UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JuneSeptember 30, 2002
OR
[ ] 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 1-16337
OIL STATES INTERNATIONAL, INC.
---------------
(Exact name of registrant as specified in its charter)
Delaware 76-0476605
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Three Allen Center, 77002
333 Clay Street, Suite 3460, -----
Houston, Texas 77002
-------------- -----(Zip Code)
----------------------------
(Address of principal executive offices) (Zip Code)
(713) 652-0582
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
None
- --------------------------------------------------------------------------------
(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 [X] NO [ ]
The Registrant had 48,397,66648,313,160 shares of common stock outstanding as of
August 9,November 8, 2002.
OIL STATES INTERNATIONAL, INC.
INDEX
PAGE NO.
--------
PartPART I -- FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated and Combined and Pro Forma Financial Statements
Unaudited Consolidated Statements of Operations for the Three Months Ended
JuneSeptember 30, 2002 and 2001 3
Unaudited Consolidated, Combined and Pro Forma Statement of Operations for the
SixNine Months Ended JuneSeptember 30, 2002 and 2001 4
Consolidated Balance Sheets - JuneSeptember 30, 2002 (unaudited) and
December 31, 2001 5
Unaudited Consolidated and Combined Statements of Cash Flows for
the SixNine Months Ended JuneSeptember 30, 2002 and 2001 6
Notes to Unaudited Consolidated, Combined and Pro Forma Financial Statements 7 - 12
Unaudited Pro Forma Consolidated and Combined Financial Statement 13
Unaudited Pro Forma Consolidated and Combined Statement of Operations for the
SixNine Months Ended JuneSeptember 30, 2001 14
Notes to Unaudited Pro Forma Consolidated and Combined Financial Statement 15 - 16
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 17 - 24
Item 3. Quantitative and Qualitative Disclosures About Market Risk 24
PartItem 4. Controls and Procedures 25
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 2526
Item 2. Changes in Securities and Use of Proceeds 2526
Item 3. Default Upon Senior Securities 2526
Item 4. Submission of Matters to a Vote of Security Holders 25 - 26
Item 5. Other Information 26
Item 6. Exhibits and Reports on Form 8-K 26
(a) Index of Exhibits 26 - 28
(b) Report on Form 8-K 28
Signature Page and Certification 29 - 31
2
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
JUNESEPTEMBER 30,
---------------------------------------------------------
2002 2001
---- ------------ ---------
Revenues .................................................................Revenues........................................ $154,595 $ 150,839 $ 175,333173,510
Costs and expenses:
Cost of sales .......................................................... 121,690 141,622sales................................. 121,756 140,390
Selling, general and administrative expenses ........................... 11,963 13,134expenses.. 12,697 12,974
Depreciation expense ................................................... 5,600 4,976expense.......................... 5,821 5,200
Amortization expense ................................................... 21 1,978expense.......................... 121 1,957
Other expense .......................................................... 169 117expense/(income)........................ 46 (191)
-------- ---------
---------
139,443 161,827
---------140,441 160,330
-------- ---------
Operating income ......................................................... 11,396 13,506income................................ 14,154 13,180
Interest expense ......................................................... (966) (2,457)income................................. 143 93
Interest income .......................................................... 103 78expense................................ (1,158) (2,124)
Other income (expense) ................................................... 4 (538)
---------income.................................... 30 116
-------- ---------
Income before income taxes ............................................... 10,537 10,589taxes...................... 13,169 11,265
Income tax expense ....................................................... (2,318) (328)
---------expense.............................. (2,981) (963)
-------- ---------
Net income ...............................................................income...................................... $ 8,21910,188 $ 10,261
=========10,302
======== =========
Basic net income per share ...............................................share...................... $ .17.21 $ .21
Diluted net income per share .............................................share.................... $ .17.21 $ .21
Weighted average number of common shares
outstanding:
Basic .................................................................. 48,249 48,182
Diluted ................................................................ 48,911 48,742Basic......................................... 48,297 48,221
Diluted....................................... 48,934 48,536
The accompanying notes are an integral part of
these financial statements.
3
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED, COMBINED AND PRO FORMA STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SIXNINE MONTHS ENDED ---------------- SIXSEPTEMBER 30, 2001
NINE MONTHS ENDED JUNE---------------------------------------
SEPTEMBER 30, 2001
JUNE 30, 2002 -------------------------------
------------- CONSOLIDATED AND
CONSOLIDATED PRO FORMA (1)FORMA(1) COMBINED
------------------------------ ------------- ------------------------
Revenues ......................................................Revenues............................................ $ 301,438456,033 $ 366,827540,336 $ 318,310491,820
Costs and expenses:
Cost of sales ............................................... 241,842 294,942 249,802sales..................................... 363,599 435,332 390,191
Selling, general and administrative expenses ................ 24,191 26,571 25,437expenses...... 36,888 39,545 38,412
Depreciation expense ........................................ 10,834 10,034 9,972expense.............................. 16,655 15,234 15,172
Amortization expense ........................................ 96 3,939 3,347expense.............................. 216 5,896 5,304
Other operating income ...................................... (115) (19) (19)
--------- --------- ---------
276,848 335,467 288,539
--------- --------- ---------income............................ (69) (211) (210)
------------ ----------- ------------
417,289 495,796 448,869
------------ ----------- ------------
Operating income .............................................. 24,590 31,360 29,771income.................................... 38,744 44,540 42,951
Interest expense .............................................. (2,013) (5,427) (5,685)income..................................... 354 487 465
Interest income ............................................... 211 394 372expense.................................... (3,172) (7,552) (7,809)
Other income (expense) ........................................ 317 (275) (274)
--------- --------- ---------.............................. 353 (160) (160)
------------ ------------ -------------
Income before income taxes, minority interest, and
extraordinary item .......................................... 23,105 26,052 24,184item................................ 36,279 37,315 35,447
Income tax expense ............................................ (5,085) (568) (508)expense.................................. (8,065) (1,575) (1,471)
Minority interest in income of combined companies
and consolidated subsidiaries ................................... 7 -- (1,600)
--------- --------- ---------subsidiaries..................... 1 3 (1,598)
------------ ----------- ------------
Net income before extraordinary item .......................... 18,027 25,484 22,076item................ 28,215 35,743 32,378
Extraordinary loss on debt restructuring, net of
income taxes .......................................................taxes...................................... -- (784) (784)
--------- --------- --------------------- ------------ -------------
Net income .................................................... 18,027 24,700 21,292income.......................................... 28,215 34,959 31,594
Preferred dividends ...........................................dividends................................. -- -- (41)
--------- --------- --------------------- ----------- ------------
Net income attributable to common shares ......................shares............ $ 18,02728,215 $ 24,70034,959 $ 21,251
========= ========= =========31,553
============ =========== ============
Basic earnings (loss) per share:
Earnings per share before extraordinary item ................item...... $ .37.58 $ .53.75 $ .52.73
Extraordinary loss on debt restructuring, net
of income taxes .....................................................taxes................................. -- (.02) (.02)
Basic net income per share .................................. .37 .51 .50share........................ .58 .73 .71
Diluted earnings (loss) per share:
Earnings per share before extraordinary item ................item...... $ .37.58 $ .53.74 $ .51.72
Extraordinary loss on debt restructuring, net
of income taxes .....................................................taxes................................. -- (.02) (.02)
Diluted net income per share ................................ .37 .51 .49share...................... .58 .72 .70
Weighted average number of common shares outstanding:
Basic ....................................................... 48,241 48,169 42,300
Diluted ..................................................... 48,544 48,688 43,539Basic............................................. 48,260 48,187 44,274
Diluted........................................... 48,827 48,660 45,228
(1) See detailed pro forma statement of income and related footnotes on pages 13
to 16 of this Form 10-Q.
The accompanying notes are an integral part of
these financial statements.
4
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
JUNESEPTEMBER 30, DECEMBER 31,
ASSETS 2002 2001
------------------------ ------------
(UNAUDITED)
Current assets:
Cash and cash equivalents ...........................equivalents............................ $ 3,2929,204 $ 4,982
Accounts receivable, net ............................ 97,403net............................. 106,519 116,790
Inventories, net .................................... 79,072net..................................... 110,420 76,917
Prepaid expenses and other current assets ........... 4,132assets............ 3,694 3,932
--------- -----------------
Total current assets .............................. 183,899assets............................... 229,837 202,621
Property, plant, and equipment, net ................... 150,408net.................... 162,142 150,090
Goodwill, net ......................................... 174,227net.......................................... 211,440 172,235
Other noncurrent assets ............................... 5,351assets................................ 8,388 4,937
--------- -----------------
Total assets .....................................assets....................................... $ 513,885 $ 529,883611,807 $529,883
========= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ............liabilities............. $ 88,83098,349 $ 83,528
Income taxes ........................................ 4,427taxes......................................... 5,592 4,267
Current portion of long-term debt ................... 690debt.................... 701 3,894
Deferred revenue .................................... 6,600revenue..................................... 9,225 2,646
Other current liabilities ........................... 501liabilities............................ 1,771 509
--------- -----------------
Total current liabilities ........................ 101,048liabilities.......................... 115,638 94,844
Long-term debt ...................................... 30,304debt....................................... 104,744 73,939
Deferred income taxes ............................... 7,960taxes................................ 9,086 8,436
Postretirement healthcare benefits .................. 5,615benefits................... 5,346 5,570
Other liabilities ................................... 3,000liabilities.................................... 2,827 2,897
--------- -----------------
Total liabilities ................................ 147,927liabilities.................................. 237,641 185,686
Stockholders' equity:
Common stock ........................................stock......................................... 484 483
Additional paid-in capital .......................... 326,509capital........................... 326,644 326,031
Retained earnings ................................... 42,738earnings.................................... 52,925 24,710
Accumulated other comprehensive loss ................ (3,773)loss................. (5,887) (7,027)
--------- -----------------
Total stockholders' equity ....................... 365,958equity......................... 374,166 344,197
--------- -----------------
Total liabilities and stockholders' equity .......equity......... $ 513,885 $ 529,883611,807 $529,883
========= =================
The accompanying notes are an integral part of
these financial statements.
5
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SIXNINE MONTHS ENDED JUNESEPTEMBER 30,
----------------------------------------------------------------
2002 2001
------------ ------------
CONSOLIDATED----------------
CONSOLIDATED AND
CONSOLIDATED COMBINED
------------ ------------
Cash flows from operating activities:
Net income before extraordinary item .........................................item......................... $ 18,02728,215 $ 22,07632,378
Adjustments to reconcile net income from continuing
operations to net cash from operating activities:
Minority interest, net of distributions .................................... (7) 1,600distributions.................... -- 1,599
Depreciation and amortization .............................................. 10,930 13,319amortization.............................. 16,871 20,476
Deferred income tax provision .............................................. (980) (11,617)provision.............................. (1,102) (6,820)
Other, net ................................................................. 777 655net................................................. 1,318 1,608
Changes in working capital ................................................. 27,672 (17,889)capital................................. 16,652 (20,016)
-------- --------
Net cash flows provided by (used in) operating
activities ................ 56,491 8,144activities............................................. 61,954 29,225
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired ............................. (1,413) (2,120)acquired............. (64,886) (5,119)
Capital expenditures ......................................................... (9,860) (12,537)expenditures......................................... (16,282) (21,538)
Proceeds from sale of equipment .............................................. 755 4,925equipment.............................. 887 5,410
Cash acquired in Sooner acquisition ..........................................acquisition.......................... -- 4,894
Other, net ................................................................... 63 (339)net................................................... 64 17
-------- --------
Net cash flows provided by (used in) investing
activities ................ (10,455) (5,177)activities............................................. (80,217) (16,336)
Cash flows from financing activities:
Borrowings/(repayments) under revolving credit facility ...................... (43,754) 6,456facility...... 27,356 (1,638)
Debt repayments .............................................................. (3,754) (65,475)repayments.............................................. (3,953) (65,617)
Preferred stock dividends ....................................................dividends.................................... -- (844)
Proceeds from issuance of common stock ....................................... 358 84,500stock....................... 461 84,599
Repurchase of preferred stock ................................................stock................................ -- (21,775)
Payment of offering and financing costs ......................................costs...................... -- (4,952)(5,353)
Other, net ................................................................... (158) (2,530)net................................................... (594) (2,200)
-------- --------
Net cash flows provided by (used in) financing
activities ................ (47,308) (4,620)activities............................................. 23,270 (12,828)
Effect of exchange rate changes on cash ........................................ (382) (230)cash........................ (477) 22
-------- --------
Net increase in cash and cash equivalents from continuing
operations ........... (1,654) (1,883)operations................................................... 4,530 83
Net cash provided by (used in) discontinued operations ......................... (36) 379operations......... (308) 334
Extraordinary item .............................................................item............................................. -- (250)
Cash and cash equivalents, beginning of year ...................................year................... 4,982 4,821
-------- --------
Cash and cash equivalents, end of period .......................................period....................... $ 3,2929,204 $ 3,0674,988
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
6
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED, COMBINED AND PRO FORMA
FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Oil States
International, Inc. (Oil States or the Company) and its consolidated
subsidiaries since February 14, 2001. On February 14, 2001, the Company acquired
the three companies (HWC Energy Services, Inc. - HWC; PTI Group, Inc. - PTI and
Sooner Inc. - Sooner) previously reported in the Combined and Pro Forma
financial statements presented herein. The combined financial statements include
the activities of Oil States, HWC and PTI, collectively(collectively, the Controlled GroupGroup)
for the period prior to February 14, 2001, utilizing reorganization accounting.
The reorganization accounting method, which yields results similar to the
pooling of interests method, has been used in the preparation of the combined
financial statements of the Controlled Group (entities under common control of
SCF-III L.P. (SCF-III), a private equity fund that focuses on investments in the
energy industry). Under this method of accounting, the historical financial
statements of HWC and PTI are combined with Oil States for the period until
February 14, 2001 when Oil States, HWC and PTI merged and Oil States acquired
Sooner in exchange for its common stock.stock (the Combination). After February 14,
2001, the consolidated financial statements of Oil States include the results of
all its subsidiaries including HWC, PTI and Sooner. The combined financial
statements have been adjusted to reflect minority interests in the Controlled
Group. All significant intercompany accounts and transactions between the
consolidated entities have been eliminated in the accompanying consolidated,
combined and pro forma financial statements.
The accompanying unaudited consolidated and combined financialsfinancial statements of
the Company and its wholly-owned subsidiaries have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information in footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles 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 year.
The financial statements included in this report should be read in
conjunction with Oil States' audited financial statements and accompanying notes
included in its 2001 Form 10-K, filed under the Securities Exchange Act of 1934,
as amended.
2. NEW ACCOUNTING PRONOUNCEMENT - GOODWILL AND OTHER INTANGIBLE ASSETS
Effective January 1, 2002, the Company adopted Financial Accounting
Standards Board (FASB) Statement No. 142 - "Goodwill and Other Intangible
Assets" (FAS No. 142). In connection with the adoption of FAS No. 142, the
Company ceased amortizing goodwill. Also, as required by this statement, the
Company has completed its evaluation of goodwill for potential impairment. No
provision for goodwill impairment was required based on the evaluation
performed.
7
Changes in the carrying amount of goodwill for the sixnine months ended
JuneSeptember 30, 2002, are as follows (in thousands):
OFFSHORE WELLSITE TUBULAR
PRODUCTS SERVICES SERVICES TOTAL
-------- -------- -------- ----------------
Balance as of January 1, 2002 $ 41,585 $ 81,156 $ 49,494 $ 172,235
Goodwill acquired 27,589 11,067 -- 815 -- 81538,656
Impairment losses -- -- -- --
Foreign currency translation and
other changes 255 837377 87 85 1,177549
-------- -------- -------- --------------------
Balance as of JuneSeptember 30, 2002 $ 41,84069,551 $ 82,80892,310 $ 49,579 $ 174,227211,440
======== ======== ======== ====================
The following tables present what reported income before extraordinary items
and net income per share would have been in all periods presented exclusive of
amortization expense recognized in those periods related to goodwill.
FOR THE THREE MONTHS ENDED
-------------------------------------
JUNESEPTEMBER 30, SEPTEMBER 30,
2002 JUNE 30, 2001
------------- -------------
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
-------------------------------------
CONSOLIDATED CONSOLIDATED
------------ ------------
Reported net income before extraordinary item $ 8,21910,188 $ 10,26110,302
Add: Goodwill amortization -- 1,8841,881
----------- -----------
Adjusted net income before extraordinary item $ 8,21910,188 $ 12,14512,183
=========== ===========
Basic earnings per share:
Reported net income before extraordinary item $ .17.21 $ .21
Goodwill amortization -- .04
----------- ---------------------
Adjusted net income before extraordinary item $ .17.21 $ .25
=========== =====================
Diluted earnings per share:
Reported net income before extraordinary item $ .17.21 $ .21
Goodwill amortization -- .04
----------- ---------------------
Adjusted net income before extraordinary item $ .17.21 $ .25
=========== =====================
8
FOR THE SIXNINE MONTHS ENDED
--------------------------------------------------
JUNE-----------------------------------------------------------
SEPTEMBER 30, 2002 JUNESEPTEMBER 30, 2001
------------- ----------------------------------------------- -------------------------------
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
-------------------------------------------------------------------------------------------------------------
CONSOLIDATED
AND
CONSOLIDATED PRO FORMA COMBINED
------------ --------- --------------------
Reported net income before extraordinary item $ 18,02728,215 $ 25,48435,743 $ 22,07632,378
Add: Goodwill amortization -- 3,763 3,172
---------- ---------- ----------5,644 5,053
------------ --------- -----------
Adjusted net income before extraordinary item $ 18,02728,215 $ 29,24741,387 $ 25,248
========== ========== ==========37,431
============ ========= ===========
Basic earnings per share:
Reported net income before extraordinary item $ .37.58 $ .53.75 $ .52.73
Goodwill amortization -- .08 .08
---------- ---------- ----------.12 .11
------------ --------- -----------
Adjusted net income before extraordinary item $ .37.58 $ .61.87 $ .60
========== ========== ==========.84
============ ========= ===========
Diluted earnings per share:
Reported net income before extraordinary item $ .37.58 $ .53.74 $ .51.72
Goodwill amortization -- .07 .07
---------- ---------- ----------.12 .11
------------ --------- -----------
Adjusted net income before extraordinary item $ .37.58 $ .60.86 $ .58
========== ========== ==========.83
============ ========= ===========
3. INITIAL PUBLIC OFFERING, MERGER TRANSACTIONS, REFINANCING AND REFINANCINGACQUISITIONS
On February 9, 2001, the Company began trading its common stock on the New
York Stock Exchange under the symbol "OIS" pursuant to completion of its initial
public offering (the Offering). On February 14, 2001, the Company closed the
business combinationCombination and the Offering thereby acquiring the minority interests in PTI and
HWC and 100% of the Sooner operations. The Company recorded additional goodwill
of $61.9 million as a result of the acquisition of these minority interests.
Concurrent with the Offering, the Company acquired Sooner for $69.5 million.
The Company exchanged 7,597,152 shares of its common stock for all of the
outstanding common shares of Sooner. The Company accounted for the acquisition
using the purchase method of accounting and recorded approximately $40 million
in goodwill.
Concurrent with the closing of the Offering, the Company issued 4,275,555
shares of common stock to SCF-III and SCF-IV L.P. (SCF-IV) in exchange for
approximately $36.0 million of indebtedness of Oil States and Sooner which was
held by SCF-III and SCF-IV (the SCF Exchange).
With the proceeds received in the Offering, the Company repaid $43.7 million
of outstanding subordinated debt of the Controlled Group and Sooner, redeemed
$21.8 million of preferred stock of Oil States, paid accrued interest on
subordinated debt and accrued dividends on preferred stock aggregating $7.1
million, and repurchased common stock from non-accredited shareholders and
shareholders holding pre-emptive stock purchase rights for $1.6 million. The
balance of the proceeds were used to reduce amounts outstanding under bank lines
of credit.
On February 14, 2001, the Company entered into a $150 million senior secured
revolving credit facility. This new credit facility replaced existing bank
credit facilities.
In connection with the debt refinancing discussed above, the Company
incurred prepayment penalties and wrote-off unamortized debt issue costs
totaling $0.8 million which is reported as an extraordinary item.
In the first nine months of 2002, the Company acquired the following six
businesses for total consideration of approximately $72.5 million, which was
paid primarily in cash:
o Southeastern Rentals LLC, based in Mississippi, Edge Wireline
Rentals Inc. and certain affiliated companies, located in Louisiana,
and J.V. Oilfield Rentals & Supply, Inc. and certain affiliated
companies, located in Louisiana, all of which are suppliers of
rental tools to the oil and gas service
9
industry. These businesses were merged into the Company's existing
rental tool business included in the Well Site Services segment.
o Barlow Hunt, Inc., based in Oklahoma, an elastomer molding company
which will become part of the Company's existing elastomer business
within the Offshore Products segment.
o Certain assets and liabilities of Big Inch Marine Services, Inc., a
Texas-based subsidiary of Stolt Offshore, Inc., which provides
subsea pipeline equipment and repair services similar to those
provided by the Company's Offshore Products segment.
o Applied Hydraulic Systems, Inc., a Louisiana based offshore crane
manufacturer and crane repair service provider, which will become
part of the Company's Offshore Products segment.
Goodwill recognized in those transactions amounted to $38.7 million, of
which $10.1 million is expected to be deductible for tax purposes. See Note 2
above for details of goodwill by segment. Additionally, the Company allocated
$2.4 million of the total consideration paid to certain non-compete agreements
which will be amortized over the life of the agreements.
4. DETAILS OF SELECTED BALANCE SHEET ACCOUNTS
Additional information regarding selected balance sheet accounts is
presented below (in thousands):
JUNESEPTEMBER 30, DECEMBER 31,
2002 2001
---- ----------------- ------------
Accounts receivable:
Trade............................................................. $ 84,417 $ 115,72684,902 $115,726
Unbilled revenue.................................................. 12,29119,588 2,674
Other............................................................. 2,8144,055 1,123
Allowance for doubtful accounts................................... (2,119)(2,026) (2,733)
--------- ------------------- --------
$ 97,403 $ 116,790106,519 $116,790
========= =================
JUNESEPTEMBER 30, DECEMBER 31,
2002 2001
---- ----------------- ------------
Inventories:
Tubular goods..................................................... $ 38,66356,462 $ 41,882
Other finished goods and purchased products....................... 17,36520,866 20,024
Work in process................................................... 18,13724,389 12,012
Raw materials..................................................... 10,28114,037 8,696
--------- -----------------
Total inventories................................................. 84,446115,754 82,614
Inventory reserves................................................ (5,374)(5,334) (5,697)
--------- -----------------
$ 79,072110,420 $ 76,917
========= =================
ESTIMATED JUNE,SEPTEMBER 30, DECEMBER 31,
USEFUL LIFE 2002 2001
----------- ---- ----------------- -----------
Property, plant and equipment:
Land..................................................Land................................................ $ 4,2244,166 $ 4,163
Buildings and leasehold improvements..................improvements................ 2-50 years 29,28633,363 27,505
Machinery and equipment...............................equipment............................. 2-15 years 154,310160,108 147,183
Rental tools..........................................tools........................................ 3-10 years 26,45331,594 24,876
Office furniture and equipment........................equipment...................... 1-10 years 11,57311,795 10,667
Vehicles..............................................Vehicles............................................ 2-5 years 5,9476,655 6,197
Construction in progress.............................. 620progress............................ 1,133 1,033
--------- -----------------
Total property, plant and equipment.................. 232,413equipment................ 248,814 221,624
Less: Accumulated depreciation.......................... (82,005)depreciation........................ (86,672) (71,534)
--------- -----------------
$ 150,408 $ 150,090162,142 $150,090
========= =================
10
JUNESEPTEMBER 30, DECEMBER 31,
2002 2001
---- ----------------- ------------
Accounts payable and accrued liabilities:
Trade accounts payable............................................ $ 57,38165,400 $ 52,386
Accrued compensation.............................................. 8,85311,366 10,317
Accrued insurance................................................. 3,6353,860 3,498
Accrued interest.................................................. 248334 248
Accrued taxes, other than income taxes............................ 2,5093,408 3,314
Reserves related to discontinued operations, current portion...... 5,090 4,976
Postretirement healthcare benefits current portion................ 1,100 1,100
Other............................................................. 10,014 7,6898,891 8,789
--------- -----------------
$ 88,83098,349 $ 83,528
========= =================
5. SEGMENT AND RELATED INFORMATION
In accordance with SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," the Company has identified the following
reportable segments: Offshore Products, and Wellsite Services and since the
acquisition of Sooner, Tubular Services.
The Company's reportable segments are 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 acquired as a unit, and the management at the time of the
acquisition was retained.
10
Financial information by industry segment for each of the three-month and
six-monthnine-month periods ended JuneSeptember 30, 2002 and 2001 is summarized in the
following table (in thousands):
OFFSHORE WELLSITE TUBULAR CORPORATE AND
PRODUCTS SERVICES SERVICES ELIMINATIONS TOTAL
-------- -------- ----------------- ------------- --------------
THREE MONTHS ENDED JUNESEPTEMBER 30, 2002
Revenues from unaffiliated
customers........................customers........................... $ 46,49155,500 $ 50,88544,268 $ 53,46354,827 $ -- $ 150,839154,595
======== ======== ========= ======= =========
EBITDA as defined(1)............. 8,456 8,578 1,235 (1,252) 17,017defined (1)................. 10,924 8,829 1,658 (1,315) 20,096
======== ======== ========= ======= =========
Depreciation and amortization.... 1,344 4,121 145 11 5,621amortization......... 1,548 4,239 143 12 5,942
======== ======== ========= ======= =========
Operating income (loss).......... 7,112 4,457 1,090 (1,263) 11,396............... 9,376 4,591 1,515 (1,328) 14,154
======== ======== ========= ======= =========
Capital expenditures............. 1,643 4,613 33 3 6,292expenditures.................. 1,550 4,841 31 -- 6,422
======== ======== ========= ======= =========
Total assets..................... 161,358 232,019 116,496 4,012 513,885assets.......................... 233,083 245,292 130,626 2,820 611,821
======== ======== ========= ======= =========
THREE MONTHS ENDED JUNESEPTEMBER 30, 2001
Revenues from unaffiliated
customers........................customers........................... $ 32,42931,371 $ 56,49255,800 $ 86,41286,339 $ -- $ 175,333173,510
======== ======== ========= ======= =========
EBITDA as defined(1)............. 3,960 14,134 3,758 (1,392) 20,460defined (1)................. 3,659 15,429 2,827 (1,578) 20,337
======== ======== ========= ======= =========
Depreciation and amortization.... 1,534 3,980 498 942 6,954amortization......... 1,583 4,094 535 945 7,157
======== ======== ========= ======= =========
Operating income (loss).......... 2,426 10,154 3,261 (2,335) 13,506............... 2,076 11,335 2,292 (2,523) 13,180
======== ======== ========= ======= =========
Capital expenditures............. 710 6,958 195 14 7,877expenditures.................. 1,010 7,849 122 20 9,001
======== ======== ========= ======= =========
Total assets..................... 137,155 213,689 132,657 63,948 547,449assets.......................... 137,919 222,199 119,680 60,906 540,704
======== ======== ========= ======= =========
OFFSHORE WELLSITE TUBULAR CORPORATE AND
PRODUCTS SERVICES SERVICES ELIMINATIONS TOTAL
-------- -------- ----------------- ------------- -----
SIX---------
NINE MONTHS ENDED JUNESEPTEMBER 30, 2002
Revenues from unaffiliated
customers.....................customers........................ $134,727 $161,747 $ 79,228 $117,478 $ 104,732159,559 $ -- $ 301,438456,033
======== ======== ========= ======= =========
EBITDA as defined(1).......... 12,817 23,805 1,352 (2,454) 35,520defined (1).............. 23,741 32,635 3,010 (3,771) 55,615
======== ======== ========= ======= =========
Depreciation and amortization. 2,689 7,928 289 24 10,930amortization...... 4,237 12,167 432 35 16,871
======== ======== ========= ======= =========
Operating income (loss)....... 10,128 15,877 1,063 (2,478) 24,590............ 19,504 20,468 2,578 (3,806) 38,744
======== ======== ========= ======= =========
Capital expenditures.......... 3,024 6,755 78expenditures............... 4,574 11,596 109 3 9,86016,282
======== ======== ========= ======= =========
Total assets.................. 161,358 232,019 116,496 4,012 513,885assets....................... 233,083 245,292 130,626 2,820 611,821
======== ======== ========= ======= =========
SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 2001
Revenues from unaffiliated
customers.....................customers........................ $ 61,930 $125,64793,301 $181,448 $ 130,733217,071 $ -- $ 318,310491,820
======== ======== ========= ======= =========
EBITDA as defined(1).......... 5,747 34,013 5,859 (2,529) 43,090defined (1).............. 9,406 49,442 8,687 (4,108) 63,427
======== ======== ========= ======= =========
Depreciation and amortization. 3,144 8,056 700 1,419 13,319amortization...... 4,727 12,150 1,235 2,364 20,476
======== ======== ========= ======= =========
Operating income (loss)....... 2,603 25,957 5,159 (3,948) 29,771............ 4,679 37,292 7,451 (6,471) 42,951
======== ======== ========= ======= =========
Capital expenditures.......... 1,447 10,677 334 79 12,537expenditures............... 2,457 18,526 456 99 21,538
======== ======== ========= ======= =========
Total assets.................. 137,155 213,689 132,657 63,948 547,449assets....................... 137,919 222,199 119,680 60,906 540,704
======== ======== ========= ======= =========
(1) EBITDA as defined consists of operating income (loss) before depreciation
and amortization expense. EBITDA as defined is not a measure of financial
performance under generally accepted accounting principles. You should not
consider it in isolation from or as a substitute for net income or cash flow
11
measures prepared in accordance with generally accepted accounting
principles or as a measure of profitability or liquidity. Additionally, our
EBITDA as defined calculation may not be comparable to other similarly
titled measures of other companies. We have included EBITDA as defined as a
supplemental disclosure because it may provide useful information regarding
our ability to service debt and to fund capital expenditures.
6. COMPREHENSIVE INCOME
Comprehensive income for the three and sixnine month periods ended JuneSeptember
30, 2002 and 2001 was as follows (in thousands):
THREE MONTHS ENDED JUNE 30, SIXNINE MONTHS ENDED
JUNESEPTEMBER 30, SEPTEMBER 30,
--------------------------------- -------------------------------
2002 2001 2002 2001
---- ---- ---- ----------------- ------------- ------------- -----------
Comprehensive income:
Net income ...............................income..................... $ 8,21910,188 $ 10,26110,302 $ 18,02728,215 $ 21,29231,594
Cumulative translation
adjustment ....... 3,557 1,542 3,254 (1,531)
-------- -------- -------- --------adjustment................... (2,115) (1,468) 1,140 (3,000)
------------- ------------- ------------- -----------
Total comprehensive income ...............income..... $ 11,7768,073 $ 11,8038,834 $ 21,28129,355 $ 19,761
======== ======== ======== ========28,594
============= ============= ============= ===========
7. COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims, lawsuits and other proceedings
relating to a wide variety of matters. While uncertainties are inherent in the
final outcome of such matters, and it is presently impossible to determine the
actual costs that ultimately may be incurred, management believes that the
resolution of such uncertainties and the incurrence of such costs will not have
a material adverse effect on the Company's consolidated financial position,
results of operations or liquidity.
The Company isWe are aware that certain energy service companies that have in the past
used asbestos in connection with the manufacture of equipment or otherwise in
the operation of their business have become the subject of 11
increased asbestos
related litigation. Certain subsidiaries of the Companyour subsidiaries are currently named as
defendants in two single plaintiff cases seeking damages, including punitive
damages, alleging that our subsidiariesthey have responsibility for the individuals developing
mesothelioma, asbestosis, lung cancer or other lung diseases as a result of
exposure to asbestos. Although these are the only cases thatof which management is
aware that are pending or threatened against the
Companyus or itsour subsidiaries involving
allegations relating to asbestos exposure, additional asbestos related claims
may be made. Based on management's preliminary investigation, management does
not believe that these cases or future claims relating to asbestos exposure will
have a material adverse effect on the Company'sour consolidated financial position, results
of operations, or liquidity.
12
UNAUDITED PRO FORMA CONSOLIDATED AND COMBINED FINANCIAL STATEMENT
The consolidated financial statements of Oil States International, Inc.
reflect the Company's financial position, results of operations and changes in
stockholders' equity for periods subsequent to February 14, 2001, the date of
our initial public offering and the combination of Oil States International,
Inc. (Oil States), HWC Energy Services, Inc. (HWC) and PTI Group Inc. (PTI)
(collectively, the Controlled Group), among other things..
As more fully described below, and in footnotes that follow, the combined
financial statements reflect the financial position, results of operations and
changes in stockholders' equity of the predecessor entities that now comprise
Oil States International, Inc. based on reorganization accounting. The pro forma
financial information that follows reflectreflects our historical consolidated or
combined statements of operations, depending upon the period involved, and givegives
effect to the pro forma transactions and adjustments more fully described below.
The following tables set forth unaudited pro forma consolidated and
combined financial information for Oil States giving effect to:
o the combination of Oil States, HWC and PTI as entities under the
common control of SCF-III L.P. (SCF III), based upon reorganization
accounting, which yields results similar to pooling of interest
accounting, effective from the dates each of these entities became
controlled by SCF III;
o the conversion of the common stock held by the minority interests of
each entity in the Controlled Group into shares of our common stock,
based on the purchase method of accounting;
o the conversion of all of the outstanding common stock of Sooner Inc.
(Sooner) into shares of our common stock, based on the purchase
method of accounting; and
o the exchange of 4,275,555 shares of our common stock for $36.0
million of debt of Sooner and Oil States; and
o our sale of 10,000,000 shares of common stock in our initial public
offering (the Offering) and the application of the net proceeds
totaling $84.1 million. With the proceeds received in the Offering,
the Company repaid $43.7 million of outstanding subordinated debt of
the Controlled Group and Sooner, redeemed $21.8 million of preferred
stock of Oil States, paid accrued interest on subordinated debt and
accrued dividends on preferred stock aggregating $7.1 million, and
repurchased common stock from non-accredited shareholders and
shareholders holding pre-emptive stock purchase rights for $1.6
million. The balance of the proceeds was used to reduce amounts
outstanding under bank lines of credit.
The audited December 31, 2001 consolidated balance sheet reflects all of the
transactions discussed above, which were completed on February 14, 2001.
The unaudited pro forma consolidated and combined financial statements do
not purport to be indicative of the results that would have been obtained had
the transactions described above been completed on the indicated dates or that
may be obtained in the future. The unaudited pro forma combined financial
statements should be read in conjunction with the historical consolidated and
combined financial statements and notes thereto included in our Annual Report on
Form 10-K.
13
PRO FORMA CONSOLIDATED AND COMBINED STATEMENT OF OPERATIONS
FOR THE SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 2001
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
HISTORICAL PRO FORMA
---------------- ------------------------------------------------------------------------------------- --------------------------------------------------------------------------------
SOONER INC. MINORITY COMBINED AND
CONSOLIDATED AND (PERIOD FROM SOONER INC. INTEREST OFFERING CONSOLIDATED,
AND COMBINED JAN. 1, 2001 TO ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ACQUISITIONS
GROUP FEB. 14, 2001) (NOTE 2) (NOTE 3) (NOTES 1 AND 4) AND OFFERING
------------ ---------------- ------------ ------------ --------------- ----------- ----------- --------------- -------------------------
Revenue...........................Revenue........................ $ 318,310491,820 $ 48,51748,516 $ $ $ $366,827
Expenses$540,336
Costs and Expenses:
Cost of sales.................. 249,802 45,140 294,942sales................ 390,191 45,141 435,332
Selling, general and
administrative................ 25,437 1,134 26,571administrative............. 38,412 1,133 39,545
Depreciation and
amortization... 13,319amortization............... 20,476 188 331 135 13,97321,130
Other expense (income).......... (19) (19)income................. (210) (1) (211)
--------- -------- ------ ------ ------ --------
Operating income (loss)........... 29,771........ 42,951 2,055 (331) (135) 31,36044,540
--------- -------- ------ ------ ------ --------
Interest income................... 372income................ 465 22 394487
Interest expense............... (7,809) (586) 843(A) (7,552)
Other expense.................. (5,685) (585) 843(A) (5,427)
Other income...................... (274) (1) (275)(160) (160)
--------- -------- ------ ------ ------ --------
EarningsIncome before income taxes.... 24,184taxes... 35,447 1,491 (331) (135) 843 26,05237,315
Income tax (expense) benefit...... (508)benefit... (1,471) (542) 482(C) (568)438(C) (1,575)
--------- -------- ------ ------ ------ --------
Net income (loss) before
minority interests....................... 23,676interests........... 33,976 949 (331) (135) 1,325 25,4841,281 35,740
Minority interests, net of
taxes.. (1,600) 1,600 --taxes........................ (1,598) 1,601 3
--------- -------- ------ ------ ------ --------
Net income (loss) before
extraordinary item.............. 22,076item........... 32,378 949 (331) (135) 2,925 25,4842,882 35,743
Extraordinary loss on debt
restructuring...................restructuring................ (784) (784)
--------- -------- ------ ------ ------ --------
Net income (loss)................. 21,292 before
preferred dividends.......... 31,594 949 (331) (135) 2,925 24,7002,882 34,959
Preferred dividends...............dividends............ (41) 41(B) --
--------- -------- ------ ------ ------ --------
Net income (loss) attributable
to common shares..........................shares............. $ 21,25131,553 $ 949 $ (331) $ (135) $2,966$2,923 $ 24,70034,959
========= ======== ====== ====== ====== ========
Net income per common share.......
Basic...........................share
Basic........................ $ .50.71 $ 0.510.73
========== =========
Diluted...................... $ .70 $ 0.72
========== =========
Average shares outstanding
Basic........................ 44,274 48,187
========= ========
Diluted......................... $ .49 $ 0.51
========= ========
Average shares outstanding........
Basic........................... 42,300 48,169
========= ========
Diluted......................... 43,539 48,688Diluted...................... 45,228 48,660
========= ========
14
OIL STATES INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED AND
COMBINED FINANCIAL STATEMENTS
Basis of Presentation
The purchase method of accounting has been used to reflect the acquisition
of the minority interests of each company in the Controlled Group concurrentconcurrently
with the closing of the Offering. The purchase price is based on the fair value
of the shares owned by the minority interests, valued at the initial public
offering price of $9.00 per share. Under this accounting method, the excess of
the purchase price over the fair value of the assets and liabilities allocable
to the minority interests acquired has been reflected as goodwill. Where book
value of minority interests exceeded the purchase price, such excess reduced
property, plant and equipment. For purposes of the pro forma combined financial
statements, the goodwill recorded in connection with this transaction is being
amortized over 20 years using the straight-line method based on management's
evaluation of the nature and duration of customer relationships and considering
competitive and technological developments in the industry. Note, however, that
accounting for goodwill changed concurrentconcurrently with the adoption of new accounting
pronouncements (See Note 32 to the Unaudited Consolidated, Pro Forma and Combined
Financial Statements in the Company'sthis Form 10-K for the year ended December 31, 2001).10-Q.)
The purchase method of accounting also has been used to reflect the
acquisition of the outstanding common stock of Sooner concurrentconcurrently with the
closing of the Offering. The purchase price is based on the fair value of the
shares of Sooner, valued at the initial public offering price of $9.00 per
share. The excess of the purchase price over the fair value of the assets and
liabilities of Sooner has been reflected as goodwill. For purposes of the pro
forma combined financial statements, the goodwill recorded in connection with
this transaction is being amortized over 15 years using the straight-line method
based on management's evaluation of the nature and duration of customer
relationships and considering competitive and technological developments in the
industry. Note, however, that accounting for goodwill changed concurrent with
the adoption of new accounting pronouncements (See Note 32 to the Unaudited
Consolidated, Pro Forma and Combined Financial Statements in the Company'sthis Form 10-K for the year ended
December 31, 2001).10-Q.)
The unaudited pro forma statements of operations for the sixnine months ended
JuneSeptember 30, 2001, include the historical financial statements of Sooner,
adjusted for the effects of purchase accounting, as presented below.
NOTE 1. COMBINING ADJUSTMENTS
Minority interest in (income) loss and related tax effect of the Controlled
Group are presented below (in thousands):
OIL STATES HWC PTI TOTAL
---------- --- --- -------------- ------- -------
Period from January 1, 2001 to February 14,
2001.......2001........................................... $ 72 $ (129) $ (1,543) $ (1,600)$(1,543) $(1,601)
====== ====== ======== =============== =======
NOTE 2. ACQUISITION OF SOONER
To reflect the acquisition of all outstanding common shares of Sooner in
exchange for 7,597,152 shares of Oil States common stock valued at the estimated
offering price per share of $9.00 (in millions):
Purchase price............................................................................price.................................................................................. $ 69.5 (1)69.5(1)
Less: fair value of net assets acquired...................................................acquired......................................................... 29.7
-------
Goodwill..................................................................................-----
Goodwill........................................................................................ $ 39.8
=============
Amortization for the period from January 1, 2001 to February 14, 2001.....................2001........................... $ .33
=======33
======
- -------------------------
(1) The purchase price for Sooner includes the estimated fair value of Sooner
stock options ($1.1 million) converted into Oil States stock options.
Certain reclassifications have been made to conform the presentation of
Sooner's financial statements to the Controlled Group.
15
NOTE 3. ACQUISITION OF MINORITY INTERESTS
To reflect the acquisition of the minority interests of each company in the
Controlled Group in exchange for shares of Oil States common stock and
elimination of the historical amounts reflected for the combined group (in
millions, except share and per share information):
OIL STATES HWC PTI COMBINED
---------- --- --- ------------------- ------------- ----------- -----------
Common stock issued to minority interests .............interests................. 1,418,729 1,359,603 4,204,058 6,982,390
Estimated offering price per share ....................share........................ $ 9.00 $ 9.00 $ 9.00 $ 9.00
----------- ------------------------ ----------- -----------
Purchase price of the minority interests ..............interests.................. $ 12.8 $ 12.2 $ 37.8 $ 62.8
Minority interests in fair value of net assets acquiredacquired... 13.8 7.7 15.9 37.4
----------- ------------------------ ----------- -----------
Additional goodwill ...................................goodwill....................................... $ (1.0) $ 4.5 $ 21.9 $ 25.4
=========== ======================== =========== ===========
Amortization of the additional goodwill for the period
from January 1, 2001 to February 14, 2001 .............2001................. $ (.015) $ .020 $ .130 $ .135
=========== ======================== =========== ===========
NOTE 4. OFFERING
(A) To adjust interest expense for debt repaid with Offering proceeds and
as a result of the exchange of shares for subordinated debt.
(B) To eliminate preferred stock dividends due to the redemption of the
preferred stock.
(C) To adjust income tax expense for the reduction of deferred taxes due to
the formation of the combined group.
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
You should read the following discussion and analysis together with our
Financial Statements and the notes to those statements included elsewhere in
this Quarterly Report on Form 10-Q. This discussion contains forward-looking
statements based on our current expectations, assumptions, estimates and
projections about us and our industry. These forward-looking statements involve
risks and uncertainties. Our actual results could differ materially from those
indicated in these forward-looking statements as a result of certain factors, as
more fully described under "Cautionary Statement for Purposes of the "Safe
Harbor" Provisions of the Private Securities Litigation Reform Act of 1995" in
"Item 1, Business" and elsewhere in our Annual Report on Form 10-K. Except to
the extent required by law, we undertake no obligation to update publicly any
forward-looking statements, even if new information becomes available or other
events occur in the future.
Critical Accounting Policies
In our selection of critical accounting policies, our objective is to
properly reflect our financial position and results of operations in each
reporting period in a manner that will be understood by those who utilize our
financial statements. Often we must use our judgment about uncertainties. There
are several critical accounting policies that we have put into practice that
have an important effect on our reported financial results.
We have contingent liabilities and future claims for which we have made
estimates of the amount of the eventual cost to liquidate these liabilities or
claims. These liabilities and claims sometimes involve threatened or actual
litigation where we have made an assessment of our exposure and recorded a
provision in our accounts to cover an expected loss. Other claims or liabilities
have been estimated based on our experience in these matters and, when
appropriate, the advice of outside counsel or other outside experts. Upon the
ultimate resolution of these uncertainties, our future reported financial
results will be impacted by the difference between our estimates and the actual
amounts paid to settle a liability. Examples of areas where we have made
important estimates of future liabilities include litigation, taxes,
postretirement benefits, warranty claims and contract claims.
The determination of impairment on long-lived assets, including goodwill, is
conducted as indicators of impairment are present. If such indicators were
present, the determination of the amount of impairment would be based on our
judgments as to the future operating cash flows to be generated from these
assets throughout their estimated useful lives. Our industry is highly cyclical
and our estimates of the period over which future cash flows will be generated,
as well as the predictability of these cash flows, can have a significant impact
on the carrying value of these assets. In periods of prolonged down cycles,
these estimates may result in impairment charges.
We recognize revenue and profit as work progresses on long-term, fixed price
contracts using the percentage-of-completion method, which relies on estimates
of total expected contract revenue and costs. We follow this method since
reasonably dependable estimates of the revenue and costs applicable to various
stages of a contract can be made. Recognized revenues and profit are subject to
revisions as the contract progresses to completion. Revisions in profit
estimates are charged to income or expense in the period in which the facts that
give rise to the revision become known.
Our valuation allowances, especially related to potential bad debts in
accounts receivable and to obsolescence or market value declines of inventory,
involve reviews of underlying details of these assets, known trends in the
marketplace and the application of historical factors that provide us with a
basis for recording these allowances. If market conditions are less favorable
than those projected by management, or if our historical experience is
materially different from future experience, additional allowances may be
required. We record a valuation allowance to reduce our deferred tax assets to
the amount that is more likely than not to be realized. While we have considered
future taxable income and ongoing prudent and feasible tax planning strategies
in assessing the need for the valuation allowance, in the event we were to
determine that we would be able to realize our deferred tax assets in the future
in excess of our net recorded amount, an adjustment to the deferred tax asset
would increase income in the period such determination was made. Likewise, if we
determine that we would not be able to realize all or part of our net deferred
tax asset in the future, an adjustment to the deferred tax asset would be
charged to expense in the period such determination was made.
17
The selection of the useful lives of many of our assets requires the
judgments of our operating personnel as to the length of these useful lives. If
our estimates are too long or short, we might eventually report a
disproportionate number of losses or gains upon disposition or retirement of our
long-lived assets. We believe our estimates of useful lives are appropriate.
Overview
We provide a broad range of products and services to the oil and gas
industry through our offshore products, well site services and tubular services
business segments. Demand for our products and services is cyclical and
substantially dependent upon activity levels in the oil and gas industry,
particularly our customers' willingness to spend capital on the exploration and
development of oil and gas reserves. Demand for our products and services by our
customers is highly sensitive to current and expected oil and natural gas
prices. Our offshore products segment provides highly engineered and technically
designed products for offshore oil and gas development and production systems
and facilities. Sales of our offshore products and services depend upon the
development of offshore production systems, repairs and upgrades of existing
drilling rigs and construction of new drilling rigs. In this segment, we are
particularly influenced by deepwater drilling and production activities. In our
well site services business segment, we provide hydraulic well control services,
drilling rigs, pressure control equipment and rental tools and workforce
accommodations, catering and logistics services. Demand for our well site
services depends upon the level of worldwide drilling and workover activity.
Through our tubular services division, we distribute premium tubing and casing.
Sales of tubular products and services depend upon the overall level of drilling
activity and the types of wells being drilled. Demand for tubular products is
positively impacted by increased drilling of deeper horizontal and offshore
wells that generally require premium tubulars and connectors, large diameter
pipe and longer and additional tubular and casing strings.
Energy and oilfield service activities are highly cyclical depending upon
crude oil and natural gas pricing, among other things. Beginning in late 1996
and continuing through the early part of 1998, stabilization of oil and gas
prices led to increases in drilling activity as well as the refurbishment and
new construction of drilling rigs. In the second half of 1998, crude oil prices
declined substantially and reached levels below $11 per barrel in early 1999.
With this decline in pricing, many of our customers substantially reduced their
capital spending and related activities. This industry downturn continued
through most of 1999. The price of crude oil and natural gas increased over 1999
levels in 2000 and 2001 due to improved demand for oil, supply reductions by
OPEC member countries and reductions in natural gas storage levels. However,
crude oil and natural gas prices decreased significantly from levels reached in
early 2001 by the end of 2001 and during the first half of 2002.2001. The economic slowdown experienced in the United
States and the rest of the world through 2002, moderate weather in the winter of
2001/2002 and the resultant increased inventories of oil and gas, especially in
the United States, contributed to those price declines. With those price reductions, ourOur customers have
responded with decreased drilling activity and spending on exploration and
development. Recently, oil and gas prices have risen above prices in the
corresponding period in 2001; however, there has not been a significant response
in the rig count to date.
We have a diversified product and service offering which has exposure
throughout the oil and gas cycle. Demand for our tubular services and well site
services is highly correlated to movements in the rig count in the United
States. The table below sets forth a summary of North American rig activity, as
measured by Baker Hughes Incorporated, as of and for the periods indicated.
AVERAGE FOR THE
SIXNINE MONTHS
ENDED
JUNESEPTEMBER 30, AVERAGE FOR THE YEAR ENDED DECEMBER 31,
----------------- -------------------------------------------------------------------- --------------------------------------------
2002 2001 2001 2000 1999 1998 1997
----- ----- ----- ----- ----- ----- ----------- ------ ------ ------ ------ ------ ------
United States ................ 812 1,188States....... 826 1,206 1,156 918 624 837 942
Canada ....................... 265 384Canada.............. 260 363 341 345 245 259 374
----- ----- ----- ----- ----- ----- --------- ---- ---- ---- --- ---- ----
Total North America ........ 1,077 1,5721,086 1,569 1,497 1,263 870 1,096 1,316
===== ===== ===== ===== ======== ===== =====
The rig count in the United States and Canada, as measured by Baker Hughes
Incorporated, fell from 1,481 rigs in February 1998 to 559 rigs in April 1999.
The downturn in activity in 1998 and 1999 had a material adverse effect on
demand for our products and services, and the results of our operations
decreased significantly. Our business benefited from the improvement in crude
oil and natural gas pricing in 2000 and 2001 and the resulting increases in the
rig count in 2000 and the first half of 2001. The U.S. rig count reached 1,293
in July 2001 but declined
18
thereafter, reaching 738 rigs on April 15, 2002, its lowest level since 1999.
The U.S. rig count has risenincreased since then and totaled 843860 as of JuneSeptember 30,
2002.
We believe that our offshore products segment lagged the general market
recovery in 2000 and 2001 because its sales primarily relate to offshore
construction and production facility development which generally occur later in
the exploration and development cycle. Worldwide offshore construction and
development activity is improvinghas improved currently as the industry increasingly pursues
deeper water drilling and development projects. Backlog in our offshore products
segment increased from $53.9$70.7 million at JuneSeptember 30, 2001 to $98.3$104.0 million at
JuneSeptember 30, 2002. We expect approximately 74%56% of our backlog as of JuneSeptember
30, 2002 to be completed by December 31, 2002.
Management believes that fundamental oil and gas supply and demand factors
will lead to increased drilling activity in North America over time. However,
there can be no assurance that these expectations will be realized. Although the
diversified nature of our businesses is expected to moderatehas moderated the impact of North American
drilling activity declines, we are expecting a 12-17%12-15% revenue decline in 2002
compared to pro forma 2001 levels based upon our forecast of energy prices and
drilling activity levels.
The Combination
Prior to the Offering in February 2001, SCF-III, L.P. owned majority
interests in Oil States, HWC and PTI, and SCF-IV, L.P. owned a majority interest
in Sooner. L. E. Simmons & Associates, Incorporated is the ultimate general
partner of SCF-III, L.P. and SCF-IV, L.P. L.E. Simmons, the chairman of our
board of directors, is the sole shareholder of L.E. Simmons & Associates,
Incorporated. Concurrently with the closing of our initial public offering, the
Combination closed and HWC, PTI and Sooner merged with wholly owned subsidiaries
of Oil States. As a result, HWC, Sooner and PTI became our wholly owned
subsidiaries.
The financial results of Oil States, HWC and PTI have been combined for the
three years in the period ended December 31, 2000 as well as the beginning of
calendar 2001 until February 14, 2001 using reorganization accounting, which
yields results similar to the pooling of interests method. The combined results
of Oil States, HWC and PTI form the basis for the discussion of our results of
operations for those periods. The operations of Oil States, HWC and PTI
represent two of our business segments, offshore products and well site
services. ConcurrentConcurrently with the closing of our initial public offering on
February 14, 2001, Oil States acquired Sooner, and the acquisition was accounted
for using the purchase method of accounting. The pro forma financial statements
for the sixnine months ended JuneSeptember 30, 2001 reflect the acquisition of Sooner
effective as of January 1, 2001. Following the acquisition of Sooner, we
reported under three business segments.
19
RESULTS OF OPERATIONS (IN MILLIONS, EXCEPT MARGIN PERCENTAGES)
THREE MONTHS ENDED JUNESEPTEMBER 30, SIXNINE MONTHS ENDED JUNESEPTEMBER 30,
--------------------------- --------------------------------------------------------- -------------------------------
2002 2001 2002 2001 2001
---- ---- ---- ---- ----
CONSOLIDATED AND
CONSOLIDATED PRO FORMA AND COMBINED
------------ --------- ------------
Revenues
Well Site Services.......................Services ..................... $ 50.944.3 $ 56.555.8 $ 117.5161.7 $ 125.6181.4 $ 125.6181.4
Offshore Products........................ 46.5 32.4 79.2 61.9 61.9Products ...................... 55.5 31.4 134.7 93.3 93.3
Tubular Services......................... 53.4 86.4 104.7 179.3 130.8
----------- ---------- ----------- ---------- ----------
Total............................Services ....................... 54.8 86.3 159.6 265.6 217.1
-------- -------- -------- -------- --------
Total .......................... $ 150.8154.6 $ 175.3173.5 $ 301.4456.0 $ 366.8540.3 $ 318.3
=========== ========== =========== ========== =========491.8
======== ======== ======== ======== ========
Gross Margin ............................. $
Well Site Services.......................Services ..................... $ 13.613.8 $ 20.021.1 $ 33.647.3 $ 45.6 $ 45.666.7 66.7
Offshore Products........................ 12.5 8.1 20.7 14.4 14.4Products ...................... 15.5 7.6 36.3 21.9 21.9
Tubular Services......................... 3.1 5.8 5.3 12.3 8.9Services ....................... 3.5 4.8 8.8 17.2 13.8
Corporate/Other.......................... -- (.2)Other ........................ -- (.4) (.4)
----------- ---------- ----------- ---------- ----------
Total............................-- (.8) (.8)
-------- -------- -------- -------- --------
Total .......................... $ 29.232.8 $ 33.733.1 $ 59.692.4 $ 71.9105.0 $ 68.5
=========== ========== =========== ========== =========101.6
======== ======== ======== ======== ========
Gross Margin as a Percent of Revenues
Well Site Services....................... 26.7% 35.4% 28.6% 36.3% 36.3%Services ..................... 31.1% 37.8% 29.2% 36.8% 36.8%
Offshore Products........................Products ...................... 27.9% 24.2% 26.9% 25.0% 26.1% 23.3% 23.3%23.5% 23.5%
Tubular Services......................... 5.8% 6.7% 5.1% 6.9% 6.8%
Total............................... 19.3% 19.2% 19.8% 19.6% 21.5%Services ....................... 6.4% 5.6% 5.5% 6.5% 6.3%
Total ............................. 21.2% 19.1% 20.2% 19.4% 20.6%
Operating Income (Loss)
Well Site Services.......................Services ..................... $ 4.54.6 $ 10.111.3 $ 15.920.5 $ 26.037.3 $ 26.037.3
Offshore Products........................ 7.1 2.4 10.1Products ...................... 9.4 2.1 19.5 4.7 4.7
Tubular Services ....................... 1.5 2.3 2.6 2.6
Tubular Services......................... 1.1 3.3 1.1 7.2 5.19.5 7.5
Corporate/Other.......................... (1.3) (2.3)Other ........................ (1.4) (2.5) (4.4) (3.9) ----------- ---------- ----------- ---------- ----------
Total............................(7.0) (6.5)
-------- -------- -------- -------- --------
Total .......................... $ 11.414.1 $ 13.513.2 $ 24.638.7 $ 31.444.5 $ 29.8
=========== ========== =========== ========== =========43.0
======== ======== ======== ======== ========
THREE MONTHS ENDED JUNESEPTEMBER 30, 2002 COMPARED TO THREE MONTHS ENDED
JUNESEPTEMBER 30, 2001
Revenues. Revenues decreased $24.5$18.9 million, or 14.0%10.9%, to $150.8$154.6 million
during the quarter ended JuneSeptember 30, 2002 compared to revenues of $175.3$173.5
million during the quarter ended JuneSeptember 30, 2001. Tubular Services revenues
decreased $33.0$31.5 million, or 38.2%36.5%, induring the three months ended June 30, 2002 compared to the
three months ended June 30, 2001period as a result of reduced
drilling activity in the U.S. Well Site Services revenues declined $5.6$11.5
million, or 9.9%20.6%, while Offshore Products revenues increased $14.1$24.1 million, or
43.5%76.8%, during the same period. Well Site Services revenues declined compared to
the prior year primarily due to lower drilling and workover activity in North
America. Offshore Products revenues increased as a result of greater activity
supporting offshore production facility construction primarily in deepwater.
Cost of Sales. Cost of sales decreased by $20.0$18.6 million, or 14.1%13.2%, to $121.6$121.8
million in the three months ended JuneSeptember 30, 2002 compared to $141.6$140.4 million
in the three month period ended JuneSeptember 30, 2001. Decreased Tubular Services
activity was the principal reason for the decreasereduction in cost of sales during the
period. Tubular Services cost of sales decreased from $80.6$81.5 million in the secondthird
quarter of 2001 to $50.4$51.3 million in the secondthird quarter of 2002, a decrease of
$30.2 million, or 37.5%37.1%.
Gross Margin. Our gross margins, which we calculate before a deduction for
depreciation expense, decreased $4.5$.3 million, or 13.4%.9%, from $33.7$33.1 million in the
three months ended JuneSeptember 30, 2001 to $29.2$32.8 million in the three months ended
JuneSeptember 30, 2002. Well Site Services gross margins decreased $6.4$7.3 million, or
32.0%34.6%, to $13.6$13.8 million in the three months ended June 30, 2002.quarter. Within our Well Site Services segment,
our hydraulic workover, shallow drilling and specialty rental tool businesses'
gross margins declined $1.7 million, or 56.1%44.1%, $1.4 million, or 37.9%, and $.9$1.1
million, or 18.4%22.5%, respectively, as a result of lower utilization and pricing
for our workover, drilling and rental tool assets. Also in Well Site Services,
our workforce accommodations, catering and logistics services and modular
building
20
construction services gross margins decreased 20
by $2.2$3.1 million, or
39.4%36.8%, in the three months ended JuneSeptember 30, 2002 compared to the three months
ended JuneSeptember 30, 2001 because a greater mix of revenues was generated from
our lower-margin catering and modular building construction activities and
because of lower U.S. Gulf of Mexico rental revenues. Offshore Products gross
margins increased $4.4$7.9 million, or 54.4%104%, from $8.1$7.6 million in the three months
ended JuneSeptember 30, 2001 to $12.5$15.5 million in the three months ended JuneSeptember
30, 2002 primarily due to increased revenues, a favorable sales mix of our
higher-margin connector products, improved margins related to the fabrication
and repair of rig and vessel equipment and increased cost absorption at our
facilities. Tubular Services gross margins declined to $3.1$3.5 million, or 5.8%6.4% of
Tubular Services revenues in the three months ended JuneSeptember 30, 2002 compared
to $5.8$4.8 million, or 6.7%5.6% of Tubular Services revenues, in the three months ended
JuneSeptember 30, 2001 as a result of decreased drilling activity which decreased
demand for our Tubular Services products and services. Tubular Services gross
margin percentage improved in the 2002 period because of lower average inventory
costs.
Selling, General and Administrative Expenses. During the three months ended
JuneSeptember 30, 2002, selling, general and administrative expenses (SG&A) totaled
$12.0$12.7 million compared to SG&A of $13.1$13.0 million for the three months ended
JuneSeptember 30, 2001. The decrease of $1.1$0.3 million, or 8.4%2.3%, was due to cost
containment measures taken in light of lower activity levels in 2002 and the absence of
certain nonrecurring charges, totaling $0.3 million, in our workforce
accommodations business that were recorded during the three months ended June
30, 2001.2002.
Depreciation and Amortization. Depreciation expense increased $0.6 million
in the secondthird quarter 2002 compared to the secondthird quarter 2001 due primarily to
capital expenditures made in our Well Site Services segment during 2001.2001 and to
recent acquisitions completed during the third quarter 2002. Amortization
expense decreased from $2.0$1.8 million in the secondthird quarter 2001 to $.1 million in
the secondthird quarter 2002 due to the adoption of a new accounting standard that
discontinued goodwill amortization. See Note 2 to our Consolidated and Combined
Financial Statements included in this Form 10-Q.
Operating Income. Our operating income represents revenues less (i) cost of
sales, (ii) selling, general and administrative expensesSG&A and (iii) depreciation and amortization expense plus other
operating income (expense). Our operating income decreased $2.1increased $.9 million, or 15.6%6.8%,
to $11.4$14.1 million for the three months ended JuneSeptember 30, 2002 from $13.5$13.2
million in the three month period ended JuneSeptember 30, 2001. Well Site Services
operating income decreased from $10.1$11.3 million during the three months ended June 30, 2001period to $4.5$4.6 million
for the three monthsquarter ended JuneSeptember 30, 2002. Offshore Products operating income
increased from $2.4$2.1 million during the three months ended JuneSeptember 30, 2001 to
$7.1$9.4 million for the three months ended JuneSeptember 30, 2002. Tubular Services
operating income was $1.1$1.5 million for the three months ended JuneSeptember 30, 2002
compared to operating income of $3.3$2.3 million during 2001. The accounting change
affecting goodwill amortization for our company impacted "Corporate/Other"
operating income and contributed to the operating loss being reduced from $2.3 millionreduction in 2001 to an operating lossthis segment
of $1.3 million in the three months ended June 30, 2002.$1.1 million.
Interest Expense. Interest expense decreased $1.5$1.0 million, or 60.0%47.6%, to $1.0$1.1
million for the quarter ended JuneSeptember 30, 2002 compared to $2.5$2.1 million for
the quarter ended JuneSeptember 30, 2001. Decreased interest expense is attributable
to lower debt levels throughout most of 2002 and lower interest rates.
Income Tax Expense. Income tax expense totaled $2.3$3.0 million, or 22.0%22.6% of
pretax income, during the quarter ended JuneSeptember 30, 2002 compared with $0.3$1.0
million, or 3.1%8.5% of pretax income, during the quarter ended JuneSeptember 30, 2001.
Decreased amounts of net operating loss carryforwards available to offset
currently taxable income has resulted in a higher estimated annual effective tax
rate for the year 2002 compared to 2001.
SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 2002 COMPARED TO PRO FORMA SIXNINE MONTHS ENDED
JUNESEPTEMBER 30, 2001
Revenues. Revenues decreased $65.4$84.3 million, or 17.8%15.6%, to $301.4$456.0 million
during the sixnine months ended JuneSeptember 30, 2002 compared to revenues of $366.8$540.3
million during the sixnine months ended JuneSeptember 30, 2001. Tubular Services
revenues decreased $74.6$106.0 million, or 41.6%39.9%, in the sixnine months ended JuneSeptember
30, 2002 compared to pro forma revenues in the sixnine months ended JuneSeptember 30,
2001 as a result of reduced drilling activity in the U.S. Well Site Services
revenues declined $8.1$19.7 million, or 6.4%10.9%, andwhile Offshore Products revenues
increased $17.3$41.4 million, or 27.9%44.4%, during the same period. Well Site Services
revenues declined compared to the prior yearperiod primarily due to lower drilling
and workover activity in North America. Offshore Products revenues increased as
a result of greater activity supporting offshore production facility
construction primarily in deepwater.
21
Cost of Sales. Cost of sales decreased by $53.1$71.7 million, or 18.0%16.5%, to $241.8$363.6
million in the sixnine months ended JuneSeptember 30, 2002 compared to pro forma cost
of sales of $294.9$435.3 million in the sixnine month period ended JuneSeptember 30, 2001.
Decreased Tubular Services activity was the principal reason for the decrease in
cost of sales during the period. Tubular Services cost of sales decreased from
$167.0$248.4 million in the first halfnine months of 2001 to $99.4$150.8 million in the first
halfnine months of 2002, a decrease of $67.6$97.6 million, or 40.5%39.3%.
Gross Margin. Our gross margins, which we calculate before a deduction for
depreciation expense, decreased $12.3$12.6 million, or 17.1%12.0%, from $71.9$105.0 million in
the sixnine months ended JuneSeptember 30, 2001 to $59.6$92.4 million in the sixnine months
ended JuneSeptember 30, 2002. Well Site Services gross margins decreased $12.0$19.4
million, or 26.3%29.1%, to $33.6$47.3 million in the sixnine months ended JuneSeptember 30, 2002
compared to $45.6$66.7 million in the sixnine months ended JuneSeptember 30, 2001. Within
our Well Site Services segment, our hydraulic workover, shallow drilling and
specialty rental tool businesses' gross margins declined $2.8$3.3 million, or 53.7%33%,
$4.2 million, or 47.2%, and $1.7$2.9 million, or 18.8%20.1%, respectively, as a result of
lower utilization and pricing for our workover, drilling and rental tool assets.
Also in Well Site Services, our workforce accommodations, catering and logistics
services and modular building construction services gross margins decreased by
$5.8$9.0 million, or 23.3%26.8%, because a greater mix of revenues was generated from our
lower-margin catering and modular building construction activities and because
of lower U.S. Gulf of Mexico rental revenues. Offshore Products gross margins
increased $6.3$14.4 million, or 43.8%65.8%, from $14.4$21.9 million in the sixnine months ended
JuneSeptember 30, 2001 to $20.7$36.3 million in the sixnine months ended JuneSeptember 30, 2002
primarily due to increased revenues, a favorable sales mix of our higher-margin
connector products, improved margins related to the fabrication and repair of
rig and vessel equipment and increased cost absorption at our facilities.
Tubular Services gross margins declined to $5.3$8.8 million, or 5.1%5.5% of Tubular
Services revenues in the sixnine months ended JuneSeptember 30, 2002 compared to $12.3$17.2
million, or 6.9%6.5% of Tubular Services pro forma revenues, in the sixnine months
ended JuneSeptember 30, 2001 as a result of decreased drilling activity which
decreased demand for our Tubular products and services.
Selling, General and Administrative Expenses. During the sixnine months ended
JuneSeptember 30, 2002, selling, general and administrative expenses (SG&A)SG&A totaled $24.2$36.9 million compared to pro forma SG&A of
$26.6$39.5 million for the sixnine months ended JuneSeptember 30, 2001. The decrease of $2.4$2.6
million, or 9.0%6.6%, was due to cost containment measures taken in light of lower
activity levels in 2002, partially offset by the related severance costs
associated with certain lay-offs made in the first quarter.
Depreciation and Amortization. Depreciation expense increased $0.8$1.4 million
in the first halfnine months of 2002 compared to the first halfnine months of 2001 due
primarily to capital expenditures made in our Well Site Services segment during
2001.2001 and 2002. Amortization expense decreased from $3.9$5.9 million in the first
halfnine months of 2001 to $.1$0.2 million in the first halfnine months of 2002 due to the
adoption of a new accounting standard that discontinued goodwill amortization.
See Note 2 to our Consolidated and Combined Financial Statements included in
this Form 10-Q.
Operating Income. Our operating income represents revenues less (i) cost of
sales, (ii) selling, general and administrative expensesSG&A and (iii) depreciation and amortization expense plus other
operating income (expense). Our operating income decreased $6.8$5.8 million, or
21.7%13.0%, to $24.6$38.7 million for the sixnine months ended JuneSeptember 30, 2002 from $31.4$44.5
million in the sixnine month period ended JuneSeptember 30, 2001. Well Site Services
operating income decreased from $26.0$37.3 million to $15.9$20.5 million during the period.period
while Offshore Products operating income increased from $2.6$4.7 million during the six months ended June 30, 2001 to $10.1 million for the
six months ended June 30, 2002.$19.5
million. Tubular Services operating income was $1.1$2.6 million for the sixnine months
ended JuneSeptember 30, 2002 compared to $7.2$9.5 million during 2001, a decrease of
$6.1$6.9 million, or 84.7%72.6%. The accounting change affecting goodwill amortization
for our company impacted "Corporate/Other" operating income and contributed to
the operating loss being reduced from $4.4 millionreduction in 2001 to an operating lossthis segment of $2.5 million in the six months ended June 30, 2002.$3.1 million.
Interest Expense. Interest expense decreased $3.4$4.4 million, or 62.9%58.0%, to $2.0$3.2
million for the sixnine months ended JuneSeptember 30, 2002 compared to $5.4$7.6 million
for the sixnine months ended JuneSeptember 30, 2001. Decreased interest expense is
attributable to lower debt levels throughout most of 2002 and lower interest
rates.
Income Tax Expense. Income tax expense totaled $5.1$8.1 million, or 22.0%22.2% of
pretax income, in the sixnine months ended JuneSeptember 30, 2002 compared with $0.6$1.6
million, or 2.2%4.2% of pretax income, in the sixnine months ended JuneSeptember 30, 2001.
Decreased amounts of net operating loss carryforwards available to offset
currently taxable income has resulted in a higher estimated annual effective tax
rate for the year 2002 compared to 2001.
22
CONSOLIDATED AND COMBINED RESULTS OF OPERATIONS
Prior to the Sooner acquisition in February 2001, we reported under two
business segments, Offshore Products and Well Sites Services. Information for
these two segments, which represent the combined results of Oil States, HWC and
PTI using reorganization accounting, is presented in our financial statements
included elsewhere in this Form 10-Q and in the discussion included in "Six"Nine
Months ended JuneEnded September 30, 2002 Compared to Pro Forma SixNine Months ended
JuneSeptember 30, 2001" above. Subsequent to the Combination, we reported under the
three business segments discussed above.
We believe that the pro forma results of operations discussed above reflect
the components of our current business operations and capital structure and
provide the most appropriate basis for comparison of our results of operations
for the indicated periods.
LIQUIDITY AND CAPITAL RESOURCES
Our primary liquidity needs are to fund capital expenditures, such as
expanding and upgrading our manufacturing facilities and equipment, increasing
our rental tool and workover assets, increasing our accommodation units and
funding new product development, and to fund general working capital needs. In
addition, capital is needed to fund strategic business acquisitions. Our primary
sources of funds have been cash flow from operations, proceeds from borrowings
under our bank facilities and private andproceeds from our initial public debt and equity offerings.offering.
Cash was provided by operations during the sixnine months ended JuneSeptember 30,
2002 and 2001 in the amounts of $56.5$61.9 million and $8.1$29.2 million, respectively.
Cash provided by operations in 2002 was generated by our net income and lower
working capital invested, primarily in our Tubular Services segment. During the
sixnine months ended JuneSeptember 30, 2001, there were significant investments in
working capital made as a result of tubular inventory increases and increased activity in our Well Site Services
segment.
Cash was used by investing activities in the amount of $10.5$80.2 million during
the sixnine months ended JuneSeptember 30, 2002 primarily as a result of acquisitions,
net of cash acquired, which totaled $64.9 million and capital expenditures
which totaled $9.9totaling $16.3 million. We completed five acquisitions in the third quarter of
2002 for total consideration of approximately $71.0 million, and one rental tool acquisition madeincluding debt
incurred or assumed. Substantially all of the consideration paid in these
acquisitions was cash financed under our Well Site
Services segment totaling $1.4 million, partially offset by cash proceeds from
asset sales.existing bank credit facility.
Capital expenditures totaled $9.9$16.3 million and $12.5$21.5 million during the sixnine
months ended JuneSeptember 30, 2002 and 2001, respectively. Capital expenditures
during both of these periods consisted principally of purchases of assets for
our well site services businesses. We currently expect to spend a total of
approximately $25.3$28.3 million during 2002, excluding acquisitions, to upgrade our
equipment and facilities and expand our product and service offerings. We expect
to fund these capital expenditures with internally generated funds.
Net cash of $47.3$23.3 million was used inprovided by financing activities during the
sixnine months ended JuneSeptember 30, 2002, primarily as a result of elective debt repaymentsborrowings under
our bank credit facility.facility to fund acquisitions.
As of JuneSeptember 30, 2002, we had $23.1$95.8 million outstanding under our bank
credit facility and an additional $7.3$7.7 million of outstanding letters of credit,
leaving $119.6$46.5 million available to be drawn under the facility. In addition, we
have another floating rate bank credit facility in the UK that had a balance of
$2.8$1.3 million at JuneSeptember 30, 2002. Our total debt represented 7.8%22% of our total
capitalization at JuneSeptember 30, 2002.
Subsequent to June 30, 2002, we closed various acquisitions requiring cash
in the amount of $26.0 million. One acquisition was made in our Offshore
Products segment and two were in our Well Site Services segment. Considering
these acquisitions, our total debt to total capitalization has increased to
approximately 13.5% subsequent to June 30, 2002. In addition, we have executed a
letter of intent of acquire certain assets of a competitor in our Offshore
Products segment. The transaction is estimated to cost approximately $18.5
million cash and is expected to close during the third quarter. If successfully
completed, our total debt to total capitalization would increase to
approximately 17.0%.
We believe that cash from operations and available borrowings under our
credit facility will be sufficient to meet our liquidity needs for the
foreseeable future. If our plans or assumptions change or are inaccurate, or we
make additional acquisitions, we may need to raise additional capital. However,
there is no assurance that we will be able to raise additional funds or be able
to raise such funds on favorable terms.
23
TAX MATTERS
For the year ended December 31, 2001, we had deferred tax assets, net of
deferred tax liabilities, of approximately $19.7 million for federal income tax
purposes before application of valuation allowances. Our primary deferred tax
assets are net operating loss carry forwards, or NOLs, which total approximately
$93.7 million. A valuation allowance is currently provided against the majority
of our NOLs. The NOLs expire over a period through 2020. Our NOLs are currently
limited under Section 382 of the Internal Revenue Code due to a change of
control that occurred during 1995. However, in 2002, approximately $40 million
of NOLs are available for use currently if sufficient income is generated.
Our 2001 effective tax rate approximated 4%. This low effective tax rate was
due to the partial utilization of net operating losses which benefited the
consolidated group after the merger.Combination. We currently estimate our 2002
effective tax rate will be approximately 22%.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards (SFAS) No. 141, Business Combinations,"Business Combinations", and No.
142, Goodwill"Goodwill and Other Intangible Assets (the Statements)Assets", effective for fiscal years
beginning after December 15, 2001.2001 (the Statements). Under the new rules,
goodwill and intangible assets deemed to have indefinite lives will no longer be
amortized but will be subject to annual impairment tests in accordance with the
Statements. Other intangible assets will continue to be amortized over their
useful lives.
The Company hasWe have applied the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
nonamortization provisions of the Statements is expected to result in an
increase in net income of approximately $8.0 million ($.16 per diluted share)
per year. During the first quarter of 2002, the Companywe performed the first of the
required impairment tests of goodwill and indefinite lived intangible assets as
of January 1, 2002. The Company hasWe have completed itsour evaluation of goodwill and indefinite
lived intangible assets, and there was no impairment of assets recorded.
In June of 2001, the Financial Accounting Standards Board issued SFAS No. 143,
"Accounting for Asset Retirement Obligations." This Statement is effective for
fiscal years beginning after June 15, 2002, and the Company expectswe expect to adopt the Statement
effective January 1, 2003. It is expected that this Statement will have an
immaterial effect on the Company'sour consolidated financial statements.
In August of 2001 the Financial Accounting Standards Board issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." The
Company wasWe were
required to adopt this Statement effective January 1, 2002 and it did not have
an impact on theour consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk. We have long-term debt and revolving lines of credit
subject to the risk of loss associated with movements in interest rates.
As of JuneSeptember 30, 2002, we had floating rate obligations totaling
approximately $25.9$97 million for amounts borrowed under our revolving lines of
credit. 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 rate were to increase by 1% from JuneSeptember 30, 2002 levels,
our combined interest expense would increase by a total of approximately $0.3$1.0 million
annually based upon borrowing levels at JuneSeptember 30, 2002.
Foreign Currency Exchange Rate Risk. Our operations are conducted in various
countries around the world in a number of different currencies. As such, our
earnings are subject to change due to movements in foreign currency exchange
rates when transactions are denominated in currencies other than the U.S.
dollar, which is our functional currency. In order to mitigate the effects of
exchange rate risks, 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. As of June 30, 2002, we had Canadian
dollar-denominated debt totaling approximately $1.3 million. We had no interest rate hedges or forwardat September 30,
2002. We had two
24
foreign currency exchange contracts at Juneas of September 30, 2002.
242002 which have not had
a material impact on our results of operations.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90 day period prior to the filing date of 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-14(c) of the
Securities Exchange Act of 1934). Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures are effective in ensuring that material information is
accumulated and communicated to management, and made known to our Chief
Executive Officer and Chief Financial Officer, on a timely basis to allow
disclosure as required in this Quarterly Report on Form 10-Q. There have been no
significant changes in our internal controls or in other factors which could
significantly affect internal controls subsequent to the date we carried out our
evaluation.
25
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 claims
relating to matters occurring prior to our acquisition of businesses and also
relating 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 these or any other 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 insurance, will not have a material
adverse effect on our consolidated financial position, results of operations or
liquidity.
The Company isWe are aware that certain energy service companies that have in the past
used asbestos in connection with the manufacture of equipment or otherwise in
the operation of their business have become the subject of increased asbestos
related litigation. Certain subsidiaries of the Companyour subsidiaries are currently named as
defendants in two single plaintiff cases seeking damages, including punitive
damages, alleging that our subsidiariesthey have responsibility for the individuals developing
mesothelioma, asbestosis, lung cancer or other lung diseases as a result of
exposure to asbestos. Although these are the only cases thatof which management is
aware that are pending or threatened against the Companyus or itsour subsidiaries involving
allegations relating to asbestos exposure, additional asbestos related claims
may be made. Based on management's preliminary investigation, management does
not believe that these cases or future claims relating to asbestos exposure will
have a material adverse effect on the
Company'sour consolidated financial position, results
of operations, or liquidity.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on May 15, 2002 (1) to
elect two Class I members of the Board of Directors to serve for three-year
terms, (2) to ratify the appointment of Ernst & Young LLP as independent
accountants for the year ended December 31, 2002 and (3) to approve the 2001
Equity Participation Plan, as amended and restated effective February 19, 2002.
The two Class I directors who were so elected were L. E. Simmons and Douglas
E. Swanson. The number of affirmative votes and the number of votes withheld for
the directors so elected were:
NAMES NUMBER OF AFFIRMATIVE VOTES NUMBER WITHHELD
----- --------------------------- ---------------
L. E. Simmons 39,143,890 3,171,400
Douglas E. Swanson 39,416,839 2,898,451
The number of affirmative votes, the number of negative votes and the number
of abstentions with respect to the ratification of the appointment of Ernst &
Young LLP were as follows:
NUMBER OF AFFIRMATIVE VOTES NUMBER OF NEGATIVE VOTES ABSTENTIONS
--------------------------- ------------------------ -----------
42,276,179 33,473 5,638
25
The number of affirmative votes, the number of negative votes and the number
of abstentions with respect to the reapproval of the 2001 Equity Participation
Plan, as amended and restated effective February 19, 2002 were as follows:
NUMBER OF AFFIRMATIVE VOTES NUMBER OF NEGATIVE VOTES ABSTENTIONS
--------------------------- ------------------------ -----------
40,040,478 2,264,802 10,010
None
ITEM 5. OTHER INFORMATION
NoneThe certifications by our Chief Executive Officer and Chief Financial
Officer required by Section 906 of the Sarbanes-Oxley Act of 2002 have been
provided to the Securities and Exchange Commission accompanying this Quarterly
Report on Form 10-Q.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
INDEX OF EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
3.1 -- Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 to the Company's
Annual Report on Form 10-K for the year ended December 31,
2000, as filed with the Commission on March 30, 2001).
3.2 -- Amended and Restated Bylaws (incorporated by reference to
Exhibit 3.2 to the Company's Annual Report on Form 10-K
for the year ended December 31, 2000, as filed with the
Commission on March 30, 2001).
26
3.3 -- Certificate of Designations of Special Preferred Voting
Stock of Oil States International, Inc. (incorporated by
reference to Exhibit 3.3 to the Company's Annual Report on
Form 10-K for the year ended December 31, 2000, as filed
with the Commission on March 30, 2001).
4.1 -- Form of common stock certificate (incorporated by
reference to Exhibit 4.1 of Oil States' Registration
Statement No. 333-43400 on Form S-1).
4.2 -- Amended and Restated Registration Rights Agreement
(incorporated by reference to Exhibit 4.2 to the Company's
Annual Report on Form 10-K for the year ended December 31,
2000, as filed with the Commission on March 30, 2001).
10.1 -- Combination Agreement dated as of July 31, 2000 by and
among Oil States International, Inc., HWC Energy Services,
Inc., Merger Sub-HWC, Inc., Sooner Inc., Merger
Sub-Sooner, Inc. and PTI Group Inc. (incorporated by
reference to Exhibit 10.1 of Oil States' Registration
Statement No. 333-43400 on Form S-1).
10.2 -- Plan of Arrangement of PTI Group Inc. (incorporated by
reference to Exhibit 10.2 to the Company's Annual Report
on Form 10-K for the year ended December 31, 2000, as
filed with the Commission on March 30, 2001).
10.3 -- Support Agreement between Oil States International, Inc.
and PTI Holdco (incorporated by reference to Exhibit 10.3
to the Company's Annual Report on Form 10-K for the year
ended December 31, 2000, as filed with the Commission on
March 30, 2001).
10.4 -- Voting and Exchange Trust Agreement by and among Oil
States International, Inc., PTI Holdco and Montreal Trust
Company of Canada (incorporated by reference to Exhibit
10.4 to the Company's Annual Report on Form 10-K for the
year ended December 31, 2000, as filed with the Commission
on March 30, 2001).
10.5** -- 2001 Equity Participation Plan (incorporated by reference
to Exhibit 10.5 to the Company's Annual Report on Form
10-K for the year ended December 31, 2000, as filed with
the Commission on March 30, 2001).
10.6** -- Form of Deferred Compensation Plan (incorporated by
reference to Exhibit 10.6 of Oil States' Registration
Statement No. 333-43400 on Form S-1).
10.7** -- Annual Incentive Compensation Plan (incorporated by
reference to Exhibit 10.7 to the Company's Annual Report
on Form 10-K for the year ended December 31, 2000, as
filed with the Commission on March 30, 2001).
10.8** -- Executive Agreement between Oil States International, Inc.
and Douglas E. Swanson (incorporated by reference to
Exhibit 10.8 to the Company's Annual Report on Form 10-K
for the year ended December 31, 2000, as filed with the
Commission on March 30, 2001).
10.9** -- Executive Agreement between Oil States International, Inc.
and Cindy B. Taylor (incorporated by reference to Exhibit
10.9 to the Company's Annual Report on Form 10-K for the
year ended December 31, 2000, as filed with the Commission
on March 30, 2001).
10.10** -- Form of Executive Agreement between Oil States
International, Inc. and other Named Executive Officers
(Messrs. Hughes and Chaddick) (incorporated by reference
to Exhibit 10.10 of Oil States' Registration Statement No.
333-43400 on Form S-1).
10.11** -- Form of Change of Control Severance Plan for Selected
Members of Management (incorporated by reference to
Exhibit 10.11 of Oil States' Registration Statement No.
333-43400 on Form S-1).
27
10.12 -- Credit Agreement among Oil States International, Inc.,
PTI Group Inc., the Lenders named therein, Credit Suisse
First Boston, Credit Suisse First Boston Canada, Hibernia
National Bank and Royal Bank of Canada (incorporated by
reference to Exhibit 10.12 of Oil States' Registration
Statement No. 333-43400 on Form S-1).
10.13A** -- Restricted Stock Agreement, dated February 8, 2001,
between Oil States International, Inc. and Douglas E.
Swanson.
10.13B** -- Restricted Stock Agreement, dated February 22, 2001,
between Oil States International, Inc. and Douglas E.
Swanson.
10.14** -- Form of Indemnification Agreement (incorporated by
reference to Exhibit 10.14 of Oil States' Registration
Statement No. 333-43400 on Form S-1).
10.15** -- Form of Executive Agreement between Oil States
International, Inc. And named Executive Officer (Mr.
Slator) (Incorporated by Reference to Exhibit 10.16 to
the Company's Annual Report On Form 10K for the year
ended December 31, 2001, as filed With the Commission on
March 4, 2002.
10.16** -- Form of Executive Agreement between Oil States
International, Inc. and named executive officer (Mr.
Trahan). (Incorporated by reference to Exhibit 10.16 to
the Company's quarterly report on Form 10-Q for the three
months ended March 31, 2002, as filed with the Commission
on May 15, 2002).
10.17**,* -- Douglas E. Swanson contingent option award dated as of
February 11, 2002
16.1 -- Letter Regarding Change in Certifying Accountant
(incorporated by reference to Exhibit 16.1 of Oil States'
Registration Statement No. 333-43400 on Form S-1).
21.1 -- List of subsidiaries of the Company (incorporated by
reference to Exhibit 21.1 of Oil States' Registration
Statement No. 333-43400 on Form S-1).
- ---------
* Filed herewith
** Management contracts or compensatory plans or arrangements.
(b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed during the period
covered by this report.
28
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.
OIL STATES INTERNATIONAL, INC.
By: /s/ Cindy B. Taylor
------------------------------------------------
Name: Cindy B. Taylor
Title: Senior Vice President and
Chief Financial Officer (Authorized Officer
And Principal Financial Officer)
By: /s/ Robert W. Hampton
------------------------------------------------
Name: Robert W. Hampton
Title: Vice President - Finance and Accounting and
Secretary (Principal Accounting Officer)
CERTIFICATIONS
I, Douglas E. Swanson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Oil States
International, Inc. ("Registrant");
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Registrant as of, and for, the periods presented in
this quarterly report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant
and we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the Registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date");
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the Registrant's auditors and the
audit committee of Registrant's Board of Directors (or persons
performing the equivalent functions):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
Registrant's ability to record, process, summarize and
report financial data and have identified for the
Registrant's auditors any material weaknesses in internal
controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Registrant's internal controls; and
6. The Registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to the
significant deficiencies and material weaknesses.
Date: November 13, 2002 /s/ Douglas E. Swanson
-------------------------------------
Douglas E. Swanson
President and Chief Executive Officer
30
I, Cindy Taylor, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Oil States
International, Inc. ("Registrant");
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Registrant as of, and for, the periods presented in
this quarterly report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant
and we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the Registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date");
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the Registrant's auditors and the
audit committee of Registrant's Board of Directors (or persons
performing the equivalent functions):
d. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
Registrant's ability to record, process, summarize and
report financial data and have identified for the
Registrant's auditors any material weaknesses in internal
controls; and
e. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Registrant's internal controls; and
6. The Registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to the
significant deficiencies and material weaknesses.
Date: November 13, 2002 /s/ Cindy B. Taylor
----------------------------------
Cindy B. Taylor
Senior Vice President and Chief
Financial Officer
31
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
3.1 -- Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 to the Company's
Annual Report on Form 10-K for the year ended December 31,
2000, as filed with the Commission on March 30, 2001).
3.2 -- Amended and Restated Bylaws (incorporated by reference to
Exhibit 3.2 to the Company's Annual Report on Form 10-K
for the year ended December 31, 2000, as filed with the
Commission on March 30, 2001).
3.3 -- Certificate of Designations of Special Preferred Voting
Stock of Oil States International, Inc. (incorporated by
reference to Exhibit 3.3 to the Company's Annual Report on
Form 10-K for the year ended December 31, 2000, as filed
with the Commission on March 30, 2001).
4.1 -- Form of common stock certificate (incorporated by
reference to Exhibit 4.1 of Oil States' Registration
Statement No. 333-43400 on Form S-1).
4.2 -- Amended and Restated Registration Rights Agreement
(incorporated by reference to Exhibit 4.2 to the Company's
Annual Report on Form 10-K for the year ended December 31,
2000, as filed with the Commission on March 30, 2001).
10.1 -- Combination Agreement dated as of July 31, 2000 by and
among Oil States International, Inc., HWC Energy Services,
Inc., Merger Sub-HWC, Inc., Sooner Inc., Merger
Sub-Sooner, Inc. and PTI Group Inc. (incorporated by
reference to Exhibit 10.1 of Oil States' Registration
Statement No. 333-43400 on Form S-1).
10.2 -- Plan of Arrangement of PTI Group Inc. (incorporated by
reference to Exhibit 10.2 to the Company's Annual Report
on Form 10-K for the year ended December 31, 2000, as
filed with the Commission on March 30, 2001).
10.3 -- Support Agreement between Oil States International, Inc.
and PTI Holdco (incorporated by reference to Exhibit 10.3
to the Company's Annual Report on Form 10-K for the year
ended December 31, 2000, as filed with the Commission on
March 30, 2001).
10.4 -- Voting and Exchange Trust Agreement by and among Oil
States International, Inc., PTI Holdco and Montreal Trust
Company of Canada (incorporated by reference to Exhibit
10.4 to the Company's Annual Report on Form 10-K for the
year ended December 31, 2000, as filed with the Commission
on March 30, 2001).
26
10.5** -- 2001 Equity Participation Plan (incorporated by reference
to Exhibit 10.5 to the Company's Annual Report on Form
10-K for the year ended December 31, 2000, as filed with
the Commission on March 30, 2001).
10.6** -- Form of Deferred Compensation Plan (incorporated by
reference to Exhibit 10.6 of Oil States' Registration
Statement No. 333-43400 on Form S-1).
10.7** -- Annual Incentive Compensation Plan (incorporated by
reference to Exhibit 10.7 to the Company's Annual Report
on Form 10-K for the year ended December 31, 2000, as
filed with the Commission on March 30, 2001).
10.8** -- Executive Agreement between Oil States International, Inc.
and Douglas E. Swanson (incorporated by reference to
Exhibit 10.8 to the Company's Annual Report on Form 10-K
for the year ended December 31, 2000, as filed with the
Commission on March 30, 2001).
10.9** -- Executive Agreement between Oil States International, Inc.
and Cindy B. Taylor (incorporated by reference to Exhibit
10.9 to the Company's Annual Report on Form 10-K for the
year ended December 31, 2000, as filed with the Commission
on March 30, 2001).
10.10** -- Form of Executive Agreement between Oil States
International, Inc. and other Named Executive Officers
(Messrs. Hughes and Chaddick) (incorporated by reference
to Exhibit 10.10 of Oil States' Registration Statement No.
333-43400 on Form S-1).
10.11** -- Form of Change of Control Severance Plan for Selected
Members of Management (incorporated by reference to
Exhibit 10.11 of Oil States' Registration Statement No.
333-43400 on Form S-1).
10.12 -- Credit Agreement among Oil States International, Inc.,
PTI Group Inc., the Lenders named therein, Credit Suisse
First Boston, Credit Suisse First Boston Canada, Hibernia
National Bank and Royal Bank of Canada (incorporated by
reference to Exhibit 10.12 of Oil States' Registration
Statement No. 333-43400 on Form S-1).
10.13A** -- Restricted Stock Agreement, dated February 8, 2001,
between Oil States International, Inc. and Douglas E.
Swanson.
10.13B** -- Restricted Stock Agreement, dated February 22, 2001,
between Oil States International, Inc. and Douglas E.
Swanson.
10.14** -- Form of Indemnification Agreement (incorporated by
reference to Exhibit 10.14 of Oil States' Registration
Statement No. 333-43400 on Form S-1).
10.15** -- Form of Executive Agreement between Oil States
International, Inc. And named Executive Officer (Mr.
Slator) (Incorporated by Reference to Exhibit 10.16 to
the Company's Annual Report On Form 10K for the year
ended December 31, 2001, as filed With the Commission on
March 4, 2002.
10.16** -- Form of Executive Agreement between Oil States
International, Inc. and named executive officer (Mr.
Trahan). (Incorporated by reference to Exhibit 10.16 to
the Company's quarterly report on Form 10-Q for the three
months ended March 31, 2002, as filed with the Commission
on May 15, 2002).
10.17**,* -- Douglas E. Swanson contingent option award
16.1 -- Letter Regarding Change in Certifying Accountant
(incorporated by reference to Exhibit 16.1 of Oil States'
Registration Statement No. 333-43400 on Form S-1).
21.1 -- List of subsidiaries of the Company (incorporated by
reference to Exhibit 21.1 of Oil States' Registration
Statement No. 333-43400 on Form S-1).
27
- -------------------
* Filed herewith
** Management contracts or compensatory plans or arrangements.
(b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed during the period
covered by this report.
28
SIGNATURES
Pursuant to the requirements of the Securities Exchanges Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
OIL STATES INTERNATIONAL, INC.
Date: August 13, 2002 By /s/ CINDY B. TAYLOR
------------------- -------------------------------------------
Cindy B. Taylor
Senior Vice President, Chief Financial
Officer and Treasurer (Principal
Financial Officer)
Date: August 13, 2002 By /s/ ROBERT W. HAMPTON
------------------- -------------------------------------------
Robert W. Hampton
Vice President -- Finance and Accounting
and Secretary (Principal Accounting Officer)
29