Guarantor/Non-Guarantor Condensed Consolidated Financial Statements

9 Months Ended

Sep. 30, 2012

Guarantor Non-Guarantor Condensed Consolidated Financial Statements

Guarantor/Non-Guarantor Condensed Consolidated Financial Statements

Guarantor/Non-Guarantor Condensed Consolidated Financial Statements

Our Senior Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by all existing domestic subsidiaries, except for Pioneer Services Holdings, LLC, and certain of our future domestic subsidiaries. Effective October 1, 2012, the Indenture was supplemented to add Pioneer Coiled Tubing Services, LLC (formerly Go-Coil, L.L.C.) as a subsidiary guarantor. The subsidiaries that generally operate our non-U.S. business concentrated in Colombia do not guarantee our Senior Notes. The non-guarantor subsidiaries do not have any payment obligations under the Senior Notes, the guarantees or the Indenture.

In the event of a bankruptcy, liquidation or reorganization of any non-guarantor subsidiary, such non-guarantor subsidiary will pay the holders of its debt and other liabilities, including its trade creditors, before it will be able to distribute any of its assets to us. In the future, any non-U.S. subsidiaries, immaterial subsidiaries and subsidiaries that we designate as unrestricted subsidiaries under the Indenture will not guarantee the Senior Notes. As of September 30, 2012, there were no restrictions on the ability of subsidiary guarantors to transfer funds to the parent company.

As a result of the guarantee arrangements, we are presenting the following condensed consolidated balance sheets, statements of operations and statements of cash flows of the issuer, the guarantor subsidiaries and the non-guarantor subsidiaries.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands)

	September 30, 2012
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	8,663		$	(3,648	)	$	1,276		$	—		$	6,291
Receivables, net of allowance	6			132,086			44,976			(3,533		)	173,535
Intercompany receivable (payable)	(125,111		)	143,717			(18,606		)	—			—
Deferred income taxes	751			7,245			8,113			—			16,109
Inventory	—			5,265			6,912			—			12,177
Prepaid expenses and other current assets	1,403			6,490			2,126			—			10,019
Total current assets	(114,288		)	291,155			44,797			(3,533		)	218,131
Net property and equipment	2,502			846,828			134,144			(750		)	982,724
Investment in subsidiaries	1,099,973			223,520			—			(1,323,493		)	—
Intangible assets, net of accumulated amortization	66			15,636			30,318			—			46,020
Goodwill	—			—			41,683			—			41,683
Noncurrent deferred income taxes	47,649			—			373			(47,649		)	373
Other long-term assets	10,114			1,423			2,716			—			14,253
Total assets	$	1,046,016		$	1,378,562		$	254,031		$	(1,375,425	)	$	1,303,184
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	761		$	70,738		$	13,420		—			$	84,919
Current portion of long-term debt	—			850			22			—			872
Prepaid drilling contracts	—			2,207			673			—			2,880
Accrued expenses	3,630			45,728			13,136			(3,533		)	58,961
Total current liabilities	4,391			119,523			27,251			(3,533		)	147,632
Long-term debt, less current portion	498,389			—			113			—			498,502
Noncurrent deferred income taxes	—			154,351			1,025			(47,649		)	107,727
Other long-term liabilities	151			4,715			2,122			—			6,988
Total liabilities	502,931			278,589			30,511			(51,182		)	760,849
Total shareholders’ equity	543,085			1,099,973			223,520			(1,324,243		)	542,335
Total liabilities and shareholders’ equity	$	1,046,016		$	1,378,562		$	254,031		$	(1,375,425	)	$	1,303,184
	December 31, 2011
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	91,932		$	(13,879	)	$	8,144		$	—		$	86,197
Receivables, net of allowance	(2		)	112,531			32,724			(19		)	145,234
Intercompany receivable (payable)	(122,552		)	131,585			(9,033		)	—			—
Deferred income taxes	1,408			8,644			5,381			—			15,433
Inventory	—			4,533			6,651			—			11,184
Prepaid expenses and other current assets	285			6,304			4,975			—			11,564
Total current assets	(28,929		)	249,718			48,842			(19		)	269,612
Net property and equipment	1,605			675,679			117,422			(750		)	793,956
Investment in subsidiaries	932,237			221,201			—			(1,153,438		)	—
Intangible assets, net of accumulated amortization	171			18,829			33,680			—			52,680
Goodwill	—			—			41,683			—			41,683
Noncurrent deferred income taxes	30,835			—			735			(30,835		)	735
Other long-term assets	11,949			2,124			15			—			14,088
Total assets	$	947,868		$	1,167,551		$	242,377		$	(1,185,042	)	$	1,172,754
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,090		$	57,150		$	8,200		$	—		$	66,440
Current portion of long-term debt	—			850			22			—			872
Prepaid drilling contracts	—			1,297			2,669			—			3,966
Accrued expenses	16,779			45,012			6,631			(20		)	68,402
Total current liabilities	17,869			104,309			17,522			(20		)	139,680
Long-term debt, less current portion	417,747			850			131			—			418,728
Noncurrent deferred income taxes	921			124,659			—			(30,835		)	94,745
Other long-term liabilities	137			5,496			3,523			—			9,156
Total liabilities	436,674			235,314			21,176			(30,855		)	662,309
Total shareholders’ equity	511,194			932,237			221,201			(1,154,187		)	510,445
Total liabilities and shareholders’ equity	$	947,868		$	1,167,551		$	242,377		$	(1,185,042	)	$	1,172,754

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands)

	Three months ended September 30, 2012
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenues	$	—		$	191,753		$	38,020		$	—		$	229,773
Costs and expenses:
Operating costs	—			125,295			28,288			—			153,583
Depreciation and amortization	201			35,727			6,139			—			42,067
General and administrative	5,653			12,780			2,974			(138		)	21,269
Intercompany leasing	—			(1,215		)	1,215			—			—
Bad debt (recovery) expense	—			(412		)	44			—			(368		)
Total costs and expenses	5,854			172,175			38,660			(138		)	216,551
Income (loss) from operations	(5,854		)	19,578			(640		)	138			13,222
Other income (expense):
Equity in earnings of subsidiaries	11,274			(441		)	—			(10,833		)	—
Interest expense	(9,440		)	(26		)	13			—			(9,453		)
Other	477			210			(242		)	(138		)	307
Total other expense (income)	2,311			(257		)	(229		)	(10,971		)	(9,146		)
Income (loss) before income taxes	(3,543		)	19,321			(869		)	(10,833		)	4,076
Income tax expense (benefit)	6,158			(8,047		)	428			—			(1,461		)
Net income (loss)	$	2,615		$	11,274		$	(441	)	$	(10,833	)	$	2,615
	Three months ended September 30, 2011
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenues	$	—		$	159,662		$	27,989		$	—		$	187,651
Costs and expenses:
Operating costs	—			95,021			21,803			—			116,824
Depreciation and amortization	198			29,653			3,141			—			32,992
General and administrative	4,983			12,132			698			(108		)	17,705
Intercompany leasing	—			(1,215		)	1,215			—			—
Bad debt (recovery) expense	—			322			—			—			322
Impairment of equipment	—			484			—			—			484
Total costs and expenses	5,181			136,397			26,857			(108		)	168,327
Income (loss) from operations	(5,181		)	23,265			1,132			108			19,324
Other income (expense):
Equity in earnings of subsidiaries	13,663			(642		)	—			(13,021		)	—
Interest expense	(6,083		)	(58		)	4			—			(6,137		)
Other	(73		)	220			(1,232		)	(108		)	(1,193		)
Total other income (expense)	7,507			(480		)	(1,228		)	(13,129		)	(7,330		)
Income (loss) before income taxes	2,326			22,785			(96		)	(13,021		)	11,994
Income tax expense (benefit)	4,418			(9,122		)	(546		)	—			(5,250		)
Net income (loss)	$	6,744		$	13,663		$	(642	)	$	(13,021	)	$	6,744

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands)

	Nine months ended September 30, 2012
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenues	$	—		$	575,927		$	115,648		$	—		$	691,575
Costs and expenses:
Operating costs	—			356,880			82,790			—			439,670
Depreciation and amortization	658			102,216			17,555			—			120,429
General and administrative	16,713			40,151			8,227			(414		)	64,677
Intercompany leasing	—			(3,645		)	3,645			—			—
Bad debt (recovery) expense	—			(687		)	172			—			(515		)
Impairment of equipment	—			1,032			—			—			1,032
Total costs and expenses	17,371			495,947			112,389			(414		)	625,293
Income (loss) from operations	(17,371		)	79,980			3,259			414			66,282
Other income (expense):
Equity in earnings of subsidiaries	52,794			3,820			—			(56,614		)	—
Interest expense	(26,648		)	(23		)	13			—			(26,658		)
Other	337			710			626			(414		)	1,259
Total other expense (income)	26,483			4,507			639			(57,028		)	(25,399		)
Income (loss) before income taxes	9,112			84,487			3,898			(56,614		)	40,883
Income tax expense (benefit)	17,360			(31,693		)	(78		)	—			(14,411		)
Net income (loss)	$	26,472		$	52,794		$	3,820		$	(56,614	)	$	26,472
	Nine months ended September 30, 2011
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenues	$	—		$	430,820		$	81,465		$	—		$	512,285
Costs and expenses:
Operating costs	—			265,933			62,572			—			328,505
Depreciation and amortization	685			87,782			9,205			—			97,672
General and administrative	13,876			32,502			2,032			(324		)	48,086
Intercompany leasing	—			(3,645		)	3,645			—			—
Bad debt (recovery) expense	—			377			—			—			377
Impairment of equipment	—			484			—			—			484
Total costs and expenses	14,561			383,433			77,454			(324		)	475,124
Income (loss) from operations	(14,561		)	47,387			4,011			324			37,161
Other income (expense):
Equity in earnings of subsidiaries	26,164			(3,079		)	—			(23,085		)	—
Interest expense	(21,487		)	(187		)	15			—			(21,659		)
Other	384			671			(7,687		)	(324		)	(6,956		)
Total other income (expense)	5,061			(2,595		)	(7,672		)	(23,409		)	(28,615		)
Income (loss) before income taxes	(9,500		)	44,792			(3,661		)	(23,085		)	8,546
Income tax (expense) benefit	13,859			(18,628		)	582			—			(4,187		)
Net income (loss)	$	4,359		$	26,164		$	(3,079	)	$	(23,085	)	$	4,359

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

	Nine months ended September 30, 2012
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations		Consolidated
Cash flows from operating activities	$	(162,064	)	$	270,791		$	20,585		$	—	$	129,312
Cash flows from investing activities:
Purchases of property and equipment	(1,474		)	(262,071		)	(27,506		)	—		(291,051		)
Proceeds from sale of property and equipment	—			2,361			72			—		2,433
	(1,474		)	(259,710		)	(27,434		)	—		(288,618		)
Cash flows from financing activities:
Debt repayments	—			(850		)	(19		)	—		(869		)
Proceeds from issuance of debt	80,000			—			—			—		80,000
Debt issuance costs	(58		)	—			—			—		(58		)
Proceeds from exercise of options	684			—			—			—		684
Purchase of treasury stock	(357		)	—			—			—		(357		)
	80,269			(850		)	(19		)	—		79,400
Net increase (decrease) in cash and cash equivalents	(83,269		)	10,231			(6,868		)	—		(79,906		)
Beginning cash and cash equivalents	91,932			(13,879		)	8,144			—		86,197
Ending cash and cash equivalents	$	8,663		$	(3,648	)	$	1,276		$	—	$	6,291
	Nine months ended September 30, 2011
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations		Consolidated
Cash flows from operating activities	$	(62,332	)	$	135,116		$	3,421		$	—	$	76,205
Cash flows from investing activities:
Acquisition of production services businesses	—			(5,000		)	—			—		(5,000		)
Purchases of property and equipment	(431		)	(133,645		)	(6,489		)	—		(140,565		)
Proceeds from sale of property and equipment	7			2,247			7			—		2,261
Proceeds from sale of auction rate securities	12,569			—			—			—		12,569
	12,145			(136,398		)	(6,482		)	—		(130,735		)
Cash flows from financing activities:
Debt repayments	(111,812		)	(1,346		)	—			—		(113,158		)
Proceeds from issuance of debt	74,000			—			—			—		74,000
Debt issuance costs	(3,220		)	—			—			—		(3,220		)
Proceeds from exercise of options	2,344			—			—			—		2,344
Proceeds from common stock, net of offering costs of $5,707	94,340			—			—			—		94,340
Purchase of treasury stock	(452		)	—			—			—		(452		)
Excess tax benefit of stock option exercises	522			—			—			—		522
	55,722			(1,346		)	—			—		54,376
Net increase (decrease) in cash and cash equivalents	5,535			(2,628		)	(3,061		)	—		(154		)
Beginning cash and cash equivalents	15,737			(1,840		)	8,114			—		22,011
Ending cash and cash equivalents	$	21,272		$	(4,468	)	$	5,053		$	—	$	21,857