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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2008
or
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From                      to                    
Commission File No. 001-34037
SUPERIOR ENERGY SERVICES, INC.
(Exact name of registrant as specified in its charter)
     
Delaware
(State or other jurisdiction of
incorporation or organization)
  75-2379388
(I.R.S. Employer
Identification No.)
     
601 Poydras, Suite 2400
New Orleans, Louisiana
(Address of principal executive offices)
 
70130
(Zip Code)
Registrant’s telephone number, including area code: (504) 587-7374
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
             
Large accelerated filer þ   Accelerated filer o   Non-accelerated filer o   Smaller reporting company o
        (Do not check if a smaller reporting company)    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
The number of shares of the registrant’s common stock outstanding on October 31, 2008 was 77,528,245.
 
 


 

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Quarterly Report on Form 10-Q for
the Quarterly Period Ended September 30, 2008
TABLE OF CONTENTS
         
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 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2

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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
September 30, 2008 and December 31, 2007
(in thousands, except share data)
                 
    9/30/08     12/31/07  
    (Unaudited)     (Audited)  
ASSETS
               
 
               
Current assets:
               
Cash and cash equivalents
  $ 128,169     $ 51,649  
Accounts receivable, net
    383,813       343,334  
Current portion of notes receivable
          15,584  
Prepaid expenses
    19,888       19,641  
Other current assets
    110,403       40,797  
 
           
 
               
Total current assets
    642,273       471,005  
 
           
 
               
Property, plant and equipment, net
    1,055,310       1,086,408  
Goodwill
    483,266       484,594  
Notes receivable
          16,732  
Equity-method investments
    108,153       56,961  
Intangible and other long-term assets, net
    133,880       141,549  
 
           
 
               
Total assets
  $ 2,422,882     $ 2,257,249  
 
           
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
 
               
Current liabilities:
               
Accounts payable
  $ 78,394     $ 69,510  
Accrued expenses
    158,489       177,779  
Income taxes payable
    50,592       7,520  
Current portion of decommissioning liabilities
          36,812  
Current maturities of long-term debt
    810       810  
 
           
 
               
Total current liabilities
    288,285       292,431  
 
           
 
               
Deferred income taxes
    198,584       163,338  
Decommissioning liabilities
          88,158  
Long-term debt, net
    711,110       711,151  
Other long-term liabilities
    26,578       21,492  
 
               
Stockholders’ equity:
               
Preferred stock of $.01 par value. Authorized, 5,000,000 shares; none issued
           
Common stock of $.001 par value. Authorized, 125,000,000 shares; issued and outstanding, 79,453,092 shares at September 30, 2008, and 80,671,650 shares at December 31, 2007
    79       81  
Additional paid in capital
    357,826       401,455  
Accumulated other comprehensive income (loss), net
    (5,521 )     9,078  
Retained earnings
    845,941       570,065  
 
           
 
               
Total stockholders’ equity
    1,198,325       980,679  
 
           
 
               
Total liabilities and stockholders’ equity
  $ 2,422,882     $ 2,257,249  
 
           
See accompanying notes to consolidated financial statements.

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SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2008 and 2007
(in thousands, except per share data)
(unaudited)
                                 
    Three Months     Nine Months  
    2008     2007     2008     2007  
Oilfield service and rental revenues
  $ 490,282     $ 347,228     $ 1,334,256     $ 1,021,712  
Oil and gas revenues
          51,696       55,072       136,889  
 
                       
 
                               
Total revenues
    490,282       398,924       1,389,328       1,158,601  
 
                       
 
                               
Cost of oilfield services and rentals
    236,610       159,683       649,839       465,085  
Cost of oil and gas sales
          18,954       12,986       55,845  
 
                       
 
                               
Total cost of services, rentals and sales
(exclusive of items shown separately below)
    236,610       178,637       662,825       520,930  
 
                       
 
                               
Depreciation, depletion, amortization and accretion
    44,842       49,881       128,675       133,967  
General and administrative expenses
    68,379       57,150       204,411       161,833  
Gain on sale of businesses
          7,483       40,946       7,483  
 
                       
 
                               
Income from operations
    140,451       120,739       434,363       349,354  
 
                       
 
                               
Other income (expense):
                               
Interest expense, net
    (7,593 )     (7,402 )     (22,665 )     (22,635 )
Earnings (losses) from equity-method investments, net
    23,167       1,395       19,359       (2,447 )
 
                       
 
                               
Income before income taxes
    156,025       114,732       431,057       324,272  
 
                               
Income taxes
    56,169       39,682       155,181       115,116  
 
                       
 
                               
Net income
  $ 99,856     $ 75,050     $ 275,876     $ 209,156  
 
                       
 
                               
Basic earnings per share
  $ 1.24     $ 0.92     $ 3.42     $ 2.58  
 
                       
 
                               
Diluted earnings per share
  $ 1.22     $ 0.91     $ 3.36     $ 2.53  
 
                       
 
                               
Weighted average common shares used in computing earnings per share:
                               
Basic
    80,538       81,470       80,691       81,053  
Incremental common shares from stock-based compensation
    1,307       1,323       1,350       1,468  
 
                       
 
                               
Diluted
    81,845       82,793       82,041       82,521  
 
                       
See accompanying notes to consolidated financial statements.

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SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2008 and 2007
(in thousands)
(unaudited)
                 
    2008     2007  
Cash flows from operating activities:
               
Net income
  $ 275,876     $ 209,156  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation, depletion, amortization and accretion
    128,675       133,967  
Deferred income taxes
    35,716       32,459  
Non-cash stock-based and performance share unit compensation expense
    9,466       8,995  
(Earnings) losses from equity-method investments, net of cash received
    (2,121 )     2,447  
Amortization of debt acquisition costs and note discount
    2,762       2,669  
Gain on sale of businesses
    (40,946 )     (7,483 )
Changes in operating assets and liabilities, net of acquisitions and dispositions:
               
Receivables
    (96,741 )     (35,028 )
Accounts payable
    10,391       (861 )
Accrued expenses
    1,633       28,496  
Decommissioning liabilities
    (6,160 )     (2,303 )
Income taxes
    43,273       5,817  
Other, net
    (55,282 )     6,779  
 
           
 
               
Net cash provided by operating activities
    306,542       385,110  
 
           
 
               
Cash flows from investing activities:
               
Payments for capital expenditures
    (324,318 )     (325,868 )
Acquisitions of businesses, net of cash acquired
    (4,487 )     (79,624 )
Cash proceeds from sale of businesses, net of cash sold
    155,312       18,100  
Other
    (1,332 )     8,981  
 
           
 
               
Net cash used in investing activities
    (174,825 )     (378,411 )
 
           
 
               
Cash flows from financing activities:
               
Principal payments on long-term debt
    (405 )     (405 )
Payment of debt acquisition costs
          (83 )
Proceeds from exercise of stock options
    4,274       8,422  
Tax benefit from exercise of stock options
    5,411       9,135  
Proceeds from issuance of stock through employee benefit plans
    1,191       324  
Purchase and retirement of stock
    (64,203 )      
 
           
 
               
Net cash provided by (used in) financing activities
    (53,732 )     17,393  
 
           
 
               
Effect of exchange rate changes on cash
    (1,465 )     747  
 
           
 
               
Net increase in cash
    76,520       24,839  
 
               
Cash and cash equivalents at beginning of period
    51,649       38,970  
 
           
 
               
Cash and cash equivalents at end of period
  $ 128,169     $ 63,809  
 
           
See accompanying notes to consolidated financial statements.

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SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
Nine Months Ended September 30, 2008 and 2007
(1) Basis of Presentation
Certain information and footnote disclosures normally in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission; however, management believes the disclosures which are made are adequate to make the information presented not misleading. These financial statements and footnotes should be read in conjunction with the consolidated financial statements and notes thereto included in Superior Energy Services, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2007 and Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The financial information of Superior Energy Services, Inc. and subsidiaries (the Company) for the three and nine months ended September 30, 2008 and 2007 has not been audited. However, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the results of operations for the periods presented have been included therein. The results of operations for the first nine months of the year are not necessarily indicative of the results of operations that might be expected for the entire year. Certain previously reported amounts have been reclassified to conform to the 2008 presentation.
(2) Stock-Based and Long-Term Compensation
The Company maintains various stock incentive plans that provide long-term incentives to the Company’s key employees, including officers and directors, consultants and advisers (Eligible Participants). Under the incentive plans, the Company may grant incentive stock options, non-qualified stock options, restricted stock, restricted stock units, stock appreciation rights, other stock-based awards or any combination thereof to Eligible Participants.
Stock Options
The Company has issued non-qualified stock options under its stock incentive plans. The options generally vest in equal installments over three years and expire in ten years. Non-vested options are generally forfeited upon termination of employment. The Company’s compensation expense related to stock options for the nine months ended September 30, 2008 and 2007 was approximately $2.0 million and $1.1 million, respectively, which is reflected in general and administrative expenses.
Restricted Stock
The Company has issued shares of restricted stock under its stock incentive plans. Shares of restricted stock generally vest in equal annual installments over three years. Non-vested shares are generally forfeited upon the termination of employment. Holders of shares of restricted stock are entitled to all rights of a stockholder of the Company with respect to the restricted stock, including the right to vote the shares and receive any dividends or other distributions declared thereon. The Company’s compensation expense related to shares of restricted stock outstanding for the nine months ended September 30, 2008 and 2007 was approximately $3.7 million and $1.9 million, respectively, which is reflected in general and administrative expenses.
Restricted Stock Units
The Company has issued restricted stock units (RSUs) to its non-employee directors under its stock incentive plans. Annually, each non-employee director is issued a number of RSUs having an aggregate dollar value determined by the Company’s Board of Directors. A RSU represents the right to receive from the Company, within 30 days of the date the director ceases to serve on the Board, one share of the Company’s common stock. The Company’s expense related to RSUs for the nine months ended September 30, 2008 and 2007 was approximately $0.6 million and $0.7 million, respectively, which is reflected in general and administrative expenses.

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Performance Share Units
The Company has issued performance share units (PSUs) to its employees as part of the Company’s long-term incentive program. There is a three year performance period associated with each PSU grant date. The two performance measures applicable to all participants are the Company’s return on invested capital and total stockholder return relative to those of the Company’s pre-defined “peer group.” The PSUs provide for settlement in cash or up to 50% in equivalent value in the Company’s common stock, if the participant has met specified continued service requirements. The Company’s compensation expense related to all outstanding PSUs for the nine months ended September 30, 2008 and 2007 was approximately $5.9 million and $5.2 million, respectively, which is reflected in general and administrative expenses. The Company has recorded a current liability of approximately $5.4 million and $5.9 million at September 30, 2008 and December 31, 2007, respectively, for outstanding PSUs, which is reflected in accrued expenses. Additionally, the Company has recorded a long-term liability of approximately $6.3 million and $5.9 million at September 30, 2008 and December 31, 2007, respectively, for outstanding PSUs, which is reflected in other long-term liabilities. During the nine month period ended September 30, 2008, the Company paid approximately $2.9 million in cash and issued approximately 74,400 shares of its common stock to its employees to settle PSUs for the performance period ended December 31, 2007.
Employee Stock Purchase Plan
In the third quarter of 2007, the Company adopted employee stock purchase plans under which an aggregate of 1,250,000 shares of common stock were reserved for issuance. Under these stock purchase plans, eligible employees can purchase shares of the Company’s common stock at a discount. The Company received $1.2 million and $0.3 million related to shares issued under these plans for the nine month period ended September 30, 2008 and 2007, respectively. For the nine months ended September 30, 2008 and 2007, the Company recorded compensation expense of approximately $200,000 and $60,000, respectively, which is reflected in general and administrative expenses. Additionally, the Company issued approximately 32,600 and 10,200 shares for the nine month period ended September 30, 2008 and 2007, respectively, related to these stock purchase plans.
(3) Earnings per Share
Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period.  Diluted earnings per share is computed in the same manner as basic earnings per share, except that the denominator is increased to include the number of additional common shares that could have been outstanding assuming the exercise of stock options that would have a dilutive effect on earnings per share using the treasury stock method and the conversion of restricted stock units into common stock.
In connection with the Company’s outstanding 1.50% senior exchangeable notes, there could be a dilutive effect on earnings per share if the average price of the Company’s stock exceeds the initial exchange price of $45.58 per share for the reporting period.  In the event the Company’s common stock exceeds the initial exchange price of $45.58 per share, for the first $1.00 the price exceeds $45.58, the dilutive effect can be as much as 188,400 shares. The senior exchangeable notes did not have a dilutive effect for the three or nine months ended September 30, 2008.
(4) Stockholders’ Equity
In September 2007, the Company’s Board of Directors authorized a $350 million share repurchase program that expires on December 31, 2009. Under this program, the Company can purchase shares through open market transactions at prices deemed appropriate by management. In September 2008, the Company purchased 1,520,000 shares of its common stock at an average price of $36.45, or approximately $55.4 million in the aggregate. For the nine months ended September 30, 2008, the Company purchased a total of 1,770,000 shares of its common stock at an average price of $36.27, or approximately $64.2 million in the aggregate
Subsequent to September 30, 2008, the Company purchased an additional 1,947,000 shares of its common stock at an average price of $20.33, or approximately $39.6 million in the aggregate.

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(5) Acquisitions and Dispositions
On March 14, 2008, the Company completed the sale of 75% of its interest in SPN Resources, LLC (SPN Resources). As part of this transaction, SPN Resources contributed an undivided 25% of its working interest in each of its oil and gas properties to a newly formed subsidiary and then sold all of its equity interest in the subsidiary. SPN Resources then effectively sold 66 2/3% of its outstanding membership interests. These two transactions generated cash proceeds of approximately $168.1 million and resulted in a pre-tax gain of approximately $37.1 million. SPN Resources’ operations constituted substantially all of the Company’s oil and gas segment. Subsequent to March 14, 2008, the Company accounts for its remaining 33 1/3% interest in SPN Resources using the equity-method within the oil and gas segment. The results of SPN Resources’ operations through March 14, 2008 were consolidated.
Additionally, the Company retained preferential rights on certain service work and entered into a turnkey contract to perform well abandonment and decommissioning work associated with oil and gas properties owned and operated by SPN Resources at the closing. The turnkey contract covers only routine end of life well abandonment and pipeline and platform decommissioning for properties owned and operated by SPN Resources at the date of closing and has a remaining fixed price of approximately $147.4 million as of September 30, 2008.  Based on current estimates, the work is expected to be performed between 2008 and 2022, with over 90% performed after 2009.
As part of SPN Resources’ acquisition of its oil and gas properties, the Company guaranteed SPN Resources’ performance of its decommissioning liabilities. In accordance with FASB Interpretation No. 45 (FIN 45), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (as amended),” the Company has assigned an estimated value of $2.9 million related to decommissioning performance guarantees, which is reflected in other long-term liabilities.  The Company believes that the likelihood of being required to perform these guarantees is remote. In the unlikely event that SPN Resources defaults on the decommissioning liabilities existing at the closing date, the total maximum potential obligation under these guarantees is estimated to be approximately $117.1 million, net of the contractual right to receive payments from third parties, which is approximately $30.3 million, as of September 30, 2008. The total maximum potential obligation will decrease over time as the underlying obligations are fulfilled by SPN Resources.
In August 2007, the Company sold the assets of a non-core rental tool business for approximately $16.3 million in cash and $2.0 million in an interest-bearing note receivable. As a result of the sale of these assets, the Company recorded a pre-tax gain on the sale of the business of approximately $7.5 million in 2007. As certain conditions were met during the nine months ended September 30, 2008, the Company received cash of approximately $6.0 million, which resulted in an additional pre-tax gain on the sale of the business of approximately $3.3 million.
In April 2007, the Company acquired Advanced Oilwell Services, Inc. (AOS) for approximately $24.2 million in cash consideration. Additional consideration, if any, will be based upon the average earnings before interest, income taxes, depreciation and amortization expense of the business over a three year period, and will not exceed $7.4 million. AOS is a provider of cementing and pressure pumping services primarily operating in the East Texas region. The acquisition has been accounted for as a purchase, and the results of operations have been included from the acquisition date.
In January 2007, the Company acquired Duffy & McGovern Accommodation Services Limited (Duffy & McGovern) for approximately $47.5 million in cash consideration. Duffy & McGovern is a provider of offshore accommodation rentals operating in most deep water oil and gas territories with major operations in Europe, Africa, the Americas and South East Asia. The acquisition has been accounted for as a purchase, and the results of operations have been included from the acquisition date.
The Company made other business acquisitions, which were not material on an individual or cumulative basis, for cash consideration of $4.1 million in the nine months ended September 30, 2008 and $43.3 million in the year ended December 31, 2007. SPN Resources acquired additional oil and gas producing assets in December 2007 for approximately $12.8 million consisting of $8.0 million in cash consideration and exchanged other oil and gas producing assets with a fair value and net book value of approximately $4.8 million. The Company also sold the assets of its field management division in 2007 for approximately $1.8 million in cash. As certain conditions were

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met during the nine months ended September 30, 2008 in conjunction with the sale of this division, the Company received cash of $0.5 million, which resulted in an additional pre-tax gain on the sale of the business.
Several of the Company’s prior business acquisitions require future payments if specific conditions are met. As of September 30, 2008, the maximum additional contingent consideration payable was approximately $28.8 million and will be determined and payable through 2012. In the nine months ended September 30, 2008, the Company capitalized and paid additional consideration of approximately $0.4 million as a result of prior acquisitions.
(6) Segment Information
Business Segments
The Company has four reportable segments: well intervention, rental tools, marine, and oil and gas. The well intervention segment provides production-related services used to enhance, extend and maintain oil and gas production, which include mechanical wireline, hydraulic workover and snubbing, well control, coiled tubing, electric line, pumping and stimulation and well bore evaluation services, well plug and abandonment services, and other oilfield services used to support drilling and production operations. The rental tools segment rents and sells stabilizers, drill pipe, tubulars and specialized equipment for use with onshore and offshore oil and gas well drilling, completion, production and workover activities. It also provides onsite accommodations and bolting and machining services. The marine segment operates liftboats for production service activities, as well as oil and gas production facility maintenance, construction operations and platform removals. The oil and gas segment acquires mature oil and gas properties and produces and sells any remaining oil and gas reserves. During the nine months ended September 30, 2008, the Company sold 75% of its interest in SPN Resources (see note 5). SPN Resources’ operations constituted substantially all the oil and gas segment. Oil and gas eliminations represent products and services provided to the oil and gas segment by the Company’s three other segments. Certain previously reported amounts have been reclassified to conform to the presentation in the current period.
Summarized financial information concerning the Company’s segments for the three and nine months ended September 30, 2008 and 2007 is shown in the following tables (in thousands):
Three Months Ended September 30, 2008
                                                 
    Well   Rental                           Consolidated
    Intervention   Tools   Marine   Oil & Gas   Unallocated   Total
     
Revenues
  $ 319,798     $ 136,600     $ 33,884     $     $     $ 490,282  
Cost of services, rentals and sales (exclusive of items shown separately below)
    168,903       46,422       21,285                   236,610  
Depreciation and amortization
    18,424       23,533       2,885                   44,842  
General and administrative expenses
    42,122       23,017       3,240                   68,379  
Income from operations
    90,349       43,628       6,474                   140,451  
Interest expense, net
                            (7,593 )     (7,593 )
Earnings from equity-method investments, net
                      23,167             23,167  
     
 
                                               
Income (loss) before income taxes
  $ 90,349     $ 43,628     $ 6,474     $ 23,167     $ (7,593 )   $ 156,025  
               

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Three Months Ended September 30, 2007
                                                 
                                    Oil & Gas    
    Well   Rental                   Eliminations   Consolidated
    Intervention   Tools   Marine   Oil & Gas   & Unallocated   Total
     
Revenues
  $ 202,807     $ 118,918     $ 26,323     $ 51,696     $ (820 )   $ 398,924  
Cost of services, rentals and sales (exclusive of items shown separately below)
    111,775       35,142       13,586       18,954       (820 )     178,637  
Depreciation, depletion, amortization and accretion
    12,979       18,115       1,986       16,801             49,881  
General and administrative expenses
    30,440       21,698       2,603       2,409             57,150  
Gain on sale of business
          7,483                         7,483  
Income from operations
    47,613       51,446       8,148       13,532             120,739  
Interest income (expense), net
                      311       (7,713 )     (7,402 )
Earnings from equity-method investments, net
                      1,395             1,395  
     
 
                                               
Income (loss) before income taxes
  $ 47,613     $ 51,446     $ 8,148     $ 15,238     $ (7,713 )   $ 114,732  
               
Nine Months Ended September 30, 2008
                                                 
                                    Oil & Gas    
    Well   Rental                   Eliminations   Consolidated
    Intervention   Tools   Marine   Oil & Gas   & Unallocated   Total
     
Revenues
  $ 850,804     $ 401,700     $ 82,964     $ 55,072     $ (1,212 )   $ 1,389,328  
Cost of services, rentals and sales (exclusive of items shown separately below)
    462,783       131,857       56,411       12,986       (1,212 )     662,825  
Depreciation, depletion, amortization and accretion
    51,981       66,558       7,337       2,799             128,675  
General and administrative expenses
    117,211       69,701       8,719       8,780             204,411  
Gain on sale of businesses
    500       3,332             37,114             40,946  
Income from operations
    219,329       136,916       10,497       67,621             434,363  
Interest expense, net
                            (22,665 )     (22,665 )
Earnings from equity-method investments, net
                      19,359             19,359  
     
 
                                               
Income (loss) before income taxes
  $ 219,329     $ 136,916     $ 10,497     $ 86,980     $ (22,665 )   $ 431,057  
               
Nine Months Ended September 30, 2007
                                                 
                                    Oil & Gas    
    Well   Rental                   Eliminations   Consolidated
    Intervention   Tools   Marine   Oil & Gas   & Unallocated   Total
     
Revenues
  $ 570,280     $ 358,834     $ 97,351     $ 136,889     $ (4,753 )   $ 1,158,601  
Cost of services, rentals and sales (exclusive of items shown separately below)
    316,730       109,676       43,432       55,845       (4,753 )     520,930  
Depreciation, depletion, amortization and accretion
    34,592       49,971       6,379       43,025             133,967  
General and administrative expenses
    83,168       63,508       7,719       7,438             161,833  
Gain on sale of business
          7,483                         7,483  
Income from operations
    135,790       143,162       39,821       30,581             349,354  
Interest income (expense), net
                      924       (23,559 )     (22,635 )
Losses from equity-method investments, net
                      (2,447 )           (2,447 )
     
 
                                               
Income (loss) before income taxes
  $ 135,790     $ 143,162     $ 39,821     $ 29,058     $ (23,559 )   $ 324,272  
     

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Identifiable Assets
                                                 
    Well   Rental                           Consolidated
    Intervention   Tools   Marine   Oil & Gas   Unallocated   Total
     
September 30, 2008
  $ 1,272,173     $ 781,288     $ 235,813     $ 107,397     $ 26,211     $ 2,422,882  
               
December 31, 2007
  $ 996,946     $ 687,944     $ 200,623     $ 344,667     $ 27,069     $ 2,257,249  
               
Geographic Segments
The Company attributes revenue to countries based on the location where services are performed or the destination of the sale of products. Long-lived assets consist primarily of property, plant and equipment and are attributed to the United States or other countries based on the physical location of the asset at the end of a period. The Company’s information by geographic area is as follows (in thousands):
Revenues:
                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
    2008     2007     2008     2007  
United States
  $ 411,373     $ 320,506     $ 1,153,141     $ 934,174  
Other Countries
    78,909       78,418       236,187       224,427  
 
 
                       
Total
  $ 490,282     $ 398,924     $ 1,389,328     $ 1,158,601  
 
                       
Long-Lived Assets:
                 
    September 30,     December 31,  
    2008     2007  
United States
  $ 903,032     $ 912,376  
Other Countries
    152,278       174,032  
 
 
           
Total
  $ 1,055,310     $ 1,086,408  
 
           
(7) Long-Term Contracts
In December 2007, the Company’s wholly-owned subsidiary, Wild Well Control, Inc. (Wild Well), entered into contractual arrangements pursuant to which it will decommission seven downed oil and gas platforms and related well facilities located offshore in the Gulf of Mexico for a fixed sum of $750 million, which is payable in installments upon the completion of specified portions of work. The contract contains certain covenants primarily related to Wild Well’s performance of the work. The work is expected to take up to three years to complete and began in the first quarter of 2008. The contract for decommissioning these downed platforms and well facilities is recorded on the percentage-of-completion method utilizing costs incurred as a percentage of total estimated costs. Included in other current assets at September 30, 2008 is approximately $63.9 million of costs and estimated earnings in excess of billings related to this contract.
In connection with the sale of 75% of its interest in SPN Resources, the Company retained preferential rights on certain service work and entered into a turnkey contract to perform well abandonment and decommissioning work associated with oil and gas properties owned and operated by SPN Resources at the closing. This contract covers only routine end of life well abandonment, pipeline and platform decommissioning for properties owned and operated by SPN Resources at the date of closing and has a remaining fixed price of approximately $147.4 million as of September 30, 2008.  The turnkey contract will consist of numerous, separate billable jobs estimated to be performed between 2008 and 2022. Each job is short term in duration and will be individually recorded on the percentage-of-completion method utilizing costs incurred as a percentage of total estimated costs.
In July 2006, the Company contracted to construct a derrick barge for a third party for approximately $53.7 million. The contract to construct the derrick barge to the customer’s specifications was recorded on the percentage-of-

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completion method. This derrick barge was delivered and accepted by the third party in June 2008. As such, there were no billings in excess of costs and estimated earnings related to this contract as of September 30, 2008. Included in accrued expenses at December 31, 2007 is approximately $25.0 million of billings in excess of costs and estimated earnings related to this contract.
(8) Equity-Method Investments
Investments in entities that are not controlled by the Company, but where the Company has the ability to exercise influence over the operations, are accounted for using the equity-method. The Company’s share of the income or losses of these entities is reflected as earnings or losses from equity-method investments on its Condensed Consolidated Statements of Operations.
The Company, where possible and at competitive rates, provides its products and services to assist SPN Resources and Beryl Oil and Gas L.P. (BOG), investments that are accounted for by the Company using the equity-method, in producing and developing their oil and gas properties. The Company also reduces its revenue and its investment in SPN Resources and BOG for its respective ownership interest when products and services are provided to and capitalized by SPN Resources and BOG. The Company records these amounts in revenue as SPN Resources and BOG record the related depreciation and depletion expenses. Prior to the sale of 75% of its interest in SPN Resources, the Company provided operating and administrative support services to BOG and received reimbursement for general and administrative and direct expenses incurred on behalf of BOG.
On March 14, 2008, the Company sold 75% of its original interest in SPN Resources (see note 5). The Company’s equity-method investment balance in SPN Resources is approximately $47.6 million at September 30, 2008. The Company recorded earnings from its equity-method investment in SPN Resources of approximately $16.5 million from the date of sale through September 30, 2008. The Company also received $17.0 million of cash distributions from its equity-method investment in SPN Resources from the date of sale through September 30, 2008. The Company has a receivable from SPN Resources of approximately $2.4 million at September 30, 2008. The Company also recorded revenue of approximately $12.0 million from SPN Resources from the date of sale through September 30, 2008. The Company recorded a net decrease in revenue and its investment in SPN Resources of approximately $0.5 million from the date of sale through September 30, 2008.
The Company owns a 40% interest in BOG.  The Company’s total cash contribution for its equity-method investment in BOG was approximately $57.8 million.  The Company has not made additional contributions since its initial investment.  The Company’s equity-method investment balance in BOG is approximately $59.8 million at September 30, 2008 and $56.0 million at December 31, 2007.  The Company recorded earnings from its equity-method investment in BOG of approximately $2.8 million for the nine months ended September 30, 2008.  During the nine month period ended September 30, 2007, the Company recorded approximately $2.5 million of losses from its equity-method investment in BOG.  The Company has a receivable from BOG of approximately $40,000 at September 30, 2008 and $1.9 million at December 31, 2007.  The Company offset its general and administrative expenses by approximately $0 and $3.5 million for the reimbursements due from BOG for the nine months ended September 30, 2008 and 2007, respectively.  The Company also recorded revenue of approximately $0.7 million and $7.6 million from BOG for the nine months ended September 30, 2008 and 2007, respectively.  The Company recorded a net increase in revenue and its investment in BOG of approximately $0.1 million for the nine months ended September 30, 2008.  For the nine months ended September 30, 2007, the Company recorded a net reduction in revenue and its investment in BOG of approximately $0.9 million.
Also included in equity-method investments at September 30, 2008 and December 31, 2007 is approximately a $0.8 million investment for a 50% ownership in a company that owns an airplane. Earnings from the equity-method investment in this company were not material for the nine months ended September 30, 2008 or 2007. The Company also received $0.2 million of cash distributions from its equity-method investment in this company for the nine months ended September 30, 2008. The Company recorded approximately $0.2 million in expense to lease the airplane (exclusive of operating costs) from this company for the nine months ended September 30, 2008 and 2007.

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(9) Debt
The Company has a $250 million bank revolving credit facility. Any amounts outstanding under the revolving credit facility are due on June 14, 2011. At September 30, 2008, the Company had no borrowings under the revolving credit facility, but it had approximately $25.6 million of letters of credit outstanding, which reduce the Company’s borrowing availability under this credit facility. Amounts borrowed under the credit facility bear interest at a LIBOR rate plus margins that depend on the Company’s leverage ratio. Indebtedness under the credit facility is secured by substantially all of the Company’s assets, including the pledge of the stock of the Company’s principal subsidiaries. The credit facility contains customary events of default and requires that the Company satisfy various financial covenants. It also limits the Company’s ability to pay dividends or make other distributions, make acquisitions, make changes to the Company’s capital structure, create liens or incur additional indebtedness. At September 30, 2008, the Company was in compliance with all such covenants.
The Company has $15.4 million outstanding at September 30, 2008, in U.S. Government guaranteed long-term financing under Title XI of the Merchant Marine Act of 1936, which is administered by the Maritime Administration (MARAD), for two 245-foot class liftboats. The debt bears interest at 6.45% per annum and is payable in equal semi-annual installments of $405,000, on every June 3rd and December 3rd through the maturity date of June 3, 2027. The Company’s obligations are secured by mortgages on the two liftboats. In accordance with the agreement, the Company is required to comply with certain covenants and restrictions, including the maintenance of minimum net worth, working capital and debt-to-equity requirements. At September 30, 2008, the Company was in compliance with all such covenants.
The Company has $300 million of 6 7/8% unsecured senior notes due 2014. The indenture governing the senior notes requires semi-annual interest payments on every June 1st and December 1st through the maturity date of June 1, 2014. The indenture contains certain covenants that, among other things, limit the Company from incurring additional debt, repurchasing capital stock, paying dividends or making other distributions, incurring liens, selling assets or entering into certain mergers or acquisitions. At September 30, 2008, the Company was in compliance with all such covenants.
The Company also has $400 million of 1.50% unsecured senior exchangeable notes due 2026. The exchangeable notes bear interest at a rate of 1.50% per annum and decrease to 1.25% per annum on December 15, 2011. Interest on the exchangeable notes is payable semi-annually on December 15th and June 15th of each year through the maturity date of December 15, 2026. The exchangeable notes do not contain any restrictive financial covenants.
Under certain circumstances, holders may exchange the notes for shares of the Company’s common stock. The initial exchange rate is 21.9414 shares of common stock per $1,000 principal amount of notes. This is equal to an initial exchange price of $45.58 per share. The exchange price represents a 35% premium over the closing share price at date of issuance. The notes may be exchanged under the following circumstances:
    during any fiscal quarter (and only during such fiscal quarter) commencing after March 31, 2007, if the last reported sale price of the Company’s common stock is greater than or equal to 135% of the applicable exchange price of the notes for at least 20 trading days in the period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter;
 
    prior to December 15, 2011, during the five business-day period after any ten consecutive trading-day period (the “measurement period”) in which the trading price of $1,000 principal amount of notes for each trading day in the measurement period was less than 95% of the product of the last reported sale price of the Company’s common stock and the exchange rate on such trading day;
 
    if the notes have been called for redemption;
 
    upon the occurrence of specified corporate transactions; or
 
    at any time beginning on September 15, 2026, and ending at the close of business on the second business day immediately preceding the maturity date.
In connection with the exchangeable note transaction, the Company simultaneously entered into agreements with affiliates of the initial purchasers to purchase call options and sell warrants on its common stock. The Company may exercise the call options it purchased at any time to acquire approximately 8.8 million shares of its common

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stock at a strike price of $45.58 per share. The owners of the warrants may exercise the warrants to purchase from the Company approximately 8.8 million shares of the Company’s common stock at a price of $59.42 per share, subject to certain anti-dilution and other customary adjustments. The warrants may be settled in cash, in shares or in a combination of cash and shares, at the Company’s option. Lehman Brothers OTC Derivatives, Inc. (LBOTC) is the counterparty to 50% of the Company’s call option and warrant transactions. On or about October 3, 2008, LBOTC filed for bankruptcy protection, which is an event of default under the contracts relating to the call option and warrant transactions. The Company has not terminated these contracts and continues to carefully monitor the developments affecting LBOTC.  Although the Company may not retain the benefit of the call option due to LBOTC’s bankruptcy, the Company does not expect that there will be a material impact, if any, on the financial statements or the results of operations. The call option and warrant transactions described above do not affect the terms of the outstanding exchangeable notes.
(10) Other Comprehensive Income
The following tables reconcile the change in accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2008 and 2007 (in thousands):
                 
    Three Months Ended  
    September 30,  
    2008     2007  
Accumulated other comprehensive income (loss), June 30, 2008 and 2007, respectively
  $ (7,775 )   $ 12,746  
 
               
Other comprehensive income:
               
Other comprehensive income, net of tax
               
Hedging activities:
               
Unrealized gain on equity-method investment’s hedging activities, net of tax of $11,127
    18,947        
Foreign currency translation adjustment
    (16,693 )     3,196  
 
           
 
               
Total other comprehensive income
    2,254       3,196  
 
           
 
               
Accumulated other comprehensive income (loss), September 30, 2008 and 2007, respectively
  $ (5,521 )   $ 15,942  
 
           
                 
    Nine Months Ended  
    September 30,  
    2008     2007  
Accumulated other comprehensive income, December 31, 2007 and 2006, respectively
  $ 9,078     $ 10,288  
 
               
Other comprehensive income (loss):
               
Other comprehensive income (loss), net of tax
               
Hedging activities:
               
Unrealized gain on equity-method investment’s hedging activities, net of tax of $332
    564        
Foreign currency translation adjustment
    (15,163 )     5,654  
 
           
 
               
Total other comprehensive income (loss)
    (14,599 )     5,654  
 
           
 
               
Accumulated other comprehensive income (loss), September 30, 2008 and 2007, respectively
  $ (5,521 )   $ 15,942  
 
           

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(11) Income Taxes
The Company adopted the provisions of FASB Interpretation No. 48 (FIN 48) on January 1, 2007. As a result of the implementation, the Company recognized no material adjustment to the liability for unrecognized income tax benefits that existed as of December 31, 2006.
It is the Company’s policy to recognize interest and applicable penalties, if any, related to uncertain tax positions in income tax expense.
The Company files income tax returns in the U.S. federal and various state and foreign jurisdictions. The number of years that are open under applicable statute of limitations and subject to audit varies depending on the tax jurisdiction. The Company remains subject to U.S. federal tax examinations for years after 2003.
The Company had approximately $7.0 million of unrecorded tax benefits at September 30, 2008 and December 31, 2007, all of which would impact the Company’s effective tax rate if recognized. The unrecorded tax benefits are not considered material to the Company’s financial position.
(12) Commitments and Contingencies
From time to time, the Company is involved in litigation and other disputes arising out of operations in the normal course of business. In management’s opinion, the Company is not involved in any litigation or disputes, the outcome of which would have a material effect on the financial position, results of operations or liquidity of the Company.
(13) Fair Value Measurements
Effective, January 1, 2008, the Company partially adopted Statement of Financial Accounting Standards No. 157 (FAS No. 157), “Fair Value Measurements,” which refines the definition of fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. The statement applies whenever other statements require or permit assets or liabilities to be measured at fair value. In February 2008, the FASB issued FASB Staff Position No. 157-2 that provides for a one-year deferral for the implementation of FAS No. 157 for non-financial assets and liabilities. FAS No. 157 does not require any new fair value measurements, but rather, it provides enhanced guidance to other pronouncements that require or permit assets or liabilities to be measured at fair value.
FAS No. 157 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy assigns the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (“Level 1”) and the lowest priority to unobservable inputs in which there is little or no market data (“Level 3”). Level 2 measurements are inputs that are observable for assets or liabilities, either directly or indirectly, other than quoted prices included within Level 1.
The following table provides a summary of the financial assets and liabilities measured at fair value on a recurring basis at September 30, 2008 (in thousands):
                                 
            Fair Value Measurements at Reporting Date Using
            Quoted Prices   Significant    
            in Active   Other   Significant
            Markets for   Observable   Unobservable
    September 30,   Identical Assets   Inputs   Inputs
    2008   (Level 1)   (Level 2)   (Level 3)
Money market funds
  $ 81,448     $ 81,448     $     $  
 
                               
Non-qualified deferred compensation assets
  $ 8,943     $     $ 8,943     $  
 
                               
Non-qualified deferred compensation liabilities
  $ 9,446     $     $ 9,446     $  

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The Company invests excess cash from its operating cash accounts in money market funds and reflects these amounts within cash and cash equivalents on the condensed consolidated balance sheet at a net value of 1:1 for each dollar invested. The Company’s non-qualified deferred compensation plan allows officers and highly compensated employees to defer receipt of a portion of their compensation and contribute such amounts to one or more investment funds. The Company entered into a separate trust agreement, subject to general creditors, to segregate the assets of the plan and reports the accounts of the trust in its condensed consolidated financial statements. These investments are reported at fair value based on third party broker statements which represent Level 2 in the FAS No. 157 fair value hierarchy. The realized and unrealized holding gains and losses related to money market funds and non-qualified deferred compensation assets are recorded in interest expense, net. The realized and unrealized holding gains and losses related to non-qualified deferred compensation liabilities are recorded in general and administrative expenses.
(14) Accounting Pronouncements
In May 2008, the Financial Accounting Standards Board issued its Statement of Financial Accounting Standards No. 162 (FAS No. 162), “The Hierarchy of Generally Accepted Accounting Principles.” FAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements. FAS No. 162 will be effective 60 days following the Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.” The Company does not expect the adoption of FAS No. 162 to have an impact on its results of operations and financial position.
In May 2008, the Financial Accounting Standards Board issued its Staff Position APB No. 14-1 (FSP APB No. 14-1) “Accounting for Convertible Debt Instruments That May Be Settled Upon Conversion (Including Partial Cash Settlement).” FSP APB No. 14-1 requires the proceeds from the issuance of exchangeable debt instruments to be allocated between a liability component (issued at a discount) and an equity component. The resulting debt discount will be amortized over the period the convertible debt is expected to be outstanding as additional non-cash interest expense. The provisions of FSP APB No. 14-1 are effective for fiscal years beginning after December 15, 2008 and will require retrospective application. FSP APB No. 14-1 will change the accounting treatment for the Company’s 1.50% senior exchangeable notes and impact the Company’s results of operations due to an increase in non-cash interest expense beginning in 2009 for financial statements covering past and future periods. The Company is currently evaluating the impact the adoption of FSP APB No. 14-1 will have on its results of operations and financial position.
In April 2008, the Financial Accounting Standards Board issued its Staff Position No. FAS 142-3 (FSP FAS No. 142-3), “Determination of the Useful Life of Intangible Assets.” FSP FAS No. 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FAS No. 142, “Goodwill and Other Intangible Assets.” The intent of the position is to improve the consistency between the useful life of a recognized intangible asset under FAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under FAS No. 141(R) and other GAAP. FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating the impact, if any, that the adoption of FSP FAS No. 142-3 will have on its results of operations and financial position.
In March 2008, the Financial Accounting Standards Board issued its Statement of Financial Accounting Standards No. 161 (FAS No. 161), “Disclosures about Derivative Instruments and Hedging Activities.” FAS No. 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. FAS No. 161 is effective for fiscal years beginning on or after November 15, 2008. The Company is currently evaluating the impact, if any, that the adoption of FAS No. 161 will have on its results of operations and financial position.
In December 2007, the Financial Accounting Standards Board issued its Statement of Financial Accounting Standards No. 141(R) (FAS No. 141(R)), “Business Combinations (as amended).” FAS No. 141(R) requires an acquiring entity in a business combination to recognize all assets acquired and liabilities assumed in the transaction

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and any noncontrolling interest in the acquiree at the acquisition date fair value. Additionally, contingent consideration and contractual contingencies shall be measured at acquisition date fair value. FAS No. 141(R) also requires an acquirer to disclose all of the information users may need to evaluate and understand the nature and financial effect of the business combination. Such information includes, among other things, a description of the factors comprising goodwill recognized in the transaction, the acquisition date fair value of the consideration, including contingent consideration, amounts recognized at the acquisition date for each major class of assets acquired and liabilities assumed, transactions not considered to be part of the business combination (i.e., separate transactions), and acquisition-related costs. FAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 (for any acquisitions closed on or after January 1, 2009 for the Company), and early adoption is not permitted. FAS No. 141(R) will impact the accounting for business combinations closed on or after January 1, 2009.
In December 2007, the Financial Accounting Standards Board issued its Statement of Financial Accounting Standards No. 160 (FAS No. 160), “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51.” FAS No. 160 amends ARB No. 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. Additionally, this statement requires that consolidated net income include the amounts attributable to both the parent and the noncontrolling interest. FAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. The Company is currently evaluating the impact, if any, that the adoption of FAS No. 160 will have on its results of operations and financial position.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
The following management’s discussion and analysis of financial condition and results of operations contains forward-looking statements which involve risks and uncertainties. All statements other than statements of historical fact included in this section regarding our financial position and liquidity, strategic alternatives, future capital needs, business strategies and other plans and objectives of our management for future operations and activities are forward-looking statements. These statements are based on certain assumptions and analyses made by our management in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate under the circumstances. Such forward-looking statements are subject to uncertainties that could cause our actual results to differ materially from such statements. Such uncertainties include but are not limited to the volatility and cyclicality of the oil and gas industry, including oil and gas prices and the level of offshore exploration, production and development activity; changes in competitive factors affecting our operations; risks associated with the acquisition of mature oil and gas properties, including estimates of recoverable reserves, future oil and gas prices and potential environmental and plugging and abandonment liabilities; the risks associated with our non-United States operations, which expose us to additional political, economic and other uncertainties; risks of adverse weather conditions in the Gulf of Mexico; risks of our growth strategy, including the risks of rapid growth and the risks inherent in acquiring businesses and mature oil and gas properties; our dependence on key personnel; our ability to employ and retain skilled workers; our dependence on significant customers; risks of unforeseen costs not within our control related to terms of our contracts; risks of material adjustments related to percentage-of-completion accounting for contracts; operating hazards, including the significant possibility of accidents resulting in personal injury, property damage or environmental damage; the effect on our performance of regulatory programs and environmental matters and risks associated with international expansion, including political and economic uncertainties. These and other uncertainties related to our business are described in detail in our Annual Report on Form 10-K for the year ended December 31, 2007. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to update any of our forward-looking statements for any reason.
Executive Summary
During the third quarter of 2008, revenue was $490.3 million, our highest quarterly revenue in Company history. Income from operations was $140.5 million, net income was $99.9 million and diluted earnings per share was $1.22. Included in the $23.2 million earnings from equity-method investments in the third quarter of 2008 is $19.2 million of pre-tax earnings associated with mark-to-market changes in the value of outstanding derivative contracts put in place by SPN Resources.
The active hurricane season in the Gulf of Mexico, specifically Hurricanes Gustav and Ike, significantly reduced our activity levels in that market during the month of September. We estimate the overall impact from these hurricanes during the third quarter was a reduction in diluted earnings per share of approximately $0.12 to $0.15.
Well intervention segment revenue was $319.8 million, an 8% increase over the second quarter of 2008, and income from operations was $90.3 million, a 16% increase over the second quarter of 2008. The increases in revenue and income from operations are primarily due to increases in marine engineering and project management services associated with work on a large-scale decommissioning project announced early in the first quarter of 2008. Other factors driving the sequential increases in revenue and income from operations were higher activity levels for several of our production-related services, highlighted by coiled tubing, cased hole wireline, hydraulic workover and snubbing and well control services. Income from operations as a percentage of revenue increased to 28% from 26% in the most recent quarter due to utilization increases for many of our services. This increase was partially offset by downtime in the Gulf of Mexico due to hurricanes.
In our rental tools segment, revenue was $136.6 million, a 1% increase compared to the second quarter of 2008, and income from operations was $43.6 million, an 8% decrease from the second quarter of 2008. Rentals of our drill pipe and specialty tubulars, which carry high incremental profit margins, were lower in the Gulf of Mexico and

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adversely impacted this segment’s income from operations as a percentage of revenue. The Gulf of Mexico was the only one of our three major geographic market areas to post a decrease in revenue from the second quarter of 2008 for this segment of our business. Revenue in domestic land markets increased 7% primarily due to an increase in rentals of accommodations and stabilization equipment. Also, international revenue increased 1% due to an increase in drill pipe rentals in South America.
In our marine segment, revenue was $33.9 million and income from operations was $6.5 million. This represents a 30% increase in revenue and a 348% increase in income from operations as compared to the most recent quarter. Our utilization increased to 81% from 57% in the second quarter of 2008, which was the primary factor driving the revenue and income from operation increases. The average dayrate decreased 16% from the second quarter of 2008 largely due to a decrease in dayrates for our smaller liftboats (145-foot to 170-foot class) as well as the fact that standby rates were charged at the end of August and in early September as a result of weather-related downtime. Standby rates are typically 50% of our full dayrates.
Our results include $19.2 million of non-cash unrealized earnings and $19.9 million of non-cash unrealized losses for the third and second quarter of 2008, respectively, associated with mark-to-market changes in the value of outstanding hedging contracts put in place by SPN Resources. Our equity investments performed as expected until late August, when hurricanes forced oil and gas production to be shut-in. While approximately 50% of production was restored subsequent to the end of the third quarter, restoration of full production is not expected until the end of the year.
The volatility in the global financial markets has led to increased uncertainty regarding the outlook for the global economy. The heightened uncertainty and the possibility of a worldwide decrease in hydrocarbon demand has led to declining commodity prices, which may negatively impact our operations as these factors cause many oil and gas companies to curtail capital spending.  These events have contributed to a decline in our stock price and corresponding market capitalization. Given the uncertainty in the macroeconomic environment, it is difficult to predict to what extent these events will affect our overall activity level in 2009. Our balance sheet remains healthy, and we have work that is not as sensitive to oil and gas prices including the decommissioning project announced early this year and additional work resulting from damage caused to the Gulf of Mexico energy infrastructure from this most recent hurricane season.
Comparison of the Results of Operations for the Three Months Ended September 30, 2008 and 2007
For the three months ended September 30, 2008, our revenues were $490.3 million, resulting in net income of $99.9 million, or $1.22 diluted earnings per share. Included in the $23.2 million earnings from equity-method investments is a $19.2 million pre-tax gain associated with mark-to-market changes in the value of outstanding derivative contracts put in place by SPN Resources. For the three months ended September 30, 2007, revenues were $398.9 million and net income was $75.1 million, or $0.91 diluted earnings per share. Included in the results for the three months ended September 30, 2007 was a $7.5 million pre-tax gain related to the sale of a non-core rental business. Revenue for the three months ended September 30, 2008 was higher in the well intervention and rental tools segments as a result of increased production-related activity and drilling activities worldwide, recent acquisitions, work related to a large-scale decommissioning project, and continued expansion of our rental tool business. Revenue increased significantly in our marine segment due to higher utilization as a result of market conditions resulting in more work in the Gulf of Mexico. No activity was recorded in our oil and gas segment for the three months ended September 30, 2008 as we sold 75% of our interest in SPN Resources on March 14, 2008.

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The following table compares our operating results for the three months ended September 30, 2008 and 2007 (in thousands). Cost of services, rentals and sales excludes depreciation, depletion, amortization and accretion for each of our four business segments. Oil and gas eliminations represent products and services provided to the oil and gas segment by our three other segments.
                                                                 
    Revenue   Cost of Services, Rentals and Sales
    2008   2007   Change   2008   %   2007   %   Change
         
Well Intervention
  $ 319,798     $ 202,807     $ 116,991     $ 168,903       53 %   $ 111,775       55 %   $ 57,128  
Rental Tools
    136,600       118,918       17,682       46,422       34 %     35,142       30 %     11,280  
Marine
    33,884       26,323       7,561       21,285       63 %     13,586       52 %     7,699  
Oil and Gas
          51,696       (51,696 )                 18,954       37 %     (18,954 )
Less: Oil and Gas Elim.
          (820 )     820                   (820 )           820  
 
                                               
Total
  $ 490,282     $ 398,924     $ 91,358     $ 236,610       48 %   $ 178,637       45 %   $ 57,973  
                                                 
The following provides a discussion of our results on a segment basis:
Well Intervention Segment
Revenue for our well intervention segment was $319.8 million for the three months ended September 30, 2008, as compared to $202.8 million for the same period in 2007. Cost of services decreased to 53% of segment revenue for the three months ended September 30, 2008 from 55% for the same period in 2007. Our increase in revenue and profitability is primarily attributable to an increase in engineering and project management services associated with a large scale decommissioning project. We also saw an increase in our coiled tubing, electric line services and hydraulic workover and snubbing services. Accordingly, our largest geographic revenue growth in this segment came from the Gulf of Mexico, which increased 170% to approximately $196 million for the quarter ended September 30, 2008 over the same period of 2007.
Rental Tools Segment
Revenue for our rental tools segment for the three months ended September 30, 2008 was $136.6 million, a 15% increase over the same period in 2007. Cost of rentals and sales percentage increased slightly to 34% of segment revenue for the three months ended September 30, 2008 from 30% for the same period of 2007. We experienced significant increases in revenue from rentals of our stabilizers and on-site accommodation units. The increases are a result of expansion of rental products through capital expenditures and increased activity in the Gulf of Mexico. Our Gulf of Mexico revenue for the rental tools segment increased 41% to approximately $47 million for the quarter ended September 30, 2008 over the same period of 2007.
Marine Segment
Our marine segment revenue for the three months ended September 30, 2008 increased 29% to $33.9 million over the same period in 2007. Our cost of services percentage increased by 11% for the three months ended September 30, 2008 from the same period in 2007 primarily due to increased liftboat maintenance costs and direct expenses. Due to the high fixed costs associated with this segment, cost of services usually does not fluctuate proportionately with revenue. The fleet’s average utilization increased to approximately 81% for the third quarter of 2008 from 62% in the same period in 2007. The fleet’s average dayrate decreased 17% to approximately $13,700 in the third quarter of 2008 from $16,500 in the third quarter of 2007 in spite of higher operating costs.
Oil and Gas Segment
On March 14, 2008, we sold 75% of our interest in SPN Resources for approximately $168.1 million. SPN Resources represented substantially all of our operating oil and gas segment. Subsequent to March 14, 2008, we have accounted for our remaining interest in SPN Resources using the equity-method within the oil and gas segment. Additionally, we retained preferential rights on certain service work and have a turnkey contract to

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perform well abandonment and decommissioning work associated with oil and gas properties owned and operated by SPN Resources on March 14, 2008.
Depreciation and Amortization
Depreciation and amortization decreased to $44.8 million in the three months ended September 30, 2008 from $49.9 million in the same period in 2007. Depreciation and amortization expense related to our well intervention and rental segments for the three months ended September 30, 2008 increased approximately $10.9 million, or 35%, from the same period in 2007. The increase in depreciation and amortization expense for these segments is primarily attributable to our 2008 and 2007 capital expenditures. Depreciation expense related to the marine segment for the three months ended September 30, 2008 increased approximately $0.9 million, or 45%, from the same period in 2007. The increase in depreciation expense for the marine segment is primarily attributable to increased utilization and the delivery of two new vessels. Due to the fact that we sold 75% of our interest in SPN Resources on March 14, 2008 and subsequently accounted for our remaining interest using the equity-method within the oil and gas segment, we did not record any depreciation, depletion and accretion for our oil and gas segment for the three months ended September 30, 2008.
General and Administrative Expenses
General and administrative expenses increased to $68.4 million for the three months ended September 30, 2008 from $57.2 million for the same period in 2007. General and administrative expense related to our well intervention and rental segments for the three months ended September 30, 2008 increased $13.0 million, or 25%, from the same period in 2007. The increase in general and administrative expense is primarily related to increased expenses associated with our geographic expansion, acquisitions, increased bonus and compensation expenses due to our improved performance and additional infrastructure to enhance our growth. General and administrative expenses remained constant at 14% of revenue for the three months ended September 30, 2008 compared to the same period in 2007.
Comparison of the Results of Operations for the Nine Months Ended September 30, 2008 and 2007
For the nine months ended September 30, 2008, our revenues were $1,389.3 million, resulting in net income of $275.9 million, or $3.36 diluted earnings per share. The results included a pre-tax gain of $40.9 million from the sale of businesses. For the nine months ended September 30, 2007, revenues were $1,158.6 million and net income was $209.2 million, or $2.53 diluted earnings per share. The results included a pre-tax gain of $7.5 million from the sale of a non-core rental tool business. Revenue was higher in the well intervention and rental tools segments as a result of increased production-related activity and drilling activities worldwide, recent acquisitions, work related to a large-scale decommissioning project, and continued expansion of our rental tool business. Revenue decreased significantly in our marine segment due to lower utilization as a result of market conditions resulting in less work in the Gulf of Mexico. Revenues and cost of sales in our oil and gas segment were significantly lower as we sold 75% of our interest in SPN Resources on March 14, 2008.

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The following table compares our operating results for the nine months ended September 30, 2008 and 2007 (in thousands). Cost of services, rentals and sales excludes depreciation, depletion, amortization and accretion for each of our four business segments. Oil and gas eliminations represent products and services provided to the oil and gas segment by our three other segments.
                                                                 
    Revenue   Cost of Services, Rentals and Sales
    2008   2007   Change   2008   %   2007   %   Change
         
Well Intervention
  $ 850,804     $ 570,280     $ 280,524     $ 462,783       54 %   $ 316,730       56 %   $ 146,053  
Rental Tools
    401,700       358,834       42,866       131,857       33 %     109,676       31 %     22,181  
Marine
    82,964       97,351       (14,387 )     56,411       68 %     43,432       45 %     12,979  
Oil and Gas
    55,072       136,889       (81,817 )     12,986       24 %     55,845       41 %     (42,859 )
Less: Oil and Gas Elim.
    (1,212 )     (4,753 )     3,541       (1,212 )           (4,753 )           3,541  
 
                                       
Total
  $ 1,389,328     $ 1,158,601     $ 230,727     $ 662,825       48 %   $ 520,930       45 %   $ 141,895  
                                           
The following provides a discussion of our results on a segment basis:
Well Intervention Segment
Revenue for our well intervention segment was $850.8 million for the nine months ended September 30, 2008, as compared to $570.3 million for the same period in 2007. The cost of services and sales percentage decreased to 54% for the nine months ended September 30, 2008 from 56% for the same period of 2007. Our increase in revenue and profitability is primarily attributable to an increase in engineering and project management services associated with a large-scale decommissioning project. We also saw an increase in our coiled tubing services, electric line services and hydraulic workover and snubbing services. Our Gulf of Mexico revenue for the well intervention segment increased 103% to approximately $476 million for the nine months ended September 30, 2008 over the same period of 2007.
Rental Tools Segment
Revenue for our rental tools segment for the nine months ended September 30, 2008 was $401.7 million, a 12% increase over the same period in 2007. Cost of rentals and sales percentage increased slightly to 33% for the nine months ended September 30, 2008 from 31% for the same period of 2007. We experienced significant increases in revenue from our stabilizers and on-site accommodations. The increases are a result of expansion of rental products through capital expenditures and increased activity worldwide. Our largest geographic revenue improvements were in the Gulf of Mexico where revenue increased 24% to approximately $142 million for the nine months ended September 30, 2008 over the same period of 2007.
Marine Segment
Our marine segment revenue for the nine months ended September 30, 2008 decreased 15% over the same period in 2007 to $83.0 million. Conversely, cost of services increased by 30% for the nine months ended September 30, 2008 from the same period in 2007 due to lower utilization, increased liftboat maintenance costs and higher direct costs. The increase in maintenance cost is partially due to the fact that we use periods of lower utilization as an opportunity to perform required maintenance to our liftboat fleet. Additionally, cost of services usually does not fluctuate proportionately with revenue due to the high fixed costs associated with this segment. The fleet’s average utilization decreased to approximately 63% for the first nine months of 2008 from 71% in the same period in 2007. The fleet’s average dayrate decreased 15% to approximately $15,100 for the first nine months of 2008 from $17,700 in the same period of 2007 in spite of higher operating costs.
Oil and Gas Segment
During the nine months ended September 30, 2008, we sold 75% of our interest in SPN Resources for approximately $168.1 million and recorded a pre-tax gain on sale of this business of approximately $37.1 million. SPN Resources represented substantially all of our operating oil and gas segment. Subsequent to the sale of our interest on March 14, 2008, we have accounted for our remaining interest in SPN Resources using the equity-

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method within the oil and gas segment. Additionally, we retained preferential rights on certain service work and have a turnkey contract to perform well abandonment and decommissioning work associated with oil and gas properties owned and operated by SPN Resources on March 14, 2008.
Oil and gas revenues were $55.1 million in the two and one-half months ended March 14, 2008, as compared to $136.9 million for the nine months ended September 30, 2007. For the two and one-half months ended March 14, 2008, production was approximately 793,000 boe, as compared to approximately 2,480,000 boe for the nine months ended September 30, 2007. Cost of sales percentage decreased significantly to 24% for the two and one-half months ended March 14, 2008 from 41% for nine months ended September 30, 2007 due to an increase in commodity prices coupled with higher production.
Depreciation, Depletion, Amortization and Accretion
Depreciation, depletion, amortization and accretion decreased slightly to $128.7 million for the nine months ended September 30, 2008 as compared to $134.0 million in the same period in 2007. Depreciation and amortization expense related to our well intervention and rental segments for the nine months ended September 30, 2008 increased $34.0 million, or 40%, from the same period in 2007. The increase in depreciation and amortization expense for these segments is primarily attributable to our 2008 and 2007 capital expenditures. Depreciation expense related to the marine segment for the nine months ended September 30, 2008 increased approximately $1.0 million, or 15%, from the same period in 2007. The increase in depreciation expense for the marine segment is primarily attributable to the delivery of two new vessels. Depreciation, depletion and accretion for our oil and gas segment decreased $40.2 million, or 93%, in the nine months ended September 30, 2008 as compared to the same period in 2007. As a result of the sale of our 75% interest in SPN Resources on March 14, 2008, we ceased the depreciation, depletion and accretion for this segment when these assets were identified as available for sale in January 2008. Subsequent to the sale, we accounted for our remaining interest using the equity-method within the oil and gas segment.
General and Administrative Expenses
General and administrative expenses increased to $204.4 million for the nine months ended September 30, 2008 from $161.8 million for the same period in 2007. General and administrative expense related to our well intervention and rental segments for the nine months ended September 30, 2008 increased $40.2 million, or 27%, from the same period in 2007. The increase in general and administrative expense is primarily related to increased expenses associated with our geographic expansion, acquisitions, increased bonus and compensation expenses due to our improved performance and additional infrastructure to enhance our growth. General and administrative expenses increased slightly to 15% of revenue for the nine months ended September 30, 2008 from 14% for the same period in 2007.
Liquidity and Capital Resources
The recent and unprecedented disruption in the current credit markets has had a significant adverse impact on a number of financial institutions. At this point in time, our liquidity has not been impacted by the current credit environment. We will continue to closely monitor our liquidity and the overall health of the credit markets. However, we cannot predict with any certainty the impact of any further disruption in the credit environment.
In the nine months ended September 30, 2008, we generated net cash from operating activities of $306.5 million as compared to $385.1 million in the same period of 2007. Our primary liquidity needs are for working capital, capital expenditures, debt service and acquisitions. Our primary sources of liquidity are cash flows from operations and available borrowings under our revolving credit facility. We had cash and cash equivalents of $128.2 million at September 30, 2008 compared to $51.6 million at December 31, 2007.
We made $324.3 million of capital expenditures during the nine months ended September 30, 2008. Approximately $145.9 million was used to expand and maintain our rental tool equipment inventory, approximately $47.6 million was spent on our marine segment and approximately $107.9 million was used to expand and maintain the asset base of our well intervention segment.

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During the nine months ended September 30, 2008, we sold 75% of our interest in SPN Resources for approximately $168.1 million. In connection with the disposition of our controlling interest in SPN Resources, we retained performance guarantees related to SPN Resources’ decommissioning liabilities. Additionally, we retained preferential rights on certain service work and entered into a turnkey contract to perform well abandonment and decommissioning work associated with oil and gas properties owned and operated by SPN Resources at the closing. The turnkey contract covers only routine end of life well abandonment and pipeline and platform decommissioning for properties owned and operated by SPN Resources at the date of closing and has a remaining fixed price of approximately $147.4 million as of September 30, 2008.  The turnkey contract consists of numerous, separate billable jobs estimated to be performed between 2008 and 2022. During the nine months ended September 30, 2008, we received $17.0 million from SPN Resources as a cash distribution.
In connection with the sale of assets of a non-core rental tool business in August 2007 and certain conditions being met during the nine months ended September 30, 2008, we received approximately $6.0 million of additional cash consideration, which resulted in an additional pre-tax gain on sale of business of approximately $3.3 million.
In April 2008, we contracted to purchase a 50% interest in four 265-foot liftboats for approximately $52 million with scheduled delivery dates through 2010. Through September 30, 2008, we have spent approximately $36.2 million for our 50% interest in these liftboats.
We currently believe that we will spend approximately $130 to $140 million of capital expenditures, excluding acquisitions, during the remaining three months of 2008. We believe that our current working capital, cash generated from our operations and availability under our revolving credit facility will provide sufficient funds for our identified capital projects.
For the nine months ended September 30, 2008, we repurchased and retired 1,770,000 shares of our outstanding common stock at an average price of $36.27 per share, or approximately $64.2 million in the aggregate, in connection with our $350 million share repurchase program that will expire on December 31, 2009. In October 2008, we purchased an additional 1,947,000 shares of our outstanding common stock at an average price of $20.33 per share, or approximately $39.6 million in the aggregate.
We have a $250 million bank revolving credit facility. Any amounts outstanding under the revolving credit facility are due on June 14, 2011. At September 30, 2008, we had no borrowings under the bank credit facility, but we had approximately $25.6 million of letters of credit outstanding, which reduces our borrowing capacity under this credit facility. Borrowings under the credit facility bear interest at a LIBOR rate plus margins that depend on our leverage ratio. As of November 3, 2008, we had no borrowings outstanding under this facility. Indebtedness under the credit facility is secured by substantially all of our assets, including the pledge of the stock of our principal subsidiaries. The credit facility contains customary events of default and requires that we satisfy various financial covenants. It also limits our ability to pay dividends or make other distributions, make acquisitions, create liens or incur additional indebtedness.
We have $15.4 million outstanding at September 30, 2008 in U.S. Government guaranteed long-term financing under Title XI of the Merchant Marine Act of 1936, which is administered by the Maritime Administration (MARAD), for two 245-foot class liftboats. This debt bears an interest rate of 6.45% per annum and is payable in equal semi-annual installments of $405,000 on every June 3rd and December 3rd through the maturity date of June 3, 2027. Our obligations are secured by mortgages on the two liftboats. This MARAD financing also requires that we comply with certain covenants and restrictions, including the maintenance of minimum net worth, working capital and debt-to-equity requirements.
We have $300 million of 6 7/8% unsecured senior notes due 2014. The indenture governing the senior notes requires semi-annual interest payments on every June 1st and December 1st through the maturity date of June 1, 2014. The indenture contains certain covenants that, among other things, limit us from incurring additional debt, repurchasing capital stock, paying dividends or making other distributions, incurring liens, selling assets or entering into certain mergers or acquisitions.
We also have $400 million of 1.50% senior exchangeable notes due 2026. The exchangeable notes bear interest at a rate of 1.50% per annum and decrease to 1.25% per annum on December 15, 2011. Interest on the exchangeable

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notes is payable semi-annually in arrears on December 15th and June 15th of each year, beginning June 15, 2007. The exchangeable notes do not contain any restrictive financial covenants.
Under certain circumstances, holders may exchange the notes for shares of our common stock. The initial exchange rate is 21.9414 shares of common stock per $1,000 principal amount of notes. This is equal to an initial exchange price of $45.58 per share. The exchange price represents a 35% premium over the closing share price at the date of issuance. The notes may be exchanged under the following circumstances:
    during any fiscal quarter (and only during such fiscal quarter) commencing after March 31, 2007, if the last reported sale price of our common stock is greater than or equal to 135% of the applicable exchange price of the notes for at least 20 trading days in the period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter;
 
    prior to December 15, 2011, during the five business-day period after any ten consecutive trading-day period (the “measurement period”) in which the trading price of $1,000 principal amount of notes for each trading day in the measurement period was less than 95% of the product of the last reported sale price of our common stock and the exchange rate on such trading day;
 
    if the notes have been called for redemption;
 
    upon the occurrence of specified corporate transactions; or
 
    at any time beginning on September 15, 2026, and ending at the close of business on the second business day immediately preceding the maturity date of December 15, 2026.
In connection with the issuance of the exchangeable notes, we entered into agreements with affiliates of the initial purchasers to purchase call options and sell warrants on our common stock. We may exercise the call options we purchased at any time to acquire approximately 8.8 million shares of our common stock at a strike price of $45.58 per share. The owners of the warrants may exercise the warrants to purchase from us approximately 8.8 million shares of our common stock at a price of $59.42 per share, subject to certain anti-dilution and other customary adjustments. The warrants may be settled in cash, in shares or in a combination of cash and shares, at our option. These transactions may potentially reduce the dilution of our common stock from the exchange of the notes by increasing the effective exchange price to $59.42 per share. Lehman Brothers OTC Derivatives, Inc. (LBOTC) is the counterparty to 50% of our call option and warrant transactions. On or about October 3, 2008, LBOTC filed for bankruptcy protection, which is an event of default under the contracts relating to the call option and warrant transactions. We have not terminated these contracts and continue to carefully monitor the developments affecting LBOTC.  Although we may not retain the benefit of the call option due to LBOTC’s bankruptcy, we do not expect that there will be a material impact, if any, on the financial statements or the results of operations. The call option and warrant transactions described above do not affect the terms of the outstanding exchangeable notes.
The following table summarizes our contractual cash obligations and commercial commitments at September 30, 2008 (amounts in thousands) for our long-term debt (including estimated interest payments), operating leases and contractual obligations. We do not have any other material obligations or commitments.
                                                         
    Remaining                        
    Three                        
    Months                        
Description   2008   2009   2010   2011   2012   2013   Thereafter
 
Long-term debt, including estimated interest payments
  $ 14,214     $ 28,388     $ 28,336     $ 27,783     $ 27,231     $ 27,179     $ 791,168  
Operating leases
    2,792       12,140       8,735       5,610       3,613       1,991       16,941  
Vessel construction
    52,103       14,535       545                          
     
 
                                                       
Total
  $ 69,109     $ 55,063     $ 37,616     $ 33,393     $ 30,844     $ 29,170     $ 808,109  
                 
We have no other off-balance sheet arrangements other than operating leases, performance guarantees related to SPN Resources’ decommissioning liabilities (see note 5 of financial statements), and the potential additional consideration that may be payable as a result of the future operating performances of several acquisitions.

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At September 30, 2008, the maximum additional consideration payable for these acquisitions was approximately $28.8 million. We do not have any other financing arrangements that are required under generally accepted accounting principles to be reflected in our financial statements.
We intend to continue implementing our growth strategy of increasing our scope of services through both internal growth and strategic acquisitions. We expect to continue to make the capital expenditures required to implement our growth strategy in amounts consistent with the amount of cash generated from operating activities, the availability of additional financing and our credit facility. Depending on the size of any future acquisitions, we may require additional equity or debt financing in excess of our current working capital and amounts available under our revolving credit facility.
New Accounting Pronouncements
In May 2008, the Financial Accounting Standards Board issued its Statement of Financial Accounting Standards No. 162 (FAS No. 162), “The Hierarchy of Generally Accepted Accounting Principles.” FAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements. FAS No. 162 will be effective 60 days following the Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.” We do not expect the adoption of FAS No. 162 to have an impact on our results of operations and financial position.
In May 2008, the Financial Accounting Standards Board issued its Staff Position APB No. 14-1 (FSP ABP No. 14-1) “Accounting for Convertible Debt Instruments That May Be Settled Upon Conversion (Including Partial Cash Settlement).” FSP ABP No. 14-1 requires the proceeds from the issuance of exchangeable debt instruments to be allocated between a liability component (issued at a discount) and an equity component. The resulting debt discount will be amortized over the period the convertible debt is expected to be outstanding as additional non-cash interest expense. The provisions of FSP ABP No. 14-1 are effective for fiscal years beginning after December 15, 2008 and will require retrospective application. FSP ABP No. 14-1 will change the accounting treatment for our 1.50% senior exchangeable notes and impact our results of operations due to an increase in non-cash interest expense beginning in 2009 for financial statements covering past and future periods. We are currently evaluating the impact the adoption of FSP ABP No. 14-1 will have on our results of operations and financial position.
In April 2008, the Financial Accounting Standards Board issued its Staff Position No. FAS 142-3 (FSP FAS No. 142-3), “Determination of the Useful Life of Intangible Assets.” FSP FAS No. 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FAS No. 142, “Goodwill and Other Intangible Assets.” The intent of the position is to improve the consistency between the useful life of a recognized intangible asset under FAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under FAS No. 141(R) and other GAAP. FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008. We are currently evaluating the impact, if any, that the adoption of FSP FAS No. 142-3 will have on our results of operations and financial position.
In March 2008, the Financial Accounting Standards Board issued its Statement of Financial Accounting Standards No. 161 (FAS No. 161), “Disclosures about Derivative Instruments and Hedging Activities.” FAS No. 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. FAS No. 161 is effective for fiscal years beginning on or after November 15, 2008. We are currently evaluating the impact, if any, that the adoption of FAS No. 161 will have on our results of operations and financial position.
In December 2007, the Financial Accounting Standards Board issued its Statement of Financial Accounting Standards No. 141(R) (FAS No. 141(R)), “Business Combinations (as amended).” FAS No. 141(R) requires an acquiring entity in a business combination to recognize all assets acquired and liabilities assumed in the transaction and any noncontrolling interest in the acquiree at the acquisition date fair value. Additionally, contingent consideration and contractual contingencies shall be measured at acquisition date fair value. FAS No. 141(R) also requires an acquirer to disclose all of the information users may need to evaluate and understand the nature and financial effect of the business combination. Such information includes, among other things, a description of the

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factors comprising goodwill recognized in the transaction, the acquisition date fair value of the consideration, including contingent consideration, amounts recognized at the acquisition date for each major class of assets acquired and liabilities assumed, transactions not considered to be part of the business combination (i.e., separate transactions), and acquisition-related costs. FAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 (for any acquisitions closed on or after January 1, 2009), and early adoption is not permitted. FAS No. 141(R) will impact the accounting for acquisitions closed on or after January 1, 2009.
In December 2007, the Financial Accounting Standards Board issued its Statement of Financial Accounting Standards No. 160 (FAS No. 160), “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51.” FAS No. 160 amends ARB No. 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. Additionally, this statement requires that consolidated net income include the amounts attributable to both the parent and the noncontrolling interest. FAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. We are currently evaluating the impact that FAS No. 160 will have on our results of operations and financial position.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk
Foreign Currency Exchange Rates
Because we operate in a number of countries throughout the world, we conduct a portion of our business in currencies other than the U.S. dollar. The functional currency for our international operations, other than our operations in the United Kingdom, Germany and the Netherlands, is the U.S. dollar, but a portion of the revenues from our foreign operations is paid in foreign currencies. The effects of foreign currency fluctuations are partly mitigated because local expenses of such foreign operations are also generally denominated in the same currency. We continually monitor the currency exchange risks associated with all contracts not denominated in the U.S. dollar. Any gains or losses associated with such fluctuations have not been material.
We do not hold derivatives for trading purposes or use derivatives with complex features. Assets and liabilities of our subsidiaries in the United Kingdom, Germany and the Netherlands are translated at current exchange rates, while income and expense are translated at average rates for the period. Translation gains and losses are reported as the foreign currency translation component of accumulated other comprehensive income (loss) in stockholders’ equity.
When we believe prudent, we enter into forward foreign exchange contracts to hedge the impact of foreign currency fluctuations. The forward foreign exchange contracts we enter into generally have maturities ranging from one to six months. We do not enter into forward foreign exchange contracts for trading purposes. At September 30, 2008, we had entered into foreign currency forward contracts to hedge exposure to currency fluctuations between the British Sterling Pound and the Euro. These contracts are not designated as hedges, for hedge accounting, and are marked to market each period. Based on the exchange rates as of September 30, 2008, we recorded an immaterial loss to adjust these foreign contracts to their fair market value. The counterparties to the forward contracts are major financial institutions. In the event that the counterparties fail to meet the terms of the forward contract, our exposure is limited to the foreign currency rate differential.
Interest Rate Risk
At September 30, 2008, none of our long-term debt outstanding had variable interest rates, and we had no interest rate risk at that time.
Equity Price Risk
We have $400 million of 1.50% senior exchangeable notes due 2026. The notes are, subject to the occurrence of specified conditions, exchangeable for our common stock initially at an exchange price of $45.58 per share, which would result in an aggregate of approximately 8.8 million shares of common stock being issued upon exchange. We may redeem for cash all or any part of the notes on or after December 15, 2011 for 100% of the principal amount redeemed. The holders may require us to repurchase for cash all or any portion of the notes on December 15, 2011, December 15, 2016 and December 15, 2021 for 100% of the principal amount of notes to be purchased plus any accrued and unpaid interest. The notes do not contain any restrictive financial covenants.
Each $1,000 of principal amount of the notes is initially exchangeable into 21.9414 shares of our common stock, subject to adjustment upon the occurrence of specified events. Holders of the notes may exchange their notes prior to maturity only if (1) the price of our common stock reaches 135% of the applicable exchange rate during certain periods of time specified in the notes; (2) specified corporate transactions occur; (3) the notes have been called for redemption; or (4) the trading price of the notes falls below a certain threshold. In addition, in the event of a fundamental change in our corporate ownership or structure, the holders may require us to repurchase all or any portion of the notes for 100% of the principal amount.
We also have agreements with affiliates of the initial purchasers to purchase call options and sell warrants of our common stock. We may exercise the call options at any time to acquire approximately 8.8 million shares of our common stock at a strike price of $45.58 per share. The owners of the warrants may exercise their warrants to purchase from us approximately 8.8 million shares of our common stock at a price of $59.42 per share, subject to certain anti-dilution and other customary adjustments. The warrants may be settled in cash, in shares or in a

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combination of cash and shares, at our option. Lehman Brothers OTC Derivatives, Inc. (LBOTC) is the counterparty to 50% of our call option and warrant transactions. On or about October 3, 2008, LBOTC filed for bankruptcy protection, which is an event of default under the contracts relating to the call option and warrant transactions. We have not terminated these contracts and continue to carefully monitor the developments affecting LBOTC.  Although we may not retain the benefit of the call option due to LBOTC’s bankruptcy, we do not expect that there will be a material impact, if any, on the financial statements or the results of operations. The call option and warrant transactions described above do not affect the terms of the outstanding exchangeable notes.
For additional discussion of the notes, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” in Part I, Item 2 above.
Commodity Price Risk
Our revenues, profitability and future rate of growth partially depend upon the market prices of oil and natural gas. Lower prices may also reduce the amount of oil and gas that can economically be produced.
Item 4. Controls and Procedures
As of the end of the period covered by this quarterly report on Form 10-Q, our Chief Financial Officer and Chief Executive Officer have concluded, based on their evaluation, that our disclosure controls and procedures (as defined in rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended) are effective for ensuring that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures and is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
There has been no change in our internal control over financial reporting that occurred during the three months ended September 30, 2008, that has materially affected, or is reasonably likely to materially affect our internal controls over financial reporting.

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PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information about our common stock repurchased and retired during the three month period ended September 30, 2008 in connection with our $350 million share repurchase program, announced September 18, 2007, that will expire on December 31, 2009:
                                 
                            Approximate  
                    Total Number of     Dollar Value of  
                    Shares     Shares that May  
    Total Number of             Purchased as     Yet be  
    Shares     Average Price     Part of Publicly     Purchased  
Period   Purchased     Paid per Share     Announced Plan     Under the Plan  
July 1 - 31, 2008
        $           $ 307,400,000  
August 1 - 31, 2008
        $           $ 307,400,000  
September 1 - 30, 2008
    1,520,000     $ 36.45       1,520,000     $ 252,000,000  
 
                           
 
                               
January 1, 2008 through September 30, 2008
    1,770,000     $ 36.27       1,770,000     $ 252,000,000  
 
                       
Item 6. Exhibits
  (a)   The following exhibits are filed with this Form 10-Q:
       
 
3.1
  Certificate of Incorporation of the Company (incorporated herein by reference to the Company’s Quarterly Report on Form 10-QSB for the quarter ended March 31, 1996).
 
     
 
3.2
  Certificate of Amendment to the Company’s Certificate of Incorporation (incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999).
 
     
 
3.3
  Amended and Restated Bylaws of the Company (incorporated herein by reference to Exhibit 3.1 to the Company’s Form 8-K filed on September 12, 2007).
 
     
 
31.1
  Officer’s certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
     
 
31.2
  Officer’s certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
     
 
32.1
  Officer’s certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
     
 
32.2
  Officer’s certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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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.
         
  SUPERIOR ENERGY SERVICES, INC.
 
 
Date: November 7, 2008  By:   /s/ Robert S. Taylor    
    Robert S. Taylor   
    Executive Vice President, Treasurer and
Chief Financial Officer
(Principal Financial and Accounting Officer) 
 

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EXHIBIT INDEX
       
 
Exhibit Number
 
Description
 
3.1
  Certificate of Incorporation of the Company (incorporated herein by reference to the Company’s Quarterly Report on Form 10-QSB for the quarter ended March 31, 1996).
 
     
 
3.2
  Certificate of Amendment to the Company’s Certificate of Incorporation (incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999).
 
     
 
3.3
  Amended and Restated Bylaws of the Company (incorporated herein by reference to Exhibit 3.1 to the Company’s Form 8-K filed on September 12, 2007).
 
     
 
31.1
  Officer’s certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
     
 
31.2
  Officer’s certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
     
 
32.1
  Officer’s certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
     
 
32.2
  Officer’s certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

exv31w1
         
EXHIBIT 31.1
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
          I, Terence E. Hall, Chairman of the Board and Chief Executive Officer of Superior Energy Services, Inc., certify that:
1.   I have reviewed this quarterly report on Form 10-Q of Superior Energy Services, Inc.;
 
2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
  a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
  b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
  c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
  d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
  a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
  b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 7, 2008
         
     
  /s/ Terence E. Hall    
  Terence E. Hall   
  Chairman of the Board and Chief Executive Officer
Superior Energy Services, Inc. 
 

 

exv31w2
         
EXHIBIT 31.2
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
     I, Robert S. Taylor, Executive Vice President, Treasurer and Chief Financial Officer of Superior Energy Services, Inc., certify that:
1.   I have reviewed this quarterly report on Form 10-Q of Superior Energy Services, Inc.;
 
2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
  a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
  b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
  c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
  d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
  a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
  b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 7, 2008
         
     
  /s/ Robert S. Taylor    
  Robert S. Taylor   
  Executive Vice President, Treasurer and Chief Financial Officer
Superior Energy Services, Inc. 
 

 

exv32w1
         
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
SECTION 1350 OF TITLE 18 OF THE U.S. CODE
I, Terence E. Hall, Chairman of the Board and Chief Executive Officer of Superior Energy Services, Inc. (the “Company”), certify, pursuant to Section 1350 of Title 18 of the U.S. Code, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (“Section 906”), that:
1.   the quarterly report on Form 10-Q of the Company for the quarter ended September 30, 2008 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
2.   the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
This certificate is being furnished solely for purposes of Section 906 and is not being filed as part of the Report or as a separate disclosure document.
Date: November 7, 2008
         
     
  /s/ Terence E. Hall    
  Terence E. Hall   
  Chairman of the Board and Chief Executive Officer
Superior Energy Services, Inc. 
 
 
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

exv32w2
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
SECTION 1350 OF TITLE 18 OF THE U.S. CODE
I, Robert S. Taylor, Executive Vice President, Treasurer and Chief Financial Officer of Superior Energy Services, Inc. (the “Company”), certify, pursuant to Section 1350 of Title 18 of the U.S. Code, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (“Section 906”), that:
1.   the quarterly report on Form 10-Q of the Company for the quarterly period ended September 30, 2008 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
2.   the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
This certificate is being furnished solely for purposes of Section 906 and is not being filed as part of the Report or as a separate disclosure document.
Date: November 7, 2008
         
     
  /s/ Robert S. Taylor    
  Robert S. Taylor   
  Executive Vice President, Treasurer and Chief Financial Officer
Superior Energy Services, Inc. 
 
 
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.