UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2003 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________ to ___________________ Commission file number 1-16337 OIL STATES INTERNATIONAL, INC. --------------- (Exact name of registrant as specified in its charter) Delaware 76-0476605 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Three Allen Center, 333 Clay Street, Suite 3460, 77002 Houston, Texas (Zip Code) - ----------------------------------------------------- (Address of principal executive offices) (713) 652-0582 - ------------------------------------------------------------------------------- (Registrant's telephone number, including area code) None - ------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b - 2 of the Exchange Act). YES [X] NO [ ] The Registrant had 48,569,910 shares of common stock outstanding as of April 30, 2003.
OIL STATES INTERNATIONAL, INC. INDEX <TABLE> <CAPTION> PAGE NO. -------- <S> <C> <C> Part I -- FINANCIAL INFORMATION Item 1. Financial Statements: Consolidated Financial Statements Unaudited Consolidated Statements of Income for the Three Months Ended March 31, 2003 and 2002 3 Consolidated Balance Sheets -- March 31, 2003 (unaudited) and December 31, 2002 4 Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2003 and 2002 5 Notes to Unaudited Consolidated Financial Statements 6 - 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 - 15 Item 3. Quantitative and Qualitative Disclosures About Market Risk 15 Item 4. Controls and Procedures 15 Part II -- OTHER INFORMATION Item 1. Legal Proceedings 16 Item 2. Changes in Securities and Use of Proceeds 16 Item 3. Default Upon Senior Securities 16 Item 4. Submission of Matters to a Vote of Security Holders 16 Item 5. Other Information 16 Item 6. Exhibits and Reports on Form 8-K 17 (a) Index of Exhibits 17 - 19 (b) Report on Form 8-K 19 Signature Page and Certifications 20 - 24 </TABLE> 2
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (In Thousands, Except Per Share Amounts) <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, ------------------------------- 2003 2002 ---------- ---------- <S> <C> <C> Revenues................................................. $ 185,577 $ 150,600 Costs and expenses: Cost of sales.......................................... 144,968 120,153 Selling, general and administrative expenses........... 13,753 12,228 Depreciation and amortization expense.................. 6,458 5,308 Other operating income................................. 52 (283) ---------- ---------- 165,231 137,406 ---------- ---------- Operating income......................................... 20,346 13,194 Interest income.......................................... 70 108 Interest expense......................................... (1,691) (1,047) Other income ............................................ 107 314 ---------- ---------- Income before income taxes and minority interest......... 18,832 12,569 Income tax expense....................................... (5,461) (2,766) Minority interest in income of consolidated subsidiaries. (2) 5 ---------- ---------- Net income............................................... $ 13,369 $ 9,808 ========== ========== Earnings per share: Basic.................................................... $ .28 $ .20 Diluted.................................................. $ .27 $ .20 Weighted average number of common shares outstanding: Basic.................................................... 48,463 48,233 Diluted.................................................. 49,099 48,637 </TABLE> The accompanying notes are an integral part of these financial statements. 3
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands) <TABLE> <CAPTION> MARCH 31, DECEMBER 31, ASSETS 2003 2002 ---------- ----------- (UNAUDITED) <S> <C> <C> Current assets: Cash and cash equivalents............................... $ 6,611 $ 11,118 Accounts receivable, net................................ 138,012 116,875 Inventories, net........................................ 121,993 118,338 Prepaid expenses and other current assets............... 9,033 9,475 ---------- ---------- Total current assets.................................. 275,649 255,806 Property, plant, and equipment, net....................... 168,629 167,146 Goodwill, net............................................. 214,297 213,051 Other noncurrent assets................................... 9,209 8,213 ---------- ---------- Total assets.......................................... $ 667,784 $ 644,216 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities................ $ 85,857 $ 84,049 Income taxes............................................ 4,072 1,229 Current portion of long-term debt....................... 866 913 Deferred revenue........................................ 9,602 8,949 Other current liabilities............................... 1,329 1,402 ---------- ---------- Total current liabilities............................. 101,726 96,542 Long-term debt.......................................... 133,234 133,292 Deferred income taxes................................... 18,881 18,303 Postretirement healthcare benefits...................... 5,268 5,280 Other liabilities....................................... 4,019 3,220 ---------- ---------- Total liabilities..................................... 263,128 256,637 Stockholders' equity: Common stock............................................ 486 485 Additional paid-in capital.............................. 327,889 327,801 Retained earnings....................................... 77,755 64,386 Accumulated other comprehensive loss.................... (1,243) (4,921) Treasury stock.......................................... (231) (172) ---------- ---------- Total stockholders' equity............................ 404,656 387,579 ---------- ---------- Total liabilities and stockholders' equity............ $ 667,784 $ 644,216 ========== ========== </TABLE> The accompanying notes are an integral part of these financial statements. 4
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, ------------------------------ 2003 2002 -------- -------- <S> <C> <C> Cash flows from operating activities: Net income...................................................... $ 13,369 $ 9,808 Adjustments to reconcile net income to net cash from operating activities: Provision for loss on accounts receivable..................... 159 48 Depreciation and amortization................................. 6,458 5,308 Deferred income tax provision (benefit)....................... 178 (909) Other, net.................................................... 206 760 Changes in working capital.................................... (19,064) 7,169 -------- -------- Net cash flows provided by operating activities............. 1,306 22,184 Cash flows from investing activities: Acquisitions of businesses, net of cash acquired................ (236) (1,405) Capital expenditures............................................ (5,689) (3,568) Proceeds from sale of equipment................................. 202 573 Other, net...................................................... -- 32 -------- -------- Net cash flows used in investing activities................. (5,723) (4,368) Cash flows from financing activities: Revolving credit borrowings (repayments)........................ (147) (15,965) Debt repayments................................................. (252) (3,559) Issuance of common stock........................................ 259 15 Other, net...................................................... (394) (43) -------- -------- Net cash flows used in financing activities................. (534) (19,552) Effect of exchange rate changes on cash........................... 488 253 -------- -------- Net increase in cash and cash equivalents from continuing operations (4,463) (1,483) Net cash provided by (used in) discontinued operations............ (44) (163) Cash and cash equivalents, beginning of period.................... 11,118 4,982 -------- -------- Cash and cash equivalents, end of period.......................... $ 6,611 $ 3,336 ======== ======== </TABLE> The accompanying notes are an integral part of these consolidated financial. 5
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND BASIS OF PRESENTATION The accompanying unaudited consolidated financials statements of the Company and its wholly-owned subsidiaries have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission pertaining to interim financial information. Certain information in footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to these rules and regulations. The unaudited financial statements included in this report reflect all the adjustments, consisting of normal recurring adjustments, which the Company considers necessary for a fair presentation of the results of operations for the interim periods covered and for the financial condition of the Company at the date of the interim balance sheet. Results for the interim periods are not necessarily indicative of results for the year. Preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosed amounts of contingent assets and liabilities and the reported amounts of revenues and expenses. If the underlying estimates and assumptions, upon which the financial statements are based, change in future periods, actual amounts may differ from those included in the accompanying consolidated condensed financial statements. The Company's shares outstanding include all shares issuable upon the exercise of exchangeable shares of one of the Company's Canadian subsidiaries. The calculation of diluted earnings per share include the effect of the Company's outstanding stock options determined under the treasury stock method. All unvested restricted stock awards under the Company's Equity Participation Plan are included in the fully diluted shares. From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the "FASB") which are adopted by the Company as of the specified effective date. Unless otherwise discussed, management believes the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company's consolidated financial statements upon adoption. The financial statements included in this report should be read in conjunction with the Company's audited financial statements and accompanying notes included in its Annual Report on Form 10-K for the year ended December 31, 2002. 6
2. DETAILS OF SELECTED BALANCE SHEET ACCOUNTS Additional information regarding selected balance sheet accounts is presented below (in thousands): <TABLE> <CAPTION> MARCH 31, DECEMBER 31, 2003 2002 ---- ---- <S> <C> <C> Accounts receivable, net: Trade............................................................... $ 115,413 $ 101,314 Unbilled revenue.................................................... 17,638 14,788 Other............................................................... 7,331 3,060 Allowance for doubtful accounts..................................... (2,370) (2,287) --------- --------- $ 138,012 $ 116,875 </TABLE> <TABLE> <CAPTION> MARCH 31, DECEMBER 31, 2003 2002 ---- ---- <S> <C> <C> Inventories, net: Tubular goods....................................................... $ 65,507 $ 60,816 Other finished goods and purchased products......................... 24,362 22,339 Work in process..................................................... 21,402 25,678 Raw materials....................................................... 15,669 14,283 Total inventories................................................... 126,940 123,116 Inventory reserves.................................................. (4,947) (4,778) --------- --------- $ 121,993 $ 118,338 </TABLE> <TABLE> <CAPTION> ESTIMATED MARCH 31, DECEMBER 31, USEFUL LIFE 2003 2002 ----------- ------------ ------------ <S> <C> <C> <C> Property, plant and equipment, net: Land.................................................... $ 4,841 $ 4,675 Buildings and leasehold improvements.................... 2-40 years 35,127 34,348 Machinery and equipment................................. 2-20 years 172,631 166,702 Rental tools............................................ 3-10 years 33,071 32,323 Office furniture and equipment.......................... 1-10 years 13,154 12,710 Vehicles................................................ 2-5 years 7,140 6,817 Construction in progress................................ 2,205 1,791 --------- --------- Total property, plant and equipment..................... 268,169 259,366 Less: Accumulated depreciation.......................... (99,540) (92,220) ---------- --------- $ 168,629 $ 167,146 </TABLE> <TABLE> <CAPTION> MARCH 31, DECEMBER 31, 2003 2002 ---- ---- <S> <C> <C> Accounts payable and accrued liabilities: Trade accounts payable....................................... $ 59,190 $ 52,212 Accrued compensation......................................... 6,498 13,674 Accrued insurance............................................ 3,846 3,870 Accrued taxes, other than income taxes....................... 2,264 2,020 Reserves related to discontinued operations, current portion. 5,385 5,216 Other........................................................ 8,674 7,057 --------- --------- $ 85,857 $ 84,049 </TABLE> Changes in the carrying amount of goodwill for the three months ended March 31, 2003 are as follows (in thousands): <TABLE> <CAPTION> OFFSHORE WELLSITE TUBULAR PRODUCTS SERVICES SERVICES TOTAL -------- -------- --------- --------- <S> <C> <C> <C> <C> Balance as of January 1, 2003 $ 71,589 $ 91,883 $ 49,579 $ 213,051 Goodwill acquired -- -- -- -- Impairment losses -- -- -- -- Foreign currency translation and other changes (99) 1,345 -- 1,246 -------- -------- ------- --------- Balance as of March 31, 2003 $ 71,490 $ 93,228 $49,579 $ 214,297 ======== ======== ======= ========= </TABLE> 7
3. SEGMENT AND RELATED INFORMATION In accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," the Company has identified the following reportable segments: Offshore Products, Wellsite Services and Tubular Services. The Company's reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and marketing strategies. Most of the businesses were acquired as a unit, and the management at the time of the acquisition was retained. Results of our Canadian well site services business related to the provision of work force accommodations, catering and logistics services are seasonal with significant activity occurring in the peak winter drilling season. Financial information by industry segment for each of the three-month periods ended March 31, 2003 and 2002 is summarized in the following table (in thousands): <TABLE> <CAPTION> OFFSHORE WELL SITE TUBULAR CORPORATE AND PRODUCTS SERVICES SERVICES ELIMINATIONS TOTAL -------- -------- --------- ------------- ----- <S> <C> <C> <C> <C> <C> MARCH 31, 2003 Revenues from unaffiliated customers...................... $ 57,588 $ 78,838 $ 49,151 $ -- $ 185,577 ======== ======== ========= ======= ========= Depreciation and amortization.... 1,833 4,453 159 13 6,458 ======== ======== ========= ======= ========= Operating income (loss).......... 5,627 15,080 959 (1,320) 20,346 ======== ======== ========= ======== ========= Capital expenditures............. 617 4,962 110 -- 5,689 ======== ======== ========= ======= ========= Total assets..................... 236,873 282,980 137,795 10,136 667,784 ======== ======== ========= ======= ========= MARCH 31, 2002 Revenues from unaffiliated customers...................... $ 32,737 $ 66,593 $ 51,270 $ -- $ 150,600 ======== ======== ========= ======= ========= Depreciation and amortization.... 1,345 3,807 144 12 5,308 ======== ======== ========= ======= ========= Operating income (loss).......... 3,016 11,420 (27) (1,215) 13,194 ======== ======== ========== ======= ========= Capital expenditures............. 1,381 2,142 45 -- 3,568 ======== ======== ========= ======= ========= Total assets..................... 142,358 248,202 120,098 3,679 514,337 ======== ======== ========= ======= ========= </TABLE> 4. COMPREHENSIVE INCOME Comprehensive income for the three months ended March 31, 2003 and 2002 was as follows (in thousands): THREE MONTHS ENDED MARCH 31, 2003 2002 ---------- ---------- Comprehensive income: Net income................................ $ 13,369 $ 9,808 Cumulative translation adjustment......... 3,678 (301) ---------- ---------- Total comprehensive income.......... $ 17,047 $ 9,507 ========== ========== 5. STOCK-BASED COMPENSATION In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation," which requires the Company to record stock-based compensation at fair value. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock Based Compensation -- Transition and Disclosure." The Company has adopted the disclosure requirements of SFAS No. 148 and has elected to record employee compensation expense utilizing the intrinsic value method permitted under Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees." The Company accounts for its employee stock-based compensation plan under APB Opinion No. 25 and its related interpretations. Accordingly, any deferred compensation expense would be recorded for stock options based on the excess of the market value of the common stock on the date the options were granted over the aggregate exercise price of the options. This deferred compensation would be amortized over the vesting period of each option. The Company is authorized to grant common stock based awards covering 5,700,000 shares of common stock under the 2001 Equity Participation Plan, as amended and restated (the Stock Option Plan), to employees, consultants and directors with amounts, exercise prices and vesting schedules determined by the compensation committee of the Company's Board of Directors. Since February 2001, all option grants have been priced at the closing price on the day of grant, vest 25% per year and have a ten-year life. Because the exercise price of options granted under the Stock Option Plan have been equal to or greater than the market price of the Company's stock on the date of grant, 8
no compensation expense related to this plan has been recorded. Had compensation expense for its Stock Option Plan been determined consistent with SFAS No. 123 utilizing the fair value method, the Company's net income and earnings per share at March 31, 2003 and 2002, would have been as follows (in thousands, except per share amounts): <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, ----------------------------- 2003 2002 ---------- ---------- <S> <C> <C> Net income as reported...................................... $ 13,369 $ 9,808 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects......................... (766) (414) Pro forma net income......................................... $ 12,603 $ 9,394 ========== ========== Net income as reported: Basic...................................................... $ .28 $ .20 Diluted.................................................... .27 .20 Pro forma net income per share as if fair value method had been applied to all awards: Basic...................................................... $ .26 $ .19 Diluted.................................................... .26 .19 </TABLE> 6. COMMITMENTS AND CONTINGENCIES We are a party to various pending or threatened claims, lawsuits and administrative proceedings seeking damages or other remedies concerning our commercial operations, products, employees and other matters, including occasional claims by individuals alleging exposure to hazardous materials as a result of our products or operations. Some of these claims relate to matters occurring prior to our acquisition of businesses, and some relate to businesses we have sold. In certain cases, we are entitled to indemnification from the sellers of businesses and in other cases, we have indemnified the buyers of businesses from us. Although we can give no assurance about the outcome of pending legal and administrative proceedings and the effect such outcomes may have on us, we believe that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by insurance, will not have a material adverse effect on our consolidated financial position, results of operations or liquidity. 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis together with our financial statements and the notes to those statements included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements based on our current expectations, assumptions, estimates and projections about us and our industry. These forward-looking statements involve risks and uncertainties. Our actual results could differ materially from those indicated in these forward-looking statements as a result of certain factors, as more fully described under "Cautionary Statement Regarding Forward-Looking Statements" in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 13, 2003. Except to the extent required by law, we undertake no obligation to update publicly any forward-looking statements, even if new information becomes available or other events occur in the future. CRITICAL ACCOUNTING POLICIES In our selection of critical accounting policies, our objective is to properly reflect our financial position and results of operations in each reporting period in a manner that will be understood by those who utilize our financial statements. Often we must use our judgment about uncertainties. There are several critical accounting policies that we have put into practice that have an important effect on our reported financial results. There have been no changes in these policies since the filing of our Annual Report on Form 10-K for the year ended December 31, 2002. We have contingent liabilities and future claims for which we have made estimates of the amount of the eventual cost to liquidate these liabilities or claims. These liabilities and claims sometimes involve threatened or actual litigation where damages have been quantified and we have made an assessment of our exposure and recorded a provision in our accounts to cover an expected loss. Other claims or liabilities have been estimated based on our experience in these matters and, when appropriate, the advice of outside counsel or other outside experts. Upon the ultimate resolution of these uncertainties, our future reported financial results will be impacted by the difference between our estimates and the actual amounts paid to settle a liability. Examples of areas where we have made important estimates of future liabilities include litigation, taxes, postretirement benefits, warranty claims and contract claims. The determination of impairment on long-lived assets, including goodwill, is conducted as indicators of impairment are present. If such indicators were present, the determination of the amount of impairment would be based on our judgments as to the future operating cash flows to be generated from these assets throughout their estimated useful lives. Our industry is highly cyclical and our estimates of the period over which future cash flows will be generated, as well as the predictability of these cash flows, can have a significant impact on the carrying value of these assets and, in periods of prolonged down cycles, may result in impairment charges. We recognize revenue and profit as work progresses on long-term, fixed price contracts using the percentage-of-completion method, which relies on estimates of total expected contract revenue and costs. We follow this method since reasonably dependable estimates of the revenue and costs applicable to various stages of a contract can be made. Recognized revenues and profit are subject to revisions as the contract progresses to completion. Revisions in profit estimates are charged to income or expense in the period in which the facts and circumstances that give rise to the revision become known. Provisions for estimated losses on uncompleted contracts are made in the period in which losses are determined. Our valuation allowances, especially related to potential bad debts in accounts receivable and to obsolescence or market value declines of inventory, involve reviews of underlying details of these assets, known trends in the marketplace and the application of historical factors that provide us with a basis for recording these allowances. If market conditions are less favorable than those projected by management, or if our historical experience is materially different from future experience, additional allowances may be required. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event we were to determine that we would be able to realize our deferred tax assets in the 10
future in excess of our net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, should we determine that we would not likely be able to realize all or part of our net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to expense in the period such determination was made. The selection of the useful lives of many of our assets requires the judgments of our operating personnel as to the length of these useful lives. Should our estimates be too long or short, we might eventually report a disproportionate number of losses or gains upon disposition or retirement of our long-lived assets. We believe our estimates of useful lives are appropriate. OVERVIEW We provide a broad range of products and services to the oil and gas industry through our offshore products, well site services and tubular services business segments. Demand for our products and services is cyclical and substantially dependent upon activity levels in the oil and gas industry, particularly our customers' willingness to spend capital on the exploration for and development of oil and gas reserves. Demand for our products and services by our customers is highly sensitive to current and expected oil and natural gas prices. Our offshore products segment provides highly engineered and technically designed products for offshore oil and gas development and production systems and facilities. Sales of our offshore products and services depend upon the development of offshore production systems, repairs and upgrades of existing drilling rigs and construction of new drilling rigs. In this segment, we are particularly influenced by deepwater drilling and production activities. In our well site services business segment, we provide hydraulic well control services, pressure control equipment and rental tools, drilling rigs and work force accommodations, catering and logistics services. Demand for our well site services depends upon the level of worldwide drilling and workover activity. Through our tubular services segment, we distribute premium casing and tubing. Sales of tubular products and services depend upon the overall level of drilling activity and the types of wells being drilled. Demand for tubular products is positively impacted by increased drilling of deeper horizontal and offshore wells that generally require premium tubulars and connectors, large diameter pipe and longer and additional casing and tubular strings. We have a diversified product and service offering which has exposure throughout the oil and gas cycle. Demand for our tubular services and well site services is highly correlated to movements in the rig count in the United States. The table below sets forth a summary of North American rig activity, as measured by Baker Hughes Incorporated, as of and for the periods indicated. <TABLE> <CAPTION> AVERAGE RIG COUNT FOR THE AVERAGE RIG COUNT FOR THE YEAR ENDED THREE MONTHS ENDED MARCH 31, DECEMBER 31, ---------------------------- ---------------------------- 2003 2002 2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- ---- ---- <S> <C> <C> <C> <C> <C> <C> <C> US...................... 901 818 831 1,156 918 624 837 Canada.................. 494(1) 383(1) 266 341 345 245 259 ------ ------ ------ ------ ------ ------ ------ North America...... 1,395 1,201 1,097 1,497 1,263 869 1,096 ====== ====== ====== ====== ====== ====== ====== </TABLE> (1) Canadian rig counts typically increase during the peak winter drilling season. The average North American rig count in the quarter ended March 31, 2003 increased 194 rigs, or 16%, compared to the quarter ended March 31, 2002. This increase in activity drove increased revenues in our well site services segment and increased volumes shipped in our tubular services segment. Our results for the first quarter of 2003 also benefited from increased deliveries for offshore construction and development projects in our offshore products segment. However, new orders did not keep pace with shipments, and our offshore products segment backlog decreased to $80.9 million at March 31, 2003 compared to $100.1 million at December 31, 2002. We believe that the offshore construction and development business is characterized by lengthy projects and a long "lead-time" order cycle. The change in backlog levels from one quarter to the next does not necessarily evidence a long-term trend. The first quarter of 2003 results also benefited from several acquisitions made in our well site services and offshore products segments that were completed in the third quarter of 2002. The majority of these acquisitions have been integrated with existing operations and the financial impact on our results of operations is not separately identifiable. Total acquisition costs in the third quarter were $71 million. 11
Management believes that fundamental oil and gas supply and demand factors will lead to increased drilling activity in North America over time. However, there can be no assurance that these expectations will be realized. RESULTS OF OPERATIONS (IN MILLIONS, EXCEPT MARGIN PERCENTAGES) <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, ---------------------------------------- 2003 2002 ----------- ----------- <S> <C> <C> Revenues Well Site Services......................... $ 78.8 $ 66.6 Offshore Products.......................... 57.6 32.7 Tubular Services........................... 49.2 51.3 ----------- ----------- Total................................. $ 185.6 $ 150.6 =========== =========== Gross Margin Well Site Services......................... $ 25.3 $ 20.0 Offshore Products.......................... 12.4 8.2 Tubular Services........................... 2.9 2.2 ----------- ----------- Total................................. $ 40.6 $ 30.4 =========== =========== Gross Margin as a Percent of Revenues Well Site Services......................... 32.1% 30.0% Offshore Products.......................... 21.5% 25.1% Tubular Services........................... 5.9% 4.3% Total................................. 21.9% 20.2% Operating Income (Loss) Well Site Services......................... $ 15.1 $ 11.4 Offshore Products.......................... 5.6 3.0 Tubular Services........................... 0.9 -- Corporate/Other............................ (1.3) (1.2) ----------- ----------- Total................................. $ 20.3 $ 13.2 =========== =========== </TABLE> THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THREE MONTHS ENDED MARCH 31, 2002 Revenues. Revenues increased $35.0 million, or 23.2%, to $185.6 million during the current quarter compared to revenues of $150.6 million during the quarter ended March 31, 2002. Tubular services revenues decreased $2.1 million, or 4.1%, in the three months ended March 31, 2003 compared to revenues in the three months ended March 31, 2002 as a result of reduced revenue per ton shipped caused by product mix changes and lower mill prices, partially offset by a 14.3% increase in tons shipped. Well site services revenues increased $12.2 million, or 18.3%, and offshore products revenues increased $24.9 million, or 76.1%, during the same period. Well site services revenues increased compared to the prior year primarily due to higher drilling and workover activity in North America. Offshore products revenues increased as a result of greater activity supporting offshore production facility construction and the impact of acquisitions completed in the third quarter 2002. Cost of Sales. Cost of sales increased by $24.8 million, or 20.6%, to $145.0 million for the quarter ended March 31, 2003 compared to $120.2 million in the quarter ended March 31, 2002. Increased offshore products shipments were the principal reason for the corresponding increase in cost of sales during the period. Offshore products cost of sales increased from $24.5 million in the first quarter of 2002 to $45.2 million in the first quarter of 2003, an increase of $20.7 million, or 84.5%. Gross Margin. Our gross margins, which we calculate before a deduction for depreciation expense, increased $10.2 million, or 33.6%, from $30.4 million in the quarter ended March 31, 2002 to $40.6 million in the quarter ended March 31, 2003. Well site services gross margins increased $5.3 million, or 26.5%, to $25.3 million in the quarter ended March 31, 2003 compared to the quarter ended March 31, 2002. Within our well site services segment, shallow drilling and specialty rental tool businesses' gross margins increased $0.7 million, or 63.6%, and $1.8 million, or 52.9%, respectively, during the quarter ended March 31, 2003 compared to the quarter ended March 31, 2002 as a result of higher utilization for our drilling and rental tool assets. Also in well site services, our work 12
force accommodations, catering and logistics services and modular building construction services gross margins increased by $1.6 million, or 11.9%, in the three months ended March 31, 2003 compared to the three months ended March 31, 2002 because of increased drilling camp and catering activity in Canada. Our hydraulic workover gross margins increased by $1.2 million, or 60%, as a result of increased activity, especially in the U.S. Gulf of Mexico. Offshore products gross margins increased $4.2 million, or 51.2%, from $8.2 million in the three months ended March 31, 2002 to $12.4 million in the three months ended March 31, 2003 primarily due to increased revenues from shipments and work in progress. Our gross margin percentage was negatively impacted by a greater percentage of lower-margin fabrication work compared to the prior period and to a loss incurred on a subsea pipeline project. Tubular services gross margins increased to $2.9 million, or 5.9% of tubular services revenues in the three months ended March 31, 2003 compared to $2.2 million, or 4.3% of tubular services revenues, in the three months ended March 31, 2002 as a result of increased oil and gas company drilling which increased demand for our tubular products and services. Selling, General and Administrative Expenses. During the three months ended March 31, 2003, selling, general and administrative expenses (SG&A) totaled $13.8 million compared to SG&A of $12.2 million for the three months ended March 31, 2002. Increased SG&A expense associated with acquisitions in the third quarter of 2002, higher insurance premiums and higher variable pay accruals were the principal reasons for higher overall SG&A expense during the current quarter. Depreciation and Amortization. Depreciation and amortization expense increased $1.2 million in the first quarter 2003 compared to the first quarter 2002 due primarily to acquisitions of businesses in 2002 and capital expenditures made during 2002. Operating Income. Our operating income represents revenues less (i) cost of sales, (ii) selling, general and administrative expenses and (iii) depreciation and amortization expense plus other operating income. Our operating income increased $7.1 million, or 53.8%, to $20.3 million for the three months ended March 31, 2003 from $13.2 million in the three month period ended March 31, 2002. Well site services operating income increased from $11.4 million during the three months ended March 31, 2002 to $15.1 million for the three months ended March 31, 2003. Offshore products operating income increased from $3.0 million during the three months ended March 31, 2002 to $5.6 million for the three months ended March 31, 2003. Tubular Services operating income was $0.9 million during the quarter ended March 31, 2003 compared to approximately break-even results for the quarter ended March 31, 2002. Interest Expense. Interest expense increased $0.7 million, or 70%, to $1.7 million for the quarter ended March 31, 2003 compared to $1.0 million for the quarter ended March 31, 2002. Increased interest expense is primarily attributable to higher debt levels resulting from the acquisitions completed during the third quarter 2002. Income Tax Expense. Income tax expense totaled $5.5 million, or 29.0% of pretax income, during the quarter ended March 31, 2003 compared to $2.8 million, or 22.0% of pretax income, during the quarter ended March 31, 2002. Decreased amounts of net operating loss carryforwards available to offset currently taxable income has resulted in a higher estimated annual effective tax rate for the year 2003 compared to 2002. LIQUIDITY AND CAPITAL RESOURCES Our primary liquidity needs are to fund capital expenditures, such as expanding and upgrading our manufacturing facilities and equipment, increasing our rental tool and workover assets, increasing our accommodation units, funding new product development and funding general working capital needs. In addition, capital is needed to fund strategic business acquisitions. Our primary sources of funds have been cash flow from operations, proceeds from borrowings under our bank facilities and private and public debt and equity offerings. 13
Cash was provided by operations during the quarters ended March 31, 2003 and 2002 in the amounts of $1.3 million and $22.2 million, respectively. Cash provided by operations in 2003 was generated by our net income plus depreciation and amortization which was almost totally offset by higher working capital invested in our well site services segment, principally caused by the seasonal use of working capital in our Canadian operations. During the three months ended March 31, 2002, normal seasonal uses of working capital in our Canadian operations was more than offset by significantly decreased investments in working capital as a result of tubular services receivables and inventory decreases. Cash was used in investing activities in the amount of $5.7 million during the three months ended March 31, 2003 primarily for capital expenditures. Capital expenditures totaled $5.7 million and $3.6 million during the three months ended March 31, 2003 and 2002, respectively. Capital expenditures during both these periods consisted principally of purchases of assets for our well site services businesses. We currently expect to spend a total of approximately $32.5 million during 2003 to upgrade our equipment and facilities and expand our product and service offerings. We expect to fund these capital expenditures with internally generated funds. Net cash of $0.5 million was used in financing activities during the three months ended March 31, 2003, primarily as a result of debt repayments and payment of offering costs for the sale of common stock by a major shareholder pursuant to their demand registration rights. As of March 31, 2003, we had $123.1 million outstanding under our bank credit facility and an additional $9.4 million of outstanding letters of credit, leaving $35.2 million available to be drawn under the facility. In addition, we have another floating rate bank credit facility in the UK that had a balance of $1.5 million at March 31, 2003. Our total debt represented 24.9% of our total capitalization at March 31, 2003. We believe that cash from operations and available borrowings under our credit facility will be sufficient to meet our liquidity needs for the foreseeable future. If our plans or assumptions change or are inaccurate, or we make any acquisitions, we may need to raise additional capital. However, there is no assurance that we will be able to raise additional funds or be able to raise such funds on favorable terms. TAX MATTERS For the year ended December 31, 2002, we had deferred tax assets, net of deferred tax liabilities, of approximately $5.2 million for federal income tax purposes before application of valuation allowances. Our primary deferred tax assets are net operating loss carry forwards, or NOLs, which total approximately $76 million. A valuation allowance is currently provided against the majority of our NOLs. The NOLs expire over a period through 2020. A portion of our NOLs are currently limited under Section 382 of the Internal Revenue Code due to a change of control that occurred during 1995. In 2003, approximately $39 million of NOLs are available for use if sufficient income is generated. However, a successive change in control was likely triggered in 2003 pursuant to Section 382 upon the completion of a secondary offering of stock by two major shareholders. If such a change of control did occur, the amount of NOLs available for use in 2003 would be reduced to approximately $26 million. Such a scenario could have a significant negative impact on our cash taxes payable; however, it is anticipated that any such change would not trigger a significant adverse impact on our 2003 tax expense. We expect little to no impact on our 2003 tax expense because of the operation of the valuation allowance related to our NOL carryforwards. See Note 10 to our Consolidated and Combined Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2002. We currently estimate our 2003 effective tax rate will be approximately 29%. Our actual effective tax rates could differ materially from these estimates, which are subject to a number of uncertainties, including future taxable income projections, the amount of income attributable to domestic versus foreign sources, the amount of capital expenditures and any changes in applicable tax laws and regulations. RECENT ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board issued SFAS No. 143, "Accounting for Asset Retirement Obligations." We adopted this statement effective January 1, 2003 and it did not have a material impact on our financial statements. 14
In April 2002, the Financial Accounting Standards Board issued SFAS No. 145 which, among other things, rescinded SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt." We adopted this statement effective January 1, 2003 and it did not have a material impact on our financial statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk. We have long-term debt and revolving lines of credit subject to the risk of loss associated with movements in interest rates. As of March 31, 2003, we had floating rate obligations totaling approximately $124.6 million for amounts borrowed under our revolving credit facilities. These floating-rate obligations expose us to the risk of increased interest expense in the event of increases in short-term interest rates. If the floating interest rate were to increase by 1% from March 31, 2003 levels, our consolidated interest expense would increase by a total of approximately $1.2 million annually. Foreign Currency Exchange Rate Risk. Our operations are conducted in various countries around the world in a number of different currencies. As such, our earnings are subject to movements in foreign currency exchange rates when transactions are denominated in currencies other than the U.S. dollar, which is our functional currency. In order to mitigate the effects of exchange rate risks, we generally pay a portion of our expenses in local currencies and a substantial portion of our contracts provide for collections from customers in U.S. dollars. As of March 31, 2003, we had Canadian dollar-denominated debt totaling approximately $12.3 million. As of March 31, 2003, we had foreign currency forward purchase option contracts totaling $10.0 million at rates not significantly different from the actual rates at March 31, 2003. We have incurred no material gains or losses from foreign currency hedging activities. ITEM 4. CONTROLS AND PROCEDURES Within the 90 day period prior to the filing date of this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-14(c) of the Securities Exchange Act of 1934). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in ensuring that material information is accumulated and communicated to management, and made known to our Chief Executive Officer and Chief Financial Officer, on a timely basis to allow disclosure as required in this Quarterly Report on Form 10-Q. There have been no significant changes in our internal controls or in other factors which could significantly affect internal controls subsequent to the date we carried out our evaluation. 15
PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS We are a party to various pending or threatened claims, lawsuits and administrative proceedings seeking damages or other remedies concerning our commercial operations, products, employees and other matters, including occasional claims by individuals alleging exposure to hazardous materials as a result of our products or operations. Some of these claims relate to matters occurring prior to our acquisition of businesses, and some relate to businesses we have sold. In certain cases, we are entitled to indemnification from the sellers of businesses and in other cases, we have indemnified the buyers of businesses from us. Although we can give no assurance about the outcome of pending legal and administrative proceedings and the effect such outcomes may have on us, we believe that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by insurance, will not have a material adverse effect on our consolidated financial position, results of operations or liquidity. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION The following disclosure is being provided in accordance with the Securities and Exchange Commission's filing guidance regarding the provision of notice of certain information relating to a pension fund blackout period pursuant to new Item 11 of Form 8-K. Our insider trading policy generally prohibits all of our directors, officers and employees from trading in our securities during the period beginning on the last day of a fiscal quarter and ending 24 hours after the release of our earnings announcement for that fiscal quarter. As a result, there was a general prohibition on trading in our securities by all of our directors, officers and employees from March 31, 2003 until April 29, 2003 in connection with our quarterly earnings announcement for the quarter ended March 31, 2003. As a consequence of this general prohibition, there was also a "blackout period" (as defined in Regulation BTR promulgated under the Securities Exchange Act of 1934) with respect to our Deferred Compensation Plan during the same period, during which the participants in the plan were prohibited from investing new deferrals in our common stock investment option under the plan and from transferring or reallocating prior deferrals from or to our common stock investment option. Inquiries about the blackout period may be directed to Cindy B. Taylor by phone at (713) 652-0582 or in writing to Oil States International, Inc., Three Allen Center, 333 Clay street, Suite 3460, Houston, Texas 77002. 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) INDEX OF EXHIBITS EXHIBIT NO. DESCRIPTION - ----------- ----------- 3.1 -- Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000, as filed with the Commission on March 30, 2001). 3.2 -- Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000, as filed with the Commission on March 30, 2001). 3.3 -- Certificate of Designations of Special Preferred Voting Stock of Oil States International, Inc. (incorporated by reference to Exhibit 3.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000, as filed with the Commission on March 30, 2001). 4.1 -- Form of common stock certificate (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-1 (File No. 333-43400)). 4.2 -- Amended and Restated Registration Rights Agreement (incorporated by reference to Exhibit 4.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000, as filed with the Commission on March 30, 2001). 4.3 -- First Amendment to the Amended and Restated Registration Rights Agreement dated May 17, 2002 (incorporated by reference to Exhibit 4.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 2002, as filed with the Commission on March 13, 2003). 10.1 -- Combination Agreement dated as of July 31, 2000 by and among Oil States International, Inc., HWC Energy Services, Inc., Merger Sub-HWC, Inc., Sooner Inc., Merger Sub-Sooner, Inc. and PTI Group Inc. (incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-1 (File No. 333-43400)). 10.2 -- Plan of Arrangement of PTI Group Inc. (incorporated by reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000, as filed with the Commission on March 30, 2001). 10.3 -- Support Agreement between Oil States International, Inc. and PTI Holdco (incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000, as filed with the Commission on March 30, 2001). 10.4 -- Voting and Exchange Trust Agreement by and among Oil States International, Inc., PTI Holdco and Montreal Trust Company of Canada (incorporated by reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000, as filed with the Commission on March 30, 2001). 10.5** -- 2001 Equity Participation Plan (incorporated by reference to Exhibit 10.5 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000, as filed with the Commission on March 30, 2001). 10.6** -- Form of Deferred Compensation Plan (incorporated by reference to Exhibit 10.6 to the Company's Registration Statement on Form S-1 (File No. 333-43400)). 10.7** -- Annual Incentive Compensation Plan (incorporated by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000, as filed with the Commission on March 30, 2001). 10.8** -- Executive Agreement between Oil States International, Inc. and Douglas E. Swanson (incorporated by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000, as filed with the Commission on March 30, 2001). 17
10.9** -- Executive Agreement between Oil States International, Inc. and Cindy B. Taylor (incorporated by Reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000, as filed with the Commission on March 30, 2001). 10.10** -- Form of Executive Agreements between Oil States International, Inc. and Named Executive Officers (Messrs. Hughes and Chaddick) (incorporated by reference to Exhibit 10.10 of the Company's Registration Statement on Form S-1 (File No. 333-43400)). 10.11** -- Form of Change of Control Severance Plan for Selected Members of Management (incorporated by reference to Exhibit 10.11 of the Company's Registration Statement on Form S-1 (File No. 333-43400)). 10.12 -- Credit Agreement among Oil States International, Inc., PTI Group Inc., the Lenders named therein, Credit Suisse First Boston, Credit Suisse First Boston Canada, Hibernia National Bank and Royal Bank of Canada (incorporated by reference to Exhibit 10.12 of the Company's Registration Statement on Form S-1 (File No. 333-43400)). 10.12.1 -- Amendment No. 1, dated as of September 23, 2002, to the Credit Agreement, dated as of February 14, 2001 by and among the Company, PTI Group Inc., the Lenders named therein, Credit Suisse First Boston, as Administrative Agent and U.S. Collateral Agent, and Credit Suisse First Boston (formerly Credit Suisse First Boston Canada), as Canadian Administrative Agent and Canadian Collateral Agent (the "Credit Agreement") (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Commission on February 14, 2003). 10.12.2 -- Amendment No. 2, dated as of December 12, 2002, to the Credit Agreement (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the Commission on February 14, 2003). 10.13A** -- Restricted Stock Agreement, dated February 8, 2001, between Oil States International, Inc. and Douglas E. Swanson (incorporated by reference to Exhibit 10.13A to the Company's Quarterly Report on Form 10-Q for the three months ended March 31, 2002, as filed with the Commission on May 15, 2001). 10.13B** -- Restricted Stock Agreement, dated February 22, 2001, between Oil States International, Inc. and Douglas E. Swanson (incorporated by reference to Exhibit 10.13B to the Company's Quarterly Report on Form 10-Q for the three months ended March 31, 2002, as filed with the Commission on May 15, 2001). 10.14** -- Form of Indemnification Agreement (incorporated by reference to Exhibit 10.14 of the Company's Registration Statement on Form S-1 (File No. 333-43400)). 10.15** -- Form of Executive Agreement between Oil States International, Inc. and named Executive Officer (Mr. Slator) (incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K for the year ended December 31, 2001, as filed with the Commission on March 1, 2002). 10.16** -- Douglas E. Swanson contingent option award dated as of February 11, 2002 (incorporated by reference to Exhibit 10.17 to the Company's Quarterly Report on Form 10-Q for the three months ended September 30, 2002 as filed with the Commission on November 13, 2002). 10.17** -- Form of Executive Agreement between Oil States International, Inc. and named executive officer (Mr. Trahan) (incorporated by reference to Exhibit 10.16 to the Company's Quarterly Report on Form 10-Q for the three months ended June 30, 2002, as filed with the Commission on August 13, 2002). 99.1* -- Certification of Chief Executive Officer of Oil States International, Inc. pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2* -- Certification of Chief Financial Officer of Oil States International, Inc. pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 18
- ------------ * Filed herewith ** Management contracts or compensatory plans or arrangements. (b) REPORTS ON FORM 8-K. (1) Form 8-K dated February 14, 2003 - Item 5. Other Events. (2) Form 8-K dated April 29, 2003 - Item 9. Regulation FD Disclosure (Quarter ended March 31, 2003 Earnings Press Release). 19
SIGNATURES Pursuant to the requirements of the Securities Exchanges Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. OIL STATES INTERNATIONAL, INC. Date: May 14, 2003 By /s/ CINDY B. TAYLOR ------------------------------------------- Cindy B. Taylor Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) Date: May 14, 2003 By /s/ ROBERT W. HAMPTON ------------------------------------------- Robert W. Hampton Vice President -- Finance and Accounting and Secretary (Principal Accounting Officer) 20
CERTIFICATIONS I, Douglas E. Swanson, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Oil States International, Inc. ("Registrant"); 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's Board of Directors (or persons performing the equivalent functions): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls; and 6. The Registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 14, 2003 /s/ Douglas E. Swanson --------------------------------------- Douglas E. Swanson President and Chief Executive Officer 21
I, Cindy B. Taylor, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Oil States International, Inc. ("Registrant"); 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's Board of Directors (or persons performing the equivalent functions): d. all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and e. any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls; and 6. The Registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 14, 2003 /s/ Cindy B. Taylor --------------------------------------- Cindy B. Taylor Senior Vice President and Chief Financial Officer 22
INDEX TO EXHIBIT EXHIBIT NO. DESCRIPTION - ----------- ----------- 3.1 -- Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000, as filed with the Commission on March 30, 2001). 3.2 -- Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000, as filed with the Commission on March 30, 2001). 3.3 -- Certificate of Designations of Special Preferred Voting Stock of Oil States International, Inc. (incorporated by reference to Exhibit 3.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000, as filed with the Commission on March 30, 2001). 4.1 -- Form of common stock certificate (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-1 (File No. 333-43400)). 4.2 -- Amended and Restated Registration Rights Agreement (incorporated by reference to Exhibit 4.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000, as filed with the Commission on March 30, 2001). 4.3 -- First Amendment to the Amended and Restated Registration Rights Agreement dated May 17, 2002 (incorporated by reference to Exhibit 4.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 2002, as filed with the Commission on March 13, 2003). 10.1 -- Combination Agreement dated as of July 31, 2000 by and among Oil States International, Inc., HWC Energy Services, Inc., Merger Sub-HWC, Inc., Sooner Inc., Merger Sub-Sooner, Inc. and PTI Group Inc. (incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-1 (File No. 333-43400)). 10.2 -- Plan of Arrangement of PTI Group Inc. (incorporated by reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000, as filed with the Commission on March 30, 2001). 10.3 -- Support Agreement between Oil States International, Inc. and PTI Holdco (incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000, as filed with the Commission on March 30, 2001). 10.4 -- Voting and Exchange Trust Agreement by and among Oil States International, Inc., PTI Holdco and Montreal Trust Company of Canada (incorporated by reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000, as filed with the Commission on March 30, 2001). 10.5** -- 2001 Equity Participation Plan (incorporated by reference to Exhibit 10.5 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000, as filed with the Commission on March 30, 2001). 10.6** -- Form of Deferred Compensation Plan (incorporated by reference to Exhibit 10.6 to the Company's Registration Statement on Form S-1 (File No. 333-43400)). 10.7** -- Annual Incentive Compensation Plan (incorporated by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000, as filed with the Commission on March 30, 2001). 10.8** -- Executive Agreement between Oil States International, Inc. and Douglas E. Swanson (incorporated by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000, as filed with the Commission on March 30, 2001).
10.9** -- Executive Agreement between Oil States International, Inc. and Cindy B. Taylor (incorporated by Reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000, as filed with the Commission on March 30, 2001). 10.10** -- Form of Executive Agreements between Oil States International, Inc. and Named Executive Officers (Messrs. Hughes and Chaddick) (incorporated by reference to Exhibit 10.10 of the Company's Registration Statement on Form S-1 (File No. 333-43400)). 10.11** -- Form of Change of Control Severance Plan for Selected Members of Management (incorporated by reference to Exhibit 10.11 of the Company's Registration Statement on Form S-1 (File No. 333-43400)). 10.12 -- Credit Agreement among Oil States International, Inc., PTI Group Inc., the Lenders named therein, Credit Suisse First Boston, Credit Suisse First Boston Canada, Hibernia National Bank and Royal Bank of Canada (incorporated by reference to Exhibit 10.12 of the Company's Registration Statement on Form S-1 (File No. 333-43400)). 10.12.1 -- Amendment No. 1, dated as of September 23, 2002, to the Credit Agreement, dated as of February 14, 2001 by and among the Company, PTI Group Inc., the Lenders named therein, Credit Suisse First Boston, as Administrative Agent and U.S. Collateral Agent, and Credit Suisse First Boston (formerly Credit Suisse First Boston Canada), as Canadian Administrative Agent and Canadian Collateral Agent (the "Credit Agreement") (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Commission on February 14, 2003). 10.12.2 -- Amendment No. 2, dated as of December 12, 2002, to the Credit Agreement (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the Commission on February 14, 2003). 10.13A** -- Restricted Stock Agreement, dated February 8, 2001, between Oil States International, Inc. and Douglas E. Swanson (incorporated by reference to Exhibit 10.13A to the Company's Quarterly Report on Form 10-Q for the three months ended March 31, 2002, as filed with the Commission on May 15, 2001). 10.13B** -- Restricted Stock Agreement, dated February 22, 2001, between Oil States International, Inc. and Douglas E. Swanson (incorporated by reference to Exhibit 10.13B to the Company's Quarterly Report on Form 10-Q for the three months ended March 31, 2002, as filed with the Commission on May 15, 2001). 10.14** -- Form of Indemnification Agreement (incorporated by reference to Exhibit 10.14 of the Company's Registration Statement on Form S-1 (File No. 333-43400)). 10.15** -- Form of Executive Agreement between Oil States International, Inc. and named Executive Officer (Mr. Slator) (incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K for the year ended December 31, 2001, as filed with the Commission on March 1, 2002). 10.16** -- Douglas E. Swanson contingent option award dated as of February 11, 2002 (incorporated by reference to Exhibit 10.17 to the Company's Quarterly Report on Form 10-Q for the three months ended September 30, 2002 as filed with the Commission on November 13, 2002). 10.17** -- Form of Executive Agreement between Oil States International, Inc. and named executive officer (Mr. Trahan) (incorporated by reference to Exhibit 10.16 to the Company's Quarterly Report on Form 10-Q for the three months ended June 30, 2002, as filed with the Commission on August 13, 2002). 99.1* -- Certification of Chief Executive Officer of Oil States International, Inc. pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2* -- Certification of Chief Financial Officer of Oil States International, Inc. pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. - ------------ * Filed herewith ** Management contracts or compensatory plans or arrangements.