UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
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For the quarterly period ended September 30, 2004 |
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934 |
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For the transition period from to |
Commission file number 1-16337
OIL STATES INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
(713) 652-0582
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,
Houston,
Texas
77002
(Address of principal executive offices)
(Zip Code)
None
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.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b 2 of the Exchange Act).
The Registrant had 49,558,227 shares of common stock outstanding as of October 31, 2004.
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OIL STATES INTERNATIONAL, INC.
INDEX
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Part I FINANCIAL INFORMATION
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Financial Statements:
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Form of Indemnification Agreement | ||||||||
Certification of CEO pursuant to Rule 13a-14(a) | ||||||||
Certification of CFO pursuant to Rule 13a-14(a) | ||||||||
Certification of CEO pursuant to Rule 13a-14(b) | ||||||||
Certification of CFO pursuant to Rule 13a-14(b) |
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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
The accompanying notes are an integral part of
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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of
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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of these
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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of the
Company and its wholly-owned subsidiaries have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission pertaining to
interim financial information. Certain information in footnote disclosures
normally included in financial statements prepared in accordance with U.S.
generally accepted accounting principles have been condensed or omitted
pursuant to these rules and regulations. The unaudited financial statements
included in this report reflect all the adjustments, consisting of normal
recurring adjustments, which the Company considers necessary for a fair
presentation of the results of operations for the interim periods covered and
for the financial condition of the Company at the date of the interim balance
sheet. Results for the interim periods are not necessarily indicative of
results for the year.
Preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosed amounts of contingent assets and liabilities and the reported amounts
of revenues and expenses. If the underlying estimates and assumptions, upon
which the financial statements are based, change in future periods, actual
amounts may differ from those included in the accompanying consolidated
condensed financial statements.
The Companys shares outstanding include all shares issuable upon the
exercise of exchangeable shares of one of the Companys Canadian subsidiaries.
The calculation of diluted earnings per share include the effect of the
Companys outstanding stock options determined under the treasury stock method.
From time to time, new accounting pronouncements are issued by the
Financial Accounting Standards Board (the FASB) 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 Companys consolidated
financial statements upon adoption.
The financial statements included in this report should be read in
conjunction with the Companys audited financial statements and accompanying
notes included in its Annual Report on Form 10-K for the year ended December
31, 2003.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In January 2003, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest
Entities, an interpretation of ARB No. 51. FIN 46 provides guidance on: 1)
the identification of entities for which control is achieved through means
other than through voting rights, known as variable interest entities (VIEs);
and 2) which business enterprise is the primary beneficiary and when it should
consolidate a VIE. This new requirement for consolidation applies to entities:
1) where the equity investors (if any) do not have a controlling financial
interest; or 2) whose equity investment at risk is insufficient to finance that
entitys activities without receiving additional subordinated financial support
from other parties. In addition, FIN 46 requires that both the primary
beneficiary and all other enterprises with a significant variable interest in a
VIE make additional disclosures. FIN 46 is effective for all new VIEs created
or acquired after January 31, 2003. For VIEs created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first
interim or annual period ending after December 15, 2003. Certain disclosures
are effective immediately. Implementation of FIN 46 did not affect the
Company.
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3. DETAILS OF SELECTED BALANCE SHEET ACCOUNTS
Additional information regarding selected balance sheet accounts is
presented below (in thousands):
7
Changes in the carrying amount of goodwill for the nine month period ended
September 30, 2004 are as follows (in thousands):
4. 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 Companys reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different technology and marketing strategies. Most of the
businesses were acquired as a unit, and the management at the time of the
acquisition was retained. Results of our Canadian well site services business
related to the provision of work force accommodations, catering and logistics
services are seasonal with significant activity occurring in the peak winter
drilling season.
Financial information by industry segment for each of the three and nine
months periods ended September 30, 2004 and 2003 is summarized in the following
table (in thousands):
8
5. COMPREHENSIVE INCOME AND CHANGES IN COMMON STOCK OUTSTANDING:
Comprehensive income for the three and nine months ended September 30,
2004 and 2003 was as follows (in thousands):
(1) Shares were purchased from an officer of the Company pursuant to a
provision in our 2001 Equity Participation Plan allowing the recipient of a
restricted stock award to return the number of shares having the fair value
equal to tax withholding due. The purpose of the repurchase was solely to
assist the officer in the satisfaction of tax liabilities he incurred in
connection with the vesting of shares of restricted stock in February 2004.
6. STOCK-BASED COMPENSATION
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. 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
Companys Board of Directors. Since February 2001, all option grants have been
priced at the closing price on the day of grant, vest 25% per year and have a
life ranging from six to ten years. Because the exercise price of options
granted under the Stock Option Plan have been equal to or greater than the
market price of the Companys stock on the date of grant, no compensation
expense related to this plan has been recorded. Had compensation expense for
its Stock Option Plan been determined consistent with SFAS No. 123 utilizing
the fair value method, the Companys net income and earnings per share for the
three and nine months ended September 30, 2004 and 2003, would have been as
follows (in thousands, except per share amounts):
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7. INCOME TAXES
Our primary deferred tax asset, which totaled approximately $22.1 million
at December 31, 2003, consists of $63.2 million in federal net operating loss
carryforwards, or NOLs, as of that date. A valuation allowance of
approximately $12 million was provided against the deferred tax asset
associated with our NOLs at December 31, 2003. The NOLs will expire in varying
amounts during the years 2008 through 2020 if they are not first used to offset
taxable income generated by the Company. The Companys ability to utilize a
significant portion of the NOLs is currently limited under Section 382 of the
Internal Revenue Code due to a change of control that occurred during 1995. A
successive change in control was triggered in 2003 pursuant to Section 382;
however it did not significantly change the Companys NOL utilization
expectations.
The Companys income tax provision for the nine months ended September 30,
2004 totaled $20.5 million, or 31.9% of pretax income. The Companys income
tax provision for the three months ended September 30, 2004 totaled $11.0
million, or 41.4% of pretax income. The third quarter 2004 rate was higher
than the statutory rate due primarily to state taxes and higher
foreign tax rates. The nine month September 30, 2004 income tax provision included a $5.4 million income tax
benefit recorded in the first quarter related to the partial reversal of the
valuation allowance applied against NOLs which were recorded as of the prior
year end. Based upon positive earnings generated by the Company for both
financial and tax reporting purposes during the three-year period since its
formation, the Company believed that it would more likely than not generate
sufficient taxable income in future years to realize the benefit of all but
$6.6 million of the deferred tax asset associated with these net operating
losses. Following the recognition of the $5.4 million income tax benefit
during the first quarter, the Company has recognized the associated income tax
benefit, on a cumulative basis, of approximately $44.2 million of its $63.2
million of available federal net operating loss carryforwards.
8. POSTRETIREMENT HEALTHCARE AND OTHER INSURANCE BENEFITS
The Company provides healthcare and other insurance benefits for
approximately 192 eligible retired employees and dependent spouses. This plan
is no longer available to current employees. The healthcare plans are
contributory and contain other cost-sharing features such as deductibles,
lifetime maximums, and co-payment requirements. The net periodic benefit cost,
including the components therein, are not material.
9. GUARANTEES
During
the three months ended September 30, 2004, the Company recorded
an accrual of $1.0 million for a potential warranty claim associated
with an international subsea pipeline project installed in 2000.
Warranty reserves at September 30, 2004 totaled $2.5 million.
10. 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.
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This quarterly report on
Form 10-Q
contains forward-looking statements
within the meaning of Section 27A of the Securities Exchange Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Actual results could
differ materially from those projected in the forward-looking statements as a
result of a number of important factors. For a discussion of important factors
that could affect our results, please refer to Item 1. Business including the
risk factors discussed therein and the financial statement line item
discussions set forth in Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations included in our
Form 10-K
Annual
Report for the year ended December 31, 2003 filed with the Securities and
Exchange Commission on March 5, 2004 and Item 2., which follows.
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 for the year ended December 31, 2003 filed with the
Securities and Exchange Commission on March 5, 2004. Except to the extent
required by law, we undertake no obligation to update publicly any
forward-looking statements, even if new information becomes available or other
events occur in the future.
Critical Accounting Policies
In our selection of critical accounting policies, our objective is to
properly reflect our financial position and results of operations in each
reporting period in a manner that will be understood by those who utilize our
financial statements. Often we must use our judgment about uncertainties.
There are several critical accounting policies that we have put into
practice that have an important effect on our reported financial results.
There have been no changes in these policies since the filing of our Annual
Report on Form 10-K for the year ended December 31, 2003.
We have contingent liabilities and future claims for which we have made
estimates of the amount of the eventual cost to liquidate these liabilities or
claims. These liabilities and claims sometimes involve threatened or actual
litigation where damages have been quantified and we have made an assessment of
our exposure and recorded a provision in our accounts to cover an expected
loss. Other claims or liabilities have been estimated based on our experience
in these matters and, when appropriate, the advice of outside counsel or other
outside experts. Upon the ultimate resolution of these uncertainties, our
future reported financial results will be impacted by the difference between
our estimates and the actual amounts paid to settle a liability. Examples of
areas where we have made important estimates of future liabilities include
litigation, taxes, postretirement benefits, warranty claims, contract claims
and discontinued operations.
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.
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Our valuation allowances, especially related to potential bad debts in
accounts receivable and to obsolescence or market value declines of inventory,
involve reviews of underlying details of these assets, known trends in the
marketplace and the application of historical factors that provide us with a
basis for recording these allowances. If market conditions are less favorable
than those projected by management, or if our historical experience is
materially different from future experience, additional allowances may be
required. We record a valuation allowance to reduce our deferred tax assets to
the amount that is more likely than not to be realized. While we have
considered future taxable income and ongoing prudent and feasible tax planning
strategies in assessing the need for the valuation allowance, in the event we
were to determine that we would be able to realize our deferred tax assets in
the future in excess of our net recorded amount, an adjustment to the deferred
tax asset would increase income in the period such determination was made.
Likewise, should we determine that we would not likely be able to realize all
or part of our net deferred tax asset in the future, an adjustment to the
deferred tax asset would be charged to expense in the period such determination
was made. See also Note 7 Income Taxes and Tax Matters herein.
The selection of the useful lives of many of our assets requires the
judgments of our operating personnel as to the length of these useful lives.
Should our estimates be too long or short, we might eventually report a
disproportionate number of losses or gains upon disposition or retirement of
our long-lived assets. We believe our estimates of useful lives are
appropriate.
Overview
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. Generally, our tubular services and well site services segments
respond more rapidly to shorter-term movements in oil and natural gas prices
than our offshore products segment. Our offshore products segment provides
highly engineered and technically designed products for offshore oil and gas
development and production systems and facilities. Sales of our offshore
products and services depend upon the development of offshore production
systems, repairs and upgrades of existing drilling rigs and construction of new
drilling rigs. In this segment, we are particularly influenced by deepwater
drilling and production activities, which is driven largely by our customers
outlook for longer-term future oil prices. In our well site services business
segment, we provide hydraulic well control services, pressure control equipment
and rental tools, drilling rigs and work force accommodations, catering and
logistics services. Demand for our well site services depends upon the level of
worldwide drilling and workover activity. Through our tubular services segment,
we distribute a broad range of casing and tubing. Sales of tubular products and
services depend upon the overall level of drilling activity, the types of
wells being drilled and the level of OCTG pricing. Historically,
tubular services gross margins expand during periods of rising OCTG prices and contract during periods
of decreasing OCTG prices.
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.
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The average North American rig count in the quarter ended September 30,
2004 increased 84 rigs, or 5.7%, compared to the quarter ended September 30,
2003. This overall increase in activity, while tempered somewhat by continued
low activity levels in the U.S. Gulf of Mexico and seasonally wet weather
conditions in Canada, did contribute to increased revenues in our well site
services segments. Our well site services results for the third quarter of
2004 also benefited from acquisitions made in our rental tool business in the
fourth quarter of 2003 and in January and April of 2004 (see Liquidity and
Capital Resources on page 17), contributions from two newly built rigs working
in West Texas, which started working in December 2003 and February 2004, and
the impact of pricing gains in certain business lines. Offshore products
results weakened compared to the same quarter last year primarily due to
decreased activity and revenues during the quarter, which also led to reduced
cost absorption in several of the companys manufacturing facilities.
Additionally, offshore products margins were lower in the current period
compared to last year due to a less favorable mix of higher margin connector
and other highly engineered products. However, offshore products results have
improved sequentially in the most recent two quarters. Our backlog was $87.3
million at September 30, 2004 compared to $98.7 million at June 30, 2004, an
11.6% decrease. Backlog totaled $62.6 million at December 31, 2003 and $72.9
million at September 30, 2003. We believe that the offshore construction and
development business is characterized by lengthy projects and a long
lead-time order cycle. While change in backlog levels from one quarter to
the next does not necessarily evidence a long-term trend, we believe activity
levels in our offshore products segment will increase in future quarters, given
the growth in our backlog, when compared to December 31, 2003.
On May 11, 2004, our OCTG subsidiary purchased the OCTG distribution
business of Hunting Energy Services, L.P. (Hunting) for $46.4 million. Under
the terms of the transaction, we purchased Huntings U.S. tubular inventory,
assumed certain customer contracts and entered into supply and distribution
relationships with Hunting. Substantially all of the purchase price was
assigned to OCTG inventory acquired.
Our tubular services segment shipped 242.0 thousand tons of OCTG in the
first nine months of 2004 (90.1 thousand tons in the third quarter of 2004)
compared to 187.3 thousand tons in the first nine months of 2003 (69.8 thousand
tons in the third quarter of 2003). Our tubular services segment benefited
from a 20% year over year increase in average U.S. land drilling activity, the
acquisition of the Hunting OCTG distribution business and a significant
increase in OCTG prices in the second and third quarter of 2004. These
benefits were partially offset by reduced offshore activity in the U.S. Gulf of
Mexico.
During the first half of 2004, the results generated by our Canadian
workforce accommodations, catering and logistics operations benefited from
strengthening of the Canadian currency. The Canadian dollar vs. U.S. dollar
conversion rate averaged $0.75 in the first nine months of 2004 compared to
$0.70 in the first nine months of 2003. Movement in the Canadian dollar vs.
U.S. dollar exchange rates caused the majority of change in the cumulative
translation adjustment (See Note 5 on page 9).
The Companys income tax provision for the nine months ended September 30,
2004 totaled $20.5 million, or 31.9% of pretax income. For the third quarter
of 2004, the Companys income tax provision totaled $11.0 million, or 41.4% of
pretax income. The third quarter 2004 rate was higher than the
statutory rate due primarily to state taxes and higher foreign tax
rates. During the first quarter of 2004, the Company recognized a $5.4
million income tax benefit related to the reduction during the first quarter of
a portion of the valuation allowance that has been applied against the
Companys net operating loss carryforwards. See Tax Matters discussion
following.
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Management believes that fundamental oil and gas supply and demand factors
will continue to support a high level of drilling activity in North America
over time which should positively impact the Company, particularly its well
site services and tubular services businesses. If oil and gas producers
increase their view of longer term oil and gas prices based on current supply
and demand fundamentals, even if at levels below current prices, we could
expect increased expenditures for deepwater offshore exploration and
development that could benefit our offshore products segment. However, there
can be no assurance that these expectations will be realized.
Results of Operations (in millions, except margin percentages)
THREE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 2003
Revenues
. Revenues increased $74.3 million, or 41.9%, to $251.5 million
during the current quarter compared to revenues of $177.2 million during the
quarter ended September 30, 2003. Tubular services revenues and tons shipped
increased $55.6 million, or 90.7%, and 20.3 thousand tons, or 29.1%,
respectively, in the three months ended September 30, 2004 compared to revenues
and tons shipped in the quarter ended September 30, 2003 due to increased
industry demand, higher OCTG prices and contributions from the acquisition of
the Hunting OCTG distribution business in May 2004. Well site services
revenues increased $22.8 million, or 40.3%, while offshore products revenues
decreased $4.1 million, or 6.9%, during the same period. Well site services
revenues increased compared to the prior year due primarily to increased
drilling activity in the United States, increased oil sands development in
Canada, an international catering and facilities management contract, favorable
Canadian dollar exchange rates, the impact of capital expenditures made since
the third quarter of 2003 and rental tool acquisitions, totaling $56.2 million,
completed in the fourth quarter of 2003 and in January and April of 2004.
These increases were partially offset by decreased offshore rental
tool and workover activities due to continued depressed drilling
activities in the Gulf of Mexico and shut-downs in the Gulf of Mexico
due to hurricanes. Offshore products revenues decreased as a result of lower activity supporting
offshore production facility construction.
Gross Margin
. Our gross margins, which we calculate before a deduction
for depreciation expense, increased $16.2 million, or 42.9%, from $37.8 million
in the quarter ended September 30, 2003 to $54.0 million in the quarter ended
September 30, 2004. Our overall gross margin as a percent of revenues was
essentially flat in the third quarter compared to the same quarter of the
previous year. Well site services gross margins increased $8.5 million, or
47.2%, to $26.5 million in the quarter ended September 30, 2004 compared to the
quarter ended September 30,
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2003. Within our well site services segment, shallow drilling and
specialty rental tool businesses gross margins increased $2.0 million, or
76.9%, and $2.0 million, or 38.5%, respectively, during the quarter ended
September 30, 2004 compared to the quarter ended September 30, 2003 as a result
of the addition of two drilling rigs and higher drilling rates charged and
contributions from rental tool acquisitions completed in the fourth quarter of
2003 and in January and April 2004. Also in well site services, our work force
accommodations, catering and logistics services and modular building
construction services gross margins increased by $4.5 million, or 53.6%, in the
three months ended September 30, 2004 compared to the three months ended
September 30, 2003 primarily because of increased camp and catering activity
supporting oil sands development in Canada and an international catering and
facilities management contract. Our well site services gross margin percent
increased to 33.4% in the current quarter compared to 31.8% in the third
quarter of last year as a result of higher gross margins in our land drilling
and remote accommodation businesses.
Offshore products gross margins decreased $5.5 million, or 34.0%, from
$16.2 million in the three months ended September 30, 2003 to $10.7 million in
the three months ended September 30, 2004 due to decreased activity and reduced
fixed cost absorption. Additionally, offshore products margins were lower in
the current period compared to last year due to a less favorable mix of higher
margin connector and other highly engineered products. Further, the Company
recorded a $1.0 million accrual in the third quarter of 2004 related to a
potential warranty claim associated with an international subsea pipeline
project installed in 2000. These same factors were the primary reason that
offshore products gross margin percent declined from 27.3% of revenues in the
third quarter of 2003 to 19.4% in the third quarter of 2004.
Tubular services gross margins increased to $16.8 million, or 14.4% of
tubular services revenues, in the three months ended September 30, 2004
compared to $3.6 million, or 5.9% of tubular services revenues, in the three
months ended September 30, 2003 as a result of increased oil and gas drilling
activity which increased demand for our tubular products and services, an
increase in OCTG prices during the quarter and the acquisition of the OCTG
distribution business of Hunting for $46.4 million in May 2004.
Selling, General and Administrative Expenses
. During the three months
ended September 30, 2004, selling, general and administrative expenses (SG&A)
totaled $16.5 million, or 6.6% of revenues, compared to SG&A of $14.3 million,
or 8.1% of revenues, for the three months ended September 30, 2003. SG&A
expense increased primarily as a result of acquisitions completed since the
third quarter of 2003, higher postretirement benefit costs in the current year
due to the recording of a gain upon settlement of plan liabilities in the prior
year and higher professional fees and bonus accruals under the incentive
compensation plan.
Depreciation and Amortization
. Depreciation and amortization expense
increased $2.2 million in the third quarter 2004 compared to the third quarter
2003 due primarily to acquisitions of businesses completed in the fourth
quarter of 2003 and in January and April of 2004 and capital expenditures made
in the past year.
Operating Income
. Our operating income represents revenues less (i) cost
of sales, (ii) selling, general and administrative expenses, (iii) depreciation
and amortization expense, and (iv) other operating expense (income). Our
operating income increased $11.2 million, or 67.1%, to $27.9 million for the
quarter ended September 30, 2004 from $16.7 million for the quarter ended
September 30, 2003. Well site services operating income increased $6.1 million
during the period. Offshore products operating income decreased $6.4 million
while tubular services operating income increased $12.4 million.
Corporate/other operating income decreased by $0.9 million in the current
period.
Interest Expense
. Interest expense was higher by $0.3 million in the
quarter ended September 30, 2004 compared to the quarter ended September 30,
2003. Increased interest expense attributable to higher debt levels resulting
from acquisitions completed during the first half of 2004 was partially offset
by lower debt issuance cost amortization compared to the prior period.
Income Tax Expense
. Income tax expense totaled $11.0 million, or 41.4% of
pretax income, during the quarter ended September 30, 2004 compared to $4.1
million, or 26.6% of pretax income, during the quarter ended September 30,
2003. See Tax Matters discussion following.
15
NINE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 2003
Revenues
. Revenues increased $151.6 million, or 28.8%, to $677.9 million
during the first nine months of 2004 compared to revenues of $526.3 million
during the nine months ended September 30, 2003. Tubular services revenues and
tons shipped increased $119.4 million, or 72.8%, and 54.7 thousand tons, or
29.2%, respectively, in the nine months ended September 30, 2004 compared to
revenues and tons shipped in the nine months ended September 30, 2003 due to
increased industry demand, higher OCTG prices, and contributions from the
acquisition of the Hunting OCTG distribution business in May 2004. Well site
services revenues increased $60.1 million, or 31.9%, while offshore products
revenues decreased $27.9 million, or 16.0%, during the same period. Well site
services revenues increased compared to the prior year due primarily to
increased drilling activity in the United States, increased oil sands
development in Canada, an international catering and facilities management
contract, favorable Canadian dollar exchange rates, the impact of capital
expenditures made since the first nine months of 2003 and rental tool
acquisitions, totaling $56.2 million, completed in the fourth quarter of 2003
and in January and April of 2004. These increases were partially
offset by decreased offshore rental tool and workover activities due
to continued depressed drilling activities in the Gulf of Mexico and
shut-downs in the Gulf of Mexico due to hurricanes. Offshore products revenues decreased as a
result of lower activity supporting offshore production facility construction.
Gross Margin
. Our gross margins, which we calculate before a deduction
for depreciation expense, increased $28.4 million, or 24.8%, from $114.7
million in the nine months ended September 30, 2003 to $143.1 million in the
nine months ended September 30, 2004. Our overall gross margin as a percent of
revenues was essentially flat in the current year compared to the same period
in the previous year. Well site services gross margins increased $18.4
million, or 30.1%, to $79.6 million in the nine months ended September 30, 2004
compared to the nine months ended September 30, 2003. Within our well site
services segment, our shallow drilling and specialty rental tool businesses
gross margins increased $3.9 million, or 54.9%, and $5.9 million, or 37.8%,
respectively, during the nine months ended September 30, 2004 compared to the
first nine months of 2003 as a result of the addition of two drilling rigs in
our shallow drilling business, higher utilization and footage drilling rates
for all of our drilling rigs and contributions from rental tool acquisitions
completed in the fourth quarter of 2003 and in January and April 2004. Also in
well site services, our work force accommodations, catering and logistics
services and modular building construction services gross margins increased by
$9.5 million, or 30.4%, in the nine months ended September 30, 2004 compared to
the nine months ended September 30, 2003 primarily because of increased camp
and catering activity supporting oil sands development in Canada and an
international catering and facilities management contract. Our hydraulic
workover gross margins decreased by $0.9 million, or 12.5%, as a result of
decreased utilization, especially in West Africa and the Middle East. Our well
site services gross margin percent decreased slightly to 32.0% in the nine
months ended September 30, 2004 compared to 32.5% in the nine months ended
September 30, 2003.
Offshore products gross margins decreased $16.0 million, or 36.5%, from
$43.8 million in the nine months ended September 30, 2003 to $27.8 million in
the nine months ended September 30, 2004 due to decreased activity and reduced
fixed cost absorption. Additionally, offshore products margins were lower in
the current period compared to last year due to lower activity levels, a less
favorable mix of higher margin connector and other highly engineered products.
Further, the Company recorded a $1.0 million accrual in the third quarter of
2004 related to a potential warranty claim associated with an international
subsea pipeline project installed in 2000. These same factors were the primary
reason that offshore products gross margin percent declined from 25.2% of
revenues in the first nine months of 2003 to 19.0% in the first nine months of
2004.
Tubular services gross margins increased to $35.7 million, or 12.6% of
tubular services revenues, in the nine months ended September 30, 2004 compared
to $9.7 million, or 5.9% of tubular services revenues, in the nine months ended
September 30, 2003 as a result of increased oil and gas drilling activity which
increased demand for our tubular products and services, a significant increase
in OCTG prices during the year to date period and the acquisition of the OCTG
distribution business of Hunting for $46.4 million in May 2004.
Selling, General and Administrative Expenses
. During the nine months
ended September 30, 2004, selling, general and administrative expenses (SG&A)
totaled $47.1 million, or 6.9% of revenues, compared to SG&A of $42.0 million,
or 8.0% of revenues, for the nine months ended September 30, 2003. SG&A
expense increased primarily as a result of acquisitions completed since the
first nine months of 2003, higher postretirement benefit
16
costs in the current year due to the recording of a gain upon settlement
of plan liabilities in the prior year and higher professional fees and bonus
accruals under the incentive compensation plan.
Depreciation and Amortization
. Depreciation and amortization expense
increased $6.1 million in the first nine months of 2004 compared to the first
nine months of 2003 due primarily to acquisitions of businesses completed since
the first nine months of 2003 and capital expenditures made in the past year.
Operating Income
. Our operating income represents revenues less (i) cost
of sales, (ii) selling, general and administrative expenses, (iii) depreciation
and amortization expense, and (iv) other operating expense (income). Our
operating income increased $16.4 million, or 31.4%, to $68.7 million for the
nine months ended September 30, 2004 from $52.3 million for the nine months
ended September 30, 2003. Well site services operating income increased $11.7
million during the period. Offshore products operating income decreased $18.5
million while tubular services operating income increased $24.5 million.
Corporate/other operating income decreased by $1.3 million in the current
period.
Interest Expense
. Interest expense was higher by $0.4 million in the nine
months ended September 30, 2004 compared to the nine months ended September 30,
2003. Increased interest expense attributable to higher debt levels resulting
from acquisitions completed during the first half of 2004 was only partially
offset by lower debt issuance cost amortization compared to the prior period.
Income Tax Expense
. Income tax expense totaled $20.5 million, or 31.9% of
pretax income, during the nine months ended September 30, 2004 compared to
$13.2 million, or 27.5% of pretax income, during the nine months ended
September 30, 2003. See Tax Matters discussion following.
Liquidity and Capital Resources
Our primary liquidity needs are to fund capital expenditures, such as
expanding and upgrading our manufacturing facilities and equipment, increasing
and replacing our drilling rig, rental tool and workover assets, and our
accommodation units, funding new product development and funding general
working capital needs. In addition, capital is needed to fund strategic
business acquisitions. Our primary sources of funds have been cash flow from
operations and proceeds from borrowings under our bank facilities.
Cash was provided by operations during the nine months ended September 30,
2004 and 2003 in the amounts of $64.8 million and $39.6 million, respectively.
Cash provided by operations in 2004 was generated by our net income plus
depreciation and amortization, net of working capital changes during 2004.
Working capital changes used $4.3 million of operating cash flow in the first
nine months of 2004 compared to a use of $17.1 million in the comparable period
in 2003.
Cash was used in investing activities during the nine months ended
September 30, 2004 and 2003 in the amount of $114.6 million and $28.6 million,
respectively. Capital expenditures totaled $38.1 million and $26.8 million
during the nine months ended September 30, 2004 and 2003, respectively. Capital
expenditures in both years consisted principally of purchases of assets for our
well site services businesses and for expansion of our offshore products
manufacturing capacity. Acquisitions totaled $79.5 million during the nine
months ended September 30, 2004. During the first nine months of 2004, the
Company completed the acquisition of several rental tool companies, requiring a
net cash payment of $37.6 million. These companies have been merged into our
rental tool subsidiary, and will report through the well site services segment.
In addition, we acquired the OCTG distribution business of Hunting which
required a cash outlay of $41.7 million in May 2004. These acquisitions
resulted in increased working capital investments, particularly accounts
receivable and inventory. We currently expect capital expenditures to total
approximately $55 million during 2004 for maintenance and upgrade of our
equipment and facilities and also to expand our product and service offerings.
We expect to fund these capital expenditures with internally generated funds
and proceeds from borrowings under our revolving credit facilities.
Net cash of $52.3 million was provided by financing activities during the
nine months ended September 30, 2004, primarily as a result of revolving credit
borrowings which were utilized for acquisitions.
17
Our primary bank credit facility (the Credit Agreement) provided for $225
million of revolving credit until May 2004 when we exercised an option to
increase the maximum borrowings under the Credit Agreement to $250 million.
This credit facility matures on October 30, 2007. The Credit Agreement
contains customary financial covenants and restrictions, including restrictions
on our ability to declare and pay dividends. Borrowings under the Credit
Agreement are secured by a pledge of substantially all of our assets and the
assets of our subsidiaries, and our obligations under the Credit Agreement are
guaranteed by our significant subsidiaries. Borrowings under the Credit
Agreement accrue interest at a rate equal to either LIBOR or another benchmark
interest rate (at our election) plus an applicable margin based on our leverage
ratio (as defined in the Credit Agreement). Our average borrowing rate for
balances outstanding during the third quarter was 3.7%. We must pay a
quarterly commitment fee, based on our leverage ratio, on the unused
commitments under the Credit Agreement.
As of September 30, 2004, we had $178.4 million outstanding under the
Credit Agreement and an additional $11.3 million of outstanding letters of
credit, leaving $60.3 million available to be drawn under the facility. In
addition, we have other floating rate bank credit facilities in the U.S. and
the U.K. that provide for an additional aggregate borrowing capacity of $14.1
million. We had no borrowings outstanding under these facilities as of
September 30, 2004. Our total debt represented 27.5% of our total
capitalization at September 30, 2004. A total of $5.2 million related to the
consideration for the Hunting OCTG business acquisition and subsequent
adjustments is payable to the seller in the fourth quarter of 2004. This
payment to Hunting, which is subject to adjustment in certain circumstances, is
expected to be paid from operating cash flow or by utilizing our bank credit
facility.
We believe that cash from operations and available borrowings under our
credit facilities will be sufficient to meet our liquidity needs for the
foreseeable future. If our plans or assumptions change or are inaccurate, or
we make further acquisitions, we may need to raise additional capital. However,
there is no assurance that we will be able to raise additional funds or be able
to raise such funds on favorable terms.
Tax Matters
Our primary deferred tax asset, which totaled approximately $22.1 million
at December 31, 2003, is primarily related to $63.2 million in federal net
operating loss carryforwards, or NOLs, as of that date. A valuation allowance
of approximately $12 million was provided against the deferred tax asset
associated with our NOLs at December 31, 2003. The NOLs will expire in varying
amounts during the years 2008 through 2020 if they are not first used to offset
taxable income that we generate. Our ability to utilize a significant portion
of the NOLs is currently limited under Section 382 of the Internal Revenue Code
due to a change of control that occurred during 1995. A successive change in
control was triggered in 2003 pursuant to Section 382; however, it did not
significantly change our NOL utilization expectations.
Our income tax provision for the nine months ended September 30, 2004
totaled $20.5 million, or 31.9% of pretax income. Our income tax provision for
the three months ended September 30, 2004 totaled $11.0 million, or 41.4% of
pretax income. The third quarter 2004 rate was higher than the statutory
rate due primarily to state taxes and higher foreign tax rates. The nine month September 30, 2004 income tax
provision included a $5.4 million income tax benefit recorded in the first
quarter related to the partial reversal of the valuation allowance applied
against NOLs which were recorded as of the prior year end. Based upon positive
earnings that we have generated for both financial and tax reporting purposes
during the three-year period since our formation, we believed that we would
more likely than not generate sufficient taxable income in future years to
realize the benefit of all but $6.6 million of the deferred tax asset
associated with these net operating losses. Following the recognition of the
$5.4 million income tax benefit during the first quarter, we have recognized
the associated income tax benefit, on a cumulative basis, of approximately
$44.2 million of our $63.2 million of available federal net operating loss
carryforwards.
We currently estimate that our effective tax rate for the full year 2004
will approximate 34.5%. Our actual effective tax rate could differ materially
from this estimate, which is subject to a number of uncertainties, including
future taxable income projections, the amount of income attributable to
domestic versus foreign sources, the amount of capital expenditures and any
changes in applicable tax laws and regulations. Based upon the loss limitation
provisions of Section 382, we should be able to utilize approximately $29
million of our NOLs to offset taxable income that we generate during the tax
year ended December 31, 2004.
18
Recent Accounting Pronouncements
In January 2003, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation No. 46 (FIN 46) and, in December 2003, an amendment FIN
46® (FIN 46) entitled, Consolidation of Variable Interest Entities, an
interpretation of ARB No. 51. FIN 46 provides guidance on: 1) the
identification of entities for which control is achieved through means other
than through voting rights, known as variable interest entities (VIEs); and
2) which business enterprise is the primary beneficiary and when it should
consolidate a VIE. This new requirement for consolidation applies to entities:
1) where the equity investors (if any) do not have a controlling financial
interest; or 2) whose equity investment at risk is insufficient to finance that
entitys activities without receiving additional subordinated financial support
from other parties. In addition, FIN 46 requires that both the primary
beneficiary and all other enterprises with a significant variable interest in a
VIE make additional disclosures. FIN 46 is effective for all new VIEs created
or acquired after January 31, 2003. For VIEs created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first
interim or annual period ending after December 15, 2003. Certain disclosures
are effective immediately. Implementation of FIN 46 did not affect us.
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
September 30, 2004, we had floating rate obligations totaling approximately
$178.4 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 September 30, 2004 levels, our
consolidated interest expense would increase by a total of approximately $1.8
million annually.
Foreign Currency Exchange Rate Risk.
Our operations are conducted in
various countries around the world in a number of different currencies. As
such, our earnings are subject to movements in foreign currency exchange rates
when transactions are denominated in currencies other than the U.S. dollar,
which is our functional currency, or the functional currency of our
subsidiaries, which is not necessarily the U.S. dollar. In order to mitigate
the effects of exchange rate risks, we generally pay a portion of our expenses
in local currencies and a substantial portion of our contracts provide for
collections from customers in U.S. dollars. During the first nine months of
2004, we realized foreign exchange losses of $0.5 million primarily as a result
of the strengthening of the UK pound versus the U.S. dollar. Our UK subsidiary
had U.S. dollar denominated receivables and U.S. dollar cash balances that
resulted in the majority of our foreign exchange losses during the first nine
months of 2004.
ITEM 4.
Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q,
we carried out an evaluation, under the supervision and with the participation
of our management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-15(e) of the Securities
Exchange Act of 1934). Based upon that evaluation, our Chief Executive Officer
and Chief Financial Officer concluded that our disclosure controls and
procedures were effective as of September 30, 2004 in ensuring that material
information was accumulated and communicated to management, and made known to
our Chief Executive Officer and Chief Financial Officer, on a timely basis to
allow disclosure as required in this Quarterly Report on Form 10-Q. During
the three months ended September 30, 2004, there were no changes in our
internal control over financial reporting (as defined in Rule 13a-15(f) of the
Securities Exchange Act of 1934) or in other factors which have materially
affected our internal control over financial reporting, or are reasonably
likely to materially affect our internal control over financial reporting.
19
THREE MONTHS ENDED
NINE MONTHS ENDED
SEPTEMBER 30,
SEPTEMBER 30,
2004
2003
2004
2003
$
251,538
$
177,170
$
677,910
$
526,310
197,521
139,355
534,833
411,653
16,504
14,306
47,077
42,037
9,161
6,978
26,477
20,347
441
(162
)
868
3
223,627
160,477
609,255
474,040
27,911
16,693
68,655
52,270
65
157
222
319
(1,993
)
(1,654
)
(5,463
)
(5,020
)
494
248
931
509
26,477
15,444
64,345
48,078
(10,964
)
(4,110
)
(20,520
)
(13,221
)
$
15,513
$
11,334
$
43,825
$
34,857
$
0.31
$
0.23
$
0.89
$
0.72
$
0.31
$
0.23
$
0.88
$
0.71
49,409
48,554
49,262
48,515
50,061
49,212
49,895
49,155
these financial statements.
Table of Contents
SEPTEMBER 30,
DECEMBER 31,
2004
2003
(UNAUDITED)
$
23,538
$
19,318
161,763
137,484
194,665
121,319
7,178
9,956
387,144
288,077
212,941
194,136
256,322
224,054
7,675
5,870
5,456
5,049
$
869,538
$
717,186
$
122,352
$
89,243
12,940
3,020
5,961
873
7,280
4,784
2,341
937
150,874
98,857
185,515
136,246
19,984
19,411
7,687
7,561
364,060
262,075
495
492
337,298
333,855
152,643
108,818
15,359
12,289
(317
)
(343
)
505,478
455,111
$
869,538
$
717,186
these financial statements.
Table of Contents
(In Thousands)
NINE MONTHS ENDED SEPTEMBER 30,
2004
2003
$
43,825
$
34,857
26,477
20,347
(2,453
)
67
1,237
1,498
(4,294
)
(17,145
)
64,792
39,624
(79,455
)
(2,743
)
(38,117
)
(26,791
)
3,072
987
(63
)
(26
)
(114,563
)
(28,573
)
49,700
(6,157
)
(774
)
(730
)
3,491
790
(118
)
(488
)
52,299
(6,585
)
2,192
(76
)
4,720
4,390
(500
)
(507
)
19,318
11,118
$
23,538
$
15,001
$
4,675
$
consolidated financial statements.
Table of Contents
FINANCIAL STATEMENTS
Table of Contents
SEPTEMBER 30,
DECEMBER 31,
2004
2003
$
135,559
$
113,003
26,825
24,018
1,508
2,484
(2,129
)
(2,021
)
$
161,763
$
137,484
Table of Contents
Table of Contents
THREE MONTHS
NINE MONTHS
ENDED SEPTEMBER 30,
ENDED SEPTEMBER 30,
2004
2003
2004
2003
$
15,513
$
11,334
$
43,825
$
34,857
5,489
549
3,070
11,308
802
802
$
21,002
$
12,685
$
46,895
$
46,967
THREE MONTHS ENDED
NINE MONTHS ENDED
SEPTEMBER 30,
SEPTEMBER 30,
2004
2003
2004
2003
$
15,513
$
11,334
$
43,825
$
34,857
(604
)
(982
)
(1,985
)
(2,697
)
$
14,909
$
10,352
$
41,840
$
32,160
$
0.31
$
0.23
$
0.89
$
0.72
0.31
0.23
0.88
0.71
$
0.30
$
0.21
$
0.85
$
0.66
0.30
0.21
0.84
0.65
Table of Contents
Table of Contents
ITEM 2.
Managements Discussion and Analysis of Financial Condition and
Results of Operations
Table of Contents
Table of Contents
(1)
Canadian rig counts typically increase during the peak winter
drilling season.
Table of Contents
THREE MONTHS ENDED
NINE MONTHS ENDED
SEPTEMBER 30,
SEPTEMBER 30,
2004
2003
2004
2003
$
79.4
$
56.6
$
248.4
$
188.3
55.2
59.3
146.1
174.0
116.9
61.3
283.4
164.0
$
251.5
$
177.2
$
677.9
$
526.3
$
26.5
$
18.0
$
79.6
$
61.2
10.7
16.2
27.8
43.8
16.8
3.6
35.7
9.7
$
54.0
$
37.8
$
143.1
$
114.7
33.4
%
31.8
%
32.0
%
32.5
%
19.4
%
27.3
%
19.0
%
25.2
%
14.4
%
5.9
%
12.6
%
5.9
%
21.5
%
21.3
%
21.1
%
21.8
%
$
13.4
$
7.3
$
41.1
$
29.4
2.7
9.1
4.7
23.2
14.1
1.7
28.5
4.0
(2.3
)
(1.4
)
(5.6
)
(4.3
)
$
27.9
$
16.7
$
68.7
$
52.3
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Table of Contents
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, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) INDEX OF EXHIBITS
Exhibit No.
Description
3.1
3.2
3.3
4.1
4.2
20
Exhibit No.
|
Description
|
|||||
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
Companys 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
Companys 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 Companys 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 Companys 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 Companys 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 Companys Annual
Report on Form 10-K for the year ended December 31,
2000, as filed with the Commission on March 30,
2001).
|
||||
|
||||||
10.6** | |
Deferred Compensation Plan effective November 1,
2003. (incorporated by reference to Exhibit 10.6 to
the Companys Annual Report on Form 10-K for the year
ended December 31, 2003, as filed with the Commission
on March 5, 2004).
|
||||
|
||||||
10.7** | |
Annual Incentive Compensation Plan (incorporated by
reference to Exhibit 10.7 to the Companys 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 Companys 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 Companys Annual Report on
Form 10-K for the year ended December 31, 2000, as
filed with the Commission on March 30, 2001).
|
||||
|
||||||
10.10** | |
Form of Executive Agreement between Oil States
International, Inc. and Named Executive Officer (Mr.
Hughes) (incorporated by reference to Exhibit 10.10
of the Companys 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 Companys Registration Statement
on Form S-1 (File No. 333-43400)).
|
||||
|
||||||
10.12 | |
Credit Agreement, dated as of October 30, 2003, among
Oil States International, Inc., the Lenders named
therein and Wells Fargo Bank Texas, National
Association, as Administrative Agent and U.S.
Collateral Agent; and Bank of Nova Scotia, as
Canadian Administrative Agent and Canadian Collateral
Agent; Hibernia National Bank and Royal Bank of
Canada, as Co-Syndication Agents and Bank One, NA and
Credit Lyonnais New York Branch, as Co-Documentation
Agents (incorporated by reference to Exhibit 10.12 to
the Companys Quarterly Report on Form 10Q for the
three months ended September 30, 2003, as filed with
the Commission on November 11, 2003.)
|
21
Exhibit No.
|
Description
|
|||||
10.12A** | |
Incremental Assumption Agreement, dated as of May 10,
2004, among Oil States International, Inc., Wells
Fargo, National Association and each of the other
lenders listed as an Increasing Lender (incorporated
by reference to Exhibit 10.12A to the Companys
Quarterly Report on Form 10-Q for the three months
ended June 30, 2004, as filed with the Commission on
August 4, 2004).
|
||||
|
||||||
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 Companys 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 Companys Quarterly Report on Form 10-Q for
the three months ended March 31, 2002, as filed with
the Commission on May 15, 2002).
|
||||
|
||||||
10.14*, ** | |
Form of Indemnification Agreement.
|
||||
|
||||||
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 Companys 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 Companys 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 Companys Quarterly Report on Form 10-Q for
the three months ended June 30, 2002, as filed with
the Commission on August 13, 2002).
|
||||
|
||||||
31.1* | |
Certification of Chief Executive Officer of Oil
States International, Inc. pursuant to Rules
13a-14(a) or 15d-14(a) under the Securities Exchange
Act of 1934.
|
||||
|
||||||
31.2* | |
Certification of Chief Financial Officer of Oil
States International, Inc. pursuant to Rules
13a-14(a) or 15d-14(a) under the Securities Exchange
Act of 1934.
|
||||
|
||||||
32.1*** | |
Certification of Chief Executive Officer of Oil
States International, Inc. pursuant to Rules
13a-14(b) or 15d-14(b) under the Securities Exchange
Act of 1934.
|
||||
|
||||||
32.2*** | |
Certification of Chief Financial Officer of Oil
States International, Inc. pursuant to Rules
13a-14(b) or 15d-14(b) under the Securities Exchange
Act of 1934.
|
* | Filed herewith | |
** | Management contracts or compensatory plans or arrangements | |
*** | Furnished herewith. |
(b) REPORTS ON FORM 8-K.
(1) | Form 8-K filed July 2, 2004 Item 5. Other Events (Appointment of S. James Nelson, Jr. to the Board of Directors and Audit Committee) | |||
(2) | Form 8-K filed August 3, 2004 Item 12. Results of Operations and Financial Condition (Quarter ended June 30, 2004 Earnings Press Release) |
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
OIL STATES INTERNATIONAL, INC.
23
Exhibit Index
(b) REPORTS ON FORM 8-K.
By
/s/ CINDY B. TAYLOR
Cindy B. Taylor
Senior Vice President, Chief Financial Officer and
Treasurer (Principal Financial Officer)
Date: November 5, 2004
By
/s/ ROBERT W. HAMPTON
Robert W. Hampton
Vice President Finance and Accounting and
Secretary (Principal Accounting Officer)
Table of Contents
Exhibit No.
Description
3.1
3.2
3.3
4.1
4.2
Table of Contents
Exhibit No.
Description
4.3
10.1
10.2
10.3
10.4
10.5**
10.6**
10.7**
10.8**
10.9**
10.10**
10.11**
10.12
Table of Contents
Exhibit No.
Description
10.12A**
10.13A**
10.13B**
10.14*, **
10.15**
10.16**
10.17**
31.1*
31.2*
32.1***
32.2***
*
Filed herewith
**
Management contracts or compensatory plans or arrangements
***
Furnished herewith.
(1)
Form 8-K filed July 2, 2004 Item 5. Other Events (Appointment of
S. James Nelson, Jr. to the Board of Directors and Audit Committee)
(2)
Form 8-K filed August 3, 2004 Item 12. Results of Operations and
Financial Condition (Quarter ended June 30, 2004 Earnings Press
Release)
Exhibit 10.14
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (the Agreement) is made as of , 2001 by and between Oil States International, Inc., a Delaware corporation (the Company), and (the Indemnitee).
AGREEMENT
In consideration of the mutual promises made in this Agreement, and for other good and valuable consideration, receipt of which is hereby acknowledged, the Company and Indemnitee hereby agree as follows:
1. INDEMNIFICATION.
(a) THIRD PARTY PROCEEDINGS. The Company shall indemnify Indemnitee if Indemnitee is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys fees), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) actually and reasonably incurred by Indemnitee in connection with such action, suit or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe Indemnitees conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, or, with respect to any criminal action or proceeding, that Indemnitee had reasonable cause to believe that Indemnitees conduct was unlawful.
(b) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action or proceeding by or in the right of the Company or any subsidiary of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys fees) and, to the fullest extent permitted
by law, amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld), in each case to the extent actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such action or suit if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company and its stockholders, except that no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudicated by court order or judgment to be liable to the Company in the performance of Indemnitees duty to the Company and its stockholders unless and only to the extent that the court in which such action or proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper.
(c) MANDATORY PAYMENT OF EXPENSES. To the extent that Indemnitee has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 1(a) or Section 1(b) or the defense of any claim, issue or matter therein, Indemnitee shall be indemnified against expenses (including attorneys fees) actually and reasonably incurred by Indemnitee in connection therewith.
2. NO EMPLOYMENT RIGHTS. Nothing contained in this Agreement is intended to create in Indemnitee any right to continued employment.
3. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) ADVANCEMENT OF EXPENSES. The Company shall advance all expenses incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any civil or criminal action, suit or proceeding referred to in Section l(a) or Section 1(b) hereof (including amounts actually paid in settlement of any such action, suit or proceeding). Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby.
(b) NOTICE COOPERATION BY INDEMNITEE. Indemnitee shall, as a condition precedent to his or her right to be indemnified under this Agreement, give the Company notice in writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company (unless the Indemnitee is then the Chief Executive Officer, in which event then to the Chief Financial Officer of the Company) and shall be given in accordance with the provisions of Section 12(d) below. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitees power.
(c) PROCEDURE. Any indemnification and advances provided for in Section 1 and this Section 3 shall be made no later than twenty (20) days after receipt of the written request of Indemnitee. If a claim under this Agreement, under any statute, or under any provision of the Companys Certificate of Incorporation or Bylaws providing
- 2 -
for indemnification, is not paid in full by the Company within twenty (20) days after a written request for payment thereof has first been received by the Company, Indemnitee may, but need not, at any time thereafter bring an action against the Company to recover the unpaid amount of the claim and, subject to Section 11 of this Agreement, Indemnitee shall also be entitled to be paid for the expenses (including attorneys fees) of bringing such action. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action, suit or proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed, but the burden of proving such defense shall be on the Company and Indemnitee shall be entitled to receive interim payments of expenses pursuant to Section 3(a) unless and until such defense may be finally adjudicated by court order or judgment from which no further right of appeal exists. It is the parties intention that if the Company contests Indemnitees right to indemnification, the question of Indemnitees right to indemnification shall be for the court to decide, and neither the failure of the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its stockholders) to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by applicable law, nor an actual determination by the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its stockholders) that Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct. In addition, to the fullest extent permitted by law and prior to a final adjudication by court order or judgment from which no further right of appeal exists as to Indemnitees right to indemnification, Indemnitee shall have the right to receive advancement, on the same terms and subject to the same obligation to repay as the advancement of expenses pursuant to Section 3, of any amounts that Indemnitee pays for which Indemnitee would be entitled to indemnification under Section 1 hereof if Indemnitee has met the applicable standard of conduct (including, without limitation, the costs of providing any bond in connection with the appeal of any proceeding); provided, however, that Indemnitee shall only be entitled to such advancement if Indemnitee delivers an opinion of independent legal counsel, selected by Indemnitee and reasonably acceptable to the Company, that such counsel has determined, after using customary procedures for such opinion, that it is probable (i.e., more than a 50% probability) that Indemnitee has met the applicable standard of conduct necessary in order to receive indemnification.
(d) NOTICE TO INSURERS. If, at the time of the receipt of a notice of a claim pursuant to Section 3(b) hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.
(e) SELECTION OF COUNSEL. In the event the Company shall be obligated under Section 3(a) hereof to pay the expenses of any proceeding against
- 3 -
Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved by Indemnitee, upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same proceeding, provided that (i) Indemnitee shall have the right to employ counsel in any such proceeding at Indemnitees expense; and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense or (C) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the fees and expenses of Indemnitees counsel shall be at the expense of the Company.
4. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) SCOPE. Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Companys Certificate of Incorporation, the Companys Bylaws or by statute. In the event of any change, after the date of this Agreement, in any applicable law, statute, or rule which expands the right of a Delaware corporation to indemnify a member of its board of directors or an officer, such changes shall be deemed to be within the purview of Indemnitees rights and the Companys obligations under this Agreement. In the event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its board of directors or an officer, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement shall have no effect on this Agreement or the parties rights and obligations hereunder.
(b) NONEXCLUSIVITY. The indemnification provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Companys Certificate of Incorporation, its Bylaws, any agreement, any vote of stockholders or disinterested members of the Companys Board of Directors, the General Corporation Law of the State of Delaware, or otherwise, both as to action in Indemnitees official capacity and as to action in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though he or she may have ceased to serve in any such capacity at the time of any action, suit or other covered proceeding.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines or penalties actually or reasonably incurred in the investigation, defense, appeal or settlement of any civil or criminal action, suit or proceeding, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines or penalties to which Indemnitee is entitled.
- 4 -
6. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge that in certain instances, Federal law or public policy may override applicable state law and prohibit the Company from indemnifying its directors and officers under this Agreement or otherwise. For example, the Company and Indemnitee acknowledge that the Securities and Exchange Commission (the SEC) has taken the position that indemnification is not permissible for liabilities arising under certain federal securities laws, and federal legislation prohibits indemnification for certain ERISA violations. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the SEC to submit the question of indemnification to a court in certain circumstances for a determination of the Companys right under public policy to indemnify Indemnitee.
7. OFFICER AND DIRECTOR LIABILITY INSURANCE. The Company shall, from time to time, make the good faith determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the officers and directors of the Company with coverage for losses from wrongful acts, or to ensure the Companys performance of its indemnification obligations under this Agreement. Among other considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. In all policies of director and officer liability insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Companys directors, if Indemnitee is a director; or of the Companys officers, if Indemnitee is not a director of the Company but is an officer; or of the Companys key employees, if Indemnitee is not an officer or director but is a key employee. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a parent or subsidiary of the Company.
8. SEVERABILITY. Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Companys inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as provided in this Section 8. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms.
9. EXCEPTIONS. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement:
(a) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any
- 5 -
other statute or law or otherwise as required under Section 145 of the Delaware General Corporation Law, but such indemnification or advancement of expenses may be provided by the Company in specific cases if the Board of Directors finds it to be appropriate;
(b) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses incurred by Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by Indemnitee in such proceeding was not made in good faith or was frivolous;
(c) INSURED CLAIMS. To indemnify Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) to the extent such expenses or liabilities have been paid directly to Indemnitee by an insurance carrier under a policy of officers and directors liability insurance maintained by the Company; or
(d) CLAIMS UNDER SECTION 16(B). To indemnify Indemnitee for expenses or the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute.
10. CONSTRUCTION OF CERTAIN PHRASES.
(a) For purposes of this Agreement, references to the Company shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that if Indemnitee is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to other enterprises shall include employee benefit plans; references to fines shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to serving at the request of the Company shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner not opposed to the best interests of the Company as referred to in this Agreement.
- 6 -
11. ATTORNEYS FEES. In the event that any action is instituted by Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all court costs and expenses, including reasonable attorneys fees, incurred by Indemnitee with respect to such action, unless as a part of such action, the court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. In the event of an action instituted by or in the name of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs and expenses, including attorneys fees, incurred by Indemnitee in defense of such action (including with respect to Indemnitees counterclaims and cross-claims made in such action), unless as a part of such action the court determines that each of Indemnitees material defenses to such action were made in bad faith or were frivolous.
12. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflict of law.
(b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter herein and merges all prior discussions between them. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party.
(c) CONSTRUCTION. This Agreement is the result of negotiations between and has been reviewed by each of the parties hereto and their respective counsel, if any; accordingly, this Agreement shall be deemed to be the product of all of the parties hereto, and no ambiguity shall be construed in favor of or against any one of the parties hereto.
(d) NOTICES. Any notice, demand or request required or permitted to be given under this Agreement shall be in writing and shall be deemed sufficient when delivered personally or sent by telegram or forty-eight (48) hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, and addressed to the party to be notified at such partys address as set forth below or as subsequently modified by written notice.
(e) COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the Company and its successors and assigns, and inure to the benefit of Indemnitee and Indemnitees heirs, legal representatives and assigns.
- 7 -
(g) SUBROGATION. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company to effectively bring suit to enforce such rights.
[Signature Page Follows]
- 8 -
The parties hereto have executed this Agreement as of the day and year set forth on the first page of this Agreement.
OIL STATES INTERNATIONAL, INC.
By: |
|
Name: |
|
Title: |
|
Address:
Three Allen Center
333 Clay Street, Suite 3460
Houston, Texas 77002
AGREED TO AND ACCEPTED:
Indemnitee: |
|
Address:
- 9 -
EXHIBIT 31.1
CERTIFICATION OF
I, Douglas E. Swanson, certify that:
Date: November 5, 2004
CHIEF EXECUTIVE OFFICER
OF OIL STATES INTERNATIONAL, INC.
PURSUANT TO RULE 13a 14(a) UNDER THE
SECURITIES EXCHANGE ACT OF 1934
1.
I have reviewed this Quarterly Report on Form 10-Q of
Oil States International, Inc. (Registrant);
2.
Based on my knowledge, this 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 report;
3.
Based on my knowledge, the financial statements, and
other financial information included in this 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 report;
4.
The Registrants other certifying officer and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the Registrant and we have:
a.
designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed
under our supervision, 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 report is
being prepared;
b.
evaluated the effectiveness of the Registrants
disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
c.
disclosed in this report any change in the
Registrants internal control over financial reporting that
occurred during the Registrants most recent fiscal quarter that
has materially affected, or is reasonably likely to materially
affect, the Registrants internal control over financial
reporting; and
5.
The Registrants other certifying officer and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the Registrants auditors
and the audit committee of the Registrants Board of Directors
(or persons performing the equivalent functions):
a.
all significant deficiencies and material weaknesses
in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
Registrants ability to record, process, summarize and report
financial information; and
b.
any fraud, whether or not material, that involves
management or other employees who have a significant role in the
Registrants internal control over financial reporting.
/s/ Douglas E. Swanson
Douglas E. Swanson
President and Chief Executive Officer
EXHIBIT 31.2
CERTIFICATION OF
I, Cindy B. Taylor, certify that:
Date: November 5, 2004
CHIEF FINANCIAL OFFICER
OF OIL STATES INTERNATIONAL, INC.
PURSUANT TO RULE 13a 14(a) UNDER THE
SECURITIES EXCHANGE ACT OF 1934
1.
I have reviewed this Quarterly Report on Form 10-Q of Oil States
International, Inc. (Registrant);
2.
Based on my knowledge, this 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 report;
3.
Based on my knowledge, the financial statements, and other
financial information included in this 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 report;
4.
The Registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
Registrant and we have:
a.
designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed
under our supervision, 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 report is
being prepared;
b.
evaluated the effectiveness of the Registrants
disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
c.
disclosed in this report any change in the Registrants
internal control over financial reporting that occurred during
the Registrants most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
Registrants internal control over financial reporting; and
5.
The Registrants other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the Registrants auditors and the audit committee of the
Registrants Board of Directors (or persons performing the equivalent
functions):
a.
all significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the Registrants ability to
record, process, summarize and report financial information; and
b.
any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrants
internal control over financial reporting.
/s/ Cindy B. Taylor
Cindy B. Taylor
Senior Vice President and Chief
Financial Officer
EXHIBIT 32.1
CERTIFICATION OF
In connection with the Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 2004 filed with the Securities and Exchange
Commission (the Report), I, Douglas E. Swanson, President and Chief Executive
Officer of Oil States International, Inc. (the Company), hereby certify, to
my knowledge, that:
CHIEF EXECUTIVE OFFICER
OF OIL STATES INTERNATIONAL, INC.
PURSUANT TO 18 U.S.C. § 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 AND RULE 13a
14(b) UNDER THE
SECURITIES EXCHANGE ACT OF 1934
1.
The Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.
The information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Company.
/s/ Douglas E. Swanson
Name:
Douglas E. Swanson
Date:
November 5, 2004
EXHIBIT 32.2
CERTIFICATION OF
In connection with the Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 2004 filed with the Securities and Exchange
Commission (the Report), I, Cindy B. Taylor, Senior Vice President and Chief
Financial Officer of Oil States International, Inc. (the Company), hereby
certify, to my knowledge, that:
CHIEF FINANCIAL OFFICER
OF OIL STATES INTERNATIONAL, INC.
PURSUANT TO 18 U.S.C. § 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 AND RULE 13a
14(b) UNDER THE
SECURITIES EXCHANGE ACT OF 1934
1.
The Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.
The information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Company.
/s/ Cindy B. Taylor
Name:
Cindy B. Taylor
Date:
November 5, 2004