UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________________________

Form 10-Q

_____________________________________________

(Mark One)



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

For the Quarterly Period Ended ~~September 30, 2017~~March 31, 2020



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

Commission file number: 001-08038

_____________________________________________

KEY ENERGY SERVICES, INC.

(Exact name of registrant as specified in its charter)

_____________________________________________



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

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

(713) 651-4300

(Registrant’s telephone number, including area code)

None

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

____________________________________________

Securities registered pursuant to Section 12(b) of the Act: None.

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

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

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



Large accelerated filer	¨	Accelerated filer	¨

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

		Emerging growth company	¨

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

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

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

As of ~~November 3, 2017,~~May 5, 2020, the number of outstanding shares of common stock of the registrant was ~~20,109,885.~~13,781,262.

KEY ENERGY SERVICES, INC.

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended ~~September 30, 2017~~March 31, 2020



Part I — Financial Information

Item 1.	Financial Statements	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2225

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3235

Item 4.	Controls and Procedures	3335

Part II — Other Information

Item 1.	Legal Proceedings	3436

Item 1A.	Risk Factors	3436

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3437

Item 3.	Defaults Upon Senior Securities	3437

Item 4.	Mine Safety Disclosures	3437

Item 5.	Other Information	3437

Item 6.	Exhibits	3438

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are not historical in nature or that relate to future events and conditions are, or may be deemed to be, forward-looking statements. These forward-looking statements are based on our current expectations, estimates and projections and management’s beliefs and assumptions concerning future events and financial trends affecting our financial condition and results of operations. In some cases, you can identify these statements by terminology such as “may,” “will,” “should,” “predicts,” “expects,” “believes,” “anticipates,” “projects,” “potential” or “continue” or the negative of such terms and other comparable terminology. These statements are ~~only predictions and are~~ subject to substantial risks and uncertainties and are not guarantees of performance. Future actions, events and conditions and future results of operations may differ materially from those expressed in these statements. In evaluating those statements, you should carefully consider the information above as well as the risks outlined in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2019, in Part II “Item 1A. Risk Factors” this Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and in the other reports we file with the Securities and Exchange Commission.

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

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

our ability to continue as a going concern;

public health crises, such as the COVID-19 pandemic, and any related actions taken by businesses and governments;

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

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

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

our inability to achieve the potential benefits of the Restructuring;

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

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

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

industry capacity;

actions by OPEC and non-OPEC oil producing countries;

asset impairments or other charges;

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

~~our~~the highly competitive ~~industry as well as~~ nature of our industry;

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

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

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

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

our ability to implement technological developments and enhancements;

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

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

our ability to achieve the benefits expected from disposition or acquisition transactions;

the loss of one or more of our larger customers;

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

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

our ability to maintain sufficient liquidity and access to capital;

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

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

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

~~our ability to maintain sufficient liquidity;~~conditions;

adverse impact of ~~litigation;~~litigation or disputes; and

other factors affecting our business and financial condition described in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2019, in Part II “Item 1A. Risk Factors” this Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and in the other reports we file with the Securities and Exchange Commission.

As noted in our financial statements in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, pursuant to accounting principles generally accepted in the United States, these conditions raise substantial doubt about our ability to continue as a going concern within the 12 months post issuance of the consolidated financial statements. The unprecedented nature of the COVID-19 pandemic and recent market decline may make it more difficult to identify potential risks, give rise to risks that are currently unknown, or amplify the impact of known risks.

PART I — FINANCIAL INFORMATION


ITEM 1.	FINANCIAL STATEMENTS

Key Energy Services, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share amounts)


	September 30, 2017			December 31, 2016			March 31, 2020			December 31, 2019
	(unaudited)						(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	77,657		$	90,505		$	25,569		$	14,426
Restricted cash	8,700			24,707			250			250
Accounts receivable, net of allowance for doubtful accounts of $1,251 and $168, respectively	69,693			71,327
Accounts receivable, net of allowance for credit losses of $1,541 and $881, respectively							45,152			51,091
Inventories	19,846			22,269			13,777			13,565
Other current assets	17,418			25,762			16,645			22,260
Total current assets	193,314			234,570			101,393			101,592
Property and equipment	407,536			408,716			387,904			432,917
Accumulated depreciation	(64,829		)	(3,565		)	(212,467		)	(205,352		)
Property and equipment, net	342,707			405,151			175,437			227,565
Intangible assets, net	477			520			332			347
Other non-current assets	14,607			17,740			21,499			18,366
TOTAL ASSETS	$	551,105		$	657,981		$	298,661		$	347,870
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	11,967		$	10,357		$	12,215		$	8,700
Current portion of long-term debt	2,500			2,500			438			2,919
Other current liabilities	82,383			103,938			62,062			90,715
Total current liabilities	96,850			116,795			74,715			102,334
Long-term debt	243,610			245,477			49,156			240,007
Workers’ compensation, vehicular and health insurance liabilities	26,545			23,313			27,617			26,072
Interest payable							16,283			—
Other non-current liabilities	28,488			29,779			30,946			30,710
Commitments and contingencies
Equity:
Preferred stock, $0.01 par value; 10,000,000 shares authorized, none issued	—			—
Common stock, $0.01 par value; 100,000,000 shares authorized, 20,109,885 and 20,096,462 shares issued and outstanding	201			201
Common stock, $0.01 par value; 150,000,000 and 2,000,000 shares authorized, 13,781,034 and 410,990 outstanding							340			206
Additional paid-in capital	263,917			252,421			307,657			265,588
Accumulated other comprehensive loss	—			239
Retained deficit	(108,506		)	(10,244		)	(208,053		)	(317,047		)
Total equity	155,612			242,617			99,944			(51,253		)
TOTAL LIABILITIES AND EQUITY	$	551,105		$	657,981		$	298,661		$	347,870

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

Key Energy Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

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

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

~~Key Energy Services, Inc. and Subsidiaries~~

~~Condensed Consolidated Statements of Comprehensive Income~~

~~(in thousands)~~

~~(unaudited)~~

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




	Three Months Ended
	March 31,
	2020			2019
REVENUES	$	75,308		$	109,273
COSTS AND EXPENSES:
Direct operating expenses	61,661			88,194
Depreciation and amortization expense	10,226			14,296
General and administrative expenses	15,253			22,095
Asset impairments	41,242			—
Operating loss	(53,074		)	(15,312		)
Gain on debt restructuring	(170,648		)	—
Interest expense, net of amounts capitalized	8,221			9,233
Other income, net	(385		)	(1,142		)
Income (loss) before income taxes	109,738			(23,403		)
Income tax benefit	(744		)	(38		)
NET INCOME (LOSS)	$	108,994		$	(23,441	)
Income (loss) per share:
Basic and diluted	$	26.66		$	(57.59	)
Weighted average shares outstanding:
Basic and diluted	4,089			407

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

Key Energy Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)



							Three Months Ended
	Successor			Predecessor			March 31,
	Nine Months Ended September 30, 2017			Nine Months Ended September 30, 2016			2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(98,262	)	$	(305,168	)
Adjustments to reconcile net loss to net cash used in operating activities:
Net income (loss)							$	108,994		$	(23,441	)
Adjustments to reconcile net income (loss) to net used in operating activities:
Depreciation and amortization expense	63,325			105,075			10,226			14,296
Impairment expense	187			40,000
Asset impairments							41,242			—
Bad debt expense	631			1,674			784			506
Accretion of asset retirement obligations	146			431			42			40
Loss from equity method investments	560			105
Amortization and write-off of deferred financing costs and premium	358			3,901
Deferred income tax benefit	(27		)	(501		)
Gain on debt restructuring							(170,648		)	—
Amortization of deferred financing costs							70			119
Loss (gain) on disposal of assets, net	(26,987		)	5,011			(165		)	363
Share-based compensation	11,581			3,652			(73		)	816
Excess tax expense from share-based compensation	—			3,164
Changes in working capital:
Accounts receivable	1,084			50,240			5,155			3,905
Other current assets	10,920			3,589			5,404			507
Accounts payable, accrued interest and accrued expenses	(19,943		)	(3,983		)	(25,130		)	(9,714		)
Share-based compensation liability awards	—			(227		)	(1		)	99
Other assets and liabilities	7,794			(11,772		)	5,670			1,162
Net cash used in operating activities	(48,633		)	(104,809		)	(18,430		)	(11,342		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(9,610		)	(7,420		)	(682		)	(5,040		)
Proceeds from sale of assets	31,844			13,376			1,750			2,389
Net cash provided by investing activities	22,234			5,956
Net cash provided by (used in) investing activities							1,068			(2,651		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt							30,000			—
Repayments of long-term debt	(1,875		)	(24,548		)	—			(625		)
Restricted cash	16,007			(18,605		)
Repayments of finance lease obligations							(103		)	—
Payment of deferred financing costs	(350		)	—			(1,385		)	—
Repurchases of common stock	(85		)	(165		)	(7		)	—
Excess tax expense from share-based compensation	—			(3,164		)
Net cash provided by (used in) financing activities	13,697			(46,482		)	28,505			(625		)
Effect of changes in exchange rates on cash	(146		)	(1,908		)
Net decrease in cash and cash equivalents	(12,848		)	(147,243		)
Cash and cash equivalents, beginning of period	90,505			204,354
Cash and cash equivalents, end of period	$	77,657		$	57,111
Net increase (decrease) in cash, cash equivalents and restricted cash							11,143			(14,618		)
Cash, cash equivalents, and restricted cash, beginning of period							14,676			50,311
Cash, cash equivalents, and restricted cash, end of period							$	25,819		$	35,693

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

Key Energy Services, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

NOTE 1. GENERAL

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

The accompanying unaudited condensed consolidated financial statements were prepared using generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”). The condensed December 31, ~~2016~~2019 balance sheet was prepared from audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2019 (the ~~“2016~~“2019 Form 10-K”). Certain information relating to our organization and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted in this Quarterly Report on Form 10-Q. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our ~~2016~~2019 Form 10-K.

The unaudited condensed consolidated financial statements contained in this report include all normal and recurring material adjustments that, in the opinion of management, are necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods presented herein. The results of operations for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 are not necessarily indicative of the results expected for the full year or any other interim period, due to fluctuations in demand for our services, timing of maintenance and other expenditures, and other factors.

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

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

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

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

Market Conditions, COVID-19 and Going Concern

As a company that provides services to oil and gas exploration and development companies, we are exposed to a number of risks and uncertainties that are inherent to our industry. In addition to such industry-specific risks, the global public health crisis associated with the novel coronavirus (“COVID-19”) has, and is anticipated to continue to have, an adverse effect on global economic activity for the immediate future and has resulted in travel restrictions, business closures and the institution of quarantining and other restrictions on movement in many communities. The slowdown in global economic activity attributable to COVID-19 has resulted in a dramatic decline in the demand for energy, which directly impacts our industry and the Company. In addition, global crude oil prices experienced a decline in late 2019 and a collapse starting in early March 2020 as a direct result of failed negotiations between the Organization of the Petroleum Exporting Countries (“OPEC”) and Russia regarding reduced supply of oil. As the breadth of the COVID-19 health crisis expanded throughout the month of March 2020 and governmental authorities implemented more restrictive measures to limit person-to-person contact, global economic activity continued to decline commensurately. The associated impact on the energy industry has been adverse and continued to be exacerbated by the unresolved conflict regarding production. In the second week of April, OPEC, Russia and certain other petroleum producing nations (“OPEC+”), reconvened to discuss the matter of production cuts in light of unprecedented disruption and supply and demand imbalances that expanded since the failed negotiations in early March 2020. Tentative agreements were reached to cut production by up to 10 million barrels of oil per day with allocations to be made among the OPEC+ participants. If effected, these production cuts, however, may not offset near-term demand loss attributable to the COVID-19 health crisis and related economic slowdown, and the tentative agreement has not resulted in increased commodity prices.

Despite a significant decline in drilling by U.S. producers starting in mid-March 2020, domestic supply is exceeding demand which has led to significant operational stress with respect to capacity limitations associated with storage, pipeline and refining infrastructure, particularly within the Gulf Coast region. The combined effect of the aforementioned factors is anticipated to have an adverse impact on the industry in general and our operations specifically.

These conditions and events have adversely affected the demand for oil and natural gas, as well as for our services. The collapse in the demand for oil caused by this unprecedented global health and economic crisis, coupled with oil oversupply, has

had, and is reasonably likely to continue to have, a material adverse impact on the demand for our services and the prices we can charge for our services. The decline in our customers’ demand for our services has had, and is likely to continue to have, a material adverse impact on our financial condition, results of operations and cash flows.

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

Due to the uncertainty of future oil and natural gas prices and the effect the COVID-19 pandemic will have on our results of operations and financial condition,there is substantial doubt as to the ability of the Company to continue as a going concern. Management has prepared these consolidated condensed financial statements in accordance with US GAAP applicable to a going concern, which contemplates that assets will be realized and liabilities will be discharged in the normal course of business as they become due. These consolidated condensed financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported revenues and expenses and balance sheet classifications that would be necessary if the Company was unable to realize its assets and settle its liabilities as a going concern in the normal course of operations. Such adjustments could be material and adverse to the financial results of the Company.

Restructuring and Reverse Stock Split

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

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

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

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

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

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

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

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

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

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

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

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

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

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

There have been no material changes or developments in our evaluation of accounting estimates and underlying assumptions or methodologies that we believe to be a “Critical Accounting Policy or Estimate” as disclosed in our ~~2016~~2019 Form 10-K.

Recent Accounting Developments

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

~~ASU 2016-15. In August 2016 the FASB issued ASU 2016-15,~~ ~~Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments (a consensus of the FASB Emerging Issues Task Force) (ASU 2016-15)~~, that clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows. The guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. The guidance will be effective for annual periods beginning after December 15, 2017 and interim periods within those annual periods. Early adoption is permitted. The Company is evaluating the effect of this standard on its consolidated financial statements.

ASU 2016-13. In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326),Measurement of Credit Losses on Financial Instruments that will change how companies measure credit losses for most financial assets and certain other instruments that ~~aren’t~~are not measured at fair value through net income. The standard will replace today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. For available-for-sale debt securities, entities will be required to record allowances rather than reduce the carrying amount. The amendments in this update ~~will be~~was effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods. ~~Early~~We adopted the new standard effective January 1, 2020 and the adoption ~~is permitted for annual periods beginning after December 15, 2018. The Company is evaluating the effect~~ of this standard did not have a material impact on our consolidated financial statements.

~~ASU 2016-09.~~ InCoronavirus Aid, Relief and Economic Security Act (“CARES Act”)

On March ~~2016,~~27, 2020, the ~~FASB Issued ASU 2016-09~~ ~~Compensation—Stock Compensation (Topic 718): Improvements~~Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to ~~Employee Share-Based Payment Accounting.~~ ~~This standard changes how companies account for certain aspects of share-based payment awards to employees, including~~ the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The Company adopted the accounting guidance as of January 1, 2017 onCOVID-19 pandemic. It is a prospective basis. We have elected to account for forfeitures of equity awards as they occur. The adoption of this guidance did not have a material impact our consolidated financial statements, with the exception of excess tax benefits and tax deficiencies now being recognized as income tax expense or benefit on the income statement rather than as additional paid in capital on the balance sheet and their classification on the statement of cash flow as operating activity rather than financing activity,

~~ASU 2016-02.~~ ~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases (Topic 842),~~ ~~which will replace the existing lease guidance. The new standard is~~massive tax-and-spending package intended to provide ~~enhanced transparency~~additional economic relief to address the impact of the COVID-19 pandemic. The CARES Act includes several significant business tax provisions that, among other things, eliminate the taxable income limit for certain net operating losses (NOL) and ~~comparability~~allow businesses to carry back NOLs arising in 2018, 2019, and 2020 to the five prior tax years; accelerate refunds of previously generated corporate alternative minimum tax (AMT) credits; and generally increased the business interest limitation under section 163(j) from 30 percent to 50 percent. Key Energy has analyzed the income tax provisions under the CARES Act, and concluded that none of the provisions have a significant impact to the Company's income tax positions. Future regulatory guidance under the CARES Act or additional legislation enacted by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet. Additional disclosure requirements include qualitative disclosures along with specific quantitative disclosuresCongress in connection with the ~~objective~~COVID-19 pandemic could impact our tax provision in future periods. Besides income tax provisions, the CARES Act also includes tax provisions relating to refundable payroll tax credits and deferment of ~~enabling users~~employer’s social security payments. Beginning in April of ~~financial statements to assess the amount, timing, and uncertainty~~2020, we began deferment of ~~cash flows arising from leases. ASU 2016-02~~employer’s social security payments. The Company is effective for the Company for annual reporting periods beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The new standard is required to be applied with a modified retrospective approach to each prior reporting period presented. We are currently evaluating the ~~standard to determine the~~ impact of ~~its adoption~~the CARES Act on ~~the consolidated~~our financial ~~statements.~~position, results of operations and cash flows.

~~ASU 2014-09.~~ ~~In May 2014,~~

NOTE 3. REVENUE FROM CONTRACTS WITH CUSTOMERS

Revenues are recognized when control of the ~~FASB issued ASU 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~. The objective of this ASU is to establish the principles to report useful information to users of financial statements about the nature, amount, timing, and uncertainty of revenue from contracts with customers. The core principle is to recognize revenue to depict the transfer of promised goods or services is transferred to our customers, in an amount that reflects the consideration ~~to which the entity expects~~we expect to be entitled to in exchange for those goods or services. ~~ASU 2014-09 must be adopted using either~~The following table presents our revenues disaggregated by revenue source (in thousands). Sales taxes are excluded from revenues.



	Three Months Ended
	March 31,
	2020		2019
Rig Services	$	47,909	$	65,026
Fishing and Rental Services	9,592		14,587
Coiled Tubing Services	4,837		10,673
Fluid Management Services	12,970		18,987
Total	$	75,308	$	109,273

Disaggregation of Revenue

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

Rig Services

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

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

Fishing and Rental Services

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

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

Coiled Tubing Services

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

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

Fluid Management Services

We ~~plan~~recognize revenue within the Fluid Management Services segment by measuring progress toward satisfying the performance obligation in a manner that best depicts the transfer of goods or services to ~~adopt~~ the ~~standard January 1, 2018 applying~~customer. The control over services is transferred as the ~~full retrospective method.~~services are rendered to the customer. Specifically, we recognize revenue as the services are provided, typically daily, as we have the right to invoice the customer for the services performed. Fluid Management Services are billed and paid monthly. Payment terms for Fluid Management Services are usually 30 days from invoice receipt.

Arrangements with Multiple Performance Obligations

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

Contract Balances

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

Practical Expedients and Exemptions

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

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

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

Further, in many of our service contracts we have a right to consideration from a customer in an amount that corresponds directly with the ~~revenue recognition implications~~value to the customer of the ~~new guidance. We are currently evaluating~~entity’s performance completed to date (for example, a service contract in which an entity bills a fixed amount for each hour of service provided). For those contracts, we have utilized the ~~standard to determine~~practical expedient in ASC 606-10-55-18 exempting the ~~impact~~Company from disclosure of ~~its adoption on~~ the ~~consolidated financial statements, however, management’s preliminary assessment is~~recognition of revenue in the amount that the ~~impact~~Company has a right to invoice.

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

~~NOTE 3. ASSETS HELD FOR SALE~~

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

NOTE 4. EQUITY

A reconciliation of the total carrying amount of our equity accounts for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 is as follows (in thousands):

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



	COMMON STOCKHOLDERS
	Common Stock					Additional Paid-in Capital			Retained Deficit			Total
	Number of Shares		Amount at Par			Additional Paid-in Capital			Retained Deficit			Total
Balance at December 31, 2019	411		$	206		$	265,588		$	(317,047	)	$	(51,253	)
Common stock purchases	(1	)	(1		)	(7		)	—			(8		)
Share-based compensation	3		2			(75		)	—			(73		)
Issuance of shares pursuant to the Restructuring Support Agreement	13,368		133			41,855			—			41,988
Issuance of warrants pursuant to the Restructuring Support Agreement	—		—			296			—			296
Net income	—		—			—			108,994			108,994
Balance at March 31, 2020	13,781		$	340		$	307,657		$	(208,053	)	$	99,944

A reconciliation of the total carrying amount of our equity accounts for the three months ended March 31, 2019 is as follows (in thousands):



	COMMON STOCKHOLDERS
	Common Stock			Additional Paid-in Capital		Retained Deficit			Total
	Number of Shares	Amount at Par		Additional Paid-in Capital		Retained Deficit			Total
Balance at December 31, 2018	407	$	204	$	264,945	$	(219,629	)	$	45,520
Share-based compensation	—	—		816		—			816
Net loss	—	—		—		(23,441		)	(23,441		)
Balance at March 31, 2019	407	$	204	$	265,761	$	(243,070	)	$	22,895

NOTE 5. OTHER BALANCE SHEET INFORMATION

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



	September 30, 2017		December 31, 2016		March 31, 2020		December 31, 2019
Other current assets:
Prepaid current assets	$	5,069	$	10,291	$	8,188	$	13,118
Reinsurance receivable	9,451		7,922		6,695		6,475
Current assets held for sale	—		3,667
Operating lease right-of-use assets					1,398		2,394
Other	2,898		3,882		364		273
Total	$	17,418	$	25,762	$	16,645	$	22,260

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



	September 30, 2017		December 31, 2016		March 31, 2020		December 31, 2019
Other non-current assets:
Reinsurance receivable	$	8,110	$	8,393	$	7,128	$	6,887
Deposits	1,331		8,292		10,812		8,689
Equity method investments	—		560
Non-current assets held for sale	—		360
Operating lease right-of-use assets					3,264		2,404
Other	5,166		135		295		386
Total	$	14,607	$	17,740	$	21,499	$	18,366

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



	September 30, 2017		December 31, 2016		March 31, 2020		December 31, 2019
Other current liabilities:
Accrued payroll, taxes and employee benefits	$	16,219	$	23,224	$	10,039	$	14,463
Accrued operating expenditures	10,313		16,669		9,407		12,919
Income, sales, use and other taxes	11,105		10,748		2,814		5,115
Self-insurance reserve	26,994		35,484		25,556		25,366
Accrued interest	6,586		1,419		962		15,476
Accrued insurance premiums	127		2,347		8,099		4,990
Unsettled legal claims	10,686		5,398		2,020		7,020
Accrued severance	250		2,219		314		2,636
Current liabilities held for sale	—		371
Operating leases					2,722		2,502
Other	103		6,059		129		228
Total	$	82,383	$	103,938	$	62,062	$	90,715

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



	September 30, 2017		December 31, 2016		March 31, 2020		December 31, 2019
Other non-current liabilities:
Asset retirement obligations	$	8,891	$	9,035	$	8,931	$	9,035
Environmental liabilities	2,075		3,446		1,927		2,047
Accrued sales, use and other taxes	17,321		16,735		17,005		17,005
Deferred tax liabilities	—		35		681		—
Operating leases					2,370		2,590
Other	201		528		32		33
Total	$	28,488	$	29,779	$	30,946	$	30,710

NOTE 6. INTANGIBLE ASSETS

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



	September 30, 2017		December 31, 2016	March 31, 2020			December 31, 2019
Trademark:
Gross carrying value	520		520	$	520		$	520
Accumulated amortization	(43	)	—	(188		)	(173		)
Net carrying value	477		520	$	332		$	347

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

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

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



	Weighted average remaining amortization period (years)	Expected amortization expense (in thousands)
	Weighted average remaining amortization period (years)	Remainder of 2020		2021		2022		2023		2024
Trademarks	5.8	$	43	$	58	$	58	$	58	$	58

Amortization expense for our intangible assets was less than $0.1 million ~~and $0.4 million~~ for the three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016, respectively, and less than $0.1 million and $1.3 million for the nine months ended September 30, 2017 and 2016, respectively.~~2019.

NOTE 7. DEBT

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



	September 30, 2017			December 31, 2016			March 31, 2020			December 31, 2019
Term Loan Facility due 2025							$	50,000		$	—
Term Loan Facility due 2021	$	248,125		$	250,000		1,209			243,125
Unamortized debt issuance costs	(2,015		)	(2,023		)	(3,112		)	(1,799		)
Finance lease obligation							1,497			1,600
Total	246,110			247,977			49,594			242,926
Less current portion	(2,500		)	(2,500		)
Less current portion (1)							(438		)	(2,919		)
Long-term debt	$	243,610		$	245,477		$	49,156		$	240,007

(1) Of the current portion of debt, $0.4 million is related to finance leases.

~~ABL Facility~~Prior Long-Term Debt Arrangements

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

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

Prior to the Restructuring, the Company was party to two credit facilities. The Company and Key Energy Services, LLC, aswere borrowers (the “ABL Borrowers”)~~, entered into the~~ under an ABL Facility with the financial institutions party thereto from time to time as lenders (the “ABL Lenders”), Bank of America, N.A., as administrative agent for the lenders (the “Administrative Agent”) and Bank of America, N.A. ~~and Wells Fargo Bank, National Association,~~, as ~~co-collateral agents~~sole collateral agent for the ~~lenders. The ABL Facility provides~~lenders, providing for aggregate ~~initial~~ commitments from the ABL Lenders of $80 million (the “Prior ABL Facility”). In addition, on December 15, 2016, the Company entered into the term loan facility among the Company, as borrower, certain subsidiaries of the Company named as guarantors therein, the financial institutions party thereto from time to time as Lenders (collectively, the “Term Loan Lenders”) and Cortland Capital Market Services LLC and Cortland Products Corp., as agent for the Lenders (the “Prior Term Loan Facility”).

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

New ABL Facility

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

The New ABL Facility provides the ABL Borrowers with the ability to borrow up to an aggregate principal amount equal to the lesser of (i) the aggregate revolving commitments then in effect and (ii) the sum of (a) 85% of the value of eligible accounts receivable plus (b) 80% of the value of eligible unbilled accounts receivable, subject to a limit equal to the greater of (x) ~~$35~~$30 million and (y) 25% of the commitments. The amount that may be borrowed under the New ABL Facility is subject to increase or reduction based on certain segregated cash or reserves provided for by the New ABL Facility. In addition, the percentages of accounts

receivable and unbilled accounts receivable included in the calculation described above is subject to reduction to the extent of certain bad debt write-downs and other dilutive items provided in the New ABL Facility.

Borrowings under the New ABL Facility ~~will~~ bear interest, at the ABL Borrowers’ option, at a per annum rate equal to (i) LIBOR for 30, 60, 90, 180, or, with the consent of the ABL Lenders, 360 days, plus an applicable margin that varies from ~~2.5%~~2.75% to ~~4.5%~~3.25% depending on the ABL Borrowers’ fixed charge coverage ratio at such time or (ii) a base rate equal to the sum of (a) the greatest of (x) the prime rate, (y) the federal funds rate, plus 0.50% or (z) 30-day LIBOR plus 1.0% plus (b) an applicable margin that varies from ~~1.50%~~1.75% to ~~3.50%~~2.25% depending on the ABL Borrowers’ fixed charge coverage ratio at such time. The New ABL Facility provides that, in the event LIBOR becomes unascertainable for the requested interest period or otherwise becomes unavailable or replaced by other benchmark interest rates, then the Company and the ABL Agent may amend the New ABL Facility for the purpose of replacing LIBOR with one or more SOFR-based rates or another alternate benchmark rate giving consideration to the general practice in similar U.S. dollar denominated syndicated credit facilities.

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

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

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

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

As of ~~September 30, 2017,~~March 31, 2020, we have no borrowings outstanding, ~~and $33.7~~$36.3 million of letters of credit ~~outstanding with~~and $7.2 million posted as additional collateral recorded in deposits on our balance sheet under our ABL Facility and $10.2 million of borrowing capacity ~~of $26.5 million~~ available ~~subject to covenant constraints~~ under our ABL Facility.

As of March 31, 2020, we were in compliance with all covenants under our New ABL Facility.

New Term Loan Facility

On ~~December 15, 2016,~~March 6, 2020, the Company entered into the amendment and restatement agreement with the Supporting Term Lenders and Cortland Capital Market Services LLC and Cortland Products Corp., as agent (the “Term Agent”), which amended and restated the Prior Term Loan Facility, among the Company, as borrower, certain subsidiaries of the Company named as guarantors therein, the financial institutions party thereto from time to time as lenders and the Term Agent (as amended and restated by the amendment and restatement agreement, the “New Term Loan Facility”). Prior to the closing of the Restructuring, there were approximately $243.1 million aggregate principal amount of term loans outstanding under the Prior Term Loan Facility. Following the closing of the Restructuring, the New Term Loan Facility comprises (i) $30 million new money term loans funded by the Supporting Term Lenders and $20 million new term loans excluding new money issued in exchange for existing term loans held by the Supporting Term Lenders (collectively, the ~~“Term Loan Lenders”~~“New Term Loans”) and ~~Cortland Capital Market Services LLC and Cortland Products Corp., as agent for~~(ii) an approximate $1.2 million senior secured term loan tranche in respect of the ~~Lenders. The~~existing term loans held by lenders who are not Supporting Term ~~Loan Facility had an initial outstanding~~Lenders (the “Continuing Term Loans”). As of March 31, 2020, there were approximately $51.2 million aggregate principal amount of ~~$250 million.~~term loans outstanding under the New Term Loan Facility.

For the $20 million new term loans excluding new money which were accounted for as a troubled debt restructuring with a modification of terms in accordance with ASC 470-60, “Troubled Debt Restructurings by Debtors”, which addresses certain aspects of the accounting for debt, an estimate of undiscounted future cash flows is included with the carrying value of the modified debt and presented as interest payable. $16.3 million of estimated future undiscounted interest payments has been accrued per ASC 470-60. Interest payments made in the future associated with the modified $20 million new term loan will be a reduction to interest payable, which is recorded as a long-term liability on our consolidated balance sheet, and not to interest expense. Fluctuations in the effective interest rate used to estimate future cash flows shall be accounted for as changes in estimates for the period in which the change occurred. However, the carrying amount of the restructured payable shall remain unchanged, and future cash payments shall reduce the carrying amount until the time that any gain recognized cannot be offset by future cash payments.

of the ~~Term Loan Lenders~~term loan lenders pursuant to the terms of the New Term Loan Facility. The New Term Loans will bear interest at a per annum rate equal to LIBOR for six months, plus 10.25%. The Company has the option to pay interest in kind at an annual rate of LIBOR plus 12.25% on the outstanding principal amount of the New Term Loans for the first two years following the closing of the Restructuring. The Continuing Term Loans will bear interest at a per annum rate equal to LIBOR for one, two, three, six or, with the consent of all term loan lenders, up to 12 months, and the Company has the option to pay interest in kind of up to 100 basis points of the per annum interest due on the Continuing Term Loans.

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

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

In addition, pursuant to the New Term Loan Facility, the Company must prepay or offer to prepay, as applicable, term loans with the net cash proceeds of certain debt incurrences and asset sales, excess cash flow, receipt of extraordinary cash proceeds (e.g., tax and insurance) and upon certain change of control transactions, subject in each case to certain exceptions.

The New Term Loan Facility contains certain affirmative and negative covenants, including covenants that restrict the ability of the Term Loan Parties to take certain actions including, among other things and subject to certain significant exceptions, the incurrence of debt, the granting of liens, the making of investments, entering into transactions with affiliates, the payment of dividends and the sale of assets. The New Term Loan Facility also contains a financial covenant requiring that the Company maintain Liquidity (as defined in the New Term Loan Facility) of not less than $10 million as of the last day of any fiscal quarter, subject to certain exceptions and cure rights.

As of March 31, 2020, we were in compliance with all covenants under our Term Loan Facility.

Prior ABL Facility

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

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

The Prior ABL Facility provided the ABL Borrowers with the ability to borrow up to an aggregate principal amount equal to the lesser of (i) the aggregate revolving commitments then in effect and (ii) the sum of (a) 85% of the value of eligible accounts receivable plus (b) 80% of the value of eligible unbilled accounts receivable, subject to a limit equal to the greater of (x) $35 million and (y) 25% of the Commitments.

The contractual interest rates under the Prior ABL Facility were, at the ABL Borrowers’ option, at a per annum rate equal to (i) LIBOR for 30, 60, 90, 180, or, with the consent of the ABL Lenders, 360 days, plus an applicable margin that varies from 2.50% to 4.50% depending on the ABL Borrowers’ fixed charge coverage ratio at such time or (ii) a base rate equal to the sum of

(a) the greatest of (x) the prime rate, (y) the federal funds rate, plus 0.50% or (z) 30-day LIBOR, plus 1.0% plus (b) an applicable margin that varied from 1.50% to 3.50% depending on the ABL Borrowers’ fixed charge coverage ratio at such time. In addition, the Prior ABL Facility provided for unused line fees of 1.0% to 1.25% per year, depending on utilization, letter of credit fees and certain other factors.

Prior Term Loan Facility

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

Borrowings under the Prior Term Loan Facility ~~will bear~~bore interest, at the Company’s option, at a per annum rate equal to (i) LIBOR for one, two, three, six, or, with the consent of the Term Loan Lenders, 12 months, plus 10.25% or (ii) a base rate equal to the sum of (a) the greatest of (x) the prime rate, (y) the Federal Funds rate, plus 0.50% and (z) 30-day LIBOR, plus 1.0% plus (b) 9.25%.

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

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

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

~~The~~ weighted average interest ~~rates~~rate on the outstanding borrowings under the Prior Term Loan Facility for the three ~~and nine~~ month ~~periods~~period ended ~~September 30, 2017~~March 31, 2020 were as follows:

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



	Three Months Ended
	March 31, 2020
Term Loan Facility	15.45	%

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

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



													Three Months Ended
	Successor			Predecessor			Successor			Predecessor			March 31,
	Three Months Ended September 30, 2017			Three Months Ended September 30, 2016			Nine Months Ended September 30, 2017			Nine Months Ended September 30, 2016			2020			2019
Interest income	$	(182	)	$	(104	)	$	(534	)	$	(371	)	$	(57	)	$	(323	)
Foreign exchange (gain) loss	(15		)	351			(29		)	1,112
Other, net	(4,381		)	(93		)	(5,216		)	(1,406		)
Other													(328		)	(819		)
Total	$	(4,578	)	$	154		$	(5,779	)	$	(665	)	$	(385	)	$	(1,142	)

NOTE 9. INCOME TAXES

We are subject to U.S. federal income tax as well as income taxes in multiple state and foreign jurisdictions. Our effective tax rates for the three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019 were ~~0.3%~~0.7% and ~~0.1%, respectively, and 1.2% and 0.2%~~(0.2)% for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016,~~2019, respectively. The variance between our effective rate and the U.S. statutory rate is due to the ~~mix of pre-tax profit between the U.S. and international taxing jurisdictions with varying statutory rates, the~~ impact of permanent differences, and other tax adjustments, such as valuation allowances against deferred tax ~~assets, and tax expense or benefit recognized for uncertain tax positions.~~ assets.

We continued recording income taxes using a year-to-date effective tax rate method for the ~~three-~~three months ended March 31, 2020 and ~~nine-month periods ended September 30, 2017.~~2019. The use of this method was based on our expectations ~~at September 30, 2017~~ that a small change in our estimated ordinary income could result in a large change in the estimated annual effective tax rate. We will re-evaluate our use of this method each quarter until such time as a return to the annualized effective tax rate method is deemed appropriate.

The Company assesses the realizability of its deferred tax assets each period by considering whether it is more likely than not that all or a portion of the deferred tax assets will not be realized. Due to the history of losses in recent years and the continued challenges affecting the oil and gas industry, management continues to believe it is more likely than not that we will not be able to realize our net deferred tax assets. No release of our deferred tax asset valuation allowance was made during the three ~~or nine~~ months ended ~~September 30, 2017.~~March 31, 2020.

~~As of September 30, 2017, we had $0.3 million of~~The company did not recognize any unrecognized tax benefits during three months ended March 31, 2020. As of March 31, 2020, we had no unrecognized tax benefits.

Cancellation of Indebtedness Income (“CODI”)

Under the Restructuring Support Agreement, a substantial portion of the Company’s term loans were exchanged for newly issued shares and new term loans of the Company. Absent an exception, a debtor recognizes CODI upon discharge of its outstanding indebtedness for an amount of consideration that is less than its adjusted issue price. The Internal Revenue Code of 1986, as amended (“IRC”), provides that an insolvent debtor may exclude CODI from taxable income up to the amount of insolvency

but must reduce certain of its tax attributes by the amount of any CODI excluded pursuant to the insolvency exception. The amount of CODI realized by a taxpayer is the adjusted issue price of any indebtedness discharged less the sum of (i) the amount of cash paid, (ii) the issue price of any new indebtedness issued and (iii) the fair market value of any other consideration, including equity, issued. Based on the market value of the Company’s equity, and the adjusted issue price of the term loans issued in the exchange the estimated amount of U.S. CODI is approximately $206.0 million, $197.8 million of which is excluded pursuant to the insolvency exception and $8.2 million of which will be included in taxable income. Due to the application of the insolvency exception, the Company will reduce the value of its U.S. net operating losses that had a value of ~~federal~~$476.8 million as of March 31, 2020. The actual reduction in tax ~~benefit, which, if recognized, would~~attributes does not occur until the first day of the Company’s tax year subsequent to the date of the restructuring, or January 1, 2021. The remaining net operating losses, tax credits, and certain built-in-losses or deductions existing as of the date of the ownership change will be limited under IRC Section 382 due to the change in control resulting from the restructuring.

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

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. It is a massive tax-and-spending package intended to provide additional economic relief to address the impact of the COVID-19 pandemic. The CARES Act includes several significant business tax provisions that, among other things, eliminate the taxable income limit for certain net operating losses (NOL) and allow businesses to carry back NOLs arising in 2018, 2019, and 2020 to the five prior tax years; accelerate refunds of previously generated corporate alternative minimum tax (AMT) credits; and generally increased the business interest limitation under section 163(j) from 30 percent to 50 percent. Key Energy has analyzed the income tax provisions under the CARES Act, and concluded that none of the provisions have a significant impact to the Company's income tax positions. Future regulatory guidance under the CARES Act or additional legislation enacted by Congress in connection with the COVID-19 pandemic could impact our ~~effective~~ tax ~~rate. We record interest and penalties related to unrecognized tax benefits as~~provision in future periods. Besides income tax ~~expense. We have accrued a liability~~provisions, the CARES Act also includes tax provisions relating to refundable payroll tax credits and deferment of ~~less than $0.1 million for~~employer’s social security payments. Beginning in April of 2020, we began deferment of employer’s social security payments. The Company is currently evaluating the ~~payment~~impact of ~~interest~~the CARES Act on our financial position, results of operations and penalties as of September 30, 2017. We believe that it is reasonably possible that $0.2 million of our currently remaining unrecognized tax positions may be recognized in the next twelve months as a result of a lapse of statute of limitations and settlement of ongoing audits.cash flows.

NOTE 10. COMMITMENTS AND CONTINGENCIES

Litigation

Various suits and claims arising in the ordinary course of business are pending against us. We conduct business throughout the continental United States and may be subject to jury verdicts or arbitrations that result in outcomes in favor of the plaintiffs. ~~We are also exposed to various claims abroad.~~ We continually assess our contingent liabilities, including potential litigation liabilities, as well as the adequacy of our accruals and our need for the disclosure of these items, if any. We establish a provision for a contingent liability when it is probable that a liability has been incurred and the amount is reasonably estimable. We have ~~$10.7~~$2.0 million of other liabilities related to litigation that is deemed probable and reasonably estimable as of ~~September 30, 2017.~~March 31, 2020. We do not believe that the disposition of any of these matters will result in an additional loss materially in excess of amounts that have been recorded.

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

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

Self-Insurance Reserves

We maintain reserves for workers’ compensation and vehicle liability on our balance sheet based on our judgment and estimates using an actuarial method based on claims incurred. We estimate general liability claims on a case-by-case basis. We maintain insurance policies for workers’ compensation, vehicle liability and general liability claims. These insurance policies carry self-insured retention limits or deductibles on a per occurrence basis. The retention limits or deductibles are accounted for in our accrual process for all workers’ compensation, vehicular liability and general liability claims. The deductibles have a $5 million maximum per vehicular liability claim, and a $2 million maximum per general liability claim and a $1 million maximum per workers’ compensation claim. As of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, we have recorded ~~$53.5~~$53.2 million and ~~$58.7~~$51.4 million, respectively, of self-insurance reserves related to workers’ compensation, vehicular liabilities and general liability claims. Partially offsetting these liabilities, we had ~~$17.6~~$13.8 million and ~~$16.3~~$13.4 million of insurance receivables as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, respectively. We believe that the liabilities we have recorded are appropriate based on the known facts and circumstances and do not expect further losses materially in excess of the amounts already accrued for existing claims.

Environmental Remediation Liabilities

For environmental reserve matters, including remediation efforts for current locations and those relating to previously disposed properties, we record liabilities when our remediation efforts are probable and the costs to conduct such remediation efforts can be reasonably estimated. As of ~~September 30, 2017~~each of March 31, 2020 and December 31, ~~2016,~~2019, we have recorded ~~$2.1~~$1.9 million and ~~$3.4~~$2.0 million, respectively, for our environmental remediation liabilities. We believe that the liabilities we have recorded are appropriate based on the known facts and circumstances and do not expect further losses materially in excess of the amounts already accrued.

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

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

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


	Successor			Predecessor			Successor			Predecessor
	Three Months Ended September 30, 2017			Three Months Ended September 30, 2016			Nine Months Ended September 30, 2017			Nine Months Ended September 30, 2016			Three Months Ended
Basic and Diluted EPS Calculation:
													March 31,
													2020		2019
Basic EPS Calculation:
Numerator
Net loss	$	(38,220	)	$	(130,752	)	$	(98,262	)	$	(305,168	)
Net income (loss)													$	108,994	$	(23,441	)
Denominator
Weighted average shares outstanding	20,106			160,846			20,101			160,626			4,089		407
Basic and diluted loss per share	$	(1.90	)	$	(0.81	)	$	(4.89	)	$	(1.90	)
Basic and diluted earnings (loss) per share													$	26.66	$	(57.59	)

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

The company has issued potentially dilutive instruments such as RSUs, stock options ~~SARs~~ and warrants. However, the company did not include ~~these~~stock options or warrants in its calculation of diluted earnings per share for the three months ended March 31, 2020, because to include them would be anti-dilutive due to the exercise price of those instruments exceeding the current market price of our common stock. In addition, time-based RSUs were excluded from diluted EPS as the amount of unrecognized cost, which is the assumed proceeds of the awards, exceeds their market value, so to include them would be anti-dilutive. Performance-based RSUs were excluded from diluted EPS as the Company does not believe the performance goals for the awards will be met. The Company did not include RSUs, stock options or warrants in its calculation of diluted loss per share ~~during~~for the ~~periods presented,~~three months ended March 31, 2019, because to include them would be ~~anti-dilutive.~~anti-dilutive due the Company's net loss. The following table shows potentially dilutive ~~instruments (in thousands):~~instruments:



					Three Months Ended
	Successor	Predecessor	Successor	Predecessor	March 31,
	Three Months Ended September 30, 2017	Three Months Ended September 30, 2016	Nine Months Ended September 30, 2017	Nine Months Ended September 30, 2016	2020	2019
RSUs	641	60	641	60	13,133	37,280
Stock options	645	301	645	812	1,084	1,477
SARs	—	240	—	240
Warrants	1,838	—	1,838	—	836,602	36,759
Total	3,124	601	3,124	1,112	850,819	75,516

No events occurred after ~~September 30, 2017~~March 31, 2020 that would materially affect the number of weighted average shares outstanding.

NOTE 12. SHARE-BASED COMPENSATION

Common Stock Awards

We recognized employee share-based compensation expense (benefit) of ~~$2.5~~$(1.0) million and ~~$0.5~~$0.7 million during the three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016, respectively. We recognized employee share-based compensation expense of $10.9 million and $3.4 million during the nine months ended September 30, 2017 and 2016,~~2019, respectively. Our employee share-based awards, including common stock awards, stock option awards and phantom shares, vest in equal installments over a ~~four-year~~three-year period or which vest in a 40%-60% split respectively over a two-year period. ~~Additionally, we recognized share-based compensation expense related to our outside directors of $0.1 million and zero during the three months ended September 30, 2017 and 2016, respectively.~~ We recognized share-based compensation expense related to our outside directors of ~~$0.6~~less than $(1.0) million and ~~zero~~$0.1 million during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016,~~2019, respectively. The unrecognized compensation cost related to our unvested share-based awards as of ~~September 30, 2017~~March 31, 2020 is estimated to be ~~$12.3~~$1.3 million and is expected to be recognized over a weighted-average period of ~~1.7~~1.0 years.

Stock Option Awards

As of March 31, 2020, all outstanding stock options are vested and there are no unrecognized costs related to our stock options.

Phantom Share Plan

We recognized compensation expense (benefit) related to our ~~stock options~~phantom shares of ~~$0.8~~less than $(0.1) million and ~~zero~~$0.1 million during the three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016,~~2019, respectively. We recognized compensation expense related to our stock options of $2.7 million and zero during the nine months ended September 30, 2017 and 2016, respectively. Our employee stock options vest in equal installments over a four-year period. The unrecognized compensation cost related to our unvested ~~stock options~~phantom shares as of ~~September 30, 2017~~March 31, 2020 is estimated to be ~~$4.2~~less than $0.1 million and is expected to be recognized over a weighted-average period of ~~1.7~~0.8 years.

NOTE 13. TRANSACTIONS WITH RELATED PARTIES

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

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

NOTE 14. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

NOTE 15. LEASES

We have operating leases for certain corporate offices and operating locations and finance leases for certain vehicles. We determine if a contract is a lease or contains an embedded lease at the inception of the contract. Operating lease right-of-use (“ROU”) assets are included in other current and other non-current assets, operating lease liabilities are included in other current and other non-current liabilities in our consolidated balance sheets. Finance lease ROU assets are included in property and equipment, net, and finance lease liabilities are included in our current portion of long-term debt, and long-term debt on our consolidated balance sheets.

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

We recognized $0.7 million of costs related to our operating leases during the three months ended March 31, 2020 and March 31, 2019. As of March 31, 2020, our operating leases have a weighted average remaining lease term of 2.5 years and a weighted average discount rate of 5.68%. We recognized $0.1 million and zero of costs related to our finance leases during the three months ended March 31, 2020 and March 31, 2019 respectively. As of March 31, 2020, our finance leases have a weighted average remaining lease term of 3.4 years and a weighted average discount rate of 4.77%.

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




	March 31, 2020		December 31, 2019
Right-of-Use Assets under Operating Leases
Operating lease right-of-use assets, current portion	$	1,398	$	2,394
Operating lease right-of-use assets, non-current portion	3,264		2,404
Total operating lease assets	$	4,662	$	4,798

Operating lease liabilities, current portion	$	2,722	$	2,502
Operating lease liabilities, non-current portion	2,370		2,590
Total operating lease liabilities	$	5,092	$	5,092

Right-of-Use Assets under Finance Leases
Property and equipment, at cost	$	1,760	$	1,760
Less accumulated depreciation	293		183
Property and equipment, net	$	1,467	$	1,577

Current portion of long-term debt	$	424	$	419
Long-term debt	1,073		1,181
Total finance lease liabilities	$	1,497	$	1,600

The maturities of our operating and finance lease liabilities as of March 31, 2020 are as follows (in thousands):



	March 31, 2020
	Operating Leases			Finance Leases
Remainder of 2020	$	2,276		$	363
2021	1,738			485
2022	705			485
2023	528			283
2024	188			—
Total lease payments	5,435			1,616
Less imputed interest	(343		)	(119		)
Total	$	5,092		$	1,497

NOTE ~~15.~~16. SEGMENT INFORMATION

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

~~U.S.~~ Rig Services

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

The completion and recompletion services provided by our rigs prepare wells for production, whether newly drilled, or recently extended through a workover operation. The completion process may involve selectively perforating the well casing to access production zones, stimulating and testing these zones, and installing tubular and downhole equipment. We typically provide

a well service rig and may also provide other equipment to assist in the completion process. Completion services vary by well and our work may take a few days to several weeks to perform, depending on the nature of the completion.

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

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

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

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

Fishing and Rental Services

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

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

Coiled Tubing Services

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

Fluid Management Services

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

~~Coiled Tubing Services~~

~~Fishing and Rental Services~~

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

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

~~International~~

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

Functional Support

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

Financial Summary

The following tables set forth our unaudited segment information as of and for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019 (in thousands):


Successor company as of and for the three months ended September 30, 2017
As of and for the three months ended March 31, 2020																								As of and for the three months ended March 31, 2020
	U.S. Rig Services			Fluid Management Services			Coiled Tubing Services		Fishing and Rental Services			International			Functional Support(2)			Reconciling Eliminations			Total			Rig Services		Fishing and Rental Services			Coiled Tubing Services			Fluid Management Services			Functional Support			Reconciling Eliminations			Total
Revenues from external customers	$	61,933		$	20,713		$	12,499	$	14,177		$	1,331		$	—		$	—		$	110,653		$	47,909	$	9,592		$	4,837		$	12,970		$	—		$	—		$	75,308
Intersegment revenues	135			249			27		846			—			—			(1,257		)	—			115		171			—			29			5			(320		)	—
Depreciation and amortization	8,009			5,350			1,259		5,855			234			407			—			21,114			4,029		2,833			1,174			1,511			679			—			10,226
Asset impairments																								—		17,551			—			23,691			—			—			41,242
Other operating expenses	54,426			22,625			9,386		10,688			2,225			24,933			—			124,283			40,554		8,958			4,619			11,630			11,153			—			76,914
Operating income (loss)	(502		)	(7,262		)	1,854		(2,366		)	(1,128		)	(25,340		)	—			(34,744		)	3,326		(19,750		)	(956		)	(23,862		)	(11,832		)	—			(53,074		)
Reorganization items, net	—			—			—		—			—			60			—			60
Gain on debt restructuring																								—		—			—			—			(170,648		)	—			(170,648		)
Interest expense, net of amounts capitalized	—			—			—		—			—			8,090			—			8,090			32		6			13			12			8,158			—			8,221
Income (loss) before income taxes	(495		)	(7,249		)	1,854		(2,355		)	3,212			(33,283		)	—			(38,316		)	3,305		(19,750		)	(969		)	(23,873		)	151,025			—			109,738
Long-lived assets(1)	166,993			78,718			19,856		68,200			7			56,462			(32,445		)	357,791			118,636		17,272			16,150			16,312			28,898			—			197,268
Total assets	287,305			41			38,450		363,879			10,117			(77,212		)	(71,475		)	551,105			154,319		27,292			21,331			25,230			61,764			8,725			298,661
Capital expenditures	1,288			735			37		124			119			71			—			2,374			288		18			167			132			77			—			682

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

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

Successor company as of and for the nine months ended September 30, 2017
U.S. Rig Services Fluid Management Services Coiled Tubing Services Fishing and Rental Services International
Functional
Support(2)

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


Predecessor company as of and for the nine months ended September 30, 2016
As of and for the three months ended March 31, 2019																									As of and for the three months ended March 31, 2019
	U.S. Rig Services			Fluid Management Services			Coiled Tubing Services			Fishing and Rental Services			International			Functional Support(2)			Reconciling Eliminations			Total			Rig Services		Fishing and Rental Services			Coiled Tubing Services			Fluid Management Services		Functional Support			Reconciling Eliminations			Total
Revenues from external customers	$	169,627		$	61,230		$	24,294		$	43,773		$	9,582		$	—		$	—		$	308,506		$	65,026	$	14,587		$	10,673		$	18,987	$	—		$	—		$	109,273
Intersegment revenues	737			733			43			3,448			284			—			(5,245		)	—			88		908			—			43		—			(1,039		)	—
Depreciation and amortization	44,278			17,725			8,574			21,385			6,067			7,046			—			105,075			5,989		4,150			1,256			2,441		460			—			14,296
Impairment expense	—			—			—			—			40,000			—			—			40,000
Other operating expenses	154,393			70,557			32,298			42,127			17,865			88,452			—			405,692			54,581		11,560			11,555			16,437		16,156			—			110,289
Operating loss	(29,044		)	(27,052		)	(16,578		)	(19,739		)	(54,350		)	(95,498		)	—			(242,261		)
Operating income (loss)																									4,456		(1,123		)	(2,138		)	109		(16,616		)	—			(15,312		)
Interest expense, net of amounts capitalized	—			—			—			—			—			64,061			—			64,061			10		7			16			11		9,189			—			9,233
Loss before income taxes	(29,011		)	(27,003		)	(16,455		)	(19,719		)	(54,986		)	(158,483		)	—			(305,657		)
Income (loss) before income taxes																									4,469		(1,124		)	(2,153		)	106		(24,701		)	—			(23,403		)
Long-lived assets(1)	450,384			111,697			45,705			106,055			10,334			160,835			(115,326		)	769,684			134,880		49,352			17,368			53,168		19,023			—			273,791
Total assets	1,304,552			241,422			114,259			467,392			33,145			(840,066		)	(325,083		)	995,621			185,482		61,353			27,417			66,407		62,841			9,252			412,752
Capital expenditures	1,025			2,885			101			2,470			711			228			—			7,420			1,830		2,073			766			157		214			—			5,040


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


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

NOTE 17. ASSET IMPAIRMENT

Asset Impairments

During the three months ended March 31, 2020 the Company recognized an asset impairment of $41.2 million. The recent COVID-19 pandemic in March 2020 has resulted in significant economic disruption globally. Government action to restrict travel and suspend business operations has significantly reduced global economic activity. In addition, the recent step decline in the price of crude oil has decreased the value in some of our long-lived assets.

~~NOTE 16. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS~~

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

Impairment of Lon-Lived Assets

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

During the first quarter of 2020, we identified long-lived asset impairment triggers relating to all five of our asset groups as a result of the significant economic impacts and the effects of COVID-19. The five asset groups were ~~registered securities.~~determined to be Rigs, Fluid Management Services - Trucks, Fluid Management Services - SWD, Fishing & Rental Services, and Coiled Tubing Services. We assessed each asset group for impairment by comparing the undiscounted pretax cash flows to the carrying value of each asset group. We determined that all our asset groups, excluding Rigs, had carrying values that exceeded the undiscounted cash flows. The determination of undiscounted cash flows included management’s best estimates of the expected future cash flows per asset group for the next five years. The determinations of expected future cash flows and the salvage value of long-lived assets require considerable judgement and are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for the purposes of ~~these registered securities, we are required~~this impairment analysis will prove to ~~present the following condensed consolidating financial information pursuant to SEC Regulation S-X Rule 3-10, “Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.”~~ ~~Our ABL Facility and Term Loan Facility~~be an accurate prediction of the ~~Successor~~future. Should our assumptions change significantly in future periods, it is possible we may determine the carrying values of the Rigs asset group exceeds the undiscounted pretax cashflows, which would result in an impairment expense.

It was determined that the fair value of the Fluid Management Services - Trucks, Fluid Management Services - SWD, and Fishing & Rental Service asset groups was less than the carrying value of the respective asset groups by approximately $8.8 million, $14.8 million and $17.6 million, respectively. As a result, we recorded a total impairment charge of $41.2 million to asset impairment on the consolidated statements of income. We determined that the fair value of our Coiled Tubing Services asset group exceeded the carrying value. As such, no impairment expense was charged to the Coiled Tubing Services asset group.

The Company ~~are not registered securities, so~~incorporated the ~~presentation~~income, market, and cost approaches to determine the fair value of ~~condensed consolidating financial information is not required~~each asset group. The income approach utilized significant assumptions including management’s best estimates of the expected future cash flows and the estimated useful life of the asset group. The market approach was utilized when there was an observable secondary market or where there was ample asset data available. The cost approach utilized assumptions for the ~~Successor period. The following~~current replacement costs of similar assets adjusted for estimated depreciation and deterioration of the existing equipment and economic obsolescence. Fair value determination requires a considerable amount of judgement and is ~~our condensed consolidated statement of operations~~sensitive to changes in underlying assumptions and ~~statement of cash flows~~economic factors. As a result, there can be no assurance that the fair value estimates made for the ~~Predecessor periods (in thousands):~~impairment analysis will prove to be an accurate prediction for the future.

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

Parent
Company

Guarantor
Subsidiaries

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

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

Parent
Company

Guarantor
Subsidiaries

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

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

Parent
Company

Guarantor
Subsidiaries

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

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

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


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

OVERVIEW

Key Energy Services, Inc., and its wholly owned subsidiaries provide a full range of well services to major oil companies and independent oil and natural gas production companies. Our services include rig-based and coiled tubing-based well maintenance and workover services, well completion and recompletion services, fluid management services, fishing and rental services, and other ancillary oilfield services. Additionally, certain of our rigs are capable of specialty drilling applications. We operate in most major oil and natural gas producing regions of the continental United States. ~~We formerly had operations in Russia, which were sold in the third quarter of 2017.~~ An important component of the Company’s growth strategy is to make acquisitions that will strengthen its core services or presence in selected markets, and the Company also makes strategic divestitures from time to time. The Company expects that the industry in which it operates will experience consolidation, and the Company expects to explore opportunities and engage in discussions regarding these opportunities, which could include mergers, consolidations or acquisitions or further dispositions or other transactions, although there can be no assurance that any such activities will be consummated.

The following discussion and analysis should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes as of and for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016,~~2019, included elsewhere herein, and the audited consolidated financial statements and notes thereto included in our ~~2016~~2019 Form 10-K and Part I, Item 1A. Risk Factors of our ~~2016~~2019 Form ~~10-K.~~10-K and Part II, Item 1A. Risk Factors of this report.

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

Restructuring and Reverse Stock Split

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

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

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

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

of our chief executive officer and six other members appointed by various Supporting Term Lenders. Specifically, pursuant to the Stockholders Agreement, Supporting Term Lenders who hold more than 25% of the Company’s outstanding shares as of the closing of the Restructuring are entitled to nominate two directors and Supporting Term Lenders who hold between 10% and 25% of the Company’s outstanding shares as of the closing of the Restructuring are entitled to nominate one director. All appointees or nominees of Supporting Term Lenders, other than any director appointed or nominated by Soter Capital LLC (“Soter”), must meet the “independent director” requirements set forth in Section 303A of the NYSE Listed Company Manual. In addition, pursuant to the Stockholders Agreement, Supporting Term Lenders are entitled to appoint a non-voting board observer subject to specified ownership thresholds.

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

PERFORMANCE MEASURES

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


	WTI Cushing Oil(1)		NYMEX Henry Hub Natural Gas(1)		Average Baker Hughes U.S. Land Drilling Rigs(2)	WTI Cushing Oil(1)		NYMEX Henry Hub Natural Gas(1)		Average Baker Hughes U.S. Land Drilling Rigs(2)	Average AESC Well Service Active Rig Count(3)
2017:
2020:
First Quarter	$	51.60	$	3.02	729	$	41.00	$	1.90	764	978
Second Quarter	$	48.07	$	3.07	878
Third Quarter	$	48.18	$	2.95	927
April						$	16.55	$	1.74	548	NA(4)

2016:
2019:
First Quarter	$	33.35	$	1.99	524	$	54.82	$	2.92	1,023	1,295
Second Quarter	$	45.46	$	2.15	398	$	59.88	$	2.57	967	1,311
Third Quarter	$	44.85	$	2.88	461	$	56.34	$	2.38	894	1,263
Fourth Quarter	$	49.14	$	3.04	567	$	56.82	$	2.40	797	1,143


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


(2)	Source: www.bakerhughes.com


(3)	Source: Association of Energy Service Companies data at www.aesc.net


(4)	Information unavailable at time of filing.

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

~~In the U.S., our rig~~Rig activity occurs primarily on weekdays during daylight hours. Accordingly, we track ~~U.S.~~ rig activity on a “per ~~U.S.~~ working day” basis. Key’s ~~U.S.~~ working days per quarter, which exclude national holidays, are indicated in the table below. Our ~~domestic~~ trucking activity tends to occur on a 24/7 ~~basis, as did our international rig activity prior to the sale of our international operations.~~basis. Accordingly, we track our ~~international rig activity and our domestic~~ trucking activity on a “per calendar day” basis. The following table presents our quarterly rig and trucking hours from ~~2016~~2019 through the ~~third~~first quarter of ~~2017:~~2020:


	Rig Hours			Trucking Hours	Key’s U.S. Working Days(1)	Rig Hours	Trucking Hours	Key’s Working Days(1)
2017:	U.S.	International	Total
2020:
First Quarter	165,968	2,462	168,430	179,215	64	101,341	106,786	64
Second Quarter	163,966	1,701	165,667	185,398	63
Third Quarter	161,725	2,937	164,662	197,319	63
Total 2017	491,659	7,100	498,759	561,932	190
April						15,912	26,387	21
Total 2020						117,253	133,173	85

2016:
2019:
First Quarter	153,417	5,715	159,132	217,429	63	151,309	150,740	63
Second Quarter	144,587	6,913	151,500	199,527	64	154,017	144,996	63
Third Quarter	163,206	6,170	169,376	198,362	64	142,151	150,518	64
Fourth Quarter	169,087	4,341	173,428	192,049	61	114,727	121,152	62
Total 2016	630,297	23,139	653,436	807,367	252
Total 2019						562,204	567,406	252


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

MARKET AND BUSINESS CONDITIONS AND OUTLOOK

~~Our core businesses depend on our customers’ willingness to make expenditures to produce, develop~~The competition between OPEC and ~~explore~~non-OPEC producing countries like Russia for crude oil market share and ~~natural gas. Industry conditions are influenced by numerous factors, such as oil~~the global COVID-19 pandemic have simultaneously increased supply and ~~natural gas prices, the supply of and~~decreased demand for oil and natural gas ~~domestic and worldwide economic conditions, and political instability~~to historically low levels. This collapse in ~~oil producing countries and available supply of and~~the demand for and price of oil caused by the unprecedented global health and economic crisis, has had an adverse impact on the demand for our services and the prices we ~~provide. Oil~~can charge for our services. The extent to which our future results are affected by the COVID-19 pandemic and ~~natural gas prices~~related economic downturn will depend on various factors and consequences beyond our control, such as the duration and scope of the pandemic; additional actions by businesses and governments in response to the pandemic, and the speed and effectiveness of responses to combat the virus. COVID-19 may also adversely affect our results in a manner that is either not currently known or that we do not currently consider to be a significant risk to our business. For additional detail, please refer to Risk Factors inPart II, Item 1A of this report and those risk factors previously disclosed in our 2019 Form 10-K.

We experienced a downturn in demand for our services in 2019, but this decline has increased in 2020. The macroeconomic events that began in March 2020 resulted in significant revisions to our customers’ capital spending programs for 2020. We expect reduced demand for our services and pricing pressure to continue for the foreseeable future. As of the date of this filing, we have limited visibility into when our customers will resume their production maintenance activities, but believe that as oil supply adjusts to demand and our customers begin to bring wells back on line, we will see some recovery in activity as normal maintenance work is resumed.

We initiated a ~~rapid and substantial decline~~number of actions in the fourth quarter 2019 aimed at conserving cash and protecting our liquidity, and these actions have continued into the second quarter of ~~2014. Depressed commodity price~~2020, including: completing the refinancing our capital structure, internally realign our operations, exited operations and areas to focus on certain markets where we had the best competitive positions, and have taken steps to reduce our overhead costs, given the reduced operating footprint. We remain focused on maximizing our current equipment fleet, but we may further reduce our planned expenditures and defer acquisition of new equipment or maintenance if market conditions ~~persisted~~decline further. Additionally, to protect our workforce in the wake of COVID-19, we have taken steps to keep our employees safe by supporting those affected, mandating that as many employees as possible work from home, and ~~worsened during 2015~~monitoring those who cannot do so and ~~into 2016. As a result,~~are required to be at work.

Given the ~~Baker Hughes U.S. rig count and~~dynamic nature of the ~~AESC well service rig count, along with demand for our products and services declined substantially, and the prices~~macroeconomic events discussed above, we are ~~able~~unable to ~~charge~~reasonably estimate the period of time that these market conditions will exist, the extent of the impact they will have on our ~~customers for our products and services also declined substantially. While we sought to anticipate activity declines and reshaped our organizational and cost structure to mitigate~~business, liquidity, results of operations, financial condition, or the ~~negative impact~~timing of these declines, we have continued to experience negative operating results and cash flows from operations. In 2017, oil prices recovered off the lows of 2016 and spurred an increase in the Baker Hughes U.S. rig count and related well completion activity, however, the same magnitude of activity increase did not occur in our principal Rig Services business, as measured by the AESC well service rig count, as oil and gas producer’s production maintenance spending has not recovered to the same extent as new well drilling and completion spending.any subsequent recovery.

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

RESULTS OF OPERATIONS

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

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

The following table shows our consolidated results of operations for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019~~, respectively~~ (in thousands):



													Three Months Ended
	Successor			Predecessor			Successor			Predecessor			March 31,
	Three Months Ended September 30, 2017			Three Months Ended September 30, 2016			Nine Months Ended September 30, 2017			Nine Months Ended September 30, 2016			2020			2019
REVENUES	$	110,653		$	102,406		$	319,885		$	308,506		$	75,308		$	109,273
COSTS AND EXPENSES:
Direct operating expenses	87,115			96,071			237,981			276,088			61,661			88,194
Depreciation and amortization expense	21,114			33,467			63,325			105,075			10,226			14,296
General and administrative expenses	37,168			42,456			98,498			129,604			15,253			22,095
Impairment expense	—			40,000			187			40,000
Asset impairments													41,242			—
Operating loss	(34,744		)	(109,588		)	(80,106		)	(242,261		)	(53,074		)	(15,312		)
Interest expense, net of amounts capitalized	8,090			21,120			23,672			64,061			8,221			9,233
Other (income) loss, net	(4,578		)	154			(5,779		)	(665		)
Reorganization items, net	60			—			1,501			—
Loss before income taxes	(38,316		)	(130,862		)	(99,500		)	(305,657		)
Other income, net													(385		)	(1,142		)
Gain on debt restructuring													(170,648		)	—
Income (loss) before income taxes													109,738			(23,403		)
Income tax benefit	96			110			1,238			489			(744		)	(38		)
NET LOSS	$	(38,220	)	$	(130,752	)	$	(98,262	)	$	(305,168	)
NET INCOME (LOSS)													$	108,994		$	(23,441	)

Consolidated Results of Operations — Three Months Ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~

~~Revenues~~

Our revenues for the three months ended September 30, 2017 increased $8.2 million, or 8.1%, to $110.7 million from $102.4 million for the three months ended September 30, 2016, due to an increase in spending from our customers as they react to improving commodity prices, particularly in our Coiled Tubing segment. Internationally, we had lower revenue primarily due to a decrease in customer activity in Russia and due to the sale during the third quarter of 2017 of these operations. See “Segment Operating Results — Three Months Ended September 30, 2017 and 2016” below for a more detailed discussion of the change in our revenues.

~~Direct Operating Expenses~~

Our direct operating expenses decreased $9.0 million, to $87.1 million (78.7% of revenues), for the three months ended September 30, 2017, compared to $96.1 million (93.8% of revenues) for the three months ended September 30, 2016. The decrease is primarily related to a decrease in insurance costs and repair and maintenance expense as we took steps to reduce our cost structure.

~~Depreciation and Amortization Expense~~

Depreciation and amortization expense decreased $12.4 million, or 36.9%, to $21.1 million during the three months ended September 30, 2017, compared to $33.5 million for the three months ended September 30, 2016. The decrease is primarily attributable to the reduction of property, plant and equipment due to the implementation of fresh start accounting in the fourth quarter of 2016.

~~General and Administrative Expenses~~

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

~~Impairment Expense~~

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

~~Interest Expense, Net of Amounts Capitalized~~

Interest expense decreased $13.0 million, or 61.7%, to $8.1 million for the three months ended September 30, 2017, compared to $21.1 million for the same period in 2016. The decrease is primarily related to the elimination of the Predecessor Company’s senior secured notes in connection with our emergence from voluntary reorganization.

~~Other (Income) Loss, Net~~

During the quarter ended September 30, 2017, we recognized other income, net, of $4.6 million, compared to other loss, net, of $0.2 million for the quarter ended September 30, 2016. Our foreign exchange loss relates to U.S. dollar-denominated transactions in our foreign businesses and fluctuations in exchange rates between local currencies and the U.S. dollar.

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

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

~~Reorganization Items, Net~~

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

~~Income Tax Benefit~~

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

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

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

Successor company as of and for the three months ended September 30, 2017
U.S. Rig Services Fluid Management Services Coiled Tubing Services Fishing and Rental Services International Functional
Support Total
Revenues from external customers $ 61,933
$ 20,713
$ 12,499
$ 14,177
$ 1,331
$ —
$ 110,653
Operating expenses 62,435
27,975
10,645
16,543
2,459
25,340
145,397
Operating loss (502 ) (7,262 ) 1,854
(2,366 ) (1,128 ) (25,340 ) (34,744 )

~~U.S. Rig Services~~

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

Operating expenses for our U.S. Rig Services segment were $62.4 million during the three months ended September 30, 2017, which represented a decrease of $5.7 million, or 8.4%, compared to $68.1 million for the same period in 2016. These expenses decreased primarily as a result of reduced depreciation expense and a decrease in employee compensation on a per hour basis as we took steps to reduce our cost structure.

~~Fluid Management Services~~

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

Operating expenses for our Fluid Management Services segment were $28.0 million during the three months ended September 30, 2017, which represented a decrease of $4.2 million, or 13.1%, compared to $32.2 million for the same period in 2016. These expenses decreased primarily as a result of a decrease in employee compensation costs and equipment expense as we took steps to reduce our cost structure.

~~Coiled Tubing Services~~

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

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

~~Fishing and Rental Services~~

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

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

~~International~~

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

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

~~Functional Support~~

Operating expenses for Functional Support, which represent expenses associated with managing our U.S. and International reporting segments, decreased $6.3 million, or 19.9%, to $25.3 million (22.9% of consolidated revenues) for the three months ended September 30, 2017 compared to $31.6 million (30.9% of consolidated revenues) for the same period in 2016. The decrease is primarily due to decrease of $13.1 million in professional fees related to the 2016 corporate restructuring.

~~Consolidated Results of Operations — Nine Months Ended September 30, 2017 and 2016~~2019

Revenues

Our revenues for the ~~nine~~three months ended ~~September 30, 2017 increased $11.4~~March 31, 2020 decreased $34.0 million, or ~~3.7%~~31.1%, to ~~$319.9~~$75.3 million from ~~$308.5~~$109.3 million for the ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2019, due to ~~an increase in~~lower spending from our customers as ~~they react to improving commodity prices. Internationally, we had lower revenue as~~ a result of lower oil prices. These market conditions resulted in reduced customer activity. Additionally, in the ~~sale our operations in Mexico, a decrease in activity in Russia and the sale during the third~~fourth quarter of ~~2017~~2019, the company strategically exited a number of ~~our Russian operations.~~non-core and underperforming locations. See “Segment Operating Results — ~~Nine~~Three Months Ended ~~September 30, 2017~~March 31, 2020 and ~~2016”~~2019” below for a more detailed discussion of the change in our revenues.

Direct Operating Expenses

Our direct operating expenses decreased ~~$38.1~~$26.5 million, to ~~$238.0~~$61.7 million ~~(74.4%~~(81.9% of revenues), for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2020, compared to ~~$276.1~~$88.2 million ~~(89.5%~~(80.7% of revenues) for the ~~nine~~three months ended ~~September 30, 2016. The~~March 31, 2019. This decrease is primarily ~~related to~~ a ~~$21.0 million gain on the sale~~result of ~~certain assets and~~ a decrease in employee compensation costs, fuel expense and repair and maintenance expense ~~as we took steps~~due to ~~reduce our cost structure.~~a decrease in activity levels.

Depreciation and Amortization Expense

Depreciation and amortization expense decreased ~~$41.8~~$4.1 million, or ~~39.7%~~28.5%, to ~~$63.3~~$10.2 million during the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2020, compared to ~~$105.1~~$14.3 million for the ~~nine~~three months ended ~~September 30, 2016. The~~March 31, 2019. This decrease is primarily ~~attributable to the reduction of property, plant and equipment~~ due to ~~the implementation of fresh start accounting in the fourth quarter of 2016.~~certain assets becoming fully depreciated.

General and Administrative Expenses

General and administrative expenses decreased ~~$31.1~~$6.8 million, to ~~$98.5~~$15.3 million ~~(30.8%~~(20.3% of revenues), for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2020, compared to ~~$129.6~~$22.1 million ~~(42.0%~~(20.2% of revenues) for the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2019. The decrease is primarily ~~due~~related to a ~~$20.9~~credit of $4.3 million ~~decrease in professional fees~~ related to ~~our 2016 corporate~~a restructuring related concession on some accrued professional fees and lower employee compensation costs due to reduced staffing levels, ~~and a reduction in wages~~ partially offset by ~~a $11.6 million~~an increase in ~~legal settlement accruals.~~insurance claims of $5.6 million.

~~Impairment Expense~~Asset Impairments

During the ~~nine~~three months ended ~~September 30, 2017, we recorded a $0.2 million~~March 31, 2020 the Company recognized an asset impairment ~~to reduce~~of $41.2 million. It was determined that the fair value of the Fluid Management Services and Fishing & Rental Services was less than the carrying value of ~~the assets and related liabilities of our Russian business unit, which was sold in the third quarter of 2017, to fair market value. During the nine months ended September 30, 2016,~~those respective segments. As a result, we recorded ~~a $40.0~~an impairment of $17.6 million ~~impairment to reduce the carrying value of the assets~~ and ~~related liabilities of our Mexican business unit, which was sold in 2016, to fair market value.~~$23.7 million at those segments, respectively.

Interest Expense, Net of Amounts Capitalized

Interest expense decreased ~~$40.4~~$1.0 million, or ~~63.0%~~11.0%, to ~~$23.7~~$8.2 million for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2020, compared to ~~$64.1~~$9.2 million for the same period in ~~2016. The~~2019. This decrease is primarily related to the ~~elimination of~~decrease in interest payments required under the ~~Predecessor Company’s senior secured notes in connection with our emergence from voluntary reorganization.~~New Term Loan Facility.

Other Income, Net

During the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2020, we recognized other income, net, of ~~$5.8~~$0.4 million, compared to other income, net, of ~~$0.7~~$1.1 million for the ~~nine~~three months ended ~~September 30, 2016. Our foreign exchange loss relates to U.S. dollar-denominated transactions in our foreign locations and fluctuations in exchange rates between local currencies and the U.S. dollar.~~March 31, 2019.

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



							Three Months Ended
	Successor			Predecessor			March 31,
	Nine Months Ended September 30, 2017			Nine Months Ended September 30, 2016			2020			2019
Interest income	$	(534	)	$	(371	)	$	(57	)	$	(323	)
Foreign exchange (gain) loss	(29		)	1,112
Other, net	(5,216		)	(1,406		)
Other							(328		)	(819		)
Total	$	(5,779	)	$	(665	)	$	(385	)	$	(1,142	)

~~Reorganization Items, Net~~Gain on debt restructuring

~~Reorganization item expenses were $1.5 million for~~During the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2020, the Company recognized a gain of $170.6 million related to the recent restructuring of corporate debt. For more information on our New Term Loan Facility and ~~there were no reorganization item expenses for the same period in 2016. Reorganization items consist of professional fees incurred~~New ABL Facility entered into in connection with ~~our emergence from voluntary reorganization.~~the Restructuring, see “Note 1. General” and “Note 7. Long-Term Debt” for additional information.

Income Tax Benefit

We recorded an income tax ~~benefit~~expense of ~~$1.2~~$0.7 million on a pre-tax loss of ~~$99.5~~$109.7 million for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2020, compared to an income tax ~~benefit~~expense of ~~$0.5~~less than $0.1 million on a pre-tax loss of ~~$305.7~~$23.4 million for the same period in ~~2016.~~2019. Our effective tax rate was ~~1.2%~~0.7% for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2020, compared to ~~0.2%~~(0.2)% for the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2019. Our effective tax rates ~~for such periods~~ differ from the applicable U.S. statutory rate of ~~35%~~21% due to a number of factors, including the mix of profit and loss between ~~domestic and international~~U.S. taxing jurisdictions ~~and~~with varying statutory rates, the impact of permanent ~~items, including expenses subject to statutorily imposed limitations such as meals~~differences, and ~~entertainment expenses, that affect book income but do not affect taxable income and discrete~~other tax adjustments, such as valuation allowances against deferred tax ~~assets and tax expense or benefit recognized for uncertain tax positions.~~assets.

Segment Operating Results — ~~Nine~~Three Months Ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019

The following table shows operating results for each of our segments for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019 (in thousands):


Successor company as of and for the nine months ended September 30, 2017
For the three months ended March 31, 2020																					For the three months ended March 31, 2020
	U.S. Rig Services			Fluid Management Services			Coiled Tubing Services			Fishing and Rental Services		International			Functional Support			Total			Rig Services		Fishing and Rental Services			Coiled Tubing Services			Fluid Management Services			Functional Support			Total
Revenues from external customers	$	184,026		$	57,475		$	27,005		$	45,808	$	5,571		$	—		$	319,885		$	47,909	$	9,592		$	4,837		$	12,970		$	—		$	75,308
Operating expenses	186,792			74,901			27,111			34,557		10,351			66,279			399,991			44,583		29,342			5,793			36,832			11,832			128,382
Operating loss	(2,766		)	(17,426		)	(106		)	11,251		(4,780		)	(66,279		)	(80,106		)
Operating income (loss)																					3,326		(19,750		)	(956		)	(23,862		)	(11,832		)	(53,074		)


Predecessor company as of and for the nine months ended September 30, 2016
For the three months ended March 31, 2019																						For the three months ended March 31, 2019
	U.S. Rig Services			Fluid Management Services			Coiled Tubing Services			Fishing and Rental Services			International			Functional Support			Total			Rig Services		Fishing and Rental Services			Coiled Tubing Services			Fluid Management Services		Functional Support			Total
Revenues from external customers	$	169,627		$	61,230		$	24,294		$	43,773		$	9,582		$	—		$	308,506		$	65,026	$	14,587		$	10,673		$	18,987	$	—		$	109,273
Operating expenses	198,671			88,282			40,872			63,512			63,932			95,498			550,767			60,570		15,710			12,811			18,878		16,616			124,585
Operating loss	(29,044		)	(27,052		)	(16,578		)	(19,739		)	(54,350		)	(95,498		)	(242,261		)
Operating income (loss)																						4,456		(1,123		)	(2,138		)	109		(16,616		)	(15,312		)

~~U.S.~~

Rig Services

Revenues for our ~~U.S.~~ Rig Services segment ~~increased $14.4~~decreased $17.1 million, or ~~8.5%~~26.3%, to ~~$184.0~~$47.9 million for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2020, compared to ~~$169.6~~$65.0 million for the ~~nine~~three months ended ~~September 30, 2016. The increase for this segment is primarily due to an increase in completion and production spending from our customers as they react to improving commodity prices.~~

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

~~Fluid Management Services~~

Revenues for our Fluid Management Services segment decreased $3.8 million, or 6.1%, to $57.5 million for the nine months ended September 30, 2017, compared to $61.2 million for the nine months ended September 30, 2016.March 31, 2019. The decrease for this segment is primarily due to lower spending from our ~~exit from unprofitable locations.~~customers as a result of lower oil prices. These market conditions resulted in reduced customer activity. Additionally, in the fourth quarter of 2019, the company strategically exited a number of non-core and underperforming locations which resulted in a decrease of $9.4 million of revenue.

Operating expenses for our ~~Fluid Management~~Rig Services segment were ~~$74.9~~$44.6 million for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2020, which represented a decrease of ~~$13.4~~$16.0 million, or ~~15.2%~~26.4%, compared to ~~$88.3~~$60.6 million for the same period in ~~2016. These expenses decreased~~2019. This decrease is primarily ~~due to a decrease in equipment expense and employee compensation costs as we took steps to reduce our cost structure and as~~ a result of ~~lower activity levels.~~

~~Coiled Tubing Services~~

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

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

Fishing and Rental Services

Revenues for our Fishing and Rental Services segment ~~increased $2.0~~decreased $5.0 million, or ~~4.6%~~34.2%, to ~~$45.8~~$9.6 million for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2020, compared to ~~$43.8~~$14.6 million for the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2019. The ~~increase~~decrease for this segment is primarily due to ~~an increase in completion and production~~lower spending from our customers on oil and gas well drilling and completion, as ~~they react to improving commodity~~a result of lower oil prices. These market conditions resulted in reduced customer activity.

Operating expenses for our Fishing and Rental Services segment were ~~$34.6~~$29.3 million for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2020, which represented ~~a decrease~~an increase of ~~$29.0~~$13.6 million, or ~~45.6%,~~86.8% compared to ~~$63.5~~$15.7 million for the same period in ~~2016. These expenses decreased~~2019. This increase is primarily ~~due to a $21.0 million gain on the sale of certain assets, as~~ a result of ~~reduced depreciation expense and~~$17.6 million impairment of assets partially of set by a decrease in employee compensation oncosts due to a ~~per hour basis as we took steps to reduce our cost structure.~~decrease in activity levels and a decrease in depreciation expense.

~~International~~Coiled Tubing Services

Revenues for our ~~International~~Coiled Tubing Services segment decreased ~~$4.0~~$5.8 million, or ~~41.9%~~54.7%, to ~~$5.6~~$4.8 million for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2020, compared to ~~$9.6~~$10.7 million for the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2019. The decrease ~~was~~for this segment is primarily ~~attributable~~due to lower spending from our customers on oil and gas well drilling and completion, as a result of lower oil prices, and the ~~exit of operations~~increase in ~~Mexico~~competition. These market conditions resulted in reduced customer activity and a ~~decrease~~reduction in ~~activity~~the price received for our services. Additionally, in ~~Russia and~~ the ~~sale during the third~~fourth quarter of ~~2017~~2019, the company strategically exited a number of ~~our Russian operations.~~non-core and underperforming locations which resulted in a decrease of $2.5 million of revenue.

Operating expenses for our ~~International~~Coiled Tubing Services segment ~~decreased $53.6 million, or 83.8%, to $10.4~~were $5.8 million for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2020, which represented a decrease of $7.0 million, or 54.8%, compared to ~~$63.9~~$12.8 million for the ~~nine months ended September 30, 2016. These expenses decreased~~same period in 2019. This decrease is primarily as a result of a decrease in employee compensation costs, fuel expense and ~~equipment~~repair and maintenance expense ~~related~~due to a decrease in activity levels.

Fluid Management Services

Revenues for our ~~exit~~Fluid Management Services segment decreased $6.0 million, or 31.7%, to $13.0 million for the three months ended March 31, 2020, compared to $19.0 million for the three months ended March 31, 2019. The decrease for this segment is primarily due to lower spending from ~~operations~~our customers on oil and gas well drilling and completion, as a result of lower oil prices. These market conditions resulted in reduced customer activity. Additionally, in the fourth quarter of 2019, the company strategically exited a number of non-core and underperforming locations which resulted in a decrease of $2.4 million of revenue.

~~Mexico~~Operating expenses for our Fluid Management Services segment were $36.8 million for the three months ended March 31, 2020, which represented an increase of $18.0 million, or 95.1%, compared to $18.9 million for the same period in 2019. This increase is primarily a result of a $23.7 million impairment of assets partially of set by a decrease in employee compensation costs, fuel expense and ~~Russia~~repair and maintenance expense due to a decrease in activity levels and a ~~$40.0 million impairment to reduce the carrying value of the assets and related liabilities of our Mexican business unit, which was sold~~decrease in ~~2016, to fair market value.~~depreciation expense.

Functional Support

Operating expenses for Functional Support, which represent expenses associated with managing our ~~U.S. and International~~ reporting segments, ~~decreased $29.2~~increased $4.8 million, or ~~30.6%~~28.8%, to ~~$66.3~~$11.8 million ~~(20.7%~~(15.7% of consolidated revenues) for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 compared to ~~$95.5~~$16.6 million ~~(31.0%~~(15.2% of consolidated revenues) for the same period in ~~2016.~~2019. The decrease is primarily ~~due~~related to a credit of $4.3 million related to a restructuring related concession on some accrued professional fees and lower employee compensation costs due to reduced staffing levels, ~~and reduction~~partially offset by an increase in ~~wages, a $5.0 million FCPA settlement accrual and a decrease~~insurance claims of ~~$20.9 million in professional fees related to the 2016 corporate restructuring.~~$5.6 million.

LIQUIDITY AND CAPITAL RESOURCES

~~Current Financial Condition and Liquidity~~

As of September 30, 2017, we had total liquidity of $104.2 million which consists of $77.7 million cash and cash equivalents and $26.5 million of borrowing capacity available under our ABL Facility. This compares to total liquidity of $118.2 million which consists of $90.5 million cash and cash equivalents and $27.7 million of borrowing capacity available under our ABL FacilityEffective as of ~~December 31, 2016. Our working~~March 6, 2020, we completed the Restructuring of our capital ~~was $99.0 million as of September 30, 2017, compared to $120.3~~structure and indebtedness and, among other things, reduced our outstanding debt from $241.9 million as of December 31, ~~2016. Our working~~2019 to $51.2 million as of the closing of the Restructuring. For more information on the Restructuring, see “--Restructuring and Reverse Stock Split” above.

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

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

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

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

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

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

~~Sources of Liquidity and Capital Resources~~

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

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

The decrease in oil and natural gas prices has adversely affected out customer and resulted in a decrease of the creditworthiness of some our customers. As a result, our allowance for doubtful accounts as a percentage of accounts receivable has increased.

Due to the uncertainty of future oil and natural gas prices and the effect the COVID-19 pandemic will have on our results of operations and financial condition, there is substantial doubt as to the ability of the Company to continue as a going concern. Management has prepared these consolidated condensed financial statements in accordance with US GAAP applicable to a going concern, which contemplates that assets will be realized and liabilities will be discharged in the normal course of business as they become due. These consolidated condensed financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported revenues and expenses and balance sheet classifications that would be necessary if the Company was unable to realize its assets and settle its liabilities as a going concern in the normal course of operations. Such adjustments could be material and adverse to the financial results of the Company.

Current Financial Condition and Liquidity

As of March 31, 2020, we had total liquidity of $35.8 million which consisted of $25.6 million cash and cash equivalents and $10.2 million of borrowing capacity available under our ABL Facility. As of April 30, 2020 we had total liquidity of $36.2 which consisted of $26.1 million cash and cash equivalents and $10.1 million of borrowing capacity available under our ABL Facility. As of December 31, 2019, prior to the Restructuring, we had $14.4 million cash and cash equivalents. As of December 31, 2019, we were unable to borrow any amounts under the ABL Facility and had $24.0 million of borrowing capacity available under our ABL Facility.

Our working capital was $26.7 million as of March 31, 2020, compared to $(0.7) million as of December 31, 2019. Our working capital increased from the prior year end primarily as a result of an increase in cash and cash equivalents and decrease in accrued interest partially offset by, accounts receivable and prepaid assets. As of March 31, 2020, we had no borrowings outstanding, $36.3 million in committed letters of credit outstanding and $7.4 million posted as additional collateral recorded in deposits on our balance sheet under our ABL Facility.

The following table summarizes our cash flows for the ~~next twelve months.~~three months ended March 31, 2020 and 2019 (in thousands):

~~At September 30, 2017,~~




	Three Months Ended
	March 31,
	2020			2019
Net cash used in operating activities	$	(18,430	)	$	(11,342	)
Cash paid for capital expenditures	(682		)	(5,040		)
Proceeds received from sale of fixed assets	1,750			2,389
Proceeds from long-term debt	30,000			—
Repayments of long-term debt	—			(625		)
Repayments of finance lease obligations	(103		)	—
Payment of deferred financing costs	(1,385		)	—
Other financing activities, net	(7		)	—
Net increase (decrease) in cash, cash equivalents and restricted cash	$	11,143		$	(14,618	)

Cash used in operating activities was $18.4 million for the three months ended March 31, 2020 compared to cash used in operating activities of $11.3 million for the three months ended March 31, 2019. Cash used in operating activities for the three months ended March 31, 2020 was primarily related net losses adjusted for noncash items and a decrease in accrued interest. Cash used in operating activities for the three months ended March 31, 2019 was primarily related net losses adjusted for noncash items and decrease in accrued liabilities.

Cash provided by investing activities was $1.1 million for the three months ended March 31, 2020 compared to cash used in investing activities of $2.7 million for the three months ended March 31, 2019. Cash outflows during these periods consisted of capital expenditures. Our capital expenditures are primarily related to the ongoing maintenance of our equipment and the addition of new equipment. Cash inflows during these periods consisted of proceeds from sales of fixed assets.

Cash provided by financing activities was $28.5 million for the three months ended March 31, 2020 compared to cash used in financing activities of $0.6 million for the three months ended March 31, 2019. Financing cash inflows for the three months ended March 31, 2020 primarily relate to proceeds of long-term debt. Financing cash outflows for the three months ended March 31, 2019 primarily relate to the repayment of long-term debt.

Debt Service

As of March 31, 2020, our annual debt maturities for our ~~2021~~ Term Loan Facility were as follows (in thousands):

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




Year	Principal Payments
Remainder of 2020	$	9
2021	1,200
2022	—
2023	—
2024	—
2025	50,000
Total principal payments	$	51,209

New ABL Facility

On ~~December 15, 2016,~~March 6, 2020, the Company and Key Energy Services, LLC, as borrowers (the “ABL Borrowers”), entered into Amendment No. 3 to the Company’s existing ABL ~~Facility~~facility, dated as of December 15, 2016 (as amended, the “New ABL Facility”) with the financial institutions party thereto from time to time as lenders (the “ABL Lenders”), and Bank of America, N.A., as administrative agent and collateral agent (the “ABL Agent”) for the ~~lenders (the “Administrative Agent”) and Bank of America, N.A. and Wells Fargo Bank, National Association, as co-collateral agents for the lenders.~~ABL Lenders. The New ABL Facility provides for aggregate ~~initial~~ commitments from the ABL Lenders of ~~$80~~$70 million, which mature on ~~February 3, 2017 was increased~~the earlier of (x) April 5, 2024 and (y) 181 days prior to ~~$100 million, and matures on June 15, 2021.~~the scheduled maturity date of the Company’s term loan facility or the scheduled maturity date of the Company’s other material debt in an aggregate principal amount exceeding $15 million.

Borrowings under the New ABL Facility ~~bear~~bears interest, at the ABL Borrowers’ option, at a per annum rate equal to (i) LIBOR for 30, 60, 90, 180, or, with the consent of the ABL Lenders, 360 days, plus an applicable margin that varies from ~~2.50%~~2.75% to ~~4.50%~~3.25% depending on the ABL Borrowers’ fixed charge coverage ratio at such time or (ii) a base rate equal to the sum of (a) the greatest of (x) the prime rate, (y) the federal funds rate, plus 0.50% or (z) 30-day LIBOR plus 1.0% plus(b) an applicable margin that varies from ~~1.50%~~1.75% to ~~3.50%~~2.25% depending ofon the ABL Borrowers’ fixed charge coverage ratio at such time. The New ABL Facility provides that, in the event LIBOR becomes unascertainable for the requested interest period or otherwise becomes unavailable or replaced by other benchmark interest rates, then the Company and the ABL Agent may amend the New ABL Facility for the purpose of replacing LIBOR with one or more SOFR-based rates or another alternate benchmark rate giving consideration to the general practice in similar U.S. dollar denominated syndicated credit facilities.

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

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

As of ~~September~~April 30, ~~2017,~~2020, we ~~have~~had no borrowings outstanding under the New ABL Facility and ~~$33.7~~$36.3 million of letters of credit ~~outstanding~~and $11.8 million posted as additional collateral recorded in deposits on our balance sheet with borrowing capacity of ~~$26.5~~$10.1 million available subject to covenant constraints under our New ABL Facility.

As of March 31, 2020, we were in compliance with all covenants under our New ABL Facility.

New Term Loan Facility

On ~~December 15, 2016,~~March 6, 2020, the Company entered into the amendment and restatement agreement with the Supporting Term Lenders and Cortland Capital Market Services LLC and Cortland Products Corp., as agent (the “Term Agent”), which amended and restated the Prior Term Loan Facility, among the Company, as borrower, certain subsidiaries of the Company named as guarantors therein, the financial institutions party thereto from time to time as lenders and the Term Agent (as amended and restated by the amendment and restatement agreement, the “New Term Loan Facility”). Prior to the closing of the Restructuring, there were approximately $243.1 million aggregate principal amount of term loans outstanding under the Prior Term Loan Facility. Following the closing of the Restructuring, the New Term Loan Facility is comprised of (i) $30 million new money term loans funded by the Supporting Term Lenders and $20 million new term loans excluding new money issued in exchange for existing term loans held by the Supporting Term Lenders (collectively, the ~~“Term Loan Lenders”~~“New Term Loans”) and ~~Cortland Capital Market Services LLC and Cortland Products Corp., as agent for~~(ii) an approximate $1.2 million senior

secured term loan tranche in respect of the ~~Lenders. The~~existing term loans held by lenders who are not Supporting Term Lenders (the “Continuing Term Loans”). As of March 31, 2020, there was $51.2 million outstanding under the New Term Loan ~~Facility had an outstanding principal amount of $250 million as of the Effective Date.~~Facility.

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

the consent of ~~the Term Loan Lenders,~~all term loan lenders, up to 12 months, ~~plus~~ ~~10.25% or (ii) a base rate equal~~and the Company has the option to pay interest in kind of up to 100 basis points of the ~~sum of (a)~~per annum interest due on the ~~greatest of (x) the prime rate, (y) the Federal Funds rate, plus 0.50% and (z) 30-day LIBOR, plus 1.0% plus (b) 9.25%.~~Continuing Term Loans.

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

The ~~loans under the~~New Term ~~Loan Facility~~Loans may be prepaid at the Company’s option, subject to the payment of a prepayment premium (which may be waived by lenders holding New Term Loans under the New Term Loan Facility representing at least two-thirds of the aggregate outstanding principal amount of the New Term Loans) in certain circumstances as provided in the New Term Loan Facility. If a prepayment is made prior to the first anniversary of the ~~loan,~~closing of the Restructuring, such prepayment ~~must be made with make-whole amount with the calculation~~premium is equal to 3% of the ~~make-whole~~principal amount ~~as specified in the Term Loan Facility. If a prepayment is made after the first anniversary~~ of the ~~loan but prior to the second anniversary, such prepayment must be made at 106% of the principle amount,~~New Term Loans prepaid; if a prepayment is made ~~after~~from the first anniversary to the second anniversary ~~but prior to the third anniversary, such prepayment must be made at 103%~~ of the ~~principle amount. After~~closing of the ~~third anniversary,~~Restructuring, the prepayment premium is equal to 2% of the principal amount of the New Term Loans prepaid; if a prepayment is made from the second anniversary to the third anniversary of the closing of the Restructuring, the prepayment premium is equal to 1% of the principal amount of the New Term Loans prepaid; and there is no prepayment premium ~~is due.~~thereafter. The Company is required to make principal payments in respect of the Continuing Term Loans in the amount of ~~$625,000~~$3,125 per quarter ~~which principal payments commenced~~commencing with the quarter ~~ended~~ending March 31, ~~2017.~~ 2020 and is required to pay $1,190,625 on the maturity date of the Continuing Term Loans.

The New Term Loan Facility contains certain affirmative and negative covenants, including covenants that restrict the ability of the Term Loan Parties to take certain actions including, among other things and subject to certain significant exceptions, the incurrence of debt, the granting of liens, the making of investments, entering into transactions with affiliates, the payment of dividends and the sale of assets. The New Term Loan Facility also contains a financial ~~covenants~~covenant requiring that the Company maintain ~~an asset coverage ratio of at least 1.35 to 1.0 and that~~ Liquidity (as defined in the New Term Loan Facility) ~~must~~of not be less than ~~$37.5~~$10 million ~~(of which at least $20.0 million must be in cash or cash equivalents held in deposit accounts)~~ as of the last day of any fiscal quarter, subject to certain exceptions and cure rights.

~~Debt Compliance~~

~~At September 30, 2017,~~As of March 31, 2020, we were in compliance with all ~~the financial~~ covenants under our ~~ABL Facility and the~~ Term Loan Facility. Based on management’s current projections, we expect to be in compliance with all the covenants under our ABL Facility and Term Loan Facility for the next twelve months. A breach of any of these covenants, ratios or tests could result in a default under our indebtedness.

Capital Expenditures

During the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2020, our capital expenditures totaled ~~$9.6~~$0.7 million. Our current capital expenditure plan for 2020 contemplates spending of approximately $5 million for the full year, subject to market conditions. In light of the decline in planned E&P capital spending, reduced activity by our customers and reduced demand for our services, in April, we reduced our capital expenditure plan for 2020 from the original amount of $15 to $20 million to the current amount of approximately $5 million. These capital expenditures are primarily related to the ongoing maintenance of our ~~equipment. Our capital expenditure plan for 2017 contemplates spending between $10 million~~equipment and ~~$15 million, subject to market conditions. This is primarily related to~~addition of equipment ~~replacement needs, including ongoing replacements to our rig services fleet.~~and new equipment needed. Our capital expenditure program for ~~2017~~2020 is subject to market conditions, including activity levels, commodity prices, industry capacity and specific customer needs as well as cash ~~flows.~~flows, including cash generated from asset sales. Our focus for ~~2017~~2020 will be the maximization of our current equipment fleet, but we may choose to increase our capital expenditures in ~~2017~~2020 to expand our presence in a market. We ~~currently anticipate funding~~may also further reduce our ~~2017 capital~~planned expenditures ~~through a combination~~and defer acquisition of ~~cash on hand, operating cash flow, proceeds from sales of assets and borrowings under our ABL Facility.~~new equipment or maintenance if market conditions decline further. Should our operating cash flows or activity levels prove to be insufficient to fund our currently planned capital spending levels, management expects ~~that~~ it will adjust our capital spending plans accordingly. ~~We may also incur capital expenditures for strategic investments and acquisitions.~~

Off-Balance Sheet Arrangements

At ~~September 30, 2017~~March 31, 2020 we did not, and we currently do not, have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our quantitative and qualitative disclosures about market risk from those disclosed in our ~~2016~~2019 Form 10-K. More detailed information concerning market risk can be found in “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” in our ~~2016~~2019 Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the ~~third~~first quarter of ~~2017~~2020 that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS

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


ITEM 1A.	RISK FACTORS

~~Reference is made~~There are numerous factors that affect our business and results of operations, many of which are beyond our control. In addition to information set forth in this report, including in Part I, Item ~~1A.~~ ~~Risk Factors~~8 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the risk factors described below, you should carefully read and consider the factors set out in Part I, Item 1A “Risk Factors” of our 2019 Form 10-K. The unprecedented nature of the ~~2016~~current pandemic and downturn in the worldwide economy and oil and gas industry may make it more difficult to identify all the risks to our business, results of operations and financial condition and the ultimate impact of identified risks.

The depressed conditions in our industry have materially and adversely affected our results of operations, cash flows and financial condition and raise substantial doubt about our ability to continue as a going concern.

In early March of 2020 and continuing through the second quarter, the market has experienced a precipitous decline in oil and natural gas prices in response to reduced demand for oil and natural gas due to the economic impacts of the COVID-19 pandemic, worldwide shutdowns and the announcement by Saudi Arabia of a significant increase in its maximum crude oil production capacity as well as the announcement by Russia that previously agreed upon oil production cuts between members of the Organization of the Petroleum Exporting Countries and its broader partners (OPEC+) would expire on April 1, 2020, and the ensuing expiration thereof. On April 12, 2020, members of OPEC+ agreed to certain production cuts; however, these cuts are not expected to be enough to offset near-term demand loss attributable to the COVID-19 pandemic. Prices for WTI crude oil were over $60 per barrel at the beginning of 2020 and declined to $16.55 per barrel by April 30, 2020.

As a result of low oil and natural gas prices, our customers have significantly curtailed their demand for our services. Additionally, the excess supply of oil could lead to further curtailments by our customers. For example, U.S. storage capacity is expected to be fully subscribed by the end of May 2020.

Since the beginning of 2020, as a result of low oil and natural gas prices, demand for our services has declined substantially, and the prices we are able to charge our customers for our services also declined substantially. Current market conditions have caused many of our customers to significantly decrease their projected capital expenditures for 2020 and, maybe beyond. The excess worldwide supply of oil could lead to further curtailments by our customers. For example, U.S. storage capacity is expected to be fully subscribed by the end of May 2020. These trends have materially and adversely affected our results of operations, cash flows and financial condition, and, unless worldwide economic conditions and conditions in our industry improve substantially, this trend will continue during 2020 and potentially beyond.

Although we are continuing to pursue cost reduction initiatives, there can be no assurance that we will be able to successfully consummate these initiatives or that they will be successful to improve our financial condition and liquidity. We had substantial net losses during the last several years and our cash flow used by operations was $29.0 million during 2019 and $18 million during the first quarter of 2020. We also incurred an impairment of $41.2 million for the first quarter of 2020 and may experience further impairments in future quarters. If industry conditions do not improve, we may continue to suffer net losses and negative cash flows from operations.

As discussed further in Note 1 in the Notes to the Condensed Consolidated Financial Statements (Unaudited) in Part I, Item 1 and under “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 of this Report, current conditions raise substantial doubt about our ability to continue as a going concern within the next year post-issuance of the consolidated financial statements included in this Report.

The COVID-19 pandemicand related events has significantly reduced demand for our services, and has had, and may continue to have, a material adverse impact on our financial condition, results of operations and cash flows.

The effects of the COVID-19 pandemic, including actions taken by businesses and governments, have resulted in a significant and swift reduction in international and U.S. economic activity. These effects have adversely affected the demand for oil and natural gas, as well as for our services. The collapse in the demand for oil caused by this unprecedented global health and economic crisis, coupled with oil oversupply, has had, and is reasonably likely to continue to have, a material adverse impact on the demand for our services and the prices we can charge for our services. The decline in our customers’ demand for our services

has had, and is likely to continue to have, a material adverse impact on our financial condition, results of operations and cash flows.

While the full impact of the COVID-19 outbreak is not yet known, we are closely monitoring the effects of the pandemic on commodity demands and on our customers, as well as on our operations and employees. These effects have included, and may continue to include, adverse revenue and net income effects; disruptions to our operations; customer shutdowns of oil and gas exploration and production; employee impacts from illness, school closures and other community response measures; and temporary closures of our facilities or the facilities of our customers and suppliers.

The extent to which our operating and financial results are affected by COVID-19 will depend on various factors and consequences beyond our control, such as the duration and scope of the pandemic; additional actions by businesses and governments in response to the pandemic; and the speed and effectiveness of responses to combat the virus. COVID-19, and the volatile regional and global economic conditions stemming from the pandemic, could also aggravate the other risk factors that we identify in our Annual Report on Form 10-K for ~~information concerning risk factors.~~the fiscal year ended December 31, 2019. COVID-19 may also materially adversely affect our operating and financial results in a manner that is not currently known to us or that we do not currently consider to present significant risks to our operations.

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

Issuer Purchases of Equity Securities

During the three months ended ~~September 30, 2017,~~March 31, 2020, we repurchased the shares shown in the table below to satisfy tax withholding obligations upon the vesting of restricted stock awarded to certain of our employees:

Period
Number of
Shares Purchased

Average Price
Paid per Share(1)
July 1, Period to July 31, Period —
$ —
August 1, Period to August 31, Period 2,432
12.83
September 1, Period to September 30, Period —
—
Total 2,432
$ 12.83



Period	Number of Shares Purchased	Average Price Paid per Share(1)
January 1, 2020 to January 31, 2020	—	$	—
February 1, 2020 to February 29, 2020	1,266	5.28
March 1, 2020 to March 31, 2020	—	—
Total	1,266	$	5.28


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

Unregistered Sales of Equity Securities

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

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.


ITEM 4.	MINE SAFETY DISCLOSURES

Not applicable.


ITEM 5.	OTHER INFORMATION

None.


ITEM 6.	EXHIBITS

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

EXHIBIT INDEX



Exhibit No.		Description

3.1		Amended and Restated Certificate of Incorporation of Key Energy Services, Inc. ~~(incorporated herein~~, dated March 6, 2020 (Incorporated by reference to Exhibit 3.1 to ~~the Company’s~~our Current Report on Form ~~8-A~~8-K filed ~~with the SEC~~ on ~~December 15, 2016,~~March 9, 2020, File No. 001-08038).

3.2		Amended and Restated ~~By-laws~~Bylaws of Key Energy Services, Inc. ~~(incorporated herein~~, dated March 6, 2020 (Incorporated by reference to Exhibit 3.2 to ~~the Company’s Annual~~our Current Report on Form ~~10-K for the fiscal year ended December 31, 2016,~~8-K filed ~~with the SEC~~ on March ~~2, 2017,~~9, 2020, File No. 001-08038).

10.3†		Restructuring Support Agreement, dated as of January 24, 2020 by and among Key Energy Services, Inc., as borrower, the Lenders party thereto, and Cortland Products Corp., as agent (Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on January 27, 2020, File No. 001-08038).

10.6*		Amended and Restated Intercreditor Agreement, dated March 6, 2020, by and among Key Energy Services, Inc., the Grantors referred to therein, Bank of America, N.A., as Initial ABL Agent, and Cortland Products Corp., as Initial Term Agent.

10.7*		Amendment and Restatement Agreement, dated March 6, 2020, to the Term Loan and Security Agreement, by and among Key Energy Services, Inc., the subsidiary guarantors referred to therein, the Lenders party thereto, Cortland Products Corp. and Cortland Capital Market Services LLC, as agents for the Lenders .

10.8*		Amendment No. 3 to Loan Agreement, dated March 6, 2020, by and among Key Energy Services, Inc., Key Energy Services, LLC, as the borrower, the Lenders party thereto and Bank of America, N.A., as administrative agent.

31.1*		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32**		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101101.INS		~~Interactive Data File.~~XBRL Instance Document

101.SCH*		XBRL Taxonomy Extension Schema Document

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*		XBRL Taxonomy Extension Label Linkbase Document

101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document




*	Filed herewith

**	Furnished herewith

†	Certain portions of this exhibit (indicated by “[***]”) have been omitted pursuant to Item 601(b)(10) of Regulation S-K.

SIGNATURE

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



		KEY ENERGY SERVICES INC.

Date:	~~November 9, 2017~~May 15, 2020	By:	/s/ J. MARSHALL DODSON
			J. Marshall Dodson
			~~Senior Vice~~ President, Chief Executive Officer and Interim Chief Financial Officer ~~(As duly authorized officer and Principal Financial Officer)~~

3640



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




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