Business

We are engaged in providing pressure pumping services and other oilfield services to the oil and natural gas industry worldwide. Services are provided through four business segments: U.S./Mexico Pressure Pumping, Canada Pressure Pumping, International Pressure Pumping and the Oilfield Services Group.

The U.S./Mexico, Canada Pressure Pumping and International Pressure Pumping segments provide stimulation and cementing services to the petroleum industry throughout the world. Stimulation services are designed to improve the flow of oil and natural gas from producing formations. Cementing services consist of pumping a cement slurry into a well between the casing and the wellbore to isolate fluids that might otherwise damage the casing and/or affect productivity, or that could migrate to different zones, primarily during the drilling and completion phase of a well. See "Business" included in our Annual Report on Form 10-K for the year ended September 30, 2008 for more information on these operations.

The Oilfield Services Group consists of casing and tubular services, process and pipeline services, chemical services, completion tools and completion fluids services in the United States and in select markets internationally.

Market Conditions

Our worldwide operations are primarily driven by the number of oil and natural gas wells being drilled, the depth and drilling conditions of such wells, the number of well completions and the level of workover activity. Drilling activity, in turn, is largely dependent on the price of crude oil and natural gas and the volatility and expectations of future oil and natural gas prices. Our results of operations also depend heavily on the pricing we receive from our customers, which depends on activity levels, availability of equipment and other resources, and competitive pressures. These market factors often lead to volatility in our revenue and profitability, especially in the United States and Canada, where we have historically generated in excess of 50% of our revenue. Historical market conditions are reflected in the table below:

                                                      Three Months Ended
                                                         December 31,
                                                             %
                                                  2008     Change      2007
           Rig Count: (1)
           U.S.                                    1,898        6 %     1,790
           Canada                                    408       15 %       356
           International(2)                        1,090        7 %     1,018
           Commodity Prices (average):
           Crude Oil (West Texas Intermediate)   $ 58.45      -36 %   $ 90.67
           Natural Gas (Henry Hub)               $  6.43       -8 %   $  6.99

(1) Estimate of drilling activity as measured by average active drilling rigs based on Baker Hughes Inc. rig count information.

(2) Excludes Canada, and includes Mexico average rig count of 106 and 93 for the three-month periods ended December 31, 2008 and 2007, respectively.

U.S. Rig Count

Demand for our pressure pumping services in the United States is primarily driven by oil and natural

gas drilling activity, which tends to be extremely volatile, depending on the current and anticipated prices of crude oil and natural gas. During the last 10 years, the lowest annual U.S. rig count averaged 601 in fiscal 1999 and the highest annual U.S. rig count averaged 1,851 in fiscal 2008.

With the retraction of oil and natural gas prices over the last few months, tightening and uncertainty in the credit markets, and the global economic slowdown, drilling rig activity in the U.S. has declined significantly from November 2008 through January 2009, and we expect to see further reductions in U.S. drilling activity throughout fiscal 2009 compared to 2008. The magnitude and duration of reduction is uncertain and will ultimately be influenced by a number of factors, including commodity prices, global demand for oil and natural gas, supplies and depletion rates of oil and natural gas reserves, and government policy with respect to the financial credit crisis.

Canadian Rig Count

The demand for our pressure pumping services in Canada is primarily driven by oil and natural gas drilling activity, and similar to the United States, tends to be extremely volatile. During the last 10 years, the lowest annual rig count averaged 212 in fiscal 1999 and the highest annual rig count averaged 502 in fiscal 2006. Similar to activity in the United States, drilling rig activity in Canada has gradually declined since November 2008, and is expected to continue to decline throughout fiscal 2009 compared to 2008.

International Rig Count

Many countries in which we operate are subject to political, social and economic risks which may cause volatility within any given country. However, our international revenue in total is less volatile because we operate in approximately 50 countries, which provides a reduction of exposure to any one country. Due to the significant investment and complexity of international projects, we believe drilling decisions relating to such projects tend to be evaluated and monitored with a longer-term perspective with regard to oil and natural gas pricing. Additionally, the international market is dominated by major oil companies and national oil companies which tend to have different objectives and more operating stability than the typical independent producer in North America. During the last 10 years, the lowest annual international rig count, excluding Canada and including Mexico, averaged 616 in fiscal 1999 and the highest annual international rig count averaged 1,061 in fiscal 2008.

Outlook

As stated under "Market Conditions" above, our worldwide operations are primarily driven by the number of oil and natural gas wells being drilled, the depth and drilling conditions of such wells, the number of well completions and the level of workover activity. The global economic slowdown has led to a steep decline in oil and natural gas prices, with current prices approximately 70% below their historic highs in July 2008. These steep price declines have reduced cash flows of oil and gas producers and have led to significant reductions in planned drilling activity for the remainder of fiscal 2009, particularly in the U.S. market.

We expect average U.S. drilling rig activity to be 25%-30% lower in the second fiscal quarter than the average rig count of 1,898 rigs working in the first fiscal quarter. Thereafter, we expect sequential rig activity declines in the range of 10% per quarter for the remainder of the year. We anticipate that service and product pricing pressures will escalate in most U.S. markets as a result of the decline in drilling activity. We are monitoring customer activities closely and are taking measures to right-size our organization to reduce costs and meet customer demand.

We expect drilling activity in Canada to decline from current levels late in the fiscal second quarter, as

the Canadian market enters the seasonal spring break-up period, resulting in sequential activity decline of approximately 20%. We expect revenues from International Pressure Pumping Services and the Oilfield Services Group to be slightly lower in the fiscal second quarter when compared to the first quarter, but not to the same degree we expect our North American businesses to be impacted.

Results of Operations

Consolidated



                                                Three Months Ended
                                                   December 31,
               (dollars in millions)      2008      % Change       2007
               Revenue                  $ 1,431.6         11 %   $ 1,285.1
               Operating income         $   220.4        -13 %   $   252.6

               Worldwide rig count(1)       3,396          7 %       3,164

(1) Estimate of drilling activity as measured by average active drilling rigs based on Baker Hughes Inc. rig count information.

All of our reportable segments made significant contributions to the consolidated revenue growth for the first fiscal quarter of 2009. The integration of businesses acquired within the Oilfield Services Group in recent years, the procurement of new contracts in our International Pressure Pumping operations, and activity-related improvements in almost all regions of our U.S./Mexico operations were significant providers to the growth.

While revenue for the three months ended December 31, 2008 increased when compared to the same period in the prior year, consolidated operating income for the period decreased, primarily as the result of price declines for our products and services in the U.S. pressure pumping market. Results for the three months ended December 31, 2008 also included a non-cash charge of $21.7 million, which represented 1.5% of revenue for the quarter, related to the settlement of a frozen U.S. defined benefit pension plan. For the three months ended December 31, 2008, consolidated operating income margins decreased to 15.4% from 19.7% reported in the same period of the prior fiscal year.

U.S./Mexico Pressure Pumping



                                               Three Months Ended
                                                  December 31,
                 (dollars in millions)    2008     % Change      2007
                 Revenue                 $ 721.5         10 %   $ 654.1
                 Operating income          151.9        -16 %     180.1

                 U.S. rig count(1)         1,898          6 %     1,790
                 Mexico rig count(1)         106         14 %        93

(1) Estimate of drilling activity as measured by average active drilling rigs based on Baker Hughes Inc. rig count information.

Our U.S./Mexico Pressure Pumping operations first fiscal quarter 2009 revenue improved 10% with average active drilling rigs increasing 6% during the same period. The impact of lower prices for our products and services in the U.S. market was offset by a higher volume of jobs performed, allowing almost all regions to contribute to the revenue improvement. Our Rocky Mountain, Mid-Continent and Northeast regions contributed the majority of the increase, primarily as a result of increased drilling activity in shale formations.

Operating income margin decreased from 27.5% in the first fiscal quarter of 2008 to 21.0% during the first fiscal quarter of 2009 as increased competition in the U.S. has resulted in lower pricing for our products and services. Increased costs for materials and maintenance also contributed to the margin decline.

Canada Pressure Pumping



                                               Three Months Ended
                                                  December 31,
                 (dollars in millions)    2008     % Change      2007
                 Revenue                 $ 131.8          9 %   $ 121.3
                 Operating income           28.8         70 %      17.0

                 Canadian rig count(1)       408         15 %       356

(1) Estimate of drilling activity as measured by average active drilling rigs based on Baker Hughes Inc. rig count information.

Canadian Pressure Pumping revenue increased 9% for the first fiscal quarter of 2009 compared to the same period of fiscal 2008 due to improved pricing for our products and services, increased activity levels and an increase in the average size of jobs being performed.

Operating income margin improved to 21.9% for the three months ended December 31, 2008, from 14.0% during the same period in the prior year, primarily as a result of more favorable job mix, lower maintenance and fuel costs, and improvement in pricing in some areas.

International Pressure Pumping



                                                           Three Months Ended
                                                              December 31,
      (dollars in millions)                           2008     % Change      2007
      Revenue                                        $ 329.0         14 %   $ 288.5
      Operating income                                  45.6         27 %      35.9

      International rig count, Excluding Mexico(1)       984          6 %       925

(1) Estimate of drilling activity as measured by average active drilling rigs based on Baker Hughes Inc. rig count information.

The following table summarizes the percentage change in revenue for each of the operating segments within the International Pressure Pumping reportable segment, comparing the first fiscal quarter of 2009 with the comparable period of fiscal 2008:

                                           % change in
                                             Revenue
                           Europe/Africa            -7 %
                           Middle East               9 %
                           Asia Pacific             29 %
                           Russia                   11 %
                           Latin America            20 %

International Pressure Pumping revenue of $329.0 million in the first fiscal quarter of 2009 increased 14% compared to the same period in the prior year, with our Asia Pacific and Latin America operations being the most significant contributors. International drilling rig activity increased 6% over the same time period. The increased revenue in Asia Pacific is largely attributable to new projects in China, increased drilling rig activity in Malaysia and increased product sales in Thailand. Latin America benefited from activity-related increases in Venezuela, Argentina and Brazil.

Revenues in Europe decreased largely as a result of unfavorable exchange rates, which caused local currency billings to translate into fewer U.S. dollars. In the Middle East, the favorable impact of increased activity and new service contracts in North Africa and Oman was partially offset by lower rig activity in India and Saudi Arabia. Revenues in Russia were higher primarily as a result of more favorable weather conditions in the first quarter of fiscal 2009 compared to the same period in fiscal 2008.

Operating income margins from our International Pressure Pumping operations increased from 12.5% in the first quarter of fiscal 2008 to 13.8% in the first quarter of fiscal 2009. The increased operating margins are largely attributable to the activity-related revenue increase in most international regions. In addition, the first quarter of fiscal 2008 was negatively impacted by unusually harsh weather conditions in a number of areas and an inordinate amount of front-end project start-up costs in a number of international markets.

Oilfield Services Group



                                               Three Months Ended
                                                  December 31,
                 (dollars in millions)    2008     % Change      2007
                 Revenue                 $ 249.3         13 %   $ 221.1
                 Operating income           41.2        - 2 %      42.0

The following table summarizes the percentage change in revenue for each of the operating segments within the Oilfield Services Group:

                                                   % Change in
                                                     Revenue
                   Tubular Services                         -2 %
                   Process and Pipeline Services            -2 %
                   Chemical Services                        16 %
                   Completion Tools                         38 %
                   Completion Fluids                        38 %

Revenues from our Oilfield Service Group increased 13% to $249.3 million in the first quarter of fiscal 2009 compared to the same period in fiscal 2008, with significant increases from our Completion Tools, Completion Fluids and Chemical Services businesses. The increase in Completion Tools revenue is primarily attributable to the inclusion of the Innicor Subsurface Technologies business, which we acquired in May 2008. Completion Fluids revenue increased primarily as a result of increased activity and fluid sales in Mexico. Chemical Services benefited from increased sales of production chemicals along the Gulf Coast and in the Permian Basin. Tubular Services revenues were lower as a result of delays in some international projects due in part to inclement weather in the North Sea. Process and Pipeline Services revenues were lower due to seasonally lower activity.

Operating income margin for the Oilfield Services Group for the first fiscal quarter of 2009 decreased

to 16.5% compared to 19.0% in first fiscal quarter of fiscal 2008, primarily as a result of the lower tubular service activity, the seasonal decline in process and pipeline service activity, and a difference in product / service mix.

Other Operating Expenses

The following table sets forth our other operating expenses (in thousands):



                                                      Three Months Ended
                                                         December 31,
                                                       2008         2007
           Pension settlement                       $    21,695   $     -
           Research and engineering                      17,120     17,198
           Marketing                                     30,745     28,832
           General and administrative                    42,421     36,630
           Loss (gain) on disposal of assets, net            28       (626 )

Pension settlement: In September 2006, we entered into an agreement to settle our obligation with respect to a U.S. defined benefit pension plan. Plan assets of approximately $72 million were used to purchase an insurance contract that is being used to fund the benefits and settle the plan. In December 2008, we received approval from the Pension Benefit Guaranty Corporation and the Internal Revenue Service and were relieved of primary responsibility for the pension benefit obligation. Consequently, we recorded a non-cash pre-tax charge of $21.7 million in connection with the settlement in the first fiscal quarter of 2009.

Research and engineering: Research and engineering expense was essentially flat comparing the three months ended December 31, 2008 to the same period in the prior fiscal year. As a percentage of revenue, this expense decreased slightly from 1.3% in the fiscal 2008 first quarter to 1.2% in fiscal 2009.

Marketing: While marketing expense increased $1.9 million to $30.7 million for the three months ended December 31, 2008 compared to the same period in the prior fiscal year, as a percentage of revenue this expense decreased slightly in the first fiscal quarter to 2.1% in fiscal 2009 compared to 2.2% in fiscal 2008.

General and administrative: General and administrative expense increased $5.8 million, or 16%, in the first quarter of fiscal 2009 compared to the same period in fiscal 2008, due to the inclusion of the Innicor operations acquired in May 2008 and as a result of increased administrative costs to support operations in other new markets. As a percentage of revenue, general and administrative expense increased slightly in the first quarter from 2.9% in fiscal 2008 to 3.0% in fiscal 2009.

Interest expense and interest income: The following table shows a comparison of interest expense and interest income (in thousands):

                                             Three Months Ended
                                                December 31,
                                              2008          2007
                    Interest expense       $   (6,081 )   $ (7,862 )
                    Interest income               515          474

                    Net interest expense   $   (5,566 )   $ (7,388 )

Interest expense decreased $1.8 million in the first quarter of fiscal 2009 compared to the same period of fiscal 2008, primarily as a result of lower average outstanding borrowings when comparing the respective periods. Outstanding debt balances decreased from $624.3 million at December 31, 2007 to $553.4 million at December 31, 2008. Interest income was consistent with the same period in the prior year.

Other income (expense), net: Other income (expense), net, was made up of the following (in thousands):

                                                      Three Months Ended
                                                         December 31,
                                                       2008          2007
          Minority interest                         $   (3,179 )   $ (3,069 )
          Non-operating net foreign exchange loss          504          361
          Legal settlement                               3,569           -
          Other, net                                       558           (3 )

          Other income (expense), net               $    1,452     $ (2,711 )

Other income (expense), net improved by $4.2 million in the first quarter of fiscal 2009 compared to the same period of fiscal 2008, primarily as a result of a legal settlement in a commercial dispute.

Income Tax Expense

Our effective tax rate increased from 29% for the three months ended December 31, 2007 to 31% for the three months ended December 31, 2008, primarily because the prior year includes the impact of a statutory tax rate decrease in Canada which took effect in that year.

Liquidity and Capital Resources

Historical Cash Flow

The following table sets forth the historical cash flows (in millions):



                                                      Three Months Ended
                                                         December 31,
                                                       2008          2007
          Cash flow from operations                 $    200.6     $  203.8
          Cash used in investing                        (116.2 )     (158.0 )
          Cash used in financing                         (56.4 )      (51.3 )
          Effect of exchange rate changes on cash         (4.9 )         .9

          Change in cash and cash equivalents       $     23.1     $   (4.6 )

Cash flow from operations of $200.6 million for the three months ended December 31, 2008 decreased $3.1 million, or 2%, compared to the same period in the prior year, primarily as a result of higher investment in working capital between the two periods.

Cash used in investing activities decreased $41.8 million, or 26%, in fiscal 2009 compared to fiscal 2008, as a result of a decrease in capital expenditures, primarily as a result of lower expansion capital needed due to lower demand for our products and services.

Cash used in financing activities increased $5.1 million, or 10%, in fiscal 2009 compared to fiscal 2008, primarily as a result of treasury stock purchases of 3,466,500 shares of common stock for $44.2 million in the first quarter of fiscal 2009. Cash used in financing activities in fiscal 2008 primarily include the repayment of short-term borrowings.

Liquidity and Capital Resources

Cash flows from operations are expected to be our primary source of liquidity
for the remainder of fiscal 2009. Our sources of liquidity also include cash and
cash equivalents of $173.4 million at December 31, 2008 and the available
financing facilities listed below (in millions):



                                                                                        Borrowings at             Available at
Financing Facility                                   Expiration                       December 31, 2008         December 31, 2008
Revolving Credit Facility                            August 2012                     $                -        $             400.0
Committed Credit Facility                             May 2009                                      50.0                        -
Discretionary                          Various times within the next 12 months                       4.6                      60.7

As of December 31, 2008, the Company had $249.8 million of the 5.75% Senior Notes due 2011 and $249.0 million of the 6% Senior Notes due 2018 issued and outstanding, net of discount.

Our amended and restated revolving credit facility (the "Revolving Credit Facility") permits borrowings of up to $400 million in principal amount. The Revolving Credit Facility includes a $50 million sublimit for the issuance of standby letters of credit and a $20 million sublimit for swingline loans. Swingline loans have short-term maturities and the remaining amounts outstanding under the Revolving Credit Facility become due and payable in August 2012. In addition, we have the right to request up to an additional $200 million over the permitted borrowings of $400 million, subject to the approval of our lenders at the time of the request. Depending on the amount of borrowings outstanding under this facility, the interest rate applicable to borrowings generally ranges from 30-40 basis points above LIBOR. We are charged various fees in connection with the Revolving Credit Facility, including a commitment fee based on the average daily unused portion of the commitment, totaling $0.1 million for the three months ended December 31, 2008. In addition, the Revolving Credit Facility charges a utilization fee on all outstanding loans and letters of credit when usage of the Revolving Credit Facility exceeds 62.5%, although there were no material fees for the three months ended December 31, 2008. There were no borrowings under the Revolving Credit Facility at December 31, 2008.

In May 2008, we entered into a Committed Credit Facility with a commercial bank to finance our acquisition of Innicor Subsurface Technologies Inc. There are no commitment fees required by this facility, and the interest rate is based on market rates on the dates that amounts are borrowed. On December 31, 2008, there were $50.0 million in outstanding borrowings under this credit facility. This facility will expire in May 2009. We expect to repay this facility when it becomes due with cash on hand, financing available under existing facilities, or a new facility with the same bank.

. . .