e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2011
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________________________ to _________________________
Commission file number: 001-16337
OIL STATES INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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76-0476605 |
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
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Three Allen Center, 333 Clay Street, Suite 4620,
Houston, Texas
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77002
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(Address of principal executive offices)
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(Zip Code) |
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES þ NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files)
YES þ NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See the definitions of accelerated filer,
large accelerated filer and smaller reporting
company in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer þ |
Accelerated Filer o |
Non-Accelerated Filer o (Do not check if a smaller reporting company) |
Smaller Reporting
Company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
YES o NO þ
The
Registrant had 51,221,962 shares of common stock, par value $0.01, outstanding and 3,301,755 shares of treasury stock as of April 26, 2011.
OIL STATES INTERNATIONAL, INC.
INDEX
2
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
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THREE MONTHS ENDED |
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MARCH 31, |
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2011 |
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2010 |
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Revenues |
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$ |
760,441 |
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$ |
532,345 |
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Costs and expenses: |
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Cost of sales and services |
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574,398 |
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406,510 |
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Selling, general and administrative expenses |
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43,708 |
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35,153 |
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Depreciation and amortization expense |
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45,151 |
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31,078 |
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Acquisition related expenses |
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1,097 |
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Other operating (income) expense |
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1,311 |
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(201 |
) |
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665,665 |
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472,540 |
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Operating income |
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94,776 |
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59,805 |
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Interest expense |
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(10,249 |
) |
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(3,470 |
) |
Interest income |
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1,013 |
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78 |
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Equity in earnings of unconsolidated affiliates |
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51 |
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29 |
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Other income |
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143 |
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762 |
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Income before income taxes |
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85,734 |
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57,204 |
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Income tax expense |
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(23,383 |
) |
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(16,789 |
) |
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Net income |
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62,351 |
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40,415 |
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Less: Net income attributable to noncontrolling interest |
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274 |
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172 |
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Net income attributable to Oil States International, Inc. |
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$ |
62,077 |
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$ |
40,243 |
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Net income per share attributable to Oil States International,
Inc. common stockholders |
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Basic |
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$ |
1.22 |
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$ |
0.81 |
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Diluted |
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$ |
1.13 |
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$ |
0.78 |
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Weighted average number of common shares outstanding: |
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Basic |
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50,936 |
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49,896 |
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Diluted |
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54,852 |
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51,920 |
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The accompanying notes are an integral part of
these financial statements.
3
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
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MARCH 31, |
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DECEMBER 31, |
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2011 |
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2010 |
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(UNAUDITED) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
96,973 |
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$ |
96,350 |
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Accounts receivable, net |
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519,045 |
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|
478,739 |
|
Inventories, net |
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531,620 |
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|
501,435 |
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Prepaid expenses and other current assets |
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26,964 |
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23,480 |
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Total current assets |
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1,174,602 |
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1,100,004 |
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Property, plant, and equipment, net |
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1,322,706 |
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1,252,657 |
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Goodwill, net |
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482,906 |
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475,222 |
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Other intangible assets, net |
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137,603 |
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139,421 |
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Investments in unconsolidated affiliates |
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7,166 |
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5,937 |
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Other noncurrent assets |
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41,773 |
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42,758 |
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Total assets |
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$ |
3,166,756 |
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$ |
3,015,999 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable and accrued liabilities |
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$ |
296,327 |
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$ |
304,739 |
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Income taxes |
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5,520 |
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4,604 |
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Current portion of long-term debt and capitalized leases |
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186,910 |
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181,175 |
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Deferred revenue |
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53,242 |
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60,847 |
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Other current liabilities |
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5,656 |
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2,810 |
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Total current liabilities |
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547,655 |
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554,175 |
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Long-term debt and capitalized leases |
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778,575 |
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731,732 |
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Deferred income taxes |
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86,409 |
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81,198 |
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Other noncurrent liabilities |
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20,341 |
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19,961 |
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Total liabilities |
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1,432,980 |
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1,387,066 |
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Stockholders equity: |
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Oil States International, Inc. stockholders equity: |
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Common stock |
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545 |
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|
541 |
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Additional paid-in capital |
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522,664 |
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508,429 |
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Retained earnings |
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1,190,210 |
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1,128,133 |
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Accumulated other comprehensive income |
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|
115,212 |
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|
84,549 |
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Treasury stock |
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(96,179 |
) |
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(93,746 |
) |
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Total Oil States International, Inc. stockholders equity |
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1,732,452 |
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1,627,906 |
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Noncontrolling interest |
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1,324 |
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|
1,027 |
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Total stockholders equity |
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1,733,776 |
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1,628,933 |
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Total liabilities and stockholders equity |
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$ |
3,166,756 |
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$ |
3,015,999 |
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The accompanying notes are an integral part of
these financial statements.
4
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
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THREE MONTHS |
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|
ENDED MARCH 31, |
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2011 |
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2010 |
|
Cash flows from operating activities: |
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|
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Net income |
|
$ |
62,351 |
|
|
$ |
40,415 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
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|
|
|
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Depreciation and amortization |
|
|
45,151 |
|
|
|
31,078 |
|
Deferred income tax provision (benefit) |
|
|
4,883 |
|
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|
(2,514 |
) |
Excess tax benefits from share-based payment arrangements |
|
|
(4,439 |
) |
|
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(683 |
) |
Non-cash compensation charge |
|
|
3,424 |
|
|
|
3,699 |
|
Accretion of debt discount |
|
|
1,895 |
|
|
|
1,764 |
|
Other, net |
|
|
1,276 |
|
|
|
(1,172 |
) |
Changes in operating assets and liabilities, net of effect from acquired businesses: |
|
|
|
|
|
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|
|
Accounts receivable |
|
|
(35,798 |
) |
|
|
(8,134 |
) |
Inventories |
|
|
(28,499 |
) |
|
|
(49,210 |
) |
Accounts payable and accrued liabilities |
|
|
(10,948 |
) |
|
|
9,363 |
|
Taxes payable |
|
|
4,010 |
|
|
|
(5,834 |
) |
Other current assets and liabilities, net |
|
|
(7,094 |
) |
|
|
(5,488 |
) |
|
|
|
|
|
|
|
Net cash flows provided by operating activities |
|
|
36,212 |
|
|
|
13,284 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Acquisitions of businesses, net of cash acquired |
|
|
(212 |
) |
|
|
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|
Capital expenditures, including capitalized interest |
|
|
(92,609 |
) |
|
|
(37,175 |
) |
Other, net |
|
|
(616 |
) |
|
|
1,520 |
|
|
|
|
|
|
|
|
Net cash flows used in investing activities |
|
|
(93,437 |
) |
|
|
(35,655 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Revolving
credit borrowings and repayments, net |
|
|
50,757 |
|
|
|
6,843 |
|
Term loan repayments |
|
|
(3,785 |
) |
|
|
|
|
Debt and capital lease repayments |
|
|
(298 |
) |
|
|
(137 |
) |
Issuance of common stock from share-based payment arrangements |
|
|
6,377 |
|
|
|
5,426 |
|
Excess tax benefits from share-based payment arrangements |
|
|
4,439 |
|
|
|
683 |
|
Other, net |
|
|
(2,741 |
) |
|
|
(947 |
) |
|
|
|
|
|
|
|
Net cash flows provided by financing activities |
|
|
54,749 |
|
|
|
11,868 |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
3,177 |
|
|
|
(1,874 |
) |
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents from continuing operations |
|
|
701 |
|
|
|
(12,377 |
) |
Net cash used in discontinued operations operating activities |
|
|
(78 |
) |
|
|
(39 |
) |
Cash and cash equivalents, beginning of period |
|
|
96,350 |
|
|
|
89,742 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
96,973 |
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|
$ |
77,326 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
financial statements.
5
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Oil States International, Inc.
and its wholly-owned subsidiaries (referred to in this report as we or the Company) have been
prepared pursuant to the rules and regulations of the Securities and Exchange Commission pertaining
to interim financial information. Certain information in footnote disclosures normally included in
financial statements prepared in accordance with U.S. generally accepted accounting principles
(GAAP) have been condensed or omitted pursuant to these rules and regulations. The unaudited
financial statements included in this report reflect all the adjustments, consisting of normal
recurring adjustments, which the Company considers necessary for a fair presentation of the results
of operations for the interim periods covered and for the financial condition of the Company at the
date of the interim balance sheet. Results for the interim periods are not necessarily indicative
of results for the full year.
The preparation of consolidated financial statements in conformity with GAAP requires the use of estimates and assumptions by management
in determining the reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. If the underlying estimates and assumptions,
upon which the financial statements are based, change in future periods, actual amounts may differ
from those included in the accompanying condensed consolidated financial statements.
The financial statements included in this report should be read in conjunction with the
Companys audited financial statements and accompanying notes included in its Annual Report on Form
10-K for the year ended December 31, 2010.
2. RECENT ACCOUNTING PRONOUNCEMENTS
From time to time, new accounting pronouncements are issued by the Financial Accounting
Standards Board (the FASB) which are adopted by the Company as of the specified effective date.
Unless otherwise discussed, management believes that the impact of recently issued standards, which
are not yet effective, will not have a material impact on the Companys consolidated financial
statements upon adoption.
3. DETAILS OF SELECTED BALANCE SHEET ACCOUNTS
Additional information regarding selected balance sheet accounts is presented below (in
thousands):
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|
MARCH 31, |
|
|
DECEMBER 31, |
|
|
|
2011 |
|
|
2010 |
|
Accounts receivable, net: |
|
|
|
|
|
|
|
|
Trade |
|
$ |
406,817 |
|
|
$ |
365,988 |
|
Unbilled revenue |
|
|
112,884 |
|
|
|
113,389 |
|
Other |
|
|
2,706 |
|
|
|
3,462 |
|
|
|
|
|
|
|
|
Total accounts receivable |
|
|
522,407 |
|
|
|
482,839 |
|
Allowance for doubtful accounts |
|
|
(3,362 |
) |
|
|
(4,100 |
) |
|
|
|
|
|
|
|
|
|
$ |
519,045 |
|
|
$ |
478,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MARCH 31, |
|
|
DECEMBER 31, |
|
|
|
2011 |
|
|
2010 |
|
Inventories, net: |
|
|
|
|
|
|
|
|
Tubular goods |
|
$ |
351,654 |
|
|
$ |
332,720 |
|
Other finished goods and purchased products |
|
|
72,895 |
|
|
|
71,266 |
|
Work in process |
|
|
46,760 |
|
|
|
45,662 |
|
Raw materials |
|
|
68,773 |
|
|
|
60,241 |
|
|
|
|
|
|
|
|
Total inventories |
|
|
540,082 |
|
|
|
509,889 |
|
Allowance for obsolescence |
|
|
(8,462 |
) |
|
|
(8,454 |
) |
|
|
|
|
|
|
|
|
|
$ |
531,620 |
|
|
$ |
501,435 |
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ESTIMATED |
|
|
MARCH 31, |
|
|
DECEMBER 31, |
|
|
|
USEFUL LIFE |
|
|
2011 |
|
|
2010 |
|
Property, plant and equipment, net: |
|
|
|
|
|
|
|
|
|
|
|
|
Land |
|
|
|
|
|
$ |
44,128 |
|
|
$ |
43,411 |
|
Buildings and leasehold improvements |
|
1-40 years |
|
|
205,058 |
|
|
|
193,617 |
|
Machinery and equipment |
|
2-29 years |
|
|
317,616 |
|
|
|
311,217 |
|
Accommodations assets |
|
3-15 years |
|
|
895,235 |
|
|
|
840,002 |
|
Rental tools |
|
4-10 years |
|
|
170,173 |
|
|
|
166,245 |
|
Office furniture and equipment |
|
1-10 years |
|
|
37,889 |
|
|
|
36,325 |
|
Vehicles |
|
2-10 years |
|
|
84,350 |
|
|
|
82,783 |
|
Construction in progress |
|
|
|
|
|
|
139,392 |
|
|
|
113,773 |
|
|
|
|
|
|
|
|
|
|
|
|
Total property, plant and equipment |
|
|
|
|
|
|
1,893,841 |
|
|
|
1,787,373 |
|
Accumulated depreciation |
|
|
|
|
|
|
(571,135 |
) |
|
|
(534,716 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,322,706 |
|
|
$ |
1,252,657 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MARCH 31, |
|
|
DECEMBER 31, |
|
|
|
2011 |
|
|
2010 |
|
Accounts payable and accrued liabilities: |
|
|
|
|
|
|
|
|
Trade accounts payable |
|
$ |
227,720 |
|
|
$ |
224,543 |
|
Accrued compensation |
|
|
36,564 |
|
|
|
47,760 |
|
Insurance liabilities |
|
|
8,696 |
|
|
|
8,615 |
|
Accrued taxes, other than income taxes |
|
|
8,512 |
|
|
|
4,887 |
|
Liabilities related to discontinued operations |
|
|
2,190 |
|
|
|
2,268 |
|
Other |
|
|
12,645 |
|
|
|
16,666 |
|
|
|
|
|
|
|
|
|
|
$ |
296,327 |
|
|
$ |
304,739 |
|
|
|
|
|
|
|
|
4. EARNINGS PER SHARE
The calculation of earnings per share attributable to the Company is
presented below (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED |
|
|
MARCH 31 |
|
|
2011 |
|
2010 |
|
|
|
|
|
|
|
|
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
Net income attributable to Oil States International, Inc. |
|
$ |
62,077 |
|
|
$ |
40,243 |
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding |
|
|
50,936 |
|
|
|
49,896 |
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
1.22 |
|
|
$ |
0.81 |
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
Net income attributable to Oil States International, Inc. |
|
$ |
62,077 |
|
|
$ |
40,243 |
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding |
|
|
50,936 |
|
|
|
49,896 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
Options on common stock |
|
|
727 |
|
|
|
599 |
|
2 3/8% Convertible Senior Subordinated Notes |
|
|
2,988 |
|
|
|
1,220 |
|
Restricted stock awards and other |
|
|
201 |
|
|
|
205 |
|
|
|
|
|
|
|
|
|
|
Total shares and dilutive securities |
|
|
54,852 |
|
|
|
51,920 |
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
1.13 |
|
|
$ |
0.78 |
|
Our calculation of diluted earnings per share for the three months ended March 31, 2011
and 2010 excludes 176,548 shares and 403,468 shares, respectively, issuable pursuant to outstanding
stock options and restricted stock awards, due to their antidilutive effect.
5. BUSINESS ACQUISITIONS AND GOODWILL
On December 30, 2010, we acquired all of the ordinary shares of The MAC Services Group Limited
(The MAC), through a Scheme of Arrangement (the Scheme) under the Corporations Act of Australia.
The MAC is headquartered in Sydney, Australia and supplies accommodations services to the
Australian natural resources market. Under the terms of the Scheme, each shareholder of The MAC
received $3.95 (A$3.90) per share in cash. This price represents a total purchase price of $638
million, net of cash acquired plus debt assumed of $87 million.
7
The Company funded the acquisition with cash on hand and borrowings available under our
five-year, $1.05 billion senior secured bank facilities. The MACs operations have been included
as part of our accommodations segment.
The Company recognized $1.1 million of costs in connection with the acquisition of The Mac that were expensed during the quarter
ended March 31, 2011. These costs are included in Acquisition related expenses in the condensed
consolidated statement of income.
The following unaudited pro forma supplemental financial information presents the consolidated
results of operations of the Company and The MAC as if the acquisition of The MAC had occurred on
January 1, 2010. The Company has adjusted historical financial information to give effect to pro
forma items that are directly attributable to the acquisition and expected to have a continuing
impact on the consolidated results. These items include adjustments to record the incremental
amortization and depreciation expense related to the increase in fair values of the acquired
assets, interest expense related to borrowings under the Companys senior credit facilities to fund
the acquisition and to reclassify certain items to conform to the Companys financial reporting
presentation. The unaudited pro forma results do not purport to be indicative of the results of
operations had the transaction occurred on the date indicated or of future results for the combined
entities (in thousands, except per share data):
|
|
|
|
|
|
|
Three Months |
|
|
Ended March 31, |
|
|
2010 |
|
|
(Unaudited) |
|
|
|
|
|
Revenues |
|
$ |
557,653 |
|
Net income attributable to Oil States International, Inc. |
|
|
39,743 |
|
Net income per share attributable to Oil States International, Inc
common stockholders |
|
|
|
|
Basic |
|
$ |
0.80 |
|
Diluted |
|
$ |
0.77 |
|
Included in the pro forma results above
for the quarter ended March 31, 2010 are
(1) depreciation of the increased fair value of property, plant and equipment acquired as part of The
MAC, totaling $2.2 million, net of tax, or $0.04 per diluted share, (2) amortization expense for
intangibles acquired as part of the purchase of The MAC, totaling $1.5 million, net of tax, or
$0.03 per diluted share and (3) interest expense of $2.7 million, net of tax, or $0.05 per diluted
share.
On December 20, 2010, we also acquired all of the operating assets of Mountain West Oilfield
Service and Supplies, Inc. and Ufford Leasing LLC (Mountain West) for total consideration of $47.1
million and estimated contingent consideration of $4.0 million. Headquartered in Vernal, Utah, with
operations in the Rockies and the Bakken Shale region, Mountain West provides remote site workforce
accommodations to the oil and gas industry. Mountain West has been included in the accommodations
segment since its date of acquisition.
On October 5, 2010, we purchased all of the equity of Acute Technological Services, Inc.
(Acute) for total consideration of $30.2 million. Headquartered in Houston, Texas and with
additional operations in Brazil, Acute provides metallurgical and welding innovations to the oil and gas
industry in support of critical, complex subsea component manufacturing and deepwater riser
fabrication on a global basis. Acute has been included in the offshore products segment since its
date of acquisition.
Changes in the carrying amount of goodwill for the three month period ended March 31, 2011 are
as follows (in thousands):
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Well Site Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental |
|
|
Drilling and |
|
|
|
|
|
|
|
|
|
|
Offshore |
|
|
Tubular |
|
|
|
|
|
|
Tools |
|
|
Other |
|
|
Subtotal |
|
|
Accommodations |
|
|
Products |
|
|
Services |
|
|
Total |
|
Balance as of December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
169,311 |
|
|
$ |
22,767 |
|
|
$ |
192,078 |
|
|
$ |
58,358 |
|
|
$ |
85,599 |
|
|
$ |
62,863 |
|
|
$ |
398,898 |
|
Accumulated Impairment Losses |
|
|
(94,528 |
) |
|
|
(22,767 |
) |
|
|
(117,295 |
) |
|
|
|
|
|
|
|
|
|
|
(62,863 |
) |
|
|
(180,158 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,783 |
|
|
|
|
|
|
|
74,783 |
|
|
|
58,358 |
|
|
|
85,599 |
|
|
|
|
|
|
|
218,740 |
|
Goodwill acquired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
239,080 |
|
|
|
15,242 |
|
|
|
|
|
|
|
254,322 |
|
Foreign currency translation and other changes |
|
|
723 |
|
|
|
|
|
|
|
723 |
|
|
|
1,624 |
|
|
|
(187 |
) |
|
|
|
|
|
|
2,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,506 |
|
|
|
|
|
|
|
75,506 |
|
|
|
299,062 |
|
|
|
100,654 |
|
|
|
|
|
|
|
475,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
170,034 |
|
|
|
22,767 |
|
|
|
192,801 |
|
|
|
299,062 |
|
|
|
100,654 |
|
|
|
62,863 |
|
|
|
655,380 |
|
Accumulated Impairment Losses |
|
|
(94,528 |
) |
|
|
(22,767 |
) |
|
|
(117,295 |
) |
|
|
|
|
|
|
|
|
|
|
(62,863 |
) |
|
|
(180,158 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,506 |
|
|
|
|
|
|
|
75,506 |
|
|
|
299,062 |
|
|
|
100,654 |
|
|
|
|
|
|
|
475,222 |
|
Goodwill acquired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
843 |
|
|
|
201 |
|
|
|
|
|
|
|
1,044 |
|
Foreign currency translation and other changes |
|
|
342 |
|
|
|
|
|
|
|
342 |
|
|
|
6,148 |
|
|
|
150 |
|
|
|
|
|
|
|
6,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,848 |
|
|
|
|
|
|
|
75,848 |
|
|
|
306,053 |
|
|
|
101,005 |
|
|
|
|
|
|
|
482,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
170,376 |
|
|
|
22,767 |
|
|
|
193,143 |
|
|
|
306,053 |
|
|
|
101,005 |
|
|
|
62,863 |
|
|
|
663,064 |
|
Accumulated Impairment Losses |
|
|
(94,528 |
) |
|
|
(22,767 |
) |
|
|
(117,295 |
) |
|
|
|
|
|
|
|
|
|
|
(62,863 |
) |
|
|
(180,158 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
75,848 |
|
|
$ |
|
|
|
$ |
75,848 |
|
|
$ |
306,053 |
|
|
$ |
101,005 |
|
|
$ |
|
|
|
$ |
482,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6. DEBT
As of March 31, 2011 and December 31, 2010, long-term debt consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(Unaudited) |
|
|
|
|
|
U.S. revolving credit facility, which matures December 10, 2015, with available
commitments up to $500 million and with an average interest rate of 2.8% for the
three month period ended March 31, 2011 |
|
$ |
395,900 |
|
|
$ |
345,600 |
|
U.S. term loan, which matures December 10, 2015, of $200 million; 1.25% of
aggregate principal repayable per quarter in 2011, 2.5% per quarter thereafter;
average interest rate of 2.7% for the three month period ended March 31, 2011 |
|
|
197,500 |
|
|
|
200,000 |
|
Canadian revolving credit facility, which matures December 10, 2015, with available
commitments up to $250 million and with an average interest rate of 4.0% for the
three month period ended March 31, 2011 |
|
|
87,672 |
|
|
|
62,538 |
|
Canadian term loan, which matures December 10, 2015, of $100 million; 1.25% of
aggregate principal repayable per quarter in 2011, 2.5% per quarter thereafter;
average interest rate of 3.8% for the three month period ended March 31, 2011 |
|
|
102,032 |
|
|
|
100,955 |
|
2 3/8% contingent convertible senior subordinated notes, net due 2025 |
|
|
165,003 |
|
|
|
163,108 |
|
Australian revolving credit facility, which matures October 15, 2013, of A$75
million and with an average interest rate of 7.1% for the three month period ended
March 31, 2011 |
|
|
|
|
|
|
25,305 |
|
Subordinated unsecured notes payable to sellers of businesses, fixed interest rate
of 6%, which mature in 2012 |
|
|
4,000 |
|
|
|
4,000 |
|
Capital lease obligations and other debt |
|
|
13,378 |
|
|
|
11,401 |
|
|
|
|
|
|
|
|
Total debt |
|
|
965,485 |
|
|
|
912,907 |
|
Less: Current maturities |
|
|
186,910 |
|
|
|
181,175 |
|
|
|
|
|
|
|
|
Total long-term debt and capitalized leases |
|
$ |
778,575 |
|
|
$ |
731,732 |
|
|
|
|
|
|
|
|
As of March 31, 2011, we classified the $175.0 million principal amount of our 2
3/8% Contingent Convertible Senior Subordinated Notes (2 3/8% Notes), net of unamortized discount,
as a current liability because certain contingent conversion thresholds based on the Companys
stock price were met at that date and, as a result, note holders could present their notes for
conversion during the quarter following the March 31, 2011 measurement date. If a note holder
chooses to present their notes for conversion during a future quarter prior to the first put/call
date in July 2012, they will receive cash up to $1,000 for each 2 3/8% Note plus Company common
stock for any excess valuation over $1,000 using the conversion rate of the 2 3/8% Notes of 31.496
multiplied by the Companys average common stock price over a ten trading day period following
presentation of the 2 3/8% Notes for conversion. The future convertibility and resultant balance
sheet classification of this liability will be monitored at
9
each quarterly reporting date and will be analyzed dependent upon market prices of the
Companys common stock during the prescribed measurement periods.
The following table presents the carrying amount of our 2 3/8% Notes in our condensed
consolidated balance sheets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
Carrying amount of the equity component in additional paid-in capital |
|
$ |
28,449 |
|
|
$ |
28,449 |
|
|
|
|
|
|
|
|
|
|
Principal amount of the liability component |
|
$ |
175,000 |
|
|
$ |
175,000 |
|
Less: Unamortized discount |
|
|
9,997 |
|
|
|
11,892 |
|
|
|
|
|
|
|
|
Net carrying amount of the liability component |
|
$ |
165,003 |
|
|
$ |
163,108 |
|
|
|
|
|
|
|
|
Unamortized
Discount 2 3/8% Notes
The effective interest rate is 7.17% for our 2 3/8% Notes. Interest expense on the
notes, excluding amortization of debt issue costs, was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
2011 |
|
2010 |
|
|
|
|
|
|
|
|
|
Interest expense |
|
$ |
2,934 |
|
|
$ |
2,803 |
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
|
|
|
Remaining period over which discount will be amortized |
|
1.3 years |
Conversion price |
|
$ |
31.75 |
|
Number of shares to be delivered upon conversion (1) |
|
|
3,213,402 |
|
Conversion value in excess of principal amount (in thousands) (1) |
|
$ |
244,668 |
|
Derivative transactions entered into in connection with the convertible notes |
|
None |
|
|
|
(1) |
|
Calculation is based on the Companys March 31, 2011 closing stock price of $76.14. |
The Companys financial instruments consist of cash and cash equivalents, investments,
receivables, payables, and debt instruments. The Company believes that the carrying values of these
instruments, other than our fixed rate contingent convertible senior subordinated notes and our
debt under our revolving credit facilities, on the accompanying consolidated balance sheets
approximate their fair values.
The fair value of our 2 3/8% Notes is estimated based on a quoted price in an active market (a
Level 1 fair value measurement). The carrying and fair values of these notes were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
Interest |
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
Rate |
|
|
Value |
|
|
Value |
|
|
Value |
|
|
Value |
|
Principal amount due 2025 |
|
|
2 3/8 |
% |
|
$ |
175,000 |
|
|
$ |
421,183 |
|
|
$ |
175,000 |
|
|
$ |
354,057 |
|
Less: unamortized discount |
|
|
|
|
|
|
9,997 |
|
|
|
|
|
|
|
11,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net value |
|
|
|
|
|
$ |
165,003 |
|
|
$ |
421,183 |
|
|
$ |
163,108 |
|
|
$ |
354,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2011, the estimated fair value of the Companys debt outstanding under
its revolving credit facilities was estimated to be at fair value.
As March 31, 2011, the Company had approximately $97.0 million of cash and cash equivalents
and $246.6 million of the Companys $1.05 billion U.S. and Canadian credit facilities available for
future financing needs. The Company also had availability totaling $77.3 million under its
Australian credit facility.
Interest expense on the condensed consolidated statements of income is net of capitalized interest of $1.1 million for the three months
ended March 31, 2011 and less than $0.1 million for the same period in 2010.
10
7. COMPREHENSIVE INCOME AND CHANGES IN COMMON STOCK OUTSTANDING:
Comprehensive income for the three months ended March 31, 2011 and 2010 was as follows
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS |
|
|
|
ENDED MARCH 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
62,351 |
|
|
$ |
40,415 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
30,663 |
|
|
|
8,585 |
|
|
|
|
|
|
|
|
Total other comprehensive income |
|
|
30,663 |
|
|
|
8,585 |
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
93,014 |
|
|
|
49,000 |
|
Comprehensive income attributable to noncontrolling interest |
|
|
(274 |
) |
|
|
(172 |
) |
|
|
|
|
|
|
|
Comprehensive income attributable to Oil States International, Inc. |
|
$ |
92,740 |
|
|
$ |
48,828 |
|
|
|
|
|
|
|
|
The increase in other comprehensive income in the
three months ended March 31, 2011 compared
to the same period in 2010 was due primarily to the revaluation of our net Canadian and Australian
accommodations assets at varying exchange rates.
Share Activity
|
|
|
|
|
Shares of common stock outstanding January 1, 2011 |
|
|
50,838,863 |
|
|
|
|
|
|
Shares issued upon exercise of stock options and vesting of stock awards |
|
|
363,256 |
|
Shares withheld for taxes on vesting of restricted stock awards and
transferred to treasury |
|
|
(32,607 |
) |
|
|
|
|
|
Shares of common stock outstanding March 31, 2011 |
|
|
51,169,512 |
|
|
|
|
|
|
8. STOCK BASED COMPENSATION
During the first three months of 2011, we granted restricted stock awards totaling 187,931
shares valued at a total of $14.2 million. Of the restricted stock awards granted in the first
quarter of 2011, a total of 187,800 awards vest in four equal annual installments starting in
February 2012. A total of 182,950 stock options with a ten-year term were awarded in the three
months ended March 31, 2011 with an average exercise price of $75.41 that will vest in four equal
annual installments starting in February 2012.
Stock based compensation pre-tax expense recognized in the three month periods ended March 31,
2011 and 2010 totaled $3.4 million and $3.7 million, or $0.05 and $0.05 per diluted share after
tax, respectively. The total fair value of restricted stock awards that vested during the three
months ended March 31, 2011 and 2010 was $10.6 million and $4.0 million, respectively. At March 31,
2011, $33.1 million of compensation cost related to unvested stock options and restricted stock
awards attributable to future performance had not yet been recognized.
9. INCOME TAXES
Income tax expense for interim periods is based on estimates of the effective tax rate for the
entire fiscal year. The Companys income tax provision for the three months ended March 31, 2011
totaled $23.4 million, or 27.3% of pretax income, compared to $16.8 million, or 29.3% of pretax
income, for the three months ended March 31, 2010. The decrease in the effective tax rate from the
prior year was largely the result of greater foreign sourced income in 2011 taxed at lower statutory rates
compared to 2010.
10. SEGMENT AND RELATED INFORMATION
In accordance with current accounting standards regarding disclosures about segments of an
enterprise and related information, the Company has identified the following reportable segments:
well site services, accommodations, offshore products and tubular services. The Companys
reportable segments represent strategic business units that offer different products and services.
They are managed separately because each business requires different technology and marketing
strategies. Most of the businesses were initially acquired as a unit, and the management at the
time of the acquisition was retained. Subsequent acquisitions have been direct extensions to our
business segments. The separate business lines within the well site services segment have been
disclosed to provide additional detail for that segment. Results of a portion of our
accommodations segment supporting
11
traditional oil and natural gas drilling activities are somewhat seasonal with increased activity
occurring in the winter drilling season.
Financial information by business segment for each of the three months ended March 31, 2011
and 2010 is summarized in the following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in |
|
|
|
|
|
|
|
|
|
Revenues from |
|
|
Depreciation |
|
|
|
|
|
|
earnings of |
|
|
|
|
|
|
|
|
|
unaffiliated |
|
|
and |
|
|
Operating income |
|
|
unconsolidated |
|
|
Capital |
|
|
|
|
Three months ended March 31, 2011 |
|
customers |
|
|
amortization |
|
|
(loss) |
|
|
affiliates |
|
|
expenditures |
|
|
Total assets |
|
Well site services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental tools |
|
$ |
107,531 |
|
|
$ |
9,796 |
|
|
$ |
24,389 |
|
|
$ |
|
|
|
$ |
16,841 |
|
|
$ |
394,884 |
|
Drilling
services |
|
|
33,105 |
|
|
|
4,933 |
|
|
|
2,235 |
|
|
|
|
|
|
|
7,168 |
|
|
|
111,689 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total well site services |
|
|
140,636 |
|
|
|
14,729 |
|
|
|
26,624 |
|
|
|
|
|
|
|
24,009 |
|
|
|
506,573 |
|
Accommodations |
|
|
197,099 |
|
|
|
26,553 |
|
|
|
48,973 |
|
|
|
2 |
|
|
|
62,041 |
|
|
|
1,565,719 |
|
Offshore products |
|
|
128,441 |
|
|
|
3,334 |
|
|
|
16,750 |
|
|
|
|
|
|
|
4,055 |
|
|
|
568,602 |
|
Tubular services |
|
|
294,265 |
|
|
|
351 |
|
|
|
13,046 |
|
|
|
49 |
|
|
|
2,372 |
|
|
|
475,362 |
|
Corporate and eliminations |
|
|
|
|
|
|
184 |
|
|
|
(10,617 |
) |
|
|
|
|
|
|
132 |
|
|
|
50,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
760,441 |
|
|
$ |
45,151 |
|
|
$ |
94,776 |
|
|
$ |
51 |
|
|
$ |
92,609 |
|
|
$ |
3,166,756 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in |
|
|
|
|
|
|
|
|
|
Revenues from |
|
|
Depreciation |
|
|
|
|
|
|
earnings of |
|
|
|
|
|
|
|
|
|
unaffiliated |
|
|
and |
|
|
Operating income |
|
|
unconsolidated |
|
|
Capital |
|
|
|
|
Three months ended March 31, 2010 |
|
customers |
|
|
amortization |
|
|
(loss) |
|
|
affiliates |
|
|
expenditures |
|
|
Total assets |
|
Well site services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental tools |
|
$ |
67,502 |
|
|
$ |
10,510 |
|
|
$ |
4,378 |
|
|
$ |
|
|
|
$ |
6,580 |
|
|
$ |
345,366 |
|
Drilling services |
|
|
30,401 |
|
|
|
6,663 |
|
|
|
(1,982 |
) |
|
|
|
|
|
|
991 |
|
|
|
113,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total well site services |
|
|
97,903 |
|
|
|
17,173 |
|
|
|
2,396 |
|
|
|
|
|
|
|
7,571 |
|
|
|
459,153 |
|
Accommodations |
|
|
145,534 |
|
|
|
10,576 |
|
|
|
47,368 |
|
|
|
|
|
|
|
25,413 |
|
|
|
614,861 |
|
Offshore products |
|
|
102,993 |
|
|
|
2,805 |
|
|
|
12,620 |
|
|
|
|
|
|
|
4,038 |
|
|
|
493,756 |
|
Tubular services |
|
|
185,915 |
|
|
|
344 |
|
|
|
6,215 |
|
|
|
29 |
|
|
|
91 |
|
|
|
396,520 |
|
Corporate and eliminations |
|
|
|
|
|
|
180 |
|
|
|
(8,794 |
) |
|
|
|
|
|
|
62 |
|
|
|
18,806 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
532,345 |
|
|
$ |
31,078 |
|
|
$ |
59,805 |
|
|
$ |
29 |
|
|
$ |
37,175 |
|
|
$ |
1,983,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11. COMMITMENTS AND CONTINGENCIES
The Company is a party to various pending or threatened claims, lawsuits and administrative
proceedings seeking damages or other remedies concerning its commercial operations, products,
employees and other matters, including warranty and product liability claims and occasional claims
by individuals alleging exposure to hazardous materials as a result of its products or operations.
Some of these claims relate to matters occurring prior to its acquisition of businesses, and some
relate to businesses it has sold. In certain cases, the Company is entitled to indemnification from
the sellers of businesses, and in other cases, it has indemnified the buyers of businesses from it.
Although the Company can give no assurance about the outcome of pending legal and administrative
proceedings and the effect such outcomes may have on it, management believes that any ultimate
liability resulting from the outcome of such proceedings, to the extent not otherwise provided for
or covered by insurance, will not have a material adverse effect on its consolidated financial
position, results of operations or liquidity.
12
This quarterly report on Form 10-Q contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934 (the Exchange Act). The Private Securities Litigation Reform Act of 1995 provides safe harbor provisions
for forward-looking information. Some of the information in the quarterly report may contain
forward-looking statements. The forward-looking statements can be identified by the use of
forward-looking terminology including may, expect, anticipate, estimate, continue,
believe, or other similar words. Actual results could differ materially from those projected in
the forward-looking statements as a result of a number of important factors. For a discussion of
important factors that could affect our results, please refer to Part I, Item 1A. Risk Factors
and the financial statement line item discussions set forth in Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations included in our Annual Report on Form
10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission (the
Commission) on February 22, 2011. Should one or more of these risks or uncertainties
materialize, or should the assumptions prove incorrect, actual results may differ materially from
those expected, estimated or projected. Our management believes these forward-looking statements
are reasonable. However, you should not place undue reliance on these forward-looking statements,
which are based only on our current expectations and are not guarantees of future performance. All
subsequent written and oral forward-looking statements attributable to us or to persons acting on
our behalf are expressly qualified in their entirety by the foregoing. Forward-looking statements
speak only as of the date they are made, and we undertake no obligation to publicly update or
revise any of them in light of new information, future events or otherwise.
In addition, in certain places in this quarterly report, we refer to reports published by third
parties that purport to describe trends or developments in the energy industry. The Company does
so for the convenience of our stockholders and in an effort to provide information available in the
market that will assist the Companys investors in a better understanding of the market environment
in which the Company operates. However, the Company specifically disclaims any responsibility for
the accuracy and completeness of such information and undertakes no obligation to update such
information.
ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis together with our condensed consolidated
financial statements and the notes to those statements included elsewhere in this quarterly report
on Form 10-Q.
Overview
We provide a broad range of products and services to the oil and gas industry through our
accommodations, offshore products, well site services and tubular services business segments. In
our accommodations segment, we support the oil and gas and mining industries. Demand for our
products and services is cyclical and substantially dependent upon activity levels in the oil and
gas and mining industries, particularly our customers willingness to spend capital on the
exploration for and development of oil, natural gas, coal and mineral reserves. Our customers
spending plans are generally based on their outlook for near-term and long-term commodity prices.
As a result, demand for our products and services is highly sensitive to current and expected
commodity prices. Activity for our accommodations and offshore products segments is primarily tied
to the long-term outlook for crude oil and, to a lesser extent, coal, natural gas, and other
mineral prices. In contrast, activity for our well site services and tubular services segments
responds more rapidly to shorter-term movements in oil and natural gas prices and, specifically,
changes in North American drilling and completion activity. Other factors that can affect our
business and financial results include the general global economic environment and regulatory
changes in the U.S. and internationally.
Our Business Segments
Our
accommodations business is predominantly located in northern
Alberta, Canada and Queensland,
Australia and derives most of its business from energy companies who are developing and producing
oil sands and coal resources and, to a lesser extent, mineral resources. A
significant portion of our accommodations revenues is generated by our large-scale lodge and
village facilities. Where traditional accommodations and infrastructure are not accessible or cost
effective, our semi-permanent lodge and village facilities provide comprehensive accommodations services
similar to those found in an urban hotel. We typically contract our facilities to our customers on
a fee per day covering lodging and meals that is based on the duration of their needs which can range from several months to several
years. In addition, we
13
provide shorter-term remote site accommodations in smaller configurations utilizing our
modular, mobile camp assets.
Oil sands development activity has increased
in the past year and has had a positive impact on our accommodations business. Recent announcements have led
to extensions of existing accommodations contracts and incremental accommodations contracts for us
in Canada. Two examples are Imperial Oils Kearl project and Suncors Firebag project. In addition, several major oil companies and national oil companies have acquired oil
sands leases over the past twelve months that should bode well for future oil sands investment and,
as a result, demand for oil sands accommodations.
Generally, our customers for oil
sands and mining accommodations are
making multi-billion dollar investments to develop their prospects, which have estimated reserve
lives of ten to thirty years, and consequently these investments are dependent on those customers
longer-term view of commodity prices. Crude oil prices have recovered to levels generally ranging
from $100 to $110 per barrel compared to an average of approximately $79 per barrel experienced
during the quarter ended March 31, 2010. With the recovery in demand for energy in several key
growing markets, specifically China and India, long-term forecasts for oil demand and prices, have
improved. Our Australian accommodations business is significantly influenced by increased metallurgical coal
(Met Coal) demand, especially in China and India. As a result of these factors, our customers have begun to announce additional
investments in the oil sands region and in the coal mining regions in Australia. We are
expanding our Australian accommodations manufacturing capacity to meet increasing demand.
Another factor that influences the financial results for our accommodations segment is the
exchange rate between the U.S. dollar and the Canadian dollar and, to a lesser extent, the exchange
rate between the U.S. dollar and the Australian dollar. Our accommodations segment has derived a
majority of its revenues and operating income in Canada denominated in Canadian dollars. These
revenues and profits are translated into U.S. dollars for U.S. GAAP financial reporting purposes.
For the first three months of 2011, the Canadian dollar was valued at an average exchange rate of
U.S. $1.01 compared to U.S. $0.96 for the first three months of 2010, an increase of 5%. This
strengthening of the Canadian dollar had a significant positive impact on the translation of
earnings generated from our Canadian subsidiaries and, therefore, the financial results of our
accommodations segment.
Our offshore products segment is also
influenced significantly by our customers longer term outlook for energy prices and provides highly engineered products for offshore oil and natural
gas drilling and production systems and facilities. Sales of our offshore products and services
depend primarily upon development of infrastructure for offshore production systems and subsea
pipelines, repairs and upgrades of existing offshore drilling rigs and construction of new offshore
drilling rigs and vessels. In this segment, we are particularly influenced by global deepwater
drilling and production spending, which are driven largely by our customers longer-term outlook
for oil and natural gas prices.
New order activity in our offshore products segment was limited beginning in the fourth
quarter of 2008 and continued to decline throughout 2009 due to project postponements,
cancellations and deferrals by customers as a result of the global economic recession and reduced
oil prices. This reduction in order activity led to declines in our offshore products backlog and
decreased revenues and profits in the first three months of 2010. With the improvement in oil
prices over the last two years along with the improved outlook for long-term oil demand, we began
experiencing increased bidding and quoting activity for our offshore products beginning in the
second half of 2010 and continuing throughout the first quarter of 2011. As a result of this increased
activity, our backlog in offshore products has increased from $220.6 million as of March 31, 2010
to $415.5 million as of March 31, 2011.
Our well site services and tubular services segments are significantly influenced by drilling
and completion activity primarily in the U.S. and, to a lesser extent, Canada. Over the
past several years, this activity has been primarily driven by spending for natural gas exploration
and production, particularly in the shale play regions of the U.S.
using horizontal drilling techniques. However, with the rise in oil
prices, the recent declines in natural gas prices and the advancement of horizontal drilling and completion
techniques, activity in North America is beginning to shift to a greater proportion of oil and
liquids rich gas drilling. The oil rig count in the United States now totals approximately 880
rigs, the highest count in over 20 years.
In our well site services segment, we provide rental tools and land drilling services. Demand
for our drilling services is driven by land drilling activity in West Texas, where we primarily
drill oil wells, and in the Rocky Mountains area in the U.S., where we drill both oil and natural
gas wells. Our rental tools business provides
14
equipment and service personnel utilized in the completion and initial production of new and
recompleted wells. Activity for the rental tools business is dependant primarily upon the level
and complexity of drilling, completion and workover activity throughout North America.
Through our tubular services segment, we distribute a broad range of casing and tubing used in
the drilling and completion of oil and natural gas wells primarily in North America. Accordingly,
sales and gross margins in our tubular services segment depend upon the overall level of drilling
activity, the types of wells being drilled, movements in global steel input prices and the overall
industry level of oil country tubular goods (OCTG) inventory and pricing. Historically, tubular
services gross margin generally expands during periods of rising OCTG prices and contracts during
periods of decreasing OCTG prices.
Demand for our tubular services, land drilling and rental tool businesses is highly correlated
to changes in the drilling rig count in the U.S. and, to a much lesser extent, Canada. The
table below sets forth a summary of North American rig activity, as measured by Baker Hughes
Incorporated, for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Drilling Rig Count for |
|
|
Three Months Ended |
|
|
March 31, |
|
December 31, |
|
March 31, |
|
|
2011 |
|
2010 |
|
2010 |
U.S. Land |
|
|
1,690 |
|
|
|
1,665 |
|
|
|
1,299 |
|
U.S. Offshore |
|
|
26 |
|
|
|
22 |
|
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S |
|
|
1,716 |
|
|
|
1,687 |
|
|
|
1,345 |
|
Canada |
|
|
587 |
|
|
|
405 |
|
|
|
470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total North America |
|
|
2,303 |
|
|
|
2,092 |
|
|
|
1,815 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The average North American rig count for the three months ended March 31, 2011 increased by
488 rigs, or 26.9%, compared to the three months ended March 31, 2010 largely due to growth in the
U.S. land rig count.
We support the development of several oil and natural gas shale properties through our rental
tool and tubular businesses. There is continuing exploration and development activity focused on
these shale areas which has lead us and many of our competitors to relocate equipment to and also
concentrate on these areas. Domestic U.S. natural gas prices have decreased from peak levels of approximately $13.00 per Mcf in
2008 to recent levels of approximately $4.00 to $4.25 per Mcf. Many experts are expecting
continued weakness in natural gas prices unless the supply and demand for natural gas becomes more
balanced. Gas-directed drilling could come under pressure given low natural gas prices and the
supply/demand balance.
Steel and steel input prices influence the pricing decisions of our OCTG suppliers, thereby
influencing the pricing and margins of our tubular services segment. OCTG marketplace supply and
demand has become more balanced recently compared to the 2008 to 2009 period. Increased supplies of
OCTG have met the increased demand caused by expanded drilling activity. Recent global steel
prices have increased affecting the raw material costs of our OCTG suppliers. To date, we have incurred
modest OCTG price increases, which we have been able to pass through to our
customers. The OCTG Situation Report indicates that industry OCTG inventory levels peaked in the
first quarter of 2009 at approximately twenty months supply on the ground and have trended down to
approximately five to six months supply currently.
During 2010, U.S. mills increased production and imports of steel have surged recently, particularly
goods imported from Canada and Korea followed by India, Mexico and Japan. This increase in supply
has been in response to the 28% year-over-year increase in the
drilling rig count in the U.S.
Other Factors that Influence our Business
While global demand for oil and natural gas are significant factors influencing our business
generally, certain other factors such as the pace of recovery from the global economic recession
and credit crisis and the regulatory delays in U.S. Gulf drilling following the Macondo well incident
also influence our business.
15
We have witnessed unprecedented events in the U.S. Gulf of Mexico as a result of the Macondo
well incident and resultant oil spill. As a result of the incident, in May 2010, the Bureau of
Ocean Energy Management, Regulation and Enforcement, or BOEMRE, of the U.S. Department of the
Interior implemented a moratorium on certain drilling activities in water depths greater than 500
feet in the U.S. Gulf of Mexico that effectively shut down new deepwater drilling activities in
2010. The moratorium was lifted during October 2010. However, the BOEMRE issued Notices to
Lessees and Operators (NTLs), implemented additional safety and certification requirements
applicable to plans for drilling activities in the U.S. waters, imposed additional requirements with respect
to development and production activities in the U.S. waters, and delayed the approval of
applications to drill in both deepwater and shallow-water areas. Despite the rescission of the
moratorium, offshore drilling activity is being delayed by adjustments in operating procedures,
compliance certifications, and lead times for permits and inspections, as a result of changes in
the regulatory environment. In addition, there have been a variety of proposals to change existing
laws and regulations that could affect offshore development and production. Uncertainties and
delays caused by the new regulatory environment have and are expected to continue to have an
overall negative effect on Gulf of Mexico drilling activity and, to a certain extent, the financial
results of all of our business segments.
We continue to monitor the global economy, the demand for crude oil, coal and natural gas
prices and the resultant impact on the capital spending plans and operations of our customers in
order to plan our business. We currently expect that our 2011 capital expenditures will total
approximately $600 million to $625 million compared to 2010 capital expenditures of $182 million. Our 2011 capital
expenditures include funding to expand several of our Canadian and Australian accommodations
facilities, to add incremental equipment in our rental tools segment, to increase our fleet of
modular, mobile camp assets in Canada and to complete projects in progress at December 31, 2010,
including (i) the construction of the Henday Lodge accommodations facility in the Canadian oil
sands, (ii) continued expansion of our Wapasu Creek, Beaver River and Athabasca Lodge accommodations facilities
in the Canadian oil sands and (iii) ongoing maintenance capital requirements. In our well site
services segment, we continue to monitor industry capacity additions and will make future capital
expenditure decisions based on a careful evaluation of both the market outlook and industry
fundamentals. In our tubular services segment, we remain focused on industry inventory levels,
future drilling and completion activity and OCTG prices.
16
Consolidated Results of Operations (in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED |
|
|
|
MARCH 31, |
|
|
|
|
|
|
|
|
|
|
|
Variance |
|
|
|
|
|
|
|
|
|
|
|
2011 vs. 2010 |
|
|
|
2011 |
|
|
2010 |
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Well site
services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental tools |
|
$ |
107.5 |
|
|
$ |
67.5 |
|
|
$ |
40.0 |
|
|
|
59 |
% |
Drilling services |
|
|
33.1 |
|
|
|
30.4 |
|
|
|
2.7 |
|
|
|
9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total well site services |
|
|
140.6 |
|
|
|
97.9 |
|
|
|
42.7 |
|
|
|
44 |
% |
Accommodations |
|
|
197.1 |
|
|
|
145.5 |
|
|
|
51.6 |
|
|
|
35 |
% |
Offshore products |
|
|
128.4 |
|
|
|
103.0 |
|
|
|
25.4 |
|
|
|
25 |
% |
Tubular services |
|
|
294.3 |
|
|
|
185.9 |
|
|
|
108.4 |
|
|
|
58 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
760.4 |
|
|
$ |
532.3 |
|
|
$ |
228.1 |
|
|
|
43 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product costs; service and other costs
(Cost of sales and service) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Well site services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental tools |
|
$ |
67.3 |
|
|
$ |
45.4 |
|
|
$ |
21.9 |
|
|
|
48 |
% |
Drilling services |
|
|
25.2 |
|
|
|
25.0 |
|
|
|
0.2 |
|
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total well site services |
|
|
92.5 |
|
|
|
70.4 |
|
|
|
22.1 |
|
|
|
31 |
% |
Accommodations |
|
|
108.3 |
|
|
|
81.8 |
|
|
|
26.5 |
|
|
|
32 |
% |
Offshore products |
|
|
96.6 |
|
|
|
78.2 |
|
|
|
18.4 |
|
|
|
24 |
% |
Tubular services |
|
|
277.0 |
|
|
|
176.1 |
|
|
|
100.9 |
|
|
|
57 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
574.4 |
|
|
$ |
406.5 |
|
|
$ |
167.9 |
|
|
|
41 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Well site services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental tools |
|
$ |
40.2 |
|
|
$ |
22.1 |
|
|
$ |
18.1 |
|
|
|
82 |
% |
Drilling services |
|
|
7.9 |
|
|
|
5.4 |
|
|
|
2.5 |
|
|
|
46 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total well site services |
|
|
48.1 |
|
|
|
27.5 |
|
|
|
20.6 |
|
|
|
75 |
% |
Accommodations |
|
|
88.8 |
|
|
|
63.7 |
|
|
|
25.1 |
|
|
|
39 |
% |
Offshore products |
|
|
31.8 |
|
|
|
24.8 |
|
|
|
7.0 |
|
|
|
28 |
% |
Tubular services |
|
|
17.3 |
|
|
|
9.8 |
|
|
|
7.5 |
|
|
|
77 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
186.0 |
|
|
$ |
125.8 |
|
|
$ |
60.2 |
|
|
|
48 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin as a percentage of revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Well site services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental tools |
|
|
37 |
% |
|
|
33 |
% |
|
|
|
|
|
|
|
|
Drilling services |
|
|
24 |
% |
|
|
18 |
% |
|
|
|
|
|
|
|
|
Total well site services |
|
|
34 |
% |
|
|
28 |
% |
|
|
|
|
|
|
|
|
Accommodations |
|
|
45 |
% |
|
|
44 |
% |
|
|
|
|
|
|
|
|
Offshore products |
|
|
25 |
% |
|
|
24 |
% |
|
|
|
|
|
|
|
|
Tubular services |
|
|
6 |
% |
|
|
5 |
% |
|
|
|
|
|
|
|
|
Total |
|
|
24 |
% |
|
|
24 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED MARCH 31, 2011 COMPARED TO THREE MONTHS ENDED MARCH 31, 2010
We reported net income attributable to Oil States International, Inc. for the quarter ended
March 31, 2011 of $62.1 million, or $1.13 per diluted share. These results compare to net income
of $40.2 million, or $0.78 per diluted share, reported for the quarter ended March 31, 2010.
Revenues. Consolidated revenues increased $228.1 million, or 43%, in the first quarter of
2011 compared to the first quarter of 2010.
Our well site services revenues increased $42.7 million, or 44%, in the first quarter of 2011
compared to the first quarter of 2010. This increase was primarily due to significantly increased
rental tool revenues. Our rental tool revenues increased $40.0 million, or 59%, primarily due to
increased demand for completion services with the increase in the U.S. rig count, a more favorable
mix of higher value rentals, increased rental tool utilization and better pricing. Our drilling
services revenues increased $2.7 million, or 9%, in the first quarter of 2011 compared to the first
quarter of 2010 primarily as a result of increases in pricing with day rates rising to $15.3
thousand per day in the first quarter of 2011 from $13.8 thousand per day in the first quarter of
2010.
17
Our accommodations segment reported revenues in the first quarter of 2011 that were $51.6
million, or 35%, above the first quarter of 2010. The increase in accommodations revenue resulted
from the full quarter contribution from the recent acquisitions of The MAC and Mountain West which
added revenues of $45.5 million in the first quarter of 2011. Canadian accommodations were down
slightly year-over-year primarily due to the Vancouver Olympics contract which contributed $20.0
million in revenues in the first quarter of 2010, which was not repeated in 2011, partially offset
by increased oil sands lodge revenues from increased room capacity.
Our offshore products revenues increased $25.4 million, or 25%, in the first quarter of 2011
compared to the first quarter of 2010. This increase was primarily the result of higher demand for bearings, industrial and elastomer products
and
the acquisition
of Acute which contributed $6.1 million of revenues in the first quarter of
2011, partially offset by reduced
shipments of drilling rig and vessel equipment.
Tubular services revenues increased $108.4 million, or 58%, in the first quarter of 2011
compared to the first quarter of 2010. This increase was a result of an increase in tons shipped
from 101,200 in 2010 to 154,400 in 2011, an increase of 53,200 tons, or 53%, driven by increased
drilling activity.
Cost of Sales and Service. Our consolidated cost of sales increased $167.9 million, or 41%,
in the first quarter of 2011 compared to the first quarter of 2010 primarily as a result of
increased cost of sales at our tubular services segment of $100.9 million, or 57%, an increase at
our accommodations segment of $26.5 million, or 32%, an increase at our well site services segment
of $22.1 million, or 31%, and an increase at our offshore products segment of $18.4 million, or
24%. Our consolidated gross margin as a percentage of revenues remained constant at 24% in both
the first quarter of 2011 and 2010.
Our well site services cost of sales increased $22.1 million, or 31%, in the first quarter of
2011 compared to the first quarter of 2010 as a result of a $21.9 million, or 48%, increase in
rental tools services cost of sales. Our well site services segment gross margin as a percentage
of revenues increased from 28% in the first quarter of 2010 to 34% in the first quarter of 2011.
Our rental tool gross margin as a percentage of revenues increased from 33% in the first quarter of
2010 to 37% in the first quarter of 2011 primarily due to a more favorable mix of higher value
rentals and improved pricing along with higher fixed cost absorption as a result of increased
rental tool utilization. Our drilling services cost of sales increased $0.2 million, or 1%, in the
first quarter of 2011 compared to the first quarter of 2010. Our drilling services gross margin as
a percentage of revenues increased from 18% in the first quarter of 2010 to 24% in the first
quarter of 2011 primarily due to the increase in day rates.
Our accommodations cost of sales increased $26.5 million, or 32%, in the first quarter of 2011
compared to the first quarter of 2010 primarily as a result of operating costs associated with the
acquisitions of The MAC and Mountain West which added costs of $20.5 million in the first quarter
of 2011. Our accommodations segment gross margin as a percentage of
revenues was generally
constant (44% in the first quarter of 2010 compared to 45% in the first quarter of 2011).
Our offshore products cost of sales increased $18.4 million, or 24%, in the first quarter of
2011 compared to the first quarter of 2010 primarily due to increased revenues. Our offshore
products segment gross margin as a percentage of revenues was generally constant (24% in the
first quarter of 2010 compared to 25% in the first quarter of 2011).
Tubular services segment cost of sales increased by $100.9 million, or 57%, primarily as a
result of an increase in tons shipped. Our tubular services gross margin as a percentage of
revenues increased from 5% in the first quarter of 2010 to 6% in the first quarter of 2011 due
primarily to a 4% increase in revenue per ton.
Selling, General and Administrative Expenses. Selling, general and administrative expense
(SG&A) increased $8.6 million, or 24%, in the first quarter of 2011 compared to the first quarter
of 2010 due primarily to SG&A expense associated with the inclusion of The MAC which added $3.3
million in SG&A expense in the first quarter of 2011, increased salaries, wages and benefits, an
increase in headcount and an increased accrual for incentive bonuses.
Depreciation and Amortization. Depreciation and amortization expense increased $14.1 million,
or 45%, in the first quarter of 2011 compared to the same period in 2010 due primarily to $10.9
million in depreciation and
18
amortization expense at the three companies acquired in the fourth quarter of 2010 and capital
expenditures made during the previous twelve months largely related to investments made in our
Canadian accommodations business.
Operating Income. Consolidated operating income increased $35.0 million, or 58%, in the first
quarter of 2011 compared to the first quarter of 2010 primarily as a result of an increase in
operating income from our well site services segment of $24.2 million, or 1,011%, largely due to
the more favorable mix of higher value rentals, improved pricing and increased rental tool
utilization and the addition of operating income from The MAC. Operating income in
the first quarter of 2011 included $1.1 million in acquisition related expenses for acquisitions closed in the fourth quarter of 2010.
Interest Expense and Interest Income. Net interest expense increased by $5.8 million, or
172%, in the first quarter of 2011 compared to the first quarter of 2010 due to increased debt
levels and an increase in non-cash interest expense as a result of the amortization of debt
issuance costs on our $1.05 billion credit facilities. The weighted average interest rate on the
Companys revolving credit facilities was 3.0% in the first quarter of 2011 compared to 2.3% in the
first quarter of 2010. Interest income increased as a result of increased cash balances in
interest bearing accounts.
Income Tax Expense. Our income tax provision for the three months ended March 31, 2011
totaled $23.4 million, or 27.3% of pretax income, compared to income tax expense of $16.8 million,
or 29.3% of pretax income, for the three months ended March 31, 2010. The decrease in the
effective tax rate from the prior year was largely the result of greater foreign sourced income in 2011
taxed at lower statutory rates compared to 2010.
Liquidity and Capital Resources
Our primary liquidity needs are to fund capital expenditures, which have in the past included
expanding our accommodations facilities, expanding and upgrading our offshore products
manufacturing facilities and equipment, increasing and replacing rental tool assets, adding
drilling rigs, funding new product development and general working capital needs. In addition,
capital has been used to fund strategic business acquisitions. Our primary sources of funds have
been cash flow from operations and proceeds from borrowings.
Cash totaling $36.2 million was provided by operations during the first three months of 2011
compared to cash totaling $13.3 million provided by operations during the first three months of
2010. During the first three months of 2011, $78.3 million was used to fund working capital,
primarily due to increased investments in working capital for our tubular services business and
seasonal increases in receivables in our Canadian accommodations business. During the first three
months of 2010, $59.3 million was used to fund working capital, primarily due to increased OCTG
inventory levels in our tubular services segment to meet increasing demand for casing and tubing
and seasonal increases in receivables in our Canadian accommodations business.
Cash was used in investing activities during the three months ended March 31, 2011 and 2010 in
the amount of $93.4 million and $35.7 million, respectively. Capital expenditures totaled $92.6
million and $37.2 million during the three months ended March 31, 2011 and 2010, respectively.
Capital expenditures in both years consisted principally of purchases of assets for our
accommodations and well site services segments, and in particular for accommodations investments
made in support of Canadian oil sands developments.
We
currently expect to spend a total of approximately $600 million
to $625 million for capital expenditures
during 2011 to expand our Canadian oil sands and Australian mining related accommodations
facilities, to fund our other product and service offerings, and for maintenance and upgrade of our
equipment and facilities. We expect to fund these capital expenditures with cash available,
internally generated funds and borrowings under our revolving credit
facilities or other corporate borrowings. The foregoing
capital expenditure budget does not include any funds for opportunistic acquisitions, which the
Company could pursue depending on the economic environment in our industry and the availability of
transactions at prices deemed attractive to the Company.
Net cash of $54.7 million was provided by financing activities during the three months ended
March 31, 2011, primarily as a result of borrowings under our revolving credit facilities. A total
of $11.9 million was provided by financing activities during the three months ended March 31, 2010,
primarily as a result of borrowings under our revolving credit
facilities and the issuance of common
stock as a result of stock option exercises.
19
We believe that cash on hand, cash flow from operations and available borrowings under our
credit facilities will be sufficient to meet our liquidity needs in the coming twelve months. If
our plans or assumptions change, or are inaccurate, or if we make further acquisitions, we may need
to raise additional capital. Acquisitions have been, and our management believes acquisitions will
continue to be, a key element of our business strategy. The timing, size or success of any
acquisition effort and the associated potential capital commitments are unpredictable and
uncertain. We may seek to fund all or part of any such efforts with proceeds from debt and/or
equity issuances. Our ability to obtain capital for additional projects to implement our growth
strategy over the longer term will depend upon our future operating performance, financial
condition and, more broadly, on the availability of equity and debt financing. Capital
availability will be affected by prevailing conditions in our industry, the economy, the financial
markets and other factors, many of which are beyond our control. In addition, such additional debt
service requirements could be based on higher interest rates and shorter maturities and could
impose a significant burden on our results of operations and financial condition, and the issuance
of additional equity securities could result in significant dilution to stockholders.
Stock Repurchase Program. On August 27, 2010, the Company announced that its Board of
Directors authorized $100 million for the repurchase of the Companys common stock, par value $.01
per share. The authorization replaced the prior share repurchase authorization, which expired on
December 31, 2009. The Company presently has approximately 51.2 million shares of common stock
outstanding. The Board of Directors authorization is limited in duration and expires on September
1, 2012. Subject to applicable securities laws, such purchases will be at such times and in such
amounts as the Company deems appropriate. As of March 31, 2011, we had not repurchased any shares
pursuant to this board authorization.
Credit Facility. On December 10, 2010, we replaced our existing bank credit facility with
$1.05 billion in senior credit facilities governed by the Amended and Restated Credit Agreement
(Credit Agreement). The new facilities increased the total commitments available from $500 million
under the previous facilities to $1.05 billion. In connection with the execution of the Credit
Agreement, the Total U.S. Commitments (as defined in the Credit Agreement) were increased from U.S.
$325 million to U.S. $700 million (including $200 million in term loans), and the total Canadian
Commitments (as defined in the Credit Agreement) were increased from U.S. $175 million to U.S. $350
million (including $100 million in term loans). The maturity date of the Credit Agreement is
December 10, 2015. The aggregate principal of the term loans is repayable at a rate of 1.25% per
quarter in 2011 and 2.5% per quarter thereafter. We currently have 19 lenders in our Credit
Agreement with commitments ranging from $26.6 million to $150 million. While we have not
experienced, nor do we anticipate, any difficulties in obtaining funding from any of these lenders
at this time, the lack of or delay in funding by a significant member of our banking group could
negatively affect our liquidity position.
As of March 31, 2011, we had $786.4 million outstanding under the Credit Agreement (including
$300 million in term loans) and an additional $16.5 million of outstanding letters of credit,
leaving $246.6 million available to be drawn under the facilities. We also have an Australian
floating rate credit facility supporting our Australian accommodations business that provides for
an aggregate borrowing capacity of $77.3 million (A$75 million) under which no borrowings were
outstanding as of March 31, 2011. Our total debt represented 35.8% of our combined total debt and
shareholders equity at March 31, 2011 compared to 35.9% at December 31, 2010 and 10.7% at March
31, 2010.
2 ⅜%
Notes. As of March 31, 2011, we had classified the $175.0 million principal amount of our 2 3/8%
Notes, net of unamortized discount, as a current liability because certain contingent conversion
thresholds based on the Companys stock price were met at that date and, as a result, note holders
could present their notes for conversion during the quarter following the March 31, 2011
measurement date. If a note holder chooses to present their notes for conversion during a future
quarter prior to the first put/call date in July 2012, they would receive cash up to $1,000 for
each 2 3/8% Note plus Company common stock for any excess valuation over $1,000 using the
conversion rate of the 2 3/8% Notes of 31.496 multiplied by the Companys average common stock
price over a ten trading day period following presentation of the 2 3/8% Notes for conversion. The
future convertibility and resultant balance sheet classification of this liability will be
monitored at each quarterly reporting date and will be analyzed dependent upon market prices of the
Company common stock during the prescribed measurement periods. As of March 31, 2011, the recent
trading prices of the 2 3/8% Notes exceeded their conversion value due to the
20
remaining imbedded conversion option of the holder. Based on recent trading patterns of the 2
3/8% Notes, we do not currently expect any significant amount of the 2 3/8% Notes to convert over
the next twelve months.
Should a holder convert their
2 3/8%
Notes, we would utilize our existing credit facilities to fund the
cash portion of the conversion value.
Critical Accounting Policies
For a discussion of the critical accounting policies and estimates that we use in the
preparation of our condensed consolidated financial statements, see Item 7. Managements
Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on
Form 10-K for the year ended December 31, 2010. These estimates require significant judgments,
assumptions and estimates. We have discussed the development, selection and disclosure of these
critical accounting policies and estimates with the audit committee of our board of directors.
There have been no material changes to the judgments, assumptions and estimates, upon which our
critical accounting estimates are based.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
We have credit facilities that are subject to the risk of higher interest
charges associated with increases in interest rates. As of March 31, 2011, we had floating-rate
obligations totaling approximately $863.7 million drawn under our credit facilities. These
floating-rate obligations expose us to the risk of increased interest expense in the event of
increases in short-term interest rates. If the floating interest rates were to increase by 1% from
March 31, 2011 levels, our consolidated interest expense would increase by a total of approximately
$8.6 million annually.
Foreign
Currency Exchange Rate Risk
Our operations are conducted in various countries around
the world and we receive revenue from these operations in a number of different currencies. As
such, our earnings are subject to movements in foreign currency exchange rates when transactions
are denominated in (i) currencies other than the U.S. dollar, which is our functional currency or
(ii) the functional currency of our subsidiaries, which is not necessarily the U.S. dollar. In
order to mitigate the effects of exchange rate risks in areas outside
the U. S., we
generally pay a portion of our expenses in local currencies and a substantial portion of our
contracts provide for collections from customers in U.S. dollars. During the first three months of
2011, our realized foreign exchange losses were $1.7 million and are included in other operating
(income) expense in the consolidated statements of income.
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this
Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls and procedures (as
defined in Rule 13a-15(e) of the Exchange Act.
Our disclosure controls and procedures are designed to provide reasonable assurance that the
information required to be disclosed by us in reports that we file under the Exchange Act is
accumulated and communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and is
recorded, processed, summarized and reported within the time periods specified in the rules and
forms of the Securities and Exchange Commission. Based upon that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and procedures were
effective as of March 31, 2011 at the reasonable assurance level.
Changes
in Internal Control over Financial Reporting
During the three months ended March 31,
2011, there were no changes in our internal control over financial reporting (as defined in Rule
13a-15(f) of the Exchange Act or in other factors which have materially
affected our internal control over financial reporting, or are reasonably likely to materially
affect our internal control over financial reporting.
21
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings
We are a party to various pending or threatened claims, lawsuits and administrative
proceedings seeking damages or other remedies concerning our commercial operations, products,
employees and other matters, including occasional claims by individuals alleging exposure to
hazardous materials as a result of our products or operations. Some of these claims relate to
matters occurring prior to our acquisition of businesses, and some relate to businesses we have
sold. In certain cases, we are entitled to indemnification from the sellers of businesses, and in
other cases, we have indemnified the buyers of businesses from us. Although we can give no
assurance about the outcome of pending legal and administrative proceedings and the effect such
outcomes may have on us, we believe that any ultimate liability resulting from the outcome of such
proceedings, to the extent not otherwise provided for or covered by indemnity or insurance, will
not have a material adverse effect on our consolidated financial position, results of operations or
liquidity.
ITEM 1A. Risk Factors
Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2010
(the 2010 Form 10-K) includes a detailed discussion of our risk factors. There have been no
significant changes to our risk factors as set forth in our 2010 Form 10-K. The risks described in
this Quarterly Report on Form 10-Q and our 2010 Form 10-K are not the only risks we face.
Additional risks and uncertainties not currently known to us or that we currently deem to be
immaterial also may materially adversely affect our business, financial condition or future
results.
ITEM 6. Exhibits
(a) INDEX OF EXHIBITS
|
|
|
|
|
Exhibit No. |
|
|
|
Description |
3.1
|
|
|
|
Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 to the
Companys Annual Report on Form 10-K for the year
ended December 31, 2000, as filed with the
Commission on March 30, 2001 (File No.
001-16337)). |
|
|
|
|
|
3.2
|
|
|
|
Third Amended and Restated Bylaws (incorporated
by reference to Exhibit 3.1 to the Companys
Current Report on Form 8-K, as filed with the
Commission on March 13, 2009 (File No.
001-16337)). |
|
|
|
|
|
3.3
|
|
|
|
Certificate of Designations of Special Preferred
Voting Stock of Oil States International, Inc.
(incorporated by reference to Exhibit 3.3 to the
Companys Annual Report on Form 10-K for the year
ended December 31, 2000, as filed with the
Commission on March 30, 2001 (File No.
001-16337)). |
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31.1*
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Certification of Chief Executive Officer of Oil States International,
Inc. pursuant to Rules 13a-14(a) or 15d-14(a) under the Securities
Exchange Act of 1934. |
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31.2*
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Certification of Chief Financial Officer of Oil States International,
Inc. pursuant to Rules 13a-14(a) or 15d-14(a) under the Securities
Exchange Act of 1934. |
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32.1**
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Certification of Chief Executive Officer of Oil States International,
Inc. pursuant to Rules 13a-14(b) or 15d-14(b) under the Securities
Exchange Act of 1934. |
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32.2**
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Certification of Chief Financial Officer of Oil States International,
Inc. pursuant to Rules 13a-14(b) or 15d-14(b) under the Securities
Exchange Act of 1934. |
22
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Exhibit No. |
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Description |
101.INS**
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XBRL Instance Document |
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101.SCH**
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XBRL Taxonomy Extension Schema Document |
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101.CAL**
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XBRL Taxonomy Extension Calculation Linkbase Document |
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101.LAB**
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XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE**
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XBRL Taxonomy Extension Presentation Linkbase Document |
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* |
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Filed herewith |
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** |
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Furnished herewith. |
23
SIGNATURES
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.
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OIL STATES INTERNATIONAL, INC.
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Date: April 27, 2011 |
By |
/s/ BRADLEY J. DODSON
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Bradley J. Dodson |
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Senior Vice President, Chief Financial Officer and
Treasurer (Duly Authorized Officer and Principal
Financial Officer) |
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Date: April 27, 2011 |
By |
/s/ ROBERT W. HAMPTON
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Robert W. Hampton |
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Senior Vice President Accounting and
Secretary (Duly Authorized Officer and Chief
Accounting Officer) |
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24
Exhibit Index
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Exhibit No. |
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Description |
3.1
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Amended and Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3.1 to the Companys Annual Report on Form 10-K
for the year ended December 31, 2000, as filed with the Commission on
March 30, 2001 (File No. 001-16337)). |
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3.2
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Third Amended and Restated Bylaws (incorporated by reference to
Exhibit 3.1 to the Companys Current Report on Form 8-K, as filed with
the Commission on March 13, 2009 (File No. 001-16337)). |
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3.3
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Certificate of Designations of Special Preferred Voting Stock of Oil
States International, Inc. (incorporated by reference to Exhibit 3.3
to the Companys Annual Report on Form 10-K for the year ended
December 31, 2000, as filed with the Commission on March 30, 2001(File
No. 001-16337)). |
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|
|
|
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31.1*
|
|
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Certification of Chief Executive Officer of Oil States International,
Inc. pursuant to Rules 13a-14(a) or 15d-14(a) under the Securities
Exchange Act of 1934. |
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|
|
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31.2*
|
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Certification of Chief Financial Officer of Oil States International,
Inc. pursuant to Rules 13a-14(a) or 15d-14(a) under the Securities
Exchange Act of 1934. |
|
|
|
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32.1**
|
|
|
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Certification of Chief Executive Officer of Oil States International,
Inc. pursuant to Rules 13a-14(b) or 15d-14(b) under the Securities
Exchange Act of 1934. |
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|
|
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32.2**
|
|
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Certification of Chief Financial Officer of Oil States International,
Inc. pursuant to Rules 13a-14(b) or 15d-14(b) under the Securities
Exchange Act of 1934. |
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|
|
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101.INS**
|
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|
XBRL Instance Document |
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|
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101.SCH**
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|
XBRL Taxonomy Extension Schema Document |
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101.CAL**
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|
XBRL Taxonomy Extension Calculation Linkbase Document |
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101.LAB**
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|
XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE**
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|
XBRL Taxonomy Extension Presentation Linkbase Document |
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* |
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Filed herewith |
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** |
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Furnished herewith. |