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

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		75-2379388
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
601 Poydras, Suite 2400
New Orleans, Louisiana		70130
(Address of principal executive offices)		(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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes 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.

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o

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, 2011 was 79,861,071.

 

 

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Quarterly Report on Form 10-Q for
the Quarterly Period Ended September 30, 2011

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements			3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			29
Item 3. Quantitative and Qualitative Disclosures about Market Risk			36
Item 4. Controls and Procedures			37
PART II. OTHER INFORMATION
Item 6. Exhibits			38
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
September 30, 2011 and December 31, 2010
(in thousands, except share data)

		9/30/2011				12/31/2010
		(Unaudited)				(Audited)
ASSETS
Current assets:
Cash and cash equivalents		$	210,181			$	50,727
Short-term investments			223,592				—
Accounts receivable, net of allowance for doubtful accounts of $ 22,418 and $22,618 at September 30, 2011 and December 31, 2010, respectively			481,921				452,450
Prepaid expenses			35,651				25,828
Inventory and other current assets			220,037				235,047
Total current assets			1,171,382				764,052
Property, plant and equipment, net of accumulated depreciation and depletion of $914,570 and $771,602 at September 30, 2011 and December 31, 2010, respectively			1,440,852				1,313,150
Goodwill			591,715				588,000
Notes receivable			72,406				69,026
Equity-method investments			71,506				59,322
Intangible and other long-term assets, net of accumulated amortization of $28,223 and $22,065 at September 30, 2011 and December 31, 2010, respectively			135,881				113,983
Total assets		$	3,483,742			$	2,907,533
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	118,073			$	110,276
Accrued expenses			198,795				162,044
Income taxes payable			7,087				2,475
Deferred income taxes			12,214				29,353
Current portion of decommissioning liabilities			17,090				16,929
Current maturities of long-term debt			396,433				184,810
Total current liabilities			749,692				505,887
Deferred income taxes			269,802				223,936
Decommissioning liabilities			105,372				100,787
Long-term debt, net			810,337				681,635
Other long-term liabilities			113,348				114,737
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 79,854,301 shares at September 30, 2011 and 78,951,053 shares at December 31, 2010			80				79
Additional paid in capital			444,186				415,278
Accumulated other comprehensive loss, net			(23,161	)			(25,700	)
Retained earnings			1,014,086				890,894
Total stockholders’ equity			1,435,191				1,280,551
Total liabilities and stockholders’ equity		$	3,483,742			$	2,907,533

See accompanying notes to consolidated financial statements.

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2011 and 2010
(in thousands, except per share data)
(unaudited)

		Three Months								Nine Months
		2011				2010				2011				2010
Revenues		$	565,342			$	435,353			$	1,490,129			$	1,224,720
Costs and expenses:
Cost of services (exclusive of items shown separately below)			301,065				232,308				806,280				661,276
Depreciation, depletion, amortization and accretion			64,875				56,805				187,552				162,152
General and administrative expenses			95,391				84,912				278,151				248,165
Gain on sale of businesses			—				—				8,558				—
Income from operations			104,011				61,328				226,704				153,127
Other income (expense):
Interest expense, net			(19,115	)			(12,456	)			(47,940	)			(39,174	)
Earnings from equity-method investments, net			8,198				3,030				13,724				9,185
Income before income taxes			93,094				51,902				192,488				123,138
Income taxes			33,514				18,685				69,296				44,330
Net income		$	59,580			$	33,217			$	123,192			$	78,808
Basic earnings per share		$	0.75			$	0.42			$	1.55			$	1.00
Diluted earnings per share		$	0.73			$	0.42			$	1.52			$	0.99
Weighted average common shares used in computing earnings per share:
Basic			79,836				78,797				79,537				78,683
Incremental common shares from stock-based compensation			1,418				925				1,588				890
Diluted			81,254				79,722				81,125				79,573

See accompanying notes to consolidated financial statements.

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2011 and 2010
(in thousands)
(unaudited)

		2011				2010
Cash flows from operating activities:
Net income		$	123,192			$	78,808
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion, amortization and accretion			187,552				162,152
Deferred income taxes			38,900				1,282
Excess tax benefit from stock-based compensation			(10,262	)			(195	)
Stock-based and performance share unit compensation expense			10,273				18,347
Retirement and deferred compensation plans expense			1,994				5,035
(Earnings)/losses from equity-method investments, net of cash received			(12,187	)			416
Amortization of debt acquisition costs and note discount			19,333				17,857
Gain on sale of businesses			(8,558	)			—
Other reconciling items, net			(4,659	)			(3,743	)
Changes in operating assets and liabilities, net of acquisitions and dispositions:
Accounts receivable			(28,599	)			(131,504	)
Inventory and other current assets			11,415				118,619
Accounts payable			3,064				(1,547	)
Accrued expenses			27,207				21,710
Income taxes			777				36,482
Other, net			2,683				13,031
Net cash provided by operating activities			362,125				336,750
Cash flows from investing activities:
Payments for capital expenditures			(329,229	)			(238,812	)
Purchases of short-term investments, net			(223,491	)			—
Acquisitions of businesses, net of cash acquired			(748	)			(262,048	)
Cash proceeds from sale of businesses			22,349				—
Other, net			(720	)			(6,269	)
Net cash used in investing activities			(531,839	)			(507,129	)
Cash flows from financing activities:
Net (payments)/borrowings on revolving credit facility			(175,000	)			16,500
Proceeds from long-term debt			500,000				—
Principal payments on long-term debt			(405	)			(405	)
Payment of debt acquisition costs			(9,558	)			(5,164	)
Proceeds from exercise of stock options			10,211				396
Excess tax benefit from stock-based compensation			10,262				195
Proceeds from issuance of stock through employee benefit plans			1,702				1,505
Other			(8,453	)			(2,100	)
Net cash provided by financing activities			328,759				10,927
Effect of exchange rate changes on cash			409				328
Net increase (decrease) in cash and cash equivalents			159,454				(159,124	)
Cash and cash equivalents at beginning of period			50,727				206,505
Cash and cash equivalents at end of period		$	210,181			$	47,381

See accompanying notes to consolidated financial statements.

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
Nine Months Ended September 30, 2011

(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 notes 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, 2010 and Management’s Discussion and Analysis of Financial Condition and Results of Operations herein.

The financial information of Superior Energy Services, Inc. and subsidiaries (the Company) for the three and nine months ended September 30, 2011 and 2010 has not been audited. However, in the opinion of management, all 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 2011 presentation.

(2) Acquisitions

In September 2011, the Company acquired 100% equity interest in a pressure pumping company based in Brazil in order to expand the breadth of services offered in Brazil. The Company paid approximately $0.5 million at closing, with an additional $5.8 million payable after the settlement of certain liabilities and administrative formalities. Identifiable intangible assets include goodwill of $3.6 million, all of which was assigned to the Company’s subsea and well enhancement segment.

In August 2010, the Company acquired certain assets (operating as Superior Completion Services) from subsidiaries of Baker Hughes Incorporated (Baker Hughes) for approximately $54.3 million. The assets purchased were used in Baker Hughes’ Gulf of Mexico stimulation and sand control business.

In January 2010, the Company acquired 100% of the equity interest of Hallin Marine Subsea International Plc (Hallin) for approximately $162.3 million. Additionally, the Company repaid approximately $55.5 million of Hallin’s debt. Hallin is an international provider of integrated subsea services and engineering solutions, focused on installing, maintaining and extending the life of subsea wells. Hallin operates in international offshore oil and gas markets with offices and facilities located in Singapore, Indonesia, Australia, Scotland and the United States. Hallin is the lessee of a dynamically positioned subsea vessel under a capital lease expiring in 2019 with a 2 year renewal option. Hallin owns a 5% equity interest in the lessor of this vessel. The lessor’s debt related to this vessel is non-recourse to the Company. The asset and liability under this capital lease are recorded at the present value of the lease payments. Included in other long-term liabilities at September 30, 2011 and December 31, 2010 is $30.4 million and $33.0 million, respectively, related to the obligations under this capital lease.

In January 2010, Wild Well Control, Inc. (Wild Well), a wholly-owned subsidiary of the Company, acquired 100% ownership of Shell Offshore, Inc.’s Gulf of Mexico Bullwinkle platform and its related assets, including 29 wells, and assumed the decommissioning obligation for such assets. Immediately after Wild Well acquired these assets, it conveyed an undivided 49% interest in these assets and the related well plugging and abandonment obligations to Dynamic Offshore Resources, LLC (DOR), a wholly-owned subsidiary of Dynamic Offshore Holding, LP (DOH), which operates these assets. Additionally, DOR will pay Wild Well to extinguish its 49% portion of the well plugging and abandonment obligation (see note 3).

The Company has no off-balance sheet financing arrangements other than potential additional consideration that may be payable as a result of the future operating performance of certain acquired businesses. At September 30, 2011, the maximum additional consideration payable was approximately $4.0 million and will be determined and payable through 2012. Since these acquisitions occurred before the Company adopted the revised authoritative guidance for business combinations, these amounts are not classified as liabilities and are not reflected in the

Company’s condensed consolidated financial statements until the amounts are fixed and determinable. When these amounts are determined, they will be capitalized as part of the purchase price of the related acquisition.

(3) Long-Term Contracts

In 2010, Wild Well acquired 100% ownership of Shell Offshore, Inc.’s Gulf of Mexico Bullwinkle platform and its related assets, and assumed the related decommissioning obligations. In connection with the subsequent conveyance to DOR of an undivided 49% interest in these assets and the related well plugging and abandonment obligation, DOR will pay Wild Well to extinguish its portion of the well plugging and abandonment obligation, limited to the fair value of the obligation at the time of acquisition. As part of the asset purchase agreement with Shell Offshore, Inc., Wild Well was required to obtain a $50.0 million performance bond, as well as fund $50.0 million into an escrow account. Included in intangible and other long-term assets, net is escrowed cash of $50.2 million and $33.0 million at September 30, 2011 and December 31, 2010, respectively. Included in other long-term liabilities is deferred revenue of $24.6 million and $16.2 million at September 30, 2011 and December 31, 2010, respectively (see note 2).

The Company has a contract to perform well abandonment and decommissioning work associated with oil and gas properties owned and operated by SPN Resources, LLC (SPN Resources). This contract consists of numerous, separate billable jobs estimated to be performed through 2022. In March 2011, the Company contributed its equity interest in SPN Resources and DBH, LLC (DBH) in exchange for a 10% limited partnership interest in DOH (see note 7) and modified the terms of this contract.

In December 2007, Wild Well entered into contractual arrangements pursuant to which it decommissioned 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. As of September 30, 2011, all work was complete, pending certain regulatory approvals. The revenue related to the contract for decommissioning these downed platforms and well facilities was recorded on the percentage-of-completion method utilizing costs incurred as a percentage of total estimated costs. At September 30, 2011 and December 31, 2010, there were $129.7 million and $144.5 million of costs and estimated earnings in excess of billings related to this contract included in other current assets.

(4) Stock-Based Compensation and Retirement Plans

The Company maintains various stock incentive plans that provide long-term incentives to the Company’s key employees, including officers, directors, consultants and advisors (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. In connection with the transition of executive management in the nine months ended September 30, 2010, the Company issued approximately 1,019,000 non-qualified stock options, approximately 177,000 shares of restricted stock and approximately 30,000 performance share units. Additionally, vesting of certain grants was accelerated to coincide with the terms of the change in executive management.

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, 2011 and 2010 was approximately $2.5 million and $4.7 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. The Company’s compensation expense related to restricted stock for the nine months ended September 30, 2011 and 2010 was approximately $4.3 million and $5.8 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. An 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, 2011 and 2010 was approximately $0.9 million and $1.0 million, respectively, which is reflected in general and administrative expenses.

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. 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.” If the participant has met specified continued service requirements, the PSUs will settle in cash or a combination of cash and up to 50% of equivalent value in the Company’s common stock, at the discretion of the compensation committee. The Company’s compensation expense related to all outstanding PSUs for the nine months ended September 30, 2011 and 2010 was approximately $2.3 million and $6.6 million, respectively, which is reflected in general and administrative expenses. The Company has recorded a current liability of approximately $3.3 million and $6.0 million at September 30, 2011 and December 31, 2010, respectively, for outstanding PSUs, which is reflected in accrued expenses. Additionally, the Company has recorded a long-term liability of approximately $6.4 million and $7.0 million at September 30, 2011 and December 31, 2010, respectively, for outstanding PSUs, which is reflected in other long-term liabilities. During the nine month period ended September 30, 2011, the Company paid approximately $2.8 million and issued approximately 67,300 shares of its common stock to settle PSUs for the performance period ended December 31, 2010. During the nine month period ended September 30, 2010, the Company paid approximately $6.4 million to its employees to settle PSUs for the performance period ending December 31, 2009.

Employee Stock Purchase Plans

The Company has 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 approximately $1.7 million and $1.5 million, and issued approximately 57,000 shares and 80,000 shares under these plans for the nine month periods ended September 30, 2011 and 2010, respectively. The Company’s compensation expense related to employee stock purchase plans for the nine months ended September 30, 2011 and 2010 was approximately $0.4 million and $0.3 million, respectively, which is reflected in general and administrative expenses.

Deferred Compensation Plans

The Company has a non-qualified deferred compensation plan which allows certain highly compensated employees to defer up to 75% of their base salary, up to 100% of their bonus, and up to 100% of the cash portion of their PSU compensation to the plan. The Company also has a non-qualified deferred compensation plan for its non-employee directors which allows each director to defer up to 100% of their cash compensation paid by the Company to the plan. Additionally, participating directors may defer up to 100% of the shares of common stock they are entitled to receive in connection with the payout of RSUs. Under each plan, payments are made to participants based on their annual enrollment elections and plan balance. Participants earn a return on their deferred compensation that is based on hypothetical investments in certain mutual funds. Changes in market value of these hypothetical participant investments are reflected as an adjustment to the deferred compensation liability of the Company with an offset to compensation expense (see note 16).

Supplemental Executive Retirement Plan

The Company has a supplemental executive retirement plan (SERP). The SERP provides retirement benefits to the Company’s executive officers and certain other designated key employees. The SERP is an unfunded, non-qualified defined contribution retirement plan, and all contributions under the plan are unfunded credits to a notional account maintained for each participant. Under the SERP, the Company will generally make annual contributions to a retirement account based on age and years of service. The Company may also make discretionary contributions to a participant’s account. The Company recorded compensation expense of approximately $1.4 million for the nine month period ended September 30, 2011. The Company recorded compensation expense of approximately $5.4 million, inclusive of a discretionary contribution to the account of its chief operating officer in the amount of $4.7 million as part of its executive management transition, for the nine month period ended September 30, 2010. This compensation expense is recorded in general and administrative expenses in each of the respective periods.

(5) Short-Term Investments

The Company’s short-term investments totaling $223.6 million consist of U.S. treasury bills and notes that are issued by the U.S. government, all of which are accounted for as trading securities. The Company’s short-term investment amount represents a portion of the net proceeds from the Company’s April 2011 senior note issuance after repaying all of its revolving credit facility borrowings. Trading securities are recorded at fair value with the unrealized holding gains and losses included in net income. Included in interest expense, net is $0.1 million of income for the nine months ended September 30, 2011 related to these short-term investments. The Company intends to use these funds, together with $117.5 million of cash and cash equivalents that was available at September 30, 2011 to partially fund the redemption of the $400 million aggregate principal amount of the 1.50% senior exchangeable notes due 2026. The remainder will be funded by borrowings under the revolving credit facility. The 1.50% senior exchangeable notes become subject to redemption on December 15, 2011 at a redemption price of 100% of the principal amount of the notes outstanding (see note 8). On October 17, 2011, the Company issued notice to the holders of the senior exchangeable notes that it will redeem all of the senior exchangeable notes on December 15, 2011.

(6) Inventory and Other Current Assets

Inventory and other current assets includes approximately $70.8 million and $70.0 million of inventory at September 30, 2011 and December 31, 2010, respectively. Our inventory balance at September 30, 2011 consisted of approximately $30.3 million of finished goods, $1.2 million of work-in-process, $3.9 million of raw materials and $35.4 million of supplies and consumables. Our inventory balance at December 31, 2010 consisted of approximately $31.4 million of finished goods, $1.4 million of work-in-process, $2.2 million of raw materials and $35.0 million of supplies and consumables. Inventories are stated at the lower of cost or market. Cost is determined on an average cost basis for finished goods and work-in-process. Supplies and consumables consist principally of products used in our services provided to customers.

Additionally, inventory and other current assets include approximately $133.8 million and $146.9 million of costs incurred and estimated earnings in excess of billings on uncompleted contracts at September 30, 2011 and December 31, 2010, respectively. The Company follows the percentage-of-completion method of accounting for applicable contracts. Accordingly, income is recognized in the ratio that costs incurred bears to estimated total costs.

Adjustments to cost estimates are made periodically, and losses expected to be incurred on contracts in progress are charged to operations in the period such losses are determined.

(7) 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 from equity-method investments on its condensed consolidated statements of operations.

In March 2011, the Company contributed all of its equity interests in SPN Resources and DBH to DOH, the majority owner of both SPN Resources and DBH, in exchange for a 10% limited partnership interest in DOH. Following these contributions, DOH owns all the equity interests of SPN Resources and DBH. Prior to these contributions, the Company accounted for its equity interests in SPN Resources and DBH as separate equity-method investments. The Company’s equity interest in DOH is accounted for as an equity-method investment with a balance of approximately $69.7 million at September 30, 2011. The Company recorded income from its equity-method investment in DOH of approximately $12.4 million for the seven months ended September 30, 2011 following the contributions. Additionally, the Company received approximately $1.2 million of cash distributions from its equity-method investment in DOH for the seven month period ended September 30, 2011. The Company, where possible and at competitive rates, provides its products and services to assist DOH in producing and developing its oil and gas properties. The Company had a receivable from DOH of approximately $11.4 million at September 30, 2011. The Company also recorded revenue from DOH of approximately $31.4 million for the seven months ended September 30, 2011 following the contributions. Additionally, the Company has a receivable from DOR of approximately $5.3 million as of September 30, 2011 related to its share of oil and natural gas commodity sales and production handling arrangement fees.

The Company’s equity-method investment balance in SPN Resources was approximately $43.6 million at December 31, 2010. The Company recorded earnings from its equity-method investment in SPN Resources of approximately $0.2 million for the two months ended February 28, 2011 prior to the contributions and approximately $3.9 million for the nine months ended September 30, 2010. Additionally, the Company received approximately $8.4 million of cash distributions from its equity-method investment in SPN Resources for the nine month period ended September 30, 2010. The Company, where possible and at competitive rates, provides its products and services to assist SPN Resources in producing and developing its oil and gas properties. The Company had a receivable from SPN Resources of approximately $3.2 million at December 31, 2010. The Company also recorded revenue from SPN Resources of approximately $0.3 million for the two months ended February 28, 2011 and approximately $11.1 million for the nine months ended September 30, 2010.

The Company’s equity-method investment balance in DBH was approximately $13.8 million at December 31, 2010. During the two months ended February 28, 2011 prior to its contributions, the Company recorded earnings from its equity-method investment in DBH of approximately $0.9 million. During the nine months ended September 30, 2010, the Company recorded earnings from its equity-method investment in DBH of approximately $5.1 million. The Company, where possible and at competitive rates, provides its products and services to assist DBH in producing and developing its oil and gas properties. The Company had a receivable from DBH of approximately $1.4 million at December 31, 2010. The Company also recorded revenue from DBH of approximately $0.9 million for the two months ended February 28, 2011 and approximately $2.5 million for the nine months ended September 30, 2010.

(8) Debt

The Company has a $400 million revolving credit facility, with the right, at the Company’s option and subject to certain conditions, to increase the borrowing capacity of the facility to $550 million. Any amounts outstanding under the revolving credit facility are due on July 20, 2014. At September 30, 2011, the Company had no amounts outstanding under the revolving credit facility, but had letters of credit outstanding of approximately $9.4 million, which reduce the Company’s borrowing availability under the revolving credit facility. Amounts borrowed under the revolving credit facility bear interest at LIBOR plus margins that depend on the Company’s leverage ratio. Indebtedness under the revolving credit facility is secured by substantially all of the Company’s assets, including the pledge of the stock of the Company’s principal domestic subsidiaries. The revolving 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, 2011, the Company was in compliance with all such covenants.

At September 30, 2011, the Company had outstanding $13.0 million 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, 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 September 3^rd and December 3^rd of each year through the maturity date of September 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, 2011, the Company was in compliance with all such covenants.

The Company also has outstanding $300 million of 6 7/8% unsecured senior notes due 2014. The indenture governing the 6 7/8% senior notes requires semi-annual interest payments on September 1^st and December 1^st of each year through the maturity date of September 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, 2011, the Company was in compliance with all such covenants.

In March 2010, the Company entered into an interest rate swap agreement for a notional amount of $150 million, whereby the Company is entitled to receive semi-annual interest payments at a fixed rate of 6 7/8% per annum and is obligated to make quarterly interest payments at a variable rate. The variable interest rate, which is adjusted every 90 days, is based on LIBOR plus a fixed margin (see note 17).

The Company has outstanding $400 million of 1.50% unsecured senior exchangeable notes due 2026. Effective January 1, 2009, the Company retrospectively adopted authoritative guidance related to debt with conversion and other options, which requires the proceeds from the issuance of the 1.50% unsecured senior exchangeable notes to be allocated between a liability (issued at a discount) and an equity component. The resulting debt discount is amortized over the period the exchangeable debt is expected to be outstanding as additional non-cash interest expense. The Company used an effective interest rate of 6.89% and will amortize this debt discount through December 12, 2011. The Company has recorded an unamortized discount of $4.4 million and $19.7 million at September 30, 2011 and December 31, 2010, respectively, related to these senior exchangeable notes. The senior 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 senior exchangeable notes is payable semi-annually on December 15^th and September 15^th of each year through the maturity date of December 15, 2026. The senior 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 the date of issuance. The notes may be exchanged under the following circumstances:

•

during any fiscal quarter (and only during such fiscal quarter), 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 third business day immediately preceding the maturity date of December 15, 2026.

Holders of the senior exchangeable notes may also require the Company to purchase all or a portion of their notes on December 15, 2011, December 15, 2016 and December 15, 2021 subject to certain administrative formalities. Conversely, on or after December 15, 2011 the Company may redeem at any time all or part of the notes. In each case, the purchase price payable will be equal to 100% of the principal amount of the notes to be purchased plus any accrued and unpaid interest with all amounts payable in cash.

In connection with the senior 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 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, at the Company’s option, in cash, in common stock or in a combination of cash and common stock. Lehman Brothers OTC Derivatives, Inc. (LBOTC) is the counterparty to 50% of the Company’s call option and warrant transactions. In October 2008, LBOTC filed for bankruptcy protection. The Company 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 results of operations. The call option and warrant transactions described above do not affect the terms of the outstanding exchangeable notes.

On October 17, 2011, the Company issued notice to the holders of the 1.50% senior exchangeable notes that it will redeem all of such notes on December 15, 2011 for 100% of the principal amount plus any accrued and unpaid interest. The Company intends to use its short-term investments totaling $223.6 million, together with cash on hand and borrowings under the revolving credit facility to fund the redemption of all of the outstanding senior exchangeable notes (see note 5).

As the holders of the Company’s 1.50% senior exchangeable notes have the ability to require the Company to purchase all of the notes on December 15, 2011, the entire amount of these notes would have been deemed to be a current liability at December 31, 2010. However, in accordance with accounting guidance related to classification of short-term debt that is to be refinanced, the Company utilized the amount available to it under its revolving credit facility as of December 31, 2010 of approximately $216.0 million to classify this portion as long-term under the assumption that the revolving credit facility could be used to refinance that portion of the debt. Following completion of the 6 3/8% senior note offering in April 2011, the Company classified the $400 million senior exchangeable notes as current debt at September 30, 2011.

In April 2011, the Company issued $500 million of 6 3/8% unsecured senior notes due 2019. Costs associated with the issuance of these notes were approximately $9.6 million and were capitalized and will be amortized over the term of the 6 3/8% senior notes. The Company used the net proceeds to pay down all of its outstanding borrowings under its revolving credit facility and invested a portion of the remaining proceeds in U.S. treasury bills and notes that are issued by the U.S. government. The indenture governing the 6 3/8% senior notes requires semi-annual interest payments on May 1^st and November 1^st of each year through the maturity date of May 1, 2019. 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, 2011, the Company was in compliance with all such covenants.

(9) 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 and restricted stock units and the potential shares that would have a dilutive effect on earnings per share.

Stock options for approximately 470,000 and 2,130,000 shares for the three months ended September 30, 2011 and 2010, respectively, and approximately 190,000 and 1,610,000 shares for the nine months ended September 30, 2011 and 2010, respectively, were excluded in the computation of diluted earnings per share as the effect would have been anti-dilutive.

In connection with the Company’s outstanding 1.50% unsecured senior exchangeable notes, there could be a dilutive effect on earnings per share if the price of the Company’s stock exceeds the initial exchange price of $45.58 per share for a specified period of time. In the event the Company’s common stock exceeds $45.58 per share for a specified period of time, the first $1.00 the price exceeds $45.58 would cause a dilutive effect of approximately 188,400 shares. The impact on the calculation of earnings per share varies depending on when during the quarter the $45.58 per share price is reached.

(10) Other Comprehensive Loss

The following table reconciles the change in accumulated other comprehensive loss for the three and nine months ended September 30, 2011 and 2010 (in thousands):

		Three Months Ended
		September 30,
		2011				2010
Accumulated other comprehensive loss, June 30, 2011 and 2010, respectively		$	(17,134	)		$	(31,464	)
Other comprehensive income (loss):
Foreign currency translation adjustment			(6,027	)			10,343
Accumulated other comprehensive loss, September 30, 2011 and 2010, respectively		$	(23,161	)		$	(21,121	)

		Nine Months Ended
		September 30,
		2011				2010
Accumulated other comprehensive loss, December 31, 2010 and 2009, respectively		$	(25,700	)		$	(18,996
Other comprehensive income (loss):
Foreign currency translation adjustment			2,539				(2,125	)
Accumulated other comprehensive loss, September 30, 2011 and 2010, respectively		$	(23,161	)		$	(21,121	)

(11) Decommissioning Liabilities

In connection with the acquisition of the Bullwinkle platform and its related assets, the Company records estimated future decommissioning liabilities in accordance with the authoritative guidance related to asset retirement obligations (decommissioning liabilities), which requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred, with a corresponding increase in the carrying amount of the related long-lived asset. Subsequent to initial measurement, the decommissioning liability is required to be accreted each period to present value. The Company’s decommissioning liabilities associated with the Bullwinkle platform and its related assets consist of costs related to the plugging of wells, the removal of the related facilities and equipment, and site restoration.

Whenever practical, the Company utilizes its own equipment and labor services to perform well abandonment and decommissioning work. When the Company performs these services, all recorded intercompany revenues and related costs of services are eliminated in the consolidated financial statements. The recorded decommissioning liability associated with a specific property is fully extinguished when the property is abandoned. The recorded liability is first reduced by all cash expenses incurred to abandon and decommission the property. If the recorded liability exceeds (or is less than) the Company’s total costs, then the difference is reported as income (or loss) within revenue during the period in which the work is performed. The Company reviews the adequacy of its decommissioning liabilities whenever indicators suggest that the estimated cash flows needed to satisfy the liability

have changed materially. The timing and amounts of these expenditures are estimates, and changes to these estimates may result in additional (or decreased) liabilities recorded, which in turn would increase (or decrease) the carrying values of the related assets. The Company reviews its estimates for the timing of these expenditures on a quarterly basis.

The following table summarizes the activity for the Company’s decommissioning liabilities for the nine month periods ended September 30, 2011 and 2010 (in thousands):

		Nine Months Ended
		September 30,
		2011				2010
Decommissioning liabilities, December 31, 2010 and 2009, respectively		$	117,716			$	—
Liabilities acquired and incurred			—				136,559
Accretion			5,038				5,361
Revision in estimated liabilities			(292	)			—
Total decommissioning liabilities, September 30, 2011 and 2010, respectively			122,462				141,920
Less: current portion of decommissioning liabilities at September 30, 2011 and 2010, respectively			17,090				25,804
Long-term decommissioning liabilities, September 30, 2011 and 2010, respectively		$	105,372			$	116,116

(12) Notes Receivable

Notes receivable consists of a commitment from the seller of certain assets to pay the Company upon the decommissioning of the Bullwinkle platform. These notes are recorded at present value, and the related discount is amortized to interest income based on the expected timing of the platform’s removal. The Company recorded interest income of approximately $3.4 million and $3.5 million for the nine months ended September 30, 2011 and 2010, respectively.

(13) Gain on Sale of Businesses

During the nine month period ended September 30, 2011, the Company sold seven liftboats for approximately $22.3 million, net of commissions. Five of the liftboats sold were from the 145 to 155-foot class fleet, one was from the 160-foot class fleet and one was from the 200-foot class fleet. As a result of the sale of these liftboats, the Company recorded a pre-tax gain of approximately $8.6 million for the nine month period ended September 30, 2011.

(14) Segment Information

Business Segments

The Company has three reportable segments: subsea and well enhancement, drilling products and services, and marine. The subsea and well enhancement segment provides production-related services used to enhance, extend and maintain oil and gas production, which include integrated subsea services and engineering solutions, 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; stimulation and sand control equipment and services; and other oilfield services used to support drilling and production operations. The subsea and well enhancement segment also includes production handling arrangements, as well as the production and sale of oil and gas. The drilling products and services 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 on-site 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.

Summarized financial information for the Company’s segments for the three and nine months ended September 30, 2011 and 2010 is shown in the following tables (in thousands):

Three Months Ended September 30, 2011

		Subsea and				Drilling
		Well				Products and												Consolidated
		Enhancement				Services				Marine				Unallocated				Total
Revenues		$	377,559			$	163,456			$	24,327			$	—			$	565,342
Cost of services
(exclusive of items shown separately below)			228,241				58,538				14,286				—				301,065
Depreciation, depletion, amortization and accretion			28,976				33,213				2,686				—				64,875
General and administrative expenses			64,812				28,676				1,903				—				95,391
Income from operations			55,530				43,029				5,452				—				104,011
Interest income (expense), net			1,248				—				—				(20,363	)			(19,115	)
Earnings from equity-method investments, net			—				—				—				8,198				8,198
Income (loss) before income taxes		$	56,778			$	43,029			$	5,452			$	(12,165	)		$	93,094

Three Months Ended September 30, 2010

		Subsea and				Drilling
		Well				Products and												Consolidated
		Enhancement				Services				Marine				Unallocated				Total
Revenues		$	289,048			$	118,727			$	27,578			$	—			$	435,353
Cost of services																			—
(exclusive of items shown separately below)			170,817				46,068				15,423				—				232,308
Depreciation, depletion, amortization and accretion			25,162				28,846				2,797				—				56,805
General and administrative expenses			53,043				28,394				3,475				—				84,912
Income from operations			40,026				15,419				5,883				—				61,328
Interest income (expense), net			1,343				—				—				(13,799	)			(12,456	)
Earnings from equity-method investments, net			—				—				—				3,030				3,030
Income (loss) before income taxes		$	41,369			$	15,419			$	5,883			$	(10,769	)		$	51,902

Nine Months Ended September 30, 2011

		Subsea and				Drilling
		Well				Products and												Consolidated
		Enhancement				Services				Marine				Unallocated				Total
Revenues		$	975,641			$	440,893			$	73,595			$	—			$	1,490,129
Cost of services
(exclusive of items shown separately below)			593,216				161,862				51,202				—				806,280
Depreciation, depletion, amortization and accretion			82,773				96,220				8,559				—				187,552
General and administrative expenses			182,279				88,416				7,456				—				278,151
Gain on sale of businesses			—				—				8,558				—				8,558
Income from operations			117,373				94,395				14,936				—				226,704
Interest income (expense), net			3,483				—				—				(51,423	)			(47,940	)
Earnings from equity-method investments, net			—				—				—				13,724				13,724
Income (loss) before income taxes		$	120,856			$	94,395			$	14,936			$	(37,699	)		$	192,488

Nine Months Ended September 30, 2010

		Subsea and				Drilling
		Well				Products and												Consolidated
		Enhancement				Services				Marine				Unallocated				Total
Revenues		$	806,166			$	354,341			$	64,213			$	—			$	1,224,720
Cost of services
(exclusive of items shown separately below)			481,561				129,922				49,793				—				661,276
Depreciation, depletion, amortization and accretion			69,254				85,135				7,763				—				162,152
General and administrative expenses			158,746				79,584				9,835				—				248,165
Income (loss) from operations			96,605				59,700				(3,178	)			—				153,127
Interest income (expense), net			3,500				—				—				(42,674	)			(39,174	)
Earnings from equity-method investments, net			—				—				—				9,185				9,185
Income (loss) before income taxes		$	100,105			$	59,700			$	(3,178	)		$	(33,489	)		$	123,138

     Identifiable Assets

		Subsea and				Drilling
		Well				Products and												Consolidated
		Enhancement				Services				Marine				Unallocated				Total
September 30, 2011		$	2,095,664			$	1,041,475			$	249,532			$	97,071			$	3,483,742
December 31, 2010		$	1,769,813			$	802,785			$	255,883			$	79,052			$	2,907,533

Geographic Segments

The Company attributes revenue to various countries based on the location where services are performed or the destination of the drilling products or equipment sold or leased. Long-lived assets consist primarily of property, plant and equipment and are attributed to various 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,
		2011				2010				2011				2010
United States		$	422,045			$	319,239			$	1,105,316			$	886,354
Other Countries			143,297				116,114				384,813				338,366
Total		$	565,342			$	435,353			$	1,490,129			$	1,224,720

Long-Lived Assets:		September 30,				December 31,
		2011				2010
United States		$	977,260			$	881,416
Other Countries			463,592				431,734
Total, net		$	1,440,852			$	1,313,150

(15) Guarantee

As part of SPN Resources’ acquisition of its oil and gas properties while a wholly-owned subsidiary of the Company, the Company guaranteed SPN Resources’ performance of its decommissioning liabilities. These guarantees remain in place. In connection with the Company’s contribution of its remaining equity interest in SPN Resources to DOH in March 2011, DOR assumed all of the Company’s obligations relating to its guarantees of SPN Resources’ performance of its decommissioning liabilities. In accordance with authoritative guidance related to guarantees, the Company has assigned an estimated value of $2.6 million at September 30, 2011 and December 31,

2010 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 DOR defaults on the decommissioning liabilities, the total maximum potential obligation under these guarantees is estimated to be approximately $109.2 million, net of the contractual right to receive payments from third parties, which is approximately $24.6 million as of September 30, 2011. The total maximum potential obligation will decrease over time as the underlying obligations are fulfilled by DOR.

(16) Fair Value Measurements

The Company follows the authoritative guidance for fair value measurements relating to financial and nonfinancial assets and liabilities, including presentation of required disclosures herein. This guidance establishes a fair value framework requiring the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets and liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:

	Level 1:		Unadjusted quoted prices in active markets for identical assets and liabilities.
	Level 2:		Observable inputs other than those included in Level 1 such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical assets or liabilities in inactive markets; or model-derived valuations or other inputs that can be corroborated by observable market data.
	Level 3:		Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.

The following tables provide a summary of the financial assets and liabilities measured at fair value on a recurring basis at September 30, 2011 and December 31, 2010 (in thousands):

						Fair Value Measurements at Reporting Date Using
		September 30,
		2011				Level 1				Level 2				Level 3
Short-term investments		$	223,592			$	223,592				—				—
Intangible and other long-term assets
Non-qualified deferred compensation assets		$	10,224				810				9,414				—
Interest rate swap		$	1,340				—				1,340				—
Accounts Payable
Non-qualified deferred compensation liabilities		$	2,655				—				2,655				—
Other long-term liabilities
Non-qualified deferred compensation liabilities		$	12,407				—				12,407				—

		December 31,
		2010				Level 1				Level 2				Level 3
Intangible and other long-term assets
Non-qualified deferred compensation assets		$	10,820			$	812			$	10,008				—
Interest rate swap		$	161				—				161				—
Accounts Payable
Non-qualified deferred compensation liabilities		$	2,953				1,429				1,524				—
Other long-term liabilities
Non-qualified deferred compensation liabilities		$	14,236				—				14,236				—

The Company’s non-qualified deferred compensation plans allow officers, certain highly compensated employees and non-employee directors to defer receipt of a portion of their compensation and contribute such amounts to one or more hypothetical investment funds (see note 4). The Company entered into separate trust agreements, subject to general creditors, to segregate assets of each plan and reports the accounts of the trusts in its condensed consolidated financial statements. These investments are reported at fair value based on unadjusted quoted prices in active markets for identifiable assets and observable inputs for similar assets and liabilities, which represent Levels 1 and 2, respectively, in the fair value hierarchy. The realized and unrealized holding gains and losses related to 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.

In March 2010, the Company entered into an interest rate swap agreement for a notional amount of $150 million, whereby the Company is entitled to receive semi-annual interest payments at a fixed rate of 6 7/8% per annum and is obligated to make quarterly interest payments at a floating rate, which is adjusted every 90 days, based on LIBOR plus a fixed margin. The Company entered into the interest rate swap agreement in an effort to achieve a more balanced debt portfolio by targeting an overall desired position of fixed and floating interest rates. The swap agreement, scheduled to terminate on September 1, 2014, is designated as a fair value hedge of a portion of the 6 7/8% unsecured senior notes, as the derivative has been tested to be highly effective in offsetting changes in the fair value of the underlying note. As this derivative is classified as a fair value hedge, the changes in the fair value of the derivative are offset against the changes in the fair value of the underlying note in interest expense, net (see note 17).

The fair value of the Company’s cash equivalents, accounts receivable and current maturities of long-term debt approximates their carrying amounts. The fair value of the Company’s long-term debt was approximately $1,198.3 million and $902.5 million at September 30, 2011 and December 31, 2010, respectively. The fair value of these debt instruments is determined by reference to the market value of the instrument as quoted in an over-the-counter market.

(17)

Derivative Financial Instruments

The Company manages its debt portfolio by targeting an overall desired position of fixed and floating rates and may employ interest rate swaps from time to time to achieve its goal. The Company does not use derivative financial instruments for trading or speculative purposes.

In March 2010, the Company entered into an interest rate swap agreement for a notional amount of $150 million related to its fixed rate debt maturing in 2014. This transaction was designated as a fair value hedge since the swap hedges against the change in fair value of fixed rate debt resulting from changes in interest rates. The Company’s derivative agreement includes a credit risk-related contingent feature whereby the counterparty is allowed to terminate the transaction following the occurrence of a default on certain of the Company’s indebtedness. The Company recorded a derivative asset of $1.3 million and $0.2 million within intangible and other long-term assets in the condensed consolidated balance sheets as of September 30, 2011 and December 31, 2010, respectively (see note 8). The change in fair value of the interest rate swap is included in the adjustments to reconcile net income to net cash provided by operating activities in the condensed consolidated statements of cash flows.

The location and effect of the derivative instrument on the condensed consolidated statements of operations for the three and nine month periods ended September 30, 2011 and 2010, presented on a pre-tax basis, is as follows (in thousands):

		Location of				Amount of (gain) loss recognized
		(gain) loss				Three Months Ended				Three Months Ended
		recognized				September 30, 2011				September 30, 2010
Interest rate swap		Interest expense, net				$	350			$	(1,422	)
Hedged item — debt		Interest expense, net					(788	)			806
						$	(438	)		$	(616	)

		Location of				Amount of (gain) loss recognized
		(gain) loss				Nine Months Ended				Nine Months Ended
		recognized				September 30, 2011				September 30, 2010
Interest rate swap		Interest expense, net				$	230			$	(2,937	)
Hedged item — debt		Interest expense, net					(1,409	)			2,693
						$	(1,179	)		$	(244	)

For the nine months ended September 30, 2011 and 2010, approximately $1.2 million and $0.2 million of interest income, respectively, was related to the ineffectiveness associated with this fair value hedge. Hedge ineffectiveness represents the difference between the changes in fair value of the derivative instruments and the changes in fair value of the fixed rate debt attributable to changes in the benchmark interest rate.

(18) Income Taxes

The Company follows authoritative guidance regarding accounting for uncertainty in income taxes. 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 had approximately $24.8 million of unrecorded tax benefits at September 30, 2011 and December 31, 2010, all of which would impact the Company’s effective tax rate if recognized.

In addition to its U.S. federal tax return, the Company files income tax returns in various state and foreign jurisdictions. The number of years that are open under the 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 2006.

(19) Commitments and Contingencies

Due to the nature of the Company’s business, the Company is involved, from time to time, in routine litigation or subject to disputes or claims regarding our business activities. Legal costs related to these matters are expensed as incurred. In management’s opinion, none of the pending litigation, disputes or claims is expected to have a material adverse effect on the Company’s financial condition, results of operations or liquidity.

(20) Subsequent Events

Acquisition of Complete Production Services, Inc.

On October 9, 2011, the Company agreed to acquire all of the outstanding equity securities of Complete Production Services, Inc. (NYSE: CPX) (Complete) pursuant to an Agreement and Plan of Merger among the Company, SPN Fairway Acquisition, Inc., its wholly-owned subsidiary, and Complete. Pursuant to the merger agreement, Complete stockholders will receive 0.945 of a share of the Company’s common stock and $7.00 cash, without interest, for each share of Complete common stock outstanding at the time of the merger. Based on the Company’s share price of $26.76 at October 20, 2011, the total consideration for this acquisition approximates $2,608 million, of which approximately $552 million is to be paid in cash. The transaction is anticipated to close as early as the end of 2011.

In connection with this acquisition, the Company intends to amend its bank credit facility to increase its revolving credit facility to $600 million and to include a $400 million term loan in order to pay the cash portion of the merger consideration. The Company also intends to commence a debt financing in order to refinance all of Complete’s outstanding long-term debt.

Complete focuses on providing specialized completion and production services and products that help oil and gas companies develop hydrocarbon reserves, reduce costs and enhance production. Complete’s operations are located throughout the United States, and in western Canada and Mexico. Complete’s business is comprised of three segments: Completion and Production Services, Drilling Services and Product Sales.

Redemption of 1.50% Senior Exchangeable Notes

On October 17, 2011, the Company issued notice to the holders of its outstanding 1.50% senior exchangeable notes due 2026 that it would redeem all of the notes on December 15, 2011. The Company intends to partially fund the redemption of these notes with cash on hand and short-term investments currently held for this purpose (see note 8).

(21) Recent Accounting Pronouncements

In September 2011, the FASB issued ASU No. 2011-08, “Intangibles — Goodwill and Other” (ASU 2011-08). ASU 2011-08 allows a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill impairment test. If it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the two-step impairment test would be performed. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, and early adoption is permitted. This update is expected to change the process the Company uses to test goodwill for impairment, but is not expected to have a material impact on its consolidated financial statements.

(22) Financial Information Related to Guarantor Subsidiaries

In April 2011, SESI, L.L.C. (Issuer), a wholly-owned subsidiary of Superior Energy Services, Inc. (Parent), issued $500 million of unsecured 6 3/8% senior notes due 2019. The Parent, along with substantially all of its domestic subsidiaries, fully and unconditionally guaranteed the senior notes, and such guarantees are joint and several. All of the guarantor subsidiaries are wholly-owned subsidiaries of the Issuer. Domestic income taxes are paid by the Parent through a consolidated tax return and are accounted for by the Parent. The following tables present the condensed consolidating balance sheets as of September 30, 2011 and December 31, 2010 and the condensed consolidating statements of operations and cash flows for the three and nine months ended September 30, 2011 and 2010.

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidating Balance Sheets
September 30, 2011
(in thousands)

														Non-
										Guarantor				Guarantor
		Parent				Issuer				Subsidiaries				Subsidiaries				Eliminations				Consolidated
ASSETS
Current assets:
Cash and cash equivalents		$	—			$	153,526			$	5,045			$	51,610			$	—			$	210,181
Short-term investments			—				223,592				—				—				—				223,592
Accounts receivable, net			—				1,486				405,564				111,426				(36,555	)			481,921
Income taxes receivable			—				—				—				4,155				(4,155	)			—
Prepaid expenses			62				7,099				11,966				16,524				—				35,651
Inventory and other current assets			—				1,579				205,449				13,009				—				220,037
Intercompany interest receivable			—				35,516				—				—				(35,516	)			—
Total current assets			62				422,798				628,024				196,724				(76,226	)			1,171,382
Property, plant and equipment, net			—				2,871				1,046,722				391,259				—				1,440,852
Goodwill, net			—				—				446,947				144,768				—				591,715
Notes receivable			—				—				72,406				—				—				72,406
Intercompany notes receivable			—				501,598				—				—				(501,598	)			—
Investments in subsidiaries			124,271				595,029				—				—				(719,300	)			—
Equity-method investments			—				69,674				—				1,832				—				71,506
Intangible and other long-term assets, net			—				28,243				77,870				29,768				—				135,881
Total assets		$	124,333			$	1,620,213			$	2,271,969			$	764,351			$	(1,297,124	)		$	3,483,742
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	—			$	3,699			$	77,672			$	73,842			$	(37,140	)		$	118,073
Accrued expenses			140				54,568				104,140				39,947				—				198,795
Income taxes payable			11,242				—				—				—				(4,155	)			7,087
Deferred income taxes			12,214				—				—				—				—				12,214
Current portion of decommissioning liabilities			—				—				17,090				—				—				17,090
Current maturities of long-term debt			—				395,623				—				810				—				396,433
Intercompany interest payable			—				—				—				35,516				(35,516	)			—
Total current liabilities			23,596				453,890				198,902				150,115				(76,811	)			749,692
Deferred income taxes			257,553				—				—				12,249				—				269,802
Decommissioning liabilities			—				—				105,372				—				—				105,372
Long-term debt, net			—				798,196				—				12,141				—				810,337
Intercompany notes payable			—				—				—				501,598				(501,598	)			—
Intercompany payables/(receivables)			(98,268	)			963,278				(215,454	)			(114,620	)			(534,936	)			—
Other long-term liabilities			8,260				31,117				27,065				46,906				—				113,348
Stockholders’ equity:
Preferred stock of $.01 par value			—				—				—				—				—				—
Common stock of $.001 par value			80				—				—				403				(403	)			80
Additional paid in capital			444,187				124,271				—				59,104				(183,376	)			444,186
Accumulated other comprehensive income (loss), net			—				—				—				(23,161	)			—				(23,161	)
Retained earnings (accumulated deficit)			(511,075	)			(750,539	)			2,156,084				119,616				—				1,014,086
Total stockholders’ equity			(66,808	)			(626,268	)			2,156,084				155,962				(183,779	)			1,435,191
Total liabilities and stockholders’ equity		$	124,333			$	1,620,213			$	2,271,969			$	764,351			$	(1,297,124	)		$	3,483,742

 

Condensed Consolidating Balance Sheets

December 31, 2010
(in thousands)

														Non-
										Guarantor				Guarantor
		Parent				Issuer				Subsidiaries				Subsidiaries				Eliminations				Consolidated
ASSETS
Current assets:
Cash and cash equivalents		$	—			$	—			$	5,493			$	45,234			$	—			$	50,727
Accounts receivable, net			—				415				382,935				99,010				(29,910	)			452,450
Income tax receivable			—				—				—				2,024				(2,024	)			—
Prepaid expenses			18				4,128				8,948				12,734				—				25,828
Inventory and other current assets			—				1,678				222,822				10,547				—				235,047
Intercompany interest receivable			—				15,883				—				—				(15,883	)			—
Total current assets			18				22,104				620,198				169,549				(47,817	)			764,052
Property, plant and equipment, net			—				3,189				957,561				352,400				—				1,313,150
Goodwill, net			—				—				447,467				140,533				—				588,000
Notes receivable			—				—				69,026				—				—				69,026
Intercompany notes receivable			—				456,280				—				—				(456,280	)			—
Investments in subsidiaries			124,271				602,461				4,347				4,347				(735,426	)			—
Equity-method investments			—				43,947				—				15,375				—				59,322
Intangible and other long-term assets, net			—				22,455				61,722				29,806				—				113,983
Total assets		$	124,289			$	1,150,436			$	2,160,321			$	712,010			$	(1,239,523	)		$	2,907,533
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	—			$	6,654			$	71,790			$	64,636			$	(32,804	)		$	110,276
Accrued expenses			153				42,821				91,451				27,619				—				162,044
Income taxes payable			4,499				—				—				—				(2,024	)			2,475
Deferred income taxes			29,353				—				—				—				—				29,353
Current portion of decommissioning liabilities			—				—				16,929				—				—				16,929
Current maturities of long-term debt			—				184,000				—				810				—				184,810
Intercompany interest payable			—				—				—				15,883				(15,883	)			—
Total current liabilities			34,005				233,475				180,170				108,948				(50,711	)			505,887
Deferred income taxes			211,173				—				—				12,763				—				223,936
Decommissioning liabilities			—				—				100,787				—				—				100,787
Long-term debt, net			—				669,089				—				12,546				—				681,635
Intercompany notes payable			—				—				—				456,280				(456,280	)			—
Intercompany payables/(receivables)			(100,882	)			760,164				(1,407	)			(125,246	)			(532,629	)			—
Other long-term liabilities			8,260				37,537				19,427				49,513				—				114,737
Stockholders’ equity:
Preferred stock of $.01 par value			—				—				4,347				4,347				(8,694	)			—
Common stock of $.001 par value			79				—				—				176				(176	)			79
Additional paid in capital			415,278				124,271				—				66,762				(191,033	)			415,278
Accumulated other comprehensive loss, net			—				—				—				(25,700	)			—				(25,700	)
Retained earnings (accumulated deficit)			(443,624	)			(674,100	)			1,856,997				151,621				—				890,894
Total stockholders’ equity (deficit)			(28,267	)			(549,829	)			1,861,344				197,206				(199,903	)			1,280,551
Total liabilities and stockholders’ equity		$	124,289			$	1,150,436			$	2,160,321			$	712,010			$	(1,239,523	)		$	2,907,533