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 June 30, 2015
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: 001-16337

 

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 4620,	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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES [X]

NO [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer", “accelerated filer” and "smaller reporting company in Rule 12b-2 of the Exchange Act.

 

(Check one):
Large Accelerated Filer [X]		Accelerated Filer [  ]
Non-Accelerated Filer [  ] (Do not check if a smaller reporting company)		Smaller Reporting Company [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES [  ]

NO [X ]

 

The Registrant had 51,290,324 shares of common stock, par value $0.01, outstanding and 10,275,727 shares of treasury stock as of July 28, 2015.

 

 

OIL STATES INTERNATIONAL, INC.

 

INDEX

 

		Page No.
	Part I -- FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Condensed Consolidated Financial Statements
	Unaudited Condensed Consolidated Statements of Operations	3
	Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)	4
	Consolidated Balance Sheets	5
	Unaudited Condensed Consolidated Statements of Cash Flows	6
	Unaudited Condensed Consolidated Statement of Stockholders’ Equity	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8 – 17
Cautionary Statement Regarding Forward-Looking Statements		18
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18 – 28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28 – 29
Item 4.	Controls and Procedures	29
	Part II -- OTHER INFORMATION
Item 1.	Legal Proceedings	29 – 30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 6.	Exhibits	31
	(a) Index of Exhibits	31
Signature Page		32

 

 

PART I -- FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

 

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Per Share Amounts)

 

		THREE MONTHS ENDED								SIX MONTHS ENDED
		JUNE 30,								JUNE 30,
		2015				2014				2015				2014
Revenues		$	269,258			$	459,607			$	606,617			$	864,844
Costs and expenses:
Cost of sales and services			194,664				307,908				432,386				580,280
Selling, general and administrative expenses			32,002				43,039				67,607				84,447
Depreciation and amortization expense			32,432				31,107				65,011				61,894
Other operating expense (income)			1,436				10,008				(871	)			11,412
			260,534				392,062				564,133				738,033
Operating income			8,724				67,545				42,484				126,811
Interest expense			(1,627	)			(5,853	)			(3,335	)			(13,898	)
Interest income			138				146				275				261
Loss on extinguishment of debt			--				(100,410	)			--				(100,410	)
Other income			355				810				821				2,337
Income (loss) from continuing operations before income taxes			7,590				(37,762	)			40,245				15,101
Income tax (provision) benefit			(1,442	)			13,646				(14,694	)			(4,496	)
Net income (loss)from continuing operations			6,148				(24,116	)			25,551				10,605
Net income from discontinued operations, net of tax			35				16,242				201				53,037
Net income (loss)			6,183				(7,874	)			25,752				63,642
Less: Net income attributable to noncontrolling interest			--				6				--				18
Net income (loss) attributable to Oil States International, Inc.		$	6,183			$	(7,880	)		$	25,752			$	63,624
Net income (loss) attributable to Oil States International, Inc.:
Continuing operations		$	6,148			$	(24,122	)		$	25,551			$	10,587
Discontinued operations			35				16,242				201				53,037
Net income (loss) attributable to Oil States International, Inc.		$	6,183			$	(7,880	)		$	25,752			$	63,624
Basic net income (loss) per share attributable to Oil States International, Inc. common stockholders from:
Continuing operations		$	0.12			$	(0.45	)		$	0.50			$	0.20
Discontinued operations			--				0.30				--				0.98
Net income (loss)		$	0.12			$	(0.15	)		$	0.50			$	1.18
Diluted net income (loss) per share attributable to Oil States International, Inc. common stockholders from:
Continuing operations		$	0.12			$	(0.45	)		$	0.50			$	0.20
Discontinued operations			--				0.30				--				0.98
Net income (loss)		$	0.12			$	(0.15	)		$	0.50			$	1.18
Weighted average number of common shares outstanding:
Basic			50,427				53,090				50,627				53,189
Diluted			50,515				53,090				50,725				53,486

  

The accompanying notes are an integral part of

these financial statements.

 

 

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In Thousands)

 

			THREE MONTHS ENDED								SIX MONTHS ENDED
			JUNE 30,								JUNE 30,
			2015				2014				2015				2014
Net income (loss)		$	6,183			$	(7,874	)		$	25,752			$	63,642
Other comprehensive income (loss):
Foreign currency translation adjustment			9,773				23,465				(4,718	)			23,445
Unrealized gain on forward contracts, net of tax			124				1				72				1
Total other comprehensive income (loss)			9,897				23,466				(4,646	)			23,446
Comprehensive income			16,080				15,592				21,106				87,088
Less: Comprehensive income (loss) attributable to noncontrolling interest			--				48				--				(6	)
Comprehensive income attributable to Oil States International, Inc.		$	16,080			$	15,544			$	21,106			$	87,094

 

The accompanying notes are an integral part of

these financial statements.

 

 

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

(In Thousands)

  

		JUNE 30,				DECEMBER 31,
		2015				2014
		(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents		$	89,432			$	53,263
Accounts receivable, net			292,896				497,124
Inventories, net			240,586				232,490
Prepaid expenses and other current assets			35,208				43,789
Total current assets			658,122				826,666
Property, plant, and equipment, net			664,095				649,846
Goodwill, net			265,438				252,201
Other intangible assets, net			62,441				52,935
Other noncurrent assets			30,888				27,964
Total assets		$	1,680,984			$	1,809,612
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	74,359			$	108,949
Accrued liabilities			63,192				96,130
Income taxes			8,350				9,195
Current portion of long-term debt and capitalized leases			521				530
Deferred revenue			36,176				48,948
Deferred tax liabilities			12,368				7,431
Other current liabilities			213				229
Total current liabilities			195,179				271,412
Long-term debt and capitalized leases			156,836				146,835
Deferred income taxes			33,721				33,913
Other noncurrent liabilities			19,857				16,795
Total liabilities			405,593				468,955
Stockholders’ equity:
Oil States International, Inc. stockholders’ equity:
Common stock, $.01 par value, 200,000,000 shares authorized, 61,562,620 shares and 60,940,734 shares issued, respectively, and 51,287,925 shares and 53,017,359 shares outstanding, respectively			616				610
Additional paid-in capital			698,344				685,232
Retained earnings			1,177,018				1,151,266
Accumulated other comprehensive loss			(26,746	)			(22,100	)
Common stock held in treasury at cost, 10,274,695 and 7,923,375 shares, respectively			(573,841	)			(474,351	)
Total Oil States International, Inc. stockholders’ equity			1,275,391				1,340,657
Noncontrolling interest			--				--
Total stockholders’ equity			1,275,391				1,340,657
Total liabilities and stockholders’ equity		$	1,680,984			$	1,809,612

 

The accompanying notes are an integral part of

these financial statements.

 

 

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

 

		SIX MONTHS ENDED JUNE 30,
		2015				2014
Cash flows from operating activities:
Net income		$	25,752			$	63,642
Adjustments to reconcile net income to net cash provided by operating activities:
Income from discontinued operations			(201	)			(53,037	)
Depreciation and amortization			65,011				61,894
Deferred income tax benefit			(2,331	)			(10,297	)
Tax impact of share-based payment arrangements			(215	)			(4,585	)
Provision for bad debt			(1,134	)			2,125
Gain on disposals of assets			(628	)			(1,704	)
Non-cash compensation charge			10,697				12,534
Amortization of deferred financing costs			390				1,432
Loss on extinguishment of debt			--				100,410
Other, net			(136	)			424
Changes in operating assets and liabilities, net of effect from acquired businesses:
Accounts receivable			206,706				(18,838	)
Inventories			(6,939	)			(9,817	)
Accounts payable and accrued liabilities			(70,666	)			(26,034	)
Taxes payable			5,005				(76,008	)
Other operating assets and liabilities, net			(9,816	)			3,127
Net cash flows provided by continuing operating activities			221,495				45,268
Net cash flows provided by discontinued operating activities			314				163,473
Net cash flows provided by operating activities			221,809				208,741
Cash flows from investing activities:
Capital expenditures			(68,740	)			(83,211	)
Acquisitions of businesses, net of cash acquired			(33,427	)			171
Proceeds from disposition of property, plant and equipment			1,061				2,632
Other, net			(392	)			(1,009	)
Net cash flows used in continuing investing activities			(101,498	)			(81,417	)
Net cash flows used in discontinued investing activities			--				(119,199	)
Net cash flows used in investing activities			(101,498	)			(200,616	)
Cash flows from financing activities:
Revolving credit borrowings, net			10,224				181,928
Repayment of 6 1/2% Senior Notes			--				(630,307	)
Repayment of 5 1/8% Senior Notes			--				(419,794	)
Distribution received from Spin-Off of Civeo			--				750,000
Debt and capital lease repayments			(273	)			(262	)
Issuance of common stock from share-based payment arrangements			2,209				7,962
Purchase of treasury stock			(90,659	)			(143,714	)
Tax impact of share-based payment arrangements			215				4,585
Shares added to treasury stock as a result of net share settlements due to vesting of restricted stock			(6,750	)			(4,964	)
Payment of financing costs			(2	)			(3,856	)
Other, net			2				--
Net cash flows used in continuing financing activities			(85,034	)			(258,422	)
Net cash flows used in discontinued financing activities			--				(282,204	)
Net cash flows used in financing activities			(85,034	)			(540,626	)
Effect of exchange rate changes on cash			892				(1,910	)
Net change in cash and cash equivalents			36,169				(534,411	)
Cash and cash equivalents, beginning of period			53,263				599,306
Cash and cash equivalents, end of period		$	89,432			$	64,895

  

The accompanying notes are an integral part of

these financial statements.

 

 

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

(In Thousands)

 

		Common Stock				Additional Paid-In Capital				Retained Earnings				Accumulated Other Comprehensive Income (Loss)				Treasury Stock				Total Stockholders' Equity
Balance, December 31, 2014		$	610			$	685,232			$	1,151,266			$	(22,100	)		$	(474,351	)		$	1,340,657
Net income.											25,752												25,752
Currency translation adjustment (excluding intercompany notes)															(3,044	)							(3,044	)
Currency translation adjustment on intercompany notes															(1,674	)							(1,674	)
Unrealized gain on forward contracts, net of tax															72								72
Exercise of stock options, including tax impact			2				2,422																2,424
Amortization of restricted stock compensation							9,130																9,130
Stock option expense							1,567																1,567
Restricted stock awards granted			4				(4	)															--
Surrender of stock to pay taxes on stock option exercises and restricted stock awards																			(6,749	)			(6,749	)
OIS common stock withdrawn from deferred compensation plan							(3	)											3				--
Share repurchases																			(92,744	)			(92,744	)
Balance, June 30, 2015		$	616			$	698,344			$	1,177,018			$	(26,746	)		$	(573,841	)		$	1,275,391

  

The accompanying notes are an integral part of

these financial statements.

 

 

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

 

1.	ORGANIZATION AND BASIS OF PRESENTATION

 

The accompanying unaudited condensed consolidated financial statements of Oil States International, Inc. and its wholly-owned subsidiaries (referred to in this report as we or the Company) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the Commission) pertaining to interim financial information. Certain information in footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to these rules and regulations. The unaudited financial statements included in this report reflect all the adjustments, consisting of normal recurring adjustments, which the Company considers necessary for a fair presentation of the results of operations for the interim periods covered and for the financial condition of the Company at the date of the interim balance sheet. Results for the interim periods are not necessarily indicative of results for the full year.

 

On May 30, 2014, we completed the spin-off of our accommodations business into a stand-alone, publicly traded corporation (Civeo Corporation, or Civeo) (the Spin-Off). The results of operations for our accommodations business have been classified as discontinued operations for all periods presented. Unless indicated otherwise, the information in the Notes to the Unaudited Condensed Consolidated Financial Statements relates to our continuing operations.

 

The preparation of condensed consolidated financial statements in conformity with GAAP requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. If the underlying estimates and assumptions, upon which the financial statements are based, change in future periods, actual amounts may differ from those included in the accompanying condensed consolidated financial statements.

 

The financial statements included in this report should be read in conjunction with the Company’s audited financial statements and accompanying notes included in its Annual Report on Form 10-K for the year ended December 31, 2014 (the 2014 Form 10-K).

 

2.	RECENT ACCOUNTING PRONOUNCEMENTS

 

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the FASB), which are adopted by the Company as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s consolidated financial statements upon adoption.

 

In April 2015, the FASB issued guidance on the presentation of debt issuance costs which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by this guidance. For public business entities, this guidance is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. We do not expect that the adoption of this standard will have a material effect on our consolidated financial statements.

 

In May 2014, the FASB issued guidance on revenue from contracts with customers that will supersede most current revenue recognition guidance, including industry-specific guidance. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include capitalization of certain contract costs, consideration of time value of money in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. On July 9, 2015, the FASB voted to defer the effective date by one year to December 15, 2017 for fiscal years, and interim periods within those years, beginning after that date and permitted early adoption of the standard, but not before the original effective date of December 15, 2016. The guidance permits the use of either a retrospective or cumulative effect transition method. We have not yet selected a transition method and are currently evaluating the impact of the amended guidance on our consolidated financial position, results of operations and related disclosures.

 

 

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(Continued)

 

3.	DETAILS OF SELECTED BALANCE SHEET ACCOUNTS

 

Additional information regarding selected balance sheet accounts at June 30, 2015 and December 31, 2014 is presented below (in thousands):

 

		JUNE 30,				DECEMBER 31,
		2015				2014
Accounts receivable, net:
Trade		$	191,458			$	348,115
Unbilled revenue			102,205				148,371
Other			5,160				7,763
Total accounts receivable			298,823				504,249
Allowance for doubtful accounts			(5,927	)			(7,125	)
		$	292,896			$	497,124

 

		JUNE 30,				DECEMBER 31,
		2015				2014
Inventories, net:
Finished goods and purchased products		$	107,329			$	94,955
Work in process			46,550				49,631
Raw materials			98,173				97,780
Total inventories			252,052				242,366
Allowance for excess, damaged, or obsolete inventory			(11,466	)			(9,876	)
		$	240,586			$	232,490

 

		JUNE 30,				DECEMBER 31,
		2015				2014
Prepaid expenses and other current assets:
Income tax asset		$	12,928			$	17,740
Prepaid insurance			3,861				7,310
Prepaid rent/leases			1,058				802
Other prepaid expenses and current assets			17,361				17,937
		$	35,208			$	43,789

 

		Estimated			JUNE 30,				DECEMBER 31,
		Useful Life			2015				2014
		(years)
Property, plant and equipment, net:
Land					$	28,474			$	29,850
Buildings and leasehold improvements		3 - 40				179,461				175,421
Machinery and equipment		2 - 28				460,739				438,980
Completion services equipment		2 - 10				410,839				387,165
Office furniture and equipment		1 - 10				31,743				30,647
Vehicles		1 - 10				129,621				129,922
Construction in progress						85,045				74,088
Total property, plant and equipment						1,325,922				1,266,073
Accumulated depreciation						(661,827	)			(616,227	)
					$	664,095			$	649,846

 

		JUNE 30,				DECEMBER 31,
		2015				2014
Accrued liabilities:
Accrued compensation		$	23,656			$	58,979
Insurance liabilities			11,148				11,300
Accrued taxes, other than income taxes			6,278				4,851
Accrued commissions			2,538				3,622
Accrued product warranty reserves			2,501				2,810
Other			17,071				14,568
		$	63,192			$	96,130

 

 

4.	ACCUMULATED OTHER COMPREHENSIVE LOSS

 

Our accumulated other comprehensive loss, reported as a component of stockholders’ equity, increased from $22.1 million at December 31, 2014 to $26.7 million at June 30, 2015 primarily as a result of foreign currency exchange rate differences. Our accumulated other comprehensive loss is primarily related to fluctuations in the foreign currency exchange rates compared to the U.S. dollar which are used to remeasure the foreign operations of our reportable segments (primarily in the United Kingdom, Brazil, Thailand and Canada). During the first half of 2015, the U.S. dollar strengthened significantly relative to the majority of these key foreign currencies, and, as a result, our accumulated other comprehensive loss increased.

 

 

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(Continued)

 

5.	EARNINGS PER SHARE

 

The numerator (income or loss) and denominator (shares) used for the computation of basic and diluted earnings per share were as follows (in thousands):

 

		THREE MONTHS ENDED JUNE 30,
		2015								2014
		Income (Loss)				Shares				Income (Loss)				Shares
Basic:
Net income (loss) attributable to Oil States International, Inc.		$	6,183							$	(7,880	)
Less: Undistributed net income allocable to participating securities			(130	)							--
Undistributed net income (loss) applicable to common stockholders			6,053								(7,880	)
Less: Income from discontinued operations, net of tax			(35	)							(16,242	)
Add: Undistributed net income from discontinued operations allocable to participating securities			1								--
Income (loss) from continuing operations applicable to Oil States International, Inc. common stockholders – Basic		$	6,019				50,427			$	(24,122	)			53,090
Diluted:
Income (loss) from continuing operations applicable to Oil States International, Inc. common stockholders – Basic		$	6,019				50,427			$	(24,122	)			53,090
Effect of dilutive securities:
Options on common stock			--				79				--				--
Restricted stock awards and other			--				9				--				--
Income (loss) from continuing operations applicable to Oil States International, Inc. common stockholders – Diluted			6,019				50,515				(24,122	)			53,090
Income from discontinued operations, net of tax, applicable to Oil States International, Inc. common stockholders			34								16,242
Net income (loss) attributable to Oil States International, Inc. common stockholders – Diluted		$	6,053				50,515			$	(7,880	)			53,090

 

 

		SIX MONTHS ENDED JUNE 30,
		2015								2014
		Income (Loss)				Shares				Income (Loss)				Shares
Basic:
Net income attributable to Oil States International, Inc.		$	25,752							$	63,624
Less: Undistributed net income allocable to participating securities			(539	)							(797	)
Undistributed net income applicable to common stockholders			25,213								68,827
Less: Income from discontinued operations, net of tax			(201	)							(53,037	)
Add: Undistributed net income from discontinued operations allocable to participating securities			4								665
Income from continuing operations applicable to Oil States International, Inc. common stockholders – Basic		$	25,016				50,627			$	10,455				53,189
Diluted:
Income from continuing operations applicable to Oil States International, Inc. common stockholders – Basic		$	25,016				50,627			$	10,455				53,189
Effect of dilutive securities:
Undistributed net income reallocated to participating securities			1				--				1				--
Options on common stock			--				90				--				280
Restricted stock awards and other			--				8				--				17
Income from continuing operations applicable to Oil States International, Inc. common stockholders – Diluted			25,017				50,725				10,456				53,486
Income from discontinued operations, net of tax, applicable to Oil States International, Inc. common stockholders			197								52,373
Undistributed net income reallocated to participating securities			--								4
Net income attributable to Oil States International, Inc. common stockholders – Diluted		$	25,214				50,725			$	62,833				53,486

 

Our calculation of diluted earnings per share for the three and six months ended June 30, 2015 excluded 766,203 shares and 739,695 shares, respectively, issuable pursuant to outstanding stock options and restricted stock awards, due to their antidilutive effect. Our calculation of diluted earnings per share for the three and six months ended June 30, 2014 excluded 457,805 shares and 181,512 shares, respectively, issuable pursuant to outstanding stock options and restricted stock awards, due to their antidilutive effect.

 

 

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(Continued)

  

6.	BUSINESS ACQUISITIONS AND GOODWILL

 

On January 2, 2015, we acquired all of the equity of Montgomery Machine Company, Inc. (MMC). Headquartered in Houston, Texas, MMC combines machining and proprietary cladding technology and services to manufacture high-specification components for the offshore capital equipment industry on a global basis. We believe that the acquisition of MMC will strengthen our position in our offshore products segment as a supplier of subsea components with enhanced capabilities, proprietary technology and logistical advantages. Our purchase price allocation is preliminary and subject to customary post-closing adjustments, total transaction consideration was $33.4 million in cash, net of cash acquired, funded from amounts available under the Company’s credit facility. The operations of MMC have been included in our offshore products segment since the acquisition date.

 

Changes in the carrying amount of goodwill for the six month period ended June 30, 2015 were as follows (in thousands):

 

		Well Site Services
		Completion Services				Drilling Services				Subtotal				Offshore Products				Total
Balance as of December 31, 2014
Goodwill		$	200,967			$	22,767			$	223,734			$	145,762			$	369,496
Accumulated Impairment Losses			(94,528	)			(22,767	)			(117,295	)			--				(117,295	)
			106,439				--				106,439				145,762				252,201
Goodwill acquired			--				--				--				14,074				14,074
Foreign currency translation and other changes			(875	)			--				(875	)			38				(837	)
		$	105,564			$	--			$	105,564			$	159,874			$	265,438
Balance as of June 30, 2015
Goodwill		$	200,092			$	22,767			$	222,859			$	159,874			$	382,733
Accumulated Impairment Losses			(94,528	)			(22,767	)			(117,295	)			--				(117,295	)
		$	105,564			$	--			$	105,564			$	159,874			$	265,438

 

7.	DISCONTINUED OPERATIONS

 

On May 30, 2014, we completed the Spin-Off of our accommodations business, Civeo Corporation, to the Company’s stockholders. On May 30, 2014, the stockholders of record of Oil States common stock as of the close of business on May 21, 2014 (the Record Date) received two shares of Civeo common stock for each share of Oil States common stock held as of the Record Date. Following the Spin-Off, Oil States ceased to own any shares of Civeo common stock.

 

On September 6, 2013, the Company entered into a Stock Purchase Agreement with Marubeni-Itochu for the sale of Sooner, Inc. and its subsidiaries, which comprised the entirety of the Company’s tubular services segment.

 

 

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(Continued)

 

The following table provides the components of net income from discontinued operations, net of tax for each operating segment (in thousands).

 

			Three Months Ended				Three Months Ended				Six Months Ended				Six Months Ended
			June 30, 2015				June 30, 2014				June 30, 2015				June 30, 2014
Revenues
Accommodations		$	--			$	151,388			$	--			$	404,132
Tubular services		$	--			$	--			$	--			$	--
Income from Accommodations discontinued operations:
Income from discontinued operations before income taxes		$	25			$	15,922			$	288			$	61,924
Income tax (expense) benefit			(9	)			271				(104	)			(9,098	)
Net income from discontinued operations, net of tax		$	16			$	16,193			$	184			$	52,826
Income from Tubular services discontinued operations:
Income from discontinued operations before income taxes		$	30			$	154			$	27			$	336
Income tax (expense) benefit			(11	)			(105	)			(10	)			(125	)
Net income from discontinued operations, net of tax		$	19			$	49			$	17			$	211

 

8.

DEBT

 

As of June 30, 2015 and December 31, 2014, long-term debt consisted of the following (in thousands):

 

		June 30, 2015				December 31, 2014
Revolving credit facility, which matures May 28, 2019, with available commitments up to $600 million and with a weighted average interest rate of 3.4% for the six month period ended June 30, 2015		$	150,908			$	140,684
Capital lease obligations and other debt			6,449				6,681
Total debt			157,357				147,365
Less: Current portion			521				530
Total long-term debt and capitalized leases		$	156,836			$	146,835

 

Credit Facility

 

In connection with the Spin-Off, the Company terminated its then existing credit facility on May 28, 2014 and entered into a new $600 million senior secured revolving credit facility. The Company has an option to increase the maximum borrowings under its revolving credit facility to $750 million subject to additional lender commitments prior to its maturity on May 28, 2019. The credit facility is governed by a Credit Agreement dated as of May 28, 2014 (Credit Agreement) by and among the Company, the Lenders party thereto, Wells Fargo Bank, N.A., as administrative agent, the Swing Line Lender and an Issuing Bank, and Royal Bank of Canada, as Syndication agent, and Compass Bank, as Documentation agent. Amounts outstanding under the revolving credit facility bear interest at LIBOR plus a margin of 1.50% to 2.50%, or at a base rate plus a margin of 0.50% to 1.50%, in each case based on a ratio of the Company’s total leverage to EBITDA (as defined in the Credit Agreement). During the first half of 2015, our applicable margin over LIBOR was 1.50%. We must also pay a quarterly commitment fee, based on our leverage ratio, on the unused commitments under the Credit Agreement. The unused commitment fee was 0.375% for the first half of 2015. The Credit Agreement contains customary financial covenants and restrictions. Specifically, we must maintain an interest coverage ratio, defined as the ratio of consolidated EBITDA, to consolidated interest expense of at least 3.0 to 1.0 and our maximum leverage ratio, defined as the ratio of total debt to consolidated EBITDA of no greater than 3.25 to 1.0. Each of the factors considered in the calculations of these ratios are defined in the Credit Agreement. EBITDA and consolidated interest, exclude goodwill impairments, debt discount amortization and other non-cash charges. As of June 30, 2015, we were in compliance with our debt covenants. Borrowings under the Credit Agreement are secured by a pledge of substantially all of our assets and the assets of our domestic subsidiaries.  Our obligations under the Credit Agreement are guaranteed by our significant domestic subsidiaries. The credit facility also contains negative covenants that limit the Company's ability to borrow additional funds, encumber assets, pay dividends, sell assets and enter into other significant transactions. As of June 30, 2015, we had $150.9 million outstanding under the Credit Agreement and an additional $40.1 million of outstanding letters of credit, leaving $409.0 million available to be drawn under the credit facility. As of June 30, 2015, the Company had approximately $89.4 million of cash and cash equivalents.

 

 

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(Continued)

 

Loss on Extinguishment of Debt

 

During the second quarter of 2014, we recognized losses on the extinguishment of debt totaling $100.4 million primarily due to the repurchase of our remaining 6 1/2% Notes and 5 1/8% Notes (the Notes), which resulted in a loss of $96.7 million consisting of the premium paid over book value for the Notes and the write-off of unamortized deferred financing costs associated with the Notes. This repurchase was partially funded with the proceeds of the $750 million special cash dividend paid to us by Civeo in connection with the Spin-Off, along with available cash on hand. In addition, as a result of the refinancing of our existing credit facility in the second quarter of 2014, we recognized a loss on extinguishment of debt of $3.7 million (net of $1.8 million allocated to discontinued operations for the Canadian portion of the facility) from the write-off of unamortized deferred financing costs.

 

9.	FAIR VALUE MEASUREMENTS

 

The Company’s financial instruments consist of cash and cash equivalents, investments, receivables, payables, bank debt and foreign currency forward contracts. The Company believes that the carrying values of these instruments on the accompanying consolidated balance sheets approximate their fair values.

 

10.	CHANGES IN COMMON STOCK OUTSTANDING

 

Shares of common stock outstanding – January 1, 2015			53,017,359
Repurchase of shares – transferred to treasury			(2,191,654	)
Shares issued upon granting of restricted stock awards, net of forfeitures			454,636
Shares issued upon exercise of stock options			167,250
Shares withheld for taxes on exercise of stock options and vesting of restricted stock awards and transferred to treasury			(159,666	)
Shares of common stock outstanding – June 30, 2015			51,287,925

 

On September 6, 2013, the Company announced an increase in its Board-authorized Company share repurchase program from $200 million to $500 million providing for the repurchase of the Company’s common stock, par value $.01 per share. As of June 30, 2015, a total of $442.8 million of our stock (6,420,184 shares, or approximately 12% of the outstanding shares of our common stock at the initiation of the current share repurchase authorization in August 2012) had been repurchased under this program. The amount remaining under our current share repurchase authorization as of June 30, 2015 was approximately $57.2 million. Subject to applicable securities laws, such purchases will be at such times and in such amounts as the Company deems appropriate.  On July 29, 2015, the Company's Board of Directors approved the termination of our exisiting share repurchase program and authorized a new program providing for the repurchase of up to $150 million of the Company's common stock, par value $.01 per share.  The new program is set to expire on July 29, 2016.

 

 

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(Continued)

 

11.	STOCK BASED COMPENSATION

 

The following table presents a summary of stock option award and restricted stock award activity for the six months ended June 30, 2015.

 

		Stock Options				Restricted Stock Awards
		Number of Shares
Outstanding at January 1, 2015			1,007,686				1,106,670
Granted			119,370				558,270
Options Exercised/Stock Vested			(167,250	)			(436,392	)
Cancelled			(12,989	)			(27,734	)
Outstanding at June 30, 2015			946,817				1,200,814

 

Stock based compensation pre-tax expense from continuing operations recognized in the three month periods ended June 30, 2015 and 2014 totaled $5.0 million and $6.8 million, respectively. Stock based compensation pre-tax expense from continuing operations recognized in the six month periods ended June 30, 2015 and 2014 totaled $10.7 million and $12.5 million, respectively.

 

In February 2015, the Company granted performance based stock awards totaling 75,900 shares valued at a total of $3.2 million. These performance based awards may vest in February 2018 in an amount that will depend on the Company’s achievement of specified performance objectives. These performance based awards have a performance criteria that will be measured based upon the Company’s achievement of specified levels of average after-tax annual return on invested capital for the three year period commencing January 1, 2015 and ending December 31, 2017.

 

At June 30, 2015, $44.1 million of compensation cost related to unvested stock options and restricted stock awards attributable to vesting conditions had not yet been recognized.

 

12.	INCOME TAXES

 

Income tax expense for interim periods is based on estimates of the effective tax rate for the entire fiscal year. The Company’s income tax provision for the three and six months ended June 30, 2015 was income tax expense of $1.4 million, representing 19.0% of pretax income, and $14.7 million, representing 36.5% of pretax income, respectively, compared to a tax benefit recorded totaling $13.6 million, or 36.1% of pretax losses, and total income tax expense of $4.5 million, or 29.8% of pretax income, respectively, for the three and six months ended June 30, 2014. The lower effective tax rate in the second quarter of 2015 compared to the second quarter of 2014 was primarily due to reduced domestic income in 2015 due to the impact of the industry downturn in activity. The tax benefit recorded in the second quarter of 2014 was primarily due to the loss incurred from the extinguishment of debt associated with the debt refinancings completed in conjunction with the Spin-Off. The increase in the effective tax rate for the six months ended June 30, 2015 compared to the same period in 2014 was largely the result of the loss incurred in 2014 from the extinguishment of debt associated with the debt refinancings completed in conjunction with the Spin-Off, a $2.3 million deferred tax adjustment for certain prior period non-deductible items in 2015, partially offset by reduced domestic income in 2015 due to the impact of the industry downturn in activity.

 

13.	SEGMENT AND RELATED INFORMATION

 

In accordance with current accounting standards regarding disclosures about segments of an enterprise and related information, the Company has identified the following reportable segments: well site services and offshore products. The Company’s reportable segments represent strategic business units that offer different products and services. They are managed separately because each business requires different technologies and marketing strategies. Most of the businesses were initially acquired as a unit, and the management at the time of the acquisition was retained. Subsequent acquisitions have been direct extensions to our business segments. Separate business lines within the well site services segment have been disclosed to provide additional information for that segment.

 

 

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(Continued)

 

Financial information by business segment for continuing operations for each of the three and six months ended June 30, 2015 and 2014 is summarized in the following table (in thousands):

 

		Revenues from unaffiliated customers				Depreciation and amortization				Operating income (loss)				Equity in earnings of unconsolidated affiliates				Capital expenditures				Total assets
Three months ended June 30, 2015
Well site services –
Completion services		$	69,421			$	19,145			$	(10,969	)		$	-			$	12,616			$	559,211
Drilling services			16,703				6,962				(4,342	)			-				2,119				114,340
Total well site services			86,124				26,107				(15,311	)			-				14,735				673,551
Offshore products			183,134				5,967				34,836				54				15,273				965,157
Corporate and eliminations			-				358				(10,801	)			-				450				42,276
Total		$	269,258			$	32,432			$	8,724			$	54			$	30,458			$	1,680,984

 

 

		Revenues from unaffiliated customers				Depreciation and amortization				Operating income (loss)				Equity in earnings of unconsolidated affiliates				Capital expenditures				Total assets
Three months ended June 30, 2014
Well site services –
Completion services		$	155,655			$	18,401			$	32,472			$	-			$	21,140			$	598,889
Drilling services			53,263				6,753				8,739				-				7,973				140,288
Total well site services			208,918				25,154				41,211				-				29,113				739,177
Offshore products			250,689				5,705				50,261				122				12,844				971,973
Corporate and eliminations			-				248				(23,927	)	(1)		-				1,352				54,393
Total		$	459,607			$	31,107			$	67,545			$	122			$	43,309			$	1,765,543

 

		Revenues from unaffiliated customers				Depreciation and amortization				Operating income (loss)				Equity in earnings of unconsolidated affiliates				Capital expenditures				Total assets
Six months ended June 30, 2015
Well site services –
Completion services		$	187,531			$	38,588			$	1,499			$	-			$	35,378			$	559,211
Drilling services			40,382				13,644				(6,881	)