Should one or more of these risks or uncertainties materialize, or should the assumptions on which our forward-looking statements are based prove incorrect or change, actual results may differ materially from those expected, estimated or projected. In addition, the factors identified above may not necessarily be all of the important factors that could cause actual results to differ materially from those expressed in any forward-looking statement made by us, or on our behalf. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake no responsibility to publicly release the result of any revision of our forward-looking statements after the date they are made.
In addition, in certain places in this Annual Report on Form 10-K, we refer to information and reports published by third parties that purport to describe trends or developments in the energy industry. The Company doesWe do so for the convenience of our stockholders and in an effort to provide information available in the market that will assist the Company’sour investors to have ain better understanding of the market environment in which the Company operates.we operate. However, the Companywe specifically disclaimsdisclaim any responsibility for the accuracy and completeness of such information and undertakes no obligation to update such information.
Item 1.Business
Our Company
Oil States International, Inc., through its subsidiaries, is a global oilfieldprovider of manufactured products and services company servingused in the drilling, completion, subsea, production and infrastructure sectors of the oil and natural gas industry.industry, as well as in the industrial and military sectors. Our manufactured products include highly engineered capital equipment as well as products consumed in the drilling, well construction and production of oil and natural gas. We are also a leading provider of completion services to the industry. Through our recent acquisition of GEODynamics, Inc. ("GEODynamics"), we are a leading researcher, developer and manufacturer of engineered solutions to connect the wellbore with the formation in oil and gas well completions. Oil States is headquartered in Houston, Texas with manufacturing and service facilities strategically located across the globe. Our customers include many national oil and natural gas companies, major and independent oil and natural gas companies, onshore and offshore drilling companies and other oilfield service and industrial companies. Prior to our acquisition of GEODynamics in January 2018, we operatedWe operate through twothree business segments – Offshore/Manufactured Products and Well Site Services, Downhole Technologies and Offshore/Manufactured Products – and have establishedmaintain a leadership position inwith certain of our product orand service offerings in each segment. The GEODynamics operations will be reported as a separate business segment beginning in the first quarter of 2018 under the name “Downhole Technologies.” In this Annual Report on Form 10‑K, references to the "Company" or “Oil States”"Oil States," or to "we," "us," "our," and similar terms are to Oil States International, Inc. and its consolidated subsidiaries.
Available Information
Our Business Strategy
We have historically grown our product and service offerings organically, through capital spending and also through strategic acquisitions. Our investments are focused in growth areas and on areas where we expect to be able to expand market share through our technology offerings and where we believe we can achieve an attractive return on our investment. As part of our long-term strategy, we continue to review business expansion, complementary acquisitions, as well asinvest in research and development and make organic capital expenditures to enhance our cash flows, leverage our cost structure and increase our stockholders’stockholders' returns. For additional discussion of our business strategy, please read “Part"Part II, Item 7, Management’s7. Management's Discussion and Analysis of Financial Condition and Results of Operations.”
Operations" of this Annual Report on Form 10-K.
Recent Developments
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shut-in production in the United States in an effort to address rapidly collapsing demand. While crude oil prices have recovered some of their losses since reaching record low levels in April of 2020, the spot price of Brent and WTI crude oil averaged $42 and $39 per barrel during 2020 – down 35% and 31%, respectively, from their comparable 2019 averages. The ultimate magnitude and duration of the COVID-19 pandemic, the timing and extent of governmental restrictions placing limitations on the mobility and ability to work of the worldwide population, and the related impact on crude oil prices, the global economy and capital markets remains uncertain. While it is difficult to assess or predict with precision the broad future effect of this pandemic on the global economy, the energy industry or us, we expect that the COVID-19 pandemic will continue to leverageadversely affect demand for our existing and acquired products and services into new geographic locations, and has expanded our technology and product offerings.in 2021.
Following the unprecedented events commencing in March 2020, we immediately began aggressive implementation of cost reduction initiatives in an effort to reduce our expenditures to protect the financial health of our company, including the following:
•reduced headcount by 32% between December 31, 2019 and December 31, 2020;
•reduced capital expenditures in 2020 by 77% compared to 2019;
•reduced annual short-term and long-term incentive awards; and
•consolidated and closed certain facilities.
Given the COVID-19 induced economic destruction, we assessed the carrying value of goodwill and other assets based on the industry outlook regarding overall demand for and pricing of our products and services. As a result of these events, actions and assessments, we recorded the following charges during 2020:
•non-cash goodwill impairment charges of $406.1 million to expandreduce the carrying value of our global crane manufacturingreporting units to their estimated fair value;
•non-cash impairment charges of $31.2 million to reduce the carrying value of inventory to its estimated realizable value;
•non-cash impairment charges of $12.4 million to decrease the carrying value of our fixed assets and service operationsleases to their estimated realizable value; and
•employee severance and restructuring charges of $9.1 million.
As discussed in more detail under "– Liquidity, Capital Resources and Other Matters – Financing Activities – Revolving Credit Facility," we amended our existing Revolving Credit Facility (as defined herein) during the second quarter of 2020. In connection with this amendment, the Revolving Credit Facility size was reduced from $350 million to $200 million, with advances subject to a monthly borrowing base calculation, in exchange for suspension of the existing financial covenants from July 1, 2020 through March 30, 2021.
On February 10, 2021, as well as our riser testing, inspectiondiscussed in more detail under "– Liquidity, Capital Resources and repair service offerings.
Other Matters – Financing Activities – Asset-based Revolving Credit Facility," we entered into a new senior secured credit facility in order to extend maturity, which provides for a $125.0 million asset-based revolving credit facility (the "Asset-based Revolving Credit Facility") under which credit availability is subject to a monthly borrowing base calculation. The Asset-based Revolving Credit Facility matures in February 2025. Concurrent with entering into the Asset-based Revolving Credit Facility, the existing Amended Credit Agreement (as defined herein) was terminated.
In addition, on December 12, 2017as discussed in more detail under "– Liquidity, Capital Resources and Other Matters – Financing Activities – 1.50% Convertible Senior Notes due February 2023," we entered into an agreement to acquire GEODynamics, which provides oil and gas perforation systems and downhole tools in supportopportunistically purchased a total of completion, intervention, wireline and well abandonment operations.
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See Note 18, “Subsequent Events,”3, "Asset Impairments and Other Charges," Note 4, "Details of Selected Balance Sheet Accounts," Note 6, "Goodwill and Other Intangible Assets," Note 7, "Long-term Debt," and Note 8, "Operating Leases," to the Consolidated Financial Statements included in this Annual Report on Form 10‑K for further discussion of these recent developments.
discussion.
Our Industry
We principally operate in the oilfield services industry and provide a broad range of products and services to our customers through each of our business segments. See Note 15, "Segments and Related Data,Information," to the Consolidated Financial Statements included in “Part II, Item 8. Financial Statements and Supplementary Data”this Annual Report on Form 10‑K for financial information by segment along with a geographical breakout of revenues and long-lived assets for each of the three years in the period ended December 31, 2017.2020. Demand for our products and services is cyclical and substantially dependent upon activity levels in the oil and natural gas industry, particularly upon the willingness of our customers' willingnesscustomers to invest capital onin the exploration for and development of crude oil and natural gas resources.reserves. Our customers’customers' capital spending programs are generally based on their outlook for near-term and long-term commodity prices, economic growth, commodity demand and estimates of resource production. As a result, demand for our products and services is largely sensitive to expectations with respect toregarding future crude oil and natural gas prices.
Our reported 2020 results of operations reflect the negative impact of the unprecedented decline in crude oil prices starting in March and April of 2020 stemming from the global response to the COVID-19 pandemic and continued uncertainties related to future crude oil demand. The spot price of WTI crude oil averaged $39 per barrel in 2020, down 31% from the comparable prior-year average. The decline in crude oil prices, coupled with high crude oil inventory levels, has had a negative impact on customer drilling, completion and production activity. Additionally, our operations were negatively impacted by the government-imposed business closures and mandates outside of the United States enacted in an effort to control the COVID-19 pandemic, which limited wellsite operations and required us and a number of our suppliers to temporarily cease certain operations.
Our historical financial results reflect the cyclical nature of the oilfield services industry – witnessed by periods of increasing and decreasing activity in each of our operating segments. A severe industry downturn startedLower oil and natural gas prices in 2019 and 2020 have caused a reduction in most of our customers' drilling, completion and other production activities and related spending on our products and services. The reduction in demand from our customers has resulted in an oversupply of many of the services and products we provide. Such oversupply has substantially reduced the prices we can charge our customers for many of our products and services. While oil prices improved from record low levels in April of 2020, these price improvements have not resulted in significant, sustained global improvements in the second half of 2014demand or the prices we are able to charge for our products and continued into 2017. This prolonged industry downturn has been characterized by materially reduced capital investments made by our customers, lower rig counts, lower crude oil prices and other negative industry events. The industry decline was very rapid in the U.S. shale plays given the general lack of long-term contracts or backlog in these regions of operations.services. The U.S. rig count declined 79% from the peak454 rigs, or 56%, since December 31, 2019 to a total of 351 active rigs working as of December 31, 2020. While activity is improving off of 2020's low levels, we expect activity to be tempered in 2014 before bottoming in May2021 as our customers strive for spending levels that are within their capital budgets and cash flow targets. This may cause continued weak demand for, and prices of, 2016. While the average U.S. rig count increased 71% in 2017 from the 2016 average, activity levels in 2017 were still well below 2014 levels. This significant activity decline continued to have a material negative effect on theour products and services, which would adversely affect our future results of our Well Site Services segment, before beginning to recover in the second half of 2017. Our Offshore/Manufactured Products segment was also negatively impacted by the industry downturn but our results declined at a slower pace given higher levels of backlog that existed at the beginning of 2014. Despite an initially slower decline in revenuesoperations, cash flows and operating income when compared to our Well Site Services segment, our Offshore/Manufactured Products backlog declined materially from 2014 to 2017, which negatively impacted our results, particularly those tied to major projects.financial position. For additional information about activities in each of our segments, see “Part"Part II, Item 7. Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations.”"
Our Well Site Services segment is primarily affected by drilling and completion activity in the United States, including the Gulf of Mexico, and, to a lesser extent, the rest of the world. U.S. drilling and completion activity and, in turn, our Well Site Services segment results, are sensitive to near-term fluctuations in commodity prices, particularly WTI crude oil prices, given the call-out nature of our operations in the segment.
Similarly, demand for our Downhole Technologies segment products is predominantly tied to land-based oil and natural gas exploration and production activity levels in the United States and, to a lesser extent, internationally. The primary driver for this activity is the price of crude oil and, to a lesser extent, natural gas. In past years, operator spending in our industry has been particularly focused on crude oil and liquids-rich exploration and development in the U.S. shale plays utilizing enhanced horizontal drilling and completion techniques.
Demand for the products and services supplied by our Offshore/Manufactured Products segment is generally driven by both the longer-term outlook for commodity prices and changes in land-based drilling and completion activity. During 2013 and 2014, we benefited from highOver recent years, lower crude oil prices, resulting in very active bidding and quoting activity for our Offshore/Manufactured Products segment. However, the decline in crude oil prices that began in 2014 and continued into 2017, coupled with thea relatively uncertain outlook around shorter-term and possibly longer-term pricingcommodity price improvements, have caused exploration and production companies to reevaluate their future capital expenditures in regards to deepwater projects since they are expensive to drill and complete, have long lead times to first production and may be considered uneconomical relative to the risk involved. Bidding and quoting activity, along with orders from customers, for deepwater projects improved in 2019 from 2018 levels. However, with reduced market visibility given the significant decline in crude oil prices which began in March of 2020 and associated reductions in customer spending, the segment's 2020 bookings were lower than the levels achieved in 2019.
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Well Site Services
Overview
For the years ended December 31, 2020, 2019 and 2018, our Well Site Services segment generated approximately 31%, 42% and 44%, respectively, of our consolidated revenue. Our Well Site Services segment includes a broad range of equipment and services that are used to drill for, establish and maintain the flow of oil and natural gas from a well throughout its life cycle. In this segment, our operations primarily include completion-focused equipment and services and, to a much lesser extent, land drilling services in the United States. Our completion equipment and services are used in both onshore and offshore applications throughout the drilling, completion and production phases of a well's life cycle.
Well Site Services Market
Demand for our Offshore/Manufactured Products segment continued after 2014, albeit atcompletion and drilling services is predominantly tied to the level of oil and natural gas exploration and production activity on land in the United States. The primary driver for this activity is the price of crude oil and, to a substantially slower pace.
lesser extent, natural gas. Activity levels have been, and we expect will continue to be, highly correlated with hydrocarbon commodity prices.
Our Well Site Services segmentbusiness, which is primarily affected by marketed through the brand names Oil States Energy Services, Falcon, Tempress and Capstar Drilling, provides a wide range of services used in the onshore and offshore oil and gas industry, including:
•wellhead isolation services;
•frac valve services;
•wireline and coiled tubing support services;
•flowback and well testing, including separators and line heaters;
•downhole extended-reach technology;
•thru-tubing milling and fishing services;
•pipe recovery systems;
•gravel pack and sand control operations on wellbores;
•hydraulic chokes and manifolds;
•blowout preventer ("BOP") services; and
•drilling services.
As of December 31, 2020, we provided completion and completion activitydrilling services through approximately 30 locations serving our customers in the United States, including the Gulf of Mexico, and to a lesser extent, Canada and the rest of the world. U.S. drilling and completion activity and,international markets. Employees in turn, our Well Site Services results, are particularly sensitive to near-term fluctuations in commodity prices given the call-out nature of our operations in the segment. While there has been notable improvement in 2017, our Well Site Services segment continuestypically rig up and operate our equipment on the well site for our customers. Our equipment is primarily used during the completion and production stages of a well. We typically provide our services and equipment based on daily rates which vary depending on the type of equipment and the length of the job. Billings to be significantly negatively affected by the material declineour customers typically separate charges for our equipment from charges for our field technicians. We own patents or have patents pending covering some of our technology, particularly in crude oil prices since 2014.
Downhole Technologies
Overview
For the years ended December 31, 2017, 20162020, 2019 and 2015,2018, our Downhole Technologies segment contributed approximately 15%, 18% and 20%, respectively, of our consolidated revenue. This segment is comprised of the GEODynamics, Inc. ("GEODynamics") business we acquired in January 2018 (the "GEODynamics Acquisition") and provides oil and gas perforation systems, downhole tools and services in support of completion, intervention, wireline and well abandonment operations. This segment designs, manufactures and markets its consumable engineered products to oilfield service as well as exploration and production companies.
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Downhole Technologies Market
Similar to our Well Site Services segment, demand for our Downhole Technologies segment products is predominantly tied to land-based oil and natural gas exploration and production activity levels in the United States. The primary drivers for this activity are the price of crude oil and, to a lesser extent, natural gas. Activity levels have been, and we expect will continue to be, highly correlated with hydrocarbon commodity prices. Demand for this segment's products is also influenced by continued trends toward longer lateral lengths, increased frac stages and more perforation clusters to target increased unconventional well productivity, which requires ongoing technological and product development.
Products
Product and service offerings for this segment utilize innovations in perforation technology through patented and proprietary systems combined with advanced modeling and analysis tools. Our expertise has led to the optimization of perforation hole size, depth, and quality of tunnels, which are key factors for maximizing the effectiveness of hydraulic fracturing. Additional offerings include proprietary toe valve and frac plug products, which are focused on zonal isolation for hydraulic fracturing of horizontal wells, and a broad range of consumable products, such as setting tools and bridge plugs, that are used in completion, intervention and decommissioning applications.
Customers and Competitors
Our customers in the Downhole Technologies segment include other oilfield services companies as well as major, independent and private oil and gas companies. No customer in this segment represented more than 10% of our total consolidated revenue in any period presented. Competition in the Downhole Technologies business is widespread and includes many smaller companies, although we also compete with the larger oilfield service companies for certain products and services.
Offshore/Manufactured Products
Overview
For the years ended December 31, 2020, 2019 and 2018, our Offshore/Manufactured Products segment generated approximately 57%54%, 73%40% and 66%36%, respectively, of our revenue and 73%, 94% and 74%, respectively, of our gross profit (revenues less cost of products and services).consolidated revenue. Through this segment, we provide technology-driven, highly-engineered products and services for offshore oil and natural gas production systems and facilities, as well as certain products and services to the offshore and land-based drilling and completion markets. Our productsProducts and services used primarily in deepwater producing regions include our FlexJoint® technology, advanced connector systems, high-pressure riser systems, compact valves, deepwater mooring systems, cranes, subsea pipeline products, specialty welding, fabrication, cladding and machining services, offshore installation services and inspection and repair services. In addition, we design, manufacture and market numerous other products and services used in both land and offshore drilling and completion activities and by non-oil and gas customers, including consumable downhole elastomer products utilizedused in onshore completion activities, valves and sound and vibration dampening products.products used in military applications. We have facilities that support our Offshore/Manufactured Products segment in Arlington, Houston and Lampasas, Texas; Houma, Louisiana; Oklahoma City and Tulsa, Oklahoma; the United Kingdom; Brazil; Singapore; Spain; India; Thailand; Vietnam; China;and the United Arab Emirates; and India.Emirates.
Offshore/Manufactured ProductsMarket
The market for products and services offered by our Offshore/Manufactured Products segment centers primarily on the development of infrastructure for offshore production facilities and their subsequent operations, exploration and drilling activities, and to a lesser extent, new rig and vesselon-vessel construction, refurbishments or upgrades. Demand for oil and natural gas, and the related drilling and production in offshore areas throughout the world, particularly in deeper water, drive spending for these activities. Sales of our shorter-cycle products to land-based drilling and completion markets isare driven by the level and complexity of drilling, completion and workover activity, particularly in North America.
the United States.
Products and Services
In operation for more than 75 years, our Offshore/Manufactured Products segment provides a broad range of products and services for use in offshore development and drilling activities. This segment also provides products for onshore oil and natural gas, defense and general industries. Our Offshore/Manufactured Products segment is dependent in part on the industry's continuing innovation and creative applications of existing technologies. To that end, we are in the early stages of bidding on projects that facilitate the development of alternative energy sources, including offshore wind opportunities. We own various patents covering some of our technology, particularly in our connector and valve product lines.
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Offshore Development and Drilling Activities. We design, manufacture, fabricate, inspect, assemble, repair, test and market OEM equipment for mooring, pipeline, production and drilling risers, and subsea applications along with equipment for offshore vessel and rig construction. Our products are components of equipment used for the drilling and production of oil and natural gas wells on offshore fixed platforms and mobile production units, including floating platforms, such as tension leg platforms, floating production, storage and offloading (“FPSO”("FPSO") vessels, Spars (defined below), and other marine vessels floating rigs and jack-upoffshore rigs. Our products and services include:
•flexible bearings and advanced connection systems;
•casing and conductor connections and joints;
•subsea pipeline products;
•compact ball valves, manifold system components and diverter valves;
•marine winches, mooring systems, cranes and other heavy-lift rig equipment;
•production, workover, completion and drilling riser systems and their related repair services;
•consumable downhole products; and
•other products and services, including welding, cladding and other metallurgical technologies.
Flexible Bearings and Advanced Connection Systems. We are the key supplier of flexible bearings, or FlexJoint® connectors, to the offshore oil and natural gas industry as well as weld-on connectors and fittings that join lengths of large diameter conductorconductors or casing used in offshore drilling and production operations. A FlexJoint® is a flexible bearing that allows for rotational movement of a riser or tension leg platform tether while under high tension and/or pressure. When positioned at the top, bottom, and,or, in some cases, middle of a deepwater riser, it reduces the stress and loads on the riser while compensating for the pitch and rotational forces on the riser as the production facility or drilling rig moves with ocean forces. FlexJoint® connectors are used on drilling, production and export risers and are used increasingly as offshore production moves to deeper water.
Drilling riser systems provide thea vertical conduit between the floating drilling vessel and the subsea wellhead. Through the drilling riser, the drill string is guided into the well and drilling fluids are returned to the surface. Production riser systems provide the vertical conduit for the hydrocarbons from the subsea wellhead to the floating production facility. Oil and natural gas flows to the surface for processing through the production riser. Export risers provide the vertical conduit from the floating production facility to the subsea export pipelines. Our FlexJoint® connectors are a critical element in the construction and operation of production and export risers on floating production systems in deepwater.
Floating production systems, including tension leg platforms, Spars (defined below)FPSO facilities and FPSO facilities,Spars, are a significant means of producing oil and natural gas, particularly in deepwater environments. We provide many important products for the construction of these facilities. A tension leg platform (“TLP”("TLP") is a floating platform that is moored by vertical pipes, or tethers, attached to both the platform and the sea floor. Our FlexJoint® tether bearings are used at the top and bottom connections of each of the tethers, and our Merlin™ connectors are used to efficiently assemble the tether joints during offshore installation. An FPSO is a floating vessel, typically ship shaped, used to produce and process oil and natural gas from subsea wells. A Spar"Spar" is a floating vertical cylindrical structure which is approximately six to seven times longer than its diameter and is anchored in place. Our FlexJoint® connectors are used to attach the various production, injection, import or export risers to all of these floating production systems.
Casing and Conductor Connections andJoints. Our advanced connection systems provide connectors used in various drilling and production applications offshore. These connectors are welded onto pipe to provide more efficient joint to joint connections with enhanced tensile and burst capabilities that exceed those of connections machined onto plain-end-pipe. Our connectors are reusable and pliable and, depending on the application, are equipped with metal-to-metal seals. We offer a suite of connectors offering differing specifications depending on the application. Our Merlin™ connectors are our premier connectors combining superior static strength and fatigue life with fast, non-rotational make-up and a slim profile. Merlin™ connectors have been used in sizes up to 60 inches (outside diameter) for applications including open-hole and tie-back casing, offshore conductor casing, pipeline risers and TLP tendons (whichwhich moor the TLP to the sea floor).floor.
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Subsea Pipeline Products. We design and manufacture a variety of equipment used in the construction, maintenance, expansion and repair of offshore oil and natural gas pipelines. New construction equipment includes:
•pipeline end manifolds and pipeline end terminals;
•deep and shallow water pipeline connectors;
•midline tie-in sleds;
•forged steel Y-shaped connectors for joining two pipelines into one;
•pressure-balanced safety joints for protecting pipelines and related equipment from anchor snags or a shifting sea-bottom;
•electrical isolation joints; and
•hot-tap clamps that allow new pipelines to be joined into existing lines without interrupting the flow of petroleum product.products.
We provide diverless connection systems for subsea flowlines and pipelines. Our HydroTech® collet connectors provide a high-integrity, proprietary metal-to-metal sealing system for the final hook-up of deep offshore pipelines and production systems. They also are used in diverless pipeline repair systems and in future pipeline tie-in systems. Our lateral tie-in sled, which is installed with the original pipeline, allows a subsea tie-in to be made quickly and efficiently using proven HydroTech® connectors without costly offshore equipment mobilization and without shutting off product flow.
We provide pipeline repair hardware, including deepwater applications beyond the depth of diver intervention. Our products include:
•repair clamps used to seal leaks and restore the structural integrity of a pipeline;
•mechanical connectors used in repairing subsea pipelines without having to weld;
•misalignment and swivel ring flanges; and
•pipe recovery tools for recovering dropped or damaged pipelines.
Compact Ball Valves, Manifold System Components and Diverter Valves. Our Piper Valve division designs and manufactures compact high pressurehigh-pressure valves and manifold system components for all environments of the oil and gas industry including onshore, offshore, drilling and subsea applications. Our valve and manifold bores are designed to closely match the inside diameter of the required pipe schedule for the system working pressure. The result is elimination ofto eliminate piping transition areas, that minimize erosion and system friction pressure loss, resultingand to result in a more efficient flow path. Our floating ball valve design with its large ball/seat interface has over 30 years of proven field service experienceapplication in upstream unprocessed produced liquids and gasses, assuringproviding reliable service. Oil States Piper Valve Optimum Flow Technology is our way of helpingallows end users to maximize space, minimize weight and increase production. These products are designed and manufactured at our Oklahoma City, Oklahoma location.
Marine Winches, Mooring Systems, Cranes and other Heavy-Lift Rig Equipment. We design, engineer and manufacture marine winches, mooring systems, cranes and certain rig equipment. Our Skagit® winches are specifically designedengineered for mooring floating and semi-submersible drilling rigs as well as positioning pipelay and derrick barges, anchor handling boats and jack-ups, while ourjack-ups. Our Nautilus® marine cranes are used on production platforms throughout the world. We also design and fabricate rig equipment such as automatic pipe racking blow-out preventersystems, BOP handling equipment, as well asand handling equipment used in the installation of offshore wind turbine platforms. Our engineering teams, manufacturing capability and service technicians, who install and service our products, provide our customers with a broad range of equipment and services to support their operations. Aftermarket service and support offor our installed base of equipment to our customers is also an important source of revenue to us. These products are provided through our Houma, Louisiana; Navi Mumbai, India; and Rayong, Thailand locations.
Production, Workover, Completion, Drilling and DrillingMining Riser Systems and their related repair services. Utilizing the expertise of our welding technology group,group's expertise, we have extendedcontinue to extend the boundaries of our Merlin™ connector technology with the design and manufacture of multiple riser systems. The unique Merlin™ connection hasis a proven, to be a robust solution for even the most demanding high-pressure (up to 20,000 psi) riser systems used in high-fatigue, deepwater applications. Our riser systems are designed to meet a range of static and fatigue stresses on par with those of our Tension Leg Element (“TLE”) connectors. The connector can be welded or machined directly onto upset riser pipe and provide sufficient material to perform repair or "re-cuts" after extended service. We believe that
our marine riser offers superior tension capabilities together with one of the fastest run times in the industry. Auxiliary riser system components and running tools, can be provided along with full servicefull-service inspection and repair of these riser systems byare available.
In 2020, we were awarded a contract to design and supply a new deepwater riser system (including automated tooling, a control system and marine riser) to collect polymetallic nodules from the sea floor. This mining riser system applies our facilities worldwide.30-plus years of experience in providing marine riser systems for the oil and gas industry to a new market, not tied to energy prices.
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BOP Stack Assembly, Integration, Testing and Repair Services. While not typically a manufacturer of BOP components, we design and fabricate lifting and protection frames for BOP stacks and offer the complete system integration of BOP stacks and subsea production trees. We can provide complete turnkey and design fabrication services. We also design and manufacture a variety of custom subsea equipment, such as riser flotation tank systems, guide bases, running tools and manifolds. In addition, we also offer blow-out preventerBOP and drilling riser testing and repair services. These assembly and testing services are offered through our Houston, Texas, United Kingdom, Singapore and Brazil locations.
Consumable Downhole Products. North American shale play development has expanded the need for more advanced completion tools. ToIn order to reduce well completion costs, minimizing the time to drill out tools is very important. Our Offshore/Manufactured Products segment has leveraged its knowledge of molded thermoset composites and elastomers to help meet this demand. For example, we have had success in developing and producing composite drillable zonal isolation tools (i.e., bridge/frac plugs) utilizing design and production techniques that reduce cost while still delivering high qualityhigh-quality performance. Time to drill out has beenis significantly reduced significantly in comparison to other filament wound products in the market. Our products also include:
•Swab Cups - used primarily in well servicing work;
•Rod Guides/Centralizers - used in both drilling and production for pipe protection;
•Gate Valve and Butterfly Valve Seats – we service many markets in the valve industry including well completion, refining, and distribution;
•Casing and CementingProducts – we are a custom manufacturer of cementing plugs, well borewellbore wipers, valve assemblies, combination plugs, specialty seals and gaskets; and
•Service Tools – our products include frac balls, packer elements, zonal isolation tools, as well as many custom molded products used in the well servicing industry.
Other Products & Services. Our Offshore/Manufactured Products segment also produces a variety of products for use in industrial, military and other applications outside the oil and gas industry. For example, we provide:
•sound and vibration isolation equipment for marine vessels;
•metal-elastomeric FlexJoint® bearings used in a variety of naval and marine applications;
•products used in the construction and maintenance of offshore wind projects; and
•drum-clutches and brakes for heavy-duty power transmission in the mining, paper, logging and marine industriesindustries.
Backlog
Regions of Operations
Our Offshore/Manufactured Products segment provides products and services to customers in the major offshore crude oil and natural gas producing regions of the world, including the U.S. Gulf of Mexico, Brazil, West Africa, the North Sea, Azerbaijan, Russia, India, Southeast Asia, China, the United Arab Emirates and Australia. In addition, we provide shorter-cycle products to customers in the land-based drilling and completion markets in the United States and, to a lesser extent, outside the United States.
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Customers and Competitors
We market our products and services to a broad customer base, including direct end users,end-users, engineering and design companies, prime contractors, and at times, our competitors through outsourcing arrangements. While no customer accounted for more than 10% of our consolidated revenues in 20152020 or 2016,2019, Halliburton Company individually accounted for 16%10% of our total consolidated revenues in the year ended December 31, 2017.2018. Our main competitors in this segment include CameronOneSubsea (a division of Schlumberger Limited), TechnipFMC plc, Dril-Quip, Inc., National Oilwell Varco, Inc., Baker Hughes Company, Hutchinson Group (a subsidiary of Total)Total S.A.), Sparrows Offshore Group LTD, Oceaneering International, Inc., Raina Engineers and Raina Engineers.
AFG Holdings, Inc.
Seasonality of Operations
Our operations are directly affectedimpacted by customer budgets and seasonal differencesweather conditions in weather in thecertain areas in which we operate, most notably in the Rocky Mountain region,and Northeast regions of the Gulf of Mexico and Canada. SevereUnited States, where severe winter weather conditions in the Rocky Mountain region can restrict access to work areas for our Well Site Services segment operations. Our operations in the Gulf of Mexico are also affected by weather patterns. Weather conditions in the Gulf Coast region generally result in higher drilling activity in the spring, summer and fall months with the lowest levels of activity in the winter months.areas. In addition, summer and fall completion and drilling activity can be interrupted byrestricted due to hurricanes and other storms prevalent in the Gulf of Mexico and along the Gulf Coast. A portion of our Completion Services operations in Canada is conducted during the winter months when the winter freeze in remote regions is required for exploration and production activity to occur. As a result, of these seasonal differences, full yearfull-year results are not likely to be a direct multiple of any particular quarter or combination of quarters.
Human Capital
Employees
As of December 31, 2017, the Company employed 3,0772020, we had a total of 2,338 full-time employees, on a consolidated basis, 50%33% of whom are in our Well Site Services segment, 10% of whom are in our Downhole Technologies segment, 54% of whom are in our Offshore/Manufactured Products segment, 47% of whom are in our Well Site Services segment, and 3% of whom are in our corporate headquarters. This compares to a total of 2,821 full-time employees as of December 31, 2016. Company-wide headcountDuring 2020, our company-wide workforce was reduced 32% following the unprecedented decline in crude oil prices following the demand destruction caused by approximately 42% between December 31, 2014 and December 31, 2017 inthe global response to weak industry conditions.the COVID-19 pandemic. See "– Recent Developments" for further discussion of personnel reductions and other cost control measures implemented during 2020 aimed at reducing costs and protecting the financial health of our company. We were party to collective bargaining agreements covering a small number offewer than 100 employees located in Argentina andoutside the United KingdomStates as of December 31, 2017.2020. We believe we have good labor relations with our employees.
Safety
The health and safety of our employees, contractors, business partners, visitors and the communities where we work is a cornerstone of our culture, "Safety Focus from the Top." We are transparent in our communications about our health, safety and environment ("HSE") commitment to employees, contractors, vendors, suppliers and customers. We solicit input to improve our programs and employee participation is a vital element in our success.
We establish global targets in an effort to promote HSE improvement and monitor our performance through real-time reporting. Executive management and operations personnel review incidents and loss trends on a weekly basis and we update our board of directors no less than monthly. For divisional and operational teams, a portion of their annual incentive compensation is linked to established safety metrics.
We seek to encourage our employees to actively participate in HSE initiatives through safety committees, behavior-based observations, and employees stopping work if at-risk conditions are observed, among other aspects of our safety management system. We monitor global compliance with our internal policies and procedures, internationally recognized/certified management systems and all applicable national, state, local and international laws and regulations.
COVID-19 Response
Our dedicated employees across the globe provided essential services to the energy industry during 2020 and continue to do so in 2021. The COVID-19 outbreak expanded into a global pandemic in early 2020 – requiring swift and effective responses by us in order to protect the health and safety of our employees and others, as well as the communities in which we operate.
We implemented measures to enable our employees to work safely, including: adjustments to facility workflows and operating schedules; enhanced cleaning procedures; health monitoring procedures; and strict travel protocols. Additionally, when possible, we requested that employees work from home to limit social contact in support of government instructions.
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Diversity
We recognize that our employees are critical to our long-term success. Our operations are global and demand a diverse workforce, which we believe provides us with a competitive advantage and allows us to better understand and communicate with a diverse population of constituents. Our strong focus on innovation necessitates an equally strong focus on technical skills and training programs, which we believe creates high performing teams that can arrive at better solutions to problems. We strive to cultivate a culture and work environment that enables us to attract, train, promote, and retain a diverse group of skilled individuals who collectively enable us to safely provide quality, innovative solutions to our customers while remaining considerate of the environment and of our communities.
We strive to align our national and cultural diversity with our global operations. For example, 74% of our full-time employee base was in the United States where we generated 73% of our revenues in 2020. We have and continue to remain focused on improving gender balance across our field and manufacturing operations, technical, business and management roles. As of December 31, 2020, women made up approximately 18% of our global workforce. Additionally, approximately 20% of our executive and senior management roles in 2020 were held by women, including our Chief Executive Officer and President who has served in this role and as a member of our Board since 2007.
Hiring, Training and Development of our Workforce
Our employee hiring, training, career development and retention practices are key to our success. We recruit and train our employees while providing competitive wages and benefits. Our industry is cyclical leading to varying headcount needs during industry cycles. We prioritize recalling our experienced employees for manufacturing and field positions to the extent possible as conditions improve following an industry downturn such as the one experienced in 2020.
We invest in continual training and development of our employees through technical and non-technical courses and programs. Employee training and development includes course work as well as on the job mentoring – emphasizing, among others matters, safety, ethical behavior, compliance with our internal policies and laws and regulations, protection of the environment, and skills and competencies necessary for a specific position. In addition to internal training and development, we also value the benefits of continuing formal education and maintain an educational assistance program that reimburses eligible expenses from accredited institutions.
Environmental and Occupational Health and Safety Matters
Our business operations are subject to numerous federal, state, local, tribal and foreignstringent environmental and occupational health and safety laws and regulations.regulations that may be imposed domestically at the federal, regional, state, tribal and local levels or by foreign governments. Numerous governmental entities, including domestically the U.S. Environmental Protection Agency (“EPA”("EPA"), the federal Bureau of Alcohol, Tobacco, Firearms and Explosives ("ATF"), a law enforcement agency under the U.S. Department of Justice, the U.S. Occupational Safety and Health Administration ("OSHA") and analogous state agencies, have the power to enforce compliance with these laws and regulations and the permits issued under them, often requiring difficult and costly actions. These laws and regulations may, among other things, (i) require the acquisition of permits to conduct drilling and other regulated activities; (ii) restrict the types, quantities and concentration of various substances that can be released into the environment or injected into subsurface formations in connection with oil and natural gas drilling and production activities;activities and wellsite support services; (iii) limit or prohibit drilling activities on certain lands lying within wilderness, wetlands and other protected areas; (iv) impose stringent regulations on the licensing or storage and use of explosive;explosives; (v) require remedial measures to mitigate pollution from former and ongoing operations, such as requirements to close pits and plug abandoned wells;wells or decommission offshore facilities; (vi) impose specific safety and health criteria addressing worker protection; and (vii) impose substantial liabilities for pollution resulting from drilling operations and well site support services.
The more significant of these existing environmental and occupational health and safety laws and regulations include the following U.S. laws and regulations,legal standards, as amended from time to time:
•the Clean Air Act (“CAA”("CAA"), which restricts the emission of air pollutants from many sources and imposes various pre-construction, operational, monitoring and reporting requirements, whichand that the EPA has relied upon as authority for adopting climate change regulatory initiatives relating to greenhouse gas emissions (“GHGs”("GHG"); emissions;
•the Federal Water Pollution Control Act, also known as the federal Clean Water Act ("CWA"), which regulates discharges of pollutants from facilities to state and federal waters and establishes the extent to which waterways are subject to federal jurisdiction and rulemaking as protected waters of the United States;
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•the Oil Pollution Act of 1990, which subjects owners and operators of vessels, onshore facilities, and pipelines, as well as lessees or permittees of areas in which offshore facilities are located, to liability for removal costs and damages arising from an oil spill in waters of the United States;
•U.S. Department of the Interior ("DOI") regulations, which relate to offshoregovern oil and natural gas operations in U.S.on federal lands and waters and impose obligations for establishing financial assurances for decommissioning activities, liabilities for pollution cleanup costs resulting from operations, and potential liabilities for pollution damages;
•the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), which imposes liability on generators, transporters, disposers and arrangers of hazardous substances at sites where hazardous substance releases have occurred or are threatening to occur;
•the Resource Conservation and Recovery Act (“RCRA”("RCRA"), which governs the generation, treatment, storage, transport, and disposal of solid wastes, including oil and natural gas exploration and production wastes and hazardous wastes;
•the Safe Drinking Water Act (“SDWA”("SDWA"), which ensures the quality of the nation’snation's public drinking water through adoption of drinking water standards and controlling the injection of waste fluids into below-ground formations that may adversely affect drinking water sources;
•the Emergency Planning and Community Right-to-Know Act, which requires facilities to implement a safety hazard communication program and disseminate information to employees, local emergency planning committees, and response departments on toxic chemical uses and inventories;
•the Endangered Species Act ("ESA"), which restricts activities that may affect federally identified endangered and threatened species or their habitats through the implementation of operating restrictions or a temporary, seasonal, or permanent ban in affected areas;
•the National Environmental Policy Act, which requires federal agencies, including the Department of the Interior,DOI, to evaluate major agency actions having the potential to impact the environment and that may require the preparation of environmental assessments and more detailed environmental impact statements that may be made available for public review and comment;
•the U.S. Department of Transportation regulations, which relate to advancing the safe transportation of energy and hazardous materials, including explosives, and emergency response preparedness; and
•regulations adopted by the ATF, a law enforcement agency under the U.S. Department of Justice, that impose stringent licensing conditions with respect to the acquisition, storage and use of explosives for use in well site support services in the oil and natural gas sector.
We have incurred and will continue to incur operating and capital expenditures, some of which may be material, to comply with environmental and occupational health and safety laws and regulations. Historically, our environmental and worker safety compliance costs have not had a material adverse effect on our results of operations; however,operations. However, there can be no assurance that such costs will not be material in the future or that such future compliance will not have a material adverse effect on our business and operational results.
We own, lease or operate numerous properties that have been used for wellsite support services for many years. We also have acquired certain properties supportive of oil and natural gas activities from third parties whose actions with respect to the management and disposal or release of hydrocarbons, hazardous substances or wastes at or from such properties were not under our control prior to acquiring them. Under environmental laws and regulations such as CERCLA and RCRA, we could incur
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strict joint and several liability due to damages to natural resources or for remediating hydrocarbons, hazardous substances or wastes disposed of or released by prior owners or operators. Moreover, an accidental release of materials into the environment during the course of our operations may cause us to incur significant costs and liabilities. We also could incur costs related to the clean-up of third-party sites to which we sent regulated substances for disposal or to which we sent equipment for cleaning, and for damages to natural resources or other claims related to releases of regulated substances at or from such third-party sites.
Over time, both in the United States and in foreign countries, the trend in environmental and occupational health and safety laws and regulations is to typically place more restrictions and limitations on activities that may adversely affect the environment or expose workers to injury. If existing regulatory requirements or enforcement policies change or new regulatory or enforcement initiatives are developed and implemented in the future, we or our customers may be required to make significant, unanticipated capital and operating expenditures. Examples of recent regulations or other regulatory initiatives in the United States include the following:
•Hydraulic fracturing. Hydraulic fracturing is typically regulated by state oil and gas commissions, but the practice continues to attract considerable public, scientific and governmental attention in certain parts of the country, resulting in increased scrutiny and regulation, including by federal agencies. At the federal level, the EPA asserted federal regulatory authority under the SDWA over certain hydraulic fracturing activities involving the use of diesel fuels and published permitting guidance for such activities. Additionally, the EPA issued a final regulation under the CWA prohibiting discharges to publicly owned treatment works of wastewater from onshore unconventional oil and gas extraction facilities. In late 2016, the EPA released its final report on the potential impacts of hydraulic fracturing on drinking water resources, concluding that "water cycle" activities associated with hydraulic fracturing may impact drinking water resources under certain circumstances. Also in 2016, the federal Bureau of Land Management ("BLM") under the Obama Administration published a final rule imposing more stringent standards on hydraulic fracturing on federal lands; however, in late 2018, the BLM under the Trump Administration published a final rule rescinding the 2016 final rule. Since that time, litigation challenging the BLM's 2016 final rule and the 2018 final rule has resulted in rescission in federal courts of both the 2016 rule and the 2018 final rule but appeals of one or both of those decisions are expected. Notwithstanding these regulatory developments, the Biden Administration could seek to pursue legislative, regulatory or executive initiatives that restrict hydraulic fracturing activities on federal lands. For example, the Biden Administration issued an order temporarily suspending the issuance of new leases and authorizations on federal lands and waters for a period of 60 days beginning on January 20, 2021, and subsequently issued a second order in January 2021 suspending the issuance of new leases on federal lands and waters pending completion of a study of current oil and gas practices. Although wethese suspensions do not limit existing operations under valid leases and are not fully insuredapplicable to tribal lands that the federal governmental holds in trust, further constraints may be adopted by the Biden Administration in the future. At the state level, many states have adopted legal requirements that have imposed new or more stringent permitting, public disclosure or well construction requirements on hydraulic fracturing activities, including states where our oil and gas exploration and production customers operate. States could also elect to place prohibitions on hydraulic fracturing and local governments may seek to adopt ordinances within their jurisdictions regulating the time, place or manner of drilling activities in general or hydraulic fracturing activities in particular.
•Induced seismicity. In recent years, wells in the United States used for the disposal by injection of flowback water or certain other oilfield fluids below ground into non-producing formations have been associated with an increased number of seismic events, with research suggesting that the link between seismic events and wastewater disposal may vary by region and local geology. The U.S. geological survey has in the recent past identified six states with the most significant hazards from induced seismicity: Oklahoma, Kansas, Texas, Colorado, New Mexico, and Arkansas. In response to these concerns, regulators in some of the states in which our oil and gas exploration and production customers operate have adopted additional requirements related to seismicity and its potential association with hydraulic fracturing. For example, Oklahoma and Texas have issued rules for wastewater disposal wells that imposed certain permitting and operating restrictions and reporting requirements on disposal wells in proximity to faults. States such as Oklahoma have also issued orders, from time to time, for certain wells where seismic incidents have occurred to restrict or suspend disposal well operations. Another consequence of seismic events may be lawsuits alleging that disposal well operations have caused damage to neighboring properties or otherwise violated state and federal rules regulating waste disposal. In countries outside of the United States where we or our customers conduct operations, there may exist similar governmental restrictions or controls over well disposal activities in an effort to limit the occurrence of induced seismicity.
•Offshore marine safety. In the United States, President Biden has placed a moratorium on new oil and natural gas leases on federal lands and waters, including the federal Outer Continental Shelf ("OCS"), and he may pursue regulatory initiatives, executive actions and legislation in support of his regulatory agenda. Additionally, regulatory agencies under the Biden Administration may issue new or amended rulemakings regarding deepwater leasing,
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permitting or drilling that could result in more stringent or costly restrictions, delays or cancellations to our oil and gas exploration and production customers with respect to their offshore operations. For example, as discussed under "Hydraulic Fracturing" above, the Biden Administration has suspended the issuance of authorizations for oil and gas activities on federal lands and waters, although the suspension does not limit existing operations under valid leases. The Bureau of Ocean Energy Management ("BOEM") and the Bureau of Safety and Environmental Enforcement ("BSEE") have over the past decade, primarily under the Obama Administration, imposed more stringent permitting procedures and regulatory safety and performance requirements with respect to new wells to be drilled in federal waters. However, in recent years under the Trump Administration, there have been actions by BSEE or BOEM seeking to mitigate or delay certain of those more rigorous standards. For example, in 2016, the BOEM under the Trump Administration imposed a delay in, and ultimately rescinded in 2020, the implementation of a Notice to Lessees and Operators ("NTL") issued by BSEE under the Obama Administration that would have bolstered supplemental bonding procedures for the decommissioning of offshore wells, platforms, pipelines, and other facilities by oil and natural gas exploration and production operators on the OCS. BSEE and BOEM under the Biden Administration may reconsider rules and regulatory initiatives implemented under the Trump Administration and pursue legislation, regulations, executive actions or other regulatory initiatives that impose more stringent standards. Additionally, the Biden Administration may seek to pursue executive actions and legislation that would restrict, delay or cancel prospective leasing or drilling activities on the OCS or significantly increase financial assurances of operators for decommissioning of offshore facilities on the OCS. Our customers compliance with such new, more stringent legal requirements may result in increased costs for us or our customers and could adversely affect, delay or curtail new or ongoing drilling and development efforts by our customers. Outside of the United States, there are countries and provincial, regional, tribal or local jurisdictions therein where our customers are conducting business that also have, or may be developing, regulatory initiatives or analogous controls that regulate the permitting and regulatory safety and performance aspects of those customers’ development and production activities, which could significantly restrict, delay or cancel the leasing, permitting, development or expansion of an offshore energy project or substantially increase the cost of doing business offshore.
•Ground-level ozone standards. In 2015, the EPA under the Obama Administration issued a final rule under the CAA, making the National Ambient Air Quality Standard ("NAAQS") for ground-level ozone more stringent. Since that time, the EPA has issued area designations with respect to ground-level ozone and final requirements that apply to state, local, and tribal air agencies for implementing the 2015 NAAQS for ground-level ozone and, more recently, in December 2020, the EPA, under the Trump Administration, published a final action that, upon conducting a periodic review of the ozone standard in accord with CAA requirements, elected to retain the 2015 ozone NAAQS without revision on a going-forward basis. However, several groups have filed litigation over this December decision, and the NAAQS may be subject to further revision under the Biden Administration. State implementation of the revised NAAQS could, among other things, require installation of new emission controls on some of our or our customers' equipment, result in longer permitting timelines, and significantly increase our or our customers' capital expenditures and operating costs.
•Waters of the United States. In 2015, the EPA and U.S. Army Corps of Engineers ("Corps") under the Obama Administration released a final rule outlining federal jurisdictional reach under the CWA over waters of the United States, including wetlands; however, the 2015 rule was repealed by the EPA and the Corps under the Trump Administration in a final rule that became effective in December 2019 and they also published a final rule in April 2020 re-defining the term "waters of the United States" as applied under the CWA and narrowing the scope of waters subject to federal regulation. The April 2020 final rule is subject to various pending legal challenges and there is an expectation that this final rule will be reconsidered by the Biden Administration. To the extent that the EPA and the Corps under the Biden Administration revises the June 2020 final rule in a manner similar to or more stringent than the original 2015 final rule, or if any challenge to the June 2020 final rule is successful and the 2015 final rule or a revised rule again expands the scope of the CWA's jurisdiction in areas where we or our customers conduct operations, such developments could delay, restrict or halt permitting or development of projects, result in longer permitting timelines, or increased compliance expenditures or mitigation costs for our and our customers’ operations, which may reduce the rate of production from operators.
•Climate change. In the United States, no comprehensive climate change legislation has been implemented at the federal level, but President Biden may pursue new climate change legislation, executive actions or other regulatory initiatives to limit GHG emissions. Moreover, with the U.S. Supreme Court finding that GHG emissions constitute a pollutant under the CAA, the EPA has adopted rules that, among other things, establish construction and operating permit reviews for GHG emissions from certain large stationary sources, require the monitoring and annual reporting of GHG emissions from certain petroleum and natural gas system sources, and impose new standards reducing methane emissions from oil and gas operations through limitations on venting and flaring and the implementation of enhanced emission leak detection and repair requirements. In recent years, there has been considerable uncertainty
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surrounding regulation of methane emissions, as the EPA under the Obama Administration published final regulations under the CAA establishing new source performance standards ("NSPS") for methane in 2016, but since that time the EPA has undertaken several measures for stationary sources of air emissions, including publishing the September 2020 final rule policy and technical amendments to the NSPS. The policy amendments, effective September 14, 2020, notably removed the transmission and storage sector from the regulated source category and rescinded methane and volatile organic compounds requirements for the remaining sources that were established by former President Obama's Administration, and the technical amendments, effective November 16, 2020, included changes to fugitive emissions monitoring and repair schedules for gathering and boosting compressor stations and low-production wells, recordkeeping and reporting requirements, and more. Various states and industry and environmental groups are separately challenging both the original 2016 standards and the EPA's September 2020 final rules and on January 20, 2021, President Biden issued an executive order that, among other things, directed the EPA to reconsider the technical amendments and issue a proposed rule suspending, revising or rescinding those amendments by no later than September 2021. A reconsideration of the September 2020 policy amendments is expected to follow. The January 20, 2021 executive order also directed the establishment of new methane and volatile organic compound standards applicable to existing oil and gas operations, including the production, transmission, processing and storage segments. Additionally, various states and groups of states have adopted or are considering adopting legislation, regulations or other regulatory initiatives that are focused on such areas as greenhouse gas cap and trade programs, carbon taxes, reporting and tracking programs, and restriction of emissions. At the international level, there exists the United Nations-sponsored "Paris Agreement," which is a non-binding agreement for nations to limit their greenhouse gas emissions through individually-determined reduction goals every five years after 2020. While the United States had withdrawn from the Paris Agreement, President Biden has signed executive orders to recommit the United States to the Paris Agreement and to direct the federal government to formulate the United States' emissions reduction goal under the agreement. With the United States recommitting to the Paris Agreement, executive orders may be issued or federal legislation or regulatory initiatives may be adopted to achieve the agreement's goals. Separately, on January 27, 2021, President Biden issued an executive order that commits to substantial action on climate change, calling for, among other things, the increased use of zero-emissions vehicles by the federal government, the elimination of subsidies provided to the fossil fuel industry, and an increased emphasis on climate-related risks across government agencies and economic sectors. Litigation risks are also increasing, as a number of states, municipalities and other plaintiffs have sought to bring suit against the largest oil and natural gas exploration and production companies in state or federal court, alleging, among other things, that such energy companies created public nuisances by producing fuels that contributed to global warming effects, such as rising sea levels, and therefore, are responsible for roadway and infrastructure damages as a result, or alleging that the companies have been aware of the adverse effects of climate change for some time but defrauded their investors by failing to adequately disclose those impacts. There are also increasing financial risks for fossil fuel producers and other companies supportive of the oil and natural gas industry as shareholders and bondholders currently invested in fossil-fuel energy companies concerned about the potential effects of climate change may elect in the future to shift some or all of their investments into non-fossil fuel energy related sectors. Institutional lenders who provide financing to fossil-fuel energy companies also have become more attentive to sustainable lending and investment practices and some of them may elect not to provide funding for fossil fuel energy companies. Additionally, there is the possibility that financial institutions will be required to adopt policies that limit funding for fossil fuel energy companies. Recently, President Biden signed an executive order calling for the development of a climate finance plan and, separately, the Federal Reserve announced that it has joined the Network for Greening the Financial System, a consortium of financial regulators focused on addressing climate-related risks in the financial sector. Finally, increasing concentrations of GHG in the Earth's atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, droughts, floods, rising sea levels and other climatic events.
While we maintain insurance coverage for certain environmental and occupational health and safety risks andthat we believe is consistent with insurance coverage held by other similarly situated industry participants, our insurance does not cover any penalties or fines that may be issued by a governmental authority, we maintain insurance coverage that we believe is sufficient based on our assessment of insurable risks and consistent with insurance coverage held by other similarly situated industry participants. Nevertheless,government authority. In addition, it is possible that other developments, such as stricter and more comprehensive environmental and occupational health and safety laws and regulations, claims for damages to property or persons or disruption of our customers' operations resulting from our operations,actions or omissions, and imposition of penalties due to our operations, could have a material adverse effect on us and our results of operations.
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Item 1A.Risk Factors
The risks described in this Annual Report on Form 10‑K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.
Business and Operating Risks
Declines in crude oil prices to record low levels as a result of the COVID-19 outbreak and a significantly oversupplied crude oil market have negatively impacted, and are expected to continue to negatively impact, demand for our products and services resulting in a material negative impact on our results of operations, financial position and liquidity.
Public health crises, pandemics and epidemics, such as the ongoing outbreak of COVID-19, have adversely impacted and are expected to continue to adversely impact our operations, the operations of our customers and the global economy, including the worldwide demand for oil and natural gas and the level of demand for our services. Fear of such events has also altered the level of capital spending by oil and gas companies for exploration and production activities and adversely affected the economies and financial markets of many countries resulting in an economic downturn that has affected demand for our services. A significant majority of states as well as local jurisdictions have imposed, and others in the future may impose, quarantines, executive orders and similar government orders and restrictions for their residents to control the spread of COVID-19. Such orders or restrictions, and the perception that such orders or restrictions could occur, have resulted in business closures, work stoppages, slowdowns and delays, work-from-home policies, travel restrictions and cancellation of events, among other effects. In an effort to minimize the spread of illness, we and our customers have implemented various worksite restrictions as well as quarantining in order to minimize the chances of a potential COVID-19 outbreak, which could result in decreased operational effectiveness and disruptions in our equipment delivery and supply chain for our customers. As of the date of filing of this Annual Report on Form 10-K for the period ended December 31, 2020, our manufacturing and services facilities are open, but our operations still face certain interruptions related to the COVID-19 pandemic. Even once the worst impacts have subsided, the COVID-19 pandemic could continue to adversely impact our business through, for example, reductions in the demand for gasoline by consumers who may be more inclined to work from home than commute to work. We are continuing to monitor the impact of COVID-19 on our business, including as a result of changes in consumer behavior, which has resulted in a decrease in the demand for crude oil and natural gas and, consequently, our products and services.
Contemporaneously with the widespread outbreak of COVID-19 in the United States, the increase in crude oil supply resulting from production escalations from OPEC, combined with a decrease in crude oil demand stemming from the uncertainties surrounding COVID-19 resulted in a sharp decline in crude oil prices. In response, a number of our exploration and production company customers announced significant reductions in capital spending for drilling, completion, production and other projects on which our products and services would be used. These reductions in spending and activity levels have negatively impacted, and we expect they will continue to negatively impact, demand for our products and services, the prices we can charge for those products and services and, as a result, our results of operations, liquidity and financial condition. Although OPEC, its members and other state-controlled oil companies ultimately agreed to reduce production and many operators have shut-in production in the United States, supply continues to exceed demand and crude oil prices remain volatile and at lower levels. Further actions among OPEC members and other producing nations as to production levels and prices could result in further declines in crude oil prices, which would prove detrimental, particularly given the weak demand environment for crude oil and associated products caused by the COVID-19 pandemic.
The extent to which COVID-19 and lower crude oil prices impacts our results, financial position and liquidity will depend on future developments, such as the availability of effective treatments and vaccines, which are highly uncertain and cannot be predicted.
Demand for mostthe majority of our products and services is substantially dependent on the levels of expenditures by companies in the oil and natural gas industry. LowLower oil and natural gas prices have significantly reduced the demand for our products and services and the prices we are able to charge. This has had and may continue to have a material adverse effect on our financial condition and results of operations.
Demand for most of our products and services depends substantially on the level of capital expenditures by companiesinvested in the oil and natural gas industry. The significant decline in crude oil and natural gas prices, during 2015 that continuedcoupled with higher crude oil inventory levels in 2016 and 20172020, caused a reductionrapid reductions in most of our customers’customers' drilling, completion and other production activities and related spending on our products and services. The reduction in demand from our customers haswhich resulted in an oversupply of many of theour services and products we provide, and such oversupply has substantially reduced the prices we cancould charge our customers for many of our productsthese services and services. Although oil and natural gas prices improved somewhat since the trough in 2016, these price improvements have not resulted in global improvements in the demand for our products and services or the prices we are able to charge. If oil and natural gas prices remain depressed or decline, our customers’ activity levels and spending, and the prices we charge, may remain depressed and could worsen. In addition, aproducts. A continuation or worsening of these conditions may result in a material adverse impact on certain of our customers’ liquidity and financial position resulting in further spending reductions, delays in the collection of amounts owing to us and similar impacts. These conditions have had and may continue to have an adverse impact on our financial condition, results of operations and cash flows, and it is difficult to predict how long the current depressed commodity price environment will continue.
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•public health crises, such as an inability to access needed capital on attractive terms orthe COVID-19 outbreak at all, the incurrencebeginning of asset impairment charges,2020, which has negatively impacted the inability to meet financial ratios contained in our debt agreements,global economy, and correspondingly, the need to reduce our capital spending and other similar impacts. For example, our reduced EBITDA during recent periods resulted in our inability to access the full borrowing capacity available under our Revolving Credit Facility during those periods as a resultprice of the maximum leverage ratio covenant, which under our Amended Revolving Credit Facility, requires that our ratio of total net debt to consolidated EBITDA be no greater than 4.00 to 1.0 for fiscal quarters ending prior to December 31, 2018 and no greater than 3.75 to 1.0 thereafter. As more fully disclosed in Note 18, "Subsequent Events," in the Notes to the Consolidated Financial Statements, and Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations under the heading “Liquidity, Capital Resources and Other Matters,” we discuss our expectations regarding liquidity and covenant compliance for 2018.crude oil;
•the level of drilling and completion activity;
•the level of oil and natural gas production;
•the levels of oil and natural gas inventories;
•depletion rates;
•the expected cost of finding, developing and producing new reserves;
•delays in major offshore and onshore oil and natural gas field permitting or development timetables;
•the availability of attractive offshore and onshore oil and natural gas field prospects whichthat may be affected by governmental actions or environmental activists whichthat may restrict development;
•the availability of transportation infrastructure for oil and natural gas, refining capacity and shifts in end-customer preferences toward fuel efficiency and the use of natural gas;
•global weather conditions and natural disasters;
•worldwide economic activity including growth in developing countries;
•national government political requirements, including the ability and willingness of OPEC to set and maintain production levels and prices for oil and government policies which could nationalize or expropriate oil and natural gas exploration, production, refining or transportation assets;
•shareholder activism or activities by non-governmental organizations to limit or cease certain sources of funding for the energy sector or restrict the exploration, development, production and productiontransportation of oil and natural gas;
•the impact of armed hostilities involving one or more oil producing nations;
•rapid technological change and the timing and extent of development of energy sources, including liquefied natural gas or alternative fuels;as well as solar, wind and other renewable energy sources;
•environmental and other governmental laws and regulations; and
•domestic and foreign tax policies.policies, including those regarding tariffs and duties.
have an adverse effect on our equipment utilization, revenues, cash flows and profitability;
our ability to obtain additional capital to finance our business and the cost of that capital; and
our ability to attract and retain skilled personnel.
We might be unable to compete successfully with other companies in our industry.
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If we do not develop new competitive technologies and products, our business and revenues may be adversely affected.
The market for our products and services is characterized by continual technological developments to provide better performance in increasingly greater depths, higher pressure levels and harsher conditions. If we are unable to design, develop and produce commercially competitive products in a timely manner in response to changes in technology, our business and revenues will be adversely affected. Many of our competitors are large multinational companies that may have significantly greater financial resources than we have, and they may be able to devote greater resources to research and development of new systems, services and technologies than we are able to do. In addition, competitors or customers may develop new technologies, which address similar or improved solutions to our existing technology. In 2019, for example, our Downhole Technologies segment sales of perforating products declined due, in part, to the introduction of integrated gun systems by its competitors. Additionally, the development and commercialization of new products and services requires substantial capital expenditures and we may not have access to needed capital at attractive rates or at all due to our financial condition, disruptions of the bank or capital markets, or other reasons beyond our control to continue these activities. Should our technologies become the less attractive solution, our operations and profitability would be negatively impacted.
Our business and results of operations could be negatively impacted by security threats, including cybersecurity threats, and other disruptions.
We may incur penalties directlyexperience various security threats, including cybersecurity threats to gain unauthorized access to sensitive information or to render data or systems unusable; threats to the safety of our employees; threats to the security of our facilities and infrastructure, or third-party facilities and infrastructure; and threats from BSEE if, basedterrorist acts. Although we devote significant resources to protect the information systems and data we rely on reviewin our business, cybersecurity attacks in particular are evolving and include, use of phishing/ransomware attacks and fraudulent domain names/websites, among others, which increased in 2020 following the facts surrounding an alleged violation upon an offshore lease, BSEE seeksoutbreak of COVID-19. While we utilize various procedures and controls to hold contractors, including contractorsmonitor these security threats and mitigate our exposure to such as us who are involved in well completion operations, potentially liable for alleged violations of law arising in the BSEE’s jurisdiction area. While the Trump Administration has generally indicated an interest in scaling back or rescinding regulationsthreats and other disruptions, there can be no assurance that inhibit the development of the U.S. oilthese procedures and gas industry, it is difficult to predict the extent to which such policiescontrols will be implemented or the outcomesufficient in preventing security threats from materializing. If any of any litigation challenging such implementation. Also, if material spillthese events were to occur in the future, the United Statesmaterialize, they could lead to losses of sensitive information (including our intellectual property and customer data), critical infrastructure, personnel or other countries where such an event werecapabilities, essential to occur could elect to issue directives to temporarily cease drilling activitiesour operations, and in any event, may from time to time issue further safety and environmental laws and regulations regarding offshore oil and natural gas exploration and development, any of which developments could have a material adverse effect on our reputation, financial position, results of operations, or cash flows.
Our inability to control the inherent risks of identifying and integrating businesses that we have or may acquire, including any related increases in debt or issuances of equity securities, could adversely affect our operations.
We continually review complementary acquisition opportunities and we may seek to consummate acquisitions of such businesses in the future. However, we may not be able to identify and acquire acceptable acquisition candidates on favorable terms in the future or at all. In addition, we may incur substantial indebtedness to finance future acquisitions and also may issue equity securities in connection with such acquisitions, which could impose a significant burden on our results of operations and financial condition and could result in significant dilution to stockholders.
We expect to gain certain business, financial, and strategic advantages as a result of business combinations we undertake, including synergies and operating efficiencies. However, these transactions involve risks including:
•retaining key employees and customers of acquired businesses;
•retaining supply and distribution relationships key to the supply chain;
•increased administrative burden, including additional costs associated with regulatory compliance;
•diversion of management time and attention;
•developing our sales and marketing capabilities;
•managing our growth effectively;
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•integrating operations, workforce, product lines and technology;
•managing tax and foreign exchange exposure;
•operating a new line of business;
•inability to pursue and protect patents covering acquired technology;
•addition of acquisition-related debt and increased expenses and working capital requirements;
•substantial accounting charges for restructuring and related expenses, write-off of in-process research and development, impairments of goodwill, amortization of intangible assets, and stock-based compensation expense;
•becoming subject to unanticipated liabilities of the acquired business, including litigation related to the acquired business; and
•achieving the expected benefits from the acquisition, including certain cost savings and operational efficiencies or synergies.
If we fail to manage any of these risks successfully, our business could be harmed. Our capitalization and results of operations may change significantly following an acquisition, and our stockholders may not have the opportunity to evaluate the economic, financial, and other relevant information that we will consider in evaluating future acquisitions.
For example, see Note 7, "Long-term Debt," and Note 14, "Commitments and Contingencies," to the Consolidated Financial Statements included in this Annual Report on Form 10‑K for a discussion of certain unanticipated issues and claims that have arisen following the GEODynamics Acquisition.
We might be unable to employ and retain a sufficient number of key personnel.
We believe that our success depends upon our ability to employ and retain key personnel with both technical and business expertise. As observed in the U.S. shale play regions such as the Permian Basin in recent years, during periods of increased activity, the demand for such personnel is high, and the supply is limited. When these events occur, our cost structure increases and our growth potential could be impaired. Conversely, during periods of reduced activity, we are forced to reduce headcount, freeze or reduce wages, and implement other cost-saving measures which could lead skilled personnel to migrate to other industries.
We depend on several significant customers in each of our business segments, and the loss of one or more such customers or the inability of one or more such customers to meet their obligations to us, could adversely affect our results of operations.
While no customer accounted for more than 10% of our consolidated revenues in 2020 or 2019, Halliburton Company individually accounted for 10% of our total consolidated revenues in 2018.
The loss of a significant portion of customers in any of our business segments, or a sustained decrease in demand by any of such customers, could result in a loss of revenues and could have a material adverse effect on our results of operations. In addition, the concentration of customers in one industry impacts our overall exposure to credit risk, in that customers may be similarly affected by changes in economic and industry conditions. While we perform ongoing credit evaluations of our customers, we do not generally require collateral in support of our trade receivables.
As a result of our industry concentration, risks of nonpayment and nonperformance by our counterparties are a concern in our business. We cannot predict with any certaintyMany of our customers finance their activities through cash flow from operations, the incurrence of debt, or the issuance of equity. In 2020, many of our customers experienced substantial reductions in their cash flows from operations, and some are experiencing liquidity shortages, lack of access to capital and credit markets, a reduction in borrowing bases under reserve-based credit facilities and other adverse impacts to their financial condition. These conditions caused a number of our customers to claim bankruptcy protection in 2020 which could continue. The inability, or failure of, our significant customers to meet their obligations to us, or their insolvency or liquidation, may adversely affect our financial results.
Weather conditions in our regions of operations may limit our ability to operate our business and could adversely affect our operating results, which are susceptible to seasonal earnings volatility.
Our operations are directly affected by seasonal differences in weather in the areas in which we operate, most notably in the Rocky Mountain and Northeast regions of the United States, where severe winter weather conditions can restrict access to work areas. In addition, summer and fall completion and drilling activity can be restricted due to hurricanes and other storms
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prevalent in the Gulf of Mexico and along the Gulf Coast. As a result of these seasonal differences, full impactyear results are not likely to be a direct multiple of any new laws, regulationsparticular quarter or legal initiativescombination of quarters.
Many forecasters also expect that potential climate changes may have significant physical effects, such as increased frequency and severity of storms, floods and other climatic events and could have an adverse effect on our customers’ drillingor our customers' operations. Any unusual or prolonged severe weather or increased frequency thereof, such as freezing rain, earthquakes, hurricanes, droughts, or floods in our or our oil and gas exploration and production customers' areas of operations or on the costmarkets, whether due to climate change or availability of insurance to cover the risks associated with such operations. The matters described above, individually or in the aggregate,otherwise, could have a material adverse effect on our business, results of operations and financial condition. Our planning for normal climatic variation, insurance programs and emergency recovery plans may inadequately mitigate the effects of such weather conditions, and not all such effects can be predicted, eliminated or insured against.
Financial Risks
We may be unable to access the capital and credit markets or borrow on affordable terms to obtain additional capital that we may require.
We rely on our liquidity to pay our operating and capital expenditures, interest and principal payments on debt, taxes and other similar costs. Historically, we have sought to finance the operation of our business primarily with cash on-hand and cash provided by operating activities, but we have also relied on capital from the bank and capital markets. The effect of the COVID-19 pandemic has resulted in significant disruption to and volatility in the global financial markets. For companies like ours in the energy industry, this market disruption has significantly impacted the value of our common stock; has and may continue to reduce our ability to access capital in the bank and capital markets; and has and may continue to result in capital being available on less favorable terms, all of which could negatively affect our liquidity and our ability to fund our operations. In addition, a recession or long-term market correction could further materially impact the value of our common stock, our access to capital or our liquidity or ability to generate cash from operations in the near and long-term. If we are unable to access the bank and capital markets on favorable terms, or if we are not successful in raising capital at an attractive cost within the time period required or at all, we may not be able to grow or maintain our business, which could have a material adverse effect on our business, results of operations and financial condition.
Backlog in our Offshore/Manufactured Products segment is subject to unexpected adjustments and cancellations and, therefore, has limitations as an indicator of our future revenues and earnings.
The revenues projected in our Offshore/Manufactured Products segment backlog may not be realized or, if realized, may not result in profits. Because of potential changes in the scope or schedule of our customers' projects, we cannot predict with certainty when or if backlog will be realized. Material delays, cancellations or payment defaults could materially affect our financial condition, results of operations, and liquidity.cash flows.
Some of the contracts in our backlog are cancellable by the customer, subject to the payment of termination fees and/or the reimbursement of our costs incurred. We typically have no contractual right to the total revenues reflected in our backlog once a project is canceled. While backlog cancellations have not been significant in the past, we incurred cancellations totaling $2.2 million, $5.0 million and $6.5 million during 2020, 2019 and 2018, respectively. If commodity prices do not further improve, or decline, we may incur additional cancellations or experience further declines in our backlog.
We domay assume contractual risks in developing, manufacturing and delivering products in our Offshore/Manufactured Products business in international jurisdictions which exposes us to unique risks.segment.
•changes in availability and cost of assets;materials and labor;
•variations in productivity from our original estimates;
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•changes in tariffs or nullification of existing contracts;tax regimes; and
•material changes in foreign currency fluctuations;exchange rates.
In addition, there are other risks and results of operations. We could also face fines, sanctions, and other penalties from authorities in the relevant foreign jurisdictions, including prohibitionliabilities associated with these contracts, such as consequential damages payable (generally as a result of our participatinggross negligence or willful misconduct), unforeseen technical or logistical challenges in fulfilling the contracts, or curtailmentwarranty claims, any of business operations in those jurisdictions and the seizure of assets. Additionally, we may have competitors who are not subject to the same ethics-related laws and regulations which provides them with a competitive advantage over us by securing business awards, licenses, or other preferential treatment, in those jurisdictions using methods that certain ethics-related laws and regulations prohibit us from using.
reported operating results as we progress towards completion of major jobs.
Exchange rate fluctuations could adversely affect our U.S. reported results of operations and financial position.
In the ordinary course of our business, we enter into purchase and sales commitments that are denominated in currencies that differ from the functional currency used by our operating subsidiaries. Currency exchange rate fluctuations can create volatility in our consolidated financial position, results of operations, and/or cash flows. Although we may enter into foreign exchange agreements with financial institutions in order to reduce our exposure to fluctuations in currency exchange rates, these transactions, if entered into, will not eliminate that risk entirely. To the extent that we are unable to match revenues received in foreign currencies with expenses paid in the same currency, exchange rate fluctuations could have a negative impact on our consolidated financial position, results of operations, and/or cash flows. Additionally, because our consolidated financial results are reported in U.S. dollars, if we generate net revenues or earnings in countries whose currency is not the U.S. dollar, the translation of such amounts into U.S. dollars can result in an increase or decrease in the amount of our net revenues and earnings depending upon exchange rate movements. As a result, a material decrease in the value of these currencies relative to the U.S. dollar may have a negative impact on our reported revenues, net income,results of operations and cash flows. Any currency controls implemented by local monetary authorities in countries where we currently operate could also adversely affect our business, financial condition, and results of operations.
Given the cyclical nature of our business,a severe prolonged downturn could negatively affect the value of our goodwill and other intangible assets.
As of December 31, 2020, goodwill and other intangible assets represented 7% and 18%, respectively, of our total assets. We record goodwill when the consideration we pay in acquiring a business exceeds the fair market value of the tangible and separately measurable intangible net assets of that business. We are required to at least annually review the goodwill and other intangible assets of our applicable reporting units (Completion Services, Downhole Technologies and Offshore/Manufactured Products) for impairment in value and to recognize a non-cash charge against earnings causing a corresponding decrease in stockholders' equity if circumstances, some of which are beyond our control, indicate that the carrying amounts will not be recoverable.
In the first quarter of 2020, we recognized goodwill impairment charges totaling $406.1 million in our Completion Services, Downhole Technologies and Offshore/Manufactured Products reporting units due to, among other factors, the significant decline in our stock price and that of our peers and reduced growth rate expectations given weak energy market conditions resulting from the demand destruction caused by the global response to the COVID-19 pandemic. In addition, the estimated returns required by market participants increased materially in our March 31, 2020 assessment from our assessment as of December 1, 2019, resulting in higher discount rates used in the discounted cash flow analysis.
While no additional provisions for impairment were identified during our December 1, 2020 assessment, it is possible that we could recognize goodwill or other intangible assets impairment losses in the future if, among other factors:
•global economic and industry conditions deteriorate;
•the outlook for future profits and cash flow for any of our reporting units deteriorate further as the result of many possible factors, including, but not limited to, increased or unanticipated competition, lack of technological development, further reductions in customer capital spending plans, loss of key personnel, adverse legal or regulatory judgment(s), future operating losses at a reporting unit, downward forecast revisions, or restructuring plans;
•laws, executive actions or regulatory initiatives are imposed, which significantly restrict, delay or otherwise reduce the drilling, completion and production of oil and natural gas wells;
•domestic and/or foreign income tax rates increase, or regulations change;
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•costs of equity or debt capital increase;
•valuations for comparable public companies or comparable acquisition valuations deteriorate; or
•our stock price experiences a sustained decline.
Legal or Regulatory Risks
We do business in international jurisdictions which exposes us to unique risks.
A portion of our revenue and net assets are attributable to operations in countries outside the United States. Risks associated with our international operations include, but are not limited to:
•expropriation, confiscation or nationalization of assets;
•renegotiation or nullification of existing contracts;
•foreign capital controls or similar monetary or exchange limitations;
•foreign currency fluctuations;
•foreign taxation;
•tariffs and duties on imported and exported goods;
•the inability to repatriate earnings or capital in a tax efficient manner;
•changing political conditions;
•economic or trade sanctions;
•changing foreign and domestic monetary and trade policies;
•regulatory restrictions or controls more stringently applied or enforced;
•changes in trade activity;
•military or social situations, such as a widespread outbreak of an illness such as COVID-19 or other public health issues, in foreign areas where we do business, and the possibilities of war, other armed conflict or terrorist attacks; and
•regional economic downturns.
Additionally, in some jurisdictions we are subject to foreign governmental regulations favoring or requiring the awarding of contracts to local contractors, or requiring foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. These regulations may adversely affect our ability to compete in such jurisdictions.
The U.S. Foreign Corrupt Practices Act (the "FCPA"), and similar anti-bribery laws in other jurisdictions, including the United Kingdom Bribery Act 2010, generally prohibit companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or retaining business. We operate in many parts of the world that have experienced governmental corruption to some degree and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices and impact our business. Any failure to comply with the FCPA or other anti-bribery legislation could subject us to civil and criminal penalties or other sanctions, which could have a material adverse impact on our business, financial condition and results of operations. We could also face fines, sanctions, and other penalties from authorities in the relevant foreign jurisdictions, including prohibition of our participating in, or curtailment of, business operations in those jurisdictions and the seizure of assets. Additionally, we may have competitors who are not subject to the same ethics-related laws and regulations which provides them with a competitive advantage over us by securing business awards, licenses, or other preferential treatment, in those jurisdictions using methods that certain ethics-related laws and regulations prohibit us from using.
The regulatory regimes in some foreign countries may be substantially different than those in the United States, and may be unfamiliar to U.S. investors. Violations of foreign laws could result in monetary and criminal penalties against us or our subsidiaries and could damage our reputation and, therefore, our ability to do business.
The ultimate impact of recent changes to tariffs and duties imposed by the United States and other countries is uncertain. We use a variety of domestically produced and imported raw materials and component products, including steel, in the manufacture of our products. In 2018, the United States imposed tariffs on a variety of imported products, including steel and aluminum. In response to the U.S. tariffs on steel and aluminum, the European Union and several other countries, including Canada and China, have threatened and/or imposed retaliatory tariffs. The effect of these tariffs and the application and interpretation of existing trade agreements and customs, anti-dumping and countervailing duty regulations continues to evolve,
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and we continue to monitor these matters. If we encounter difficulty in procuring these raw materials and component products, or if the prices we have to pay for these products increase further as a result of customs, anti-dumping and countervailing duty regulations or otherwise, and we are unable to pass corresponding cost increases on to our customers, our financial position and results of operations could be adversely affected. Furthermore, uncertainty with respect to potential costs in the drilling and completion of oil and gas wells could cause our customers to delay or cancel planned projects which, if this occurred, would adversely affect our financial position and results of operations. See Note 14, "Commitments and Contingencies," to the Consolidated Financial Statements included in this Annual Report on Form 10‑K for further discussion.
The results of the United Kingdom’s referendum on withdrawalKingdom's decision to withdraw from the European Union including the subsequent exchange rate fluctuations and political and economic uncertainties may have a negative effect on global economic conditions, financial markets and our business.
We are a multinational company and are subject to the risks inherent in doing business in other countries, including the United Kingdom (the “U.K.”"U.K."). In June 2016, a majority of voters in the U.K. elected to withdraw from the European Union in a national referendum (“Brexit”("Brexit"). The referendum was advisory,On January 31, 2020, the U.K. Parliament ratified a withdrawal agreement between the U.K. government and the terms of any withdrawal are subjectEuropean Union (the "EU"), which contemplated a transition period to end on December 31, 2020, to allow time for a negotiation period that could last at least two years after the government offuture trade deal to be agreed upon. On December 24, 2020, the U.K. formally initiatesand the EU agreed on a withdrawal process. Nevertheless, Brexit has created significant uncertainty abouttrade and cooperation agreement (the "Trade and Cooperation Agreement"), which covers the futuregeneral objectives and framework of the relationship between the U.K. and the European UnionEU as it relates to trade, transport, visas, judicial, law enforcement and other countries, including with respectsecurity matters, and continued participation in community programs and mechanisms for dispute resolution. Notably, under the Trade and Cooperation Agreement, U.K. service suppliers no longer benefit from automatic access to the lawsentire EU single market, U.K. goods no longer benefit from the free movement of goods and regulations that will apply asthere is no longer the free movement of people between the U.K. determines which European Union derived laws to replace or replicate inand the eventEU. The terms of a withdrawal. The referendum has also given rise to calls for the governments of other European Union member states to consider withdrawal. These developments, or the perception that any of these developments may occur,Trade and Cooperation Agreement could potentially disrupt the markets we serve and the jurisdictions in which we operate and may cause us to lose customers, suppliers and employees.
We are currently in the process of evaluating our own risks and uncertainty related to what financial, trade, regulatory and legal implications this new Brexit trade deal could have on our U.K. business operations. This uncertainty also includes the impact on our customers' business operations and capital planning as well as the overall impact on the staffing industry. While we have not experienced any direct material financial impact since Brexit in 2016, we cannot predict its future implications which could result in a negative impact on our financial position and results of operations.
Our Downhole Technologies segment operations include the licensing, storage and handling of explosive materials that are subject to environmental lawsregulation by the ATF and regulationsanalogous state agencies. Despite our use of specialized facilities to store and handle dangerous materials and our performance of employee training programs, the storage and handling of explosive materials could result in explosive incidents that maytemporarily shut down or otherwise disrupt our or our customers' operations or could cause restrictions, delays or cancellations in the delivery of our services. It is possible that such incidents could result in death or significant injuries to employees and other persons. Material property damage to us, our customers and third parties arising from an explosion or resulting fire could also occur. Any explosion could expose us to significant costsadverse publicity and liabilities.
conditions.
We may not have adequate insurance for potential liabilities and our insurance may not cover certain liabilities, including litigation risks.
The products that we manufacture and the services that we provide are complex, and the failure of our equipment to operate properly or to meet specifications may greatly increase our customers’customers' costs. In addition, many of these products are used in inherently hazardous applications where an accident or product failure can cause personal injury or loss of life, damages to property, equipment, or the environment, regulatory investigations and penalties, and the suspension or cancellation of the end-user’send-user's operations. If our products or services fail to meet specifications, or are involved in accidents or failures, we could
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face warranty, contract, or other litigation claims for which we may be held responsible and our reputation for providing quality products may suffer. In the ordinary course of business, we become the subject of various 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 the activities of businesses that we have sold, and some relate to the activities of businesses that we have acquired, even though these activities may have occurred prior to our acquisition of such businesses.
We maintain insurance to cover many of our potential losses, and we are subject to various self-retentions and deductibles under our insurance policies. It is possible, however, that a judgment could be rendered against us in cases in which we could be uninsured and beyond the amounts that we currently have reserved or anticipate incurring for such matters. Even a partially uninsured or underinsured claim, if successful and of significant size, could have a material adverse effect on our results of operations or consolidated financial position. We also face the following other risks related to our insurance coverage:
•we may not be able to continue to obtain insurance on commercially reasonable terms;
•we may be faced with types of liabilities that will not be covered by our insurance, such as damages from environmental contamination, terrorist attacks or terrorist attacks;acts of war;
•the counterparties to our insurance contracts may pose credit risks; and
•we may incur losses from interruption of our business or cybersecurity attacks that exceed our insurance coverage
coverage.
We might be unable to employ a sufficient number of technicalprotect our intellectual property rights and service personnel.
We rely on a variety of intellectual property rights that we use in our businesses, including our patents relating to our FlexJoint®, Merlin™ and SmartStart Plus® technologies, and intervention and downhole extended-reach tools (including our HydroPull® tool) utilized in the completion or workover of oil and natural gas wells. The market success of our technologies will depend, in part, on our ability to obtain and enforce our proprietary rights in these technologies, to preserve rights in our trade secret and non-public information. We may not be able to successfully preserve these intellectual property rights and these rights could be invalidated, circumvented or challenged. In addition, we may be required to expend significant amounts of money pursuing and defending our intellectual property rights, and these proceedings may not ultimately be successful. For example, during 2018 we incurred expenses in excess of $8 million in connection with patent defense. In addition, the laws of some foreign countries in which our products and services may be sold do not protect intellectual property rights to the same extent as the laws of the United States. If any of our patents or other intellectual property rights are determined to be invalid or unenforceable, or if a court or other tribunal limits the scope of claims in a patent or fails to recognize our trade secret rights, our competitive advantages could be significantly reduced in the relevant technology, allowing competition for our customer base to increase, adversely affecting our competitive position.
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further constraints may be adopted by the Biden Administration in the future. See "Part I, Item 1. Business – Environmental and Occupational Health and Safety Matters" for more discussion on these hydraulic fracturing matters. The occurrence of any one or more of these developments with respect to hydraulic fracturing in areas where our patentsoil and natural gas exploration and production customers operate could result in potentially significant added costs to comply with requirements relating to our FlexJoint®permitting, construction, financial assurance, monitoring, recordkeeping, and/or plugging and Merlin™ technology and intervention and downhole extended-reach tools (including our HydroPull® tool) utilizedabandonment. In addition, they could experience restrictions, delays or cancellations in the completionpursuit of production or workoverdevelopment activities. Any of the foregoing could reduce demand for the products and services of one or more of our business segments and have a material adverse effect on our business, financial condition, and results of operations.
In countries outside of the United States, including provincial, regional, tribal or local jurisdictions therein where we conduct operations, there may exist similar governmental restrictions or controls on our customers' hydraulic fracturing activities, which, if such restrictions or controls exist or are adopted in the future, our customers may incur significant costs to comply with such requirements or may experience restrictions, delays or cancellations in the permitting or pursuit of their operations, which could have a material adverse effect on our business, results of operations and financial condition.
Legislative and regulatory initiatives related to induced seismicity could result in operating restrictions or delays in the drilling and completion of oil and natural gas wells.wells that may reduce demand for our products and services and could have a material adverse effect on our business, results of operations and financial condition.
Our oil and natural gas producing customers dispose of flowback water or certain other oilfield fluids gathered from oil and natural gas producing operations in accordance with permits issued by government authorities overseeing such disposal activities. In recent years, wells in the United States used for the disposal by injection of flowback water or certain other oilfield fluids below ground into non-producing formations have been associated with an increased number of seismic events. In response, regulators in states in which our customers operate have adopted additional requirements related to seismicity and its potential association with hydraulic fracturing. See "Part I, Item 1. Business–Environmental and Occupational Health and Safety Matters" for more discussion on these seismicity matters. The market successintroduction of new environmental laws and regulations related to the disposal of wastes associated with the exploration or production of hydrocarbons could limit or prohibit the ability of our technologies will depend,customers to utilize underground injection wells. As a result, our customers may have to limit disposal well volumes, disposal rates or locations and, in part,some instances those customers, or third party disposal well operators that are used by those customers to dispose of the customers' wastewater, may be obligated to shut down disposal wells, which developments could adversely affect our customers' business and result in a corresponding decrease in the need for our products and services, which could have a material adverse effect on our abilitybusiness, results of operations and financial condition.
Imposition of laws, executive actions or regulatory initiatives to obtainrestrict, delay or cancel leasing, permitting or drilling activities in deepwaters of the United States or foreign countries may reduce demand for our services and enforceproducts and have a material adverse effect on our proprietary rightsbusiness, financial condition, or results of operations.
A significant portion of our Offshore/Manufactured Products segment provides products and services for oil and natural gas exploration and production customers operating offshore in the deepwaters of the United States and in other countries. In the United States, the Biden Administration has issued orders suspending the issuance of new oil and gas leases and authorizations on federal lands and waters, including the OCS. Separately, President Biden has issued an executive order that commits to substantial action on climate change, calling for, among other things, the elimination of subsidies provided to the fossil fuel industry and an increased emphasis on climate-related risks across government agencies and economic sectors. President Biden may pursue additional executive orders, new legislation and regulatory initiatives to further implement his regulatory agenda. Additionally, regulatory agencies under the Biden Administration may issue new or amended rulemakings regarding deepwater leasing, permitting or drilling that could result in more stringent or costly restrictions, delays or cancellations in offshore oil and natural gas exploration and production activities, such as the Biden Administration's suspension of the issuance of authorizations for oil and gas activities on federal lands and waters, although the suspension does not limit existing operations under valid leases. See "Part I, Item 1. Business – Environmental and Occupational Health and Safety Matters" for more discussion on these technologies, to preserve rightsdeepwater regulatory matters.
Any new legislation, executive actions or regulatory initiatives, whether in the United States under the Biden Administration or in other countries, that impose increased costs, more stringent operational standards or result in significant delays, cancellations or disruptions in our trade secretcustomers' operations, increase the risk of losing leasing or permitting opportunities, expired leases due to the time required to develop new technology, increased supplemental bonding costs, or cause our customers to incur penalties, fines, or shut-in production at one or more of their facilities, any or all of which could reduce demand for our products and non-public information,services. Also, if material spill events were to occur in the future, the United States or other countries where such an event were to occur could elect to issue directives to temporarily cease drilling activities and, in any event, may from time to operate without infringingtime issue further safety and environmental laws and regulations regarding offshore oil and natural gas
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exploration and development, any of which developments could have a material adverse effect on our business. We cannot predict with any certainty the proprietary rightsfull impact of others.any new laws, regulations, executive actions or regulatory initiatives on our customers' drilling operations or the opportunity to pursue such operations, or on the cost or availability of insurance to cover the risks associated with such operations. The matters described above, individually or in the aggregate, could have a material adverse effect on our business, financial condition and results of operations.
We are subject to numerous environmental laws and regulations that may expose us to significant costs and liabilities.
Our operations and those of our customers in the United States and in foreign countries are subject to stringent federal, state and local legal requirements governing environmental protection. These requirements may take the form of laws, regulations, executive actions and various other legal initiatives. See "Part I, Item 1. Business – Environmental and Occupational Health and Safety Matters" for more discussion on these matters.
Compliance with these regulations and other regulatory initiatives, or any other new environmental laws and regulations could, among other things, require us or our customers to install new or modified emission controls on equipment or processes, incur longer permitting timelines, and incur increased capital or operating expenditures, which costs may be significant. Additionally, one or more of these developments that impact our oil and natural gas exploration and production customers could reduce demand for our products and services, which could have a material adverse effect on our business, results of operations and financial condition.
An accidental release of pollutants into the environment may cause us to incur significant costs and liabilities.
Our business activities present risks of incurring significant environmental costs and liabilities in our business as a result of our handling of petroleum hydrocarbons, because of air emissions and waste water discharges related to our operations, and due to historical industry operations and waste disposal practices. Additionally, private parties, including the owners or operators of properties upon which we perform services and facilities where our wastes are taken for reclamation or disposal, also may have the right to pursue legal actions to enforce compliance as well as to seek damages for non-compliance with environmental laws and regulations or for personal injury or property or natural resource damages. Some environmental laws and regulations may impose strict liability, which means that in some situations we could be exposed to liability as a result of our conduct that was lawful at the time it occurred or the conduct of, or conditions caused by prior owners or operators of properties or other third parties. Remedial costs and other damages, including natural resources damages arising as a result of environmental laws and costs associated with changes in environmental laws and regulations could be substantial and could have a material adverse effect on our liquidity, results of operations and financial condition. We may not be able to successfully preserve these intellectual property rights in the future and these rights could be invalidated, circumventedrecover some or challenged. If any of our patents or other intellectual property rights are determined to be invalid or unenforceable, or if a court or other tribunal limits the scope of claimsthese costs from insurance.
We could incur significant costs in a patent or fails to recognize our trade secret rights, our competitive advantages could be significantly reduced in the relevant technology, allowing competition for our customer base to increase. complying with stringent occupational health and safety requirements.
We are also a partysubject to a proceeding thatstringent federal and state laws and regulations, including OSHA and comparable state statutes, whose purpose is currently being heard byto protect the U.S. Supreme Court regarding whether inter partes review proceedingshealth and safety of intellectual property rights before an executive agency tribunal are constitutional, or whetherworkers, both generally and within the adjudication of patent validity must take place in Article III federal courts.Well Site Services, Downhole Technologies, and Offshore Manufactured Products business segments. In addition, OSHA's hazard communication standard, the laws of some foreign countries in which our products and services may be sold do not protect intellectual property rights to the same extent as the lawsEPA community right-to-know regulations under Title III of the United States. The failure ofFederal Superfund Amendment and Reauthorization Act and comparable state statutes require that information be maintained concerning hazardous materials used or produced in our Companyoperations and that this information be provided to protect our proprietary informationemployees, state and any successful intellectual property challenges or infringement proceedings against us could adversely affect our competitive position.
Our and our customers' operations are subject to fully satisfy its indemnification obligations. Additionally, if a court were to determine that the Spin-Off or related transactions, including the paymentseries of risks arising out of the dividendthreat of climate change that could result in increased operating costs, limit the areas in which oil and natural gas production may occur, and reduce demand for the products and services we received from Civeo, were consummatedprovide.
The threat of climate change continues to attract considerable attention in the United States and in foreign countries. Numerous proposals have been made and could continue to be made at the international, national, regional and state levels of government to monitor and limit existing emissions of GHGs as well as to restrict or eliminate such future emissions. As a result, our operations as well as the operations of our oil and natural gas exploration and production customers are subject to a series of regulatory, political, financial and litigation risks associated with the actual intentproduction and processing of fossil fuels and emission of GHGs. For example, President Biden has signed a series of executive orders that, among other things, recommitted
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the United States to hinder, delaythe Paris Agreement, called for increased emphasis on climate change across government agencies and economic sectors, suspended the issuance of new leases and authorizations for oil and gas development on federal leans and waters, and called for the issuance of new or defraud currentmore stringent emissions standards for new, modified and existing oil and gas facilities. See "Part I, Item 1. Business – Environmental and Occupational Health and Safety Matters" for more discussion on the threat of regulation of GHG emissions.
The adoption and implementation of new or future creditorsmore stringent international, federal or resulted in Civeo receiving less than reasonably equivalent value when it was insolvent,state executive actions, legislation, regulations or regulatory initiatives that it was rendered insolvent, inadequately capitalized or unable to pay its debts as they become due, then it is possible that the court could disregard the allocation of obligations and liabilities agreed to between us and Civeo and impose substantial obligations and liabilities on us, void some or all of the Spin-Off transactions or require us to repay some or all of the dividend we received in connection with the Spin-Off. Any of the foregoing could adversely affect our financial condition and our results of operations.
revenues.
The issuance or saleESA, the Migratory Bird Treaty Act and other laws intended to protect certain species of shares ofwildlife govern our common stock, or rightsand our oil and natural gas exploration and production customers' operations, which constraints could have an adverse impact on our ability to acquire shares of our common stock, could depress the trading price of our common stock.
In the United States, the ESA and comparable state laws were established to protect endangered and threatened species. Under the ESA, if a substantial amountspecies is listed as threatened or endangered, restrictions may be imposed on activities adversely affecting that species' habitat. Similar protections are offered to migratory birds under the Migratory Bird Treaty Act ("MBTA"). The U.S. Fish and Wildlife Service ("FWS") under former President Trump issued a final rule on January 7, 2021, which notably clarifies that criminal liability under the MBTA will apply only to actions "directed at" migratory birds, its nests, or its eggs; however, in 2020, the U.S. District Court for the Southern District of New York vacated a DOI memorandum articulating a similar interpretation. We expect that the January 7 rulemaking will be subject to litigation or to reconsideration by the Biden Administration. Oil and natural gas operations in our operating areas may be adversely affected by seasonal or permanent restrictions on drilling activities designed to protect various wildlife, which may limit our ability to operate in protected areas. Permanent restrictions imposed to protect endangered and threatened species could prohibit drilling in certain areas or require the implementation of expensive mitigation measures.
Moreover, the FWS may make determinations on the listing of numerous species as endangered or threatened under the ESA. The designation of previously unidentified endangered or threatened species could indirectly cause us to incur additional costs, cause our or our oil and natural gas exploration and production customers' operations to become subject to operating restrictions or bans, and limit future development activity in affected areas, which could reduce demand for our products and services to those customers.
Increasing attention to environmental, social & governance ("ESG") matters may impact our business.
Companies across all industries are facing increasing scrutiny from stakeholders related to their ESG practices. Companies which do not adapt to or comply with investor or stakeholder expectations and standards, which are evolving, or which are perceived to have not responded appropriately to the growing concern for ESG issues, regardless of whether there is a legal requirement to do so, may suffer from reputational damage and the business, financial condition, and/or stock price of such a company could be materially and adversely affected. Increasing attention to climate change, increasing societal expectations on companies to address climate change, and potential consumer use of substitutes to energy commodities may result in increased costs, reduced demand for our customers' hydrocarbon products and our services, reduced profits, increased investigations and litigation, and negative impacts on our stock price and access to capital markets. Increasing attention to climate change, for example, may result in demand shifts for our customers' hydrocarbon products and additional governmental investigations and private litigation against those customers.
In addition, organizations that provide information to investors on corporate governance and related matters have developed ratings processes for evaluating companies on their approach to ESG matters. Currently, there are no universal standards for such scores or ratings, but the importance of sustainability evaluations is becoming more broadly accepted by investors and shareholders. Such ratings are used by some investors to inform their investment and voting decisions. Additionally, certain investors use these scores to benchmark companies against their peers and if a company is perceived as lagging, these investors may engage with companies to require improved ESG disclosure or performance. Moreover, certain
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members of the broader investment community may consider a company's sustainability score as a reputational or other factor in making an investment decision. Consequently, a low sustainability score could result in exclusion of our common
stock or if the market perceives thatfrom consideration by certain investment funds, engagement by investors seeking to improve such issuances or sales may occur, then the trading pricescores and a negative perception of our common stock may significantly decrease.operations by certain investors.
Item 1B.Unresolved Staff Comments
None.
Item 2.Properties
Well Site Services – Neuquén and Cutral Co, Argentina, Red Deer, Canada; and in the United States: Alice, Houston, and Midland, Texas; New Iberia and Houma, Louisiana; Oklahoma City, Oklahoma; Casper and Rock Springs, Wyoming; Williston, North Dakota and Renton, Washington.
Downhole Technologies – Millsap, Fort Worth, Pleasanton and Midland, Texas; and Clearfield, Pennsylvania; in the United States; and Aberdeen, Scotland.
Offshore/Manufactured Products – Rio de Janeiro and Macae, Brazil; Aberdeen, Bathgate and West Lothian, Scotland; Barrow-in-Furness, England; Rayong, Thailand; Singapore; Navi Mumbai, India; Las Palmas, Spain; Shenzhen, China; Abu Dhabi, UAE; and in the United States: Arlington, Houston and Lampasas, Texas; Oklahoma City and Tulsa, Oklahoma and Houma, Louisiana.
Our principal corporate offices are located in Houston, Texas.
We believe that our leases are at competitive or market rates and do not anticipate any difficulty in leasing additional suitable space upon the expiration of our current lease terms.
Item 3.Legal Proceedings
Information regarding legal proceedings is set forth in Note 13,14, "Commitments and Contingencies," of the Consolidated Financial Statements included in this Annual Report on Form 10‑K and is incorporated herein by reference.
Item 4.Mine Safety Disclosures
Not applicable.
PART II
Item 5.Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Common Stock Information
Our authorized common stock consists of 200,000,000 shares of common stock. There were 60,062,96361,043,197 shares of common stock outstanding as of February 16, 2018.12, 2021. The approximate number of record holders of our common stock as of February 16, 201812, 2021 was 19.14. Our common stock is traded on the New York Stock Exchange (“NYSE”("NYSE") under the ticker symbol OIS. The closing price of our common stock on February 16, 2018 was $27.30 per share.
| Price | |||||||
| High | Low | ||||||
| 2018 | |||||||
| First Quarter (through February 16, 2018) | $ | 34.72 | $ | 26.65 | |||
| 2017 | |||||||
| First Quarter | $ | 41.25 | $ | 30.25 | |||
| Second Quarter | 33.75 | 25.25 | |||||
| Third Quarter | 28.85 | 20.90 | |||||
| Fourth Quarter | 29.15 | 20.23 | |||||
| 2016 | |||||||
| First Quarter | $ | 33.05 | $ | 21.44 | |||
| Second Quarter | 36.73 | 28.46 | |||||
| Third Quarter | 33.79 | 27.07 | |||||
| Fourth Quarter | 41.75 | 28.00 | |||||
"OIS".
We have not declared or paid any cash dividends on our common stock since our initial public offering in 2001 and our Amended Revolving Credit Facility limits the payment of dividends. For additional discussion of such restrictions, please see “Part"Part II, Item 7. Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operation.”Operations" of this Annual Report on Form 10-K. Any future determination as to the declaration and payment of dividends will be at the discretion of our Board of Directors and will depend on then existing conditions, including our financial condition, results of operations, contractual restrictions, capital requirements, business prospects and other factors that our Board of Directors considers relevant.
Performance Graph
The following graph and charttable compare the cumulative five-year total stockholder return on the Company'sour common stock relative to the cumulative total returns of the Standard & Poor's 500 Stock Index, the PHLX Oil Service Sector index, an index of oil and gas related companies that represent an industry composite of the Company'sour peer group, and a customized peer group of sixteen and thirteen companies, with the individual companies listed in footnote (1)(2) and (3) below, respectively, for the period from December 31, 20122015 to December 31, 2017.2020. The graph and chart show the value at the dates indicated of $100 invested atas of December 31, 20122015 and assume the reinvestment of all dividends. The stockholder return set forth below is not necessarily indicative of future performance. The following graph and related information shall not be deemed “soliciting material”"soliciting material" or to be “filed”"filed" with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or the Securities Exchange Act, of 1934, except to the extent that Oil States specifically incorporates it by reference into such filing.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*RETURN(1)
Among Oil States International, Inc., the S&P 500 Index,
the PHLX Oil Service Sector Index, and aOld Peer Group(2) and New Peer Group(3)
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| 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| As of December 31, | Cumulative Total Return* | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Oil States International, Inc. | $ | 100.00 | $ | 142.19 | $ | 119.65 | $ | 66.67 | $ | 95.42 | $ | 69.24 | Oil States International, Inc. | $ | 100.00 | $ | 143.12 | $ | 103.85 | $ | 52.40 | $ | 59.85 | $ | 18.42 | |||||||||||||||||||||||||||||||||||||
| Peer Group | 100.00 | 142.17 | 100.97 | 72.18 | 91.89 | 78.02 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Old Peer Group(2) | Old Peer Group(2) | $ | 100.00 | $ | 124.38 | $ | 108.02 | $ | 62.89 | $ | 58.88 | $ | 34.80 | |||||||||||||||||||||||||||||||||||||||||||||||||
New Peer Group(3) | New Peer Group(3) | $ | 100.00 | $ | 124.38 | $ | 109.20 | $ | 63.93 | $ | 62.11 | $ | 35.50 | |||||||||||||||||||||||||||||||||||||||||||||||||
| PHLX Oil Service Sector | 100.00 | 130.93 | 110.66 | 85.70 | 107.87 | 92.11 | PHLX Oil Service Sector | $ | 100.00 | $ | 118.98 | $ | 98.51 | $ | 53.97 | $ | 53.67 | $ | 31.09 | |||||||||||||||||||||||||||||||||||||||||||
| S&P 500 | 100.00 | 132.39 | 150.51 | 152.59 | 170.84 | 208.14 | S&P 500 | $ | 100.00 | $ | 111.96 | $ | 136.40 | $ | 130.42 | $ | 171.49 | $ | 203.04 | |||||||||||||||||||||||||||||||||||||||||||
____________________
(2)The thirteen companies included in our first customized peer group ("Old Peer Group") are: Archrock, Inc., Core Laboratories N.V., Dril-Quip, Inc., Exterran Corporation, Forum Energy Technologies, Inc., Franks International N.V., Helix Energy Solutions Group, Inc., Helmerich & Payne, Inc., Key Energy Services, Inc., Newpark Resources, Oceaneering International, Inc., RPC, Inc., and Superior Energy Services, Inc.
(3)The fourteen companies included in our second customized peer group ("New Peer Group") are: Apergy Corporation (acquired by ChampionX Corporation), Archrock, Inc., ChampionX Corporation, Core Laboratories N.V., Dril-Quip, Inc., Exterran Corporation, Forum Energy Technologies, Inc., Franks International N.V., Helix Energy Solutions Group, Inc., Helmerich & Payne, Inc., Newpark Resources, Oceaneering International, Inc., RPC, Inc., and Superior Energy Services, Inc.
Information used in the graph and table was obtained from Research Data Group, Inc., a source believed to be reliable, but we are not responsible for any errors or omissions in such information. Used with permission.
Unregistered Sales of Equity Securities and Use of Proceeds
None.
Purchases of Equity Securities by the Issuer and Affiliated Purchases
| Period | Total Number of Shares Purchased(1) | Average Price Paid per Share(1) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs(2) | ||||||||||
| October 1 through October 31, 2017 | 143 | $ | 25.35 | — | $ | 120,544,560 | ||||||||
| November 1 through November 30, 2017 | — | — | — | 120,544,560 | ||||||||||
| December 1 through December 31, 2017 | 323 | 25.04 | — | 120,544,560 | ||||||||||
| Total | 466 | $ | 25.14 | — | ||||||||||
Total Number of Shares Purchased(1) | Average Price Paid per Share(1) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares That May Yet Be Purchased Under the | |||||||||||||||||||||||
| October 1 through October 31, | ||||||||||||||||||||||||||
| — | $ | — | — | $ | — | |||||||||||||||||||||
| — | — | — | — | |||||||||||||||||||||||
| December 1 through December 31, 2020 | — | — | — | — | ||||||||||||||||||||||
| Total | — | $ | — | — | ||||||||||||||||||||||
____________________
(1)No shares were purchased during the three-month period ended December 31, 2020.
(2)We maintained a share repurchase program providing for the repurchase of up to $150 million of our common stock, which was allowed to expire on July 29, 2020.
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Item 6.Selected Financial Data
The selected financial data on the following pages include selected historical financial information of our company as of and for each of the five years ended December 31, 2017.2020. The following data should be read in conjunction with “Part"Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations”Operations" and the Company'sour Consolidated Financial Statements and related notes included in “Part"Part II, Item 8. Financial Statements and Supplementary Data”Data" of this Annual Report on Form 10‑K. In May 2014, we completedK in order to understand factors, such as business combinations, charges and credits, financing transactions and changes in tax regulations, which may impact the spin-offcomparability of our accommodations segment and, in September 2013, we sold our tubular services segment. Accordingly, all periods presented below have been reclassified to reflect the presentation of our accommodations and tubular services segments as discontinued operations.
selected financial data.
Selected Financial Data
(In thousands, except per share amounts)
| Year Ended December 31, | |||||||||||||||||||||||||||||
| 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||||||||||||||||
| Statement of Operations Data: | |||||||||||||||||||||||||||||
| Revenues | $ | 638,075 | $ | 1,017,354 | $ | 1,088,133 | $ | 670,627 | $ | 694,444 | |||||||||||||||||||
| Costs and expenses: | |||||||||||||||||||||||||||||
Product and service costs (exclusive of depreciation and amortization expense presented below)(1) | 561,805 | 802,589 | 834,513 | 520,755 | 526,770 | ||||||||||||||||||||||||
| Selling, general and administrative expenses | 94,102 | 122,932 | 138,070 | 114,816 | 124,033 | ||||||||||||||||||||||||
| Depreciation and amortization expense | 98,543 | 123,319 | 123,530 | 107,667 | 118,720 | ||||||||||||||||||||||||
Impairments of goodwill(2) | 406,056 | 165,000 | — | — | — | ||||||||||||||||||||||||
Impairments of fixed and lease assets(3) | 12,447 | 33,697 | — | — | — | ||||||||||||||||||||||||
| Other operating (income) expense, net | (538) | (2,003) | (2,104) | 1,261 | (5,796) | ||||||||||||||||||||||||
| 1,172,415 | 1,245,534 | 1,094,009 | 744,499 | 763,727 | |||||||||||||||||||||||||
| Operating loss | (534,340) | (228,180) | (5,876) | (73,872) | (69,283) | ||||||||||||||||||||||||
| Interest expense, net | (13,869) | (17,636) | (18,995) | (4,315) | (4,944) | ||||||||||||||||||||||||
Other income, net(4) | 13,880 | 5,089 | 3,139 | 775 | 902 | ||||||||||||||||||||||||
| Loss before income taxes | (534,329) | (240,727) | (21,732) | (77,412) | (73,325) | ||||||||||||||||||||||||
Income tax benefit (provision)(5) | 65,946 | 8,919 | 2,627 | (7,438) | 26,939 | ||||||||||||||||||||||||
| Net loss from continuing operations | (468,383) | (231,808) | (19,105) | (84,850) | (46,386) | ||||||||||||||||||||||||
| Net loss from discontinued operations, net of tax | — | — | — | — | (4) | ||||||||||||||||||||||||
| Net loss | $ | (468,383) | $ | (231,808) | $ | (19,105) | $ | (84,850) | $ | (46,390) | |||||||||||||||||||
| Net loss per share: | |||||||||||||||||||||||||||||
| Basic | $ | (7.83) | $ | (3.90) | $ | (0.33) | $ | (1.69) | $ | (0.92) | |||||||||||||||||||
| Diluted | (7.83) | (3.90) | (0.33) | (1.69) | (0.92) | ||||||||||||||||||||||||
| Weighted average number of common shares outstanding: | |||||||||||||||||||||||||||||
| Basic | 59,812 | 59,379 | 58,712 | 50,139 | 50,174 | ||||||||||||||||||||||||
| Diluted | 59,812 | 59,379 | 58,712 | 50,139 | 50,174 | ||||||||||||||||||||||||
| Year Ended December 31, | |||||||||||||||||||||||||||||
| 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||||||||||||||||
| Other Data: | |||||||||||||||||||||||||||||
| Net cash provided by operating activities | $ | 132,755 | $ | 137,432 | $ | 103,170 | $ | 95,382 | $ | 149,257 | |||||||||||||||||||
| Net cash used in investing activities, including capital expenditures and acquisition of businesses (2018) | (3,729) | (51,982) | (461,375) | (47,615) | (29,292) | ||||||||||||||||||||||||
| Net cash (used in) provided by financing activities | (65,017) | (95,908) | 324,058 | (65,060) | (84,875) | ||||||||||||||||||||||||
EBITDA, as defined(6) | 17,016 | 98,925 | 120,793 | 34,570 | 50,339 | ||||||||||||||||||||||||
| Capital expenditures | 12,749 | 56,116 | 88,024 | 35,171 | 29,689 | ||||||||||||||||||||||||
| Acquisitions of businesses, net of cash acquired | — | — | 379,676 | 12,859 | — | ||||||||||||||||||||||||
| Cash used for treasury stock purchases | — | 757 | — | 16,283 | — | ||||||||||||||||||||||||
| Cash paid for interest | 6,402 | 9,626 | 9,864 | 4,206 | 3,942 | ||||||||||||||||||||||||
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| Year Ended December 31, | |||||||||||||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| Statement of Operations Data: | |||||||||||||||||||
| Revenues | $ | 670,627 | $ | 694,444 | $ | 1,099,977 | $ | 1,819,609 | $ | 1,629,134 | |||||||||
| Costs and expenses: | |||||||||||||||||||
| Product and service costs | 520,755 | 526,770 | 785,698 | 1,205,884 | 1,113,168 | ||||||||||||||
| Selling, general and administrative expenses | 114,816 | 124,033 | 132,664 | 169,432 | 150,967 | ||||||||||||||
| Depreciation and amortization expense | 107,667 | 118,720 | 131,257 | 124,776 | 109,231 | ||||||||||||||
| Other operating (income) expense, net | 1,261 | (5,796 | ) | (4,648 | ) | 9,262 | 8,491 | ||||||||||||
| 744,499 | 763,727 | 1,044,971 | 1,509,354 | 1,381,857 | |||||||||||||||
| Operating income (loss) | (73,872 | ) | (69,283 | ) | 55,006 | 310,255 | 247,277 | ||||||||||||
| Interest expense | (4,674 | ) | (5,343 | ) | (6,427 | ) | (17,173 | ) | (38,830 | ) | |||||||||
| Interest income | 359 | 399 | 543 | 560 | 628 | ||||||||||||||
Loss on extinguishment of debt(1) | — | — | — | (100,380 | ) | (6,168 | ) | ||||||||||||
| Other income | 775 | 902 | 1,446 | 3,082 | 1,220 | ||||||||||||||
| Income (loss) from continuing operations before income taxes | (77,412 | ) | (73,325 | ) | 50,568 | 196,344 | 204,127 | ||||||||||||
Income tax benefit (provision)(2) | (7,438 | ) | 26,939 | (22,197 | ) | (69,117 | ) | (75,068 | ) | ||||||||||
| Net income (loss) from continuing operations | (84,850 | ) | (46,386 | ) | 28,371 | 127,227 | 129,059 | ||||||||||||
Net income (loss) from discontinued operations, net of tax (including a net gain on disposal of $84,043 in 2013) | — | (4 | ) | 226 | 51,776 | 292,217 | |||||||||||||
| Net income (loss) | (84,850 | ) | (46,390 | ) | 28,597 | 179,003 | 421,276 | ||||||||||||
| Less: Net income attributable to noncontrolling interest | — | — | — | — | 18 | ||||||||||||||
| Net income (loss) attributable to Oil States | $ | (84,850 | ) | $ | (46,390 | ) | $ | 28,597 | $ | 179,003 | $ | 421,258 | |||||||
| Basic net income (loss) per share attributable to Oil States from: | |||||||||||||||||||
| Continuing operations | $ | (1.69 | ) | $ | (0.92 | ) | $ | 0.55 | $ | 2.37 | $ | 2.32 | |||||||
| Discontinued operations | — | — | 0.01 | 0.96 | 5.26 | ||||||||||||||
| Net income (loss) | $ | (1.69 | ) | $ | (0.92 | ) | $ | 0.56 | $ | 3.33 | $ | 7.58 | |||||||
| Diluted net income (loss) per share attributable to Oil States from: | |||||||||||||||||||
| Continuing operations | $ | (1.69 | ) | $ | (0.92 | ) | $ | 0.55 | $ | 2.35 | $ | 2.31 | |||||||
| Discontinued operations | — | — | 0.01 | 0.96 | 5.22 | ||||||||||||||
| Net income (loss) | $ | (1.69 | ) | $ | (0.92 | ) | $ | 0.56 | $ | 3.31 | $ | 7.53 | |||||||
| Weighted average number of common shares outstanding: | |||||||||||||||||||
| Basic | 50,139 | 50,174 | 50,269 | 52,862 | 54,969 | ||||||||||||||
| Diluted | 50,139 | 50,174 | 50,335 | 53,151 | 55,327 | ||||||||||||||
| Year Ended December 31, | |||||||||||||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| Other Data: | |||||||||||||||||||
| Net cash provided by continuing operating activities | $ | 95,382 | $ | 149,257 | $ | 255,768 | $ | 302,644 | $ | 235,086 | |||||||||
| Net cash (used in) provided by continuing investing activities, including capital expenditures | (47,615 | ) | (29,292 | ) | (147,196 | ) | (198,504 | ) | 393,509 | ||||||||||
| Net cash used in continuing financing activities | (65,060 | ) | (84,875 | ) | (124,722 | ) | (378,912 | ) | (299,928 | ) | |||||||||
EBITDA, as defined(3) | 34,570 | 50,339 | 187,709 | 438,113 | 357,710 | ||||||||||||||
| Capital expenditures | 35,171 | 29,689 | 114,738 | 199,256 | 164,895 | ||||||||||||||
| Acquisitions of businesses, net of cash acquired | 12,859 | — | 33,427 | 157 | 44,260 | ||||||||||||||
| Cash used for treasury stock purchases | 16,283 | — | 105,916 | 226,303 | 108,535 | ||||||||||||||
As of December 31, | As of December 31, | |||||||||||||||||||||||||||||||||||||||||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||||||||||||||||||||||||||||||
| Balance Sheet Data: | Balance Sheet Data: | |||||||||||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 53,459 | $ | 68,800 | $ | 35,973 | $ | 53,263 | $ | 599,306 | Cash and cash equivalents | $ | 72,011 | $ | 8,493 | $ | 19,316 | $ | 53,459 | $ | 68,800 | |||||||||||||||||||||||||||
| Total current assets | 455,937 | 489,977 | 611,473 | 826,666 | 1,525,907 | Total current assets | 423,593 | 483,429 | 534,031 | 455,937 | 489,977 | |||||||||||||||||||||||||||||||||||||
| Property, plant and equipment, net | 498,890 | 553,402 | 638,725 | 649,846 | 1,902,789 | |||||||||||||||||||||||||||||||||||||||||||
Property, plant and equipment, net(3) | Property, plant and equipment, net(3) | 383,562 | 459,724 | 540,427 | 498,890 | 553,402 | ||||||||||||||||||||||||||||||||||||||||||
Operating lease assets(7) | Operating lease assets(7) | 33,140 | 43,616 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Intangible assets, including goodwill(2) | Intangible assets, including goodwill(2) | 282,238 | 712,397 | 902,319 | 318,274 | 316,115 | ||||||||||||||||||||||||||||||||||||||||||
| Total assets | 1,301,511 | 1,383,898 | 1,596,471 | 1,806,167 | 4,109,863 | Total assets | 1,152,260 | 1,727,867 | 2,003,821 | 1,301,511 | 1,383,898 | |||||||||||||||||||||||||||||||||||||
| Long-term debt and capital leases, excluding current portion | 4,870 | 45,388 | 125,887 | 143,390 | 951,294 | |||||||||||||||||||||||||||||||||||||||||||
| Long-term debt, excluding current portion | Long-term debt, excluding current portion | 165,759 | 222,552 | 306,177 | 4,870 | 45,388 | ||||||||||||||||||||||||||||||||||||||||||
Long-term operating lease liabilities, excluding current portion(7) | Long-term operating lease liabilities, excluding current portion(7) | 29,166 | 35,777 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Total stockholders' equity | 1,132,713 | 1,204,307 | 1,255,672 | 1,340,657 | 2,625,294 | Total stockholders' equity | 757,631 | 1,223,967 | 1,439,768 | 1,132,713 | 1,204,307 | |||||||||||||||||||||||||||||||||||||
We believe that net income (loss) attributable to continuing operationsloss is the financial measure calculated and presented in accordance with generally accepted accounting principles that is most directly comparable to EBITDA as defined. The following table reconciles EBITDA as defined with our net income (loss) attributable to continuing operations,loss, as derived from our financial information (in thousands):
| Year Ended December 31, | |||||||||||||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| Net income (loss) attributable to Oil States - continuing operations | $ | (84,850 | ) | $ | (46,386 | ) | $ | 28,371 | $ | 127,227 | $ | 129,041 | |||||||
| Depreciation and amortization expense | 107,667 | 118,720 | 131,257 | 124,776 | 109,231 | ||||||||||||||
| Interest expense, net | 4,315 | 4,944 | 5,884 | 16,613 | 38,202 | ||||||||||||||
Loss on extinguishment of debt(1) | — | — | — | 100,380 | 6,168 | ||||||||||||||
Income tax provision (benefit)(2) | 7,438 | (26,939 | ) | 22,197 | 69,117 | 75,068 | |||||||||||||
EBITDA, as defined(3) | $ | 34,570 | $ | 50,339 | $ | 187,709 | $ | 438,113 | $ | 357,710 | |||||||||
| Year Ended December 31, | |||||||||||||||||||||||||||||
| 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||||||||||||||||
| Net loss | $ | (468,383) | $ | (231,808) | $ | (19,105) | $ | (84,850) | $ | (46,386) | |||||||||||||||||||
| Depreciation and amortization expense | 98,543 | 123,319 | 123,530 | 107,667 | 118,720 | ||||||||||||||||||||||||
Impairments of goodwill(2) | 406,056 | 165,000 | — | — | — | ||||||||||||||||||||||||
Impairments of inventories(1) | 31,151 | — | — | — | — | ||||||||||||||||||||||||
Impairments of fixed and lease assets(3) | 12,447 | 33,697 | — | — | — | ||||||||||||||||||||||||
| Gains of extinguishment of 1.50% convertible senior notes | (10,721) | — | — | — | — | ||||||||||||||||||||||||
| Interest expense, net | 13,869 | 17,636 | 18,995 | 4,315 | 4,944 | ||||||||||||||||||||||||
Income tax provision (benefit)(5) | (65,946) | (8,919) | (2,627) | 7,438 | (26,939) | ||||||||||||||||||||||||
EBITDA, as defined(6) | $ | 17,016 | $ | 98,925 | $ | 120,793 | $ | 34,570 | $ | 50,339 | |||||||||||||||||||
____________________
(1)During 2020, we recognized non-cash inventory impairment charges totaling $31.2 million ($17.9 million in product costs and $13.3 million in service costs).
(2)During 2020, we recognized non-cash goodwill impairment charges totaling $406.1 million to reduce the carrying value of our reporting units to their estimated fair value. During 2019, our Downhole Technologies segment recognized a non-cash goodwill impairment charge of $165.0 million to reduce the carrying value of the unit to its estimated fair value.
(3)During 2020, we recognized non-cash impairment charges totaling $12.4 million to reduce the carrying value of our fixed assets and leases to their estimated realizable value. During 2019, our Drilling Services business recognized a non-cash impairment charge of $33.7 million to reduce the carrying value of the business' fixed assets to their estimated realizable value.
(4)During 2020, we recognized non-cash gains of $10.7 million in connection with our purchases of $34.9 million principal amount of the Notes.
(5)During 2020, we recognized discrete tax benefits totaling $16.4 million related to U.S. net operating loss carrybacks under provisions of the Coronavirus Aid, Relief and Economic Security ("CARES") Act. During 2018, we adjusted our 2017 provisional estimate associated with U.S. income tax legislation enacted in December 2017 and recorded a tax benefit of $5.8 million.
(6)The term EBITDA as defined consists of net loss plus depreciation and amortization expense, non-cash impairments of inventory, goodwill, fixed asset and leases, interest expense, net, non-cash gains on extinguishment of debt and income tax benefit. EBITDA as defined does not give effect to cash used for debt service requirements, reinvestment or other discretionary uses and is not a measure of financial performance under generally accepted accounting principles. You should not consider it in isolation from or as a substitute for net loss or cash flow measures prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity. We have included EBITDA as defined as a supplemental disclosure because we believe that EBITDA as defined provides useful information regarding our ability to service debt and to fund capital expenditures and provides investors a helpful measure for comparing our operating performance with the performance of other companies that have different financing and capital structures or tax rates. We use EBITDA as defined to compare and to monitor the performance of our business segments to other comparable public companies and as a benchmark for the award of incentive compensation under our annual incentive compensation plan.
(7)On January 1, 2019, we adopted the revised accounting guidance for leases, which required the recognition of lease assets and lease liabilities for all leases that are not short-term in nature. Prior periods were not retrospectively adjusted.
See Note 3, "Asset Impairments and Other Charges," Note 4, "Details of Selected Balance Sheet Accounts," Note 6, "Goodwill and Other Intangible Assets," Note 7, "Long-term Debt," Note 8, "Operating Leases," and Note 9, "Income Taxes," to the Consolidated Financial Statements included in this Annual Report on Form 10‑K for further discussion of these and other charges and benefits.
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ITEM 7.Management's Discussion and Analysis of Financial Condition and Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our Consolidated Financial Statements and related notes appearing in "Part II Item 8 Financial Statements and Supplementary Data." This section of this Annual Report on Form 10-K generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. Discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this Annual Report on Form 10-K can be found in "Part II, Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
K in order to understand factors, such as business combinations, charges and credit and financing transactions, which may impact comparability from period to period.
We provide a broad range of products and services to the oil and gas industryour customers through our Offshore/Manufactured Products and Well Site Servicesthree 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’customers' willingness to invest capital in the exploration for and development of crude oil and natural gas reserves. Our customers’customers' capital spending programs are generally based on their cash flows and their outlook for near-term and long-term commodity prices, economic growth, commodity demand and estimates of resource production. As a result, demand for our products and services is largely sensitive to future expectations with respect to crude oil and natural gas prices.
Disruptions caused by the COVID-19 pandemic and measures taken to prevent its spread or mitigate its effects both domestically and international have impacted our results of operations reflect currentoperations.In March of 2020, the spot price of WTI crude oil declined over 50% in response to actual and forecasted reductions in global demand for crude oil due to the COVID-19 pandemic coupled with announcements by Saudi Arabia and Russia of plans to increase crude oil production in an effort to protect market share. OPEC, its members, and other state-controlled oil companies ultimately agreed to reduce production following the crude oil price collapse and many operators shut-in production in the United States in an effort to address rapidly collapsing demand. While crude oil prices have recovered some of their losses since reaching record low levels in April of 2020, the spot price of Brent and WTI crude oil averaged $42 and $39 per barrel during 2020 – down 35% and 31%, respectively, from their comparable 2019 averages. The ultimate magnitude and duration of the COVID-19 pandemic, the timing and extent of governmental restrictions placing limitations on the mobility and ability to work of the worldwide population, and the related impact on crude oil prices, the global economy and capital markets remains uncertain. While it is difficult to assess or predict with precision the broad future effect of this pandemic on the global economy, the energy industry trendsor us, we expect that the COVID-19 pandemic will continue to adversely affect demand for our products and customerservices in 2021.
Demand for most of our products and services depends substantially on the level of capital expenditures invested in the oil and natural gas industry, which reached 15-year lows in 2020. The decline in crude oil prices, coupled with higher crude oil inventory levels in 2020, caused rapid reductions in most of our customers' drilling, completion and production activities and their related spending activities which are focused on growthproducts and services, particularly those supporting activities in the U.S. shale play regions with weaker U.S. Gulf of Mexicoregions. These conditions have and international activity. In addition, investmentsmay continue to result in deepwater markets globally have slowed significantly since the start of this prolonged industry downturn in 2014.
Following the unprecedented events commencing in March 2020, we immediately began aggressive implementation of cost reduction initiatives in an averageeffort to reduce our expenditures to protect the financial health of $110 per barrelour company, including the following:
•reduced headcount by 32% between December 31, 2019 and December 31, 2020;
•reduced capital expenditures in 2020 by 77% compared to 2019;
•reduced annual short-term and long-term incentive awards; and
•consolidated and closed certain facilities.
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Given the COVID-19 induced economic destruction, we assessed the carrying value of goodwill and other assets based on the industry outlook regarding overall demand for and pricing of our products and services. As a result of these events, actions and assessments, we recorded the following charges during 2020:
•non-cash goodwill impairment charges of $406.1 million to reduce the carrying value of our reporting units to their estimated fair value;
•non-cash impairment charges of $31.2 million to reduce the carrying value of inventory to its estimated realizable value;
•non-cash impairment charges of $12.4 million to decrease the carrying value of our fixed assets and leases to their estimated realizable value; and
•employee severance and restructuring charges of $9.1 million.
As discussed in more detail under "– Liquidity, Capital Resources and Other Matters – Financing Activities – Revolving Credit Facility," we amended our existing Revolving Credit Facility during the second quarter of 20142020. In connection with this amendment, the Revolving Credit Facility size was reduced from $350 million to an average$200 million, with advances subject to a monthly borrowing base calculation, in exchange for suspension of $34 per barrelthe existing financial covenants from July 1, 2020 through March 30, 2021.
On February 10, 2021, as discussed in more detail under "– Liquidity, Capital Resources and Other Matters – Financing Activities – Asset-based Revolving Credit Facility," we entered into the Asset-based Revolving Credit Facility in order to extend maturity, which provides for a $125.0 million asset-based revolving credit facility under which credit availability is subject to a monthly borrowing base calculation. The Asset-based Revolving Credit Facility matures in February 2025. Concurrent with entering into the Asset-based Revolving Credit Facility, the existing Amended Credit Agreement was terminated.
In addition, as discussed in more detail under "– Liquidity, Capital Resources and Other Matters – Financing Activities – 1.50% Convertible Senior Notes due February 2023," we opportunistically purchased a total of $34.9 million principal amount of the Notes for $20.1 million in cash and recognized non-cash gains totaling $10.7 million during 2020.
See Note 3, "Asset Impairments and Other Charges," Note 4, "Details of Selected Balance Sheet Accounts," Note 6, "Goodwill and Other Intangible Assets," Note 7, "Long-term Debt," and Note 8, "Operating Leases," to the Consolidated Financial Statements included in this Annual Report on Form 10-K for further discussion.
The crude oil and natural gas industry is highly cyclical which may result in declines in the first quarterdemand for, and prices of, 2016 (a level last seenour products and services, the inability or failure of our customers to meet their obligations to us or a sustained decline in 2004). The sustained material decrease inour market capitalization. These and other potentially adverse market conditions could require us to incur additional asset impairment charges, record additional deferred tax valuation allowances and/or further write down the value of our goodwill and other intangible assets, and may otherwise adversely impact our results of operations, our cash flows and our financial position.
Overview
Current and expected future pricing for WTI crude oil, prices relative to 2014 was primarily attributable to high levels of global crude oil inventories resulting from significant production growth in the U.S. shale plays, the strengthening of the U.S. dollar relative to other currencies, and increased production by OPEC. OPEC demonstrated, throughout 2015 and through November of 2016 an unwillingness to modify production levels, as it had done in previous years, in an effort to protect its market share. These production increases were partially offset by growth in global crude oil demand. The combination of these and other factors causedalong with a global supply and demand imbalance for crude oil which resulted in materially lower crude oil prices. Non-OPEC production, particularly in the United States, began to decline in 2015 due to substantially reduced investment in drilling and completion activity triggered by lower crude oil prices leading to some recovery in crude oil prices in 2016 and 2017 relative to the crude oil price lows experienced in early 2016. In late 2016, OPEC agreed to production cuts (subsequently extended through December 2018) which should, over time, if the cuts are adhered to, result in further reductions in global crude oil inventories and a more favorable commodity price environment.
reduction in global inventories, the timing of which is difficult to predict. If commodity prices do not continue to improve, or decline, demand for our products and services could continue to be weak or could decline further.inventories.
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Recent WTI crude oil, Brent crude oil and natural gas pricing trends are as follows:
Average price(1) for quarter ended | Average price(1) for year ended December 31 | |||||||||||||||||||||||||||||||
| Year | March 31 | June 30 | September 30 | December 31 | ||||||||||||||||||||||||||||
| WTI Crude (per bbl) | ||||||||||||||||||||||||||||||||
| 2020 | $ | 45.34 | $ | 27.96 | $ | 40.89 | $ | 42.52 | $ | 39.16 | ||||||||||||||||||||||
| 2019 | 54.82 | 59.88 | 56.34 | 56.82 | 56.98 | |||||||||||||||||||||||||||
| 2018 | 62.91 | 68.07 | 69.70 | 59.97 | 65.25 | |||||||||||||||||||||||||||
| Brent Crude (per bbl) | ||||||||||||||||||||||||||||||||
| 2020 | $ | 50.27 | $ | 29.70 | $ | 42.91 | $ | 44.32 | $ | 41.96 | ||||||||||||||||||||||
| 2019 | 63.10 | 69.01 | 61.95 | 63.17 | 64.26 | |||||||||||||||||||||||||||
| 2018 | 66.86 | 74.53 | 75.08 | 68.76 | 71.32 | |||||||||||||||||||||||||||
| Henry Hub Natural Gas (per MMBtu) | ||||||||||||||||||||||||||||||||
| 2020 | $ | 1.91 | $ | 1.70 | $ | 2.00 | $ | 2.52 | $ | 2.03 | ||||||||||||||||||||||
| 2019 | 2.92 | 2.57 | 2.38 | 2.40 | 2.56 | |||||||||||||||||||||||||||
| 2018 | 3.08 | 2.85 | 2.93 | 3.77 | 3.15 | |||||||||||||||||||||||||||
____________________
(1)Source: U.S. Energy Information Administration. As of February 12, 2021, WTI crude oil, Brent crude oil and natural gas traded at $59.50 per barrel, $62.47 per barrel and $6.12 per MMBtu, respectively.
U.S. drilling and completion activity and, in turn, our financial results, are sensitive to near-term fluctuations in commodity prices, particularly WTI crude oil prices, given the short-term, call-out nature of our U.S. operations.
We primarily supply equipment and service personnel utilized in the completion and initial production of new and recompleted wells. Our U.S. activity is dependent primarily upon the level and complexity of drilling, completion, and workover activity in our areas of operations. Well intensity and complexity has increased with the continuing transition to multi-well pads, the drilling of longer lateral wells and increased downhole pressures, along with the increased number of frac stages completed in horizontal wells.
Our Downhole Technologies segment, comprised of the GEODynamics business we acquired in January 2018, provides oil and gas perforation systems, downhole tools and services in support of completion, intervention, wireline and well abandonment operations. This segment designs, manufactures and markets its consumable engineered products to oilfield service as well as exploration and production companies. Product and service offerings for this segment include innovations in perforation technology through patented and proprietary systems combined with advanced modeling and analysis tools. This expertise has led to the optimization of perforation hole size, depth, and quality of tunnels, which are key factors for maximizing the effectiveness of hydraulic fracturing. Additional offerings include proprietary toe valve and frac plug products, which are focused on zonal isolation for hydraulic fracturing of horizontal wells, and a broad range of consumable products, such as setting tools and bridge plugs, that are used in completion, intervention and decommissioning applications. Demand drivers for the Downhole Technologies segment include continued trends toward longer lateral lengths, increased frac stages and more perforation clusters to target increased unconventional well productivity, which requires ongoing technological and product developments.
Demand for our completion products and services within each of our segments is highly correlated to changes in the total number of wells drilled in the United States, total footage drilled, the number of drilled wells that are completed and changes in the drilling rig count. The following table sets forth a summary of the average U.S. drilling rig count, as measured by Baker Hughes, for the periods indicated.
| As of February 12, 2021 | Average Rig Count for Year Ended December 31, | ||||||||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||||||||
| Land – Oil | 288 | 329 | 753 | 826 | |||||||||||||||||||
| Land – Natural gas and other | 91 | 87 | 165 | 185 | |||||||||||||||||||
| Offshore | 18 | 17 | 25 | 21 | |||||||||||||||||||
| Total | 397 | 433 | 943 | 1,032 | |||||||||||||||||||
The U.S. energy industry is primarily focused on crude oil and liquids-rich exploration and development activities in U.S. shale plays utilizing horizontal drilling and completion techniques. As of December 31, 2020, oil-directed drilling accounted for 76% of the total U.S. rig count – with the balance largely natural gas related. Due to the unprecedented decline in crude oil prices in March and April of 2020, drilling and completion activity in the United States collapsed – with the active drilling rig count declining 52% from March 31, 2020 to 351 rigs working as of December 31, 2020. As a result, the average U.S. rig count in 2020 decreased by 510 rigs, or 54%, from the 2019 average.
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Average price(1) for quarter ended | Average price(1) for year ended December 31 | |||||||||||||||||||
| Year | March 31 | June 30 | September 30 | December 31 | ||||||||||||||||
| WTI Crude (per bbl) | ||||||||||||||||||||
| 2017 | $ | 51.62 | $ | 48.14 | $ | 48.18 | $ | 55.27 | $ | 50.80 | ||||||||||
| 2016 | 33.35 | 45.46 | 44.85 | 49.14 | 43.29 | |||||||||||||||
| 2015 | 48.49 | 57.85 | 46.49 | 41.94 | 48.66 | |||||||||||||||
| 2014 | 98.68 | 103.35 | 97.87 | 73.21 | 93.17 | |||||||||||||||
| Brent Crude (per bbl) | ||||||||||||||||||||
| 2017 | $ | 53.59 | $ | 49.59 | $ | 52.10 | $ | 61.40 | $ | 54.12 | ||||||||||
| 2016 | 33.84 | 45.57 | 45.80 | 49.11 | 43.67 | |||||||||||||||
| 2015 | 53.98 | 61.65 | 50.44 | 43.56 | 52.32 | |||||||||||||||
| 2014 | 108.14 | 109.69 | 101.90 | 76.43 | 98.97 | |||||||||||||||
Henry Hub Natural Gas (per mmBtu) | ||||||||||||||||||||
| 2017 | $ | 3.02 | $ | 3.08 | $ | 2.95 | $ | 2.90 | $ | 2.99 | ||||||||||
| 2016 | 1.99 | 2.15 | 2.88 | 3.04 | 2.52 | |||||||||||||||
| 2015 | 2.90 | 2.75 | 2.76 | 2.12 | 2.62 | |||||||||||||||
| 2014 | 5.18 | 4.61 | 3.96 | 3.78 | 4.37 | |||||||||||||||
Our Offshore/Manufactured Products segment provides technology-driven, highly-engineered products and services for offshore oil and natural gas production systems and facilities, as well as certain products and services to the offshore and land-based drilling and completion markets. Approximately 60% of Offshore/Manufactured Products sales in 2015 and 2016 were driven by our customers’ capital spending for offshore production systems and subsea pipelines, repairs and, to a lesser extent, upgrades of existing offshore drilling rigs and construction of new offshore drilling rigs and vessels (referred to herein as "project-driven product revenue"). As a result, thisThis segment is particularly influenced by global spending on deepwater drilling and production, spending, which areis primarily driven largely by our customers’customers' longer-term commodity demand forecasts and outlook for crude oil and natural gas prices. Approximately 49% of Offshore/Manufactured Products sales in 2020 were driven by our customers' capital spending for products used in exploratory and developmental drilling, greenfield offshore production infrastructure, and subsea pipeline tie-in and repair system applications, along with upgraded equipment for existing offshore drilling rigs and other vessels (referred to herein as "project-driven products"). Deepwater oil and gas development projects typically involve significant capital investments and multi-year development plans. Such projects are generally undertaken by larger exploration, field development and production companies (primarily international oil companies (“IOCs”("IOCs") and state-run national oil companies (“NOCs”("NOCs")) using relatively conservative crude oil and natural gas pricing assumptions. Given the longerlong lead times associated with field development, we believe some of these deepwater projects, once approved for development, are generally less susceptible to short-term fluctuations in the price of crude oil and natural gas. However,Customers have focused on improving the decline in crude oil prices that began in 2014 and continued into 2017, coupled with the relatively uncertain outlook around shorter-term and possibly longer-term pricing improvements, have caused exploration and production companies to reevaluate their future capital expenditures in regards to theseeconomics of major deepwater projects since they are expensive to drillat lower commodity breakeven prices by re-bidding projects, identifying advancements in technology, and complete, have long lead times to first production and may be considered uneconomical relative to the risk involved. A few development projects were sanctioned in 2017 due to re-engineering of the projects and lower developmentreducing overall project costs which led to an improvement in final investment decisions (“FIDs”) on these projects from the previous two years. Our bookings have declined, leading to substantially reduced backlog in 2017 relative to recent years. As a result, this segment’s project-driven revenue declined $169.4 million, or 57%, from 2016 and accounted for only 33% of the segment’s total revenue in 2017. Shorter-cycle manufactured products, sold primarily to the land-based completions market, are impacted by near-term fluctuations in commodity prices. For the year ended December 31, 2017, sales of these shorter-cycle products
Backlog reported by our Offshore/Manufactured Products segment decreased from $599$280 million at June 30, 2014 to $168 million atas of December 31, 2017, which is the lowest level reported since January 2006.2019 to $219 million as of December 31, 2020. The following table sets forth backlog forreported by our Offshore/Manufactured Products segment as of the dates indicated (in millions).
| Backlog as of | ||||||||||||||||
| Year | March 31 | June 30 | September 30 | December 31 | ||||||||||||
| 2017 | $ | 204 | $ | 202 | $ | 198 | $ | 168 | ||||||||
| 2016 | 306 | 268 | 203 | 199 | ||||||||||||
| 2015 | 474 | 409 | 394 | 340 | ||||||||||||
| 2014 | 578 | 599 | 543 | 490 | ||||||||||||
| As of February 16, 2018 | Average Rig Count for Year Ended December 31, | ||||||||||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||
| U.S. Land – Oil | 782 | 684 | 390 | 723 | 1,486 | 1,334 | |||||||||||
| U.S. Land – Natural gas and other | 174 | 169 | 97 | 219 | 319 | 371 | |||||||||||
| U.S. Offshore | 19 | 23 | 25 | 35 | 57 | 56 | |||||||||||
| Total U.S. | 975 | 876 | 512 | 977 | 1,862 | 1,761 | |||||||||||
| Canada | 318 | 206 | 129 | 193 | 380 | 355 | |||||||||||
| Total North America | 1,293 | 1,082 | 641 | 1,170 | 2,242 | 2,116 | |||||||||||
| Backlog as of | ||||||||||||||||||||||||||
| Year | March 31 | June 30 | September 30 | December 31 | ||||||||||||||||||||||
| 2020 | $ | 267 | $ | 235 | $ | 227 | $ | 219 | ||||||||||||||||||
| 2019 | 234 | 283 | 293 | 280 | ||||||||||||||||||||||
| 2018 | 157 | 165 | 175 | 179 | ||||||||||||||||||||||
Reduced demand for our products and services, coupled with a reduction in the prices we are able to charge our customers for our products and services, has adversely affected our results of operations, cash flows and financial position since the second half of 2014. Ifposition. While the current pricing environment for crude oil and natural gas does not improve, or declines further,has improved from the levels experienced in 2020, if prices were to decline, our customers may be required to further reduce their capital expenditures, causing additional declines in the demand for, and prices of, our products and services, which would adversely affect our results of operations, cash flows and financial position. Our
We use a variety of domestically produced and imported raw materials and component products, including steel, in manufacturing our products. The United States has imposed tariffs on a variety of imported products, including steel and aluminum. In response to the U.S. tariffs on steel and aluminum, the European Union and several other countries, including Canada and China, have threatened and/or imposed retaliatory tariffs. The effect of these tariffs and the application and interpretation of existing trade agreements and customs, anti-dumping and countervailing duty regulations continue to evolve, and we continue to monitor these matters. If we encounter difficulty in procuring these raw materials and component products, or if the prices we have to pay for these products increase as a result of customs, anti-dumping and countervailing duty regulations or otherwise, and we are unable to pass corresponding cost increases on to our customers, have experienced a significant declineour financial position and results of operations could be adversely affected. Furthermore, uncertainty with respect to potential costs in their revenuesthe drilling and completion of oil and gas wells could cause our customers to delay or cancel planned projects which, if this occurred, would adversely affect our financial position, cash flows relativeand results of operations. See Note 14, "Commitments and Contingencies," to the commodity price declinesConsolidated Financial Statements included in 2015, 2016 and into 2017, with many experiencing a significant reduction in liquidity. Several exploration and production companies declared bankruptcy during 2015 and 2016, or had to exchange equitythis Annual Report on Form 10‑K for the forgiveness of debt, and others were forced to sell assets in an effort to preserve liquidity. However, over the past twelve months, access to capital and debt markets have improved for certain of these customers.
further discussion.
Other factors that can affect our business and financial results include but are not limited to the general global economic environment, competitive pricing pressures, public health crises, climate-related and other regulatory changes, and changes in tax laws in the United States and international markets.
We continue to monitor the global economy, the demand for and prices of and demand for crude oil and natural gas, and the resultant impact on the capital spending plans and operations of our customers in order to plan and manage our business.
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| Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||||
| 2020 | 2019 | Variance 2020 vs. 2019 | |||||||||||||||||||||||||||||||||||||||
| Revenues | |||||||||||||||||||||||||||||||||||||||||
| Well Site Services - | |||||||||||||||||||||||||||||||||||||||||
| Completion Services | $ | 191,529 | $ | 390,748 | $ | (199,219) | |||||||||||||||||||||||||||||||||||
Drilling Services(1) | 8,310 | 41,346 | (33,036) | ||||||||||||||||||||||||||||||||||||||
| Total Well Site Services | 199,839 | 432,094 | (232,255) | ||||||||||||||||||||||||||||||||||||||
| Downhole Technologies | 97,936 | 182,314 | (84,378) | ||||||||||||||||||||||||||||||||||||||
| Offshore/Manufactured Products - | |||||||||||||||||||||||||||||||||||||||||
| Project-driven products | 165,497 | 159,205 | 6,292 | ||||||||||||||||||||||||||||||||||||||
| Short-cycle products | 48,142 | 123,222 | (75,080) | ||||||||||||||||||||||||||||||||||||||
| Other products and services | 126,661 | 120,519 | 6,142 | ||||||||||||||||||||||||||||||||||||||
| Total Offshore/Manufactured Products | 340,300 | 402,946 | (62,646) | ||||||||||||||||||||||||||||||||||||||
| Total | $ | 638,075 | $ | 1,017,354 | $ | (379,279) | |||||||||||||||||||||||||||||||||||
| Operating income (loss) | |||||||||||||||||||||||||||||||||||||||||
| Well Site Services - | |||||||||||||||||||||||||||||||||||||||||
Completion Services(2) | $ | (187,869) | $ | (11,621) | $ | (176,248) | |||||||||||||||||||||||||||||||||||
Drilling Services(1) | (5,519) | (43,419) | 37,900 | ||||||||||||||||||||||||||||||||||||||
| Total Well Site Services | (193,388) | (55,040) | (138,348) | ||||||||||||||||||||||||||||||||||||||
Downhole Technologies(3) | (224,414) | (164,008) | (60,406) | ||||||||||||||||||||||||||||||||||||||
Offshore/Manufactured Products(4) | (80,794) | 36,022 | (116,816) | ||||||||||||||||||||||||||||||||||||||
| Corporate | (35,744) | (45,154) | 9,410 | ||||||||||||||||||||||||||||||||||||||
Total(5) | $ | (534,340) | $ | (228,180) | $ | (306,160) | |||||||||||||||||||||||||||||||||||
____________________
(1)In late 2019, we reduced the scope of our Drilling Services business due to weakness in customer demand for vertical drilling rigs in the U.S., resulting in a non-cash fixed asset impairment charge of $33.7 million in 2019. Operating loss included a non-cash fixed asset impairment charge of $5.2 million in 2020.
(2)Operating loss in 2020 included a non-cash inventory impairment charge of $9.0 million, a non-cash goodwill impairment charge of $127.1 million and $72.1 milliona non-cash fixed asset impairment charge of revenues, respectively,$3.6 million.
(3)Operating loss in 2020 and $24.42019 included non-cash goodwill impairment charges of $192.5 million and $0.1$165.0 million, respectively. Operating loss in 2020 also included a non-cash inventory impairment charge of net income, respectively.$5.9 million and other non-cash asset impairment charges of $3.6 million.
(4)Operating loss in 2020 included a non-cash inventory impairment charge of $16.2 million and a non-cash goodwill impairment charge of $86.5 million.
2020 and 2019, respectively.
See Note 18, “Subsequent Events,”3, "Asset Impairments and Other Charges," Note 4, "Details of Selected Balance Sheet Accounts," Note 6, "Goodwill and Other Intangible Assets," and Note 8, "Operating Leases," to the Consolidated Financial Statements included in this Annual Report on Form 10-K for further discussion of these recent developments.
| Year Ended December 31, | |||||||||||||||||||||||||
| Variance 2017 vs. 2016 | Variance 2016 vs. 2015 | ||||||||||||||||||||||||
| 2017 | 2016 | $ | % | 2015 | $ | % | |||||||||||||||||||
| Revenues | |||||||||||||||||||||||||
| Well Site Services - | |||||||||||||||||||||||||
| Completion Services | $ | 234,252 | $ | 163,060 | $ | 71,192 | 44 | % | $ | 308,077 | $ | (145,017 | ) | (47 | )% | ||||||||||
| Drilling Services | 54,462 | 22,594 | 31,868 | 141 | % | 67,782 | (45,188 | ) | (67 | )% | |||||||||||||||
| Total Well Site Services | 288,714 | 185,654 | 103,060 | 56 | % | 375,859 | (190,205 | ) | (51 | )% | |||||||||||||||
| Offshore/Manufactured Products - | |||||||||||||||||||||||||
| Project-driven products | 126,960 | 296,368 | (169,408 | ) | (57 | )% | 433,056 | (136,688 | ) | (32 | )% | ||||||||||||||
| Short-cycle products | 147,463 | 88,291 | 59,172 | 67 | % | 100,355 | (12,064 | ) | (12 | )% | |||||||||||||||
| Other products and services | 107,490 | 124,131 | (16,641 | ) | (13 | )% | 190,707 | (66,576 | ) | (35 | )% | ||||||||||||||
| Total Offshore/Manufactured Products | 381,913 | 508,790 | (126,877 | ) | (25 | )% | 724,118 | (215,328 | ) | (30 | )% | ||||||||||||||
| Total | $ | 670,627 | $ | 694,444 | $ | (23,817 | ) | (3 | )% | $ | 1,099,977 | $ | (405,533 | ) | (37 | )% | |||||||||
| Product and service costs | |||||||||||||||||||||||||
| Well Site Services - | |||||||||||||||||||||||||
| Completion Services | $ | 200,514 | $ | 153,356 | $ | 47,158 | 31 | % | $ | 237,441 | $ | (84,085 | ) | (35 | )% | ||||||||||
| Drilling Services | 47,999 | 21,797 | 26,202 | 120 | % | 56,274 | (34,477 | ) | (61 | )% | |||||||||||||||
| Total Well Site Services | 248,513 | 175,153 | 73,360 | 42 | % | 293,715 | (118,562 | ) | (40 | )% | |||||||||||||||
| Offshore/Manufactured Products | 272,243 | 351,617 | (79,374 | ) | (23 | )% | 491,983 | (140,366 | ) | (29 | )% | ||||||||||||||
| Total | $ | 520,756 | $ | 526,770 | $ | (6,014 | ) | (1 | )% | $ | 785,698 | $ | (258,928 | ) | (33 | )% | |||||||||
Gross profit(1) | |||||||||||||||||||||||||
| Well Site Services - | |||||||||||||||||||||||||
| Completion Services | $ | 33,739 | $ | 9,704 | $ | 24,035 | 248 | % | $ | 70,636 | $ | (60,932 | ) | (86 | )% | ||||||||||
| Drilling Services | 6,462 | 797 | 5,665 | 711 | % | 11,508 | (10,711 | ) | (93 | )% | |||||||||||||||
| Total Well Site Services | 40,201 | 10,501 | 29,700 | 283 | % | 82,144 | (71,643 | ) | (87 | )% | |||||||||||||||
| Offshore/Manufactured Products | 109,671 | 157,173 | (47,502 | ) | (30 | )% | 232,135 | (74,962 | ) | (32 | )% | ||||||||||||||
| Total | $ | 149,872 | $ | 167,674 | $ | (17,802 | ) | (11 | )% | $ | 314,279 | $ | (146,605 | ) | (47 | )% | |||||||||
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Gross profit as a percentage of revenues(1) | ||||||||||||||||
| Well Site Services - | ||||||||||||||||
| Completion Services | 14 | % | 6 | % | 23 | % | ||||||||||
| Drilling Services | 12 | % | 4 | % | 17 | % | ||||||||||
| Total Well Site Services | 14 | % | 6 | % | 22 | % | ||||||||||
| Offshore/Manufactured Products | 29 | % | 31 | % | 32 | % | ||||||||||
| Total | 22 | % | 24 | % | 29 | % | ||||||||||
YEAR ENDED DECEMBER 31, 20172020COMPARED TO YEAR ENDED DECEMBER 31, 20162019
These results compare to a net loss of $46.4 million, or $(0.92) per diluted share, reported for the year ended December 31, 2016. Results for 20162019 of $231.8 million, or $3.90 per share, which included $5.2non-cash goodwill and fixed asset impairment charges totaling $198.7 million ($3.3191.6 million after-tax, or $0.06$3.23 per dilutedshare), and $3.5 million ($2.8 million after-tax, or $0.05 per share) of severance and other downsizingrestructuring charges. Excluding the charges, net loss would have been $43.1 million, or $(0.86) per diluted share.
Our consolidatedreported results of operations alsofor 2020 reflect the negative impact of the unprecedented decline in crude oil prices starting in March and April of 2020 stemming from the global response to the COVID-19 pandemic and ongoing uncertainties related to future crude oil demand. The spot price of WTI crude oil averaged $39 per barrel in 2020, down 31% from the prior-year average. The decline in crude oil prices, coupled with high crude oil inventory levels, had a negative impact on customer drilling, completion and production activity beginning in March of 2020. Additionally, our operations were negatively impacted by government-imposed business closures and mandates outside of the United States enacted in an effort to control the COVID-19 pandemic, which limited wellsite operations and required us and a number of our suppliers to temporarily cease certain operations.
We expect customer-driven activity to improve off of 2020's low levels but remain tempered in 2021 given continued high crude oil inventory levels and uncertainty around demand recovery due to the continued severity of the COVID-19 pandemic. If the current industry trendspricing environment for crude oil does not continue to improve, or declines, our customers may be required to further reduce their planned capital expenditures, causing additional declines in the demand for, and prices of, our products and services.
Revenues. Consolidated total revenues in 2020 decreased $379.3 million, or 37%, from 2019.
Consolidated product revenues in 2020 decreased $152.1 million, or 31%, from 2019 driven primarily by lower U.S. land-based customer activity as well as the associated impact of competitive pricing pressures for products in our Downhole Technologies segment, partially offset by higher project-driven sales in our Offshore/Manufactured Products segment. Consolidated service revenues for 2020 decreased $227.2 million, or 43%, from 2019 due primarily to reduced customer spending activities which are focused on growth in the U.S. shale play regions with weaker U.S. Gulfregions. As can be derived from the following table, 54% of Mexicoour consolidated revenues in 2020 were related to our short-cycle product and international activity. In addition, investmentsservice offerings, which compared to 73% in deepwater markets globally have slowed significantly since2019, reflecting the startnegative impact of the recent industryCOVID-19 pandemic on our U.S. operations.
The following table provides supplemental disaggregated revenue information by operating segment for the years ended December 31, 2020 and 2019 (in thousands):
| Well Site Services | Downhole Technologies | Offshore/ Manufactured Products | Total | ||||||||||||||||||||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||||||||||||||||
| Major revenue categories - | |||||||||||||||||||||||||||||||||||||||||||||||
| Project-driven products | $ | — | $ | — | $ | — | $ | — | $ | 165,497 | $ | 159,205 | $ | 165,497 | $ | 159,205 | |||||||||||||||||||||||||||||||
| Short-cycle: | |||||||||||||||||||||||||||||||||||||||||||||||
| Completion products and services | 191,529 | 390,748 | 97,936 | 182,314 | 26,148 | 95,806 | 315,613 | 668,868 | |||||||||||||||||||||||||||||||||||||||
| Drilling services | 8,310 | 41,346 | — | — | — | — | 8,310 | 41,346 | |||||||||||||||||||||||||||||||||||||||
| Other products | — | — | — | — | 21,994 | 27,416 | 21,994 | 27,416 | |||||||||||||||||||||||||||||||||||||||
| Total short-cycle | 199,839 | 432,094 | 97,936 | 182,314 | 48,142 | 123,222 | 345,917 | 737,630 | |||||||||||||||||||||||||||||||||||||||
| Other products and services | — | — | — | — | 126,661 | 120,519 | 126,661 | 120,519 | |||||||||||||||||||||||||||||||||||||||
| $ | 199,839 | $ | 432,094 | $ | 97,936 | $ | 182,314 | $ | 340,300 | $ | 402,946 | $ | 638,075 | $ | 1,017,354 | ||||||||||||||||||||||||||||||||
| Percentage of total revenue by type - | |||||||||||||||||||||||||||||||||||||||||||||||
| Products | — | % | — | % | 93 | % | 97 | % | 71 | % | 76 | % | 52 | % | 48 | % | |||||||||||||||||||||||||||||||
| Services | 100 | % | 100 | % | 7 | % | 3 | % | 29 | % | 24 | % | 48 | % | 52 | % | |||||||||||||||||||||||||||||||
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Cost of Revenues (exclusive of Depreciation and Amortization Expense). Our consolidated total cost of revenues (exclusive of depreciation and amortization expense) decreased $240.8 million, or 30%, in 2020 compared to 2019. Cost of revenues in 2020 included non-cash inventory impairment provisions totaling $31.2 million – driven by the unprecedented market downturn which began in 2014.
Consolidated product costs in 2017 compared2020, which included non-cash inventory impairment provisions of $17.9 million, decreased $81.6 million, or 22%, from 2019. Excluding these charges, consolidated product costs decreased $99.5 million, or 27%, from the prior-year period. Consolidated service costs for 2020, which included non-cash inventory impairment provisions of $13.3 million, decreased $159.2 million, or 37%, from 2019. Excluding these inventory impairment provisions, consolidated service costs declined $172.5 million, or 40%, due primarily to 2016 due to declinessignificantly lower activity levels in our Offshore/Manufactured Products segment, substantially offset by improvements in our Well Site Services segment. During 2017, over 50% of consolidated revenues were driven bythe U.S. shale play activity.regions.
Depreciation and Amortization. Expense. Depreciation and amortization expense decreased $11.1$24.8 million, or 9%20%, in 20172020 compared to 2016the prior-year period, driven primarily by our decision to exit drilling operations in West Texas in the third quarter of 2019 along with reduced capital investments made in our Completion Services business in recent years. See Note 15, "Segments and Related Information," to the Consolidated Financial Statements included in this Annual Report on Form 10‑K for expense by segment.
Impairments of Goodwill. During the first quarter of 2020, our Completion Services, Downhole Technologies and Offshore/Manufactured Products operations recognized non-cash goodwill impairment charges of $127.1 million, $192.5 million and $86.5 million, respectively, arising from, among other factors, the significant decline in our stock price (and that of most of our peers) and reduced growth rate expectations given weak energy market conditions resulting from the demand destruction caused by the global response to the COVID-19 pandemic. In addition, the estimated returns required by market participants increased materially in our March 31, 2020 assessment from our assessment as of December 1, 2019, resulting in higher discount rates used in the discounted cash flow analysis.During the fourth quarter of 2019, our Downhole Technologies segment recognized a non-cash goodwill impairment charge of $165.0 million. See Note 6, "Goodwill and Other Intangible Assets," to the Consolidated Financial Statements included in this Annual Report on Form 10‑K for further discussion.
Impairments of Fixed and Lease Assets. During 2020, our Drilling Services, Completion Services and Downhole Technologies businesses recognized non-cash fixed asset and lease impairment charges of $5.2 million, $3.6 million and $3.6 million, respectively, following the significant decline in crude oil prices beginning in March of 2020 and our decisions to consolidate and exit certain facilities. During the third quarter of 2019, we made the strategic decision to reduce the scope of our Drilling Services business due to certain assets becoming fully depreciated coupled with overall lower levels of capital expenditures.
Operating Loss.Loss. Our consolidated operating loss increased from $69.3was $534.3 million in 2016 to $73.92020, which included $418.5 million in 2017 primarily as a resultnon-cash goodwill, inventory, fixed asset and lease impairment charges and $9.1 million of a decrease in operating income from our Offshore/Manufactured Products segment of $48.9 million dueseverance and restructuring charges. This compares to a continued decline in offshore-related activity, substantially offset by an improvementconsolidated operating loss of $48.8$228.2 million in the operating losses from our Well Site Services segment. Corporate expenses were $52.92019, which included $198.7 million in 2017, an increasenon-cash goodwill and fixed asset impairment charges and $3.5 million of $4.5 million from the prior-year due primarily to higher incentive compensation accruals, increased stock-based compensation expenseseverance and acquisition related expenses incurred in 2017.restructuring charges.
Interest Expense, and Interest Income.Net. Net interest expense decreased $0.6totaled $13.9 million or 13%, in 2017 compared to 2016 primarily2020, a decrease of $3.8 million from 2019 due to reductions in the level of debt outstanding. Interest expense, which included amortization of debt discount and deferred financing costs, as a reductionpercentage of total average debt outstanding was approximately 6% in average amounts outstanding under the Revolving Credit Facility partially offset by higher unused commitment fees paid to our lenders. Interestboth 2020 and 2019. Our contractual cash interest expense as a percentage of total debt outstanding increased from 6.5%was substantially lower – averaging approximately 2% in 20162020 and 3% in 2019.
In connection with our adoption of the recent revision to 17.3% in 2017 due to an increased proportion ofaccounting guidance for convertible instruments on January 1, 2021, interest expense associated with unused commitment fees, lower average borrowingsthe Notes in 2021 will decrease to approximately 2% of the outstanding underprincipal balance, which compares to the contractual interest rate of 1.50%. Additionally, we expect to recognize a non-cash expense of approximately $0.6 million for previously deferred financing costs associated with our Amended Revolving Credit Facility that will be written off in the first quarter of 2021.
Other Income, Net. Other income, net in 2020 included non-cash gains of $10.7 million recognized in connection with purchases of $34.9 million principal amount of the Notes for $20.1 million in cash, with the balance consisting primarily of gains recognized on the sale of property and non-cash amortization of debt issuance costs.equipment.
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Income TaxExpense.Tax. Our income tax provisionbenefit for 20172020 totaled $65.9 million on a pre-tax loss of $534.3 million, which included non-cash goodwill impairment charges (approximately $313.1 million) and other expenses that are not deductible for tax purposes. The impact of these non-deductible expenses was $7.4partially offset by $16.4 million (an incomein discrete tax benefitbenefits related to the carryback of $21.8 million, or 28.1% of pre-taxU.S. federal net operating losses after excludingunder the discrete charges discussed below) comparedCARES Act. This compares to an income tax benefit for 2019 of $26.9$8.9 million or 36.7%on a pre-tax loss of pre-tax losses$240.7 million, which included a non-cash goodwill impairment charge of $165.0 million and other expenses that are not deductible for 2016. The lower effective tax rate benefitpurposes.
Other ComprehensiveIncome(Loss). Reported comprehensive loss is the sum of the reported net income (loss) and other comprehensive income (loss). Other comprehensive loss was $3.6 million in 2017 after excluding discrete charges was attributable to a shift in the mix between domestic pre-tax losses and foreign pre-tax income2020 compared to the prior-year period and additional valuation allowances provided against net operating losses in certain domestic and foreign jurisdictions.
Segment Operating Results
Well Site Services
Revenues. Consolidated revenues decreased $405.5 million, or 37%, in 2016 compared to 2015.
Our Well Site Services segment revenues decreased $190.2$232.3 million, or 54%, in 2020 compared to 2019. Completion Services revenue decreased $199.2 million, or 51%, driven by the decline in 2016 comparedU.S. land-based customer completion and production activity in response to 2015 due to decreases in both Completion Services and Drilling Services revenues. Our Completion Services revenues decreased $145.0 million, or 47%, in 2016 compared to 2015, primarily due to a 55% decrease in the number of service tickets completed as a result of continued extreme competitive pressures and depressed activity levels in the U.S. shale basins.lower commodity prices. Our Drilling Services revenues decreased $45.2$33.0 million, or 67%80%, in 2016 compared to 2015, primarily as a result of the significant reduction in utilization of our drilling rigs from an average of 33% during 2015 to an average of 12% in 2016year-over-year due primarily to our exit of drilling operations in the continued weak commodity price environment.West Texas region in the fourth quarter of 2019.
Operating Loss. During 2020 and 2019, our Well Site Services segment recorded non-cash impairment charges totaling $144.9 million and $33.7 million, respectively. Excluding these impairment charges, our Well Site Services segment operating loss increased $27.2 million in 2020 from 2019. Our Completion Services operating loss in 2020, after excluding non-cash impairment charges, was $48.2 million, compared to an operating loss of $11.6 million in the prior-year period, given a 51% decrease in revenues and $4.1million of severance and restructuring charges partially offset by a $15.5 million reduction in depreciation expense. After excluding non-cash fixed asset impairment charges, our Drilling Services operating loss in 2020 was $0.3 million, compared to an operating loss of $9.7 million in the prior-year period.
Downhole Technologies
Revenues.Our Downhole Technologies segment revenues decreased $84.4 million, or 46%, in 2020 compared to 2019 due primarily to a decline in U.S. land-based customer completion activity and competitive pricing pressures.
Operating Income (Loss). During 2020, our Downhole Technologies segment recorded a non-cash goodwill impairment charge of $192.5 million, a non-cash inventory impairment charge of $5.9 million, non-cash fixed asset and lease impairment charges of $3.6 million and severance and restructuring charges of $2.0 million. During 2019, the segment recognized a non-cash goodwill impairment charge of $165.0 million. Excluding the impairment charges, operating income declined $23.4 million in 2020 from 2019 due primarily to a 46% decline in revenues, partially offset by the benefit of cost reduction measures in 2020.
Offshore/Manufactured Products
Revenues. Given backlog entering the year, our Offshore/Manufactured Products segment revenues decreased $215.3 million, or 30%, in 2016 compared to 2015 primarily as a result of lower contributions across most of the segment’s product lines, driven by a decline in demand for drilling products, production-related productswere more resilient and service activities as well as a backlog position that has trended lower since mid-2014. These revenue declines were partially offset by modest full-year increases in sales of subsea pipeline and shorter-cycle product revenues. Shorter-cycle products, such as elastomers, have benefited from increased land-based drilling and completion activity in the second half of 2016 in the United States. Backlog for the segment decreased to $199 million at December 31, 2016, from $340 million at December 31, 2015 and $490 million at December 31, 2014, due to project deferrals and delays in award timing resulting from the continued depressed commodity price environment.
Operating Income (Loss). During 2020, our Offshore/Manufactured Products segment recorded non-cash impairment charges of $86.5 million related to goodwill and $16.2 million related to inventory. Excluding these charges, our lenders. Interest expenseOffshore/Manufactured Products segment operating income decreased $14.1 million, or 39%, in 2020 compared to 2019.
Backlog. Backlog in our Offshore/Manufactured Products totaled $219 million as a percentage of total average debt outstanding increased from 3.6% in 2015 to 6.5% in 2016 due to an increased proportion of interest expense associated with unused commitment fees as a result of lower average borrowings outstanding under our Revolving Credit Facility.
Corporate
Corporate expenses decreased $9.4 million, or 36.7% of pretax losses, compared to income tax expense of $22.2 million, or 43.9% of pretax income, for the year ended December 31, 2015. The effective tax rate for the year ended December 31, 2015 was influenced by a $4.1 million tax valuation allowance recorded against certain of our deferred tax assets and a $3.6 million deferred tax adjustment for certain prior period non-deductible items.
Liquidity, Capital Resources and Other Matters
Our primary liquidity needs are to fund operating and capital expenditures, which in the past have included expanding and upgrading our Offshore/Manufactured Products manufacturing facilities and equipment, replacing and increasing Completion Services assets, funding new product development and general working capital needs. In addition, capital has been used to repay debt, fund strategic business acquisitions, repay debt and fund our stock repurchase program.share repurchases. Our primary sources of funds have beenare cash flow from operations, proceeds from borrowings under our credit facilities and, less frequently, capital market transactions.
Operating Activities
During 2017 and 2016, $32.42020, $69.7 million and $90.3 million, respectively, was provided from net working capital reductions, which includeddecreases, primarily due to collections of accounts receivable and an increase in deferred revenue, partially offset by decreases in accounts payable and accrued liabilities. Additionally, we filed carryback claims regarding U.S. net operating losses generated in 2018 and 2019 in accordance with the rules and provisions of the CARES Act and received cash of $41.3 million, which benefited our cash flow from operations. During 2019, $39.3 million was provided from net working capital decreases, with a reduction in accounts receivable andpartially offset by an increase in inventories.
Investing Activities
Capital expenditures totaled $35.2$12.7 million and $29.7$56.1 million during the years ended December 31, 20172020 and 2016, respectively. Capital expenditures in both years consisted principally2019, respectively, while proceeds from the sale of purchases of Completion Services equipment, expansion and upgrading of our Offshore/Manufactured Products segment facilities and various other capital spending initiatives. During 2017, we also invested $12.9 million within our Offshore/Manufactured Products segment to acquire complementary intellectual property and assets to expand our global crane manufacturingequipment totaled $9.6 million and service operations as well as our riser testing, inspection and repair service offerings.
respectively.
We expect to spend between $60 million and $70approximately $15 million in total capital expenditures during 2018 to upgrade and maintain our Offshore/Manufactured Products facilities and equipment, to replace and upgrade our Completion Services equipment, to expand and maintain GEODynamics facilities and equipment and to fund various other capital spending projects.2021. Whether planned expenditures will actually be spentmade in 20182021 depends on industry conditions, project approvals and schedules, vendor delivery timing, free cash flow generation and careful monitoring of our levels of liquidity. We plan to fund these capital expenditures with available cash, internally generated funds and, if necessary, borrowings under our AmendedAsset-based Revolving Credit Facility. The foregoing capital expenditure expectations do not include any funds that might be spent on future strategic acquisitions, which the Company could pursue depending on the economic environment in our industry and the availability of transactions at prices deemed to be attractive to the Company.
Facility (as discussed below).
Financing Activities
Net cash of $65.1$65.0 million was used in financing activities during the year ended December 31, 2017,2020, primarily attributable toassociated with a $32.9 million reduction in bank debt and our purchases of $34.9 million principal amount of the net repayment of $42.2 million in borrowings under the Revolving Credit Facility and repurchases of our common stockNotes for cash totaling $16.3$20.1 million. Net cash of $84.9$95.9 million was used in financing activities during the year ended December 31, 2016,2019, primarily associated with the net repayment of $80.7$84.2 million, net in borrowings under the Revolving Credit Facility.
As of December 31, 2020, we had cash on-hand of $72.0 million, compared to $8.5 million as of December 31, 2019.
As of December 31, 2020, we had $19.0 million outstanding under our Amended Revolving Credit Facility to extend the maturityand $157.4 million principal amount of the facility to January 2022Notes outstanding. Our reported interest expense, which included non-cash amortization of debt discount and provide for total lender commitmentsdeferred financing costs of $350 million. Net proceeds from$7.7 million, is substantially above our contractual cash interest expense. For 2020, our contractual interest expense was $6.2 million, or approximately 2% of the Notes offeringaverage principal balance of approximately $194.0 million, after deducting discounts and estimated expenses, were used to repay a portion of amounts outstanding under the Revolving Credit Facility.
debt outstanding.
We believe that cash on hand,on-hand, cash flow from operations and borrowing capacity available borrowings under our AmendedAsset-based Revolving Credit Facility will be sufficient to meet our liquidity needs in the coming twelve months. If our plans or assumptions change, or are inaccurate, or if we make further acquisitions, we may need to raise additional capital. Acquisitions have been, and our management believes acquisitions will continue to be, a key element of our business strategy. The timing, size or success of any acquisition effort and the associated potential capital commitments are unpredictable and uncertain. We may seek to fund all or part of any such efforts with proceeds from debt and/or equity issuances. Our ability to obtain capital for additional projects to implement our growth strategy over the longer term will depend upon our future operating performance, financial condition and, more broadly, on the availability of equity and debt financing. Capital availability will be affected by prevailing conditions in our industry, the global economy, the global financial markets, stakeholder scrutiny of environmental, social and governance matters and other factors, many of which are beyond our control. In addition, debt service requirementsthis regard, the effect of the COVID-19 pandemic has resulted in significant disruption of global financial markets. For companies like ours that support the energy industry, this disruption has been exacerbated by the global crude oil supply and demand imbalance and resulting decline in crude oil prices, which has negatively impacted the value of our common stock; has and may continue to reduce our ability to
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access capital in the bank and capital markets; and has and may continue to result in such capital being available on less favorable terms, which could bein the future negatively affect our liquidity.
Asset-based Revolving Credit Facility. On February 10, 2021, we entered into a senior secured credit facility with certain lenders, which provides for a $125.0 million asset-based revolving credit facility (the "Asset-based Revolving Credit Facility") under which credit availability is subject to a borrowing base calculation. Concurrent with entering into the Asset-based Revolving Credit Facility, the Amended Credit Agreement was terminated.
The Asset-based Revolving Credit Facility is governed by a credit agreement with Wells Fargo Bank, National Association, as administrative agent and the lenders and other financial institutions from time to time party thereto (the "Asset-based Credit Agreement"). The Asset-based Credit Agreement matures on February 10, 2025 with a springing maturity 91 days prior to the maturity of any outstanding indebtedness with a principal amount in excess of $17.5 million (excluding the unsecured promissory note to the seller of GEODynamics ).
The Asset-based Credit Agreement provides funding based on highera borrowing base calculation that includes eligible U.S. customer accounts receivable and inventory and provides for a $50.0 million sub-limit for the issuance of letters of credit. Borrowings under the Asset-based Credit Agreement are secured by a pledge of substantially all of our domestic assets and the stock of certain foreign subsidiaries.
Borrowings under the Asset-based Credit Agreement bear interest ratesat a rate equal to the London Interbank Offered Rate ("LIBOR") plus a margin of 2.75% to 3.25% and shorter maturities and could imposesubject to a significant burdenLIBOR floor rate of 0.50%, or at a base rate plus a margin of 1.75% to 2.25%, in each case based on average borrowing availability. We must also quarterly pay a commitment fee of 0.375% to 0.50% per annum, based on unused commitments under the Asset-based Credit Agreement.
The Asset-based Credit Agreement places restrictions on our resultsability to incur additional indebtedness, grant liens on assets, pay dividends or make distributions on equity interests, dispose of operationsassets, make investments, repay other indebtedness (including the Notes), engage in mergers, and financial condition, and any issuance of additional equity securitiesother matters, in each case, subject to certain exceptions. The Asset-based Credit Agreement contains customary default provisions, which, if triggered, could result in significant dilutionacceleration of all amounts then outstanding. The Asset-based Credit Agreement also requires us to stockholders.satisfy and maintain a fixed charge coverage ratio of not less than 1.0 to 1.0 for specified periods of time in the event that availability under the Asset-based Credit Agreement is less than the greater of 15% of the borrowing base and $14.1 million or if an event of default has occurred and is continuing.
See Note 7, "Long-term Debt," to the Consolidated Financial Statements included in this Annual Report on Form 10‑K for further information regarding the terms of the Asset-based Credit Agreement.
Revolving Credit Facility. Until its termination on February 10, 2021, our former senior secured revolving credit facility (the "Revolving Credit Facility") was governed by the Credit Agreement dated as of May 28, 2014, asan amended (the "Credit Agreement")and restated credit agreement by and among the Company, the Lenders party thereto, Wells Fargo Bank, N.A., as administrative agent, the Swing Line Lender and an Issuing Bank, Royal Bank of Canada, as syndication agent, and Compass Bank, as documentation agent. As of December 31, 2017, our Revolving Credit Facility was scheduled to mature on May 28, 2019. As of December 31, 2017, we had no borrowings outstanding under the Credit Agreement and we had $21.2 million of outstanding letters of credit, leaving $159.3 million available to be drawn under the Revolving Credit Facility. During 2017, our applicable margin over LIBOR was 1.50%. We also paid a quarterly commitment fee of 0.375% during 2017. Interest expense as a percentage of average total debt outstanding increased from 6.5% in 2016 to 17.3% in 2017. The increase in the weighted average interest rate was attributable to an increased proportion of interest expense associated with unused commitment fees, lower average borrowings outstanding under our Revolving Credit Facility, and non-cash amortization of debt issuance costs.
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1.50% Convertible Senior Notes. Notes due February 2023. On January 30, 2018, we issued $200.0 million aggregate principal amount of the Notes pursuant to an indenture, dated as of January 30, 2018 (the “Indenture”"Indenture"), between us and Wells Fargo Bank, N.A., as trustee. Net proceeds, after deducting discounts and expenses, were approximately $194.0 million. We used the net proceeds to repay a portion of the outstanding borrowings under the Revolving Credit Facility.
The Notes bear interestIndenture contains certain events of default, including certain defaults by us with respect to other indebtedness of at a rate of 1.50% per year until maturity. Interest is payable semi-annually in arrears on February 15 and August 15 of each year, beginning on August 15, 2018. In addition, additional interest and special interest may accrue on the Notes under certain circumstances as described in the Indenture. The Notes will mature on February 15, 2023, unless earlier repurchased, redeemed or converted. The initial conversion rate is 22.2748 shares of our common stock per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $44.89 per share of common stock). The conversion rate, and thus the conversion price, may be adjusted under certain circumstances as described in the Indenture.least $40.0 million.
The initial carrying amount of the Notes recorded in ourthe consolidated balance sheet inas of January 30, 2018 will bewas less than the $200.0 million in principal amount of the Notes, in accordance with applicable accounting principles, reflective of the estimated fair value of a similar debt instrument that does not have a conversion feature. We will record this differencerecorded the value of the conversion feature as a debt discount which willat the date of issuance, to be amortized as interest expense over the term of the Notes, with a similar amount allocated to additional paid-in capital. As a result of this amortization theof debt discount, interest expense we recognize related torecognized on the Notes for accounting purposes, will bereflecting an effective interest rate of approximately 6%, is greater than the cash interest payments we willare obligated to pay on the Notes. Interest expense associated with the Notes for 2020 and 2019 was $9.3 million and $10.2 million, respectively, while the related cash interest expense was $2.6 million and $3.0 million, respectively. As of December 31, 2020, none of the conditions allowing holders of the Notes to convert, or requiring us to repurchase the Notes, had been met.See Note 7, "Long-term Debt," to the Consolidated Financial Statements included in this Annual Report on Form 10‑K for further information regarding the Notes.
See Note 2, "Summary of Significant Accounting Policies," to the Consolidated Financial Statements included in this Annual Report on Form 10‑Kfor discussion of the recent revision to accounting guidance for convertible instruments, which changed our method of accounting for the Notes upon our adoption of the standard effective January 1, 2021.
Promissory Note. In connection with the GEODynamics Acquisition, we issued a $25.0 million promissory note that bears interest at 2.5% per annum and was scheduled to mature on July 12, 2019. We believe that payments due under the promissory note are subject to set-off, in full or in part, against certain claims related to matters occurring prior to the GEODynamics Acquisition. We have provided notice to and asserted indemnification claims against the seller of GEODynamics (the "Seller"), and the Seller has filed a breach of contract suit against us and one of our wholly-owned subsidiaries alleging that payments due under the promissory note are required to be, but have not been, repaid in accordance with the terms of the note. We have incurred settlement costs and expenses of $7.9 million related to such indemnification claims and we believe that the maturity date of the note is extended until these claims are resolved. Accordingly, we have reduced the carrying amount of such note in our consolidated balance sheet to $17.1 million as of December 31, 2020, which is our current best estimate of what is owed after set-off for indemnification matters. See Note 14, "Commitments and Contingencies," to the Consolidated Financial Statements included in this Annual Report on Form 10‑K.
Our total debt represented 20% of our combined total debt and stockholders' equity as of December 31, 2020 compared to 17% as of December 31, 2019.
Stock Repurchase Program. On July 29, 2015, our Board of Directors approved the termination of our then existing We historically maintained a share repurchase program, and authorized a new program providing for the repurchase of up to $150.0 million of our common stock, which following extension, was scheduledallowed to expire on July 29, 2017. On July 26, 2017,2020. During 2020, we did not repurchase any shares of our Board of Directors extendedcommon stock under the share repurchase program for one year to July 29, 2018.program. During 2017,2019, we repurchased 562approximately 51 thousand shares of our common stock under the program at a total cost of $16.3$0.8 million. No shares of our common stock were repurchased under the program in 2016. During 2015, a total of $105.9 million of our stock (2.7 million shares) were repurchased under these programs. The amount remaining under our current share repurchase authorization as of December 31, 2017 was $120.5 million. Subject to applicable securities laws, such purchases will be at such times and in such amounts as the Company deems appropriate.
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Contractual Obligations. The following summarizes our contractual obligations atas of December 31, 2017,2020, and the effect such obligations are expected to have on our liquidity and cash flow over the next five years (in thousands):
| Payments due by period | |||||||||||||||||||||||||||||
| Total | Less than 1 year | 1 - 3 years | 3 - 5 years | More than 5 years | |||||||||||||||||||||||||
| Contractual obligations | |||||||||||||||||||||||||||||
Revolving Credit Facility(1) | $ | 19,000 | $ | — | $ | 19,000 | $ | — | $ | — | |||||||||||||||||||
1.50% convertible senior notes due February 2023(2) | 163,270 | 2,361 | 160,910 | — | — | ||||||||||||||||||||||||
Promissory note(3) | 18,422 | 18,422 | — | — | — | ||||||||||||||||||||||||
| Other debt and finance lease obligations | 4,792 | 683 | 1,220 | 997 | 1,892 | ||||||||||||||||||||||||
Operating lease liabilities(4) | 43,841 | 9,293 | 11,738 | 9,023 | 13,787 | ||||||||||||||||||||||||
Purchase obligations(5) | 50,694 | 49,975 | 719 | — | — | ||||||||||||||||||||||||
| Total contractual cash obligations | $ | 300,019 | $ | 80,734 | $ | 193,587 | $ | 10,020 | $ | 15,679 | |||||||||||||||||||
| Payments due by period | |||||||||||||||||||
| Total | Less than 1 year | 1 - 3 years | 3 - 5 years | More than 5 years | |||||||||||||||
Contractual obligations (1) | |||||||||||||||||||
| Revolving Credit Facility | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||
| 1.50% Convertible Senior Notes | — | — | — | — | — | ||||||||||||||
| Promissory note | — | — | — | — | — | ||||||||||||||
| Other debt and capital leases | 5,281 | 411 | 862 | 772 | 3,236 | ||||||||||||||
| Purchase obligations | 41,236 | 41,236 | — | — | — | ||||||||||||||
| Non-cancelable operating lease obligations | 25,767 | 8,842 | 9,137 | 3,394 | 4,394 | ||||||||||||||
| Total contractual cash obligations | $ | 72,284 | $ | 50,489 | $ | 9,999 | $ | 4,166 | $ | 7,630 | |||||||||
(2)Amount represents the full principal amount of the Notes together with cash interest payments due semi-annually.
(3)Amount represents the net principal amount of the $25 million promissory note together with accrued and unpaid interest as of outstanding letters of credit.
(4)Amount represents the payment obligations (including implied interest) for operating leases with an initial term of greater than 12 months. Operating lease obligations are recorded in the consolidated balance sheet as operating lease liabilities while the right-of-use assets are included within operating lease assets.
(5)Our purchase obligations primarily relate to open purchase orders in our Offshore/Manufactured Products and Completion Services operations.
Contingencies and Other Obligations. 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 the 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. In addition, the Seller in the GEODynamics Acquisition filed a breach of contract suit against us in federal court in August 2020, in which the Seller alleged, among other contractual breaches, that it was entitled to approximately $19 million in U.S. federal income tax carryback claims we received under the provisions of the CARES Act legislation. On February 15, 2021, the Seller dismissed the federal lawsuit without prejudice and refiled in state court. Although we can give no assurance about the outcome of pending legal and administrative proceedings and the effect such outcomes may have on January 19, 2018.us, we believe that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by indemnity or insurance, will not have a material adverse effect on our consolidated financial position, results of operations or liquidity. See Note 14, "Commitments and Contingencies," to the Consolidated Financial Statements included in this Annual Report on Form 10‑K for further discussion.
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Effects of Inflation
Our revenues and results of operations have not been materially impacted by inflation in the past three fiscal years.
Off-Balance Sheet Arrangements
As of December 31, 2017,2020, we had no off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S‑K.
Tariffs
We use a variety of domestically produced and imported raw materials and component products, including steel, in the manufacture of our products. In 2018, the United States imposed tariffs on a variety of imported products, including steel and aluminum. In response to the U.S. tariffs on steel and aluminum, the European Union and several other countries, including Canada and China, have threatened and/or imposed retaliatory tariffs. The effect of these tariffs and the application and interpretation of existing trade agreements and customs, anti-dumping and countervailing duty regulations continues to evolve, and we continue to monitor these matters. If we encounter difficulty in procuring these raw materials and component products, or if the prices we have to pay for these products increase further as a result of customs, anti-dumping and countervailing duty regulations or otherwise and we are unable to pass corresponding cost increases on to our customers, our financial position and results of operations could be adversely affected. Furthermore, uncertainty with respect to potential costs in the drilling and completion of oil and gas wells could cause customers to delay or cancel planned projects which, if this occurred, would adversely affect our financial position and results of operations. See Note 14, "Commitments and Contingencies," to the Consolidated Financial Statements included in this Annual Report on Form 10‑K for additional discussion.
Tax Matters
See Note 2, "Summary of Significant Accounting Policies," and Note 12,9, "Income Taxes," to the Consolidated Financial Statements included in this Annual Report on Form 10-K10‑K for additional information with respect to tax matters.
Critical Accounting Policies
Our Consolidated Financial Statements included in this Annual Report on Form 10-K10‑K have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”("GAAP"), which require that managementwe make numerous estimates and assumptions. Actual results could differ from those estimates and assumptions, thus impacting our reported results of operations and financial position. The critical accounting policies and estimates described in this section are those that are most important to the depiction of our financial condition and results of operations and the application of which requires management’sour most subjective judgments in making estimates about the effect of matters that are inherently uncertain. We describe our significant accounting policies more fully in Note 2, "Summary of Significant Accounting Policies," to the Consolidated Financial Statements included in this Annual Report on Form 10-K.10‑K.
Goodwill and Long-Lived Tangible and Intangible Assets
Our goodwill totaled $76.5 million, representing 7% of our total assets as of December 31, 2020. Our long-lived tangible assets totaled $416.7 million, representing 36% of our total assets as of December 31, 2020, and our long-lived intangible assets totaled $205.7 million, representing 18% of our total assets. The remainder of our assets largely consisted of cash, accounts receivable and inventories.
Goodwill
Goodwill represents the excess after impairments, if applicable, of the purchase price for acquired businesses over the allocated fair value of related net assets. In accordance with current accounting guidance, we do not amortize goodwill, but rather assess goodwill for impairment annually and when an event occurs or circumstances change that indicate the carrying amounts may not be recoverable. In the evaluation of goodwill, each reporting unit with goodwill on its balance sheet is assessed separately using relevant events and circumstances. We estimate the fair value of each reporting unit and compare that fair value to its recorded carrying value. We utilize, depending on circumstances, a combination of valuation methodologies including a market approach and an income approach, as well as guideline public company comparables. Projected cash flows are discounted using a long-term weighted average cost of capital for each reporting unit based on estimates of investment returns that would be required by a market participant. As part of the process of assessing goodwill for potential impairment, our total market capitalization is compared to the sum of the fair values of all reporting units to assess the reasonableness of aggregated fair values. If the carrying amount of a reporting unit exceeds its fair value, goodwill is considered impaired and an impairment loss is recorded.
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December 2019 Impairment
During the fourth quarter of 2019, U.S. land-based completion activity declined significantly from levels experienced over the previous three quarters. Additionally, a number of other market indicators declined to levels not experienced in recent years. Consistent with most other oilfield service industry peers, our stock price declined and our market capitalization was below the carrying value of stockholders' equity. Given these market conditions, we reduced our near-term demand outlook for our short-cycle products and services in the U.S. shale play regions. This refined outlook was incorporated in the December 1, 2019 annual impairment assessment.
Based on this quantitative assessment, we concluded that the goodwill amount recorded in our Downhole Technologies reporting unit was partially impaired and recognized a non-cash goodwill impairment charge of $165.0 million in the fourth quarter of 2019.
The discount rates used to value the our reporting units as of December 1, 2019 ranged between 12.5% and 13.0%. Holding all other assumptions and inputs used in each of the respective discounted cash flow analysis constant, a 50 basis point increase in the discount rate assumption would have increased the goodwill impairment charge by approximately $28 million.
March 2020 Impairments
In March 2020, the spot price of WTI crude oil declined over 50% in response to current and expected material reductions in global demand stemming from the global response to the COVID-19 pandemic, coupled with announcements by Saudi Arabia and Russia of plans to increase crude oil production. Following this unprecedented collapse in crude oil prices, the spot price of Brent and WTI crude oil closed at $15 and $21 per barrel, respectively, on March 31, 2020. Consistent with oilfield service industry peers, our stock price also declined dramatically during the first quarter of 2020, with our market capitalization falling substantially below the carrying value of stockholders' equity.
Given the significance of these March 2020 events, we performed a quantitative assessment of goodwill for further impairment as of March 31, 2020. This interim assessment indicated that the fair value of each of the reporting units was less than their respective carrying amounts due to, among other factors, the significant decline in the our stock price and that of our peers and reduced growth rate expectations given weak energy market conditions resulting from the demand destruction caused by the global response to the COVID-19 pandemic. In addition, the estimated returns required by market participants increased materially in our March 31, 2020 assessment from the assessment performed as of December 1, 2019, resulting in higher discount rates used in the discounted cash flow analysis.
Significant assumptions and estimates used in the income approach include, among others, estimated future net annual cash flows and discount rates for each reporting unit, current and anticipated market conditions, estimated growth rates and historical data. These estimates relied upon significant management judgment, particularly given the uncertainties regarding the COVID-19 pandemic and its impact on activity levels and commodity prices as well as future global economic growth.
Based on this quantitative assessment as of March 31, 2020, we concluded that goodwill recorded in the Completion Services and Downhole Technologies businesses was fully impaired while goodwill recorded in the Offshore/Manufactured Products business was partially impaired. We therefore recognized non-cash goodwill impairment charges totaling $406.1 million in the first quarter of 2020.
The discount rates used to value our reporting units as of March 31, 2020 ranged between 16.8% and 18.5%. Holding all other assumptions and inputs used in the discounted cash flow analysis constant, a 50 basis point increase in the discount rate assumption for the Offshore/Manufactured Products reporting unit would have increased the goodwill impairment charge by approximately $10 million.
December 2020 Assessment
As of December 1, 2020, we had only one reporting unit – Offshore/Manufactured Products – with a goodwill balance of $76 million. We performed our annual quantitative assessment of goodwill for impairment, which indicated that the fair value of the Offshore/Manufactured Products reporting unit was greater than its carrying amount and no additional provision for impairment was required.
The valuation techniques used in the December 1, 2020 assessment were consistent with those used during the March 31, 2020 assessment. The discount rate used to value the Offshore/Manufactured Products reporting unit as of December 1, 2020 was approximately 15%. The estimated returns required by market participants decreased in our December 1, 2020 assessment from our assessment as of March 31, 2020, resulting in lower discount rate used in the discounted cash flow analysis. Holding
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all other assumptions and inputs used in the discounted cash flow analysis constant, a 100 basis point increase in the discount rate assumption for the Offshore/Manufactured Products reporting unit would not result in a goodwill impairment.
As of December 31, 2020, our market capitalization was $306 million, or $452 million below our equity carrying value.
The March 2020 and December 2019 goodwill impairment charges did not impact our liquidity position, debt covenants or cash flows.
We continue to monitor commodity prices and other significant assumptions used in our forecasts. If we experience a prolonged decline in long-term demand for crude oil and natural gas or significant and sustained increases in commodity supplies, which serve to lower commodity prices over the long term, we will be required to update our discounted cash flow analysis and potentially be required to record a goodwill impairment in the future.
Long-Lived Tangible and Intangible Assets
An assessment for impairment of long-lived tangible and intangible assets is conducted whenever changes in facts and circumstances indicate a loss in value may have occurred. Indicators of impairment might include persistent negative economic trends affecting the markets we serve, recurring losses or lowered expectations of future cash flows to be generated by our assets. When necessary, the determination of the amount of impairment is based on quoted market prices, if available, or on our judgment as to the future operating cash flows to be generated from these assets throughout their estimated useful lives.
During 2020 and 2019, we recognized non-cash asset impairment charges totaling $12.4 million and $33.7 million, respectively, to reduce the carrying value of certain equipment and facilities (owned and leased) to their estimated realizable value.
Based on our impairment assessment in 2020, the carrying values of our other long-lived tangible and intangible assets are recoverable and no impairment losses were recorded. However, industry cyclicality and downturns may result in future changes to our estimates of projected operating cash flows, or their timing, and could potentially cause future impairment to the values of our long-lived assets, including finite-lived intangible assets.
Revenue and Cost Recognition
Our revenue contracts may include one or more promises to transfer a distinct good or service to the customer, which is referred to as a "performance obligation," and to which revenue is allocated. We recognize revenue and the related cost when, or as, the performance obligations are satisfied. The majority of our significant contracts for custom engineered products have a single performance obligation as no individual good or service is separately identifiable from other performance obligations in the contracts. For contracts with multiple distinct performance obligations, we allocate revenue to the identified performance obligations in the contract. Our product sales terms do not include significant post-performance obligations.
Our performance obligations may be satisfied at a point in time or over time as work progresses. Revenues from goods and services transferred to customers at a point in time accounted for approximately 38%, 34% and 29% of consolidated revenues for the years ended December 31, 2020, 2019 and 2018, respectively. The majority of our revenue recognized at a point in time is derived from short-term contracts for standard products offered by us. Revenue on these contracts is recognized when control over the product has transferred to the customer. Indicators we consider in determining when transfer of control to the customer occurs include: right to payment for the product, transfer of legal title to the customer, transfer of physical possession of the product, transfer of risk and customer acceptance of the product.
Revenues from products and services transferred to customers over time accounted for approximately 62%, 66% and 71% of consolidated revenues for the years ended December 31, 2020, 2019 and 2018, respectively. The majority of our revenue recognized over time is for services provided under short-term contracts, with revenue recognized as the customer receives and consumes the services provided by our segments. In addition, we manufacture certain products to individual customer specifications under short-term contracts for which control passes to the customer as the performance obligations are fulfilled and for which revenue is recognized over time.
For significant project-related contracts involving custom engineered products within the Offshore/Manufactured Products segment (also referred to as "project-driven products"), revenues are typically recognized over time using an input measure such as the percentage of costs incurred to date relative to total estimated costs at completion for each contract (cost-to-cost method). Contract costs include labor, material and overhead. We believe this method is the most appropriate measure of progress on large contracts. Billings on such contracts in excess of costs incurred and estimated profits are classified as a
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contract liability (deferred revenue). Costs incurred and estimated profits in excess of billings on these contracts are recognized as a contract asset (a component of accounts receivable).
Contract estimates for project-related contracts involving custom engineered products are based on various assumptions to project the outcome of future events that may span several years. Changes in assumptions that may affect future project costs and margins include production efficiencies, the complexity of the work to be performed and the availability and costs of labor, materials and subcomponents.
As a significant change in one or more of these estimates could affect the profitability of our contracts, contract-related estimates are reviewed regularly. We recognize adjustments in estimated profit on contracts under the cumulative catch-up method. Under this method, the impact of the adjustment on profit recorded to date is recognized in the period the adjustment is identified. Revenue and profit in future periods of contract performance are recognized using the adjusted estimate. If at any time the estimate of contract profitability indicates an anticipated loss will be incurred on the contract, the loss is recognized in the period it is identified.
Cost of goods sold includes all direct material and labor costs and those costs related to contract performance, such as indirect labor, supplies, tools and repairs. As presented on our consolidated statements of operations, costs of goods sold excludes depreciation and amortization expense. Selling, general and administrative costs are charged to expense as incurred.
Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that we collect from a customer, are excluded from revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of products.
Proceeds from customers for the cost of oilfield rental equipment that is damaged or lost downhole are reflected as gains or losses on the disposition of assets after considering the write-off of the remaining net book value of the equipment.
Accounting for Contingencies
We have contingent liabilities and future claims for which we have made estimates of the amount of the eventual cost to liquidate thesesuch 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 accountsan amount estimated to cover anthe expected loss. Other claims or liabilities have been estimated based on their fair value or our experience in thesesuch 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 duties, income taxes, litigation, insurance claims warranty claims,and contractual claims and obligations and discontinued operations.
Estimation of Useful Lives
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.personnel. Our judgment in this area is influenced by our historical experience in operating our assets, technological developments and expectations of future demand for the assets. 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.
Income Taxes
We follow the liability method of accounting for income taxes in accordance with current accounting standards regarding the accounting for income taxes. Under this method, deferred income taxes are recorded based upon the differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws in effect at the time the underlying assets or liabilities are recovered or settled.
On March 27, 2020, the CARES Act was signed into law, which allowed the carryback of U.S. federal net operating losses. Prior to the enactment of the CARES Act, such tax losses could only be carried forward.
On December 22, 2017, legislation commonly known as the Tax Cuts and Jobs Act ("Tax Reform Legislation")Legislation was signed into law which enactsenacted significant changes to U.S. tax and related laws, including certain key U.S. federal income tax provisions applicable to oilfield service and manufacturing companies such as the Company. U.S. state or other regulatory bodies have not finalized potential changes to existing laws and regulations which may result from the new U.S. tax and related laws.ours. In accordance with the SEC's Staff Accounting Bulletin No. 118, (“SAB No. 118”), we have recorded provisional estimates to reflect the effect of the provisions of the recently enacted U.S. tax and related lawsTax Reform Legislation on our income tax assets and liabilities as of December 31, 2017. We continue to collectDuring 2018, we adjusted these provisional estimates based on additional information to support and refine our calculations ofguidance issued by the impact of these changes on our operations and our recorded income tax assets and liabilities, which may result in adjustments through December 2018 as allowed under SAB No. 118.Internal Revenue Service.
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As of December 31, 2017,2020, our total investment, including earnings and profits, in foreign subsidiaries is considered to be permanently reinvested, except for cumulative foreign earnings deemed repatriated under the Tax Reform Legislation.
reinvested.
We record a valuation allowance in the reporting period when management believeswe believe that it is more likely than not that any deferred tax asset created will not be realized. This assessment requires analysis of changes in tax laws, available positive and negative evidence, including consideration of losses in recent years, reversals of temporary differences, forecasts of future income, assessment of future business assumptions and tax planning strategies. During 20172020, 2019 and 2016,2018, we recorded valuation allowances primarily with respect to foreign and U.S. state net operating loss carryforwards of certain of our operations outside the United States. As a result of changes in U.S. tax laws in 2017, we recorded a valuation allowance with respect to our foreign tax credit carryforwards during the fourth quarter of 2017.
carryforwards.
The calculation of our tax liabilities involves assessing uncertainties regarding the application of complex tax regulations. We recognize liabilities for tax expenses based on our estimate of whether, and the extent to which, additional taxes will be due. If we ultimately determine that payment of these amounts is unnecessary, we reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer necessary. We record an additional charge in our provision for taxes in the period in which we determine that the recorded tax liability is less than we expect the ultimate assessment to be.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the “FASB”"FASB"), which are adopted by us as of the specified effective date. Unless otherwise discussed, management believeswe believe that the impact of recently issued standards, which are not yet effective, will not have a material impact on our consolidated financial statements upon adoption.
In August 2020, the FASB issued updated guidance to simplify the accounting for convertible instruments and contracts in an entity's own equity. This new guidance eliminates the requirement that the carrying value of convertible debt instruments, such as the Notes, be allocated between the debt and equity components. As permitted under the standard, we adopted the new guidance on January 1, 2021 using the modified retrospective transition method. Adoption of the standard resulted in a $12.2 million increase in the net carrying value of the Notes, a $3.7 million decrease in deferred income taxes and an $8.5 million net decrease in stockholders' equity. The effective interest rate associated with the Notes after adoption of this guidance decreased from approximately 6% to approximately 2%, which compares to the contractual interest rate of 1.50%.
In May 2014,June 2016, the FASB issued guidance on revenue from contracts with customerscredit impairment for short-term receivables which, as amended, introduced the recognition of management's current estimate of credit losses that will supersede most current revenue recognition guidance, including industry-specific guidance. The underlying principle is that an entity will recognize revenueare expected to depictoccur over the transferremaining life of goods or services to customers at an amount that the entity expects to be entitled to receive in exchange for those goods or services. The guidance permitted the use of either a full retrospective or modified retrospective transition method.financial asset. We adopted this guidance on January 1, 2018,2020, using the modified retrospectiveoptional transition method applied to those contracts which were not completed as of that date. On January 1, 2018, we are required to recognizerecognizing any cumulative effect of adopting this guidance as an adjustment to ourthe opening balance of retained earnings. Prior periods will not be retrospectively adjusted. Based on our detailed analysisThe cumulative impact of existing contracts with customers, we concluded the cumulative impactadoption of the new standard was not material to our consolidated financial statements through January 1, 2018. In accordance with the guidance, we will expand our revenue recognition disclosures in 2018 to address the new qualitative and quantitative requirements. We will also be required to evaluate the implications of the new revenue recognition guidance on contracts with customers that we acquired in connection with the GEODynamics Acquisition (see Note 18, "Subsequent Events") and expect to complete this evaluation by March 31, 2018.statements. Prior periods were not retrospectively adjusted.
ITEM 7A.Quantitative and Qualitative Disclosures about Market Risk
Market risk refers to the potential for losses arising from changes in interest rates, foreign currency fluctuations and exchange rates, equity prices and commodity prices including the correlation among these factors and their volatility.
Our principal market risks are our exposure to changes in interest rates and foreign currency exchange rates. We enter into derivative instruments only to the extent considered necessary to meet risk management objectives and do not use derivative contracts for speculative purposes.
Interest Rate Risk. We have a revolving credit facility that is subject to the risk of higher interest charges associated with increases in interest rates. As of December 31, 2017,2020, we had no$19.0 million in floating-rate obligations drawn under the Amended Revolving Credit Facility. UseThe use of floating-rate obligations would exposeexposes us to the risk of increased interest expense in the event of increases in short-term interest rates. If the floating interest rates increased by 1% from December 31, 2020 levels, our consolidated interest expense would increase by a total of approximately $0.2 million annually.
Foreign Currency Exchange Rate Risk. Our operations are conducted in various countries around the world and we receive revenue from these operations in a number of different currencies. As such, our earnings are subject to movements in foreign currency exchange rates when transactions are denominated in (i) currencies other than the U.S. dollar, which is our functional currency, or (ii) the functional currency of our subsidiaries, which is not necessarily the U.S. dollar. In order to mitigate the effects of foreign currency exchange rate risks in areas outside of the United States (primarily in our Offshore/Manufactured Products segment), 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 2017,2020, our reported foreign currency exchange gains losses
-51-
were $0.5$0.2 million and are included in “Other"Other operating (income) expense, net”net" in the Consolidated Statementsconsolidated statements of Operations.operations. In order to reduce our exposure to fluctuations in foreign currency exchange rates, we may enter into foreign currency exchange agreements with financial institutions. AsNo foreign currency contracts were outstanding as of December 31, 2017 and 2016, we had outstanding foreign currency forward purchase contracts with notional amounts of $2.4 million and $2.2 million, respectively, related to expected cash flows denominated in Euros. As a result of currency contracts becoming ineffective in 2015, we recorded $0.4 million of foreign exchange loss related to amounts reclassified from accumulated other comprehensive loss into an expense on the statement operations in 2015.
2020 or 2019.
Our accumulated other comprehensive loss, reported as a component of stockholders’stockholders' equity, decreasedincreased from $70.3$67.7 million atas of December 31, 20162019 to $58.5$71.4 million atas of December 31, 2017,2020, primarily as a result of foreign currency exchange rate differences of $3.8 million in the current year of $11.8 million.year. This other comprehensive income is primarily related to fluctuations in the currency exchange rates compared to the U.S. dollar for certain of the international operations of our reportable segments. As of December 31, 2017,During 2020, the exchange rate of the British pound strengthened by 3% compared to the U.S. dollar strengthened by 9% compared to the exchange rate at December 31, 2016, while the exchange rate ofand the Brazilian real weakened by 23% compared to the U.S. dollar weakened by 2% during the same period. As of December 31, 2016,dollar. During 2019, the exchange rate of the British pound strengthened by 4% compared to the U.S. dollar weakened by 16% compared to the exchange rate at December 31, 2015, while the exchange rate of the Brazilian real weakened by 4% compared to the U.S. dollar strengthened by 22% during the same period.dollar.
Item 8.Financial Statements and Supplementary Data
Our Consolidated Financial Statements and supplementary data of the Company begin on page 5759 of this Annual Report on Form 10-K10‑K and are incorporated by reference into this Item 8. Selected quarterly financial data is set forth in Note 1718, "Quarterly Financial Information (Unaudited)," to our Consolidated Financial Statements, which is incorporated herein by reference.
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
There were no changes in or disagreements on any matters of accounting principles or financial statement disclosure between us and our independent registered public accounting firm during our two most recent fiscal years or any subsequent interim period.
Item 9A.Controls and Procedures
(i) Evaluation of Disclosure Controls and Procedures
Pursuant to section 906 of The Sarbanes-Oxley Act of 2002, our Chief Executive Officer and Chief Financial Officer have provided certain certifications to the SEC. These certifications accompanied this report when filed with the SEC, but are not set forth herein.
(ii) Internal Control over Financial Reporting
(a) Management's annual report on internal control over financial reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of management and our directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
-52-
Accordingly, even effective internal control over financial reporting can only provide reasonable assurance of achieving their control objectives.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, an assessment of the effectiveness of our internal control over financial reporting as of December 31, 20172020 was conducted. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control–Integrated Framework (2013 Framework). Based on our assessment we believe that, as of December 31, 2017, the Company's2020, our internal control over financial reporting is effective based on those criteria.
The effectiveness of Oil States' internal control over financial reporting as of December 31, 2020 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as described below.
(b) Attestation report of the registered public accounting firm.
The attestation report of Ernst & Young LLP, the Company'sour independent registered public accounting firm, on the Company'sour internal control over financial reporting is set forth in this Annual Report on Form 10-K10‑K on page 5962 and is incorporated herein by reference.
(c) Changes in internal control over financial reporting.
Item 9B.Other Information
There was no information required to be disclosed in a report on Form 8-K8‑K during the fourth quarter of 20172020 that was not reported on a Form 8-K8‑K during such time.
Executive Officer Retirement
On February 17, 2021, Mr. Lias J. "Jeff" Steen, our Executive Vice President, Human Resources & Legal voluntarily retired from his executive officer position. He will continue to be employed in a non-executive officer role on a part-time basis by Oil States for an indefinite period of time.
-53-
PART III
Item 10.Directors, Executive Officers and Corporate Governance
(1)Information concerning directors, including our audit committee financial experts, appears in our Definitive Proxy Statement for the 2021 Annual Meeting of Stockholders, under "Election of Directors." This portion of the Definitive Proxy Statement is incorporated herein by reference.
(2)Information with respect to executive officers appears in our Definitive Proxy Statement for the 2021 Annual Meeting of Stockholders, under "Executive Officers of the Registrant." This portion of the Definitive Proxy Statement is incorporated herein by reference.
(3)Information concerning Section 16(a) beneficial ownership reporting compliance appears in our Definitive Proxy Statement for the 2021 Annual Meeting of Stockholders, under "Section 16(a) Beneficial Ownership Reporting Compliance." This portion of the Definitive Proxy Statement is incorporated herein by reference.
(4)Information concerning corporate governance and our code of ethics appears in our Definitive Proxy Statement for the 2021 Annual Meeting of Stockholders, under "Financial Code of Ethics for Senior Officers." This portion of the Definitive Proxy Statement is incorporated herein by reference.
Item 11.Executive Compensation
The information required by Item 11 hereby is incorporated by reference to such information as set forth in the Company'sour Definitive Proxy Statement for the 20182021 Annual Meeting of Stockholders.
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by Item 12 hereby is incorporated by reference to such information as set forth in the Company'sour Definitive Proxy Statement for the 20182021 Annual Meeting of Stockholders.
Item 13.Certain Relationships and Related Transactions, and Director Independence
The information required by Item 13 hereby is incorporated by reference to such information as set forth in the Company'sour Definitive Proxy Statement for the 20182021 Annual Meeting of Stockholders.
Item 14.Principal Accounting Fees and Services
Information concerning principal accounting fees and services and the audit committee's preapproval policies and procedures appear in the Company'sour Definitive Proxy Statement for the 20182021 Annual Meeting of Stockholders under the heading "Fees Paid to Ernst & Young LLP" and is incorporated herein by reference.
PART IV
Item 15.Exhibits, Financial Statement Schedules
(a) Index to Financial Statements, Financial Statement Schedules and Exhibits
(1) Financial Statements: Reference is made to the index set forth on page 59 of this Annual Report on Form 10‑K.
(2) Financial Statement Schedules: No schedules have been included herein because the information required to be submitted has been included in the Consolidated Financial Statements or the Notes thereto, or the required information is inapplicable.
(3) Index of Exhibits: See Index of Exhibits, below, for a list of those exhibits filed herewith, which index also includes and identifies management contracts or compensatory plans or arrangements required to be filed as exhibits to this Annual Report on Form 10‑K by Item 601 of Regulation S‑K.
(b) Index of Exhibits
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| 101.INS* | — | XBRL Instance Document | ||||||
| 101.SCH* | — | XBRL Taxonomy Extension Schema Document | ||||||
| 101.CAL* | — | XBRL Taxonomy Extension Calculation Linkbase Document | ||||||
| 101.DEF* | — | XBRL Taxonomy Extension Definition Linkbase Document | ||||||
| 101.LAB* | — | XBRL Taxonomy Extension Label Linkbase Document | ||||||
| 101.PRE* | — | XBRL Taxonomy Extension Presentation Linkbase Document | ||||||
| 104.1* | — | Cover Page Interactive Data File (embedded within the Inline XBRL document) | ||||||
---------
| * | Filed herewith. | ||||
| ** | Furnished herewith. | ||||
| + | Management contracts or compensatory plans or arrangements. | ||||
Item 16. Form 10-K Summary
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on February 20, 2018.
22, 2021.
OIL STATES INTERNATIONAL, INC.
| By | /s/ Cindy B. Taylor | |||||||
| Cindy B. Taylor | ||||||||
| President and Chief Executive Officer | ||||||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant in the capacities indicated on February 20, 2018.
22, 2021.
| Signature | Title | ||||||||||
| * | Chairman of the Board | ||||||||||
| /s/ Cindy B. Taylor | Director, President & Chief Executive Officer | ||||||||||
| Cindy B. Taylor | (Principal Executive Officer) | ||||||||||
| /s/ Lloyd A. Hajdik | Executive Vice President, Chief Financial Officer | ||||||||||
| Lloyd A. Hajdik | and Treasurer | ||||||||||
| (Principal Financial Officer) | |||||||||||
| /s/ Brian E. Taylor | Vice President, Controller and Chief Accounting Officer | ||||||||||
| Brian E. Taylor | (Principal Accounting Officer) | ||||||||||
| * | Director | ||||||||||
| Lawrence R. Dickerson | |||||||||||
| * | Director | ||||||||||
| Darrell E. Hollek | |||||||||||
| * | Director | ||||||||||
| S. James Nelson, Jr. | |||||||||||
| * | Director | ||||||||||
| Christopher T. Seaver | |||||||||||
| * | Director | ||||||||||
| William T. Van Kleef | |||||||||||
| * | Director | ||||||||||
| * | Director | ||||||||||
| E. Joseph Wright | |||||||||||
| *By: | /s/ Lloyd A. Hajdik | ||||||||||
| Lloyd A. Hajdik, pursuant to a power of | |||||||||||
| attorney filed as Exhibit 24.1 to this | |||||||||||
| Annual Report on Form 10-K | |||||||||||
-58-
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
REPORT OFINDEPENDENTREGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors and Stockholders of Oil States International, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Oil States International, Inc. and subsidiaries (the Company) as of December 31, 20172020 and 2016,2019, the related consolidated statements of operations, comprehensive income (loss), stockholders’loss, stockholders' equity and cash flows for each of the three years in the period ended December 31, 20172020, and the related notes (collectively referred to as the "financial"consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 20172020 and 2016,2019, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’sCompany's internal control over financial reporting as of December 31, 2017,2020, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 20, 201822, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on the Company’sCompany's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
-60-
| Goodwill Impairment - Offshore/Manufactured Products | ||||||||
| Description of the Matter | As discussed in Note 2 to the consolidated financial statements, goodwill is assessed for impairment annually and when an event occurs or circumstances change to suggest that the carrying amount may not be recoverable. Given the significance of the March 2020 events described in Note 6, the Company performed a quantitative assessment of goodwill for impairment at March 31, 2020. Based on this quantitative assessment, the Company recognized non-cash goodwill impairment charges of $406.1 million, which included a partial goodwill impairment charge of $86.5 million in its Offshore/Manufactured Products reporting unit. As reflected in the Company's consolidated financial statements at December 31, 2020, the Company's remaining goodwill was $76.5 million in the Offshore/Manufactured Products reporting unit. Auditing management's interim goodwill impairment assessment for the Company's Offshore/Manufactured Products reporting unit was subjective and required the involvement of specialists due to the significant measurement uncertainty in determining the fair value of the reporting unit. In particular, the fair value estimate attributable to the income approach was sensitive to changes in significant assumptions, such as the discount rate and the revenue growth rate, both of which are affected by market forecasts of commodity prices and the level of capital expenditures in the oil and gas industry. | |||||||
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company's goodwill impairment assessment process. For example, we tested controls over the Company's forecasting process as well as controls over management's review of the significant assumptions in estimating the fair value of the reporting unit and the related evaluation of management's specialist. To test the estimated fair value of the reporting unit, our audit procedures included, among others, assessing the valuation methodology and testing the significant assumptions discussed herein. For example, we compared the revenue growth rate in the prospective financial data used by management to external forecasted spending trends in industry, analysts' forecasted commodity prices and historical performance. We performed sensitivity analyses of certain significant assumptions to evaluate the change in the fair value resulting from changes in the significant assumptions. We also involved our valuation specialists to assist in the evaluation of the fair value methodology and the discount rate assumption in the fair value estimate. We further tested the completeness and accuracy of the underlying data used in the fair value estimate. | |||||||
/s/ Ernst & Young LLP
We have served as the Company‘s auditor since 2000.
Houston, Texas
February 20, 201822, 2021
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors and Stockholders of Oil States International, Inc.
Opinion on Internal Control overOver Financial Reporting
We have audited Oil States International, Inc. and subsidiaries’subsidiaries' internal control over financial reporting as of December 31, 2017,2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Oil States International, Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 20172020 and 2016,2019, the related consolidated statements of operations, comprehensive income (loss), stockholders’loss, stockholders' equity and cash flows for each of the three years in the period ended December 31, 20172020 and the related notes, and our report dated February 20, 201822, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’sCompany's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’sManagement's annual report on internal control over financial reporting. Our responsibility is to express an opinion on the Company’sCompany's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’scompany's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’scompany's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’scompany's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Houston, Texas
February 20, 201822, 2021
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OFOPERATIONS
(In Thousands, Except Per Share Amounts)
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Revenues: | |||||||||||
| Products | $ | 303,802 | $ | 416,174 | $ | 561,018 | |||||
| Service | 366,825 | 278,270 | 538,959 | ||||||||
| 670,627 | 694,444 | 1,099,977 | |||||||||
| Costs and expenses: | |||||||||||
| Product costs | 219,466 | 288,270 | 395,137 | ||||||||
| Service costs | 301,289 | 238,500 | 390,561 | ||||||||
| Selling, general and administrative expenses | 114,816 | 124,033 | 132,664 | ||||||||
| Depreciation and amortization expense | 107,667 | 118,720 | 131,257 | ||||||||
| Other operating (income) expense, net | 1,261 | (5,796 | ) | (4,648 | ) | ||||||
| 744,499 | 763,727 | 1,044,971 | |||||||||
| Operating income (loss) | (73,872 | ) | (69,283 | ) | 55,006 | ||||||
| Interest expense | (4,674 | ) | (5,343 | ) | (6,427 | ) | |||||
| Interest income | 359 | 399 | 543 | ||||||||
| Other income | 775 | 902 | 1,446 | ||||||||
| Income (loss) from continuing operations before income taxes | (77,412 | ) | (73,325 | ) | 50,568 | ||||||
| Income tax (provision) benefit | (7,438 | ) | 26,939 | (22,197 | ) | ||||||
| Net income (loss) from continuing operations | (84,850 | ) | (46,386 | ) | 28,371 | ||||||
| Net income (loss) from discontinued operations, net of tax | — | (4 | ) | 226 | |||||||
| Net income (loss) attributable to Oil States | $ | (84,850 | ) | $ | (46,390 | ) | $ | 28,597 | |||
| Basic net income (loss) per share attributable to Oil States from: | |||||||||||
| Continuing operations | $ | (1.69 | ) | $ | (0.92 | ) | $ | 0.55 | |||
| Discontinued operations | — | — | 0.01 | ||||||||
| Net income (loss) | $ | (1.69 | ) | $ | (0.92 | ) | $ | 0.56 | |||
| Diluted net income (loss) per share attributable to Oil States from: | |||||||||||
| Continuing operations | $ | (1.69 | ) | $ | (0.92 | ) | $ | 0.55 | |||
| Discontinued operations | — | — | 0.01 | ||||||||
| Net income (loss) | $ | (1.69 | ) | $ | (0.92 | ) | $ | 0.56 | |||
| Weighted average number of common shares outstanding: | |||||||||||
| Basic | 50,139 | 50,174 | 50,269 | ||||||||
| Diluted | 50,139 | 50,174 | 50,335 | ||||||||
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Revenues: | |||||||||||||||||
| Products | $ | 331,272 | $ | 483,359 | $ | 501,822 | |||||||||||
| Service | 306,803 | 533,995 | 586,311 | ||||||||||||||
| 638,075 | 1,017,354 | 1,088,133 | |||||||||||||||
| Costs and expenses: | |||||||||||||||||
| Product costs | 287,615 | 369,194 | 366,453 | ||||||||||||||
| Service costs | 274,190 | 433,395 | 468,060 | ||||||||||||||
| Cost of revenues (exclusive of depreciation and amortization expense presented below) | 561,805 | 802,589 | 834,513 | ||||||||||||||
| Selling, general and administrative expenses | 94,102 | 122,932 | 138,070 | ||||||||||||||
| Depreciation and amortization expense | 98,543 | 123,319 | 123,530 | ||||||||||||||
| Impairments of goodwill | 406,056 | 165,000 | 0 | ||||||||||||||
| Impairments of fixed and lease assets | 12,447 | 33,697 | 0 | ||||||||||||||
| Other operating income, net | (538) | (2,003) | (2,104) | ||||||||||||||
| 1,172,415 | 1,245,534 | 1,094,009 | |||||||||||||||
| Operating loss | (534,340) | (228,180) | (5,876) | ||||||||||||||
| Interest expense | (14,259) | (17,898) | (19,314) | ||||||||||||||
| Interest income | 390 | 262 | 319 | ||||||||||||||
| Other income, net | 13,880 | 5,089 | 3,139 | ||||||||||||||
| Loss before income taxes | (534,329) | (240,727) | (21,732) | ||||||||||||||
| Income tax benefit | 65,946 | 8,919 | 2,627 | ||||||||||||||
| Net loss | $ | (468,383) | $ | (231,808) | $ | (19,105) | |||||||||||
| Net loss per share: | |||||||||||||||||
| Basic | $ | (7.83) | $ | (3.90) | $ | (0.33) | |||||||||||
| Diluted | (7.83) | (3.90) | (0.33) | ||||||||||||||
| Weighted average number of common shares outstanding: | |||||||||||||||||
| Basic | 59,812 | 59,379 | 58,712 | ||||||||||||||
| Diluted | 59,812 | 59,379 | 58,712 | ||||||||||||||
The accompanying notes are an integral part of these financial statements.
-63-
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)LOSS
(In Thousands)
| Year Ended December 31, | ||||||||||||||||||||||||||||
| Year Ended December 31, | 2020 | 2019 | 2018 | |||||||||||||||||||||||||
| 2017 | 2016 | 2015 | ||||||||||||||||||||||||||
| Net income (loss) | $ | (84,850 | ) | $ | (46,390 | ) | $ | 28,597 | ||||||||||||||||||||
| Net loss | Net loss | $ | (468,383) | $ | (231,808) | $ | (19,105) | |||||||||||||||||||||
| Other comprehensive income (loss): | Other comprehensive income (loss): | |||||||||||||||||||||||||||
| Currency translation adjustments, net of tax | 11,766 | (19,778 | ) | (27,957 | ) | Currency translation adjustments, net of tax | (3,750) | 3,462 | (13,088) | |||||||||||||||||||
| Unrealized gain on forward contracts, net of tax | — | — | 307 | |||||||||||||||||||||||||
| Other | 41 | 176 | (948 | ) | Other | 111 | 189 | 184 | ||||||||||||||||||||
| Comprehensive loss attributable to Oil States | $ | (73,043 | ) | $ | (65,992 | ) | $ | (1 | ) | |||||||||||||||||||
| Total other comprehensive income (loss) | Total other comprehensive income (loss) | (3,639) | 3,651 | (12,904) | ||||||||||||||||||||||||
| Comprehensive loss | Comprehensive loss | $ | (472,022) | $ | (228,157) | $ | (32,009) | |||||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
-64-
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Amounts)
| December 31, | |||||||
| 2017 | 2016 | ||||||
| ASSETS | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 53,459 | $ | 68,800 | |||
| Accounts receivable, net | 216,139 | 234,513 | |||||
| Inventories, net | 168,285 | 175,490 | |||||
| Prepaid expenses and other current assets | 18,054 | 11,174 | |||||
| Total current assets | 455,937 | 489,977 | |||||
| Property, plant and equipment, net | 498,890 | 553,402 | |||||
| Goodwill, net | 268,009 | 263,369 | |||||
| Other intangible assets, net | 50,265 | 52,746 | |||||
| Other noncurrent assets | 28,410 | 24,404 | |||||
| Total assets | $ | 1,301,511 | $ | 1,383,898 | |||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
| Current liabilities: | |||||||
| Current portion of long-term debt and capitalized leases | $ | 411 | $ | 538 | |||
| Accounts payable | 49,089 | 34,207 | |||||
| Accrued liabilities | 45,889 | 45,333 | |||||
| Income taxes payable | 1,647 | 5,839 | |||||
| Deferred revenue | 18,234 | 21,315 | |||||
| Total current liabilities | 115,270 | 107,232 | |||||
| Long-term debt and capitalized leases | 4,870 | 45,388 | |||||
| Deferred income taxes | 24,718 | 5,036 | |||||
| Other noncurrent liabilities | 23,940 | 21,935 | |||||
| Total liabilities | 168,798 | 179,591 | |||||
| Stockholders' equity: | |||||||
| Common stock, $.01 par value, 200,000,000 shares authorized, 62,721,698 shares and 62,295,870 shares issued, respectively | 627 | 623 | |||||
| Additional paid-in capital | 754,607 | 731,562 | |||||
| Retained earnings | 1,048,623 | 1,133,473 | |||||
| Accumulated other comprehensive loss | (58,493 | ) | (70,300 | ) | |||
| Treasury stock, at cost, 11,632,276 and 10,921,509 shares, respectively | (612,651 | ) | (591,051 | ) | |||
| Total stockholders' equity | 1,132,713 | 1,204,307 | |||||
| Total liabilities and stockholders' equity | $ | 1,301,511 | $ | 1,383,898 | |||
Common Stock | Additional Paid‑In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | Total Stockholders' Equity | ||||||||||||||||||
| Balance, December 31, 2014 | $ | 610 | $ | 685,232 | $ | 1,151,266 | $ | (22,100 | ) | $ | (474,351 | ) | $ | 1,340,657 | |||||||||
| Net income | — | — | 28,597 | — | — | 28,597 | |||||||||||||||||
| Currency translation adjustment (excluding intercompany advances) | — | — | — | (24,191 | ) | — | (24,191 | ) | |||||||||||||||
| Currency translation adjustment on intercompany advances | — | — | — | (3,766 | ) | — | (3,766 | ) | |||||||||||||||
| Other comprehensive income | — | — | — | (948 | ) | — | (948 | ) | |||||||||||||||
| Unrealized gain on forward contracts, net of tax | — | — | — | 307 | — | 307 | |||||||||||||||||
| Stock-based compensation expense: | |||||||||||||||||||||||
| Restricted stock | 4 | 18,832 | — | — | — | 18,836 | |||||||||||||||||
| Stock options | — | 2,942 | — | — | — | 2,942 | |||||||||||||||||
| Exercise/vesting of stock-based awards, including tax impact | 3 | 5,977 | — | — | — | 5,980 | |||||||||||||||||
| Surrender of stock to settle taxes on stock option exercises and restricted stock awards | — | — | — | — | (6,826 | ) | (6,826 | ) | |||||||||||||||
| Stock repurchases | — | — | — | — | (105,916 | ) | (105,916 | ) | |||||||||||||||
| OIS common stock withdrawn from deferred compensation plan | — | (3 | ) | — | — | 3 | — | ||||||||||||||||
| Balance, December 31, 2015 | 617 | 712,980 | 1,179,863 | (50,698 | ) | (587,090 | ) | 1,255,672 | |||||||||||||||
| Net loss | — | — | (46,390 | ) | — | — | (46,390 | ) | |||||||||||||||
| Currency translation adjustment (excluding intercompany advances) | — | — | — | (23,802 | ) | — | (23,802 | ) | |||||||||||||||
| Currency translation adjustment on intercompany advances | — | — | — | 4,024 | — | 4,024 | |||||||||||||||||
| Other comprehensive income | — | — | — | 176 | — | 176 | |||||||||||||||||
| Stock-based compensation expense: | |||||||||||||||||||||||
| Restricted stock | 6 | 18,899 | — | — | — | 18,905 | |||||||||||||||||
| Stock options | — | 2,245 | — | — | — | 2,245 | |||||||||||||||||
| Exercise/vesting of stock-based awards, including tax impact | — | (2,609 | ) | — | — | — | (2,609 | ) | |||||||||||||||
| Surrender of stock to settle taxes on restricted stock awards | — | — | — | (3,980 | ) | (3,980 | ) | ||||||||||||||||
| OIS common stock withdrawn from deferred compensation plan | — | 47 | — | — | 19 | 66 | |||||||||||||||||
| Balance, December 31, 2016 | 623 | 731,562 | 1,133,473 | (70,300 | ) | (591,051 | ) | 1,204,307 | |||||||||||||||
| Net loss | — | — | (84,850 | ) | — | — | (84,850 | ) | |||||||||||||||
| Currency translation adjustment (excluding intercompany advances) | — | — | — | 11,316 | — | 11,316 | |||||||||||||||||
| Currency translation adjustment on intercompany advances | — | — | — | 450 | — | 450 | |||||||||||||||||
| Other comprehensive income | — | — | — | 41 | — | 41 | |||||||||||||||||
| Stock-based compensation expense: | |||||||||||||||||||||||
| Restricted stock | 4 | 21,801 | — | — | — | 21,805 | |||||||||||||||||
| Stock options | — | 1,244 | — | — | — | 1,244 | |||||||||||||||||
| Stock repurchases | — | — | — | — | (16,283 | ) | (16,283 | ) | |||||||||||||||
| Surrender of stock to settle taxes on restricted stock awards | — | — | — | — | (5,317 | ) | (5,317 | ) | |||||||||||||||
| Balance, December 31, 2017 | $ | 627 | $ | 754,607 | $ | 1,048,623 | $ | (58,493 | ) | $ | (612,651 | ) | $ | 1,132,713 | |||||||||
| December 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 72,011 | $ | 8,493 | |||||||
| Accounts receivable, net | 163,135 | 233,487 | |||||||||
| Inventories, net | 170,376 | 221,342 | |||||||||
| Prepaid expenses and other current assets | 18,071 | 20,107 | |||||||||
| Total current assets | 423,593 | 483,429 | |||||||||
| Property, plant and equipment, net | 383,562 | 459,724 | |||||||||
| Operating lease assets, net | 33,140 | 43,616 | |||||||||
| Goodwill, net | 76,489 | 482,306 | |||||||||
| Other intangible assets, net | 205,749 | 230,091 | |||||||||
| Other noncurrent assets | 29,727 | 28,701 | |||||||||
| Total assets | $ | 1,152,260 | $ | 1,727,867 | |||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Current portion of long-term debt | $ | 17,778 | $ | 25,617 | |||||||
| Accounts payable | 46,433 | 78,368 | |||||||||
| Accrued liabilities | 44,504 | 48,840 | |||||||||
| Current operating lease liabilities | 7,620 | 8,311 | |||||||||
| Income taxes payable | 2,413 | 4,174 | |||||||||
| Deferred revenue | 43,384 | 17,761 | |||||||||
| Total current liabilities | 162,132 | 183,071 | |||||||||
| Long-term debt | 165,759 | 222,552 | |||||||||
| Long-term operating lease liabilities | 29,166 | 35,777 | |||||||||
| Deferred income taxes | 14,263 | 38,079 | |||||||||
| Other noncurrent liabilities | 23,309 | 24,421 | |||||||||
| Total liabilities | 394,629 | 503,900 | |||||||||
| Stockholders' equity: | |||||||||||
| Common stock, $0.01 par value, 200,000,000 shares authorized, 73,288,976 shares and 72,546,321 shares issued, respectively | 733 | 726 | |||||||||
| Additional paid-in capital | 1,122,945 | 1,114,521 | |||||||||
| Retained earnings | 329,327 | 797,710 | |||||||||
| Accumulated other comprehensive loss | (71,385) | (67,746) | |||||||||
| Treasury stock, at cost, 12,283,817 and 12,045,065 shares, respectively | (623,989) | (621,244) | |||||||||
| Total stockholders' equity | 757,631 | 1,223,967 | |||||||||
| Total liabilities and stockholders' equity | $ | 1,152,260 | $ | 1,727,867 | |||||||
The accompanying notes are an integral part of these financial statements.
-65-
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWSSTOCKHOLDERS' EQUITY
(In Thousands)
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Cash flows from operating activities: | |||||||||||
| Net income (loss) | $ | (84,850 | ) | $ | (46,390 | ) | $ | 28,597 | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||
| Loss (income) from discontinued operations | — | 4 | (226 | ) | |||||||
| Depreciation and amortization | 107,667 | 118,720 | 131,257 | ||||||||
| Stock-based compensation expense | 23,049 | 21,322 | 21,778 | ||||||||
| Deferred income tax provision (benefit) | 16,342 | (37,606 | ) | (3,173 | ) | ||||||
| Amortization of deferred financing costs | 1,158 | 785 | 780 | ||||||||
| Gain on disposal of assets | (700 | ) | (802 | ) | (1,274 | ) | |||||
| Tax impact of stock-based payment arrangements | — | — | (469 | ) | |||||||
| Other, net | 288 | 2,923 | 283 | ||||||||
| Changes in operating assets and liabilities, net of effect from acquired businesses: | |||||||||||
| Accounts receivable | 21,128 | 85,503 | 156,945 | ||||||||
| Inventories | 11,339 | 32,158 | 17,777 | ||||||||
| Accounts payable and accrued liabilities | 14,048 | (27,716 | ) | (98,354 | ) | ||||||
| Income taxes payable | (4,126 | ) | (1,930 | ) | 4,897 | ||||||
| Other operating assets and liabilities, net | (9,961 | ) | 2,286 | (3,050 | ) | ||||||
| Net cash flows provided by continuing operating activities | 95,382 | 149,257 | 255,768 | ||||||||
| Net cash flows provided by discontinued operating activities | — | — | 353 | ||||||||
| Net cash flows provided by operating activities | 95,382 | 149,257 | 256,121 | ||||||||
| Cash flows from investing activities: | |||||||||||
| Capital expenditures | (35,171 | ) | (29,689 | ) | (114,738 | ) | |||||
| Acquisitions of businesses, net of cash acquired | (12,859 | ) | — | (33,427 | ) | ||||||
| Proceeds from disposition of property, plant and equipment | 2,134 | 1,532 | 2,655 | ||||||||
| Other, net | (1,719 | ) | (1,135 | ) | (1,686 | ) | |||||
| Net cash flows used in investing activities | (47,615 | ) | (29,292 | ) | (147,196 | ) | |||||
| Cash flows from financing activities: | |||||||||||
| Revolving credit facility repayments, net | (42,184 | ) | (80,674 | ) | (17,825 | ) | |||||
| Debt and capital lease repayments | (517 | ) | (534 | ) | (541 | ) | |||||
| Payment of financing costs | (759 | ) | (72 | ) | (2 | ) | |||||
| Purchase of treasury stock | (16,283 | ) | — | (105,916 | ) | ||||||
Shares added to treasury stock as a result of net share settlements due to vesting of restricted stock | (5,317 | ) | (3,962 | ) | (6,827 | ) | |||||
| Issuance of common stock from stock-based payment arrangements | — | 367 | 5,920 | ||||||||
| Tax impact of stock-based payment arrangements | — | — | 469 | ||||||||
| Net cash flows used in financing activities | (65,060 | ) | (84,875 | ) | (124,722 | ) | |||||
| Effect of exchange rate changes on cash | 1,952 | (2,263 | ) | (1,493 | ) | ||||||
| Net change in cash and cash equivalents | (15,341 | ) | 32,827 | (17,290 | ) | ||||||
| Cash and cash equivalents, beginning of year | 68,800 | 35,973 | 53,263 | ||||||||
| Cash and cash equivalents, end of year | $ | 53,459 | $ | 68,800 | $ | 35,973 | |||||
| Common Stock | Additional Paid‑In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | Total Stockholders' Equity | ||||||||||||||||||||||||||||||
| Balance, December 31, 2017 | $ | 627 | $ | 754,607 | $ | 1,048,623 | $ | (58,493) | $ | (612,651) | $ | 1,132,713 | |||||||||||||||||||||||
| Net loss | — | — | (19,105) | — | — | (19,105) | |||||||||||||||||||||||||||||
| Currency translation adjustment (excluding intercompany advances) | — | — | — | (10,984) | — | (10,984) | |||||||||||||||||||||||||||||
| Currency translation adjustment on intercompany advances | — | — | — | (2,104) | — | (2,104) | |||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | 184 | — | 184 | |||||||||||||||||||||||||||||
| Stock-based compensation expense: | |||||||||||||||||||||||||||||||||||
| Restricted stock | 4 | 22,153 | — | — | — | 22,157 | |||||||||||||||||||||||||||||
| Stock options | — | 492 | — | — | — | 492 | |||||||||||||||||||||||||||||
| Issuance of common stock in connection with GEODynamics Acquisition | 87 | 294,823 | — | — | — | 294,910 | |||||||||||||||||||||||||||||
| Issuance of 1.50% convertible senior notes, net of income taxes of $7,744 | — | 25,683 | — | — | — | 25,683 | |||||||||||||||||||||||||||||
| Surrender of stock to settle taxes on restricted stock awards | — | — | — | — | (4,178) | (4,178) | |||||||||||||||||||||||||||||
| Balance, December 31, 2018 | 718 | 1,097,758 | 1,029,518 | (71,397) | (616,829) | 1,439,768 | |||||||||||||||||||||||||||||
| Net loss | — | — | (231,808) | — | — | (231,808) | |||||||||||||||||||||||||||||
| Currency translation adjustment (excluding intercompany advances) | — | — | — | 3,925 | — | 3,925 | |||||||||||||||||||||||||||||
| Currency translation adjustment on intercompany advances | — | — | — | (463) | — | (463) | |||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | 189 | — | 189 | |||||||||||||||||||||||||||||
| Stock-based compensation expense: | |||||||||||||||||||||||||||||||||||
| Restricted stock | 8 | 16,707 | — | — | — | 16,715 | |||||||||||||||||||||||||||||
| Stock options | — | 53 | — | — | — | 53 | |||||||||||||||||||||||||||||
| Stock repurchases | — | — | — | — | (757) | (757) | |||||||||||||||||||||||||||||
| Surrender of stock to settle taxes on restricted stock awards | — | — | — | — | (3,698) | (3,698) | |||||||||||||||||||||||||||||
| Common stock withdrawn from deferred compensation plan | — | 3 | — | — | 40 | 43 | |||||||||||||||||||||||||||||
| Balance, December 31, 2019 | 726 | 1,114,521 | 797,710 | (67,746) | (621,244) | 1,223,967 | |||||||||||||||||||||||||||||
| Net loss | — | — | (468,383) | — | — | (468,383) | |||||||||||||||||||||||||||||
| Currency translation adjustment (excluding intercompany advances) | — | — | — | 2,065 | — | 2,065 | |||||||||||||||||||||||||||||
| Currency translation adjustment on intercompany advances | — | — | — | (5,815) | — | (5,815) | |||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | 111 | — | 111 | |||||||||||||||||||||||||||||
| Stock-based compensation expense: | |||||||||||||||||||||||||||||||||||
| Restricted stock | 7 | 8,424 | — | — | — | 8,431 | |||||||||||||||||||||||||||||
| Surrender of stock to settle taxes on restricted stock awards | — | — | — | — | (2,745) | (2,745) | |||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | 733 | $ | 1,122,945 | $ | 329,327 | $ | (71,385) | $ | (623,989) | $ | 757,631 | |||||||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
-66-
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||
| Net loss | $ | (468,383) | $ | (231,808) | $ | (19,105) | |||||||||||
| Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||||||||||||
| Depreciation and amortization expense | 98,543 | 123,319 | 123,530 | ||||||||||||||
| Impairments of goodwill | 406,056 | 165,000 | 0 | ||||||||||||||
| Impairments of inventories | 31,151 | 0 | 0 | ||||||||||||||
| Impairments of fixed and lease assets | 12,447 | 33,697 | 0 | ||||||||||||||
| Stock-based compensation expense | 8,431 | 16,768 | 22,649 | ||||||||||||||
| Amortization of debt discount and deferred financing costs | 7,736 | 7,884 | 7,408 | ||||||||||||||
| Deferred income tax benefit | (24,404) | (15,469) | (3,489) | ||||||||||||||
| Gains on extinguishment of 1.50% convertible senior notes | (10,721) | 0 | 0 | ||||||||||||||
| Gains on disposals of assets | (2,444) | (4,291) | (6,288) | ||||||||||||||
| Other, net | 4,668 | 3,079 | 1,411 | ||||||||||||||
| Changes in operating assets and liabilities, net of effect from acquired businesses: | |||||||||||||||||
| Accounts receivable | 63,876 | 50,257 | (16,792) | ||||||||||||||
| Inventories | 17,578 | (10,774) | (7,283) | ||||||||||||||
| Accounts payable and accrued liabilities | (37,315) | (6,173) | 5,796 | ||||||||||||||
| Deferred revenue | 25,549 | 3,470 | (4,808) | ||||||||||||||
| Other operating assets and liabilities, net | (13) | 2,473 | 141 | ||||||||||||||
| Net cash flows provided by operating activities | 132,755 | 137,432 | 103,170 | ||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||
| Capital expenditures | (12,749) | (56,116) | (88,024) | ||||||||||||||
| Proceeds from disposition of property, plant and equipment | 9,601 | 6,046 | 3,659 | ||||||||||||||
| Acquisitions of businesses, net of cash acquired | 0 | 0 | (379,676) | ||||||||||||||
| Proceeds from flood insurance claims | 0 | 0 | 3,850 | ||||||||||||||
| Other, net | (581) | (1,912) | (1,184) | ||||||||||||||
| Net cash flows used in investing activities | (3,729) | (51,982) | (461,375) | ||||||||||||||
| Cash flows from financing activities: | |||||||||||||||||
| Revolving credit facility borrowings | 72,173 | 246,828 | 835,467 | ||||||||||||||
| Revolving credit facility repayments | (105,104) | (331,041) | (699,322) | ||||||||||||||
| Issuance of 1.50% convertible senior notes | 0 | 0 | 200,000 | ||||||||||||||
| Purchases of 1.50% convertible senior notes | (20,078) | (6,724) | 0 | ||||||||||||||
| Other debt and finance lease repayments, net | (8,222) | (500) | (537) | ||||||||||||||
| Payment of financing costs | (1,041) | (16) | (7,372) | ||||||||||||||
| Shares added to treasury stock as a result of net share settlements due to vesting of restricted stock | (2,745) | (3,698) | (4,178) | ||||||||||||||
| Purchases of treasury stock | 0 | (757) | 0 | ||||||||||||||
| Net cash flows (used in) provided by financing activities | (65,017) | (95,908) | 324,058 | ||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | (491) | (365) | 4 | ||||||||||||||
| Net change in cash and cash equivalents | 63,518 | (10,823) | (34,143) | ||||||||||||||
| Cash and cash equivalents, beginning of year | 8,493 | 19,316 | 53,459 | ||||||||||||||
| Cash and cash equivalents, end of year | $ | 72,011 | $ | 8,493 | $ | 19,316 | |||||||||||
| Cash paid (received) for: | |||||||||||||||||
| Interest | $ | 6,402 | $ | 9,626 | $ | 9,864 | |||||||||||
| Income taxes, net | (36,766) | (1,303) | 2,993 | ||||||||||||||
The accompanying notes are an integral part of these financial statements.
-67-
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.Organization and Basis of Presentation
The Consolidated Financial Statements include the accounts of Oil States International, Inc. (“("Oil States”States" or the “Company”"Company") and its consolidated subsidiaries. Investments in unconsolidated affiliates, in which the Company is able to exercise significant influence, are accounted for using the equity method. All significant intercompany accounts and transactions between the Company and its consolidated subsidiaries have been eliminated in the accompanying consolidated financial statements.
Certain prior-year amounts in the Company's consolidated financial statements have been reclassified to conform to the current year presentation.
The Company, through its subsidiaries, is a leading provider of specialty products and services to oil and gas and industrial companies throughout the world. We operateThe Company operates in a substantial number of the world's active crude oil and natural gas producingresource intensive regions, including: onshore and offshore United States, Canada, West Africa, the North Sea, the Middle East, South America and Southeast and Central Asia. For the periods presented herein, the
The Company operatedoperates through two3 business segments – Offshore/Manufactured Products and Well Site Services.
2. Summary of Significant Accounting Policies
Estimates
As further discussed in Note 12, "Income Taxes," on December 22, 2017, legislation commonly known as the Tax Cuts14, "Commitments and Jobs Act ("Tax Reform Legislation") was signed into law which enacts significant changes to U.S. tax and related laws, including certain key U.S. federal income tax provisions applicable to oilfield service and manufacturing companies such as the Company. U.S. state or other regulatory bodies have not finalized potential changes to existing laws and regulations which may result from the new U.S. tax and related laws. In accordance with the Securities and Exchange Commission’s Staff Accounting Bulletin No. 118 (“SAB No. 118”), the Company has recorded provisional estimates to reflect the effect of the provisions of the recently enacted U.S. tax and related laws on the Company’s income tax assets and liabilities as of December 31, 2017. The Company continues to collect additional information to support and refine its calculations ofContingencies," the impact of these changes on its operationsthe Coronavirus Disease 2019 ("COVID-19") pandemic and the related economic, business and market disruptions continues to evolve and its recorded income tax assets and liabilities, which may result in adjustments through December 2018 as allowed under SAB No. 118.
cash flows.
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Examples of a few such estimates include goodwill and long-lived asset impairments, revenue and income recognized on the percentage-of-completion method,over time, valuation allowances recorded on deferred tax assets, the fair value of assets and liabilities acquired including identification of associated goodwill and intangible assets, reserves on inventory, allowances for doubtful accounts, warranty obligationssettlement of litigation and potential future adjustments related to contractual indemnification and other agreements. Actual results could materially differ from those estimates.
Cash and Cash Equivalents
All highly liquid investments purchased with an original maturity of three months or less are classified as cash equivalents.
Fair Value of Financial Instruments
Financial instruments consist of cash and cash equivalents, investments, receivables, payables and debt instruments. The carrying values of these instruments, other than the 1.50% convertible senior notes due February 2023 (the "Notes") described in Note 7, "Long-term Debt," on the accompanying consolidated balance sheets, approximates their fair values. The estimated fair value of the Notes as of December 31, 2020 was $120.6 million, based on quoted market prices (a Level 2 fair value measurement), which compares to $157.4 million principal amount of the Notes.
-68-
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Inventories
Inventories consist of consumable oilfield products, manufactured equipment, spare parts for manufactured equipment, and work-in-process. Inventories also include raw materials, labor, subcontractor charges, manufacturing overhead and supplies and are carried at the lower of cost or net realizable value. The cost of inventories is determined on an average cost or specific-identification method. A reserve for excess and/or obsolete inventory is maintained based on the age, turnover, condition, expected near-term utility and market pricing of the goods.
Property, Plant, and Equipment
Property, plant, and equipment are recorded at cost, or at estimated fair market value at acquisition date if acquired in a business combination, and depreciation is computed, for assets owned or recorded under a finance lease, using the straight-line method over the estimated useful lives of the assets, after allowing for estimated salvage value where applicable. Leasehold improvements are capitalized and amortized over the lesser of the life of the lease or the estimated useful life of the asset.
Expenditures for repairs and maintenance are charged to expense when incurred. Expenditures for major renewals and betterments, which extend the useful lives of existing equipment, are capitalized and depreciated. Upon retirement or disposition of property and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the statements of operations.
Goodwill
Goodwill represents the excess after impairments, if applicable, of the purchase price for acquired businesses over the allocated fair value of related net assets. In accordance with current accounting guidance, the Company does not amortize goodwill, but rather assesses goodwill for impairment annually and when an event occurs or circumstances change that indicate the carrying amounts may not be recoverable. In the evaluation of goodwill, each reporting unit with goodwill on its balance sheet is assessed separately using relevant events and circumstances. Management estimates the fair value of each reporting unit and compares that fair value to its recorded carrying value. Management utilizes, depending on circumstances, a combination of valuation methodologies including a market approach and an income approach, as well as guideline public company comparables. Projected cash flows are discounted using a long-term weighted average cost of capital for each reporting unit based on estimates of investment returns that would be required by a market participant. As part of the process of assessing goodwill for potential impairment, the total market capitalization of the Company is compared to the sum of the fair values of all reporting units to assess the reasonableness of aggregated fair values. If the carrying amount of a reporting unit exceeds its fair value, goodwill is considered impaired and an impairment loss is recorded. As further discussed in Note 6, "Goodwill and Other Intangible Assets," the Company recognized non-cash goodwill impairment charges of $406.1 million in the first quarter of 2020 and $165.0 million in the fourth quarter of 2019. These impairment charges did not impact the Company's liquidity position, debt covenants or cash flows.
Long-Lived Assets
The Company amortizes the cost of long-lived assets, including finite-lived intangible assets, over their estimated useful life. The recoverability of the carrying values of long-lived assets is assessed at the asset group level whenever, in management's judgment, events or changes in circumstances indicate that the carrying value of such asset groups may not be recoverable based on estimated undiscounted future cash flows. If this assessment indicates that the carrying values will not be recoverable, an impairment loss equal to the excess of the carrying value over the fair value of the asset group is recognized. The fair value of the asset group is based on appraised values, prices of similar assets (if available), or discounted cash flows.
As further discussed in Note 4, "Details of Selected Balance Sheet Accounts," and Note 8, "Operating Leases," the Company recognized non-cash asset impairment charges totaling $12.4 million and $33.7 million in 2020 and 2019, respectively, to reduce the carrying value of certain equipment and facilities (owned and leased) to their estimated realizable value.
Based on the Company's review, the carrying values of its other long-lived assets are recoverable, and no impairment losses were recorded during the periods presented.
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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Leases
The Company leases a portion of its facilities, office space, equipment and vehicles under contracts which provide it with the right to control identified assets. The Company recognizes the right to use identified assets under operating leases (with an initial term of greater than 12 months) as operating lease assets and the related obligations to make payments under the lease arrangements as operating lease liabilities. Finance lease obligations, which are not material, are classified within long-term debt while related assets are included within property, plant and equipment. Lease assets and liabilities are recorded at the commencement date based on the present value of lease payments over the lease term. The Company has lease agreements with lease and non-lease components, which are generally accounted for as a single lease component. Most of the Company's leases do not provide an implicit interest rate. Therefore, the Company's incremental borrowing rate, based on available information at the lease commencement date, is used to determine the present value of lease payments.
Most of the Company's operating leases include 1 or more options to renew, with renewal terms that can extend the lease term from one to 20 years. The exercise of lease renewal options is at the Company's sole discretion. The depreciable lives of lease-related assets and leasehold improvements are limited by the expected lease term. Certain operating lease agreements include rental payments adjusted periodically for inflation. The Company's operating lease agreements do not contain any material residual value guarantees or material restrictive covenants. While the Company rents or subleases certain real estate to third parties, such amounts are not material. Cash outflows related to operating leases are presented within cash flows from operations.
Research and Development Costs
Costs incurred internally in researching and developing products are charged to expense until technological feasibility has been established for the product. Research and development expenses totaled $6.1 million, $7.0 million and $6.6 million in 2020, 2019 and 2018, respectively, and are reported within cost of revenues in the accompanying consolidated statements of operations.
ForeignCurrency and Other Comprehensive Loss
Gains and losses resulting from balance sheet translation of international operations where the local currency is the functional currency are included as a component of accumulated other comprehensive loss within stockholders' equity and represent substantially all of the accumulated other comprehensive loss balance. Remeasurements of intercompany advances denominated in a currency other than the functional currency of the entity that are of a long-term investment nature are recognized as a separate component of other comprehensive loss within stockholders' equity. Gains and losses resulting from balance sheet remeasurements of assets and liabilities denominated in a different currency than the functional currency, other than intercompany advances that are of a long-term investment nature, are included in the consolidated statements of operations within "other operating income, net" as incurred and were not material during the periods presented.
Currency Exchange Rate Risk
A portion of revenues, earnings and net investments in operations outside the United States are exposed to changes in currency exchange rates. The Company seeks to manage its currency exchange risk in part through operational means, including managing expected local currency revenues in relation to local currency costs and local currency assets in relation to local currency liabilities. In order to reduce exposure to fluctuations in currency exchange rates, the Company may enter into currency exchange agreements with financial institutions. As of December 31, 2020 and 2019, the Company had 0 outstanding foreign currency forward purchase contracts.
Revenue and Cost Recognition
The Company's revenue contracts may include one or more promises to transfer a distinct good or service to the customer, which is referred to as a "performance obligation," and to which revenue is allocated. The Company recognizes revenue and the related cost when, or as, the performance obligations are satisfied. The majority of significant contracts for custom engineered products have a single performance obligation as no individual good or service is separately identifiable from other performance obligations in the contracts. For contracts with multiple distinct performance obligations, the Company allocates revenue to the identified performance obligations in the contract. The Company's product sales terms do not include significant post-performance obligations.
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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The Company's performance obligations may be satisfied at a point in time or over time as work progresses. Revenues from products and services transferred to customers at a point in time accounted for approximately 38%, 34% and 29% of consolidated revenues for the years ended December 31, 2020, 2019 and 2018, respectively. The majority of the Company's revenue recognized at a point in time is derived from short-term contracts for standard products. Revenue on these contracts is recognized when control over the product has transferred to the customer. Indicators the Company considers in determining when transfer of control to the customer occurs include: right to payment for the product, transfer of legal title to the customer, transfer of physical possession of the product, transfer of risk and customer acceptance of the product.
Revenues from products and services transferred to customers over time accounted for approximately 62%, 66% and 71% of consolidated revenues for the years ended December 31, 2020, 2019 and 2018, respectively. The majority of the Company's revenue recognized over time is for services provided under short-term contracts, with revenue recognized as the customer receives and consumes the services. In addition, the Company manufactures certain products to individual customer specifications under short-term contracts for which control passes to the customer as the performance obligations are fulfilled and for which revenue is recognized over time.
For significant project-related contracts involving custom engineered products within the Offshore/Manufactured Products segment (also referred to as "project-driven products"), revenues are typically recognized over time using an input measure such as the percentage of costs incurred to date relative to total estimated costs at completion for each contract (cost-to-cost method). Contract costs include labor, material and overhead. Management believes this method is the most appropriate measure of progress on large contracts. Billings on such contracts in excess of costs incurred and estimated profits are classified as a contract liability (deferred revenue). Costs incurred and estimated profits in excess of billings on these contracts are recognized as a contract asset (a component of accounts receivable).
Contract estimates for project-related contracts involving custom engineered products are based on various assumptions to project the outcome of future events that may span several years. Changes in assumptions that may affect future project costs and margins include production efficiencies, the complexity of the work to be performed and the availability and costs of labor, materials and subcomponents.
As a significant change in one or more of these estimates could affect the profitability of the Company's contracts, contract-related estimates are reviewed regularly. The Company recognizes adjustments in estimated costs and profits on contracts in the period the adjustment is identified. Revenue and profit in future periods of contract performance are recognized using the adjusted estimate. If at any time the estimate of contract profitability indicates an anticipated loss will be incurred on the contract, the full loss is recognized in the period it is identified.
Product costs and service costs include all direct material and labor costs and those costs related to contract performance, such as indirect labor, supplies, tools and repairs. As disclosed in the consolidated statements of operations, product costs and service costs exclude depreciation and amortization expense and impairment of fixed assets, which are separately presented. Selling, general and administrative costs are charged to expense as incurred.
Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, and that are collected by the Company from a customer, are excluded from revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of products.
Proceeds from customers for the cost of oilfield rental equipment that is damaged or lost downhole are reflected as gains or losses on the disposition of assets after considering the write-off of the remaining net book value of the equipment.
As of December 31, 2020, the Company had $161.9 million of remaining backlog related to contracts with an original expected duration of greater than one year. Approximately 53% of this remaining backlog is expected to be recognized as revenue in 2021 and the balance thereafter.
Income Taxes
The Company follows the liability method of accounting for income taxes. Under this method, deferred income taxes are recorded based upon the differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws in effect at the time the underlying assets or liabilities are recovered or settled.
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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
As further discussed in Note 9, "Income Taxes," on December 22, 2017, legislation commonly known as the Tax Cuts and Jobs Act ("Tax Reform Legislation") was signed into law which enacted significant changes to U.S. tax and related laws, including certain key U.S. federal income tax provisions applicable to oilfield service and manufacturing companies such as the Company. In accordance with the Securities and Exchange Commission's Staff Accounting Bulletin No. 118, the Company recorded provisional estimates to reflect the effect of the Tax Reform Legislation on the Company's income tax assets and liabilities as of December 31, 2017. During 2018, the Company adjusted these provisional estimates based upon additional guidance issued by the Internal Revenue Service.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security ("CARES") Act was signed into law, which allowed the carryback of U.S. federal net operating losses. Prior to the enactment of the CARES Act, such tax losses could only be carried forward.
As of December 31, 2020, the Company's total investment in foreign subsidiaries is considered to be indefinitely reinvested outside of the United States. The Company accounts for the U.S. tax effect of global intangible low-taxed income earned by foreign subsidiaries in the period that such income is earned.
The Company records a valuation allowance in the reporting period when management believes that it is more likely than not that any deferred tax asset will not be realized. This assessment requires analysis of changes in tax laws as well as available positive and negative evidence, including consideration of losses in recent years, reversals of temporary differences, forecasts of future income and assessment of future business and tax planning strategies. During 2020, 2019 and 2018, the Company recorded valuation allowances primarily with respect to foreign and U.S. state net operating loss ("NOL") carryforwards.
The calculation of tax liabilities involves assessing uncertainties regarding the application of complex tax regulations. The Company recognizes liabilities for tax expenses based on estimates of whether, and the extent to which, additional taxes will be due. If management ultimately determines that payment of these amounts is unnecessary, the liability is reversed and a tax benefit is recognized during the period in which management determines that the liability is no longer necessary. An additional charge is recorded as a provision for taxes in the period in which management determines that the recorded tax liability is less than the expected ultimate assessment.
Receivables and Concentration of Credit Risk
Based on the nature of its customer base, the Company does not believe that it has any significant concentrations of credit risk other than its concentration in the worldwide oil and gas industry. Note 15, "Segments and Related Information," provides further information with respect to the Company's geographic revenues and significant customers. The Company evaluates the credit-worthiness of significant customers' financial condition and, generally, the Company does not require significant collateral from its customers.
Allowances for Doubtful Accounts
The Company maintains allowances for estimated losses resulting from the inability of the Company's customers to make required payments. Determination of the collectability of amounts due from customers requires management to make judgments regarding future events and trends. Allowances for doubtful accounts are established through an assessment of the Company's portfolio on an individual customer and consolidated basis taking into account current and expected future market conditions and trends. This process consists of a thorough review of historical collection experience, current aging status of customer accounts, and financial condition of the Company's customers as well as political and economic factors in countries of operations and other customer-specific factors. Based on a review of these factors, the Company establishes or adjusts allowances for trade and unbilled receivables as well as contract assets. If the financial condition of the Company's customers were to deteriorate further, adversely affecting their ability to make payments, additional allowances may be required. If a customer receivable is deemed to be uncollectible, the receivable is charged-off against allowance for doubtful accounts.
Earnings per Share
Basic earnings per share ("EPS") on the face of the accompanying consolidated statements of operations is computed by dividing the net income or loss applicable to the Company's common stockholders by the weighted average shares of outstanding common stock. The calculation of diluted EPS is similar to basic EPS, except that the denominator includes dilutive common stock equivalents and the income or loss in the numerator excludes the impact, if any, of dilutive common stock equivalents.
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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Diluted EPS includes the effect, if dilutive, of the Company's outstanding stock options, restricted stock and convertible securities under the treasury stock method. Currently issued and outstanding shares of restricted stock remain subject to vesting requirements. The Company is required to compute EPS amounts under the two class method in periods with earnings. Holders of shares of unvested restricted stock are entitled to the same liquidation and dividend rights as holders of outstanding common stock and are thus considered participating securities. Under applicable accounting guidance, undistributed earnings, if any, for each period are allocated based on the participation rights of both the common stockholders and holders of any participating securities as if earnings for the respective periods had been distributed. Because both the liquidation and dividend rights are identical, undistributed earnings are allocated on a proportionate basis.
Stock-Based Compensation
The fair value of share-based payments is estimated using the quoted market price of the Company's common stock and pricing models as of the date of grant as further discussed in Note 12, "Long-Term Incentive and Deferred Compensation Plans." The resulting cost, net of estimated forfeitures, is recognized over the period during which an employee is required to provide service in exchange for the awards, usually the vesting period. In addition to service-based awards, the Company issues performance-based awards, which are conditional based upon Company performance and may vest in an amount that will depend on the Company's achievement of specified performance objectives.
Guarantees
Some product sales in the Offshore/Manufactured Products segment are sold with an assurance warranty, generally ranging from 12 to 18 months. Parts and labor are covered under the terms of the warranty agreement. Warranty provisions are estimated based upon historical experience by product, configuration and geographic region.
During the ordinary course of business, the Company also provides standby letters of credit or other guarantee instruments to certain parties as required for certain transactions initiated by either the Company or its subsidiaries. As of December 31, 2020, the maximum potential amount of future payments that the Company could be required to make under these guarantee agreements (letters of credit) was $29.2 million. The Company has not recorded any liability in connection with these guarantee arrangements. The Company does not believe, based on historical experience and information currently available, that it is likely that any material amounts will be required to be paid under these guarantee arrangements.
Accounting for Contingencies
| 2017 | 2016 | ||||||
| Accounts receivable, net: | |||||||
| Trade | $ | 153,912 | $ | 173,087 | |||
| Unbilled revenue | 62,833 | 64,564 | |||||
| Other | 6,710 | 5,372 | |||||
| Total accounts receivable | 223,455 | 243,023 | |||||
| Allowance for doubtful accounts | (7,316 | ) | (8,510 | ) | |||
| $ | 216,139 | $ | 234,513 | ||||
| 2017 | 2016 | ||||||
| Inventories, net: | |||||||
| Finished goods and purchased products | $ | 82,990 | $ | 87,241 | |||
| Work in process | 30,689 | 30,584 | |||||
| Raw materials | 70,255 | 72,514 | |||||
| Total inventories | 183,934 | 190,339 | |||||
| Allowance for excess, damaged and/or obsolete inventory | (15,649 | ) | (14,849 | ) | |||
| $ | 168,285 | $ | 175,490 | ||||
| 2017 | 2016 | ||||||
| Prepaid expenses and other current assets: | |||||||
| Income taxes receivable | $ | 5,927 | $ | 430 | |||
| Prepayments to vendors | 2,962 | 877 | |||||
| Prepaid insurance | 5,007 | 3,738 | |||||
| Prepaid non-income taxes | 401 | 1,650 | |||||
| Other | 3,757 | 4,479 | |||||
| $ | 18,054 | $ | 11,174 | ||||
Estimated Useful Life (in years) | 2017 | 2016 | |||||||||||
| Property, plant and equipment, net: | |||||||||||||
| Land | $ | 35,808 | $ | 31,683 | |||||||||
| Buildings and leasehold improvements | 2 | – | 40 | 235,330 | 227,642 | ||||||||
| Machinery and equipment | 1 | – | 28 | 458,458 | 455,873 | ||||||||
| Completion Services equipment | 2 | – | 10 | 431,714 | 429,845 | ||||||||
| Office furniture and equipment | 3 | – | 10 | 43,664 | 42,827 | ||||||||
| Vehicles | 2 | – | 10 | 118,198 | 121,317 | ||||||||
| Construction in progress | 34,557 | 27,519 | |||||||||||
| Total property, plant and equipment | 1,357,729 | 1,336,706 | |||||||||||
| Accumulated depreciation | (858,839 | ) | (783,304 | ) | |||||||||
| $ | 498,890 | $ | 553,402 | ||||||||||
| 2017 | 2016 | ||||||
| Other noncurrent assets: | |||||||
| Deferred compensation plan | $ | 20,988 | $ | 18,772 | |||
| Deferred income taxes | 519 | 120 | |||||
| Other | 6,903 | 5,512 | |||||
| $ | 28,410 | $ | 24,404 | ||||
| 2017 | 2016 | ||||||
| Accrued liabilities: | |||||||
| Accrued compensation | $ | 25,794 | $ | 23,131 | |||
| Insurance liabilities | 6,831 | 8,099 | |||||
| Accrued taxes, other than income taxes | 3,591 | 2,461 | |||||
| Accrued leasehold restoration liability | 838 | 766 | |||||
| Accrued product warranty reserves | 654 | 1,113 | |||||
| Accrued commissions | 1,335 | 1,305 | |||||
| Accrued claims | 1,320 | 1,578 | |||||
| Other | 5,526 | 6,880 | |||||
| $ | 45,889 | $ | 45,333 | ||||
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the “FASB”"FASB"), which are adopted by the Company as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’sCompany's consolidated financial statements upon adoption.
In August 2020, the FASB issued updated guidance to simplify the accounting for convertible instruments and contracts in an entity's own equity. This new guidance eliminated the requirement that the carrying value of convertible debt instruments, such as the Company's Notes, be allocated between the debt and equity components. As permitted under the standard, the Company adopted the new guidance on January 1, 2021, using the modified retrospective transition method. Adoption of the standard resulted in a $12.2 million increase in the net carrying value of the Notes, a $3.7 million decrease in deferred income taxes and an $8.5 million net decrease in stockholders' equity. The effective interest rate associated with the Notes after adoption decreased from approximately 6% to approximately 2%, which compares to the contractual interest rate of 1.50%.
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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
In May 2014,June 2016, the FASB issued guidance on revenue from contracts with customerscredit impairment for short-term receivables which, as amended, introduced the recognition of management's current estimate of credit losses that will supersede most current revenue recognition guidance, including industry-specific guidance. The underlying principle is that an entity will recognize revenueare expected to depictoccur over the transferremaining life of goods or services to customers at an amount that the entity expects to be entitled to receive in exchange for those goods or services. The guidance permitted the use of either a full retrospective or modified retrospective transition method.financial asset. The Company adopted this guidance on January 1, 2018,2020, using the modified retrospectiveoptional transition method applied to those contracts which were not completed as of that date. On January 1, 2018, we are required to recognizerecognizing any cumulative effect of adopting this guidance as an adjustment to ourthe opening balance of retained earnings. Prior periods will not be retrospectively adjusted. Based on our detailed analysisThe cumulative impact of existing contracts with customers, the Company concluded the cumulative impactadoption of the new standard was not material to ourthe Company's consolidated financial statements through January 1, 2018. In accordance with the guidance, we will expand our revenue recognition disclosures in 2018 to address the new qualitativestatements. Prior periods were not retrospectively adjusted.
3. Asset Impairments and quantitative requirements. We will also be required to evaluate the implications of the new revenue recognition guidance on contracts with customers that we acquired in connection with the GEODynamics Acquisition and expect to complete this evaluation by March 31, 2018.
Other Charges
In March 2016,of 2020, the FASB issued guidance on employee share-based payment accounting which modifies existing guidance relatedspot price of West Texas Intermediate ("WTI") crude oil declined over 50% in response to current and expected material reductions in global demand stemming from the global response to the accountingCOVID-19 pandemic, coupled with announcements by Saudi Arabia and Russia of plans to increase crude oil production. Following this unprecedented collapse in crude oil prices, the spot price of Brent and WTI crude oil closed at $15 and $21 per barrel, respectively, on March 31, 2020. Crude oil prices further declined in April of 2020 to record low levels, and while the spot price of Brent and WTI crude oil increased to an average of $44 and $43 per barrel, respectively, in the fourth quarter of 2020, these average prices continue to remain below historical price levels.
Demand for forfeitures, employer tax withholdingmost of the Company's products and services depends substantially on stock-based compensationthe level of capital expenditures invested in the oil and natural gas industry, which reached 15-year lows in 2020. The decline in crude oil prices, coupled with higher crude oil inventory levels in 2020, caused rapid reductions in most of the Company's customers' drilling, completion and production activities and their related spending on products and services, particularly those supporting activities in the U.S. shale play regions. These conditions have and may continue to result in a material adverse impact on certain customers' liquidity and financial position, leading to further spending reductions, delays in the collection of amounts owed and, in certain instances, non-payments of amounts owed.
Consistent with most oilfield service industry peers, the Company's stock price declined dramatically during the first quarter of 2020, with its market capitalization falling substantially below the carrying value of stockholders' equity.
Following these March 2020 events, the Company immediately implemented significant cost reduction initiatives. The Company also assessed the carrying value of goodwill, long-lived and other assets based on the industry outlook regarding overall demand for and pricing of its products and services, other market considerations and the financial statement presentationcondition of excess tax benefits or deficiencies. Thethe Company's customers. As a result of these events, actions and assessments during 2020, the Company adopted this guidance on January 1, 2017. Adoption of this standard had no retrospective impact onrecorded the Company’s financial statements andfollowing charges (in thousands):
| Completion Services | Drilling Services | Downhole Technologies | Offshore/ Manufactured Products | Corporate | Pre-tax Total | Tax | After-tax Total | ||||||||||||||||||||||||||||||||||||||||
| Impairments of: | |||||||||||||||||||||||||||||||||||||||||||||||
Goodwill (Note 6) | $ | 127,054 | $ | 0 | $ | 192,502 | $ | 86,500 | $ | 0 | $ | 406,056 | $ | 19,600 | $ | 386,456 | |||||||||||||||||||||||||||||||
Fixed assets (Note 4) | 3,647 | 5,198 | 1,623 | 0 | 0 | 10,468 | 2,198 | 8,270 | |||||||||||||||||||||||||||||||||||||||
Operating lease assets (Note 8) | 0 | 0 | 1,979 | 0 | 0 | 1,979 | 416 | 1,563 | |||||||||||||||||||||||||||||||||||||||
Inventories (Note 4) | 8,981 | 0 | 5,921 | 16,249 | 0 | 31,151 | 5,979 | 25,172 | |||||||||||||||||||||||||||||||||||||||
| Severance and restructuring charges | 4,094 | 217 | 2,018 | 1,355 | 1,385 | 9,069 | 1,904 | 7,165 | |||||||||||||||||||||||||||||||||||||||
During 2019, the impact onCompany recorded the Company’s income tax provision during 2017 was not material.following charges (in thousands):
| Completion Services | Drilling Services | Downhole Technologies | Offshore/ Manufactured Products | Corporate | Pre-tax Total | Tax | After-tax Total | ||||||||||||||||||||||||||||||||||||||||
| Impairments of: | |||||||||||||||||||||||||||||||||||||||||||||||
Goodwill (Note 6) | $ | 0 | $ | 0 | $ | 165,000 | $ | 0 | $ | 0 | $ | 165,000 | $ | 0 | $ | 165,000 | |||||||||||||||||||||||||||||||
Fixed assets (Note 4) | 0 | 33,697 | 0 | 0 | 0 | 33,697 | 7,076 | 26,621 | |||||||||||||||||||||||||||||||||||||||
| Severance and restructuring charges | 1,847 | 0 | 0 | 1,655 | 0 | 3,502 | 735 | 2,767 | |||||||||||||||||||||||||||||||||||||||
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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
During 2018, the Company recorded the following charges (in thousands):
| Completion Services | Drilling Services | Downhole Technologies | Offshore/ Manufactured Products | Corporate | Pre-tax Total | Tax | After-tax Total | ||||||||||||||||||||||||||||||||||||||||
| Patent defense costs | $ | 0 | $ | 0 | $ | 8,365 | $ | 0 | $ | 0 | $ | 8,365 | $ | 1,757 | $ | 6,608 | |||||||||||||||||||||||||||||||
Transaction-related costs (Note 5) | 0 | 0 | 327 | 0 | 3,274 | 3,601 | 756 | 2,845 | |||||||||||||||||||||||||||||||||||||||
| Fair Labor Standards Act claim settlements | 3,034 | 0 | 0 | 0 | 0 | 3,034 | 637 | 2,397 | |||||||||||||||||||||||||||||||||||||||
| Severance and restructuring charges | 151 | 0 | 0 | 1,478 | 0 | 1,629 | 342 | 1,287 | |||||||||||||||||||||||||||||||||||||||
4. Details of Selected Balance Sheet Accounts
Additional information regarding selected balance sheet accounts as of December 31, 2020 and 2019 is presented below (in thousands).
| 2020 | 2019 | ||||||||||
| Accounts receivable, net: | |||||||||||
| Trade | $ | 109,294 | $ | 178,813 | |||||||
| Unbilled revenue | 23,173 | 28,341 | |||||||||
| Contract assets | 35,870 | 26,034 | |||||||||
| Other | 3,102 | 9,044 | |||||||||
| Total accounts receivable | 171,439 | 242,232 | |||||||||
| Allowance for doubtful accounts | (8,304) | (8,745) | |||||||||
| $ | 163,135 | $ | 233,487 | ||||||||
| 2020 | 2019 | ||||||||||
| Deferred revenue (contract liabilities) | $ | 43,384 | $ | 17,761 | |||||||
As of December 31, 2020, accounts receivable, net in the United States and the United Kingdom represented 63% and 21%, respectively, of the total. No other country or single customer accounted for more than 10% of the Company's total accounts receivable as of December 31, 2020. A summary of activity in the allowance for doubtful accounts for the years ended December 31, 2020, 2019 and 2018 is provided in Note 17, "Valuation Allowances."
For the majority of contracts with customers, the Company receives payments based upon established contractual terms as products are delivered and services are performed. The Company's larger project-related contracts within the Offshore/Manufactured Products segment often provide for customer payments as milestones are achieved.
Contract assets relate to the Company's right to consideration for work completed but not billed as of December 31, 2020 and 2019 on certain project-related contracts within the Offshore/Manufactured Products segment. Contract assets are transferred to unbilled or trade receivables when the right to consideration becomes unconditional. Contract liabilities primarily relate to advance consideration received from customers (i.e. milestone payments) for contracts for project-driven products as well as others which require significant advance investment in materials. Consistent with industry practice, the Company classifies assets and liabilities related to long-term contracts as current, even though some of these amounts may not be realized within one year. All contracts are reported on the consolidated balance sheets in a net asset (contract asset) or liability (deferred revenue) position on a contract-by-contract basis at the end of each reporting period. In the normal course of business, the Company also receives advance consideration from customers on many other short-term, smaller product and service contracts which is deferred and recognized as revenue once the related performance obligation is satisfied.
For the year ended December 31, 2020, the $9.8 million net increase in contract assets was primarily attributable to $32.4 million in revenue recognized during the year, which was partially offset by $22.8 million transferred to accounts receivable. Deferred revenue (contract liabilities) increased by $25.6 million in 2020, reflecting $41.6 million in new customer billings which were not recognized as revenue during the year, partially offset by the recognition of $16.0 million of revenue that was deferred at the beginning of the period.
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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
| 2020 | 2019 | ||||||||||
| Inventories, net: | |||||||||||
| Finished goods and purchased products | $ | 88,634 | $ | 107,691 | |||||||
| Work in process | 27,063 | 21,963 | |||||||||
| Raw materials | 95,410 | 110,719 | |||||||||
| Total inventories | 211,107 | 240,373 | |||||||||
Allowance for excess or obsolete inventory(1) | (40,731) | (19,031) | |||||||||
| $ | 170,376 | $ | 221,342 | ||||||||
____________________
(1)During 2020, the Company recorded impairment charges totaling $31.2 million to reduce the U.S. dollar, whilecarrying value of inventories to their estimated net realizable value based on changes in expectations regarding the Brazilian real weakened by 2% compared to the U.S. dollar during the same period, contributing to other comprehensive incomenear-term utility, customer demand and market pricing of $11.8 million. During the year ended December 31, 2016, the exchange rate of the British pound weakened by 16% compared to the U.S. dollar, while the Brazilian real strengthened by 22% compared to the U.S. dollar during the same period, contributing to other comprehensive loss of $19.6 million.certain goods.
| Estimated Useful Life (in years) | 2020 | 2019 | |||||||||||||||||||||||||||
| Property, plant and equipment, net: | |||||||||||||||||||||||||||||
| Land | $ | 34,968 | $ | 37,507 | |||||||||||||||||||||||||
| Buildings and leasehold improvements | 1 | – | 40 | 267,072 | 273,384 | ||||||||||||||||||||||||
| Machinery and equipment | 2 | – | 28 | 239,986 | 246,826 | ||||||||||||||||||||||||
| Completion Services equipment | 2 | – | 10 | 507,755 | 510,737 | ||||||||||||||||||||||||
| Office furniture and equipment | 1 | – | 10 | 35,767 | 45,309 | ||||||||||||||||||||||||
| Vehicles | 3 | – | 10 | 81,607 | 97,264 | ||||||||||||||||||||||||
| Construction in progress | 7,207 | 13,281 | |||||||||||||||||||||||||||
| Total property, plant and equipment | 1,174,362 | 1,224,308 | |||||||||||||||||||||||||||
| Accumulated depreciation | (790,800) | (764,584) | |||||||||||||||||||||||||||
| $ | 383,562 | $ | 459,724 | ||||||||||||||||||||||||||
During 2019, the Company made the strategic decision to reduce the scope of its Drilling Services business unit (adjusting from 34 rigs to 9 rigs) due to the ongoing weakness in customer demand for vertical drilling rigs in the U.S. land market, particularly the Permian Basin. As a result of this decision, the carrying value of 25 rigs, which were decommissioned or sold, was reduced to their estimated realizable value, resulting in the recognition of a $25.5 million non-cash impairment charge. The Company also performed a fair value assessment on the remaining drilling rigs and recognized an additional non-cash impairment charge of $8.2 million (a Level 3 fair value measurement). These non-cash 2019 fixed asset impairment charges totaled $33.7 million.
| 2017 | 2016 | 2015 | |||||||||
| Fair value of assets acquired including intangibles and goodwill | $ | 12,859 | $ | — | $ | 39,505 | |||||
| Liabilities assumed | — | — | (6,026 | ) | |||||||
| Cash acquired | — | — | (52 | ) | |||||||
| Cash used in acquisition of business | $ | 12,859 | $ | — | $ | 33,427 | |||||
During 2018, the Company and its insurance carriers reached a final settlement on January 12, 2018.
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| 2017 | 2016 | 2015 | |||||||||
| Interest | $ | 4,206 | $ | 3,942 | $ | 5,629 | |||||
| Income taxes, net of refunds | (174 | ) | 2,330 | 18,780 | |||||||
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
| 2020 | 2019 | ||||||||||
| Other noncurrent assets: | |||||||||||
| Deferred compensation plan | $ | 22,801 | $ | 22,268 | |||||||
| Deferred income taxes | 1,280 | 685 | |||||||||
| Other | 5,646 | 5,748 | |||||||||
| $ | 29,727 | $ | 28,701 | ||||||||
| 2020 | 2019 | ||||||||||
| Accrued liabilities: | |||||||||||
| Accrued compensation | $ | 18,463 | $ | 27,428 | |||||||
| Insurance liabilities | 7,694 | 9,108 | |||||||||
| Accrued taxes, other than income taxes | 7,307 | 3,424 | |||||||||
| Accrued interest | 2,202 | 2,387 | |||||||||
| Accrued commissions | 1,416 | 1,481 | |||||||||
| Other | 7,422 | 5,012 | |||||||||
| $ | 44,504 | $ | 48,840 | ||||||||
5. Business Acquisitions
GEODynamics Acquisition
On January 12, 2018, the Company acquired GEODynamics for a purchase price consisting of (i) $295.4 million in cash (net of cash acquired), which was funded through borrowings under the Company's Revolving Credit Facility (as defined in Note 7, "Long-term Debt,"), (ii) approximately 8.66 million shares of the Company's common stock (having a market value of $294.9 million as of the closing date of the GEODynamics Acquisition) and (iii) an unsecured $25 million promissory note that bears interest at 2.5% per annum. Under the terms of agreements with the seller in the GEODynamics Acquisition (the "Seller"), the Company believes it is entitled to indemnification in respect of certain matters occurring prior to the GEODynamics Acquisition and payments due under the promissory note are subject to set-off, in part or in full, in respect of such indemnified matters. As a result of certain indemnity claims pending against the Seller, the Company has reduced the carrying amount of such note in the consolidated balance sheet to $17.1 million as of December 31, 2020, which is its current best estimate of what is owed after set-off for indemnification matters. See Note 14, "Commitments and Contingencies."
GEODynamics' results of operations (reported as the Downhole Technologies segment) have been included in the Company's consolidated financial statements subsequent to the closing of the GEODynamics Acquisition on January 12, 2018.
Falcon Acquisition
On February 28, 2018, the Company acquired Falcon, a full-service provider of flowback and well testing services for the separation and recovery of fluids, solid debris and proppant used during hydraulic fracturing operations. The purchase price was $84.2 million (net of cash acquired). Under the terms of the purchase agreement, the Company is entitled to indemnification in respect of certain matters occurring prior to the acquisition. Falcon's results of operations have been included in the Company's consolidated financial statements and have been reported within the Completion Services business subsequent to the closing of the acquisition on February 28, 2018.
During the year ended December 31, 2018, the Company expensed $3.6 million in transaction-related costs incurred in connection with the acquisitions of GEODynamics and Falcon, which are included within selling, general and administrative expense and within other operating income, net.
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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
| 2017 | 2016 | 2015 | |||||||||
| Revolving credit facility borrowings | $ | 206,015 | $ | 211,878 | $ | 379,467 | |||||
| Revolving credit facility repayments | (248,199 | ) | (292,552 | ) | (397,292 | ) | |||||
| Revolving credit facility repayments, net | $ | (42,184 | ) | $ | (80,674 | ) | $ | (17,825 | ) | ||
| 2017 | 2016 | 2015 | |||||||||
| Numerators: | |||||||||||
| Net income (loss) from continuing operations | $ | (84,850 | ) | $ | (46,386 | ) | $ | 28,371 | |||
| Less: Income attributable to unvested restricted stock awards | — | — | (592 | ) | |||||||
Numerator for basic net income (loss) per share from continuing operations | (84,850 | ) | (46,386 | ) | 27,779 | ||||||
| Net income (loss) from discontinued operations, net of tax | — | (4 | ) | 226 | |||||||
| Less: Income attributable to unvested restricted stock awards | — | — | (5 | ) | |||||||
Numerator for basic net income (loss) per share attributable to Oil States | (84,850 | ) | (46,390 | ) | 28,000 | ||||||
| Effect of dilutive securities: | |||||||||||
| Unvested restricted stock awards | — | — | 1 | ||||||||
Numerator for diluted net income (loss) per share attributable to Oil States | $ | (84,850 | ) | $ | (46,390 | ) | $ | 28,001 | |||
| Denominators: | |||||||||||
| Weighted average number of common shares outstanding | 51,253 | 51,307 | 51,341 | ||||||||
| Less: Weighted average number of unvested restricted stock awards outstanding | (1,114 | ) | (1,133 | ) | (1,072 | ) | |||||
Denominator for basic net income (loss) per share attributable to Oil States | 50,139 | 50,174 | 50,269 | ||||||||
| Effect of dilutive securities: | |||||||||||
| Unvested restricted stock awards | — | — | 9 | ||||||||
| Assumed exercise of stock options | — | — | 57 | ||||||||
| — | — | 66 | |||||||||
Denominator for diluted net income (loss) per share attributable to Oil States | 50,139 | 50,174 | 50,335 | ||||||||
Basic net income (loss) per share attributable to Oil States from: | |||||||||||
| Continuing operations | $ | (1.69 | ) | $ | (0.92 | ) | $ | 0.55 | |||
| Discontinued operations | — | — | 0.01 | ||||||||
| Net income (loss) | $ | (1.69 | ) | $ | (0.92 | ) | $ | 0.56 | |||
Diluted net income (loss) per share attributable to Oil States from: | |||||||||||
| Continuing operations | $ | (1.69 | ) | $ | (0.92 | ) | $ | 0.55 | |||
| Discontinued operations | — | — | 0.01 | ||||||||
| Net income (loss) | $ | (1.69 | ) | $ | (0.92 | ) | $ | 0.56 | |||
Changes in the carrying amount of goodwill for the years ended December 31, 20172020 and 20162019 are as follows (in thousands):
| Well Site Services | Downhole Technologies | Offshore / Manufactured Products | Total | ||||||||||||||||||||||||||||||||
| Completion Services | Drilling Services | Subtotal | |||||||||||||||||||||||||||||||||
| Balance as of December 31, 2018 | |||||||||||||||||||||||||||||||||||
| Goodwill | $ | 221,582 | $ | 22,767 | $ | 244,349 | $ | 357,502 | $ | 162,462 | $ | 764,313 | |||||||||||||||||||||||
| Accumulated impairment losses | (94,528) | (22,767) | (117,295) | 0 | 0 | (117,295) | |||||||||||||||||||||||||||||
| 127,054 | 0 | 127,054 | 357,502 | 162,462 | 647,018 | ||||||||||||||||||||||||||||||
| Goodwill impairment (December 2019) | 0 | 0 | 0 | (165,000) | 0 | (165,000) | |||||||||||||||||||||||||||||
| Foreign currency translation | 0 | 0 | 0 | 0 | 288 | 288 | |||||||||||||||||||||||||||||
| Balance as of December 31, 2019 | $ | 127,054 | $ | 0 | $ | 127,054 | $ | 192,502 | $ | 162,750 | $ | 482,306 | |||||||||||||||||||||||
| Balance as of December 31, 2019 | |||||||||||||||||||||||||||||||||||
| Goodwill | $ | 221,582 | $ | 22,767 | $ | 244,349 | $ | 357,502 | $ | 162,750 | $ | 764,601 | |||||||||||||||||||||||
| Accumulated impairment losses | (94,528) | (22,767) | (117,295) | (165,000) | 0 | (282,295) | |||||||||||||||||||||||||||||
| 127,054 | 0 | 127,054 | 192,502 | 162,750 | 482,306 | ||||||||||||||||||||||||||||||
| Goodwill impairments (March 2020) | (127,054) | 0 | (127,054) | (192,502) | (86,500) | (406,056) | |||||||||||||||||||||||||||||
| Foreign currency translation | 0 | 0 | 0 | 0 | 239 | 239 | |||||||||||||||||||||||||||||
| Balance as of December 31, 2020 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 76,489 | $ | 76,489 | |||||||||||||||||||||||
| Balance as of December 31, 2020 | |||||||||||||||||||||||||||||||||||
| Goodwill | $ | 221,582 | $ | 22,767 | $ | 244,349 | $ | 357,502 | $ | 162,989 | $ | 764,840 | |||||||||||||||||||||||
| Accumulated impairment losses | (221,582) | (22,767) | (244,349) | (357,502) | (86,500) | (688,351) | |||||||||||||||||||||||||||||
| $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 76,489 | $ | 76,489 | ||||||||||||||||||||||||
As further discussed in Note 2, "Significant Accounting Policies," goodwill is allocated to each reporting unit based on acquisitions made by the Company and is assessed for impairment annually and when an event occurs or circumstances change that indicate the carrying amounts may not be recoverable.
December 2019 Impairment
The Company had 3 reporting units – Completion Services, Downhole Technologies and Offshore/Manufactured Products – whose goodwill balances totaled approximately $647 million as of September 30, 2019.
During the fourth quarter of 2019, U.S. land-based completion activity declined significantly from levels experienced over the previous three quarters. Additionally, a number of other market indicators declined to levels not experienced in recent years. Consistent with most other oilfield service industry peers, the Company's stock price declined and its market capitalization was below the carrying value of stockholders' equity. Given these market conditions, the Company reduced its near-term demand outlook for its short-cycle products and services in the U.S. shale play regions. This refined outlook was incorporated in the December 1, 2019 annual impairment assessment.
Management utilizes, depending on circumstances, a combination of valuation methodologies including a market approach and an income approach, as well as guideline public company comparables. The valuation techniques used in the December 1, 2019 assessment were consistent with those used during previous testing, except for the Downhole Technologies reporting unit where the income approach was used to estimate its fair value – with the market approach used only to validate the results in 2019. The fair value of the Company's reporting units were determined using significant unobservable inputs (a Level 3 fair value measurement).
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| Well Site Services | Offshore / Manufactured Products | Total | |||||||||||||||||
Completion Services | Drilling Services | Subtotal | |||||||||||||||||
| Balance as of December 31, 2015 | |||||||||||||||||||
| Goodwill | $ | 198,903 | $ | 22,767 | $ | 221,670 | $ | 159,412 | $ | 381,082 | |||||||||
| Accumulated impairment losses | (94,528 | ) | (22,767 | ) | (117,295 | ) | — | (117,295 | ) | ||||||||||
| 104,375 | — | 104,375 | 159,412 | 263,787 | |||||||||||||||
| Foreign currency translation and other changes | 375 | — | 375 | (793 | ) | (418 | ) | ||||||||||||
| Balance as of December 31, 2016 | $ | 104,750 | $ | — | $ | 104,750 | $ | 158,619 | $ | 263,369 | |||||||||
| Balance as of December 31, 2016 | |||||||||||||||||||
| Goodwill | $ | 199,278 | $ | 22,767 | $ | 222,045 | $ | 158,619 | $ | 380,664 | |||||||||
| Accumulated impairment losses | (94,528 | ) | (22,767 | ) | (117,295 | ) | — | (117,295 | ) | ||||||||||
| 104,750 | — | 104,750 | 158,619 | 263,369 | |||||||||||||||
| Goodwill acquired | — | — | — | 3,724 | 3,724 | ||||||||||||||
| Foreign currency translation and other changes | 353 | — | 353 | 563 | 916 | ||||||||||||||
| Balance as of December 31, 2017 | $ | 105,103 | $ | — | $ | 105,103 | $ | 162,906 | $ | 268,009 | |||||||||
| Balance as of December 31, 2017 | |||||||||||||||||||
| Goodwill | $ | 199,631 | $ | 22,767 | $ | 222,398 | $ | 162,906 | $ | 385,304 | |||||||||
| Accumulated impairment losses | (94,528 | ) | (22,767 | ) | (117,295 | ) | — | (117,295 | ) | ||||||||||
| $ | 105,103 | $ | — | $ | 105,103 | $ | 162,906 | $ | 268,009 | ||||||||||
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The income approach estimates the fair value of each reporting unit by discounting the Company's current forecast of future cash flows by its estimate of the discount rate (or expected return) that a market participant would require. The market approach includes the use of comparative multiples to corroborate the discounted cash flow results. The market approach involves judgment in the selection of the appropriate peer group companies and valuation multiples.
Significant assumptions used in the income approach include, among others, the estimated future net annual cash flows and discount rates for each reporting unit. Management selected estimates used in the discounted cash flow projections using historical data as well as then-current and anticipated market conditions and estimated growth rates. These estimates were based upon assumptions that considered published industry trends and market forecasts of commodity prices, rig count, well count and offshore/onshore drilling and completion spending, and were believed to be reasonable at the time.
Based on this quantitative assessment, the Company concluded that the goodwill amount recorded in its Downhole Technologies reporting unit was partially impaired and recognized a non-cash goodwill impairment charge of $165.0 million in the fourth quarter of 2019.
The discount rates used to value the Company's reporting units as of December 1, 2019 ranged between 12.5% and 13.0%. Holding all other assumptions and inputs used in each of the respective discounted cash flow analysis constant, a 50 basis point increase in the discount rate assumption would have increased the goodwill impairment charge by approximately $28 million.
March 2020 Impairments
Given the significance of the March 2020 events described in Note 3, "Asset Impairments and Other Charges," the Company performed a quantitative assessment of goodwill for further impairment as of March 31, 2020. This interim assessment indicated that the fair value of each of the reporting units was less than their respective carrying amounts due to, among other factors, the significant decline in the Company's stock price and that of its peers and reduced growth rate expectations given weak energy market conditions resulting from the demand destruction caused by the global response to the COVID-19 pandemic. In addition, the estimated returns required by market participants increased materially in the Company's March 31, 2020 assessment from the assessment performed as of December 1, 2019, resulting in higher discount rates used in the discounted cash flow analysis.
The valuation techniques used in the March 31, 2020 assessment were consistent with those used during the December 1, 2019 assessment, except for the Completion Services reporting unit where the income approach was used to estimate its fair value – with the market approach used only to validate the results in 2020. The fair value of the Company's reporting units were determined using significant unobservable inputs (a Level 3 fair value measurement).
Significant assumptions and estimates used in the income approach include, among others, estimated future net annual cash flows and discount rates for each reporting unit, current and anticipated market conditions, estimated growth rates and historical data. These estimates relied upon significant management judgment, particularly given the uncertainties regarding the COVID-19 pandemic and its impact on activity levels and commodity prices as well as future global economic growth.
Based on this quantitative assessment as of March 31, 2020, the Company concluded that goodwill recorded in the Completion Services and Downhole Technologies businesses was fully impaired while goodwill recorded in the Offshore/Manufactured Products business was partially impaired. The Company therefore recognized non-cash goodwill impairment charges totaling $406.1 million in the first quarter of 2020, as presented in further detail in the table above.
The discount rates used to value the Company's reporting units as of March 31, 2020 ranged between 16.8% and 18.5%. Holding all other assumptions and inputs used in the discounted cash flow analysis constant, a 50 basis point increase in the discount rate assumption for the Offshore/Manufactured Products reporting unit would have increased the goodwill impairment charge by approximately $10 million.
December 2020 Assessment
As of December 1, 2020, the Company had only 1 reporting unit – Offshore/Manufactured Products – with a goodwill balance of $76 million. The Company performed its annual quantitative assessment of goodwill for impairment, which indicated that the fair value of the Offshore/Manufactured Products reporting unit was greater than its carrying amount and no additional provision for impairment was required. The fair value of the Offshore/Manufactured Products reporting unit was determined using significant unobservable inputs (a Level 3 fair value measurement).
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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The valuation techniques used in the December 1, 2020 assessment were consistent with those used during the March 31, 2020 assessment. The discount rate used to value the Offshore/Manufactured Products reporting unit as of December 1, 2020 was approximately 15%. The estimated returns required by market participants decreased in the Company's December 1, 2020 assessment from the assessment as of March 31, 2020, resulting in lower discount rate used in the discounted cash flow analysis. Holding all other assumptions and inputs used in the discounted cash flow analysis constant, a 100 basis point increase in the discount rate assumption for the Offshore/Manufactured Products reporting unit would not result in a goodwill impairment.
The March 2020 and December 2019 impairment charges did not impact the Company's liquidity position, debt covenants or cash flows.
Other Intangible Assets
The following table presents the total gross carrying amount of intangibles and the totalrelated accumulated amortization for major intangible asset classes as of December 31, 20172020 and 20162019 (in thousands):
| 2020 | 2019 | ||||||||||||||||||||||||||||||||||
| Other Intangible Assets | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||||||||||||
| Customer relationships | $ | 168,288 | $ | 55,380 | $ | 112,908 | $ | 168,278 | $ | 44,296 | $ | 123,982 | |||||||||||||||||||||||
| Patents/Technology/Know-how | 75,920 | 26,124 | 49,796 | 85,919 | 30,791 | 55,128 | |||||||||||||||||||||||||||||
| Noncompete agreements | 16,044 | 14,742 | 1,302 | 17,125 | 11,061 | 6,064 | |||||||||||||||||||||||||||||
| Tradenames and other | 53,708 | 11,965 | 41,743 | 53,708 | 8,791 | 44,917 | |||||||||||||||||||||||||||||
| Total other intangible assets | $ | 313,960 | $ | 108,211 | $ | 205,749 | $ | 325,030 | $ | 94,939 | $ | 230,091 | |||||||||||||||||||||||
| As of December 31, | |||||||||||||||
| 2017 | 2016 | ||||||||||||||
| Other Intangible Assets | Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | |||||||||||
| Customer relationships | $ | 44,557 | $ | 22,661 | $ | 44,557 | $ | 19,225 | |||||||
| Patents/Technology/Know-how | 35,762 | 15,844 | 30,167 | 12,482 | |||||||||||
| Noncompete agreements | 4,899 | 2,799 | 4,358 | 2,216 | |||||||||||
| Tradenames and other | 10,801 | 4,450 | 10,801 | 3,214 | |||||||||||
| Total other intangible assets | $ | 96,019 | $ | 45,754 | $ | 89,883 | $ | 37,137 | |||||||
Amortization expense was $24.9 million, $26.8 million and $26.3 million in the years ended December 31, 2020, 2019 and 2018, respectively. The weighted average remaining amortization period for all intangible assets, other than goodwill, was 7.812.4 years as of December 31, 20172020 and 8.212.9 years as of December 31, 2016. Total amortization2019. Amortization expense is expected to be $8.5 million in 2018, $8.0 million in 2019, $6.5 million in 2020, $6.4total $20.6 million in 2021, and $5.7$19.8 million in 2022. Amortization expense was $8.7 million, $8.2 million and $7.82022, $16.8 million in the years ended December 31, 2017, 20162023, $16.7 million in 2024 and 2015, respectively.
$16.6 million in 2025.
As of December 31, 20172020 and 2016,2019, no provisions for impairment of other intangible assets were required.
7.Long-term Debt
As of December 31, 2020 and 2019, long-term debt consisted of the following (in thousands):
| 2020 | 2019 | ||||||||||
Revolving credit facility(1) | $ | 18,408 | $ | 50,534 | |||||||
1.50% convertible senior notes due February 2023(2) | 143,242 | 167,594 | |||||||||
| Promissory note | 17,095 | 25,000 | |||||||||
| Other debt and finance lease obligations | 4,792 | 5,041 | |||||||||
| Total debt | 183,537 | 248,169 | |||||||||
| Less: Current portion | (17,778) | (25,617) | |||||||||
| Total long-term debt | $ | 165,759 | $ | 222,552 | |||||||
____________________
(1)Presented net of $0.6 million and $1.4 million of unamortized debt issuance costs as of December 31, 2020 and 2019, respectively.
(2)The outstanding principal amount of the 1.50% convertible senior notes was $157.4 million and $192.3 million as of December 31, 2020 and 2019, respectively.
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| 2017 | 2016 | ||||||
Revolving Credit Facility(1) | $ | — | $ | 40,230 | |||
| Other debt and capital lease obligations | 5,281 | 5,696 | |||||
| Total debt | 5,281 | 45,926 | |||||
| Less: Current portion | (411 | ) | (538 | ) | |||
| Total long-term debt and capitalized leases | $ | 4,870 | $ | 45,388 | |||
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Scheduled maturities of total debt as of December 31, 2017,2020, are as follows (in thousands):
| 2021 | $ | 17,778 | |||
| 2022 | 19,126 | ||||
| 2023 | 143,744 | ||||
| 2024 | 485 | ||||
| 2025 | 512 | ||||
| Thereafter | 1,892 | ||||
| $ | 183,537 | ||||
| 2018 | $ | 411 | |
| 2019 | 429 | ||
| 2020 | 433 | ||
| 2021 | 374 | ||
| 2022 | 398 | ||
| Thereafter | 3,236 | ||
| $ | 5,281 | ||
Asset-based Revolving Credit Facility
The Asset-based Revolving Credit Facility were reduced from $600 million to $425 million and the ability to draw on an incremental accordion facility was removed. As of December 31, 2017, we had no borrowings outstanding under the Revolving Credit Facility and $21.2 million in outstanding letters of credit, leaving $159.3 million available to be drawn under the Revolving Credit Facility. The total amount available to be drawn under our Revolving Credit Facility was less than the lender commitments as of December 31, 2017, due to the maximum leverage ratio covenant in our Revolving Credit Facility which serves to limit borrowings.
any outstanding indebtedness with a principal amount in excess of $17.5 million (excluding the unsecured promissory note to the Seller).
The followingAsset-based Credit Agreement provides funding based on a summaryborrowing base calculation that includes eligible U.S. customer accounts receivable and inventory and provides for a $50.0 million sub-limit for the issuance of the more significant provisionsletters of our Revolving Credit Facility during 2017.
credit. Borrowings under the Asset-based Credit Agreement are secured by a pledge of substantially all of ourthe Company's domestic assets and the assetsstock of our domesticcertain foreign subsidiaries. Our obligations
Borrowings under the Asset-based Credit Agreement are guaranteed by our significant domestic subsidiaries.bear interest at a rate equal to the London Interbank Offered Rate ("LIBOR") plus a margin of 2.75% to 3.25% and subject to a LIBOR floor rate of 0.50%, or at a base rate plus a margin of 1.75% to 2.25%, in each case based on average borrowing availability. The RevolvingCompany must also quarterly pay a commitment fee of 0.375% to 0.50% per annum, based on unused commitments under the Asset-based Credit Facility also contains negative covenants that limitAgreement.
The Asset-based Credit Agreement places restrictions on the Company's ability to borrowincur additional funds, encumberindebtedness, grant liens on assets, pay dividends sellor make distributions on equity interests, dispose of assets, make investments, repay other indebtedness (including the Notes), engage in mergers, and enter into other significant transactions.
RevolvingCredit Facility
Until its termination on February 10, 2021, the banks to, among other things, accelerate the maturity of theCompany's former senior secured revolving credit facility, and cause it to become immediately due and payable in full.
On June 17, 2020, the Company entered into an omnibus amendment to the Credit Agreement (as amended, the "Amended Credit Agreement"). Lender commitments under the Amended Credit Agreement were reduced to $200.0 million in exchange for the suspension of the financial covenants described below from July 1, 2020 through March 30, 2018 and contemporaneously issued $2002021. During the financial covenant suspension period, borrowing availability under the Revolving Credit Facility (as amended, the "Amended Revolving Credit Facility") was limited to 85% of the lesser of (i) $200.0 million principal amount of its 1.50% convertible senior notes due 2023.
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| Issued | Treasury Stock | Outstanding | |||||||
| Shares of common stock - December 31, 2016 | 62,295,870 | 10,921,509 | 51,374,361 | ||||||
| Restricted stock awards, net of forfeitures | 425,828 | — | 425,828 | ||||||
| Shares withheld for taxes on vesting of restricted stock awards | — | 149,002 | (149,002 | ) | |||||
| Purchase of treasury stock | — | 561,765 | (561,765 | ) | |||||
| Shares of common stock - December 31, 2017 | 62,721,698 | 11,632,276 | 51,089,422 | ||||||
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
sum of 70% of the consolidated net book value of eligible receivables and 20% of the consolidated net book value of eligible inventory (the "Borrowing Base").
As of December 31, 2020, the Company had $19.0 million of borrowings outstanding under the Credit Agreement and $29.2 million of outstanding letters of credit. The total amount available to be drawn as of January 1, 2021 was $69.3 million, calculated based on 85% of the Borrowing Base less outstanding borrowings and letters of credit.
Prior to June 17, 2020, amounts outstanding under the Revolving Credit Facility accrued interest at LIBOR plus a margin of 1.75% to 3.00%, or at a base rate plus a margin of 0.75% to 2.00%, in each case based on a ratio of the Company's total net funded debt to consolidated EBITDA (as defined in the Credit Agreement). The Company was also required to pay a quarterly commitment fee of 0.25% to 0.50%, based on the Company's ratio of total net funded debt to consolidated EBITDA, on the unused commitments under the Credit Agreement. Effective June 17, 2020, borrowings outstanding under the Amended Revolving Credit Facility accrued interest at LIBOR plus a margin of 2.50% to 3.75%, or at a base rate plus a margin of 1.50% to 2.75%, in each case based on a ratio of the Company's total net funded debt to consolidated EBITDA. The Company also paid a quarterly commitment fee of 0.50%, based on unused commitments under the Amended Credit Agreement. The Company expensed $0.5 million of previously deferred financing costs in 2020, which is included in interest expense, net, as a result of the amendment of the Credit Agreement.
As of December 31, 2020, the Company was in compliance with its debt covenants under the Amended Credit Agreement.
1.50% Convertible Senior Notes due February 2023
On January 30, 2018, the Company issued $200 million aggregate principal amount of the Notes pursuant to an indenture, dated as of January 30, 2018 (the "Indenture"), between the Company and Wells Fargo Bank, National Association, as trustee. Net proceeds from the Notes, after deducting issuance costs, were approximately $194 million, which was used by the Company to repay a portion of the outstanding borrowings under the Revolving Credit Facility during the first quarter of 2018.
During 2020, the Company purchased $34.9 million principal amount of the outstanding Notes for $20.1 million in cash. The net carrying amount of the liability component of these Notes totaled $30.8 million. In connection with extinguishment of these Notes, the Company recognized non-cash gains totaling $10.7 million during 2020, which is included within other income, net. During 2019, the Company repurchased $7.8 million principal amount of the outstanding Notes for $6.7 million in cash, which approximated the net carrying amount of the related liability.
The initial carrying amount of the Notes recorded in the Company's consolidated balance sheet was less than the $200 million in principal amount of the Notes, in accordance with then-applicable accounting principles, reflective of the estimated fair value of a similar debt instrument that does not have a conversion feature. The Company recorded the value of the conversion feature as a debt discount, to be amortized as interest expense over the term of the Notes, with a similar amount allocated to additional paid-in capital. As a result of this amortization, the interest expense the Company recognized related to the Notes for accounting purposes was based on an effective interest rate of approximately 6%, which is greater than the cash interest payments the Company is obligated to pay on the Notes. Interest expense associated with the Notes for the years ended December 31, 2020, 2019 and 2018 was $9.3 million, $10.2 million and $9.0 million, respectively, while the related contractual cash interest expense totaled $2.6 million, $3.0 million and $2.8 million, respectively.
The following table presents the carrying amounts of the Notes in the Company's consolidated balance sheets (in thousands):
| December 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Principal amount of the liability component | $ | 157,369 | $ | 192,250 | |||||||
| Less: Unamortized discount | 12,308 | 21,544 | |||||||||
| Less: Unamortized issuance costs | 1,819 | 3,112 | |||||||||
| Net carrying amount of the liability component | $ | 143,242 | $ | 167,594 | |||||||
| Net carrying amount of the equity component | $ | 25,683 | $ | 25,683 | |||||||
See Note 2, "Summary of Significant Accounting Policies," for discussion of the recent revision to accounting guidance for convertible instruments, which changed the Company's method of accounting for the Notes upon its adoption of the standard effective January 1, 2021.
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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The Notes bear interest at a rate of 1.50% per year until maturity. Interest is payable semi-annually in arrears on February 15 and August 15 of each year. In addition, additional interest and special interest may accrue on the Notes under certain circumstances as described in the Indenture. The Notes will mature on February 15, 2023, unless earlier repurchased, redeemed or converted. The initial conversion rate is 22.2748 shares of the Company's common stock per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $44.89 per share of common stock). The conversion rate, and thus the conversion price, may be adjusted under certain circumstances as described in the Indenture. The Company's intent is to repay the principal amount of the Notes in cash and settle the conversion feature in shares of the Company's common stock.
Noteholders may convert their Notes, at their option only in the following circumstances: (1) if the last reported sale price per share of the Company's common stock exceeds 130% of the conversion price for each of at least 20 trading days during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter; (2) during the 5 consecutive business days immediately after any 5 consecutive trading day period (such 5 consecutive trading day period, the "measurement period") in which the trading price per $1,000 principal amount of the Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of the Company's common stock on such trading day and the conversion rate on such trading day; (3) upon the occurrence of certain corporate events or distributions on the Company's common stock, as described in the Indenture; or (4) if the Company calls the Notes for redemption, or at any time from, and including, November 15, 2022 until the close of business on the second scheduled trading day immediately before the maturity date. The Company will settle conversions by paying or delivering, as applicable, cash, shares of common stock or a combination of cash and shares of common stock, at the Company's election, based on the applicable conversion rate(s). If the Company elects to deliver cash or a combination of cash and shares of common stock, then the consideration due upon conversion will be based on a defined observation period.
The Notes will be redeemable, in whole or in part, at the Company's option at any time, and from time to time, on or after February 15, 2021, at a cash redemption price equal to the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, but only if the last reported sale price per share of common stock exceeds 130% of the conversion price on each of at least 20 trading days during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice.
If specified change in control events involving the Company as defined in the Indenture occur, then noteholders may require the Company to repurchase their Notes at a cash repurchase price equal to the principal amount of the Notes to be repurchased, plus accrued and unpaid interest. Additionally, the Indenture contains certain events of default, including certain defaults by the Company with respect to other indebtedness of at least $40.0 million. As of December 31, 2017 and 2016,2020, none of the conditions allowing holders of the Notes to convert, or requiring the Company to repurchase the Notes, had 25,000,000 shares of preferred stock, $0.01 par value, authorized,been met.
Promissory Note
In connection with no sharesthe GEODynamics Acquisition, the Company issued or outstanding.
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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Operating Lease Assets
The Company sponsors defined contribution plans. Participationfollowing table presents the carry value of operating lease assets in these plans is availablethe Company's consolidated sheets (in thousands):
| 2020 | 2019 | ||||||||||
| Operating lease assets, net | $ | 33,140 | $ | 43,616 | |||||||
Operating lease asset additions are offset by a corresponding increase to substantially all employees.operating lease liabilities and do not impact the consolidated statement of cash flows at commencement. The Company recognized expensenon-cash effect of $6.8 million, $6.8operating lease additions in 2020 and 2019 totaled $1.9 million and $8.0$53.7 million respectively, related to matching contributions under its various defined contribution plans during(inclusive of $47.7 million recognized in 2019 upon adoption of the revised lease accounting guidance), respectively.
Operating lease expense was $16.6 million, $17.9 million and $14.9 million for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively. The following table provides details regarding the components of operating lease expense based on the initial term of underlying agreements for the years ended December 31, 2020 and 2019 (in thousands):
| 2020 | 2019 | ||||||||||
| Operating lease expense components: | |||||||||||
| Leases with initial term of greater than 12 months | $ | 12,564 | $ | 11,972 | |||||||
| Leases with initial term of 12 months or less | 4,024 | 5,906 | |||||||||
| Total operating lease expense | $ | 16,588 | $ | 17,878 | |||||||
During 2020, the Downhole Technologies segment made decisions to close certain lease facilities in connection with restructuring activities and recognized a non-cash impairment charge of $2.0 million to reduce the carrying value of the related operating lease assets to their estimated realizable value.
The following table provides the scheduled maturities of operating lease liabilities as of December 31, 2020 (in thousands):
| 2021 | $ | 9,293 | |||
| 2022 | 6,534 | ||||
| 2023 | 5,204 | ||||
| 2024 | 4,562 | ||||
| 2025 | 4,461 | ||||
| Thereafter | 13,787 | ||||
| Total lease payments | 43,841 | ||||
| Less: Imputed interest | (7,055) | ||||
| Present value of operating lease liabilities | 36,786 | ||||
| Less: Current portion | (7,620) | ||||
| Total long-term operating lease liabilities | $ | 29,166 | |||
| Weighted-average remaining lease term (years) | 6.8 | ||||
| Weighted-average discount rate | 5.0 | % | |||
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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
9.Income Taxes
Consolidated income (loss) from continuing operationsloss before income taxes for the years ended December 31, 2017, 20162020, 2019 and 20152018 consisted of the following (in thousands):
| 2017 | 2016 | 2015 | 2020 | 2019 | 2018 | |||||||||||||||||||||||
| United States | $ | (77,138 | ) | $ | (113,512 | ) | $ | (21,598 | ) | United States | $ | (534,452) | $ | (254,291) | $ | (29,424) | ||||||||||||
| Foreign | (274 | ) | 40,187 | 72,166 | Foreign | 123 | 13,564 | 7,692 | ||||||||||||||||||||
| Total | $ | (77,412 | ) | $ | (73,325 | ) | $ | 50,568 | Total | $ | (534,329) | $ | (240,727) | $ | (21,732) | |||||||||||||
The components2020 and 2019 U.S. losses before income taxes included non-cash goodwill impairment charges of $406.1 million and $165.0 million, respectively, and non-cash fixed asset and lease impairment charges of $12.4 million and $33.7 million, respectively. Regarding the goodwill impairment charges recognized in 2020 and 2019, approximately $313.1 million and $165.0 million, respectively, were not deductible for income tax provision (benefit) with respect topurposes.
Components of income (loss) from continuing operationstax benefit for the years ended December 31, 2017, 20162020, 2019 and 20152018 consisted of the following (in thousands):
| 2017 | 2016 | 2015 | |||||||||
| Current: | |||||||||||
| Federal | $ | (11,288 | ) | $ | (534 | ) | $ | 7,221 | |||
| State | 1,079 | 1,053 | 1,868 | ||||||||
| Foreign | 1,305 | 10,148 | 16,281 | ||||||||
| (8,904 | ) | 10,667 | 25,370 | ||||||||
| Deferred: | |||||||||||
| Federal | 15,888 | (34,816 | ) | (5,656 | ) | ||||||
| State | (729 | ) | (2,807 | ) | (496 | ) | |||||
| Foreign | 1,183 | 17 | 2,979 | ||||||||
| 16,342 | (37,606 | ) | (3,173 | ) | |||||||
| Total income tax provision (benefit) | $ | 7,438 | $ | (26,939 | ) | $ | 22,197 | ||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Current: | |||||||||||||||||
| United States | $ | (44,399) | $ | 300 | $ | (5,549) | |||||||||||
| U.S. state | 235 | 292 | 1,534 | ||||||||||||||
| Foreign | 2,622 | 5,958 | 4,877 | ||||||||||||||
| (41,542) | 6,550 | 862 | |||||||||||||||
| Deferred: | |||||||||||||||||
| United States | (20,913) | (13,972) | (2,592) | ||||||||||||||
| U.S. state | (1,798) | (473) | (95) | ||||||||||||||
| Foreign | (1,693) | (1,024) | (802) | ||||||||||||||
| (24,404) | (15,469) | (3,489) | |||||||||||||||
| Total income tax benefit | $ | (65,946) | $ | (8,919) | $ | (2,627) | |||||||||||
A reconciliation of the U.S. statutory tax provision (benefit)benefit rate to the effective tax provision (benefit)benefit rate for the years ended December 31, 2017, 20162020, 2019 and 20152018 is as follows:
| 2020 | 2019 | 2018 | |||||||||||||||
| U.S. statutory tax benefit rate | (21.0) | % | (21.0) | % | (21.0) | % | |||||||||||
| Impairments of goodwill | 12.3 | 14.4 | 0 | ||||||||||||||
| Effect of CARES Act | (3.1) | 0 | 0 | ||||||||||||||
| Effect of Tax Reform Legislation | 0 | 0 | (26.1) | ||||||||||||||
| Valuation allowance against tax assets | 0.3 | 0.8 | 14.0 | ||||||||||||||
| Non-deductible compensation | 0.1 | 0.3 | 5.7 | ||||||||||||||
| Other non-deductible expenses | 0.1 | 0.2 | 12.6 | ||||||||||||||
| Effect of foreign income taxed at different rates | 0.1 | 0.7 | 0.5 | ||||||||||||||
| State income taxes, net of federal benefits | (1.1) | (0.4) | (0.3) | ||||||||||||||
| Other, net | 0 | 1.3 | 2.5 | ||||||||||||||
| Effective tax benefit rate | (12.3) | % | (3.7) | % | (12.1) | % | |||||||||||
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| 2017 | 2016 | 2015 | ||||||
| U.S. statutory tax provision (benefit) rate | (35.0 | )% | (35.0 | )% | 35.0 | % | ||
| Effect of Tax Reform Legislation | 36.4 | — | — | |||||
| Effect of foreign income taxed at different rates | (0.3 | ) | (4.3 | ) | (11.1 | ) | ||
| Valuation allowance against tax assets | 4.0 | 3.1 | 8.1 | |||||
| Non-deductible compensation | 1.0 | 1.1 | 7.6 | |||||
| Other non-deductible expenses | 2.7 | 2.0 | 4.5 | |||||
| Domestic manufacturing deduction | — | — | (2.6 | ) | ||||
| State income taxes, net of federal benefits | (1.4 | ) | (2.1 | ) | 1.3 | |||
| Other, net | 2.2 | (1.5 | ) | 1.1 | ||||
| Effective tax provision (benefit) rate | 9.6 | % | (36.7 | )% | 43.9 | % | ||
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The significant items giving rise to the deferred tax assets and liabilities as of December 31, 20172020 and 20162019 are as follows (in thousands):
| 2020 | 2019 | ||||||||||
| Deferred tax assets: | |||||||||||
| Foreign tax credit carryforwards | $ | 20,870 | $ | 20,360 | |||||||
| Net operating loss carryforwards | 37,838 | 54,772 | |||||||||
| Employee benefits | 7,353 | 10,778 | |||||||||
| Inventory | 9,696 | 7,725 | |||||||||
| Operating lease liabilities | 6,697 | 8,171 | |||||||||
| Other | 7,649 | 4,562 | |||||||||
| Gross deferred tax asset | 90,103 | 106,368 | |||||||||
| Valuation allowance | (35,497) | (35,828) | |||||||||
| Net deferred tax asset | 54,606 | 70,540 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Tax over book depreciation | (27,613) | (36,387) | |||||||||
| Intangible assets | (30,392) | (56,867) | |||||||||
| Convertible senior notes discount | (2,790) | (4,964) | |||||||||
| Operating lease assets | (5,884) | (8,047) | |||||||||
| Other | (910) | (1,669) | |||||||||
| Deferred tax liability | (67,589) | (107,934) | |||||||||
| Net deferred tax liability | $ | (12,983) | $ | (37,394) | |||||||
| 2017 | 2016 | ||||||
| Deferred tax assets: | |||||||
| Foreign tax credit carryforwards | $ | 27,009 | $ | 32,548 | |||
| Net operating loss carryforwards | 12,692 | 21,871 | |||||
| Employee benefits | 12,013 | 18,060 | |||||
| Inventory reserves | 5,546 | 7,152 | |||||
| Other reserves | 1,653 | 2,939 | |||||
| Allowance for doubtful accounts | 1,332 | 2,445 | |||||
| Other | 299 | 668 | |||||
| Gross deferred tax asset | 60,544 | 85,683 | |||||
| Valuation allowance | (37,904 | ) | (7,033 | ) | |||
| Net deferred tax asset | 22,640 | 78,650 | |||||
| Deferred tax liabilities: | |||||||
| Tax over book depreciation | (31,535 | ) | (62,403 | ) | |||
| Intangible assets | (14,153 | ) | (19,878 | ) | |||
| Accrued liabilities | (856 | ) | (1,016 | ) | |||
| Deferred revenue | (295 | ) | (268 | ) | |||
| Deferred tax liability | (46,839 | ) | (83,565 | ) | |||
| Net deferred tax liability | $ | (24,199 | ) | $ | (4,915 | ) | |
| 2020 | 2019 | ||||||||||
| Balance sheet classification: | |||||||||||
| Other non-current assets | $ | 1,280 | $ | 685 | |||||||
| Deferred tax liability | (14,263) | (38,079) | |||||||||
| Net deferred tax liability | $ | (12,983) | $ | (37,394) | |||||||
| 2017 | 2016 | ||||||
| Balance sheet classification: | |||||||
| Other non-current assets | $ | 519 | $ | 121 | |||
| Deferred tax liability | (24,718 | ) | (5,036 | ) | |||
| Net deferred tax liability | $ | (24,199 | ) | $ | (4,915 | ) | |
On March 27, 2020, the CARES Act was signed into law. In accordance with the rules and provisions under the CARES Act, the Company has filed carryback claims regarding U.S. net operating losses generated in 2018 and 2019. Prior to the enactment of the CARES Act, such tax losses could only be carried forward. The Company recognized a discrete tax benefit of $16.4 million and received cash of $41.3 million related to these CARES Act carryback claims in 2020.
On December 22, 2017, the United States enacted legislation commonly known as the Tax Cuts and Jobs Act (“Tax Reform Legislation”)Legislation which resulted in significant changes to U.S. tax and related laws, including certain key U.S. federal income tax provisions applicable to multinational companies such as the Company. These changes include,included, among others, the implementation of a territorial tax system with a one-time mandatory tax on undistributed foreign earnings of subsidiaries and a reduction in the U.S. corporate income tax rate to 21% from 35% beginning in 2018.
benefit of $13.2 million related the remeasurement of the Company’s U.S. net deferred tax liabilities based on the new 21% U.S. corporate income tax rate. The Company does not expect to incur a material cash tax payable with respect to the Transition Tax.
$5.8 million.
The Company had no$74.6 million of U.S. federal NOL carryforwards as of December 31, 2017.2020, which can be carried forward indefinitely. Approximately $37.6 million of the U.S. federal NOL carryforwards are attributable to the acquired GEODynamics operations and are subject to certain limitation provisions. The Company’sCompany's U.S. state NOL carryforwards as of December 31, 20172020 totaled $75.2 million.$171.8 million, of which $13.9 million are attributable to the acquired GEODynamics operations and are subject to certain limitation provisions. As of December 31, 2017,2020, the Company had NOL carryforwards related to certain of its international operations totaling $26.7$35.0 million, of which $14.9$14.1 million can be carried forward indefinitely. As of December 31, 20172020 and 2016,2019, the Company had recorded valuation allowances of $10.9$18.4 million and $7.0$15.5 million, respectively, with respect to stateforeign and foreignU.S. state NOL carryforwards.
As of December 31, 2017,2020, the Company’sCompany's foreign tax credit carryforwards totaled $27.0$20.9 million. These foreign tax credits will expire in varying amounts from 20212022 to 2026.2029. As discussed above, as a result of the enactment of Tax Reform Legislation,December 31, 2020 and 2019, the Company provided a fullhad recorded valuation allowance on these foreign tax credits due to uncertaintiesallowances of $17.1 million and $20.4 million, respectively, with respect to its ability to utilize such credits in future periods.foreign tax credit carryforwards.
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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
(continued)
The Company files tax returns in the jurisdictions in which they are required. All of theseThese returns are subject to examination or audit and possible adjustment as a result of assessments by taxing authorities. The Company believes that it has recorded sufficient tax liabilities and does not expect that the resolution of any examination or audit of its tax returns will have a material adverse effect on its consolidated operating results, financial condition or liquidity.
Tax years subsequent to 2013 remain open to U.S. federal tax audit. Our foreign subsidiaries'Foreign subsidiary federal tax returns subsequent to 20112012 are subject to audit by the various foreign tax authorities.
The total amount of unrecognized tax benefits as of December 31, 20172020 and 20162019 was nil.NaN. The Company accrues interest and penalties related to unrecognized tax benefits as a component of the Company's provision for income taxes. As of December 31, 20172020 and 2016,2019, the Company had no0 accrued interest expense or penalties.
10.Stockholders' Equity
Common and Preferred Stock
The following table provides details with respect to changes in the number of shares of common stock, $0.01 par value, issued, held in treasury and outstanding during 2020 and 2019 (in thousands).
| Issued | Treasury Stock | Outstanding | ||||||||||||||||||
| Shares of common stock - December 31, 2018 | 71,754 | 11,784 | 59,970 | |||||||||||||||||
| Restricted stock awards, net of forfeitures | 792 | — | 792 | |||||||||||||||||
| Shares withheld for taxes on vesting of restricted stock awards | — | 210 | (210) | |||||||||||||||||
| Purchase of treasury stock | — | 51 | (51) | |||||||||||||||||
| Shares of common stock - December 31, 2019 | 72,546 | 12,045 | 60,501 | |||||||||||||||||
| Restricted stock awards, net of forfeitures | 743 | — | 743 | |||||||||||||||||
| Shares withheld for taxes on vesting of restricted stock awards | — | 239 | (239) | |||||||||||||||||
| Shares of common stock - December 31, 2020 | 73,289 | 12,284 | 61,005 | |||||||||||||||||
As of December 31, 2020 and 2019, the Company had 25 million shares of preferred stock, $0.01 par value, authorized, with 0 shares issued or outstanding.
The Company maintained a share repurchase program, which was allowed to expire on July 29, 2020. During 2020, there were 0 repurchases of common stock under the program. During 2019, the Company repurchased 51 thousand shares of common stock at a total cost of $0.8 million.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss increased from $67.7 million at December 31, 2019 to $71.4 million at December 31, 2020, due primarily to changes in currency exchange rates. Accumulated other comprehensive loss is primarily related to fluctuations in currency exchange rates against the U.S. dollar as used to translate certain international operations. For 2020 and 2019, currency translation adjustments recognized as a component of other comprehensive loss were primarily attributable to the United Kingdom and Brazil. During the year ended December 31, 2020, the exchange rate of the British pound strengthened by 3% compared to the U.S. dollar while the Brazilian real weakened by 23% compared to the U.S. dollar, contributing to other comprehensive loss of $3.6 million. During the year ended December 31, 2019, the exchange rate of the British pound strengthened by 4% compared to the U.S. dollar while the Brazilian real weakened by 4% compared to the U.S. dollar during the same period, contributing to other comprehensive loss of $3.7 million.
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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
11.Net Loss Per Share
The Company leasestable below provides a portionreconciliation of its equipment, office space, computer equipmentthe numerators and vehicles under leases which expire at various dates. Minimum future operating lease obligations asdenominators of December 31, 2017, were as follows (in thousands):
| Operating Leases | |||
| 2018 | $ | 8,842 | |
| 2019 | 5,836 | ||
| 2020 | 3,301 | ||
| 2021 | 2,073 | ||
| 2022 | 1,321 | ||
| Thereafter | 4,394 | ||
| $ | 25,767 | ||
| 2020 | 2019 | 2018 | |||||||||||||||
| Numerators: | |||||||||||||||||
| Net loss | $ | (468,383) | $ | (231,808) | $ | (19,105) | |||||||||||
| Less: Income attributable to unvested restricted stock awards | 0 | 0 | 0 | ||||||||||||||
| Numerator for basic net loss per share | (468,383) | (231,808) | (19,105) | ||||||||||||||
| Effect of dilutive securities: | |||||||||||||||||
| Unvested restricted stock awards | 0 | 0 | 0 | ||||||||||||||
| Numerator for diluted net loss per share | $ | (468,383) | $ | (231,808) | $ | (19,105) | |||||||||||
| Denominators: | |||||||||||||||||
| Weighted average number of common shares outstanding | 60,953 | 60,424 | 59,680 | ||||||||||||||
| Less: Weighted average number of unvested restricted stock awards outstanding | (1,141) | (1,045) | (968) | ||||||||||||||
| Denominator for basic and diluted net loss per share | 59,812 | 59,379 | 58,712 | ||||||||||||||
| Net loss per share: | |||||||||||||||||
| Basic | $ | (7.83) | $ | (3.90) | $ | (0.33) | |||||||||||
| Diluted | (7.83) | (3.90) | (0.33) | ||||||||||||||
The calculation of diluted net loss per share for the ordinary course of conducting its business, the Company becomes involved in litigationyears ended December 31, 2020, 2019 and other claims from private party actions, as well as judicial2018 excluded 582 thousand shares, 659 thousand shares and administrative proceedings involving governmental authorities at the federal, state696 thousand shares, respectively, issuable pursuant to outstanding stock options and local levels. During the preceding three years, a number of lawsuits were filed in Federal Court, against the Company and or one of its subsidiaries, by current and former employees alleging violationsrestricted stock awards, due to their antidilutive effect. Additionally, shares issuable upon conversion of the Fair Labor Standards Act (“FLSA”). The plaintiffs seek damages and penalties1.50% convertible senior notes were excluded for the Company’s alleged failure to: properly classify its field service employees as “non-exempt” under the FLSA;years ended December 31, 2020, 2019 and pay them on an hourly basis (including overtime). The plaintiffs are seeking recovery on2018, due to their own behalf as well as on behalf of a class of similarly situated employees. Settlement of the class action against the Company was approved and a judgment was entered November 19, 2015. The Company has settled the vast majority of these claims and is evaluating potential settlements for the remaining individual plaintiffs’ claims which are not expected to be significant.antidilutive effect.
The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The fair value of service-based restricted stock awardedawards is determined by the quoted market price of the Company’sCompany's common stock on the date of grant. The fair value of performance-based restricted awardedawards in 2017 and 2016 was valuedestimated using a Monte Carlo simulation model due to the inclusion of performance metrics that are not based solely on the performance of our Company’sthe Company's common stock. The fair value of stock option awards is estimated using option-pricing models. The resulting cost, net of estimated forfeitures, is recognized over the period during which an employee is required to provide service in exchange for the awards, usually the vesting period.
Stock-based compensation pre-tax expense recognized in the years ended December 31, 2017, 20162020, 2019 and 20152018 totaled $23.0$8.4 million, $21.3$16.8 million and $21.8$22.6 million, respectively.
Restricted Stock Awards
The restricted stock program consists of a combination of service-based restricted stock and performance-based restricted stock. The number of performance-based restricted shares ultimately issued under the program is dependent upon our achievement
of a predefined specific performance measuresobjectives generally measured over a three-year period. The performance measureobjectives for performance-based stock units granted during 2020, 2019 and 2018 are based on the 2017 and 2016 awards are relative total stockholder return compared toCompany's EBITDA growth rate over a peer group of companies while the performance measure specified for the 2015 awards was average after-tax return on invested capital. The 2015 performance metric threshold was not achieved and no performance-based equity was earned for this award.three-year period.
In the event the predefined targets are exceeded for any performance-based award, additional shares up to a maximum of 200% of the target award may be granted. Conversely, if actual performance falls below the predefined target, the number of shares vested is reduced. If the actual performance falls below the threshold performance level, no restricted shares will vest. The time-basedService-based restricted stock awards generally vest on a straight-line basis over their term, which is generally three to four years.
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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The following table presents the changes ofin restricted stock awards and related information for 2017:the year ended December 31, 2020 (shares in thousands):
| Service-based Restricted Stock | Performance-based Restricted Stock | ||||||||||||||||||||||||||||
| Number of Shares | Weighted Average Grant Date Fair Value | Number of Shares | Weighted Average Grant Date Fair Value | Total Number of Restricted Shares | |||||||||||||||||||||||||
| Unvested, December 31, 2019 | 1,064 | $ | 22.84 | 248 | 0 | 1,312 | |||||||||||||||||||||||
| Granted | 687 | 10.01 | 180 | $ | 11.15 | 867 | |||||||||||||||||||||||
Performance adjustment(1) | 0 | 0 | 23 | 0 | 23 | ||||||||||||||||||||||||
| Vested | (595) | 24.44 | (125) | 62.66 | (720) | ||||||||||||||||||||||||
| Forfeited | (69) | 19.42 | (17) | 11.15 | (85) | ||||||||||||||||||||||||
| Unvested, December 31, 2020 | 1,087 | 14.07 | 310 | 0 | 1,397 | ||||||||||||||||||||||||
| Service-based Restricted Stock | Performance-based Restricted Stock | |||||||||||||||
| Number of Shares | Weighted Average Grant Date Fair Value | Number of Shares | Weighted Average Grant Date Fair Value | Total Number of Restricted Shares | ||||||||||||
| Unvested, December 31, 2016 | 1,140,489 | $ | 35.07 | 157,925 | $ | 39.95 | 1,298,414 | |||||||||
| Granted | 475,874 | 39.49 | 74,758 | 62.66 | 550,632 | |||||||||||
| Performance adjustment | — | — | (73,130 | ) | 42.29 | (73,130 | ) | |||||||||
| Vested | (477,798 | ) | 36.71 | — | — | (477,798 | ) | |||||||||
| Forfeited | (50,046 | ) | 36.48 | — | — | (50,046 | ) | |||||||||
| Unvested, December 31, 2017 | 1,088,519 | 36.22 | 159,553 | 49.52 | 1,248,072 | |||||||||||
(1)Reflects an adjustment to the number of shares to be issued upon vesting of the 2018 performance-based awards.
The total fair value of restricted stock awards that vested in 2017, 20162020, 2019 and 20152018 was $17.5$14.5 million, $11.8$18.2 million and $18.9$19.4 million, respectively. As of December 31, 2017,2020, there was $27.4$8.6 million of total compensation costs related to nonvestedunvested restricted stock awards not yet recognized, which is expected to be recognized over a weighted average vesting period of 1.5 years.
Stock Options
The Company has not awarded stock options since 2015. The fair value of historical option grants were estimated on the date of grant using a Black Scholes Merton option pricing model. The fair value ofNaN options awardedwere exercised in 2015 was calculated using the following assumptions: a risk-free weighted interest rate of 1.2%, a dividend yield of 0%, an expected life of 4.3 years and expected volatility of 37%.
2020, 2019 or 2018. The following table presents the changes in stock options outstanding (all exercisable) and related information for the year ended December 31, 2017:2020 (shares in thousands):
| Options | Weighted Average Exercise Price(1) | Weighted Average Contractual Life (years) | Aggregate Intrinsic Value (thousands) | ||||||||||||||||||||
| Outstanding Options, December 31, 2019 | 636 | $ | 48.81 | 3.0 | $ | 0 | |||||||||||||||||
| Forfeited/Expired | (105) | 49.52 | |||||||||||||||||||||
| Outstanding Options, December 31, 2020 | 530 | 48.67 | 2.3 | 0 | |||||||||||||||||||
| Options | Weighted Average Exercise Price | Weighted Average Contractual Life (years) | Aggregate Intrinsic Value (thousands) | |||||||||
| Outstanding Options, December 31, 2016 | 715,095 | $ | 49.11 | 6.2 | $ | — | ||||||
| Exercised | — | — | ||||||||||
| Forfeited/Expired | (21,818 | ) | 51.48 | |||||||||
| Outstanding Options, December 31, 2017 | 693,277 | 49.04 | 5.2 | — | ||||||||
| Exercisable Options, December 31, 2017 | 594,494 | $ | 49.03 | 5.0 | $ | — | ||||||
Long-Term Cash Incentive Awards
| Options Outstanding | Options Exercisable | ||||||||||||||||||
Range of Exercise Prices | Options Outstanding | Weighted Average Contractual Life (years) | Weighted Average Exercise Price | Options Exercisable | Weighted Average Exercise Price | ||||||||||||||
| $41.49 | – | $46.78 | 375,801 | 5.2 | $ | 44.70 | 318,303 | $ | 45.14 | ||||||||||
| $49.33 | – | $49.33 | 150,486 | 4.1 | 49.33 | 150,486 | 49.33 | ||||||||||||
| $58.54 | – | $58.54 | 166,990 | 6.1 | 58.54 | 125,705 | 58.54 | ||||||||||||
| 693,277 | 5.2 | 49.04 | 594,494 | 49.03 | |||||||||||||||
During 2020 and 2019, the Company issued conditional long-term cash incentive awards ("Cash Awards") of approximately $2.0 million and $1.4 million, respectively, with the ultimate dollar amount to be awarded ranging from 0 to a maximum of $4.0 million for the 2020 Cash Award and from 0 to a maximum of $2.7 million for the 2019 Cash Award. The performance measure for these Cash Awards is relative total stockholder return compared to a peer group of companies measured over a three-year period. The ultimate dollar amount to be awarded for the 2020 and 2019 Cash Awards is limited to their targeted award value ($2.0 million and $1.4 million, respectively) if the Company's total stockholder return is negative over the performance period. The obligation related to the Cash Awards is classified as a liability and recognized over the vesting period.
Deferred Compensation Plan
The Company maintains a nonqualified deferred compensation plan (the "Deferred Compensation Plan") that permits eligible employees and directors to elect to defer the receipt of all or a portion of their directors’directors' fees and/or salary and annual bonuses. Employee contributions to the Deferred Compensation Plan are matched by the Company at the same percentage as if the employee was a participant in the Company's 401(k) Retirement Plan and was not subject to the IRS limitations on match-eligible compensation. In the second quarter of 2020, the Company suspended matching contributions to the Deferred Compensation Plan in response to the significant decline in activity levels due to the COVID-19 pandemic. The Deferred Compensation Plan also permits the Company to make discretionary contributions to any employee's account, although none have been made to date. Directors' contributions are not matched by the Company. Since inception of the plan, this
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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
discretionary contribution provision has been limited to a matching of the participants' contributions on a basis equivalent to matching permitted under the Company's 401(k) Retirement Savings Plan. The vesting of contributions to the participants’participants' accounts is also equivalent to the vesting requirements of the Company's 401(k) Retirement Savings Plan. The Deferred Compensation Plan does not have dollar limits on tax-deferred contributions. The assets of the Deferred Compensation Plan are held in a Rabbi Trust (the “Trust”"Trust") and, therefore, are available to satisfy the claims of the Company's creditors in the event of bankruptcy or insolvency of the Company. Participants have the ability to direct the Plan Administrator to invest the assets in their individual accounts, including any discretionary contributions by the Company, in over 30 preapproved mutual funds held by the Trust which cover a variety of securities and mutual funds. In addition, participants currently have the right to request that the Plan Administrator re-allocate the portfolio of investments (i.e. cash or mutual funds) in the participants' individual accounts within the Trust. Company contributions are in the form of cash. Distributions from the plan are generally made upon the participants' termination as a director and/or employee, as applicable, of the Company. Participants receive payments from the Deferred Compensation Plan in cash. As of December 31, 2017,2020, Trust assets totaled $21.0$22.8 million, the majority of which is classified as “Other"Other noncurrent assets”assets" in the Company’sCompany's consolidated balance sheet. The fair value of the investments was based on quoted market prices in active markets (a Level 1 fair value measurement). Amounts payable to the plan participants atas of December 31, 2017,2020, including the fair value of the shares of the Company's common stock that are reflected as treasury stock, was $21.2$22.8 million and is classified as "Other noncurrent liabilities" in the Company's consolidated balance sheet. The Company accounts for the Deferred Compensation Plan in accordance with current accounting standards regarding the accounting for deferred compensation arrangements where amounts earned are held in a Rabbithe Trust and invested.
Increases or decreases in the value of the Trust assets, exclusive of the shares of common stock of the Company held by the trust,Trust, have been included as compensation adjustments in the consolidated statements of operations. Increases or decreases in the fair value of the deferred compensation liability, including the shares of common stock of the Company held by the Trust, while recorded as treasury stock, are also included as compensation adjustments in the consolidated statements of operations.
The Company sponsors defined contribution plans. Participation in these plans is available to substantially all employees. The Company recognized expenses of $3.4 million, $9.5 million and $8.6 million, respectively, related to matching contributions under its various defined contribution plans during the years ended December 31, 2020, 2019 and 2018, respectively. In the second quarter of 2020, the Company suspended matching contributions to the Company's 401(k) Retirement Savings Plan in response to the significant decline in activity levels due to the COVID-19 pandemic.
14.Commitments and Contingencies
The impact of the COVID-19 pandemic and related economic, business and market disruptions continues to evolve and its future effects remain uncertain. The most direct and immediate impact that the Company has experienced and expects to continue to experience from the COVID-19 pandemic is decreased demand for its products and services due to lower activity levels by its customers resulting from the precipitous decline in crude oil prices. The overall impact of the pandemic and oil price collapse on the Company and its customers will depend on numerous factors, many of which are beyond management's control and knowledge. In response to public health concerns related to COVID-19, many federal, state, local and other authorities around the world have imposed mandatory regulations directing individuals to stay at home and have limited their ability to travel domestically or internationally. In certain cases, when travel is permitted, a multi-week quarantine period is required before an individual can work in the area. Additionally, rules and regulations regarding employer responsibilities continue to be promulgated. Facility closures, quarantines, travel restrictions, and possible future workforce shortages may, among numerous other impacts, result in delays by the Company in fulfilling its existing contractual obligations to its customers, which could result in adverse financial consequences. Additionally, the Company procures a variety of raw materials and component products, including steel, in the manufacture of its products from companies which may be impacted by similar challenges. The Company continues to monitor the effect of COVID-19 on its employees, customers, critical suppliers and other stakeholders. The ultimate magnitude and duration of the COVID-19 pandemic, resulting governmental restrictions placing limitations on the mobility and ability to work of the worldwide population, and the related impact on crude oil prices and the U.S. and global economy and capital markets remains uncertain.
Following the GEODynamics Acquisition in January 2018, the Company determined that certain steel products historically imported by GEODynamics from China for use in its manufacturing process were potentially be subject to anti-dumping and countervailing duties. Following an internal review, the Company voluntarily disclosed this matter to U.S. Customs and Border Protection ("CBP") and, in December 2020, reached an agreement with CBP to settle this matter for $7.3 million. The Company believes that the Seller is required to indemnify and hold the Company harmless against the amount of this and other
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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
settlements and related costs of $7.9 million, and the Company has provided notice to and asserted indemnification claims against the Seller. Additionally, the Company believes that its agreements with the Seller allow it to set-off such amounts against payments due under the $25.0 million promissory note and that, because the Company has asserted indemnification claims, the maturity date of the note is extended until the resolution of such claims. Accordingly, the Company has reduced the carrying amount of such note in its consolidated balance sheet to $17.1 million as of December 31, 2020, which is the Company's current best estimate of what is owed after set-off for indemnification matters.
In August 2020, the Seller filed a breach of contract suit against the Company and one of its wholly-owned subsidiaries in federal court alleging that payments due under the promissory note are required to be, but have not been, repaid in accordance with the terms of the note. Additionally, the Seller alleged that it was entitled to approximately $19 million in U.S. federal income tax carryback claims received by the Company under the provisions of the CARES Act. On February 15, 2021, the Seller dismissed the federal lawsuit without prejudice and refiled in state court. The Company denies the validity of these breach of contract claims and plans to vigorously defend against this lawsuit.
The Company is a party to various other pending or threatened claims, lawsuits and administrative proceedings seeking damages or other remedies concerning its commercial operations, products, employees and other matters, including occasional claims by individuals alleging exposure to hazardous materials as a result of the Company's products or operations. Some of these claims relate to matters occurring prior to the acquisition of businesses, and some relate to businesses the Company has sold. In certain cases, the Company is entitled to indemnification from the sellers of businesses and, in other cases, the Company has indemnified the buyers of businesses. Although the Company can give no assurance about the outcome of pending legal and administrative proceedings and the effect such outcomes may have on the Company, management believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by indemnity or insurance, will not have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity.
15.Segments and Related Information
The Well Site Services segment provides a broad range of equipment and services that are used to drill for, establish and maintain the flow of oil and natural gas from a well throughout its life cycle. In this segment, our operations primarily include completion-focused equipment and services as well as land drilling services. Our Completion Services operations provideThe segment provides solutions
to ourits customers using ourits completion tools, drilling rigs and highly-trained personnel throughout ourits service offerings which include:include wireline support, frac stacks, isolationsisolation tools, extended reach tools, ball launchers, well testing and flowback operations, thru tubing activity, sand control and sand control. Drilling Services provides land drilling services for shallow to medium depth wells in West Texas and the Rocky Mountain region of the United States.drilling. Separate business lines within the Well Site Services segment have been disclosed to provide additional detail with respect to its operations. Substantially all
The Downhole Technologies segment provides oil and gas perforation systems and downhole tools in support of the revenue generated by the Well Site Servicescompletion, intervention, wireline and well abandonment operations. This segment designs, manufactures and markets its consumable engineered products to oilfield service as well as exploration and production companies, which are classified as service revenue in the consolidated statement of operations.
completing complex wells with longer lateral lengths, increased frac stages and more perforation clusters to increase unconventional well productivity.
The Offshore/Manufactured Products segment designs, manufactures and markets capital equipment utilized on floating production systems, subsea pipeline infrastructure, and offshore drilling rigs and vessels, along with short-cycle and other products. Driven principally by longer-term customer investments for offshore oil and natural gas projects, “project-driven product”project-driven product revenues include:include flexible bearings, advanced connector systems, high-pressure riser systems, deepwater mooring systems, cranes, subsea pipeline products and blow-out preventer stack integration. “Short-cycle products”Short-cycle products manufactured by the segment include:include valves, elastomers and other specialty products generally used in the land-based drilling and completion markets. “OtherOther products” manufactured and offered by the segment include a variety of products for use in industrial, military and other applications outside the oil and gas industry. The segment also offers a broad line of complementary, value-added services including:including specialty welding, fabrication, cladding and machining services, offshore installation services, and inspection and repair services.
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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Corporate information includes corporate expenses, includingsuch as those related to corporate governance, stock-based compensation and other infrastructure support, as well as impacts from corporate-wide decisions for which the individual operating units are not being evaluated.
Financial information by business segment for each of the three years ended December 31, 2017, 20162020, 2019 and 2015,2018, is summarized in the following table (in thousands).
| Revenues | Depreciation and amortization | Operating income (loss) | Capital expenditures | Total assets | |||||||||||||||||||||||||
| 2020 | |||||||||||||||||||||||||||||
| Well Site Services - | |||||||||||||||||||||||||||||
Completion Services(1) | $ | 191,529 | $ | 52,922 | $ | (187,869) | $ | 6,823 | $ | 241,038 | |||||||||||||||||||
Drilling Services(2) | 8,310 | 318 | (5,519) | 114 | 3,894 | ||||||||||||||||||||||||
| Total Well Site Services | 199,839 | 53,240 | (193,388) | 6,937 | 244,932 | ||||||||||||||||||||||||
Downhole Technologies(3) | 97,936 | 22,649 | (224,414) | 3,230 | 280,096 | ||||||||||||||||||||||||
Offshore/Manufactured Products(4) | 340,300 | 21,881 | (80,794) | 2,913 | 547,962 | ||||||||||||||||||||||||
| Corporate | 0 | 773 | (35,744) | (331) | 79,270 | ||||||||||||||||||||||||
| Total | $ | 638,075 | $ | 98,543 | $ | (534,340) | $ | 12,749 | $ | 1,152,260 | |||||||||||||||||||
| 2019 | |||||||||||||||||||||||||||||
| Well Site Services - | |||||||||||||||||||||||||||||
| Completion Services | $ | 390,748 | $ | 68,440 | $ | (11,621) | $ | 30,806 | $ | 459,078 | |||||||||||||||||||
Drilling Services(5) | 41,346 | 9,973 | (43,419) | 2,664 | 19,171 | ||||||||||||||||||||||||
| Total Well Site Services | 432,094 | 78,413 | (55,040) | 33,470 | 478,249 | ||||||||||||||||||||||||
Downhole Technologies(6) | 182,314 | 21,247 | (164,008) | 13,808 | 529,677 | ||||||||||||||||||||||||
| Offshore/Manufactured Products | 402,946 | 22,842 | 36,022 | 7,692 | 677,036 | ||||||||||||||||||||||||
| Corporate | 0 | 817 | (45,154) | 1,146 | 42,905 | ||||||||||||||||||||||||
| Total | $ | 1,017,354 | $ | 123,319 | $ | (228,180) | $ | 56,116 | $ | 1,727,867 | |||||||||||||||||||
| 2018 | |||||||||||||||||||||||||||||
| Well Site Services - | |||||||||||||||||||||||||||||
| Completion Services | $ | 411,019 | $ | 66,415 | $ | (7,647) | $ | 50,423 | $ | 523,235 | |||||||||||||||||||
| Drilling Services | 69,235 | 14,354 | (9,363) | 6,591 | 64,661 | ||||||||||||||||||||||||
| Total Well Site Services | 480,254 | 80,769 | (17,010) | 57,014 | 587,896 | ||||||||||||||||||||||||
| Downhole Technologies | 213,813 | 18,649 | 26,705 | 16,167 | 691,874 | ||||||||||||||||||||||||
| Offshore/Manufactured Products | 394,066 | 23,207 | 38,914 | 13,797 | 683,285 | ||||||||||||||||||||||||
| Corporate | 0 | 905 | (54,485) | 1,046 | 40,766 | ||||||||||||||||||||||||
| Total | $ | 1,088,133 | $ | 123,530 | $ | (5,876) | $ | 88,024 | $ | 2,003,821 | |||||||||||||||||||
___________
(1)Operating loss in 2020 included a non-cash inventory impairment charge of $9.0 million and a non-cash goodwill impairment charge of $127.1 million to reduce the carrying value of the Completion Services reporting unit to its estimated fair value and non-cash fixed asset impairment charges of $3.6 million to reduce the carrying value of certain of the unit's facilities to their estimated realizable value.
(2)Operating loss in 2020 included a non-cash fixed asset impairment charge of $5.2 million to further reduce the carrying value of the Drilling Services business's fixed assets to their estimated realizable value.
(3)Operating loss in 2020 included a non-cash inventory impairment charge of $5.9 million, non-cash fixed and operating lease impairment charges of $3.6 million to reduce the carrying of these assets to their estimated realizable value and a non-cash goodwill impairment charge of $192.5 million to reduce the carrying value of the Downhole Technologies reporting unit to its estimated fair value.
(4)Operating loss in 2020 included a non-cash inventory impairment charge of $16.2 million and a non-cash goodwill impairment charge of $86.5 million to reduce the carrying value of the Offshore/Manufactured Products reporting unit to its estimated fair value.
(5)In late 2019, the Company reduced the scope of its Drilling Services business (adjusting from 34 rigs to 9 rigs) due to weakness in customer demand for vertical drilling rigs in the U.S. land market. Operating loss for the Drilling Services business included a non-cash fixed asset impairment charge of $33.7 million.
(6)Operating loss in 2019 for the Downhole Technologies segment included a non-cash goodwill impairment charge of $165.0 million.
See Note 3, "Asset Impairments and Other Charges," Note 4, "Details of Selected Balance Sheet Accounts," Note 6, “Goodwill and Other Intangible Assets,” and Note 8, "Operating Leases," for further discussion of these and other charges.
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| Revenues | Depreciation and amortization | Operating income (loss) | Capital expenditures | Total assets | |||||||||||||||
| 2017 | |||||||||||||||||||
| Well Site Services - | |||||||||||||||||||
| Completion Services | $ | 234,252 | $ | 63,528 | $ | (45,169 | ) | $ | 17,303 | $ | 424,309 | ||||||||
| Drilling Services | 54,462 | 18,513 | (13,909 | ) | 3,529 | 72,876 | |||||||||||||
| Total Well Site Services | 288,714 | 82,041 | (59,078 | ) | 20,832 | 497,185 | |||||||||||||
| Offshore/Manufactured Products | 381,913 | 24,596 | 38,155 | 13,484 | 760,079 | ||||||||||||||
| Corporate | — | 1,030 | (52,949 | ) | 855 | 44,247 | |||||||||||||
| Total | $ | 670,627 | $ | 107,667 | $ | (73,872 | ) | $ | 35,171 | $ | 1,301,511 | ||||||||
| 2016 | |||||||||||||||||||
| Well Site Services - | |||||||||||||||||||
| Completion Services | $ | 163,060 | $ | 70,031 | $ | (83,636 | ) | $ | 10,418 | $ | 467,387 | ||||||||
| Drilling Services | 22,594 | 23,366 | (24,239 | ) | 962 | 78,081 | |||||||||||||
| Total Well Site Services | 185,654 | 93,397 | (107,875 | ) | 11,380 | 545,468 | |||||||||||||
| Offshore/Manufactured Products | 508,790 | 24,205 | 87,084 | 17,515 | 810,464 | ||||||||||||||
| Corporate | — | 1,118 | (48,492 | ) | 794 | 27,966 | |||||||||||||
| Total | $ | 694,444 | $ | 118,720 | $ | (69,283 | ) | $ | 29,689 | $ | 1,383,898 | ||||||||
| 2015 | |||||||||||||||||||
| Well Site Services - | |||||||||||||||||||
| Completion Services | $ | 308,077 | $ | 75,612 | $ | (26,280 | ) | $ | 55,336 | $ | 525,012 | ||||||||
| Drilling Services | 67,782 | 26,889 | (17,866 | ) | 12,097 | 103,156 | |||||||||||||
| Total Well Site Services | 375,859 | 102,501 | (44,146 | ) | 67,433 | 628,168 | |||||||||||||
| Offshore/Manufactured Products | 724,118 | 27,416 | 146,389 | 46,615 | 930,871 | ||||||||||||||
| Corporate | — | 1,340 | (47,237 | ) | 690 | 37,432 | |||||||||||||
| Total | $ | 1,099,977 | $ | 131,257 | $ | 55,006 | $ | 114,738 | $ | 1,596,471 | |||||||||
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
No customer individually accounted for greater than 10% of the Company's 2020 or 2019 consolidated revenues or individually accounted for greater than 10% of the Company's consolidated accounts receivable at December 31, 2020. One customer accounted for 10% of the Company's 2018 consolidated revenues.
For the Company's Well Site Services segment, substantially all depreciation and amortization expense relates to cost of services while substantially all depreciation and amortization expense for the Downhole Technologies segment relates to cost of products. The following table provides supplemental revenue informationOffshore/Manufactured Products segment has numerous facilities around the world that generate both product and service revenues, and it is common for the segment to provide both installation and other services for products manufactured by this segment. While substantially all depreciation and amortization expense for the Offshore/Manufactured Products segment for the three years ended December 31, 2017, 2016relates to cost of revenues, it does not segregate or capture depreciation or amortization expense of intangible assets between product and 2015 (in thousands):
| 2017 | 2016 | 2015 | |||||||||
| Project-driven products | $ | 126,960 | $ | 296,368 | $ | 433,056 | |||||
| Short-cycle products | 147,463 | 88,291 | 100,355 | ||||||||
| Other products and services | 107,490 | 124,131 | 190,707 | ||||||||
| $ | 381,913 | $ | 508,790 | $ | 724,118 | ||||||
The following table provides supplemental disaggregated revenue from contracts with customers by business segment for the three years ended December 31, 2020, 2019 and 2018 (in thousands):
| Well Site Services | Downhole Technologies | Offshore/Manufactured Products | |||||||||||||||||||||||||||||||||||||||||||||||||||
| 2020 | 2019 | 2018 | 2020 | 2019 | 2018 | 2020 | 2019 | 2018 | |||||||||||||||||||||||||||||||||||||||||||||
| Major revenue categories - | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Project-driven products | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 165,497 | $ | 159,205 | $ | 120,894 | |||||||||||||||||||||||||||||||||||
| Short-cycle: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Completion products and services | 191,529 | 390,748 | 411,019 | 97,936 | 182,314 | 213,813 | 26,148 | 95,806 | 116,383 | ||||||||||||||||||||||||||||||||||||||||||||
| Drilling services | 8,310 | 41,346 | 69,235 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||
| Other products | 0 | 0 | 0 | 0 | 0 | 0 | 21,994 | 27,416 | 27,984 | ||||||||||||||||||||||||||||||||||||||||||||
| Total short-cycle | 199,839 | 432,094 | 480,254 | 97,936 | 182,314 | 213,813 | 48,142 | 123,222 | 144,367 | ||||||||||||||||||||||||||||||||||||||||||||
| Other products and services | 0 | 0 | 0 | 0 | 0 | 0 | 126,661 | 120,519 | 128,805 | ||||||||||||||||||||||||||||||||||||||||||||
| $ | 199,839 | $ | 432,094 | $ | 480,254 | $ | 97,936 | $ | 182,314 | $ | 213,813 | $ | 340,300 | $ | 402,946 | $ | 394,066 | ||||||||||||||||||||||||||||||||||||
Financial information by geographic location for each of the three years ended December 31, 2017, 20162020, 2019 and 2015,2018, is summarized below (in thousands). Revenues are attributable to countries based on the location of the entity selling the products or performing the services and include export sales. Long-lived assets are attributable to countries based on the physical location of the operations and its operating assets and do not include intercompany receivable balances.
| United States | United Kingdom | Singapore | Other | Total | |||||||||||||||||||||||||
| 2020 | |||||||||||||||||||||||||||||
| Revenues from unaffiliated customers | $ | 463,382 | $ | 76,808 | $ | 57,513 | $ | 40,372 | $ | 638,075 | |||||||||||||||||||
| Long-lived assets | 554,926 | 78,622 | 16,509 | 48,883 | 698,940 | ||||||||||||||||||||||||
| 2019 | |||||||||||||||||||||||||||||
| Revenues from unaffiliated customers | $ | 831,317 | $ | 70,641 | $ | 56,170 | $ | 59,226 | $ | 1,017,354 | |||||||||||||||||||
| Long-lived assets | 1,046,250 | 81,855 | 18,260 | 69,372 | 1,215,737 | ||||||||||||||||||||||||
| 2018 | |||||||||||||||||||||||||||||
| Revenues from unaffiliated customers | $ | 930,151 | $ | 64,564 | $ | 37,938 | $ | 55,480 | $ | 1,088,133 | |||||||||||||||||||
| Long-lived assets | 1,278,504 | 74,394 | 19,116 | 70,732 | 1,442,746 | ||||||||||||||||||||||||
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| United States | United Kingdom | Singapore | Other | Total | |||||||||||||||
| 2017 | |||||||||||||||||||
| Revenues from unaffiliated customers | $ | 548,854 | $ | 59,909 | $ | 23,398 | $ | 38,466 | $ | 670,627 | |||||||||
| Long-lived assets | 660,271 | 80,189 | 25,930 | 77,109 | 843,499 | ||||||||||||||
| 2016 | |||||||||||||||||||
| Revenues from unaffiliated customers | $ | 493,615 | $ | 111,565 | $ | 34,577 | $ | 54,687 | $ | 694,444 | |||||||||
| Long-lived assets | 729,699 | 65,675 | 23,972 | 74,454 | 893,800 | ||||||||||||||
| 2015 | |||||||||||||||||||
| Revenues from unaffiliated customers | $ | 797,762 | $ | 170,536 | $ | 66,305 | $ | 65,374 | $ | 1,099,977 | |||||||||
| Long-lived assets | 817,797 | 74,082 | 26,462 | 66,619 | 984,960 | ||||||||||||||
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. Related Party Transactions
GEODynamics historically leased certain land and facilities from an equity holder and former employee of the Company, following the GEODynamics Acquisition. In connection with the GEODynamics Acquisition, the Company assumed these leases. The Company exercised its option to purchase the most significant leased facility and associated land for approximately $5.4 million in September 2018. Rent expense related to leases with this former employee for the years ended December 31, 2020, 2019 and 2018 totaled $44 thousand, $157 thousand and $330 thousand, respectively.
Additionally, in 2020 and 2019, GEODynamics purchased products from and sold products to a company in which this former employee is an investor. In 2020, sales to this company were $1.8 million. In 2019, sales to this company were $1.4 million and purchases from this company were $1.3 million.
17.Valuation Allowances
Activity in the valuation accounts was as follows (in thousands):
| Balance at Beginning of Period | Charged to Costs and Expenses | Deductions (net of recoveries) | Translation and Other, Net(1) | Balance at End of Period | |||||||||||||||||||||||||
| Year Ended December 31, 2020: | |||||||||||||||||||||||||||||
| Allowance for doubtful accounts receivable | $ | 8,745 | $ | 3,409 | $ | (5,049) | $ | 1,199 | $ | 8,304 | |||||||||||||||||||
| Allowance for excess or obsolete inventory | 19,031 | 32,974 | (11,719) | 445 | 40,731 | ||||||||||||||||||||||||
| Valuation allowance on deferred tax assets | 35,828 | 1,890 | 0 | (2,221) | 35,497 | ||||||||||||||||||||||||
| Year Ended December 31, 2019: | |||||||||||||||||||||||||||||
| Allowance for doubtful accounts receivable | $ | 6,701 | $ | 2,776 | $ | (819) | $ | 87 | $ | 8,745 | |||||||||||||||||||
| Allowance for excess or obsolete inventory | 18,551 | 3,040 | (2,644) | 84 | 19,031 | ||||||||||||||||||||||||
| Valuation allowance on deferred tax assets | 33,762 | 2,558 | 0 | (492) | 35,828 | ||||||||||||||||||||||||
| Year Ended December 31, 2018: | |||||||||||||||||||||||||||||
| Allowance for doubtful accounts receivable | $ | 7,316 | $ | 1,520 | $ | (887) | $ | (1,248) | $ | 6,701 | |||||||||||||||||||
| Allowance for excess or obsolete inventory | 15,649 | 2,683 | (2,917) | 3,136 | 18,551 | ||||||||||||||||||||||||
| Valuation allowance on deferred tax assets | 37,904 | (4,124) | 0 | (18) | 33,762 | ||||||||||||||||||||||||
____________________
(1)For the year ended December 31, 2018, amount presented within allowance for doubtful accounts receivables and excess or obsolete inventory included $0.6 million and $3.3 million, respectively, related to the acquired GEODynamics operations.
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| Balance at Beginning of Period | Charged to Costs and Expenses | Deductions (net of recoveries) | Translation and Other, Net | Balance at End of Period | |||||||||||||||
| Year Ended December 31, 2017: | |||||||||||||||||||
| Allowance for doubtful accounts receivable | $ | 8,510 | $ | 339 | $ | (1,669 | ) | $ | 136 | $ | 7,316 | ||||||||
| Allowance for excess, damaged or obsolete inventory | 14,849 | 2,494 | (1,844 | ) | 150 | 15,649 | |||||||||||||
| Valuation allowance on deferred tax assets | 7,033 | 30,772 | — | 99 | 37,904 | ||||||||||||||
| Year Ended December 31, 2016: | |||||||||||||||||||
| Allowance for doubtful accounts receivable | $ | 6,888 | $ | 2,275 | $ | (400 | ) | $ | (253 | ) | $ | 8,510 | |||||||
| Allowance for excess, damaged or obsolete inventory | 12,898 | 4,916 | (2,756 | ) | (209 | ) | 14,849 | ||||||||||||
| Valuation allowance on deferred tax assets | 3,970 | 2,279 | — | 784 | 7,033 | ||||||||||||||
| Year Ended December 31, 2015: | |||||||||||||||||||
| Allowance for doubtful accounts receivable | $ | 7,125 | $ | 195 | $ | (187 | ) | $ | (245 | ) | $ | 6,888 | |||||||
| Allowance for excess, damaged or obsolete inventory | 9,876 | 5,487 | (2,395 | ) | (70 | ) | 12,898 | ||||||||||||
| Valuation allowance on deferred tax assets | — | 3,970 | — | — | 3,970 | ||||||||||||||
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The following table summarizes quarterly financial information for 20172020 and 20162019 (in thousands, except per share amounts):
First Quarter(1) | Second Quarter(2) | Third Quarter(3) | Fourth Quarter(4) | ||||||||||||||||||||
| 2020 | |||||||||||||||||||||||
| Revenues | $ | 219,694 | $ | 146,245 | $ | 134,759 | $ | 137,377 | |||||||||||||||
Gross profit(5) | (4,156) | (6,301) | (9,885) | (1,159) | |||||||||||||||||||
| Net loss | (405,041) | (24,626) | (19,969) | (18,747) | |||||||||||||||||||
| Basic and diluted net loss per share | (6.79) | (0.41) | (0.33) | (0.31) | |||||||||||||||||||
| 2019 | |||||||||||||||||||||||
| Revenues | $ | 250,611 | $ | 264,685 | $ | 263,697 | $ | 238,361 | |||||||||||||||
Gross profit(5) | 19,452 | 24,872 | 31,431 | 16,508 | |||||||||||||||||||
| Net loss | (14,648) | (9,740) | (31,868) | (175,552) | |||||||||||||||||||
| Basic and diluted net loss per share | (0.25) | (0.16) | (0.54) | (2.95) | |||||||||||||||||||
First Quarter(2) | Second Quarter(3) | Third Quarter(4) | Fourth Quarter(5) | ||||||||||||
| 2017 | |||||||||||||||
| Revenues | $ | 151,467 | $ | 171,402 | $ | 164,048 | $ | 183,710 | |||||||
Gross profit(1) | 32,555 | 39,554 | 34,859 | 42,904 | |||||||||||
| Net loss from continuing operations | (17,678 | ) | (14,246 | ) | (15,031 | ) | (37,895 | ) | |||||||
| Basic and diluted net loss per share from continuing operations | (0.35 | ) | (0.28 | ) | (0.30 | ) | (0.76 | ) | |||||||
| 2016 | |||||||||||||||
| Revenues | $ | 169,655 | $ | 175,849 | $ | 179,006 | $ | 169,934 | |||||||
Gross profit(1) | 40,840 | 39,449 | 43,240 | 44,144 | |||||||||||
| Net loss from continuing operations | (13,236 | ) | (11,705 | ) | (10,818 | ) | (10,627 | ) | |||||||
| Basic and diluted net loss per share from continuing operations | (0.26 | ) | (0.23 | ) | (0.22 | ) | (0.21 | ) | |||||||
(1)During the first quarter of 2020, the Company recognized non-cash goodwill impairment charges of $406.1 million (pre-tax), a non-cash fixed asset impairment charge of $5.2 million (pre-tax), non-cash inventory charges of $25.2 million (pre-tax) and severance and restructuring charges of $0.7 million (pre-tax). During the first quarter of 2019, the Company recognized $1.0 million (pre-tax) of severance and restructuring charges.
(2)During the second quarter of 2020, the Company recognized a non-cash fixed asset impairment charge of $3.0 million (pre-tax) and severance and restructuring charges of $5.4 million (pre-tax). During the second quarter of 2019, the Company recognized $1.3 million (pre-tax) of severance and restructuring charges.
(3)During the third quarter of 2020, the Company recognized a non-cash inventory impairment charge of $5.9 million (pre-tax) and severance charges of $0.3 million (pre-tax). During the third quarter of 2019, the Company recognized a non-cash fixed asset impairment charge of $33.7 million (pre-tax) and $0.7 million (pre-tax) of severance and restructuring charges.
(4)During the fourth quarter of 2020, the Company recognized non-cash fixed asset and lease impairment charges of $4.3 million (pre-tax) and severance and restructuring charges of $2.7 million (pre-tax). During the fourth quarter of 2019, the Company recognized a non-cash goodwill impairment charge of $165.0 million (pre-tax) and $0.6 million (pre-tax) of severance and restructuring charges.
(5)Gross profit is calculated as revenues less costs of products and services and segment level depreciation and amortization expense. The calculation of gross profit excluded non-cash goodwill and fixed asset impairment charges totaling $411.3 million in the first quarter of 2020, a non-cash fixed asset impairment charge of $3.0 million in the second quarter of 2020 and non-cash fixed asset and lease impairment charges totaling $4.3 million in the fourth quarter of 2020. The calculation of gross profit excluded the $33.7 million non-cash fixed asset impairment charge recognized in the third quarter of 2019 and the $165.0 million non-cash goodwill impairment charge recognized in the fourth quarter of 2019.
Amounts are calculated independently for each of the quarters presented. Therefore, the sum of the quarterly amounts may not equal the total calculated for the year.
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| Accounts receivable, net | $ | 35,848 | |
| Inventories, net | 36,248 | ||
| Property, plant and equipment | 25,769 | ||
| Intangible assets: | |||
| Customer relationships (weighted-average life of 20 years) | 100,000 | ||
| Patents/Technology/Know-how (weighted-average life of 17 years) | 47,000 | ||
| Tradenames (weighted-average life of 20 years) | 34,000 | ||
| Noncompete agreements (weighted-average life of 3 years) | 18,000 | ||
| Other assets | 1,194 | ||
| Accounts payable and accrued liabilities | (17,329 | ) | |
| Deferred income taxes | (46,940 | ) | |
| Other liabilities | (3,793 | ) | |
| Total identifiable net assets | 229,997 | ||
| Goodwill | 385,210 | ||
| Total net assets | $ | 615,207 | |
| Consideration consists of: | |||
| Cash, net of cash acquired | $ | 295,297 | |
| Oil States common stock | 294,910 | ||
| Promissory note | 25,000 | ||
| Total consideration | $ | 615,207 | |
| Year ended December 31, | |||||||
| 2017 | 2016 | ||||||
| Revenue | $ | 837,066 | $ | 766,534 | |||
| Net loss | (78,865 | ) | (65,909 | ) | |||
| Diluted loss per share | (1.34 | ) | (1.12 | ) | |||