OIL STATES INTERNATIONAL, CONSOLIDATED BALANCE SHEETS (In Thousands)
ASSETS Current assets: Cash and cash equivalents............................... Accounts receivable, net................................ Inventories, net........................................ Prepaid expenses and other current assets............... Total current assets.................................. Property, plant, and equipment, net....................... Goodwill, net............................................. Other intangible assets, net.............................. Other noncurrent assets................................... Total assets......................................... LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities................ Income taxes............................................ Current portion of long-term debt....................... Deferred revenue........................................ Other current liabilities............................... Total current liabilities............................ Long-term debt.......................................... Deferred income taxes................................... Postretirement healthcare benefits...................... Other liabilities....................................... Total liabilities.................................... Stockholders' equity: Common stock............................................ Additional paid-in capital.............................. Retained earnings....................................... Accumulated other comprehensive income ................. Treasury stock.......................................... Total stockholders' equity........................... Total liabilities and stockholders' equity...........
~~The accompanying notes are an integral part of these financial statements. 4~~ ~~OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF (In Thousands)~~
Cash flows from operating activities: Net income...................................................... Adjustments to reconcile net income to net cash from operating activities: Provision for loss on accounts receivable..................... Depreciation and amortization................................. Deferred income tax provision (benefit)....................... Other, net.................................................... Changes in working capital.................................... Net cash flows provided by operating activities............. Cash flows from investing activities: Acquisitions of businesses, net of cash acquired................ Capital expenditures............................................ Proceeds from sale of equipment................................. Other, net...................................................... Net cash flows used in investing activities................. Cash flows from financing activities: Revolving credit borrowings (repayments)........................ Debt repayments................................................. Issuance of common stock........................................ Other, net...................................................... Net cash flows provided by (used in) financing activities... Effect of exchange rate changes on cash........................... Net increase (decrease) in cash and cash equivalents from continuing operations............................................ Net cash used in discontinued operations.......................... Cash and cash equivalents, beginning of period.................... Cash and cash equivalents, end of period..........................
~~The accompanying notes are an integral part of these consolidated financial statements. 5~~ ~~OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES~~

< INC. AND SUBSIDIARIES MARCH 31, DECEMBER 31, 2004 2003 ----------- ----------- (UNAUDITED) $ 20,665 $ 19,318 159,004 137,484 123,147 121,319 8,811 9,956 ----------- ------------ 311,627 288,077 201,593 194,136 250,374 224,054 7,222 5,870 5,050 5,049 ----------- ------------ $ 775,866 $ 717,186 =========== ============ $ 88,436 $ 89,243 5,142 3,020 853 873 8,394 4,784 2,758 937 ----------- ------------ 105,583 98,857 174,406 136,246 16,313 19,411 2,594 2,662 5,024 4,899 ----------- ------------ 303,920 262,075 492 492 334,244 333,855 124,975 108,818 12,565 12,289 (330) (343) ----------- ------------ 471,946 455,111 ----------- ------------ $ 775,866 $ 717,186 =========== ============ CASH FLOWS THREE MONTHS ENDED MARCH 31, ------------------------------ 2004 2003 ---------- -------- $ 16,157 $ 13,369 139 159 8,572 6,458 (5,108) 178 395 206 (15,016) (19,064) ---------- -------- 5,139 1,306 (32,916) (236) (8,896) (5,689) 218 202 7 - ---------- -------- (41,587) (5,723) 38,030 (147) (208) (252) 471 259 (164) (394) ---------- -------- 38,129 (534) (144) 488 ---------- -------- 1,537 (4,463) (190) (44) 19,318 11,118 ---------- -------- $ 20,665 $ 6,611 ========== ======== /div>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
     The accompanying unaudited consolidated ~~financials~~financial statements of the Company and its wholly-owned subsidiaries have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission pertaining to interim financial information. Certain information in footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles 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.
     Preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosed amounts of contingent assets and liabilities and the reported amounts of revenues and expenses. If the underlying estimates and assumptions, upon which the financial statements are based, change in future periods, actual amounts may differ from those included in the accompanying consolidated condensed financial statements.
     The ~~Company's~~Company’s shares outstanding include all shares issuable upon the exercise of exchangeable shares of one of the ~~Company's~~Company’s Canadian subsidiaries.
     The calculation of diluted earnings per share include the effect of the ~~Company's~~Company’s outstanding stock options determined under the treasury stock method.
     From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the ~~"FASB"~~“FASB”) which are adopted by the Company as of the specified effective date. Unless otherwise discussed, management believes the impact of recently issued standards, which are not yet effective, will not have a material impact on the ~~Company's~~Company’s consolidated financial statements upon adoption.
     The financial statements included in this report should be read in conjunction with the ~~Company's~~Company’s audited financial statements and accompanying notes included in its Annual Report on Form 10-K for the year ended December 31, 2003.
2. RECENT ACCOUNTING PRONOUNCEMENTS
     In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51.” FIN 46 provides guidance on: 1) the identification of entities for which control is achieved through means other than through voting rights, known as “variable interest entities” (VIEs); and 2) which business enterprise is the primary beneficiary and when it should consolidate a VIE. This new requirement for consolidation applies to entities: 1) where the equity investors (if any) do not have a controlling financial interest; or 2) whose equity investment at risk is insufficient to finance that entity’s activities without receiving additional subordinated financial support from other parties. In addition, FIN 46 requires that both the primary beneficiary and all other enterprises with a significant variable interest in a VIE make additional disclosures. FIN 46 is effective for all new VIEs created or acquired after January 31, 2003. For VIEs created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period ending after December 15, 2003. Certain disclosures are effective immediately. Implementation of FIN 46 did not affect the Company.
6 2.

3. DETAILS OF SELECTED BALANCE SHEET ACCOUNTS

Additional information regarding selected balance sheet accounts is presented below (in thousands):
MARCH 31, DECEMBER 31, 2004 2003 --------- ------------ Accounts receivable, net: Trade............................................................... $ 132,287 $ 113,003 Unbilled revenue.................................................... 26,967 24,018 Other............................................................... 1,729 2,484 Allowance for doubtful accounts..................................... (1,979) (2,021) --------- ------------ $ 159,004 $ 137,484 ========= ============
MARCH 31, DECEMBER 31, 2004 2003 --------- ------------ Inventories, net: Tubular goods....................................................... $ 59,758 $ 65,026 Other finished goods and purchased products......................... 25,780 26,286 Work in process..................................................... 26,003 20,117 Raw materials....................................................... 17,031 15,169 --------- ------------ Total inventories................................................... 128,572 126,598 Inventory reserves.................................................. (5,425) (5,279) --------- ------------ $ 123,147 $ 121,319 ========= ============
ESTIMATED MARCH 31, DECEMBER 31, USEFUL LIFE 2004 2003 ----------- --------- ------------ Property, plant and equipment, net: Land.................................................... $ 5,218 $ 5,264 Buildings and leasehold improvements.................... 2-40 years 44,050 43,784 Machinery and equipment................................. 2-20 years 203,850 198,677 Rental tools............................................ 3-10 years 48,555 40,960 Office furniture and equipment.......................... 1-10 years 15,067 14,676 Vehicles................................................ 2-5 years 9,131 8,521 Construction in progress................................ 6,605 5,712 --------- ------------ Total property, plant and equipment..................... 332,476 317,594 Less: Accumulated depreciation.......................... (130,883) (123,458) -------- ------------ $ 201,593 $ 194,136 ========= ============
MARCH 31, DECEMBER 31, 2004 2003 --------- ------------ Accounts payable and accrued liabilities: Trade accounts payable....................................... $ 62,005 $ 59,423 Accrued compensation......................................... 7,901 12,572 Accrued insurance............................................ 4,032 3,518 Accrued taxes, other than income taxes....................... 2,771 2,028 Reserves related to discontinued operations.................. 4,595 4,785 Other........................................................ 7,132 6,917 --------- ------------ $ 88,436 $ 89,243 ========= ============


	JUNE 30,			DECEMBER 31,
	2004			2003
Accounts receivable, net:
Trade	$	120,049		$	113,003
Unbilled revenue		23,785			24,018
Other		1,792			2,484
Allowance for doubtful accounts		(2,062	)		(2,021	)

	$	143,564		$	137,484


	JUNE 30,			DECEMBER 31,
	2004			2003
Inventories, net:
Tubular goods	$	111,585		$	65,026
Other finished goods and purchased products		29,036			26,286
Work in process		27,169			20,117
Raw materials		18,655			15,169

Total inventories		186,445			126,598
Inventory reserves		(5,507	)		(5,279	)

	$	180,938		$	121,319


	ESTIMATED	JUNE 30,			DECEMBER 31,
	USEFUL LIFE	2004			2003
Property, plant and equipment, net:
Land		$	5,182		$	5,264
Buildings and leasehold improvements	2-40 years		44,562			43,784
Machinery and equipment	2-20 years		208,717			198,677
Rental tools	3-10 years		52,671			40,960
Office furniture and equipment	1-10 years		15,873			14,676
Vehicles	2-5 years		9,691			8,521
Construction in progress			4,080			5,712

Total property, plant and equipment			340,776			317,594
Less: Accumulated depreciation			(137,191	)		(123,458	)

		$	203,585		$	194,136


	JUNE 30,		DECEMBER 31,
	2004		2003
Accounts payable and accrued liabilities:
Trade accounts payable	$	89,088	$	59,423
Accrued compensation		8,824		12,572
Accrued insurance		4,692		3,518
Accrued taxes, other than income taxes		3,969		2,028
Reserves related to discontinued operations		4,419		4,785
Other		6,902		6,917

	$	117,894	$	89,243

Changes in the carrying amount of goodwill for the ~~three~~six month period ended ~~March 31,~~June 30, 2004 are as follows (in thousands):
OFFSHORE WELLSITE TUBULAR PRODUCTS SERVICES SERVICES TOTAL --------- -------- ----------- ---------- Balance as of January 1, 2004............. $ 74,800 $ 99,675 $ 49,579 $ 224,054 Goodwill acquired ........................ - 26,415 - 26,415 Foreign currency translation and other changes................................ 194 (289) - (95) --------- -------- ----------- ---------- Balance as of March 31, 2004.............. $ 74,994 $125,801 $ 49,579 $ 250,374 ========= ======== =========== ==========
3.


	OFFSHORE		WELLSITE			TUBULAR
	PRODUCTS		SERVICES			SERVICES		TOTAL
Balance as of January 1, 2004	$	74,800	$	99,675		$	49,579	$	224,054
Goodwill acquired		—		29,534			2,025		31,559
Foreign currency translation and other changes		253		(765	)		—		(512	)

Balance as of June 30, 2004	$	75,053	$	128,444		$	51,604	$	255,101

4. SEGMENT AND RELATED INFORMATION

In accordance with SFAS No. 131, ~~"Disclosures~~“Disclosures about Segments of an Enterprise and Related Information,"” the Company has identified the following reportable segments: Offshore Products, Wellsite Services and Tubular Services. The ~~Company's~~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. Results of our Canadian well site services business related to the provision of work force accommodations, catering and logistics services are seasonal with significant activity occurring in the peak winter drilling season.

Financial information by industry segment for each of the three and six months ~~period~~periods ended ~~March 31,~~June 30, 2004 and 2003 is summarized in the following table (in thousands):
OFFSHORE WELLSITE TUBULAR CORPORATE AND PRODUCTS SERVICES SERVICES ELIMINATIONS TOTAL -------- --------- -------- ------------- ---------- Three months ended March 31, 2004 Revenues from unaffiliated customers....................... $ 41,888 $ 96,140 $ 66,162 $ - $ 204,190 ======== ========= ======== ============= ========== Depreciation and amortization.... 2,248 6,151 157 16 8,572 ======== ========= ======== ============= ========== Operating income (loss).......... (798) 17,520 3,767 (1,391) 19,098 ======== ========= ======== ============= ========== Capital expenditures............. 1,071 7,724 101 - 8,896 ======== ========= ======== ============= ========== Total assets..................... 256,435 371,888 136,285 11,258 775,866 ======== ========= ======== ============= ========== Three months ended March 31, 2003 Revenues from unaffiliated customers....................... $ 57,588 $ 78,838 $ 49,151 $ - $ 185,577 ======== ========= ======== ============= ========== Depreciation and amortization.... 1,833 4,453 159 13 6,458 ======== ========= ======== ============= ========== Operating income (loss).......... 5,627 15,080 959 (1,320) 20,346 ======== ========= ======== ============= ========== Capital expenditures............. 617 4,962 110 - 5,689 ======== ========= ======== ============= ========== Total assets..................... 236,873 282,980 137,795 10,136 667,784 ======== ========= ======== ============= ==========
4.


	OFFSHORE		WELL SITE		TUBULAR		CORPORATE AND
	PRODUCTS		SERVICES		SERVICES		ELIMINATIONS			TOTAL
Three months ended June 30, 2004
Revenues from unaffiliated customers	$	48,940	$	72,850	$	100,392	$	—		$	222,182

Depreciation and amortization		2,047		6,508		176		13			8,744

Operating income (loss)		2,816		10,164		10,562		(1,895	)		21,647

Capital expenditures		2,729		9,170		41		—			11,940

Total assets		259,680		359,584		198,016		9,365			826,645

Three months ended June 30, 2003
Revenues from unaffiliated customers	$	57,160	$	52,885	$	53,519	$	—		$	163,564

Depreciation and amortization		1,947		4,790		162		12			6,911

Operating income (loss)		8,510		7,031		1,231		(1,541	)		15,231

Capital expenditures		4,644		5,003		48		9			9,704

Total assets		247,984		275,998		143,114		8,033			675,129


	OFFSHORE		WELL SITE		TUBULAR		CORPORATE AND
	PRODUCTS		SERVICES		SERVICES		ELIMINATIONS			TOTAL
Six months ended June 30, 2004
Revenues from unaffiliated customers	$	90,828	$	168,990	$	166,554	$	—		$	426,372

Depreciation and amortization		4,296		12,658		333		29			17,316

Operating income (loss)		2,019		27,684		14,329		(3,287	)		40,745

Capital expenditures		3,801		16,893		142		—			20,836

Total assets		259,680		359,584		198,016		9,365			826,645

Six months ended June 30, 2003
Revenues from unaffiliated customers	$	114,748	$	131,724	$	102,669	$	—		$	349,141

Depreciation and amortization		3,781		9,243		321		24			13,369

Operating income (loss)		14,137		22,111		2,190		(2,861	)		35,577

Capital expenditures		5,261		9,960		158		14			15,393

Total assets		247,984		275,998		143,114		8,033			675,129

5. COMPREHENSIVE INCOME AND CHANGES IN COMMON STOCK OUTSTANDING:

Comprehensive income for the three and six months ended ~~March 31,~~June 30, 2004 and 2003 was as follows (in thousands):


	THREE MONTHS					SIX MONTHS
	ENDED JUNE 30,					ENDED JUNE 30,
	2004			2003		2004			2003
Comprehensive income:
Net income	$	12,155		$	10,154	$	28,312		$	23,523
Cumulative translation adjustment		(2,695	)		7,081		(2,419	)		10,759

Total comprehensive income	$	9,460		$	17,235	$	25,893		$	34,282


Shares of common stock outstanding – January 1, 2004	49,161,599
Shares issued upon exercise of stock options	237,067
Repurchase of shares which were cancelled	(10,000	)(1)

Shares of common stock outstanding – June 30, 2004	49,388,666

(1)

Shares were purchased from an officer of ~~common~~the Company pursuant to a provision in our 2001 Equity Participation Plan allowing the recipient of a restricted stock ~~outstanding - January 1, 2004.... 49,161,599 Shares issued upon exercise of stock options......... 53,780 Repurchase~~award to return the number of shares ~~which were cancelled............ (10,000) ---------- Shares~~having the fair value equal to tax withholding due. The purpose of ~~common~~the repurchase was solely to assist the officer in the satisfaction of tax liabilities he incurred in connection with the vesting of shares of restricted stock ~~outstanding - March 31, 2004..... 49,205,379 ==========~~ in February 2004.

8 5.
6. STOCK-BASED COMPENSATION
In December 2002, the FASB issued SFAS No. 148, ~~"Accounting~~“Accounting for Stock Based Compensation --— Transition and Disclosure."” The Company has adopted the disclosure requirements of SFAS No. 148 and has elected to record employee compensation expense utilizing the intrinsic value method permitted under Accounting Principles Board (APB) Opinion No. 25, ~~"Accounting~~“Accounting for Stock Issued to Employees."”
The Company accounts for its employee stock-based compensation plan under APB Opinion No. 25 and its related interpretations. Accordingly, any deferred compensation expense would be recorded for stock options based on the excess of the market value of the common stock on the date the options were granted over the aggregate exercise price of the options. This deferred compensation would be amortized over the vesting period of each option. The Company is authorized to grant common stock based awards covering 5,700,000 shares of common stock under the 2001 Equity Participation Plan, as amended and restated (the Stock Option Plan), to employees, consultants and directors with amounts, exercise prices and vesting schedules determined by the compensation committee of the ~~Company's~~Company’s Board of Directors. Since February 2001, all option grants have been priced at the closing price on the day of grant, vest 25% per year and have a life ranging from six to ten years. Because the exercise price of options granted under the Stock Option Plan have been equal to or greater than the market price of the ~~Company's~~Company’s stock on the date of grant, no compensation expense related to this plan has been recorded. Had compensation expense for its Stock Option Plan been determined consistent with SFAS No. 123 utilizing the fair value method, the ~~Company's~~Company’s net income and earnings per share ~~at March 31,~~for the three and six months ended June 30, 2004 and 2003, would have been as follows (in thousands, except per share amounts):
THREE MONTHS ENDED MARCH 31, ------------------------ 2004 2003 Net income as reported............................. $16,157 $ 13,369 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects ..................................... (788) (499) ------- --------- Pro forma net income............................... $15,369 $ 12,870 ======= ========= Net income per share as reported: Basic............................................ $ 0.33 $ 0.28 Diluted.......................................... 0.32 0.27 Pro forma net income per share as if fair value method had been applied to all awards: Basic............................................ $ 0.31 $ 0.27 Diluted.......................................... 0.31 0.26
6

THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30,
JUNE 30,
2004
2003
2004
2003
Net income as reported $ 12,155 $ 10,154 $ 28,312 $ 23,523
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (615 ) (949 ) (1,408 ) (1,715 )

Pro forma net income $ 11,540 $ 9,205 $ 26,904 $ 21,808

Net income per share as reported:
Basic $ 0.25 $ 0.21 $ 0.58 $ 0.49
Diluted 0.24 0.21 0.57 0.48
Pro forma net income per share as if fair value method had been applied to all awards:
Basic $ 0.23 $ 0.19 $ 0.55 $ 0.45
Diluted 0.23 0.19 0.54 0.44
9

~~7. INCOME TAXES~~

Our primary deferred tax asset, which totaled approximately $22.1 million at December 31, 2003, isprimarily related to $63.2 million in federal net operating loss carryforwards, or NOLs, as of that date. A valuation allowance of approximately $12 million was provided against the deferred tax asset associated with our NOLs at December 31, 2003. The NOLs will expire in varying amounts during the years 2008 through 2020 if they are not first used to offset taxable income generated by the Company. The ~~Company's~~Company’s ability to utilize a significant portion of the NOLs is currently limited under Section 382 of the Internal Revenue Code due to a change of control that occurred during 1995. A successive change in control was triggered in 2003 pursuant to Section 382; however it did not significantly change the ~~Company's~~Company’s NOL utilization expectations.

The ~~Company's~~Company’s income tax provision for the six months ended June 30, 2004 totaled $9.6 million, or 25.2% of pretax income. The Company’s income tax provision for the three months ended ~~March 31,~~June 30, 2004 totaled ~~$1.5~~$8.0 million, or ~~8.6%~~39.8% of pretax income. ~~Included in the first quarter~~The six month June 30, 2004 income tax provision isincluded a $5.4 million income tax benefit recorded in the first quarter related to the partial reversal of the ~~$12 million~~ valuation allowance applied against NOLs which were recorded as of the prior year ~~end, leaving a remaining valuation allowance of $6.6 million at March 31, 2004.~~end. Based upon ~~the~~ positive earnings ~~that~~generated by the Company ~~has generated~~ for both financial and tax reporting purposes during the three-year period since its formation, the Company ~~believes~~believed that it ~~will~~would more likely than not generate sufficient taxable income in future years to realize the benefit of all but $6.6 million of the deferred tax asset associated with these net operating losses. Following the recognition of the $5.4 million income tax benefit during the first quarter, the Company has recognized the associated income tax benefit, on a cumulative basis, of approximately $44.2 million of its $63.2 million of available federal net operating loss carryforwards. 9 We currently estimate that our effective tax rate for the full year 2004 will approximate 30.0%. Our actual effective tax rate could differ materially from this estimate, which is subject to a number of uncertainties, including future taxable income projections, the amount of income attributable to domestic versus foreign sources, the amount of capital expenditures and any changes in applicable tax laws and regulations. Based upon the loss limitation provisions of Section 382, we should be able to utilize approximately $29 million of our NOLs to offset taxable income generated by the Company during the tax year ended December 31, 2004. 7.

~~8. POSTRETIREMENT HEALTHCARE AND OTHER INSURANCE BENEFITS~~

The Company provides healthcare and other insurance benefits for approximately 360 eligible retired employees and dependent spouses. This plan is no longer available to current employees. The healthcare plans are contributory and contain other cost-sharing features such as deductibles, lifetime maximums, and co-payment requirements. The net periodic benefit cost, including the components therein, are not material. 8.

~~9. COMMITMENTS AND CONTINGENCIES~~

We are a party to various pending or threatened claims, lawsuits and administrative proceedings seeking damages or other remedies concerning our commercial operations, products, employees and other matters, including occasional claims by individuals alleging exposure to hazardous materials as a result of our products or operations. Some of these claims relate to matters occurring prior to our acquisition of businesses, and some relate to businesses we have sold. In certain cases, we are entitled to indemnification from the sellers of businesses and in other cases, we have indemnified the buyers of businesses from us. Although we can give no assurance about the outcome of pending legal and administrative proceedings and the effect such outcomes may have on us, we believe that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by insurance, will not have a material adverse effect on our consolidated financial position, results of operations or liquidity.

This quarterly report onForm 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of important factors. For a discussion of important factors that could affect our results, please refer to ~~"Item~~“Item 1. ~~Business"~~Business” including the risk factors discussed therein and the financial statement line item discussions set forth in ~~"Item~~“Item 7. ~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations"~~Operations” included in ourForm 10-K Annual Report for the year ended December 31, 2003 filed with the Securities and Exchange Commission on March 5, 2004 and Item 2., which follows.

~~ITEM 2. ~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~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~~“Cautionary Statement Regarding Forward-Looking ~~Statements"~~Statements” in our Annual Report on Form 10-K for the year ended December 31, 2003 filed with the Securities and Exchange Commission on March 5, 2004. 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~~

~~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. There have been no changes in these policies since the filing of our Annual Report on Form 10-K for the year ended December 31, 2003.

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 damages have been quantified and 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 and, in periods of prolonged down cycles, 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 and circumstances that give rise to the revision become known. Provisions for estimated losses on uncompleted contracts are made in the period in which losses are determined.

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, should we determine that we would not likely 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. See also ~~"Note 6 -~~“Note 7 – Income ~~Taxes"~~Taxes” and ~~"Tax Matters"~~“Tax Matters” herein.

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. Should our estimates be 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~~

~~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'~~customers’ willingness to spend capital on the exploration for 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, which is driven largely by our ~~customers'~~customers’ outlook for longer-term future oil prices. In our well site services business segment, we provide hydraulic well control services, pressure control equipment and rental tools, drilling rigs and work force 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 segment, we distribute a broad range of casing and tubing. Sales of tubular products and services depend upon the overall level of drilling activity and the types of wells being drilled. ~~Both well site and tubular services' activity is correlated to land and offshore drilling activity.~~

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 Rig Count for the Year Ended
December 31,
2003
2002
2001
2000
1999
Land 924 718 1,003 778 518
Offshore 108 113 153 140 106

Total U.S 1,032 831 1,156 918 624

Canada (1) 372 266 341 345 245

North America 1,404 1,097 1,497 1,263 869

Average Rig Count for the Average Rig Count for the
Three Months Ended June 30,
Six Months Ended June 30,
2004
2003
2004
2003
Land 1,069 919 1,045 856
Offshore 95 109 96 109

Total U.S. 1,164 1,028 1,141 965

Canada (1) 201 203 365 348

North America 1,365 1,231 1,506 1,313

AVERAGE RIG COUNT FOR THE YEAR ENDED DECEMBER 31, --------------------------------------------- 2003 2002 2001 2000 1999 ------ ------ ----- ----- ----- Land..................... 924 718 1,003 778 518 Offshore................. 108 113 153 140 106 ------ ------ ----- ----- ----- Total U.S................ 1,032 831 1,156 918 624 ------ ------ ----- ----- ----- Canada
	(1)............... 372 266 341 345 245 ------ ------ ----- ----- ----- North America....... 1,404 1,097 1,497 1,263 869 ====== ====== ===== ===== =====

12
AVERAGE RIG COUNT FOR THE THREE MONTHS ENDED MARCH 31, ---------------------------- 2004 2003 ------ ------ Land........................................... 1,021 793 Offshore....................................... 98 108 ------ ------ Total U.S...................................... 1,119 901 ------ ------ Canada (1)..................................... 528 494 ------ ------ North America............................. 1,647 1,395 ====== ======
~~- -------------- (1)~~ Canadian rig counts typically increase during the peak winter drilling season.
     The average North American rig count in the quarter ended ~~March 31,~~June 30, 2004 increased ~~252~~134 rigs, or ~~18.1%~~10.9%, compared to the quarter ended ~~March 31,~~June 30, 2003. This overall increase in activity, while tempered somewhat by seasonal declines in Canada and continued low activity levels in the U.S. Gulf of Mexico, did contribute to increased revenues in our well site ~~and tubular~~ services segments. Our well site services results for the ~~first~~second quarter of 2004 also benefited from acquisitions made in our rental tool business in the ~~last six months,~~fourth quarter of 2003 and in January and April of 2004 (see “Liquidity and Capital Resources” on page 17), contributions from two newly built rigs working in West Texas, which started in December 2003 and February 2004, and higher year over year contributions from an international catering and facility management contract. Offshore products results weakened compared to ~~recent quarters~~the same quarter last year primarily due to decreased activity and revenues during the quarter, which also led to reduced cost absorption in several of the ~~companies~~company’s manufacturing facilities. Additionally, offshore products margins were lower in the current period compared to last year due to lower activity levels and a less favorable mix of higher margin connector and other highly engineered products. However, offshore ~~products'~~products’ results improved sequentially and the outlook also improved during the quarter as our backlog grew to $98.7 million at June 30, 2004 compared to $76.9 million at March 31, 2004, ~~compared to~~a 28% increase. Backlog totaled $62.6 million at December 31, 2003 ~~a 23% increase.~~and $80.2 million at June 30, 2003. We believe that the offshore construction and development business is characterized by lengthy projects and a long ~~"lead-time"~~“lead-time” order cycle. While change in backlog levels from one quarter to the next does not necessarily evidence a long-term trend, we believe activity levels in our offshore products segment will increase in future quarters, given the growth in our backlog, when compared to the first ~~quarter~~half of 2004.
     On May 11, 2004, our OCTG subsidiary purchased the OCTG distribution business of Hunting Energy Services, L.P. (Hunting) for $46.4 million. Under the terms of the transaction, we purchased Hunting’s U.S. tubular inventory, assumed certain customer contracts and entered into supply and distribution relationships with Hunting. Substantially all of the purchase price was assigned to OCTG inventory acquired.
     Our tubular services ~~group~~segment shipped ~~67,300~~151,900 tons of OCTG in the first half of 2004 (84,600 tons in the second quarter of 2004) compared to 117,500 tons in the first ~~quarter~~half of ~~2004 compared to 81,700~~2003 (60,900 tons in the ~~fourth~~second quarter of ~~2003 and 56,600 tons in the first quarter of 2003. Tubular~~2003). Our tubular services segment benefited from a ~~30%~~22% year over year increase in average U.S. land drilling activity, the acquisition of the Hunting OCTG distribution business and a significant increase in OCTG prices during the ~~quarter,~~quarter. These benefits were partially offset by reduced offshore activity in the U.S. Gulf of Mexico. ~~Certain large fourth quarter 2003 tubular shipments did not reoccur in the first quarter of 2004 and resulted in lower comparative tons shipped in the current quarter.~~
     During the first ~~quarter~~half of 2004, the results generated by our Canadian ~~remote~~workforce accommodations, catering and ~~catering~~logistics operations benefited from strengthening of the Canadian currency. The Canadian dollar vs. U.S. dollar conversion rate averaged ~~$0.76~~$0.75 in the first ~~quarter~~half of 2004 compared to ~~$0.66~~$0.69 in the first ~~quarter~~half of 2003.
     The ~~Company's~~Company’s income tax provision for the ~~three~~six months ended ~~March 31,~~June 30, 2004 totaled ~~$1.5~~$9.6 million, or ~~8.6%~~25.2% of pretax income. For the second quarter of 2004, the Company’s income tax provision totaled $8.0 million, or 39.8% of pretax income. During the first quarter of 2004, the Company recognized a $5.4 million income tax benefit related to the reduction during the first quarter of a portion of the valuation allowance that has been applied against the ~~Company's~~Company’s net operating loss carryforwards. See ~~"Tax Matters"~~“Tax Matters” discussion following.
     Management believes that fundamental oil and gas supply and demand factors will continue to support increased drilling activity in North America over time which should positively impact the Company, particularly its well site services and tubular services businesses. If oil and gas producers increase their view of longer term oil and gas prices based on current supply and demand fundamentals, we could expect increased expenditures for offshore exploration and development that could benefit our offshore products segment. However, there can be no assurance that these expectations will be realized.
13 ~~RESULTS OF OPERATIONS (IN MILLIONS, EXCEPT MARGIN PERCENTAGES)~~
THREE MONTHS ENDED MARCH 31, ----------------------- 2004 2003 --------- -------- Revenues Well Site Services......................... $ 96.1 $ 78.8 Offshore Products.......................... 41.9 57.6 Tubular Services........................... 66.2 49.2 --------- -------- Total................................. $ 204.2 $ 185.6 ========= ======== Gross Margin Well Site Services......................... $ 29.8 $ 25.2 Offshore Products.......................... 7.2 12.5 Tubular Services........................... 5.9 2.9 --------- -------- Total................................. $ 42.9 $ 40.6 ========= ======== Gross Margin as a Percent of Revenues Well Site Services......................... 31.0% 32.0% Offshore Products.......................... 17.2% 21.7% Tubular Services........................... 8.9% 5.9% Total................................. 21.0% 21.9% Operating Income (Loss) Well Site Services......................... $ 17.5 $ 15.1 Offshore Products.......................... (0.8) 5.6 Tubular Services........................... 3.8 0.9 Corporate/Other............................ (1.4) (1.3) --------- -------- Total................................. $ 19.1 $ 20.3 ========= ========

~~Results of Operations (in millions, except margin percentages)~~

THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30,
JUNE 30,
2004
2003
2004
2003
Revenues
Well Site Services $ 72.9 $ 52.9 $ 169.0 $ 131.7
Offshore Products 48.9 57.2 90.8 114.7
Tubular Services 100.4 53.5 166.6 102.7

Total $ 222.2 $ 163.6 $ 426.4 $ 349.1

Gross Margin
Well Site Services $ 23.2 $ 17.9 $ 53.0 $ 43.2
Offshore Products 9.9 15.2 17.1 27.6
Tubular Services 13.1 3.1 19.0 6.0

Total $ 46.2 $ 36.2 $ 89.1 $ 76.8

Gross Margin as a Percent of Revenues
Well Site Services 31.8 % 33.8 % 31.4 % 32.8 %
Offshore Products 20.2 % 26.6 % 18.8 % 24.1 %
Tubular Services 13.0 % 5.8 % 11.4 % 5.8 %
Total 20.8 % 22.1 % 20.9 % 22.0 %
Operating Income (Loss)
Well Site Services $ 10.2 $ 7.0 $ 27.7 $ 22.1
Offshore Products 2.8 8.5 2.0 14.1
Tubular Services 10.6 1.2 14.3 2.2
Corporate/Other (1.9 ) (1.5 ) (3.3 ) (2.8 )

Total $ 21.6 $ 15.2 $ 40.7 $ 35.6

~~THREE MONTHS ENDED ~~MARCH 31,~~JUNE 30, 2004 COMPARED TO THREE MONTHS ENDED ~~MARCH 31,~~JUNE 30, 2003 ~~REVENUES.~~~~

Revenues. Revenues increased ~~$18.6~~$58.6 million, or ~~10.0%~~35.8%, to ~~$204.2~~$222.2 million during the current quarter compared to revenues of ~~$185.6~~$163.6 million during the quarter ended ~~March 31,~~June 30, 2003. Tubular services revenues and tons shipped increased ~~$17.0~~$46.9 million, or ~~34.6%~~87.7%, and ~~10,700~~23.7 tons, or ~~18.9%~~38.9%, respectively, in the three months ended ~~March 31,~~June 30, 2004 compared to revenues and tons shipped in the three months ended ~~March 31,~~June 30, 2003 due to increased industry demand, ~~and~~ higher OCTG ~~prices.~~prices and contributions from the acquisition of the Hunting OCTG distribution business in May 2004. Well site services revenues increased ~~$17.3~~$20.0 million, or ~~22.0%~~37.8%, ~~and~~while offshore products revenues decreased ~~$15.7~~$8.3 million, or ~~27.3%~~14.5%, during the same period. Well site services revenues increased compared to the prior year due primarily to increased drilling activity in ~~Canada and~~ the United States, increased oil sands development in Canada, an international catering and facilities management contract, favorable Canadian dollar exchange rates, the impact of capital expenditures made since the ~~first~~second quarter of 2003 and acquisitions, totaling ~~$51.5~~$56.2 million, completed in the ~~last six months.~~fourth quarter of 2003 and in January and April of 2004. Offshore products revenues decreased as a result of lower activity supporting offshore production facility construction. ~~GROSS MARGIN.~~

Gross Margin. Our gross margins, which we calculate before a deduction for depreciation expense, increased ~~$2.3~~$10.0 million, or ~~5.7%~~27.6%, from ~~$40.6~~$36.2 million in the quarter ended ~~March 31,~~June 30, 2003 to ~~$42.9~~$46.2 million in the quarter ended ~~March 31,~~June 30, 2004. Our overall gross margin as a percent of revenues decreased from ~~21.9%~~22.1% in the ~~first~~second quarter of 2003 to ~~21.0%~~20.8% in the current quarter primarily because of a greater proportion of relatively low margin tubular services gross margins and lower offshore products gross ~~margins, offset by improvements in tubular services.~~margins. Well site services gross margins increased ~~$4.6~~$5.3 million, or ~~18.3%~~29.6%, to ~~$29.8~~$23.2 million in the quarter ended ~~March 31,~~June 30, 2004 compared to the quarter ended ~~March 31,~~June 30, 2003. Within our well site services segment, shallow drilling and specialty rental tool ~~businesses'~~businesses’ gross margins increased ~~$1.5~~$0.5 million, or ~~88.2%~~17.8%, and ~~$1.5~~$2.3 million, or ~~28.3%~~45.8%, respectively, during the quarter ended ~~March 31,~~June 30, 2004 compared to the quarter ended ~~March 31,~~June 30, 2003 as a result of ~~higher utilization~~the addition of ~~our~~two drilling rigs in our shallow drilling business and

contributions from rental tool acquisitions completed in the ~~last six months.~~fourth quarter of 2003 and in January and April 2004. Also in well site services, our work force accommodations, catering and logistics services and modular building construction services gross margins increased by ~~$3.2~~$1.7 million, or ~~21.3%~~21.7%, in the three months ended ~~March 31,~~June 30, 2004 compared to the three months ended ~~March 31,~~June 30, 2003 primarily because of increased camp and catering activity supporting oil sands development in Canada ~~partially offset by lower U.S. Gulf of Mexico accommodations~~ and an international catering ~~activity.~~and facilities management contract. Our hydraulic workover gross margins ~~decreased~~increased by ~~$1.6~~$0.8 million, or ~~50.0%~~34.5%, as a result of 14 ~~decreased~~increased utilization, especially in the U.S. Gulf of Mexico ~~the Middle East~~ and Venezuela. Our well site services gross margin percent decreased to ~~31.0%~~31.8% in the current quarter compared to ~~32.0%~~33.8% in the ~~first~~second quarter of last year as a result of lower gross margins in our rental tool and ~~hydraulic workover~~remote accommodation businesses ~~which were partially offset~~caused by product mix and decreased rental rates for some tools and equipment in our rental tool business and a greater amount of lower margin catering work in Canada compared to higher ~~land drilling gross~~ margin ~~percentage.~~accommodation rentals.

Offshore products gross margins decreased $5.3 million, or ~~42.4%~~34.9%, from ~~$12.5~~$15.2 million in the three months ended ~~March 31,~~June 30, 2003 to ~~$7.2~~$9.9 million in the three months ended ~~March 31,~~June 30, 2004 due to decreased activity and reduced fixed cost absorption. Additionally, offshore products margins were lower in the current period compared to last year due to lower activity levels and a less favorable mix of higher margin connector and other highly engineered products. These same factors were the primary reason that offshore products gross margin percent declined from ~~21.7%~~26.6% of revenues in the ~~first~~second quarter of 2003 to ~~17.2%~~20.2% in the ~~first~~second quarter of 2004.

Tubular services gross margins increased to ~~$5.9~~$13.1 million, or ~~8.9%~~13.0% of tubular services revenues, in the three months ended ~~March 31,~~June 30, 2004 compared to ~~$2.9~~$3.1 million, or ~~5.9%~~5.8% of tubular services revenues, in the three months ended ~~March 31,~~June 30, 2003 as a result of increased oil and gas drilling activity which increased demand for our tubular products and services, ~~and~~ a significant increase in OCTG prices during the ~~quarter. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.~~quarter and the acquisition of the OCTG distribution business of Hunting for $46.4 million in May 2004.

Selling, General and Administrative Expenses. During the three months ended ~~March 31,~~June 30, 2004, selling, general and administrative expenses (SG&A) totaled ~~$14.7~~$15.9 million, or ~~7.2%~~7.1% of revenues, compared to SG&A of ~~$13.8~~$14.0 million, or ~~7.4%~~8.5% of revenues, for the three months ended ~~March 31,~~June 30, 2003. Increased SG&A expense associated with acquisitions completed since the ~~first quarter of 2003, a non-recurring credit recorded to rent expense in the first~~second quarter of 2003 and higher ~~professional fees which~~postretirement benefit costs in the current year were ~~only~~ partially offset by lower commissions expense ~~and postretirement benefit costs~~ in 2004. ~~DEPRECIATION AND AMORTIZATION.~~

Depreciation and Amortization. Depreciation and amortization expense increased ~~$2.1~~$1.8 million in the ~~first~~second quarter 2004 compared to the ~~first~~second quarter 2003 due primarily to acquisitions of businesses completed in the ~~last six months~~fourth quarter of 2003 and in January and April of 2004 and capital expenditures made in the past year. ~~OPERATING INCOME.~~

Operating Income. Our operating income represents revenues less (i) cost of sales, (ii) selling, general and administrative expenses, (iii) depreciation and amortization expense, and (iv) other operating ~~expense.~~expense (income). Our operating income ~~decreased $1.2~~increased $6.4 million, or ~~5.9%~~42.1%, to ~~$19.1 million for the three months ended March 31, 2004 from $20.3~~$21.6 million for the quarter ended ~~March 31,~~June 30, 2004 from $15.2 million for the quarter ended June 30, 2003. Well site services operating income increased ~~$2.4~~$3.2 million during the period. Offshore products operating income decreased ~~$6.4~~$5.7 million while tubular services operating income increased ~~$2.9~~$9.3 million. ~~INTEREST EXPENSE.~~

Interest Expense. Interest expense was ~~at approximately the same level for~~higher by $0.1 million in the quarter ended ~~March 31,~~June 30, 2004 compared to the quarter ended ~~March 31,~~June 30, 2003. Increased interest expense attributable to higher debt levels resulting from acquisitions completed during the ~~quarter~~first half of 2004 were partially offset by lower debt issuance cost amortization compared to the prior period. ~~INCOME TAX EXPENSE.~~

Income Tax Expense. Income tax expense totaled ~~$1.5~~$8.0 million, or ~~8.6%~~39.8% of pretax income, during the quarter ended ~~March 31,~~June 30, 2004 compared to ~~$5.5~~$3.7 million, or ~~29.0%~~26.4% of pretax income, during the quarter ended ~~March 31,~~June 30, 2003. See ~~"Tax Matters"~~“Tax Matters” discussion following. ~~LIQUIDITY AND CAPITAL RESOURCES~~

~~SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO SIX MONTHS ENDED JUNE 30, 2003~~

Revenues. Revenues increased $77.3 million, or 22.1%, to $426.4 million during the first half of 2004 compared to revenues of $349.1 million during the six months ended June 30, 2003. Tubular services revenues and tons shipped increased $63.9 million, or 62.2%, and 34,600 tons, or 29.3%, respectively, in the six months ended June 30, 2004 compared to revenues and tons shipped in the six months ended June 30, 2003 due to increased industry demand, higher OCTG prices, and contributions from the acquisition of the Hunting OCTG distribution business in May 2004. Well site services revenues increased $37.3 million, or 28.3%, while offshore products revenues decreased $23.9 million, or 20.8%, during the same period. Well site services revenues increased compared to the prior year due primarily to increased drilling activity in the United States, increased oil sands development in Canada, an international catering and facilities management contract, favorable Canadian dollar exchange rates, the impact of capital expenditures made since the first half of 2003 and acquisitions, totaling $56.2 million, completed in the fourth quarter of 2003 and in January and April of 2004. Offshore products revenues decreased as a result of lower activity supporting offshore production facility construction.

Gross Margin. Our gross margins, which we calculate before a deduction for depreciation expense, increased $12.3 million, or 16.0%, from $76.8 million in the six months ended June 30, 2003 to $89.1 million in the six months ended June 30, 2004. Our overall gross margin as a percent of revenues decreased from 22.0% in the first half of 2003 to 20.9% in the first half of 2004 primarily because of a greater proportion of relatively low tubular services gross margins and lower offshore products gross margins. Well site services gross margins increased $9.8 million, or 22.7%, to $53.0 million in the six months ended June 30, 2004 compared to the six months ended June 30, 2003. Within our well site services segment, our shallow drilling and specialty rental tool businesses’ gross margins increased $1.9 million, or 42.7%, and $3.9 million, or 37.4%, respectively, during the six months ended June 30, 2004 compared to the first half of 2003 as a result of the addition of two drilling rigs in our shallow drilling business, higher utilization for all of our drilling rigs and contributions from rental tool acquisitions completed in the fourth quarter of 2003 and in January and April 2004. Also in well site services, our work force accommodations, catering and logistics services and modular building construction services gross margins increased by $4.9 million, or 21.4%, in the six months ended June 30, 2004 compared to the six months ended June 30, 2003 primarily because of increased camp and catering activity supporting oil sands development in Canada and an international catering and facilities management contract. Our hydraulic workover gross margins decreased by $0.8 million, or 15.3%, as a result of decreased utilization, especially in West Africa and the Middle East. Our well site services gross margin percent decreased to 31.4% in the six months ended June 30, 2004 compared to 32.8% in the six months ended June 30, 2003 as a result of lower gross margins in our rental tool and hydraulic workover businesses caused by product mix and decreased rental rates for some tools and equipment in our rental tool business and lower utilization of our hydraulic workover units.

Offshore products gross margins decreased $10.5 million, or 38.0%, from $27.6 million in the six months ended June 30, 2003 to $17.1 million in the six months ended June 30, 2004 due to decreased activity and reduced fixed cost absorption. Additionally, offshore products margins were lower in the current period compared to last year due to lower activity levels and a less favorable mix of higher margin connector and other highly engineered products. These same factors were the primary reason that offshore products gross margin percent declined from 24.1% of revenues in the first half of 2003 to 18.8% in the first half of 2004.

Tubular services gross margins increased to $19.0 million, or 11.4% of tubular services revenues, in the six months ended June 30, 2004 compared to $6.0 million, or 5.8% of tubular services revenues, in the six months ended June 30, 2003 as a result of increased oil and gas drilling activity which increased demand for our tubular products and services, a significant increase in OCTG prices during the quarter and the acquisition of the OCTG distribution business of Hunting for $46.4 million in May 2004.

Selling, General and Administrative Expenses. During the six months ended June 30, 2004, selling, general and administrative expenses (SG&A) totaled $30.6 million, or 7.2% of revenues, compared to SG&A of $27.7 million, or 7.9% of revenues, for the six months ended June 30, 2003. Increased SG&A expense associated with acquisitions completed since the first half of 2003 and higher postretirement benefit costs in the current year were partially offset by lower commissions expense in 2004.

Depreciation and Amortization. Depreciation and amortization expense increased $3.9 million in the first half of 2004 compared to the first half of 2003 due primarily to acquisitions of businesses completed since the first half of 2003 and capital expenditures made in the past year.

Operating Income. Our operating income represents revenues less (i) cost of sales, (ii) selling, general and administrative expenses, (iii) depreciation and amortization expense, and (iv) other operating expense (income). Our operating income increased $5.1 million, or 14.3%, to $40.7 million for the six months ended June 30, 2004 from $35.6 million for the six months ended June 30, 2003. Well site services operating income increased $5.6 million during the period. Offshore products operating income decreased $12.1 million while tubular services operating income increased $12.1 million.

Interest Expense. Interest expense was higher by $0.1 million in the six months ended June 30, 2004 compared to the six months ended June 30, 2003. Increased interest expense attributable to higher debt levels resulting from acquisitions completed during the first half of 2004 were only partially offset by lower debt issuance cost amortization compared to the prior period.

Income Tax Expense. Income tax expense totaled $9.6 million, or 25.2% of pretax income, during the six months ended June 30, 2004 compared to $9.1 million, or 27.9% of pretax income, during the six months ended June 30, 2003. See “Tax Matters” discussion following.

~~Liquidity and Capital Resources~~

Our primary liquidity needs are to fund capital expenditures, such as expanding and upgrading our manufacturing facilities and equipment, increasing and replacing our drilling rig, rental tool and workover assets, and our accommodation units, funding new product development and funding 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 and proceeds from borrowings under our bank facilities. 15

Cash was provided by operations during the ~~three~~six months ended ~~March 31,~~June 30, 2004 and 2003 in the amounts of ~~$5.1~~$58.4 million and ~~$1.3~~$21.0 million, respectively. Cash provided by operations in 2004 was generated by our net income plus depreciation and amortization ~~which was partially offset by higher~~and positive working capital ~~invested in our Canadian remote accommodations and catering operations.~~changes during 2004.

Cash was used in investing activities during the ~~three~~six months ended ~~March 31,~~June 30, 2004 and 2003 in the amount of ~~$41.6~~$98.8 million and ~~$5.7~~$15.3 million, respectively. Capital expenditures totaled ~~$8.9~~$20.8 million and ~~$5.7~~$15.4 million during the ~~three~~six months ended ~~March 31,~~June 30, 2004 and 2003, respectively. Capital expenditures in both years consisted principally of purchases of assets for our well site services businesses and for expansion of our offshore products manufacturing capacity. Acquisitions totaled ~~$32.9~~$79.4 million during the ~~three~~six months ended ~~March 31,~~June 30, 2004. During the first ~~quarter~~half of 2004, the Company completed the acquisition of several ~~related~~ rental tool companies, requiring a net cash payment of ~~$32.9~~$37.6 million. These companies have been merged into our rental tool subsidiary, and will report through the well site services segment. In addition, we acquired the OCTG distribution business of Hunting which required a cash outlay of $41.7 million in May 2004. We currently expect capital expenditures to ~~spend a~~ total of approximately ~~$35.0~~$55 million to $60 million during 2004 for maintenance and upgrade of our equipment and facilities and also to expand our product and service offerings. We expect to fund these capital expenditures with internally generated funds and proceeds from borrowings under our revolving credit facilities.

Net cash of ~~$38.1~~$44.2 million was provided by financing activities during the ~~three~~six months ended ~~March 31,~~June 30, 2004, primarily as a result of revolving credit borrowings which were utilized for acquisitions.

Our primary bank credit facility (the Credit Agreement) ~~provides~~provided for $225 million of revolving ~~credit. We have~~credit until May 2004 when we exercised an option to increase the maximum borrowings under the Credit Agreement to $250 ~~million prior to its maturity~~million. This credit facility matures on October 30, 2007. The Credit Agreement contains customary financial covenants and restrictions, including restrictions on our ability to declare and pay dividends. Borrowings under the Credit Agreement are secured by a pledge of substantially all of our assets and the assets of our subsidiaries, and our obligations under the Credit Agreement are guaranteed by our significant subsidiaries. Borrowings under the Credit Agreement accrue interest at a rate equal to either LIBOR or another benchmark interest rate (at our election) plus an applicable margin based on our leverage ratio (as defined in the Credit Agreement). We must pay a quarterly commitment fee, based on ~~the Company's~~our leverage ratio, on the unused commitments under the Credit Agreement.

As of ~~March 31,~~June 30, 2004, we had ~~$167.0~~$171.0 million outstanding under the Credit Agreement and an additional ~~$11.4~~$11.1 million of outstanding letters of credit, leaving ~~$46.6~~$67.9 million available to be drawn under the facility. In addition, we have other floating rate bank credit facilities in the U.S. and the U.K. that provide for an additional aggregate borrowing capacity of $14.1 million. We had no borrowings outstanding under these facilities as of ~~March 31,~~June 30, 2004. Our total debt represented ~~27.1%~~27.5% of our total capitalization at ~~March 31,~~June 30, 2004. A total of $4.7 million of the consideration for the Hunting OCTG business acquisition is payable to the seller in the third quarter of 2004. This payment to Hunting, which is subject to adjustment in certain circumstances, is expected to be paid from operating cash flow or by utilizing our bank credit facility.

We believe that cash from operations and available borrowings under our credit facilities will be sufficient to meet our liquidity needs for the foreseeable future. The Company is currently negotiating a small strategic business acquisition that is probable of closing in the near term. Our borrowing capacity under the Credit Agreement, upon electing our option to increase the maximum borrowings to $250 million as discussed above, will be sufficient to fund the acquisition if it were to occur. If our plans or assumptions change or are inaccurate, or we make further 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. ~~TAX MATTERS~~

~~Tax Matters~~

Our primary deferred tax asset, which totaled approximately $22.1 million at December 31, 2003, is primarily related to $63.2 million in federal net operating loss carryforwards, or NOLs, as of that date. A valuation allowance of approximately $12 million was provided against the deferred tax asset associated with our NOLs at December 31, 2003. The NOLs will expire in varying amounts during the years 2008 through 2020 if they are not first used to offset taxable income ~~generated by the Company. The Company's~~that we generate. Our ability to utilize a significant portion of the NOLs is currently limited under Section 382 of the Internal Revenue Code due to a change of control that occurred during 1995. A successive change in control was triggered in 2003 pursuant to Section 382; however, it did not significantly change ~~the Company's~~our NOL utilization expectations. 16 ~~The Company's~~

Our income tax provision for the six months ended June 30, 2004 totaled $9.6 million, or 25.2% of pretax income. Our income tax provision for the three months ended ~~March 31,~~June 30, 2004 totaled ~~$1.5~~$8.0 million, or ~~8.61%~~39.8% of pretax income. ~~Included in the first quarter~~The six month June 30, 2004 income tax provision isincluded a $5.4 million income tax benefit recorded in the first quarter related to the partial reversal of the ~~$12 million~~ valuation allowance applied against NOLs ~~thereby leaving a remaining valuation allowance~~which were recorded as of ~~$6.6 million at March 31, 2004.~~the prior year end. Based upon ~~the~~ positive earnings that ~~the Company has~~we have generated for both financial and tax reporting purposes during the three-year period since ~~its~~our formation, ~~the Company believes~~we believed that ~~it will~~we would more likely than not generate sufficient taxable income in future years to realize the benefit of all but $6.6 million of the deferred tax asset associated with these net operating losses. Following the recognition of the $5.4 million income tax benefit during the first quarter, ~~the Company has~~we have recognized the associated income tax benefit, on a cumulative basis, of approximately $44.2 million of ~~its~~our $63.2 million of available federal net operating loss carryforwards.

We currently estimate that our effective tax rate for the full year 2004 will approximate ~~30.0%~~32.3%. Our actual effective tax rate could differ materially from this estimate, which is subject to a number of uncertainties, including future taxable income projections, the amount of income attributable to domestic versus foreign sources, the amount of capital expenditures and any changes in applicable tax laws and regulations. Based upon the loss limitation provisions of Section 382, we should be able to utilize approximately $29 million of our NOLs to offset taxable income ~~generated by the Company~~that we generate during the tax year ended December 31, 2004. ~~RECENT ACCOUNTING PRONOUNCEMENTS~~

~~Recent Accounting Pronouncements~~

In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46 (FIN 46), ~~"Consolidation~~“Consolidation of Variable Interest Entities, an interpretation of ARB No. 51."” FIN 46 provides guidance on: 1) the identification of entities for which control is achieved through means other than through voting rights, known as ~~"variable~~“variable interest ~~entities"~~entities” (VIEs); and 2) which business enterprise is the primary beneficiary and when it should consolidate a VIE. This new requirement for consolidation applies to entities: 1) where the equity investors (if any) do not have a controlling financial interest; or 2) whose equity investment at risk is insufficient to finance that ~~entity's~~entity’s activities without receiving additional subordinated financial support from other parties. In addition, FIN 46 requires that both the primary beneficiary and all other enterprises with a significant variable interest in a VIE make additional disclosures. FIN 46 is effective for all new VIEs created or acquired after January 31, 2003. For VIEs created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period ending after December 15, 2003. Certain disclosures are effective immediately. Implementation of FIN 46 did not affect ~~the Company.~~ us.

~~ITEM 3. ~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~ 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 ~~March 31,~~June 30, 2004, we had floating rate obligations totaling approximately ~~$167.0~~$171.0 million for amounts borrowed under our revolving credit facilities. These floating-rate obligations expose us to the risk of increased interest expense in the event of increases in short-term interest rates. If the floating interest rate were to increase by 1% from ~~March 31,~~June 30, 2004 levels, our consolidated interest expense would increase by a total of approximately $1.7 million annually.

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 movements in foreign currency exchange rates when transactions are denominated in currencies other than the U.S. dollar, which is our functional currency, or the functional currency of our subsidiaries, which is not necessarily the U.S. dollar. 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. During the first ~~quarter~~half of 2004, we realized foreign exchange losses of ~~$0.5~~$0.4 million primarily as a result of the strengthening of the UK pound versus the U.S. dollar. Our UK subsidiary had unhedged U.S. dollar denominated receivables and U.S. dollar cash balances that resulted in the majority of our foreign exchange losses during the ~~quarter. 17~~ first half of 2004.

~~ITEM 4. ~~CONTROLS AND PROCEDURES~~Controls and Procedures~~

As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of ~~March 31,~~June 30, 2004 in ensuring that material information was 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. During the three months ended ~~March 31,~~June 30, 2004, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934) or in other factors which have materially affected our internal control over financial reporting, or are reasonably likely to materially affect our internal control over financial reporting. 18

~~PART II --— OTHER INFORMATION~~

~~ITEM 1. LEGAL PROCEEDINGS~~

ITEM 2. CHANGES IN SECURITIES, ~~AND~~ USE OF PROCEEDS ~~(e)~~AND ISSUER PURCHASES OF EQUITY SECURITIES ~~The following table set forth certain information with respect to repurchases of our equity securities during the three months ended March 31, 2004:~~
- ------------------------------------------------------------------------------------------------------------------ (a) TOTAL (c) TOTAL NUMBER OF SHARES (d) MAXIMUM NUMBER (OR NUMBER OF (b) AVERAGE PURCHASED AS PART OF APPROXIMATE DOLLAR VALUE) OF SHARES PRICE PAID PUBLICLY ANNOUNCED PLANS SHARES THAT MAY YET BE PURCHASED PERIOD PURCHASED PER SHARE OR PROGRAMS UNDER THE PLANS OR PROGRAMS - ------------------------------------------------------------------------------------------------------------------ Month #1 (January 1 to -- -- -- -- January 31, 2004) - ------------------------------------------------------------------------------------------------------------------ Month #2 (February 1 to 10,000* $13.90 -- -- February 29, 2004) - ------------------------------------------------------------------------------------------------------------------ Month #3 (March 1 to -- -- -- -- March 31, 2004) - ------------------------------------------------------------------------------------------------------------------ Total 10,000 $13.90 -- -- - ------------------------------------------------------------------------------------------------------------------
- ---------- * We repurchased all of such shares from Mr. Douglas E. Swanson, our Chief Executive Officer, pursuant to a provision in our 2001 Equity Participation Plan allowing the recipient of a restricted stock award to return the number of shares having the fair value equal to tax withholding due. The purpose of the repurchase was solely to assist Mr. Swanson in the satisfaction of tax liabilities he incurred in connection with the vesting of shares of restricted stock in February 2004.

~~None~~

~~ITEM 3. DEFAULTS UPON SENIOR SECURITIES~~

~~None~~

~~ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ~~None~~~~

The Company’s Annual Meeting of Stockholders was held on May 18, 2004 (1) to elect three Class III members of the Board of Directors to serve for three-year terms and (2) to ratify the appointment of Ernst & Young LLP as independent accountants for the year ended December 31, 2004.

The three Class III directors who were so elected were Martin Lambert, Mark G. Papa and Stephen A. Wells. The number of affirmative votes and the number of votes withheld for the directors so elected were:

Names
Number of Affirmative Votes
Number Withheld
Martin Lambert 46,438,815 124,565
Mark G. Papa 46,480,529 82,854
Stephen A. Wells 46,379,032 184,351

~~Following the annual meeting L.E. Simmons, Douglas E. Swanson, Gary L. Rosenthal and Andrew L. Waite continued in their terms as directors.~~

~~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
46,329,953 228,716 4,714

~~ITEM 5. OTHER INFORMATION~~

~~None~~

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) 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). 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 to the Company's Registration Statement on Form S-1 (File No. 333-43400)). 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). 19 4.3 - First Amendment to the Amended and Restated Registration Rights Agreement dated May 17, 2002 (incorporated by reference to Exhibit 4.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 2002, as filed with the Commission on March 13, 2003). 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 to the Company's Registration Statement on Form S-1 (File No. 333-43400)). 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** - Deferred Compensation Plan effective November 1, 2003. (incorporated by reference to Exhibit 10.6 to the Company's Annual Report on Form 10-K for the year ended December 31, 2003, as filed with the Commission on March 5, 2004). 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 Named Executive Officer (Mr. Hughes) (incorporated by reference to Exhibit 10.10 of the Company's Registration Statement on Form S-1 (File No. 333-43400)). 10.11** - Form of Change of Control Severance Plan for Selected Members of Management (incorporated by reference to Exhibit 10.11 of the Company's Registration Statement on Form S-1 (File No. 333-43400)). 10.12 - Credit Agreement, dated as of October 30, 2003, among Oil States International, Inc., the Lenders named therein and Wells Fargo Bank Texas, National Association, as Administrative Agent and U.S. Collateral Agent; and Bank of Nova Scotia, as Canadian Administrative Agent and Canadian Collateral Agent; Hibernia National Bank and Royal Bank of Canada, as Co-Syndication Agents and Bank One, NA and Credit Lyonnais New York Branch, as Co-Documentation Agents (incorporated by reference to Exhibit 10.12 to the Company's Quarterly Report on Form 10Q for the three months ended September 30, 2003, as filed with the Commission on November 11, 2003.) 20 10.13A** - Restricted Stock Agreement, dated February 8, 2001, between Oil States International, Inc. and Douglas E. Swanson (incorporated by reference to Exhibit 10.13A 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, 2001). 10.13B** -

(a) 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).

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 to the Company’s Registration Statement on Form S-1 (File No. 333-43400)).

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).

4.3	—	First Amendment to the Amended and Restated Registration Rights Agreement dated May 17, 2002 (incorporated by reference to Exhibit 4.3 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002, as filed with the Commission on March 13, 2003).

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 to the Company’s Registration Statement on Form S-1 (File No. 333-43400)).

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**	—	Deferred Compensation Plan effective November 1, 2003. (incorporated by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003, as filed with the Commission on March 5, 2004).

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


Exhibit No.		Description
		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 Named Executive Officer (Mr. Hughes) (incorporated by reference to Exhibit 10.10 of the Company’s Registration Statement on Form S-1 (File No. 333-43400)).

10.11**	—	Form of Change of Control Severance Plan for Selected Members of Management (incorporated by reference to Exhibit 10.11 of the Company’s Registration Statement on Form S-1 (File No. 333-43400)).

10.12	—	Credit Agreement, dated as of October 30, 2003, among Oil States International, Inc., the Lenders named therein and Wells Fargo Bank Texas, National Association, as Administrative Agent and U.S. Collateral Agent; and Bank of Nova Scotia, as Canadian Administrative Agent and Canadian Collateral Agent; Hibernia National Bank and Royal Bank of Canada, as Co-Syndication Agents and Bank One, NA and Credit Lyonnais New York Branch, as Co-Documentation Agents (incorporated by reference to Exhibit 10.12 to the Company’s Quarterly Report on Form 10Q for the three months ended September 30, 2003, as filed with the Commission on November 11, 2003.)

10.12A*	—	Incremental Assumption Agreement, dated as of May 10, 2004, among Oil States International, Inc., Wells Fargo, National Association and each of the other lenders listed as an Increasing Lender.

10.13A**	—	Restricted Stock Agreement, dated February 8, 2001, between Oil States International, Inc. and Douglas E. Swanson (incorporated by reference to Exhibit 10.13A 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, 2001).

10.13B**	—	Restricted Stock Agreement, dated February 22, 2001, between Oil States International, Inc. and Douglas E. Swanson (incorporated by reference to Exhibit 10.13B 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).

10.14**	—	Form of Indemnification Agreement (incorporated by reference to Exhibit 10.14 of the Company’s Registration Statement on Form S-1 (File No. 333-43400)).

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 10-K for the year ended December 31, 2001, as filed with the Commission on March 1, 2002).

10.16**	—	Douglas E. Swanson contingent option award dated as of February 11, 2002 (incorporated by reference to Exhibit 10.17 to the Company’s Quarterly Report on Form 10-Q for the three months ended September 30, 2002 as filed with the Commission on November 13, 2002).

10.17**	—	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 June 30, 2002, as filed with the Commission on August 13, 2002).

31.1*	—	Certification of Chief Executive Officer of Oil States International, Inc. pursuant to Rules 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934.

31.2*	—	Certification of Chief Financial Officer of Oil States International, Inc. pursuant to Rules 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934.

32.1***	—	Certification of Chief Executive Officer of Oil States International, Inc. pursuant to Rules 13a-14(b) or 15d-14(b) under the Securities Exchange Act of 1934.

22 2001, between Oil States International, Inc. and Douglas E. Swanson (incorporated by reference to Exhibit 10.13B 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). 10.14** - Form of Indemnification Agreement (incorporated by reference to Exhibit 10.14 of the Company's Registration Statement on Form S-1 (File No. 333-43400)). 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 10-K for the year ended December 31, 2001, as filed with the Commission on March 1, 2002). 10.16** - Douglas E. Swanson contingent option award dated as of February 11, 2002 (incorporated by reference to Exhibit 10.17 to the Company's Quarterly Report on Form 10-Q for the three months ended September 30, 2002 as filed with the Commission on November 13, 2002). 10.17** - 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 June 30, 2002, as filed with the Commission on August 13, 2002). 31.1* - Certification of Chief Executive Officer of Oil States International, Inc. pursuant to Rules 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934. 31.2* - Certification of Chief Financial Officer of Oil States International, Inc. pursuant to Rules 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934. 32.1*** - Certification of Chief Executive Officer of Oil States International, Inc. pursuant to Rules 13a-14(b) or 15d-14(b) under the Securities Exchange Act of 1934. 32.2*** - Certification of Chief Financial Officer of Oil States International, Inc. pursuant to Rules 13a-14(b) or 15d-14(b) under the Securities Exchange Act of 1934. - --------- * Filed herewith ** Management contracts or compensatory plans or arrangements *** Furnished herewith. (b) REPORTS ON FORM 8-K. (1) Form 8-K filed February 3, 2004 - Item 12. Results of Operations and Financial Condition (Quarter and Year ended December 31, 2003 Earnings Press Release) (2) Form 8-K filed April 29, 2004 - Item 12. Results of Operations and Financial Condition (Quarter ended March 31, 2004 Earnings Press Release) 21


Exhibit No.		Description
32.2***	—	Certification of Chief Financial Officer of Oil States International, Inc. pursuant to Rules 13a-14(b) or 15d-14(b) under the Securities Exchange Act of 1934.

*		Filed herewith

**		Management contracts or compensatory plans or arrangements

***		Furnished herewith.

(b) REPORTS ON FORM 8-K.

(1) Form 8-K filed April 29, 2004 – Item 12. Results of Operations and Financial Condition (Quarter ended March 31, 2004 Earnings Press Release)

~~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. Date: May 7, 2004 By /s/ CINDY B. TAYLOR ------------------------------------- Cindy B. Taylor Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) Date: May 7, 2004 By /s/ ROBERT W. HAMPTON ------------------------------ Robert W. Hampton Vice President - Finance and Accounting and Secretary (Principal Accounting Officer) 22 ~~EXHIBIT~~


	OIL STATES INTERNATIONAL, INC.

Date: August 4, 2004	By	/s/ CINDY B. TAYLOR

		Cindy B. Taylor
		Senior Vice President, Chief Financial Officer and
		Treasurer (Principal Financial Officer)

Date: August 4, 2004	By	/s/ ROBERT W. HAMPTON

		Robert W. Hampton
		Vice President — Finance and Accounting and
		Secretary (Principal Accounting Officer)

INDEX Exhibit No. Description 31.1* - Certification of Chief Executive Officer of Oil States International, Inc. pursuant to Rules 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934. 31.2* - Certification of Chief Financial Officer of Oil States International, Inc. pursuant to Rules 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934. 32.1*** - Certification of Chief Executive Officer of Oil States International, Inc. pursuant to Rules 13a-14(b) or 15d-14(b) under the Securities Exchange Act of 1934. 32.2*** - Certification of Chief Financial Officer of Oil States International, Inc. pursuant to Rules 13a-14(b) or 15d-14(b) under the Securities Exchange Act of 1934.


(Mark One)
[X]		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended June 30, 2004

		OR

[ ]		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the transition period fromto


Delaware		76-0476605

(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

Three Allen Center, 333 Clay Street, Suite 3460,		77002
Houston, Texas
		(Zip Code)
(Address of principal executive offices)


	Page No.
Part I --— FINANCIAL INFORMATION ~~PAGE NO. --------~~
Item 1. Financial Statements:
Condensed Consolidated Financial Statements
Unaudited Condensed Consolidated Statements of Income for the Three and Six Months Ended ~~March 31,~~June 30, 2004 and 2003		3
Consolidated Balance Sheets ~~- March 31,~~–June 30, 2004 (unaudited) and December 31, 2003		4
Unaudited Condensed Consolidated Statements of Cash Flows for the ~~Three~~Six Months Ended ~~March 31,~~June 30, 2004 and 2003		5
Notes to Unaudited Condensed Consolidated Financial Statements ~~6 -~~		6–10
Item 2. ~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations ~~11 - 17~~		11–18
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17		19
Item 4. Controls and Procedures 18		19
Part II --— OTHER INFORMATION		20
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds 19		20
Item 3. Default Upon Senior Securities 19		20
Item 4. Submission of Matters to a Vote of Security Holders 19		20
Item 5. Other Information 19		20
Item 6. Exhibits and Reports on Form 8-K 19		21
(a) Index of Exhibits ~~19 - 21~~		21–23
(b) Report on Form 8-K 21		23
Signature Page ~~and Certifications 22 - 26~~		24
Incremental Assumption Agreement
Certification of CEO pursuant to Rules 13a-14a/15d-14a
Certification of CFO pursuant to Rules 13a-14a/15d-14a
Certification of CEO pursuant to Rules 13a-14b/15d-14b
Certification of CFO pursuant to Rules 13a-14b/15d-14b


	THREE MONTHS ENDED						SIX MONTHS ENDED
	JUNE 30,						JUNE 30,
	2004			2003			2004			2003
Revenues	$	222,182		$	163,564		$	426,372		$	349,141
Costs and expenses:
Cost of sales		176,015			127,331			337,313			272,298
Selling, general and administrative expenses		15,883			13,977			30,573			27,731
Depreciation and amortization expense		8,744			6,911			17,316			13,369
Other operating expense (income)		(107	)		114			425			166

		200,535			148,333			385,627			313,564

Operating income		21,647			15,231			40,745			35,577
Interest income		75			92			156			162
Interest expense		(1,822	)		(1,675	)		(3,470	)		(3,366	)
Other income		292			157			437			262

Income before income taxes		20,192			13,805			37,868			32,635
Income tax expense		(8,037	)		(3,651	)		(9,556	)		(9,112	)

Net income	$	12,155		$	10,154		$	28,312		$	23,523

Earnings per share:
Basic	$	.25		$	.21		$	.58		$	.49
Diluted	$	.24		$	.21		$	.57		$	.48
Weighted average number of common shares outstanding:
Basic		49,248			48,527			49,189			48,495
Diluted		49,869			49,153			49,812			49,126


	SIX MONTHS ENDED JUNE 30,
	2004			2003
Cash flows from operating activities:
Net income	$	28,312		$	23,523
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		17,316			13,369
Deferred income tax provision (benefit)		(2,645	)		193
Other, net		941			937
Changes in working capital		14,506			(17,052	)

Net cash flows provided by operating activities		58,430			20,970
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired		(79,371	)		(288	)
Capital expenditures		(20,836	)		(15,393	)
Proceeds from sale of equipment		1,446			415
Other, net		(1	)		(3	)

Net cash flows used in investing activities		(98,762	)		(15,269	)
Cash flows from financing activities:
Revolving credit borrowings (repayments)		42,681			(3,556	)
Borrowings		102			—
Debt repayments		(506	)		(491	)
Issuance of common stock		2,156			636
Other, net		(220	)		(412	)

Net cash flows provided by (used in) financing activities		44,213			(3,823	)
Effect of exchange rate changes on cash		(112	)		1,211

Net increase in cash and cash equivalents from continuing operations		3,769			3,089
Net cash used in discontinued operations		(366	)		(168	)
Cash and cash equivalents, beginning of period		19,318			11,118

Cash and cash equivalents, end of period	$	22,721		$	14,039

Non-cash financing activities:
Short term borrowing for tubular services acquisition	$	4,675		$	—


	Average Rig Count for the Year Ended
	December 31,
	2003		2002		2001		2000		1999
Land		924		718		1,003		778		518
Offshore		108		113		153		140		106

Total U.S		1,032		831		1,156		918		624

Canada (1)		372		266		341		345		245

North America		1,404		1,097		1,497		1,263		869


	Average Rig Count for the				Average Rig Count for the
	Three Months Ended June 30,				Six Months Ended June 30,
	2004		2003		2004		2003
Land		1,069		919		1,045		856
Offshore		95		109		96		109

Total U.S.		1,164		1,028		1,141		965

Canada (1)		201		203		365		348

North America		1,365		1,231		1,506		1,313


Names	Number of Affirmative Votes		Number Withheld
Martin Lambert		46,438,815		124,565
Mark G. Papa		46,480,529		82,854
Stephen A. Wells		46,379,032		184,351


Number of Affirmative Votes	Number of Negative Votes		Abstentions
46,329,953		228,716		4,714