Key Energy Services (KEGX) 8-K Results of Operations and Financial Condition

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 5, 2010 (August 5, 2010)

KEY ENERGY SERVICES, INC.

(Exact name of registrant as specified in its charter)

Maryland	001-08038	04-2648081
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

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

Registrant’s telephone number, including area code:713/651-4300

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition

On July 28, 2010, Key Energy Services, Inc., a Maryland corporation (the “Company”) announced in a press release (the “Release”) its results for the quarter ended June 30, 2010. A copy of the Release is attached as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (the “Commission”) on July 29, 2010 and is incorporated by reference.

As stated in the Release, the reported results, financial statements and tables included in the Release did not reflect the presentation of the Company’s pressure pumping and wireline businesses as assets held for sale or discontinued operations. However, in light of the previously-announced agreement to sell these businesses, the Company’s Quarterly Report onForm 10-Q for the quarterly period ended June 30, 2010, filed with the Commission on August 5, 2010 (the “Form 10-Q”) presents the pressure pumping and wireline businesses as assets held for sale on the Company’s consolidated balance sheet and as discontinued operations on the Company’s consolidated statement of operations. Set forth below in this Current Report onForm 8-K are the financial statements that were included in the Release, revised to reflect the presentation of the Company’s pressure pumping and wireline businesses as assets held for sale and as discontinued operations, consistent with the presentation in the Form 10-Q.

The information contained in this Item 2.02 (including the Release incorporated by reference) shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing. 

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Condensed Consolidated Statements of Operations, (in thousands, except per share amounts):

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
	(unaudited)						(unaudited)
REVENUES	$	267,785		$	219,061		$	519,744		$	502,710
COSTS AND EXPENSES:
Direct operating expenses		196,171			155,118			385,373			340,647
Depreciation and amortization expense		32,478			37,181			65,802			76,005
General and administrative expense		44,866			44,039			83,893			90,465
Interest expense, net of amounts capitalized		10,729			10,173			20,988			20,103
Other, net		467			(2,061	)		(776	)		(2,222	)
Total costs and expenses, net		284,711			244,450			555,280			524,998
Loss from continuing operations before tax		(16,926	)		(25,389	)		(35,536	)		(22,288	)
Income tax benefit		5,888			9,365			13,596			8,477
Loss from continuing operations		(11,038	)		(16,024	)		(21,940	)		(13,811	)
Discontinued operations, net of tax (expense) benefit of $(4,312), $1,293, $(5,529) and $1,956, respectively		8,182			(2,449	)		10,077			(3,758	)
Net loss		(2,856	)		(18,473	)		(11,863	)		(17,569	)
Loss attributable to noncontrolling interest		620			—			2,047			—
LOSS ATTRIBUTABLE TO KEY	$	(2,236	)	$	(18,473	)	$	(9,816	)	$	(17,569	)
Loss per share from continuing operations attributable to Key:
Basic	$	(0.08	)	$	(0.13	)	$	(0.16	)	$	(0.12	)
Diluted	$	(0.08	)	$	(0.13	)	$	(0.16	)	$	(0.12	)
Earnings (loss) per share from discontinued operations:
Basic	$	0.06		$	(0.02	)	$	0.08		$	(0.03	)
Diluted	$	0.06		$	(0.02	)	$	0.08		$	(0.03	)
Loss per share attributable to Key:
Basic	$	(0.02	)	$	(0.15	)	$	(0.08	)	$	(0.15	)
Diluted	$	(0.02	)	$	(0.15	)	$	(0.08	)	$	(0.15	)
Loss from continuining operations attributable to Key:
Loss from continuing operations	$	(11,038	)	$	(16,024	)	$	(21,940	)	$	(13,811	)
Loss attributable to noncontrolling interest		620			—			2,047			—
Loss from continuing operations attributable to Key	$	(10,418	)	$	(16,024	)	$	(19,893	)	$	(13,811	)
Weighted average shares outstanding:
Basic		125,412			120,963			125,183			120,815
Diluted		125,412			120,963			125,183			120,815

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Condensed Consolidated Balance Sheets (in thousands):

	June 30, 2010		December 31, 2009
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	47,040	$	37,394
Other current assets		364,275		342,764
Current assets held for sale		7,631		3,974
Total current assets		418,946		384,132
Property and equipment, net		781,977		794,269
Goodwill		349,107		346,102
Other assets, net		64,542		69,568
Noncurrent assets held for sale		67,264		70,339
TOTAL ASSETS	$	1,681,836	$	1,664,410
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	50,488	$	46,086
Other current liabilities		175,157		143,683
Total current liabilities		225,645		189,769
Long-term debt, less current portion		517,464		523,949
Other non-current liabilities		200,502		207,552
Equity		738,225		743,140
TOTAL LIABILITIES AND EQUITY	$	1,681,836	$	1,664,410

Consolidated Cash Flow Data (in thousands):

	Six Months Ended June 30,
	2010			2009
	(unaudited)
Net cash provided by operating activities	$	64,695		$	157,299
Net cash used in investing activities		(47,685	)		(63,392	)
Net cash used in financing activities		(9,064	)		(106,069	)
Effect of changes in exchange rates on cash		1,700			(890	)
Increase (decrease) in cash and cash equivalents		9,646			(13,052	)
Cash and cash equivalents, beginning of period		37,394			92,691
Cash and cash equivalents, end of period	$	47,040		$	79,639

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Results of Operations by Reportable Segment (in thousands, except for percentages, unaudited):

	Well			Production			Functional
	Servicing			Services			Support
For the three months ended June 30, 2010:
Revenues from external customers	$	232,746		$	35,039		$	—
Operating income (loss)		16,523			6,338			(28,591	)
Operating income as a percentage of revenue		7.1	%		18.1	%		n/a

	Well			Production			Functional
	Servicing			Services			Support
For the three months ended March 31, 2010:
Revenues from external customers	$	223,991		$	27,968		$	—
Operating income (loss)		15,011			(504	)		(24,101	)
Operating income (loss) as a percentage of revenue		6.7	%		(2	)%		n/a

	Well			Production			Functional
	Servicing			Services			Support
For the three months ended June 30, 2009:
Revenues from external customers	$	197,945		$	21,116		$	—
Operating income (loss)		15,522			(5,166	)		(27,633	)
Operating income (loss) as a percentage of revenue		7.8	%		(24.5	)%		n/a

	Well			Production			Functional
	Servicing			Services			Support
For the six months ended June 30, 2010:
Revenues from external customers	$	456,737		$	63,007		$	—
Operating income (loss)		31,534			5,834			(52,692	)
Operating income as a percentage of revenue		6.9	%		9.3	%		n/a

	Well			Production			Functional
	Servicing			Services			Support
For the six months ended June 30, 2009:
Revenues from external customers	$	454,206		$	48,504		$	—
Operating income (loss)		56,537			(7,156	)		(53,788	)
Operating income (loss) as a percentage of revenue		12.4	%		(14.8	)%		n/a

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U.S. and International Revenue (in thousands, unaudited):

	Three Months Ended
	June 30, 2010		March 31, 2010		June 30, 2009
U.S.	$	224,221	$	196,308	$	174,877
International		43,564		55,651		44,184
Total revenue from external customers	$	267,785	$	251,959	$	219,061

	Six Months Ended
	June 30, 2010		June 30, 2009
U.S.	$	420,529	$	411,280
International		99,215		91,430
Total revenue from external customers	$	519,744	$	502,710

The following table sets forth the sequential percentage revenue changes and incremental operating income margins from the first quarter 2010 to the second quarter 2010 (unaudited):

				Sequential Quarter
				Incremental
	Sequential Quarter %			Operating Income
	Revenue Change			Margins
Well Servicing Segment		4	%		17	%
Operations within Well Servicing Segment:
U.S. Rig Services		11	%		74	%
Fluid Management Services		18	%		79	%
Mexico		(42	)%		(82	)%
Argentina		8	%		(232	)%
Russia		0	%		n/a
Production Services Segment		25	%		97	%
Operations within Production Services Segment:
Coiled Tubing Services		35	%		92	%
Fishing and Rental Services		15	%		116	%
Other (1)		60	%		110	%

(1) Pertains to Key’s California pressure pumping operations and Canadian technology development company.

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Reconciliations to Adjusted EBITDA (in thousands, except for percentages):

	Three Months						Three Months						Three Months
	Ended June 30,			% of			Ended March 31,			% of			Ended June 30,			% of
	2010			Revenue			2010			Revenue			2009			Revenue
Loss attributable to Key	$	(2,236	)		(0.7	)%		(7,580	)		(2.5	)%		(18,473	)		(7.7	)%
Income tax benefit		(1,576	)		(0.5	)%		(6,491	)		(2.1	)%		(10,658	)		(4.4	)%
Interest expense, net of amounts capitalized		10,623			3.1	%		10,247			3.4	%		10,181			4.2	%
Interest income		(21	)		0.0	%		(15	)		(0.0	)%		(169	)		(1.0	)%
Depreciation and amortization		35,857			10.6	%		36,703			12.2	%		43,191			17.9	%
Adjusted EBITDA	$	42,647			12.6	%	$	32,864			10.9	%	$	24,072			10.0	%

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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 hereunto duly authorized.

	KEY ENERGY SERVICES, INC.
Date: August 5, 2010	By:	/s/ T.M. Whichard III
		T.M. Whichard III
		Senior Vice President and Chief Financial Officer

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