for the ~~next twelve months.~~

Atnine months ended September 30, ~~2017,~~2020 and 2019 (in thousands):


		Nine Months Ended
	September 30,
	2020		2019
Net cash used in operating activities	$	(41,666)	$	(16,785)
Cash paid for capital expenditures		(1,220)		(16,483)
Proceeds received from sale of fixed assets		5,002		8,362
Proceeds from long-term debt		30,000		—
Repayments of long-term debt		(6)		(1,875)
Repayments of finance lease obligations		(601)		(59)
Payment of deferred financing costs		(1,385)		(828)
Other financing activities, net		(8)		(37)
Net decrease in cash, cash equivalents and restricted cash	$	(9,884)	$	(27,705)

Cash used in operating activities was $41.7 million for the nine months ended September 30, 2020 compared to cash used in operating activities of $16.8 million for the nine months ended September 30, 2019. Cash used in operating activities for the nine months ended September 30, 2020 was primarily related to net income adjusted for noncash items and a decrease in accrued interest and other accrued liabilities partially offset by a decrease in accounts receivables. Cash used in operating activities for the nine months ended September 30, 2019 was primarily related to net losses adjusted for noncash items.

Cash provided by investing activities was $3.8 million for the nine months ended September 30, 2020 which consisted of $5.0 million in proceeds from sales of assets, partially offset by $1.2 million of capital expenditures. Cash used in investing activities of $8.1 million for the nine months ended September 30, 2019 consisted of $16.5 million of capital expenditures, partially offset by $8.4 million in proceeds from sales of assets. Our capital expenditures are primarily related to the ongoing maintenance of our existing equipment and the addition of new equipment.

Cash provided by financing activities was $28.0 million for the nine months ended September 30, 2020 compared to cash used in financing activities of $2.8 million for the nine months ended September 30, 2019. Financing cash inflows for the nine months ended September 30, 2020 primarily relate to proceeds from long-term debt related to the March 2020 refinancing. Financing cash outflows for the nine months ended September 30, 2019 primarily relate to the repayment of long-term debt.

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Debt Service

As of September 30, 2020, our annual debt maturities for our ~~2021~~New Term Loan Facility were as follows (in thousands):


Year	Principal Payments
Remainder of 2020	$	4
2021		1,200
2022		—
2023		—
2024		—
2025		50,000
Total principal payments	$	51,204

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

New ABL Facility

On ~~December 15, 2016,~~March 6, 2020, the Company and Key Energy Services, LLC, as borrowers (the “ABL Borrowers”), entered into Amendment No. 3 to the Company’s existing ABL ~~Facility~~facility, dated as of December 15, 2016 (as amended, the “New ABL Facility”) with the financial institutions party thereto from time to time as lenders (the “ABL Lenders”), and Bank of America, N.A., as administrative agent and collateral agent (the “ABL 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.~~ABL Lenders. The New ABL Facility ~~provides~~provided for aggregate ~~initial~~ commitments from the ABL Lenders of ~~$80 million, which, on February 3, 2017 was increased to $100~~$70 million and matures on ~~June 15, 2021.~~

the earlier of (x) April 5, 2024 and (y) 181 days prior to the scheduled maturity date of the Company’s term loan facility or the scheduled maturity date of the Company’s other material debt in an aggregate principal amount exceeding $15 million.

The New 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~~$30 million and (y) 25% of the commitments. The amount that may be borrowed under the New ABL Facility is subject to increase or reduction based on certain segregated cash or reserves provided for by the New 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 New ABL Facility.

Borrowings under the New 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%~~2.75% to ~~4.50%~~3.25% depending on the ABL 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%~~1.75% to ~~3.50%~~2.25% depending ofon the ABL Borrowers’ fixed charge coverage ratio at such time. The New ABL Facility provides that, in the event LIBOR becomes unascertainable for the requested interest period or otherwise becomes unavailable or replaced by other benchmark interest rates, then the Company and the ABL Agent may amend the New ABL Facility for the purpose of replacing LIBOR with one or more SOFR-based rates or another alternate benchmark rate giving consideration to the general practice in similar U.S. dollar denominated syndicated credit facilities.

In addition, the New ABL Facility provides for unused line fees of ~~1.00%~~0.5% to ~~1.25%~~0.375% per year, depending on utilization, letter of credit fees and certain other factors.

The New 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 New ABL Facility, each of the ABL Loan Parties has granted or will grant, as applicable, to the ~~Administrative~~ABL 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~~“New Term Loan Facility”).

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

The New 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

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

As of September 30, ~~2017,~~2020, we have no borrowings outstanding, ~~under the ABL Facility and $33.7~~$36.3 million of letters of credit, ~~outstanding with~~$27.4 million posted as additional collateral recorded in deposits on our balance sheet and $8.7 million of borrowing capacity ~~of $26.5 million~~ available ~~subject to covenant constraints~~ under our ABL Facility.

The additional collateral is required to maintain compliance with the current minimum borrowing capacity availability requirement of $7.5 million under our New ABL Facility.

On May 20, 2020, the ABL Borrowers, the ABL Lenders and Administrative Agent, entered into Amendment No. 4 to the New ABL Facility. Pursuant to the Fourth Amendment, the parties agreed, among other things, to (i) reduce the Lenders’ aggregate commitments to make revolving loans to $50 million, (ii) increase the applicable interest rate margin by 100 basis points to 375-425 basis points for LIBOR borrowings (with a 1.00% LIBOR floor) and 275-325 basis points for base rate borrowings (with a 2.00% base rate floor), in each case depending on the fixed charge coverage ratio at the time of determination, (iii) lower the availability thresholds for triggering certain covenants and (iv) add certain reporting requirements.

On August 28, 2020, the ABL Borrowers, the ABL Lenders and the Administrative Agent, entered into Amendment No. 5 to the New ABL Facility to, among other things, permit the ABL Borrowers to undertake sale and leaseback transactions with an aggregate fair market value of up to $5 million during the term of the New ABL Agreement.

As of September 30, 2020, we were in compliance with all covenants under our New ABL Facility.

New Term Loan Facility

On ~~December 15, 2016,~~March 6, 2020, the Company entered into an amendment and restatement agreement with the Supporting Term Lenders and Cortland Capital Market Services LLC and Cortland Products Corp., as agent (the “Term Agent”), which amended and restated the Prior 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 and the Term Agent (as amended and restated by the amendment and restatement agreement, the “New Term Loan Facility”). Prior to the closing of the Restructuring, there was approximately $243.1 million aggregate principal amount of term loans outstanding under the Prior Term Loan Facility. Following the closing of the Restructuring, the New Term Loan Facility is comprised of (i) $30 million new money term loans funded by the Supporting Term Lenders and $20 million new term loans excluding new money issued in exchange for existing term loans held by the Supporting Term Lenders (collectively, the ~~“Term Loan Lenders”~~“New Term Loans”) and ~~Cortland Capital Market Services LLC and Cortland Products Corp., as agent for~~(ii) an approximate $1.2 million senior secured term loan tranche in respect of the ~~Lenders. The~~existing term loans held by lenders who are not Supporting Term Lenders (the “Continuing Term Loans”). As of September 30, 2020, there was $54.6 million outstanding under the New Term Loan Facility ~~had an outstanding principal amount of $250 million as of the Effective Date.~~

including interest in kind.

The New Term Loan Facility will mature on August 28, 2025, with respect to the New Term Loans, and on December 15, 2021 ~~although such~~with respect to the Continuing Term Loans. Such maturity date may, at the Company’s request, be extended by one or more of the ~~Term Loan Lenders~~term loan lenders pursuant to the terms of the New Term Loan Facility. ~~Borrowings under the~~The New Term ~~Loan Facility~~Loans will bear interest ~~at the Company’s option,~~ at a per annum rate equal to ~~(i)~~LIBOR for six months, plus 10.25%. The Company has the option to pay interest in kind at an annual rate of LIBOR plus 12.25% on the outstanding principal amount of the New Term Loans for the first two years following the closing of the Restructuring. The Continuing Term Loans will bear interest at a per annum rate equal to LIBOR for one, two, three, six or, with

the consent of ~~the Term Loan Lenders,~~all term loan lenders, up to 12 months, ~~plus~~ ~~10.25% or (ii) a base rate equal~~and the Company has the option to pay interest in kind of up to 100 basis points of the ~~sum of (a)~~per annum interest due on 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%.~~

Continuing Term Loans.

The New 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~~ensure their obligations under the New Term Loan Facility, each of the Term Loan Parties has granted ~~or will grant, as applicable,~~ to the Term 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 New Term Loan Facility are secured by second-priority liens on the ABL Priority Collateral (as described above under “ABL Facility”).

The ~~loans under the~~New Term ~~Loan Facility~~Loans may be prepaid at the Company’s option, subject to the payment of a prepayment premium (which may be waived by lenders holding New Term Loans under the New Term Loan Facility representing at least two-thirds of the aggregate outstanding principal amount of the New Term Loans) in certain circumstances as provided in the New Term Loan Facility. If a prepayment is made prior to the first anniversary of the ~~loan,~~closing of the Restructuring, such prepayment ~~must be made with make-whole amount with the calculation~~premium is equal to 3% of the ~~make-whole~~principal 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,~~New Term Loans prepaid; if a prepayment is made ~~after~~from the first anniversary to the second anniversary ~~but prior~~of the closing of the Restructuring, the prepayment premium is equal to 2% of the principal amount of the New Term Loans prepaid; if a

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prepayment is made from the second anniversary to the third anniversary ~~such prepayment must be made at 103%~~ of the ~~principle amount. After~~closing of the ~~third anniversary, if a~~Restructuring, the prepayment premium is ~~made,~~equal to 1% of the principal amount of the New Term Loans prepaid; and there is no prepayment premium ~~is due.~~thereafter. The Company is required to make principal payments in respect of the Continuing Term Loans in the amount of ~~$625,000~~$3,125 per quarter ~~which principal payments commenced~~commencing with the quarter ended March 31, ~~2017.~~ 2020 and is required to pay $1,190,625 on the maturity date of the Continuing Term Loans.

In addition, pursuant to the New 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, receipt of extraordinary cash proceeds (e.g., tax and insurance) and upon certain change of control transactions, subject in each case to certain exceptions.

The New 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 New Term Loan Facility also contains a financial ~~covenants~~covenant requiring that the Company maintain ~~an asset coverage ratio of at least 1.35 to 1.0 and that~~ Liquidity (as defined in the New Term Loan Facility) ~~must~~of not be less than ~~$37.5~~$10 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.

~~Debt Compliance~~

At

On August 26, 2020, the Company as borrower, Key Energy LLC, certain lenders party thereto and the Term Agent entered into Amendment No. 1 to the New Term Loan Facility to, among other things, permit the Company and Key Energy LLC to undertake sale and leaseback transactions with an aggregate fair market value of up to $5 million during the term of the New Term Loan Facility.

As of September 30, ~~2017,~~2020, 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,~~2020, our capital expenditures totaled ~~$9.6~~$1.2 million. In light of the decline in planned E&P capital spending, reduced activity by our customers and consequent reduced demand for our services we, reduced our capital expenditure plan for 2020 from the original amount of $15 to $20 million to the current amount of approximately $3 millionThese capital expenditures are primarily related to the ongoing maintenance of our ~~equipment. Our capital expenditure plan for 2017 contemplates spending between $10 million~~equipment and ~~$15 million, subject to market conditions. This is primarily related to equipment replacement needs, including ongoing replacements to our rig services fleet.~~addition of new equipment. Our capital expenditure program for ~~2017~~2020 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~~2020 will be the maximization of our current equipment ~~fleet, but we~~fleet. We may ~~choose to increase~~also further reduce our ~~capital~~planned expenditures, ~~in 2017 to expand our presence in a market. We currently anticipate funding our 2017 capital expenditures through a combination~~defer acquisition of ~~cash on hand, operating cash flow, proceeds from sales~~new equipment or maintenance and dispose of noncore assets ~~and borrowings under our ABL Facility.~~if market conditions decline further. 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~~2020 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~~2019 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~~2019 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

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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~~2020 that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION


~~ITEM 1.~~	~~LEGAL PROCEEDINGS~~

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.

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.


~~ITEM 1A.~~	~~RISK FACTORS~~

ITEM 1A. ~~Reference is made~~RISK FACTORS

There are numerous factors that may adversely affect our business and results of operations, many of which are beyond our control, which seem immaterial or which are unknown to us currently. In addition to information set forth in this report, including in Part I, Item ~~1A.~~ ~~Risk Factors~~8 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” you should carefully read and consider the factors set out in Part I, Item 1A “Risk Factors” of our 2019 Form 10-K and Part II, Item 1A “Risk Factors” in our Q1 2020 Form 10-Q. The unprecedented nature of the ~~2016 Form 10-K for information concerning risk factors.~~

current pandemic and downturn in the worldwide economy and oil and gas industry may make it more difficult to identify all the risks to our business, results of operations and financial condition and the ultimate impact of identified risks.

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

Issuer Purchases of Equity Securities

During the three months ended September 30, ~~2017,~~2020, 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:


	Number of	Average Price
Period	Shares Purchased	Paid per Share(1)
July 1, 2020 to July 31, 2020	29	$	13.35
August 1, 2020 to August 31, 2020	—		—
September 1, 2020 to September 31, 2020	—		—
Total	29	$	13.35

Period
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 —
—
Total 2,432
$ 12.83


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

Unregistered Sales of Equity Securities

As discussed in Part I of this report, in accordance with the RSA and following the closing of the Restructuring, the Company distributed to stockholders of record as of February 18, 2020 the New Warrants. The New Warrants were issued in two series each with a four-year exercise period. The first series entitles the holders to purchase in the aggregate 1,669,730 newly issued shares of common stock, representing 10% of the Company’s common shares at the closing of the Restructuring on an as-exercised basis (after giving effect to the exercise of all New Warrants, but subject to dilution by issuances under the MIP). The aggregate exercise price of the first series of New Warrants is $19.23 and was determined based on the aggregate outstanding principal amount of term loans under the Prior Term Loan Facility plus accrued interest thereon at the default rate as of the closing of the Restructuring. The second series of New Warrants entitles the holders to purchase in the aggregate 1,252,297 newly issued shares of common stock, representing 7.5% of the Company’s common shares at the closing of the Restructuring on an as-exercised basis (after giving effect to the exercise of all New Warrants, but subject to dilution by issuances under the MIP). The aggregate strike price of the second series of New Warrants is $28.85 and was determined based on the product of (i) the aggregate outstanding principal amount of term loans under the Prior Term Loan Facility plus accrued interest thereon at the default rate as of the closing of the Restructuring, multiplied by (ii) 1.50. Such securities were issued pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

~~None.~~

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~~ITEM 4.~~	~~MINE SAFETY DISCLOSURES~~

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.


~~ITEM 5.~~	~~OTHER INFORMATION~~

~~None.~~

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

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EXHIBIT INDEX


~~ITEM 6.~~ Exhibit No.	~~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~~

Description


3.1
~~Exhibit No.~~	~~Description~~

~~3.1~~	Amended and Restated Certificate of Incorporation of Key Energy Services, Inc. ~~(incorporated herein~~, dated March 6, 2020 (Incorporated by reference to Exhibit 3.1 to ~~the Company’s~~our Current Report on Form ~~8-A~~8-K filed ~~with the SEC~~ on ~~December 15, 2016,~~March 9, 2020, File No. 001-08038).
3.2
~~3.2~~	Amended and Restated ~~By-laws~~Bylaws of Key Energy Services, Inc. ~~(incorporated herein~~, dated March 6, 2020 (Incorporated by reference to Exhibit 3.2 to ~~the Company’s Annual~~our Current Report on Form ~~10-K for the fiscal year ended December 31, 2016,~~8-K filed ~~with the SEC~~ on March ~~2, 2017,~~9, 2020, File No. 001-08038).
10.1	Amendment No. 5 to ABL Agreement, dated as of August 28, 2020, by and among Key Energy Services, Inc., Key Energy Services, LLC, the Lenders party thereto, and Bank of America, N.A., as administrative agent (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on August 28, 2020, File No. 001-08038).
10.2	Amendment No. 1 to Term Loan Agreement, dated as of August 26, 2020, by and among Key Energy Services, Inc., Key Energy Services, LLC, certain lenders party thereto, and the Agents (Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on August 28, 2020, File No. 001-08038).
31.1* 10.3	Asset Purchase Agreement, dated as of October 21, 2020, by and among Key Energy Services, Inc., and Tri-State Water Logistics, LLC (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on October 21, 2020, 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.INS*	XBRL Instance Document
101* 101.SCH*	~~Interactive Data File.~~

XBRL Taxonomy Extension Schema Document


101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document
* 101.LAB*	~~Filed herewith~~	XBRL Taxonomy Extension Label Linkbase Document

** 101.PRE*	~~Furnished herewith~~	XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith

** Furnished herewith

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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.


							KEY ENERGY SERVICES INC.
~~Date:~~		~~November 9, 2017~~			~~By:~~	~~/s/ J. MARSHALL DODSON~~
					~~J. Marshall Dodson~~
Date:	November 16, 2020		By:	/s/ NELSON M. HAIGHT
				Nelson M. Haight

				Senior Vice President, ~~and~~ Chief Financial Officer and Treasurer

				(~~As duly authorized officer~~Duly Authorized Officer and Principal Financial Officer)

36

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Delaware
~~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)



Large accelerated filer	¨	☐		Accelerated filer		¨ ☐

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

			Emerging growth company		¨	☐


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


☐
¨ ☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	September 30, 2017			December 31, 2016
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	77,657		$	90,505
Restricted cash	8,700			24,707
Accounts receivable, net of allowance for doubtful accounts of $1,251 and $168, respectively	69,693			71,327
Inventories	19,846			22,269
Other current assets	17,418			25,762
Total current assets	193,314			234,570
Property and equipment	407,536			408,716
Accumulated depreciation	(64,829		)	(3,565		)
Property and equipment, net	342,707			405,151
Intangible assets, net	477			520
Other non-current assets	14,607			17,740
TOTAL ASSETS	$	551,105		$	657,981
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	11,967		$	10,357
Current portion of long-term debt	2,500			2,500
Other current liabilities	82,383			103,938
Total current liabilities	96,850			116,795
Long-term debt	243,610			245,477
Workers’ compensation, vehicular and health insurance liabilities	26,545			23,313
Other non-current liabilities	28,488			29,779
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
Additional paid-in capital	263,917			252,421
Accumulated other comprehensive loss	—			239
Retained deficit	(108,506		)	(10,244		)
Total equity	155,612			242,617
TOTAL LIABILITIES AND EQUITY	$	551,105		$	657,981



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



	COMMON STOCKHOLDERS
	Common Stock			Additional Paid-in Capital			Accumulated Other Comprehensive Income			Retained Deficit			Total
	Number of Shares	Amount at Par		Additional Paid-in Capital			Accumulated Other Comprehensive Income			Retained Deficit			Total
Balance at December 31, 2016 (Successor)	20,096	$	201	$	252,421		$	239		$	(10,244	)	$	242,617
Foreign currency translation	—	—		—			(239		)	—			(239		)
Common stock purchases	—	—		(85		)	—			—			(85		)
Share-based compensation	13	—		11,581			—			—			11,581
Net loss	—	—		—			—			(98,262		)	(98,262		)
Balance at September 30, 2017 (Successor)	20,109	$	201	$	263,917		$	—		$	(108,506	)	$	155,612




	September 30, 2017		December 31, 2016
Other current assets:
Prepaid current assets	$	5,069	$	10,291
Reinsurance receivable	9,451		7,922
Current assets held for sale	—		3,667
Other	2,898		3,882
Total	$	17,418	$	25,762




	September 30, 2017		December 31, 2016
Other non-current assets:
Reinsurance receivable	$	8,110	$	8,393
Deposits	1,331		8,292
Equity method investments	—		560
Non-current assets held for sale	—		360
Other	5,166		135
Total	$	14,607	$	17,740




	September 30, 2017		December 31, 2016
Other current liabilities:
Accrued payroll, taxes and employee benefits	$	16,219	$	23,224
Accrued operating expenditures	10,313		16,669
Income, sales, use and other taxes	11,105		10,748
Self-insurance reserve	26,994		35,484
Accrued interest	6,586		1,419
Accrued insurance premiums	127		2,347
Unsettled legal claims	10,686		5,398
Accrued severance	250		2,219
Current liabilities held for sale	—		371
Other	103		6,059
Total	$	82,383	$	103,938




	September 30, 2017		December 31, 2016
Other non-current liabilities:
Asset retirement obligations	$	8,891	$	9,035
Environmental liabilities	2,075		3,446
Accrued sales, use and other taxes	17,321		16,735
Deferred tax liabilities	—		35
Other	201		528
Total	$	28,488	$	29,779




	September 30, 2017		December 31, 2016
Trademark:
Gross carrying value	520		520
Accumulated amortization	(43	)	—
Net carrying value	477		520



	Weighted average remaining amortization period (years)	Expected amortization expense (in thousands)
	Weighted average remaining amortization period (years)	Remainder of 2017	2018	2019	2020	2021	2022
Trademarks	8.3	15	58	58	58	58	58



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



Successor company 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
Revenues from external customers	$	61,933		$	20,713		$	12,499	$	14,177		$	1,331		$	—		$	—		$	110,653
Intersegment revenues	135			249			27		846			—			—			(1,257		)	—
Depreciation and amortization	8,009			5,350			1,259		5,855			234			407			—			21,114
Other operating expenses	54,426			22,625			9,386		10,688			2,225			24,933			—			124,283
Operating income (loss)	(502		)	(7,262		)	1,854		(2,366		)	(1,128		)	(25,340		)	—			(34,744		)
Reorganization items, net	—			—			—		—			—			60			—			60
Interest expense, net of amounts capitalized	—			—			—		—			—			8,090			—			8,090
Income (loss) before income taxes	(495		)	(7,249		)	1,854		(2,355		)	3,212			(33,283		)	—			(38,316		)
Long-lived assets(1)	166,993			78,718			19,856		68,200			7			56,462			(32,445		)	357,791
Total assets	287,305			41			38,450		363,879			10,117			(77,212		)	(71,475		)	551,105
Capital expenditures	1,288			735			37		124			119			71			—			2,374



	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
Second Quarter	$	48.07	$	3.07	878
Third Quarter	$	48.18	$	2.95	927

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



	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
Second Quarter	163,966	1,701	165,667	185,398	63
Third Quarter	161,725	2,937	164,662	197,319	63
Total 2017	491,659	7,100	498,759	561,932	190

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




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



Period	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	—	—
Total	2,432	$	12.83