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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to ___________________
Commission file number 1-16337
OIL STATES INTERNATIONAL, INC.
---------------
(Exact name of registrant as specified in its charter)
Delaware 76-0476605
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Three Allen Center, 333 Clay Street, Suite 3460, 77002
Houston, Texas (Zip Code)
- -----------------------------------------------------
(Address of principal executive offices)
(713) 652-0582
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
None
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b - 2 of the Exchange Act).
YES [X] NO [ ]
The Registrant had 48,569,910 shares of common stock outstanding as of April 30,
2003.
OIL STATES INTERNATIONAL, INC.
INDEX
PAGE NO.
--------
Part I -- FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Financial Statements Unaudited Consolidated Statements
of Income for the Three Months Ended March 31, 2003 and 2002 3
Consolidated Balance Sheets -- March 31, 2003 (unaudited) and December 31, 2002 4
Unaudited Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2003 and 2002 5
Notes to Unaudited Consolidated Financial Statements 6 - 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 - 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
Item 4. Controls and Procedures 15
Part II -- OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Default Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 17
(a) Index of Exhibits 17 - 19
(b) Report on Form 8-K 19
Signature Page and Certifications 20 - 24
2
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
THREE MONTHS ENDED MARCH 31,
-------------------------------
2003 2002
---------- ----------
Revenues................................................. $ 185,577 $ 150,600
Costs and expenses:
Cost of sales.......................................... 144,968 120,153
Selling, general and administrative expenses........... 13,753 12,228
Depreciation and amortization expense.................. 6,458 5,308
Other operating income................................. 52 (283)
---------- ----------
165,231 137,406
---------- ----------
Operating income......................................... 20,346 13,194
Interest income.......................................... 70 108
Interest expense......................................... (1,691) (1,047)
Other income ............................................ 107 314
---------- ----------
Income before income taxes and minority interest......... 18,832 12,569
Income tax expense....................................... (5,461) (2,766)
Minority interest in income of consolidated subsidiaries. (2) 5
---------- ----------
Net income............................................... $ 13,369 $ 9,808
========== ==========
Earnings per share:
Basic.................................................... $ .28 $ .20
Diluted.................................................. $ .27 $ .20
Weighted average number of common shares outstanding:
Basic.................................................... 48,463 48,233
Diluted.................................................. 49,099 48,637
The accompanying notes are an integral part of these
financial statements.
3
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
MARCH 31, DECEMBER 31,
ASSETS 2003 2002
---------- -----------
(UNAUDITED)
Current assets:
Cash and cash equivalents............................... $ 6,611 $ 11,118
Accounts receivable, net................................ 138,012 116,875
Inventories, net........................................ 121,993 118,338
Prepaid expenses and other current assets............... 9,033 9,475
---------- ----------
Total current assets.................................. 275,649 255,806
Property, plant, and equipment, net....................... 168,629 167,146
Goodwill, net............................................. 214,297 213,051
Other noncurrent assets................................... 9,209 8,213
---------- ----------
Total assets.......................................... $ 667,784 $ 644,216
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities................ $ 85,857 $ 84,049
Income taxes............................................ 4,072 1,229
Current portion of long-term debt....................... 866 913
Deferred revenue........................................ 9,602 8,949
Other current liabilities............................... 1,329 1,402
---------- ----------
Total current liabilities............................. 101,726 96,542
Long-term debt.......................................... 133,234 133,292
Deferred income taxes................................... 18,881 18,303
Postretirement healthcare benefits...................... 5,268 5,280
Other liabilities....................................... 4,019 3,220
---------- ----------
Total liabilities..................................... 263,128 256,637
Stockholders' equity:
Common stock............................................ 486 485
Additional paid-in capital.............................. 327,889 327,801
Retained earnings....................................... 77,755 64,386
Accumulated other comprehensive loss.................... (1,243) (4,921)
Treasury stock.......................................... (231) (172)
---------- ----------
Total stockholders' equity............................ 404,656 387,579
---------- ----------
Total liabilities and stockholders' equity............ $ 667,784 $ 644,216
========== ==========
The accompanying notes are an integral part of these
financial statements.
4
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
THREE MONTHS ENDED MARCH 31,
------------------------------
2003 2002
-------- --------
Cash flows from operating activities:
Net income...................................................... $ 13,369 $ 9,808
Adjustments to reconcile net income to net cash from
operating activities:
Provision for loss on accounts receivable..................... 159 48
Depreciation and amortization................................. 6,458 5,308
Deferred income tax provision (benefit)....................... 178 (909)
Other, net.................................................... 206 760
Changes in working capital.................................... (19,064) 7,169
-------- --------
Net cash flows provided by operating activities............. 1,306 22,184
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired................ (236) (1,405)
Capital expenditures............................................ (5,689) (3,568)
Proceeds from sale of equipment................................. 202 573
Other, net...................................................... -- 32
-------- --------
Net cash flows used in investing activities................. (5,723) (4,368)
Cash flows from financing activities:
Revolving credit borrowings (repayments)........................ (147) (15,965)
Debt repayments................................................. (252) (3,559)
Issuance of common stock........................................ 259 15
Other, net...................................................... (394) (43)
-------- --------
Net cash flows used in financing activities................. (534) (19,552)
Effect of exchange rate changes on cash........................... 488 253
-------- --------
Net increase in cash and cash equivalents from continuing operations (4,463) (1,483)
Net cash provided by (used in) discontinued operations............ (44) (163)
Cash and cash equivalents, beginning of period.................... 11,118 4,982
-------- --------
Cash and cash equivalents, end of period.......................... $ 6,611 $ 3,336
======== ========
The accompanying notes are an integral part of these
consolidated financial.
5
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying unaudited consolidated financials 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 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 shares outstanding include all shares issuable upon the
exercise of exchangeable shares of one of the Company's Canadian subsidiaries.
The calculation of diluted earnings per share include the effect of the
Company's outstanding stock options determined under the treasury stock method.
All unvested restricted stock awards under the Company's Equity Participation
Plan are included in the fully diluted shares.
From time to time, new accounting pronouncements are issued by the
Financial Accounting Standards Board (the "FASB") which are adopted by the
Company as of the specified effective date. Unless otherwise discussed,
management believes the impact of recently issued standards, which are not yet
effective, will not have a material impact on the Company's consolidated
financial statements upon adoption.
The financial statements included in this report should be read in
conjunction with the Company's audited financial statements and accompanying
notes included in its Annual Report on Form 10-K for the year ended December 31,
2002.
6
2. DETAILS OF SELECTED BALANCE SHEET ACCOUNTS
Additional information regarding selected balance sheet accounts is
presented below (in thousands):
MARCH 31, DECEMBER 31,
2003 2002
---- ----
Accounts receivable, net:
Trade............................................................... $ 115,413 $ 101,314
Unbilled revenue.................................................... 17,638 14,788
Other............................................................... 7,331 3,060
Allowance for doubtful accounts..................................... (2,370) (2,287)
--------- ---------
$ 138,012 $ 116,875
MARCH 31, DECEMBER 31,
2003 2002
---- ----
Inventories, net:
Tubular goods....................................................... $ 65,507 $ 60,816
Other finished goods and purchased products......................... 24,362 22,339
Work in process..................................................... 21,402 25,678
Raw materials....................................................... 15,669 14,283
Total inventories................................................... 126,940 123,116
Inventory reserves.................................................. (4,947) (4,778)
--------- ---------
$ 121,993 $ 118,338
ESTIMATED MARCH 31, DECEMBER 31,
USEFUL LIFE 2003 2002
----------- ------------ ------------
Property, plant and equipment, net:
Land.................................................... $ 4,841 $ 4,675
Buildings and leasehold improvements.................... 2-40 years 35,127 34,348
Machinery and equipment................................. 2-20 years 172,631 166,702
Rental tools............................................ 3-10 years 33,071 32,323
Office furniture and equipment.......................... 1-10 years 13,154 12,710
Vehicles................................................ 2-5 years 7,140 6,817
Construction in progress................................ 2,205 1,791
--------- ---------
Total property, plant and equipment..................... 268,169 259,366
Less: Accumulated depreciation.......................... (99,540) (92,220)
---------- ---------
$ 168,629 $ 167,146
MARCH 31, DECEMBER 31,
2003 2002
---- ----
Accounts payable and accrued liabilities:
Trade accounts payable....................................... $ 59,190 $ 52,212
Accrued compensation......................................... 6,498 13,674
Accrued insurance............................................ 3,846 3,870
Accrued taxes, other than income taxes....................... 2,264 2,020
Reserves related to discontinued operations, current portion. 5,385 5,216
Other........................................................ 8,674 7,057
--------- ---------
$ 85,857 $ 84,049
Changes in the carrying amount of goodwill for the three months ended
March 31, 2003 are as follows (in thousands):
OFFSHORE WELLSITE TUBULAR
PRODUCTS SERVICES SERVICES TOTAL
-------- -------- --------- ---------
Balance as of January 1, 2003 $ 71,589 $ 91,883 $ 49,579 $ 213,051
Goodwill acquired -- -- -- --
Impairment losses -- -- -- --
Foreign currency translation and other changes (99) 1,345 -- 1,246
-------- -------- ------- ---------
Balance as of March 31, 2003 $ 71,490 $ 93,228 $49,579 $ 214,297
======== ======== ======= =========
7
3. SEGMENT AND RELATED INFORMATION
In accordance with SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," the Company has identified the following
reportable segments: Offshore Products, Wellsite Services and Tubular Services.
The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different technology and marketing strategies. Most of the
businesses were acquired as a unit, and the management at the time of the
acquisition was retained. 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-month
periods ended March 31, 2003 and 2002 is summarized in the following table (in
thousands):
OFFSHORE WELL SITE TUBULAR CORPORATE AND
PRODUCTS SERVICES SERVICES ELIMINATIONS TOTAL
-------- -------- --------- ------------- -----
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
======== ======== ========= ======= =========
MARCH 31, 2002
Revenues from unaffiliated
customers...................... $ 32,737 $ 66,593 $ 51,270 $ -- $ 150,600
======== ======== ========= ======= =========
Depreciation and amortization.... 1,345 3,807 144 12 5,308
======== ======== ========= ======= =========
Operating income (loss).......... 3,016 11,420 (27) (1,215) 13,194
======== ======== ========== ======= =========
Capital expenditures............. 1,381 2,142 45 -- 3,568
======== ======== ========= ======= =========
Total assets..................... 142,358 248,202 120,098 3,679 514,337
======== ======== ========= ======= =========
4. COMPREHENSIVE INCOME
Comprehensive income for the three months ended March 31, 2003 and 2002 was
as follows (in thousands):
THREE MONTHS ENDED MARCH 31,
2003 2002
---------- ----------
Comprehensive income:
Net income................................ $ 13,369 $ 9,808
Cumulative translation adjustment......... 3,678 (301)
---------- ----------
Total comprehensive income.......... $ 17,047 $ 9,507
========== ==========
5. STOCK-BASED COMPENSATION
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which requires the Company to record stock-based compensation at
fair value. In December 2002, the FASB issued SFAS No. 148, "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 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
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 ten-year
life. 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 stock on
the date of grant,
8
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 net income and earnings per share
at March 31, 2003 and 2002, would have been as follows (in thousands, except per
share amounts):
THREE MONTHS ENDED MARCH 31,
-----------------------------
2003 2002
---------- ----------
Net income as reported...................................... $ 13,369 $ 9,808
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all
awards, net of related tax effects......................... (766) (414)
Pro forma net income......................................... $ 12,603 $ 9,394
========== ==========
Net income as reported:
Basic...................................................... $ .28 $ .20
Diluted.................................................... .27 .20
Pro forma net income per share as if fair value method
had been applied to all awards:
Basic...................................................... $ .26 $ .19
Diluted.................................................... .26 .19
6. 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.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the following discussion and analysis together with our
financial statements and the notes to those statements included elsewhere in
this Quarterly Report on Form 10-Q.
This discussion contains forward-looking statements based on our current
expectations, assumptions, estimates and projections about us and our industry.
These forward-looking statements involve risks and uncertainties. Our actual
results could differ materially from those indicated in these forward-looking
statements as a result of certain factors, as more fully described under
"Cautionary Statement Regarding Forward-Looking Statements" in our Annual Report
on Form 10-K filed with the Securities and Exchange Commission on March 13,
2003. Except to the extent required by law, we undertake no obligation to update
publicly any forward-looking statements, even if new information becomes
available or other events occur in the future.
CRITICAL ACCOUNTING POLICIES
In our selection of critical accounting policies, our objective is to
properly reflect our financial position and results of operations in each
reporting period in a manner that will be understood by those who utilize our
financial statements. Often we must use our judgment about uncertainties.
There are several critical accounting policies that we have put into
practice that have an important effect on our reported financial results. 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, 2002.
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
10
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.
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
We provide a broad range of products and services to the oil and gas
industry through our offshore products, well site services and tubular services
business segments. Demand for our products and services is cyclical and
substantially dependent upon activity levels in the oil and gas industry,
particularly our customers' willingness to spend capital on the exploration 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. 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 premium casing and tubing.
Sales of tubular products and services depend upon the overall level of drilling
activity and the types of wells being drilled. Demand for tubular products is
positively impacted by increased drilling of deeper horizontal and offshore
wells that generally require premium tubulars and connectors, large diameter
pipe and longer and additional casing and tubular strings.
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 AVERAGE RIG COUNT FOR THE YEAR ENDED
THREE MONTHS ENDED MARCH 31, DECEMBER 31,
---------------------------- ----------------------------
2003 2002 2002 2001 2000 1999 1998
---- ---- ---- ---- ---- ---- ----
US...................... 901 818 831 1,156 918 624 837
Canada.................. 494(1) 383(1) 266 341 345 245 259
------ ------ ------ ------ ------ ------ ------
North America...... 1,395 1,201 1,097 1,497 1,263 869 1,096
====== ====== ====== ====== ====== ====== ======
(1) Canadian rig counts typically increase during the peak winter drilling
season.
The average North American rig count in the quarter ended March 31, 2003
increased 194 rigs, or 16%, compared to the quarter ended March 31, 2002. This
increase in activity drove increased revenues in our well site services segment
and increased volumes shipped in our tubular services segment. Our results for
the first quarter of 2003 also benefited from increased deliveries for offshore
construction and development projects in our offshore products segment. However,
new orders did not keep pace with shipments, and our offshore products segment
backlog decreased to $80.9 million at March 31, 2003 compared to $100.1 million
at December 31, 2002. We believe that the offshore construction and development
business is characterized by lengthy projects and a long "lead-time" order
cycle. The change in backlog levels from one quarter to the next does not
necessarily evidence a long-term trend.
The first quarter of 2003 results also benefited from several acquisitions
made in our well site services and offshore products segments that were
completed in the third quarter of 2002. The majority of these acquisitions have
been integrated with existing operations and the financial impact on our results
of operations is not separately identifiable. Total acquisition costs in the
third quarter were $71 million.
11
Management believes that fundamental oil and gas supply and demand factors
will lead to increased drilling activity in North America over time. However,
there can be no assurance that these expectations will be realized.
RESULTS OF OPERATIONS (IN MILLIONS, EXCEPT MARGIN PERCENTAGES)
THREE MONTHS ENDED MARCH 31,
----------------------------------------
2003 2002
----------- -----------
Revenues
Well Site Services......................... $ 78.8 $ 66.6
Offshore Products.......................... 57.6 32.7
Tubular Services........................... 49.2 51.3
----------- -----------
Total................................. $ 185.6 $ 150.6
=========== ===========
Gross Margin
Well Site Services......................... $ 25.3 $ 20.0
Offshore Products.......................... 12.4 8.2
Tubular Services........................... 2.9 2.2
----------- -----------
Total................................. $ 40.6 $ 30.4
=========== ===========
Gross Margin as a Percent of Revenues
Well Site Services......................... 32.1% 30.0%
Offshore Products.......................... 21.5% 25.1%
Tubular Services........................... 5.9% 4.3%
Total................................. 21.9% 20.2%
Operating Income (Loss)
Well Site Services......................... $ 15.1 $ 11.4
Offshore Products.......................... 5.6 3.0
Tubular Services........................... 0.9 --
Corporate/Other............................ (1.3) (1.2)
----------- -----------
Total................................. $ 20.3 $ 13.2
=========== ===========
THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THREE MONTHS ENDED
MARCH 31, 2002
Revenues. Revenues increased $35.0 million, or 23.2%, to $185.6 million
during the current quarter compared to revenues of $150.6 million during the
quarter ended March 31, 2002. Tubular services revenues decreased $2.1 million,
or 4.1%, in the three months ended March 31, 2003 compared to revenues in the
three months ended March 31, 2002 as a result of reduced revenue per ton shipped
caused by product mix changes and lower mill prices, partially offset by a 14.3%
increase in tons shipped. Well site services revenues increased $12.2 million,
or 18.3%, and offshore products revenues increased $24.9 million, or 76.1%,
during the same period. Well site services revenues increased compared to the
prior year primarily due to higher drilling and workover activity in North
America. Offshore products revenues increased as a result of greater activity
supporting offshore production facility construction and the impact of
acquisitions completed in the third quarter 2002.
Cost of Sales. Cost of sales increased by $24.8 million, or 20.6%, to
$145.0 million for the quarter ended March 31, 2003 compared to $120.2 million
in the quarter ended March 31, 2002. Increased offshore products shipments were
the principal reason for the corresponding increase in cost of sales during the
period. Offshore products cost of sales increased from $24.5 million in the
first quarter of 2002 to $45.2 million in the first quarter of 2003, an increase
of $20.7 million, or 84.5%.
Gross Margin. Our gross margins, which we calculate before a deduction for
depreciation expense, increased $10.2 million, or 33.6%, from $30.4 million in
the quarter ended March 31, 2002 to $40.6 million in the quarter ended March 31,
2003. Well site services gross margins increased $5.3 million, or 26.5%, to
$25.3 million in the quarter ended March 31, 2003 compared to the quarter ended
March 31, 2002. Within our well site services segment, shallow drilling and
specialty rental tool businesses' gross margins increased $0.7 million, or
63.6%, and $1.8 million, or 52.9%, respectively, during the quarter ended March
31, 2003 compared to the quarter ended March 31, 2002 as a result of higher
utilization for our drilling and rental tool assets. Also in well site services,
our work
12
force accommodations, catering and logistics services and modular building
construction services gross margins increased by $1.6 million, or 11.9%, in the
three months ended March 31, 2003 compared to the three months ended March 31,
2002 because of increased drilling camp and catering activity in Canada. Our
hydraulic workover gross margins increased by $1.2 million, or 60%, as a result
of increased activity, especially in the U.S. Gulf of Mexico.
Offshore products gross margins increased $4.2 million, or 51.2%, from $8.2
million in the three months ended March 31, 2002 to $12.4 million in the three
months ended March 31, 2003 primarily due to increased revenues from shipments
and work in progress. Our gross margin percentage was negatively impacted by a
greater percentage of lower-margin fabrication work compared to the prior period
and to a loss incurred on a subsea pipeline project. Tubular services gross
margins increased to $2.9 million, or 5.9% of tubular services revenues in the
three months ended March 31, 2003 compared to $2.2 million, or 4.3% of tubular
services revenues, in the three months ended March 31, 2002 as a result of
increased oil and gas company drilling which increased demand for our tubular
products and services.
Selling, General and Administrative Expenses. During the three months ended
March 31, 2003, selling, general and administrative expenses (SG&A) totaled
$13.8 million compared to SG&A of $12.2 million for the three months ended March
31, 2002. Increased SG&A expense associated with acquisitions in the third
quarter of 2002, higher insurance premiums and higher variable pay accruals were
the principal reasons for higher overall SG&A expense during the current
quarter.
Depreciation and Amortization. Depreciation and amortization expense
increased $1.2 million in the first quarter 2003 compared to the first quarter
2002 due primarily to acquisitions of businesses in 2002 and capital
expenditures made during 2002.
Operating Income. Our operating income represents revenues less (i) cost of
sales, (ii) selling, general and administrative expenses and (iii) depreciation
and amortization expense plus other operating income. Our operating income
increased $7.1 million, or 53.8%, to $20.3 million for the three months ended
March 31, 2003 from $13.2 million in the three month period ended March 31,
2002. Well site services operating income increased from $11.4 million during
the three months ended March 31, 2002 to $15.1 million for the three months
ended March 31, 2003. Offshore products operating income increased from $3.0
million during the three months ended March 31, 2002 to $5.6 million for the
three months ended March 31, 2003. Tubular Services operating income was $0.9
million during the quarter ended March 31, 2003 compared to approximately
break-even results for the quarter ended March 31, 2002.
Interest Expense. Interest expense increased $0.7 million, or 70%, to $1.7
million for the quarter ended March 31, 2003 compared to $1.0 million for the
quarter ended March 31, 2002. Increased interest expense is primarily
attributable to higher debt levels resulting from the acquisitions completed
during the third quarter 2002.
Income Tax Expense. Income tax expense totaled $5.5 million, or 29.0% of
pretax income, during the quarter ended March 31, 2003 compared to $2.8 million,
or 22.0% of pretax income, during the quarter ended March 31, 2002. Decreased
amounts of net operating loss carryforwards available to offset currently
taxable income has resulted in a higher estimated annual effective tax rate for
the year 2003 compared to 2002.
LIQUIDITY AND CAPITAL RESOURCES
Our primary liquidity needs are to fund capital expenditures, such as
expanding and upgrading our manufacturing facilities and equipment, increasing
our rental tool and workover assets, increasing our accommodation units, 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, proceeds from borrowings under our
bank facilities and private and public debt and equity offerings.
13
Cash was provided by operations during the quarters ended March 31, 2003
and 2002 in the amounts of $1.3 million and $22.2 million, respectively. Cash
provided by operations in 2003 was generated by our net income plus depreciation
and amortization which was almost totally offset by higher working capital
invested in our well site services segment, principally caused by the seasonal
use of working capital in our Canadian operations. During the three months ended
March 31, 2002, normal seasonal uses of working capital in our Canadian
operations was more than offset by significantly decreased investments in
working capital as a result of tubular services receivables and inventory
decreases.
Cash was used in investing activities in the amount of $5.7 million during
the three months ended March 31, 2003 primarily for capital expenditures.
Capital expenditures totaled $5.7 million and $3.6 million during the three
months ended March 31, 2003 and 2002, respectively. Capital expenditures during
both these periods consisted principally of purchases of assets for our well
site services businesses. We currently expect to spend a total of approximately
$32.5 million during 2003 to upgrade our equipment and facilities and expand our
product and service offerings. We expect to fund these capital expenditures with
internally generated funds.
Net cash of $0.5 million was used in financing activities during the three
months ended March 31, 2003, primarily as a result of debt repayments and
payment of offering costs for the sale of common stock by a major shareholder
pursuant to their demand registration rights.
As of March 31, 2003, we had $123.1 million outstanding under our bank
credit facility and an additional $9.4 million of outstanding letters of credit,
leaving $35.2 million available to be drawn under the facility. In addition, we
have another floating rate bank credit facility in the UK that had a balance of
$1.5 million at March 31, 2003. Our total debt represented 24.9% of our total
capitalization at March 31, 2003.
We believe that cash from operations and available borrowings under our
credit facility will be sufficient to meet our liquidity needs for the
foreseeable future. If our plans or assumptions change or are inaccurate, or we
make any 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
For the year ended December 31, 2002, we had deferred tax assets, net of
deferred tax liabilities, of approximately $5.2 million for federal income tax
purposes before application of valuation allowances. Our primary deferred tax
assets are net operating loss carry forwards, or NOLs, which total approximately
$76 million. A valuation allowance is currently provided against the majority of
our NOLs. The NOLs expire over a period through 2020. A portion of our NOLs are
currently limited under Section 382 of the Internal Revenue Code due to a change
of control that occurred during 1995. In 2003, approximately $39 million of NOLs
are available for use if sufficient income is generated. However, a successive
change in control was likely triggered in 2003 pursuant to Section 382 upon the
completion of a secondary offering of stock by two major shareholders. If such a
change of control did occur, the amount of NOLs available for use in 2003 would
be reduced to approximately $26 million. Such a scenario could have a
significant negative impact on our cash taxes payable; however, it is
anticipated that any such change would not trigger a significant adverse impact
on our 2003 tax expense. We expect little to no impact on our 2003 tax expense
because of the operation of the valuation allowance related to our NOL
carryforwards. See Note 10 to our Consolidated and Combined Financial Statements
included in our Annual Report on Form 10-K for the year ended December 31, 2002.
We currently estimate our 2003 effective tax rate will be approximately
29%. Our actual effective tax rates could differ materially from these
estimates, which are 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued SFAS No. 143,
"Accounting for Asset Retirement Obligations." We adopted this statement
effective January 1, 2003 and it did not have a material impact on our financial
statements.
14
In April 2002, the Financial Accounting Standards Board issued SFAS No. 145
which, among other things, rescinded SFAS No. 4, "Reporting Gains and Losses
from Extinguishment of Debt." We adopted this statement effective January 1,
2003 and it did not have a material impact on our financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk. We have long-term debt and revolving lines of credit
subject to the risk of loss associated with movements in interest rates.
As of March 31, 2003, we had floating rate obligations totaling
approximately $124.6 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, 2003 levels, our
consolidated interest expense would increase by a total of approximately $1.2
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. In order to mitigate the effects of exchange rate
risks, we generally pay a portion of our expenses in local currencies and a
substantial portion of our contracts provide for collections from customers in
U.S. dollars. As of March 31, 2003, we had Canadian dollar-denominated debt
totaling approximately $12.3 million. As of March 31, 2003, we had foreign
currency forward purchase option contracts totaling $10.0 million at rates not
significantly different from the actual rates at March 31, 2003. We have
incurred no material gains or losses from foreign currency hedging activities.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90 day period prior to the filing date of this Quarterly Report
on Form 10-Q, we carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rule 13a-14(c) of the
Securities Exchange Act of 1934). Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures are effective in ensuring that material information is
accumulated and communicated to management, and made known to our Chief
Executive Officer and Chief Financial Officer, on a timely basis to allow
disclosure as required in this Quarterly Report on Form 10-Q. There have been no
significant changes in our internal controls or in other factors which could
significantly affect internal controls subsequent to the date we carried out our
evaluation.
15
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are a party to various pending or threatened claims, lawsuits and
administrative proceedings seeking damages or other remedies concerning our
commercial operations, products, employees and other matters, including
occasional claims by individuals alleging exposure to hazardous materials as a
result of our products or operations. Some of these claims relate to matters
occurring prior to our acquisition of businesses, and some relate to businesses
we have sold. In certain cases, we are entitled to indemnification from the
sellers of businesses and in other cases, we have indemnified the buyers of
businesses from us. Although we can give no assurance about the outcome of
pending legal and administrative proceedings and the effect such outcomes may
have on us, we believe that any ultimate liability resulting from the outcome of
such proceedings, to the extent not otherwise provided for or covered by
insurance, will not have a material adverse effect on our consolidated financial
position, results of operations or liquidity.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
The following disclosure is being provided in accordance with the
Securities and Exchange Commission's filing guidance regarding the provision of
notice of certain information relating to a pension fund blackout period
pursuant to new Item 11 of Form 8-K.
Our insider trading policy generally prohibits all of our directors,
officers and employees from trading in our securities during the period
beginning on the last day of a fiscal quarter and ending 24 hours after the
release of our earnings announcement for that fiscal quarter. As a result, there
was a general prohibition on trading in our securities by all of our directors,
officers and employees from March 31, 2003 until April 29, 2003 in connection
with our quarterly earnings announcement for the quarter ended March 31, 2003.
As a consequence of this general prohibition, there was also a "blackout period"
(as defined in Regulation BTR promulgated under the Securities Exchange Act of
1934) with respect to our Deferred Compensation Plan during the same period,
during which the participants in the plan were prohibited from investing new
deferrals in our common stock investment option under the plan and from
transferring or reallocating prior deferrals from or to our common stock
investment option.
Inquiries about the blackout period may be directed to Cindy B. Taylor by
phone at (713) 652-0582 or in writing to Oil States International, Inc., Three
Allen Center, 333 Clay street, Suite 3460, Houston, Texas 77002.
16
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).
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** -- Form of Deferred Compensation Plan (incorporated by reference
to Exhibit 10.6 to the Company's Registration Statement on
Form S-1 (File No. 333-43400)).
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).
17
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 Agreements between Oil States International,
Inc. and Named Executive Officers (Messrs. Hughes and
Chaddick) (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 among Oil States International, Inc., PTI
Group Inc., the Lenders named therein, Credit Suisse First
Boston, Credit Suisse First Boston Canada, Hibernia National
Bank and Royal Bank of Canada (incorporated by reference to
Exhibit 10.12 of the Company's Registration Statement on Form
S-1 (File No. 333-43400)).
10.12.1 -- Amendment No. 1, dated as of September 23, 2002, to the Credit
Agreement, dated as of February 14, 2001 by and among the
Company, PTI Group Inc., the Lenders named therein, Credit
Suisse First Boston, as Administrative Agent and U.S.
Collateral Agent, and Credit Suisse First Boston (formerly
Credit Suisse First Boston Canada), as Canadian Administrative
Agent and Canadian Collateral Agent (the "Credit Agreement")
(incorporated by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K filed with the Commission on
February 14, 2003).
10.12.2 -- Amendment No. 2, dated as of December 12, 2002, to the Credit
Agreement (incorporated by reference to Exhibit 10.2 to the
Company's Current Report on Form 8-K filed with the Commission
on February 14, 2003).
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, 2001).
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).
99.1* -- Certification of Chief Executive Officer of Oil States
International, Inc. pursuant to 18 U.S.C. ss.1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2* -- Certification of Chief Financial Officer of Oil States
International, Inc. pursuant to 18 U.S.C. ss.1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
18
- ------------
* Filed herewith
** Management contracts or compensatory plans or arrangements.
(b) REPORTS ON FORM 8-K.
(1) Form 8-K dated February 14, 2003 - Item 5. Other Events.
(2) Form 8-K dated April 29, 2003 - Item 9. Regulation FD Disclosure
(Quarter ended March 31, 2003 Earnings Press Release).
19
SIGNATURES
Pursuant to the requirements of the Securities Exchanges Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
OIL STATES INTERNATIONAL, INC.
Date: May 14, 2003 By /s/ CINDY B. TAYLOR
-------------------------------------------
Cindy B. Taylor
Senior Vice President, Chief Financial
Officer and Treasurer
(Principal Financial Officer)
Date: May 14, 2003 By /s/ ROBERT W. HAMPTON
-------------------------------------------
Robert W. Hampton
Vice President -- Finance and Accounting
and Secretary (Principal Accounting Officer)
20
CERTIFICATIONS
I, Douglas E. Swanson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Oil States
International, Inc. ("Registrant");
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Registrant as of, and for, the periods presented in
this quarterly report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and
we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date");
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the Registrant's auditors and the
audit committee of Registrant's Board of Directors (or persons
performing the equivalent functions):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the Registrant's
ability to record, process, summarize and report financial data
and have identified for the Registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal controls; and
6. The Registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 14, 2003
/s/ Douglas E. Swanson
---------------------------------------
Douglas E. Swanson
President and Chief Executive Officer
21
I, Cindy B. Taylor, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Oil States
International, Inc. ("Registrant");
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Registrant as of, and for, the periods presented in
this quarterly report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and
we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date");
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the Registrant's auditors and the
audit committee of Registrant's Board of Directors (or persons
performing the equivalent functions):
d. all significant deficiencies in the design or operation of
internal controls which could adversely affect the Registrant's
ability to record, process, summarize and report financial data
and have identified for the Registrant's auditors any material
weaknesses in internal controls; and
e. any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal controls; and
6. The Registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 14, 2003
/s/ Cindy B. Taylor
---------------------------------------
Cindy B. Taylor
Senior Vice President and Chief
Financial Officer
22
INDEX TO EXHIBIT
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** -- Form of Deferred Compensation Plan (incorporated by reference
to Exhibit 10.6 to the Company's Registration Statement on
Form S-1 (File No. 333-43400)).
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 Agreements between Oil States International,
Inc. and Named Executive Officers (Messrs. Hughes and
Chaddick) (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 among Oil States International, Inc., PTI
Group Inc., the Lenders named therein, Credit Suisse First
Boston, Credit Suisse First Boston Canada, Hibernia National
Bank and Royal Bank of Canada (incorporated by reference to
Exhibit 10.12 of the Company's Registration Statement on Form
S-1 (File No. 333-43400)).
10.12.1 -- Amendment No. 1, dated as of September 23, 2002, to the Credit
Agreement, dated as of February 14, 2001 by and among the
Company, PTI Group Inc., the Lenders named therein, Credit
Suisse First Boston, as Administrative Agent and U.S.
Collateral Agent, and Credit Suisse First Boston (formerly
Credit Suisse First Boston Canada), as Canadian Administrative
Agent and Canadian Collateral Agent (the "Credit Agreement")
(incorporated by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K filed with the Commission on
February 14, 2003).
10.12.2 -- Amendment No. 2, dated as of December 12, 2002, to the Credit
Agreement (incorporated by reference to Exhibit 10.2 to the
Company's Current Report on Form 8-K filed with the Commission
on February 14, 2003).
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, 2001).
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).
99.1* -- Certification of Chief Executive Officer of Oil States
International, Inc. pursuant to 18 U.S.C. ss.1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2* -- Certification of Chief Financial Officer of Oil States
International, Inc. pursuant to 18 U.S.C. ss.1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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* Filed herewith
** Management contracts or compensatory plans or arrangements.