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 Pressure Pumping, 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 and workover 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                 Nine Months Ended
                                                      June 30,                           June 30,
                                           2009     % Change        2008      2009     % Change        2008
Rig Count: (1)
U.S.                                          936        -50 %       1,865     1,387        -23 %       1,808
Canada                                         91        -46 %         169       276        -20 %         344
International(2)                              982         -9 %       1,084     1,032         -2 %       1,049
Commodity Prices (average):
Crude Oil (West Texas Intermediate)       $ 59.52        -52 %    $ 123.97   $ 53.64        -49 %    $ 104.19
Natural Gas (Henry Hub)                   $  3.71        -67 %    $  11.38   $  4.90        -46 %    $   9.01

(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 128 and 106 for the three-month periods ended June 30, 2009 and 2008, respectively, and 121 and 98 for the nine-month periods ended June 30, 2009 and 2008, 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 11 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 several months, tightening and uncertainty in the credit markets, and the global economic slowdown, drilling rig activity in the United States has rapidly declined from peak levels of 2,031 rigs at September 12, 2008 to a recent low of 876 rigs at June 12, 2009, and was 948 rigs at July 31, 2009. We expect U.S. drilling activity to decline slightly during the final quarter of fiscal 2009 and we do not expect it to improve significantly during the first half of fiscal 2010. The duration of this depressed market activity 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 11 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 late September 2008, and is expected to continue to be lower than prior year levels into the first half of fiscal 2010. Rig counts in Canada typically encounter significant seasonal fluctuations, decreasing during the spring break-up period when travel restrictions are put in place to deter large vehicle movement during the winter thaw, thereby restricting access to well sites. The spring break-up period typically begins in late February or March and extends through May, significantly impacting our business during the third fiscal quarter.

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 helps to offset 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 international oil companies ("IOCs") and national oil companies ("NOCs") which tend to have different objectives and more operating stability than the typical independent producer in North America. During the last 11 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. International rig count has declined during fiscal 2009 compared to fiscal 2008, but at a much lower rate than North America.

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, well 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 and into fiscal 2010, particularly in the U.S. and Canadian markets. The reduced drilling activity has led to reduction in demand and severe price competition for the services and products we provide.

Drilling rig count in the United States has been relatively stable since mid-May, within a range of approximately 880-940 rigs. Over that period, the number of rigs drilling for natural gas has declined by roughly 60 rigs, while the number of rigs drilling for oil has increased by roughly 80 rigs. We expect U.S. gas drilling to continue to decline until natural gas supply and demand are more in balance, leading to increased natural gas prices. We expect rigs drilling for oil in the U.S. to stay at current levels or improve slightly in the near term, in response to changes in oil prices. Although we anticipate a slight sequential decrease in total U.S. rig count in our fiscal fourth quarter, we believe our profitability in the U.S./Mexico Pressure Pumping segment will improve slightly, as we realize the full benefit of the cost reduction measures we have put into place in recent months. Recent cost reductions have included personnel reductions, a global wage freeze, reduced capital spending plans, supplier negotiations and working capital initiatives. We can make no assurances that cost reductions will offset the impact of any reductions in drilling activity or customer pricing.

We expect Canada Pressure Pumping results to improve significantly in the fourth fiscal quarter compared to the fiscal third quarter, as drilling activity increases coming out of the seasonal spring break-up period. We expect fiscal fourth quarter revenues from International Pressure Pumping Services to be in line with the fiscal third quarter, and we expect operating income in that segment to improve slightly due in part to cost reduction measures put into place during the second and third fiscal quarter.

We expect revenue and operating income improvement in the Oilfield Services Group as a result of several new contracts and international sales activity. The company has several relatively large international Completion Tools orders that it expects to complete during the fourth quarter.

Results of Operations

Consolidated



                                                Three Months Ended                     Nine Months Ended
                                                     June 30,                              June 30,
(dollars in millions)                   2009        % Change        2008        2009      % Change        2008
Revenue                                $ 786.9           -41 %    $ 1,328.2   $ 3,273.2        -16 %    $ 3,896.5
Operating income (loss)                $ (42.3 )         n/a      $   206.9   $   236.0        -63 %    $   646.0
Worldwide rig count(1)                   2,009           -36 %        3,118       2,695        -16 %        3,202

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

Results for the three months ended June 30, 2009 and 2008

For the second consecutive quarter, all of our reportable segments were adversely impacted by lower drilling activity as commodity prices remained at depressed levels. Further decrease in demand for oil and natural gas continued to negatively impact drilling activity and sustained intense price competition for our services and products, especially in North America, driving our revenues to lower levels compared to the same quarter of the prior year.

Revenue for the three months ended June 30, 2009 decreased 41% when compared to the same period in the prior year, generating an operating loss of $42.3 million in the third fiscal quarter of 2009 compared to operating income of $206.9 million in the same quarter of the prior year, primarily as a result of decreased demand and intense price competition for our products and services in the U.S. and Canada pressure pumping markets. Also impacting operating results in the quarter were employee severance costs of $6.4 million, $7.2 million in non-cash impairment charges related to excess or idle fixed assets in the United States and the Middle East and $10.0 million of non-cash inventory write-downs, primarily representing reserves for slow-moving or excess inventory in the current environment, and inventory whose original cost exceeded current market value. For the three months ended June 30, 2009, operating income (loss) as a percentage of revenue decreased to (5.4)% from 15.6% reported in the same period of the prior fiscal year.

Results for the nine months ended June 30, 2009 and 2008

For the nine months ended June 30, 2009, the impact of the global economic downturn and decreased demand for oil and natural gas combined with intense price competition in North America negatively affected each of our reporting segments compared to the same period of the prior year.

Revenue for the first nine months of fiscal 2009 decreased 16% when compared to the same period in fiscal 2008 and consolidated operating income for the period decreased 63%, primarily as the result of decreased demand and intense price competition for our products and services in the United States. Results for the nine months ended June 30, 2009 included a non-cash charge of $21.7 million related to the settlement of a U.S. defined benefit pension plan, employee severance costs of $12.7 million, $15.4 million in non-cash charges related to excess or idle fixed assets, and $10.0 million of non-cash inventory write-downs. These unusual charges during fiscal 2009 represented 1.8% of consolidated revenue. For the nine months ended June 30, 2009, consolidated operating income margins decreased to 7.2% from 16.6% reported in the same period of the prior fiscal year.

U.S./Mexico Pressure Pumping



                                  Three Months Ended                    Nine Months Ended
                                       June 30,                             June 30,
(dollars in millions)      2009        % Change       2008       2009      % Change        2008
Revenue                   $ 314.0           -55 %    $ 698.1   $ 1,511.1        -24 %    $ 1,988.1
Operating income (loss)   $ (38.5 )         n/a      $ 144.7   $   139.0        -69 %    $   449.9

U.S. rig count(1)             936           -50 %      1,865       1,387        -23 %        1,808
Mexico rig count(1)           128            21 %        106         121         23 %           98

Total U.S./Mexico           1,064           -46 %      1,971       1,508        -21 %        1,906

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

Results for the three months ended June 30, 2009 and 2008

Our U.S./Mexico Pressure Pumping operations third fiscal quarter 2009 revenue declined 55% with average active drilling rigs for the U.S. and Mexico decreasing 46% during the same period. This decrease was attributable to lower fracturing and cementing activity in the United States, coupled with reductions in pricing for our services and products. Mexico revenues increased sequentially, due to increased activity both onshore and offshore.

Operating margin for U.S./Mexico Pressure Pumping decreased to a loss of (12.3)% in the third quarter from a positive operating margin of 20.7% in the same quarter last year. The lower operating margin was primarily attributable to lower drilling activity and lower pricing for our services and products, further impacted by $5.7 million of fixed asset impairment charges, $4.7 million in inventory charges and $2.6 million in employee severance costs in the third quarter.

Results for the nine months ended June 30, 2009 and 2008

Our U.S./Mexico Pressure Pumping operations first nine months of fiscal 2009 revenue declined 24% with average active drilling rigs for the U.S. and Mexico decreasing 21% when compared to the same period of fiscal 2008. This revenue decrease was primarily the result of lower pricing and decreased demand for our products and services within the U.S. market partially offset by increased activity in Mexico.

Operating income margin decreased from 22.6% in the first nine months of fiscal 2008 to 9.2% during the same period of 2009 as increased competition in the United States resulted in lower pricing for our

products and services. The results for the nine months ended June 30, 2009 also include $13.9 million of non-cash charges related to excess or idle fixed assets, $4.7 million in inventory charges and $4.2 million in employee severance costs.

Canada Pressure Pumping



                                   Three Months Ended                     Nine Months Ended
                                        June 30,                              June 30,
 (dollars in millions)      2009        % Change       2008         2009     % Change       2008
 Revenue                   $  23.3           -52 %    $  48.6      $ 250.4        -19 %    $ 308.8
 Operating income (loss)   $ (15.6 )           6 %    $ (16.6 )    $  19.1         29 %    $  14.9

 Canadian rig count(1)          91           -46 %        169          276        -20 %        344

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

Results for the three months ended June 30, 2009 and 2008

Canadian Pressure Pumping revenue decreased $25.3 million, or 52%, for the third fiscal quarter of 2009 compared to the same period of fiscal 2008, primarily as a result of decreased cementing and fracturing activity, as well as lower pricing. Average drilling rig count in Canada was down 46% for the comparable quarters, as many operators were slower to resume drilling activities after spring break-up in fiscal 2009 due to adverse market conditions.

Operating loss for the third quarter of 2009 was $15.6 million, slightly improved from the $16.6 million loss in the same quarter in the previous year. The operating loss for the fiscal third quarter of 2009 was lower than in fiscal 2008, despite the significantly lower revenue, primarily as a result of lower material and fuel costs in fiscal 2009, and a more favorable job mix.

Results for the nine months ended June 30, 2009 and 2008

Canadian Pressure Pumping revenue decreased $58.3 million, or 19%, for the first nine months of fiscal 2009 compared to the same period of fiscal 2008. The weakening Canadian dollar compared to the U.S. dollar during the comparable periods accounts for approximately $51.3 million of this revenue decrease. In addition, decreased demand and recent lower pricing for our services and products negatively impacted revenue for the comparable periods. Average drilling rig count in Canada was down 20% for the comparable periods.

Operating income margin improved to 7.6% for the nine months ended June 30, 2009, from 4.8% during the same period in the prior year, as a result of a more favorable job mix and lower fuel costs in the current year compared to the prior year partially offset by $1.3 million in employee severance costs in fiscal 2009.

International Pressure Pumping



                                                     Three Months Ended                 Nine Months Ended
                                                          June 30,                          June 30,
(dollars in millions)                           2009     % Change       2008      2009     % Change       2008
Revenue                                        $ 264.8        -16 %    $ 316.9   $ 870.4         -3 %    $ 897.6
Operating income                               $  24.5        -46 %    $  45.2   $  91.6        -21 %    $ 115.9

International rig count, excluding Mexico(1)       854        -13 %        978       911         -4 %        951

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

Results for the three months ended June 30, 2009 and 2008

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

                                          % Change in
                                            Revenue
                          Europe                  -23 %
                          Middle East             -11 %
                          Asia Pacific             -5 %
                          Russia                  -61 %
                          Latin America           -18 %

International Pressure Pumping revenue of $264.8 million in the third fiscal quarter of 2009 decreased 16% compared to the same period in the prior year, with our Russia and Europe operations experiencing the largest percentage decrease. International drilling rig activity decreased 13% over the same time period. The decline in Europe is primarily due to lower activity and lower pricing in the North Sea. The Middle East decrease was primarily the result of decreased activity and lower pricing in Saudi Arabia and Kazakhstan. Latin America was negatively impacted by industry-wide labor strikes in Argentina and decreased activity in Venezuela and other areas in the region. The Asia Pacific decrease reflects decreased activity levels in New Zealand and China, partially offset by increased activity in Malaysia and Vietnam.

Our activity in Russia decreased year-over-year as we continue to wind-down activity with our final remaining contract, which concluded in July 2009. As we exit the Russian pressure pumping market, we expect to reclassify our historical Russian operating results as discontinued operations during the fourth quarter of fiscal 2009.

Operating income margins from our International Pressure Pumping operations decreased from 14.3% in the third quarter of fiscal 2008 to 9.2% in the third quarter of fiscal 2009. The decreased operating margin is largely attributable to a high fixed cost structure in Russia required to maintain operations on the single remaining contract in advance of exiting that market coupled with activity declines and pricing pressures in certain other international markets. Third quarter fiscal 2009 results also included $2.0 million of severance costs, $1.5 million of asset impairment charges and $1.4 million of inventory charges, representing 1.9% of revenues in the segment.

Results for the nine months ended June 30, 2009 and 2008

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 nine months of fiscal 2009 with the comparable period of fiscal 2008:

                                          % Change in
                                            Revenue
                          Europe                  -11 %
                          Middle East              -4 %
                          Asia Pacific             13 %
                          Russia                  -39 %
                          Latin America            -2 %

International Pressure Pumping revenue of $870.4 million in the first nine months of fiscal 2009 decreased 3% compared to the same period in the prior year. Average international drilling rig activity declined 4% over the same time period. The increased revenue in Asia Pacific is largely attributable to increased activity in Malaysia and Thailand. The modest decline in Latin America revenue was the result of industry-wide labor strikes in Argentina, largely offset by activity-related increases in Brazil and Venezuela.

Revenues in Europe decreased largely as a result of unfavorable exchange rates primarily in the first quarter of fiscal 2009, which caused local currency billings to translate into fewer U.S. dollars, combined with lower activity and lower pricing in the North Sea. In the Middle East, the favorable impact of increased activity and new service contracts in North Africa was offset by lower rig activity in India, Kazakhstan and Saudi Arabia. Russia was negatively impacted by the completion of a significant service contract during the first quarter of 2009 and the wind-down activities described above.

Operating income margin from our International Pressure Pumping operations decreased from 12.9% in the first nine months of fiscal 2008 to 10.5% in the first nine months of fiscal 2009. The decreased operating margins are largely attributable to a high fixed cost structure in Russia required to maintain operations on the single remaining contract in advance of exiting that market, severance costs totaling $4.8 million associated with our initiative to align our workforce with current market conditions, a $4.2 million charge related to a denied value added tax refund claim in the Asia Pacific, $1.5 million of fixed asset impairment charges and $1.4 million of inventory charges.

Oilfield Services Group



                                  Three Months Ended                 Nine Months Ended
                                       June 30,                          June 30,
    (dollars in millions)    2009     % Change       2008      2009     % Change       2008

Results for the three months ended June 30, 2009 and 2008

The following table summarizes the percentage change in revenue for each of the operating segments within the Oilfield Services Group, comparing the third fiscal quarter of 2009 with the comparable quarter of fiscal 2008:

                                                 % Change in
                                                   Revenue
                   Tubular Services                      -25 %
                   Process & Pipeline Services           -28 %
                   Chemical Services                     -21 %
                   Completion Tools                      -34 %
                   Completion Fluids                     -49 %

Revenues from our Oilfield Service Group decreased 30% to $184.9 million in the third quarter of fiscal 2009 compared to the same period in fiscal 2008, with the most significant percentage decreases from businesses most impacted by declines in U.S. Gulf of Mexico drilling activity and the seasonal spring break-up in Canada. Process & Pipeline Services revenues declined primarily due to the completion of certain large international projects between the two periods. Tubular Services revenues declined primarily due to lower service activity primarily in the Gulf of Mexico and Asia Pacific. Chemical Services and Completion Fluids revenues declined primarily as a result of decreased activity in the United States. Completion Tools revenues declined primarily due to lower sales both in the United States and internationally.

Operating income margin for the Oilfield Services Group for the third fiscal quarter of 2009 decreased to 5.9% compared to 19.6% in the third fiscal quarter . . .