ois20150930_10q.htm

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 September 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 50,805,451shares of common stock, par value $0.01, outstanding and 10,758,567 shares of treasury stock as of October 28, 2015.

 

 
1

 

 

OIL STATES INTERNATIONAL, INC.

 

INDEX

 

 

Page No.

                         Part I -- FINANCIAL INFORMATION

 
   

Item 1.    Financial Statements:

 
   

    Condensed Consolidated Financial Statements

 

Unaudited Condensed Consolidated Statements of Income

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

 

 
2

 

 

PART I -- FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

 

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Share Amounts)

 

    THREE MONTHS ENDED       NINE MONTHS ENDED    
    SEPTEMBER 30,       SEPTEMBER 30,    
    2015     2014     2015     2014  

Revenues

  $ 258,886     $ 471,032     $ 865,503     $ 1,335,876  
                                 

Costs and expenses:

                               

Cost of sales and services

    188,590       306,497       620,976       886,777  

Selling, general and administrative expenses

    33,126       43,734       100,732       128,181  

Depreciation and amortization expense

    31,730       31,076       96,742       92,970  

Other operating expense (income)

    (1,206 )     (1,887 )     (2,077 )     9,524  
      252,240       379,420       816,373       1,117,452  

Operating income

    6,646       91,612       49,130       218,424  
                                 

Interest expense

    (1,541 )     (1,602 )     (4,876 )     (15,500 )

Interest income

    153       150       428       411  

Loss on extinguishment of debt

    --       30       --       (100,380 )

Other income

    401       235       1,221       2,571  

Income from continuing operations before income taxes

    5,659       90,425       45,903       105,526  

Income tax provision

    (3,953 )     (32,048 )     (18,646 )     (36,545 )

Net income from continuing operations

    1,706       58,377       27,257       68,981  

Net income (loss) from discontinued operations, net of tax

    23       (1,467 )     224       51,571  

Net income

    1,729       56,910       27,481       120,552  

Less: Net income (loss) attributable to noncontrolling interest

    --       (10 )     --       8  

Net income attributable to Oil States International, Inc.

  $ 1,729     $ 56,920     $ 27,481     $ 120,544  
                                 
                                 

Net income (loss) attributable to Oil States International, Inc.:

                               

Continuing operations

  $ 1,706     $ 58,387     $ 27,257     $ 68,973  

Discontinued operations

    23       (1,467 )     224       51,571  

Net income attributable to Oil States International, Inc.

  $ 1,729     $ 56,920     $ 27,481     $ 120,544  
                                 
                                 

Basic net income (loss) per share attributable to Oil States International, Inc. common stockholders from:

                               

Continuing operations

  $ 0.03     $ 1.08     $ 0.53     $ 1.28  

Discontinued operations

    --       (0.03 )     --       0.95  

Net income

  $ 0.03     $ 1.05     $ 0.53     $ 2.23  
                                 

Diluted net income (loss) per share attributable to Oil States International, Inc. common stockholders from:

                               

Continuing operations

  $ 0.03     $ 1.07     $ 0.53     $ 1.27  

Discontinued operations

    --       (0.02 )     --       0.95  

Net income

  $ 0.03     $ 1.05     $ 0.53     $ 2.22  
                                 

Weighted average number of common shares outstanding:

                               

Basic

    50,011       52,979       50,422       53,119  

Diluted

    50,050       53,294       50,500       53,422  

 

 

The accompanying notes are an integral part of

these financial statements.

 

 
3

 

 

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In Thousands)

 

    THREE MONTHS ENDED       NINE MONTHS ENDED    
    SEPTEMBER 30,       SEPTEMBER 30,    
    2015     2014     2015     2014  

Net income

  $ 1,729     $ 56,910     $ 27,481     $ 120,552  
                                 

Other comprehensive income (loss):

                               

Foreign currency translation adjustment

    (15,415 )     (13,144 )     (20,132 )     10,301  

Unrealized gain on forward contracts, net of tax

    88       3       160       4  

Total other comprehensive income (loss)

    (15,327 )     (13,141 )     (19,972 )     10,305  
                                 

Comprehensive income (loss)

    (13,598 )     43,769       7,509       130,857  

Less: Comprehensive loss attributable to noncontrolling interest

    --       (10 )     --       (16 )

Comprehensive income (loss) attributable to Oil States International, Inc.

  $ (13,598 )   $ 43,779     $ 7,509     $ 130,873  

 

 

The accompanying notes are an integral part of

these financial statements.

 

 
4

 

 

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

(In Thousands)

 

   

SEPTEMBER 30,

   

DECEMBER 31,

 

 

 

2015

   

2014

 
   

(UNAUDITED)

         
ASSETS                
                 

Current assets:

               

Cash and cash equivalents

  $ 85,715     $ 53,263  

Accounts receivable, net

    304,574       497,124  

Inventories, net

    226,394       232,490  

Prepaid expenses and other current assets

    31,325       43,789  

Total current assets

    648,008       826,666  
                 

Property, plant, and equipment, net

    648,330       649,846  

Goodwill, net

    264,308       252,201  

Other intangible assets, net

    60,558       52,935  

Other noncurrent assets

    27,134       27,964  

Total assets

  $ 1,648,338     $ 1,809,612  
                 

LIABILITIES AND STOCKHOLDERS’ EQUITY

               
                 

Current liabilities:

               

Accounts payable

  $ 72,345     $ 108,949  

Accrued liabilities

    61,434       96,130  

Income taxes

    9,056       9,195  

Current portion of long-term debt and capitalized leases

    515       530  

Deferred revenue

    28,820       48,948  

Deferred tax liabilities

    12,562       7,431  

Other current liabilities

    213       229  

Total current liabilities

    184,945       271,412  
                 

Long-term debt and capitalized leases

    159,611       146,835  

Deferred income taxes

    30,151       33,913  

Other noncurrent liabilities

    18,988       16,795  

Total liabilities

    393,695       468,955  
                 

Stockholders’ equity:

               

Oil States International, Inc. stockholders’ equity:

               

Common stock, $.01 par value, 200,000,000 shares authorized, 61,564,018 shares and 60,940,734 shares issued, respectively, and 50,805,727 shares and 53,017,359 shares outstanding, respectively

    616       610  

Additional paid-in capital

    704,402       685,232  

Retained earnings

    1,178,747       1,151,266  

Accumulated other comprehensive loss

    (42,072 )     (22,100 )

Common stock held in treasury at cost, 10,758,291 and 7,923,375 shares, respectively

    (587,050 )     (474,351 )

Total Oil States International, Inc. stockholders’ equity

    1,254,643       1,340,657  

Noncontrolling interest

    --       --  

Total stockholders’ equity

    1,254,643       1,340,657  

Total liabilities and stockholders’ equity

  $ 1,648,338     $ 1,809,612  

 

 

The accompanying notes are an integral part of

these financial statements.

 

 
5

 

 

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

 

   

NINE MONTHS

ENDED SEPTEMBER 30,

 
    2015     2014  
Cash flows from operating activities:                
Net income   $ 27,481     $ 120,552  
Adjustments to reconcile net income to net cash provided by operating activities:                

Income from discontinued operations

    (224 )     (51,571 )

Depreciation and amortization

    96,742       92,970  

Deferred income tax benefit

    (2,862 )     (20,144 )

Tax impact of share-based payment arrangements

    (550 )     (4,585 )

Provision for bad debt

    (99 )     3,767  

Gain on disposals of assets

    (907 )     (1,761 )

Non-cash compensation charge

    16,245       19,284  

Amortization of deferred financing costs

    585       1,625  

Loss on extinguishment of debt

    --       100,380  

Other, net

    --       (182 )

Changes in operating assets and liabilities, net of effect from acquired businesses:

               

Accounts receivable

    189,882       (71,442 )

Inventories

    5,207       (11,534 )

Accounts payable and accrued liabilities

    (71,848 )     (20,257 )

Taxes payable

    5,784       (38,990 )

Other operating assets and liabilities, net

    (12,959 )     23,238  

Net cash flows provided by continuing operating activities

    252,477       141,350  

Net cash flows provided by discontinued operating activities

    350       161,130  

Net cash flows provided by operating activities

    252,827       302,480  
                 

Cash flows from investing activities:

               

Capital expenditures

    (92,314 )     (142,549 )

Acquisitions of businesses, net of cash acquired

    (33,427 )     193  

Proceeds from disposition of property, plant and equipment

    1,911       3,069  

Other, net

    (491 )     (1,463 )

Net cash flows used in continuing investing activities

    (124,321 )     (140,750 )

Net cash flows used in discontinued investing activities

    --       (119,061 )

Net cash flows used in investing activities

    (124,321 )     (259,811 )
                 

Cash flows from financing activities:

               

Revolving credit borrowings, net

    13,084       171,734  

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

    (411 )     (408 )

Issuance of common stock from share-based payment arrangements

    2,385       8,844  

Purchase of treasury stock

    (104,596 )     (162,053 )

Tax impact of share-based payment arrangements

    550       4,585  

Shares added to treasury stock as a result of net share settlements due to vesting of restricted stock

    (6,786 )     (5,048 )

Payment of financing costs

    (2 )     (3,862 )

Other, net

    --       1  

Net cash flows used in continuing financing activities

    (95,776 )     (286,308 )

Net cash flows used in discontinued financing activities

    --       (282,204 )

Net cash flows used in financing activities

    (95,776 )     (568,512 )
                 

Effect of exchange rate changes on cash

    (278 )     (3,663 )

Net change in cash and cash equivalents

    32,452       (529,506 )

Cash and cash equivalents, beginning of period

    53,263       599,306  
                 

Cash and cash equivalents, end of period

  $ 85,715     $ 69,800  

 

  

The accompanying notes are an integral part of

these financial statements.

 

 
6

 

 

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.

                    27,481                       27,481  

Currency translation adjustment (excluding intercompany notes)

                            (16,295 )             (16,295 )

Currency translation adjustment on intercompany notes

                            (3,837 )             (3,837 )

Unrealized gain on forward contracts, net of tax

                            160               160  

Exercise of stock options, including tax impact

    2       2,932                               2,934  

Amortization of restricted stock compensation

            13,993                               13,993  

Stock option expense

            2,252                               2,252  

Restricted stock awards granted

    4       (4 )                             --  

Surrender of stock to pay taxes on stock option exercises and restricted stock awards

                                    (6,786 )     (6,786 )

OIS common stock withdrawn from deferred compensation plan

            (3 )                     3       --  

Share repurchases

                                    (105,916 )     (105,916 )

Balance, September 30, 2015

  $ 616     $ 704,402     $ 1,178,747     $ (42,072 )   $ (587,050 )   $ 1,254,643  

 

 

The accompanying notes are an integral part of

these financial statements.

 

 
7

 

 

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. Our industry is cyclical and this cyclicality impacts our estimates of the period over which future cash flows will be generated, as well as the predictability of these cash flows including our determination of whether a decline in value of our long-lived assets and related fair values of our reporting units have occurred. A longer term continuation of the current down cycle will likely result in changes in our estimates of forward cash flow timing and amounts and may result in impairment losses.

 

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 September 2015, the FASB issued guidance on measurement-period adjustments for business combinations which require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period with a corresponding adjustment to goodwill in the reporting period in which the adjustment amounts are determined, as opposed to revising prior periods presented in financial statements as previously required. Thus, an acquirer shall record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. This guidance requires an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. For public business entities, the guidance is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. This guidance should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this guidance with earlier application permitted for financial statements that have not been issued. We do not expect that the adoption of this standard will have a material effect on our consolidated financial statements.


In July 2015, the FASB issued guidance on the measurement of inventory which simplifies the guidance on the subsequent measurement of inventory, excluding inventory measured using last-in, first out or the retail inventory method. Under this guidance, in scope inventory should be measured at the lower of cost and net realizable value. This guidance is effective for interim and annual periods beginning after December 15, 2016, with early adoption permitted. We are evaluating the impact of this guidance on our consolidated financial statements and our timing for adoption but do not expect that the adoption of this guidance will have a material effect on our consolidated financial statements.

 

 
8

 

 

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED 

FINANCIAL STATEMENTS

(Continued)

 

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. In August 2015, the FASB issued additional guidance on this topic which adds comments from the Commission addressing the guidance issued in April 2015 and debt issuance costs related to line-of-credit arrangements. The Commission commented it would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. 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. In August 2015, the FASB issued guidance deferring 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.

 

3.

DETAILS OF SELECTED BALANCE SHEET ACCOUNTS

 

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

 

   

SEPTEMBER 30,

   

DECEMBER 31,

 
   

2015

   

2014

 

Accounts receivable, net:

               

Trade

  $ 189,253     $ 348,115  

Unbilled revenue

    116,749       148,371  

Other

    5,396       7,763  

Total accounts receivable

    311,398       504,249  

Allowance for doubtful accounts

    (6,824 )     (7,125 )
    $ 304,574     $ 497,124  

 

   

SEPTEMBER 30,

   

DECEMBER 31,

 
   

2015

   

2014

 

Inventories, net:

               

Finished goods and purchased products

  $ 101,213     $ 94,955  

Work in process

    48,331       49,631  

Raw materials

    89,060       97,780  

Total inventories

    238,604       242,366  

Allowance for excess, damaged, or obsolete inventory

    (12,210 )     (9,876 )
    $ 226,394     $ 232,490  

 

 
9

 

 

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED 

FINANCIAL STATEMENTS

(Continued)

 

   

SEPTEMBER 30,

   

DECEMBER 31,

 
   

2015

   

2014

 

Prepaid expenses and other current assets:

               

Income tax asset

  $ 13,535     $ 17,740  

Prepaid insurance

    2,671       7,310  

Prepaid rent/leases

    1,184       802  

Other prepaid expenses and current assets

    13,935       17,937  
    $ 31,325     $ 43,789  

 

 

Estimated

 

SEPTEMBER 30,

   

DECEMBER 31,

 
 

Useful Life (years)

 

2015

   

2014

 

Property, plant and equipment, net:

                 

Land

  $ 26,375     $ 29,850  

Buildings and leasehold improvements

3-40

    181,854       175,421  

Machinery and equipment

2-28

    459,858       438,980  

Completion services equipment

2-10

    419,761       387,165  

Office furniture and equipment

1-10

    32,024       30,647  

Vehicles

1-10

    127,307       129,922  

Construction in progress

    82,450       74,088  

Total property, plant and equipment

    1,329,629       1,266,073  

Accumulated depreciation

    (681,299 )     (616,227 )
      $ 648,330     $ 649,846  

 

   

SEPTEMBER 30,

   

DECEMBER 31,

 
   

2015

   

2014

 

Accrued liabilities:

               

Accrued compensation

  $ 21,537     $ 58,979  

Insurance liabilities

    10,959       11,300  

Accrued taxes, other than income taxes

    7,990       4,851  

Accrued commissions

    2,192       3,622  

Accrued product warranty reserves

    2,471       2,810  

Other

    16,285       14,568  
    $ 61,434     $ 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 $42.1 million at September 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 nine months 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.

 

 
10

 

 

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 SEPTEMBER 30,

 
   

2015

   

2014

 
   

Income (Loss)

   

Shares

   

Income (Loss)

   

Shares

 

Basic:

                               

Net income attributable to Oil States International, Inc.

  $ 1,729             $ 56,920          

Less: Undistributed net income allocable to participating securities

    (36 )             (1,187 )        

Undistributed net income applicable to common stockholders

    1,693               55,733          

Less: (Income) loss from discontinued operations, net of tax

    (23 )             1,467          

Add: Undistributed net income (loss) from discontinued operations allocable to participating securities

    --               (31 )        

Income from continuing operations applicable to Oil States International, Inc. common stockholders – Basic

  $ 1,670       50,011     $ 57,169       52,979  

Diluted:

                               

Income from continuing operations applicable to Oil States International, Inc. common stockholders – Basic

  $ 1,670       50,011     $ 57,169       52,979  

Effect of dilutive securities:

                               

Undistributed net income reallocated to participating securities

    --       --       7       --  

Options on common stock

    --       30       --       298  

Restricted stock awards and other

    --       9       --       17  

Income from continuing operations applicable to Oil States International, Inc. common stockholders – Diluted

    1,670       50,050       57,176       53,294  

Income (loss) from discontinued operations, net of tax, applicable to Oil States International, Inc. common stockholders

    22               (1,436 )        

Net income attributable to Oil States International, Inc. common stockholders – Diluted

  $ 1,692       50,050     $ 55,740       53,294  

 

   

NINE MONTHS ENDED SEPTEMBER 30,

 
   

2015

   

2014

 
   

Income (Loss)

   

Shares

   

Income (Loss)

   

Shares

 

Basic:

                               

Net income attributable to Oil States International, Inc.

  $ 27,481             $ 120,544          

Less: Undistributed net income allocable to participating securities

    (575 )             (1,846 )        

Undistributed net income applicable to common stockholders

    26,906               118,698          

Less: Income from discontinued operations, net of tax

    (224 )             (51,571 )        

Add: Undistributed net income from discontinued operations allocable to participating securities

    5               790          

Income from continuing operations applicable to Oil States International, Inc. common stockholders – Basic

  $ 26,687       50,422     $ 67,917       53,119  

Diluted:

                               

Income from continuing operations applicable to Oil States International, Inc. common stockholders – Basic

  $ 26,687       50,422     $ 67,917       53,119  

Effect of dilutive securities:

                               

Undistributed net income reallocated to participating securities

    1       --       6       --  

Options on common stock

    --       70       --       286  

Restricted stock awards and other

    --       9       --       17  

Income from continuing operations applicable to Oil States International, Inc. common stockholders – Diluted

    26,688       50,501       67,923       53,422  

Income from discontinued operations, net of tax, applicable to Oil States International, Inc. common stockholders

    219               50,781          

Undistributed net income reallocated to participating securities

    --               4          

Net income attributable to Oil States International, Inc. common stockholders – Diluted

  $ 26,907       50,501     $ 118,708       53,422  

 

 
11

 

 

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED 

FINANCIAL STATEMENTS

(Continued)

 

Our calculation of diluted earnings per share for the three and nine months ended September 30, 2015 excluded 757,150 shares and 745,514 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 nine months ended September 30, 2014 excluded 196,039 shares and 186,354 shares, respectively, issuable pursuant to outstanding stock options and restricted stock awards, due to their antidilutive effect.

 

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. 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. 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 nine month period ended September 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

    --       --       --       13,942       13,942  

Foreign currency translation and other changes

    (1,674 )     --       (1,674 )     (161 )     (1,835 )
    $ 104,765     $ --     $ 104,765     $ 159,543     $ 264,308  
                                         

Balance as of September 30, 2015

                                       

Goodwill

  $ 199,293     $ 22,767     $ 222,060     $ 159,543     $ 381,603  

Accumulated Impairment Losses

    (94,528 )     (22,767 )     (117,295 )     --       (117,295 )
    $ 104,765     $ --     $ 104,765     $ 159,543     $ 264,308  

 

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.

 

 
12

 

 

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     Nine Months Ended     Nine Months Ended  
    September 30, 2015     September 30, 2014     September 30, 2015     September 30, 2014  

Revenues

                               

Accommodations

  $ --     $ --     $ --     $ 404,132  

Tubular services

  $ --     $ --     $ --     $ --  
                                 

Income (loss) from Accommodations discontinued operations:

                               

Income from discontinued operations before income taxes

  $ 36     $ 512     $ 324     $ 62,436  

Income tax expense

    (13 )     (1,965 )     (117 )     (11,063 )

Net (loss) income from discontinued operations, net of tax

  $ 23     $ (1,453 )   $ 207     $ 51,373  
                                 

Income (loss) from Tubular services discontinued operations:

                               

(Loss) Income from discontinued operations before income taxes

  $ --     $ (21 )   $ 27     $ 315  

Income tax (expense) benefit

    --       7       (10 )     (118 )

Net (loss) income from discontinued operations, net of tax

  $ --     $ (14 )   $ 17     $ 197  

 

8.

DEBT

 

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

 

    September 30,     December 31,  
   

 2015

    2014  

Revolving credit facility, which matures May 28, 2019, with available commitments up to $600 million and with a weighted average interest rate of 3.5% for the nine month period ended September 30, 2015

  $ 153,767     $ 140,684  

Capital lease obligations and other debt

    6,359       6,681  

Total debt

    160,126       147,365  

Less: Current portion

    515       530  

Total long-term debt and capitalized leases

  $ 159,611     $ 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 nine months 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 nine months 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, losses on extinguishment of debt, debt discount amortization and other non-cash charges. As of September 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 September 30, 2015, we had $153.8 million outstanding under the Credit Agreement and an additional $39.5 million of outstanding letters of credit, leaving $406.7 million available to be drawn under the credit facility. As of September 30, 2015, the Company had approximately $85.7 million of cash and cash equivalents.

 

 
13

 

 

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED 

FINANCIAL STATEMENTS

(Continued)

 

Loss on Extinguishment of Debt

 

During the first nine months 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

    (2,674,218 )

Shares issued upon granting of restricted stock awards, net of forfeitures

    448,024  

Shares issued upon exercise of stock options

    175,260  

Shares withheld for taxes on exercise of stock options and vesting of restricted stock awards and transferred to treasury

    (160,698 )

Shares of common stock outstanding – September 30, 2015

    50,805,727  

 

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. On July 29, 2015, the Company’s Board of Directors approved the termination of our existing 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. During the nine months ended September 30, 2015, a total of $105.9 million of our stock (2,674,218 shares) were repurchased under these programs compared to $155.4 million (1,704,127 shares) during the nine months ended September 30, 2014. The amount remaining under our current share repurchase authorization as of September 30, 2015 was approximately $136.8 million. Subject to applicable securities laws, such purchases will be at such times and in such amounts as the Company deems appropriate.

 

 
14

 

 

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 nine months ended September 30, 2015.

 

   

Stock

Options

   

Restricted

Stock

Awards

 
   

Number of Shares

 

Outstanding at January 1, 2015

    1,007,686       1,106,670  

Granted

    119,370       558,748  

Options Exercised/Stock Vested

    (175,260 )     (440,599 )

Cancelled

    (18,996 )     (34,824 )

Outstanding at September 30, 2015

    932,800       1,189,995  

 

Stock based compensation pre-tax expense from continuing operations recognized in the three month periods ended September 30, 2015 and 2014 totaled $5.5 million and $6.8 million, respectively. Stock based compensation pre-tax expense from continuing operations recognized in the nine month periods ended September 30, 2015 and 2014 totaled $16.2 million and $19.3 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 September 30, 2015, $38.3 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 nine months ended September 30, 2015 was income tax expense of $4.0 million, representing 69.9% of pretax income, and $18.6 million, representing 40.6% of pretax income, respectively, compared to income tax expense of $32.0 million, or 35.4% of pretax income, and income tax expense of $36.5 million, or 34.6% of pretax income, respectively, for the three and nine months ended September 30, 2014. The higher effective tax rate in the third quarter of 2015 compared to the third quarter of 2014 was primarily due to a $3.2 million tax valuation allowance recorded against certain of the Company’s deferred tax assets. The increase in the effective tax rate for the nine months ended September 30, 2015 compared to the same period in 2014 was largely the result of the $3.5 million tax valuation allowance recorded against certain of the Company’s deferred tax assets, 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 and the loss incurred in 2014 from the extinguishment of debt associated with the debt refinancings completed in conjunction with the Spin-Off.  

 

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.

 

 
15

 

 

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 nine months ended September 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 September 30, 2015                                                

Well site services –

                                               

Completion services

  $ 66,734     $ 18,701     $ (9,991 )   $ -     $ 11,343     $ 545,986  

Drilling services

    16,506       6,725       (4,844 )     -       1,539       109,645  

Total well site services

    83,240       25,426       (14,835 )     -       12,882       655,631  

Offshore products

    175,646       5,985       33,512       1       10,538       955,439  

Corporate and eliminations

    -       319       (12,031 )     -       154       37,268  

Total

  $ 258,886     $ 31,730     $ 6,646     $ 1     $ 23,574     $ 1,648,338  

 

   

Revenues

from

unaffiliated

customers

   

Depreciation

and

amortization

   

Operating

income

(loss)

   

Equity in

earnings of

unconsolidated

affiliates

   

Capital

expenditures

   

Total

assets

 

Three months ended September 30, 2014

                                               

Well site services –

                                               

Completion services

  $ 171,990     $ 18,560     $ 43,242     $ -     $ 36,370     $ 622,318  

Drilling services

    52,416       6,721       8,511       -       6,054       144,211  

Total well site services

    224,406       25,281       51,753       -       42,424       766,529  

Offshore products

    246,626       5,539       54,899       74       16,783       1,016,077  

Corporate and eliminations

    -       256       (15,040 )     -       131       20,863  

Total

  $ 471,032     $ 31,076     $ 91,612     $ 74     $ 59,338     $ 1,803,469  

 

   

Revenues

from

unaffiliated

customers

   

Depreciation

and

amortization

   

Operating

income

(loss)

   

Equity in

earnings of

unconsolidated

affiliates

   

Capital

expenditures

   

Total

assets

 

Nine months ended September 30, 2015

                                               

Well site services –

                                               

Completion services

  $ 254,265     $ 57,289     $ (8,492 )   $ -     $ 46,721     $ 545,986  

Drilling services

    56,888       20,368       (11,725 )     -       10,209       109,645  

Total well site services

    311,153       77,657       (20,217 )     -       56,930       655,631  

Offshore products

    554,350       18,054       104,889       5       34,704       955,439  

Corporate and eliminations

    -       1,031       (35,542 )     -       680       37,268  

Total

  $ 865,503     $ 96,742     $ 49,130     $ 5     $ 92,314     $ 1,648,338  

 

   

Revenues

from

unaffiliated

customers

   

Depreciation

and

amortization

   

Operating

income

(loss)

   

Equity in

earnings of

unconsolidated

affiliates

   

Capital

expenditures