item 14 exhibits financial statement schedules reports form 8k index financial statements financial statement schedules exhibits 1 financial statements reference made index set forth page 51 annual report form 10k 2 financial statement schedules included herein information required submitted included combined pro forma combined consolidated financial statements notes thereto required information inapplicable 3 index exhibits see index exhibits list exhibits filed herewith index also includes identifies management contracts compensatory plans arrangements required filed exhibits annual report form 10k item 60110iii regulation sk b reports form 8k reports form 8k filed last quarter period covered report c index exhibits filed herewith management contracts compensatory plans arrangements signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized oil states international inc douglas e swanson douglas e swanson president chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated march 29 2001 oil states international inc subsidiaries index combined pro forma combined consolidated financial statements unaudited pro forma combined financial statements following tables set forth unaudited pro forma combined financial information oil states international inc oil states giving effect combination oil states hwc energy services inc hwc pti group inc pti collectively controlled group entities common control scfiii lp scf iii based upon reorganization accounting yields results similar pooling interest accounting effective dates entities became controlled scf iii conversion common stock held minority interests entity controlled group shares common stock based purchase method accounting conversion outstanding common stock sooner inc sooner shares common stock based purchase method accounting exchange 4275555 shares common stock 360 million debt sooner oil states sale 10000000 shares common stock offering application net proceeds us described note 4a unaudited pro forma combined balance sheet december 31 2000 prepared based upon historical combined financial statements controlled group gives effect acquisition minority interests controlled group acquisition sooner proposed threeforone reverse stock split oil states common stock exchange shares common stock debt sooner oil states sale shares offering transactions occurred december 31 2000 unaudited pro forma combined statements operations years ended december 31 2000 1999 prepared based upon historical combined financial statements controlled group adjusted conform accounting policies give effect acquisition minority interests controlled group acquisition sooner exchange shares common stock debt sooner oil states sale shares offering transactions occurred january 1 1999 2000 respectively pro forma adjustments represent managements preliminary determination purchase accounting adjustments based upon available information assumptions management considers reasonable circumstances update obtain appraisals major assets appropriate evaluate recorded amounts liabilities closing date balance sheet purchase accounting allocation expected finalized within one year closing date consequently amounts reflected unaudited pro forma combined financial information subject change management expect differences preliminary final purchase price allocation material impact oil states combined financial position results operations addition unaudited pro forma combined financial statements reflect cost savings financial synergies may realized future result transactions unaudited pro forma combined financial statements purport indicative results would obtained transactions described completed indicated dates may obtained future unaudited pro forma combined financial statements read conjunction historical combined financial statements notes thereto included elsewhere annual report form 10k oil states international inc pro forma combined balance sheet december 31 2000 thousands unaudited pro forma combined statement operations year ended december 31 2000 thousands except per share amounts unaudited oil states international inc pro forma combined statement operations year ended december 31 1999 thousands except per share amounts unaudited oil states international inc notes unaudited pro forma combined financial statements basis presentation purchase method accounting used reflect acquisition minority interests company controlled group concurrent closing offering purchase price based fair value shares owned minority interests valued initial public offering price 900 per share accounting method excess purchase price fair value assets liabilities allocable minority interests acquired reflected goodwill book value minority interests exceeded purchase price excess reduced property plant equipment estimated fair values assets liabilities preliminary subject change purposes pro forma combined financial statements goodwill recorded connection transaction amortized 20 years using straightline method based managements evaluation nature duration customer relationships considering competitive technological developments industry unaudited pro forma combined balance sheet december 31 2000 statements operations years ended december 31 2000 1999 adjusted effects purchase accounting described purchase method accounting also used reflect acquisition outstanding common stock sooner concurrent closing offering purchase price based fair value shares sooner valued initial public offering price 900 per share excess purchase price fair value assets liabilities sooner reflected goodwill estimated fair values assets liabilities preliminary subject change purposes pro forma combined financial statements goodwill recorded connection transaction amortized 15 years using straightline method based managements evaluation nature duration customer relationships considering competitive technological developments industry unaudited pro forma combined balance sheet december 31 2000 statements operations years ended december 31 2000 1999 include historical financial statements sooner converted calendar year end adjusted effects purchase accounting presented note 1 combining adjustments historical minority interests combined balance sheet december 31 2000 recorded follows thousands minority interest income loss related tax effect controlled group presented thousands note 2 acquisition sooner certain reclassifications made conform presentation sooners financial statements controlled group oil states international inc notes unaudited pro forma combined financial statements continued reflect acquisition outstanding common shares sooner exchange 7597152 shares oil states common stock valued estimated offering price per share 900 millions 1 purchase price sooner includes estimated fair value sooner stock options 11 million converted oil states stock options note 3 acquisition minority interests reflect acquisition minority interests company controlled group exchange shares oil states common stock elimination historical amounts reflected combined group millions except share per share information note 4 offering record exchange 4275555 shares subordinated debt held scf iii scfiv lp scf iv totaling 360 million reflect sale 10000000 shares oil states common stock offering net proceeds 805 million net proceeds used reduce outstanding subordinated debt 409 million redeem preferred stock 218 million pay accrued interest subordinated debt accrued dividends preferred stock aggregating 69 million repurchase common stock nonaccredited shareholders holding preemptive stock purchase rights 16 million balance proceeds assumed repay 93 million borrowings outstanding bank lines credit b reflect conversion 51 million hwc preferred stock oil states common stock c adjust interest expense debt repaid offering proceeds result exchange shares subordinated debt adjust costs associated new corporate office including executives hired connection offering costs fully reflected historical financial statements costs continuing impact operations e adjust deferred income tax liabilities impact combination controlled group minority interests controlled group acquisition sooner valuation allowance oil states international inc notes unaudited pro forma combined financial statements continued applied net operating losses portion previously reserved net operating losses oil states utilized reduce deferred tax liabilities acquired companies due expected tax benefits derived combination entities f eliminate preferred stock dividends due elimination preferred stock see g adjust par value 01 oil states common stock reflect effect threeforone reverse stock split h record transaction costs associated offering adjust income tax expense elimination deferred taxes due formation combined group summary effect adjustments common stock additional paidin capital follows thousands note 5 group acquisitions reflect following acquisitions occurred january 1 1999 march 31 1999 hwc acquired outstanding stock ch rental tools inc ch specialty company inc collectively ch provided rental equipment drilling workover operations louisiana offshore gulf mexico paid cash approximately 24 million 820000 principal amount subordinated promissory notes funding transaction received issuance preferred stock november 30 1999 hwc acquired 12 snubbing units related equipment schlumberger limited schlumberger target snubbing company target consideration paid acquisitions included 37 million cash subordinated notes aggregate principal amount 45 million funding transactions received issuance preferred stock oil states international inc notes unaudited pro forma combined financial statements continued details pro forma adjustments hwc follows thousands schlumberger target acquisitions consisted asset purchases ch acquisition stock purchase difference ch purchase price fair market value assets liabilities acquired material combined group note 6 sooner acquisition adjustment reflect acquisitions sooner may june 1999 tubular distribution businesses continental emsco wilson supply nationaloilwell inc total consideration paid acquisitions 366 million details pro forma adjustments sooner follows thousands 1 substantially adjustment results incremental amortization goodwill recorded acquisitions occurred january 1 1999 oil states international inc subsidiaries report independent auditors board directors shareholders oil states international inc audited accompanying combined balance sheets oil states international inc december 31 2000 1999 related combined statements operations stockholders equity cash flows three years period ended december 31 2000 audit financial statements pti group inc period represented 32 27 total assets 2000 1999 36 26 24 total revenue 2000 1999 1998 respectively audit oil states international inc 1999 1998 represented 44 total assets 1999 58 64 total revenue 1999 1998 respectively financial statements audited auditors whose reports furnished us opinion insofar relates amounts included oil states international inc pti group inc periods noted based solely report auditors financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall combined financial statement presentation believe audits provide reasonable basis opinion based audits reports auditors financial statements referred present fairly material respects combined financial position oil states international inc december 31 2000 1999 combined results operations cash flows three years period ended december 31 2000 conformity accounting principles generally accepted united states ernst young llp houston texas march 19 2001 auditors report shareholders directors pti group inc audited consolidated balance sheets pti group inc december 31 2000 1999 consolidated statements earnings shareholders equity cash flows years ended december 31 2000 1999 1998 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance generally accepted auditing standards canada united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation opinion consolidated financial statements present fairly material respects financial position company december 31 2000 1999 results operations cash flows years ended december 31 2000 1999 1998 accordance united states generally accepted accounting principles pricewaterhousecoopers llp chartered accountants edmonton alberta february 26 2001 report independent public accountants board directors stockholders oil states international inc audited accompanying consolidated balance sheets oil states international inc delaware corporation subsidiaries company formerly conemsco inc december 31 1999 1998 related consolidated statements operations stockholders equity comprehensive income loss cash flows three years period ended december 31 1999 consolidated financial statements responsibility companys management responsibility express opinion consolidated financial statements based audits audit financial statements ce franklin ltd majorityowned subsidiary represented 6 5 total consolidated assets 1998 1997 respectively ce franklin ltd sold may 28 1999 classified discontinued operations prior sale statements audited auditors whose report furnished us opinion insofar relates amounts included ce franklin ltd based solely report auditors conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits report auditors provide reasonable basis opinion discussed note 20 july 21 2000 company obtained waiver holder series cumulative preferred stock totaling 144 million extending optional redemption date earlier april 30 2001 upon occurrence registered public offering capital stock july 29 2000 july 31 2000 company renegotiated terms holders certain subordinated debt totaling 70 million 70 million respectively original maturities subordinated debt extending february 2003 accelerated earlier april 30 2001 upon occurrence registered public offering capital stock exchange holders waiving rights scheduled maturities principal interest due prior april 30 2001 additionally scheduled principal payments longterm debt totaling 155 million become due 2001 managements current projections indicate sufficient cash flow operations fund obligations management currently developing plan whereby company combined companies common majority ownership stock combined company would sold initial public offering proceeds offering would used part reduce existing debt obligations management unsuccessful effort managements plans would restructure debt obligations well generate additional cash flow asset sales opinion based audits report auditors financial statements referred present fairly material respects financial position oil states international inc subsidiaries december 31 1999 1998 results operations cash flows three years period ended december 31 1999 conformity accounting principles generally accepted united states arthur andersen llp dallas texas july 31 2000 auditors report shareholders ce franklin ltd audited consolidated balance sheets ce franklin ltd december 31 1998 1997 consolidated statements operations changes shareholders equity cash flows years threeyear period ended december 31 1998 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance generally accepted auditing standards canada standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation opinion consolidated financial statements present fairly financial position company december 31 1998 1997 results operations changes shareholders equity changes cash flows years threeyear period ended december 31 1998 accordance accounting principles generally accepted canada pricewaterhousecoopers llp chartered accountants calgary alberta canada january 29 1999 oil states international inc subsidiaries combined statements operations thousands except per share amounts accompanying notes integral part financial statements oil states international inc subsidiaries combined balance sheets thousands accompanying notes integral part financial statements oil states international inc subsidiaries combined statements stockholders equity comprehensive income loss thousands accompanying notes integral part financial statements oil states international inc subsidiaries combined statements cash flows thousands accompanying notes integral part consolidated financial statements oil states international inc subsidiaries notes combined financial statements 1 organization basis presentation combined financial statements include activities oil states international inc oil states hwc energy services inc hwc pti group inc pti collectively controlled group company reorganization accounting method yields results similar pooling interest method used preparation combined financial statements controlled group entities common control scfiii lp private equity fund focuses investments energy industry method accounting historical financial statements hwc pti combined oil states year threeyear period ended december 31 2000 case date became common control scfiii lp january 8 1997 pti november 14 1997 hwc combined financial statements adjusted reflect minority interests controlled group significant intercompany accounts transactions consolidated entities eliminated accompanying combined pro forma financial statements oil states international inc oil states formerly named conemsco inc july 20 2000 amendment certificate incorporation conemsco inc filed state delaware change corporate name conemsco inc oil states international inc oil states subsidiaries include ceco holdings inc ceco cecos whollyowned subsidiaries oil states industries inc subsidiaries collectively osi continental emsco company subsidiaries collectively continental emsco osis whollyowned subsidiaries oil states mcs inc oil states hydrotech systems inc hydrotech oil states subsea ventures inc oil states skagit smatco inc smatco oil states industries uk limited osiuk oil states industries asia pte ltd oil states industries brasil instalacoes maritimas ltda osi also owns 60 interest elastomeric actuators inc joint venture third party osiuks whollyowned subsidiaries include oil states mcs limited mcs limited oil states klaper limited osi leading designer manufacturer diverse range products offshore platforms subsea pipelines defense general industrial applications major product lines include flexible bearings advanced connectors mooring systems winches services installing removing offshore platforms downhole production equipment custom molded products sales made primarily major oil companies large small independent oil gas companies drilling contractors well service workover operators 1999 osi sold operating assets ce distribution services inc ce distribution ce drilling products inc ce drilling ce mobile equipment inc ce mobile 518 investment ce franklin ltd ce franklin accordingly periods presented results ce distribution ce drilling ce mobile ce franklin shown discontinued operations charges estimated realized losses sale discontinued operations 64 million 221 million recorded 1999 1998 respectively see note 15 1998 charge 221 million includes losses operations 130 million year ended december 31 1999 osi sold two whollyowned subsidiaries ho mohr research engineering inc ho mohr oil states martec crane services inc martec 1998 osi completed acquisitions subsea ventures inc svi subsequently renamed oil states subsea ventures inc klaper uk limited klaper subsequently renamed oil states klaper limited oil states international inc subsidiaries notes combined financial statements continued pti group inc pti formed january 8 1997 result amalgamation pti group inc 712955 alberta ltd alberta special purpose company formed acquire pti supplier integrated housing food site management logistics support services remote sites utilized natural resources industries primarily canada united states hwc energy services inc hwc provides worldwide well control services drilling rental equipment oil gas industry headquarters hwc houston texas hwc operates primarily texas louisiana ohio oklahoma new mexico along foreign operations conducted venezuela middle east africa hydraulic well control operations provide globally hydraulic workover snubbing units emergency well control situations selected markets various hydraulic well control solutions involving well drilling workover completion activities west texas ohio hwcs capstar drilling inc subsidiary operates shallow well drilling rigs automated pipe handling capabilities specialty rental tools supply inc subsidiary hwc operates 12 locations texas louisiana oklahoma provide rental equipment drilling workover operations hwc utilizes underbalanced drilling techniques enhance drilling performance 2 summary significant accounting policies cash equivalents company considers highly liquid investments purchased original maturity three months less cash equivalents fair value financial instruments companys financial instruments consist cash equivalents investments receivables payables debt instruments company believes carrying values instruments accompanying consolidated balance sheets approximate fair values inventories consist oilfield products manufactured equipment spare parts manufactured equipment inventories include raw materials work process finished goods labor manufacturing overhead approximately 37 24 combined inventories december 31 2000 1999 respectively valued lower cost market cost determined lastin firstout lifo method cost remaining inventories determined average cost specificidentification method lifo method used particular inventories total inventories would approximately december 31 2000 approximately 522000 higher reported december 31 1999 2000 1999 company experienced reductions inventories carried lifo basis cost liquidated lifo inventories differ current cost material amount property plant equipment property plant equipment stated cost depreciation computed using straightline method estimated useful lives assets leasehold improvements capitalized amortized lesser life lease estimated useful life asset expenditures repairs maintenance charged expense incurred expenditures major renewals betterments extend useful lives existing equipment capitalized depreci oil states international inc subsidiaries notes combined financial statements continued ated upon retirement disposition property equipment cost related accumulated depreciation removed accounts resulting gain loss recognized statements operations goodwill represents excess purchase price acquired businesses allocated value related net assets goodwill amortized straightline basis 40year life goodwill stated net accumulated amortization 9974000 6772000 december 31 2000 1999 respectively impairment longlived assets compliance statement financial accounting standards sfas 121 accounting impairment longlived assets longlived assets disposed recoverability carrying values property plant equipment goodwill intangible assets assessed minimum annually whenever managements judgment events changes circumstances indicate carrying value assets may recoverable based estimated future cash flows assessment indicates carrying values recoverable determined based undiscounted cash flows remaining useful lives impairment loss recognized impairment loss equals excess carrying value fair value asset fair value asset based prices similar assets available discounted cash flows based companys review carrying value assets recoverable impairment losses recorded periods presented except third quarter 1998 pti recorded asset impairment provision 5263000 respect chilean assets chilean assets consist primarily temporary living accommodations shortterm rental various mining contractors chile result depressed copper prices majority projects either delayed cancelled september 1998 significant markets available units fair value units reassessed based significantly reduced future cash flows resulting writedown shown operating expense foreign currency gains losses resulting balance sheet translation foreign operations foreign currency functional currency included separate component accumulated comprehensive income within stockholders equity gains losses resulting balance sheet translation foreign operations us dollar functional currency included consolidated statements operations incurred revenue cost recognition revenue sale products recognized upon shipment customer significant risks ownership passed customer except significant fabrication projects built customer specifications production cycle greater six months revenues contracts recognized percentageofcompletion method measured percentage costs incurred date estimated total costs contract costtocost method management believes method appropriate measure progress large fabrication contracts provisions estimated losses uncompleted contracts made period losses determined cost goods sold includes direct material labor costs related contract performance indirect labor supplies tools repairs selling general administrative costs charged expense incurred case certain larger long lead time orders percentage completion method used method revenue recognized work progresses ratio costs incurred bear estimated total oil states international inc subsidiaries notes combined financial statements continued costs aggregate costs incurred reduces net inventories revenue recognized shown receivable unbilled revenue billings excess costs estimated earnings uncompleted contracts represent customer billings excess revenues recognized balances classified deferred revenue expected losses contracts progress charged operations currently income taxes company follows liability method accounting income taxes accordance sfas 109 accounting income taxes method deferred income taxes recorded based upon differences financial reporting tax bases assets liabilities measured using enacted tax rates laws effect underlying assets liabilities recovered settled companys earnings foreign subsidiaries considered indefinitely reinvested provision us income taxes made earnings subsidiaries distribution earnings form dividends otherwise company would subject us income taxes subject adjustment foreign tax credits withholding taxes payable various foreign countries accordance sfas 109 company records valuation reserve reporting period management believes likely deferred tax asset created realized due historical anticipated results operations management evaluate appropriateness reserve future based upon operating results company receivables concentration credit risk based nature customer base company believe significant concentrations credit risk concentration oil gas industry company evaluates credit worthiness new existing customers financial condition generally company require significant collateral domestic customers earnings per share companys basic income loss per share eps amounts computed based average number common shares outstanding diluted eps amounts include effect companys outstanding stock options treasury stock method effect convertible preferred stock shares reclassifications certain amounts prior years consolidated financial statements reclassified conform current year presentation use estimates preparation combined financial statements conformity accounting principles generally accepted united states requires use estimates assumptions management determining reported amounts assets liabilities disclosures contingent assets liabilities date combined financial statements reported amounts revenues expenses reporting period examples estimates include costs associated disposal discontinued operations including potential future adjustments result contractual agreements revenue income recognized percentageofcompletion method valuation allowance recorded net deferred tax assets actual results could differ estimates oil states international inc subsidiaries notes combined financial statements continued recent accounting standards june 1998 financial accounting standards board fasb issued sfas 133 accounting derivative instruments hedging activities establishes accounting reporting standards derivative instruments hedging activities requires entity recognize derivatives statement financial position measure instruments fair value june 1999 fasb issued sfas 137 accounting derivative instruments hedging activities deferral effective date fasb statement 133 amendment fasb statement 133 defers effective date sfas 133 one year june 2000 fasb issued sfas 138 accounting certain derivative instruments certain hedging activities amendment fasb statement 133 amended sfas 133 company adopt sfas 133 amended sfas 137 sfas 138 first quarter 2001 expect adoption material effect financial condition results operations 3 details selected balance sheet accounts additional information regarding selected balance sheet accounts december 31 2000 1999 presented thousands oil states international inc subsidiaries notes combined financial statements continued 4 acquisitions osi february 27 1998 osi acquired 100 stock svi consideration totaling 125 million cash debt common stock svi houston texasbased company manufactures services auxiliary structures subsea blowout preventors subsea production systems svi purchase accounted using purchase method accounting accordingly purchase price paid allocated net assets acquired based estimated fair values balance purchase price 84 million included goodwill april 1 1998 company acquired portion assets liabilities klaper company located united kingdom uk purchase price 57 million klaper provides repair maintenance services blowout preventors drilling risers used offshore marine drilling klaper purchase accounted using purchase method accounting accordingly purchase price allocated net assets acquired based estimated fair values balance purchase price 28 million included goodwill pti june 16 1998 pti acquired outstanding shares general marine leasing inc gml company located houma louisiana purchase price 147 million gml manufactures leases accommodation facilities primarily oil gas industry gml acquisition accounted using purchase method accounting accordingly purchase price allocated net assets acquired based estimated fair values balance purchase price 82 million included goodwill february 28 2000 company acquired substantially operating assets business international quarters llc iq company located houma louisiana purchase price 45 million iq manufactures leases accommodation facilities primarily oil gas industry iq acquisition accounted using purchase method accounting accordingly purchase price allocated net assets acquired based estimated fair values balance purchase price 13 million included goodwill 1999 contingent consideration 750000 based achievement specified earnings levels recorded full satisfaction acquisition gml additional consideration recorded goodwill hwc may 1 1998 hwc acquired outstanding shares specialty rental tools supply inc specialty affiliated company approximately 243 million including transaction costs oil states international inc subsidiaries notes combined financial statements continued consideration shares funded senior bank note 125 million approximately 28 million subordinated promissory notes payable existing specialty stockholders assumption approximately 12 million debt cash proceeds sale stock 60 million existing specialty stockholders also issued shares companys common stock valued 15 million june 14 1998 capstar drilling inc capstar acquired assets peek rowan inc affiliated company peek rowan companies similar line business capstar approximately 57 million including transaction costs purchase price funded approximately 12 million subordinated promissory notes payable peek rowan convertible promissory note amount 05 million cash proceeds sale stock 40 million december 31 1998 specialty acquired assets b rental tools inc b company similar line business specialty 18 million purchase price funded subordinated promissory note payable former b stockholders 09 million cash year ended december 31 1998 operations peek rowan specialty included consolidated financials statements periods acquisition dates march 31 1999 specialty completed acquisition outstanding stock ch rental tools inc ch specialty company inc collectively ch specialty paid cash approximately 24 million 082 million subordinated promissory notes ch provides rental equipment drilling workover operations louisiana offshore gulf mexico addition ch purchase agreement provides payment contingent consideration based earnings acquired business period january 1 1999 december 31 2000 contingent consideration earned based earnings december 31 2000 result additional payment 21 million due sellers march 31 2001 contingent consideration reflected december 31 2000 balance sheet current liability additional purchase consideration recorded goodwill effective november 30 1999 company completed acquisition 12 snubbing units related equipment two unrelated vendors total consideration 82 million consisting 37 million cash subordinated notes held one companies amount 45 million snubbing units similar currently operated company located europe africa middle east canada acquired purchase agreement contained preestablished rate would charged buyers upon future leasing equipment amounts paid buyers applied payment related debt obligations 5 longterm debt december 31 2000 1999 longterm debt consisted following thousands oil states international inc subsidiaries notes combined financial statements continued oil states international inc subsidiaries notes combined financial statements continued osi debt march 31 1998 osi entered new credit agreement 1998 agreement consortium lenders providing borrowings totaling 1750 million 1998 agreement provided 350 million term advances 1200 million borrowings revolving basis osi 1998 agreement also provided 50 million term advances 150 million borrowings revolving basis uk operations loans uk operations denominated payable british pounds 1998 agreement provided issuance letters credit issuance reducing amount available borrowing revolving portion credit facility 1998 agreement also contained several additional options borrow funds temporary cash management purposes 1998 agreement scheduled termination date june 30 2000 term advances 1998 agreement contained required repayments 16 million per calendar quarter beginning june 30 1998 borrowings 1998 agreement carried variable interest rates based upon prime eurodollar sterling rates plus spread based upon osis senior debt earnings interest taxes depreciation amortization ebitda ratio commitment fee unused portion facility 0375 december 31 1999 subject change based upon osis senior debt ebitda ratio borrowings 1998 agreement secured security interest substantially accounts receivable inventory osi us uk pledge stock specified subsidiaries among requirements osi required maintain financial ratios meet net worth indebtedness tests specified 1998 agreement oil states international inc subsidiaries notes combined financial statements continued 1999 osi banks party thereto entered three separate amendments 1999 amendments 1998 agreement 1999 amendments resulted limited following actions banks agreed forbear exercising march 31 2000 rights result osis failure comply financial covenants set forth 1998 agreement scheduled termination date 1998 agreement also changed march 31 2000 interest rate increased bank base rate plus 05 lending commitments incrementally reduced 150 million borrowings revolving basis us operations 100 million borrowings uk operations substantially osis fixed assets pledged additional security borrowings divestiture transactions discussed note 15 approved guidelines established payment debt proceeds divestitures sales marketable securities result divestitures sales marketable securities osis us borrowings uk term borrowings 1998 agreement paid full september 1999 march 1 2000 osi entered new credit agreement 2000 agreement providing borrowings totaling 259 million us operations proceeds initial borrowings us borrowings 2000 1998 agreement described repaid march 1 2000 agreement provides 49 million term advances 210 million borrowings revolving basis osi 2000 agreement provides issuance letters credit issuance reducing amount available borrowing revolving portion facility march 1 2000 124 million available borrow revolving portion 2000 agreement 2000 agreement scheduled termination date march 1 2003 term advances payable 59 monthly principal installments 81740 remainder due march 1 2003 borrowings 2000 agreement carry variable interest rates payable monthly based upon prime eurodollar rate plus 225 revolving loans prime plus 025 eurodollar rate plus 25 term loans commitment fee unused portion revolving facility 0375 per annum 2000 agreement secured substantially osis assets contains customary representations warranties events default 2000 agreement also requires compliance number affirmative negative financial covenants including limitation incurrence indebtedness requirement osi maintain specified net worth march 3 2000 osi entered new overdraft credit facility providing borrowings totaling l50 million uk operations converted approximately 79 million interest payable quarterly margin 190 per annum banks variable base rate borrowings facility payable demand conjunction executing 1998 agreement march 31 1998 osi recognized extraordinary charge net tax benefit 617000 conjunction executing 1999 amendments year osi recognized extraordinary charge 927000 extraordinary charges due writeoff deferred financing costs related osis credit facilities osi subordinated notes payable hunting oilfield services international ltd hunting related party osi totaling 109 million 104 million due may 17 2001 remaining 05 million due september 30 2001 notes carry interest rate 775 1998 825 1999 850 thereafter accrued interest payable march 31 year however interest payments required made specified cumulative ebitda thresholds met osi meet ebitda thresholds 1999 2000 december 31 2000 interest 18 million accrued paid interest accrue accrued interest payable due failure meet ebitda threshold unpaid accrued interest payable maturity date notes july 31 1997 osi issued subordinated promissory notes totaling 70 million payable stockholders acquired company principal 20 million paid july 31 2000 20 million due july 31 2001 30 million due july 31 2002 notes carry interest rate 80 interest payable july 31 year beginning july 31 1998 osi default senior oil states international inc subsidiaries notes combined financial statements continued debt noteholders may receive principal interest payments 180 days following default event default february 28 1998 osi issued subordinated promissory notes totaling 75 million payable former svi stockholders conjunction svi acquisition principal notes payable amounts 05 million february 28 2001 15 million august 31 2001 15 million february 2002 15 million august 31 2002 15 million february 28 2003 payments 095 million made december 31 2000 notes carry interest rate 80 interest payable last day february 1999 2000 payment date thereafter osi default senior debt noteholders may receive principal interest payments 180 days following default event default july 29 2000 july 31 2000 osi renegotiated terms holders subordinated debt totaling 70 million 70 million respectively original maturities subordinated debt extending february 2003 accelerated earlier april 30 2001 upon occurrence registered public offering capital stock exchange holders waiving rights scheduled maturities principal interest due prior april 30 2001 interest increased 8 prime plus 4 principle paid full february 2001 july 31 1998 osi issued subordinated promissory note payable amount 20 million sooner pipe supply corporation company controlled scf iv conjunction acquisition assets principal accrued interest paid note two installments 10 million plus accrued interest 60 july 31 1999 2000 1999 note canceled conjunction sale assets sooner december 31 1998 osi declared dividend form subordinated note payable scf iii acting agent common stockholders osi amount 250 million principal accrued interest 60 due december 31 2005 pti debt july 5 2000 pti signed amended restated credit agreement pti amended agreement includes revolving operating credit facility canadian banks portion facility designated overdraft facility remainder facility restricted margin limit based level trade accounts receivable inventories amounts outstanding facility 18 million 74 million december 31 2000 1999 respectively facility available company direct advances subject limits interest rates described included bank indebtedness december 31 1999 10 million revolving credit facility us bank facility available direct advances applicable us interest rates either prime based 850 025 libor based 580 225 325 december 31 1999 02 million drawn facility august 16 2000 facility replaced new credit agreement pti us credit agreement includes 20 million revolving line credit facility 20 million nonrevolving line credit facility pti us credit agreement bank applicable us interest rates prime based december 31 2000 950 025 libor based oil states international inc subsidiaries notes combined financial statements continued december 31 2000 680 175 250 december 31 2000 16 million drawn revolving line credit facility pti amended agreement scheduled loan repayments term revolving facility bank loan consist quarterly installments 08 million payment commencing august 31 2000 current portion december 31 1999 presented based terms pti amended agreement pti apply surplus cash outstanding loan balance time unused portion facility 82 million december 31 2000 28 million december 31 1999 amounts drawn term revolving facility available direct advances bankers acceptances interest rate depends ratio ptis total debt earnings interest taxes depreciation amortization preceding 12 months ranges canadian prime rate 750 december 31 2000 650 december 31 1999 plus 050 100 direct advances market rate 580 december 31 2000 520 december 31 1999 plus stamping fees 150 200 bankers acceptances pti fixed interest rate approximately 680 december 31 1999 portion term revolving facility bank loan utilizing interest rate swap agreement arrangement notional amount 17 million december 31 1999 reduced 0 march 31 2000 fair value arrangement approximated carrying value collateral provided operating credit facility term revolving facility general security agreement fixed floating charge debenture assets pti pledge shares directly held capital stock subsidiaries joint several guarantees subsidiaries assignment accounts receivable postponement claims shareholders assignment insurance proceeds mortgages incur interest approximately 750 annual payments 02 million collateral provided related land buildings net book value 19 million december 31 1999 connection acquisition pti issued promissory note amount 02 million repayable ten equal semiannual payments 20000 commencing may 7 2000 note bears interest floating rate canadian prime plus 100 pti provided collateral connection acquisition pti issued promissory note amount 35 million repayable three equal annual installments commencing june 16 1999 december 31 2000 balance outstanding 12 million notes bears interest 700 pti provided collateral connection acquisition pti issued promissory note amount 10 million repayable two equal annual payments 05 million commencing february 8 2001 note bears interest 750 pti provided collateral connection purchase rental equipment pti issued promissory note amount 04 million repayable monthly three years commencing february 15 2000 december 31 2000 balance outstanding 02 million note bears interest 814 pti provided collateral august 16 2000 pti us credit agreement term loan replaced 65 million term loan facility scheduled loan repayments consist monthly installments 01 million september 1 2000 february 1 2005 time remaining balance due december 31 2000 balance outstanding 60 million loan bears interest united states prime december 31 2000 950 025 libor december 31 2000 680 175 250 previous term loan incurred interest 750 repayable monthly three years commencing june 1999 annual payments 03 million certain assets us provided collateral oil states international inc subsidiaries notes combined financial statements continued december 7 2000 additional term loan pti us credit agreement established 10 million repayment scheduled march 7 2001 loan bears interest banks prime december 31 2000 950 collateral provided first charge specified us assets certain assets us provided collateral obligations capital leases bear interest ranging 800 1333 collateral provided related equipment net book value approximating obligation hwc debt amounts owed bank secured substantially assets hwc hwcs subsidiaries well hwc guarantors bank credit agreements bank credit agreement contains financial covenants among things restrict amount dividends hwc may pay amount debt hwc incur hwc required pay unused commitment fee ranging 025 05 per annum amount unused commitment bank line credit scheduled maturities combined longterm debt december 31 2000 follows thousands december 31 2000 company outstanding letters credit totaling 56 million subsequent year end company entered 1500 million senior secured revolving credit facility 450 million new credit facility made available form loans denominated canadian dollars may made canadian operating subsidiaries new credit facility replaced existing bank credit facilities facility matures february 14 2004 unless extended two additional one year periods consent lenders amounts borrowed new facility bear interest companys election either variable rate equal libor case canadian dollar denominated loans bankers acceptance discount rate plus margin ranging 15 25 alternate base rate equal higher credit suisse first bostons prime rate federal funds effective rate plus 05 case canadian dollar denominated loans canadian prime rate plus margin ranging 05 15 depending upon ratio total debt ebitda defined new credit facility commitment fees ranging 025 05 per year paid undrawn portion facility also depending upon ratio total debt ebitda subject exceptions commitments new credit facility permanently reduced loans prepaid amount equal 100 net cash proceeds nonordinary course asset sales issuance additional debt 50 issuance equity securities mandatory commitment reductions allocated pro rata based amounts outstanding us dollar denominated facility canadian dollar denominated facility addition voluntary reductions commitments permitted oil states international inc subsidiaries notes combined financial statements continued new credit facility guaranteed active domestic subsidiaries cases canadian subsidiaries credit facility secured first priority lien companys inventory accounts receivable material tangible intangible assets well active subsidiaries 65 voting stock foreign subsidiary required pledged pledge greater percentage would result adverse tax consequences new credit facility contains negative covenants restrict companys ability incur additional indebtedness prepay redeem repurchase outstanding indebtedness loans new credit facility pay dividends repurchase redeem capital stock make specified loans investments enter mergers consolidations similar transactions enter certain material transactions addition new credit facility require company maintain ratio ebitda interest expense less 30 10 level consolidated net tangible assets less 120 million plus 50 quarters consolidated net income loss maximum ratio total debt ebitda greater 35 10 maximum ratio total senior debt ebitda greater 30 10 credit facility occurrence specified change control events involving company would constitute event default would permit bank among things accelerate maturity facility cause become immediately due payable full 6 postretirement healthcare insurance benefits company provides healthcare insurance benefits primarily life eligible active retired employees healthcare plans contributory contain costsharing features deductibles lifetime maximums copayment requirements oil states international inc subsidiaries notes combined financial statements continued healthcare plans funded companys policy pay benefits incurred 2000 company amended postretirement plan resulted 16 million benefit obligation reduction amount credited expense 2000 accumulated benefit obligation determined actuarial assumption using healthcare cost trend rate 8 2000 gradually declining 5 year 2001 thereafter projected payout period benefits accumulated benefit obligations determined using assumed discount rate 750 775 december 31 2000 1999 respectively plans provisions companys prescription costs capped annual benefit limits retirees assumed pay portion future prescription costs capped limit one percentagepoint increase decrease assumed healthcare cost trend rates would immaterial accumulated postretirement benefit obligation net periodic benefit cost december 31 2000 7 retirement plans company sponsors number defined contribution plans participation plans available substantially employees company recognized expense 17 million 22 million 18 million related various defined contribution plans years ended december 31 2000 1999 1998 respectively combined basis oil states international inc subsidiaries notes combined financial statements continued 8 redeemable preferred stock redeemable preferred stock outstanding december 31 2000 1999 follows dollar amounts thousands series cumulative preferred stock december 31 2000 1999 osi 143000 shares series cumulative preferred stock series preferred stock issued outstanding par value 100 per share stock issued ltv corporation ltv conjunction acquisition osi formerly continental emsco company 1995 holders series preferred stock entitled cumulative quarterly dividends commenced september 15 1995 annual rate 70 700 per share december 31 2000 dividends 70000 accrued paid amount reported balance sheet accrued liability holders series preferred stock entitled vote except specified series preferred stock designation holders voting separately class entitled elect additional directors osi time dividends osi arrears amount equal six quarterly dividends osi holders series preferred stock may either partys option redeem part series preferred stock 100 per share plus accrued unpaid dividends commencing september 15 2000 july 21 2000 osi obtained waiver ltv whereby ltv waived rights optional redemption september 15 2000 ltv could request redemption earlier april 30 2001 completion registered public offering dividends increased 7 12 effective september 15 2001 consideration ltv executing waiver september 15 2005 osi required redeem outstanding series preferred stock 100 per share plus accrued unpaid dividends event involuntary liquidation holders series preferred stock would entitled payment debts 100 per share plus accrued unpaid dividends distribution payments common stockholders upon liquidation remaining assets osi insufficient pay holders series preferred stock full amount entitled holders shall share ratably among distributions according respective amounts payable shares paid full preferred stock accrued dividends paid full converted common stock february 2001 see note 19 series exchangeable cumulative preferred stock july 15 1997 osi issued 45000 shares preferred stock par value 00001 per share connection acquisition hydrotech shares designated series exchangeable cumulative preferred stock series exchangeable preferred stock liquidation value 100 per share plus accrued unpaid dividends less amounts due former hydrotech stockholders acquisition agreement hydrotech provided 25000 shares series exchangeable preferred stock placed escrow released accordance earnout requirements specified oil states international inc subsidiaries notes combined financial statements continued acquisition agreement holders series exchangeable preferred stock entitled cumulative annual dividends commencing july 15 1998 annual rate 70 700 per share december 31 2000 dividends 204000 accrued paid amount reported balance sheet accrued liability share series exchangeable preferred stock exchangeable provided written notice given june 13 2002 july 13 2002 number shares osis class common stock determined dividing liquidation value conversion date exchange price exchange price defined 1500 plus 80 times excess fair market value osis common stock date exchange 1500 unexchanged shares series exchangeable preferred stock outstanding july 15 2002 automatically redeemed redemption price equal liquidation value osi also option upon occurrence events specified series exchangeable preferred stock certificate designation redeem portion series exchangeable preferred stock redemption price equal liquidation value holders series exchangeable preferred stock entitled vote 1998 osi purchased 25000 shares placed escrow 001 per share accordance provisions acquisition agreement hydrotech failed meet specified earnout requirements difference 25 million treated reduction goodwill preferred stock accrued dividends paid full converted common stock february 2001 see note 19 series b exchangeable cumulative preferred stock july 15 1997 osi issued 38500 shares preferred stock par value 00001 per share connection acquisition hydrotech shares designated series b exchangeable cumulative preferred stock series b exchangeable preferred stock liquidation value 100 per share plus accrued unpaid dividends less amounts due former hydrotech stockholders holders series b exchangeable preferred stock entitled cumulative annual dividends commencing july 15 1998 annual rate 31 310 per share december 31 2000 dividends 174000 accrued paid amount reported balance sheet accrued liability share series b exchangeable preferred stock exchangeable prior july 15 2004 number shares osis class common stock determined dividing liquidation value conversion date exchange price 1280 per share unexchanged shares series b exchangeable preferred stock outstanding july 15 2004 automatically redeemed redemption price equal liquidation value osi also option upon occurrence events specified series b exchangeable preferred stock certificate designation redeem portion series b exchangeable preferred stock redemption price equal liquidation value holders series b exchangeable preferred stock entitled vote preferred stock accrued dividends paid full converted common stock february 2001 see note 19 series redeemable convertible preferred stock connection 1999 acquisition ch hwc issued 2145 shares new series class redeemable convertible preferred stock redeemable series preferred stock shares redeemable liquidation preference 1000 per share preferred shares accrue dividends rate 65 per annum december 31 2000 1999 2145 shares outstanding hwc accrued cumulative unpaid dividends totaling 177000 106000 december 31 2000 1999 respectively redeemable series preferred stock shall redeemed whole hwc march 31 2004 redemption price 1000 per share plus accrued unpaid dividends date redemption holders redeemable series preferred stock right convert time shares common stock hwc based liquidation value preferred stock including accrued unpaid dividends date based upon preestablished formulas defined agreement preferred stock accrued dividends converted common stock february 2001 see note 19 oil states international inc subsidiaries notes combined financial statements continued series b redeemable convertible preferred stock connection 1999 acquisition two unrelated companies hwc issued 2650 shares new series b class redeemable convertible preferred stock redeemable series b preferred stock shares redeemable liquidation preference 1000 per share preferred shares accrue dividends rate 65 per annum december 31 2000 1999 2717 2650 shares outstanding respectively hwc accrued cumulative unpaid dividends totaling 104000 15000 december 31 2000 1999 respectively redeemable series b preferred stock shall redeemed whole hwc october 30 2004 redemption price 1000 per share plus accrued unpaid dividends date redemption holders redeemable series b preferred stock right convert time shares common stock hwc based liquidation value preferred stock including accrued unpaid dividends date based upon preestablished formulas defined agreement preferred stock accrued dividends converted common stock february 2001 see note 19 9 convertible preferred stock july 31 1997 osi issued 16250 shares preferred stock par value 00001 per share connection acquisition smatco shares designated series convertible cumulative preferred stock convertible preferred stock liquidation value 100 per share plus accrued unpaid dividends holders convertible preferred stock entitled cumulative annual dividends commencing july 31 1998 annual rate 30 300 per share december 31 2000 dividends 69000 accrued paid amount reported balance sheet accrued liability share convertible preferred stock convertible number shares osis class common stock determined dividing liquidation value conversion date conversion price 1500 per share conversion optional prior august 1 2002 subject occurrence events specified convertible preferred stock certificate designation august 1 2002 share convertible preferred stock outstanding would automatically convert described upon occurrence events specified convertible preferred stock certificate designation osi option redeem portion unconverted convertible preferred stock liquidation value holders convertible preferred stock entitled vote preferred stock accrued dividends converted common stock february 2001 see note 19 10 income taxes consolidated pretax income loss continuing operations years ended december 31 2000 1999 1998 consists following thousands oil states international inc subsidiaries notes combined financial statements continued components income tax provision continuing operations extraordinary items years ended december 31 2000 1999 1998 consist following thousands provision taxes continuing operations extraordinary items differs amount computed statutory rates follows years ended december 31 2000 1999 1998 thousands oil states international inc subsidiaries notes combined financial statements continued significant items giving rise deferred tax assets liabilities december 31 2000 1999 follows thousands us federal income tax purposes company net operating loss carryforwards approximately 1361 million regular income taxes expire years 2005 2020 companys net operating loss carryforwards subject limitations section 382 internal revenue code 1986 amended based limitations uncertainty achieving levels taxable income net operating loss carryforward period company provided valuation allowance deferred tax asset undistributed earnings companys foreign subsidiaries amounted approximately 3 million december 31 2000 earnings considered indefinitely reinvested accordingly provision us federal state income taxes provided foreign earnings repatriated form dividends anticipated residual net us income tax would immaterial certain deferred tax assets relating property plant equipment loss carryforwards relate canadian subsidiarys chilean operation since deferred tax asset relating net operating loss carryforward realized income earned chile valuation allowance provided deferred tax asset operating loss carryforwards approximately 29 million available reduce future years taxable income expiration date also respect canadian subsidiary undistributed earnings oil states us subsidiaries amounted 51 million 31 million december 31 2000 1999 respectively earnings considered indefinitely reinvested accordingly tax provision provided repatriation earnings form dividends otherwise may result canadian federal taxes subject adjustment foreign tax credits withholding taxes payable us oil states international inc subsidiaries notes combined financial statements continued 11 supplemental cash flow information cash paid years ended december 31 2000 1999 1998 interest income taxes follows thousands components cash used acquisitions reflected consolidated statements cash flows years ended december 31 2000 1999 1998 summarized follows thousands noncash transactions included receipt noncash consideration 1999 businesses sold osi totaling 574 million 12 commitments contingencies company leases portion equipment office space computer equipment automobiles trucks leases expire various dates minimum future operating lease obligations effect december 31 2000 follows thousands rental expense operating leases 30 million 30 million 26 million years ended december 31 2000 1999 1998 respectively ltv corporation former owner osi terms stock purchase agreement indemnified osi claims contingencies threatened pending relating business activities prior august 1 1995 specifically claims involving environmental remediation product warranty legal actions workers compensation issues various federal state sales tax matters related preaugust 1995 business transactions financial responsibility ltv financial responsibilities initially satisfied reserves assumed part acquisition extent claims exceed 22 million original allowance amounts paid ltv oil states international inc subsidiaries notes combined financial statements continued osi warranted items related sale ce drilling ce distribution see note 15 subject threshold amounts defined respective agreements company believes amounts properly reflected accompanying consolidated financial statements december 31 2000 osi entered forward purchase contracts march 30 2001 bank totaling 32 million purchase foreign currency hedge existing receivable balances contract purchase rates significantly different december 31 2000 currency exchange rates company involved various claims lawsuits proceedings relating wide variety matters uncertainties inherent final outcome matters presently impossible determine actual costs ultimately may incurred management believes resolution uncertainties incurrence costs material adverse effect companys consolidated financial position results operations liquidity 13 relatedparty transactions le simmons associates incorporated time served financial advisor company explored opportunities mergers acquisitions divestitures professional advisory fees outofpocket expenses totaling approximately 83000 118000 11000 paid le simmons associates incorporated 2000 1999 1998 respectively normal course business osi transacts hunting however amounts insignificant years presented december 31 1998 osi declared 250 million dividend form subordinated note payable scf iii acting agent common stockholders osi see note 5 1999 hunting indemnified osi liability incurred 1998 relating assets sold osi 1996 18 million accordance prior purchase agreements hwc made debt payments 1998 08 million former owner hydraulic well control inc subsidiary hwc additionally hwc also paid consulting fees approximately 04 million 01 million 1999 1998 respectively three former owners hydraulic well control inc pursuant purchase agreement 14 stockbased compensation october 1995 fasb issued sfas 123 accounting stockbased compensation requires company record stockbased compensation fair value company adopted disclosure requirements sfas 123 elected record employee compensation expense accordance accounting principles board apb opinion 25 accounting stock issued employees company accounts employee stockbased compensation plan apb opinion 25 related interpretations accordingly deferred compensation expense recorded stock options based excess market value common stock date options granted aggregate exercise price options deferred compensation amortized vesting period option company authorized grant 3700000 stock options 2001 equity participation plan stock option plan employees consultants directors amounts exercise prices vesting schedules determined companys compensation committee exercise price options granted stock option plan equal greater market price companys stock date grant compensation expense related plan recorded compensation expense stock option plan determined consistent sfas 123 companys net income oil states international inc subsidiaries notes combined financial statements continued loss earnings per share december 31 2000 1999 1998 would follows thousands except per share amounts following table summarizes information stock options outstanding december 31 2000 december 31 2000 2761437 options available future grant stock option plan weighted average fair values options granted 2000 1999 1998 198 166 156 per share respectively fair value option grant estimated date grant using blackscholes option pricing model following weighted average assumptions used grants 2000 oil states international inc subsidiaries notes combined financial statements continued 1999 1998 respectively riskfree interest rates 49 63 72 expected dividend yield expected lives 53 56 59 years expected volatility 15 discontinued operations may 28 1999 one transaction ce distribution sold distribution net assets two senior subordinated notes receivable totaling 300 million osi sold 518 investment ce franklin marketable securities fair market value 247 million date sale combined transaction resulted loss sale approximately 172 million net income tax benefit 185000 included loss sale provision operating losses 124 million net income tax benefit 805000 recorded phaseout period june 1999 one senior subordinated notes amount 145 million plus accrued interest libor plus 275 paid full july 1999 second senior subordinated note amount 155 million plus accrued interest libor plus 275 paid full subsequent may 28 1999 marketable securities sold loss 334000 june 21 2000 osi returned 18 million purchase price buyer indemnification specified postclosing liabilities additional adjustments purchase price possible management believes amounts accrued adequate cover exposure may 28 1999 separate transaction ce distribution sold oil country tubular related assets sooner cash 74 million 20 million noncash consideration cancellation subordinated promissory note discussed note 5 resulting loss sale 701000 result abovementioned transactions ce distribution ceased operations 1999 july 7 1999 ce drilling sold operating net assets included net assets ce mobile 650 million cash resulting loss sale 49 million net income tax expense 70000 included loss sale operating income 261000 net income tax expense 12000 recorded phase period purchase price subject adjustments defined agreement 1999 additional accrual 57 million net income tax expense 215000 recorded primarily accrue revision purchase price april 17 2000 osi settled purchase price adjustment returned 69 million purchase price buyer however outstanding claims remain settled management believes amounts accrued adequate cover exposure result abovementioned transaction ce drilling ce mobile ceased operations 1999 results ce distribution ce franklin ce drilling ce mobile shown discontinued operations 1998 restated components amounts reflected accompanying combined statements oil states international inc subsidiaries notes combined financial statements continued operations cash flows years ended december 31 1999 1998 presented following table thousands 16 segment related information accordance sfas 131 disclosures segments enterprise related information company identified following reportable segments offshore products wellsite services companys reportable segments strategic business units offer different products services managed separately business requires different technology marketing strategies businesses acquired unit management time acquisition retained financial information industry segment three years ended december 31 2000 1999 1998 summarized following table thousands company evaluates performance allocates resources based ebitda defined calculated operating income adding back depreciation amortization calculations ebitda defined viewed substitute calculations accounting principles generally accepted us particular operating income net income addition ebitda calculations one company may comparable another company net assets discontinued operations 1295 million included corporate eliminations oil states international inc subsidiaries notes combined financial statements continued amounts 1998 accounting policies segments described summary significant accounting policies oil states international inc subsidiaries notes combined financial statements continued financial information geographic segment three years ended december 31 2000 1999 1998 summarized thousands revenues us include export sales revenues attributable countries based location entity selling products performing services total assets attributable countries based physical location entity operating assets include intercompany balances net assets discontinued operations 17 quarterly financial information unaudited summarized quarterly financial information 2000 1999 follows thousands except per share amounts represents revenues less costs sales oil states international inc subsidiaries notes combined financial statements continued 18 valuation allowances activity valuation accounts follows thousands 19 subsequent events february 9 2001 company began trading common stock new york stock exchange symbol ois pursuant completion initial public offering february 14 2001 company closed business combination offerings thereby acquiring minority interests sooner operations concurrent offering company acquired sooner inc 695 million company exchanged 7597152 shares common stock outstanding common shares sooner inc company account acquisition purchase method record approximately 39 million goodwill amortized 15year period concurrently closing offering company issued 4275555 shares common stock scf iii scf iv exchange approximately 360 million indebtedness oil states sooner held scf iii scf iv proceeds received offering company repaid outstanding debt controlled group sooner 409 million redeemed preferred stock oil states 218 million paid accrued interest subordinated debt accrued dividends preferred stock aggregating 69 million repurchased common stock nonaccredited shareholders holding preemptive stock purchase rights 16 million balance proceeds used reduce amounts outstanding bank lines credit preferred stock redeemed offering proceeds included series preferred stock series oil states international inc subsidiaries notes combined financial statements continued exchangeable cumulative preferred stock series b exchangeable cumulative preferred stock convertible preferred stock instruments osi february 14 2001 company entered 150 million senior secured revolving credit facility new credit facility replaced existing bank credit facilities see note 5 sooner inc report independent auditors stockholders sooner inc audited accompanying balance sheets sooner inc june 30 2000 1999 related consolidated statements operations stockholders equity cash flows years ended financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position sooner inc june 30 2000 1999 consolidated results operations cash flows years ended conformity accounting principles generally accepted united states ernst young llp tulsa oklahoma august 14 2000 sooner inc consolidated balance sheets thousands except share amounts see accompanying notes sooner inc consolidated statements operations thousands except shares earnings per share see accompanying notes sooner inc consolidated statements stockholders equity thousands except share amounts see accompanying notes sooner inc consolidated statements cash flows thousands except share amounts see accompanying notes sooner inc notes consolidated financial statements 1 summary significant accounting policies business sooner inc distributor oilfield tubular products formed acquire sooner pipe supply corporation subsidiaries collectively company companys operations located primarily united states us addition company sales marketing subsidiaries located united kingdom uk canada nigeria venezuela majority sales large fully integrated independent oil companies headquartered us company generally require collateral trade receivables companies recent developments july 31 2000 company entered combination agreement oil states international inc osii whereby osii would acquire company stockforstock merger company would become whollyowned subsidiary osii merger closed february 14 2001 consolidation accompanying financial statements include sooner inc whollyowned subsidiaries significant intercompany balances transactions including profits inventory eliminated consolidation use estimates preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts financial statements accompanying notes actual results could differ estimates cash equivalents company includes cash equivalents certificates deposit us treasury securities original maturities 90 days less inventories priced lower cost market using firstin firstout fifo cost method property plant equipment depreciation computed straightline method varying rates asset classification assets foreign subsidiaries depreciated straightline accelerated methods estimated useful lives amortization leasehold improvements computed straightline method life lease depreciation expense 626000 499000 years ended june 30 2000 1999 respectively capital additions major renewals betterments capitalized incurred depreciated estimated useful lives assets retired otherwise disposed cost related accumulated depreciation removed resulting gain loss reflected income period normal repairs maintenance expensed current operations incurred goodwill intangible assets goodwill represents excess cost fair value assets businesses acquired amortized straightline basis 15year period debt issuance costs amortized interest expense sooner inc notes consolidated financial statements continued straightline basis differ materially results interest method used life companys revolving credit agreement expires july 2 2003 total amortization costs 1015000 556000 years ended june 30 2000 1999 respectively impairment longlived assets company evaluates longlived assets including related intangibles identifiable business activities impairment events changes circumstances indicate managements judgment carrying value assets may recoverable determination whether impairment occurred based managements estimate undiscounted future cash flows attributable assets compared carrying value assets impairment occurred amount impairment recognized determined estimating fair value assets recording provision loss carrying value greater fair value assets identified disposed future carrying value assets compared estimated fair value less cost sell determine impairment required assets disposed estimate fair value redetermined related events circumstances change incentive stock options company elected follow accounting principles board opinion 25 accounting stock issued employees apb 25 related interpretations accounting employee stock options alternative fair value accounting provided statement financial accounting standard sfas 123 accounting stockbased compensation requires use option valuation models developed use valuing employee stock options apb 25 exercise price companys employee stock options equals market price underlying stock date grant compensation expense recognized foreign currency translation company foreign subsidiaries operating united kingdom canada nigeria venezuela foreign subsidiaries functional currency considered us dollar foreign currency transaction adjustments included determining net income loss income taxes company provides deferred income taxes temporary differences financial statement tax bases assets liabilities deferred us income taxes provided undistributed earnings approximately 6191000 4320000 june 30 2000 1999 respectively foreign subsidiaries since companys intention indefinitely reinvest earnings finance continued growth development entities present tax law amount would subject us income taxes prevailing tax rates less foreign tax credits remitted parent company revenue recognition net sales recognized oilfield tubular products shipped terminal services also provided company risk ownership passed customer terminal fees 3819000 2500000 recognized years ended june 30 2000 1999 respectively monthly basis earned sooner inc notes consolidated financial statements continued earnings per share basic earnings per share computed dividing net income loss weighted average number common shares outstanding period diluted earnings per share determined assumption outstanding stock options converted using treasury stock method purposes computing earnings per share loss period common stock equivalents excluded computation weighted average common shares outstanding effect antidilutive new accounting standards march 1998 statement position sop 981 accounting costs software developed obtained internal use issued sop requires capitalization specified costs incurred connection internaluse software project company adopted sop july 1 1999 neither companys financial position results operations cash flows significantly impacted sop april 1998 aicpa issued sop 985 reporting costs startup activities sop effective fiscal years beginning december 15 1998 requires startup costs capitalized prior date written future startup costs expensed incurred company adopted sop july 1 1999 adoption sop material impact companys financial position results operations cash flows june 1998 sfas 133 accounting derivative instruments hedging activities issued requires derivative instruments recorded assets liabilities balance sheet fair value company adopted sfas 133 july 1 2000 companys financial position results operations cash flows significantly impacted adoption sfas 2 acquisitions 1999 company acquired four oilfield tubular products distribution businesses 115627000 acquisitions accounted using purchase method company allocated purchase price based estimated fair values assets acquired excess purchase price fair value acquired net assets 14479000 recorded goodwill results operations acquisitions included accompanying consolidated financial statements dates acquisition following selected unaudited pro forma information thousands except per share amounts provided present summary combined results company acquisitions discussed occurred beginning 1999 giving effect purchase accounting adjustments pro forma data informational purposes may necessarily reflect results operations acquired businesses operated part company full year ended june 30 1999 sooner inc notes consolidated financial statements continued acquisitions financed cash noncash proceeds issuance debt equity cash proceeds follows thousands noncash proceeds reflect debt equity issued former owner one acquired companies follows thousands one acquisitions included contingent payment provision company estimated total contingent payment acquisition date 4840000 june 30 2000 company reevaluated estimate total contingent payment increased senior subordinated contingent note payable 1000000 noncash transaction goodwill also increased 1000000 amortized 13 years remaining amortization period related acquisition 3 investments consist primarily 20 interest common stock oilfield tubular products company investment carried cost 2059000 june 30 2000 1999 company ability exercise significant influence operating financial policies company investment obtained company year ended june 30 1999 noncash transaction exchange note receivable accrued interest owed company related party purchased inventory real estate company 3804000 cash payment 1850000 made related party august 31 1998 remaining balance represented 1954000 subordinated 6 note receivable sooner inc notes consolidated financial statements continued 4 property plant equipment property plant equipment cost related estimated useful lives consists following thousands 5 commitments company leases office space periods 2002 related rent expense year ended june 30 2000 1999 totaled 1080000 815000 respectively june 30 2000 minimum annual rentals noncancelable leases follows thousands 6 stock agreements company adopted stock option plan provides issuance options key employees purchase companys common stock exercise price outstanding options 1000 determined less fair value share common stock grant date options plan vest become exercisable four annual installments beginning one year grant date expire six years grant date company granted 1300 875 options years ended june 30 2000 1999 respectively company canceled 400 options year ended june 30 2000 weighted average remaining life options 51 years 119 options exercisable june 30 2000 june 30 2000 1225 shares companys common stock reserved future grants options company also issued years ended june 30 2000 1999 common stock options key employees purchase 350 325 shares respectively common stock company 1000 per share options vested upon grant two employees purchased total 100 shares common stock year ended june 30 1999 100000 options purchase total 225 shares expired unexercised july 1999 june 30 2000 options purchase total 350 shares outstanding expire 2001 exercised sfas 123 requires pro forma disclosures net income company accounted employee stock options fair value method sfas 123 fair value options estimated date grant using minimum value option pricing model following weighted sooner inc notes consolidated financial statements continued average assumptions years ended june 30 2000 1999 respectively riskfree interest rate 578 575 dividend yield zero expected life option four years option valuation models require input highly subjective assumptions companys employee stock options characteristics significantly different traded options changes subjective input assumptions materially affect fair value estimate managements opinion existing models necessarily provide reliable single measure fair value employee stock options using minimum value option valuation model weighted average grant date value options granted years ended june 30 2000 1999 20640 20545 per option respectively purposes pro forma disclosures estimated fair value options amortized expense options vesting period companys pro forma net income loss basic diluted earnings loss per share years ended june 30 2000 1999 follows 1999 company issued 26104 warrants purchase common stock stockholders warrants issued conjunction stockholder transactions including funding junior subordinated notes payable modifications senior subordinated notes payable senior subordinated contingent note payable warrants exercisable 1000 per share expire july 2 2000 june 30 2008 april 2000 shareholder company exercised warrants acquire 2500 shares common stock shareholder paid shares noncash exchange 2500000 outstanding senior subordinated notes payable including interest principal due shareholder 7 profit sharing plans company contributory profit sharing plan substantially us employees eligible participate plan provides annual company contributions discretionary amount determined board directors provided however amount contribution shall exceed maximum amount deductible company provisions internal revenue code company contributions plan 128000 104000 years ended june 30 2000 1999 respectively 8 income taxes components provision benefit income taxes year ended june 30 follows thousands sooner inc notes consolidated financial statements continued reconciliation us statutory tax rate year ended june 30 consolidated provision benefit income taxes follows thousands significant components companys deferred tax liabilities assets june 30 follows thousands company us net operating loss carryforward 5109000 utilized 2000 company reversed valuation allowance 3700000 2000 company expects deferred tax assets june 30 2000 fully realizable 9 longterm notes payable longterm debt notes payable consist following thousands company 50000000 credit agreement priority senior subordinated notes payable senior subordinated contingent note payable junior subordinated notes payable total borrowings revolving line credit term note payable letters credit cannot exceed 50000000 aggregate letters credit cannot exceed 5000000 amounts available line credit sooner inc notes consolidated financial statements continued june 30 2000 1999 approximately 13200000 3000000 respectively credit agreement secured accounts receivable inventory property plant equipment company defined credit agreement 89111000 78968000 june 30 2000 1999 respectively plus common stock subsidiaries company credit agreement terminates july 2 2003 bears interest first union national prime rate 775 june 30 2000 adjusted eurodollar rate defined agreement plus either case 175 84 june 30 2000 credit agreement also requires company maintain minimum net worth restricts payment cash dividends incurrence additional debt sale property plant equipment defined credit agreement 14 per annum unused commitment fee charged monthly unused portion credit agreement plus 2000 monthly service fee company 10000000 senior subordinated note payable 7500000 senior subordinated contingent note payable defined stock purchase agreement former owner sooner pipe supply corporation company senior subordinated note payable subsequently amended restated later year ended june 30 1999 two senior subordinated notes payable notes b 5000000 principal payments note due five equal quarterly installments 1000000 first day january april july october commencing july 1 1999 accrued interest payable october 1 2000 june 30 2000 119000 outstanding note b due july 31 2000 senior subordinated notes payable priority senior subordinated contingent note payable junior subordinated notes payable bear interest rate dependent upon existence outstanding borrowings credit agreement discussed balance outstanding credit agreement senior subordinated note payable bears interest rate plus 25 8 june 30 2000 amounts outstanding credit agreement notes bear interest annual rate 77 however interest rate shall never lower indebtedness incurred conjunction designated transaction defined agreement event default notes bear interest rate 97 senior subordinated contingent note payable bears interest noncompounding rate 6 per annum priority junior subordinated notes payable principal interest payments senior subordinated contingent note payable limited 375 quarterly proceeds previous calendar quarters sale portion 20000000 designated inventory defined agreement 625 proceeds sale designated inventory must applied payment senior subordinated note b identified lender option ten days written notice demanding final payment 150000 senior subordinated contingent note payable value designated inventory reduced 2000000 value designated inventory june 30 2000 purposes note 2038000 formation company entered two junior subordinated notes payable stockholders 17184000 may june 1999 company entered additional junior subordinated notes payable stockholders 6250000 junior subordinated notes bear interest rate 6 compounded annually due june 30 2008 169000 junior subordinated note payable 170 shares 01 par value common stock issued exchange portion scheduled july 1 1999 payment senior subordinated note described represents noncash transaction unpaid interest senior junior subordinated notes payable capitalized additional principal noncash transaction due sooner inc notes consolidated financial statements continued june 30 2000 annual maturities longterm notes payable follows thousands 10 financial instruments following methods assumptions used company estimating fairvalue disclosures financial instruments cash equivalents carrying amounts reported balance sheet approximate fair value due shortterm maturity instruments noncurrent accounts notes receivable maturity receivables less three years fair value estimated approximate historically recorded amounts investments cost fair value estimated approximate historically recorded amounts investments primarily nonpublicly traded company practicable estimate fair value longterm notes payable fair value companys longterm notes payable based prices similar securities similar terms credit ratings carrying amount fair value companys longterm notes payable 55972000 55391000 respectively june 30 2000 78492000 79197000 respectively june 30 1999 11 legal contingencies company involved various claims legal actions arising ordinary course business management believe ultimate resolution matters material impact companys financial position results operations cash flows 12 segment disclosures company evaluates performance based upon segment income loss income taxes includes revenues external internal customers operating costs expenses depreciation amortization accounting policies segments described note 1 intersegment sales generally accounted cost selling segment companys geographical reporting segments based product shipment origin revenues physical location items includes operations venezuela canada longlived assets sooner inc notes consolidated financial statements continued comprised property plant equipment goodwill intangible noncurrent assets thousands sooner inc notes consolidated financial statements continued company net sales greater 10 total net sales following customers segment sooner pipe supply corporation report independent auditors stockholder sooner pipe supply corporation audited accompanying consolidated balance sheet sooner pipe supply corporation july 2 1998 related consolidated statements operations stockholders equity cash flows period august 1 1997 july 2 1998 financial statements responsibility companys management responsibility express opinion financial statements based audit conducted audit accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audit provides reasonable basis opinion financial statements referred present fairly material respects consolidated financial position sooner pipe supply corporation july 2 1998 consolidated results operations cash flows period august 1 1997 july 2 1998 conformity accounting principles generally accepted united states ernst young llp tulsa oklahoma august 14 1998 sooner pipe supply corporation consolidated balance sheet july 2 1998 thousands except share amounts see accompanying notes sooner pipe supply corporation consolidated statement operations period august 1 1997 july 2 1998 thousands except shares earnings per share see accompanying notes sooner pipe supply corporation consolidated statement stockholders equity period august 1 1997 july 2 1998 thousands see accompanying notes sooner pipe supply corporation consolidated statement cash flows period august 1 1997 july 2 1998 thousands see accompanying notes sooner pipe supply corporation notes consolidated financial statements 1 summary significant accounting policies business company distributor oilfield tubular general products companys operations located primarily united states us addition company sales marketing subsidiaries located united kingdom uk canada nigeria barbados majority sales large fullyintegrated independent oil companies headquartered us company generally require collateral trade receivables companies consolidation accompanying financial statements include sooner pipe supply corporation subsidiaries collectively company significant intercompany balances transactions including profits inventory eliminated consolidation use estimates preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts financial statements accompanying notes actual results could differ estimates cash equivalents company includes cash equivalents certificates deposit us treasury securities original maturities 90 days less inventories priced lower cost market inventories held us valued primarily lifo held outside us valued primarily fifo property plant equipment depreciation computed straightline declining balance methods varying rates asset classification assets foreign subsidiaries depreciated straightline accelerated methods estimated useful lives amortization leasehold improvements computed straightline method life lease capital additions major renewals betterments capitalized incurred depreciated estimated useful lives assets retired otherwise disposed cost related accumulated depreciation removed resulting gain loss reflected income period normal repairs maintenance expensed current operations incurred impairment longlived assets company evaluates longlived assets identifiable business activities impairment events changes circumstances indicate managements judgment carrying value assets may recoverable determination whether impairment occurred based managements estimate undiscounted future cash flows attributable assets compared carrying value assets impairment occurred amount impairment recognized determined estimating fair value assets recording provision loss carrying value greater fair value sooner pipe supply corporation notes consolidated financial statements continued assets identified disposed future carrying value assets compared estimated fair value less cost sell determine impairment required assets disposed estimate fair value redetermined related events circumstances change foreign currency remeasurement company foreign subsidiaries operating united kingdom canada nigeria barbados foreign subsidiaries functional currency considered us dollar therefore inventory fixed assets stockholders equity translated us dollars historical exchange rates balance sheet accounts remeasured us dollars exchange rates effect yearend resulting remeasurement adjustments included determining net income loss income expense accounts remeasured average rates exchange period except depreciation translated historical exchange rates foreign currency transaction adjustments also included determining net income loss included loss income taxes net foreign exchange remeasurement transaction expense 186000 period august 1 1997 july 2 1998 income taxes company included ultimate parents consolidated us federal income tax return provision income taxes computed existing statutory rates without regard separate return limitations company provides deferred income taxes temporary differences financial statement tax bases assets liabilities deferred us income taxes provided undistributed earnings approximately 833000 july 2 1998 foreign subsidiaries since companys intention indefinitely reinvest earnings finance continued growth development entities present tax law amount would subject us income taxes prevailing tax rates less foreign tax credits remitted parent company revenue recognition net sales recognized oilfield tubular products shipped terminal services also provided company risk ownership passed customer terminal fees 3395000 recognized period august 1 1997 july 2 1998 monthly basis earned investment securities management determines appropriate classification government debt securities time purchase reevaluates designation balance sheet date debt securities designated heldtomaturity company positive intent ability hold securities maturity heldtomaturity securities stated amortized cost adjusted amortization premiums accretion discounts maturity amortization included investment income interest securities classified heldtomaturity also included investment income companys investment securities paid companys parent noncash dividend period august 1 1997 july 2 1998 earnings per share basic earnings per share computed dividing net loss weighted average number common shares outstanding period diluted earnings per share determined assumption outstanding stock options converted using treasury stock method purposes computing earnings per share loss year common stock equivalents excluded computation weighted average common shares outstanding effect antidilutive sooner pipe supply corporation notes consolidated financial statements continued new accounting standards march 1998 statement position sop 981 accounting costs software developed obtained internal use issued sop requires capitalization specified costs incurred connection internaluse software project adoption sop required fiscal 2000 neither companys financial position results operations cash flows expected significantly impacted sop april 1998 aicpa issued sop 985 reporting costs startup activities sop effective fiscal years beginning december 15 1998 requires startup costs capitalized prior date written future startup costs expensed incurred company determined impact adoption sop materially impact companys financial position results operations cash flows june 1998 statement financial accounting standard sfas 133 accounting derivative instruments hedging activities issued requires derivative instruments recorded assets liabilities balance sheet fair value sfas 133 required adopted company july 1 2000 companys financial position results operations cash flows expected significantly impacted sfas adopted 2 inventories consist following july 2 1998 thousands period august 1 1997 july 2 1998 lifo inventory quantities reduced resulting partial liquidation lifo bases effect decreased net loss income taxes 1912000 inventories stated lifo method 14996000 july 2 1998 fifo method used inventories would 45405000 higher reported july 2 1998 3 property plant equipment property plant equipment cost related estimated useful lives consists following july 2 1998 sooner pipe supply corporation notes consolidated financial statements continued 4 commitments company leases office space store buildings land periods 2002 related rent expense period august 1 1997 july 2 1998 totaled 1328000 july 2 1998 minimum annual rentals noncancellable leases follows thousands 5 profit sharing plans company contributory profit sharing plan substantially us employees eligible participate plan provides annual company contributions discretionary amount determined board directors provided however amount contribution shall exceed maximum amount deductible company provisions internal revenue code company contributions plan 256000 charged earnings period august 1 1997 july 2 1998 6 foreign operations following summary financial data foreign subsidiaries july 2 1998 period august 1 1997 july 2 1998 thousands 7 foreign currency hedges company enters forward exchange contracts hedge foreign currency transactions periods consistent terms underlying transactions company engage speculation company hedge nontransaction related balance sheet exposure forward contracts affect companys results operations connection underlying transactions result subject company risk exchange rate movements gains losses contracts offset losses gains transactions hedged july 2 1998 company 1700000 foreign exchange contracts outstanding canadian dollars forward exchange contracts generally maturities exceed six months based july 2 1998 exchange rates various maturity dates foreign currency forward contracts sooner pipe supply corporation notes consolidated financial statements continued company estimates aggregate contract value representative fair value items july 2 1998 8 income taxes components provision benefit income taxes period august 1 1997 july 2 1998 follows thousands significant components companys deferred tax liabilities assets july 2 1998 consist following thousands reconciliation us statutory tax rate july 2 1998 consolidated provision income taxes follows thousands 9 financial instruments following methods assumptions used company estimating fair value disclosures financial instruments cash equivalents carrying amounts reported balance sheet approximate fair value due shortterm maturity instruments noncurrent accounts notes receivable maturity receivables less three years fair value estimated approximate historically recorded amounts 10 legal contingencies company involved various claims legal actions arising ordinary course business management believe ultimate resolution matters material impact companys financial position results operations cash flows sooner pipe supply corporation notes consolidated financial statements continued 11 segment disclosures company evaluates performance based upon segment income loss income taxes includes revenues external internal customers operating costs expenses depreciation amortization accounting policies segments described note 1 intersegment sales generally accounted cost selling segment companys geographical reporting segments based product shipment origin revenues physical location items longlived assets comprised property plant equipment noncurrent assets fiscal 1998 company net sales greater 10 total sales following customers segment thousands 12 impact year 2000 unaudited year 2000 issue result computer programs written using two digits rather four define applicable year various computer equipment may also embedded year 2000 issues company completed assessment modify replace portions software computer systems function properly respect dates year 2000 thereafter company estimates approximately 91 required conversions complete based current plan action company believe year 2000 project costs significant management estimates year 2000 project completed later december 1998 prior anticipated impact operating systems company believes modifications existing software conversions new software year 2000 issue pose significant operational problems computer systems however modifications conversions made completed timely year 2000 issue could material impact operations company addition communications ongoing companies companys systems interface rely determine extent companies addressing year 2000 compliance sooner pipe supply corporation notes consolidated financial statements continued 13 subsequent events result sale company july 2 1998 company entered guaranteed various debt agreements finance acquisition company new owners sooner inc company entered 50000000 credit agreement guaranteed sooner inc includes 40000000 revolving line credit borrowing 35000000 occurred july 2 1998 5000000 term note payable monthly installments final maturity june 30 2000 5000000 letter credit accommodations interest payable first union national bank prime rate adjusted eurodollar rate defined agreement plus 175 per annum depending whether revolver loans prime rate eurodollar rate loans borrowed defined agreement revolving line credit letter credit accommodations expire july 2 2003 company also guaranteed assumed 10000000 senior subordinated note 7500000 senior subordinated contingent note defined sale agreement sooner inc companys parent 10000000 note bears interest rate 50000000 credit agreement noted matures july 2 1999 7500000 note bears interest 6 per annum payable quarterly installments based 375 quarterly proceeds sale 20000000 designated inventory identified sale agreement 625 quarterly proceeds sale inventory must applied payment 5000000 term note 10000000 note identified company also sold inventory real estate related party sooner inc july 31 1998 3804000 amount contingent upon settlement valuation inventory sold payment 1850000 made august 31 1998 remainder represented 1954000 subordinated 6 note due company annual installments 977000 plus interest final maturity july 31 2000 index exhibits filed herewith management contracts compensatory plans arrangementsitem 14 exhibits financial statement schedules reports form 8k index financial statements financial statement schedules exhibits 1 financial statements reference made index set forth page 39 annual report form 10k 2 financial statement schedules included herein information required submitted included combined pro forma combined consolidated financial statements notes thereto required information inapplicable 3 index exhibits see index exhibits list exhibits filed herewith index also includes identifies management contracts compensatory plans arrangements required filed exhibits annual report form 10k item 60110iii regulation sk b reports form 8k reports form 8k filed last quarter period covered report c index exhibits filed herewith management contracts compensatory plans arrangements signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized oil states international inc douglas e swanson douglas e swanson president chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated march 1 2002 oil states international inc subsidiaries index combined pro forma combined consolidated financial statements unaudited pro forma consolidated combined financial statements consolidated financial statements oil states international inc reflect companys financial position results operations changes stockholders equity periods subsequent february 14 2001 date initial public offering combination oil states international inc oil states hwc energy services inc hwc pti group inc pti collectively controlled group among things fully described footnotes follow combined financial statements reflect financial position results operations changes stockholders equity predecessor entities comprise oil states international inc based reorganization accounting pro forma financial information follows reflect historical consolidated combined statements operations depending upon period involved give effect pro forma transactions adjustments fully described following tables set forth unaudited pro forma consolidated combined financial information oil states giving effect combination oil states hwc pti entities common control scfiii lp scf iii based upon reorganization accounting yields results similar pooling interest accounting effective dates entities became controlled scf iii conversion common stock held minority interests entity controlled group shares common stock based purchase method accounting conversion outstanding common stock sooner inc sooner shares common stock based purchase method accounting exchange 4275555 shares common stock 360 million debt sooner oil states sale 10000000 shares common stock offering application net proceeds totaling 841 million proceeds received offering company repaid 437 million outstanding subordinated debt controlled group sooner redeemed 218 million preferred stock oil states paid accrued interest subordinated debt accrued dividends preferred stock aggregating 71 million repurchased common stock nonaccredited shareholders holding preemptive stock purchase rights 16 million balance proceeds used reduce amounts outstanding bank lines credit unaudited pro forma consolidated combined statements operations years ended december 31 2001 2000 1999 prepared based upon historical consolidated combined financial statements controlled group adjusted conform accounting policies give effect acquisition minority interests controlled group acquisition sooner exchange shares common stock debt sooner oil states sale shares offering transactions occurred january 1 1999 2000 2001 respectively audited december 31 2001 consolidated balance sheet reflects transactions discussed completed february 14 2001 unaudited pro forma combined financial statements purport indicative results would obtained transactions described completed indicated dates may obtained future unaudited pro forma combined financial statements read conjunction historical consolidated combined financial statements notes thereto included elsewhere annual report form 10k oil states international inc pro forma consolidated combined statement operations year ended december 31 2001 thousands except per share amounts unaudited oil states international inc pro forma combined statement operations year ended december 31 2000 thousands except per share amounts unaudited oil states international inc pro forma combined statement operations year ended december 31 1999 thousands except per share amounts unaudited oil states international inc notes unaudited pro forma consolidated combined financial statements basis presentation purchase method accounting used reflect acquisition minority interests company controlled group concurrent closing offering purchase price based fair value shares owned minority interests valued initial public offering price 900 per share accounting method excess purchase price fair value assets liabilities allocable minority interests acquired reflected goodwill book value minority interests exceeded purchase price excess reduced property plant equipment estimated fair values assets liabilities preliminary subject change purposes pro forma combined financial statements goodwill recorded connection transaction amortized 20 years using straightline method based managements evaluation nature duration customer relationships considering competitive technological developments industry note however accounting goodwill change prospectively new accounting pronouncements see note 3 consolidated combined financial statements unaudited pro forma statements operations years ended december 31 2001 2000 1999 adjusted effects purchase accounting described purchase method accounting also used reflect acquisition outstanding common stock sooner concurrent closing offering purchase price based fair value shares sooner valued initial public offering price 900 per share excess purchase price fair value assets liabilities sooner reflected goodwill purposes pro forma combined financial statements goodwill recorded connection transaction amortized 15 years using straightline method based managements evaluation nature duration customer relationships considering competitive technological developments industry note however accounting goodwill change prospectively new accounting pronouncements see note 3 consolidated combined financial statements unaudited pro forma statements operations years ended december 31 2001 2000 1999 include historical financial statements sooner converted calendar year end adjusted effects purchase accounting presented note 1 combining adjustments minority interest income loss related tax effect controlled group presented thousands note 2 acquisition sooner certain reclassifications made conform presentation sooners financial statements controlled group oil states international inc notes unaudited pro forma consolidated combined financial statements continued reflect acquisition outstanding common shares sooner exchange 7597152 shares oil states common stock valued estimated offering price per share 900 millions 1 purchase price sooner includes estimated fair value sooner stock options 11 million converted oil states stock options note 3 acquisition minority interests reflect acquisition minority interests company controlled group exchange shares oil states common stock elimination historical amounts reflected combined group millions except share per share information note 4 offering adjust interest expense debt repaid offering proceeds result exchange shares subordinated debt b adjust costs associated new corporate office including executives hired connection offering costs fully reflected historical financial statements costs continuing impact operations c eliminate preferred stock dividends due redemption preferred stock adjust income tax expense reduction deferred taxes due formation combined group oil states international inc notes unaudited pro forma consolidated combined financial statements continued note 5 group acquisitions reflect following acquisitions occurred january 1 1999 march 31 1999 hwc acquired outstanding stock ch rental tools inc ch specialty company inc collectively ch provided rental equipment drilling workover operations louisiana offshore gulf mexico paid cash approximately 24 million 8 million principal amount subordinated promissory notes acquisition funding transaction received issuance preferred stock november 30 1999 hwc acquired 12 snubbing units related equipment schlumberger limited schlumberger target snubbing company target consideration paid acquisitions included 37 million cash subordinated notes aggregate principal amount 45 million funding transactions received issuance preferred stock details fiscal year 1999 pro forma adjustments hwc follows thousands schlumberger target acquisitions asset purchases ch acquisition stock purchase difference ch purchase price fair market value assets liabilities acquired material combined group note 6 sooner acquisition adjustment reflect acquisitions sooner may june 1999 tubular distribution businesses continental emsco wilson supply nationaloilwell inc total consideration paid acquisitions 366 million oil states international inc notes unaudited pro forma consolidated combined financial statements continued details fiscal year 1999 pro forma adjustments sooner follows thousands 1 substantially adjustment results incremental amortization goodwill recorded acquisitions occurred january 1 1999 oil states international inc subsidiaries report independent auditors board directors shareholders oil states international inc audited accompanying consolidated balance sheet oil states international inc december 31 2001 combined balance sheet december 31 2000 related consolidated combined statement operations stockholders equity cash flows year ended december 31 2001 combined statements operations stockholders equity cash flows two years period ended december 31 2000 audit financial statements pti group inc period prior january 1 2001 represented 32 total assets 2000 36 26 total revenue 2000 1999 respectively audit oil states international inc 1999 represented 58 total revenue 1999 financial statements audited auditors whose reports furnished us opinion insofar relates amounts included oil states international inc pti group inc periods noted based solely report auditors financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall combined financial statement presentation believe audits provide reasonable basis opinion based audits reports auditors financial statements referred present fairly material respects consolidated financial position oil states international inc december 31 2001 combined financial position december 31 2000 consolidated combined results operations cash flows year ended december 31 2001 combined results operations cash flows two years period ended december 31 2000 conformity accounting principles generally accepted united states ernst young llp houston texas february 1 2002 auditors report shareholders directors pti group inc audited consolidated balance sheets pti group inc december 31 2000 1999 consolidated statements earnings shareholders equity cash flows years ended december 31 2000 1999 1998 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance generally accepted auditing standards canada united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation opinion consolidated financial statements present fairly material respects financial position company december 31 2000 1999 results operations cash flows years ended december 31 2000 1999 1998 accordance united states generally accepted accounting principles pricewaterhousecoopers llp chartered accountants edmonton alberta february 26 2001 report independent public accountants board directors stockholders oil states international inc audited consolidated balance sheets oil states international inc delaware corporation subsidiaries company formerly conemsco inc december 31 1999 1998 related consolidated statements operations stockholders equity comprehensive income loss cash flows three years period ended december 31 1999 consolidated financial statements responsibility companys management responsibility express opinion consolidated financial statements based audits audit financial statements ce franklin ltd majorityowned subsidiary represented 6 5 total consolidated assets 1998 1997 respectively ce franklin ltd sold may 28 1999 classified discontinued operations prior sale statements audited auditors whose report furnished us opinion insofar relates amounts included ce franklin ltd based solely report auditors conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits report auditors provide reasonable basis opinion discussed note 9 july 21 2000 company obtained waiver holder series cumulative preferred stock totaling 144 million extending optional redemption date earlier april 30 2001 upon occurrence registered public offering capital stock july 29 2000 july 31 2000 company renegotiated terms holders certain subordinated debt totaling 70 million 70 million respectively original maturities subordinated debt extending february 2003 accelerated earlier april 30 2001 upon occurrence registered public offering capital stock exchange holders waiving rights scheduled maturities principal interest due prior april 30 2001 additionally scheduled principal payments longterm debt totaling 155 million become due 2001 managements current projections indicate sufficient cash flow operations fund obligations management currently developing plan whereby company combined companies common majority ownership stock combined company would sold initial public offering proceeds offering would used part reduce existing debt obligations management unsuccessful effort managements plans would restructure debt obligations well generate additional cash flow asset sales opinion based audits report auditors financial statements referred present fairly material respects financial position oil states international inc subsidiaries december 31 1999 1998 results operations cash flows three years period ended december 31 1999 conformity accounting principles generally accepted united states arthur andersen llp dallas texas july 31 2000 oil states international inc subsidiaries consolidated combined statements operations thousands except per share amounts accompanying notes integral part financial statements oil states international inc subsidiaries consolidated combined balance sheets thousands except share amounts accompanying notes integral part financial statements oil states international inc subsidiaries consolidated combined statements stockholders equity comprehensive income loss thousands accompanying notes integral part financial statements oil states international inc subsidiaries consolidated combined statements cash flows thousands accompanying notes integral part financial statements oil states international inc subsidiaries notes consolidated combined financial statements 1 organization basis presentation consolidated financial statements include accounts oil states international inc oil states company consolidated subsidiaries since february 14 2001 february 14 2001 company acquired three companies hwc energy services inc hwc pti group inc pti sooner inc sooner previously reported combined pro forma financial statements presented herein combined financial statements include activities oil states hwc pti collectively controlled group company period prior february 14 2001 utilizing reorganization accounting reorganization accounting method yields results similar pooling interests method used preparation combined financial statements controlled group entities common control scfiii lp scfiii private equity fund focuses investments energy industry method accounting historical financial statements hwc pti combined oil states years ended december 31 1999 2000 period february 14 2001 oil states hwc pti merged oil states acquired sooner exchange common stock february 14 2001 consolidated financial statements oil states include results subsidiaries including hwc pti sooner combined financial statements adjusted reflect minority interests controlled group significant intercompany accounts transactions consolidated entities eliminated accompanying consolidated combined pro forma financial statements oil states international inc oil states formerly named conemsco inc july 20 2000 amendment certificate incorporation conemsco inc filed state delaware change corporate name conemsco inc oil states international inc oil states subsidiaries currently include oil states industries inc subsidiaries collectively osi hwc pti sooner osis whollyowned subsidiaries oil states skagit smatco llc smatco oil states industries uk limited osiuk oil states industries asia pte ltd oil states industries brasil instalacoes maritimas ltda continental emsco company subsidiaries osi also owns 60 interest elastomeric actuators inc joint venture third party osiuks whollyowned subsidiaries include oil states mcs limited mcs limited oil states klaper limited osi leading designer manufacturer diverse range products offshore platforms subsea pipelines defense general industrial applications major product lines include flexible bearings advanced connectors mooring systems winches services installing removing offshore platforms downhole production equipment custom molded products sales made primarily major oil companies large small independent oil gas companies drilling contractors well service workover operators 1999 osi sold operating assets ce distribution services inc ce distribution ce drilling products inc ce drilling ce mobile equipment inc ce mobile 518 investment ce franklin ltd ce franklin accordingly periods presented results ce distribution ce drilling ce mobile ce franklin shown discontinued operations charge estimated realized losses sale discontinued operations 64 million recorded 1999 see note 16 year ended december 31 1999 osi sold two whollyowned subsidiaries ho mohr research engineering inc ho mohr oil states martec crane services inc martec pti group inc pti formed january 8 1997 result amalgamation pti group inc 712955 alberta ltd alberta special purpose company formed acquire pti oil states international inc subsidiaries notes consolidated combined financial statements continued pti supplier integrated housing food site management logistics support services remote sites utilized natural resources industries primarily canada united states hwc energy services inc hwc provides worldwide well control services drilling rental equipment oil gas industry hwc operates primarily texas louisiana ohio oklahoma new mexico along foreign operations conducted venezuela middle east africa hydraulic well control operations provide globally hydraulic workover snubbing units emergency well control situations selected markets various hydraulic well control solutions involving well drilling workover completion activities west texas ohio hwcs capstar drilling inc subsidiary operates shallow well drilling rigs automated pipe handling capabilities specialty rental tools supply inc specialty subsidiary hwc operates 5 locations texas louisiana mississippi new mexico oklahoma provide rental equipment drilling workover operations sooner inc sooner distributor oilfield tubular products operations located primarily united states us sooner also sales marketing subsidiaries located united kingdom canada nigeria venezuela majority sales large fully integrated independent oil companies headquartered us 2 initial public offering merger transactions refinancing february 9 2001 company began trading common stock new york stock exchange symbol ois pursuant completion initial public offering february 14 2001 company closed business combination offering thereby acquiring minority interests pti hwc 100 sooner operations company recorded additional goodwill 619 million result acquisition minority interests concurrent offering company acquired sooner 695 million company exchanged 7597152 shares common stock outstanding common shares sooner company accounted acquisition using purchase method accounting recorded approximately 40 million goodwill amortized 15year period 2001 financial accounting standards board issued new standard effect goodwill amortization see note 3 concurrent closing offering company issued 4275555 shares common stock scfiii scfiv lp scfiv exchange approximately 360 million indebtedness oil states sooner held scfiii scfiv scf exchange proceeds received offering company repaid 437 million outstanding subordinated debt controlled group sooner redeemed 218 million preferred stock oil states paid accrued interest subordinated debt accrued dividends preferred stock aggregating 71 million repurchased common stock nonaccredited shareholders holding preemptive stock purchase rights 16 million balance proceeds used reduce amounts outstanding bank lines credit february 14 2001 company entered 150 million senior secured revolving credit facility new credit facility replaced existing bank credit facilities see note 6 oil states international inc subsidiaries notes consolidated combined financial statements continued 3 summary significant accounting policies cash equivalents company considers highly liquid investments purchased original maturity three months less cash equivalents fair value financial instruments companys financial instruments consist cash equivalents investments receivables payables debt instruments company believes carrying values instruments accompanying consolidated balance sheets approximate fair values inventories consist tubular oilfield products manufactured equipment spare parts manufactured equipment inventories include raw materials work process finished goods labor manufacturing overhead approximately 13 37 combined inventories december 31 2001 2000 respectively valued lower cost market cost determined lastin firstout lifo method cost tubular goods inventories determined using firstin firstout fifo method cost remaining inventories determined average cost specific identification method lifo method used particular inventories total inventories would approximately december 31 2001 2000 2001 2000 company experienced reductions inventories carried lifo basis cost liquidated lifo inventories differ current cost material amount property plant equipment property plant equipment stated cost depreciation computed using straightline method estimated useful lives assets leasehold improvements capitalized amortized lesser life lease estimated useful life asset expenditures repairs maintenance charged expense incurred expenditures major renewals betterments extend useful lives existing equipment capitalized depreciated upon retirement disposition property equipment cost related accumulated depreciation removed accounts resulting gain loss recognized statements operations goodwill represents excess purchase price acquired businesses allocated value related net assets goodwill amortized straightline basis period 15 40 years based managements evaluation nature duration customer relationships considering competitive technological developments industry goodwill stated net accumulated amortization 182 million 100 million december 31 2001 2000 respectively 2001 financial accounting standards board issued new standard affect goodwill amortization see note 3 impairment longlived assets compliance statement financial accounting standards sfas 121 accounting impairment longlived assets longlived assets disposed recoverability carrying values property plant equipment goodwill intangible assets assessed minimum annually whenever managements judgment events changes circumstances indicate carrying value assets may recoverable based estimated future cash flows oil states international inc subsidiaries notes consolidated combined financial statements continued assessment indicates carrying values recoverable determined based undiscounted cash flows remaining useful lives impairment loss recognized impairment loss equals excess carrying value fair value asset fair value asset based prices similar assets available discounted cash flows based companys review carrying value assets recoverable impairment losses recorded periods presented august 2001 financial accounting standards board issued sfas 144 accounting impairment disposal longlived assets company required adopt statement effective january 1 2002 impact foreign currency gains losses resulting balance sheet translation foreign operations foreign currency functional currency included separate component accumulated comprehensive income within stockholders equity gains losses resulting balance sheet translation foreign operations us dollar functional currency included consolidated statements operations incurred revenue cost recognition revenue sale products recognized upon shipment customer significant risks ownership passed customer significant fabrication projects built customer specifications revenues recognized percentageofcompletion method measured percentage costs incurred date estimated total costs contract costtocost method management believes method appropriate measure progress large fabrication contracts provisions estimated losses uncompleted contracts made period losses determined rental equipment services revenues recognized based periodic usually daily rental rate services rendered proceeds customers cost oilfield rental equipment damaged lost downhole reflected revenues drilling contracts based footage drilled recognize revenues footage drilled cost goods sold includes direct material labor costs related contract performance indirect labor supplies tools repairs selling general administrative costs charged expense incurred income taxes company follows liability method accounting income taxes accordance sfas 109 accounting income taxes method deferred income taxes recorded based upon differences financial reporting tax bases assets liabilities measured using enacted tax rates laws effect underlying assets liabilities recovered settled companys earnings foreign subsidiaries considered indefinitely reinvested provision us income taxes made earnings subsidiaries distribution earnings form dividends otherwise company would subject us income taxes subject adjustment foreign tax credits withholding taxes payable various foreign countries accordance sfas 109 company records valuation reserve reporting period management believes likely deferred tax asset created realized management continue evaluate appropriateness reserve future based upon operating results company oil states international inc subsidiaries notes consolidated combined financial statements continued receivables concentration credit risk based nature customer base company believe significant concentrations credit risk concentration oil gas industry company evaluates credit worthiness major new existing customers financial condition generally company require significant collateral domestic customers earnings per share companys basic income loss per share eps amounts computed based average number common shares outstanding including 3601329 shares common stock issuable upon exercise exchangeable shares one canadian subsidiaries exchangeable shares issued certain former shareholders pti combination intended characteristics essentially equivalent common stock prior exchange treated shares common stock issuable upon exchange exchangeable shares outstanding diluted eps amounts include effect companys outstanding stock options treasury stock method effect convertible preferred stock periods preferred shares outstanding shares awarded companys equity participation plan included fully diluted shares reclassifications certain amounts prior years financial statements reclassified conform current year presentation use estimates preparation consolidated financial statements conformity accounting principles generally accepted united states requires use estimates assumptions management determining reported amounts assets liabilities disclosures contingent assets liabilities date consolidated financial statements reported amounts revenues expenses reporting period examples estimates include costs associated disposal discontinued operations including potential future adjustments result contractual agreements revenue income recognized percentageofcompletion method valuation allowance recorded net deferred tax assets actual results could differ estimates recent accounting pronouncements 1998 financial accounting standards board issued statement financial accounting standards sfas 133 accounting derivative instruments hedging activities sfas 133 establishes accounting reporting standards requiring every derivative instrument including derivative instruments embedded contracts recorded balance sheet either asset liability measured fair value statement requires changes derivatives fair value recognized currently earnings unless specific hedge accounting criteria met special accounting qualifying hedges allows derivatives gains losses offset related results hedged item income statement requires company must formally document designate assess effectiveness transactions receive hedge accounting adopted sfas 133 effective january 1 2001 adoption material impact results operations june 2001 financial accounting standards board issued statements financial accounting standards 141 business combinations 142 goodwill intangible assets collectively statements effective fiscal years beginning december 15 2001 new rules goodwill intangible assets deemed indefinite lives longer amortized subject annual oil states international inc subsidiaries notes consolidated combined financial statements continued impairment tests accordance statements intangible assets continue amortized useful lives company apply new rules accounting goodwill intangible assets beginning first quarter 2002 application nonamortization provisions statement expected result increase net income approximately 80 million 16 per diluted share per year 2002 company perform first required impairment tests goodwill indefinite lived intangible assets january 1 2002 company completed evaluation goodwill indefinite lived intangible assets accordingly impact statement yet known june 2001 financial accounting standards board issued sfas 143 accounting asset retirement obligations statement effective fiscal years beginning june 15 2002 company expects adopt statement effective january 1 2003 expected statement immaterial effect companys consolidated financial statements 4 details selected balance sheet accounts additional information regarding selected balance sheet accounts december 31 2001 2000 presented thousands oil states international inc subsidiaries notes consolidated combined financial statements continued 5 acquisitions february 14 2001 company acquired 100 issued outstanding shares sooner 695 million companys common stock see note 2 july august 2001 oil states acquired within well site services segment 100 common stock two rental tool businesses located mississippi oklahoma aggregate cash consideration 30 million net cash acquired total 21 million goodwill recorded connection acquisitions deductible tax purposes february 28 2000 company acquired substantially operating assets business international quarters llc iq company located houma louisiana purchase price 45 million iq manufactures leases accommodation facilities primarily oil gas industry iq acquisition accounted using purchase method accounting accordingly purchase price allocated net assets acquired based estimated fair values balance purchase price 13 million included goodwill march 31 1999 specialty completed acquisition outstanding stock ch rental tools inc ch specialty company inc collectively ch specialty paid cash approximately 24 million 082 million subordinated promissory notes ch provides rental equipment drilling workover operations louisiana offshore gulf mexico addition ch purchase agreement provided payment contingent consideration based earnings acquired business period january 1 1999 december 31 2000 contingent consideration earned based results december 31 2000 accordingly additional payment 21 million paid sellers march 31 2001 contingent consideration reflected december 31 2000 balance sheet current liability additional purchase consideration recorded goodwill 2001 paid effective november 30 1999 company completed acquisition 12 snubbing units related equipment two unrelated vendors total consideration 82 million consisting 37 million cash subordinated notes held one companies amount 45 million snubbing units similar currently operated company located europe africa middle east canada acquired purchase agreement contained preestablished rate would charged buyers upon future leasing equipment amounts paid buyers applied payment related debt obligations oil states international inc subsidiaries notes consolidated combined financial statements continued 6 longterm debt december 31 2001 2000 longterm debt consisted following thousands oil states international inc subsidiaries notes consolidated combined financial statements continued oil states international inc subsidiaries notes consolidated combined financial statements continued scheduled maturities combined longterm debt december 31 2001 follows thousands current debt instruments february 14 2001 osi entered 150 million senior secured revolving credit facility group banks 450 million credit facility available form loans denominated canadian dollars may made principal canadian operating subsidiaries credit facility replaced existing credit facilities facility matures february 14 2004 unless extended two additional oneyear periods consent lenders amounts borrowed new facility bear interest election either variable rate equal libor case canadian dollar denominated loans bankers acceptance discount rate plus margin ranging 15 25 alternate base rate equal higher banks prime rate federal funds effective rate plus 05 case canadian dollar denominated loans canadian prime rate plus margin ranging 05 15 depending upon ratio total debt ebitda defined new credit facility commitment fees ranging 025 05 per year paid undrawn portion facility also depending upon ratio total debt ebitda subject exceptions commitments credit facility permanently reduced loans prepaid amount equal 100 net cash proceeds nonordinary course asset sales issuance additional debt 50 issuance equity securities mandatory commitment reductions allocated pro rata based amounts outstanding us dollar denominated facility canadian dollar denominated facility addition voluntary reductions commitments permitted credit facility guaranteed active domestic subsidiaries cases canadian foreign subsidiaries credit facility secured first priority lien companys inventory accounts receivable material tangible intangible assets well active subsidiaries however 65 voting stock foreign subsidiary required pledged pledge greater percentage would result adverse tax consequences credit facility contains negative covenants restrict companys ability borrow additional funds pay dividends sell assets except normal course business enter significant transactions credit facility occurrence specified change control events involving company would constitute event default would permit banks among things accelerate maturity facility cause become immediately due payable full december 31 2001 658 million outstanding facility additional 71 million outstanding letters credit leaving 771 million available drawn facility oil states international inc subsidiaries notes consolidated combined financial statements continued weighted average interest rate outstanding borrowings facility december 31 2001 41 conjunction executing 150 million senior secured revolving credit facility february 14 2001 osi recognized extraordinary charge net tax benefit 78 million conjunction executing amendments prior credit facility 1999 osi recognized extraordinary charge 9 million extraordinary charges due writeoff deferred financing costs related osis credit facilities payment prepayment penalties 2001 25 million march 3 2000 osi entered overdraft credit facility providing borrowings totaling l50 million uk operations june 22 2001 osi renewed overdraft credit facility uk operations providing borrowings totaling l35 million interest payable quarterly margin 190 per annum banks variable base rate borrowings facility payable demand refinanced debt instruments march 1 2000 osi entered new credit agreement 2000 agreement providing borrowings totaling 259 million us operations proceeds initial borrowings us borrowings prior credit agreement repaid march 1 2000 agreement provided 49 million term advances 210 million borrowings revolving basis osi 2000 agreement provided issuance letters credit issuance reducing amount available borrowing revolving portion facility march 1 2000 124 million available borrow revolving portion 2000 agreement 2000 agreement scheduled termination date march 1 2003 term advances payable 59 monthly principal installments 81740 remainder due march 1 2003 borrowings 2000 agreement carried variable interest rates payable monthly based upon prime eurodollar rate plus 225 revolving loans prime plus 025 eurodollar rate plus 25 term loans commitment fee unused portion revolving facility 0375 per annum 2000 agreement secured substantially osis assets contains customary representations warranties events default 2000 agreement also required compliance number affirmative negative financial covenants including limitation incurrence indebtedness requirement osi maintain specified net worth osi subordinated notes payable hunting oilfield services international ltd hunting totaling 109 million total 104 million due may 17 2001 remaining 05 million due september 30 2001 notes carried interest rate 850 accrued interest payable march 31 year however interest payments required made specified cumulative ebitda thresholds met osi meet ebitda thresholds 1999 2000 december 31 2000 interest 18 million accrued paid instruments paid full 2001 july 31 1997 osi issued subordinated promissory notes totaling 70 million payable stockholders acquired company principal 20 million paid july 31 2000 20 million due july 31 2001 30 million due july 31 2002 notes carried interest rate 80 interest payable july 31 year beginning july 31 1998 notes paid full 2001 february 28 1998 osi issued subordinated promissory notes totaling 75 million payable former svi stockholders conjunction svi acquisition principal notes payable amounts 05 million february 28 2001 15 million august 31 2001 15 million february 2002 15 million august 31 2002 15 million february 28 2003 payments 95 million made december 31 2000 notes carried interest rate 80 interest payable last day february 1999 2000 payment date thereafter notes paid full 2001 oil states international inc subsidiaries notes consolidated combined financial statements continued july 29 2000 july 31 2000 osi renegotiated terms holders subordinated debt totaling 70 million 70 million respectively original maturities subordinated debt extending february 2003 accelerated earlier april 30 2001 upon occurrence registered public offering capital stock exchange holders waiving rights scheduled maturities principal interest due prior april 30 2001 interest increased 8 prime plus 4 principle paid full february 2001 december 31 1998 osi declared dividend form subordinated note payable scf iii acting agent common stockholders osi amount 250 million principal accrued interest 60 due december 31 2005 portion debt converted common stock february 14 2001 remainder paid cash july 5 2000 pti signed amended restated credit agreement pti amended agreement included revolving operating credit facility canadian banks portion facility designated overdraft facility remainder facility restricted margin limit based level trade accounts receivable inventories amounts outstanding facility 18 million december 31 2000 facility available company direct advances subject limits interest rates described pti amended agreement scheduled loan repayments term revolving facility bank loan consist quarterly installments 08 million payment commencing august 31 2000 unused portion facility 82 million december 31 2000 amounts drawn term revolving facility available direct advances bankers acceptances interest rate depends ratio ptis total debt earnings interest taxes depreciation amortization preceding 12 months ranges canadian prime rate 750 december 31 2000 plus 050 100 direct advances market rate 580 december 31 2000 plus stamping fees 150 200 bankers acceptances august 16 2000 pti replaced prior us revolving credit facility new credit agreement pti us credit agreement included 20 million revolving line credit facility 20 million nonrevolving line credit facility pti us credit agreement bank applicable us interest rates prime based december 31 2000 950 025 libor based december 31 2000 680 175 250 december 31 2000 16 million drawn revolving line credit facility august 16 2000 pti us credit agreement term loan replaced 65 million term loan facility scheduled loan repayments consist monthly installments 01 million september 1 2000 february 1 2005 time remaining balance due debt repaid february 14 2001 loan bore interest united states prime december 31 2000 950 025 libor december 31 2000 680 175 250 collateral provided operating credit facility term revolving facility general security agreement fixed floating charge debenture assets pti pledge shares directly held capital stock subsidiaries joint several guarantees subsidiaries assignment accounts receivable postponement claims shareholders assignment insurance proceeds connection acquisition pti issued promissory note amount 35 million repayable three equal annual installments commencing june 16 1999 note repaid year ended december 31 2001 previous term loan incurred interest 750 repayable monthly three oil states international inc subsidiaries notes consolidated combined financial statements continued years commencing june 1999 annual payments 03 million certain assets us provided collateral december 7 2000 additional term loan pti us credit agreement established 10 million repayment scheduled march 7 2001 loan bears interest banks prime december 31 2000 950 collateral provided first charge specified us assets certain assets us provided collateral amounts owed bank previous years hwc secured substantially assets hwc hwcs subsidiaries well hwc guarantors bank credit agreements bank credit agreement contained financial covenants among things restricted amount dividends hwc could pay amount debt hwc could incur hwc required pay unused commitment fee ranging 025 05 per annum amount unused commitment bank line credit 7 postretirement healthcare insurance benefits company provides healthcare insurance benefits approximately 650 eligible retired employees plan longer available current employees healthcare plans contributory contain costsharing features deductibles lifetime maximums copayment requirements oil states international inc subsidiaries notes consolidated combined financial statements continued healthcare plans funded companys policy pay benefits incurred 2000 company amended postretirement plan resulted 16 million benefit obligation reduction amount credited expense fourth quarter 2000 accumulated benefit obligation determined actuarial assumption using healthcare cost trend rate 75 medical 1125 prescription drugs 2001 gradually declining approximately 5 year 2009 thereafter projected payout period benefits accumulated benefit obligations determined using assumed discount rate 725 750 december 31 2001 2000 respectively plans provisions companys prescription costs capped annual benefit limits retirees assumed pay portion future prescription costs capped limit one percentagepoint increase decrease assumed healthcare cost trend rates would immaterial accumulated postretirement benefit obligation net periodic benefit cost december 31 2001 8 retirement plans prior january 2002 company sponsored number defined contribution plans effective january 2002 company merged domestic defined contribution plans single plan sponsored oil states participation plans available substantially employees company recognized expense 17 million 17 million 22 million related various defined contribution plans years ended december 31 2001 2000 1999 respectively oil states international inc subsidiaries notes consolidated combined financial statements continued 9 redeemable preferred stock redeemable preferred stock outstanding december 31 2001 2000 follows dollar amounts thousands series cumulative preferred stock december 31 2000 osi 143000 shares series cumulative preferred stock series preferred stock issued outstanding par value 100 per share stock issued ltv corporation ltv conjunction acquisition osi formerly continental emsco company 1995 holders series preferred stock entitled cumulative quarterly dividends commenced september 15 1995 annual rate 70 700 per share december 31 2000 dividends 07 million accrued paid holders series preferred stock entitled vote except specified series preferred stock designation osi holders series preferred stock could either partys option redeem part series preferred stock 100 per share plus accrued unpaid dividends commencing september 15 2000 july 21 2000 osi obtained waiver ltv whereby ltv waived rights optional redemption september 15 2000 ltv could request redemption earlier april 30 2001 completion registered public offering dividends increased 7 12 effective september 15 2001 consideration ltv executing waiver preferred stock accrued dividends paid full february 2001 proceeds received offering see note 2 series exchangeable cumulative preferred stock july 15 1997 osi issued 45000 shares preferred stock par value 00001 per share connection acquisition hydrotech shares designated series exchangeable cumulative preferred stock series exchangeable preferred stock liquidation value 100 per share plus accrued unpaid dividends less amounts due former hydrotech stockholders acquisition agreement hydrotech provided 25000 shares series exchangeable preferred stock placed escrow released accordance earnout requirements specified acquisition agreement holders series exchangeable preferred stock entitled cumulative annual dividends commencing july 15 1998 annual rate 70 700 per share december 31 2000 dividends 2 million accrued paid share series exchangeable preferred stock exchangeable prior july 15 2002 number shares osis class common stock determined dividing liquidation value conversion date exchange price exchange price defined 1500 plus 80 times excess fair market value osis common stock date exchange 1500 unexchanged shares series exchangeable preferred stock outstanding july 15 2002 would automatically redeemed redemption price equal liquidation value osi also option upon occurrence events specified series oil states international inc subsidiaries notes consolidated combined financial statements continued exchangeable preferred stock certificate designation redeem portion series exchangeable preferred stock redemption price equal liquidation value holders series exchangeable preferred stock entitled vote 1998 osi purchased 25000 shares placed escrow 001 per share accordance provisions acquisition agreement hydrotech failed meet specified earnout requirements difference 25 million treated reduction goodwill preferred stock accrued dividends paid full february 2001 proceeds received offering see note 2 series b exchangeable cumulative preferred stock july 15 1997 osi issued 38500 shares preferred stock par value 00001 per share connection acquisition hydrotech shares designated series b exchangeable cumulative preferred stock series b exchangeable preferred stock liquidation value 100 per share plus accrued unpaid dividends less amounts due former hydrotech stockholders holders series b exchangeable preferred stock entitled cumulative annual dividends commencing july 15 1998 annual rate 31 310 per share december 31 2000 dividends 17 million accrued paid share series b exchangeable preferred stock exchangeable prior july 15 2004 number shares osis class common stock determined dividing liquidation value conversion date exchange price 1280 per share unexchanged shares series b exchangeable preferred stock outstanding july 15 2004 would automatically redeemed redemption price equal liquidation value osi also option upon occurrence events specified series b exchangeable preferred stock certificate designation redeem portion series b exchangeable preferred stock redemption price equal liquidation value holders series b exchangeable preferred stock entitled vote preferred stock accrued dividends paid full february 2001 proceeds received offering see note 2 series redeemable convertible preferred stock connection 1999 acquisition ch hwc issued 2145 shares new series class redeemable convertible preferred stock redeemable series preferred stock shares redeemable liquidation preference 1000 per share preferred shares accrued dividends rate 65 per annum hwc accrued cumulative unpaid dividends totaling 18 million december 31 2000 redeemable series preferred stock shall redeemed whole hwc march 31 2004 redemption price 1000 per share plus accrued unpaid dividends date redemption holders redeemable series preferred stock right convert time shares common stock hwc based liquidation value preferred stock including accrued unpaid dividends date based upon preestablished formulas defined agreement preferred stock accrued dividends converted common stock february 2001 see note 2 series b redeemable convertible preferred stock connection 1999 acquisition two unrelated companies hwc issued 2650 shares new series b class redeemable convertible preferred stock redeemable series b preferred stock shares redeemable liquidation preference 1000 per share preferred shares accrued dividends rate 65 per annum hwc accrued cumulative unpaid dividends totaling 1 million december 31 2000 redeemable series b preferred stock shall redeemed whole hwc october 30 2004 redemption price 1000 per share plus accrued unpaid dividends date redemption holders redeemable series b preferred stock right convert time shares common stock hwc based liquidation value preferred stock including accrued unpaid dividends date based upon preestablished formulas defined oil states international inc subsidiaries notes consolidated combined financial statements continued agreement preferred stock accrued dividends converted common stock february 2001 see note 2 10 convertible preferred stock july 31 1997 osi issued 16250 shares preferred stock par value 00001 per share connection acquisition smatco shares designated series convertible cumulative preferred stock convertible preferred stock liquidation value 100 per share plus accrued unpaid dividends holders convertible preferred stock entitled cumulative annual dividends commencing july 31 1998 annual rate 30 300 per share december 31 2000 dividends 07 million accrued paid share convertible preferred stock convertible number shares osis class common stock determined dividing liquidation value conversion date conversion price 1500 per share conversion optional prior august 1 2002 subject occurrence events specified convertible preferred stock certificate designation august 1 2002 share convertible preferred stock outstanding would automatically convert described upon occurrence events specified convertible preferred stock certificate designation osi option redeem portion unconverted convertible preferred stock liquidation value holders convertible preferred stock entitled vote preferred stock accrued dividends paid full february 2001 proceeds received offering see note 2 11 income taxes consolidated pretax income loss continuing operations years ended december 31 2001 2000 1999 consists following thousands components income tax provision continuing operations extraordinary items years ended december 31 2001 2000 1999 consist following thousands oil states international inc subsidiaries notes consolidated combined financial statements continued provision taxes continuing operations extraordinary items differs amount computed statutory rates follows years ended december 31 2001 2000 1999 thousands significant items giving rise deferred tax assets liabilities december 31 2001 2000 follows thousands us federal income tax purposes company net operating loss carryforwards approximately 937 million regular income taxes expire years 2005 2020 portion companys net operating loss carryforwards subject limitations section 382 internal revenue code 1986 amended based limitations years carryforwards expire uncertainty achieving levels taxable income required utilization company provided valuation allowance portion carryforwards company federal alternative minimum tax net operating loss carryforwards 752 million expire years 2005 2020 appropriate us foreign income taxes provided earnings foreign subsidiary companies expected remitted near future cumulative amount undistributed oil states international inc subsidiaries notes consolidated combined financial statements continued earnings foreign subsidiaries company intends permanently reinvest upon deferred us income taxes provided 301 million december 31 2001 company anticipates would material incremental us tax due unremitted foreign earnings ever repatriated additional us tax offset whole part foreign tax credits portion deferred tax assets associated property plant equipment net operating loss carryforwards relates canadian subsidiarys chilean operation deferred tax assets realized income earned chile valuation allowance provided operating loss carryforwards approximately 29 million available reduce future years taxable income expiration date 12 supplemental cash flow information cash paid years ended december 31 2001 2000 1999 interest income taxes follows thousands components cash used acquisitions reflected consolidated statements cash flows years ended december 31 2001 2000 1999 summarized follows thousands noncash transactions included receipt noncash consideration 1999 businesses sold osi totaling 574 million 13 commitments contingencies company leases portion equipment office space computer equipment automobiles trucks leases expire various dates minimum future operating lease obligations effect december 31 2001 follows thousands rental expense operating leases 39 million 30 million 30 million years ended december 31 2001 2000 1999 respectively oil states international inc subsidiaries notes consolidated combined financial statements continued december 31 2000 osi entered forward purchase contracts march 30 2001 bank totaling 32 million purchase foreign currency hedge existing receivable balances contract purchase rates significantly different december 31 2000 currency exchange rates company involved various claims lawsuits proceedings relating wide variety matters uncertainties inherent final outcome matters presently impossible determine actual costs ultimately may incurred management believes resolution uncertainties incurrence costs material adverse effect companys consolidated financial position results operations liquidity company aware certain energy service companies past used asbestos connection manufacture equipment otherwise operation business become subject increased asbestos related litigation since september 30 2001 subsidiaries company named defendants two cases plaintiffs seeking damages including punitive damages alleging subsidiaries responsibility two individuals developing mesothelioma result exposure asbestos although cases management aware pending threatened company subsidiaries involving allegations relating asbestos exposure assurance asbestos related claims made based managements preliminary investigation management believe two cases future claims relating asbestos exposure material adverse effect companys consolidated financial position results operations liquidity 14 relatedparty transactions company incurred legal fees totaling 24 million 2001 services rendered law firm connection possible acquisition company member board directors partner law firm transaction resulted acquisition effort company currently rents land buildings officer company pays monthly rent 5100 officer previous owner business acquired oil states l e simmons associates incorporated time served financial advisor company explored opportunities mergers acquisitions divestitures professional advisory fees outofpocket expenses totaling approximately 08 million 12 million paid l e simmons associates incorporated 2000 1999 respectively december 31 1998 osi declared 250 million dividend form subordinated note payable scf iii acting agent common stockholders osi see note 6 hwc paid consulting fees approximately 4 million 1999 three former owners hydraulic well control inc one board member hwc 15 stockbased compensation october 1995 fasb issued sfas 123 accounting stockbased compensation requires company record stockbased compensation fair value company adopted disclosure requirements sfas 123 elected record employee compensation expense accordance accounting principles board apb opinion 25 accounting stock issued employees company accounts employee stockbased compensation plan apb opinion 25 related interpretations accordingly deferred compensation expense recorded stock options based excess market value common stock date options granted aggregate exercise price options deferred compensation amortized vesting period oil states international inc subsidiaries notes consolidated combined financial statements continued option company authorized grant 3700000 stock options 2001 equity participation plan stock option plan employees consultants directors amounts exercise prices vesting schedules determined companys compensation committee exercise price options granted stock option plan equal greater market price companys stock date grant compensation expense related plan recorded compensation expense stock option plan determined consistent sfas 123 companys net income loss earnings per share december 31 2001 2000 1999 would follows thousands except per share amounts oil states international inc subsidiaries notes consolidated combined financial statements continued following table summarizes information stock options outstanding december 31 2001 december 31 2001 1468688 options available future grant stock option plan weighted average fair values options granted 2001 2000 1999 548 198 166 per share respectively fair value option grant estimated date grant using blackscholes option pricing model following weighted average assumptions used grants 2001 2000 1999 respectively riskfree interest rates 50 49 63 expected dividend yield expected lives 83 53 56 years expected volatility 45 0 february 2001 company granted restricted stock award totaling 100000 shares total value award date 9 million amortized compensation expense threeyear vesting period 16 discontinued operations may 28 1999 one transaction ce distribution sold distribution net assets two senior subordinated notes receivable totaling 300 million osi sold 518 investment ce franklin marketable securities fair market value 247 million date sale combined transaction resulted loss sale approximately 172 million net income tax benefit 19 million included loss sale provision operating losses 124 million net income tax benefit 8 million recorded phaseout period june 1999 one senior subordinated notes amount 145 million plus accrued interest libor plus 275 paid full july 1999 second senior subordinated note amount 155 million plus accrued interest libor plus 275 paid full subsequent may 28 1999 marketable securities sold loss 33 million june 21 2000 osi returned 18 million purchase price buyer indemnification specified postclosing liabilities additional adjustments purchase price possible management believes amounts accrued adequate cover exposure may 28 1999 separate transaction ce distribution sold oil country tubular related assets sooner cash 74 million 20 million noncash consideration cancellation subordinated promissory note discussed note 6 resulting loss sale 7 million result abovementioned transactions ce distribution ceased operations 1999 july 7 1999 ce drilling sold operating net assets included net assets ce mobile 650 million cash resulting loss sale 49 million net income tax expense 07 million included loss sale operating income 26 million net income tax expense 01 million recorded phase period purchase price subject adjustments defined agreement 1999 additional accrual 57 million net income tax expense oil states international inc subsidiaries notes consolidated combined financial statements continued 22 million recorded primarily accrue revision purchase price april 17 2000 osi settled purchase price adjustment returned 69 million purchase price buyer however outstanding claims remain settled management believes amounts accrued adequate cover exposure result abovementioned transaction ce drilling ce mobile ceased operations 1999 results ce distribution ce franklin ce drilling ce mobile shown discontinued operations components amounts reflected accompanying combined statements operations cash flows year ended december 31 1999 presented following table thousands 17 segment related information accordance sfas 131 disclosures segments enterprise related information company identified following reportable segments offshore products wellsite services tubular services companys reportable segments strategic business units offer different products services managed separately business requires different technology marketing strategies businesses acquired unit management time acquisition retained financial information industry segment three years ended december 31 2001 2000 1999 summarized following table thousands company evaluates performance allocates resources based ebitda defined calculated operating income adding back depreciation amortization calculations ebitda defined viewed substitute calculations accounting principles generally accepted us particular operating income net income addition ebitda calculations one company may comparable another company oil states international inc subsidiaries notes consolidated combined financial statements continued accounting policies segments described summary significant accounting policies financial information geographic segment three years ended december 31 2001 2000 1999 summarized thousands revenues us include export sales revenues attributable countries based location entity selling products performing services total assets attributable countries based physical location entity operating assets include intercompany balances net assets discontinued operations oil states international inc subsidiaries notes consolidated combined financial statements continued one customer year ended december 31 2001 accounted 64 revenues customer accounted 5 revenues periods presented oil states international inc subsidiaries notes consolidated combined financial statements continued 18 quarterly financial information unaudited summarized quarterly financial information 2001 2000 1999 follows thousands except per share amounts represents revenues less costs sales 1 business wellsite services segment particularly canada seasonal highest activity occurring winter months 2 effective february 14 2001 company acquired sooner results sooner included acquisition date oil states international inc subsidiaries notes consolidated combined financial statements continued 19 valuation allowances activity valuation accounts follows thousands index exhibits filed herewith management contracts compensatory plans arrangementsitem 14 controls procedures march 3 2003 chief executive officer chief financial officer performed evaluation disclosure controls procedures designed permit us effectively identify timely disclose important information concluded controls procedures effective made significant changes internal controls factors could significantly affect internal controls since march 3 2003 pursuant section 906 sarbanesoxley act 2002 chief executive officer chief financial officer provided certain certifications securities exchange commission certifications accompanied report filed commission set forth herein part iv item 15item 14 principal accounting fees services information concerning principal accountant fees services audit committees preapproval policies procedures appear companys definitive proxy statement 2005 annual meeting stockholders heading fees paid ernst young llp incorporated herein reference part iv item 15item 14 principal accounting fees services information concerning principal accountant fees services audit committee’s preapproval policies procedures appear company’s definitive proxy statement 2007 annual meeting stockholders heading “fees paid ernst young llp” incorporated herein reference part iv item 15item 14 principal accounting fees services information concerning principal accountant fees services audit committee’s preapproval policies procedures appear company’s definitive proxy statement 2008 annual meeting stockholders heading “fees paid ernst young llp” incorporated herein reference part iv item 15item 14 principal accountant fees services information concerning principal accountant fees services audit committee’s preapproval policies procedures appear company’s definitive proxy statement 2009 annual meeting stockholders heading “fees paid ernst young llp” incorporated herein reference part iv item 15item 14 principal accountant fees services information concerning principal accountant fees services audit committee’s preapproval policies procedures appear company’s definitive proxy statement 2010 annual meeting stockholders heading “fees paid ernst young llp” incorporated herein reference part iv item 15item 14 principal accountant fees services information concerning principal accountant fees services audit committee’s preapproval policies procedures appear company’s definitive proxy statement 2011 annual meeting stockholders heading “fees paid ernst young llp” incorporated herein reference part iv item 15item 14 principal accountant fees services information concerning principal accountant fees services audit committee’s preapproval policies procedures appear company’s definitive proxy statement 2012 annual meeting stockholders heading “fees paid ernst young llp” incorporated herein reference index financial statements part iv item 15item 14 principal accounting fees services information concerning principal accounting fees services audit committees preapproval policies procedures appear companys definitive proxy statement 2015 annual meeting stockholders heading fees paid ernst young llp incorporated herein reference part iv item 15item 14 principal accounting fees services information concerning principal accounting fees services audit committees preapproval policies procedures appear companys definitive proxy statement 2016 annual meeting stockholders heading fees paid ernst young llp incorporated herein reference part iv item 15item 14 principal accounting fees services information concerning principal accounting fees services audit committees preapproval policies procedures appear companys definitive proxy statement 2017 annual meeting stockholders heading fees paid ernst young llp incorporated herein reference 51 part iv item 15item 14 principal accounting fees services information concerning principal accounting fees services audit committees preapproval policies procedures appear companys definitive proxy statement 2018 annual meeting stockholders heading fees paid ernst young llp incorporated herein reference part iv item 15item 14 principal accounting fees services information concerning principal accounting fees services audit committees preapproval policies procedures appear companys definitive proxy statement 2019 annual meeting stockholders heading fees paid ernst young llp incorporated herein reference part iv item 15item 14 principal accounting fees services information concerning principal accounting fees services audit committees preapproval policies procedures appear companys definitive proxy statement 2020 annual meeting stockholders heading fees paid ernst young llp incorporated herein reference part iv item 15item 14 principal accounting fees services information concerning principal accounting fees services audit committees preapproval policies procedures appear definitive proxy statement 2021 annual meeting stockholders heading fees paid ernst young llp incorporated herein reference part iv item 15item 14 principal accounting fees services information concerning principal accountant fees services audit committee’s preapproval policies procedures appear company’s definitive proxy statement 2006 annual meeting stockholders heading “fees paid ernst young llp” incorporated herein reference part iv item 15item 14 principal accounting fees services information concerning principal accounting fees services audit committees preapproval policies procedures appear companys definitive proxy statement 2013 annual meeting stockholders heading fees paid ernst young llp incorporated herein reference part iv item 15item 14 principal accounting fees services information concerning principal accountant fees services audit committees preapproval policies procedures appear companys definitive proxy statement heading fees paid ernst young llp incorporated herein reference part iv item 15item 14 principal accounting fees services information concerning principal accounting fees services audit committees preapproval policies procedures appear companys definitive proxy statement 2014 annual meeting stockholders heading fees paid ernst young llp incorporated herein reference part iv item 15 item 7managements discussion analysis financial condition results operations read following discussion analysis together selected financial data financial statements notes statements included elsewhere annual report form 10k discussion contains forwardlooking statements based current expectations assumptions estimates projections us industry forwardlooking statements involve risks uncertainties actual results could differ materially indicated forwardlooking statements result certain factors fully described cautionary statement purposes safe harbor provisions private securities litigation reform act 1995 business section elsewhere annual report form 10k undertake obligation update publicly forwardlooking statements even new information becomes available events occur future overview provide broad range products services oil gas industry offshore products tubular services well site services business segments demand products services cyclical substantially dependent upon activity levels oil gas industry particularly customers willingness spend capital exploration development oil gas reserves demand products services customers highly sensitive current expected oil natural gas prices offshore products segment leading provider highly engineered technically designed products offshore oil gas development production systems facilities sales offshore products services depend upon repairs upgrades existing drilling rigs construction new drilling rigs development offshore production systems particularly influenced deepwater drilling production activities tubular services division distribute premium tubing casing sales tubular products services depend upon overall level drilling activity mix wells drilled demand tubular products positively impacted increased drilling deeper horizontal offshore wells generally require premium tubulars connectors large diameter pipe longer additional tubular casing strings well site services business segment provide hydraulic well control services pressure control equipment rental tools remote site accommodations catering logistics services demand well site services depends upon level worldwide drilling workover activity beginning late 1996 continuing early part 1998 stabilization oil gas prices led increases drilling activity well refurbishment new construction drilling rigs second half 1998 crude oil prices declined substantially reached levels 11 per barrel early 1999 decline pricing many customers substantially reduced capital spending related activities industry downturn continued 1999 rig count united states canada measured baker hughes incorporated fell 1481 rigs february 1998 559 rigs april 1999 downturn activity material adverse effect demand products services operations suffered result price crude oil increased significantly last 18 months due improved demand oil supply reductions opec member countries improvement crude oil pricing led increases rig count particularly canada united states december 29 2000 rig count united states canada measured baker hughes 1436 demand well site services begun recover overall improvement industry fundamentals offshore products segment recovered general market believe offshore products segment lags general market recovery sales related offshore construction production facility development generally occur later cycle worldwide construction activity continues low level currently expect increase substantially construction activity shallow water regions gulf mexico resumes industry increasingly pursues deeper water drilling development projects consolidation among major independent oil gas companies affected exploration development production activities particularly international areas companies focused integration activities cost control measures recent periods result believe capital spending within industry lagged improvement crude oil prices combination prior initial public offering february 2001 scfiii lp owned majority interests oil states hwc pti scfiv lp owned majority interest sooner following chart depicts summary ownership structure oil states hwc pti sooner prior combination chart depicting scfiii lp owns 846 806 577 oil states hwc pti respectively minority shareholders 154 194 423 oil states hwc pti respectively case prior combination chart also depicts scfiv lp owns 817 sooner minority stockholders 183 sooner prior combination le simmons associates incorporated ultimate general partner scfiii lp scfiv lp le simmons chairman board directors sole shareholder le simmons associates incorporated see item 13 certain relationships related transactions combination initial public offering concurrently closing initial public offering combination closed hwc pti sooner merged wholly owned subsidiaries oil states result hwc sooner pti became wholly owned subsidiaries concurrently closing initial public also issued 4275555 shares common stock scf exchange approximately 360 million indebtedness oil states sooner held scf exchange based initial public offering price 900 per share less underwriting discounts commissions refer transaction annual report form 10k scf exchange following chart depicts summary ownership structure company following combination scf exchange initial public offering chart depicting purchasers offering 207 company existing stockholders scf 161 scfiii lp 452 scfiv lp 179 case following combination offering chart also depicts oil states 100 hwc 100 indirectly pti 100 sooner following combination offering financial results oil states hwc pti combined three years period ended december 31 2000 using reorganization accounting yields results similar pooling interests method combined results oil states hwc pti form basis discussion results operations capital resources liquidity provided operations oil states hwc pti represent two business segments offshore products well site services concurrent closing initial public offering february 2001 oil states acquired sooner acquisition accounted using purchase method accounting pro forma financial statements year ended december 31 1999 2000 reflect acquisition sooner following acquisition sooner report three business segments unaudited pro forma financial statements reflect cost savings financial synergies may realized combination pro forma financial statements include adjustment historical financial statements include estimated annual incremental corporate expenses approximately 945000 associated opening office houston texas hiring corporate personnel incremental corporate expenses expected continue future pro forma results operations following acquisition sooner report three business segments offshore products well site services tubular services pro forma information including three segments presented year ended december 31 2000 compared year ended december 31 1999 revenues increased 1082 million 222 5956 million year ended december 31 2000 4874 million year ended december 31 1999 well site services revenues increased 688 million 568 tubular services revenues increased 791 million 373 period increases revenue partially offset decrease offshore products revenues 397 million 257 688 million increase well site services revenues 415 million generated remote site accommodations catering logistics services modular building construction services 91 million generated hydraulic workover units 99 million generated drilling operations 83 million generated rental tool operations significant improvement revenues remote site accommodations catering logistics services modular building construction services due strong level canadian drilling activity first fourth quarters 2000 resulted increased demand drilling camps related catering services increased revenues hydraulic workover units drilling rigs resulted higher utilization period 83 million increase rental tool revenues largely due increases activity levels increased tubular services revenues directly attributable increases drilling activity period revenue increases partially offset declines offshore products segment due significant downturn construction related activity cost sales cost sales increased 770 million 190 4827 million year ended december 31 2000 4057 million year ended december 31 1999 cost sales increased well site services tubular services segments 466 million 639 million respectively partially offset decrease 335 million offshore products segment changes 1999 period 2000 period caused factors influencing revenues gross profit margin improved 168 year ended december 31 1999 190 year ended december 31 2000 due cost reductions offshore products segment made response market downturn offshore construction activity selling general administrative expenses year ended december 31 2000 selling general administrative expenses increased 23 million 53 461 million compared 438 million year ended december 31 1999 selling general administrative expenses well site services segment increased 67 million 49 due increased activity acquisitions late 1999 hydraulic workover business certain nonrecurring charges totaling 4 million remote site accommodation business increase partially offset 32 million decrease offshore products segment 12 million decrease tubular services segment reduced costs offshore products segment response market downturn offshore construction activity tubular services segment benefited cost synergies created market consolidation 1999 depreciation amortization depreciation amortization totaled 267 million year ended december 31 2000 compared 263 million year ended december 31 1999 15 increase primarily related asset acquisitions capital expenditures made well site services segment 1999 operating income operating income equals revenues less cost sales selling general administrative expense depreciation amortization operating income expense operating income comprised operating income segments portion selling general administrative expenses allocated segments operating income increased 311 million 402 million year ended december 31 2000 91 million period 1999 operating income well site services segment increased 226 million 285 million year ended december 31 1999 511 million period 2000 operating income tubular services segment increased 137 million 69 million 1999 206 million 2000 operating income offshore products segment decreased 29 million 175 million 1999 146 million 2000 selling general administrative expense 461 million year 2000 compared 438 million incurred year 1999 net interest expense net interest expense totaled 93 million year ended december 31 2000 compared 65 million year ended december 31 1999 28 million decrease net interest expense primarily related reduction average debt balances outstanding offshore products segment funds generated asset sales income tax expense benefit income tax expense totaled 45 million year ended december 31 2000 compared benefit 40 million year ended december 31 1999 increase 85 million primarily due increase pretax income periods effective tax rate benefited reduction allowance applied tax assets primarily net operating losses due expected tax benefits resulting combination adjusted tax assets determined likely deferred tax assets would realized minority interest minority interest expense immaterial years ended december 31 2000 1999 minority interests acquired therefore substantially reduced connection combination combined results operations prior sooner acquisition reported two business segments offshore products well site services information two segments represent combined results oil states hwc pti using reorganization accounting presented year ended december 31 2000 compared year ended december 31 1999 revenues increased 374 million 140 3045 million year ended december 31 2000 2671 million year ended december 31 1999 well site services revenues increased 771 million 684 partially offset decrease offshore products revenues 397 million 257 771 million increase well site services revenues 415 million generated remote site accommodations catering logistics services modular building construction services 160 million generated hydraulic workover units 99 million generated drilling operations 97 million generated rental tool operations significant improvement revenues remote site accommodations catering logistics services modular building construction services due strong level canadian drilling activity first fourth quarters 2000 resulted increased demand drilling camps related catering services increased revenues hydraulic workover units drilling rigs resulted higher utilization period contributions operation various hydraulic workover assets acquired fourth quarter 1999 therefore operation majority 1999 acquisitions contributed 83 million 160 million revenue increase hydraulic workover operations 97 million increase rental tool revenues largely due increases activity levels acquisition additional rental tool facilities march 31 1999 revenue increases partially offset declines offshore products segment due significant downturn construction related activity cost sales cost sales increased 177 million 89 2176 million year ended december 31 2000 1999 million year ended december 31 1999 cost sales increased well site services segment 512 million partially offset decrease 335 million offshore products segment changes 1999 period 2000 period caused factors influencing revenues gross profit margin improved 252 year ended december 31 1999 285 year ended december 31 2000 due cost reductions offshore products segment made response market downturn offshore construction activity selling general administrative expenses year ended december 31 2000 selling general administrative expenses increased 42 million 125 378 million compared 336 million year ended december 31 1999 selling general administrative expenses well site services segment increased 69 million 50 due increased activity acquisitions late 1999 hydraulic workover business certain nonrecurring charges totaling 4 million remote site accommodation business increase partially offset 27 million decrease offshore products segment reduced costs offshore products segment response market downturn offshore construction activity depreciation amortization depreciation amortization totaled 213 million year ended december 31 2000 compared 203 million year ended december 31 1999 49 increase primarily related asset acquisitions capital expenditures made well site services segment 1999 operating income operating income equals revenues less cost sales selling general administrative expense depreciation amortization operating income expense operating income comprised operating income segments portion selling general administrative expenses allocated segments operating income increased 170 million 279 million year ended december 31 2000 109 million period 1999 operating income well site services segment increased 242 million 270 million year ended december 31 1999 512 million period 2000 operating income offshore products segment decreased 29 million 175 million 1999 146 million 2000 selling general administrative expense 378 million year 2000 compared 336 million incurred year 1999 net interest expense net interest expense totaled 115 million year ended december 31 2000 compared 125 million year ended december 31 1999 10 million decrease net interest expense primarily related reduction average debt balances outstanding offshore products segment funds generated asset sales income tax expense benefit income tax expense totaled 108 million year ended december 31 2000 compared 47 million year ended december 31 1999 increase 61 million primarily due increase pretax income periods effective tax rate adversely affected losses incurred offshore products segment tax assets recorded record tax assets could determine likely deferred tax assets would realized minority interest minority interest expense totaled 42 million year ended december 31 2000 compared 06 million income year ended december 31 1999 increase expense primarily due increased profitability within business segments particularly well site services year ended december 31 1999 compared year ended december 31 1998 revenues decreased 919 million 256 2671 million year ended december 31 1999 3590 million year ended december 31 1998 offshore products revenues decreased 757 million 329 well site services revenues decreased 162 million 126 decrease offshore products revenues resulted overall market downturn 1999 affected offshore products business lines including connector products marine construction activities marine winches decrease well site services revenues primarily due lower demand remote accommodations catering logistics services cost sales cost sales decreased 648 million 245 1999 million year ended december 31 1999 2647 million 1998 cost sales decreased 519 million 290 offshore products segment 129 million 150 well site services segment changes cost sales factors influencing revenues gross profit margin decreased 263 1998 252 1999 due reduction activity period margins deteriorated offshore products offset somewhat margin improvements well site services particularly accommodations catering logistics services selling general administrative expenses year ended december 31 1999 selling general administrative expenses decreased 118 million 260 336 million compared 454 million incurred 1998 selling general administrative expenses offshore products segment declined 97 million 323 expenses well site services segment declined 21 million 138 reduced costs segments response general industry downturn occurred 1999 depreciation amortization depreciation amortization totaled 203 million 1999 compared 182 million 1998 increase 21 million 115 primarily related expansion well site services operations acquired rental tool operations may 1998 expanded operations acquisition april 1999 operating income loss operating income decreased 149 million 109 million year ended december 31 1999 compared 258 million period 1998 operating income offshore products segment 1999 decreased 263 million 175 million 438 million 1998 operating income well site services segment decreased 04 million period selling general administrative expense 336 million 1999 compared 454 million 1998 decrease 118 million expenses totaling 24 million 1999 49 million 1998 reduced operating income expenses 24 million incurred 1999 related loss disposal assets offshore products segment expenses 49 million 1998 related primarily 53 million writedown investment chilean operations well site services segment chilean assets consisted primarily temporary living accommodations shortterm rental various mining contractors chile result depressed copper prices majority projects either delayed cancelled september 1998 significant markets available units fair value units reassessed based significantly reduced future cash flows resulting 53 million writedown net interest expense net interest expense totaled 125 million 1999 compared 153 million 1998 28 million decrease net interest expense 25 million resulted decrease average debt balances outstanding offshore products segment due proceeds asset sales used repay debt income expense 1999 13 million expense recorded offshore products segment related net loss sale two wholly owned subsidiaries publicly traded securities smith international inc income tax expense benefit income tax expense totaled 47 million 1999 compared 97 million 1998 50 million decrease income tax expense 1998 1999 primarily due reduction pretax income period 1999 recorded 11 million tax provision pretax loss 108 million incurred offshore products segment net tax asset recorded minority interest minority interest totaled credit 06 million 1999 compared 30 million 1998 24 million net change minority interest primarily due increase income generated well site services segment 1999 compared 1998 offset losses offshore products segment liquidity capital resources primary liquidity needs fund capital expenditures expanding upgrading manufacturing facilities equipment increasing rental tool workover assets increasing accommodation units funding new product developments repay current maturities longterm debt fund general working capital needs addition capital needed fund strategic business acquisitions primary sources funds cash flow operations proceeds borrowings bank facilities private capital investments cash provided operations 2000 1999 1998 amounts 336 million 52 million 75 million respectively cash provided operations funded ongoing increased needs working capital period 2000 cash provided operations primarily due operating income working capital decreases well site services segment generated primarily activities canada capital expenditures 214 million 113 million 361 million 2000 1999 1998 respectively capital expenditures three year period 1998 2000 consisted principally purchases rental assets well site services segment purchase offshore products equipment expansion offshore products facility houma louisiana expect spend approximately 30 million 2001 upgrade equipment facilities expand product service offerings capital expenditures expected funded operating cash flow borrowings 150 million credit facility discussed 1999 sold operating assets ce distribution services inc ce drilling products inc ce mobile equipment inc 518 investment ce franklin accordingly periods presented results ce distribution ce drilling ce mobile ce franklin shown discontinued operations proceeds sale discontinued operations 1024 million addition marketable securities acquired connection sale investment ce franklin sold 244 million proceeds asset sales applied reduce outstanding bank debt net cash used investing activities amount 224 million 2000 primarily fund capital expenditures acquisitions net cash provided investing activities amount 1122 million 1999 primarily result asset sales referred net cash used investing activities amount 619 million 1998 fund capital expenditures acquisitions net cash 03 million provided financing activities 2000 net cash used financing activities amount 1161 million 1999 primarily result reductions bank debt outstanding net cash provided financing activities 1998 amount 425 million cash raised period used fund capital expenditures acquisitions completion initial public offering february 2001 repaid 478 million subordinated debt accrued interest oil states sooner outstanding december 31 2000 addition redeemed total 218 million preferred stock oil states outstanding december 31 2000 concurrently closing initial public offering issued 4275555 shares common stock scf exchange approximately 360 million indebtedness held scf exchange also concurrent closing initial public offering entered 150 million senior secured revolving credit facility february 2001 credit suisse first boston new york branch affiliate credit suisse first boston corporation administrative agent collateral agent book manager lead arranger credit suisse first boston canada affiliate credit suisse first boston corporation canadian administrative agent collateral agent book manager lead arranger 450 million new credit facility available form loans denominated canadian dollars may made principal canadian operating subsidiaries new credit facility replaced existing credit facilities facility matures february 14 2004 unless extended two additional one year periods consent lenders amounts borrowed new facility bear interest election either variable rate equal libor case canadian dollar denominated loans bankers acceptance discount rate plus margin ranging 15 25 alternate base rate equal higher credit suisse first bostons prime rate federal funds effective rate plus 05 case canadian dollar denominated loans canadian prime rate plus margin ranging 05 15 depending upon ratio total debt ebitda defined new credit facility pay commitment fees ranging 025 05 per year undrawn portion facility also depending upon ratio total debt ebitda subject exceptions commitments new credit facility permanently reduced loans prepaid amount equal 100 net cash proceeds nonordinary course asset sales issuance additional debt 50 issuance equity securities mandatory commitment reductions allocated pro rata based amounts outstanding us dollar denominated facility canadian dollar denominated facility addition voluntary reductions commitments permitted new credit facility guaranteed active domestic subsidiaries cases canadian foreign subsidiaries credit facility secured first priority lien inventory accounts receivable material tangible intangible assets well active subsidiaries however 65 voting stock foreign subsidiary required pledged pledge greater percentage would result adverse tax consequences new credit facility contains negative covenants restrict ability incur additional indebtedness prepay redeem repurchase outstanding indebtedness loans new credit facility pay dividends repurchase redeem capital stock sell assets ordinary course business make liens engage saleleaseback transactions make specified loans investments make acquisitions enter mergers consolidations similar transactions enter hedging arrangements enter transactions affiliates change businesses subsidiaries conduct amend debt material agreements addition new credit facility require us maintain ratio ebitda interest expense less 30 10 level consolidated net tangible assets less 120 million plus 50 quarters consolidated net income loss maximum ratio total debt ebitda greater 35 10 maximum ratio total senior debt ebitda greater 30 10 new credit facility occurrence specified change control events involving company would constitute event default would permit credit suisse first boston among things accelerate maturity facility cause become immediately due payable full march 23 2001 1091 million outstanding facility additional 39 million outstanding letters credit leaving 370 million available drawn facility giving effect initial public offering application net proceeds us scf exchange repayment subordinated debt since december 31 2000 aggregate approximately 119 million subordinated debt outstanding following initial public offering subordinated debt become due payable various times period june 2001 november 2005 believe proceeds initial public offering cash operations available borrowings new credit facility sufficient meet liquidity needs foreseeable future plans assumptions change inaccurate make acquisitions may need raise additional capital may able raise additional funds may able raise funds favorable terms tax matters year ended december 31 2000 deferred tax assets net deferred tax liabilities approximately 29 million federal income tax purposes application valuation allowances primary deferred tax assets net operating loss carry forwards nols total approximately 122 million valuation allowance currently provided majority nols expire period 2018 nols currently limited section 382 internal revenue code due change control occurred 1995 however approximately 55 million nols available use currently sufficient income generated anticipate combination enable us use portion nols previously reserved valuation allowance recent accounting pronouncements 1998 financial accounting standards board issued statement financial accounting standards sfas 133 accounting derivative instruments hedging activities sfas 133 establishes accounting reporting standards requiring every derivative instrument including derivative instruments embedded contracts recorded balance sheet either asset liability measured fair value statement requires changes derivatives fair value recognized currently earnings unless specific hedge accounting criteria met special accounting qualifying hedges allows derivatives gains losses offset related results hedged item income statement requires company must formally document designate assess effectiveness transactions receive hedge accounting sfas 133 effective fiscal years beginning june 15 2000 company may also implement statement beginning fiscal quarter issuance however sfas 133 cannot applied retroactively adopted sfas 133 effective january 1 2001 believe sfas 133 material impact results operations item 7aitem 7 managements discussion analysis financial condition results operations read following discussion analysis together selected financial data financial statements notes statements included elsewhere annual report form 10k discussion contains forwardlooking statements based current expectations assumptions estimates projections us industry forwardlooking statements involve risks uncertainties actual results could differ materially indicated forwardlooking statements result certain factors fully described cautionary statement purposes safe harbor provisions private securities litigation reform act 1995 item 1 business elsewhere annual report form 10k except extent required law undertake obligation update publicly forwardlooking statements even new information becomes available events occur future critical accounting policies selection critical accounting policies adopted company objective properly reflect financial position results operations reporting period manner understood utilize financial statements often must use judgment uncertainties several critical accounting policies put practice company important effect reported financial results selection useful lives many assets requires judgments operating personnel length useful lives estimates long short might eventually report disproportionate number losses gains upon disposition retirement longlived assets believe estimates useful lives appropriate contingent liabilities future claims made estimates amount eventual cost liquidate liabilities claims liabilities claims sometimes involve threatened actual litigation damages quantified made assessment companys exposure recorded provision accounts cover expected loss claims liabilities estimated based experience matters appropriate advice outside counsel outside experts upon ultimate resolution uncertainties future reported financial results impacted difference estimates actual amounts paid settle liability examples areas made important estimates future liabilities include litigation taxes postretirement benefits warranty claims contract claims company recognizes revenue profit work progresses longterm fixed price contracts using percentageofcompletion method relies estimates total expected contract revenue costs oil states follows method since reasonably dependable estimates revenue costs applicable various stages contract made recognized revenues profit subject revisions contract progresses completion revisions profit estimates charged income expense period facts give rise revision become known valuation allowances especially related potential bad debts accounts receivable obsolescence market value declines inventory involve reviews underlying details assets known trends marketplace application historical factors provide us basis recording allowances market conditions less favorable projected management companys historical experience materially different future experience additional allowances may required oil states records valuation allowance reduce deferred tax assets amount likely realized oil states considered future taxable income ongoing prudent feasible tax planning strategies assessing need valuation allowance event company determine would able realize deferred tax assets future excess net recorded amount adjustment deferred tax asset would increase income period determination made likewise company determine would able realize part net deferred tax asset future adjustment deferred tax asset would charged expense period determination made overview provide broad range products services oil gas industry offshore products tubular services well site services business segments demand products services cyclical substantially dependent upon activity levels oil gas industry particularly customers willingness spend capital exploration development oil gas reserves demand products services customers highly sensitive current expected oil natural gas prices offshore products segment provides highly engineered technically designed products offshore oil gas development production systems facilities sales offshore products services depend upon repairs upgrades existing drilling rigs construction new drilling rigs development offshore production systems segment particularly influenced deepwater drilling production activities tubular services division distribute premium tubing casing sales tubular products services depend upon overall level drilling activity mix wells drilled demand tubular products positively impacted increased drilling deeper horizontal offshore wells generally require premium tubulars connectors large diameter pipe longer additional tubular casing strings well site services business segment provide hydraulic well control services pressure control equipment rental tools remote site accommodations catering logistics services demand well site services depends upon level worldwide drilling workover activity energy oilfield service activities highly cyclical depending upon crude oil natural gas pricing among things beginning late 1996 continuing though early part 1998 stabilization oil gas prices led increases drilling activity well refurbishment new construction drilling rigs second half 1998 crude oil prices declined substantially reached levels 11 per barrel early 1999 decline pricing many customers substantially reduced capital spending related activities industry downturn continued 1999 rig count united states canada measured baker hughes incorporated fell 1481 rigs february 1998 559 rigs april 1999 downturn activity material adverse effect demand products services results operations decreased significantly price crude oil natural gas increased 1999 levels 2000 2001 due improved demand oil supply reductions opec member countries reductions natural gas storage levels improvement crude oil natural gas pricing led increases rig count 2000 first half 2001 particularly canada united states rig count reached high 1698 rigs february 2001 average north american rig count 1263 1498 2000 2001 respectively crude oil natural gas prices since decreased significantly levels reached early 2001 economic slowdown united states rest world moderate weather resultant increased inventories oil gas especially united states contributed price declines price reductions customers responded decreased drilling activity spending exploration development december 31 2001 rig count united states canada measured baker hughes 1165 decline 31 high reached earlier year decline 23 1436 rigs working december 29 2000 diversified product service offering exposure throughout oil gas cycle demand tubular services highly correlated movements rig count united states began weaken overall deterioration industry fundamentals last half 2001 certain well site services businesses began decrease fourth quarter 2001 united states canadian rig count declined 18 compared third quarter 2001 land drilling business west texas remote accommodations business canada generally impacted movements rig counts united states canadian rig count increased since december 31 2001 1243 working rigs february 15 2002 however increase due seasonal factors canada rather overall improvement drilling activity believe offshore products segment lagged general market recovery 2000 2001 sales primarily relate offshore construction production facility development generally occur later exploration development cycle worldwide offshore construction development activity improving currently expect increase substantially construction activity shallow water regions gulf mexico resumes industry increasingly pursues deeper water drilling development projects backlog offshore products segment increased 381 million december 31 2000 724 million december 31 2001 increase 90 february 15 2002 backlog totaled 846 million management believes fundamental oil gas supply demand factors lead increased drilling activity north america time however timing recovery uncertain view current inventory imbalance price decreases short mediumterm situation encouraged relatively stable international drilling development activity although diversified nature businesses expected moderate impact north american drilling activity declines expecting 15 20 revenue decline 2002 compared 2001 based upon forecast energy prices drilling activity levels combination prior offering february 2001 scfiii lp owned majority interests oil states hwc pti scfiv lp owned majority interest sooner l e simmons associates incorporated ultimate general partner scfiii lp scfiv lp le simmons chairman board directors sole shareholder le simmons associates incorporated concurrently closing initial public offering combination closed hwc pti sooner merged wholly owned subsidiaries oil states result hwc sooner pti became wholly owned subsidiaries financial results oil states hwc pti combined three years period ended december 31 2000 using reorganization accounting yields results similar pooling interests method combined results oil states hwc pti form basis discussion results operations years operations oil states hwc pti represent two business segments offshore products well site services concurrent closing initial public offering february 2001 oil states acquired sooner acquisition accounted using purchase method accounting pro forma financial statements years ended december 31 1999 2000 2001 reflect acquisition sooner following acquisition sooner reported three business segments pro forma results operations year ended december 31 2001 compared year ended december 31 2000 revenues pro forma revenues increased 208 5956 million year ended december 31 2000 7197 million year ended december 31 2001 revenues well site services segment increased 499 million 263 240 million generated remote site accommodations catering logistics services modular building construction services 91 million generated rental tool business 117 million generated land drilling operations 51 million generated hydraulic workover operations increases canadian drilling activity oil sands development activity strong gulf mexico accommodations activity drove increase revenues remote site accommodations catering logistics services modular building construction services increases revenues rental tool operations due increased equipment available rent two small acquisitions completed third quarter 2001 increases revenues land drilling services due improvements utilization pricing year 2000 year 2001 tubular services revenues increased 595 million 204 direct result increased drilling activity period addition fourth quarter benefited large onetime sale inventory held international locations fourth quarter 2001 pursuant scheduled contract terminations international sales totaled 171 million 515 million 2000 2001 respectively contracts extended interim shortterm basis assurance interim contracts extended remaining 147 million increase revenues generated offshore products segment year increase revenues generated increased demand bearings connector products certain fabrication work cost sales pro forma cost sales increased 1002 million 208 5829 million year ended december 31 2001 4827 million year ended december 31 2000 cost sales increase due increased activity operating segments factors influencing revenues cost sales increased well site services tubular services offshore products segments 294 million 635 million 64 million respectively gross margin gross margins calculate deduction depreciation amortization expense increased 238 million 1130 million 2000 1368 million 2001 gross margin percentage consistent 2000 2001 190 due improvement offshore products well site services segments offset declines tubular services gross margin percentages offshore products gross margin increased 212 million 2000 295 million 2001 increase 83 million 392 gross margin percentage segment increased 185 2000 228 2001 gross margin increase due improved revenues margins related bop stack integration repair services well increased demand flexible bearings connector products also improved margins related manufacturing rig vessel equipment well site services gross margins increased 657 million 2000 862 million 2001 increase 205 million 312 gross margin percentage segment increased 346 2000 359 2001 within well site services segment land drilling contributed 72 million margin increase utilization rigs average revenues per day worked increased 2001 compared 2000 remote site accommodations catering logistics services modular building construction responsible improvement gross margin 64 million due increased activity especially us gulf mexico operations increased equipment available rent result capital expenditures increased activity oil sands development areas northern alberta canada rental tool operations contributed margin improvement 49 million increase gross margin principally related increase revenues discussed tubular services gross margins decreased 261 million 90 revenues 2000 221 million 63 revenues 2001 decrease 40 million 153 tubular services segment suffered margin declines last half 2001 due general market declines decision aggressively reduce inventory levels anticipation weakening market margin decline occurred despite liquidation international tubular inventories year end 2001 gross margin international sales totalled 28 million 66 million 2000 2001 respectively negative gross margin corporateother due recognition unallocated insurance expense corporate level selling general administrative expenses year ended december 31 2001 pro forma selling general administrative sga expenses increased 50 million 108 511 million 461 million 2000 percent revenues sga expenses declined 71 2001 77 2000 sga expenses increased 24 million 121 well site services segment due headcount increases support increased market activity higher employer incentive costs based upon companys ebitda performance corporate headquarter charges 28 million due establishment new corporate headquarters office depreciation amortization pro forma depreciation amortization increased 20 million total 287 million year ended december 31 2001 75 increase primarily due acquisitions capital expenditures made well site services segment 2000 2001 operating income pro forma operating income represents revenues less cost sales ii selling general administrative expenses iii depreciation amortization plus operating income operating income increased 171 million 425 573 million year ended december 31 2001 402 million 2000 operating income well site services segment increased 166 million 308 million year ended december 31 2000 474 million 2001 operating income tubular services segment decreased 42 million 125 million year ended december 31 2001 167 million 2000 operating income offshore products segment increased 82 million 66 million year ended december 31 2001 operating loss 16 million 2000 net interest expense net pro forma interest expense totaled 84 million year ended december 31 2001 compared 93 million 2000 09 million reduction net interest expense primarily related lower interest rates partially offset increase average debt balances outstanding average debt balances higher 2001 result refinancing certain preferred stock issues february 2001 however bank debt decreased 1105 million february 28 2001 692 million december 31 2001 income tax expense pro forma income tax expense totaled 21 million 2001 compared 45 million 2000 decrease 24 million corresponding low effective tax rate primarily due reduction allowance applied tax assets primarily net operating losses nols due expected tax benefits resulting combination adjusted tax assets determined likely deferred tax assets would realized minority interest minority interest immaterial years ended december 31 2001 2000 substantially minority interests acquired therefore reduced connection combination year ended december 31 2000 compared year ended december 31 1999 revenues pro forma revenues increased 1082 million 222 5956 million year ended december 31 2000 4874 million 1999 well site services revenues increased 688 million 568 tubular services revenues increased 791 million 373 period increases revenue partially offset decrease offshore products revenues 397 million 257 688 million increase well site services revenues 415 million generated remote site accommodations catering logistics services modular building construction services 91 million generated hydraulic workover units 99 million generated drilling operations 83 million generated rental tool operations significant improvement revenues remote site accommodations catering logistics services modular building construction services due strong level canadian drilling activity first fourth quarters 2000 resulted increased demand drilling camps related catering services increased revenues hydraulic workover units drilling rigs resulted higher utilization period 83 million increase rental tool revenues largely due increases activity levels increased tubular services revenues directly attributable increases drilling activity period revenue increases partially offset declines offshore products segment due significant downturn offshore construction related activity cost sales pro forma cost sales increased 770 million 190 4827 million year ended december 31 2000 4057 million 1999 cost sales increased well site services tubular services segments 465 million 638 million respectively partially offset decrease 334 million offshore products segment changes 1999 period 2000 period caused factors influencing revenues gross margins gross margins calculate deduction depreciation amortization expense increased 313 million 817 million 1999 1130 million 2000 gross margin percentages increased 168 1999 190 2000 due improvements offshore products tubular services segments partially offset declines well site services segment offshore products gross margin decreased 275 million 178 revenues 1999 212 million 185 revenues 2000 offshore products gross margin percentage improvement year 2000 attributable greater percentage mix higher margin connector products revenues versus lower margin fabrication work well site services gross margin increased 434 million 1999 657 million 2000 increase 223 million 514 within well site services segment remote site accommodations catering logistics modular building construction contributed 117 million margin increase margin improvement resulted overall increase canadian drilling activity average canadian rig count increased 345 rigs 2000 245 rigs 1999 408 increase hydraulic workover specialty rental tool land drilling operations contributed 106 million margin increase improvement resulted increased drilling workover activity especially us gulf mexico west texas west africa tubular services gross margins increased 108 million 51 revenue 1999 261 million 90 revenue 2000 increased revenues caused higher drilling activity helped leverage fixed costs liquidation relatively low cost inventories period rising inventory prices helped us achieve margin increases selling general administrative expenses year ended december 31 2000 pro forma sga expenses increased 23 million 53 461 million compared 438 million 1999 percent revenues sga expenses declined 77 2000 90 1999 sga expenses well site services segment increased 67 million 49 due increased activity acquisitions late 1999 hydraulic workover business certain nonrecurring charges totaling 4 million remote site accommodations business increase partially offset 32 million decrease offshore products segment 12 million decrease tubular services segment reduced costs offshore products segment response market downturn offshore construction activity tubular services segment benefited cost synergies created market consolidation 1999 depreciation amortization pro forma depreciation amortization totaled 267 million year ended december 31 2000 compared 263 million 1999 15 increase primarily related asset acquisitions capital expenditures made well site services segment 1999 operating income pro forma operating income equals revenues less cost sales sga expense depreciation amortization operating income expense operating income increased 311 million 402 million year ended december 31 2000 91 million period 1999 operating income well site services segment increased 160 million 148 million year ended december 31 1999 308 million period 2000 operating income tubular services segment increased 189 million loss 22 million 1999 167 million income 2000 operating loss offshore products segment decreased 11 million 27 million 1999 16 million 2000 net interest expense pro forma net interest expense totaled 93 million year ended december 31 2000 compared 112 million year ended december 31 1999 19 million decrease net interest expense primarily related reduction average debt balances outstanding offshore products segment funds generated asset sales income tax expense benefit pro forma income tax expense totaled 45 million year ended december 31 2000 compared benefit 40 million 1999 increase 85 million primarily due increase pretax income periods effective tax rate benefited reduction allowance applied tax assets primarily net operating losses due expected tax benefits resulting combination adjusted tax assets determined likely deferred tax assets would realized minority interest minority interest expense immaterial years ended december 31 2000 1999 minority interests acquired therefore substantially reduced connection combination consolidated combined results operations prior sooner acquisition february 2001 reported two business segments offshore products well site services information two segments represent combined results oil states hwc pti using reorganization accounting presented years 2000 1999 subsequent february 2001 acquisition sooner combination reported following consolidated results year ended december 31 2001 compared year ended december 31 2000 revenues increased 3667 million 1204 year ended december 31 2001 compared year 2000 revenue increase primarily due acquisition sooner february 2001 contributed 3021 million revenues well site services segment increased 499 million 263 240 million generated remote site accommodations catering logistics services modular building construction services 91 million generated rental tool business 117 million generated land drilling operations 51 million generated hydraulic workover business increases canadian drilling activity oil sands development activity strong gulf mexico accommodations activity drove increase revenues remote site accommodations catering logistics services modular building construction services increases revenues rental tool operations land drilling services due improvements utilization pricing remaining 147 million increase revenues generated offshore products segment year increase revenues generated increased demand bearings connector products certain fabrication work cost sales cost sales increased 3202 million 1471 5378 million year ended december 31 2001 2176 million 2000 acquisition sooner accounted 2834 million increase remaining increase cost sales primarily due increased activity associated revenues operating segments cost sales increased well site services offshore products segments 294 million 64 million respectively gross margins gross margins calculate deduction depreciation amortization expense increased 869 million 2000 1334 million 2001 increase 465 million total increase 187 million due acquisition tubular services business effective february 14 2001 gross margin percentages decreased 285 2000 199 2001 largely due addition tubular services segment whose business characterized lower gross margins realized two operating segments offshore products gross margin increased 212 million 185 revenues 2000 295 million 228 revenues 2001 increase 83 million 392 margin increase due improved revenues margins related bop stack integration repair services well increased demand flexible bearings connector products also improved margins related manufacturing rig vessel equipment well site services gross margins increased 657 million 2000 862 million 2001 increase 205 million 312 within well sites services segment land drilling contributed 72 million margin increase utilization rigs average revenues per day worked increased remote site accommodations catering logistics services modular building construction responsible improvement gross margin 64 million due increased activity especially us gulf mexico operations increased equipment available rent result capital expenditures increased activity oil sands development areas northern alberta canada rental tool operations contributed gross margin improvement 49 million increase gross margin principally related increase revenues discussed negative gross margin corporateother attributable recognition unallocated insurance expense corporate level selling general administrative expenses year ended december 31 2001 sga expenses increased 122 million 500 million 74 revenues 378 million 124 revenues 2000 acquisition tubular services segment contributed 64 million increase principal reason sga expense percent revenues lower 2001 given level revenues contributed segment sga expenses increased 24 million 121 well site services segment due headcount increases support increased market activity higher employee incentive costs based upon companys ebitda performance corporate headquarters charges 33 million due establishment new corporate headquarters office connection offering depreciation amortization depreciation amortization increased 67 million total 280 million year ended december 31 2001 addition tubular services segment accounted 19 million increase remaining increase due asset acquisitions capital expenditures made well site services segment 2000 well amortization goodwill recorded connection acquisitions sooner minority interests february 2001 operating income operating income increased 278 million 996 557 million year ended december 31 2001 279 million year ended december 31 2000 operating income well site services segment increased 166 million 308 million year ended december 31 2000 474 million year ended december 31 2001 tubular services segment contributed operating income 105 million period acquisition february 2001 december 31 2001 operating income offshore products segment increased 82 million 66 million year ended december 31 2001 operating loss 16 million year ended december 31 2000 income tax expense income tax expense totaled 21 million year ended december 31 2001 compared 108 million year ended december 31 2000 decrease 87 million corresponding low effective tax rate primarily due reduction allowance applied tax assets primarily net operating losses nols due expected tax benefits resulting combination adjusted tax assets determined likely deferred tax assets would realized minority interest minority interests decreased 26 million year ended december 31 2001 16 million 42 million year ended december 31 2000 substantially minority interests acquired therefore reduced connection combination year ended december 31 2000 compared year ended december 31 1999 revenues increased 374 million 140 3045 million year ended december 31 2000 2671 million year ended december 31 1999 well site services revenues increased 771 million 684 partially offset decrease offshore products revenues 397 million 257 771 million increase well site services revenues 415 million generated remote site accommodations catering logistics services modular building construction services 160 million generated hydraulic workover units 99 million generated drilling operations 97 million generated rental tool operations significant improvement revenues remote site accommodations catering logistics services modular building construction services due strong level canadian drilling activity first fourth quarters 2000 resulted increased demand drilling camps related catering services increased revenues hydraulic workover units drilling rigs resulted higher utilization period contributions operation various hydraulic workover assets acquired fourth quarter 1999 therefore operation majority 1999 acquisitions contributed 83 million 160 million revenue increase hydraulic workover operations 97 million increase rental tool revenues largely due increases activity levels acquisition additional rental tool facilities march 31 1999 revenue increases partially offset declines offshore products segment due significant downturn construction related activity cost sales cost sales increased 177 million 89 2176 million year ended december 31 2000 1999 million year ended december 31 1999 cost sales increased well site services segment 511 million partially offset decrease 334 million offshore products segment changes 1999 period 2000 period caused factors influencing revenues gross margins gross margin calculate deduction depreciation amortization expense increased 672 million 252 revenue 1999 869 million 285 revenue 2000 increase 197 million 293 improvement gross margin percent revenue caused relatively high mix well site services revenue year 2000 typically higher margin compared offshore products business offshore products margins decreased 275 million 178 revenues 212 million 185 revenues offshore products gross margin percentage improvement year 2000 attributable greater percentage mix higher margin connector products revenues versus lower margin fabrication work 1999 addition cost reductions made offshore products segments response market downturn offshore construction activity well site services gross margin increased 397 million 1999 657 million 2000 improvement 260 million 655 remote site accommodations catering logistics modular building construction services reported improvement 117 million 481 result overall increase canadian drilling activity average canadian rig count increased 345 rigs 2000 245 rigs 1999 408 increase hydraulic workover specialty rental tool land drilling operations contributed 143 million margin increase improvement resulted acquisitions made 1999 included full year 2000 addition increased drilling workover activity especially us gulf mexico west texas west africa selling general administrative expenses year ended december 31 2000 sga expenses increased 42 million 125 378 million compared 336 million 1999 percent revenues sga expenses declined 124 2000 126 1999 sga expenses well site services segment increased 69 million 50 due increased activity acquisitions late 1999 hydraulic workover business certain nonrecurring charges totaling 4 million remote site accommodation business increase partially offset 27 million decrease offshore products segment reduced costs offshore products segment response market downturn offshore construction activity depreciation amortization depreciation amortization totaled 213 million year ended december 31 2000 compared 203 million year ended december 31 1999 49 increase primarily related asset acquisitions capital expenditures made well site services segment 1999 operating income operating income equals revenues less cost sales selling general administrative expense depreciation amortization operating income expense operating income increased 170 million 279 million year ended december 31 2000 109 million period 1999 operating income well site services segment increased 172 million 136 million year ended december 31 1999 308 million period 2000 operating loss offshore products segment decreased 11 million 27 million 1999 16 million 2000 net interest expense net interest expense totaled 115 million year ended december 31 2000 compared 125 million year ended december 31 1999 10 million decrease net interest expense primarily related reduction average debt balances outstanding offshore products segment funded cash generated asset sales income tax expense benefit income tax expense totaled 108 million year ended december 31 2000 compared 47 million year ended december 31 1999 increase 61 million primarily due increase pretax income periods effective tax rate adversely affected losses incurred offshore products segment tax assets recorded record tax assets could determine likely deferred tax assets would realized minority interest minority interest expense totaled 42 million year ended december 31 2000 compared 06 million income year ended december 31 1999 increase expense primarily due increased profitability within business segments particularly well site services liquidity capital resources primary liquidity needs fund capital expenditures expanding upgrading manufacturing facilities equipment increasing rental tool workover assets increasing accommodation units funding new product development fund general working capital needs addition capital needed fund strategic business acquisitions primary sources funds cash flow operations proceeds borrowings bank facilities private public capital investments cash provided operations year ended december 31 2001 2000 amounts 551 million 339 million respectively cash provided operations 2001 generated net income extraordinary item lower working capital invested tubular inventories partially offset use working capital reduce accounts payable accrued expenses year ended december 31 2001 last half 2001 aggressively reduced tubular services inventories anticipation expected reductions demand products light general weakening energy industry fundamentals period tubular services inventories decreased 299 million 718 million december 31 2000 419 million december 31 2001 addition accounts receivable increased december 31 2001 due significant amounts international tubular services sales made yearend pursuant scheduled contract terminations major customer approximately 27 million accounts receivable december 31 2001 relate contract extended beyond current interim extensions working capital needs decrease cash used investing activities amount 227 million year ended december 31 2001 primarily result capital expenditures totaled 297 million two rental tool acquisitions well site services segment totaling 30 million partially offset cash acquired connection sooner acquisition proceeds asset sales net cash used investing activities amount 224 million year ended december 31 2000 primarily fund capital expenditures acquisitions capital expenditures totaled 297 million 214 million year ended december 31 2001 2000 respectively capital expenditures periods consisted principally purchases assets well site services businesses approximately 10 million 2001 capital spending expansionary nature made order expand areas assets previously fully utilized expect spend total approximately 18 million 2002 upgrade equipment facilities expand product service offerings expect generate sufficient cash flow 2002 fund capital expenditures net cash 324 million used financing activities year ended december 31 2001 primarily result debt preferred stock repayments partially offset net proceeds offering net cash provided financing activities 3 million year ended december 31 2000 primarily net debt changes following summarizes debt lease obligations december 31 2001 proceeds received offering company repaid 437 million outstanding subordinated debt redeemed 218 million preferred stock oil states paid accrued interest subordinated debt accrued dividends preferred stock aggregating 71 million repurchased common stock nonaccredited shareholders holding preemptive stock purchase rights 16 million balance proceeds used reduce amounts outstanding bank lines credit concurrently closing offering issued 4275555 shares common stock scf exchange concurrent offering also entered 150 million senior secured revolving credit facility february 2001 450 million credit facility available form loans denominated canadian dollars may made principal canadian operating subsidiaries credit facility replaced existing credit facilities facility matures february 14 2004 unless extended two additional oneyear periods consent lenders amounts borrowed new facility bear interest election either variable rate equal libor case canadian dollar denominated loans bankers acceptance discount rate plus margin ranging 15 25 alternate base rate equal higher banks prime rate federal funds effective rate plus 05 case canadian dollar denominated loans canadian prime rate plus margin ranging 05 15 depending upon ratio total debt ebitda defined credit facility pay commitment fees ranging 025 05 per year undrawn portion facility also depending upon ratio total debt ebitda commitments credit facility permanently reduced loans prepaid amount equal 100 net cash proceeds nonordinary course asset sales issuance additional debt 50 issuance equity securities mandatory commitment reductions allocated pro rata based amounts outstanding us dollar denominated facility canadian dollar denominated facility addition voluntary reductions commitments permitted credit facility guaranteed active domestic subsidiaries cases canadian foreign subsidiaries credit facility secured first priority lien inventory accounts receivable material tangible intangible assets well active subsidiaries however 65 voting stock foreign subsidiary required pledged pledge greater percentage would result adverse tax consequences credit facility contains negative covenants restrict ability borrow additional funds pay dividends sell assets except normal course business enter significant transactions credit facility occurrence specified change control events involving company would constitute event default would permit banks among things accelerate maturity facility cause become immediately due payable full december 31 2001 658 million outstanding facility additional 71 million outstanding letters credit leaving 771 million available drawn facility addition another floating rate bank credit facility uk balance 33 million december 31 2001 total interest bearing debt represented 184 total capitalization december 31 2001 aggregate approximately 87 million subordinated debt outstanding december 31 2001 total 28 million debt paid january 2002 remaining subordinated debt become due payable various times period 2002 november 2005 see note 6 consolidated combined financial statements believe cash operations available borrowings credit facility sufficient meet liquidity needs foreseeable future plans assumptions change inaccurate make acquisitions may need raise additional capital however assurance able raise additional funds able raise funds favorable terms tax matters year ended december 31 2001 deferred tax assets net deferred tax liabilities approximately 197 million federal income tax purposes application valuation allowances primary deferred tax assets net operating loss carry forwards nols total approximately 937 million valuation allowance currently provided majority nols expire period 2020 nols currently limited section 382 internal revenue code due change control occurred 1995 however 2002 approximately 40 million nols available use currently sufficient income generated see note 11 consolidated combined financial statements 2001 effective tax rate approximated 4 low effective tax rate due partial utilization net operating losses benefited consolidated group merger currently estimate 2002 effective tax rate approximately 22 10 million estimated cash taxes 2001 paid cash taxes 127 million recent accounting pronouncements june 2001 financial accounting standards board issued statements financial accounting standards sfas 141 business combinations 142 goodwill intangible assets statements effective fiscal years beginning december 15 2001 new rules goodwill intangible assets deemed indefinite lives longer amortized subject annual impairment tests accordance statements intangible assets continue amortized useful lives company apply new rules accounting goodwill intangible assets beginning first quarter 2002 application nonamortization provisions statements expected result increase net income approximately 80 million 16 per diluted share per year 2002 company perform first required impairment tests goodwill indefinite lived intangible assets january 1 2002 company completed evaluation goodwill indefinite lived intangible assets accordingly impact statement yet known june 2001 financial accounting standards board issued sfas 143 accounting asset retirement obligations statement effective fiscal years beginning june 15 2002 company expects adopt statement effective january 1 2003 expected statement immaterial effect companys consolidated financial statements august 2001 financial accounting standards board issued sfas 144 accounting impairment disposal longlived assets company required adopt statement effective january 1 2002 impact consolidated financial statements item 7aitem 7 managements discussion analysis financial condition results operations read following discussion analysis together selected financial data financial statements notes statements included elsewhere annual report form 10k discussion contains forwardlooking statements based current expectations assumptions estimates projections us industry forwardlooking statements involve risks uncertainties actual results could differ materially indicated forwardlooking statements result certain factors fully described cautionary statement regarding forwardlooking statements form 10k except extent required law undertake obligation update publicly forwardlooking statements even new information becomes available events occur future critical accounting policies selection critical accounting policies objective properly reflect financial position results operations reporting period manner understood utilize financial statements often must use judgment uncertainties several critical accounting policies put practice important effect reported financial results contingent liabilities future claims made estimates amount eventual cost liquidate liabilities claims liabilities claims sometimes involve threatened actual litigation damages quantified made assessment exposure recorded provision accounts cover expected loss claims liabilities estimated based experience matters appropriate advice outside counsel outside experts upon ultimate resolution uncertainties future reported financial results impacted difference estimates actual amounts paid settle liability examples areas made important estimates future liabilities include litigation taxes postretirement benefits warranty claims contract claims determination impairment longlived assets including goodwill conducted indicators impairment present indicators present determination amount impairment would based judgments future operating cash flows generated assets throughout estimated useful lives industry highly cyclical estimates period future cash flows generated well predictability cash flows significant impact carrying value assets periods prolonged cycles may result impairment charges recognize revenue profit work progresses longterm fixed price contracts using percentageofcompletion method relies estimates total expected contract revenue costs follow method since reasonably dependable estimates revenue costs applicable various stages contract made recognized revenues profit subject revisions contract progresses completion revisions profit estimates charged income expense period facts circumstances give rise revision become known provisions estimated losses uncompleted contracts made period losses determined valuation allowances especially related potential bad debts accounts receivable obsolescence market value declines inventory involve reviews underlying details assets known trends marketplace application historical factors provide us basis recording allowances market conditions less favorable projected management historical experience materially different future experience additional allowances may required record valuation allowance reduce deferred tax assets amount likely realized considered future taxable income ongoing prudent feasible tax planning strategies assessing need valuation allowance event determine would able realize deferred tax assets future excess net recorded amount adjustment deferred tax asset would increase income period determination made likewise determine would likely able realize part net deferred tax asset future adjustment deferred tax asset would charged expense period determination made selection useful lives many assets requires judgments operating personnel length useful lives estimates long short might eventually report disproportionate number losses gains upon disposition retirement longlived assets believe estimates useful lives appropriate overview provide broad range products services oil gas industry offshore products well site services tubular services business segments demand products services cyclical substantially dependent upon activity levels oil gas industry particularly customers willingness spend capital exploration development oil gas reserves demand products services customers highly sensitive current expected oil natural gas prices offshore products segment provides highly engineered technically designed products offshore oil gas development production systems facilities sales offshore products services depend upon development offshore production systems repairs upgrades existing drilling rigs construction new drilling rigs segment particularly influenced deepwater drilling production activities well site services business segment provide hydraulic well control services pressure control equipment rental tools drilling rigs work force accommodations catering logistics services demand well site services depends upon level worldwide drilling workover activity tubular services segment distribute premium casing tubing sales tubular products services depend upon overall level drilling activity types wells drilled demand tubular products positively impacted increased drilling deeper horizontal offshore wells generally require premium tubulars connectors large diameter pipe longer additional casing tubular strings energy oilfield service activities highly cyclical depending upon crude oil natural gas pricing among things beginning late 1996 continuing early part 1998 stabilization oil gas prices led increases drilling activity well refurbishment new construction drilling rigs second half 1998 crude oil prices declined substantially reached levels 11 per barrel early 1999 decline pricing many customers substantially reduced capital spending related activities industry downturn continued 1999 price crude oil natural gas increased 1999 levels 2000 2001 due improved demand oil supply reductions opec member countries reductions natural gas storage levels crude oil natural gas prices decreased significantly levels reached early 2001 end 2001 economic slowdown united states rest world moderate weather resultant increased inventories oil gas especially united states contributed price declines price reductions customers responded decreased drilling activity spending exploration development early 2002 oil gas prices began increase currently relatively high levels however corresponding increase oil service activity given economic political uncertainties diversified product service offering exposure throughout oil gas cycle demand tubular services well site services highly correlated movements rig count united states table sets forth summary north american rig activity measured baker hughes incorporated periods indicated 1 canadian rig counts typically increase peak winter drilling season rig count united states canada measured baker hughes incorporated fell 1481 rigs february 1998 559 rigs april 1999 downturn activity 1998 1999 material adverse effect demand products services results operations decreased significantly business benefited improvement crude oil natural gas pricing 2000 early 2001 resulting increases rig count 2000 first half 2001 2002 us rig count decreased first half year relatively flat since us rig count reached lowest level since 1999 totaled 738 rigs april 15 2002 us rig count risen since totaled 912 february 28 2003 believe offshore products segment lagged general market recovery 2000 2001 sales primarily relate offshore construction production facility development generally occur later exploration development cycle worldwide offshore construction development activity improved 2002 backlog offshore products segment increased 1001 million december 31 2002 compared 724 million december 31 2001 substantially backlog december 31 2002 expected completed december 31 2003 management believes fundamental oil gas supply demand factors lead increased drilling activity north america time however assurance expectations realized view recent increases actual oil natural gas prices reduction related supplies important steps toward increased demand oilfield service activity although experienced significant declines north american drilling activity 2002 impacted exploration related businesses believe industry fundamentals improving provide us strong growth opportunities combination prior initial public offering february 2001 scfiii lp owned majority interests oil states hwc pti scfiv lp owned majority interest sooner l e simmons associates incorporated ultimate general partner scfiii lp scfiv lp le simmons chairman board directors sole shareholder le simmons associates incorporated immediately prior closing initial public offering combination closed hwc pti sooner merged wholly owned subsidiaries oil states result hwc sooner pti became wholly owned subsidiaries financial results oil states hwc pti combined three years period ended december 31 2000 well beginning calendar 2001 february 14 2001 using reorganization accounting yields results similar pooling interests method combined results oil states hwc pti form basis discussion results operations periods operations oil states hwc pti represent two business segments offshore products well site services concurrently closing initial public offering february 2001 oil states acquired sooner acquisition accounted using purchase method accounting pro forma financial statements years ended december 31 2000 2001 reflect acquisition sooner effective january 1 2000 2001 respectively following acquisition sooner reported three business segments consolidated pro forma results operations year ended december 31 2002 compared pro forma year ended december 31 revenues decreased 1029 million 143 year ended december 31 2002 6168 million compared year ended december 31 2001 revenues well site services segment decreased 300 million 125 year ended december 31 2002 compared previous year within well site services comparing year 2002 year 2001 work force accommodations catering logistics services modular building construction services revenues decreased 185 million 136 due lower activity canada us gulf mexico land drilling revenues decreased 31 million 101 due lower activity drilling rates primarily west texas rental tool services revenues decreased 03 million 08 lower activity us gulf mexico locations partially offset impact acquisitions made company march august 2002 workover services revenues decreased 81 million 218 activity especially us gulf mexico decreased compared 2001 offshore products segment revenues increased 613 million 474 year 2002 compared year 2001 due significantly increased activity supporting offshore production facility construction primarily deepwater locations tubular services segment revenues year 2002 1342 million 383 lower year 2001 decreased drilling activity united states significantly lower foreign sales 2002 compared 2001 cost sales cost sales decreased 959 million 164 4870 million year 2002 compared previous year cost sales decrease primarily due decreased tubular services sales partially offset higher costs offshore products segment tubular services cost sales decreased 1259 million 383 year 2002 compared year 2001 offshore products segment cost sales increased 379 million 380 year 2002 compared year 2001 gross margins gross margins calculate deduction depreciation amortization expense decreased 70 million 51 1298 million year 2002 compared year 2001 gross margin percent revenue improved 190 year 2001 210 2002 due favorable mix revenues consisting higher margin offshore products well site services activities less 2002 revenues consisting tubular sales offshore products gross margins increased 234 million 793 year 2002 compared year 2001 gross margin percentage increased 278 year 2002 compared 228 year 2001 higher volumes product shipments lead increased operating efficiencies year 2002 well site services gross margins decreased 231 million 268 631 million year 2002 compared year 2001 gross margin percentage well site services declined 301 year 2002 compared 359 2001 within well site services segment land drilling business gross margins decreased 51 million 447 63 million 2002 compared total gross margin 114 million 2001 decreased drilling activity lower prices obtained drilling services rental tool business reported 2002 gross margins totaling 184 million 515 revenue compared 2001 gross margins totaling 189 million 525 revenue 2001 saw increased price competition rental tools offset positive effect 2002 rental tool business acquisitions workover services gross margins year 2002 totaled 87 million 303 revenues compared 2001 gross margins 134 million 361 revenues decreased us gulf mexico margins activity offset positive effect higher international activity work force accommodations catering logistics services modular building construc tion services businesses gross margin decreased 2002 296 million 252 revenue compared 424 million 312 revenue previous year impact lower drilling activity 2002 canada us gulf mexico greater percentage revenues resulted relatively low margin construction activity tubular services margins year 2002 totaled 138 million decrease 83 million 376 compared year 2001 tubular services gross margins approximately last two years volume tubular products shipped 2002 decreased approximately 29 compared 2001 selling general administrative expense year 2002 selling general administrative expenses sga increased 06 million 12 518 million 512 million year 2001 percent revenues sga increased 84 2002 compared 71 2001 increased costs year 2002 compared 2001 offshore products segment driven higher activity increased employee incentive costs partially offset lower well site services segment costs associated decreased activity within segment depreciation amortization depreciation amortization expense totaled 233 million year 2002 compared 287 million 2001 54 million decrease principally related elimination goodwill amortization 2002 comparison amortized 75 million goodwill year 2001 partially offset additional depreciation amortization associated capital additions intangibles recorded part business acquisitions years 2001 2002 operating income operating income represents revenues less product costs ii service costs iii sga iv depreciation amortization plus operating income operating income decreased 27 million 47 546 million 2002 573 million 2001 operating income well site services segment decreased 200 million 474 million 2001 274 million 2002 operating income offshore products segment increased 207 million 273 million 2002 compared 66 million 2001 operating income tubular services segment decreased 71 million 125 million 2001 54 million 2002 corporateother operating loss improved loss 92 million 2001 loss 55 million 2002 primarily discontinuance goodwill amortization 2002 net interest expense net interest expense totaled 44 million year 2002 decrease 40 million 476 compared net interest expense 84 million 2001 interest rates average debt balances lower 2002 compared 2001 income tax expense income tax expense totaled 114 million 223 pretax income year 2002 compared 21 million 43 pretax income year 2001 increased tax expense primarily due higher effective tax rate increased 2002 compared 2001 result lower amount net operating loss carryforwards available offset taxable income expect effective tax rate increase approximately 29 full year 2003 pro forma year ended december 31 2001 compared pro forma year ended december 31 2000 revenues pro forma revenues increased 208 5956 million year ended december 31 2000 7197 million 2001 revenues well site services segment increased 499 million 263 2398 million 240 million generated work force accommodations catering logistics services modular building construction services 91 million generated rental tool business 117 million generated land drilling operations 51 million generated hydraulic workover operations increases canadian drilling activity oil sands development activity strong gulf mexico accommodations activity drove increase revenues work force accommodations catering logistics modular building construction services increase revenues rental tool operations due increased equipment available rent two small acquisitions completed third quarter 2001 increases revenues land drilling services due improvements utilization pricing year 2000 year 2001 increased foreign activity higher pricing contributed hydraulic workover improvement 2001 compared 2000 tubular services revenues increased 595 million 204 direct result increased drilling activity period addition tubular services revenues fourth quarter 2001 benefited large onetime sale inventory held international locations pursuant two scheduled contract terminations international sales totaled 171 million 515 million 2000 2001 respectively one contracts expired march 31 2002 expired june 30 2002 remaining 147 million increase revenues generated offshore products segment year increase revenues generated increased demand bearings connector products certain fabrication work cost sales pro forma cost sales increased 1002 million 208 5829 million year ended december 31 2001 4827 million year ended december 31 2000 cost sales increase due increased activity operating segments factors influencing revenues cost sales increased well site services tubular services offshore products segments 294 million 635 million 64 million respectively gross margin pro forma gross margins calculate deduction depreciation amortization expense increased 238 million 1130 million 2000 1368 million 2001 gross margin percentage consistent 2000 2001 190 due improvement offshore products well site services segments offset declines tubular services gross margin percentages offshore products gross margin increased 212 million 2000 295 million 2001 increase 83 million 392 gross margin percentage segment increased 185 2000 228 2001 gross margin increase due improved revenues margins related bop stack integration repair services well increased demand flexible bearings connector products also improved margins related manufacturing rig vessel equipment well site services gross margins increased 657 million 2000 862 million 2001 increase 205 million 312 gross margin percentage segment increased 346 2000 359 2001 within well site services segment land drilling contributed 72 million margin increase utilization rigs average revenues per day worked increased 2001 compared 2000 work force accommodations catering logistics services modular building construction services responsible improvement gross margin 64 million due increased activity especially us gulf mexico operations increased equipment available rent result capital expenditures increased activity oil sands development areas northern alberta canada rental tool operations contributed margin improvement 49 million increase gross margin principally related increase revenues discussed hydraulic workover operations gross margins increased 20 million 2001 compared 2000 result increased activity especially foreign locations tubular services gross margins decreased 261 million 90 revenues 2000 221 million 63 revenues 2001 decrease 40 million 153 tubular services segment suffered margin declines last half 2001 due general market declines decision aggressively reduce inventory levels anticipation weakening market margin decline occurred despite liquidation international tubular inventories fourth quarter 2001 gross margin international sales totaled 28 million 66 million 2000 2001 respectively negative gross margin corporateother due recognition unallocated insurance expense corporate level selling general administrative expenses year ended december 31 2001 pro forma selling general administrative sga expenses increased 50 million 108 511 million 461 million 2000 percent revenues sga expenses declined 71 2001 77 2000 sga expenses increased 24 million 121 well site services segment due headcount increases support increased market activity higher incentive pay based upon ebitda performance corporate headquarters charges 28 million due establishment new corporate headquarters office depreciation amortization pro forma depreciation amortization increased 20 million total 287 million year ended december 31 2001 75 increase primarily due acquisitions capital expenditures made well site services segment 2000 2001 operating income pro forma operating income represents revenues less product costs ii service costs iii sga iv depreciation amortization plus operating income operating income increased 171 million 425 573 million year ended december 31 2001 402 million 2000 operating income well site services segment increased 166 million 308 million year ended december 31 2000 474 million 2001 operating income tubular services segment decreased 42 million 125 million year ended december 31 2001 167 million 2000 operating income offshore products segment increased 82 million 66 million year ended december 31 2001 operating loss 16 million 2000 net interest expense net pro forma interest expense totaled 84 million year ended december 31 2001 compared 93 million 2000 09 million reduction net interest expense primarily related lower interest rates partially offset increase average debt balances outstanding average debt balances higher 2001 result refinancing certain preferred stock issues february 2001 income tax expense pro forma income tax expense totaled 21 million 2001 compared 45 million 2000 decrease 24 million corresponding low effective tax rate primarily due reduction valuation allowance applied tax assets primarily net operating losses nols due expected tax benefits resulting combination adjusted valuation allowance determined likely deferred tax assets would realized minority interest minority interest immaterial years ended december 31 2001 2000 substantially minority interests acquired therefore reduced connection combination consolidated combined results operations prior sooner acquisition february 2001 reported two business segments offshore products well site services information two segments represent combined results oil states hwc pti using reorganization accounting presented consolidated financial statements included annual report form 10k subsequent february 2001 acquisition sooner combination reported three business segments discussed believe pro forma results operations discussed reflect components current business operations capital structure discussion consolidated combined results operations please refer annual report form 10k fiscal year ended december 31 2001 filed securities exchange commission march 4 2002 liquidity capital resources primary liquidity needs fund capital expenditures expanding upgrading manufacturing facilities equipment increasing rental tool workover assets increasing work force accommodation units funding new product development general working capital needs addition capital needed fund strategic business acquisitions primary sources funds cash flow operations proceeds borrowings bank facilities private public capital investments cash provided operations years ended december 31 2002 2001 amounts 454 million 551 million respectively cash provided operations 2002 generated net income plus noncash charges partially offset working capital increases purchases inventory offshore products tubular services segments last half 2002 tubular inventories increased 221 million 57 purchased inventory anticipation increased future demand tubular products exploration production companies tubular distributors offshore products inventories increased 2002 compared 2001 increased activity segment cash used investing activities 2002 totaled 894 million compared 227 million 2001 capital expenditures 2002 261 million related principally well site services segment 193 mil lion offshore products segment 66 million spent cash totaling 648 million six acquisitions see note 5 consolidated combined financial statements included annual report form 10k currently expect spend total approximately 350 million 2003 upgrade equipment facilities expand product service offerings expect fund capital expenditures internally generated funds capital expenditures totaling 297 million year ended december 31 2001 consisted principally purchases assets well site services businesses net cash 504 million provided financing activities year ended december 31 2002 primarily result borrowings bank credit facility fund capital expenditures acquisitions net cash 324 million used financing activities year ended december 31 2001 primarily result debt preferred stock repayments partially offset net proceeds initial public offering following summarizes debt lease obligations december 31 2002 thousands debt obligations december 31 2002 included consolidated balance sheet part consolidated financial statements included annual report form 10k entered material leases balance sheet arrangements subsequent december 31 2002 proceeds received initial public offering completed february 2001 repaid 437 million outstanding subordinated debt redeemed 218 million preferred stock oil states paid accrued interest subordinated debt accrued dividends preferred stock aggregating 71 million repurchased common stock nonaccredited shareholders holding preemptive stock purchase rights 16 million balance proceeds used reduce amounts outstanding bank lines credit concurrently closing initial public offering issued 4275555 shares common stock scf exchange concurrently initial public offering also entered 150 million senior secured revolving credit facility increased 168 million availability december 2002 450 million commitments credit facility available form loans denominated canadian dollars may made principal canadian operating subsidiaries credit facility replaced existing credit facilities facility extended fourth quarter 2002 matures january 25 2005 unless extended additional one year period consent lenders amounts borrowed facility bear interest election either variable rate equal libor case canadian dollar denominated loans bankers acceptance discount rate plus margin ranging 175 30 alternate base rate equal higher banks prime rate federal funds effective rate plus 05 case canadian dollar denominated loans canadian prime rate plus margin ranging 075 20 depending upon ratio total debt ebitda defined credit facility differs definition ebitda defined generally used us set forth note 4 item 6 selected financial data pay commitment fees 05 per year undrawn portion facility commitments credit facility permanently reduced loans prepaid amount equal 100 net cash proceeds nonordinary course asset sales issuance additional debt 50 issuance equity securities mandatory commitment reductions allocated pro rata based amounts outstanding us dollar denominated facility canadian dollar denominated facility addition voluntary reductions commitments permitted credit facility guaranteed active domestic subsidiaries cases canadian foreign subsidiaries credit facility secured first priority lien inventory accounts receivable material tangible intangible assets well active subsidiaries however 65 voting stock foreign subsidiary required pledged pledge greater percentage would result adverse tax consequences ability borrow facility subject certain customary conditions including continuing accuracy representations warranties lack material adverse changes continuing compliance laws lack defaults facility credit facility contains negative covenants restrict ability borrow additional funds encumber assets pay dividends sell assets except normal course business enter significant transactions addition credit facility requires us maintain ratio ebitda interest expense less 30 10 level consolidated net tangible assets less 120 million less amount goodwill exceed 55 million associated acquisitions made us period june 30 2002 january 25 2004 plus 50 quarters consolidated net income loss maximum ratio total debt ebitda greater 35 10 maximum ratio total senior debt ebitda greater 30 10 credit facility occurrence specified change control events involving company would constitute event default would permit banks among things accelerate maturity facility cause become immediately due payable full december 31 2002 1243 million outstanding facility additional 81 million outstanding letters credit leaving 353 million available drawn facility aggregate approximately 58 million subordinated debt outstanding december 31 2002 subordinated debt become due payable various times september 2007 see note 6 consolidated combined financial statements included annual report form 10k total debt represented 257 total book capitalization december 31 2002 believe cash operations available borrowings credit facility sufficient meet liquidity needs foreseeable future plans assumptions change inaccurate make acquisitions may need raise additional capital however assurance able raise additional funds able raise funds favorable terms tax matters year ended december 31 2002 deferred tax assets net deferred tax liabilities approximately 52 million federal income tax purposes application valuation allowances primary deferred tax assets net operating loss carry forwards nols total approximately 76 million valuation allowance currently provided majority nols expire period 2020 portion nols currently limited section 382 internal revenue code due change control occurred 1995 2003 approximately 39 million nols available use sufficient income generated however successive change control triggered 2003 pursuant section 382 possible significantly lesser amount nols would available use year scenario could significant negative impact cash taxes payable however anticipated change would trigger significant adverse impact 2003 tax expense attributable operation valuation allowance related nol carryforwards see note 10 consolidated combined financial statements included annual report form 10k 2002 effective tax rate approximately 22 low effective tax rate due partial utilization net operating losses benefited consolidated group combination 2002 paid cash taxes 94 million currently estimate 2003 effective tax rate approximately 29 actual effective tax rates could differ materially estimates subject number uncertainties including future taxable income projections amount income attributable domestic versus foreign sources amount capital expenditures changes applicable tax laws regulations recent accounting pronouncements june 2001 financial accounting standards board issued statements financial accounting standards sfas 141 business combinations 142 goodwill intangible assets statements effective fiscal years beginning december 15 2001 new rules goodwill intangible assets deemed indefinite lives longer amortized subject annual impairment tests accordance statements intangible assets continue amortized useful lives began applying new rules accounting goodwill intangible assets first quarter 2002 application nonamortization provisions statements resulted increase net income approximately 80 million 16 per diluted share year 2002 performed required impairment tests goodwill indefinite lived intangible assets december 31 2002 impairment assets indicated june 2001 financial accounting standards board issued sfas 143 accounting asset retirement obligations statement effective fiscal years beginning june 15 2002 expect adopt statement effective january 1 2003 expect statement immaterial effect consolidated financial statements august 2001 financial accounting standards board issued sfas 144 accounting impairment disposal longlived assets required adopt statement effective january 1 2002 impact consolidated financial statements april 2002 financial accounting standards board issued sfas 145 among things rescinded sfas 4 reporting gains losses extinguishment debt required adopt statement 2003 expect material impact financial statements adopted disclosure requirements sfas 148 accounting stock based compensation transition disclosure issued december 2002 effective december 31 2002 consolidated combined financial statements related footnotes item 7aitem 7 managements discussion analysis financial condition results operations read following discussion analysis together selected financial data financial statements notes statements included elsewhere annual report form 10k discussion contains forwardlooking statements based current expectations assumptions estimates projections us industry forwardlooking statements involve risks uncertainties actual results could differ materially indicated forwardlooking statements result certain factors fully described cautionary statement regarding forwardlooking statements form 10k except extent required law undertake obligation update publicly forwardlooking statements even new information becomes available events occur future critical accounting policies selection critical accounting policies objective properly reflect financial position results operations reporting period manner understood utilize financial statements often must use judgment uncertainties several critical accounting policies put practice important effect reported financial results contingent liabilities future claims made estimates amount eventual cost liquidate liabilities claims liabilities claims sometimes involve threatened actual litigation damages quantified made assessment exposure recorded provision accounts cover expected loss claims liabilities estimated based experience matters appropriate advice outside counsel outside experts upon ultimate resolution uncertainties future reported financial results impacted difference estimates actual amounts paid settle liability examples areas made important estimates future liabilities include litigation taxes warranty claims contract claims discontinued operations determination impairment longlived assets including goodwill conducted indicators impairment present indicators present determination amount impairment would based judgments future operating cash flows generated assets throughout estimated useful lives industry highly cyclical estimates period future cash flows generated well predictability cash flows significant impact carrying value assets periods prolonged cycles may result impairment charges recognize revenue profit work progresses longterm fixed price contracts using percentageofcompletion method relies estimates total expected contract revenue costs follow method since reasonably dependable estimates revenue costs applicable various stages contract made recognized revenues profit subject revisions contract progresses completion revisions profit estimates charged income expense period facts circumstances give rise revision become known provisions estimated losses uncompleted contracts made period losses determined valuation allowances especially related potential bad debts accounts receivable obsolescence market value declines inventory involve reviews underlying details assets known trends marketplace application historical factors provide us basis recording allowances market conditions less favorable projected management historical experience materially different future experience additional allowances may required record valuation allowance reduce deferred tax assets amount likely realized considered future taxable income ongoing prudent feasible tax planning strategies assessing need valuation allowance event determine would able realize deferred tax assets future excess net recorded amount adjustment deferred tax asset would increase income period determination made likewise determine would likely able realize part net deferred tax asset future adjustment deferred tax asset would charged expense period determination made selection useful lives many assets requires judgments operating personnel length useful lives estimates long short might eventually report disproportionate number losses gains upon disposition retirement longlived assets believe estimates useful lives appropriate overview provide broad range products services oil gas industry offshore products well site services tubular services business segments demand products services cyclical substantially dependent upon activity levels oil gas industry particularly customers willingness spend capital exploration development oil gas reserves demand products services customers highly sensitive current expected oil natural gas prices generally tubular services well site services segments respond rapidly shorterterm movements oil natural gas prices offshore products segment offshore products segment provides highly engineered technically designed products offshore oil gas development production systems facilities sales offshore products services depend upon development offshore production systems repairs upgrades existing drilling rigs construction new drilling rigs segment particularly influenced deepwater drilling production activities driven largely customers outlook longerterm future oil prices well site services business segment provide hydraulic well control services pressure control equipment rental tools drilling rigs work force accommodations catering logistics services demand well site services depends upon level worldwide drilling workover activity also seen increased demand work force accommodation business result oil sands development activities northern alberta canada tubular services segment distribute broad range casing tubing sales tubular products services depend upon overall level drilling activity types wells drilled level octg pricing historically tubular services gross margins expand periods rising octg prices contract periods decreasing octg prices diversified product service offering exposure throughout oil gas cycle demand tubular services well site services highly correlated movements rig count united states table sets forth summary north american rig activity measured baker hughes incorporated periods indicated 1 canadian rig counts typically increase peak winter drilling season average north american rig count year ended december 31 2004 increased 155 rigs 11 compared year ended december 31 2003 overall increase activity tempered somewhat lower activity levels us gulf mexico contribute increased revenues well site services segment well site services results 2004 also benefited acquisitions made rental tool business fourth quarter 2003 january april 2004 see liquidity capital resources page 30 contributions three newly built rigs working west texas started working december 2003 february 2004 december 2004 respectively impact pricing gains certain business lines canadian rig count flat 2003 2004 however operations benefited increased activity support oil sands development international catering facilities management contract offshore products results weakened compared 2003 primarily due decreased activity revenues year also led reduced cost absorption several companys manufacturing facilities additionally offshore products margins lower 2004 compared 2003 due less favorable mix higher margin connector products due inefficiencies associated various facility consolidations undertaken 2004 however offshore products revenues improved sequentially recent three quarters margins improved beginning 2004 backlog totaled 975 million december 31 2004 873 million september 30 2004 626 december 31 2003 however project mix december 31 2004 backlog still weighted towards higher margin connector products believe offshore construction development business characterized lengthy projects long leadtime order cycle change backlog levels one quarter next necessarily evidence longterm trend believe activity levels offshore products segment increase future quarters given growth backlog compared december 31 2003 may 11 2004 tubular services segment purchased octg distribution business hunting energy services lp hunting 470 million including purchase price adjustment settled october 2004 terms transaction purchased huntings us tubular inventory assumed certain customer contracts entered supply distribution relationships hunting substantially purchase price assigned octg inventory acquired tubular services segment shipped 3398 thousand tons octg 2004 compared 2690 thousand tons 2003 tubular services segment benefited 2004 18 year increase average us land drilling activity acquisition hunting octg distribution business significant increase octg prices tubular services margins expanded 2004 reached historically high levels given significant increase octg prices coupled strong demand benefits partially offset lower offshore activity us gulf mexico 2004 results generated canadian workforce accommodations catering logistics operations benefited strengthening canadian currency canadian dollar vs us dollar conversion rate averaged 077 2004 compared 071 2003 financial impact stronger canadian dollar greater comparing first quarter 2004 2003 period seasonal strength canada movement canadian dollar vs us dollar exchange rates caused majority change cumulative translation adjustment companys income tax provision year 2004 totaled 294 million 331 pretax income effective tax rate increased 2004 compared 2003s effective tax rate 242 effect greater nol benefits recognized earlier period see note 7 consolidated financial statements management believes fundamental oil gas supply demand factors continue support high level drilling activity north america time continue positively impact company particularly well site services tubular services businesses believe oil gas producers increased view longer term oil gas prices based current supply demand fundamentals even though still levels current prices result customers could increase spending deepwater offshore exploration development benefit offshore products segment however assurance expectations realized consolidated results operations within well site services segment four reportable business units follows year ended december 31 2004 compared year ended december 31 2003 revenues increased 2473 million 342 9710 million year ended december 31 2004 compared revenues 7237 million year ended december 31 2003 tubular services revenues tons shipped increased 1916 million 813 708 thousand tons 263 respectively year ended december 31 2004 compared revenues tons shipped year ended december 31 2003 due increased industry demand higher octg prices contributions acquisition hunting octg distribution business closed may 2004 well site services revenues increased 808 million 316 offshore products revenues decreased 251 million 108 period well site services revenues increased compared prior year due primarily increased drilling activity united states increased oil sands development activity canada international catering facilities management contract favorable canadian dollar exchange rates impact capital expenditures made since december 31 2003 rental tool acquisitions acquired total consideration 501 million rental tool acquisitions completed fourth quarter 2003 january april 2004 offshore products revenues decreased result lower activity supporting offshore production facility construction given typical lengthy time period offshore discoveries installation production facilities gross margin gross margins calculate deduction depreciation expense increased 458 million 304 1506 million year ended december 31 2003 1964 million year ended december 31 2004 overall gross margin percent revenues essentially flat current year compared 2003 well site services gross margins increased 272 million 336 1081 million year ended december 31 2004 compared year ended december 31 2003 within well site services segment shallow drilling specialty rental tool businesses gross margins increased 43 million 421 90 million 424 respectively year ended december 31 2004 compared year 2003 three drilling rigs added shallow drilling business added december 2003 february 2004 december 2004 addition realized higher utilization footage drilling rates drilling rigs contributions rental tool acquisitions completed fourth quarter 2003 january april 2004 also well site services work force accommodations catering logistics services modular building construction services gross margins increased 148 million 364 year ended december 31 2004 compared year ended december 31 2003 primarily increased camp catering activity supporting oil sands development canada international catering facilities management contract hydraulic workover gross margins decreased 09 million 108 result decreased utilization especially west africa middle east well site services gross margin percent increased slightly 321 year ended december 31 2004 compared 316 year ended december 31 2003 offshore products gross margins decreased 184 million 329 560 million year ended december 31 2003 376 million year ended december 31 2004 due decreased activity reduced fixed cost absorption inefficiencies associated various facilities consolidations undertaken 2004 additionally offshore products margins lower current period compared last year due less favorable mix higher margin connector products factors caused offshore products gross margin percent decline 241 revenues year 2003 182 year 2004 tubular services gross margins increased 507 million 119 tubular services revenues year ended december 31 2004 compared 137 million 58 tubular services revenues year ended december 31 2003 result increased oil gas drilling activity increased demand tubular products services significant increase octg prices 2004 acquisition octg distribution business hunting 470 million may 2004 including purchase price adjustment settled october 2004 tubular services margins expanded 2004 reached historically high levels given significant increase octg prices coupled strong demand selling general administrative expenses year ended december 31 2004 selling general administrative expenses sga totaled 648 million 67 revenues compared sga 577 million 80 revenues year ended december 31 2003 sga expense increased primarily result acquisitions completed 2003 2004 higher postretirement benefit costs current year due recording gain upon settlement plan liabilities prior year higher professional fees higher bonus accruals incentive compensation plan increase professional fees largely attributable costs associated sarbanesoxley compliance depreciation amortization depreciation amortization expense increased 81 million 2004 compared 2003 due primarily acquisitions businesses completed since 2003 capital expenditures made past year operating income operating income represents revenues less cost sales ii selling general administrative expenses iii depreciation amortization expense iv operating expense income operating income increased 299 million 459 951 million year ended december 31 2004 652 million year ended december 31 2003 well site services operating income increased 183 million period offshore products operating income decreased 207 million tubular services operating income increased 349 million corporate charges increased 26 million current period interest expense interest expense lower 02 million year ended december 31 2004 compared year ended december 31 2003 increased interest expense attributable higher debt levels resulting acquisitions completed first half 2004 higher interest rates 2004 offset lower debt issuance cost amortization compared prior period income tax expense income tax expense totaled 294 million 331 pretax income year ended december 31 2004 compared 142 million 242 pretax income year ended december 31 2003 see tax matters discussion following year ended december 31 2003 compared year ended december 31 2002 revenues increased 1069 million 173 7237 million year ended december 31 2003 compared revenues 6168 million year ended december 31 2002 well site services revenues increased 463 million 221 offshore products revenues increased 413 million 217 period well site services revenues increased compared prior year primarily due increased drilling activity canada united states favorable canadian dollar exchange rates strengthened compared us dollar 2003 compared 2002 resulting increase approximately 140 million impact acquisitions completed third quarter 2002 canadian expenses also impacted exchange rate movements 2003 compared 2002 offset revenue gains offshore products revenues increased primarily result greater activity supporting offshore production facility construction primarily us gulf mexico impact acquisitions completed third quarter 2002 tubular services revenues increased 193 million 89 year ended december 31 2003 compared prior year revenue increase resulted greater quantities shipped caused higher rig counts partially offset lower international sales reduced revenue per ton shipped caused product mix oriented shallow land drilling gross margin gross margins calculate deduction depreciation expense increased 208 million 160 1298 million year ended december 31 2002 1506 million year ended december 31 2003 well site services gross margins increased 178 million 282 809 million year ended december 31 2003 within well site services segment shallow drilling specialty rental tool businesses gross margins increased 40 million 619 30 million 162 respectively year ended december 31 2003 compared year ended december 31 2002 primarily result rigs added fleet rental tool acquisitions completed also well site services segment work force accommodations catering logistics services modular building construction services gross margins increased 111 million 375 year ended december 31 2003 compared year ended december 31 2002 increased camp catering activity canada international catering facilities management contract hydraulic workover gross margins decreased 03 million 23 result decreased activity venezuela reclassification certain field expenses formerly classified selling general administrative expenses operating expense decreases almost fully offset increased gross margin work algeria commenced late 2002 gross margin percent revenues well site services increased 301 2002 316 2003 primarily profitable accommodations operations caused higher activity levels offshore products gross margins increased 31 million 59 529 million year ended december 31 2002 560 million 2003 primarily due increased revenues shipments work progress offshore products gross margin percentage declined 37 due primarily greater percentage lowermargin fabrication work compared prior period certain project losses incurred subsea pipeline operations reduced margins winch crane businesses tubular services gross margins decreased 137 million 58 tubular services revenues year ended december 31 2003 compared 138 million 64 tubular services revenues year ended december 31 2002 result higher margin sales 2002 especially fourth quarter foreign sales occurred primarily first half 2002 reoccur 2003 selling general administrative expenses year ended december 31 2003 selling general administrative expenses sga totaled 577 million 80 revenues compared sga 518 million 84 revenues year ended december 31 2002 increased sga expense primarily resulted acquisitions completed third quarter 2002 increase partially offset lower post employment benefit costs caused settlement certain plan liabilities 2003 depreciation amortization depreciation amortization expense increased 46 million 2003 compared 2002 due primarily acquisitions businesses completed 2002 capital expenditures made 2002 2003 operating income operating income represents revenues less cost sales ii selling general administrative expenses iii depreciation amortization expense plus operating income operating income increased 106 million 194 652 million year ended december 31 2003 546 million 2002 well site services operating income increased 98 million 358 offshore products operating income increased 06 million 22 tubular services operating income 60 million year ended december 31 2003 compared 54 million year ended december 31 2002 increase 06 million 111 corporate charges increased 04 million 2003 compared 2002 interest expense interest expense increased 30 million 612 79 million year ended december 31 2003 compared 49 million year ended december 31 2002 increased interest expense attributable higher debt levels resulting acquisitions completed third quarter 2002 capital expenditures made 2002 2003 writeoff 12 million taxes unamortized debt issue costs fourth quarter 2003 upon closing new bank credit agreement income tax expense income tax expense totaled 142 million 242 pretax income year ended december 31 2003 compared 114 million 223 pretax income year ended december 31 2002 decreased amounts net operating loss carryforwards available offset taxable income resulted higher annual effective tax rate year 2003 compared 2002 liquidity capital resources primary liquidity needs fund capital expenditures expanding upgrading manufacturing facilities equipment building new drilling rigs increasing replacing rental tool workover assets accommodation units funding new product development funding general working capital needs addition capital needed fund strategic business acquisitions primary sources funds cash flow operations proceeds borrowings bank facilities cash provided operations year ended december 31 2004 2003 amounts 972 million 587 million respectively cash provided operations 2004 generated net income plus depreciation amortization net working capital changes 2004 working capital changes used 64 million operating cash flow year 2004 compared 174 million comparable period 2003 cash used investing activities years ended december 31 2004 2003 amount 1377 million 549 million respectively capital expenditures totaled 600 million 413 million years ended december 31 2004 2003 respectively capital expenditures years consisted principally purchases assets well site services businesses consolidation offshore products manufacturing capacity acquisitions totaled 808 million year ended december 31 2004 company completed acquisition several rental tool companies 378 million net cash acquired companies merged rental tool subsidiary report well site services segment addition acquired octg distribution business hunting required cash outlay 470 million 2004 acquisitions resulted increased working capital investments particularly accounts receivable inventory expect fund future capital expenditures internally generated funds proceeds borrowings revolving credit facilities net cash 388 million provided financing activities year ended december 31 2004 primarily result revolving credit borrowings utilized fund acquisitions primary bank credit facility credit agreement amended effective january 31 2005 increase availability facility 250 million 325 million extend maturity october 30 2007 january 31 2010 credit agreement contains customary financial covenants restrictions including restrictions ability declare pay dividends borrowings credit agreement secured pledge substantially assets subsidiaries obligations credit agreement guaranteed significant subsidiaries borrowings credit agreement accrue interest rate equal either libor another benchmark interest rate election plus applicable margin based leverage ratio defined credit agreement average borrowing rate balances outstanding 2004 36 must pay quarterly commitment fee based leverage ratio unused commitments credit agreement december 31 2004 1726 million outstanding credit agreement additional 108 million outstanding letters credit leaving 666 million available drawn facility addition floating rate bank credit facilities us uk provide additional aggregate borrowing capacity 88 million borrowings outstanding facilities december 31 2004 total debt represented 247 total capitalization december 31 2004 amended credit facility effective january 31 2005 availability increased approximately 126 million february 14 2005 funding acquisition elenburg exploration company inc total consideration 22 million including cash 213 million february 1 2005 companys board directors authorized repurchase shares companys common stock par value 01 per share board directors authorized expenditure 50 million repurchase shares believe cash operations available borrowings credit facilities sufficient meet liquidity needs foreseeable future plans assumptions change inaccurate make acquisitions may need raise additional capital however assurance able raise additional funds able raise funds favorable terms following summarizes debt lease obligations december 31 2004 thousands 1 company amended bank credit agreement effective january 31 2005 extend maturity year 2010 see note 5 consolidated financial statements debt obligations december 31 2004 included consolidated balance sheet part consolidated financial statements included annual report form 10k entered material leases subsequent december 31 2004 balance sheet arrangements tax matters primary deferred tax asset totaled approximately 125 million december 31 2004 related 358 million available federal net operating loss carryforwards nols date valuation allowance approximately 51 million provided deferred tax asset associated nols december 31 2004 nols expire varying amounts years 2008 2020 first used offset taxable income generate ability utilize significant portion available nols currently limited section 382 internal revenue code due change control occurred 1995 successive change control triggered 2003 pursuant section 382 however significantly change nol utilization expectations income tax provision year ended december 31 2004 totaled 294 million 331 pretax income tax provision year 2004 included 69 million income tax benefit related partial reversal valuation allowance applied nols recorded prior year end based upon positive earnings generated financial tax reporting purposes since formation believed would likely generate sufficient taxable income future years realize benefit 51 million deferred tax asset associated net operating losses following recognition 69 million income tax benefit year 2004 recognized associated income tax benefit cumulative basis approximately 212 million 358 million available federal net operating loss carryforwards recent accounting pronouncements january 2003 financial accounting standards board fasb issued fasb interpretation 46 fin 46 december 2003 amendment fin 46r fin 46 entitled consolidation variable interest entities interpretation arb 51 fin 46 provides guidance 1 identification entities control achieved means voting rights known variable interest entities vies 2 business enterprise primary beneficiary consolidate vie new requirement consolidation applies entities 1 equity investors controlling financial interest 2 whose equity investment risk insufficient finance entitys activities without receiving additional subordinated financial support parties addition fin 46 requires primary beneficiary enterprises significant variable interest vie make additional disclosures fin 46 effective new vies created acquired january 31 2003 vies created acquired prior february 1 2003 provisions fin 46 must applied first interim annual period ending december 15 2003 implementation fin 46 affect us november 2004 fasb issued statement financial accounting standards 151 inventory costs amendment arb 43 chapter 4 sfas 151 sfas 151 clarifies accounting abnormal amounts idle facility expense freight handling costs wasted material paragraph 5 accounting research bulletin arb 43 chapter 4 inventory pricing previously stated certain circumstances items idle facility expense excessive spoilage double freight rehandling costs may abnormal require treatment currentperiod charges sfas 151 requires items recognized currentperiod charges regardless whether meet criterion abnormal addition sfas 151 requires allocation fixed production overheads costs conversion based normal capacity production facilities sfas 151 effective fiscal years beginning june 15 2005 company believe implementation sfas 151 material impact companys financial position results operations cash flows december 2004 fasb issued two fasb staff positions fsps provide accounting guidance companies account effects american jobs creation act 2004 act signed law october 22 2004 act could affect companies report deferred income tax balances first fsp fas 1091 fas 1091 second fsp fas 1092 fas 1092 fas 1091 fasb concludes tax relief special tax deduction domestic manufacturing act accounted special deduction instead tax rate reduction fas 1092 gives company additional time evaluate effects act plan reinvestment repatriation foreign earnings purposes applying fasb statement 109 accounting income taxes however companies must provide certain disclosures chooses utilize additional time granted fasb company still evaluating impact fsps may results operations financial condition cash flows december 16 2004 fasb issued fasb statement 123 revised 2004 sharebased payment revision fasb statement 123 accounting stockbased compensation statement 123r supersedes apb opinion 25 accounting stock issued employees amends fasb statement 95 statement cash flows generally approach statement 123r similar approach described statement 123 however statement 123r requires sharebased payments employees including grants employee stock options recognized income statement based fair values pro forma disclosure longer acceptable alternative statement 123r must adopted later july 1 2005 expect adopt statement 123r july 1 2005 company plans adopt statement 123r using modifiedprospective method whereby compensation cost recognized beginning effective date based requirements statement 123r sharebased payments granted effective date b based requirements statement 123r awards granted employees prior effective date statement 123r remain unvested effective date permitted sfas 123 company currently accounts sharebased payments employees using apb 25 intrinsic value method generally recognizes compensation cost employee stock options accordingly adoption sfas 123rs fair value method impact results operations although impact overall financial position adopted sfas 123r prior periods impact standard would approximated impact sfas 123 described disclosure pro forma net income earnings per share note 10 consolidated financial statements annual report form 10k statement 123r also requires benefits tax deductions excess recognized compensation cost reported financing cash flow rather operating cash flow requirement reduce net operating cash flows increase net financing cash flows periods adoption company cannot estimate amounts future depend among things employees exercise stock options amount operating cash flows recognized prior periods excess tax deductions stock option exercises 11 million 18 million 04 million 2004 2003 2002 respectively item 7aitem 7 management’s discussion analysis financial condition results operations read following discussion analysis together consolidated financial statements notes statements included elsewhere annual report form 10k overview provide broad range products services oil gas industry offshore products tubular services well site services business segments demand products services cyclical substantially dependent upon activity levels oil gas industry particularly customers’ willingness spend capital exploration development oil gas reserves demand products services customers highly sensitive current expected oil natural gas prices generally tubular services well site services segments respond rapidly shorterterm movements oil natural gas prices offshore products segment offshore products segment provides highly engineered technically designed products offshore oil gas development production systems facilities sales offshore products services depend upon development offshore production systems repairs upgrades existing offshore drilling rigs construction new offshore drilling rigs segment particularly influenced deepwater drilling production activities driven largely customers’ longerterm outlook oil prices tubular services segment distribute broad range casing tubing sales gross margins tubular services segment depend upon overall level drilling activity types wells drilled example deepwater wells usually require higher priced seamless alloy tubulars level octg inventory pricing historically tubular services’ gross margin expands periods rising octg prices contracts periods decreasing octg prices well site services business segment provide land drilling services work force accommodations catering logistics services rental tools demand drilling services driven land drilling activity texas new mexico ohio rocky mountains area us rental tools services depend primarily upon level drilling completion workover activity us canada accommodations business conducted primarily canada activity levels historically driven oil gas drilling mining activities however seen increased demand work force accommodation business result oil sands development activities northern alberta canada effective march 1 2006 completed transaction combine workover services business boots coots resulted acquiring 456 equity interest boots coots see note 7 consolidated financial statements included annual report form 10k diversified product service offering exposure activities conducted throughout oil gas cycle demand tubular services well site services segments highly correlated changes drilling rig count united states canada table sets forth summary north american rig activity measured baker hughes incorporated periods indicated average north american rig count year ended december 31 2006 increased 278 rigs 151 compared year ended december 31 2005 overall increase activity tempered somewhat flat activity levels us gulf mexico contributed increased revenues tubular services well site services segments 2006 north american rig count related oil service activity remained high levels generally although canadian rig count 2007 todate 114 comparable period 2006 well site services segment results year 2006 also benefited capital spending aggregated 1174 million year ended december 31 2006 acquisition elenburg february 1 2005 total consideration 221 million acquisition stinger may 1 2005 june 1 2005 total consideration 961 million impact increased activity levels pricing gains certain business lines june 2 2005 acquired outstanding stock phillips casing tubing lp phillips total consideration 312 million acquisition resulted increased octg inventory revenues date acquisition tubular services segment shipped 481900 tons octg 2006 118400 tons fourth quarter 2006 compared 405300 tons 2005 118600 tons fourth quarter 2005 tubular services segment also benefited past year 205 year increase average us land drilling activity management believes based current economic environment oil gas producers continue explore develop oil gas reserves active pace spite decline current us domestic natural gas prices reflect high storage levels compared prior five year historical range given longer term views supply demand fundamentals management estimates approximately 60 company’s revenues dependent north american natural gas drilling completion activity estimate profitability evenly impacted oil price driven activity natural gas price driven activity customers increased spending commitments deepwater offshore exploration development benefited offshore products segment customers also announced significant levels expenditures oil sands related projects canada however assurance trends continue risk lower energy prices sustained periods could negatively impact drilling completion activity correspondingly reduce oil gas expenditures decline would adverse business addition particularly well site services segment must continue monitor industry capacity additions relationship capital expenditures expected returns considering project risks expected cash flows investments tubular services continue monitor industry wide octg inventory levels mill shipments octg pricing inventory turnover levels consolidated results operations reported net income year ended december 31 2006 1976 million 389 per diluted share results compare 1218 million 241 per diluted share reported year ended december 31 2005 594 million 119 per diluted share year ended december 31 2004 continuing strong activity contributions acquisitions capital investments recognized yearoveryear growth revenues 26 2006 58 2005 net income 2006 included recognition noncash pretax gain 113 million aftertax gain 012 per diluted share sale company’s workover services business boots coots revenues consolidated revenues increased 3918 million 2006 result increased well site services revenues 1090 million 20 increased offshore products revenues 1185 million 44 increased tubular services revenues 1643 million 23 consolidated revenues increased 5606 million 2005 compared 2004 result increased well site services revenues 2118 million 63 increased offshore products revenues 644 million 31 increased tubular services revenues 2844 million 67 well site services revenues increased 2006 2005 due yearoveryear improvements north american drilling completion activity contributions capital expenditures years acquisitions increases partially offset sale hydraulic workover business completed first quarter 2006 addition prices realized rental tools drilling services improved 2006 2005 compared prior years experienced increased activity support oil sands developments canada 2005 offshore products revenues increased 2006 2005 due increased deepwater development spending capital equipment upgrades customers offshore products backlog totaled 3493 million december 31 2006 1107 million december 31 2005 975 million december 31 2004 believe deepwater construction development business characterized lengthy projects long “leadtime” order cycle changes backlog levels one period next necessarily evidence longterm trend believe activity levels offshore products segment increase future periods given growth backlog compared year end 2005 2004 levels tubular services revenues increased 23 2006 compared 2005 due increased us drilling activity contributions acquisition closed june 2005 year ended december 31 2006 tons shipped increased 19 compared period 2005 average octg selling prices increased 35 year 2005 year 2006 tubular services revenues increased 67 2005 compared 2004 due increased industry demand higher octg prices contributions acquisitions completed may 2004 june 2005 average octg selling prices increased 40 year 2004 year 2005 cost sales service consolidated cost sales services increased 2618 million 22 2006 compared 2005 result increases well site services 59 million 2 offshore products 844 million 40 tubular services 1715 million 27 consolidated cost sales services increased 4316 million 56 2005 compared 2004 result increases well site services 1428 million 62 offshore products 403 million 24 tubular services 2485 million 66 generally increases cost sales services 2006 2005 line increases revenues resulting consistent consolidated gross margins increase cost sales services tubular services business 2006 compared 2005 slightly higher increase revenues period due increase relatively low margin carbon grade sales compared premium grade octg sales less frequent octg mill price increases 2006 compared 2005 accommodations cost sales services decreased year ended december 31 2006 compared 2005 increased year ended december 31 2005 compared 2004 2005 large fabrication project delivered customer sale basis 2004 2006 revenues consisted higher mix service revenue lower cost element selling general administrative expenses selling general administrative expenses sga increased 225 million 266 year ended december 31 2006 compared period 2005 year ended december 31 2006 sga totaled 1072 million 56 revenues compared sga 847 million 55 revenues year ended december 31 2005 increased sga expense associated acquisitions higher ad valorem taxes octg inventory increased incentive compensation accruals higher stock compensation costs due part adoption sfas 123r primary factors causing increased sga 2006 compared 2005 sga increased 199 million 306 2005 compared period 2004 year ended december 31 2005 sga totaled 847 million 55 revenues compared sga 648 million 67 revenues year ended december 31 2004 increased sga expense associated acquisitions completed since 2004 higher ad valorem taxes increased levels octg inventory increased incentive compensation expense higher professional fees associated sarbanesoxley compliance primary factors causing increased sga 2005 compared 2004 depreciation amortization depreciation amortization expense increased 76 million 163 year ended december 31 2006 compared period 2005 depreciation amortization expense increased 107 million 298 2005 compared 2004 depreciation amortization expense increased 2006 2005 due primarily acquisitions capital expenditures operating income consolidated operating income increased 1034 million 53 2006 compared 2005 result increases well site services 907 million 87 offshore products 294 million 111 partially offset decreased tubular services operating income 84 million 11 consolidated operating income increased 995 million 105 2005 compared 2004 result increases well site services 492 million 89 offshore products 193 million 268 tubular services 340 million 83 interest expense interest income interest expense increased 55 million 395 year ended december 31 2006 compared year ended december 31 2005 interest expense increased 62 million 813 year ended december 31 2005 compared year ended december 31 2004 interest expense increased due higher debt levels resulting acquisitions capital expenditures combined higher interest rates weighted average interest rate company’s revolving credit facility 64 2006 47 2005 36 2004 interest income increased 2006 primarily notes receivable resulting sale hydraulic workover business see note 7 consolidated financial statements included annual report form 10k equity earnings unconsolidated affiliates equity earnings unconsolidated affiliates higher 2006 2005 primarily sale workover services business resultant interest boots coots common stock account equity method see note 7 consolidated financial statements included annual report form 10k equity earnings unconsolidated affiliates increased 2005 compared 2004 due primarily equity affiliate octg business experienced higher profitability 2005 compared 2004 income tax expense income tax provision year ended december 31 2006 totaled 1040 million 345 pretax income compared 607 million 333 pretax income year ended december 31 2005 294 million 331 pretax income year ended december 31 2004 see “management’s discussion analysis financial condition results operations tax matters” discussion liquidity capital resources primary liquidity needs fund capital expenditures expanding accommodations facilities expanding upgrading manufacturing facilities equipment adding drilling rigs increasing replacing rental tool assets funding new product development funding general working capital needs addition capital needed fund strategic business acquisitions primary sources funds cash flow operations proceeds borrowings bank facilities proceeds 175 million convertible note offering 2005 see note 8 consolidated financial statements included annual report form 10k cash totaling 1374 million provided operations year ended december 31 2006 compared cash totaling 334 million provided operations year ended december 31 2005 2006 951 million used fund working capital due part increases receivables inventories offshore products segment given growth activity cash used investing activities years ended december 31 2006 2005 amount 1142 million 2299 million respectively capital expenditures including capitalized interest totaled 1291 million 834 million years ended december 31 2006 2005 respectively capital expenditures years consisted principally purchases assets well site services segment capital expenditures wellsite services 2006 included 595 million accommodations 326 million drilling services including 131 million acquisition three drilling rigs eagle rock drilling 245 million rental tools 2005 spent 368 million accommodations 140 million drilling services 198 million rental tools addition completed various acquisitions totaling 1476 million net cash acquired 2005 february 1 2005 completed acquisition elenburg exploration company inc elenburg wyoming based land drilling company cash consideration 213 million net cash acquired including transaction costs excluding note payable former owners 08 million time acquisition elenburg owned operated 7 rigs provided shallow land drilling services montana wyoming colorado utah effective may 1 2005 acquired stinger wellhead protection inc certain affiliated companies related intellectual property effective june 1 2005 completed acquisition stinger’s international operations collectively stinger cash consideration 847 million net cash acquired including transaction costs excluding note payable former owners 50 million stinger provides wellhead isolation equipment services 30 locations united states canada central south america stinger’s patented equipment utilized pressure pumping operations isolates customers’ blowout preventers wellheads pressure abrasion experienced fracturing process oil gas well stinger acquisition expanded rental tool services capabilities especially pressure pumping market june 2 2005 purchased phillips casing tubing lp phillips cash consideration 312 million including transaction costs phillips distributes octg primarily carbon erw electronic resistance welded pipe facilities midland godley texas june 6 2005 acquired noble structures inc cash consideration 79 million including transaction costs excluding note payable 08 million acquisition expanded accommodations manufacturing capabilities canada order meet increased demand remote site facilities principally oil sands region cash consideration paid acquisitions period initially funded utilizing existing bank credit facility 25 million bridge loan bridge loan subsequently repaid proceeds 238 convertible notes sold june 2005 see note 8 consolidated financial statements included annual report form 10k february 9 2007 boots coots announced filed registration statement sell 26 million shares common stock including 13 million shares closing price boots coots common stock date announcement 226 total 265 million shares boots coots common stock carrying value 131 per share december 31 2006 assurance timing announced stock sale whether transaction ultimately take place currently expect spend total approximately 203 million capital expenditures 2007 expand product service offering maintenance upgrade equipment facilities expect fund capital expenditures internally generated funds proceeds borrowings revolving credit facilities net cash 112 million used financing activities year ended december 31 2006 primarily result treasury stock purchases debt repayments partially offset proceeds stock option exercises total 1953 million provided financing activities year ended december 31 2005 primarily result issuance 1750 million contingent convertible senior notes see note 8 consolidated financial statements included annual report form 10k first quarter 2005 board directors authorized repurchase 50 million common stock par value 01 per share two year period august 25 2006 additional 50 million approved duration program extended august 31 2008 december 31 2006 total 50 million stock 1824432 shares repurchased program leaving total approximately 50 million remaining available program december 5 2006 amended existing credit agreement dated october 30 2003 credit agreement amendment credit agreement increased total commitments credit agreement 325 million 400 million extended maturity credit agreement december 5 2011 credit agreement permits company incremental borrowings 100 million credit agreement subject lender approval terms conditions credit agreement governs credit facility contains customary financial covenants restrictions including restrictions ability declare pay dividends borrowings credit agreement secured pledge substantially assets subsidiaries obligations credit agreement guaranteed significant subsidiaries borrowings credit agreement accrue interest rate equal either libor another benchmark interest rate election plus applicable margin based leverage ratio defined credit agreement must pay quarterly commitment fee based leverage ratio unused commitments credit agreement year 2006 applicable margin libor ranged 075 125 075 december 31 2006 weighted average interest rate paid credit agreement 62 year ended december 31 2006 46 year ended december 31 2005 december 31 2006 2154 million outstanding credit facility additional 107 million outstanding letters credit leaving 1739 million available drawn facility addition floating rate bank credit facilities us uk provide aggregate borrowing capacity 90 million december 31 2006 10 million outstanding facilities additional 06 million outstanding letters credit leaving 74 million available drawn facilities total debt represented 322 total debt shareholder’s equity december 31 2006 believe cash operations available borrowings credit facilities sufficient meet liquidity needs coming twelve months plans assumptions change inaccurate make acquisitions may need raise additional capital however assurance able raise additional funds able raise funds favorable terms following summarizes contractual obligations december 31 2006 thousands debt obligations december 31 2006 included consolidated balance sheet part consolidated financial statements included annual report form 10k entered material leases subsequent december 31 2006 offbalance sheet arrangements december 31 2006 offbalance sheet arrangements defined item 303a4 regulation sk tax matters primary deferred tax asset totaled 82 million december 31 2006 related 234 million available federal net operating loss carryforwards nols date nols expire varying amounts years 2010 2011 first used offset taxable income generate ability utilize significant portion nols currently limited section 382 internal revenue code due change control occurred 1995 currently believe substantially nol’s utilized income tax provision year ended december 31 2006 totaled 1040 million 345 pretax income year ended december 31 2006 company recognized tax benefit triggered employee exercises stock options totaling 50 million benefit credited additional paidin capital income tax provision year ended december 31 2005 totaled 607 million 333 pretax income tax provision year 2005 included 47 million income tax benefit related reversal substantially remaining valuation allowance applied nols recorded prior year end critical accounting policies selection critical accounting policies objective properly reflect financial position results operations reporting period manner understood utilize financial statements often must use judgment uncertainties several critical accounting policies put practice important effect reported financial results contingent liabilities future claims made estimates amount eventual cost liquidate liabilities claims liabilities claims sometimes involve threatened actual litigation damages quantified made assessment exposure recorded provision accounts cover expected loss claims liabilities estimated based experience matters appropriate advice outside counsel outside experts upon ultimate resolution uncertainties future reported financial results impacted difference estimates actual amounts paid settle liability examples areas made important estimates future liabilities include litigation taxes fines penalties interest warranty claims contract claims discontinued operations assessment impairment longlived assets including goodwill investments unconsolidated subsidiaries conducted whenever changes facts circumstances indicate loss value occurred determination amount impairment temporary decline value would based quoted market prices available upon judgments future operating cash flows generated assets throughout estimated useful lives industry highly cyclical estimates period future cash flows generated well predictability cash flows determination whether temporary decline value investment occurred significant impact carrying value assets periods prolonged cycles may result impairment charges recognize revenue profit work progresses longterm fixed price contracts using percentageofcompletion method relies estimates total expected contract revenue costs follow method since reasonably dependable estimates revenue costs applicable various stages contract made recognized revenues profit subject revisions contract progresses completion revisions profit estimates charged income expense period facts circumstances give rise revision become known provisions estimated losses uncompleted contracts made period losses determined valuation allowances especially related potential bad debts accounts receivable obsolescence market value declines inventory involve reviews underlying details assets known trends marketplace application historical factors provide us basis recording allowances market conditions less favorable projected management historical experience materially different future experience additional allowances may required past years recorded valuation allowance reduce deferred tax assets amount likely realized see note 10 income taxes consolidated financial statements included annual report form 10k “tax matters” herein selection useful lives many assets requires judgments operating personnel length useful lives estimates long short might eventually report disproportionate number losses gains upon disposition retirement longlived assets believe estimates useful lives appropriate since adoption sfas 123r required estimate fair value stock compensation made pursuant awards 2001 equity participation plan initial estimate fair value stock option restricted stock award determines amount stock compensation expense recognize future estimate value stock option awards plan selected fair value calculation model chosen black scholes “closed form” model value stock options awarded plan chosen model option awards made straightforward consistent vesting terms option prices option lives utilizing black scholes model requires us estimate length time options remain outstanding risk free interest rate estimated period options assumed outstanding forfeiture rates future dividends volatility common stock assumptions affect amount timing future stock compensation expense recognition continually monitor actual experience change assumptions future awards consider appropriate recent accounting pronouncements december 16 2004 fasb issued fasb statement 123 revised 2004 sharebased payment revision fasb statement 123 accounting stockbased compensation statement 123r supersedes apb opinion 25 accounting stock issued employees amends fasb statement 95 statement cash flows generally approach statement 123r similar approach described statement 123 however statement 123r requires sharebased payments employees including grants employee stock options recognized income statement based fair values pro forma disclosure longer acceptable alternative adopted statement financial accounting standards 123r sfas 123r effective january 1 2006 pronouncement requires companies measure cost employee services received exchange award equity instruments typically stock options based grantdate fair value award fair value estimated using optionpricing models resulting cost recognized period employee required provide service exchange awards usually vesting period prior adoption sfas 123r accounting treatment optional pro forma disclosures required adopted sfas 123r using modified prospective transition method see note 13 consolidated financial statements included annual report form 10k may 2005 financial accounting standards board fasb issued statement financial accounting standards sfas 154 “accounting changes error corrections replacement apb opinion 20 fasb statement 3” among changes statement requires retrospective application voluntary changes accounting principles unless impractical guidance provided account changes retrospective application impractical statement effective prospective basis beginning january 1 2006 september 2006 fasb issued statement financial accounting standards 157 sfas 157 “fair value measurements” defines fair value establishes guidelines measuring fair value expands disclosures regarding fair value measurements sfas 157 require new fair value measurements rather eliminates inconsistencies guidance found various prior accounting pronouncements sfas 157 effective fiscal years beginning november 15 2007 early adoption permitted provided company yet issued financial statements including interim periods fiscal year company plans adopt provisions sfas 157 2008 adopted expect adoption sfas 157 material impact results operations financial position june 2006 fasb issued interpretation 48 accounting uncertainty income taxes interpretation fasb statement 109 fin 48 clarifies accounting disclosure uncertain tax positions defined fin 48 requires companies meet “morelikelythannot” threshold ie greater 50 percent likelihood tax position sustained examination prior recording benefit tax position fin 48 seeks reduce diversity practice associated certain aspects recognition measurement related accounting income taxes interpretation effective fiscal years beginning december 15 2006 company yet determined impact interpretation results operations financial position item 7aitem 7 management’s discussion analysis financial condition results operations read following discussion analysis together consolidated financial statements notes statements included elsewhere annual report form 10k overview provide broad range products services oil gas industry offshore products tubular services well site services business segments demand products services cyclical substantially dependent upon activity levels oil gas industry particularly customers’ willingness spend capital exploration development oil gas reserves demand products services customers highly sensitive current expected oil natural gas prices generally tubular services well site services segments respond rapidly shorterterm movements oil natural gas prices except accommodations activities supporting oil sands developments tied longterm outlook crude oil prices offshore products segment provides highly engineered technically designed products offshore oil gas development production systems facilities sales offshore products services depend upon development offshore production systems pipelines repairs upgrades existing offshore drilling rigs construction new offshore drilling rigs vessels segment particularly influenced deepwater drilling production activities driven largely customers’ longerterm outlook oil natural gas prices tubular services segment distribute broad range casing tubing sales gross margins tubular services segment depend upon overall level drilling activity types wells drilled example deepwater wells usually require higher priced seamless alloy tubulars level octg inventory pricing historically tubular services’ gross margin expands periods rising octg prices contracts periods decreasing octg prices well site services business segment provide land drilling services work force accommodations catering logistics modular building construction services rental tools demand drilling services driven land drilling activity texas new mexico ohio rocky mountains area us rental tools services depend primarily upon level drilling completion workover activity us canada accommodations business conducted primarily canada activity levels currently driven primarily oil sands development activities northern alberta diversified product service offering exposure activities conducted throughout oil gas cycle demand tubular services well site services segments highly correlated changes drilling rig count united states canada table sets forth summary north american rig activity measured baker hughes incorporated periods indicated average north american rig count year ended december 31 2007 almost flat compared year ended december 31 2006 increases average us land rig counts contributed increased well site services revenues particularly us rental tool land drilling businesses however decreases canadian rig counts compared 2006 adversely impacted rental tools accommodations catering logistical services support canadian oil gas drilling operations year 2007 increased accommodations catering logistical services revenues support oil sands developments canada compared year 2006 offset impact decreased canadian conventional oil gas drilling operations well site services segment results year 2007 also benefited capital spending aggregated 222 million twelve months ended december 31 2007 segment included 43 million invested drilling services business 48 million rental tools business 131 million invested accommodations business primarily support oil sands development canada addition well site services benefited acquisitions discussed two rental tool companies aggregate consideration 113 million 2007 results generated canadian workforce accommodations catering logistics operations benefited strengthening canadian currency year ended december 31 2007 canadian dollar valued average exchange rate 094 us dollars compared 088 year ended december 31 2006 increase 68 continue seek acquire businesses believe good strategic fit existing businesses july august 2007 acquired two rental tool businesses total consideration approximately 113 million funded primarily borrowings bank credit facility acquired businesses provide well testing flowback services completion related rental tools us market results operations acquired businesses included rental tools business within well site services segment since date acquisition forecasts economic slowdowns potential recession us elsewhere world widely reported recently economic slowdown recession could negatively impact demand price crude oil near term correspondingly negative impact operations however management believes longer term economic environment recover oil gas producers continue explore develop oil gas reserves active pace based longer term views supply demand fundamentals higher oil gas price expectations compared expectations five years ago management estimates approximately 55 65 company’s revenues dependent north american natural gas drilling completion activity significant amount revenues derived lower margin octg sales estimate profitability evenly impacted oil driven activity natural gas driven activity customers increased spending commitments deepwater offshore exploration development benefited offshore products segment customers also announced significant levels expenditures oil sands related projects canada benefiting well site services segment currently expect continued growth activity accommodations business oil sands region labor needs region expected double next three five years even considering recent legislation increasing oil gas royalty levels province alberta continue focus expansion opportunities execution initiatives high growth markets supporting deepwater development canadian oil sands spending assurance trends continue risk lower energy prices sustained periods could negatively impact drilling completion activity correspondingly reduce oil gas expenditures decline would adverse business addition particularly well site services segment must continue monitor industry capacity additions relationship capital expenditures expected returns considering project risks expected cash flows investments tubular services continue monitor industry wide octg inventory levels mill shipments octg pricing inventory turnover levels consolidated results operations year ended december 31 2007 compared year ended december 31 reported increased net income year ended december 31 2007 2034 million 399 per diluted share compared 1976 million 389 per diluted share reported year ended december 31 2006 net income 2007 included pretax gain 128 million tax gain 017 per diluted share sale 1495 million shares boots coots common stock net income 2006 included recognition noncash pretax gain 113 million aftertax gain 012 per diluted share sale company’s workover services business boots coots see note 7 consolidated financial statements included annual report form 10k revenues consolidated revenues increased 1648 million 9 2007 compared 2006 well site services revenues increased 587 million 9 2007 compared 2006 accommodations business revenues decreased 12 million 04 result decreased oil gas drilling activity levels canada lower third party accommodations manufacturing revenues us canada partially offset higher revenues driven increased activity support oil sands developments canada rental tools revenues increased 598 million 30 2007 compared 2006 result two rental tool acquisitions completed third quarter increased prices realized capital additions made years partially offset decreased canadian rental tool revenues 2007 caused reduced canadian drilling completion activity compared 2006 drilling revenues increased 87 million 6 2007 compared 2006 result increased rig fleet size three additional rigs higher dayrates partially offset lower utilization 2007 utilization declined 900 2006 793 2007 due primarily softness demand west texas impact industry capacity additions extended holiday downtime fourth quarter sale workover services business march 2006 caused 86 million decrease revenues 2007 compared 2006 offshore products revenues increased 1381 million 35 due increased deepwater development spending capital equipment upgrades customers increased demand products services tubular services revenues decreased 320 million 4 2007 compared 2006 result 46 decrease average selling prices per ton octg partially offset 1 increase tons shipped cost sales service consolidated cost sales increased 1342 million 9 2007 compared 2006 primarily result increase offshore products 1092 million 37 overall gross margin percent revenues decreased 23 2007 24 2006 well site services gross margin percent revenues 43 2007 2006 accommodations cost sales decreased due lower costs associated fewer third party manufacturing projects 2007 compared 2006 reduced activity support conventional canadian drilling operations 2007 accommodations gross margin percentage revenues improved 34 2006 42 2007 primarily capacity additions economies scale major oil sands lodges lower manufacturing revenues generally earn lower margins accommodations rentals catering work rental tool cost sales increased 411 million 44 2007 compared 2006 primarily result operating costs associated two acquisitions made third quarter 2007 higher costs associated increased revenue existing rental tool businesses rental tool gross margin decreased 53 2006 48 2007 primarily result margins attributable one acquired business lines typically lower existing rental tool businesses due mix rental equipment service personnel used business addition cost sales gross margins decreased canada due reduced rental activity drilling services cost sales increased 192 million 28 2007 compared 2006 result increase number rigs operate increased wages paid employees increased costs associated footagebased drilling contracts 2007 increased costs coupled lower utilization reduced drilling services gross margin 49 2006 38 2007 offshore products cost sales percentage basis increased approximately line increase offshore products revenues resulting change gross margin percentage segment tubular services gross margin percentage revenues decreased 9 6 2007 compared 2006 primarily result lower octg mill pricing competitive tubular marketplace selling general administrative expenses sga increased 112 million 10 2007 compared 2006 due primarily sga expense associated two acquisitions made third quarter 2007 increased salaries wages benefits increase headcount sga 57 revenues 2007 compared 56 revenues 2006 depreciation amortization depreciation amortization expense increased 164 million 30 2007 compared 2006 due primarily capital expenditures made previous twelve months operating income consolidated operating income decreased 02 million 01 2007 compared 2006 primarily result decreased tubular services operating income 280 million 42 partially offset increases offshore products 265 million 47 well site services 25 million 1 interest expense interest income interest expense decreased 14 million 7 2007 compared 2006 due lower average debt levels weighted average interest rate company’s revolving credit facility 60 2007 compared 62 2006 interest income 2007 2006 relates primarily subordinated notes receivable obtained consideration sale hydraulic workover business see note 7 consolidated financial statements included annual report form 10k equity earnings unconsolidated affiliates equity earnings unconsolidated affiliates lower 2007 2006 due lower earnings boots coots sale 1495 million shares investment boots coots april 2007 following sale ownership interest decreased 456 approximately 15 income tax expense income tax provision year ended december 31 2007 totaled 970 million 323 pretax income compared 1040 million 345 pretax income year ended december 31 2006 lower canadian foreign taxes income dividends higher allowable manufacturing credit completion irs audit company’s 2004 federal income tax return resulted favorable adjustment company’s allowance uncertain tax positions lowered effective tax rate year ended december 31 2007 addition effective tax rates higher 2006 2007 higher effective tax rate applicable gain sale workover services business recognized 2006 year ended december 31 2006 compared year ended december 31 revenues consolidated revenues increased 3918 million 26 2006 compared 2005 well site services revenues increased 1090 million 20 2006 compared 2005 accommodations business revenues increased 267 million 9 2006 compared 2005 primarily result increased oil gas drilling activity levels canada partially offset lower third party accommodations manufacturing revenues canada rental tools revenues increased 658 million 49 2006 compared 2005 due yearoveryear improvements north american drilling completion activity contributions capital expenditures years acquisitions drilling revenues increased 478 million 55 2006 compared 2005 result increased rig fleet size four additional rigs higher rates higher utilization 2006 sale workover services business march 2006 caused 313 million decrease revenues 2006 compared 2005 offshore products revenues increased 1185 million 44 due increased deepwater development spending capital equipment upgrades customers tubular services revenues increased 1643 million 23 2006 compared 2005 due increased us drilling activity contributions acquisition closed june 2005 year ended december 31 2006 tons shipped increased 19 compared period 2005 average octg selling prices increased 35 year 2005 year 2006 cost sales service consolidated cost sales increased 2618 million 22 2006 compared 2005 primarily result increase tubular services 1715 million 27 offshore products 844 million 40 overall gross margin percent revenues 24 2006 compared 21 2005 well site services gross margin percent revenues increased 32 43 2006 compared 2005 accommodations cost sales decreased due large fabrication project delivered customer sale basis 2005 accommodations gross margin percentage revenues improved 23 2005 34 2006 primarily lower manufacturing revenues generally earn lower margins accommodations rentals catering work rental tool cost sales increased 260 million 38 2006 compared 2005 primarily result operating costs associated acquisitions made second quarter 2005 higher costs associated increased revenue existing rental tool businesses rental tool gross margin increased 49 2005 53 2006 primarily result increased prices realized drilling services cost sales increased 152 million 28 2006 compared 2005 result increase number rigs operate increased wages paid employees increased rates coupled higher utilizations increased drilling services gross margin 38 2005 49 2006 offshore products cost sales percentage basis increased approximately line increase offshore products revenues tubular services gross margin percent revenues decreased 12 9 2006 compared 2005 result increase relatively low margin carbon grade sales compared premium grade octg sales less frequent octg mill price increases 2006 compared 2005 selling general administrative expenses sga increased 225 million 27 2006 compared 2005 due primarily sga expense associated acquisitions higher ad valorem taxes octg inventory increased incentive compensation accruals higher stock compensation costs due part adoption sfas 123r sga 56 revenues 2006 compared 55 revenues 2005 depreciation amortization depreciation amortization expense increased 76 million 16 2006 compared 2005 due primarily acquisitions capital expenditures made previous twelve months operating income consolidated operating income increased 1034 million 53 2006 compared 2005 primarily result increases well site services 907 million 87 offshore products 294 million 111 partially offset decreased tubular services operating income 84 million 11 interest expense interest income interest expense increased 55 million 39 2006 compared 2005 due higher average debt levels resulting acquisitions capital expenditures combined higher interest rates weighted average interest rate company’s revolving credit facility 62 2006 47 2005 interest income increased 2006 primarily notes receivable resulting sale workover services business see note 7 consolidated financial statements included annual report form 10k equity earnings unconsolidated affiliates equity earnings unconsolidated affiliates higher 2006 2005 primarily sale workover services business resultant interest boots coots common stock account equity method see note 7 consolidated financial statements included annual report form 10k income tax expense income tax provision year ended december 31 2006 totaled 1040 million 345 pretax income compared 607 million 333 pretax income year ended december 31 2005 see “management’s discussion analysis financial condition results operations tax matters” discussion liquidity capital resources primary liquidity needs fund capital expenditures expanding accommodations facilities expanding upgrading manufacturing facilities equipment adding drilling rigs increasing replacing rental tool assets funding new product development general working capital needs addition capital needed fund strategic business acquisitions primary sources funds cash flow operations proceeds borrowings bank facilities proceeds 175 million convertible note offering 2005 see note 8 consolidated financial statements included annual report form 10k cash totaling 2479 million provided operations year ended december 31 2007 compared cash totaling 1374 million provided operations year ended december 31 2006 2007 159 million used fund working capital due primarily growth activity offshore products canadian accommodations segments increases working capital partially offset 700 million reduction working capital inventories tubular services segment 2007 2006 951 million used fund working capital due part increases receivables inventories offshore products segment given growth activity cash used investing activities years ended december 31 2007 2006 amount 3108 million 1142 million respectively capital expenditures including capitalized interest totaled 2396 million 1291 million years ended december 31 2007 2006 respectively capital expenditures years consisted principally purchases assets well site services segment particularly accommodations investments made support canadian oil sands development net proceeds sale 1495 million shares boots coots common stock totaled 294 million year ended december 31 2007 see note 7 consolidated financial statements included annual report form 10k year ended december 31 2007 expended cash 1031 million acquire two rental tool businesses cash consideration paid acquisitions period funded utilizing existing bank credit facility net cash 606 million provided financing activities year ended december 31 2007 primarily result revolving credit borrowings partially offset treasury stock purchases total 112 million used financing activities year ended december 31 2006 primarily result treasury stock purchases debt repayments partially offset proceeds stock option exercises first quarter 2005 board directors authorized repurchase 500 million common stock par value 01 per share two year period august 25 2006 additional 500 million approved duration program extended august 31 2008 january 11 2008 additional 500 million approved repurchase program duration program extended december 31 2009 february 12 2008 total 806 million stock 2769932 shares repurchased program leaving total approximately 194 million 694 million january 2008 authorization remaining available program share repurchases december 13 2007 entered incremental assumption agreement “agreement” lenders parties existing credit agreement dated october 30 2003 “credit agreement” order exercise accordion feature “accordion” available credit agreement accordion increased total commitments credit agreement 400 million 500 million connection execution agreement total us commitments defined credit agreement increased us 300000000 us 325000000 total canadian commitments defined credit agreement increased us 100000000 us 175000000 credit agreement governs credit facility contains customary financial covenants restrictions including restrictions ability declare pay dividends borrowings credit agreement secured pledge substantially assets subsidiaries obligations credit agreement guaranteed significant subsidiaries borrowings credit agreement accrue interest rate equal either libor another benchmark interest rate election plus applicable margin based leverage ratio defined credit agreement must pay quarterly commitment fee based leverage ratio unused commitments credit agreement year 2007 applicable margin libor ranged 05 075 december 31 2007 weighted average interest rate paid credit agreement 60 year ended december 31 2007 62 year ended december 31 2006 december 31 2007 3039 million outstanding credit facility additional 108 million outstanding letters credit leaving 1853 million available drawn facility addition floating rate bank credit facilities us uk provide aggregate borrowing capacity 90 million december 31 2007 33 million outstanding facilities additional 14 million outstanding letters credit leaving 43 million available drawn facilities total debt represented 312 total debt shareholder’s equity december 31 2007 compared 322 december 31 2006 june 2005 sold 175 million aggregate principal amount 238 contingent convertible notes due 2025 notes provide net share settlement therefore may convertible certain circumstances combination cash principal amount notes common stock company excess principal amount notes initial conversion price 3175 per share shares underlying notes included calculation diluted earnings per share year stock price exceeded initial conversion price 3175 period terms notes require stock price quarter period prior july 1 2023 120 initial conversion price 3810 per share least 20 trading days defined period notes convertible assuming stock price contingency feature met holders notes elect convert stock price 3810 per share would required deliver 175 million cash plus accrued interest approximately 919000 shares common stock detailed description 238 contingent convertible notes please see note 8 consolidated financial statements included annual report form 10k december 31 2007 classified 1750 million principal amount 238 notes noncurrent liability certain contingent conversion thresholds based company’s stock price met date result note holders could present notes conversion quarter following december 31 2007 measurement date future convertibility resultant balance sheet classification liability monitored quarterly reporting date analyzed dependent upon market prices company common stock prescribed measurement periods december 31 2007 recent trading prices 238 notes exceeded conversion value due remaining imbedded conversion option holder trading price 238 notes dependent current market conditions length time first put call date 238 notes general market liquidity among factors based recent trading patterns 238 notes currently expect significant amount 238 notes convert next twelve months august 2007 fasb issued proposed fasb staff position fsp apb 14a “accounting convertible debt instruments may settled cash upon conversion including partial cash settlement” issued would change accounting 238 notes proposed new rules convertible debt instruments may settled entirely partially cash upon conversion entity would required separately account liability equity components instrument manner reflects issuer’s nonconvertible debt borrowing rate effect proposed new rules 238 notes equity component would classified part stockholders’ equity balance sheet value equity component would treated original issue discount purposes accounting debt component 238 notes higher noncash interest expense would result recognizing accretion discounted carrying value debt component 238 notes interest expense estimated life 238 notes using effective interest rate method amortization however would effect cash interest payments proposed fsp delayed effective 2008 however expected delayed effective fiscal years beginning december 15 2008 rule enacted proposed require retrospective application company currently evaluating impact proposed fsp currently expect spend total approximately 282 million capital expenditures 2008 expand canadian oil sands related accommodations facilities fund product service offerings maintenance upgrade equipment facilities expect fund capital expenditures internally generated funds proceeds borrowings revolving credit facilities believe cash operations available borrowings credit facilities sufficient meet liquidity needs 2008 plans assumptions change inaccurate make acquisitions may need raise additional capital however assurance able raise additional funds able raise funds favorable terms following summarizes contractual obligations december 31 2007 thousands 1 excludes interest debt september 2006 entered construction agreement build new office facility offshore products operations houston texas total cost facility expected approximately 70 million expected completed march 2008 upon completion facility enter 21 year capital lease yet included table annual payments totaling approximately 725 thousand debt obligations december 31 2007 included consolidated balance sheet part consolidated financial statements included annual report form 10k entered material leases subsequent december 31 2007 offbalance sheet arrangements december 31 2007 offbalance sheet arrangements defined item 303a4 regulation sk tax matters primary deferred tax assets december 31 2007 related employee benefit costs equity participation plan annual incentive compensation plan 19 million available federal net operating loss carryforwards nols date nols expire varying amounts years 2010 2011 first used offset taxable income generate ability utilize significant portion available nols currently limited section 382 internal revenue code due change control occurred 1995 currently believe substantially nols utilized company federal alternative minimum tax net operating loss carryforwards 15 million expire years 2011 2020 income tax provision year ended december 31 2007 totaled 970 million 323 pretax income year ended december 31 2007 company recognized tax benefit triggered employee exercises stock options totaling 81 million benefit lowered cash paid taxes credited additional paidin capital income tax provision year ended december 31 2006 totaled 1040 million 345 pretax income critical accounting policies selection critical accounting policies objective properly reflect financial position results operations reporting period manner understood utilize financial statements often must use judgment uncertainties several critical accounting policies put practice important effect reported financial results contingent liabilities future claims made estimates amount eventual cost liquidate liabilities claims liabilities claims sometimes involve threatened actual litigation damages quantified made assessment exposure recorded provision accounts cover expected loss claims liabilities estimated based experience matters appropriate advice outside counsel outside experts upon ultimate resolution uncertainties future reported financial results impacted difference estimates actual amounts paid settle liability examples areas made important estimates future liabilities include litigation taxes interest insurance claims warranty claims contract claims discontinued operations assessment impairment longlived assets including goodwill intangibles investments unconsolidated subsidiaries conducted whenever changes facts circumstances indicate loss value occurred determination amount impairment temporary decline value would based quoted market prices available upon judgments future operating cash flows generated assets throughout estimated useful lives industry highly cyclical estimates period future cash flows generated well predictability cash flows determination whether temporary decline value investment occurred significant impact carrying value assets periods prolonged cycles may result impairment charges recognize revenue profit work progresses longterm fixed price contracts using percentageofcompletion method relies estimates total expected contract revenue costs follow method since reasonably dependable estimates revenue costs applicable various stages contract made recognized revenues profit subject revisions contract progresses completion revisions profit estimates charged income expense period facts circumstances give rise revision become known provisions estimated losses uncompleted contracts made period losses determined valuation allowances especially related potential bad debts accounts receivable obsolescence market value declines inventory involve reviews underlying details assets known trends marketplace application historical factors provide us basis recording allowances market conditions less favorable projected management historical experience materially different future experience additional allowances may required past years recorded valuation allowance reduce deferred tax assets amount likely realized see note 10 income taxes consolidated financial statements included annual report form 10k tax matters herein selection useful lives many assets requires judgments operating personnel length useful lives estimates long short might eventually report disproportionate number losses gains upon disposition retirement longlived assets believe estimates useful lives appropriate since adoption sfas 123r required estimate fair value stock compensation made pursuant awards 2001 equity participation plan initial estimate fair value stock option restricted stock award determines amount stock compensation expense recognize future estimate value stock option awards plan selected fair value calculation model chosen black scholes “closed form” model value stock options awarded plan chosen model option awards made straightforward consistent vesting terms option prices option lives utilizing black scholes model requires us estimate length time options remain outstanding risk free interest rate estimated period options assumed outstanding forfeiture rates future dividends volatility common stock assumptions affect amount timing future stock compensation expense recognition continually monitor actual experience change assumptions future awards consider appropriate accounting income taxes required provisions fasb interpretation 48 accounting uncertainty income taxes estimate liability future income taxes calculation tax liabilities involves dealing uncertainties application complex tax regulations recognize liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due ultimately determine payment amounts unnecessary reverse liability recognize tax benefit period determine liability longer necessary record additional charge provision taxes period determine recorded tax liability less expect ultimate assessment recent accounting pronouncements september 2006 fasb issued statement financial accounting standards 157 sfas 157 “fair value measurements” defines fair value establishes guidelines measuring fair value expands disclosures regarding fair value measurements sfas 157 require new fair value measurements rather eliminates inconsistencies guidance found various prior accounting pronouncements sfas 157 effective fiscal years beginning november 15 2007 february 2008 fasb issued fasb staff position fsp 1572 “effective date fasb statement 157” defers effective date statement 157 nonfinancial assets nonfinancial liabilities except items recognized disclosed fair value entity’s financial statements recurring basis least annually fiscal years beginning november 15 2008 interim periods within fiscal years earlier adoption permitted provided company yet issued financial statements including interim periods fiscal year january 1 2008 company recurring fair value measurements opted deferral accordingly company implemented currently evaluating impact sfas 157 expect adoption sfas 157 material impact results operations financial position february 2007 fasb issued statement financial accounting standards 159 sfas 159 “the fair value option financial assets financial liabilities including amendment fasb statement 115” sfas 159 permits entities measure eligible assets liabilities fair value unrealized gains losses items fair value option elected reported earnings sfas 159 effective fiscal years beginning november 15 2007 january 1 2008 company elect fair value option financial instruments certain items permitted sfas 159 august 2007 fasb issued proposed fasb staff position fsp apb 14a “accounting convertible debt instruments may settled cash upon conversion including partial cash settlement” issued would change accounting 238 contingent convertible senior notes 2 38 notes proposed new rules convertible debt instruments may settled entirely partially cash upon conversion entity would required separately account liability equity components instrument manner reflects issuer’s nonconvertible debt borrowing rate effect proposed new rules 238 notes equity component would classified part stockholders’ equity balance sheet value equity component would treated original issue discount purposes accounting debt component 238 notes higher noncash interest expense would result recognizing accretion discounted carrying value 238 notes interest expense estimated life 238 notes using effective interest rate method amortization however would effect cash interest payments proposed fsp delayed effective 2008 however expected delayed effective fiscal years beginning december 15 2008 rule enacted proposed require retrospective application company currently evaluating impact proposed fsp december 2007 fasb issued statement financial accounting standards 141 revised 2007 sfas 141r “business combinations” replaces sfas 141 sfas 141r establishes principles requirements acquirer recognizes measures financial statements identifiable assets acquired liabilities assumed noncontrolling interest acquiree goodwill acquired statement also establishes disclosure requirements enable users evaluate nature financial effects business combination sfas 141r effective fiscal years beginning december 15 2008 adoption sfas 141r expected material impact company’s results operations financial position december 2007 fasb also issued statement financial accounting standards 160 sfas 160 “noncontrolling interests consolidated financial statements amendment arb 51” sfas 160 requires accounting reporting minority interests recharacterized noncontrolling interests classified component equity sfas 160 also establishes reporting requirements provide sufficient disclosures clearly identify distinguish interests parent interests noncontrolling owners sfas 160 applies entities prepare consolidated financial statements except notforprofit organizations affect entities outstanding noncontrolling interest one subsidiaries deconsolidate subsidiary statement effective fiscal years beginning december 15 2008 adoption sfas 160 expected material impact results operations financial position see also note 10 income taxes change accounting principle discussion fasb’s interpretation 48 accounting uncertainty income taxes item 7aitem 7 management’s discussion analysis financial condition results operations read following discussion analysis together consolidated financial statements notes statements included elsewhere annual report form 10k overview provide broad range products services oil gas industry offshore products tubular services well site services business segments demand products services cyclical substantially dependent upon activity levels oil gas industry particularly customers’ willingness spend capital exploration development oil gas reserves demand products services customers highly sensitive current expected oil natural gas prices generally tubular services well site services segments respond rapidly shorterterm movements oil natural gas prices except accommodations activities supporting oil sands developments believe tied longterm outlook crude oil prices offshore products segment provides highly engineered technically designed products offshore oil gas development production systems facilities sales offshore products services depend upon development offshore production systems subsea pipelines repairs upgrades existing offshore drilling rigs construction new offshore drilling rigs vessels segment particularly influenced global deepwater drilling production activities driven largely customers’ longerterm outlook oil natural gas prices tubular services segment distribute broad range casing tubing sales gross margins tubular services segment depend upon overall level drilling activity types wells drilled level octg inventory pricing historically tubular services’ gross margin expands periods rising octg prices contracts periods decreasing octg prices well site services business segment provide land drilling services work force accommodations associated services rental tools demand drilling services driven land drilling activity texas new mexico ohio rocky mountains area us rental tools services depend primarily upon level drilling completion workover activity north america accommodations business conducted principally canada activity levels currently driven primarily oil sands development activities northern alberta diversified product service offering exposure activities conducted throughout oil gas cycle demand tubular services well site services segments highly correlated changes drilling rig count united states canada table sets forth summary north american rig activity measured baker hughes incorporated periods indicated average north american rig count year ended december 31 2008 increased 146 rigs 69 compared year ended december 31 2007 however rig count began decline fourth quarter 2008 fallen precipitously early 2009 current rig count approximately 1760 rigs north america including 1339 us well site services segment results year 2008 benefited capital spending aggregated 2270 million twelve months ended december 31 2008 segment included 430 million invested drilling services business 750 million rental tools business 1090 million invested accommodations business primarily support oil sands development canada addition well site services benefited acquisitions discussed two rental tool companies aggregate consideration 1130 million third quarter 2007 lesser degree acquisition accommodations lodge oil sands region canada aggregate consideration 70 million first quarter 2008 year 2008 canadian dollar valued average exchange rate us 094 january 2009 value canadian dollar weakened average exchange rate 082 hit low january 079 weakening canadian dollar negatively impacts translation future earnings generated canadian subsidiaries operators oil sands region canada announced delays cancellations upgrades new construction projects example november 2008 one customers announced suspension activities associated development project canadian oil sands 2009 amended contract us relating construction rental 1016 bed facility contract amendment benefit short term results operations however suspension delay eliminate revenues expected long term operation customer’s facility see note 17 consolidated financial statements believe longer term prospects oil sands developments remain sound currently believe based customer contracts commitments existing oil sands accommodations facilities remain well utilized 2009 july august 2007 acquired two rental tool businesses total consideration approximately 113 million funded primarily borrowings bank credit facility acquired businesses provide well testing flowback services completion related rental tools us market results operations acquired businesses included rental tools business within well site services segment since date acquisition rental tool business expected negatively impacted material fashion industry wide reduction drilling completion activity since equipment highly mobile many cases proprietary may able mitigate extent effects downturn moving equipment required one many rental tool locations north america potentially foreign markets 2008 completed two acquisitions total consideration 299 million february 2008 purchased equity christina lake enterprises ltd owners accommodations lodge christina lake lodge conklin area alberta canada total consideration 70 million christina lake lodge provides lodging catering southern area oil sands region christina lake lodge included accommodations business within well site services segment since date acquisition february 2008 also acquired waterfront facility houston ship channel use offshore products segment total consideration 229 million new waterfront facility expanded ability manufacture assemble test load larger subsea production drilling rig equipment thereby expanding capabilities major us steel mills increased octg prices 2008 high product demand overall tight supplies also response raw material cost increases given tightness octg supplies coupled mill price increases surcharges tubular services margins increased significantly 2008 however steel prices declining global basis currently industry inventories increased significantly rig count declined expect recent trends material impact octg pricing accordingly revenues margins realized 2009 tubular services segment trends could also negatively impact valuation octg inventory potentially resulting future lower cost market writedowns current global financial crisis contributed among things significant reductions available capital liquidity banks providers credit contributed factors causing worldwide recessionary conditions us inventory levels natural gas risen higher expected 2008 summer injection season reached full theoretical capacity end season case 2007 uncertainty surrounding future economic activity levels tightening credit availability substantially reduced cash flow customers already resulted significantly decreased activity levels businesses spending cuts announced customers result reduced oil gas price expectations us north american active rig count future rig count forecasts reduced significantly addition exploration production expenditures constrained extent exploration production companies limited access credit markets result disruption lending markets experienced significant decline utilization drilling rigs late 2008 thus far 2009 oil gas prices also declined precipitously record highs reached 2008 currently expect decreased energy prices drilling also negatively impact well site services businesses tubular services business 2009 considered factors among others assessing goodwill potential impairment result assessment wrote total 856 million 798 million tax goodwill tubular services drilling reporting units fourth quarter 2008 significant uncertainty marketplace concerning depth duration current economic energy business downturn recession expected negatively impact oilfield services sectors operate correspondingly results continue monitor effect financial crisis global economy demand crude oil natural gas resulting impact capital spending budgets exploration production companies order estimate effect company plan reduce capital spending significantly 2009 compared 2008 currently expect 2009 capital expenditures total 1470 million compared 2008 capital expenditures 2474 million well site services segment continue monitor industry capacity additions make future capital expenditure decisions based careful evaluation market outlook industry fundamentals tubular services segment continue focus industry inventory levels future drilling completion activity octg prices consolidated results operations millions year ended december 31 2008 compared year ended december 31 reported net income year ended december 31 2008 2227 million 433 per diluted share compared 2034 million 399 per diluted share reported year ended december 31 2007 net income 2008 included tax loss 798 million approximately 155 per diluted share impairment goodwill tubular services drilling reporting units see note 6 consolidated financial statements included annual report form 10k net income 2008 also included tax gain 36 million approximately 007 per diluted share sale 1151 million shares boots coots common stock net income 2007 included tax gain 84 million 017 per diluted share sale 1495 million shares boots coots common stock see note 7 consolidated financial statements included annual report form 10k revenues consolidated revenues increased 8603 million 41 2008 compared 2007 well site services segment revenues increased 2439 million 34 2008 compared 2007 accommodations business reported revenues 2008 1143 million 37 2007 primarily expansion large accommodation facilities supporting oil sands development activities northern alberta canada rental tools revenues increased 954 million 37 2008 compared 2007 primarily result two acquisitions completed third quarter 2007 capital additions made years geographic expansion rental tool operations increased rental tool utilization drilling revenues increased 342 million 24 2008 compared 2007 primarily result increased rig fleet size three additional rigs higher dayrates utilization averaged 824 2008 compared 793 2007 offshore products segment revenues essentially flat 5282 million 2008 compared 5278 million 2007 tubular services segment revenues increased 6160 million 73 2008 compared 2007 result 385 increase average selling prices per ton due tight octg supply demand balance caused higher drilling activity lower overall industry inventory levels 249 increase tons shipped cost sales service consolidated cost sales increased 6328 million 39 2008 compared 2007 primarily result increased cost sales tubular services 4805 million 61 well site services 1612 million 40 overall gross margin percent revenues relatively constant 24 2008 compared 23 2007 well site services segment gross margin percent revenues declined 43 2007 41 2008 accommodations gross margin percent revenues 42 2007 2008 rental tools cost sales increased 718 million 53 2008 compared 2007 substantially due two acquisitions completed third quarter 2007 increased revenues higher rebillable thirdparty expenses increased wages cost increases fuel parts supplies rental tool gross margin percent revenues 42 2008 compared 48 2007 declined due higher proportion lower margin rebill revenue impact mentioned cost increases drilling services cost sales increased 259 million 29 2008 compared 2007 result increase number rigs operate however gross margin percent revenue decreased 38 2007 36 2008 result increased wages cost increases repairs supplies rig operating expenses offshore products segment cost sales relatively flat 2008 compared 2007 coupled relatively flat revenues year resulting gross margins percent revenues 25 2008 24 2007 tubular services segment cost sales increased 4805 million 606 result higher tonnage shipped higher pricing charged octg suppliers tubular services gross margin percentage revenues increased 6 2007 13 2008 selling general administrative expenses sga increased 247 million 21 2008 compared 2007 due primarily sga expense associated acquisitions made july august 2007 increased bonuses equity compensation expense increase headcount sga 49 revenues 2008 compared 57 revenues 2007 successfully spread sga costs larger revenue base depreciation amortization depreciation amortization expense increased 319 million 45 2008 compared 2007 due primarily capital expenditures made previous twelve months two rental tool acquisitions closed third quarter 2007 impairment goodwill recorded goodwill impairment 856 million tax 2008 impairment result assessment several factors affecting tubular services drilling reporting units see note 6 consolidated financial statements included annual report form 10k operating income consolidated operating income increased 860 million 29 2008 compared 2007 primarily result increases tubular services 1309 million 340 well site services 391 million 20 partially offset 856 million pretax goodwill impairment charge recorded fourth quarter 2008 gain sale investment reported gains sales investment 62 million 128 million 2008 2007 respectively periods sales related investment boots coots common stock larger gain 2007 primarily attributable larger number shares sold 2007 see note 7 consolidated financial statements included annual report form 10k interest expense interest income net interest expense decreased 05 million 3 2008 compared 2007 due lower interest rates partially offset higher average debt levels weighted average interest rate company’s revolving credit facility 39 2008 compared 60 2007 interest income 2006 2008 relates primarily subordinated notes receivable obtained consideration sale hydraulic workover business see note 7 consolidated financial statements included annual report form 10k equity earnings unconsolidated affiliates equity earnings unconsolidated affiliates 07 million higher 2008 2007 primarily increased earnings investment boots coots prior discontinuance equity method accounting june 30 2008 income tax expense income tax provision year ended december 31 2008 totaled 1563 million 412 pretax income compared 970 million 323 pretax income year ended december 31 2007 higher effective tax rate primarily due impairment goodwill majority deductible tax purposes year ended december 31 2007 compared year ended december 31 reported increased net income year ended december 31 2007 2034 million 399 per diluted share compared 1976 million 389 per diluted share reported year ended december 31 2006 net income 2007 included pretax gain 128 million tax gain 017 per diluted share sale 1495 million shares boots coots common stock net income 2006 included recognition noncash pretax gain 113 million aftertax gain 012 per diluted share sale company’s workover services business boots coots see note 7 consolidated financial statements included annual report form 10k revenues consolidated revenues increased 1648 million 9 2007 compared 2006 well site services segment revenues increased 587 million 9 2007 compared 2006 accommodations business revenues decreased 12 million 04 result decreased oil gas drilling activity levels canada lower third party accommodations manufacturing revenues us canada partially offset higher revenues driven increased activity support oil sands developments canada rental tools revenues increased 598 million 30 2007 compared 2006 result two rental tool acquisitions completed third quarter increased prices realized capital additions made years partially offset decreased canadian rental tool revenues 2007 caused reduced canadian drilling completion activity compared 2006 drilling revenues increased 87 million 6 2007 compared 2006 result increased rig fleet size three additional rigs higher dayrates partially offset lower utilization 2007 utilization declined 900 2006 793 2007 due primarily softness demand west texas impact industry capacity additions extended holiday downtime fourth quarter sale workover services business march 2006 caused 86 million decrease revenues 2007 compared 2006 offshore products segment revenues increased 1381 million 35 due increased deepwater development spending capital equipment upgrades customers increased demand products services tubular services segment revenues decreased 320 million 4 2007 compared 2006 result 46 decrease average selling prices per ton octg partially offset 1 increase tons shipped cost sales service consolidated cost sales increased 1342 million 9 2007 compared 2006 primarily result increase offshore products 1092 million 37 overall gross margin percent revenues decreased 23 2007 24 2006 well site services segment gross margin percent revenues 43 2007 2006 accommodations cost sales decreased due lower costs associated fewer third party manufacturing projects 2007 compared 2006 reduced activity support conventional canadian drilling operations 2007 accommodations gross margin percentage revenues improved 34 2006 42 2007 primarily capacity additions economies scale major oil sands lodges lower manufacturing revenues generally earn lower margins accommodations rentals catering work rental tool cost sales increased 411 million 44 2007 compared 2006 primarily result operating costs associated two acquisitions made third quarter 2007 higher costs associated increased revenue existing rental tool businesses rental tool gross margin decreased 53 2006 48 2007 primarily result margins attributable one acquired business lines typically lower existing rental tool businesses due mix rental equipment service personnel used business addition cost sales gross margins decreased canada due reduced rental activity drilling services cost sales increased 192 million 28 2007 compared 2006 result increase number rigs operate increased wages paid employees increased costs associated footagebased drilling contracts 2007 increased costs coupled lower utilization reduced drilling services gross margin 49 2006 38 2007 offshore products segment cost sales percentage basis increased approximately line increase offshore products revenues resulting change gross margin percentage segment tubular services segment gross margin percentage revenues decreased 9 6 2007 compared 2006 primarily result lower octg mill pricing competitive tubular marketplace selling general administrative expenses sga increased 112 million 10 2007 compared 2006 due primarily sga expense associated two acquisitions made third quarter 2007 increased salaries wages benefits increase headcount sga 57 revenues 2007 compared 56 revenues 2006 depreciation amortization depreciation amortization expense increased 164 million 30 2007 compared 2006 due primarily capital expenditures made 2006 2007 operating income consolidated operating income decreased 02 million 01 2007 compared 2006 primarily result decreased tubular services operating income 280 million 42 partially offset increases offshore products 265 million 47 well site services 25 million 1 interest expense interest income net interest expense decreased 14 million 7 2007 compared 2006 due lower average debt levels weighted average interest rate company’s revolving credit facility 60 2007 compared 62 2006 interest income 2007 2006 relates primarily subordinated notes receivable obtained consideration sale hydraulic workover business see note 8 consolidated financial statements included annual report form 10k equity earnings unconsolidated affiliates equity earnings unconsolidated affiliates lower 2007 2006 due lower earnings boots coots sale 1495 million shares investment boots coots april 2007 following sale ownership interest decreased 456 approximately 15 income tax expense income tax provision year ended december 31 2007 totaled 970 million 323 pretax income compared 1040 million 345 pretax income year ended december 31 2006 lower canadian foreign taxes income dividends higher allowable manufacturing credit completion irs audit company’s 2004 federal income tax return resulted favorable adjustment company’s allowance uncertain tax positions lowered effective tax rate year ended december 31 2007 addition effective tax rates higher 2006 2007 higher effective tax rate applicable gain sale workover services business recognized 2006 liquidity capital resources recent unprecedented disruption credit markets significant adverse impact number financial institutions date company’s liquidity materially impacted current credit environment company currently party interest rate swaps currency hedges derivative contracts type exposure commercial paper auction rate securities markets management continue closely monitor company’s liquidity overall health credit markets however management cannot predict certainty direct impact company disruption credit environment although company seeing negative impact disruptions currently energy market generally primary liquidity needs fund capital expenditures typically included expanding accommodations facilities expanding upgrading manufacturing facilities equipment adding drilling rigs increasing replacing rental tool assets funding new product development general working capital needs addition capital used fund strategic business acquisitions primary sources funds cash flow operations proceeds borrowings bank facilities proceeds 175 million convertible note offering 2005 see note 8 consolidated financial statements included annual report form 10k cash totaling 2575 million provided operations year ended december 31 2008 compared cash totaling 2479 million provided operations year ended december 31 2007 2008 1715 million used fund working capital primarily octg inventories tubular services segment due increased volumes prices paid significantly reduced forward octg purchase commitments beginning fourth quarter 2008 expect octg inventory levels decrease 2009 2007 159 million used fund working capital due primarily growth activity offshore products canadian accommodations segments increases working capital partially offset 700 million reduction working capital inventories tubular services segment 2007 cash used investing activities years ended december 31 2008 2007 amount 2461 million 3108 million respectively capital expenditures including capitalized interest totaled 2474 million 2396 million years ended december 31 2008 2007 respectively capital expenditures years consisted principally purchases assets well site services segment particularly accommodations investments made support canadian oil sands development net proceeds sale boots coots common stock totaled 274 million 294 million years ended december 31 2008 2007 respectively see note 7 consolidated financial statements included annual report form 10k year ended december 31 2008 spent cash 298 million acquire christina lake lodge northern alberta canada expand oil sands capacity well site services segment acquire waterfront facility houston ship channel use offshore products segment compares 1031 million spent net cash acquired year ended december 31 2007 acquire two rental tool businesses cash consideration paid acquisitions period funded utilizing existing bank credit facility plan significantly reduce capital spending 2009 compared 2008 currently expect spend total approximately 147 million capital expenditures 2009 expand canadian oil sands related accommodations facilities fund product service offerings maintenance upgrade equipment facilities expect fund capital expenditures internally generated funds foregoing capital expenditure budget include funds opportunistic acquisitions expansion projects company expects pursue depending economic environment industry availability transactions prices deemed attractive company significant decrease demand products services result declines actual longer term expected price oil gas may reduce capital expenditures reduced requirements working capital would increase operating cash flow liquidity however environment might also increase availability attractive acquisitions would draw liquidity believe cash operations available borrowings credit facilities sufficient meet liquidity needs 2009 plans assumptions change inaccurate make acquisitions may need raise additional capital acquisitions management believes acquisitions continue key element business strategy timing size success acquisition effort associated potential capital commitments unpredictable may seek fund part efforts proceeds debt andor equity issuances ability obtain capital additional projects implement growth strategy longer term depend upon future operating performance financial condition broadly availability equity debt financing affected prevailing conditions industry economy financial markets financial business factors many beyond control addition additional debt service requirements could based higher interest rates shorter maturities could impose significant burden results operations financial condition issuance additional equity securities could result significant dilution stockholders net cash 17 million used financing activities year ended december 31 2008 primarily result treasury stock purchases partially offset financing activities total 606 million provided financing activities year ended december 31 2007 primarily result revolving credit borrowings fund acquisitions capital expenditures partially offset treasury stock purchases stock repurchase program first quarter 2005 board directors authorized repurchase 500 million common stock par value 01 per share two year period august 25 2006 additional 500 million approved duration program extended august 31 2008 january 11 2008 additional 500 million approved repurchase program duration program extended december 31 2009 february 12 2009 total 901 million stock 3162344 shares repurchased program leaving total approximately 599 million remaining available program make share repurchases continue evaluate future share repurchases context allocating capital among corporate opportunities including capital expenditures acquisitions context current conditions credit capital markets credit facility december 13 2007 entered incremental assumption agreement lenders parties existing credit agreement dated october 30 2003 credit agreement order exercise accordion feature accordion available credit agreement extend maturity december 5 2011 accordion increased total commitments credit agreement 400 million 500 million connection execution agreement total us commitments defined credit agreement increased us 300 million us 325 million total canadian commitments defined credit agreement increased us 100 million us 175 million currently 11 lenders credit agreement commitments ranging 15 million 1025 million experienced anticipate difficulties obtaining funding lenders time lack delay funding significant member banking group could negatively affect liquidity position credit agreement governs credit facility contains customary financial covenants restrictions including restrictions ability declare pay dividends specifically must maintain interest coverage ratio defined ratio consolidated ebitda consolidated interest expense least 30 10 maximum leverage ratio defined ratio total debt consolidated ebitda greater 325 10 2009 30 10 thereafter factors considered calculations ratios defined credit agreement ebitda consolidated interest defined exclude goodwill impairments debt discount amortization noncash charges december 31 2008 compliance debt covenants expect continue compliance 2009 borrowings credit agreement secured pledge substantially assets subsidiaries obligations credit agreement guaranteed significant subsidiaries borrowings credit agreement accrue interest rate equal either libor another benchmark interest rate election plus applicable margin based leverage ratio defined credit agreement must pay quarterly commitment fee based leverage ratio unused commitments credit agreement year 2008 applicable margin libor ranged 05 075 05 december 31 2008 weighted average interest rate paid credit agreement 39 year ended december 31 2008 60 year ended december 31 2007 december 31 2008 2872 million outstanding credit agreement additional 168 million outstanding letters credit leaving 1960 million available drawn facility addition floating rate bank credit facilities us uk provide aggregate borrowing capacity 79 million december 31 2008 42 million outstanding facilities additional 11 million outstanding letters credit leaving 26 million available drawn facilities total debt represented 282 total debt shareholder’s equity december 31 2008 compared 312 december 31 2007 contingent convertible notes june 2005 sold 175 million aggregate principal amount 238 contingent convertible notes due 2025 notes provide net share settlement therefore may convertible certain circumstances combination cash principal amount notes common stock company excess principal amount notes initial conversion price 3175 per share shares underlying notes included calculation diluted earnings per share year stock price exceeded initial conversion price 3175 period terms notes require stock price quarter period prior july 1 2023 120 initial conversion price 3810 per share least 20 trading days defined period notes convertible note holder chooses present notes conversion future quarter prior first putcall date july 2012 would receive cash 1000 238 note plus company common stock excess valuation 1000 using conversion rate 238 notes 31496 multiplied company’s average common stock price ten trading day period following presentation 238 notes conversion detailed description 238 contingent convertible notes please see note 8 consolidated financial statements included annual report form 10k december 31 2008 classified 1750 million principal amount 238 contingent convertible senior notes 238 notes noncurrent liability certain contingent conversion thresholds based company’s stock price met date result note holders could present notes conversion quarter following december 31 2008 measurement date future convertibility resultant balance sheet classification liability monitored quarterly reporting date analyzed dependent upon market prices company common stock prescribed measurement periods december 31 2008 recent trading prices 238 notes exceeded conversion value due remaining imbedded conversion option holder trading price 238 notes dependent current market conditions length time first put call date july 2012 238 notes general market liquidity among factors may 2008 fasb issued fasb staff position fsp apb 141 “accounting convertible debt instruments may settled cash upon conversion including partial cash settlement” change accounting 238 notes new rules convertible debt instruments may settled entirely partially cash upon conversion entity required separately account liability equity components instrument manner reflects issuer’s nonconvertible debt borrowing rate effect new rules 238 notes equity component classified part stockholders’ equity balance sheet value equity component treated original issue discount purposes accounting debt component 238 notes higher noncash interest expense result recognizing accretion discounted carrying value debt component 238 notes interest expense estimated life 238 notes using effective interest rate method amortization however would effect cash interest payments fsp effective fiscal years beginning december 15 2008 rule requires retrospective application addition reduction debt balances increase stockholders’ equity consolidated balance sheets period presented expect retrospective application fsp apb 141 result noncash increase annual historical interest expense net amounts capitalized approximately 3 million 5 million 6 million 6 million 2005 2006 2007 2008 respectively additionally expect adoption result noncash increase projected annual interest expense net amounts expected capitalized approximately 7 million 7 million 8 million 4 million 2009 2010 2011 2012 respectively january 1 2009 amortized balance 238 notes 1491 million contractual cash obligations following summarizes contractual obligations december 31 2008 thousands 1 excludes interest debt obligations december 31 2008 included consolidated balance sheet part consolidated financial statements included annual report form 10k assumed redemption 238 contingent convertible notes due 2025 note holders’ first optional redemption date 2012 entered material leases subsequent december 31 2008 offbalance sheet arrangements december 31 2008 offbalance sheet arrangements defined item 303a4 regulation sk tax matters primary deferred tax assets december 31 2008 related employee benefit costs equity participation plan deductible goodwill 15 million available federal net operating loss carryforwards regular tax nols date regular tax nols expire varying amounts years 2010 2011 first used offset taxable income generate ability utilize significant portion available regular tax nols currently limited section 382 internal revenue code due change control occurred 1995 currently believe substantially regular tax nols utilized company utilized federal alternative minimum tax net operating loss carryforwards income tax provision year ended december 31 2008 totaled 1563 million 412 pretax income higher effective tax rate primarily due impairment goodwill majority deductible tax purposes year ended december 31 2008 company recognized tax benefit triggered employee exercises stock options totaling 34 million benefit lowered cash paid taxes credited additional paidin capital income tax provision year ended december 31 2007 totaled 970 million 323 pretax income critical accounting policies selection critical accounting policies objective properly reflect financial position results operations reporting period manner understood utilize financial statements often must use judgment uncertainties several critical accounting policies put practice important effect reported financial results accounting contingencies contingent liabilities future claims made estimates amount eventual cost liquidate liabilities claims liabilities claims sometimes involve threatened actual litigation damages quantified made assessment exposure recorded provision accounts cover expected loss claims liabilities estimated based experience matters appropriate advice outside counsel outside experts upon ultimate resolution uncertainties future reported financial results impacted difference estimates actual amounts paid settle liability examples areas made important estimates future liabilities include litigation taxes interest insurance claims warranty claims contract claims discontinued operations tangible intangible assets including goodwill totals 3054 million 133 total assets december 31 2008 assessment impairment longlived assets intangibles investments unconsolidated subsidiaries conducted whenever changes facts circumstances indicate temporary loss value occurred determination amount impairment would based quoted market prices available upon judgments future operating cash flows generated assets throughout estimated useful lives industry highly cyclical estimates period future cash flows generated well predictability cash flows determination whether temporary decline value investment occurred significant impact carrying value assets periods prolonged cycles may result impairment charges annual basis december review reporting unit defined fasb statement 142 goodwill intangible assets fas 142 assess goodwill potential impairment reporting units include accommodations rental tools drilling offshore products tubular services part goodwill impairment analysis estimate implied fair value reporting unit ifv compare ifv carrying value unit carrying value none reporting units publically quoted market price must determine value willing buyers sellers would place reporting unit routine sale process analysis target ifv represents value would placed reporting unit market participants value reporting unit based historical projected results throughout cycle value reporting unit based trough peak earnings utilized depending circumstances trading multiples analyses discounted projected cash flow calculations estimated terminal values acquisition comparables estimate ifv reporting units affected future oil gas prices anticipated spending customers cost capital carrying amount reporting unit exceeds ifv goodwill considered impaired additional analysis accordance fas 142 conducted determine amount impairment part process assess goodwill impairment also compare total market capitalization company sum ifv’s reporting units assess reasonableness ifv’s aggregate revenue cost recognition recognize revenue profit work progresses longterm fixed price contracts using percentageofcompletion method relies estimates total expected contract revenue costs follow method since reasonably dependable estimates revenue costs applicable various stages contract made recognized revenues profit subject revisions contract progresses completion revisions profit estimates charged income expense period facts circumstances give rise revision become known provisions estimated losses uncompleted contracts made period losses determined valuation allowances valuation allowances especially related potential bad debts accounts receivable obsolescence market value declines inventory involve reviews underlying details assets known trends marketplace application historical factors provide us basis recording allowances market conditions less favorable projected management historical experience materially different future experience additional allowances may required past years recorded valuation allowance reduce deferred tax assets amount likely realized see note 10 income taxes consolidated financial statements included annual report form 10k tax matters herein estimation useful lives selection useful lives many assets requires judgments operating personnel length useful lives estimates long short might eventually report disproportionate number losses gains upon disposition retirement longlived assets believe estimates useful lives appropriate stock based compensation since adoption sfas 123r required estimate fair value stock compensation made pursuant awards 2001 equity participation plan initial estimate fair value stock option restricted stock award determines amount stock compensation expense recognize future estimate value stock option awards plan selected fair value calculation model chosen black scholes “closed form” model value stock options awarded plan chosen model option awards made straightforward consistent vesting terms option prices option lives utilizing black scholes model requires us estimate length time options remain outstanding risk free interest rate estimated period options assumed outstanding forfeiture rates future dividends volatility common stock assumptions affect amount timing future stock compensation expense recognition continually monitor actual experience change assumptions future awards consider appropriate income taxes accounting income taxes required provisions fasb interpretation 48 accounting uncertainty income taxes estimate liability future income taxes calculation tax liabilities involves dealing uncertainties application complex tax regulations recognize liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due ultimately determine payment amounts unnecessary reverse liability recognize tax benefit period determine liability longer necessary record additional charge provision taxes period determine recorded tax liability less expect ultimate assessment recent accounting pronouncements september 2006 fasb issued statement financial accounting standards 157 sfas 157 “fair value measurements” defines fair value establishes guidelines measuring fair value expands disclosures regarding fair value measurements sfas 157 require new fair value measurements rather eliminates inconsistencies guidance found various prior accounting pronouncements sfas 157 effective fiscal years beginning november 15 2007 february 2008 fasb issued fasb staff position fsp 1572 “effective date fasb statement 157” defers effective date statement 157 nonfinancial assets nonfinancial liabilities except items recognized disclosed fair value entity’s financial statements recurring basis least annually fiscal years beginning november 15 2008 interim periods within fiscal years earlier adoption permitted provided company yet issued financial statements including interim periods fiscal year adopted provisions sfas 157 unaffected delay first quarter 2008 adoption material effect consolidated statements financial position results operations cash flows february 2007 fasb issued sfas 159 sfas 159 “the fair value option financial assets financial liabilities including amendment fasb statement 115” sfas 159 permits entities measure eligible assets liabilities fair value unrealized gains losses items fair value option elected reported earnings sfas 159 effective fiscal years beginning november 15 2007 company chosen adopt elective provisions sfas 159 existing financial instruments december 2007 fasb issued statement financial accounting standards 141 revised 2007 sfas 141r “business combinations” replaces sfas 141 sfas 141r establishes principles requirements acquirer recognizes measures financial statements identifiable assets acquired liabilities assumed noncontrolling interest acquiree goodwill acquired statement also establishes disclosure requirements enable users evaluate nature financial effects business combination sfas 141r effective fiscal years beginning december 15 2008 since sfas 141r adopted prospectively possible determine effect company’s results operations financial position december 2007 fasb also issued statement financial accounting standards 160 sfas 160 “noncontrolling interests consolidated financial statements amendment arb 51” sfas 160 requires accounting reporting minority interests recharacterized noncontrolling interests classified component equity sfas 160 also establishes reporting requirements provide sufficient disclosures clearly identify distinguish interests parent interests noncontrolling owners sfas 160 applies entities prepare consolidated financial statements except notforprofit organizations affect entities outstanding noncontrolling interest one subsidiaries deconsolidate subsidiary statement effective fiscal years beginning december 15 2008 adoption sfas 160 expected material impact results operations financial position may 2008 fasb issued fasb staff position fsp apb 141 “accounting convertible debt instruments may settled cash upon conversion including partial cash settlement” change accounting 238 notes new rules convertible debt instruments may settled entirely partially cash upon conversion entity required separately account liability equity components instrument manner reflects issuer’s nonconvertible debt borrowing rate effect new rules 238 notes equity component classified part stockholders’ equity balance sheet value equity component treated original issue discount purposes accounting debt component 238 notes higher noncash interest expense result recognizing accretion discounted carrying value debt component 238 notes interest expense estimated life 238 notes using effective interest rate method amortization however would effect cash interest payments fsp effective fiscal years beginning december 15 2008 rule requires retrospective application addition reduction debt balances increase stockholders’ equity consolidated balance sheets period presented expect retrospective application fsp apb 141 result noncash increase annual historical interest expense net amounts capitalized approximately 3 million 5 million 6 million 6 million 2005 2006 2007 2008 respectively additionally expect adoption result noncash increase projected annual interest expense net amounts expected capitalized approximately 7 million 7 million 8 million 4 million 2009 2010 2011 2012 respectively january 1 2009 amortized balance 238 notes 1491 million see also note 10 income taxes discussion fasb’s interpretation 48 accounting uncertainty income taxes item 7aitem 7 management’s discussion analysis financial condition results operations read following discussion analysis together consolidated financial statements notes statements included elsewhere annual report form 10k overview provide broad range products services oil gas industry offshore products tubular services well site services business segments demand products services cyclical substantially dependent upon activity levels oil gas industry particularly customers’ willingness spend capital exploration development oil natural gas reserves demand products services customers highly sensitive current expected oil natural gas prices generally tubular services well site services segments respond rapidly shorterterm movements oil natural gas prices contrast portions accommodations activities supporting oil sands developments tied longterm outlook crude oil prices offshore products segment provides highly engineered technically designed products offshore oil natural gas development production systems facilities sales offshore products services depend upon development offshore production systems subsea pipelines repairs upgrades existing offshore drilling rigs construction new offshore drilling rigs vessels segment particularly influenced global deepwater drilling production activities driven largely customers’ longerterm outlook oil natural gas prices tubular services segment distribute broad range casing tubing sales gross margins tubular services segment depend upon overall level drilling activity types wells drilled overall industry level octg inventory pricing historically tubular services’ gross margin expands periods rising octg prices contracts periods decreasing octg prices well site services business segment provide land drilling services accommodations rental tools demand drilling services driven land drilling activity primary drilling markets west texas primarily drill oil wells rocky mountains area us primarily drill natural gas wells rental tools services depend primarily upon level drilling completion workover activity north america diversified product service offering exposure activities conducted throughout oil gas cycle demand tubular services land drilling rental tool businesses highly correlated changes drilling rig count united states much lesser extent canada table sets forth summary north american rig activity measured baker hughes incorporated periods indicated average north american rig count year ended december 31 2009 decreased 950 rigs 42 compared average year ended december 31 2008 rig count began decline fourth quarter 2008 fell precipitously first half 2009 however rig count began recover latter part 2009 rate increase accelerated early 2010 rig count approximately 1897 rigs working north america including 1346 working us february 12 2010 beginning late 2008 2009 saw unprecedented declines global economic outlook initially fueled housing credit crises market conditions led reduced growth instances decreased overall output market factors suggest economic improvement underway however pace improvement slow uncertain whether sustained longterm growth addition unemployment united states remains relatively high levels although energy prices recently increased low levels witnessed first half 2009 businesses expect continue negatively impacted excess equipment service capacity given reduced activity levels relative 2008 peak given customers’ decreased cash flows caused comparatively lower energy prices well shrinking credit availability affecting funds available exploration development reduced substantially compared 2008 although believe company remains financially strong low debt significant undrawn revolver capacity cash hand certain operations materially adversely affected reduced rig count north american energy sector experienced significant decline utilization land drilling rigs beginning late 2008 continuing first half 2009 rig utilization improving somewhat late 2009 addition many instances customers delayed cancelled exploration development plans sought pricing concessions us additional important factor business particularly land based north american businesses successful development several natural gas shale discoveries support rental tool octg businesses much continuing exploration development activity focused shale areas leading us many competitors relocate equipment also concentrate areas led increased competition significantly lower pricing domestic us natural gas prices decreased peak approximately 1300 per mcf july 2008 recent levels approximately 500 550 per mcf many analysts expecting continued weakness natural gas prices unless reduced drilling activity andor forced production shutins reverse natural gas supply excesses demand commodity increases may occur economy strongly recover also risk result success exploration development activities shale areas coupled availability increasing amounts lng supply natural gas offset mitigate impact natural gas shutins demand increases resulting improved economic conditions neither rig count commodity prices especially natural gas currently expected recover levels reached peak activity levels 2008 immediate future 2009 markedly reduced expectations level north american drilling activity primary driver rental tools utilization pricing considered factors driving diminished expectations among others assessing goodwill potential impairment result assessment wrote total 945 million 812 million tax goodwill rental tools reporting unit second quarter 2009 see note 6 consolidated financial statements included annual report form 10k conditions related rental tools reporting unit deteriorate could potentially write part reporting unit’s remaining goodwill balance 748 million crude oil prices fell approximately 30 35 per barrel quarter ended march 31 2009 however oil prices since recovered levels approximately 70 75 per barrel although significantly improved crude oil prices remain far time high closing price 147 per barrel reached july 2008 current level crude oil prices led recovery oilrelated drilling activity united states sanctioning oil sands development projects canada oil rig count exceeds peak levels reached 2008 however pricing power lost 2009 drilling operations yet recovered unknown whether crude oil prices stabilize levels continue support significant levels exploration production crude oil market demand fundamentals remain weak inventories resource high natural gas prices followed similar recessioninduced downturn peaking 1331 mmbtu july 2008 henry hub natural gas prices fell approximately 50 however unlike recovery oil prices natural gas prices remained relatively depressed due part excess supply natural gas inventories market conditions sharply curtailed investment exploration development activities north america 2009 may similarly affect demand 2010 2011 year 2009 canadian dollar valued average exchange rate us 088 compared us 094 2008 decrease 6 weakening canadian dollar significant negative impact translation earnings generated canadian subsidiaries january 2010 value canadian dollar strengthened average exchange rate 096 major us steel mills increased octg prices 2008 high product demand overall tight supplies response raw material cost increases however steel prices global basis declined precipitously recession 2009 industry octg inventories increased materially rig count declined imports remained high levels developments octg marketplace material detrimental impact octg pricing accordingly revenues margins realized 2009 tubular services segment however negative trends moderated recently octg situation report suggests industry octg inventory levels peaked first quarter 2009 approximately twenty months’ supply ground trended approximately nine months’ supply currently us mills materially reduced output imports octg declined particularly chinese imports given imposition tariffs drilling activity increased continue monitor fallout financial crisis global economy demand crude oil natural gas resulting impact capital spending budgets exploration production companies order estimate effect company reduced capital spending significantly 2009 compared 2008 capital expenditures 2009 totaled 1245 million compared 2008 capital expenditures 2474 million 2009 capital expenditures included funding complete projects progress december 31 2008 including expansion wapasu creek accommodations facility canadian oil sands ii international expansion offshore products iii ongoing maintenance capital requirements well site services segment continue monitor industry capacity additions make future capital expenditure decisions based careful evaluation market outlook industry fundamentals tubular services segment remain focused industry inventory levels future drilling completion activity octg prices response industry conditions corresponding decreased revenues implemented variety cost saving measures throughout businesses including headcount reductions decrease overhead costs several potential energy policy changes washington dc likely change energy united states produced consumed major proposed policy changes likely take effect material impact nearterm focus creating energy standards efficiencies provide financing clean energy generation emphasize greater renewable energy usage proposed policy changes focus eliminating tax incentives related drilling activities available exploration production companies would likely increase cost drilling turn could negatively affect development plans exploration production companies andor increase cost energy consumers company’s management position assess full impact proposed policy changes energy industry policies adopted consolidated results operations millions year ended december 31 2009 compared year ended december 31 reported net income year ended december 31 2009 591 million 118 per diluted share results compare net income 2189 million 426 per diluted share reported year ended december 31 2008 net income 2009 included tax loss 812 million approximately 162 per diluted share impairment goodwill rental tools reporting unit net income 2008 included tax loss 798 million approximately 155 per diluted share impairment goodwill tubular services drilling reporting units see note 6 consolidated financial statements included annual report form 10k net income 2008 also included tax gain 36 million approximately 007 per diluted share sale 1151 million shares common stock boots coots international well control inc boots coots revenues consolidated revenues decreased 8402 million 28 2009 compared 2008 well site services revenues decreased 1736 million 18 2009 compared 2008 decrease primarily due reductions activity pricing company’s north american drilling rental tool operations result 42 yearoveryear decrease north american rig count partially mitigated revenue growth accommodations business accommodations business reported revenues 2009 543 million 13 2008 increase accommodations revenue resulted expansion large accommodation facilities supporting oil sands development activities northern alberta canada increased thirdparty accommodations manufacturing revenues partially offset lower accommodations activities support conventional oil natural gas drilling activity canada weakening canadian dollar versus us dollar rental tool revenues decreased 1217 million 34 2009 compared 2008 primarily due lower rental tool utilization pricing primarily result significantly reduced completion activity us greater competition drilling services revenues decreased 1062 million 60 2009 compared 2008 primarily result reduced utilization pricing drilling operating regions utilization averaged 367 2009 compared 824 2008 offshore products revenues decreased 188 million 4 2009 compared 2008 decrease primarily due decrease bearing connectors revenue due deepwater development project award delays decrease elastomer revenues result reduced drilling completion activity north america decreases partially offset increase subsea pipeline revenues tubular services revenues decreased 6478 million 44 2009 compared 2008 result 46 decrease tons shipped 2009 resulting fewer wells drilled completed period partially offset 2 increase average selling prices although octg prices decreased throughout 2009 average sales price realized increased 2008 due sales commitments made 2008 extended 2009 cost sales service consolidated cost sales decreased 5948 million 27 2009 compared 2008 primarily result decreased cost sales tubular services 5171 million 41 well site services 606 million 11 overall gross margin percentage revenues declined 24 2008 22 2009 primarily due lower margins realized tubular services rental tool drilling services operations 2009 well site services segment gross margin percentage revenues declined 41 2008 36 2009 despite flat margins accommodations business accommodations cost sales included 458 million increase thirdparty accommodations manufacturing installation costs partially offset reduction costs stemming implementation cost saving measures response lower conventional oil natural gas drilling activity levels canada weakening canadian dollar versus us dollar rental tool gross margin percentage revenues declined 42 2008 28 2009 primarily due significant reductions drilling completion activity us canada negatively impacted pricing demand equipment services addition portion rental tool costs change proportionately changes revenue leading reduced gross margin percentages drilling services cost sales decreased 560 million 49 2009 compared 2008 result significantly reduced rig utilization pricing drilling operating areas led significant cost reductions decline drilling activity levels also resulted drilling services gross margin percentage revenues decreasing 36 2008 18 2009 offshore products segment gross margin percentage revenues essentially flat 25 2008 compared 26 2009 tubular services segment cost sales decreased 5171 million 41 result lower tonnage shipped partially offset higher priced octg inventory sold tubular services gross margin percentage revenues decreased 13 2008 7 2009 due excess industrywide octg inventory levels 2009 resulting lower margins selling general administrative expenses sga expense decreased 38 million 3 2009 compared 2008 due primarily decreases accrued incentive bonuses addition costs decreased result implementation cost saving measures including headcount reductions overhead costs travel entertainment professional fees office expenses response industry conditions sga 66 revenues 2009 compared 49 revenues 2008 due significant decline revenues 2009 depreciation amortization depreciation amortization expense increased 155 million 15 2009 compared 2008 due primarily capital expenditures made previous twelve months impairment goodwill recorded pretax goodwill impairment amount 945 million 2009 impairment result assessment several factors affecting rental tools reporting unit recorded pretax goodwill impairment amount 856 million 2008 impairment result assessment several factors affecting tubular services drilling reporting units see note 6 consolidated financial statements included annual report form 10k operating income consolidated operating income decreased 2650 million 69 2009 compared 2008 primarily result decrease operating income rental tool services tubular operations gain sale investment reported gain sale investment 62 million 2008 sale related investment boots coots common stock see note 7 consolidated financial statements included annual report form 10k interest expense interest income net interest expense decreased 51 million 26 2009 compared 2008 due reduced debt levels lower libor interest rates applicable borrowings revolving credit facility weighted average interest rate company’s revolving credit facility 15 2009 compared 39 2008 interest income decreased result repayment 2009 note receivable due boots coots reduced cash balances interest bearing accounts see note 7 consolidated financial statements included annual report form 10k equity earnings unconsolidated affiliates equity earnings unconsolidated affiliates 26 million 64 lower 2009 2008 primarily due sale august 2008 remaining investment boots coots income tax expense income tax provision year ended december 31 2009 totaled 461 million 436 pretax income compared 1542 million 413 pretax income year ended december 31 2008 higher effective tax rate years primarily due impairment goodwill majority deductible tax purposes absent goodwill impairment 2009 effective tax rate favorably influenced lower statutory rates applicable foreign sourced income year ended december 31 2008 compared year ended december 31 reported net income attributable oil states international inc year ended december 31 2008 2189 million 426 per diluted share compared 1998 million 392 per diluted share reported year ended december 31 2007 net income 2008 included tax loss 798 million approximately 155 per diluted share impairment goodwill tubular services drilling reporting units see note 6 consolidated financial statements included annual report form 10k net income 2008 also included tax gain 36 million approximately 007 per diluted share sale 1151 million shares boots coots common stock net income 2007 included tax gain 84 million 017 per diluted share sale 1495 million shares boots coots common stock see note 7 consolidated financial statements included annual report form 10k revenues consolidated revenues increased 8603 million 41 2008 compared 2007 well site services segment revenues increased 2439 million 34 2008 compared 2007 accommodations business reported revenues 2008 1143 million 37 2007 primarily expansion large accommodation facilities supporting oil sands development activities northern alberta canada rental tools revenues increased 954 million 37 2008 compared 2007 primarily result two acquisitions completed third quarter 2007 capital additions made years geographic expansion rental tool operations increased rental tool utilization drilling services revenues increased 342 million 24 2008 compared 2007 primarily result increased rig fleet size three additional rigs higher dayrates utilization averaged 824 2008 compared 793 2007 offshore products segment revenues essentially flat 5282 million 2008 compared 5278 million 2007 tubular services segment revenues increased 6160 million 73 2008 compared 2007 result 385 increase average selling prices per ton due tight octg supply demand balance caused higher drilling activity lower overall industry inventory levels 249 increase tons shipped cost sales service consolidated cost sales increased 6328 million 39 2008 compared 2007 primarily result increased cost sales tubular services 4805 million 61 well site services 1612 million 40 overall gross margin percentage revenues relatively constant 24 2008 compared 23 2007 well site services segment gross margin percentage revenues declined 43 2007 41 2008 accommodations gross margin percentage revenues 42 2007 2008 rental tools cost sales increased 718 million 53 2008 compared 2007 substantially due two acquisitions completed third quarter 2007 increased revenues higher rebillable thirdparty expenses increased wages cost increases fuel parts supplies rental tool gross margin percentage revenues 42 2008 compared 48 2007 declined due higher proportion lower margin rebill revenue impact mentioned cost increases drilling services cost sales increased 259 million 29 2008 compared 2007 result increase number rigs operate however gross margin percentage revenue decreased 38 2007 36 2008 result increased wages cost increases repairs supplies rig operating expenses offshore products segment cost sales relatively flat 2008 compared 2007 coupled relatively flat revenues year resulting gross margins percentage revenues 25 2008 24 2007 tubular services segment cost sales increased 4805 million 61 result higher tonnage shipped higher pricing charged octg suppliers tubular services gross margin percentage revenues increased 6 2007 13 2008 selling general administrative expenses sga increased 247 million 21 2008 compared 2007 due primarily sga expense associated acquisitions made july august 2007 increased bonuses equity compensation expense increase headcount sga 49 revenues 2008 compared 57 revenues 2007 successfully spread sga costs larger revenue base depreciation amortization depreciation amortization expense increased 319 million 45 2008 compared 2007 due primarily capital expenditures made previous twelve months two rental tool acquisitions closed third quarter 2007 impairment goodwill recorded goodwill impairment 856 million tax 2008 impairment result assessment several factors affecting tubular services drilling reporting units see note 6 consolidated financial statements included annual report form 10k operating income consolidated operating income increased 860 million 29 2008 compared 2007 primarily result increases tubular services 1309 million 340 well site services 391 million 20 partially offset 856 million pretax goodwill impairment charge recorded fourth quarter 2008 gain sale investment reported gains sales investment 62 million 128 million 2008 2007 respectively periods sales related investment boots coots common stock larger gain 2007 primarily attributable larger number shares sold 2007 see note 7 consolidated financial statements included annual report form 10k interest expense interest income net interest expense decreased 01 million 2008 compared 2007 due lower interest rates partially offset higher average debt levels weighted average interest rate company’s revolving credit facility 39 2008 compared 60 2007 interest income 2006 2008 relates primarily subordinated notes receivable obtained consideration sale hydraulic workover business see note 7 consolidated financial statements included annual report form 10k equity earnings unconsolidated affiliates equity earnings unconsolidated affiliates 07 million higher 2008 2007 primarily increased earnings investment boots coots prior discontinuance equity method accounting june 30 2008 income tax expense income tax provision year ended december 31 2008 totaled 1542 million 413 pretax income compared 949 million 322 pretax income year ended december 31 2007 higher effective tax rate primarily due impairment goodwill majority deductible tax purposes effective tax rate 2008 would lower absent goodwill impairment liquidity capital resources unprecedented disruption credit markets significant adverse impact number financial institutions date company’s liquidity materially impacted current credit environment company currently party interest rate swaps currency hedges derivative contracts type exposure commercial paper auction rate securities markets management continue closely monitor company’s liquidity overall health credit markets primary liquidity needs fund capital expenditures included expanding accommodations facilities expanding upgrading manufacturing facilities equipment adding drilling rigs increasing replacing rental tool assets funding new product development general working capital needs addition capital used fund strategic business acquisitions primary sources funds cash flow operations proceeds borrowings bank facilities proceeds 175 million convertible note offering 2005 see note 8 consolidated financial statements included annual report form 10k cash totaling 4534 million provided operations year ended december 31 2009 compared cash totaling 2575 million provided operations year ended december 31 2008 2009 1760 million provided net working capital reductions primarily due reduction accounts receivable lower inventory levels especially tubular services segment contrast 2008 1715 million used fund working capital primarily octg inventory increases accounts receivable tubular services segment due higher volumes sold prices paid cash used investing activities years ended december 31 2009 2008 amount 1026 million 2461 million respectively capital expenditures totaled 1245 million 2474 million years ended december 31 2009 2008 respectively capital expenditures years consisted principally purchases assets well site services segment particular accommodations investments made support canadian oil sands development 2009 received 212 million boots coots full satisfaction note receivable net proceeds sale boots coots common stock totaled 274 million year ended december 31 2008 see note 7 consolidated financial statements included annual report form 10k year ended december 31 2008 spent cash 298 million acquire christina lake lodge northern alberta canada expand oil sands capacity well site services segment acquire waterfront facility houston ship channel use offshore products segment significant acquisitions made company year ended december 31 2009 currently expect spend total approximately 232 million capital expenditures 2010 expand canadian oil sands related accommodations facilities fund product service offerings maintenance upgrade equipment facilities expect fund capital expenditures internally generated funds borrowings revolving credit facility foregoing capital expenditure budget include funds opportunistic acquisitions company expects pursue depending economic environment industry availability transactions prices deemed attractive company significant decrease demand products services result declines actual longerterm expected price oil natural gas may reduce capital expenditures reduced requirements working capital would increase operating cash flow liquidity however environment might also increase availability attractive acquisitions would draw liquidity net cash 2968 million used financing activities year ended december 31 2009 primarily result free cash flow used pay amounts outstanding revolving credit facility net cash 17 million used financing activities year ended december 31 2008 primarily result treasury stock purchases substantially offset financing activities believe cash flow operations available borrowings credit facilities sufficient meet liquidity needs coming twelve months plans assumptions change inaccurate make acquisitions may need raise additional capital acquisitions management believes acquisitions continue key element business strategy timing size success acquisition effort associated potential capital commitments unpredictable uncertain may seek fund part efforts proceeds debt andor equity issuances ability obtain capital additional projects implement growth strategy longer term depend upon future operating performance financial condition broadly availability equity debt financing capital availability affected prevailing conditions industry economy financial markets factors many beyond control addition additional debt service requirements could based higher interest rates shorter maturities could impose significant burden results operations financial condition issuance additional equity securities could result significant dilution stockholders stock repurchase program first quarter 2005 board directors authorized repurchase 500 million common stock par value 01 per share two year period august 25 2006 additional 500 million approved duration program extended august 31 2008 january 11 2008 additional 500 million approved repurchase program duration program extended december 31 2009 december 31 2009 program expired december 31 2009 total 901 million stock 3162294 shares repurchased program continue evaluate future share repurchases context allocating capital among corporate opportunities including capital expenditures acquisitions context current conditions credit capital markets future share repurchase programs need first authorized board directors credit facility december 13 2007 entered incremental assumption agreement lenders parties existing credit agreement dated october 30 2003 credit agreement order exercise accordion feature accordion available credit agreement extend maturity december 5 2011 accordion increased total commitments credit agreement 400 million 500 million connection execution agreement total us commitments defined credit agreement increased us 300 million us 325 million total canadian commitments defined credit agreement increased us 100 million us 175 million currently 11 lenders credit agreement commitments ranging 15 million 1025 million experienced anticipate difficulties obtaining funding lenders time lack delay funding significant member banking group could negatively affect liquidity position credit agreement governs credit facility contains customary financial covenants restrictions including restrictions ability declare pay dividends specifically must maintain interest coverage ratio defined ratio consolidated ebitda consolidated interest expense least 30 10 maximum leverage ratio defined ratio total debt consolidated ebitda greater 30 10 factors considered calculations ratios defined credit agreement ebitda consolidated interest defined exclude goodwill impairments debt discount amortization noncash charges december 31 2009 compliance debt covenants expect continue compliance 2010 borrowings credit agreement secured pledge substantially assets subsidiaries obligations credit agreement guaranteed significant subsidiaries borrowings credit agreement accrue interest rate equal either libor another benchmark interest rate election plus applicable margin based leverage ratio defined credit agreement must pay quarterly commitment fee based leverage ratio unused commitments credit agreement year 2009 applicable margin libor 05 weighted average interest rate paid credit agreement 15 year ended december 31 2009 39 year ended december 31 2008 december 31 2009 borrowings outstanding credit agreement 203 million outstanding letters credit leaving 4797 million available drawn facility addition floating rate bank credit facilities us provide aggregate borrowing capacity 50 million december 31 2009 borrowings outstanding facilities total debt represented 106 total debt shareholder’s equity december 31 2009 compared 269 december 31 2008 contingent convertible notes june 2005 sold 175 million aggregate principal amount 238 contingent convertible notes due 2025 notes provide net share settlement therefore may convertible certain circumstances combination cash principal amount notes common stock company excess principal amount notes initial conversion price 3175 per share shares underlying notes included calculation diluted earnings per share portion year stock price exceeded initial conversion price 3175 period terms notes require stock price quarter period prior july 1 2023 120 initial conversion price 3810 per share least 20 trading days defined period notes convertible note holder chooses present notes conversion future quarter prior first putcall date july 2012 would receive cash 1000 238 note plus company common stock excess valuation 1000 using conversion rate 238 notes 31496 multiplied company’s average common stock price ten trading day period following presentation 238 notes conversion detailed description 238 contingent convertible notes please see note 8 consolidated financial statements included annual report form 10k december 31 2009 classified 1750 million principal amount 238 contingent convertible senior notes 238 notes net unamortized discount noncurrent liability certain contingent conversion thresholds based company’s stock price met date result note holders could present notes conversion quarter following december 31 2009 measurement date description thresholds please see note 8 consolidated financial statements included annual report form 10k future convertibility resultant balance sheet classification liability monitored quarterly reporting date analyzed dependent upon market prices company common stock prescribed measurement periods may 2008 fasb issued new accounting standard accounting convertible debt instruments may settled cash upon conversion including partial cash settlement changed accounting 238 notes new rules convertible debt instruments settled entirely partially cash upon conversion entity required separately account liability equity components instrument manner reflects issuer’s nonconvertible debt borrowing rate accounting standard became effective company beginning january 1 2009 applied retrospectively periods presented see note 16 consolidated financial statements annual report form 10k contractual cash obligations following summarizes contractual obligations december 31 2009 thousands 1 excludes interest debt obligations december 31 2009 included consolidated balance sheet part consolidated financial statements included annual report form 10k assumed redemption 238 contingent convertible notes due 2025 note holders’ first optional redemption date 2012 entered material leases subsequent december 31 2009 offbalance sheet arrangements december 31 2009 offbalance sheet arrangements defined item 303a4 regulation sk tax matters primary deferred tax assets december 31 2009 related employee benefit costs equity participation plan deductible goodwill foreign tax credit carryforwards 10 million available federal net operating loss carryforwards regular tax nols date regular tax nols expire varying amounts years 2010 2011 first used offset taxable income generate ability utilize significant portion available regular tax nols currently limited section 382 internal revenue code due change control occurred 1995 currently believe substantially regular tax nols utilized company utilized federal alternative minimum tax net operating loss carryforwards income tax provision year ended december 31 2009 totaled 461 million 436 pretax income compared 1542 million 413 pretax income year ended december 31 2008 higher effective tax rate years primarily due impairment goodwill majority deductible tax purposes absent goodwill impairment 2009 effective tax rate 2009 favorably influenced lower statutory rates applicable foreign sourced income number legislative proposals change united states tax laws related multinational corporations proposals various stages discussion possible time predict proposals would impact business whether could result increased tax costs critical accounting policies selection critical accounting policies objective properly reflect financial position results operations reporting period manner understood utilize financial statements often must use judgment uncertainties several critical accounting policies put practice important effect reported financial results accounting contingencies contingent liabilities future claims made estimates amount eventual cost liquidate liabilities claims liabilities claims sometimes involve threatened actual litigation damages quantified made assessment exposure recorded provision accounts cover expected loss claims liabilities estimated based experience matters appropriate advice outside counsel outside experts upon ultimate resolution uncertainties future reported financial results impacted difference estimates actual amounts paid settle liability examples areas made important estimates future liabilities include litigation taxes interest insurance claims warranty claims contract claims discontinued operations tangible intangible assets including goodwill totaled 2187 million 113 total assets december 31 2009 assessment impairment longlived assets intangibles investments unconsolidated subsidiaries conducted whenever changes facts circumstances indicate loss value occurred determination amount impairment would based quoted market prices available upon judgments future operating cash flows generated assets throughout estimated useful lives industry highly cyclical estimates period future cash flows generated well predictability cash flows determination whether decline value investment occurred significant impact carrying value assets periods prolonged cycles may result impairment charges review reporting unit defined current accounting standards regarding goodwill intangible assets assess goodwill potential impairment reporting units include accommodations rental tools drilling offshore products tubular services remaining goodwill drilling tubular services reporting units subsequent full writeoff goodwill reporting units december 31 2008 part goodwill impairment analysis estimate implied fair value reporting unit ifv compare ifv carrying value unit carrying value none reporting units publically quoted market price must determine value willing buyers sellers would place reporting unit routine sale process level 3 fair value measurement analysis target ifv represents value would placed reporting unit market participants value reporting unit based historical projected results throughout cycle value reporting unit based trough peak earnings utilize depending circumstances trading multiples analyses discounted projected cash flow calculations estimated terminal values acquisition comparables estimate ifv reporting units affected future oil natural gas prices anticipated spending customers cost capital carrying amount reporting unit exceeds ifv goodwill considered potentially impaired additional analysis accordance current accounting standards conducted determine amount impairment date annual goodwill impairment test ifv’s offshore products accommodations rental tools reporting units exceeded carrying values 120 93 14 respectively part process assess goodwill impairment also compare total market capitalization company sum ifv’s reporting units assess reasonableness ifv’s aggregate revenue cost recognition recognize revenue profit work progresses longterm fixed price contracts using percentageofcompletion method relies estimates total expected contract revenue costs follow method since reasonably dependable estimates revenue costs applicable various stages contract made recognized revenues profit subject revisions contract progresses completion revisions profit estimates charged income expense period facts circumstances give rise revision become known provisions estimated losses uncompleted contracts made period losses determined valuation allowances valuation allowances especially related potential bad debts accounts receivable obsolescence market value declines inventory involve reviews underlying details assets known trends marketplace application historical factors provide us basis recording allowances market conditions less favorable projected management historical experience materially different future experience additional allowances may required past years recorded valuation allowance reduce deferred tax assets amount likely realized see note 10 income taxes consolidated financial statements included annual report form 10k tax matters herein estimation useful lives selection useful lives many assets requires judgments operating personnel length useful lives estimates long short might eventually report disproportionate number losses gains upon disposition retirement longlived assets believe estimates useful lives appropriate stock based compensation since adoption accounting standards regarding sharebased payments required estimate fair value stock compensation made pursuant awards 2001 equity participation plan initial estimate fair value stock option restricted stock award determines amount stock compensation expense recognize future estimate value stock option awards plan selected fair value calculation model chosen black scholes “closed form” model value stock options awarded plan chosen model option awards made straightforward consistent vesting terms option prices option lives utilizing black scholes model requires us estimate length time options remain outstanding risk free interest rate estimated period options assumed outstanding forfeiture rates future dividends volatility common stock assumptions affect amount timing future stock compensation expense recognition continually monitor actual experience change assumptions future awards consider appropriate income taxes accounting income taxes required provisions current accounting standards regarding accounting uncertainty income taxes estimate liability future income taxes calculation tax liabilities involves dealing uncertainties application complex tax regulations recognize liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due ultimately determine payment amounts unnecessary reverse liability recognize tax benefit period determine liability longer necessary record additional charge provision taxes period determine recorded tax liability less expect ultimate assessment recent accounting pronouncements september 2006 fasb issued new accounting standard fair value measurements defines fair value establishes guidelines measuring fair value expands disclosures regarding fair value measurements accounting standard require new fair value measurements rather eliminates inconsistencies guidance found various prior accounting pronouncements effective fiscal years beginning november 15 2007 february 2008 fasb issued accounting standards update deferring effective date fair value accounting standard nonfinancial assets nonfinancial liabilities except items recognized disclosed fair value entity’s financial statements recurring basis least annually fiscal years beginning november 15 2008 interim periods within fiscal years earlier adoption permitted provided company yet issued financial statements including interim periods fiscal year adopted provisions accounting standard unaffected delay first quarter 2008 first quarter 2009 adopted remaining provisions accounting standard certain assets measured fair value nonrecurring basis subject fair value adjustments certain circumstances example evidence impairment adoption material effect consolidated statements financial position results operations cash flows september 2009 fasb issued accounting standards update effective future reporting periods measuring fair value liabilities implementation expected material impact company’s financial condition results operation disclosures contained notes consolidated financial statements december 2007 fasb issued new accounting standard business combinations new accounting standard establishes principles requirements acquirer recognizes measures financial statements identifiable assets acquired liabilities assumed noncontrolling interest acquiree goodwill acquired accounting standard also establishes disclosure requirements enable users evaluate nature financial effects business combination accounting standard applies prospectively business combinations acquisition date beginning first annual reporting period beginning december 15 2008 interim periods within fiscal years accounting standard effective beginning january 1 2009 accordingly business combinations engage date recorded disclosed accordance accounting standard business combination transactions occurred year ended december 31 2009 december 2007 fasb also issued new accounting standard noncontrolling interests consolidated financial statements accounting standard requires accounting reporting minority interests recharacterized noncontrolling interests classified component equity also establishes reporting requirements provide sufficient disclosures clearly identify distinguish interests parent interests noncontrolling owners accounting standard applies entities prepare consolidated financial statements except notforprofit organizations affect entities outstanding noncontrolling interest one subsidiaries deconsolidate subsidiary new accounting standard effective fiscal years interim periods within fiscal years beginning december 15 2008 accounting standard applies prospectively except presentation disclosure requirements applied retrospectively effective january 1 2009 presented noncontrolling interests accordance standard may 2008 fasb issued new accounting standard accounting convertible debt instruments may settled cash upon conversion including partial cash settlement changed accounting 238 notes new rules convertible debt instruments settled entirely partially cash upon conversion entity required separately account liability equity components instrument manner reflects issuer’s nonconvertible debt borrowing rate difference bond cash proceeds estimated fair value recorded debt discount accreted interest expense expected life bond although accounting standard impact company’s actual past future cash flows requires company record material increase noncash interest expense debt discount amortized accounting standard became effective company beginning january 1 2009 applied retrospectively periods presented see note 16 consolidated financial statements annual report form 10k may 2009 fasb issued new accounting standard subsequent events establishes general standards accounting disclosures events occur balance sheet date financial statements issued available issued new accounting standard current practice entity must record effects subsequent events provide evidence conditions existed balance sheet date must disclose record effects subsequent events provide evidence conditions exist balance sheet date accounting standard effective fiscal years interim periods within fiscal years ending june 15 2009 adoption accounting standard material impact company’s financial condition results operation disclosures contained notes consolidated financial statements june 2009 fasb issued new accounting standard “the fasb accounting standards codification hierarchy generally accepted accounting principles” new accounting standard established “fasb accounting standards codification” fasb asc source authoritative gaap recognized fasb nongovernmental entities existing accounting standards superseded accounting literature included fasb asc considered nonauthoritative subsequent issuances new standards form accounting standards updates asu included asc generally fasb asc expected change gaap pursuant adoption new accounting standard adjusted references authoritative accounting literature financial statements adoption standard effect financial condition results operations cash flows october 2009 fasb issued accounting standards update modified accounting disclosures revenue recognition multipleelement arrangement amendments effective fiscal years beginning june 15 2010 early adoption permitted modify criteria recognizing revenue multiple element arrangements scope constitutes nonsoftware deliverable company early adopt standard currently assessing impact amendments may financial condition results operations december 2009 fasb issued accounting standards update amends previously issued accounting guidance consolidation variable interest entities vie’s amendments require qualitative approach identifying controlling financial interest vie requires ongoing assessment whether entity vie whether interest vie makes holder primary beneficiary vie amendments effective annual reporting periods beginning november 15 2009 expect adoption amendments material impact financial condition results operations cash flows january 2010 fasb issued accounting standards update requires reporting entities make new disclosures recurring nonrecurring fair value measurements including significant transfers level 1 level 2 fair value measurements information purchases sales issuances settlements gross basis reconciliation level 3 fair value measurements amendments effective annual reporting periods beginning december 15 2009 except level 3 reconciliation disclosures effective annual periods beginning december 15 2010 expect adoption amendments material impact financial condition results operations cash flows see also note 10 income taxes discussion fasb’s interpretation 48 accounting uncertainty income taxes item 7aitem 7 management’s discussion analysis financial condition results operations read following discussion analysis together consolidated financial statements notes statements included elsewhere annual report form 10k overview provide broad range products services oil gas industry accommodations offshore products well site services tubular services business segments accommodations segment support oil gas industry mining industry demand products services cyclical substantially dependent upon activity levels oil gas mining industries particularly customers’ willingness spend capital exploration development oil natural gas coal mineral reserves customers’ spending plans generally based outlook nearterm longterm commodity prices result demand products services highly sensitive current expected commodity prices activity accommodations offshore products segments primarily tied longterm outlook crude oil lesser extent coal natural gas mineral prices contrast activity well site services tubular services segments responds rapidly shorterterm movements oil natural gas prices specifically changes north american drilling completion activity factors affect business financial results include general global economic environment regulatory changes united states internationally offshore products segment provides highly engineered products offshore oil natural gas production systems facilities sales offshore products services depend primarily upon development infrastructure offshore production systems subsea pipelines repairs upgrades existing offshore drilling rigs construction new offshore drilling rigs vessels segment particularly influenced global deepwater drilling production spending driven largely customers’ longerterm outlook oil natural gas prices tubular services segment distribute broad range casing tubing used drilling completion oil natural gas wells primarily north america accordingly sales gross margins tubular services segment depend upon overall level drilling activity types wells drilled movements global steel input prices overall industry level octg inventory pricing historically tubular services’ gross margin generally expands periods rising octg prices contracts periods decreasing octg prices well site services business segment provide rental tools land drilling services demand drilling services driven land drilling activity primary drilling markets west texas primarily drill oil wells rocky mountains area us drill oil natural gas wells rental tools business provides equipment service personnel utilized completion initial production new recompleted wells activity rental tools business dependant primarily upon level complexity drilling completion workover activity throughout north america diversified product service offering exposure activities conducted throughout oil gas cycle demand tubular services land drilling rental tool businesses highly correlated changes drilling rig count united states much lesser extent canada table sets forth summary north american rig activity measured baker hughes incorporated periods indicated rig count began decline fourth quarter 2008 fell precipitously first half 2009 average north american rig count year ended december 31 2010 increased 585 rigs 45 compared average year ended december 31 2009 largely due growth us land rig count support development several oil natural gas shale properties rental tool tubular businesses continuing exploration development activity focused shale areas leading us many competitors relocate equipment also concentrate areas domestic us natural gas prices decreased peak levels 2008 recent levels approximately 390 450 per mcf many experts expecting continued weakness natural gas prices unless supply demand natural gas becomes balanced gasdirected drilling could come pressure given low natural gas prices supplydemand balance generally customers oil sands mining accommodations offshore products making multibillion dollar investments develop prospects estimated reserve lives ten thirty years consequently investments dependent customers’ longerterm view energy coal prices crude oil prices recovered levels generally ranging 80 90 per barrel compared average approximately 62 per barrel experienced 2009 recovery demand energy several key growing markets specifically china india longterm forecasts oil demand prices improved australian accommodations business significantly influenced metallurgical coal met coal mining prices met coal used production steel demand pricing fundamentally linked demand steel especially china india increased past year result customers begun announce additional investments oil sands region deepwater globally coal mining australia may 2009 imperial oil announced sanctioning phase kearl oil sands project november 2009 suncor announced 2010 capital expenditure plan included spending phase 3 4 firebag project announcements led either extensions existing accommodations contracts incremental accommodations contracts us canada addition several major oil companies national oil companies acquired oil sands leases past twelve months bode well future oil sands investment result demand oil sands accommodations however sometimes lose major contracts cause decreases revenues profits another factor influenced financial results accommodations segment exchange rate us dollar canadian dollar future begin report results recently completed acquisition mac australian dollar us dollar exchange rate also influence financial results accommodations segment derived majority revenues operating income canada denominated canadian dollars revenues profits translated us dollars us gaap financial reporting purposes year 2010 canadian dollar valued average exchange rate us 097 compared us 088 2009 increase 10 strengthening canadian dollar significant positive impact translation earnings generated canadian subsidiaries therefore financial results accommodations segment january 2011 value canadian dollar strengthened average exchange rate 101 steel input prices influence pricing decisions octg suppliers thereby influencing pricing margins tubular services segment steel prices global basis declined precipitously recession 2009 industry inventories increased materially rig count declined imports remained high levels developments octg marketplace material detrimental impact octg pricing accordingly revenues margins realized last half 2009 tubular services segment negative trends moderated 2010 due reduction imports largely due imposition trade sanctions chinese octg imports coupled increases us rig count octg situation report suggests industry octg inventory levels peaked first quarter 2009 approximately twenty months’ supply ground trended approximately six months’ supply currently 2010 us mills increased production imports surged recently particularly goods imported canada korea followed india mexico japan increase supply response 42 yearoveryear increase drilling rig count united states global demand oil natural gas significant factors influencing business generally certain factors recent global economic recession credit crisis macondo well incident resultant oil spill drilling moratorium well changes potential changes regulatory environment also influence business witnessed unprecedented events us gulf mexico result macondo well incident resultant oil spill result incident may 2010 bureau ocean energy management regulation enforcement boemre us department interior implemented moratorium certain drilling activities water depths greater 500 feet us gulf mexico effectively shut new deepwater drilling activities 2010 moratorium lifted october 2010 however boemre issued notices lessees operators ntls implemented additional safety certification requirements applicable drilling activities us waters imposed additional requirements respect development production activities us waters delayed approval applications drill deepwater shallowwater areas despite rescission moratorium offshore drilling activity delayed adjustments operating procedures compliance certifications lead times permits inspections result changes regulatory environment addition variety proposals change existing laws regulations could affect offshore development production including proposals significantly increase minimum financial responsibility demonstration required federal oil pollution act 1990 uncertainties delays caused new regulatory environment expected continue overall negative effect gulf mexico drilling activity certain extent financial results business segments throughout first half 2009 saw unprecedented declines global economic outlook initially fueled housing credit crises market conditions led reduced growth instances decreased overall output beginning late 2009 throughout 2010 market factors suggested economic improvement underway notably international markets china india continue monitor fallout financial crisis global economy demand crude oil coal natural gas prices resultant impact capital spending plans operations customers order plan business capital expenditures 2010 totaled 182 million compared 2009 capital expenditures 124 million 2010 capital expenditures included funding complete projects progress december 31 2009 including continued expansion wapasu creek accommodations facility canadian oil sands ii international expansion offshore products iii purchase accommodations facility horn river basin area northeast british columbia iv expansion tubular services addition facility pennsylvania service marcellus shale area v ongoing maintenance capital requirements well site services segment continue monitor industry capacity additions make future capital expenditure decisions based careful evaluation market outlook industry fundamentals tubular services segment remain focused industry inventory levels future drilling completion activity octg prices completed three acquisitions described fourth quarter 2010 december 30 2010 acquired ordinary shares mac services group limited mac scheme arrangement scheme corporations act australia headquartered sydney australia mac supplies accommodations services coal mining construction resource industries mac currently 5210 rooms six locations queensland western australia terms scheme shareholder mac received 395 a390 per share cash price represents total purchase price 638 million net cash acquired plus debt assumed 87 million company funded acquisition cash hand borrowings available new fiveyear 105 billion senior secured bank facilities see note 8 consolidated financial statements included annual report form 10k additional information senior secured bank facilities mac’s operations reported part accommodations segment december 20 2010 also acquired operating assets mountain west oilfield service supplies inc ufford leasing llc mountain west total consideration 471 million estimated contingent consideration 40 million headquartered vernal utah operations rockies bakken shale region mountain west provides remote site workforce accommodations oil gas industry mountain west included accommodations segment since date acquisition october 5 2010 purchased equity acute technological services inc acute total consideration 300 million headquartered houston texas operations brazil acute provides metallurgical welding innovations oil gas industry support critical complex subsea component manufacturing deepwater riser fabrication global basis acute included offshore products segment since date acquisition funded acute mountain west acquisitions using cash hand existing credit facility accounting three acquisitions made 2010 finalized subject adjustments purchase price allocation period expected exceed period one year respective acquisition dates consolidated results operations millions year ended december 31 2010 compared year ended december 31 reported net income attributable oil states international inc year ended december 31 2010 1680 million 319 per diluted share results compare net income 591 million 118 per diluted share reported year ended december 31 2009 net income 2009 included tax loss 812 million approximately 162 per diluted share impairment goodwill rental tools reporting unit revenues consolidated revenues increased 3037 million 14 2010 compared 2009 well site services revenues increased 1709 million 56 2010 compared 2009 increase primarily due increased rental tool revenues significantly increased rig utilization drilling services operations rental tool revenues increased 1089 million 47 primarily due increased demand completion services increase us rig count favorable mix higher value rentals increased rental tool utilization improved pricing drilling services revenues increased 620 million 87 2010 compared 2009 primarily result increased utilization rigs utilization drilling rigs increased average approximately 37 2009 average approximately 71 2010 accommodations segment reported revenues 2010 563 million 12 2009 increase accommodations revenue resulted increased activity large accommodation facilities supporting oil sands development activities northern alberta canada expansion two facilities strengthening canadian dollar versus us dollar partially offset 63 million decrease thirdparty accommodations manufacturing revenues offshore products revenues decreased 805 million 16 2010 compared 2009 decrease primarily due lower starting backlog levels decrease subsea pipeline revenues rig vessel equipment revenues driven principally reductions customers’ spending caused deferrals delays deepwater development projects capital upgrades tubular services revenues increased 1570 million 19 2010 compared 2009 increase result increase tons shipped 330800 2009 502800 2010 driven increased drilling activity increase 172000 tons 52 partially offset 22 decrease realized revenues per ton shipped 2010 cost sales service consolidated cost sales increased 2341 million 14 2010 compared 2009 increase primarily result increased cost sales tubular services segment 1612 million 21 increase well site services segment 978 million 43 increase accommodations segment 357 million 13 partially offset decrease cost sales offshore products segment 606 million 16 consolidated gross margin percentage revenues 22 2010 2009 well site services cost sales increased 978 million 43 2010 compared 2009 result 505 million 30 increase rental tools services cost sales 473 million 81 increase drilling services cost sales well site services segment gross margin percentage revenues increased 25 2009 32 2010 rental tool gross margin percentage revenues increased 28 2009 36 2010 primarily due favorable mix higher value rentals improved pricing along improved fixed cost absorption result increased rental tool utilization drilling services gross margin percentage revenues increased 18 2009 21 2010 primarily due increase drilling activity levels accommodations cost sales increased 357 million 13 2010 compared 2009 primarily result increased activity large accommodation facilities supporting oil sands development activities northern alberta canada expansion two facilities strengthening canadian dollar versus us dollar partially offset decrease thirdparty accommodations manufacturing installation costs accommodations segment gross margin percentage revenues 42 2009 2010 offshore products cost sales decreased 606 million 16 2010 compared 2009 primarily due decrease subsea pipeline rig vessel equipment costs offshore products segment gross margin percentage revenues 26 2009 2010 tubular services segment cost sales increased 1612 million 21 2010 compared 2009 primarily result increase tons shipped driven increased drilling activity partially offset lower priced octg inventory sold tubular services gross margin percentage revenues decreased 7 2009 5 2010 primarily due larger portion service related costs expensed certain program work selling general administrative expenses selling general administrative sga expense increased 116 million 8 2010 compared 2009 due primarily increased accrual incentive bonuses increased salaries wages benefits increase accommodations sga expenses result strengthening canadian dollar versus us dollar sga 63 revenues 2010 compared 66 revenues 2009 depreciation amortization depreciation amortization expense increased 61 million 5 2010 compared 2009 due primarily capital expenditures made previous twelve months largely related canadian accommodations business partially offset decreased depreciation drilling services business several major assets become fullydepreciated impairment goodwill recorded goodwill impairment 945 million tax 2009 impairment result assessment several factors affecting rental tools reporting unit record impairment goodwill 2010 operating income consolidated operating income increased 1369 million 115 2010 compared 2009 primarily result 945 million pretax goodwill impairment loss recognized second quarter 2009 676 million increase operating income well site services segment excluding goodwill impairment primarily due increased us completion activity favorable mix higher value rentals improved pricing increased rental tool utilization rental tools operation increased utilization rigs drilling services business partially offset 204 million decrease operating income offshore products segment operating income 2010 included 70 million transaction costs related three acquisitions made year interest expense interest income net interest expense increased 06 million 4 2010 compared 2009 due increase noncash interest expense related writeoff remaining balance debt issuance costs prior revolving credit facility partially offset reduced average debt levels 2010 weighted average interest rate company’s credit facilities 36 2010 compared 15 2009 interest income increased result increased cash balances interest bearing accounts partially offset repayment first quarter 2009 note receivable boots coots international well control inc boots coots income tax expense income tax provision 2010 totaled 720 million 299 pretax income compared 461 million 436 pretax income 2009 effective tax rate 2009 impacted significant portion goodwill impairment loss recognized period nondeductible tax purposes excluding goodwill impairment effective tax rate 2009 would approximated 297 year ended december 31 2009 compared year ended december 31 reported net income year ended december 31 2009 591 million 118 per diluted share results compare net income 2189 million 426 per diluted share reported year ended december 31 2008 net income 2009 included tax loss 812 million approximately 162 per diluted share impairment goodwill rental tools reporting unit net income 2008 included tax loss 798 million approximately 155 per diluted share impairment goodwill tubular services drilling reporting units see note 7 consolidated financial statements included annual report form 10k net income 2008 also included tax gain 36 million approximately 007 per diluted share sale 1151 million shares common stock boots coots revenues consolidated revenues decreased 8402 million 28 2009 compared 2008 well site services revenues decreased 2279 million 43 2009 compared 2008 decrease primarily due reductions activity pricing company’s north american drilling rental tool operations result 42 yearoveryear decrease north american rig count accommodations segment reported revenues 2009 543 million 13 2008 increase accommodations revenue resulted expansion large accommodation facilities supporting oil sands development activities northern alberta canada increased thirdparty accommodations manufacturing revenues partially offset lower accommodations activities support conventional oil natural gas drilling activity canada weakening canadian dollar versus us dollar rental tool revenues decreased 1217 million 34 2009 compared 2008 primarily due lower rental tool utilization pricing primarily result significantly reduced completion activity us greater competition drilling services revenues decreased 1062 million 60 2009 compared 2008 primarily result reduced utilization pricing drilling operating regions land drilling utilization averaged 367 2009 compared 824 2008 offshore products revenues decreased 188 million 4 2009 compared 2008 decrease primarily due decrease bearing connectors revenue due deepwater development project award delays decrease elastomer revenues result reduced drilling completion activity north america decreases partially offset increase subsea pipeline revenues tubular services revenues decreased 6478 million 44 2009 compared 2008 result 46 decrease tons shipped 2009 resulting fewer wells drilled completed period partially offset 2 increase average selling prices although octg prices decreased throughout 2009 average sales price realized increased 2008 due sales commitments made 2008 extended 2009 cost sales service consolidated cost sales decreased 5948 million 27 2009 compared 2008 primarily result decreased cost sales tubular services 5171 million 41 well site services 937 million 29 overall gross margin percentage revenues declined 24 2008 22 2009 primarily due lower margins realized tubular services well site services segments 2009 well site services segment gross margin percentage revenues declined 40 2008 25 2009 rental tool gross margin percentage revenues declined 42 2008 28 2009 primarily due significant reductions drilling completion activity us canada negatively impacted pricing demand equipment services addition portion rental tool costs change proportionately changes revenue leading reduced gross margin percentages drilling services cost sales decreased 560 million 49 2009 compared 2008 result significantly reduced rig utilization pricing drilling operating areas led significant cost reductions decline drilling activity levels also resulted drilling services gross margin percentage revenues decreasing 36 2008 18 2009 accommodations cost sales included 458 million increase thirdparty accommodations manufacturing installation costs partially offset reduction costs stemming implementation cost saving measures response lower conventional oil natural gas drilling activity levels canada weakening canadian dollar versus us dollar accommodations segment gross margin percentage revenues 42 2008 2009 offshore products segment gross margin percentage revenues essentially flat 25 2008 compared 26 2009 tubular services segment cost sales decreased 5171 million 41 result lower tonnage shipped partially offset higher priced octg inventory sold tubular services gross margin percentage revenues decreased 13 2008 7 2009 due excess industrywide octg inventory levels 2009 resulting lower margins selling general administrative expenses sga expense decreased 38 million 3 2009 compared 2008 due primarily decreases accrued incentive bonuses addition costs decreased result implementation cost saving measures including headcount reductions overhead costs travel entertainment professional fees office expenses response industry conditions sga 66 revenues 2009 compared 49 revenues 2008 due significant decline revenues 2009 depreciation amortization depreciation amortization expense increased 155 million 15 2009 compared 2008 due primarily capital expenditures made previous twelve months impairment goodwill recorded pretax goodwill impairment amount 945 million 2009 impairment result assessment several factors affecting rental tools reporting unit recorded pretax goodwill impairment amount 856 million 2008 impairment result assessment several factors affecting tubular services drilling reporting units see note 7 consolidated financial statements included annual report form 10k operating income consolidated operating income decreased 2650 million 69 2009 compared 2008 primarily result decrease operating income rental tool services tubular operations gain sale investment reported gain sale investment 62 million 2008 sale related investment boots coots common stock interest expense interest income net interest expense decreased 51 million 26 2009 compared 2008 due reduced debt levels lower libor interest rates applicable borrowings revolving credit facilities weighted average interest rate company’s revolving credit facilities 15 2009 compared 39 2008 interest income decreased result repayment 2009 note receivable due boots coots reduced cash balances interest bearing accounts equity earnings unconsolidated affiliates equity earnings unconsolidated affiliates 26 million 64 lower 2009 2008 primarily due sale august 2008 remaining investment boots coots income tax expense income tax provision year ended december 31 2009 totaled 461 million 436 pretax income compared 1542 million 413 pretax income year ended december 31 2008 higher effective tax rate years primarily due impairment goodwill majority deductible tax purposes absent goodwill impairment 2009 effective tax rate favorably influenced lower statutory rates applicable foreign sourced income liquidity capital resources primary liquidity needs fund capital expenditures past included expanding accommodations facilities expanding upgrading offshore products manufacturing facilities equipment increasing replacing rental tool assets adding drilling rigs funding new product development general working capital needs addition capital used fund strategic business acquisitions primary sources funds cash flow operations proceeds borrowings see note 8 consolidated financial statements included annual report form 10k cash totaling 2309 million provided operations year ended december 31 2010 compared cash totaling 4534 million provided operations year ended december 31 2009 2010 1000 million used fund working capital primarily due increased investments working capital tubular services rental tool businesses lower taxes payable partially offset reduction accounts receivable offshore products segment contrast 2009 1760 million provided net working capital reductions primarily due reduction accounts receivable lower inventory levels especially tubular services segment cash used investing activities years ended december 31 2010 2009 amount 8897 million 1026 million respectively year ended december 31 2010 spent cash totaling 7096 million net cash acquired acquire mac services group limited sydney australia expand accommodations business internationally mountain west oilfield service supplies inc vernal utah accommodations business servicing us rockies bakken shale region acute technological services inc houston texas provider welding services energy industry worldwide onshore offshore activities company funded acquisition mac cash hand borrowings available new fiveyear 105 billion senior secured bank facilities funded acute mountain west acquisitions using cash hand existing credit facility see note 8 consolidated financial statements included annual report form 10k significant acquisitions made company year ended december 31 2009 capital expenditures totaled 1822 million 1245 million years ended december 31 2010 2009 respectively capital expenditures years consisted principally purchases assets accommodations well site services segments particular accommodations investments made support canadian oil sands developments 2009 received 212 million boots coots full satisfaction note receivable due us currently expect spend total approximately 536 million capital expenditures 2011 expand canadian oil sands australian mining accommodations facilities fund product service offerings maintenance upgrade equipment facilities expect fund capital expenditures cash available internally generated funds borrowings revolving credit facilities foregoing capital expenditure budget include funds opportunistic acquisitions company could pursue depending economic environment industry availability transactions prices deemed attractive company net cash 6490 million provided financing activities year ended december 31 2010 primarily result borrowings new 105 billion credit facilities net cash 2968 million used financing activities year ended december 31 2009 primarily result free cash flow used pay amounts outstanding revolving credit facility believe cash hand cash flow operations available borrowings credit facilities sufficient meet liquidity needs coming twelve months plans assumptions change inaccurate make acquisitions may need raise additional capital acquisitions management believes acquisitions continue key element business strategy timing size success acquisition effort associated potential capital commitments unpredictable uncertain may seek fund part efforts proceeds debt andor equity issuances ability obtain capital additional projects implement growth strategy longer term depend upon future operating performance financial condition broadly availability equity debt financing capital availability affected prevailing conditions industry economy financial markets factors many beyond control addition additional debt service requirements could based higher interest rates shorter maturities could impose significant burden results operations financial condition issuance additional equity securities could result significant dilution stockholders stock repurchase program august 27 2010 company announced board directors authorized 100 million repurchase company’s common stock par value 01 per share authorization replaced prior share repurchase authorization expired december 31 2009 company presently approximately 508 million shares common stock outstanding board directors authorization limited duration expires september 1 2012 subject applicable securities laws purchases times amounts company deems appropriate december 31 2010 repurchased shares pursuant board authorization credit facilities december 10 2010 replaced existing bank credit facility 105 billion senior credit facilities governed amended restated credit agreement credit agreement new facilities increased total commitments available 500 million previous facilities 105 billion connection execution credit agreement total us commitments defined credit agreement increased us 325 million us 700 million including 200 million term loans total canadian commitments defined credit agreement increased us 175 million us 350 million including 100 million term loans maturity date credit agreement december 10 2015 currently 19 lenders credit agreement commitments ranging 266 million 150 million experienced anticipate difficulties obtaining funding lenders time lack delay funding significant member banking group could negatively affect liquidity position credit agreement governs credit facilities contains customary financial covenants restrictions including restrictions ability declare pay dividends specifically must maintain interest coverage ratio defined ratio consolidated ebitda consolidated interest expense least 30 10 maximum leverage ratio defined ratio total debt consolidated ebitda greater 35 10 2011 325 10 2012 30 10 thereafter factors considered calculations ratios defined credit agreement ebitda consolidated interest defined exclude goodwill impairments debt discount amortization noncash charges december 31 2010 compliance debt covenants expect continue compliance 2011 borrowings credit agreement secured pledge substantially assets subsidiaries obligations credit agreement guaranteed significant subsidiaries borrowings credit agreement accrue interest rate equal either libor another benchmark interest rate election plus applicable margin based leverage ratio defined credit agreement must pay quarterly commitment fee based leverage ratio unused commitments credit agreement year 2010 applicable margin libor ranged 05 25 december 31 2010 weighted average interest rate paid credit agreement 36 year ended december 31 2010 15 year ended december 31 2009 december 31 2010 7102 million outstanding credit agreement including 300 million term loans additional 221 million outstanding letters credit leaving 3177 million available drawn facilities also australian floating rate credit facility supporting australian accommodations business provides aggregate borrowing capacity 759 million a75 million 253 million a250 million outstanding december 31 2010 total debt represented 359 total debt shareholder’s equity december 31 2010 compared 106 december 31 2009 contingent convertible notes june 2005 sold 175 million aggregate principal amount 238 contingent convertible notes due 2025 notes provide net share settlement therefore may convertible certain circumstances combination cash principal amount notes common stock company excess principal amount notes initial conversion price 3175 per share shares underlying notes included calculation diluted earnings per share year stock price exceeded initial conversion price 3175 period terms notes require stock price quarter period prior july 1 2023 120 initial conversion price 3810 per share least 20 trading days defined period notes convertible note holder chooses present notes conversion future quarter prior first putcall date july 2012 would receive cash 1000 238 note plus company common stock excess valuation 1000 using conversion rate 238 notes 31496 multiplied company’s average common stock price ten trading day period following presentation 238 notes conversion detailed description 238 contingent convertible notes please see note 8 consolidated financial statements included annual report form 10k december 31 2010 classified 1750 million principal amount 238 contingent convertible senior notes 238 notes net unamortized discount current liability certain contingent conversion thresholds based company’s stock price met date result note holders could present notes conversion quarter following december 31 2010 measurement date description thresholds please see note 8 consolidated financial statements included annual report form 10k future convertibility resultant balance sheet classification liability monitored quarterly reporting date analyzed dependent upon market prices company common stock prescribed measurement periods december 31 2010 recent trading prices 238 notes exceeded conversion value due remaining imbedded conversion option holder based recent trading patterns 238 notes currently expect significant amount 238 notes convert next twelve months contractual cash obligations following summarizes contractual obligations december 31 2010 thousands 1 excludes interest debt cannot predict certainty amount interest due revolving debt due expected variability interest rates principal amounts outstanding assume interest payment amounts calculated using outstanding principal balances interest rates foreign currency exchange rates december 31 2010 include applicable commitment fees estimated interest payments credit facilities 238 notes would 297 million “due less one year” 507 million “due one three years” 398 million “due three five years” case outstanding term loans applicable principal pay amounts reflected interest payment calculations see note 8 consolidated financial statements included annual report form 10k additional information credit facilities debt obligations december 31 2010 included consolidated balance sheet part consolidated financial statements included annual report form 10k assumed conversion 238 contingent convertible notes due 2025 2012 first put call date notes entered material leases subsequent december 31 2010 offbalance sheet arrangements december 31 2010 offbalance sheet arrangements defined item 303a4 regulation sk tax matters primary deferred tax assets december 31 2010 related employee benefit costs equity participation plan deductible goodwill inventory allowance obsolescence foreign tax credit carryforwards 56 million available federal net operating loss carryforwards regular tax net operating losses nols date regular tax nols expire varying amounts 2011 first used offset taxable income generate ability utilize portion available regular tax nols currently limited section 382 internal revenue code due change control occurred 1995 currently believe substantially regular tax nols utilized company utilized federal alternative minimum tax net operating loss carryforwards income tax provision year ended december 31 2010 totaled 720 million 299 pretax income compared 461 million 436 pretax income year ended december 31 2009 effective tax rate 2009 impacted significant portion goodwill impairment loss recognized period nondeductible tax purposes excluding goodwill impairment effective tax rate 2009 would approximated 297 number legislative proposals change united states tax laws related multinational corporations proposals various stages discussion possible time predict proposals would impact business whether could result increased tax costs critical accounting policies selection critical accounting policies objective properly reflect financial position results operations reporting period manner understood utilize financial statements often must use judgment uncertainties several critical accounting policies put practice important effect reported financial results accounting contingencies contingent liabilities future claims made estimates amount eventual cost liquidate liabilities claims liabilities claims sometimes involve threatened actual litigation damages quantified made assessment exposure recorded provision accounts cover expected loss claims liabilities estimated based experience matters appropriate advice outside counsel outside experts upon ultimate resolution uncertainties future reported financial results impacted difference estimates actual amounts paid settle liability examples areas made important estimates future liabilities include litigation taxes interest insurance claims warranty claims contract claims discontinued operations tangible intangible assets including goodwill totaled 4752 million 158 total assets december 31 2010 intangible assets totaled 1394 million 46 total assets december 31 2010 assessment impairment longlived assets intangibles investments unconsolidated subsidiaries conducted whenever changes facts circumstances indicate loss value occurred determination amount impairment would based quoted market prices available upon judgments future operating cash flows generated assets throughout estimated useful lives industry highly cyclical estimates period future cash flows generated well predictability cash flows determination whether decline value investment occurred significant impact carrying value assets periods prolonged cycles may result impairment losses review reporting unit defined current accounting standards regarding goodwill intangible assets assess goodwill potential impairment reporting units include rental tools drilling accommodations offshore products tubular services remaining goodwill drilling tubular services reporting units subsequent full impairment goodwill reporting units december 31 2008 part goodwill impairment analysis estimate implied fair value reporting unit ifv compare ifv carrying value unit carrying value none reporting units publically quoted market price must determine value willing buyers sellers would place reporting unit routine sale process level 3 fair value measurement analysis target ifv represents value would placed reporting unit market participants value reporting unit based historical projected results throughout cycle value reporting unit based trough peak earnings utilize depending circumstances trading multiples analyses discounted projected cash flow calculations estimated terminal values acquisition comparables estimate ifv reporting units affected future oil natural gas prices anticipated spending customers cost capital carrying amount reporting unit exceeds ifv goodwill considered potentially impaired additional analysis accordance current accounting standards conducted determine amount impairment date annual goodwill impairment test ifv’s offshore products accommodations rental tools reporting units exceeded carrying values 240 231 158 respectively part process assess goodwill impairment also compare total market capitalization company sum ifv’s reporting units assess reasonableness ifv’s aggregate intangible assets facts circumstances indicate loss value occurred compare carrying value intangible asset fair value intangible asset intangible assets amortize review useful life intangible asset evaluate reporting period whether events circumstances warrant revision remaining useful life evaluate remaining useful life intangible asset amortized reporting period determine whether events circumstances continue support indefinite useful life revenue cost recognition recognize revenue profit work progresses longterm fixed price contracts using percentageofcompletion method relies estimates total expected contract revenue costs follow method since reasonably dependable estimates revenue costs applicable various stages contract made recognized revenues profit subject revisions contract progresses completion revisions profit estimates charged income expense period facts circumstances give rise revision become known provisions estimated losses uncompleted contracts made period losses determined valuation allowances valuation allowances especially related potential bad debts accounts receivable obsolescence market value declines inventory involve reviews underlying details assets known trends marketplace application historical factors provide us basis recording allowances market conditions less favorable projected management historical experience materially different future experience additional allowances may required past years recorded valuation allowance reduce deferred tax assets amount likely realized see note 10 income taxes consolidated financial statements included annual report form 10k tax matters herein estimation useful lives selection useful lives many assets requires judgments operating personnel length useful lives estimates long short might eventually report disproportionate number losses gains upon disposition retirement longlived assets believe estimates useful lives appropriate stock based compensation since adoption accounting standards regarding sharebased payments required estimate fair value stock compensation made pursuant awards 2001 equity participation plan initial estimate fair value stock option restricted stock award determines amount stock compensation expense recognize future estimate value stock option awards plan selected fair value calculation model chosen black scholes “closed form” model value stock options awarded plan chosen model option awards made straightforward consistent vesting terms option prices option lives utilizing black scholes model requires us estimate length time options remain outstanding risk free interest rate estimated period options assumed outstanding forfeiture rates future dividends volatility common stock assumptions affect amount timing future stock compensation expense recognition continually monitor actual experience change assumptions future awards consider appropriate income taxes accounting income taxes required provisions current accounting standards regarding accounting uncertainty income taxes estimate liability future income taxes calculation tax liabilities involves dealing uncertainties application complex tax regulations recognize liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due ultimately determine payment amounts unnecessary reverse liability recognize tax benefit period determine liability longer necessary record additional charge provision taxes period determine recorded tax liability less expect ultimate assessment recent accounting pronouncements october 2009 fasb issued accounting standards update modified accounting disclosures revenue recognition multipleelement arrangement amendments effective fiscal years beginning june 15 2010 early adoption permitted modify criteria recognizing revenue multiple element arrangements scope constitutes nonsoftware deliverable company early adopted standard impact amendments material company’s reported results december 2009 fasb issued accounting standards update amends previously issued accounting guidance consolidation variable interest entities vie’s amendments require qualitative approach identifying controlling financial interest vie requires ongoing assessment whether entity vie whether interest vie makes holder primary beneficiary vie amendments effective annual reporting periods beginning november 15 2009 adoption standard effect financial condition results operations cash flows january 2010 fasb issued accounting standards update requires reporting entities make new disclosures recurring nonrecurring fair value measurements including significant transfers level 1 level 2 fair value measurements information purchases sales issuances settlements gross basis reconciliation level 3 fair value measurements amendments effective annual reporting periods beginning december 15 2009 except level 3 reconciliation disclosures effective annual periods beginning december 15 2010 expect adoption amendments material impact disclosures december 2010 fasb issued accounting standards update disclosures supplementary pro forma information business combinations amendments specify public entity presents comparative financial statements entity disclose revenue earnings combined entity though business combinations occurred current year occurred beginning comparable prior annual reporting period amendments also expand supplemental pro forma disclosures include description nature amount material nonrecurring pro forma adjustments directly attributable business combination included reported pro forma revenue earnings amendments effective prospectively business combinations acquisition date beginning first annual reporting period beginning december 15 2010 early adopted provisions amendment 2010 reflected pro forma disclosures item 7aitem 7 management’s discussion analysis financial condition results operations management’s discussion analysis financial condition results operations contains forwardlooking statements based management’s current expectations estimates projections business operations actual results may differ materially currently anticipated expressed forwardlooking statements result numerous factors including known material factors set forth part item 1a “risk factors” read following discussion analysis together consolidated financial statements notes statements included elsewhere annual report form 10k macroeconomic environment outlook provide broad range products services oil gas industry accommodations offshore products well site services tubular services business segments accommodations segment support oil gas mining industries demand products services cyclical substantially dependent upon activity levels oil gas mining industries particularly customers’ willingness spend capital exploration development oil natural gas coal mineral reserves customers’ spending plans generally based outlook nearterm longterm commodity prices result demand products services highly sensitive current expected commodity prices principally crude oil lesser extent natural gas coal 2011 early 2012 crude oil prices exhibited volatility due concerns potential decreases demand caused slowed momentum global economic recovery however fourth quarter 2011 price crude oil increased positive economic news related solid growth rates projected china emerging markets consumer spending employment data us consumer confidence indicated economic recovery underway addition potential supply interruptions feared iran threatened shut strait hormuz tensions mounted region iran nations regarding proposed sanctions related iran’s nuclear programs organization petroleum exporting countries opec eased concerns announcing member nation saudi arabia others would ready provide additional supply event blockage distribution channel despite signs improving economy united states world’s largest consumer crude oil global economic risks remain due fiscal financial uncertainty various european countries prolonged level relatively high unemployment us advanced economies inflation risks certain emerging markets price crude oil january 2012 trading approximately 99 per barrel west texas intermediates wti crude around 111 per barrel intercontinental exchange ice brent crude prices natural gas continue weak due rise production unconventional gas resources north america largely due increases onshore shale production resulting technological advancements horizontal drilling hydraulic fracturing natural gas prices traded 250 per mcf january 2012 natural gas inventories us continue overstocked particularly given unseasonably index financial statements warm start winter season prolonged increases supply natural gas whether supply comes conventional unconventional production associated gas production oil wells likely constrain prices natural gas various oil gas industry analysts projected 2012 global exploration production expenditures expected increase calendar year 2011 levels north american capital spending plans expected focused onshore areas international exploration production budgets expected primarily spent offshore overview activity accommodations offshore products segments primarily tied longterm outlook commodity prices contrast activity well site services tubular services segments responds shorterterm movements oil natural gas prices specifically changes north american drilling completion activity factors affect business financial results include general global economic environment regulatory changes united states internationally generally oil sands mining accommodations customers making multibillion dollar investments develop prospects estimated reserve lives 10 excess 30 years consequently investments dependent customers’ longerterm view commodity demand prices oil sands development activity increased past year positive impact accommodations segment recent announcements new expanded oil sands projects create opportunity extensions existing accommodations contracts incremental accommodations contracts us canada addition several major oil companies national oil companies announced joint ventures develop oil sands leases bode well future oil sands investment result demand oil sands accommodations australian accommodations business significantly influenced increased metallurgical coal demand especially japan china india metallurgical coal prices china strengthened recently chinese metallurgical coal demand expected increase 2012 compared 2011 could result another annual metallurgical coal import record expanding australian accommodations capacity meet increasing demand accommodations deployed support onshore us drilling activity several active shale play regions also favorably contributed results offshore products segment provides highly engineered products offshore oil natural gas drilling production systems facilities sales offshore products services depend primarily upon development infrastructure offshore production systems subsea pipelines repairs upgrades existing offshore drilling rigs construction new offshore drilling rigs vessels segment particularly influenced global deepwater drilling production spending driven largely customers’ longerterm outlook oil natural gas prices well site services business segment predominantly provide rental tools services lesser extent land drilling services rental tools services business provides equipment service personnel utilized completion initial production new recompleted wells activity rental tools services business dependent primarily upon level complexity drilling completion workover activity throughout north america well complexity increased number productive zones completed connection horizontal drilling increased demand drilling services driven land drilling activity primary drilling markets west texas primarily drill oil wells rocky mountains area us drill oil natural gas wells tubular services segment distribute broad range casing tubing used drilling completion oil natural gas wells primarily north america accordingly sales gross margins tubular services segment depend upon overall level drilling activity types wells drilled movements global steel input prices overall industry level octg inventory pricing historically tubular services’ gross margin generally expands periods rising octg prices contracts periods decreasing octg prices index financial statements diversified product service offering exposure activities conducted throughout oil gas cycle demand tubular services land drilling rental tools services businesses highly correlated changes drilling rig count united states much lesser extent canada table sets forth summary north american rig activity measured baker hughes incorporated periods indicated rig count fell precipitously first half 2009 response impact global economic downturn negatively impacted energy prices substantially recovered june 2009 low average north american rig count year ended december 31 2011 increased 406 rigs 21 compared average year ended december 31 2010 factor influences financial results accommodations segment exchange rate us dollar canadian dollar lesser extent exchange rate us dollar australian dollar accommodations segment derived majority revenues operating income canada recently australia revenues profits translated us dollars us gaap financial reporting purposes year 2011 canadian dollar valued average exchange rate us 101 compared us 097 2010 increase 4 strengthening canadian dollar positive impact translation earnings generated canadian subsidiaries therefore financial results accommodations segment year 2011 australian dollar valued average exchange rate us 103 compared us 92 2010 increase 12 steel input prices influence pricing decisions octg suppliers thereby impacting pricing margins tubular services segment steel prices global basis declined precipitously recession 2009 industry inventories increased materially rig count declined imports remained high levels developments octg marketplace material detrimental impact octg pricing accordingly revenues margins realized last half 2009 tubular services segment negative trends moderated 2010 reduction imports largely due imposition trade sanctions chinese octg imports coupled increases us rig count 2011 octg marketplace supply demand became balanced increased supplies octg met increased demand created expanded drilling activity 2011 us mills began increasing production imports steel increased throughout 2011 particularly goods imported canada korea followed india mexico japan increase supply response 21 yearoveryear increase drilling rig count united states recent global steel prices increased affecting raw material costs octg suppliers date realized modest octg price increases able pass customers octg situation report suggests industry octg inventory levels peaked first quarter 2009 approximately twenty months’ supply ground trended approximately four five months’ supply currently considered closer normalized level measured historical levels remain focused working capital management tubular services segment continue monitor industry inventory levels forecasted drilling completion activity octg prices global demand oil natural gas significant factors influencing business generally certain factors also influence business pace worldwide economic growth recovery us gulf mexico drilling following lifting government imposed drilling moratorium index financial statements drilling activity us gulf mexico remains well historical levels result unprecedented events us gulf mexico following macondo well incident resultant oil spill rescission moratorium offshore drilling activity effective late 2010 however increases activity delayed adjustments operating procedures compliance certifications lead times permits inspections result changes regulatory environment addition variety proposals change existing laws regulations could affect offshore development production uncertainties delays caused new regulatory environment continued overall negative effect gulf mexico drilling activity 2011 recently however gulf mexico drilling activity shown signs slow steady recovery permitting levels steadily improving new well permitting second half 2011 showed significant improvement first half 2011 regulators operators appear adapting new permitting process continue monitor global economy demand crude oil coal natural gas resultant impact capital spending plans operations customers order plan business capital expenditures 2011 totaled 487 million compared 2010 capital expenditures 182 million 2011 capital expenditures included funding expand several canadian australian accommodations facilities increase fleet modular mobile camp assets canada us complete projects progress december 31 2010 including construction henday lodge accommodations facility canadian oil sands ii continued expansion wapasu creek athabasca lodge accommodations facilities canadian oil sands additional capital committed december 31 2010 expand replace rental tool assets delivered 2011 approximately 70 total 2011 capital expenditures spent accommodations segment well site services segment continue monitor industry capacity additions make future capital expenditure decisions based careful evaluation market outlook industry fundamentals recent acquisitions november 1 2011 purchased open camp accommodations facility located carrizo springs texas total consideration 22 million facility provide accommodations support customers working eagle ford shale basin operations carrizo springs facility included accommodations segment since date acquisition december 30 2010 acquired ordinary shares mac services group limited mac scheme arrangement scheme corporations act australia mac headquartered sydney australia supplies accommodations services australian natural resources market terms scheme shareholder mac received 395 a390 per share cash total purchase price 638 million net cash acquired plus debt assumed 87 million mac’s operations included accommodations segment beginning 2011 december 20 2010 also acquired operating assets mountain west oilfield service supplies inc ufford leasing llc mountain west total consideration 471 million estimated contingent consideration 36 million headquartered vernal utah operations rockies bakken shale region mountain west provides remote site workforce accommodations oil gas industry mountain west included accommodations segment since date acquisition company funded acquisitions mac mountain west cash hand draws senior secured credit facilities see note 8 consolidated financial statements included annual report form 10k additional information senior secured bank facilities october 5 2010 purchased equity acute technological services inc acute total consideration 302 million headquartered houston texas additional operations brazil acute provides metallurgical welding engineering consulting services oil gas industry support critical complex subsea component manufacturing deepwater riser fabrication global basis acute included offshore products segment since date acquisition funded acute acquisition using cash hand draws existing credit facility index financial statements consolidated results operations millions index financial statements year ended december 31 2011 compared year ended december 31 2010 reported net income attributable company year ended december 31 2011 3225 million 586 per diluted share results compare net income attributable company 1680 million 319 per diluted share reported year ended december 31 2010 revenues consolidated revenues increased 11 billion 44 2011 compared 2010 well site services segment revenues increased 1777 million 37 2011 compared 2010 increase primarily due significantly increased rental tools services revenues rental tools services revenues increased 1450 million 42 primarily due increased demand completion services supporting increase us rig count favorable mix higher value rentals services increased equipment utilization additional capital investment rental equipment better pricing drilling services revenues increased 327 million 25 2011 compared 2010 primarily result increases pricing average day rates rising 164 thousand per day 2011 142 thousand per day 2010 increased utilization rigs average approximately 72 2010 average approximately 82 2011 accommodations segment reported revenues 2011 3270 million 61 2010 increase accommodations revenue resulted contribution fourth quarter 2010 acquisitions mac mountain west along increased revenues generated expanded room capacity canada australia revenues average available rooms oil sands lodges increased 40 30 respectively 2011 compared 2010 offshore products segment revenues increased 1569 million 37 2011 compared 2010 increase primarily result higher demand production equipment elastomer products along contributions acquisition acute tubular services segment revenues increased 4056 million 42 2011 compared 2010 increase result increase tons shipped 502800 tons 2010 699000 tons 2011 increase 196200 tons 39 driven increased us drilling completion activity cost sales service consolidated cost sales increased 7250 million 39 2011 compared 2010 result increased cost sales tubular services segment 3740 million 41 increase accommodations segment 1420 million 45 increase offshore products segment 1135 million 36 increase well site services segment 955 million 29 cost sales increases directly related increases segmental revenues consolidated gross margin percentage revenues increased 22 2010 25 2011 primarily due increased proportion relatively higher margin accommodations well site services segment revenues 2011 compared 2010 higher margins realized accommodations well site services segments partially offset increased proportion relatively lower margin tubular services segment revenues 2011 compared 2010 well site services segment cost sales increased 955 million 29 2011 compared 2010 primarily result 783 million 36 increase rental tools services cost sales well site services segment gross margin percentage revenues increased 32 2010 36 2011 rental tools services gross margin percentage revenues increased 36 2010 39 2011 primarily due favorable mix higher value rentals services improved pricing along higher fixed cost absorption result increased rental tool utilization drilling services cost sales increased 172 million 16 2011 compared 2010 drilling services gross margin percentage revenues increased 21 2010 26 2011 primarily due increase day rates rig utilization improved cost absorption accommodations segment cost sales increased 1420 million 45 2011 compared 2010 primarily result operating costs associated acquisitions mac mountain west 362 million 12 increase cost sales canadian accommodations business primarily due increased revenues room capacity accommodations segment gross margin percentage revenues increased 42 2010 47 2011 primarily due higher margins realized lodges villages index financial statements offshore products cost sales increased 1135 million 36 2011 compared 2010 primarily due increased revenues offshore products segment gross margin percentage revenues increased modestly 26 2010 compared 27 2011 tubular services segment cost sales increased 3740 million 41 2011 compared 2010 primarily result increase tons shipped tubular services segment gross margin percentage revenues increased 5 2010 6 2011 due primarily 2 increase revenue per ton selling general administrative expenses selling general administrative sga expense increased 316 million 21 2011 compared 2010 due primarily acquisition mac increased employeerelated costs higher sga costs canadian accommodations business due strengthening canadian dollar increased thirdparty professional fees increased commissions expense sga 52 revenues 2011 compared 63 revenues 2010 depreciation amortization depreciation amortization expense increased 639 million 51 2011 compared 2010 due primarily 506 million depreciation amortization expense associated acquisitions made fourth quarter 2010 capital expenditures made 2010 2011 largely related investments made canadian accommodations business operating income consolidated operating income doubled 2519 million 2011 compared 2010 primarily result increase operating income well site services segment 933 million 195 largely due favorable mix improved pricing increased activity rental tools services business coupled increase operating income result addition mac addition operating income offshore products segment increased 340 million 56 2011 compared 2010 operating income tubular services segment increased 285 million 79 primarily result increase tons shipped operating income 2011 2010 included 22 million 70 million respectively acquisition related expenses interest expense interest income net interest expense increased 403 million 260 2011 compared 2010 due increased debt levels interest expense newly issued 6 12 senior unsecured notes due 2019 6 12 notes increase noncash interest expense result amortization debt issuance costs revolving credit term loan facilities 6 12 notes weighted average interest rate borrowings outstanding company’s revolving credit term loan facilities 31 2011 compared 36 2010 interest income increased result increased cash balances interest bearing accounts income tax expense income tax provision 2011 totaled 1316 million 289 pretax income compared 720 million 299 pretax income 2010 decrease effective tax rate prior year largely result foreign sourced income 2011 taxed lower statutory rates compared 2010 partially offset increase state taxes year ended december 31 2010 compared year ended december 31 2009 reported net income attributable company year ended december 31 2010 1680 million 319 per diluted share results compare net income attributable company 591 million 118 per diluted share reported year ended december 31 2009 net income attributable company 2009 included tax loss 812 million approximately 162 per diluted share impairment goodwill rental tools services reporting unit revenues consolidated revenues increased 3037 million 14 2010 compared 2009 well site services segment revenues increased 1709 million 56 2010 compared 2009 increase primarily due increased rental tools services revenues significantly increased rig utilization drilling services operations rental tools services revenues increased 1089 million 47 primarily due increased demand completion services increase us rig count favorable mix higher value equipment increased equipment utilization improved pricing drilling services revenues increased 620 million 87 2010 compared 2009 primarily result increased utilization rigs utilization drilling rigs increased average approximately 37 2009 average approximately 71 2010 index financial statements accommodations segment reported revenues 2010 563 million 12 2009 increase accommodations revenue resulted increased activity large accommodation facilities supporting oil sands development activities northern alberta canada expansion two facilities strengthening canadian dollar versus us dollar partially offset 627 million decrease thirdparty accommodations manufacturing revenues offshore products segment revenues decreased 805 million 16 2010 compared 2009 decrease primarily due lower starting backlog levels decrease subsea pipeline revenues rig vessel equipment revenues driven principally reductions customers’ spending caused deferrals delays deepwater development projects capital upgrades tubular services segment revenues increased 1570 million 19 2010 compared 2009 increase result increase tons shipped 330800 2009 502800 2010 driven increased drilling activity increase 172000 tons 52 partially offset 22 decrease realized revenues per ton shipped 2010 cost sales service consolidated cost sales increased 2341 million 14 2010 compared 2009 increase primarily result increased cost sales tubular services segment 1612 million 21 increase well site services segment 978 million 43 increase accommodations segment 357 million 13 partially offset decrease cost sales offshore products segment 606 million 16 consolidated gross margin percentage revenues 22 2010 2009 well site services segment cost sales increased 978 million 43 2010 compared 2009 result 505 million 30 increase rental tools services cost sales 473 million 81 increase drilling services cost sales well site services segment gross margin percentage revenues increased 25 2009 32 2010 rental tools services gross margin percentage revenues increased 28 2009 36 2010 primarily due favorable mix higher value rentals improved pricing along improved fixed cost absorption result increased rental tool utilization drilling services gross margin percentage revenues increased 18 2009 21 2010 primarily due increase drilling activity levels accommodations segment cost sales increased 357 million 13 2010 compared 2009 primarily result increased activity large accommodation facilities supporting oil sands development activities northern alberta canada expansion two facilities strengthening canadian dollar versus us dollar partially offset decrease thirdparty accommodations manufacturing installation costs accommodations segment gross margin percentage revenues 42 2009 2010 offshore products segment cost sales decreased 606 million 16 2010 compared 2009 primarily due decrease subsea pipeline rig vessel equipment costs offshore products segment gross margin percentage revenues 26 2009 2010 tubular services segment cost sales increased 1612 million 21 2010 compared 2009 primarily result increase tons shipped driven increased drilling activity partially offset lower priced octg inventory sold tubular services segment gross margin percentage revenues decreased 7 2009 5 2010 primarily due larger portion service related costs expensed certain program work selling general administrative expenses sga expense increased 116 million 8 2010 compared 2009 due primarily increased accrual incentive bonuses increased salaries wages benefits increase accommodations sga expenses result strengthening canadian dollar versus us dollar sga 63 revenues 2010 compared 66 revenues 2009 depreciation amortization depreciation amortization expense increased 61 million 5 2010 compared 2009 due primarily capital expenditures made previous twelve months largely related canadian accommodations business partially offset decreased depreciation drilling services business several major assets become fullydepreciated impairment goodwill recorded goodwill impairment loss 945 million tax 2009 impairment result assessment several factors affecting rental tools services reporting unit record impairment goodwill 2010 index financial statements operating income consolidated operating income increased 1369 million 115 2010 compared 2009 primarily result 945 million pretax goodwill impairment loss recognized second quarter 2009 676 million increase operating income well site services segment excluding goodwill impairment primarily due increased us completion activity favorable mix higher value rentals improved pricing increased rental tool utilization rental tools services operation increased utilization rigs drilling services business partially offset 204 million decrease operating income offshore products segment operating income 2010 included 70 million transaction costs related three acquisitions made year interest expense interest income net interest expense increased 06 million 4 2010 compared 2009 due increase noncash interest expense related writeoff remaining balance debt issuance costs prior revolving credit facility partially offset reduced average debt levels 2010 weighted average interest rate company’s credit facilities 36 2010 compared 15 2009 interest income increased result increased cash balances interest bearing accounts partially offset repayment first quarter 2009 note receivable boots coots international well control inc boots coots income tax expense income tax provision 2010 totaled 720 million 299 pretax income compared 461 million 436 pretax income 2009 effective tax rate 2009 impacted significant portion goodwill impairment loss recognized period nondeductible tax purposes excluding goodwill impairment effective tax rate 2009 would approximated 297 liquidity capital resources primary liquidity needs fund capital expenditures past included expanding accommodations facilities expanding upgrading offshore products manufacturing facilities equipment replacing increasing rental tool assets adding upgrading drilling rigs funding new product development general working capital needs addition capital used fund strategic business acquisitions primary sources funds cash flow operations proceeds borrowings see note 8 consolidated financial statements included annual report form 10k cash totaling 2159 million provided operations year ended december 31 2011 compared cash totaling 2309 million provided operations year ended december 31 2010 2011 3403 million used fund working capital primarily due increased investments receivables inventory tubular services offshore products segments due higher activity levels 2010 1000 million used fund working capital primarily due increased investments working capital tubular services rental tools services businesses lower taxes payable partially offset reduction accounts receivable offshore products segment cash used investing activities years ended december 31 2011 2010 amount 4890 million 8897 million respectively capital expenditures totaled 4875 million 1822 million years ended december 31 2011 2010 respectively capital expenditures years consisted principally purchases installation assets accommodations well site services segments particular accommodations investments made support canadian oil sands developments 2011 australian mining related accommodations facilities year ended december 31 2011 spent cash 22 million acquire open camp accommodations facility carrizo springs texas provide accommodations support customers working eagle ford shale basin compares 7096 million spent net cash acquired year ended december 31 2010 acquire mac services group limited sydney australia expand accommodations business internationally mountain west oilfield service supplies inc ufford leasing llc vernal utah accommodations business servicing us rockies bakken shale region acute technological services inc houston texas provider welding engineering consulting services energy industry worldwide onshore offshore activities company funded acquisitions mac mountain west cash hand draws senior secured credit facilities funded acute acquisition using cash hand existing credit facility see note 8 consolidated financial statements included annual report form 10k currently expect spend total approximately 600 700 million capital expenditures 2012 expand canadian oil sands australian mining related accommodations facilities fund product service offerings maintenance upgrade equipment facilities approximately 65 total estimated 2012 capital expenditures expected spent index financial statements accommodations segment plan fund capital expenditures cash available internally generated funds borrowings revolving credit facilities corporate borrowings foregoing capital expenditure budget include funds strategic acquisitions company could pursue depending economic environment industry availability transactions prices deemed attractive company net cash 2579 million provided financing activities year ended december 31 2011 primarily result proceeds issuance second quarter 2011 600 million aggregate principal amount 6 12 notes offset net repayments outstanding amounts revolving credit facilities see note 8 consolidated financial statements included annual report form 10k additional information credit facilities net cash 6490 million provided financing activities year ended december 31 2010 primarily result borrowings senior secured credit facilities incurred 135 million costs secure financings 2011 compared 245 million 2010 believe cash hand cash flow operations available borrowings credit facilities corporate borrowings sufficient meet liquidity needs coming twelve months plans assumptions change inaccurate make acquisitions may need raise additional capital acquisitions management believes acquisitions continue key element business strategy timing size success acquisition effort associated potential capital commitments unpredictable uncertain may seek fund part efforts proceeds debt andor equity issuances ability obtain capital additional projects implement growth strategy longer term depend upon future operating performance financial condition broadly availability equity debt financing capital availability affected prevailing conditions industry economy financial markets factors many beyond control addition additional debt service requirements could based higher interest rates shorter maturities could impose significant burden results operations financial condition issuance additional equity securities could result significant dilution stockholders stock repurchase program august 27 2010 company announced board directors authorized 100 million repurchase company’s common stock par value 01 per share authorization replaced prior share repurchase authorization expired december 31 2009 company presently approximately 513 million shares common stock outstanding board directors’ authorization limited duration expires september 1 2012 subject applicable securities laws purchases times amounts company deems appropriate december 31 2011 total 126 million stock 209300 shares repurchased program leaving total authorization approximately 874 million remaining available program credit facilities december 10 2010 replaced existing 500 million bank credit facility 105 billion senior credit facilities governed amended restated credit agreement credit agreement credit agreement consists us revolving credit facility us term loan canadian revolving facility canadian term loan new facilities increased total commitments available 500 million previous facilities 105 billion connection execution credit agreement total us commitments defined credit agreement increased us 325 million us 700 million including 200 million term loans total canadian commitments defined credit agreement increased us 175 million us 350 million including 100 million term loans maturity date credit agreement december 10 2015 current principal balance term loans repayable rate 25 per quarter aggregate principal amount maturity december 10 2015 remaining principal due currently 19 lenders credit agreement commitments ranging 266 million 150 million experienced anticipate difficulties obtaining funding lenders time lack delay funding significant member banking group could negatively affect liquidity position credit agreement governs credit facilities contains customary financial covenants restrictions including restrictions ability declare pay dividends specifically must maintain interest coverage ratio defined ratio consolidated ebitda consolidated interest expense least 30 10 maximum leverage ratio defined ratio total debt consolidated ebitda greater 325 10 2012 30 10 thereafter factors considered calculations ratios defined credit agreement ebitda consolidated interest defined exclude goodwill impairments debt discount amortization noncash charges december 31 2011 compliance debt covenants expect continue compliance 2012 borrowings index financial statements credit agreement secured pledge substantially assets subsidiaries obligations credit agreement guaranteed significant subsidiaries borrowings credit agreement accrue interest rate equal either libor another benchmark interest rate election plus applicable margin based leverage ratio defined credit agreement must pay quarterly commitment fee based leverage ratio unused commitments credit agreement year 2011 applicable margin libor ranged 225 25 225 december 31 2011 weighted average interest rate paid credit agreement 30 year ended december 31 2011 36 year ended december 31 2010 december 31 2011 3519 million outstanding credit agreement additional 251 million outstanding letters credit leaving 6568 million available drawn facilities july 13 2011 mac entered a150 million facility agreement national australia bank limited facility agreement amended mac’s existing a75 million revolving loan facility substantially terms including maturity date facility agreement november 30 2013 december 31 2011 a42 million outstanding australian facility leaving a108 million available drawn facility total debt represented 375 combined total debt shareholders’ equity december 31 2011 compared 359 december 31 2010 6 12 notes june 1 2011 company sold 600 million aggregate principal amount 6 12 senior unsecured notes due 2019 private placement qualified institutional buyers 6 12 notes senior unsecured obligations company guaranteed material us subsidiaries guarantors bear interest rate 6 12 per annum mature june 1 2019 time prior june 1 2014 company may redeem 35 6 12 notes redemption price 106500 principal amount plus accrued unpaid interest redemption date proceeds certain equity offerings prior june 1 2014 company may redeem 6 12 notes cash redemption price equal 100 principal amount plus applicable makewhole premium accrued unpaid interest redemption date june 1 2014 company may redeem 6 12 notes redemption prices expressed percentages principal amount plus accrued unpaid interest redemption date optional redemption prices percentage principal amount follows company utilized approximately 515 million net proceeds 6 12 note offering june 2011 repay borrowings senior secured credit facilities remaining net proceeds approximately 75 million utilized general corporate purposes june 1 2011 connection issuance 6 12 notes company entered indenture among company guarantors wells fargo bank na trustee indenture restricts company’s ability guarantors incur additional debt ii pay distributions redeem repurchase equity interests iii make certain investments iv incur liens v enter transactions affiliates vi merge consolidate another company vii transfer sell assets covenants subject number important exceptions qualifications time 6 12 notes rated investment grade either moody’s investors service inc standard poor’s ratings services default defined indenture occurred continuing many covenants terminate company subsidiaries cease subject covenants indenture contains customary events default december 31 2011 company compliance covenants 6 12 notes contingent convertible notes june 2005 sold 175 million aggregate principal amount 2 38 contingent convertible senior notes 2 38 notes due 2025 2 38 notes provide net share settlement index financial statements therefore may convertible certain circumstances combination cash principal amount 2 38 notes common stock company excess principal amount 2 38 notes initial conversion price 3175 per share shares underlying 2 38 notes included calculation diluted earnings per share years 2011 2010 stock price exceeded initial conversion price 3175 terms 2 38 notes require stock price quarter period prior july 1 2023 120 initial conversion price 3810 per share least 20 trading days defined period 2 38 notes convertible 2 38 note holder chooses present notes conversion future quarter prior first putcall date july 2012 receive cash 1000 2 38 note plus company common stock excess valuation 1000 using conversion rate 2 38 notes approximately 31496 multiplied company’s average common stock price ten trading day period following presentation 2 38 notes conversion detailed description 2 38 notes please see note 8 consolidated financial statements included annual report form 10k december 31 2011 classified 1750 million principal amount 2 38 notes net unamortized discount noncurrent liability based ability intent refinance 2 38 notes utilizing borrowings available senior secured credit facilities december 31 2011 contingent conversion thresholds met result 2 38 note holders could present notes conversion quarter following december 31 2011 measurement date december 31 2011 recent trading prices 2 38 notes exceeded conversion value due remaining imbedded conversion option holder 2 38 note holder convert notes would utilize existing credit facilities fund cash portion conversion value contractual cash obligations following summarizes contractual obligations december 31 2011 thousands 1 excludes interest debt cannot predict certainty amount interest due revolving debt due expected variability interest rates principal amounts outstanding assume interest payment amounts calculated using outstanding principal balances interest rates foreign currency exchange rates december 31 2011 include applicable commitment fees estimated interest payments credit facilities 2 38 notes 6 12 notes would 583 million “due less one year” 1051 million “due one three years” 883 million “due three five years” 941 million “due five years” case outstanding term loans applicable principal pay amounts reflected interest payment calculations see note 8 consolidated financial statements included annual report form 10k additional information credit facilities debt obligations december 31 2011 included consolidated balance sheet part consolidated financial statements included annual report form 10k assumed conversion 2 38 notes 2012 first putcall date notes entered material leases subsequent december 31 2011 effects inflation revenues results operations materially impacted inflation past three fiscal years offbalance sheet arrangements december 31 2011 offbalance sheet arrangements defined item 303a4 regulation sk index financial statements tax matters primary deferred tax assets december 31 2011 related employee benefit costs equity participation plan deductible goodwill intangibles inventory allowance obsolescence foreign tax credit carryforwards foreign tax credits expire varying amounts 2019 income tax provision year ended december 31 2011 totaled 1316 million 289 pretax income compared 720 million 299 pretax income year ended december 31 2010 decrease effective tax rate prior year largely result foreign sourced income 2011 taxed lower statutory rates compared 2010 partially offset increase state taxes number legislative proposals change united states tax laws related multinational corporations proposals various stages discussion possible time predict proposals would impact business whether could result increased tax costs critical accounting policies consolidated financial statements included annual report form 10k prepared accordance accounting principles generally accepted united states “us gaap” require management make numerous estimates assumptions actual results could differ estimates assumptions thus impacting reported results operations financial position critical accounting policies estimates described section important depiction financial condition results operations application requires management’s subjective judgments making estimates effect matters inherently uncertain describe significant accounting policies fully note 2 consolidated financial statements included annual report form 10k accounting contingencies contingent liabilities future claims made estimates amount eventual cost liquidate liabilities claims liabilities claims sometimes involve threatened actual litigation damages quantified made assessment exposure recorded provision accounts cover expected loss claims liabilities estimated based experience matters appropriate advice outside counsel outside experts upon ultimate resolution uncertainties future reported financial results impacted difference estimates actual amounts paid settle liability examples areas made important estimates future liabilities include litigation taxes interest insurance claims warranty claims contract claims obligations discontinued operations asset retirement obligations recognize initial estimated asset retirement obligations aro related properties liabilities associated increase property equipment asset’s estimated retirement cost accretion expense recognized estimated productive life related assets fair value estimated aro changes adjustment recorded aro capitalized asset retirement cost revisions estimated liabilities result changes estimated inflation rates changes service equipment costs changes estimated timing settling aro company derecognizes aro liabilities related obligations settled december 31 2011 46 million aro included consolidated balance sheet “other noncurrent liabilities” aro liability reflects estimated present value amount asset removal site reclamation costs related retirement assets company’s accommodations business company utilizes current retirement costs estimate expected cash outflows retirement obligations company estimates ultimate productive life properties riskadjusted discount rate order determine current present value obligation index financial statements tangible intangible assets including goodwill totaled 4675 million 126 total assets december 31 2011 intangible assets totaled 1276 million 34 total assets december 31 2011 assessment impairment longlived assets intangibles investments unconsolidated subsidiaries conducted whenever changes facts circumstances indicate loss value occurred determination amount impairment would based quoted market prices available upon judgments future operating cash flows generated assets throughout estimated useful lives industry highly cyclical estimates period future cash flows generated well predictability cash flows determination whether decline value investment occurred significant impact carrying value assets periods prolonged cycles may result impairment losses review reporting unit defined current accounting standards regarding goodwill intangible assets assess goodwill potential impairment reporting units include rental tools services drilling accommodations offshore products tubular services remaining goodwill drilling tubular services reporting units subsequent full impairment goodwill reporting units december 31 2008 part goodwill impairment analysis first perform qualitative assessment determine whether likely likelihood 50 percent fair value reporting unit less carrying amount including goodwill determined likely fair value reporting unit greater carrying amount performing currently prescribed twostep impairment test unnecessary developing qualitative assessment meet “morelikelythannot” threshold reporting unit goodwill balance sheet assessed separately different relevant events circumstances evaluated unit determined likely fair value reporting unit less carrying amount prescribed twostep impairment test performed performing twostep impairment test estimate implied fair value ifv reporting unit compare ifv carrying value unit carrying value none reporting units publically quoted market price must determine value willing buyers sellers would place reporting unit routine sale process level 3 fair value measurement analysis target ifv represents value would placed reporting unit market participants value reporting unit based historical projected results throughout cycle value reporting unit based trough peak earnings utilize depending circumstances trading multiples analyses discounted projected cash flow calculations estimated terminal values acquisition comparables estimate ifv reporting units affected future oil natural gas prices anticipated spending customers cost capital part process assess goodwill impairment also compare total market capitalization company sum ifv’s reporting units assess reasonableness ifv’s aggregate carrying amount reporting unit exceeds ifv goodwill considered potentially impaired additional analysis accordance current accounting standards conducted determine amount impairment 2011 qualitative assessment potential goodwill impairment indicated likely fair value reporting units greater carrying amount thus trading multiples analyses discounted projected cash flow calculations performed goodwill impairment recorded revenue cost recognition recognize revenue profit work progresses longterm fixed price contracts using percentageofcompletion method relies estimates total expected contract revenue costs follow method since reasonably dependable estimates revenue costs applicable various stages contract made recognized revenues profit subject revisions contract progresses completion revisions profit estimates charged income expense period facts circumstances give rise revision become known provisions estimated losses uncompleted contracts made period losses determined index financial statements valuation allowances valuation allowances especially related potential bad debts accounts receivable obsolescence market value declines inventory involve reviews underlying details assets known trends marketplace application historical factors provide us basis recording allowances market conditions less favorable projected management historical experience materially different future experience additional allowances may required past years recorded valuation allowance reduce deferred tax assets amount likely realized estimation useful lives selection useful lives many assets requires judgments operating personnel length useful lives estimates long short might eventually report disproportionate number losses gains upon disposition retirement longlived assets believe estimates useful lives appropriate stock based compensation since adoption accounting standards regarding sharebased payments required estimate fair value stock compensation made pursuant awards 2001 equity participation plan initial estimate fair value stock option restricted stock award determines amount stock compensation expense recognize future estimate value stock option awards plan selected fair value calculation model chosen black scholes merton “closed form” model value stock options awarded plan chosen model option awards made straightforward consistent vesting terms option prices option lives utilizing black scholes merton model requires us estimate length time options remain outstanding risk free interest rate estimated period options assumed outstanding forfeiture rates future dividends volatility common stock assumptions affect amount timing future stock compensation expense recognition continually monitor actual experience change assumptions future awards consider appropriate income taxes accounting income taxes required provisions current accounting standards regarding accounting uncertainty income taxes estimate liability future income taxes calculation tax liabilities involves dealing uncertainties application complex tax regulations recognize liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due ultimately determine payment amounts unnecessary reverse liability recognize tax benefit period determine liability longer necessary record additional charge provision taxes period determine recorded tax liability less expect ultimate assessment recent accounting pronouncements time new accounting pronouncements issued financial accounting standards board fasb adopted company specified effective date unless otherwise discussed management believes impact recently issued standards yet effective material impact company’s consolidated financial statements upon adoption june 2011 fasb issued amendments disclosure requirements presentation comprehensive income guidance eliminates option present components comprehensive income part statement changes stockholders’ equity amendments require nonowner changes stockholders’ equity presented either single continuous statement comprehensive income two separate consecutive statements twostatement approach first statement present total net income components followed consecutively second statement present total index financial statements comprehensive income components comprehensive income total comprehensive income december 2011 fasb issued amendment deferring effective date requirement present reclassification adjustments accumulated comprehensive income face consolidated statement income amendments applied retrospectively public entities amendments effective fiscal years interim periods within years beginning december 15 2011 early adoption permitted compliance amendments already permitted amendments require transition disclosures expect adoption standard material effect consolidated financial statements september 2011 fasb issued accounting standards update intended simplify goodwill impairment testing giving entity option first assess qualitative factors determine whether likely fair value reporting unit less carrying amount entity determines likely fair value reporting unit greater carrying amount performing currently prescribed twostep impairment test unnecessary entity option bypass qualitative assessment reporting unit period proceed directly performing first step twostep goodwill impairment test entity may resume performing qualitative assessment subsequent period amendments effective annual interim goodwill impairment tests performed fiscal years beginning december 15 2011 early adoption permitted including annual interim goodwill impairment tests performed entity’s financial statements recent annual interim period yet issued company early adopted standard annual goodwill impairment tests 2011 adoption standard material effect consolidated financial statements item 7aitem 7 management’s discussion analysis financial condition results operations management’s discussion analysis financial condition results operations contains “forwardlooking statements” within meaning section 27a securities act section 21e exchange act based management’s current expectations estimates projections business operations actual results may differ materially currently anticipated expressed forwardlooking statements result numerous factors including known material factors set forth “part item 1a risk factors” read following discussion analysis together consolidated financial statements notes statements included elsewhere annual report form 10k due spinoff accommodations business may 30 2014 sale tubular services business september 6 2013 reported discontinued operations management believes income continuing operations representative company’s current business environment focus terms “earnings” “loss” used “management’s discussion analysis financial condition results operations” refer income loss continuing operations spinoff accommodations business may 30 2014 completed spinoff accommodations business standalone publicly traded corporation civeo corporation civeo taxfree distribution accommodations business company’s shareholders results operations civeo classified discontinued operations periods presented annual report form 10k additional information see note 2 consolidated financial statements included annual report form 10k macroeconomic environment completion spinoff technologyfocused pureplay energy services company provide broad range products services oil gas industry offshore products well site services business segments demand products services cyclical substantially dependent upon activity levels oil gas industry particularly customers’ willingness invest capital exploration development oil natural gas customers’ capital spending programs generally based outlook nearterm longterm commodity prices economic growth commodity demand estimates resource production result demand products services largely sensitive expected commodity prices principally related crude oil natural gas past years crude oil prices volatile due global economic uncertainties well inadequate regional well site transportation constraints although price volatility moderated 2013 first several months 2014 crude oil prices began decrease beginning fourth quarter 2014 continued drop precipitously throughout remainder year material decrease crude oil prices fourth quarter 2014 primarily attributed significant production growth us shale plays strengthening us dollar organization petroleum exporting companies’ opec’s hesitancy cut production nearterm modestly lower global oil demand 2014 us crude oil production grew highest level since 1986 reaching 91 million barrels per day production compounding supply issue negative demand factors including moderating demand china slowdown emerging market economies automobile efficiencies fuel switching factors caused global supply demand imbalance resulting materially lower crude oil prices fourth quarter 2014 average price west texas intermediate wti crude oil decreased average price 98 per barrel fourth quarter 2013 53 per barrel end 2014 average price intercontinental exchange brent crude decreased average price 109 per barrel fourth quarter 2013 55 per barrel end 2014 february 20 2015 wti crude traded approximately 50 per barrel brent crude traded approximately 60 per barrel prices near six year lows price wti influences customers’ spending us shale play developments bakken niobrara permian eagle ford basins number companies recently announced reductions capital spending including plays spending regions influence overall drilling completion activity area therefore activity well site services segment price brent crude influence customers’ spending related offshore drilling development thus influence activity offshore products segment 39 given historical volatility crude prices remains risk prices could deteriorate due increased domestic crude oil production slowing growth rates various global regions andor potential ongoing supplydemand imbalances conversely global supply oil global inventory levels decrease due reduced capital investment customers government instability major oilproducing nation energy demand continues increase us countries china india could see recovery wti brent crude prices event crude oil price improvements depend upon rebalancing global supply demand timing difficult predict commodity prices improve decline demand products services could decline prices natural gas us averaged 437 per mmbtu 2014 compared 373 per mmbtu 2013 natural gas prices improved 2014 largely due strong demand beginning 2014 natural gas spot prices ranged low 274 per mmbtu late december 2014 temporary high 815 per mmbtu early february 2014 due extremely cold winter recently however natural gas inventories risen exerting downward pressure natural gas prices us natural gas prices traded approximately 295 per mmbtu february 20 2015 growing production coming us shale play developments resulted significant increases natural gas inventories us 2014 9 5year average end 2013 2 5year average end 2014 customer spending natural gas shale plays limited due associated gas produced unconventional oil wells north america specifically onshore shale production resulting broad application horizontal drilling hydraulic fracturing techniques remained high first nine months year result natural gas production growth outpacing demand us natural gas prices continue weak relative prices experienced 2006 2008 expected remain levels considered economical new investments numerous natural gas fields natural gas production growth continues surpass demand us andor supply natural gas increase whether supply comes conventional unconventional production associated natural gas production oil wells prices natural gas could remain depressed extended period result fewer rigs drilling natural gas nearterm recent wti crude brent crude natural gas pricing trends follows 1 source us energy information administration eia february 20 2015 wti crude brent crude natural gas traded approximately 50 per barrel 60 per barrel 295 mmbtu 2 december 31 2014 price wti brent crude oil fallen 5345 per barrel 5527 per barrel respectively 40 overview demand offshore products segment tied primarily longterm outlook commodity prices demand well site services segment responds shorterterm movements oil natural gas prices specifically changes north american drilling completion activity factors affect business financial results include general global economic environment regulatory changes us international markets offshore products segment provides highly engineered products services offshore oil natural gas production systems facilities well certain products services offshore drilling market sales offshore products services depend primarily upon capital spending offshore production systems subsea pipelines repairs upgrades existing offshore drilling rigs construction new offshore drilling rigs vessels segment particularly influenced global deepwater drilling production spending driven largely customers’ longerterm outlook crude oil natural gas prices deepwater projects considered less susceptible shortterm fluctuations price crude oil natural gas although possible recent decline crude oil prices may cause exploration production companies reevaluate future capital expenditures regards deepwater projects well site services business segment predominantly provide completion services lesser extent land drilling services completion services business provides equipment service personnel utilized completion initial production new recompleted wells activity completion services business dependent primarily upon level complexity drilling completion workover activity throughout north america well complexity increased continuing transition multiwell pads drilling longer laterals along increased number frac stages completed horizontal wells demand drilling services driven land drilling activity primary drilling markets permian basin west texas primarily drill oil wells rocky mountain area us drill liquidsrich natural gas wells demand land drilling completion services businesses correlated changes drilling rig count north america well changes total number wells expected drilled along changes total footage drilled next two three years table sets forth summary north american rig activity measured baker hughes incorporated periods indicated average north american rig count risen past four five years primarily due increase oilrelated drilling partially offset decline natural gas drilling average north american rig count year ended december 31 2014 increased 126 rigs 60 compared average year ended december 31 2013 largely due increase oilrelated drilling permian basin west texas however beginning early december 2014 north american rig count fallen precipitously 1670 rigs february 20 2015 response much lower crude oil prices levels experienced first half 2014 continue monitor global economy demand crude oil natural gas resultant impact capital spending plans operations customers order plan business capital expenditures continuing operations 2014 totaled 199 million compared 2013 capital expenditures continuing operations 165 million 2014 capital expenditures continuing operations included funding completion services equipment deployed service active us shale plays upgrade drilling services equipment expand upgrade offshore products facilities uk brazil fund various capital spending projects currently expect spend total approximately 175 million 225 million capital expenditures 2015 including approximately 100 million carryover 2014 upgrade maintain completion services drilling services equipment expand upgrade offshore products facilities fund various capital spending projects whether planned expenditures actually spent 2015 depends industry conditions project approvals schedules vendor delivery timing plan fund capital expenditures available cash internally generated funds borrowings revolving credit facility well site services segment continue monitor industry capacity additions make future capital expenditure decisions based evaluation market outlook industry fundamentals 41 strategic actions may 30 2014 completed spinoff accommodations business standalone publicly traded corporation civeo corporation spinoff objectives spinoff allow respective management team effectively focus two distinct businesses allow company civeo opportunity pursue tailored aggressive growth strategies optimization operating efficiencies company civeo among objectives connection spinoff received private letter ruling internal revenue service effect spinoff qualifies taxfree transaction may 30 2014 distribution date stockholders record oil states common stock close business may 21 2014 record date received two shares civeo common stock share oil states common stock held record date refinanced debt connection spinoff following distribution date oil states ceased shares civeo common stock operating results company’s accommodations business classified discontinued operations periods presented september 6 2013 company entered stock purchase agreement marubeniitochu sale sooner comprised entirety company’s tubular services segment total consideration received company 6000 million recognized net gain disposal 1284 million 840 million aftertax 2013 operating results company’s tubular services business classified discontinued operations periods presented recent acquisitions addition capital spending invested acquisitions businesses complementary growth strategy acquisition strategy allowed us leverage existing acquired products services new geographic locations expanded technology product offerings made strategic acquisitions business segments recent years january 2 2015 acquired equity montgomery machine company inc mmc headquartered houston texas mmc combines machining proprietary cladding technology services manufacture highspecification components offshore capital equipment industry global basis believe acquisition mmc strengthen position offshore products segment supplier subsea components enhanced capabilities proprietary technology logistical advantages subject customary postclosing adjustments total transaction consideration 340 million december 2 2013 acquired operating assets qcs total cash consideration 423 million headquartered houston texas qcs designs manufactures markets portfolio proprietary deep shallow water pipeline connectors subsea pipeline construction repair expansion projects operations qcs included offshore products segment since acquisition date december 14 2012 acquired equity tempress purchase price consideration 528 million headquartered kent washington tempress designs develops markets suite highly specialized hydraulicallyactivated tools utilized downhole completion activities operations tempress included well site services segment since acquisition date july 2 2012 acquired operating assets piper valve systems ltd piper total cash consideration 480 million headquartered oklahoma city oklahoma piper designs manufactures high pressure valves manifold components oil gas industry projects offshore surface subsea onshore operations piper included offshore products segment since acquisition date 42 funded acquisitions cash hand andor amounts available credit facilities see note 11 consolidated financial statements included annual report form 10k additional information senior secured bank facilities consolidated results operations millions year ended december 31 2014 compared year ended december 31 2013 reported net income continuing operations attributable company year ended december 31 2014 1272 million 235 per diluted share including loss extinguishment debt 1004 million 121 per diluted share aftertax 112 million 014 per diluted share aftertax transaction costs included “other operating expense” sga expenses primarily related spinoff results compare net income continuing operations attributable company 1290 million 231 per diluted share reported year ended december 31 2013 including 57 million 007 per diluted share aftertax transaction costs included “other operating income expense” primarily related spinoff pretax loss extinguishment debt 62 million 007 per diluted share aftertax charge 30 million 004 per diluted share increase contingent acquisition consideration completion services business excluding debt extinguishment transaction costs net income continuing operations increased 630 million 125 per diluted share yearoveryear revenues consolidated revenues increased 1905 million 12 2014 compared 2013 well site services segment revenues increased 1115 million 15 2014 compared 2013 due increases completion services drilling services revenues completion services revenues increased 809 million 14 2014 compared 2013 primarily due 5 increase number service tickets completed 9 increase revenue per completion services job result increased service intensity active shale basins gulf mexico drilling services revenues increased 306 million 18 2014 compared 2013 primarily result increased utilization drilling rigs average 75 2013 average 87 2014 however utilization declined beginning fourth quarter 2014 due lower crude oil prices february 20 2015 utilization drilling rigs decreased 50 43 offshore products segment revenues increased 790 million 9 2014 compared 2013 increase primarily result increased deepwater production facility subsea product sales greater elastomer consumable downhole product sales contributions acquisition qcs acquired december 2013 increase demand services worldwide cost sales service consolidated cost sales increased 927 million 8 2014 compared 2013 result increased cost sales wellsite services offshore products segments 718 million 15 209 million 3 respectively cost sales service increasing slower rate revenues consolidated gross margin percentage revenues increased 32 2013 34 2014 primarily due higher margins realized offshore products segment 2014 well site services segment cost sales increased 718 million 15 2014 compared 2013 result 499 million 14 increase completion services cost sales 219 million 18 increase drilling services cost sales increases cost sales directly correlated revenue increases businesses well site services segment completion services drilling services gross margins percentage revenues 39 30 respectively 2014 2013 offshore products segment cost sales increased 209 million 3 2014 compared 2013 gross margin percentage revenues increased 27 31 primarily due increased margins realized elastomer consumable sales deepwater production facility subsea pipeline product sales well improved cost absorption utilization associated increased revenue selling general administrative expenses selling general administrative sga expense increased 185 million 12 2014 compared 2013 increase largely due increased employeerelated costs primarily associated 5 increase total headcount portion added offshore products connection qcs acquisition december 2013 coupled increased bad debt expense depreciation amortization depreciation amortization expense increased 155 million 14 2014 compared 2013 primarily due capital expenditures made previous twelve months across segments company along increased depreciation amortization expense related qcs acquisition operating income consolidated operating income increased 630 million 25 2014 compared 2013 primarily result increases operating income offshore products segment completion services business 432 million 28 215 million 17 respectively increases operating income partially offset increase 55 million transaction costs primarily related spinoff interest expense interest income net interest expense decreased 216 million 57 2014 compared 2013 primarily due company’s repurchase 340 million aggregate principal amount 5 18 notes fourth quarter 2013 repurchase remaining 9660 million aggregate principal amount 6 12 5 18 notes second quarter 2014 full repayment us term loan third quarter 2013 partially offset amounts outstanding current revolving credit facility coupled unused commitment fees paid lenders weighted average interest rate company’s total outstanding debt 60 2014 compared 64 2013 loss extinguishment debt 2014 recognized losses extinguishment debt totaling 1004 million primarily due repurchase remaining 6 12 notes 5 18 notes resulting loss 967 million consisting premium paid book value notes writeoff unamortized deferred financing costs associated notes paid premium repurchase 6 12 notes 5 18 notes due fair market value exceeding book value date tendered addition result refinancing bank debt second quarter 2014 recognized loss 37 million net 18 million allocated discontinued operations canadian portion revolving credit facility writeoff unamortized deferred financing costs revolving credit facility 2013 recognized loss extinguishment debt totaling 62 million repurchase portion 5 18 notes fourth quarter 2013 resulting loss 41 million including writeoff 04 million unamortized deferred financing costs additionally 2013 wrote 21 million unamortized deferred financing costs associated full repayment us term loan 44 income tax expense company’s income tax provision 2014 totaled 691 million 352 pretax income compared income tax expense 751 million 368 pretax income 2013 decrease effective tax rate prior year largely result mix levels pretax earnings company’s domestic foreign operations loss incurred extinguishment debt associated debt refinancings completed connection spinoff discontinued operations net income discontinued operations 2014 518 million compared 2082 million 2013 exclusive 1286 million pretax gain 840 million aftertax recorded disposal tubular services business 2013 revenues reported within discontinued operations 4042 million 2014 compared 21 billion 2013 operating income included within discontinued operations 811 million 3051 million 2014 2013 respectively decreases revenue operating income yearoveryear primarily relate absence tubular services operations 2014 compared 2013 due segment’s disposal september 6 2013 absence accommodations operations months june september 2014 compared full twelve months 2013 due spinoff may 30 2014 comprehensive income loss comprehensive income loss increased loss 1928 million 2013 income less 10 million 2014 primarily result foreign currency translation adjustments attributable accommodations discontinued operations spunoff year ended december 31 2013 compared year ended december 31 2012 reported net income continuing operations attributable company year ended december 31 2013 1290 million 231 per diluted share including 57 million 007 per diluted share aftertax transaction costs included “other operating income expense” primarily related spinoff pretax loss extinguishment debt 62 million 007 per diluted share aftertax charge 30 million 004 per diluted share increase contingent acquisition consideration completion services business results compare net income continuing operations attributable company 1411 million 255 per diluted share reported year ended december 31 2012 including gain 25 million 003 per diluted share aftertax related insurance proceeds received land drilling rig lost fire occurred first quarter 2012 revenues consolidated revenues increased 1114 million 7 2013 compared 2012 well site services segment revenues increased 329 million 5 2013 compared 2012 due increase completion services revenues partially offset decrease drilling services revenues completion services revenues increased 534 million 10 2013 compared 2012 spite 8 decrease north american land rig count result increased service intensity active shale basins along contributions tempress acquisition completed fourth quarter 2012 revenue per ticket increased 8 yearoveryear excluding contribution acquisition tempress industry favored higher specification equipment number service tickets issued 2013 decreased 1 compared 2012 also excluding contribution acquisition tempress due primarily reduced activity particularly haynesville barnett shale regions resulting reduced customer spending dry gas markets partially offset increased activity bakken region drilling services revenues decreased 205 million 11 2013 compared 2012 primarily result decreased utilization rigs average approximately 88 2012 average approximately 75 2013 45 offshore products segment revenues increased 785 million 10 2013 compared 2012 increase primarily result increased drilling subsea product sales along contributions acquisition piper acquired july 2012 cost sales service consolidated cost sales increased 595 million 6 2013 compared 2012 result increased cost sales offshore products well site services segments 448 million 8 147 million 3 respectively due increased activity revenues segments consolidated gross margin percentage revenues increased slightly 31 2012 32 2013 primarily due modest increases offshore products well site services segments well site services segment cost sales increased 147 million 3 2013 compared 2012 result 284 million 9 increase completion services cost sales partially offset 137 million 10 decrease drilling services cost sales completion services segment gross margin percentage revenues 39 2013 compared 38 2012 drilling services gross margin percentage revenues 30 2013 2012 decrease drilling revenues mostly offset reduction operating costs offshore products segment cost sales increased 448 million 8 2013 compared 2012 primarily due increased revenues offshore products segment gross margin percentage revenues increased modestly 26 2012 27 2013 selling general administrative expenses sga expense increased 257 million 20 2013 compared 2012 primarily due increased employeerelated costs sga expense associated inclusion piper tempress acquired july december 2012 respectively depreciation amortization depreciation amortization expense increased 205 million 23 2013 compared 2012 primarily due capital expenditures made previous twelve months largely related investments well site services segment operating expense operating expense increased 61 million 255 2013 compared 2012 primarily due 57 million transaction costs primarily related spinoff operating income consolidated operating income decreased 04 million less 1 2013 compared 2012 primarily result increase corporate sga expense 113 million 26 primarily related increased stock compensation 57 million transactionrelated costs decreases operating income partially offset increase operating income offshore products segment 229 million 17 due increased revenues interest expense interest income net interest expense decreased 18 million 4 2013 compared 2012 primarily due decreased interest expense 2 38 notes due 2025 2 38 notes due conversion july 2012 partially offset interest expense 5 18 notes issued december 21 2012 weighted average annual interest rate company’s total outstanding debt 64 2013 compared 61 2012 loss extinguishment debt 2013 wrote 21 million unamortized deferred financing costs associated full repayment us term loan additionally fourth quarter 2013 repurchased portion 5 18 notes resulting loss 41 million including writeoff 04 million unamortized deferred financing costs income tax expense income tax provision 2013 totaled 751 million 368 pretax income compared income tax expense 719 million 338 pretax income 2012 increase effective tax rate prior year largely result mix levels pretax earnings company’s domestic foreign operations discontinued operations exclusive 1284 million pretax gain 840 million aftertax recorded disposal tubular services business net income discontinued operations 2013 2082 million compared 3075 million 2012 revenues reported within discontinued operations 21 billion 29 billion 2013 2012 respectively decrease revenue primarily relates disposal tubular services business september 6 2013 operating income included within discontinued operations 3051 million 4361 million 2013 2012 respectively decrease operating income primarily relates decrease operating income accommodations business due favorable contract settlement reported 2012 lower contracted rates canada lower occupancy levels australia increased depreciation expense accommodations assets lower utilization us accommodations assets partially offset increase average available rooms 2013 compared 2012 addition operating income decreased 2013 compared 2012 due disposal tubular services business september 6 2013 46 comprehensive income loss comprehensive income decreased 327 million 2012 comprehensive loss 1928 million 2013 primarily result foreign currency translation adjustments accommodations discontinued operations due decreases canadian australian dollar exchange rates compared us dollar canadian dollar exchange rate compared us dollar decreased 6 2013 compared 2 increase 2012 australian dollar exchange rate compared us dollar decreased 14 2013 compared 1 increase 2012 liquidity capital resources matters primary liquidity needs fund operating capital expenditures past included expanding upgrading offshore products manufacturing facilities equipment replacing increasing completion services assets funding new product development general working capital needs addition capital used repay debt fund stock repurchase program fund strategic business acquisitions primary sources funds cash flow operations proceeds borrowings credit facilities capital market transactions 2014 2013 respectively also received 750 million special cash dividend paid us civeo connection spinoff used refinance debt connection spinoff 2013 received 600 million sale tubular services segment 750 million dividend received civeo partially offset 299 million cash transferred civeo connection spinoff see note 11 consolidated financial statements included annual report form 10k additional information revolving credit facility debt offerings operating activities cash totaling 3026 million provided continuing operations year ended december 31 2014 compared cash totaling 2351 million provided continuing operations year ended december 31 2013 2014 593 million used fund working capital primarily due increases receivables offshore products segment completion services business 2013 238 million used fund net working capital primarily due increased investments working capital offshore products segment 47 investing activities cash used continuing investing activities year ended december 31 2014 amount 1985 million cash provided continuing investing activities year ended december 31 2013 amount 3935 million total 600 million cash proceeds received sale tubular services business september 2013 capital expenditures continuing operations totaled 1993 million 1649 million years ended december 31 2014 2013 respectively capital expenditures years consisted principally purchases completion services equipment upgrading maintenance drilling services equipment expansion upgrading offshore products segment facilities various capital spending initiatives year ended december 31 2013 spent cash 423 million acquire operating assets qcs funded qcs acquisition using available cash hand currently expect spend total approximately 175 million 225 million capital expenditures 2015 including approximately 100 million carryover 2014 upgrade maintain completion services drilling services equipment expand upgrade offshore products facilities fund various capital spending initiatives whether planned expenditures actually spent 2015 depends industry conditions project approvals schedules vendor delivery timing plan fund capital expenditures available cash internally generated funds borrowings revolving credit facility foregoing capital expenditure forecast include funds strategic acquisitions company could pursue depending economic environment industry availability transactions prices deemed attractive company december 31 2014 cash totaling 520 million held foreign subsidiaries primarily united kingdom singapore intent utilize cash balances future investment outside united states financing activities net cash 3789 million used continuing financing activities year ended december 31 2014 primarily result repayment 6 12 5 18 notes repurchases common stock partially offset net cash received spinoff 750 million special cash dividend received civeo borrowings new revolving credit facility net cash 2999 million used continuing financing activities year ended december 31 2013 primarily result repayment amounts outstanding former us term loan repurchases common stock incurred 39 million costs connection financings 2014 compared 02 million 2013 see note 11 consolidated financial statements included annual report form 10k additional information revolving credit facility debt offerings believe cash hand cash flow operations available borrowings revolving credit facility sufficient meet liquidity needs coming twelve months plans assumptions change inaccurate make acquisitions may need raise additional capital acquisitions management believes acquisitions continue key element business strategy timing size success acquisition effort associated potential capital commitments unpredictable uncertain may seek fund part efforts proceeds debt andor equity issuances ability obtain capital additional projects implement growth strategy longer term depend upon future operating performance financial condition broadly availability equity debt financing capital availability affected prevailing conditions industry global economy global financial markets factors many beyond control although expect subject lower weighted average interest rates foreseeable future additional debt service requirements could based higher interest rates shorter maturities could adversely affect results operations dedicate cash flow debt service issuance additional equity securities could result significant dilution stockholders 48 stock repurchase program september 6 2013 company announced increase boardauthorized company stock repurchase program 200 million 500 million providing repurchase company’s common stock par value 01 per share board directors’ authorization limited duration set expire september 1 2014 august 20 2014 board directors authorized extension authorized company stock repurchase program set expire september 1 2015 subject applicable securities laws purchases times amounts company deems appropriate december 31 2014 total 3501 million stock 4228530 shares repurchased program subsequent end year february 20 2015 repurchased additional 700 million stock 1619832 shares open market transactions leaving approximately 799 million available authorization credit facilities connection spinoff company terminated existing bank credit facility may 28 2014 entered new 600 million senior secured revolving credit facility “revolving credit facility” company option increase maximum borrowings new facility 750 million contingent upon additional lender commitments prior maturity facility matures may 28 2019 credit facility governed credit agreement dated may 28 2014 credit agreement among company lenders party thereto wells fargo bank na administrative agent swing line lender issuing bank royal bank canada syndication agent compass bank documentation agent amounts outstanding revolving credit facility bear interest libor plus margin 150 250 base rate plus margin 050 150 case based ratio company’s total leverage ebitda defined credit agreement may 28 2014 december 31 2014 applicable margin libor 150 must also pay quarterly commitment fee based leverage ratio unused commitments credit agreement unused commitment fee 0375 period may 28 2014 december 31 2014 commitment fee represented 93 2014 consolidated interest expense credit agreement contains customary financial covenants restrictions specifically must maintain interest coverage ratio defined ratio consolidated ebitda consolidated interest expense least 30 10 maximum leverage ratio defined ratio total debt consolidated ebitda greater 325 10 factors considered calculations ratios defined credit agreement ebitda consolidated interest defined exclude goodwill impairments debt discount amortization noncash charges december 31 2014 compliance debt covenants expect continue compliance remainder 2015 borrowings credit agreement secured pledge substantially assets domestic subsidiaries obligations credit agreement guaranteed significant domestic subsidiaries december 31 2014 1407 million borrowings outstanding credit agreement 355 million outstanding letters credit leaving 4238 million available drawn revolving credit facility 5 18 notes december 21 2012 company sold 400 million aggregate principal amount 5 18 senior notes due 2023 5 18 notes private placement qualified institutional buyers fourth quarter 2013 company repurchased 340 million aggregate principal amount 5 18 notes connection spinoff repurchased remaining 3660 million aggregate principal amount second quarter 2014 primarily tender offer tender offer funded proceeds 750 million special cash dividend paid us civeo connection spinoff borrowings new credit agreement available cash hand 6 12 notes june 1 2011 company sold 600 million aggregate principal amount 6 12 senior notes due 2019 6 12 notes private placement qualified institutional buyers connection spinoff company repurchased 6000 million aggregate principal amount 6 12 notes second quarter 2014 primarily tender offer tender offer funded proceeds 750 million special cash dividend paid us civeo connection spinoff borrowings new credit agreement available cash hand 49 2014 recognized losses extinguishment debt totaling 1004 million primarily due repurchase remaining 6 12 notes 5 18 notes resulting loss 967 million consisting premium paid book value notes writeoff unamortized deferred financing costs associated notes premium paid repurchase 6 12 notes 5 18 notes due fair market value exceeding book value date tendered addition result refinancing bank debt second quarter 2014 recognized loss extinguishment 37 million net 18 million allocated discontinued operations canadian portion revolving credit facility writeoff unamortized deferred financing costs revolving credit facility 2013 recognized loss extinguishment debt totaling 62 million repurchase portion 5 18 notes fourth quarter 2013 resulting loss 41 million including writeoff 04 million unamortized deferred financing costs additionally wrote 21 million unamortized deferred financing costs associated full repayment us term loan total debt represented 99 combined total debt stockholders’ equity december 31 2014 compared 270 december 31 2013 contractual obligations following summarizes contractual obligations december 31 2014 effect obligations expected liquidity cash flow next five years thousands 1 excludes interest variablerate debt since cannot predict certainty amount interest due revolving debt due expected variability interest rates principal amounts outstanding include obligations assume interest payment amounts calculated using outstanding principal balances interest rates december 31 2014 include applicable commitment fees estimated interest payments variablerate debt would 48 million “due less one year” 95 million “due one three years” 67 million “due three five years” see note 11 consolidated financial statements included annual report form 10k additional information revolving credit facility 2 purchase obligations company primarily relate open purchase orders offshore products segment 3 see note 15 consolidated financial statements included annual report form 10k additional information debt obligations december 31 2014 included consolidated balance sheet part consolidated financial statements included annual report form 10k entered material leases subsequent december 31 2014 effects inflation revenues results operations materially impacted inflation past three fiscal years offbalance sheet arrangements december 31 2014 offbalance sheet arrangements defined item 303a4ii regulation sk 50 tax matters primary deferred tax assets december 31 2014 related foreign tax credit carryforwards employee benefit costs equity participation plan inventory allowance obsolescence net operating losses nol’s carryforward foreign countries foreign tax credit carryforwards expire varying amounts 2019 company’s income tax provision 2014 totaled 691 million 352 pretax income compared income tax expense 751 million 368 pretax income 2013 decrease effective tax rate prior year largely result mix levels pretax earnings company’s domestic foreign operations loss incurred extinguishment debt associated debt refinancings completed connection spinoff number legislative proposals change united states tax laws related multinational corporations proposals various stages discussion possible time predict proposals would impact business whether could result increased tax costs critical accounting policies consolidated financial statements included annual report form 10k prepared accordance accounting principles generally accepted united states gaap require management make numerous estimates assumptions actual results could differ estimates assumptions thus impacting reported results operations financial position critical accounting policies estimates described section important depiction financial condition results operations application requires management’s subjective judgments making estimates effect matters inherently uncertain describe significant accounting policies fully note 2 consolidated financial statements included annual report form 10k accounting contingencies contingent liabilities future claims made estimates amount eventual cost liquidate liabilities claims liabilities claims sometimes involve threatened actual litigation damages quantified made assessment exposure recorded provision accounts cover expected loss claims liabilities estimated based fair value experience matters appropriate advice outside counsel outside experts upon ultimate resolution uncertainties future reported financial results impacted difference estimates actual amounts paid settle liability examples areas made important estimates future liabilities include future consideration due sellers result terms business combination litigation taxes interest insurance claims warranty claims contract claims obligations discontinued operations tangible intangible assets including goodwill totaled 2522 million 139 total assets december 31 2014 intangible assets totaled 529 million 29 total assets december 31 2014 assessment impairment longlived assets including intangibles conducted whenever changes facts circumstances indicate loss value occurred indicators impairment might include persistent negative economic trends affecting markets serve recurring losses lowered expectations future cash flows expected generated assets determination amount impairment would based quoted market prices available upon judgments future operating cash flows generated assets throughout estimated useful lives industry cyclical estimates period future cash flows generated well predictability cash flows determination whether decline value investment occurred significant impact carrying value assets periods prolonged cycles may result impairment losses 51 evaluate reporting unit least annually interim basis indicator impairment determined occur defined current accounting standards regarding goodwill assess goodwill potential impairment reporting units include completion services drilling services offshore products remaining goodwill drilling services reporting unit subsequent full impairment goodwill reporting unit december 31 2008 part goodwill impairment analysis current accounting standards give us option first perform qualitative assessment determine whether likely likelihood 50 percent fair value reporting unit less carrying amount including goodwill determined likely fair value reporting unit greater carrying amount performing currently prescribed twostep impairment test unnecessary developing qualitative assessment meet “morelikelythannot” threshold reporting unit goodwill balance sheet assessed separately different relevant events circumstances evaluated unit determined likely fair value reporting unit less carrying amount prescribed twostep impairment test performed current accounting standards also give us option bypass qualitative assessment reporting unit period proceed directly performing first step twostep goodwill impairment test 2014 chose bypass qualitative assessment reporting units goodwill remaining perform twostep impairment test given stock market value declines energy sector performing twostep impairment test estimate implied fair value ifv reporting unit compare ifv carrying value unit none reporting units publically quoted market price must determine value willing buyers sellers would place reporting unit routine sale process level 3 fair value measurement analysis target ifv represents value would placed reporting unit market participants value reporting unit based historical projected results throughout cycle value reporting unit based trough peak earnings utilize depending circumstances combination trading multiples analyses discounted projected cash flow calculations estimated terminal values acquisition comparables estimate ifv reporting units primarily affected future oil natural gas prices anticipated spending customers cost capital part process assess goodwill impairment also compare total market capitalization company sum ifvs reporting units assess reasonableness ifvs aggregate carrying amount reporting unit exceeds ifv goodwill considered potentially impaired additional analysis conducted determine amount impairment date goodwill impairment test 2014 ifv offshore products completion services reporting units exceeded carrying values 165 151 respectively revenue cost recognition revenue sale products accounted utilizing percentageofcompletion method recognized delivery acceptance customer occurred title significant risks ownership passed customer collectability probable pricing fixed determinable product sales terms include significant postdelivery obligations significant projects revenues recognized percentageofcompletion method measured percentage costs incurred date compared estimated total costs contract costtocost method billings contracts excess costs incurred estimated profits classified deferred revenue costs incurred estimated profits excess billings percentageofcompletion contracts recognized unbilled receivables management believes method appropriate measure progress large contracts provisions estimated losses uncompleted contracts made period losses determined factors may affect future project costs margins include shipyard access weather production efficiencies availability costs labor materials subcomponents factors significantly impact accuracy company’s estimates materially impact company’s future reported earnings well site services segment revenues recognized based periodic usually daily rate services rendered proceeds customers cost oilfield rental equipment damaged lost downhole reflected gains losses disposition assets considering writeoff remaining net book value equipment drilling services contracts based footage drilled recognize revenues footage drilled revenues exclude taxes assessed based revenues sales value added taxes cost goods sold includes direct material labor costs related contract performance indirect labor supplies tools repairs sga costs charged expense incurred 52 allowance doubtful accounts determination collectability amounts due customer accounts requires company make judgments regarding future events trends allowances doubtful accounts determined based continuous process assessing company’s portfolio individual customer basis taking account current market conditions trends process consists thorough review historical collection experience current aging status customer accounts financial condition company’s customers based review factors company establish adjust allowances specific customers substantial portion company’s revenues come international oil companies international oilfield service companies governmentowned governmentcontrolled oil companies worldwide oil gas drilling activity creditworthiness company’s customers could also deteriorate may unable pay receivables additional allowances could required december 31 2014 2013 allowance bad debts totaled 71 million 75 million 14 12 gross accounts receivable respectively historically company’s chargeoffs provisions allowance doubtful accounts immaterial company’s consolidated financial statements inventory reserves inventory carried lower cost estimated net realizable value company determines reserves inventory based historical usage inventory onhand assumptions future demand market conditions estimates potential alternative uses usually limited company’s inventory consists specialized spare parts work process raw materials support ongoing manufacturing operations company’s large installed base specialized equipment used throughout oilfield customers rely company stock specialized items ensure equipment repaired serviced timely manner company’s estimated carrying value inventory therefore depends upon demand driven oil gas drilling well remediation activity depends turn upon oil gas prices general outlook economic growth worldwide available financing company’s customers political stability major oil gas producing areas potential obsolescence various types equipment sell among factors december 31 2014 2013 inventory reserves totaled 99 million 95 million 41 35 gross inventory respectively estimation useful lives selection useful lives many assets requires judgments operating personnel length useful lives judgment area influenced historical experience operating assets technological developments expectations future demand assets estimates long short might eventually report disproportionate number losses gains upon disposition retirement longlived assets believe estimates useful lives appropriate stockbased compensation since adoption accounting standards regarding sharebased payments required estimate fair value stock compensation made pursuant awards 2001 equity participation plan estimate fair value stock option restricted stock award determines amount stock compensation expense recognize future estimate value stock option awards plan selected fair value calculation model chosen black scholes merton “closed form” model value stock options awarded plan utilizing black scholes merton model requires us estimate length time options remain outstanding risk free interest rate estimated period options assumed outstanding forfeiture rates future dividends volatility common stock assumptions affect amount timing future stock compensation expense recognition continually monitor actual experience change assumptions future awards consider appropriate income taxes company follows liability method accounting income taxes accordance current accounting standards regarding accounting income taxes method deferred income taxes recorded based upon differences financial reporting tax bases assets liabilities measured using enacted tax rates laws effect time underlying assets liabilities recovered settled companys earnings foreign subsidiaries considered indefinitely reinvested provision us income taxes made earnings subsidiaries distribution earnings form dividends otherwise company would subject us income taxes subject adjustment foreign tax credits withholding taxes payable various foreign countries company records valuation allowance reporting period management believes likely deferred tax asset created realized management continue evaluate appropriateness valuation allowance future based upon operating results company accounting income taxes required estimate liability future income taxes involving potential uncertain tax positions calculation tax liabilities involves dealing uncertainties application complex tax regulations recognize liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due ultimately determine payment amounts unnecessary reverse liability recognize tax benefit period determine liability longer necessary record additional charge provision taxes period determine recorded tax liability less expect ultimate assessment 53 recent accounting pronouncements time new accounting pronouncements issued financial accounting standards board fasb adopted company specified effective date unless otherwise discussed management believes impact recently issued standards yet effective material impact company’s consolidated financial statements upon adoption april 2014 fasb issued guidance reporting discontinued operations amends definition types asset disposals considered discontinued operations amends required disclosures discontinued operations assets held sale amendments update effective fiscal periods beginning december 15 2014 interim periods within annual periods beginning december 15 2015 company currently evaluating impact standard consolidated financial statements standard early adopted connection spinoff may 2014 fasb issued guidance revenue contracts customers supersede current revenue recognition guidance including industryspecific guidance underlying principle entity recognize revenue depict transfer goods services customers amount entity expects entitled exchange goods services guidance provides fivestep analysis transactions determine revenue recognized major provisions include capitalization certain contract costs consideration time value money transaction price allowing estimates variable consideration recognized contingencies resolved certain circumstances guidance also requires enhanced disclosures regarding nature amount timing uncertainty revenue cash flows arising entity’s contracts customers guidance effective interim annual periods beginning december 15 2016 early adoption permitted guidance permits use either retrospective cumulative effect transition method yet selected transition method currently evaluating impact amended guidance consolidated financial position results operations related disclosures november 2014 fasb issued guidance business combinations provides acquired entity option apply pushdown accounting separate financial statements upon occurrence event acquirer obtains control acquired entity acquired entity may elect option apply pushdown accounting reporting period changeincontrol event occurs subsequent reporting period acquired entity’s recent changeincontrol event guidance effective november 18 2014 implementation standard material effect company’s consolidated financial statements item 7aitem 7 management’s discussion analysis financial condition results operations management’s discussion analysis financial condition results operations contains “forwardlooking statements” within meaning section 27a securities act section 21e exchange act based management’s current expectations estimates projections business operations actual results may differ materially currently anticipated expressed forwardlooking statements result numerous factors including known material factors set forth “part item 1a risk factors” read following discussion analysis together consolidated financial statements notes statements included elsewhere annual report form 10k due spinoff may 30 2014 accommodations business standalone publicly traded corporation civeo corporation civeo taxfree distribution accommodations business company’s shareholders spinoff sale tubular services business september 6 2013 reported discontinued operations management believes income continuing operations representative company’s current business environment focus terms “earnings” “loss” used “management’s discussion analysis financial condition results operations” refer income loss continuing operations macroeconomic environment completion spinoff technologyfocused pureplay energy services company provide broad range products services oil gas industry offshore products well site services business segments demand products services cyclical substantially dependent upon activity levels oil gas industry particularly customers’ willingness invest capital exploration development oil natural gas customers’ capital spending programs generally based cash flows outlook nearterm longterm commodity prices economic growth commodity demand estimates resource production result demand products services largely sensitive expected commodity prices principally related crude oil natural gas past years crude oil prices volatile due global economic uncertainties well inadequate regional well site transportation infrastructure although price volatility moderated 2013 first several months 2014 significant downward crude oil price volatility began early fourth quarter 2014 continued 2016 prices dropped precipitously fourth quarter 2014 2015 partial recovery second quarter 2015 offset decline prices second half 2015 continued first quarter 2016 material decrease crude oil prices period primarily attributed high levels global crude oil inventories due significant production growth us shale plays strengthening us dollar relative foreign currencies organization petroleum exporting companies opec increasing production opec demonstrated unwillingness cut production done previous years effort protect market share production increases offset somewhat moderate increases global oil demand combination factors caused global supply demand imbalance oil natural gas along concerns regarding growth outlook china anticipation potential supply increases related lifting sanctions iran resulted materially lower crude oil prices 2015 date 2016 average price west texas intermediate wti crude oil decreased average price 73 per barrel fourth quarter 2014 average 49 per barrel 2015 data points compare average price 93 per barrel 2014 average price intercontinental exchange brent crude decreased average price 76 per barrel fourth quarter 2014 average 52 per barrel 2015 data points compare average price 99 per barrel 2014 february 18 2016 wti crude traded approximately 31 per barrel brent crude traded approximately 34 per barrel magnitude supplydemand imbalance created market concern crude oil prices could decline remain currently low level foreseeable future current twelvemonth forward strip price wti brent crude averaging 37 per barrel current expected price wti crude continue influence customers’ spending us shale play developments permian bakken niobrara eagle ford basins spending regions influence overall drilling completion activity area therefore activity well site services segment price brent crude influence customers’ spending related global offshore drilling development thus activity offshore products segment given historical volatility crude prices remains high degree risk prices could deteriorate due high levels domestic opec crude oil production slowing growth rates various global regions andor potential ongoing supplydemand imbalances conversely global supply oil decrease due reduced capital investment customers government instability major oilproducing nation energy demand continue increase us countries china india recovery wti brent crude prices could occur event crude oil price improvements depend upon rebalancing global supply demand timing difficult predict commodity prices improve decline demand products services could decline prices natural gas us averaged 262 per mmbtu 2015 compared 437 per mmbtu 2014 natural gas prices declined 2015 largely due increased natural gas inventories natural gas prices traded approximately 185 per mmbtu february 18 2016 strong production milder winter year compared last year resulted significant increases natural gas inventories us 2015 2 5year average end 2014 14 5year average end 2015 customer spending natural gas shale plays limited due associated gas produced unconventional oil wells north america specifically onshore shale production resulting broad application horizontal drilling hydraulic fracturing techniques continued 2015 albeit much slower pace commissioning number new large lng export facilities around world result natural gas production growth outpacing demand growth us natural gas prices continue weak expected remain levels considered economical new investments numerous natural gas fields current twelvemonth forward strip price natural gas averaging 230 per mmbtu natural gas production growth continues surpass demand growth us andor supply natural gas increase whether supply comes conventional unconventional production associated natural gas production oil wells prices natural gas could remain depressed extended period result fewer rigs drilling natural gas recent wti crude brent crude natural gas pricing trends follows 1 source us energy information administration eia february 18 2016 wti crude brent crude natural gas traded approximately 31 per barrel 34 per barrel 185 per mmbtu respectively 2 december 31 2014 price wti brent crude oil fallen 5345 per barrel 5527 per barrel respectively overview demand products services offshore products segment tied primarily longterm outlook commodity prices demand well site services segment responds shorterterm movements oil natural gas prices specifically changes north american drilling completion activity given spot contract nature operations coupled shorter cycles drilling well bringing production factors affect business financial results include general global economic environment regulatory changes us international markets offshore products segment provides highly engineered products services offshore oil natural gas production systems facilities well certain products services offshore drilling market sales offshore products services depend primarily upon capital spending offshore production systems subsea pipelines repairs lesser extent upgrades existing offshore drilling rigs construction new offshore drilling rigs vessels segment particularly influenced global deepwater drilling production spending driven largely customers’ longerterm outlook crude oil natural gas prices deepwater oil gas development projects typically involve significant capital investments multiyear development plans projects generally undertaken larger exploration field development production companies using relatively conservative crude oil natural gas pricing assumptions believe deepwater projects therefore less susceptible shortterm fluctuations price crude oil natural gas given longer lead times associated field development however continued declines crude oil prices persisted since late 2014 uncertain outlook around longerterm pricing improvements caused exploration production companies reevaluate future capital expenditures regards deepwater projects given certain deep water projects may become uneconomical relative risk involved addition shortercycle product sales elastomer products services segment declined 2015 well site services business segment predominantly provide completion services lesser extent land drilling services completion services business provides equipment service personnel utilized completion initial production new recompleted wells activity completion services business dependent primarily upon level complexity drilling completion workover activity throughout north america well complexity increased continuing transition multiwell pads drilling longer laterals along increased number frac stages completed horizontal wells demand drilling services driven land drilling activity primary drilling markets permian basin west texas primarily drill oil wells rocky mountain area us drill liquidsrich natural gas wells demand land drilling completion services businesses correlated changes drilling rig count north america well changes total number wells expected drilled total footage expected drilled number drilled wells completed table sets forth summary north american rig activity measured baker hughes incorporated periods indicated average north american rig count year ended december 31 2015 decreased precipitously 1072 rigs 480 compared average year ended december 31 2014 response much lower crude oil prices levels experienced 2014 north american rig count february 12 2016 763 rigs 60 peak level 1930 rigs fourth quarter 2014 exacerbating steep declines drilling activity many exploration production customers continuing defer well completions deferred completions referred industry drilled uncompleted wells “ducs” motivation part customers defer completions generally driven need preserve cash flow weak commodity price environment andor desire produce reserves later date expectations commodity prices improve andor completion costs continue decline given well site services segment’s exposure completion activity ducs continue negative impact results operations reduced demand products services coupled reduction prices charge customers particularly customers well site services business segment adversely affected results operations cash flows financial position year ended december 31 2015 current pricing environment oil natural gas continues customers could required reduce capital expenditures causing declines demand prices products services would adversely affect results operations cash flows financial position 2016 customers experienced significant decline revenues cash flows due commodity price declines experienced suffering significant reduction liquidity access capital debt markets already several exploration production companies declared bankruptcy others forced sell assets effort preserve liquidity continuation adverse conditions could affect certain customers’ ability pay otherwise perform obligations us declines demand prices products services inability failure customers meet obligations us insolvency liquidation may require us incur asset impairment charges andor write value goodwill may otherwise adversely impact results operations cash flows financial position continue monitor global economy prices demand crude oil natural gas resultant impact capital spending plans operations customers order plan business capital expenditures 2015 totaled 115 million compared 2014 capital expenditures 199 million 2015 capital expenditures included funding upgrade maintain completion services drilling services equipment expand upgrade offshore products facilities fund various capital spending initiatives currently expect spend total approximately 50 million 55 million capital expenditures 2016 including approximately 19 million carryover 2015 upgrade maintain offshore products completion services equipment fund various capital spending projects whether planned expenditures actually spent 2016 depends industry conditions project approvals schedules vendor delivery timing free cash flow generation careful monitoring levels liquidity plan fund capital expenditures available cash internally generated funds borrowings revolving credit facility well site services segment continue monitor industry capacity additions make future capital expenditure decisions based evaluation market outlook industry fundamentals recent acquisitions addition capital spending invested acquisitions businesses complementary growth strategy acquisition strategy allowed us leverage existing acquired products services new geographic locations expanded technology product offerings made strategic acquisitions business segments recent years january 2 2015 acquired equity montgomery machine company inc mmc headquartered houston texas mmc combines machining proprietary cladding technology services manufacture highspecification components offshore capital equipment industry global basis believe acquisition mmc strengthen position offshore products segment supplier subsea components enhanced capabilities proprietary technology logistical advantages total transaction consideration 334 million net cash acquired december 2 2013 acquired operating assets qcs total cash consideration 423 million headquartered houston texas qcs designs manufactures markets portfolio proprietary deep shallow water pipeline connectors subsea pipeline construction repair expansion projects operations qcs included offshore products segment since acquisition date consolidated results operations millions year ended december 31 2015 compared year ended december 31 2014 reported net income continuing operations attributable company year ended december 31 2015 284 million 055 per diluted share included 64 million severance downsizing charges 34 million leasehold restoration provision one offshore products uk facilities included “depreciation amortization expense” higher effective tax rate driven primarily 41 million valuation allowance recorded company’s tax loss carryforwards various foreign jurisdictions 36 million tax adjustments primarily related nondeductible items excluding significant charges 2015 net income continuing operations would 431 million 084 per diluted share results compare net income continuing operations attributable company 1272 million 235 per diluted share reported year ended december 31 2014 including loss extinguishment debt 1004 million 121 per diluted share aftertax 112 million 014 per diluted share aftertax transaction costs included “other operating expense” sga expenses primarily related spinoff excluding significant charges 2014 net income continuing operations would 1996 million 369 per diluted share revenues consolidated revenues decreased 7196 million 40 2015 compared 2014 well site services segment revenues decreased 4821 million 56 2015 compared 2014 due decreases completion services drilling services revenues completion services revenues decreased 3488 million 53 2015 compared 2014 primarily due 38 decrease number service tickets completed result decreased activity us shale basins 25 decrease revenue per completion services job due pricing pressure customers competitors drilling services revenues decreased 1333 million 66 2015 compared 2014 primarily result significantly decreased utilization drilling rigs average 87 2014 average 33 2015 primarily due weak commodity price environment offshore products segment revenues decreased 2375 million 25 2015 compared 2014 decrease primarily result lower contributions essentially product service lines especially drilling products shorter cycle businesses elastomer products valves coupled reduced service activities backlog trended lower 2015 cost sales service consolidated cost sales decreased 4202 million 35 2015 compared 2014 result decreased cost sales well site services offshore products segments 2506 million 46 1696 million 26 respectively cost sales service decreasing slower rate revenues consolidated gross margin percentage revenues decreased 34 2014 29 2015 primarily due lower margins realized well site services segment 2015 well site services segment cost sales decreased 2506 million 46 2015 compared 2014 result 1655 million 41 decrease completion services cost sales 851 million 60 decrease drilling services cost sales decreases cost sales strongly correlated revenue decreases businesses reflect cost reduction measures implemented response material decrease revenues caused industry activity declines well site services segment gross margin percentage revenues decreased 37 2014 22 2015 completion services gross margin percentage revenues decreased 39 2014 23 2015 primarily due decline revenues drilling services gross margin percentage revenues decreased 30 2014 17 2015 primarily due decreased rig utilization cost absorption offshore products segment cost sales decreased 1696 million 26 2015 compared 2014 correlation decrease revenues gross margin percentage revenues remained generally constant 31 2014 compared 32 2015 improvement gross margin yearoveryear due strong project execution several jobs combined favorable cost adjustments including favorable percentageofcompletion adjustments able lower overall cost structure selling general administrative expenses selling general administrative sga expense decreased 368 million 22 2015 compared 2014 largely due decreased compensation including shortterm incentive compensation wages benefits stock compensation expense coupled decrease commissions bad debt expense depreciation amortization depreciation amortization expense increased 65 million 5 2015 compared 2014 due capital expenditures made previous twelve months across segments company 34 million leasehold restoration provision one offshore products uk facilities along increased depreciation amortization expense related mmc acquisition closed beginning first quarter 2015 operating income expense operating income expense moved operating expense 93 million 2014 operating income 46 million 2015 primarily due transaction costs incurred 2014 connection spinoff totaling 110 million 37 million foreign exchange gains 2015 operating income consolidated operating income decreased 2552 million 82 2015 compared 2014 primarily result decreases operating income well site services segment 2225 million resulting decreased revenues caused industry activity declines 524 million decrease offshore products operating income interest expense interest income net interest expense decreased 107 million 65 2015 compared 2014 primarily due company’s repurchase remaining 9660 million aggregate principal amount 6 12 5 18 notes second quarter 2014 partially offset increased amounts outstanding bank credit facility coupled unused commitment fees paid lenders weighted average interest rate company’s total outstanding debt decreased 60 2014 36 2015 primarily due repurchase 6 12 5 18 notes second quarter 2014 loss extinguishment debt 2014 recognized losses extinguishment debt totaling 1004 million primarily due repurchase remaining 6 12 notes 5 18 notes resulting loss 967 million consisting premium paid book value notes writeoff unamortized deferred financing costs associated notes addition result refinancing bank credit facility second quarter 2014 recognized loss 37 million net 18 million allocated discontinued operations canadian portion facility writeoff unamortized deferred financing costs existing credit facility income tax expense company’s income tax provision 2015 totaled 222 million 439 pretax income compared income tax expense 691 million 352 pretax income 2014 increase effective tax rate prior year largely result 41 million valuation allowance recorded company’s tax loss carryforwards various foreign jurisdictions 36 million tax adjustments primarily related nondeductible items partially offset loss incurred 2014 extinguishment debt associated debt refinancings completed conjunction spinoff discontinued operations net income discontinued operations 2015 02 million compared 518 million 2014 revenues reported within discontinued operations 2015 compared 4042 million 2014 due spinoff may 30 2014 operating income included within discontinued operations 04 million 811 million 2015 2014 respectively decreases revenue operating income yearoveryear primarily relate absence accommodations operations 2015 compared five months operations 2014 comprehensive income loss comprehensive income loss decreased income less 01 million 2014 loss 286 million 2015 primarily result fluctuations foreign currency exchange rates compared us dollar foreign operations reportable segments primarily united kingdom brazil canada average exchange rates british pound brazilian real canadian dollar compared us dollar weakened 5 31 16 respectively 2015 compared 2014 year ended december 31 2014 compared year ended december 31 2013 reported net income continuing operations attributable company year ended december 31 2014 1272 million 235 per diluted share including loss extinguishment debt 1004 million 121 per diluted share aftertax 112 million 014 per diluted share aftertax transaction costs included “other operating expense” sga expenses primarily related spinoff excluding significant charges 2014 net income continuing operations would 1996 million 369 per diluted share results compare net income continuing operations attributable company 1290 million 231 per diluted share reported year ended december 31 2013 including 57 million 007 per diluted share aftertax transaction costs included “other operating income expense” primarily related spinoff pretax loss extinguishment debt 62 million 007 per diluted share aftertax charge 30 million 004 per diluted share increase contingent acquisition consideration completion services business excluding significant charges 2013 net income continuing operations would 1385 million 247 per diluted share revenues consolidated revenues increased 1905 million 12 2014 compared 2013 well site services segment revenues increased 1115 million 15 2014 compared 2013 due increases completion services drilling services revenues completion services revenues increased 809 million 14 2014 compared 2013 primarily due 5 increase number service tickets completed 9 increase revenue per completion services job result increased service intensity us shale basins gulf mexico drilling services revenues increased 306 million 18 2014 compared 2013 primarily result increased utilization drilling rigs average 75 2013 average 87 2014 however utilization declined beginning fourth quarter 2014 due lower crude oil prices february 20 2015 utilization drilling rigs decreased 50 offshore products segment revenues increased 790 million 9 2014 compared 2013 increase primarily result increased deepwater production facility subsea product sales greater elastomer consumable downhole product sales contributions acquisition qcs acquired december 2013 increase demand services worldwide cost sales service consolidated cost sales increased 927 million 8 2014 compared 2013 result increased cost sales well site services offshore products segments 718 million 15 209 million 3 respectively cost sales service increasing slower rate revenues consolidated gross margin percentage revenues increased 32 2013 34 2014 primarily due higher margins realized offshore products segment 2014 well site services segment cost sales increased 718 million 15 2014 compared 2013 result 499 million 14 increase completion services cost sales 219 million 18 increase drilling services cost sales increases cost sales directly correlated revenue increases businesses well site services segment completion services drilling services gross margins percentage revenues 37 39 30 respectively 2014 2013 offshore products segment cost sales increased 209 million 3 2014 compared 2013 gross margin percentage revenues increased 27 31 primarily due increased margins realized elastomer consumable sales deepwater production facility subsea pipeline product sales well improved cost absorption utilization associated increased revenue selling general administrative expenses sga expense increased 185 million 12 2014 compared 2013 increase largely due increased employeerelated costs primarily associated 5 increase total headcount portion added offshore products connection qcs acquisition december 2013 coupled increased bad debt expense depreciation amortization depreciation amortization expense increased 155 million 14 2014 compared 2013 primarily due capital expenditures made previous twelve months across segments company along increased depreciation amortization expense related qcs acquisition operating income expense operating income expense increased 08 million 91 2014 compared 2013 primarily due increased transaction costs incurred 2014 connection spinoff operating income consolidated operating income increased 630 million 25 2014 compared 2013 primarily result increases operating income offshore products segment completion services business 432 million 28 215 million 17 respectively increases operating income partially offset increase 55 million transaction costs primarily related spinoff interest expense interest income net interest expense decreased 216 million 57 2014 compared 2013 primarily due company’s repurchase 340 million aggregate principal amount 5 18 notes fourth quarter 2013 repurchase remaining 9660 million aggregate principal amount 6 12 5 18 notes second quarter 2014 full repayment us term loan third quarter 2013 partially offset amounts outstanding current revolving credit facility coupled unused commitment fees paid lenders weighted average interest rate company’s total outstanding debt 60 2014 compared 64 2013 loss extinguishment debt 2014 recognized losses extinguishment debt totaling 1004 million primarily due repurchase remaining 6 12 notes 5 18 notes resulting loss 967 million consisting premium paid book value notes writeoff unamortized deferred financing costs associated notes addition result refinancing bank credit facility second quarter 2014 recognized loss 37 million net 18 million allocated discontinued operations canadian portion revolving credit facility writeoff unamortized deferred financing costs revolving credit facility 2013 recognized loss extinguishment debt totaling 62 million repurchase portion 5 18 notes fourth quarter 2013 resulting loss 41 million including writeoff 04 million unamortized deferred financing costs additionally 2013 wrote 21 million unamortized deferred financing costs associated full repayment us term loan income tax expense company’s income tax provision 2014 totaled 691 million 352 pretax income compared income tax expense 751 million 368 pretax income 2013 decrease effective tax rate prior year largely result mix levels pretax earnings company’s domestic foreign operations loss incurred extinguishment debt associated debt refinancings completed connection spinoff discontinued operations net income discontinued operations 2014 518 million compared 2082 million 2013 exclusive 1286 million pretax gain 840 million aftertax recorded disposal tubular services business 2013 revenues reported within discontinued operations 4042 million 2014 compared 21 billion 2013 operating income included within discontinued operations 811 million 3051 million 2014 2013 respectively decreases revenue operating income yearoveryear primarily relate absence tubular services operations 2014 compared 2013 due segment’s disposal september 6 2013 absence accommodations operations months june december 2014 compared full twelve months 2013 due spinoff may 30 2014 comprehensive income loss comprehensive income loss increased loss 1928 million 2013 income less 10 million 2014 primarily result foreign currency translation adjustments attributable accommodations discontinued operations spunoff liquidity capital resources matters primary liquidity needs fund operating capital expenditures past included expanding upgrading offshore products manufacturing facilities equipment replacing increasing completion services assets funding new product development general working capital needs addition capital used repay debt fund stock repurchase program fund strategic business acquisitions primary sources funds cash flow operations proceeds borrowings credit facilities capital market transactions 2014 also received 750 million special cash dividend paid us civeo connection spinoff used refinance debt 2013 received 600 million sale tubular services segment 750 million dividend received civeo partially offset 299 million cash transferred civeo connection spinoff see note 10 consolidated financial statements included annual report form 10k additional information revolving credit facility debt offerings operating activities despite weak market conditions cash totaling 2558 million provided continuing operations year ended december 31 2015 compared cash totaling 3026 million provided continuing operations year ended december 31 2014 2015 782 million provided net working capital reductions primarily due decreases receivables partially offset decreases accounts payable accrued liabilities 2014 593 million used fund working capital primarily due increases receivables offshore products segment completion services business investing activities cash used investing activities year ended december 31 2015 amount 1472 million compared 1985 million used year ended december 31 2014 capital expenditures continuing operations totaled 1147 million 1993 million years ended december 31 2015 2014 respectively capital expenditures years consisted principally purchases completion services equipment upgrading maintenance drilling services equipment expansion upgrading offshore products segment facilities various capital spending initiatives january 2 2015 acquired equity mmc total transaction consideration 334 million net cash acquired funded amounts available company’s credit facility currently expect spend total approximately 50 million 55 million capital expenditures 2016 including approximately 19 million carryover 2015 upgrade maintain offshore products completion services equipment fund various capital spending initiatives whether planned expenditures actually spent 2016 depends industry conditions project approvals schedules vendor delivery timing free flow cash generation careful monitoring levels liquidity plan fund capital expenditures available cash internally generated funds borrowings revolving credit facility foregoing capital expenditure forecast include funds strategic acquisitions company could pursue depending economic environment industry availability transactions prices deemed attractive company december 31 2015 cash totaling 346 million held foreign subsidiaries primarily singapore canada united kingdom mexico intent utilize least portion cash balances future investment outside united states approximately 30 million cash held foreign subsidiaries repatriated without triggering incremental tax consequences 2015 repatriated 352 million foreign subsidiaries used reduce outstanding borrowings credit facility financing activities net cash 1247 million used financing activities year ended december 31 2015 primarily associated repurchases common stock totaling 1059 million net cash 3789 million used financing activities year ended december 31 2014 primarily result repayment 6 12 5 18 notes repurchases common stock partially offset net cash received spinoff 750 million special cash dividend received civeo borrowings revolving credit facility believe cash hand cash flow operations available borrowings revolving credit facility sufficient meet liquidity needs coming twelve months plans assumptions change inaccurate make acquisitions may need raise additional capital acquisitions management believes acquisitions continue key element business strategy timing size success acquisition effort associated potential capital commitments unpredictable uncertain may seek fund part efforts proceeds debt andor equity issuances ability obtain capital additional projects implement growth strategy longer term depend upon future operating performance financial condition broadly availability equity debt financing capital availability affected prevailing conditions industry global economy global financial markets factors many beyond control addition debt service requirements could based higher interest rates shorter maturities could impose significant burden results operations financial position issuance additional equity securities could result significant dilution stockholders stock repurchase program september 6 2013 company announced increase boardauthorized company stock repurchase program 200 million 500 million providing repurchase company’s common stock par value 01 per share july 29 2015 company’s board directors approved termination existing share repurchase program authorized new program providing repurchase 150 million company’s common stock par value 01 per share new program set expire july 29 2016 2015 total 1059 million stock 2674218 shares repurchased programs compared 2189 million 2843142 shares 2014 december 31 2015 total 4560 million stock 6902748 shares approximately 13 outstanding shares common stock initiation initial share repurchase authorization august 2012 repurchased programs amount remaining current share repurchase authorization december 31 2015 1368 million subject applicable securities laws purchases times amounts company deems appropriate credit facilities connection spinoff company terminated existing bank credit facility may 28 2014 entered new 600 million senior secured revolving credit facility “revolving credit facility” company option increase maximum borrowings new facility 750 million contingent upon additional lender commitments prior maturity may 28 2019 credit facility governed credit agreement dated may 28 2014 credit agreement among company lenders party thereto wells fargo bank na administrative agent swing line lender issuing bank royal bank canada syndication agent compass bank documentation agent amounts outstanding revolving credit facility bear interest libor plus margin 150 250 base rate plus margin 050 150 case based ratio company’s total leverage ebitda defined credit agreement 2015 applicable margin libor 150 weighted average interest rate company’s total outstanding debt decreased 60 2014 36 2015 primarily due repurchase 6 12 5 18 notes second quarter 2014 must also pay quarterly commitment fee based leverage ratio unused commitments credit agreement unused commitment fee 0375 2015 credit agreement contains customary financial covenants restrictions specifically must maintain interest coverage ratio defined ratio consolidated ebitda consolidated interest expense least 30 10 maximum leverage ratio defined ratio total debt consolidated ebitda greater 325 10 factors considered calculations ratios defined credit agreement ebitda consolidated interest defined exclude goodwill impairments losses extinguishment debt discount amortization noncash charges december 31 2015 compliance debt covenants expect continue compliance remainder 2016 borrowings credit agreement secured pledge substantially assets domestic subsidiaries obligations credit agreement guaranteed significant domestic subsidiaries december 31 2015 1229 million borrowings outstanding credit agreement 377 million outstanding letters credit leaving 4394 million available drawn revolving credit facility however total amount available drawn revolving credit facility expected significantly reduced trailing twelve months ebitda moves lower 2016 given accordance credit agreement total debt cannot exceed 325 times trailing twelve months ebitda total debt represented 93 combined total debt stockholders’ equity december 31 2015 compared 99 december 31 2014 contractual obligations following summarizes contractual obligations december 31 2015 effect obligations expected liquidity cash flow next five years thousands 1 excludes interest variablerate debt since cannot predict certainty amount interest due revolving debt due expected variability interest rates principal amounts outstanding include obligations assume interest payment amounts calculated using outstanding principal balances interest rates december 31 2015 include applicable commitment fees estimated interest payments variablerate debt would 49 million “due less one year” 98 million “due one three years” 20 million “due three five years” see note 10 consolidated financial statements included annual report form 10k additional information revolving credit facility 2 purchase obligations company primarily relate open purchase orders offshore products segment 3 see note 14 consolidated financial statements included annual report form 10k additional information debt obligations december 31 2015 included consolidated balance sheet part consolidated financial statements included annual report form 10k entered material leases subsequent december 31 2015 effects inflation revenues results operations materially impacted inflation past three fiscal years offbalance sheet arrangements december 31 2015 offbalance sheet arrangements defined item 303a4ii regulation sk tax matters primary deferred tax assets december 31 2015 related foreign tax credit carryforwards employee benefit costs equity participation plan inventory allowance obsolescence foreign tax credit carryforwards expire varying amounts 2021 company’s income tax provision 2015 totaled 222 million 439 pretax income compared income tax expense 691 million 352 pretax income 2014 increase effective tax rate prior year largely result 41 million valuation allowance recorded company’s tax loss carryforwards various foreign jurisdictions 36 million tax adjustments primarily related nondeductible items partially offset loss incurred 2014 extinguishment debt associated debt refinancings completed conjunction spinoff number legislative proposals change united states tax laws related multinational corporations proposals various stages discussion possible time predict proposals would impact business whether could result increased tax costs critical accounting policies consolidated financial statements included annual report form 10k prepared accordance accounting principles generally accepted united states gaap require management make numerous estimates assumptions actual results could differ estimates assumptions thus impacting reported results operations financial position critical accounting policies estimates described section important depiction financial condition results operations application requires management’s subjective judgments making estimates effect matters inherently uncertain describe significant accounting policies fully note 2 consolidated financial statements included annual report form 10k accounting contingencies contingent liabilities future claims made estimates amount eventual cost liquidate liabilities claims liabilities claims sometimes involve threatened actual litigation damages quantified made assessment exposure recorded provision accounts cover expected loss claims liabilities estimated based fair value experience matters appropriate advice outside counsel outside experts upon ultimate resolution uncertainties future reported financial results impacted difference estimates actual amounts paid settle liability examples areas made important estimates future liabilities include future consideration due sellers result terms business combination litigation taxes insurance claims warranty claims contract claims obligations discontinued operations tangible intangible assets including goodwill totaled 2638 million 165 total assets december 31 2015 intangible assets totaled 594 million 37 total assets december 31 2015 assessment impairment longlived assets including intangibles conducted whenever changes facts circumstances indicate loss value may occurred indicators impairment might include persistent negative economic trends affecting markets serve recurring losses lowered expectations future cash flows expected generated assets determination amount impairment would based quoted market prices available upon judgments future operating cash flows generated assets throughout estimated useful lives industry cyclical estimates period future cash flows generated well predictability cash flows determination whether decline value investment occurred significant impact carrying value assets periods prolonged cycles may result impairment losses based companys december 2015 review carrying values asset groups recoverable impairment losses recorded however decline oil prices subsequent december 31 2015 length decline impact projected operating cash flows could potentially cause us longlived asset including finitelived intangible assets impairment losses 2016 later within well site services business segment december 31 2015 longlived assets finitelived intangibles assets totaled approximately 328 million 96 million completion services drilling services businesses respectively evaluate reporting unit least annually interim basis indicator impairment determined occur defined current accounting standards regarding goodwill assess goodwill potential impairment reporting units include completion services drilling services offshore products remaining goodwill drilling services reporting unit subsequent full impairment goodwill reporting unit december 31 2008 part goodwill impairment analysis current accounting standards give us option first perform qualitative assessment determine whether likely likelihood 50 percent fair value reporting unit less carrying amount including goodwill determined likely fair value reporting unit greater carrying amount performing currently prescribed twostep impairment test unnecessary developing qualitative assessment meet “morelikelythannot” threshold reporting unit goodwill balance sheet assessed separately different relevant events circumstances evaluated unit determined likely fair value reporting unit less carrying amount prescribed twostep impairment test performed current accounting standards also give us option bypass qualitative assessment reporting unit period proceed directly performing first step twostep goodwill impairment test 2015 performed twostep impairment test given stock market value declines energy sector impact low oil prices operating results performing twostep impairment test estimate implied fair value ifv reporting unit compare ifv carrying value unit none reporting units publically quoted market price must determine value willing buyers sellers would place reporting unit routine sale process level 3 fair value measurement analysis target ifv represents value would placed reporting unit market participants value reporting unit based historical projected results throughout cycle value reporting unit based trough peak earnings utilize depending circumstances combination trading multiples analyses discounted projected cash flow calculations estimated terminal values acquisition comparables estimate ifv reporting units primarily affected future oil natural gas prices anticipated spending customers cost capital part process assess goodwill impairment also compare total market capitalization company sum ifvs reporting units assess reasonableness ifvs aggregate carrying amount reporting unit exceeds ifv goodwill considered potentially impaired additional analysis conducted determine amount impairment date goodwill impairment test 2015 ifv offshore products completion services reporting units exceeded carrying values 79 68 respectively subsequent december 31 2015 continuing date filing crude oil prices continued decline market capitalization 129 billion february 18 2016 compared carrying value equity december 31 2015 126 billion continuation current industry downturn 2016 likely result changes estimates forward cash flow timing amounts well comparable trading multiples may result goodwill impairment losses revenue cost recognition revenue sale products accounted utilizing percentageofcompletion method recognized delivery acceptance customer occurred title significant risks ownership passed customer collectability probable pricing fixed determinable product sales terms include significant postdelivery obligations significant projects revenues recognized percentageofcompletion method measured percentage costs incurred date compared estimated total costs contract costtocost method billings contracts excess costs incurred estimated profits classified deferred revenue costs incurred estimated profits excess billings percentageofcompletion contracts recognized unbilled receivables management believes method appropriate measure progress large contracts provisions estimated losses uncompleted contracts made period losses determined factors may affect future project costs margins include shipyard access weather production efficiencies availability costs labor materials subcomponents factors significantly impact accuracy company’s estimates materially impact company’s future reported earnings well site services segment revenues recognized based periodic usually daily rate services rendered proceeds customers cost oilfield rental equipment damaged lost downhole reflected gains losses disposition assets considering writeoff remaining net book value equipment drilling services contracts based footage drilled recognize revenues footage drilled revenues exclude taxes assessed based revenues sales value added taxes cost goods sold includes direct material labor costs related contract performance indirect labor supplies tools repairs sga costs charged expense incurred allowance doubtful accounts determination collectability amounts due customer accounts requires company make judgments regarding future events trends allowances doubtful accounts determined based continuous process assessing company’s portfolio individual customer basis taking account current market conditions trends process consists thorough review historical collection experience current aging status customer accounts financial condition company’s customers based review factors company establish adjust allowances specific customers substantial portion company’s revenues come international oil companies international oilfield service companies governmentowned governmentcontrolled oil companies worldwide oil gas drilling activity continue decline creditworthiness company’s customers could deteriorate may unable pay receivables requiring additional allowances recorded december 31 2015 2014 allowance bad debts totaled 69 million 71 million 20 14 gross accounts receivable respectively historically company’s chargeoffs provisions allowance doubtful accounts immaterial company’s consolidated financial statements inventory reserves inventory carried lower cost estimated net realizable value company determines reserves inventory based historical usage inventory onhand assumptions future demand market conditions estimates potential alternative uses usually limited company’s inventory consists specialized spare parts work process raw materials support ongoing manufacturing operations company’s large installed base specialized equipment used throughout oilfield customers rely company stock specialized items ensure equipment repaired serviced timely manner company’s estimated carrying value inventory therefore depends upon demand driven oil gas drilling well remediation activity depends turn upon oil gas prices general outlook economic growth worldwide available financing company’s customers political stability major oil gas producing areas potential obsolescence various types equipment sell among factors december 31 2015 2014 inventory reserves totaled 129 million 99 million 57 41 gross inventory respectively estimation useful lives selection useful lives many assets requires judgments operating personnel length useful lives judgment area influenced historical experience operating assets technological developments expectations future demand assets estimates long short might eventually report disproportionate number losses gains upon disposition retirement longlived assets believe estimates useful lives appropriate stockbased compensation since adoption accounting standards regarding sharebased payments required estimate fair value stock compensation made pursuant awards 2001 equity participation plan estimate fair value stock option restricted stock award determines amount stock compensation expense recognize future estimate value stock option awards plan selected fair value calculation model chosen blackscholesmerton “closed form” model value stock options awarded plan utilizing blackscholesmerton model requires us estimate length time options remain outstanding riskfree interest rate estimated period options assumed outstanding forfeiture rates future dividends volatility common stock assumptions affect amount timing future stock compensation expense recognition continually monitor actual experience change assumptions future awards consider appropriate income taxes company follows liability method accounting income taxes accordance current accounting standards regarding accounting income taxes method deferred income taxes recorded based upon differences financial reporting tax bases assets liabilities measured using enacted tax rates laws effect time underlying assets liabilities recovered settled companys earnings foreign subsidiaries considered indefinitely reinvested provision us income taxes made earnings subsidiaries distribution earnings form dividends otherwise company would subject us income taxes subject adjustment foreign tax credits withholding taxes payable various foreign countries company records valuation allowance reporting period management believes likely deferred tax asset created realized management continue evaluate appropriateness valuation allowance future based upon operating results company accounting income taxes required estimate liability future income taxes involving potential uncertain tax positions calculation tax liabilities involves dealing uncertainties application complex tax regulations recognize liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due ultimately determine payment amounts unnecessary reverse liability recognize tax benefit period determine liability longer necessary record additional charge provision taxes period determine recorded tax liability less expect ultimate assessment recent accounting pronouncements time new accounting pronouncements issued financial accounting standards board fasb adopted company specified effective date unless otherwise discussed management believes impact recently issued standards yet effective material impact company’s consolidated financial statements upon adoption november 2015 fasb issued guidance balance sheet classification deferred taxes requires deferred tax liabilities assets classified noncurrent classified statement financial position current requirement deferred tax liabilities assets taxpaying component entity offset presented single amount affected new guidance public business entities guidance effective fiscal years beginning december 15 2016 interim periods within fiscal years earlier application permitted entities beginning interim annual reporting period guidance may applied either prospectively deferred tax liabilities assets retrospectively periods presented due simplification accounting presentation deferred income taxes elected early adopt guidance prospectively fourth quarter 2015 result presented deferred tax assets liabilities noncurrent consolidated balance sheet december 31 2015 adjusted december 31 2014 consolidated balance sheet result adoption september 2015 fasb issued guidance measurementperiod adjustments business combinations require acquirer recognize adjustments provisional amounts identified measurement period corresponding adjustment goodwill reporting period adjustment amounts determined opposed revising prior periods presented financial statements previously required thus acquirer shall record period’s financial statements effect earnings changes depreciation amortization income effects result change provisional amounts calculated accounting completed acquisition date guidance requires entity present separately face income statement disclose notes portion amount recorded currentperiod earnings line item would recorded previous reporting periods adjustment provisional amounts recognized acquisition date public business entities guidance effective fiscal years beginning december 15 2015 including interim periods within fiscal years guidance applied prospectively adjustments provisional amounts occur effective date guidance earlier application permitted financial statements issued expect adoption standard material effect consolidated financial statements july 2015 fasb issued guidance measurement inventory simplifies guidance subsequent measurement inventory excluding inventory measured using lastin first retail inventory method guidance scope inventory measured lower cost net realizable value guidance effective interim annual periods beginning december 15 2016 early adoption permitted evaluating impact guidance consolidated financial statements timing adoption expect adoption guidance material effect consolidated financial statements april 2015 fasb issued guidance presentation debt issuance costs requires debt issuance costs related recognized debt liability presented balance sheet direct deduction carrying amount debt liability consistent debt discounts august 2015 fasb issued additional guidance topic adds comments commission addressing guidance issued april 2015 debt issuance costs related lineofcredit arrangements commission commented would object entity deferring presenting debt issuance costs asset subsequently amortizing deferred debt issuance costs ratably term lineofcredit arrangement regardless whether outstanding borrowings lineofcredit arrangement recognition measurement guidance debt issuance costs affected guidance public business entities guidance effective financial statements issued fiscal years beginning december 15 2015 interim periods within fiscal years expect adoption standard material effect consolidated financial statements may 2014 fasb issued guidance revenue contracts customers supersede current revenue recognition guidance including industryspecific guidance underlying principle entity recognize revenue depict transfer goods services customers amount entity expects entitled exchange goods services guidance provides fivestep analysis transactions determine revenue recognized major provisions include capitalization certain contract costs consideration time value money transaction price allowing estimates variable consideration recognized contingencies resolved certain circumstances guidance also requires enhanced disclosures regarding nature amount timing uncertainty revenue cash flows arising entity’s contracts customers august 2015 fasb issued guidance deferring effective date one year december 15 2017 fiscal years interim periods within years beginning date permitted early adoption standard original effective date december 15 2016 guidance permits use either retrospective cumulative effect transition method yet selected transition method continue evaluate impact amended guidance consolidated financial position results operations related disclosures item 7aitem 7 management’s discussion analysis financial condition results operations management’s discussion analysis financial condition results operations contains “forwardlooking statements” within meaning section 27a securities act section 21e exchange act based management’s current expectations estimates projections business operations actual results may differ materially currently anticipated expressed forwardlooking statements result numerous factors including known material factors set forth “part item 1a risk factors” read following discussion analysis together consolidated financial statements notes statements included elsewhere annual report form 10k due spinoff may 30 2014 accommodations business standalone publicly traded corporation “civeo corporation” “civeo” taxfree distribution accommodations business company’s stockholders “spinoff” sale tubular services business september 6 2013 reported discontinued operations management believes income continuing operations representative company’s current business environment focus terms “earnings” “loss” used “management’s discussion analysis financial condition results operations” refer income loss continuing operations macroeconomic environment provide broad range products services oil gas industry offshore products well site services business segments demand products services cyclical substantially dependent upon activity levels oil gas industry particularly customers’ willingness invest capital exploration development crude oil natural gas reserves customers’ capital spending programs generally based cash flows outlook nearterm longterm commodity prices economic growth commodity demand estimates resource production result demand products services largely sensitive future expectations respect crude oil natural gas prices severe industry downturn started second half 2014 continued throughout 2015 2016 driven global economic uncertainties high levels global oil production shown table significant downward crude oil price volatility began late 2014 intercontinental exchange brent “brent” crude oil declining average 102 per barrel third quarter 2014 average 34 first quarter 2016 level last seen 2004 sustained material decrease crude oil prices since 2014 primarily attributable high levels global crude oil inventories resulting significant production growth us shale plays strengthening us dollar relative currencies organization petroleum exporting countries “opec” increasing production opec demonstrated throughout 2015 november 2016 unwillingness modify production levels done previous years effort protect market share production increases partially offset growth global crude oil demand combination factors caused global supply demand imbalance crude oil along concerns regarding potential effects energy demand stemming diminished growth outlook china emerging markets anticipated actual supply increases related lifting sanctions iran sanctions lifted january 2016 resulted materially lower crude oil prices nonopec production particularly united states began decline 2015 due substantially reduced investment drilling completion activity leading recovery crude oil prices recent quarters november 30 2016 opec agreed production cuts time cuts adhered result reductions global crude oil inventories favorable commodity price environment brent crude oil prices improved average 49 per barrel fourth quarter 2016 average price west texas intermediate “wti” also 49 per barrel fourth quarter 2016 improvement oil prices driven belief opec russia key ally effort stabilize global crude oil market expected successful cutting production us oil price improvement rapidly translating increased drilling activity higher oil output us shale play developments areas permian bakken niobrara basins spending regions began improve second half 2016 response higher crude oil prices influence overall drilling completion activity area therefore activity well site services segment 2017 beyond expectations respect longerterm price brent crude oil continue influence customers’ spending related global offshore drilling development thus majority activity offshore products segment 33 given historical volatility crude oil prices remains degree risk prices could remain current levels deteriorate due relatively high levels global inventories potential domestic crude oil production increase slowing growth rates various global regions andor potential ongoing supplydemand imbalances conversely global supply crude oil decrease due prolonged reduction capital investment customers occurring government instability major oilproducing nation energy demand continue increase united states india china’s outlook growth improves recovery wti brent crude oil prices could occur international energy agency “iea” calls supply demand reach equilibrium mid2017 event crude oil price improvements depend upon rebalancing global supply demand corresponding reduction global inventories timing difficult predict commodity prices continue improve decline demand products services could continue weak could decline prices natural gas united states averaged 252 per mmbtu 2016 compares 262 per mmbtu 2015 437 per mmbtu 2014 2016 average price 252 per mmbtu lowest annual average since 1999 driven mild winter caused inventory storage levels rise historic highs first quarter 2016 natural gas prices improved course 2016 average 199 per mmbtu first quarter average 304 per mmbtu fourth quarter result declining production increased demand natural gas fuel electricity generation colder temperatures northern united states natural gas surpassed coal 2014 largest energy source generating electricity reflecting impact decreased production higher demand natural gas inventories united states 1 5year average end 2016 compares 14 5year average end 2015 customer spending natural gas shale plays limited due associated natural gas produced unconventional oil wells north america commissioning number new large lng export facilities around world result natural gas supply growth outpacing demand growth united states recent years natural gas prices continue weak expected remain levels considered economical new investments certain natural gas fields natural gas production growth surpasses demand growth united states andor supply natural gas increase whether conventional unconventional production associated natural gas production oil wells prices natural gas could remain depressed extended period time could result fewer rigs drilling natural gas recent wti crude oil brent crude natural gas pricing trends follows 1 source us energy information administration eia february 10 2017 wti crude oil brent crude natural gas traded approximately 5384 per barrel 5520 per barrel 311 per mmbtu respectively overview demand products services offshore products segment driven longerterm outlook commodity prices lesser extent changes landbased drilling completion activity demand equipment services well site services segment responds shorterterm movements crude oil natural gas prices specifically changes north american drilling completion activity given spot contract nature operations coupled shorter cycles drilling well bringing production factors affect business financial results include limited general global economic environment competitive pricing pressures regulatory changes united states international markets 34 offshore products segment provides highlyengineered products services offshore oil natural gas production systems facilities well certain products services offshore landbased drilling completion markets approximately 60 offshore products sales 2016 driven customers’ capital spending offshore production systems subsea pipelines repairs lesser extent upgrades existing offshore drilling rigs construction new offshore drilling rigs vessels result segment particularly influenced global deepwater drilling production spending driven largely customers’ longerterm outlook crude oil natural gas prices deepwater oil gas development projects typically involve significant capital investments multiyear development plans projects generally undertaken larger exploration field development production companies primarily international oil companies “iocs” staterun national oil companies “nocs” using relatively conservative crude oil natural gas pricing assumptions believe deepwater projects approved development therefore less susceptible shortterm fluctuations price crude oil natural gas given longer lead times associated field development however decline crude oil prices began 2014 continued throughout 2015 2016 coupled relatively uncertain outlook around shorterterm possibly longerterm pricing improvements caused exploration production companies reevaluate future capital expenditures regards deepwater projects since expensive drill complete long lead times first production may considered uneconomical relative risk involved sales products services landbased drilling completion markets impacted nearterm fluctuations commodity prices sales shortercycle products valves elastomer products services segment declined significantly 2015 2016 however demand elastomer products increased second half 2016 compared levels demand experienced first half 2016 commensurate increase us land rig count offshore products segment revenues operating income declined slower pace well site services segment given high levels backlog existed beginning 2014 bidding quoting activity along orders customers offshore products segment continued 2015 2016 albeit much slower pace accordingly backlog offshore products segment decreased 199 million december 31 2016 340 million december 31 2015 490 million december 31 2014 due project deferrals delays award timing resulting low commodity price environment well site services segment primarily affected drilling completion activity united states including gulf mexico lesser extent canada rest world us drilling completion activity well site services segment results particularly sensitive nearterm fluctuations commodity prices given callout nature operations segment therefore significantly negatively affected material decline crude oil prices customer spending 2014 second half 2016 however us oil price improvement rapidly translating increased drilling completion activity us shale play regions past several years industry experienced shift customer spending natural gas exploration development crude oil liquidsrich exploration development north american shale plays utilizing horizontal drilling completion techniques us natural gasrelated working rig count declined approximately 810 rigs beginning 2012 81 rigs august 2016 29 year low according rig count data published baker hughes incorporated us oil rig count peaked october 2014 1609 rigs declined materially since late 2014 due much lower crude oil prices us oil rig count troughed 316 rigs may 2016 lowest oil rig count current cyclical downturn increased gradually 525 rigs december 31 2016 december 31 2016 oildirected drilling accounted 80 total us rig count balance natural gas related although us land rig count increased 259 rigs 69 since troughing may 2016 activity continues remain historically low levels unless commodity prices continue gradually improve expect rig count demand customers services provided well site services segment continue tempered near term well site services segment predominantly provide completion services lesser extent land drilling services completion services business provides equipment service personnel utilized completion initial production new recompleted wells activity completion services business dependent primarily upon level complexity drilling completion workover activity throughout north america well complexity increased continuing transition multiwell pads drilling longer lateral wells along increased number frac stages completed horizontal wells demand drilling services operations driven land drilling activity primary drilling markets permian basin west texas primarily drill oil wells us rocky mountain area drill liquidsrich natural gas wells 35 demand land drilling completion services businesses correlated changes drilling rig count north america well changes total number wells expected drilled total footage expected drilled number drilled wells completed table sets forth summary north american rig activity measured baker hughes incorporated periods indicated average north american rig count 2016 declined 529 rigs 45 level reported 2015 response sustained impact significantly lower crude oil natural gas prices levels experienced 2014 exacerbating steep declines drilling activity many exploration production customers deferred well completions deferred completions referred industry drilled uncompleted wells “ducs” motivation part customers defer completions generally driven need preserve cash weak commodity price environment andor desire produce reserves later date expectations commodity prices would improve andor completion costs would continue decline although customers begun complete backlog uncompleted wells given well site services segment’s exposure level completion activity increase number ducs negative impact results operations reduced demand products services coupled reduction prices charge customers services particularly customers well site services segment adversely affected results operations cash flows financial position year ended 2016 current pricing environment crude oil natural gas continue improve declines customers may required reduce capital expenditures causing declines demand prices products services would adversely affect results operations cash flows financial position customers experienced significant decline revenues cash flows due commodity price declines fact due passage time many customers less production hedged thus receiving spot prices greater percentage production result industry downturn many customers experienced significant reduction liquidity challenges accessing capital debt markets end 2015 several exploration production companies declared bankruptcy 2015 2016 exchange equity forgiveness debt others forced sell assets effort preserve liquidity however 2016 access capital debt markets improved significantly certain customers continuation adverse conditions could affect certain customers’ ability pay otherwise perform obligations us declines demand prices products services inability failure customers meet obligations us insolvency liquidation could require us incur asset impairment charges andor write value goodwill may otherwise adversely impact results operations cash flows financial position continue monitor global economy prices demand crude oil natural gas resultant impact capital spending plans operations customers order plan manage business expect spend 40 45 million capital expenditures fiscal 2017 upgrade maintain offshore products facilities replace upgrade completion services equipment fund various capital spending projects plan fund capital expenditures available cash internally generated funds borrowings revolving credit facility well site services segment continue monitor industry capacity additions make future capital expenditure decisions based evaluation market outlook industry fundamentals acquisitions addition capital spending invested acquisitions businesses complementary growth strategy acquisition strategy allowed us leverage existing acquired products services new geographic locations expanded breadth technology product offerings made strategic complimentary acquisitions business segments recent years acquired four businesses total 1583 million cash 2012 2016 timeframe 36 example january 2 2015 offshore products segment acquired montgomery machine company inc “mmc” combines machining proprietary cladding technology services manufacture highspecification components offshore capital equipment industry global basis believe acquisition mmc strengthened offshore products segment’s position supplier subsea components enhanced capabilities proprietary technology logistical advantages total transaction consideration 334 million net cash acquired consolidated results operations manage measure business performance two distinct operating segments well site services offshore products selected financial information business segment years ended december 31 2016 2015 2014 summarized dollars thousands year ended december 31 2016 compared year ended december 31 2015 net loss continuing operations attributable company year end december 31 2016 464 million 092 per diluted share included 52 million 33 million aftertax 006 per diluted share severance downsizing charges excluding charges net loss continuing operations 2016 would 431 million 086 per diluted share results compare net income continuing operations attributable company 284 million 055 per diluted share reported year ended december 31 2015 results 2015 included 64 million 46 million aftertax 009 per diluted share severance downsizing charges 34 million 24 million aftertax 005 per diluted share provision leasehold restoration higher effective tax rate driven primarily 41 million 008 per diluted share valuation allowance recorded certain company’s tax loss carry forwards various international jurisdictions 36 million 007 per diluted share tax adjustments certain prior period nondeductible items excluding charges effect higher effective tax rate 2015 net income continuing operations would 431 million 084 per diluted share revenues consolidated revenues decreased 4055 million 37 2016 compared 2015 37 well site services segment revenues decreased 1902 million 51 2016 compared 2015 due decreases completion services drilling services revenues completion services revenues decreased 1450 million 47 2016 compared 2015 primarily due 55 decrease number service tickets completed result continued extreme competitive pressures depressed activity levels us shale basins drilling services revenues decreased 452 million 67 2016 compared 2015 primarily result significant reduction utilization drilling rigs average 33 2015 average 12 2016 due primarily continued weak commodity price environment offshore products segment revenues decreased 2153 million 30 2016 compared 2015 primarily result lower contributions across segment’s product lines driven decline demand drilling products productionrelated products service activities well backlog position trended lower since mid2014 revenue declines partially offset modest fullyear increases sales subsea pipeline shortercycle product revenues shortercycle products elastomers benefited increased landbased drilling completion activity second half 2016 united states backlog segment decreased 199 million december 31 2016 340 million december 31 2015 490 million december 31 2014 due project deferrals delays award timing resulting continued depressed commodity price environment cost sales services consolidated cost sales services decreased 2589 million 33 2016 compared 2015 result decreased cost sales services well site services offshore products segments 1186 million 40 1403 million 29 respectively cost sales services decreasing slower rate revenues consolidated gross profit percentage revenues decreased 29 2015 24 2016 due primarily significantly lower margins realized well site services segment 2016 well site services segment cost services decreased 1186 million 40 2016 compared 2015 result 841 million 35 decrease completion services cost services 345 million 61 decrease drilling services cost services decreases cost services strongly correlated revenue decreases businesses reflect reduction variable costs along cost reduction measures implemented response material decrease revenues caused industry activity declines well site services segment gross profit percentage revenues decreased 22 2015 6 2016 completion services gross profit percentage revenues decreased 23 2015 6 2016 primarily due significant decline activity competitive industry pricing pressures drilling services gross profit percentage revenues decreased 17 2015 4 2016 primarily due decreased rig utilization cost absorption offshore products segment cost sales decreased 1403 million 29 2016 compared 2015 correlation decrease revenues gross profit percentage revenues remained generally constant 31 2016 compared 32 2015 selling general administrative expenses selling general administrative “sga” expenses decreased 86 million 7 2016 compared 2015 impact reduced sales commissions travel entertainment expenses compensation costs partially offset higher provision bad debt professional fees depreciation amortization depreciation amortization expense decreased 125 million 10 2016 compared 2015 primarily due certain assets becoming fully depreciated since december 31 2015 due downturn replaced lower levels capital expenditures operating income operating income increased 11 million 58 million 2016 compared 2015 primarily due increases foreign currency exchange rate gains operating income loss consolidated operating income loss moved operating income 550 million 2015 operating loss 693 million 2016 driven impact significant revenue declines due lower industry activity competitive industry pricing pressures well site services operating loss increased 637 million 1079 million 2016 offshore products operating income declined 593 million 871 million 2016 corporate expenses 485 million 2016 compared 472 million 2015 interest expense interest income net interest expense decreased 09 million 16 2016 compared 2015 primarily due lower amounts outstanding revolving credit facility partially offset unused commitment fees paid lenders interest expense percentage total average debt outstanding increased 36 2015 65 2016 due increased proportion interest expense associated unused commitment fees result lower average borrowings outstanding revolving credit facility 38 income tax benefit provision company’s income tax provision year ended december 31 2016 income tax benefit 269 million 367 pretax losses compared income tax expense 222 million 439 pretax income year ended december 31 2015 effective tax rate year ended december 31 2015 influenced 41 million tax valuation allowance recorded certain company’s deferred tax assets 36 million deferred tax adjustment certain prior period nondeductible items comprehensive loss comprehensive loss decreased 286 million 2015 196 million 2016 due primarily fluctuations currency exchange rates compared us dollar certain international operations reportable segments year ended december 31 2016 currency translation adjustments recognized component comprehensive loss primarily attributable united kingdom brazil canada december 31 2016 exchange rate british pound compared us dollar weakened 16 compared exchange rate december 31 2015 exchange rates brazilian real canadian dollar compared us dollar strengthened 22 3 respectively period year ended december 31 2015 compared year ended december 31 2014 reported net income continuing operations attributable company year ended december 31 2015 284 million 055 per diluted share included 64 million severance downsizing charges 34 million leasehold restoration provision one offshore products uk facilities included “depreciation amortization expense” higher effective tax rate driven primarily 41 million valuation allowance recorded company’s tax loss carryforwards various international jurisdictions 36 million tax adjustments primarily related nondeductible items excluding charges 2015 net income continuing operations would 431 million 084 per diluted share results compare net income continuing operations attributable company 1272 million 235 per diluted share reported year ended december 31 2014 including loss extinguishment debt 1004 million 121 per diluted share 112 million 014 per diluted share transaction costs included “other operating expense” sga expenses primarily related spinoff excluding significant charges 2014 net income continuing operations would 1996 million 369 per diluted share revenues consolidated revenues decreased 7196 million 40 2015 compared 2014 well site services segment revenues decreased 4821 million 56 2015 compared 2014 due decreases completion services drilling services revenues completion services revenues decreased 3488 million 53 2015 compared 2014 primarily due 38 decrease number service tickets completed result decreased activity us shale basins 25 decrease revenue per completion services job due pricing pressure customers competitors drilling services revenues decreased 1333 million 66 2015 compared 2014 primarily result significantly decreased utilization drilling rigs average 87 2014 average 33 2015 primarily due weak commodity price environment offshore products segment revenues decreased 2375 million 25 2015 compared 2014 decrease primarily result lower contributions essentially product service lines especially drilling products shorter cycle businesses elastomer products valves coupled reduced service activities backlog trended lower 2015 cost sales service consolidated cost sales services decreased 4202 million 35 2015 compared 2014 result decreased cost sales services well site services offshore products segments 2506 million 46 1696 million 26 respectively cost sales service decreasing slower rate revenues consolidated gross profit percentage revenues decreased 34 2014 29 2015 primarily due lower margins realized well site services segment 2015 39 well site services segment cost services decreased 2506 million 46 2015 compared 2014 result 1655 million 41 decrease completion services cost services 851 million 60 decrease drilling services cost services decreases cost services strongly correlated revenue decreases businesses reflect cost reduction measures implemented response material decrease revenues caused industry activity declines well site services segment gross profit percentage revenues decreased 37 2014 22 2015 completion services gross profit percentage revenues decreased 39 2014 23 2015 primarily due decline revenues drilling services gross profit percentage revenues decreased 30 2014 17 2015 primarily due decreased rig utilization cost absorption offshore products segment cost products services decreased 1696 million 26 2015 compared 2014 correlation decrease revenues gross profit percentage revenues remained generally constant 31 2014 compared 32 2015 improvement gross profit yearoveryear due strong project execution several jobs combined favorable cost adjustments including favorable percentageofcompletion adjustments lowered overall cost structure selling general administrative expenses selling general administrative expense decreased 368 million 22 2015 compared 2014 largely due decreased compensation including shortterm incentive compensation wages benefits stock compensation expense coupled decrease commissions bad debt expense depreciation amortization depreciation amortization expense increased 65 million 5 2015 compared 2014 due capital expenditures made previous twelve months across segments company 34 million leasehold restoration provision one offshore products uk facilities along increased depreciation amortization expense related mmc acquisition closed beginning first quarter 2015 operating income expense operating income expense moved operating expense 93 million 2014 operating income 46 million 2015 primarily due transaction costs incurred 2014 connection spinoff totaling 110 million 37 million foreign currency exchange gains 2015 operating income loss consolidated operating income loss decreased 2552 million 82 2015 compared 2014 primarily result decreases operating income well site services segment 2225 million resulting decreased revenues caused industry activity declines 524 million decrease offshore products operating income corporate expenses 472 million 2015 compared 682 million 2014 interest expense interest income net interest expense decreased 107 million 65 2015 compared 2014 primarily due company’s repurchase remaining 9660 million aggregate principal amount 6 12 5 18 notes second quarter 2014 partially offset increased amounts outstanding bank credit facility coupled unused commitment fees paid lenders weighted average interest rate company’s total outstanding debt decreased 60 2014 36 2015 primarily due repurchase 6 12 5 18 notes second quarter 2014 loss extinguishment debt 2014 recognized losses extinguishment debt totaling 1004 million primarily due repurchase remaining 6 12 notes 5 18 notes resulting loss 967 million consisting premium paid book value notes writeoff associated unamortized deferred financing costs addition result refinancing bank credit facility 2014 recognized loss 37 million net 18 million allocated discontinued operations canadian portion facility writeoff unamortized deferred financing costs existing credit facility income tax benefit provision company’s income tax provision 2015 totaled 222 million 439 pretax income compared income tax expense 691 million 352 pretax income 2014 increase effective tax rate prior year largely result 41 million valuation allowance recorded company’s tax loss carryforwards various international jurisdictions 36 million tax adjustments primarily related nondeductible items partially offset loss incurred 2014 extinguishment debt associated debt refinancings completed conjunction spinoff discontinued operations net income discontinued operations 2015 02 million compared 518 million 2014 revenues reported within discontinued operations 2015 compared 4042 million 2014 due spinoff may 30 2014 operating income included within discontinued operations 04 million 811 million 2015 2014 respectively decreases revenue operating income yearoveryear primarily relate absence accommodations operations 2015 compared five months operations 2014 40 comprehensive income loss comprehensive income loss decreased income less 01 million 2014 loss 286 million 2015 due primarily fluctuations currency exchange rates compared us dollar certain international operations reportable segments year ended december 31 2015 currency translation adjustments recognized component comprehensive loss primarily attributable united kingdom brazil canada december 31 2015 exchange rates british pound brazilian real canadian dollar compared us dollar weakened 5 31 16 respectively compared exchange rates december 31 2014 liquidity capital resources matters primary liquidity needs fund operating capital expenditures past included expanding upgrading offshore products manufacturing facilities equipment replacing increasing completion services assets funding new product development general working capital needs addition capital used repay debt fund stock repurchase program fund strategic business acquisitions primary sources funds cash flow operations proceeds borrowings credit facilities capital market transactions see note 10 consolidated financial statements included annual report form 10k additional information revolving credit facility operating activities despite continued weak market conditions cash totaling 1493 million provided continuing operations year ended december 31 2016 compared cash totaling 2558 million provided continuing operations year ended december 31 2015 2016 2015 903 million 782 million respectively provided net working capital reductions primarily due decreases receivables inventories partially offset decreases accounts payable accrued liabilities investing activities total 293 million cash used investing activities year ended december 31 2016 compared 1472 million used year ended december 31 2015 capital expenditures totaled 297 million 1147 million years ended december 31 2016 2015 respectively capital expenditures years consisted principally purchases completion services equipment expansion upgrading offshore products segment facilities various capital spending initiatives january 2 2015 acquired equity mmc total transaction consideration 334 million net cash acquired funded amounts available company’s revolving credit facility currently expect invest total approximately 40 million 45 million capital expenditures 2017 upgrade maintain offshore products facilities equipment replace upgrade completion services equipment fund various capital spending projects whether planned expenditures actually spent 2017 depends industry conditions project approvals schedules vendor delivery timing free cash flow generation careful monitoring levels liquidity plan fund capital expenditures available cash internally generated funds borrowings revolving credit facility foregoing capital expenditure expectations include funds might spent strategic acquisitions company could pursue depending economic environment industry availability transactions prices deemed attractive company december 31 2016 cash totaling 688 million 677 million held international subsidiaries primarily singapore canada united kingdom intent utilize least portion cash balances future investment outside united states approximately 34 million cash held international subsidiaries repatriated without triggering incremental tax consequences 2016 repatriated 201 million international subsidiaries used reduce outstanding borrowings revolving credit facility 41 financing activities net cash 849 million used financing activities year ended december 31 2016 primarily attributable repayment 807 million borrowings revolving credit facility net cash 1247 million used financing activities year ended december 31 2015 primarily associated repurchases common stock totaling 1059 million believe cash hand cash flow operations available borrowings revolving credit facility sufficient meet liquidity needs coming twelve months plans assumptions change inaccurate make acquisitions may need raise additional capital acquisitions management believes acquisitions continue key element business strategy timing size success acquisition effort associated potential capital commitments unpredictable uncertain may seek fund part efforts proceeds debt andor equity issuances ability obtain capital additional projects implement growth strategy longer term depend upon future operating performance financial condition broadly availability equity debt financing capital availability affected prevailing conditions industry global economy global financial markets factors many beyond control addition debt service requirements could based higher interest rates shorter maturities could impose significant burden results operations financial position issuance additional equity securities could result significant dilution stockholders stock repurchase program july 29 2015 company’s board directors approved termination existing share repurchase program authorized new program providing repurchase 150 million company’s common stock scheduled expire july 29 2016 july 27 2016 board directors extended share repurchase program one year july 29 2017 shares common stock repurchased program 2016 2015 total 1059 million stock 2674218 shares repurchased programs compared 2189 million 2843142 shares 2014 amount remaining current share repurchase authorization december 31 2016 1368 million subject applicable securities laws purchases times amounts company deems appropriate credit facilities company 600 million senior secured revolving credit facility revolving credit facility option increase maximum borrowings facility 750 million contingent upon additional lender commitments prior maturity may 28 2019 december 31 2016 422 million borrowings outstanding credit agreement 307 million outstanding letters credit leaving 1531 million available drawn revolving credit facility total amount available drawn revolving credit facility less lender commitments december 31 2016 due maximum leverage ratio covenant revolving credit facility serves limit borrowings expect availability continue limited maximum leverage ratio covenant 2017 based upon forecast trailing twelvemonth ebitda defined credit agreement discussed revolving credit facility governed credit agreement dated may 28 2014 amended “credit agreement” among company lenders party thereto wells fargo bank na administrative agent swing line lender issuing bank royal bank canada syndication agent compass bank documentation agent october 3 2016 company amended revolving credit facility among things allow certain intercompany transactions among company subsidiaries may otherwise considered investments permitted credit agreement make certain technical changes modifications amounts outstanding revolving credit facility bear interest libor plus margin 150 250 base rate plus margin 050 150 case based ratio company’s total leverage ebitda must also pay quarterly commitment fee based leverage ratio unused commitments credit agreement unused commitment fee 0375 2016 applicable margin libor 150 interest expense percentage total debt outstanding increased 36 2015 65 2016 increase weighted average interest rate attributable increased proportion interest expense associated unused commitment fees coupled lower average borrowings outstanding revolving credit facility 42 credit agreement contains customary financial covenants restrictions specifically must maintain interest coverage ratio defined ratio consolidated ebitda consolidated interest expense least 30 10 maximum leverage ratio defined ratio total debt consolidated ebitda greater 325 10 factors considered calculations ratios defined credit agreement ebitda consolidated interest defined exclude goodwill impairments losses extinguishment debt discount amortization noncash charges december 31 2016 compliance debt covenants expect continue compliance throughout 2017 borrowings credit agreement secured pledge substantially assets domestic subsidiaries obligations credit agreement guaranteed significant domestic subsidiaries companys credit agreement occurrence specified change control events involving company would constitute event default would permit banks among things accelerate maturity facility cause become immediately due payable full total debt represented 37 combined total debt stockholders’ equity december 31 2016 compared 91 december 31 2015 contractual obligations following summarizes contractual obligations december 31 2016 effect obligations expected liquidity cash flow next five years thousands 1 excludes interest variablerate debt matures may 2019 since cannot predict certainty amount interest due revolving debt due expected variability interest rates principal amounts outstanding include obligations assume interest payment amounts calculated using outstanding principal balances interest rates december 31 2016 include applicable commitment fees estimated interest payments variablerate debt would 37 million “due less one year” 51 million “due one three years” see note 10 consolidated financial statements included annual report form 10k additional information revolving credit facility 2 purchase obligations company primarily relate open purchase orders offshore products segment 3 see note 14 consolidated financial statements included annual report form 10k additional information debt obligations december 31 2016 included consolidated balance sheet part consolidated financial statements included annual report form 10k entered material leases subsequent december 31 2016 effects inflation revenues results operations materially impacted inflation past three fiscal years offbalance sheet arrangements december 31 2016 offbalance sheet arrangements defined item 303a4ii regulation sk 43 tax matters primary deferred tax assets december 31 2016 related foreign tax credit carryforwards net operating loss carryforwards employee benefits stockbased compensation inventory allowance obsolescence information respect expiration periods foreign tax credit net operating loss carryforwards included note 13 consolidated financial statements included annual report form 10k company’s income tax benefit 2016 totaled 269 million 367 pretax loss compared income tax expense 222 million 439 pretax income 2015 decrease effective tax rate prior year largely result impact 2015 41 million valuation allowance recorded company’s tax loss carryforwards various foreign jurisdictions 36 million tax adjustments primarily related nondeductible items number legislative proposals change united states tax laws related multinational corporations proposals various stages discussion possible time predict proposals would impact business whether could result increased decreased tax costs critical accounting policies consolidated financial statements included annual report form 10k prepared accordance accounting principles generally accepted united states “gaap” require management make numerous estimates assumptions actual results could differ estimates assumptions thus impacting reported results operations financial position critical accounting policies estimates described section important depiction financial condition results operations application requires management’s subjective judgments making estimates effect matters inherently uncertain describe significant accounting policies fully note 2 consolidated financial statements included annual report form 10k accounting contingencies contingent liabilities future claims made estimates amount eventual cost liquidate liabilities claims liabilities claims sometimes involve threatened actual litigation damages quantified made assessment exposure recorded provision accounts cover expected loss claims liabilities estimated based fair value experience matters appropriate advice outside counsel outside experts upon ultimate resolution uncertainties future reported financial results impacted difference estimates actual amounts paid settle liability examples areas made important estimates future liabilities include litigation taxes insurance claims warranty claims contractual claims obligations discontinued operations tangible intangible assets including goodwill totaled 2634 million 19 total assets december 31 2016 intangible assets totaled 527 million 4 total assets december 31 2016 assessment impairment longlived assets including intangibles conducted whenever changes facts circumstances indicate loss value may occurred indicators impairment might include persistent negative economic trends affecting markets serve recurring losses lowered expectations future cash flows expected generated assets determination amount impairment would based quoted market prices available upon judgments future operating cash flows generated assets throughout estimated useful lives industry cyclical estimates period future cash flows generated well predictability cash flows determination whether decline value investment occurred significant impact carrying value assets periods prolonged cycles may result impairment losses based companys december 2016 review carrying values asset groups recoverable impairment losses recorded however prolonged continuation current industry downturn may result changes estimates projected operating cash flows could potentially cause us impair values longlived assets including finitelived intangible assets december 31 2016 longlived assets finitelived intangibles assets totaled approximately 553 million 53 million respectively 44 evaluate reporting unit least annually interim basis indicator goodwill impairment determined occur defined current accounting standards reporting units include completion services drilling services offshore products remaining goodwill drilling services reporting unit part goodwill impairment analysis current accounting standards give us option first perform qualitative assessment determine whether likely likelihood 50 percent fair value reporting unit less carrying amount including goodwill determined likely fair value reporting unit greater carrying amount performing currently prescribed twostep impairment test unnecessary developing qualitative assessment meet “morelikelythannot” threshold reporting unit goodwill balance sheet assessed separately different relevant events circumstances evaluated unit determined likely fair value reporting unit less carrying amount prescribed twostep impairment test performed current accounting standards also give us option bypass qualitative assessment reporting unit period proceed directly performing first step twostep goodwill impairment test 2016 performed twostep impairment test given impact low crude oil prices operating results performing twostep impairment test estimate implied fair value “ifv” reporting unit compare ifv carrying value unit none reporting units publically quoted market price must determine value willing buyers sellers would place reporting unit routine sale process level 3 fair value measurement analysis target ifv represents value would placed reporting unit market participants value reporting unit based historical projected results throughout cycle value reporting unit based trough peak earnings utilize depending circumstances combination trading multiples analyses discounted projected cash flow calculations estimated terminal values acquisition comparables estimate ifv reporting units primarily affected future oil natural gas prices anticipated spending customers cost capital part process assess goodwill impairment also compare total market capitalization company sum ifvs reporting units assess reasonableness ifvs aggregate carrying amount reporting unit exceeds ifv goodwill considered potentially impaired additional analysis conducted determine amount impairment date goodwill impairment test 2016 ifv offshore products completion services reporting units substantially exceeded carrying values december 31 2016 market capitalization 20 billion compared carrying value equity 12 billion prolonged continuation current industry downturn may result changes estimates forward cash flow timing amounts well comparable trading multiples may result goodwill impairment losses revenue cost recognition revenue sale products accounted utilizing percentageofcompletion method recognized delivery acceptance customer occurred title significant risks ownership passed customer collectability probable pricing fixed determinable product sales terms include significant postdelivery obligations significant projects revenues recognized percentageofcompletion method measured percentage costs incurred date compared estimated total costs contract costtocost method billings contracts excess costs incurred estimated profits classified deferred revenue costs incurred estimated profits excess billings percentageofcompletion contracts recognized unbilled receivables management believes method appropriate measure progress large contracts provisions estimated losses uncompleted contracts made period losses determined factors may affect future project costs margins include shipyard access weather production efficiencies availability costs labor materials subcomponents factors significantly impact accuracy company’s estimates materially impact company’s future reported earnings well site services segment revenues recognized based periodic usually daily rate services rendered proceeds customers cost oilfield rental equipment damaged lost downhole reflected gains losses disposition assets considering writeoff remaining net book value equipment drilling services contracts based footage drilled recognize revenues footage drilled revenues exclude taxes assessed based revenues sales value added taxes 45 cost goods sold includes direct material labor costs related contract performance indirect labor supplies tools repairs sga costs charged expense incurred allowance doubtful accounts determination collectability amounts due customer accounts requires company make judgments regarding future events trends allowances doubtful accounts determined based continuous process assessing company’s portfolio individual customer basis taking account current market conditions trends process consists thorough review historical collection experience current aging status customer accounts financial condition company’s customers based review factors company establish adjust allowances specific customers substantial portion company’s revenues come international oil companies international oilfield service companies governmentowned governmentcontrolled oil companies worldwide oil gas drilling activity continue decline creditworthiness company’s customers could deteriorate may unable pay receivables requiring additional allowances recorded december 31 2016 2015 allowance bad debts totaled 85 million 69 million 35 20 gross accounts receivable respectively historically company’s chargeoffs provisions allowance doubtful accounts given year immaterial company’s consolidated financial statements inventory reserves inventory carried lower cost estimated net realizable value company determines reserves inventory based historical usage inventory onhand assumptions future demand market conditions estimates potential alternative uses usually limited company’s inventory consists specialized spare parts work process raw materials support ongoing manufacturing operations company’s large installed base specialized equipment used throughout oilfield customers rely company stock specialized items ensure equipment repaired serviced timely manner company’s estimated carrying value inventory therefore depends upon demand driven oil gas drilling well remediation activity depends turn upon oil gas prices general outlook economic growth worldwide available financing company’s customers political stability major oil gas producing areas potential obsolescence various types equipment sell among factors december 31 2016 2015 inventory reserves totaled 148 million 129 million 78 57 gross inventory respectively estimation useful lives selection useful lives many assets requires judgments operating personnel length useful lives judgment area influenced historical experience operating assets technological developments expectations future demand assets estimates long short might eventually report disproportionate number losses gains upon disposition retirement longlived assets believe estimates useful lives appropriate stockbased compensation estimate fair value stock compensation made pursuant awards 2001 equity participation plan “plan” respective dates grant estimate fair value stock option restricted stock award determines amount stock compensation expense recognize future use blackscholesmerton “closed form” model value stock options awarded plan fair value servicebased performancebased restricted stock awarded plan determined quoted market price company’s common stock date grant except limited number performancebased restricted awards valued using monte carlo simulation model result inclusion performance metrics based solely performance company’s common stock income taxes company follows liability method accounting income taxes accordance current accounting standards regarding accounting income taxes method deferred income taxes recorded based upon differences financial reporting tax bases assets liabilities measured using enacted tax rates laws effect time underlying assets liabilities recovered settled 46 companys earnings foreign subsidiaries considered indefinitely reinvested provision us income taxes made earnings subsidiaries distribution earnings form dividends otherwise company would subject us income taxes subject adjustment foreign tax credits withholding taxes payable various foreign countries 2016 2015 repatriated 201 million 352 million respectively international subsidiaries used reduce outstanding borrowings revolving credit facility company records valuation allowance reporting period management believes likely deferred tax asset created realized assessment requires analysis available positive negative evidence including losses recent years reversals temporary differences forecasts future income assessment future business assumptions tax planning strategies 2015 2016 recorded valuation allowances primarily respect net operating loss carryforwards certain operations outside united states future increases valuation allowance possible estimates assumptions particularly relate forecast revised reduce estimates future taxable income carryforward period calculation tax liabilities involves assessing uncertainties application complex tax regulations recognize liabilities tax expenses based estimate whether extent additional taxes due ultimately determine payment amounts unnecessary reverse liability recognize tax benefit period determine liability longer necessary record additional charge provision taxes period determine recorded tax liability less expect ultimate assessment recent accounting pronouncements time new accounting pronouncements issued financial accounting standards board “fasb” adopted company specified effective date unless otherwise discussed management believes impact recently issued standards yet effective material impact company’s consolidated financial statements upon adoption may 2014 fasb issued guidance revenue contracts customers supersede current revenue recognition guidance including industryspecific guidance underlying principle entity recognize revenue depict transfer goods services customers amount entity expects entitled receive exchange goods services guidance permits use either retrospective modified retrospective transition method company adopt guidance january 1 2018 currently anticipates using modified retrospective transition method continue review contracts certain customers within offshore products segment determine impact standard contracts consolidated financial statements february 2016 fasb issued guidance leases introduces recognition lease assets lease liabilities lessees leases shortterm nature new standard requires modified retrospective transition capital operating leases existing entered beginning earliest comparative period presented financial statements company adopt guidance january 1 2019 upon initial evaluation believe key change upon adoption balance sheet recognition leases income statement recognition appears similar current methodology company’s future obligations operating leases december 31 2016 summarized note 14 “commitments contingencies” march 2016 fasb issued guidance employee sharebased payment accounting modifies existing guidance related accounting forfeitures employer tax withholding stockbased compensation financial statement presentation excess tax benefits deficiencies company adopted guidance january 1 2017 expect material impact consolidated financial statements january 2017 fasb issued guidance simplifies test goodwill impairment revised standard company longer required determine implied fair value goodwill assigning fair value reporting unit individual assets liabilities reporting unit acquired business combination revised guidance requires prospective transition permits early adoption interim annual goodwill impairment tests performed january 1 2017 company adopted standard effective january 1 2017 see note 9 goodwill intangible assets april 2015 fasb issued guidance presentation debt issuance costs requires debt issuance costs related recognized debt liability presented balance sheet direct deduction carrying amount debt liability consistent debt discounts company adopted new guidance effective january 1 2016 resulting reclassification deferred financing costs associated revolving credit agreement noncurrent assets reduction longterm debt retrospective basis company’s consolidated balance sheet included deferred financing costs 27 million december 31 2015 reclassified noncurrent assets longterm debt december 31 2016 20 million deferred financing costs included reduction longterm debt consolidated balance sheet see note 10 “longterm debt” 47 item 7aitem 7 management’s discussion analysis financial condition results operations management’s discussion analysis financial condition results operations contains “forwardlooking statements” within meaning section 27a securities act section 21e exchange act based management’s current expectations estimates projections business operations actual results may differ materially currently anticipated expressed forwardlooking statements result numerous factors including known material factors set forth “part item 1a risk factors” read following discussion analysis together consolidated financial statements notes statements included elsewhere annual report form 10k macroeconomic environment provide broad range products services oil gas industry offshoremanufactured products well site services business segments demand products services cyclical substantially dependent upon activity levels oil gas industry particularly customers’ willingness invest capital exploration development crude oil natural gas reserves customers’ capital spending programs generally based cash flows outlook nearterm longterm commodity prices economic growth commodity demand estimates resource production result demand products services largely sensitive future expectations respect crude oil natural gas prices consolidated results operations reflect current industry trends customer spending activities focused growth us shale play regions weaker us gulf mexico international activity addition investments deepwater markets globally slowed significantly since start prolonged industry downturn 2014 severe industry downturn started second half 2014 continued 2017 driven global economic uncertainties high levels global oil production shown table follows significant downward crude oil price volatility began late 2014 intercontinental exchange brent “brent” crude oil declining average 110 per barrel second quarter 2014 average 34 per barrel first quarter 2016 level last seen 2004 sustained material decrease crude oil prices relative 2014 primarily attributable high levels global crude oil inventories resulting significant production growth us shale plays strengthening us dollar relative currencies increased production opec demonstrated throughout 2015 november 2016 unwillingness modify production levels done previous years effort protect market share production increases partially offset growth global crude oil demand combination factors caused global supply demand imbalance crude oil resulted materially lower crude oil prices nonopec production particularly united states began decline 2015 due substantially reduced investment drilling completion activity triggered lower crude oil prices leading recovery crude oil prices 2016 2017 relative crude oil price lows experienced early 2016 late 2016 opec agreed production cuts subsequently extended december 2018 time cuts adhered result reductions global crude oil inventories favorable commodity price environment brent crude oil prices averaged 54 per barrel 2017 24 2016 average 44 per barrel 45 average 2014 similarly average price west texas intermediate “wti” 51 per barrel 2017 17 2016 average 43 per barrel 45 average 2014 yearoveryear improvement crude oil prices driven belief opec russia key ally effort stabilize global crude oil market would successful cutting production however improvements crude oil prices rapidly translated increased drilling activity us shale play developments areas permian basin 2017 leading higher domestic production spending regions began improve second half 2016 response higher crude oil prices positively influenced overall drilling completion activity regions therefore activity well site services segment well shortcycle products within offshoremanufactured products segment 2017 expectations respect longerterm price brent crude oil continue influence customers’ spending related global offshore drilling development thus significant portion activity offshoremanufactured products segment given historical volatility crude oil prices remains degree risk prices could remain current levels deteriorate due increases global inventory levels increasing domestic crude oil production slowing growth rates various global regions use alternatives sustained movement electric vehicles andor potential ongoing supplydemand imbalances conversely global supply crude oil decrease due prolonged reduction capital investment customers government instability major oilproducing nation develops energy demand continue increase united states india china sustained recovery wti brent crude oil prices could occur event continued crude oil price improvements depend upon balance global supply demand corresponding continued reduction global inventories timing difficult predict commodity prices continue improve decline demand products services could continue weak could decline natural gas prices improved slightly past year average 252 per mmbtu 2016 average 299 per mmbtu 2017 customer spending natural gas shale plays limited due associated natural gas produced unconventional oil wells north america natural gas production growth surpasses demand growth united states andor supply natural gas increase whether conventional unconventional production associated natural gas production oil wells prices natural gas could remain depressed extended period time could result fewer rigs drilling natural gas recent wti crude oil brent crude oil natural gas pricing trends follows 1 source us energy information administration february 12 2018 wti crude oil brent crude oil natural gas traded approximately 5941 per barrel 6220 per barrel 260 per mmbtu respectively overview offshoremanufactured products segment provides technologydriven highlyengineered products services offshore oil natural gas production systems facilities well certain products services offshore landbased drilling completion markets approximately 60 offshoremanufactured products sales 2015 2016 driven customers’ capital spending offshore production systems subsea pipelines repairs lesser extent upgrades existing offshore drilling rigs construction new offshore drilling rigs vessels referred herein projectdriven product revenue result segment particularly influenced global deepwater drilling production spending driven largely customers’ longerterm outlook crude oil natural gas prices deepwater oil gas development projects typically involve significant capital investments multiyear development plans projects generally undertaken larger exploration field development production companies primarily international oil companies “iocs” staterun national oil companies “nocs” using relatively conservative crude oil natural gas pricing assumptions given longer lead times associated field development believe deepwater projects approved development less susceptible shortterm fluctuations price crude oil natural gas however decline crude oil prices began 2014 continued 2017 coupled relatively uncertain outlook around shorterterm possibly longerterm pricing improvements caused exploration production companies reevaluate future capital expenditures regards deepwater projects since expensive drill complete long lead times first production may considered uneconomical relative risk involved development projects sanctioned 2017 due reengineering projects lower development costs led improvement final investment decisions “fids” projects previous two years bookings declined leading substantially reduced backlog 2017 relative recent years result segment’s projectdriven revenue declined 1694 million 57 2016 accounted 33 segment’s total revenue 2017 shortercycle manufactured products sold primarily landbased completions market impacted nearterm fluctuations commodity prices year ended december 31 2017 sales shortercycle products valves elastomer products segment increased 67 level reported last year due significant increase us landbased drilling completion activity represented 39 segments total revenues 2017 revenues generated sales products services 2017 decreased 13 2016 due primarily reduced levels service activity represented 28 segments total revenues 2017 offshoremanufactured products segment revenues operating income declined slower pace 2015 2016 well site services segment given high levels backlog existed beginning 2015 bidding quoting activity along orders customers offshoremanufactured products segment continued 2014 albeit much slower pace reflecting impact customer iocs nocs delays deferrals approving major capital intensive projects light prolonged low commodity price environment backlog offshoremanufactured products segment decreased 599 million june 30 2014 168 million december 31 2017 lowest level reported since january 2006 following table sets forth backlog offshoremanufactured products segment dates indicated millions well site services segment provides completion services lesser extent land drilling services united states including gulf mexico canada rest world us drilling completion activity turn well site services results particularly sensitive nearterm fluctuations commodity prices given callout nature operations segment notable improvement 2017 well site services continues significantly negatively affected material decline crude oil prices since 2014 within segment completion services business supplies equipment service personnel utilized completion initial production new recompleted wells activity completion services business dependent primarily upon level complexity drilling completion workover activity throughout north america well complexity increased continuing transition multiwell pads drilling longer lateral wells along increased number frac stages completed horizontal wells similarly demand drilling services operations driven activity primary land drilling markets permian basin west texas drill oil wells us rocky mountain area drill liquidsrich natural gas wells demand land drilling completion services businesses correlated changes drilling rig count north america well changes total number wells drilled total footage drilled number drilled wells completed following table sets forth summary average north american drilling rig count measured baker hughes periods indicated average north american rig count 2017 increased 441 rigs 69 level reported 2016 response increase crude oil prices discussed recent years industry experienced increased customer spending crude oil liquidsrich exploration development north american shale plays utilizing horizontal drilling completion techniques according rig count data published baker hughes us oil rig count peaked october 2014 1609 rigs declined materially since late 2014 due much lower crude oil prices totaling 747 rigs december 31 2017 us oil rig count troughed 316 rigs may 2016 lowest oil rig count current cyclical downturn december 31 2017 oil directed drilling accounted 80 total us rig count balance natural gas related us natural gasrelated working rig count declined approximately 810 rigs beginning 2012 81 rigs august 2016 29 year low total us rig count increased 525 rigs 130 since troughing may 2016 largely due improved crude oil prices decreased service costs improved technologies applied shale play regions united states exacerbating steep declines drilling activity experienced 2015 2016 many exploration production customers deferred well completions deferred completions referred industry drilled uncompleted wells “ducs” given well site services segment’s exposure level completion activity increase number ducs shortterm negative impact results operations relative rig count trends longerterm positive impact segment’s results wells completed reduced demand products services coupled reduction prices charge customers services adversely affected results operations cash flows financial position since second half 2014 current pricing environment crude oil natural gas improve declines customers may required reduce capital expenditures causing additional declines demand prices products services would adversely affect results operations cash flows financial position customers experienced significant decline revenues cash flows relative commodity price declines 2015 2016 2017 many experiencing significant reduction liquidity several exploration production companies declared bankruptcy 2015 2016 exchange equity forgiveness debt others forced sell assets effort preserve liquidity however past twelve months access capital debt markets improved certain customers factors affect business financial results include limited general global economic environment competitive pricing pressures regulatory changes tax laws united states international markets continue monitor global economy prices demand crude oil natural gas resultant impact capital spending plans operations customers order plan manage business recent developments addition capital spending invested acquisitions businesses complementary growth strategy acquisition strategy allowed us leverage existing acquired products services new geographic locations expanded breadth technology product offerings made strategic complementary acquisitions business segments recent years 2017 acquired part offshoremanufactured products segment complementary intellectual property assets expand global crane manufacturing service operations well riser testing inspection repair service offerings addition december 12 2017 entered agreement acquire geodynamics provides oil gas perforation systems downhole tools support completion intervention wireline well abandonment operations geodynamics operations reported separate business segment beginning first quarter 2018 name “downhole technologies” january 12 2018 closed geodynamics acquisition purchase price consisting 295 million cash net cash acquired funded borrowings revolving credit facility ii approximately 866 million shares common stock market value approximately 295 million closing date iii unsecured 25 million promissory note bears interest 25 per annum matures july 12 2019 years ended december 31 2017 2016 geodynamics generated 1664 million 721 million revenues respectively 244 million 01 million net income respectively following close geodynamics acquisition completed several financing transactions extend maturity debt providing us flexibility repay outstanding borrowings revolving credit facility anticipated future cash flows operations january 30 2018 sold 2000 million aggregate principal amount 150 convertible senior notes due 2023 private placement qualified institutional buyers received net proceeds offering notes approximately 1940 million deducting fees estimated expenses used net proceeds sale notes repay portion borrowings outstanding revolving credit facility substantially drawn fund cash portion purchase price geodynamics acquisition concurrently notes offering amended revolving credit facility entering amended revolving credit facility extend maturity date facility january 2022 permit issuance notes provide 3500 million borrowing capacity see note 18 “subsequent events” consolidated financial statements included annual report form 10k discussion recent developments consolidated results operations prior acquisition geodynamics managed measured business performance two distinct operating segments well site services offshoremanufactured products selected financial information business segment years ended december 31 2017 2016 2015 summarized follows dollars thousands 1 gross profit computed deducting product service costs revenues excludes depreciation expense gross profit percentage revenues also referred herein gross margin year ended december 31 2017 compared year ended december 31 2016 net loss year ended december 31 2017 849 million 169 per diluted share included 34 million 24 million aftertax 005 per diluted share severance downsizing charges 292 million 058 per diluted share additional noncash income tax expense related us tax law changes decision carryback net operating losses incurred 2016 taxable income reported 2014 excluding charges 2017 net loss would 533 million 106 per diluted share results compare net loss 464 million 092 per diluted share reported year ended december 31 2016 results 2016 included 52 million 33 million aftertax 006 per diluted share severance downsizing charges excluding charges net loss would 431 million 086 per diluted share consolidated results operations also reflect current industry trends customer spending activities focused growth us shale play regions weaker us gulf mexico international activity addition investments deepwater markets globally slowed significantly since start recent industry downturn 2014 revenues consolidated revenues decreased 238 million 3 2017 compared 2016 due declines offshoremanufactured products segment substantially offset improvements well site services segment 2017 50 consolidated revenues driven us shale play activity well site services segment revenues increased 1031 million 56 2017 compared 2016 due growth completion services drilling services revenues completion services revenues increased 712 million 44 2017 compared 2016 impact higher commodity price environment lower service costs driving increased us landbased activity partially offset timing customer activity certain international markets number completion services job tickets 2017 increased 26 prioryear revenue per completion services job increased 13 yearoveryear result higher completions activity increased well completion complexity favorable job mix improved pricing drilling services revenues increased 319 million 141 545 million 2017 2016 due higher utilization land drilling rigs increased average 12 2016 average 29 2017 increased dayrates offshoremanufactured products segment revenues decreased 1269 million 25 2017 compared 2016 primarily result decline demand deepwater projectdriven products primarily subsea pipeline infrastructure offshore production drilling products lower levels service activities backlog position trended significantly lower since mid2014 deepwater projectdriven revenue declines partially offset 67 increase sales shortcycle products shortercycle products elastomers valves benefited increased landbased drilling completion activity united states bidding quoting activity along orders customers offshoremanufactured products segment continued albeit much slower pace reflecting impact customer delays deferrals approving major capital intensive projects light prolonged low commodity price environment backlog offshoremanufactured products segment decreased 199 million december 31 2016 168 million december 31 2017 cost sales services consolidated cost sales services decreased 60 million 1 2017 compared 2016 result decreased cost sales services offshoremanufactured products segment 794 million 23 partially offset 734 million 42 increase cost services well site services segment consolidated gross profit percentage revenues decreased 24 2016 22 2017 gross margin expansion within well site services segment offset impact significant reduction sales projectdriven products offshoremanufactured products segment well site services segment cost services increased 734 million 42 2017 compared 2016 result 472 million 31 increase completion services cost services 262 million 120 increase service costs drilling services business increases cost services strongly correlated revenue increases businesses reflect increase landbased activity united states costs increases included higher personnel costs increased employee overtime costs associated headcount additions made 2017 well site services segment gross profit percentage revenues increased 6 2016 14 2017 completion services gross profit percentage revenues increased 6 2016 14 2017 primarily due increase service revenues drilling services gross profit percentage revenues improved 4 2016 12 2017 primarily due increased rig utilization cost absorption offshoremanufactured products segment cost sales decreased 794 million 23 2017 compared 2016 reflecting decrease projectdriven revenues gross profit percentage revenues decreased 31 2016 29 2017 due primarily reported 57 decline sales projectdriven products partially offset 67 increase sales shortcycle products selling general administrative expenses selling general administrative expenses decreased 92 million 7 2017 prioryear primarily due impact cost reduction initiatives lower employee severancerelated charges 2017 partially offset higher incentive compensation accruals depreciation amortization depreciation amortization expense decreased 111 million 9 2017 compared 2016 primarily due certain assets becoming fully depreciated coupled overall lower levels capital expenditures operating income expense net operating income expense net moved operating income 58 million 2016 operating expense 13 million 2017 reflecting primarily impact foreign currency exchange gains losses recognized respective periods operating loss consolidated operating loss increased 693 million 2016 739 million 2017 primarily result decrease operating income offshoremanufactured products segment 489 million due continued decline offshorerelated activity substantially offset improvement 488 million operating losses well site services segment corporate expenses 529 million 2017 increase 45 million prioryear due primarily higher incentive compensation accruals increased stockbased compensation expense acquisition related expenses incurred 2017 interest expense interest income net interest expense decreased 06 million 13 2017 compared 2016 primarily due reduction average amounts outstanding revolving credit facility partially offset higher unused commitment fees paid lenders interest expense percentage total debt outstanding increased 65 2016 173 2017 due increased proportion interest expense associated unused commitment fees lower average borrowings outstanding revolving credit facility noncash amortization debt issuance costs income tax expense income tax provision 2017 74 million income tax benefit 218 million 281 pretax losses excluding discrete charges discussed compared income tax benefit 269 million 367 pretax losses 2016 lower effective tax rate benefit 2017 excluding discrete charges attributable shift mix domestic pretax losses foreign pretax income compared prioryear period additional valuation allowances provided net operating losses certain domestic foreign jurisdictions december 22 2017 united states enacted tax reform legislation resulted significant changes us tax related law including certain key federal income tax provisions applicable multinational companies result tax law changes recorded 282 million incremental noncash income tax expense related us transition tax unremitted foreign subsidiary earnings provide valuation allowances foreign tax credit carryforwards recorded assets prior us tax reform additionally remeasured us deferred tax assets liabilities reflect lower us corporate income tax rate reduced 35 21 company also recorded discrete tax charge 10 million third quarter 2017 related decision carryback 2016 us net operating losses 2014 taxable income longer term basis certain aspects tax reform legislation expected positive impact future us income tax expense including reduction us corporate income tax rate comprehensive income loss comprehensive income 118 million 2017 compared loss 196 million 2016 due fluctuations foreign currency exchange rates compared us dollar certain international operations reportable segments 2017 2016 currency translation adjustments recognized component comprehensive income loss primarily attributable united kingdom brazil 2017 exchange rates british pound strengthened compared us dollar brazilian real weakened compared us dollar compares 2016 exchange rates british pound weakened compared us dollar brazilian real strengthened compared us dollar british pound impacted united kingdom’s vote exit european union late june 2016 year ended december 31 2016 compared year ended december 31 2015 net loss continuing operations year end december 31 2016 464 million 092 per diluted share included 52 million 33 million aftertax 006 per diluted share severance downsizing charges excluding charges net loss continuing operations 2016 would 431 million 086 per diluted share results compare net income continuing operations 284 million 055 per diluted share reported year ended december 31 2015 results 2015 included 64 million 46 million aftertax 009 per diluted share severance downsizing charges 34 million 24 million aftertax 005 per diluted share provision leasehold restoration higher effective tax rate driven primarily 41 million 008 per diluted share valuation allowance recorded certain tax loss carry forwards various international jurisdictions 36 million 007 per diluted share tax adjustments certain prior period nondeductible items excluding charges effect higher effective tax rate 2015 net income continuing operations would 431 million 084 per diluted share revenues consolidated revenues decreased 4055 million 37 2016 compared 2015 well site services segment revenues decreased 1902 million 51 2016 compared 2015 due decreases completion services drilling services revenues completion services revenues decreased 1450 million 47 2016 compared 2015 primarily due 55 decrease number service tickets completed result continued extreme competitive pressures depressed activity levels us shale basins drilling services revenues decreased 452 million 67 2016 compared 2015 primarily result significant reduction utilization drilling rigs average 33 2015 average 12 2016 due primarily continued weak commodity price environment offshoremanufactured products segment revenues decreased 2153 million 30 2016 compared 2015 primarily result lower contributions across segment’s product lines driven decline demand drilling products productionrelated products service activities well backlog position trended lower since mid2014 revenue declines partially offset modest fullyear increases sales subsea pipeline shortercycle product revenues shortercycle products elastomers benefited increased landbased drilling completion activity second half 2016 united states backlog segment decreased 199 million december 31 2016 340 million december 31 2015 490 million december 31 2014 due project deferrals delays award timing resulting continued depressed commodity price environment cost sales services consolidated cost sales services decreased 2589 million 33 2016 compared 2015 result decreased cost sales services well site services offshoremanufactured products segments 1186 million 40 1403 million 29 respectively cost sales services decreasing slower rate revenues consolidated gross profit percentage revenues decreased 29 2015 24 2016 due primarily significantly lower margins realized well site services segment 2016 well site services segment cost services decreased 1186 million 40 2016 compared 2015 result 841 million 35 decrease completion services cost services 345 million 61 decrease drilling services cost services decreases cost services strongly correlated revenue decreases businesses reflect reduction variable costs along cost reduction measures implemented response material decrease revenues caused industry activity declines well site services segment gross profit percentage revenues decreased 22 2015 6 2016 completion services gross profit percentage revenues decreased 23 2015 6 2016 primarily due significant decline activity competitive industry pricing pressures drilling services gross profit percentage revenues decreased 17 2015 4 2016 primarily due decreased rig utilization cost absorption offshoremanufactured products segment cost sales decreased 1403 million 29 2016 compared 2015 correlation decrease revenues gross profit percentage revenues remained generally constant 31 2016 compared 32 2015 selling general administrative expenses selling general administrative expenses decreased 86 million 7 2016 compared 2015 impact reduced sales commissions travel entertainment expenses compensation costs partially offset higher provision bad debt professional fees depreciation amortization depreciation amortization expense decreased 125 million 10 2016 compared 2015 primarily due certain assets becoming fully depreciated since december 31 2015 due downturn replaced lower levels capital expenditures operating income operating income increased 11 million 58 million 2016 compared 2015 primarily due increases foreign currency exchange rate gains operating income loss consolidated operating income loss moved operating income 550 million 2015 operating loss 693 million 2016 driven impact significant revenue declines due lower industry activity competitive industry pricing pressures well site services operating loss increased 637 million 1079 million 2016 offshoremanufactured products operating income declined 593 million 871 million 2016 corporate expenses 485 million 2016 compared 472 million 2015 interest expense interest income net interest expense decreased 09 million 16 2016 compared 2015 primarily due lower amounts outstanding revolving credit facility partially offset unused commitment fees paid lenders interest expense percentage total average debt outstanding increased 36 2015 65 2016 due increased proportion interest expense associated unused commitment fees result lower average borrowings outstanding revolving credit facility income tax benefit provision income tax provision year ended december 31 2016 income tax benefit 269 million 367 pretax losses compared income tax expense 222 million 439 pretax income year ended december 31 2015 effective tax rate year ended december 31 2015 influenced 41 million tax valuation allowance recorded certain deferred tax assets 36 million deferred tax adjustment certain prior period nondeductible items comprehensive loss comprehensive loss decreased 286 million 2015 196 million 2016 due primarily fluctuations currency exchange rates compared us dollar certain international operations reportable segments year ended december 31 2016 currency translation adjustments recognized component comprehensive loss primarily attributable united kingdom brazil 2016 exchange rate british pound weakened compared us dollar exchange rate brazilian real strengthened compared us dollar british pound impacted united kingdom’s vote exit european union late june 2016 liquidity capital resources matters primary liquidity needs fund operating capital expenditures past included expanding upgrading offshoremanufactured products manufacturing facilities equipment replacing increasing completion services assets funding new product development general working capital needs addition capital used repay debt fund strategic business acquisitions fund stock repurchase program primary sources funds cash flow operations proceeds borrowings credit facilities capital market transactions discussed “recent developments” recently completed number strategic transactions furtherance growth strategy believe favorably impact future results operations cash flows operations well enhance debt capital structure see note 18 “subsequent events” consolidated financial statements included annual report form 10k additional information respect acquisition geodynamics january 12 2018 issuance 2000 million principal amount notes amendment revolving credit facility extending maturity january 2022 operating activities cash flows totaling 954 million provided operations year ended december 31 2017 compared 1493 million provided operations year ended december 31 2016 2017 2016 324 million 903 million respectively provided net working capital reductions included decreases accounts receivable inventories investing activities total 476 million cash used investing activities year ended december 31 2017 compared 293 million used year ended december 31 2016 capital expenditures totaled 352 million 297 million years ended december 31 2017 2016 respectively capital expenditures years consisted principally purchases completion services equipment expansion upgrading offshoremanufactured products segment facilities various capital spending initiatives 2017 also invested 129 million within offshoremanufactured products segment acquire complementary intellectual property assets expand global crane manufacturing service operations well riser testing inspection repair service offerings january 12 2018 acquired geodynamics purchase price consisting 295 million cash net cash acquired funded borrowings revolving credit facility ii approximately 866 million shares common stock market value approximately 295 million closing date iii unsecured 25 million promissory note expect spend 60 million 70 million total capital expenditures 2018 upgrade maintain offshoremanufactured products facilities equipment replace upgrade completion services equipment expand maintain geodynamics facilities equipment fund various capital spending projects whether planned expenditures actually spent 2018 depends industry conditions project approvals schedules vendor delivery timing free cash flow generation careful monitoring levels liquidity plan fund capital expenditures available cash internally generated funds borrowings amended revolving credit facility foregoing capital expenditure expectations include funds might spent future strategic acquisitions company could pursue depending economic environment industry availability transactions prices deemed attractive company december 31 2017 cash totaling 535 million 481 million held international subsidiaries enactment tax reform legislation december 22 2017 expect use portion cash held international subsidiaries reduce borrowings 2018 without triggering incremental tax expense financing activities net cash 651 million used financing activities year ended december 31 2017 primarily attributable net repayment 422 million borrowings revolving credit facility repurchases common stock totaling 163 million net cash 849 million used financing activities year ended december 31 2016 primarily associated net repayment 807 million borrowings revolving credit facility january 12 2018 partially funded geodynamics acquisition borrowings available revolving credit facility january 30 2018 issued 2000 million principal amount notes entered amended revolving credit facility extend maturity facility january 2022 provide total lender commitments 350 million net proceeds notes offering approximately 1940 million deducting discounts estimated expenses used repay portion amounts outstanding revolving credit facility believe cash hand cash flow operations available borrowings amended revolving credit facility sufficient meet liquidity needs coming twelve months plans assumptions change inaccurate make acquisitions may need raise additional capital acquisitions management believes acquisitions continue key element business strategy timing size success acquisition effort associated potential capital commitments unpredictable uncertain may seek fund part efforts proceeds debt andor equity issuances ability obtain capital additional projects implement growth strategy longer term depend upon future operating performance financial condition broadly availability equity debt financing capital availability affected prevailing conditions industry global economy global financial markets factors many beyond control addition debt service requirements could based higher interest rates shorter maturities could impose significant burden results operations financial condition issuance additional equity securities could result significant dilution stockholders revolving credit facility revolving credit facility governed credit agreement dated may 28 2014 amended credit agreement among company lenders party thereto wells fargo bank na administrative agent swing line lender issuing bank royal bank canada syndication agent compass bank documentation agent december 31 2017 revolving credit facility scheduled mature may 28 2019 december 31 2017 borrowings outstanding credit agreement 212 million outstanding letters credit leaving 1593 million available drawn revolving credit facility 2017 applicable margin libor 150 also paid quarterly commitment fee 0375 2017 interest expense percentage average total debt outstanding increased 65 2016 173 2017 increase weighted average interest rate attributable increased proportion interest expense associated unused commitment fees lower average borrowings outstanding revolving credit facility noncash amortization debt issuance costs amended restated credit agreement january 30 2018 wells fargo bank na administrative agent lenders party thereto collateral agent secured parties thereunder lenders financial institutions time party thereto “amended credit agreement” amended credit agreement governs amended revolving credit facility amended revolving credit facility provides 350 million lender commitments matures january 2022 amended revolving credit facility 50 million available issuance letters credit amounts outstanding amended revolving credit facility bear interest libor plus margin 175 300 base rate plus margin 075 200 case based ratio total net funded debt consolidated ebitda defined amended credit agreement must also pay quarterly commitment fee 025 050 based ratio total net funded debt consolidated ebitda unused commitments amended credit agreement amended credit agreement contains customary financial covenants restrictions specifically must maintain interest coverage ratio defined ratio consolidated ebitda consolidated interest expense least 30 10 maximum senior secured leverage ratio defined ratio senior secured debt consolidated ebitda greater 225 10 total net leverage ratio defined ratio total net funded debt consolidated ebitda greater 40 10 fiscal quarter ending december 31 2018 greater 375 10 thereafter financial covenants give pro forma effect issuance notes acquired businesses annualization ebitda acquired businesses fiscal quarters ending march 31 2018 june 30 2018 factors considered calculations ratios defined amended credit agreement consolidated ebitda consolidated interest defined exclude goodwill impairments losses extinguishment debt discount amortization noncash charges december 31 2017 compliance debt covenants expect continue compliance throughout 2018 borrowings amended credit agreement secured pledge substantially assets domestic subsidiaries obligations amended credit agreement guaranteed significant domestic subsidiaries amended credit agreement occurrence specified change control events involving company would constitute event default would permit banks among things accelerate maturity facility cause become immediately due payable full january 31 2018 970 million outstanding amended revolving credit facility additional 212 million outstanding letters credit 150 convertible senior notes january 30 2018 issued 2000 million aggregate principal amount notes pursuant indenture dated january 30 2018 “indenture” us wells fargo bank na trustee net proceeds deducting discounts expenses approximately 1940 million used net proceeds repay portion outstanding borrowings revolving credit facility notes bear interest rate 150 per year maturity interest payable semiannually arrears february 15 august 15 year beginning august 15 2018 addition additional interest special interest may accrue notes certain circumstances described indenture notes mature february 15 2023 unless earlier repurchased redeemed converted initial conversion rate 222748 shares common stock per 1000 principal amount notes equivalent initial conversion price approximately 4489 per share common stock conversion rate thus conversion price may adjusted certain circumstances described indenture noteholders may convert notes option upon certain circumstances described indenture settle conversions paying delivering applicable cash shares common stock combination cash shares common stock election based applicable conversion rates elect deliver cash combination cash shares common stock consideration due upon conversion based defined observation period notes redeemable whole part option time february 15 2021 cash redemption price equal principal amount notes redeemed plus accrued unpaid interest excluding redemption date last reported sale price per share common stock exceeds 130 conversion price least 20 trading days 30 consecutive trading days ending including trading day immediately date send related redemption notice specified change control events involving company defined indenture occur noteholders may require us repurchase notes cash repurchase price equal principal amount notes repurchased plus accrued unpaid interest initial carrying amount notes recorded consolidated balance sheet 2018 less 2000 million principal amount notes accordance applicable accounting principles reflective estimated fair value similar debt instrument conversion feature record difference debt discount amortized interest expense term notes similar amount allocated additional paidin capital result amortization interest expense recognize related notes accounting purposes greater cash interest payments pay notes stock repurchase program july 29 2015 board directors approved termination existing share repurchase program authorized new program providing repurchase 1500 million common stock following extension scheduled expire july 29 2017 july 26 2017 board directors extended share repurchase program one year july 29 2018 2017 repurchased 562 thousand shares common stock program total cost 163 million shares common stock repurchased program 2016 2015 total 1059 million stock 27 million shares repurchased programs amount remaining current share repurchase authorization december 31 2017 1205 million subject applicable securities laws purchases times amounts company deems appropriate contractual obligations following summarizes contractual obligations december 31 2017 effect obligations expected liquidity cash flow next five years thousands 1 discussed note 18 “subsequent events” acquired geodynamics purchase price consisting 295 million cash net cash acquired funded borrowings revolving credit facility ii approximately 866 million shares common stock iii unsecured 250 million promissory note bears interest 25 per annum matures july 12 2019 connection acquisition assumed noncancellable operating lease obligations approximately 15 million january 30 2018 issued 200 million aggregate principal amount notes bear interest rate 150 per year maturity net proceeds deducting discounts expenses approximately 194 million used net proceeds repay portion outstanding borrowings revolving credit facility amended restated credit agreement january 30 2018 extend maturity revolving credit facility january 2022 permit issuance notes provide 350 million borrowing capacity january 31 2018 970 million outstanding amended revolving credit facility additional 212 million outstanding letters credit registration rights agreement connection geodynamics acquisition issued approximately 866 million shares common stock entity acquired business granted entity certain parties registration rights pursuant registration rights agreement agreed among things file make effective registration statement registering resale shares ii facilitate two underwritten offerings selling stockholders iii facilitate certain block trades selling stockholders iv provide certain piggyback registration rights selling stockholders filed shelf registration statement resale shares accordance agreement january 19 2018 effects inflation revenues results operations materially impacted inflation past three fiscal years offbalance sheet arrangements december 31 2017 offbalance sheet arrangements defined item 303a4ii regulation sk tax matters see note 2 summary significant accounting policies note 12 income taxes consolidated financial statements included annual report form 10k information respect tax matters critical accounting policies consolidated financial statements included annual report form 10k prepared accordance accounting principles generally accepted united states “gaap” require management make numerous estimates assumptions actual results could differ estimates assumptions thus impacting reported results operations financial position critical accounting policies estimates described section important depiction financial condition results operations application requires management’s subjective judgments making estimates effect matters inherently uncertain describe significant accounting policies fully note 2 consolidated financial statements included annual report form 10k accounting contingencies contingent liabilities future claims made estimates amount eventual cost liquidate liabilities claims liabilities claims sometimes involve threatened actual litigation damages quantified made assessment exposure recorded provision accounts cover expected loss claims liabilities estimated based fair value experience matters appropriate advice outside counsel outside experts upon ultimate resolution uncertainties future reported financial results impacted difference estimates actual amounts paid settle liability examples areas made important estimates future liabilities include income taxes litigation insurance claims warranty claims contractual claims obligations discontinued operations tangible intangible assets including goodwill tangible longlived assets totaled 4989 million december 31 2017 goodwill totaled 2680 million 21 total assets december 31 2017 intangible assets totaled 503 million 4 total assets december 31 2017 assessment impairment longlived assets including intangibles conducted whenever changes facts circumstances indicate loss value may occurred indicators impairment might include persistent negative economic trends affecting markets serve recurring losses lowered expectations future cash flows expected generated assets determination amount impairment would based quoted market prices available upon judgments future operating cash flows generated assets throughout estimated useful lives industry cyclical estimates period future cash flows generated well predictability cash flows determination whether decline value investment occurred significant impact carrying value assets periods prolonged cycles may result impairment losses based december 2017 review carrying values asset groups recoverable impairment losses recorded however prolonged continuation current industry downturn may result changes estimates projected operating cash flows could potentially cause us impair values longlived assets including finitelived intangible assets evaluate reporting unit annually event occurs circumstances change suggest carrying amount may recoverable reporting units goodwill december 31 2017 include offshoremanufactured products completion services remaining goodwill drilling services reporting unit part goodwill impairment analysis may first perform qualitative assessment determine whether likely likelihood 50 percent fair value reporting unit less carrying amount including goodwill determined likely fair value reporting unit greater carrying amount performing quantitative assessment unnecessary developing qualitative assessment meet “morelikelythannot” threshold reporting unit goodwill balance sheet would assessed separately different relevant events circumstances would evaluated unit determined likely fair value reporting unit less carrying value quantitative impairment test performed accounting standards also give us option bypass qualitative assessment reporting unit period proceed directly performing quantitative impairment test 2017 given impact low crude oil prices operating results performed full quantitative impairment test estimated fair value reporting unit compared fair value book carrying value none reporting units publicly quoted market prices determine value willing buyers sellers would place reporting unit routine sale process level 3 fair value measurement analysis target valuation would placed reporting unit market participants based historical projected results throughout full market cycle value reporting unit based trough peak earnings utilize depending circumstances combination trading multiples analyses discounted projected cash flow calculations estimated terminal values acquisition comparables discount projected cash flows using longterm weighted average cost capital reporting unit based estimate investment returns would required market participant fair value reporting units primarily affected future oil natural gas prices anticipated spending customers cost capital part process assess goodwill impairment also compare total market capitalization company sum fair values reporting units assess reasonableness aggregated fair value carrying amount reporting unit exceeds fair value goodwill considered impaired impairment loss recorded date goodwill impairment test 2017 fair value offshoremanufactured products completion services reporting units substantially exceeded carrying values december 31 2017 market capitalization 14 billion compared carrying value equity 11 billion prolonged continuation current industry downturn may result changes estimates forward cash flow timing amounts well comparable trading multiples may result goodwill impairment losses revenue cost recognition revenue sale products accounted utilizing percentageofcompletion method recognized delivery acceptance customer occurred title significant risks ownership passed customer collectability probable pricing fixed determinable product sales terms include significant postperformance obligations significant projects revenues recognized percentageofcompletion method measured percentage costs incurred date compared estimated total costs contract costtocost method billings contracts excess costs incurred estimated profits classified deferred revenue costs incurred estimated profits excess billings percentageofcompletion contracts recognized unbilled receivables management believes method appropriate measure progress large contracts provisions estimated losses uncompleted contracts made period losses determined factors may affect future project costs margins include weather production efficiencies availability costs labor materials subcomponents factors significantly impact accuracy estimates materially impact future reported earnings well site services segment service revenues recognized based periodic usually daily rate services rendered proceeds customers cost oilfield rental equipment damaged lost downhole reflected gains losses disposition assets considering writeoff remaining net book value equipment drilling services contracts based footage drilled recognize service revenues footage drilled revenues exclude taxes assessed based revenues sales value added taxes cost goods sold includes direct material labor costs related contract performance indirect labor supplies tools repairs selling general administrative costs charged expense incurred allowance doubtful accounts determination collectability amounts due customer accounts requires us make judgments regarding future events trends allowances doubtful accounts determined based continuous process assessing portfolio individual customer basis taking account current market conditions trends process consists thorough review historical collection experience current aging status customer accounts financial condition customers based review factors establish adjust allowances specific customers substantial portion revenues come international oil companies international oilfield service companies governmentowned governmentcontrolled oil companies worldwide oil gas drilling activity continue decline creditworthiness customers could deteriorate may unable pay receivables requiring additional allowances recorded december 31 2017 2016 allowance bad debts totaled 73 million 85 million 33 35 gross accounts receivable respectively historically chargeoffs provisions allowance doubtful accounts given year immaterial consolidated financial statements inventory reserves inventory carried lower cost estimated net realizable value determine reserves inventory based historical usage inventory onhand assumptions future demand market conditions estimates potential alternative uses usually limited inventory consists specialized spare parts work process raw materials support ongoing manufacturing operations large installed base specialized equipment used throughout oilfield customers rely us stock specialized items ensure equipment repaired serviced timely manner estimated carrying value inventory determined average cost specificidentification method depends upon demand driven oil gas drilling well remediation activity depends turn upon oil gas prices general outlook economic growth worldwide available financing customers political stability major oil gas producing areas potential obsolescence various types equipment sell among factors reserve excess damaged andor obsolete inventory maintained based age turnover condition inventory december 31 2017 2016 inventory reserves totaled 156 million 148 million 85 78 gross inventory respectively estimation useful lives selection useful lives many assets requires judgments operating personnel length useful lives judgment area influenced historical experience operating assets technological developments expectations future demand assets estimates long short might eventually report disproportionate number losses gains upon disposition retirement longlived assets believe estimates useful lives appropriate stockbased compensation estimate fair value stock compensation made pursuant awards 2001 equity participation plan “plan” respective dates grant estimate fair value restricted stock award stock option determines amount stock compensation expense net estimated forfeitures recognize future use blackscholesmerton “closed form” model value stock options awarded plan fair value servicebased restricted stock awarded plan determined quoted market price company’s common stock date grant fair value performancebased restricted stock awards valued using monte carlo simulation model due inclusion performance metrics based solely performance company’s common stock income taxes follow liability method accounting income taxes accordance current accounting standards regarding accounting income taxes method deferred income taxes recorded based upon differences financial reporting tax bases assets liabilities measured using enacted tax rates laws effect time underlying assets liabilities recovered settled december 22 2017 legislation commonly known tax cuts jobs act tax reform legislation signed law enacts significant changes us tax related laws including certain key us federal income tax provisions applicable oilfield service manufacturing companies company us state regulatory bodies finalized potential changes existing laws regulations may result new us tax related laws accordance secs staff accounting bulletin 118 “sab 118” recorded provisional estimates reflect effect provisions recently enacted us tax related laws income tax assets liabilities december 31 2017 continue collect additional information support refine calculations impact changes operations recorded income tax assets liabilities may result adjustments december 2018 allowed sab 118 prior december 22 2017 majority earnings international subsidiaries considered indefinitely reinvested outside united states provision us income taxes made earnings however certain historical foreign earnings considered indefinitely reinvested outside united states subject us income tax earned subsidiaries distributed earnings form dividends otherwise generally subject us income taxes subject adjustment foreign tax credits withholding taxes payable various foreign countries 2016 repatriated 201 million international subsidiaries used reduce outstanding borrowings revolving credit facility december 31 2017 total investment foreign subsidiaries considered permanently reinvested except cumulative foreign earnings deemed repatriated tax reform legislation record valuation allowance reporting period management believes likely deferred tax asset created realized assessment requires analysis changes tax laws available positive negative evidence including losses recent years reversals temporary differences forecasts future income assessment future business assumptions tax planning strategies 2017 2016 recorded valuation allowances primarily respect net operating loss carryforwards certain operations outside united states result changes us tax laws 2017 recorded valuation allowance respect foreign tax credit carryforwards fourth quarter 2017 calculation tax liabilities involves assessing uncertainties regarding application complex tax regulations recognize liabilities tax expenses based estimate whether extent additional taxes due ultimately determine payment amounts unnecessary reverse liability recognize tax benefit period determine liability longer necessary record additional charge provision taxes period determine recorded tax liability less expect ultimate assessment recent accounting pronouncements time new accounting pronouncements issued financial accounting standards board “fasb” adopted us specified effective date unless otherwise discussed management believes impact recently issued standards yet effective material impact consolidated financial statements upon adoption may 2014 fasb issued guidance revenue contracts customers supersede current revenue recognition guidance including industryspecific guidance underlying principle entity recognize revenue depict transfer goods services customers amount entity expects entitled receive exchange goods services guidance permitted use either full retrospective modified retrospective transition method adopted guidance january 1 2018 using modified retrospective transition method applied contracts completed date january 1 2018 required recognize cumulative effect adopting guidance adjustment opening balance retained earnings prior periods retrospectively adjusted based detailed analysis existing contracts customers concluded cumulative impact new standard material consolidated financial statements january 1 2018 accordance guidance expand revenue recognition disclosures 2018 address new qualitative quantitative requirements also required evaluate implications new revenue recognition guidance contracts customers acquired connection geodynamics acquisition see note 18 subsequent events expect complete evaluation march 31 2018 february 2016 fasb issued guidance leases introduces recognition lease assets lease liabilities lessees leases shortterm nature new standard requires modified retrospective transition capital operating leases existing entered beginning earliest comparative period presented financial statements adopt guidance january 1 2019 upon initial evaluation believe key change upon adoption balance sheet recognition leases income statement recognition appears similar current methodology future obligations operating leases december 31 2017 summarized note 13 “commitments contingencies” march 2016 fasb issued guidance employee sharebased payment accounting modifies existing guidance related accounting forfeitures employer tax withholding stockbased compensation financial statement presentation excess tax benefits deficiencies adopted guidance january 1 2017 adoption standard retrospective impact financial statements impact income tax provision 2017 material january 2017 fasb issued guidance simplifies test goodwill impairment revised standard longer required determine implied fair value goodwill assigning fair value reporting unit individual assets liabilities reporting unit acquired business combination revised guidance requires prospective transition permits early adoption interim annual goodwill impairment tests performed january 1 2017 adopted standard effective january 1 2017 see note 8 goodwill intangible assets item 7aitem 7 management’s discussion analysis financial condition results operations management’s discussion analysis financial condition results operations contains “forwardlooking statements” within meaning section 27a securities act section 21e exchange act based management’s current expectations estimates projections business operations actual results may differ materially currently anticipated expressed forwardlooking statements result numerous factors including known material factors set forth “part item 1a risk factors” read following discussion analysis together consolidated financial statements notes statements included elsewhere annual report form 10k provide broad range products services oil gas industry well site services downhole technologies offshoremanufactured products business segments demand products services cyclical substantially dependent upon activity levels oil gas industry particularly customers’ willingness invest capital exploration development crude oil natural gas reserves customers’ capital spending programs generally based cash flows outlook nearterm longterm commodity prices economic growth commodity demand estimates resource production result demand products services largely sensitive future expectations respect crude oil natural gas prices consolidated results operations 2018 include contributions geodynamics falcon acquisitions completed first quarter 2018 reflect impact current industry trends customer spending activities directed toward growth us shale play regions general slowing investments deepwater markets globally since start prolonged industry downturn 2014 recent developments addition capital spending invested acquisitions businesses complementary growth strategy acquisition strategy allowed us leverage existing acquired products services new geographic locations expanded breadth technology product offerings allowing us leverage cost structure made strategic complementary acquisitions business segments recent years december 12 2017 entered agreement acquire geodynamics inc geodynamics provides oil gas perforation systems downhole tools support completion intervention wireline well abandonment operations january 12 2018 closed acquisition geodynamics total consideration approximately 615 million geodynamics acquisition consisting 295 million cash net cash acquired ii approximately 866 million shares common stock iii unsecured 25 million promissory note connection geodynamics acquisition completed several financing transactions extend maturity debt providing us flexibility repay outstanding borrowings revolving credit facility anticipated future cash flows operations january 30 2018 sold 2000 million aggregate principal amount 150 convertible senior notes due february 2023 notes private placement qualified institutional buyers received net proceeds offering notes approximately 194 million deducting issuance costs used net proceeds sale notes repay portion borrowings outstanding revolving credit facility revolving credit facility substantially drawn fund cash portion purchase price paid geodynamics concurrently notes offering amended revolving credit facility amended revolving credit facility extend maturity date january 30 2022 permit issuance notes provide 350 million borrowing capacity february 28 2018 acquired falcon flowback services llc falcon full service provider flowback well testing services separation recovery fluids solid debris proppant used hydraulic fracturing operations falcon provides additional scale diversity completion services business key shale plays united states acquisition price 842 million net cash acquired subject customary postclosing purchase price adjustments falcon acquisition funded borrowings amended revolving credit facility see note 5 business acquisitions note 7 longterm debt consolidated financial statements included annual report form 10k discussion recent developments macroeconomic environment macroeconomic environment energy sector volatile recent years significant downward crude oil price volatility began early fourth quarter 2014 continued downward trend 2016 response weak crude oil prices organization petroleum exporting countries opec along russia agreed reduce crude oil production late 2016 effort rebalance crude oil supply demand market crude oil prices began improve second half 2017 carried 2018 crude oil prices rose highest levels since downturn began late 2014 improving customers cash flow potentially driving invest additional capital increase production additionally advancements technologies improved operating efficiencies allowed us exploration production industry lower breakeven price oil gas production us energy information administration eia estimates us crude oil production averaged 109 million barrels per day 2018 approximately 17 2017 average reaching highest level experiencing largest volume growth record however fourth quarter 2018 crude oil prices declined approximately 40 due part higher expected supply growth united states russia saudi arabia well concerns possible slowing global demand growth response precipitous decline crude oil prices opec russia agreed reduce production canadian government mandated production shutin december 2018 events provide support balanced supply demand environment later 2019 eia currently forecasts average price per barrel crude oil 2019 approximately 15 2018 average shown table follows west texas intermediate wti brent crude oil prices averaged 65 per barrel 71 per barrel respectively 2018 28 32 respectively compared 2017 average prices rising crude oil prices rapidly translated increased us land oriented drilling completion activity 2017 2018 areas concentrated activity permian basin led record high domestic production spending us shale play regions positively influenced overall drilling completion activity average us rig count 2018 improving 18 compared 2017 drove improvements activity well site services segment well demand downhole technologies products shortcycle products offered offshoremanufactured products segment production permian basin grew rapid rate tested limits pipeline take away capacity basin 2018 leading significant differential crude oil prices realized locally eg wtimidland compared brent crude oil prices limited revenue cash flow growth many customers discussed crude oil prices declined materially fourth quarter 2018 wti closing 45 per barrel december 28 2018 decline crude oil prices moderating impact fourth quarter 2018 consolidated results operations particularly us shale play regions likely negatively impact customers 2019 budgets result expect certain customerdriven activity declines early 2019 operators reassess budgets plans light lower commodity prices current expected future pricing wti crude continue influence customers’ spending us shale play developments look spend within generated cash flow ranges expectations longerterm price brent crude oil continue influence customers’ spending related global offshore drilling development thus significant portion activity offshoremanufactured products segment given historical volatility crude oil prices remains degree risk prices could remain current levels deteriorate due increases global inventory levels increasing domestic crude oil production us china trade tensions sanctions waivers iranian production civil unrest libya increasing price differentials markets slowing growth rates china global regions use alternative fuels improved vehicle fuel efficiency sustained movement electric vehicles andor potential ongoing supplydemand imbalances conversely global supply crude oil decrease due prolonged reduction capital investment customers government instability major oilproducing nation develops energy demand continue increase sustained recovery wti brent crude oil prices could occur event crude oil price improvements depend upon balance global supply demand corresponding continued reduction global inventories natural gas prices remained relatively constant 2017 2018 averaging approximately 3 per mmbtu customer spending natural gas shale plays limited due natural gas production prolific basins northeastern united states associated gas produced drilling completion unconventional oil wells north america recent wti crude oil brent crude oil natural gas pricing trends follows 1 source us energy information administration february 15 2019 wti crude oil brent crude oil natural gas traded approximately 5558 per barrel 6641 per barrel 259 per mmbtu respectively 2 reflecting impact pipeline take away capacity constraints permian basin 2018 average price per barrel wti midland texas crude oil first second third fourth quarters 2018 approximately 1 12 21 11 respectively average wti crude oil quarterly benchmark prices referenced based spot price wti cushing oklahoma average brent crude oil prices first second third fourth quarters 2018 7 24 36 28 respectively corresponding average wti midland texas crude oil prices february 15 2019 wti crude oil price comparable wti midland texas crude oil price due reductions pipeline take away capacity constraints permian basin overview well site services segment provides completion services lesser extent land drilling services united states including gulf mexico canada rest world us drilling completion activity turn well site services results sensitive nearterm fluctuations commodity prices particularly wti crude oil prices given shortterm callout nature operations within segment completion services business includes falcon operations acquired february 2018 supplies equipment service personnel utilized completion initial production new recompleted wells activity completion services business dependent primarily upon level complexity drilling completion workover activity areas operations mentioned well intensity complexity increased continuing transition multiwell pads drilling longer lateral wells increased downhole pressures along increased number frac stages completed horizontal wells similarly demand drilling services operations driven activity primary land drilling markets permian basin west texas drill oil wells us rocky mountain area drill liquidsrich natural gas wells downhole technologies segment comprised geodynamics business acquired january 2018 geodynamics founded 2004 researcher developer manufacturer consumable engineered products used completion applications segment provides oil gas perforation systems downhole tools services support completion intervention wireline well abandonment operations segment designs manufactures markets consumable engineered products oilfield service well exploration production companies product service offerings segment include innovations perforation technology patented proprietary systems combined advanced modeling analysis tools expertise led optimization perforation hole size depth quality tunnels key factors maximizing effectiveness hydraulic fracturing additional offerings include proprietary toe valve frac plug products focused zonal isolation hydraulic fracturing horizontal wells broad range consumable products setting tools bridge plugs used completion intervention decommissioning applications demand drivers downhole technologies segment include continued trends toward longer lateral lengths increased frac stages perforation clusters target increased unconventional well productivity demand well site services downhole technologies segments businesses correlated changes total number wells drilled north america total footage drilled number drilled wells completed lesser degree changes drilling rig count following table sets forth summary average north american drilling rig count measured baker hughes periods indicated recent years industry experienced increased customer spending crude oil liquidsrich exploration development north american shale plays utilizing horizontal drilling completion techniques december 31 2018 oildirected drilling accounted 82 total us rig count balance largely natural gas related average north american rig count 2018 increased 141 rigs 13 level reported 2017 response increase crude oil prices first nine months 2018 exacerbating steep declines drilling activity experienced 2015 2016 many exploration production customers deferred well completions deferred completions referred industry drilled uncompleted wells ducs given well site services downhole technologies segments exposure level completion activity increase number ducs shortterm negative impact results operations relative rig count trends longerterm positive impact segments results wells completed offshoremanufactured products segment provides technologydriven highlyengineered products services offshore oil natural gas production systems facilities well certain products services offshore landbased drilling completion markets approximately 60 offshoremanufactured products sales 2016 driven customers’ capital spending offshore production systems subsea pipelines repairs lesser extent upgrades existing offshore drilling rigs construction new offshore drilling rigs vessels referred herein projectdriven products 2018 activities represent approximately 31 segments revenue segment particularly influenced global deepwater drilling production spending driven largely customers’ longerterm commodity demand forecasts outlook crude oil natural gas prices deepwater oil gas development projects typically involve significant capital investments multiyear development plans projects generally undertaken larger exploration field development production companies primarily international oil companies iocs staterun national oil companies nocs using relatively conservative crude oil natural gas pricing assumptions given longer lead times associated field development believe deepwater projects approved development therefore less susceptible shortterm fluctuations price crude oil natural gas however decline crude oil prices began 2014 continued 2017 coupled relatively uncertain outlook around shorterterm possibly longerterm pricing improvements caused exploration production companies reduce capital expenditures regards deepwater projects since expensive drill complete long lead times first production may considered uneconomical relative risk involved customers focused improving economics major deepwater projects lower commodity breakeven prices rebidding projects identifying advancements technology reducing overall project costs equipment standardization result bookings declined leading substantially reduced backlog projectdriven revenue 2018 relative prior years offshoremanufactured products segment revenues operating income declined slower pace 2015 2016 well site services segment given high levels backlog existed beginning 2015 bidding quoting activity along orders customers offshoremanufactured products segment continued 2014 albeit substantially slower pace years following 2014 however deepwater project award potential appears improving despite current commodity price environment reflecting impact customer iocs nocs delays deferrals approving major capital intensive projects light prolonged low commodity price environment backlog offshoremanufactured products segment decreased 599 million june 30 2014 179 million december 31 2018 following table sets forth backlog offshoremanufactured products segment dates indicated millions reduced demand products services coupled reduction prices charge customers services adversely affected results operations cash flows financial position since second half 2014 current pricing environment crude oil improve declines customers may required reduce capital expenditures causing additional declines demand prices products services would adversely affect results operations cash flows financial position customers experienced significant decline revenues cash flows relative commodity price declines 2015 2016 2017 late 2018 many experiencing significant reduction liquidity several exploration production companies declared bankruptcy 2015 2016 exchange equity forgiveness debt others forced sell assets effort preserve liquidity however 2017 access capital debt markets improved certain customers moved latter half 2018 access markets became challenging certain customers use variety domestically produced imported raw materials component products including steel manufacturing products united states recently imposed tariffs variety imported products including steel aluminum response us tariffs steel aluminum european union several countries including canada china threatened andor imposed retaliatory tariffs effect new tariffs application interpretation existing trade agreements customs antidumping countervailing duty regulations continue evolve continue monitor matters encounter difficulty procuring raw materials component products prices pay products increase result customs antidumping countervailing duty regulations otherwise unable pass corresponding cost increases customers financial position results operations could adversely affected furthermore uncertainty respect potential costs drilling completion oil gas wells could cause customers delay cancel planned projects occurred would adversely affect financial position results operations factors affect business financial results include limited general global economic environment competitive pricing pressures regulatory changes tax laws united states international markets continue monitor global economy prices demand crude oil natural gas resultant impact capital spending plans operations customers order plan manage business consolidated results operations manage measure business performance three operating segments well site services downhole technologies offshoremanufactured products selected financial information business segment years ended december 31 2018 2017 2016 summarized follows dollars thousands 1 operating margin defined operating income loss divided revenues year ended december 31 2018 compared year ended december 31 2017 net loss year ended december 31 2018 191 million 033 per diluted share included 84 million 66 million aftertax 011 per diluted share charges related legal fees incurred patent defense 30 million reserves 24 million aftertax 004 per diluted share prior years fair labor standards act flsa claim settlements 33 million 26 million aftertax 004 per diluted share transactionrelated expenses 16 million 13 million aftertax 002 per diluted share severance downsizing changes additionally year ended december 31 2018 company recognized 58 million 010 per diluted share income tax benefit related change december 2017 provisional estimates respect us tax reform legislation results compare net loss year ended december 31 2017 849 million 169 per diluted share included 34 million 24 million aftertax 005 per diluted share severance downsizing charges 292 million 058 per diluted share additional noncash income tax expense primarily related us tax law changes consolidated results operations 2018 include contributions geodynamics falcon acquisitions completed first quarter 2018 reflect impact industry trends customer spending activities directed toward growth us shale play regions general slowing global investments deepwater markets since start prolonged industry downturn 2014 fourth quarter 2018 price crude oil fell approximately 40 wti closing 45 per barrel december 28 2018 precipitous decline crude oil prices moderate negative impact fourth quarter 2018 consolidated results operations particularly us shale play regions expect customerdriven activity declines early 2019 operators reassess budgets plans light lower commodity prices current pricing environment crude oil improve declines customers may required reduce capital expenditures causing additional declines demand prices products services would adversely affect results operations cash flows financial position revenues consolidated total revenues increased 4175 million 62 2018 compared 2017 consolidated product revenues 2018 increased 1980 million 65 2017 reflecting contributions acquired geodynamics operations consolidated service revenues 2018 increased 2195 million 60 2017 due principally contributions acquired falcon operations higher customerdriven activity within well site services offshoremanufactured products segments derived following table 77 consolidated revenues 2018 related shortcycle product service offerings compared 65 2017 due principally contributions first quarter 2018 acquisitions higher customer spending us shale play regions following table provides disaggregated revenue information operating segment years ended december 31 2018 2017 thousands cost revenues exclusive depreciation amortization expense consolidated cost revenues exclusive depreciation amortization expense increased 3138 million 60 2018 compared 2017 due costs associated acquisitions completed first quarter 2018 well activitydriven costs associated revenue growth within well site services offshoremanufactured products segments consolidated product costs 2018 increased 1470 million 67 2017 due primarily geodynamics acquisition completed first quarter 2018 consolidated service costs 2018 increased 1668 million 55 2017 driven significant increase service activity coupled acquired falcon operations selling general administrative expense selling general administrative expense increased 233 million 20 2018 prioryear period primarily due incremental expenses associated acquired geodynamics operations including 84 million patent defense costs higher activity levels 10 million transactionrelated costs depreciation amortization expense depreciation amortization expense increased 159 million 15 2018 compared 2017 reflecting impact acquired geodynamics falcon operations partially offset certain assets becoming fully depreciated note 14 segments related information presents depreciation amortization expense segment operating income expense net operating income expense moved expense 13 million 2017 income 21 million 2018 offshoremanufactured products segment recognized gain 39 million settlement hurricane harvey flood insurance claim partially offset 23 million transactionrelated expenses operating expense prioryear primarily related foreign currency exchange losses operating loss consolidated operating loss 59 million 2018 included 114 million costs associated patent defense settlement flsa claims 33 million transactionrelated expense 16 million severance downsizing charges partially offset 39 million gain related insurance settlement discussed previously compares consolidated operating loss 739 million 2017 included 34 million transactionrelated severance facility closure charges majority yearoveryear improvement operating results reflects contributions geodynamics falcon acquisitions completed first quarter 2018 well impact growth customer spending activities primarily focused us shale play regions interest expense interest income net interest expense 190 million 2018 increase 147 million 2017 increase reflects funding first quarter 2018 3797 million net acquisition consideration borrowings revolving credit facility issuance notes interest expense percentage total average debt outstanding decreased 173 2017 56 2018 interest expense percentage total average debt outstanding 2017 reflects lower average borrowings outstanding revolving credit facility increased proportion interest expense associated unused commitment fees noncash amortization debt issuance costs income tax income tax benefit 2018 26 million pretax loss 217 million includes 58 million discrete tax benefit related recent us tax reform guidance allowing carry back us net operating losses incurred 2017 well discrete tax attributes compares income tax benefit 2017 74 million pretax loss 774 million income tax benefit 218 million excluding discrete charges discussed december 22 2017 united states enacted tax reform legislation resulted significant changes us tax related law including certain key federal income tax provisions applicable multinational companies result tax law changes recorded 282 million incremental noncash income tax expense related us transition tax unremitted foreign subsidiary earnings provide valuation allowances foreign tax credit carryforwards recorded assets prior us tax reform additionally remeasured us deferred tax assets liabilities reflect lower us corporate income tax rate reduced 35 21 also recorded discrete tax charge 10 million 2017 related decision carryback 2016 us net operating losses 2014 taxable income comprehensive income loss reported comprehensive loss sum reported net income loss comprehensive income loss comprehensive loss 129 million 2018 compared comprehensive income 118 million 2017 due fluctuations foreign currency exchange rates compared us dollar certain international operations reportable segments 2018 2017 currency translation adjustments recognized component comprehensive income loss primarily attributable united kingdom brazil 2018 exchange rates british pound brazilian real weakened compared us dollar compares 2017 exchange rates british pound strengthened brazilian real weakened compared us dollar segment operating results well site services revenues well site services segment revenues increased 1915 million 66 2018 compared 2017 growth concentrated completion services revenues increased 1768 million 75 reflecting revenue generated acquired falcon operations increased completionrelated activity united states number completion services jobs performed 2018 increased 58 2017 revenue per completion services job increased 11 yearoveryear drilling services revenues increased 148 million 27 692 million 2018 2017 primarily result improved dayrates land drilling rigs higher level thirdparty costs reimbursed customers operating loss higher revenues well site services segment operating loss declined 421 million 71 2018 2017 well site services segment revenues cost services 2018 increased 66 59 respectively prior year costs expenses remaining relatively consistent completion services operating loss improved 375 million 83 2018 compared 2017 due increased completionrelated activity levels united states coupled ten months contributions acquired falcon operations current year results include 30 million charges presented within cost services associated additional reserves established final settlement historical flsa claims 2017 reported results included 11 million severance downsizing costs drilling services operating loss declined 45 million 33 2018 2017 primarily result reported revenue growth downhole technologies revenues downhole technologies segment revenues 2138 million 2018 reflecting activity geodynamics operations acquired january 2018 operating income downhole technologies segment operating income 267 million 2018 reported results negatively impacted 84 million patent defense costs legal actions settled fourth quarter 2018 company therefore expect patent defense costs recur 2019 offshoremanufactured products revenues offshoremanufactured products segment revenues increased 122 million 3 2018 compared 2017 result higher sales products service offerings service revenue increased 28 prior years level driven higher customer demand projectdriven products revenues decreased 5 yearoveryear due lower sales production subsea equipment partially offset higher sales standard connector products operating income offshoremanufactured products segment operating income increased 08 million 2 2018 compared 2017 result gain 39 million recognized upon settlement hurricane harvey flood insurance claim 2018 impact shift sales mix 2017 2018 offset impact reported revenue growth insurance gains discussed lesser extent reported segment results 2018 2017 reduced severance downsizingrelated expenses 15 million 09 million respectively backlog bidding quoting activity along orders customers offshoremanufactured products segment continued albeit substantially slower pace recent years however deepwater project award potential appears improving despite current commodity price environment backlog offshoremanufactured products increased 6 2018 total 179 million december 31 2018 representing book bill ratio 11x year corporate expenses increased 15 million 3 2018 2017 due 30 million transactionrelated expenses incurred connection first quarter 2018 acquisitions geodynamics falcon year ended december 31 2017 compared year ended december 31 2016 net loss year ended december 31 2017 849 million 169 per diluted share included 34 million 24 million aftertax 005 per diluted share severance downsizing charges 292 million 058 per diluted share additional noncash income tax expense related us tax law changes decision carryback net operating losses incurred 2016 taxable income reported 2014 results compare net loss 464 million 092 per diluted share reported year ended december 31 2016 results 2016 included 52 million 33 million aftertax 006 per diluted share severance downsizing charges consolidated results operations 2017 reflect industry trends customer spending activities focused growth us shale play regions weaker us gulf mexico international activity addition investments deepwater markets globally slowed significantly since start recent industry downturn 2014 revenues consolidated total revenues decreased 238 million 3 2017 compared 2016 due declines offshoremanufactured products segment substantially offset improvements well site services segment total consolidated product revenues 2017 decreased 1124 million 27 due primarily lower projectdriven activity within offshoremanufactured products segment consolidated service revenues 2017 increased 886 million 32 due higher customerdriven activity within well site services segment derived following table 65 consolidated revenues 2017 related shortcycle product service offerings compared 39 2016 due principally higher customer spending us shale play regions significant decline deepwater projectdriven revenues following table provides disaggregated revenue information operating segment years ended december 31 2017 2016 thousands cost revenues exclusive depreciation amortization expense consolidated cost revenues exclusive depreciation amortization expense decreased 60 million 1 2017 compared 2016 total consolidated product costs 2017 decreased 688 million 24 2016 driven declines offshoremanufactured products segment consolidated service costs 2017 increased 628 million 26 2016 due primarily growth within well site services segment selling general administrative expenses selling general administrative expenses decreased 92 million 7 2017 prioryear primarily due impact cost reduction initiatives lower employee severancerelated charges 2017 partially offset higher incentive compensation accruals depreciation amortization expense depreciation amortization expense decreased 111 million 9 2017 compared 2016 primarily due certain assets becoming fully depreciated coupled overall lower levels capital expenditures operating income expense net operating income expense net moved operating income 58 million 2016 operating expense 13 million 2017 reflecting primarily impact foreign currency exchange gains losses recognized respective periods operating loss consolidated operating loss 739 million 2017 included 34 million transactionrelated severance facility closure charges compares consolidated operating loss 693 million 2016 includes 52 million severance facility closure charges addition specific charges previously discussed significant activity driven improvements operating results well site services offset decline operating results offshoremanufactured products driven 57 decline projectdriven revenue interest expense interest income net interest expense decreased 06 million 13 2017 compared 2016 primarily due reduction average amounts outstanding revolving credit facility partially offset higher unused commitment fees paid lenders interest expense percentage total average debt outstanding increased 65 2016 173 2017 due increased proportion interest expense associated unused commitment fees lower average borrowings outstanding revolving credit facility noncash amortization debt issuance costs income tax income tax provision 2017 74 million income tax benefit 218 million 281 pretax losses excluding discrete charges discussed previously compared income tax benefit 269 million 367 pretax losses 2016 lower effective tax rate benefit 2017 excluding discrete charges attributable shift mix domestic pretax losses foreign pretax income compared prioryear period additional valuation allowances provided net operating losses certain domestic foreign jurisdictions comprehensive income loss reported comprehensive income loss sum reported net income loss comprehensive income loss comprehensive income 118 million 2017 compared loss 196 million 2016 due fluctuations foreign currency exchange rates compared us dollar certain international operations reportable segments 2017 2016 currency translation adjustments recognized component comprehensive income loss primarily attributable united kingdom brazil 2017 exchange rates british pound strengthened compared us dollar brazilian real weakened compared us dollar compares 2016 exchange rates british pound weakened compared us dollar brazilian real strengthened compared us dollar segment operating results well site services revenues well site services segment revenues increased 1031 million 56 2017 compared 2016 due growth completion services drilling services revenues completion services revenues increased 712 million 44 2017 compared 2016 impact higher commodity price environment lower service costs driving increased us landbased activity partially offset reduced activity certain international markets number completion services jobs performed 2017 increased 26 prioryear revenue per completion services job increased 13 yearoveryear result higher completions activity increased well completion complexity favorable job mix improved pricing drilling services revenues increased 319 million 141 545 million 2017 2016 due higher utilization land drilling rigs increased average 12 2016 average 29 2017 earning increased dayrates operating loss higher revenues well site services segment operating loss declined 488 million 45 2017 2016 well site services segment revenues cost services 2017 increased 56 42 respectively prior year costs expenses remaining relatively consistent completion services operating loss declined 385 million 46 2017 compared 2016 due increased completionrelated activity levels united states 2017 2016 reported results included 11 million 22 million respectively severance downsizing costs drilling services operating loss declined 103 million 43 2017 2016 primarily result reported revenue growth offshoremanufactured products revenues offshoremanufactured products segment revenues decreased 1269 million 25 2017 compared 2016 primarily result decline demand deepwater projectdriven products primarily subsea pipeline infrastructure offshore production drilling products lower levels service activities backlog position trended significantly lower since mid2014 deepwater projectdriven revenue declines partially offset 67 increase sales shortcycle products shortercycle products elastomers valves benefited increased landbased drilling completion activity united states operating income offshoremanufactured products segment operating income decreased 489 million 56 2017 compared 2016 result decrease projectdriven revenues products services revenues reported segment results 2017 2016 include severancerelated expenses 09 million 30 million respectively backlog bidding quoting activity along orders customers offshoremanufactured products segment continued albeit much slower pace recent years reflecting impact customer delays deferrals approving major capital intensive projects light prolonged low commodity price environment backlog offshoremanufactured products totaled 168 million december 31 2017 book bill ratio 09x 2017 corporate expenses increased 45 million 9 2017 2016 primarily due higher incentive compensation accruals increased stockbased compensation expense expenses 12 million incurred connection first quarter 2018 acquisitions geodynamics falcon liquidity capital resources matters primary liquidity needs fund operating capital expenditures past included expanding upgrading offshoremanufactured products manufacturing facilities equipment replacing increasing completion services assets funding new product development general working capital needs addition capital used repay debt fund strategic business acquisitions fund stock repurchase program primary sources funds cash flow operations proceeds borrowings credit facilities capital market transactions discussed recent developments first quarter 2018 completed number strategic transactions furtherance growth strategy believe favorably impact future results operations cash flows operating activities cash flows totaling 1032 million provided operations year ended december 31 2018 compared 954 million provided operations year ended december 31 2017 2018 229 million used fund working capital increases primarily associated activitydriven growth accounts receivable inventories 2017 324 million provided net working capital reductions decreases accounts receivable inventories partially offset increase income taxes receivable investing activities total 4614 million cash used investing activities year ended december 31 2018 compared 476 million used 2017 january 12 2018 acquired geodynamics purchase price consisting 2954 million cash net cash acquired funded borrowings revolving credit facility ii approximately 866 million shares common stock market value approximately 2949 million closing date iii unsecured 250 million promissory note february 28 2018 acquired falcon cash consideration 842 million net cash acquired funded borrowings amended revolving credit facility 2017 invested 129 million within offshoremanufactured products segment acquire complementary intellectual property assets expand global crane manufacturing service operations well expand riser testing inspection repair service offerings capital expenditures totaled 880 million 352 million years ended december 31 2018 2017 respectively capital expenditures years consisted principally purchases completion services equipment expansion upgrading offshoremanufactured products segment facilities various capital spending initiatives capital expenditures 2018 also included additional investments equipment facilities geodynamics falcon operations acquired first quarter 2018 expect spend 65 million 70 million total capital expenditures 2019 replace upgrade completion services equipment expand maintain downhole technologies facilities equipment upgrade maintain offshoremanufactured products facilities equipment fund various capital spending projects whether planned expenditures actually spent 2019 depends industry conditions project approvals schedules vendor delivery timing free cash flow generation careful monitoring levels liquidity plan fund capital expenditures available cash internally generated funds borrowings amended revolving credit facility foregoing capital expenditure expectations include funds might spent future strategic acquisitions company could pursue depending economic environment industry availability transactions prices deemed attractive company december 31 2018 cash totaling 193 million enactment tax cuts jobs act december 2017 repatriated 450 million cash held international subsidiaries reduce borrowings outstanding amended revolving credit facility 2018 without triggering incremental tax expense financing activities net cash 3241 million provided financing activities year ended december 31 2018 primarily result issuance 2000 million 150 convertible senior notes net borrowing 1361 million amended revolving credit facility net cash 651 million used financing activities year ended december 31 2017 primarily associated net repayment 422 million borrowings revolving credit facility addition repurchases common stock totaling 163 million january 12 2018 partially funded geodynamics acquisition borrowings available revolving credit facility january 30 2018 issued 2000 million principal amount notes due february 2023 entered amended revolving credit facility extend maturity facility january 30 2022 provide total lender commitments 350 million net proceeds notes offering approximately 1940 million deducting discounts estimated expenses used repay portion amounts outstanding revolving credit facility believe cash hand cash flow operations available borrowings amended revolving credit facility sufficient meet liquidity needs coming twelve months plans assumptions change inaccurate make acquisitions may need raise additional capital acquisitions management believes acquisitions continue key element business strategy timing size success acquisition effort associated potential capital commitments unpredictable uncertain may seek fund part efforts proceeds debt andor equity issuances ability obtain capital additional projects implement growth strategy longer term depend upon future operating performance financial condition broadly availability equity debt financing capital availability affected prevailing conditions industry global economy global financial markets factors many beyond control addition debt service requirements could based higher interest rates shorter maturities could impose significant burden results operations financial condition issuance additional equity securities could result significant dilution stockholders revolving credit facility revolving credit facility governed credit agreement dated may 28 2014 amended credit agreement among company lenders party thereto wells fargo bank na administrative agent lenders party thereto collateral agent secured parties thereunder lenders financial institutions time party thereto swing line lender issuing bank royal bank canada syndication agent compass bank documentation agent december 31 2017 revolving credit facility scheduled mature may 28 2019 amended restated credit agreement january 30 2018 wells fargo bank na administrative agent lenders party thereto collateral agent secured parties thereunder lenders financial institutions time party thereto amended credit agreement amended credit agreement governs amended revolving credit facility amended revolving credit facility provides 350 million lender commitments matures january 30 2022 amended revolving credit facility 50 million available issuance letters credit december 31 2018 1361 million borrowings outstanding amended credit agreement 226 million outstanding letters credit leaving 1562 million available drawn total amount available drawn less lender commitments december 31 2018 due limits imposed maintenance covenants amended credit agreement amounts outstanding revolving credit facility bear interest libor plus margin 175 300 base rate plus margin 075 200 case based ratio total net funded debt consolidated ebitda defined amended credit agreement must also pay quarterly commitment fee 025 050 based ratio total net funded debt consolidated ebitda unused commitments amended credit agreement amended credit agreement contains customary financial covenants restrictions specifically must maintain interest coverage ratio defined ratio consolidated ebitda consolidated interest expense least 30 10 maximum senior secured leverage ratio defined ratio senior secured debt consolidated ebitda greater 225 10 total net leverage ratio defined ratio total net funded debt consolidated ebitda greater 40 10 fiscal quarter ending december 31 2018 greater 375 10 thereafter financial covenants give pro forma effect issuance notes acquired businesses annualization ebitda acquired businesses factors considered calculations ratios defined amended credit agreement consolidated ebitda consolidated interest defined exclude goodwill impairments losses extinguishment debt discount amortization noncash charges december 31 2018 compliance debt covenants expect continue compliance throughout 2019 borrowings amended credit agreement secured pledge substantially assets domestic subsidiaries obligations amended credit agreement guaranteed significant domestic subsidiaries amended credit agreement occurrence specified change control events involving company would constitute event default would permit banks among things accelerate maturity facility cause become immediately due payable full 150 convertible senior notes january 30 2018 issued 2000 million aggregate principal amount notes pursuant indenture dated january 30 2018 indenture us wells fargo bank na trustee net proceeds deducting discounts expenses approximately 1940 million used net proceeds repay portion borrowings outstanding revolving credit facility initial carrying amount notes recorded consolidated balance sheet january 30 2018 less 2000 million principal amount notes accordance applicable accounting principles reflective estimated fair value similar debt instrument conversion feature recorded value conversion feature 344 million debt discount amortized interest expense term notes similar amount allocated additional paidin capital result amortization interest expense recognize related notes accounting purposes based effective interest rate approximately 6 greater cash interest payments obligated pay notes interest expense associated notes 2018 90 million related cash interest expense 28 million see note 7 longterm debt information respect carrying amount notes bear interest rate 150 per year maturity interest payable semiannually arrears february 15 august 15 year beginning august 15 2018 addition additional interest special interest may accrue notes certain circumstances described indenture notes mature february 15 2023 unless earlier repurchased redeemed converted initial conversion rate 222748 shares common stock per 1000 principal amount notes equivalent initial conversion price approximately 4489 per share common stock conversion rate thus conversion price may adjusted certain circumstances described indenture noteholders may convert notes option following circumstances 1 last reported sale price per share common stock exceeds 130 conversion price least 20 trading days 30 consecutive trading days ending including last trading day immediately preceding calendar quarter 2 five consecutive business days immediately five consecutive trading day period five consecutive trading day period measurement period trading price per 1000 principal amount notes trading day measurement period less 98 product last reported sale price per share common stock trading day conversion rate trading day 3 upon occurrence certain corporate events distributions common stock described indenture 4 company calls notes redemption time including november 15 2022 close business second scheduled trading day immediately maturity date settle conversions paying delivering applicable cash shares common stock combination cash shares common stock companys election based applicable conversion rates elect deliver cash combination cash shares common stock consideration due upon conversion based defined observation period notes redeemable whole part option time february 15 2021 cash redemption price equal principal amount notes redeemed plus accrued unpaid interest excluding redemption date last reported sale price per share common stock exceeds 130 conversion price least 20 trading days 30 consecutive trading days ending including trading day immediately date send related redemption notice specified change control events involving company defined indenture occur noteholders may require us repurchase notes cash repurchase price equal principal amount notes repurchased plus accrued unpaid interest additionally notes contain certain events default set forth indenture december 31 2018 none conditions allowing holders notes convert requiring us repurchase notes met intent settle principal portion notes cash use treasury stock method calculating diluted earnings per share effect variable number shares would issued upon conversion settle conversion feature notes convertible year ended december 31 2018 promissory note connection geodynamics acquisition issued 250 million promissory note bears interest 25 per annum scheduled mature july 12 2019 payments due promissory note may setoff full part certain claims related matters occurring prior acquisition geodynamics expected delay andor reduce amounts paid promissory note see note 13 commitments contingencies additional discussion total debt represented 187 combined total debt stockholders’ equity december 31 2018 compared 05 december 31 2017 stock repurchase program maintain share repurchase program extended july 29 2019 board directors year ended december 31 2018 repurchases common stock program 2017 repurchased 562 thousand shares common stock program total cost 162 million shares common stock repurchased program 2016 amount remaining current share repurchase authorization december 31 2018 1205 million subject applicable securities laws purchases times amounts company deems appropriate contractual obligations following summarizes contractual obligations december 31 2018 effect obligations expected liquidity cash flow next five years thousands 1 excludes interest variablerate debt matures january 2022 since cannot predict certainty amount interest due revolving debt due expected variability interest rates principal amounts outstanding include obligations assume interest payment amounts calculated using outstanding principal balances interest rates december 31 2018 include applicable commitment fees estimated interest payments variablerate debt would 67 million due less one year 139 million due one three years see note 7 longterm debt consolidated financial statements included annual report form 10k additional information amended revolving credit facility 2 amount represents full principal amount notes together cash interest payments due semiannually 3 25 million promissory note together accrued unpaid interest issued connection geodynamics acquisition scheduled mature july 2019 payments promissory note may setoff full part certain claims related matters occurring prior acquisition geodynamics expected delay andor reduce amounts paid promissory note 4 purchase obligations company primarily relate open purchase orders offshoremanufactured products completion services operations registration rights agreement connection geodynamics acquisition issued approximately 866 million shares common stock entity acquired business granted entity certain parties registration rights pursuant registration rights agreement filed shelf registration statement resale shares accordance agreement january 19 2018 selling stockholder sold approximately 593 million shares companys common stock underwritten offering late february 2018 december 31 2018 company expect material obligations registration rights agreement effects inflation revenues results operations materially impacted inflation past three fiscal years offbalance sheet arrangements december 31 2018 offbalance sheet arrangements defined item 303a4ii regulation sk tariffs use variety domestically produced imported raw materials component products including steel manufacture products 2018 united states imposed tariffs variety imported products including steel aluminum response us tariffs steel aluminum european union several countries including canada china threatened andor imposed retaliatory tariffs effect new tariffs application interpretation existing trade agreements customs antidumping countervailing duty regulations continues evolve continue monitor matters encounter difficulty procuring raw materials component products prices pay products increase result customs antidumping countervailing duty regulations otherwise unable pass corresponding cost increases customers financial position results operations could adversely affected furthermore uncertainty respect potential costs drilling completion oil gas wells could cause customers delay cancel planned projects occurred would adversely affect financial position results operations see note 13 commitments contingencies additional discussion tax matters see note 2 summary significant accounting policies note 8 income taxes consolidated financial statements included annual report form 10k additional information respect tax matters critical accounting policies consolidated financial statements included annual report form 10k prepared accordance accounting principles generally accepted united states gaap require management make numerous estimates assumptions actual results could differ estimates assumptions thus impacting reported results operations financial position critical accounting policies estimates described section important depiction financial condition results operations application requires management’s subjective judgments making estimates effect matters inherently uncertain describe significant accounting policies fully note 2 summary significant accounting policies consolidated financial statements included annual report form 10k tangible intangible assets including goodwill tangible longlived assets totaled 5404 million december 31 2018 goodwill totaled 6470 million representing 32 total assets december 31 2018 intangible assets totaled 2553 million representing 13 total assets remainder assets largely consisted cash accounts receivable inventory assessment impairment longlived assets including intangibles conducted least annually well whenever changes facts circumstances indicate loss value may occurred indicators impairment might include persistent negative economic trends affecting markets serve recurring losses lowered expectations future cash flows generated assets determination amount impairment would based quoted market prices available upon judgments future operating cash flows generated assets throughout estimated useful lives based december 2018 impairment review carrying values asset groups recoverable impairment losses recorded however industry cyclicality downturns may result changes estimates projected operating cash flows timing could potentially cause us impair values longlived assets including finitelived intangible assets carrying amount reporting unit exceeds fair value goodwill considered impaired impairment loss recorded evaluate reporting unit annually december 1 event occurs circumstances change suggest carrying amount may recoverable reporting units goodwill december 31 2018 include completion services downhole technologies offshoremanufactured products remaining goodwill drilling services reporting unit given significant decline observed crude oil prices market capitalization fourth quarter 2018 performed annual quantitative impairment test goodwill december 1 2018 quantitative assessment incorporated projected cash flows reporting unit revised reflect deterioration market outlook observed december 31 2018 due crude oil price volatility test estimated fair value reporting unit compared fair value recorded carrying value none reporting units publicly quoted market prices determined value willing buyers sellers would place reporting unit routine sale process level 3 fair value measurement analysis targeted valuation would placed reporting unit market participants based historical projected operating results throughout full market cycle value reporting unit based trough peak operating results utilized based circumstances combination trading multiples analyses projected discounted cash flow calculations estimated terminal values acquisition comparables discounted projected cash flows using longterm weighted average cost capital reporting unit based estimate investment returns would required market participant fair value reporting units primarily affected expectations regarding future crude oil natural gas prices anticipated spending customers income tax rates cost capital also compared total market capitalization company sum fair values reporting units assess reasonableness aggregated fair value testing led us conclude fair value completion services downhole technologies offshoremanufactured products reporting units exceeded carrying values 8 26 respectively december 1 2018 december 1 2018 market capitalization excluded control premium 13 billion compared carrying value equity 14 billion stock price overall industry market capitalization negatively impacted december 2018 due numerous factors including broadbased yearend stock market trading volatility tax loss harvesting investors lower crude oil prices foreign trade agreement negotiation uncertainties excluding control premium market capitalization 856 million december 31 2018 averaged 104 billion period january 1 february 15 2019 comparison average market capitalization first nine months 2018 approximately 17 billion september 30 2018 market capitalization 20 billion 541 million equity carrying value discussed annual assessment appropriately considered impact current market environment industry outlook using projected discounted cash flows reflecting expected market conditions december 31 2018 estimating fair value reporting units underlying fundamentals supporting crude oil natural gas markets continue support longterm crude oil demand growth need additional crude oil production giving consideration various macroeconomic factors concluded market capitalization december 31 2018 temporarily impacted various market forces indicate likely carrying amounts reporting units exceeded fair values qualitative assessment supported subsequent recovery crude oil prices early 2019 level prices effect year end addition stock price also recovered portion value since december 31 2018 stock price 2019 averaged 1730 per share february 15 21 increase closing stock price 1428 december 31 2018 continue monitor commodity prices significant assumptions used forecasts experience prolonged decline longterm demand crude oil natural gas significant sustained increases commodity supplies serve depress commodity prices long term required update discounted cash flow analysis potentially required record goodwill impairment future furthermore market capitalization remains book value sustained period time implied fair value equity reasonably supported equity control premiums need consider updating assessment purchase price allocation acquisitions allocate fair value purchase price consideration acquired business identifiable assets liabilities based estimated fair values excess purchase price fair value acquired assets liabilities recorded goodwill use available information estimate fair values including quoted market prices carrying value acquired assets widely accepted valuation techniques discounted cash flows determining fair value assets liabilities acquired well intangible assets relate items customer relationships technology knowhow trade names noncompete agreements involves professional judgment ultimately based acquisition models management’s assessment value assets acquired extent available thirdparty assessments judgments made determining estimated fair value assigned class assets acquired liabilities assumed well asset lives could materially impact results operations revenue cost recognition discussed note 3 recent accounting pronouncements account revenue accordance financial accounting standards board guidance revenue contracts customers asc 606 adopted january 1 2018 new guidance material impact recognition revenues contractual terms may vary contract customer may impact timing revenue recognition standard future periods revenue contracts may include one promises transfer distinct good service customer referred asc 606 performance obligation revenue allocated recognize revenue related cost performance obligations satisfied majority significant contracts custom engineered products single performance obligation individual good service separately identifiable performance obligations contracts multiple distinct performance obligations allocate revenue identified performance obligations contract product sales terms include significant postperformance obligations performance obligations may satisfied point time work progresses revenues goods services transferred customers point time accounted approximately 29 22 25 consolidated revenues years ended december 31 2018 2017 2016 respectively majority revenue recognized point time derived shortterm contracts standard products offered us revenue contracts recognized control product transferred customer indicators consider determining transfer control customer occurs include right payment product transfer legal title customer transfer physical possession product transfer risk customer acceptance product revenues products services transferred customers time accounted approximately 71 78 75 consolidated revenues years ended december 31 2018 2017 2016 respectively majority revenue recognized time services provided shortterm contracts revenue recognized customer receives consumes services provided segments addition manufacture certain products individual customer specifications shortterm contracts control passes customer performance obligations fulfilled revenue recognized time significant projectrelated contracts involving custom engineered products within offshoremanufactured products segment also referred projecteddriven products revenues typically recognized time using input measure percentage costs incurred date relative total estimated costs completion contract costtocost method contract costs include labor material overhead management believes method appropriate measure progress large contracts billings contracts excess costs incurred estimated profits classified contract liability deferred revenue costs incurred estimated profits excess billings contracts recognized contract asset component accounts receivable contract estimates projectrelated contracts involving custom engineered products based various assumptions project outcome future events may span several years changes assumptions may affect future project costs margins include production efficiencies complexity work performed availability costs labor materials subcomponents significant change one estimates could affect profitability contracts contractrelated estimates reviewed regularly recognize adjustments estimated profit contracts cumulative catchup method impact adjustment profit recorded date recognized period adjustment identified revenue profit future periods contract performance recognized using adjusted estimate time estimate contract profitability indicates anticipated loss incurred contract loss recognized period identified taxes assessed governmental authority imposed concurrent specific revenueproducing transaction collect customer excluded revenue shipping handling costs associated outbound freight control product transferred customer accounted fulfillment cost included cost products proceeds customers cost oilfield rental equipment damaged lost downhole reflected gains losses disposition assets considering writeoff remaining net book value equipment cost goods sold includes direct material labor costs related contract performance indirect labor supplies tools repairs presented consolidated statements operations costs goods sold excludes depreciation amortization expense selling general administrative costs charged expense incurred accounting contingencies contingent liabilities future claims made estimates amount eventual cost liquidate liabilities claims liabilities claims sometimes involve threatened actual litigation damages quantified made assessment exposure recorded amount estimated cover expected loss claims liabilities estimated based fair value experience matters appropriate advice outside counsel outside experts upon ultimate resolution uncertainties future reported financial results impacted difference estimates actual amounts paid settle liability examples areas made important estimates future liabilities include duties income taxes litigation insurance claims warranty claims contractual claims obligations discontinued operations allowance doubtful accounts determination collectability amounts due customers requires us make judgments regarding future events trends allowances doubtful accounts determined based continuous process assessing portfolio individual customer basis taking account current market conditions trends process consists thorough review historical collection experience current aging status customer accounts financial condition customers based review factors establish adjust allowances specific customers substantial portion revenues come international oil companies international oilfield service companies governmentowned governmentcontrolled oil companies worldwide oil gas exploration production activity decline creditworthiness customers could deteriorate may unable pay receivables requiring additional allowances recorded december 31 2018 2017 allowance bad debts totaled 67 million 73 million 23 33 gross accounts receivable respectively inventory reserves inventory carried lower cost estimated net realizable value determine reserves inventory based historical usage inventory onhand assumptions future demand market conditions estimates potential alternative uses usually limited inventory consists consumable oilfield products manufactured equipment spare parts manufactured equipment work process raw materials support customer demand manufacturing operations large installed base specialized equipment used throughout oilfield customers rely us stock certain specialized items ensure equipment repaired serviced timely manner estimated carrying value inventory determined average cost specificidentification method depends upon demand driven oil gas drilling well completion activity depends turn upon oil gas prices general outlook economic growth worldwide available financing customers political stability major oil gas producing areas potential obsolescence various types equipment sell among factors reserve excess andor obsolete inventory maintained based age turnover condition inventory december 31 2018 2017 inventory reserves totaled 186 million 156 million 81 85 gross inventory respectively estimation useful lives selection useful lives many assets requires judgments operating personnel judgment area influenced historical experience operating assets technological developments expectations future demand assets estimates long short might eventually report disproportionate number losses gains upon disposition retirement longlived assets believe estimates useful lives appropriate stockbased compensation estimate fair value stock compensation made pursuant awards 2018 equity participation plan respective dates grant estimate fair value restricted stock award stock option determines amount stock compensation expense net estimated forfeitures recognize future use blackscholesmerton closed form model value stock options awarded plan fair value servicebased restricted stock awarded plan determined quoted market price company’s common stock date grant fair value performancebased restricted stock awards issued performance metrics based solely performance companys common stock valued using monte carlo simulation model income taxes follow liability method accounting income taxes accordance current accounting standards regarding accounting income taxes method deferred income taxes recorded based upon differences financial reporting tax bases assets liabilities measured using enacted tax rates laws effect time underlying assets liabilities recovered settled december 22 2017 tax reform legislation signed law enacts significant changes us tax related laws including certain key us federal income tax provisions applicable oilfield service manufacturing companies company us state regulatory bodies finalized potential changes existing laws regulations may result new us tax related laws accordance secs staff accounting bulletin 118 recorded provisional estimates reflect effect tax reform legislation income tax assets liabilities december 31 2017 2018 adjusted provisional estimates based additional guidance issued internal revenue service prior december 22 2017 majority earnings international subsidiaries considered indefinitely reinvested outside united states provision us income taxes made earnings however certain historical foreign earnings considered indefinitely reinvested outside united states subject us income tax earned subsidiaries distributed earnings form dividends otherwise generally subject us income taxes subject adjustment foreign tax credits withholding taxes payable various foreign countries december 31 2018 total investment including earnings profits foreign subsidiaries considered permanently reinvested record valuation allowance reporting period management believes likely deferred tax asset realized assessment requires analysis changes tax laws available positive negative evidence including consideration losses recent years reversals temporary differences forecasts future income assessment future business tax planning strategies 2018 2017 recorded valuation allowances primarily respect net operating loss carryforwards certain operations outside united states result changes us tax laws 2017 recorded valuation allowance foreign tax credit carryforwards fourth quarter 2017 calculation tax liabilities involves assessing uncertainties regarding application complex tax regulations recognize liabilities tax expenses based estimate whether extent additional taxes due ultimately determine payment amounts unnecessary reverse liability recognize tax benefit period determine liability longer necessary record additional charge provision taxes period determine recorded tax liability less expect ultimate assessment recent accounting pronouncements time new accounting pronouncements issued financial accounting standards board fasb adopted us specified effective date unless otherwise discussed management believes impact recently issued standards yet effective material impact consolidated financial statements upon adoption may 2014 fasb issued guidance revenue contracts customers superseded thencurrent revenue recognition guidance including industryspecific guidance often referred asc 606 underlying principle entity recognizes revenue depict transfer goods services customers amount entity expects entitled receive exchange goods services company adopted guidance january 1 2018 using modified retrospective transition method applied contracts completed date january 1 2018 required recognize cumulative effect adopting guidance adjustment opening balance retained earnings prior periods retrospectively adjusted based analysis existing contracts customers concluded cumulative impact new standard material consolidated financial statements january 1 2018 accordance guidance expanded revenue recognition disclosures address new qualitative quantitative requirements february 2016 fasb issued guidance leases amended introduces recognition lease assets lease liabilities lessees leases shortterm nature connection required adoption guidance january 1 2019 use optional transition method recognizing cumulative effect adopting guidance adjustment opening balance retained earnings prior periods retrospectively adjusted based analysis existing longterm leases december 31 2018 estimate adoption standard result approximately 45 million additional assets liabilities reflected consolidated balance sheet material cumulative impact expected recorded opening balance retained earnings item 7aitem 7 managements discussion analysis financial condition results operations managements discussion analysis financial condition results operations contains forwardlooking statements within meaning section 27a securities act section 21e exchange act based managements current expectations estimates projections business operations actual results may differ materially currently anticipated expressed forwardlooking statements result numerous factors including known material factors set forth part item 1a risk factors read following discussion analysis together consolidated financial statements notes statements included elsewhere annual report form 10k provide broad range products services oil gas industry well site services downhole technologies offshoremanufactured products business segments demand products services cyclical substantially dependent upon activity levels oil gas industry particularly customers willingness invest capital exploration development crude oil natural gas reserves customers capital spending programs generally based cash flows outlook nearterm longterm commodity prices economic growth commodity demand estimates resource production result demand products services largely sensitive future expectations respect crude oil natural gas prices consolidated results operations include contributions geodynamics falcon acquisitions completed first quarter 2018 reported results operations reflect impact current industry trends customer spending activities investments weighted toward us shale play regions however 2019 began see general improvement level planned investments deepwater markets globally recent developments addition capital spending invested acquisitions businesses complementary growth strategy acquisition strategy allowed us leverage existing acquired products services new geographic locations expanded breadth technology product offerings allowing us leverage cost structure made strategic complementary acquisitions business segments recent years december 12 2017 entered agreement acquire geodynamics inc geodynamics provides oil gas perforation systems downhole tools support completion intervention wireline well abandonment operations january 12 2018 closed acquisition geodynamics total consideration approximately 615 million geodynamics acquisition consisting 295 million cash net cash acquired ii approximately 866 million shares common stock valued 3405 per share date closing iii unsecured 25 million promissory note connection geodynamics acquisition completed several financing transactions 2018 extend maturity debt provide flexibility repaying outstanding borrowings revolving credit facility anticipated future cash flows operations january 30 2018 sold 200 million aggregate principal amount 150 convertible senior notes due february 2023 notes private placement qualified institutional buyers received net proceeds offering notes approximately 194 million deducting issuance costs used net proceeds repay portion borrowings outstanding revolving credit facility substantially drawn fund cash portion purchase price paid geodynamics concurrently notes offering amended revolving credit facility extend maturity date january 2022 permit issuance notes provide 350 million borrowing capacity subject certain limitations february 28 2018 acquired falcon flowback services llc falcon fullservice provider flowback well testing services separation recovery fluids solid debris proppant used hydraulic fracturing operations falcon provides additional scale diversity completion services operations key shale plays united states acquisition price 842 million cash funded borrowings revolving credit facility third quarter 2019 made strategic decision reduce scope drilling services business adjusting 34 rigs 9 rigs due ongoing weakness customer demand vertical drilling rigs us land market result decision drilling services business recorded noncash impairment charge 337 million decrease carrying value business fixed assets estimated fair value substantially decommissioned rigs sold fourth quarter 2019 fourth quarter 2019 downhole technologies segment recorded noncash goodwill impairment charge 1650 million due among factors reduction nearterm outlook demand related shortcycle products services us shale play regions see note 4 details selected balance sheet accounts note 5 business acquisitions note 7 longterm debt consolidated financial statements included annual report form 10k discussion macroeconomic environment longterm outlook energy industry remains constructive guided expected population growth projected future growth global demand crude oil underinvestment major offshore projects past five years decline productivity wells drilled us land recent years increased capital discipline 2019 operators us shale play regions additionally opec along russia demonstrated willingness since late 2016 adjust crude oil production effort balance crude oil supply demand market december 2019 opec countries announced curtailments crude oil production believe currently demonstrated restraint operators invest projects without reasonable return investment lower commodity prices creates potential crude oil prices increase time production growth slows providing improved market fundamentals longer term macroeconomic environment energy sector continues extremely volatile due uncertainties regarding short mediumterm commodity price expectations recently volatility driven significant production growth us shale play regions concerns possible slowing global demand growth following material declines fourth quarter 2018 brent wti crude oil prices averaged 64 57 per barrel 2019 10 13 respectively compared 2018 average prices commodity price environment improved 2019 relative december 2018 lows crude oil price outlook associated volatility continues moderating impact customers operating results capital spending plans particularly operating us shale play regions consequently us rig count december 31 2019 805 rigs fell 26 recent peak 1083 rigs working december 2018 current expected future pricing wti crude continue influence customers willingness invest us shale play developments customers strive financial discipline spending levels within capital budgets cash flows expectations longerterm price brent crude oil continue influence customers spending related global offshore drilling development thus significant portion activity offshoremanufactured products segment remains likelihood crude oil prices could remain highly volatile due increases global inventory levels increasing domestic international crude oil production trade tensions china sanctions iranian production tensions iran civil unrest libya venezuela increasing price differentials markets slowing growth rates china global regions use alternative fuels improved vehicle fuel efficiency sustained movement electric vehicles andor potential ongoing supplydemand imbalances however global supply crude oil decrease due prolonged reduction capital investment customers government instability major oilproducing nation develops energy demand continue increase sustained recovery wti brent crude oil prices could occur event crude oil price improvements depend upon balance global supply demand corresponding continued reduction global inventories customer spending natural gas shale plays limited due natural gas production prolific basins northeastern united states associated gas produced drilling completion unconventional oil wells north america recent wti crude oil brent crude oil natural gas pricing trends follows 1 source us energy information administration february 18 2020 wti crude oil brent crude oil natural gas traded approximately 5210 per barrel 5735 per barrel 204 per mmbtu respectively overview well site services segment provides completion services much lesser extent land drilling services united states including gulf mexico rest world us drilling completion activity turn well site services results sensitive nearterm fluctuations commodity prices particularly wti crude oil prices given shortterm callout nature operations within segment completion services business supplies equipment service personnel utilized completion initial production new recompleted wells activity completion services business dependent primarily upon level complexity drilling completion workover activity areas operations mentioned well intensity complexity increased continuing transition multiwell pads drilling longer lateral wells increased downhole pressures along increased number frac stages completed horizontal wells similarly demand drilling services operations historically driven activity primary land drilling markets permian basin west texas us rocky mountain area third quarter 2019 made strategic decision reduce scope drilling services business adjusting 34 rigs 9 rigs due ongoing weakness customer demand vertical drilling rigs us land market prospectively operations primarily focus serving operators us rocky mountain region see note 4 details selected balance sheet accounts consolidated financial statements included annual report form 10k discussion downhole technologies segment comprised geodynamics business acquired january 2018 geodynamics founded 2004 researcher developer manufacturer consumable engineered products used completion applications segment provides oil gas perforation systems downhole tools services support completion intervention wireline well abandonment operations segment designs manufactures markets consumable engineered products oilfield service well exploration production companies product service offerings segment include innovations perforation technology patented proprietary systems combined advanced modeling analysis tools expertise led optimization perforation hole size depth quality tunnels key factors maximizing effectiveness hydraulic fracturing additional offerings include proprietary toe valve frac plug products focused zonal isolation hydraulic fracturing horizontal wells broad range consumable products setting tools bridge plugs used completion intervention decommissioning applications demand drivers downhole technologies segment include continued trends toward longer lateral lengths increased frac stages perforation clusters target increased unconventional well productivity demand well site services downhole technologies segments businesses highly correlated changes total number wells drilled united states total footage drilled number drilled wells completed changes drilling rig count following table sets forth summary average us drilling rig count measured baker hughes periods indicated recent years industry experienced increase customer spending crude oil liquidsrich exploration development activities us shale plays utilizing horizontal drilling completion techniques december 31 2019 oildirected drilling accounted 84 total us rig count balance largely natural gas related following significant decline crude oil prices fourth quarter 2018 coupled customer spending within cash flows us rig count declined steadily 2019 exited year 805 rigs 278 rigs 26 level reported end 2018 result average us rig count 2019 decreased 89 rigs 9 level reported 2018 offshoremanufactured products segment provides technologydriven highlyengineered products services offshore oil natural gas production systems facilities well certain products services offshore landbased drilling completion markets segment particularly influenced global deepwater drilling production spending primarily driven customers longerterm commodity demand forecasts outlook crude oil natural gas prices approximately 60 offshoremanufactured products sales 2016 driven customers capital spending offshore production systems subsea pipelines repairs lesser extent upgrades existing offshore drilling rigs construction new offshore drilling rigs vessels referred herein projectdriven products increasing substantially levels reported 2017 2018 activities represented approximately 40 segments revenue 2019 deepwater oil gas development projects typically involve significant capital investments multiyear development plans projects generally undertaken larger exploration field development production companies primarily international oil companies iocs staterun national oil companies nocs using relatively conservative crude oil natural gas pricing assumptions given long lead times associated field development believe deepwater projects approved development less susceptible shortterm fluctuations price crude oil natural gas however lower crude oil prices persisted since 2014 coupled relatively uncertain outlook around shorterterm possibly longerterm pricing improvements led exploration production companies reduce capital expenditures regards deepwater projects since expensive drill complete long lead times first production may considered uneconomical relative risk involved customers focused improving economics major deepwater projects lower commodity breakeven prices rebidding projects identifying advancements technology reducing overall project costs equipment standardization resulted reduced bidding quoting activity well reduced orders customers backlog levels offshoremanufactured products segment 2017 2018 relative 2014 bidding quoting activity along orders customers deepwater projects improved 2019 2018 levels potential future awards appears improving reflecting increased project award activity backlog offshoremanufactured products segment increased 179 million december 31 2018 280 million december 31 2019 segment received four notable orders 2019 production facility content destined south america southeast asia well connector products destined middle east military products united states following table sets forth backlog reported offshoremanufactured products segment dates indicated millions reduced demand products services coupled reduction prices charge customers services adversely affected results operations cash flows financial position since second half 2014 current pricing environment crude oil improve declines customers may required reduce capital expenditures causing additional declines demand prices products services would adversely affect results operations cash flows financial position use variety domestically produced imported raw materials component products including steel manufacturing products united states recently imposed tariffs variety imported products including steel aluminum response us tariffs steel aluminum european union several countries including canada china threatened andor imposed retaliatory tariffs effect new tariffs application interpretation existing trade agreements customs antidumping countervailing duty regulations continue evolve continue monitor matters encounter difficulty procuring raw materials component products prices pay products increase result customs antidumping countervailing duty regulations otherwise unable pass corresponding cost increases customers financial position results operations could adversely affected furthermore uncertainty respect potential costs drilling completion oil gas wells could cause customers delay cancel planned projects occurred would adversely affect financial position cash flows results operations factors affect business financial results include limited general global economic environment competitive pricing pressures regulatory changes tax laws united states international markets continue monitor global economy prices demand crude oil natural gas resultant impact capital spending plans operations customers order plan manage business consolidated results operations manage measure business performance three operating segments well site services downhole technologies offshoremanufactured products selected financial information business segment years ended december 31 2019 2018 2017 summarized follows dollars thousands 1 operating loss includes noncash fixed asset impairment charge 337 million 2019 decrease carrying value drilling services business fixed assets estimated fair value see note 4 details selected balance sheet accounts consolidated financial statements included annual report form 10k discussion 2 operating loss includes noncash goodwill impairment charge 1650 million 2019 reduce carrying value downhole technologies segment estimated fair value see note 6 goodwill intangible assets consolidated financial statements included annual report form 10k discussion nm indicates percentage considered meaningful year ended december 31 2019 compared year ended december 31 2018 net loss year ended december 31 2019 2318 million 390 per diluted share included noncash impairment charges 1650 million 278 per diluted share related write goodwill 337 million 266 million aftertax 045 per diluted share related write fixed assets well 35 million 28 million aftertax 005 per diluted share severance downsizing charges results compare net loss year ended december 31 2018 191 million 033 per diluted share included 84 million 66 million aftertax 011 per diluted share charges related legal fees incurred patent defense 33 million 26 million aftertax 004 per diluted share transactionrelated expenses 30 million 24 million aftertax 004 per diluted share provision fair labor standards act flsa claim settlements 16 million 13 million aftertax 002 per diluted share severance downsizing charges additionally year ended december 31 2018 company recognized 58 million 010 per diluted share income tax benefit related change december 2017 provisional estimates respect us tax reform legislation consolidated results operations include contributions geodynamics falcon acquisitions completed first quarter 2018 reported results operations reflect impact industry trends customer spending activities investments weighted toward us shale play regions however 2019 began see general improvement level planned investments deepwater markets globally 2019 average price wti crude oil declined approximately 13 2018 average price decline crude oil prices negative impact us landbased customer drilling completion activity particularly us shale play regions expect customerdriven activity remain tempered early 2020 operators strive financial discipline spending levels within capital budgets cash flows current pricing environment crude oil improve declines customers may required reduce capital expenditures causing additional declines demand prices products services would adversely affect results operations cash flows financial position revenues consolidated total revenues decreased 708 million 7 2019 compared 2018 consolidated product revenues 2019 decreased 185 million 4 2018 driven primarily lower us landbased customer activity impact competitive pricing pressures conventional perforating products downhole technologies segment partially offset higher projectdriven sales within offshoremanufactured products segment consolidated service revenues 2019 decreased 523 million 9 2018 impact particularly well site services segment lower customer spending us shale play regions partially offset two additional months revenue generated falcon operations acquired february 28 2018 derived following table 73 consolidated revenues 2019 related shortcycle product service offerings compared 77 2018 following table provides disaggregated revenue information operating segment years ended december 31 2019 2018 thousands cost revenues exclusive depreciation amortization expense consolidated cost revenues exclusive depreciation amortization expense decreased 319 million 4 2019 compared 2018 consolidated product costs 2019 increased 27 million 1 2018 compared 4 decrease product revenue result shift revenue mix shortcycle projectdriven products generally higher relative costs increased costs within downhole technologies segment consolidated service costs 2019 decreased 347 million 7 2018 included impact 30 million costs associated settlement flsa claims balance decrease service costs 2018 due primarily activitydriven revenue declines within well site services segment partially offset incremental costs downhole technologies segment associated expansion field support operations selling general administrative expense selling general administrative expense decreased 151 million 11 2019 2018 expense 2018 included 84 million patent defense costs 10 million transactionrelated costs excluding items 2018 selling general administrative expense declined 57 million 4 due primarily yearoveryear reduction stockbased compensation expense depreciation amortization expense depreciation amortization expense relatively consistent 2019 2018 periods impact geodynamics falcon operations acquired first quarter 2018 partially offset reduced capital investments certain assets becoming fully depreciated note 15 segments related information consolidated financial statements included annual report form 10k presents depreciation amortization expense segment impairment goodwill fourth quarter 2019 downhole technologies segment recognized noncash impairment charge 1650 million reduce carrying value segments goodwill see note 6 goodwill intangible assets consolidated financial statements included annual report form 10k discussion impairment fixed assets third quarter 2019 made strategic decision reduce scope drilling services business adjusting 34 rigs 9 rigs due ongoing weakness customer demand vertical drilling rigs us land market result decision drilling services business recorded noncash impairment charge 337 million decrease carrying value unit’s fixed assets estimated fair value see note 4 details selected balance sheet accounts consolidated financial statements included annual report form 10k discussion operating income net operating income decreased slightly 2018 totaling 20 million 2019 2018 offshoremanufactured products segment recognized gain 39 million settlement hurricane harvey flood insurance claim partially offset 23 million transactionrelated expenses operating income 2019 primarily related insurance recovery operating loss consolidated operating loss 2282 million 2019 included impact 1987 million noncash goodwill fixed asset impairment charges discussed previously 35 million severance downsizing charges compares consolidated operating loss 59 million 2018 included 114 million costs associated patent defense settlement flsa claims 33 million transactionrelated expense 16 million severance downsizing charges partially offset 39 million gain related insurance settlement discussed interest expense net interest expense 176 million 2019 decrease 14 million 2018 interest expense includes amortization debt discount deferred financing costs percentage total average debt outstanding approximately 6 2019 2018 contractual cash interest expense percentage total debt outstanding substantially lower averaging approximately 3 2019 2018 income net income net consisting primarily gains recognized sale property equipment 51 million 2019 increase 20 million 2018 income tax income tax benefit 2019 89 million pretax loss 2407 million included noncash goodwill impairment charge 1650 million expenses deductible tax purposes compares income tax benefit 2018 26 million pretax loss 217 million included 58 million discrete tax benefit related us tax reform guidance well discrete tax attributes comprehensive income loss reported comprehensive loss sum reported net income loss comprehensive income loss comprehensive income 37 million 2019 compared comprehensive loss 129 million 2018 due fluctuations foreign currency exchange rates compared us dollar certain international operations reportable segments 2019 2018 currency translation adjustments recognized component comprehensive income loss primarily attributable united kingdom brazil 2019 exchange rate british pound strengthened compared us dollar brazilian real weakened compared us dollar 2018 exchange rates british pound brazilian real weakened compared us dollar segment operating results well site services revenues well site services segment revenues decreased 482 million 10 2019 compared 2018 completion services revenue decreased 203 million 5 due significant decrease us landbased customer drilling completion activity following decline commodity prices fourth quarter 2018 partially offset impact two additional months revenue generated falcon operations acquired february 28 2018 drilling services revenues decreased 279 million 40 413 million 2019 2018 due reduction customer vertical drilling operations 2019 exit drilling operations west texas region fourth quarter 2019 operating loss well site services segment operating loss increased 380 million 2019 2018 due primarily 337 million noncash fixed asset impairment charge recorded drilling services completion services operating loss increased 40 million 2019 compared 2018 included 30 million charges presented within cost services associated additional reserves established final settlement legacy flsa claims drilling services operating loss increased 341 million 2019 2018 due principally 337 million noncash fixed asset impairment charge discussed previously downhole technologies revenues downhole technologies segment revenues decreased 315 million 15 2019 compared 2018 due primarily decline us landbased customer completion activity competitive pricing pressures certain conventional perforating products market shift toward sales integrated perforating gun systems segment commercialize late 2019 operating income loss 2019 downhole technologies segment recognized noncash impairment charge 1650 million reduce carrying value goodwill excluding charge operating income declined 257 million 2019 2018 due primarily decline revenues coupled expansion field support operations higher product engineering costs 14 million inventory writeoffs due product design changes prioryear results included 84 million patent defense costs incurred acquisition geodynamics offshoremanufactured products revenues offshoremanufactured products segment revenues increased 89 million 2 2019 compared 2018 higher sales projectdriven products partially offset decrease sales shortcycle products services operating income offshoremanufactured products segment operating income decreased 29 million 7 2019 compared 2018 operating results 2019 included 17 million provision bad debt prioryear receivable customer claiming bankruptcy protection results 2018 included gain 39 million associated insurance settlement lesser extent reported segment results 2019 2018 reduced severance downsizingrelated expenses 17 million 15 million respectively backlog bidding quoting activity along orders customers offshoremanufactured products segment improved 2019 deepwater project awards increasing second consecutive year backlog offshoremanufactured products increased 57 2019 total 280 million december 31 2019 orders totaled 523 million 2019 resulting booktobill ratio 13x corporate expenses decreased 93 million 17 2019 2018 due primarily 59 million yearoveryear decrease stockbased compensation 16 million insurance benefit recognized fourth quarter 2019 30 million nonrecurring transactionrelated expenses incurred 2018 connection acquisitions geodynamics falcon year ended december 31 2018 compared year ended december 31 2017 net loss year ended december 31 2018 191 million 033 per diluted share included 84 million 66 million aftertax 011 per diluted share charges related legal fees incurred patent defense 30 million reserves 24 million aftertax 004 per diluted share prior years flsa claim settlements 33 million 26 million aftertax 004 per diluted share transactionrelated expenses 16 million 13 million aftertax 002 per diluted share severance downsizing charges additionally year ended december 31 2018 company recognized 58 million 010 per diluted share income tax benefit related change december 2017 provisional estimates respect us tax reform legislation results compare net loss year ended december 31 2017 849 million 169 per diluted share included 34 million 24 million aftertax 005 per diluted share severance downsizing charges 292 million 058 per diluted share additional noncash income tax expense primarily related us tax law changes consolidated results operations 2018 included contributions geodynamics falcon acquisitions completed first quarter 2018 reflected impact industry trends customer spending activities directed toward growth us shale play regions general slowing global investments deepwater markets since start prolonged industry downturn 2014 fourth quarter 2018 price crude oil fell approximately 40 wti closing 45 per barrel december 28 2018 precipitous decline crude oil prices moderate negative impact fourth quarter 2018 consolidated results operations particularly us shale play regions revenues consolidated total revenues increased 4175 million 62 2018 compared 2017 consolidated product revenues 2018 increased 1980 million 65 2017 reflecting contributions acquired geodynamics operations consolidated service revenues 2018 increased 2195 million 60 2017 due principally contributions acquired falcon operations higher customerdriven activity within well site services offshoremanufactured products segments derived following table 77 consolidated revenues 2018 related shortcycle product service offerings compared 65 2017 due principally contributions first quarter 2018 acquisitions higher customer spending us shale play regions following table provides disaggregated revenue information operating segment years ended december 31 2018 2017 thousands cost revenues exclusive depreciation amortization expense consolidated cost revenues exclusive depreciation amortization expense increased 3138 million 60 2018 compared 2017 due costs associated acquisitions completed first quarter 2018 well activitydriven costs associated revenue growth within well site services offshoremanufactured products segments consolidated product costs 2018 increased 1470 million 67 2017 due primarily geodynamics acquisition completed first quarter 2018 consolidated service costs 2018 increased 1668 million 55 2017 driven significant increase service activity coupled acquired falcon operations selling general administrative expense selling general administrative expense increased 233 million 20 2018 prioryear period primarily due incremental expenses associated acquired geodynamics operations including 84 million patent defense costs higher activity levels 10 million transactionrelated costs depreciation amortization expense depreciation amortization expense increased 159 million 15 2018 compared 2017 reflecting impact acquired geodynamics falcon operations partially offset certain assets becoming fully depreciated note 14 segments related information consolidated financial statements included annual report form 10k presents depreciation amortization expense segment operating income expense net operating income expense moved expense 13 million 2017 income 21 million 2018 offshoremanufactured products segment recognized gain 39 million settlement hurricane harvey flood insurance claim partially offset 23 million transactionrelated expenses operating expense prior year primarily related foreign currency exchange losses operating loss consolidated operating loss 59 million 2018 included 114 million costs associated patent defense settlement flsa claims 33 million transactionrelated expense 16 million severance downsizing charges partially offset 39 million gain related insurance settlement discussed previously compares consolidated operating loss 739 million 2017 included 34 million transactionrelated severance facility closure charges majority yearoveryear improvement operating results reflects contributions geodynamics falcon acquisitions completed first quarter 2018 well impact growth customer spending activities primarily focused us shale play regions interest expense net interest expense 190 million 2018 increase 147 million 2017 increase reflects funding first quarter 2018 3797 million net acquisition consideration borrowings revolving credit facility issuance notes interest expense percentage total average debt outstanding decreased 173 2017 56 2018 interest expense percentage total average debt outstanding 2017 reflects lower average borrowings outstanding revolving credit facility increased proportion interest expense associated unused commitment fees noncash amortization debt issuance costs income net income net consisting primarily gains recognized sale property equipment 31 million 2018 increase 24 million 2017 income tax income tax benefit 2018 26 million pretax loss 217 million includes 58 million discrete tax benefit related recent us tax reform guidance allowing carry back us net operating losses incurred 2017 well discrete tax attributes compares income tax benefit 2017 74 million pretax loss 774 million income tax benefit 218 million excluding discrete charges discussed december 22 2017 united states enacted tax reform legislation resulted significant changes us tax related law including certain key federal income tax provisions applicable multinational companies result tax law changes recorded 282 million incremental noncash income tax expense related us transition tax unremitted foreign subsidiary earnings provide valuation allowances foreign tax credit carryforwards recorded assets prior us tax reform additionally remeasured us deferred tax assets liabilities reflect lower us corporate income tax rate reduced 35 21 also recorded discrete tax charge 10 million 2017 related decision carryback 2016 us net operating losses 2014 taxable income comprehensive income loss reported comprehensive loss sum reported net income loss comprehensive income loss comprehensive loss 129 million 2018 compared comprehensive income 118 million 2017 due fluctuations foreign currency exchange rates compared us dollar certain international operations reportable segments 2018 2017 currency translation adjustments recognized component comprehensive income loss primarily attributable united kingdom brazil 2018 exchange rates british pound brazilian real weakened compared us dollar compares 2017 exchange rates british pound strengthened brazilian real weakened compared us dollar segment operating results well site services revenues well site services segment revenues increased 1915 million 66 2018 compared 2017 growth concentrated completion services revenues increased 1768 million 75 reflecting revenue generated acquired falcon operations increased completionrelated activity united states drilling services revenues increased 148 million 27 692 million 2018 2017 primarily result improved dayrates land drilling rigs higher level thirdparty costs reimbursed customers operating loss higher revenues well site services segment operating loss declined 421 million 71 2018 2017 well site services segment revenues cost services 2018 increased 66 59 respectively prior year costs expenses remaining relatively consistent completion services operating loss improved 375 million 83 2018 compared 2017 due increased completionrelated activity levels united states coupled ten months contributions acquired falcon operations 2018 results include 30 million charges presented within cost services associated additional reserves established final settlement historical flsa claims 2017 reported results included 11 million severance downsizing costs drilling services operating loss declined 45 million 33 2018 2017 primarily result reported revenue growth downhole technologies revenues downhole technologies segment revenues 2138 million 2018 reflecting activity geodynamics operations acquired january 2018 operating income downhole technologies segment operating income 267 million 2018 reported results negatively impacted 84 million patent defense costs legal actions settled fourth quarter 2018 offshoremanufactured products revenues offshoremanufactured products segment revenues increased 122 million 3 2018 compared 2017 result higher sales products service offerings service revenue increased 28 prior years level driven higher customer demand projectdriven products revenues decreased 5 yearoveryear due lower sales production subsea equipment partially offset higher sales standard connector products operating income offshoremanufactured products segment operating income increased 08 million 2 2018 compared 2017 result gain 39 million recognized upon settlement hurricane harvey flood insurance claim 2018 impact shift sales mix 2017 2018 offset impact reported revenue growth insurance gains discussed lesser extent reported segment results 2018 2017 reduced severance downsizingrelated expenses 15 million 09 million respectively backlog bidding quoting activity along orders customers offshoremanufactured products segment continued 2018 albeit substantially slower pace recent years backlog offshoremanufactured products increased 6 2018 total 179 million december 31 2018 book bill ratio 11x year corporate expenses increased 15 million 3 2018 2017 due 30 million transactionrelated expenses incurred connection first quarter 2018 acquisitions geodynamics falcon liquidity capital resources matters primary liquidity needs fund operating capital expenditures past included expanding upgrading offshoremanufactured products downhole technologies manufacturing facilities equipment replacing increasing completion services assets funding new product development general working capital needs addition capital used repay debt fund strategic business acquisitions fund stock repurchase program primary sources funds cash flow operations proceeds borrowings credit facilities capital market transactions crude oil natural gas industry highly cyclical may result declines demand prices products services inability failure customers meet obligations us sustained decline market capitalization potentially adverse market conditions could require us incur additional asset impairment charges record additional deferred tax valuation allowances andor write value goodwill intangible assets may otherwise adversely impact results operations cash flows financial position see note 4 details selected balance sheet accounts note 6 goodwill intangible assets consolidated financial statements included annual report form 10k information operating activities cash flows totaling 1374 million provided operations year ended december 31 2019 compared 1032 million provided operations year ended december 31 2018 2019 393 million provided net working capital decreases reduction accounts receivable partially offset increase inventories 2018 229 million used fund working capital increases primarily associated activitydriven growth accounts receivable inventories investing activities total 520 million cash used investing activities year ended december 31 2019 compared 4614 million used 2018 capital expenditures totaled 561 million 880 million years ended december 31 2019 2018 respectively capital expenditures years consisted principally purchases completion services equipment expansion upgrading downhole technologies offshoremanufactured products segment facilities equipment well various capital spending initiatives january 12 2018 acquired geodynamics purchase price consisting 2954 million cash net cash acquired funded borrowings revolving credit facility ii approximately 866 million shares common stock market value 2949 million closing date iii unsecured 250 million promissory note february 28 2018 acquired falcon cash consideration 842 million net cash acquired funded borrowings revolving credit facility expect spend 40 million 45 million total capital expenditures 2020 replace upgrade completion services equipment expand maintain downhole technologies offshoremanufactured products facilities equipment fund various capital spending projects whether planned expenditures actually spent 2020 depends industry conditions project approvals schedules vendor delivery timing free cash flow generation careful monitoring levels liquidity plan fund capital expenditures available cash internally generated funds necessary borrowings revolving credit facility foregoing capital expenditure expectations include funds might spent future strategic acquisitions company could pursue depending economic environment industry availability transactions prices deemed attractive company december 31 2019 cash totaling 85 million enactment tax cuts jobs act december 2017 repatriated 145 million 450 million cash held international subsidiaries reduce borrowings outstanding revolving credit facility 2019 2018 respectively without triggering incremental tax expense financing activities net cash 959 million used financing activities year ended december 31 2019 primarily associated net repayment 842 million borrowings revolving credit facility repurchase discount 78 million principal amount notes 67 million net cash 3241 million provided financing activities year ended december 31 2018 primarily result issuance 2000 million 150 convertible senior notes net borrowings 1361 million revolving credit facility fund acquisitions discussed 2019 used 909 million 1374 million cash flows operating activities reduce outstanding debt level december 31 2019 principal outstanding 519 million revolving credit facility due january 2022 repaid part full advance 1923 million notes due february 2023 repurchased part full advance reported interest expense appropriately includes amortization debt discount deferred financing costs 79 million substantially contractual cash interest expense reflective primarily notes provide cash interest payment 15 per annum 2019 contractual interest expense 100 million approximately 3 average principal balance debt outstanding january 12 2018 partially funded geodynamics acquisition borrowings available revolving credit facility january 30 2018 issued 2000 million principal amount notes due february 2023 entered revolving credit facility extend maturity facility january 30 2022 provide total lender commitments 350 million net proceeds notes offering approximately 1940 million deducting discounts estimated expenses used repay portion amounts outstanding revolving credit facility believe cash hand cash flow operations available borrowings revolving credit facility sufficient meet liquidity needs coming twelve months plans assumptions change inaccurate make acquisitions may need raise additional capital timing size success acquisition effort associated potential capital commitments unpredictable uncertain may seek fund part efforts proceeds debt andor equity issuances ability obtain capital additional projects implement growth strategy longer term depend upon future operating performance financial condition broadly availability equity debt financing capital availability affected prevailing conditions industry global economy global financial markets factors many beyond control revolving credit facility revolving credit facility governed credit agreement dated january 30 2018 amended credit agreement among company lenders party thereto wells fargo bank na administrative agent lenders party thereto collateral agent secured parties thereunder lenders financial institutions time party thereto revolving credit facility provides 350 million lender commitments option increase maximum borrowings 500 million subject additional lender commitments matures january 30 2022 revolving credit facility 50 million available issuance letters credit see note 7 longterm debt consolidated financial statements included annual report form 10k information regarding terms credit agreement december 31 2019 519 million borrowings outstanding credit agreement 193 million outstanding letters credit leaving 1311 million available drawn total amount available drawn less lender commitments december 31 2019 due limits imposed maintenance covenants credit agreement december 31 2019 compliance debt covenants expect continue compliance next twelve months 150 convertible senior notes january 30 2018 issued 2000 million aggregate principal amount notes pursuant indenture dated january 30 2018 indenture us wells fargo bank na trustee net proceeds deducting discounts expenses approximately 1940 million 2019 repurchased 78 million principal amount outstanding notes 67 million approximated carrying amount related liability initial carrying amount notes recorded consolidated balance sheet january 30 2018 less 2000 million principal amount notes accordance applicable accounting principles reflective estimated fair value similar debt instrument conversion feature recorded value conversion feature 344 million debt discount amortized interest expense term notes similar amount allocated additional paidin capital result amortization debt discount interest expense recognize related notes accounting purposes based effective interest rate approximately 6 greater cash interest payments obligated pay notes interest expense associated notes 2019 2018 102 million 90 million respectively related cash interest expense 30 million 28 million respectively december 31 2019 none conditions allowing holders notes convert requiring us repurchase notes met see note 7 longterm debt consolidated financial statements included annual report form 10k information regarding notes promissory note connection geodynamics acquisition issued 250 million promissory note bears interest 25 per annum scheduled mature july 12 2019 payments due promissory note subject setoff full part certain claims related matters occurring prior acquisition geodynamics fully described note 14 commitments contingencies consolidated financial statements included annual report form 10k provided notice asserted indemnification claims seller geodynamics result maturity date note extended resolution indemnity claim expect amount ultimately paid respect note reduced result indemnification claims total debt represented 169 combined total debt stockholders equity december 31 2019 compared 187 december 31 2018 stock repurchase program maintain share repurchase program extended july 29 2020 board directors 2019 repurchased approximately 51 thousand shares common stock program total cost 08 million 2018 repurchases common stock program 2017 562 thousand shares common stock repurchased program total cost 162 million amount remaining current share repurchase authorization december 31 2019 1198 million subject applicable securities laws purchases times amounts company deems appropriate contractual obligations following summarizes contractual obligations december 31 2019 effect obligations expected liquidity cash flow next five years thousands 1 excludes interest variablerate debt matures january 2022 since cannot predict certainty amount interest due revolving debt due expected variability interest rates principal amounts outstanding include obligations assume interest payment amounts calculated using outstanding principal balances interest rates december 31 2019 include applicable commitment fees estimated interest payments variablerate debt would 24 million due less one year 26 million due one three years see note 7 longterm debt consolidated financial statements included annual report form 10k additional information regarding revolving credit facility 2 amount represents full principal amount notes together cash interest payments due semiannually 3 amount represents full principal amount 25 million promissory note together accrued unpaid interest february 21 2020 25 million promissory note together accrued unpaid interest issued connection geodynamics acquisition scheduled mature july 12 2019 payments due promissory note subject setoff full part certain claims related matters occurring prior acquisition geodynamics fully described note 14 commitments contingencies consolidated financial statements included annual report form 10k provided notice asserted indemnification claims seller geodynamics result maturity date note extended resolution indemnity claims expect amount ultimately paid respect note reduced result indemnification claims 4 amount represents payment obligations including implied interest operating leases initial term greater 12 months 5 purchase obligations company primarily relate open purchase orders offshoremanufactured products completion services operations effects inflation revenues results operations materially impacted inflation past three fiscal years offbalance sheet arrangements december 31 2019 offbalance sheet arrangements defined item 303a4ii regulation sk tariffs use variety domestically produced imported raw materials component products including steel manufacture products 2018 united states imposed tariffs variety imported products including steel aluminum response us tariffs steel aluminum european union several countries including canada china threatened andor imposed retaliatory tariffs effect new tariffs application interpretation existing trade agreements customs antidumping countervailing duty regulations continues evolve continue monitor matters encounter difficulty procuring raw materials component products prices pay products increase result customs antidumping countervailing duty regulations otherwise unable pass corresponding cost increases customers financial position results operations could adversely affected furthermore uncertainty respect potential costs drilling completion oil gas wells could cause customers delay cancel planned projects occurred would adversely affect financial position results operations see note 14 commitments contingencies consolidated financial statements included annual report form 10k additional discussion tax matters see note 2 summary significant accounting policies note 9 income taxes consolidated financial statements included annual report form 10k additional information respect tax matters critical accounting policies consolidated financial statements included annual report form 10k prepared accordance accounting principles generally accepted united states gaap require management make numerous estimates assumptions actual results could differ estimates assumptions thus impacting reported results operations financial position critical accounting policies estimates described section important depiction financial condition results operations application requires managements subjective judgments making estimates effect matters inherently uncertain describe significant accounting policies fully note 2 summary significant accounting policies consolidated financial statements included annual report form 10k goodwill longlived tangible intangible assets goodwill totaled 4823 million representing 28 total assets december 31 2019 longlived tangible assets totaled 4597 million december 31 2019 longlived intangible assets totaled 2301 million representing 13 total assets remainder assets largely consisted cash accounts receivable inventories accordance current accounting guidance amortize goodwill rather assess goodwill impairment annually december 1 event occurs circumstances change suggest carrying amount may recoverable carrying amount reporting unit exceeds fair value goodwill considered impaired impairment loss recorded three reporting units completion services downhole technologies offshoremanufactured products goodwill balances totaling 6467 million september 30 2019 fourth quarter 2019 us landbased completion activity declined significantly levels experienced previous three quarters additionally number market indicators declined levels experienced recent years example october 2019 philadelphia oil services index average price declined level reported since 1999 average us rig count 20 level observed year prior consistent oilfield service industry peers common stock price declined market capitalization carrying value stockholders equity given current market conditions reduced nearterm outlook demand related shortcycle products services us shale play regions refined outlook incorporated december 1 2019 annual impairment assessment indicated fair value downhole technologies segment less carrying amount annual quantitative impairment test goodwill december 1 2019 estimated fair value reporting unit compared fair value recorded carrying value none reporting units publicly quoted market prices determined value willing buyers sellers would place reporting unit routine sale process level 3 fair value measurement analysis targeted valuation would placed reporting unit market participants based historical projected operating results throughout full market cycle value reporting unit based trough peak operating results utilized based circumstances combination trading multiples analyses projected discounted cash flow calculations estimated terminal values acquisition comparables discounted projected cash flows using longterm weighted average cost capital reporting unit based estimate investment returns would required market participant fair value reporting units primarily affected expectations regarding future crude oil natural gas prices anticipated spending customers income tax rates cost capital also compared total market capitalization company sum fair values reporting units assess reasonableness aggregated fair value assessment led us conclude goodwill amount recorded downhole technologies reporting unit partially impaired therefore recognized noncash goodwill impairment charge 1650 million fourth quarter 2019 following impairment charge downhole technologies reporting unit fair value substantially excess carrying amount fair value completion services offshoremanufactured products reporting units exceeded carrying amounts 24 38 respectively december 1 2019 discount rates used value reporting units ranged 125 130 holding assumptions inputs used respective discounted cash flow analysis constant 50 basis point increase discount rate assumption would increased goodwill impairment charge approximately 28 million december 31 2019 market capitalization 987 million 237 million equity carrying value discussed annual assessment appropriately considered impact current market environment industry outlook using projected discounted cash flows reflecting expected market conditions december 1 2019 estimating fair value reporting units underlying fundamentals supporting crude oil natural gas markets continue support longterm crude oil demand growth need additional crude oil production continue monitor commodity prices significant assumptions used forecasts experience prolonged decline longterm demand crude oil natural gas significant sustained increases commodity supplies serve depress commodity prices long term required update discounted cash flow analysis potentially required record goodwill impairment future furthermore market capitalization remains book value sustained period time implied fair value equity reasonably supported equity control premiums need consider updating assessment impairment longlived tangible intangible assets conducted whenever changes facts circumstances indicate loss value may occurred indicators impairment might include persistent negative economic trends affecting markets serve recurring losses lowered expectations future cash flows generated assets necessary determination amount impairment based quoted market prices available judgment future operating cash flows generated assets throughout estimated useful lives based december 2019 impairment assessment carrying values longlived tangible intangible asset groups recoverable impairment losses recorded however industry cyclicality downturns may result future changes estimates projected operating cash flows timing could potentially cause future impairment values longlived assets including finitelived intangible assets revenue cost recognition discussed note 3 recent accounting pronouncements consolidated financial statements included annual report form 10k account revenue accordance financial accounting standards board guidance revenue contracts customers asc 606 adopted january 1 2018 new guidance material impact recognition revenues revenue contracts may include one promises transfer distinct good service customer referred asc 606 performance obligation revenue allocated recognize revenue related cost performance obligations satisfied majority significant contracts custom engineered products single performance obligation individual good service separately identifiable performance obligations contracts multiple distinct performance obligations allocate revenue identified performance obligations contract product sales terms include significant postperformance obligations performance obligations may satisfied point time work progresses revenues goods services transferred customers point time accounted approximately 34 29 22 consolidated revenues years ended december 31 2019 2018 2017 respectively majority revenue recognized point time derived shortterm contracts standard products offered us revenue contracts recognized control product transferred customer indicators consider determining transfer control customer occurs include right payment product transfer legal title customer transfer physical possession product transfer risk customer acceptance product revenues products services transferred customers time accounted approximately 66 71 78 consolidated revenues years ended december 31 2019 2018 2017 respectively majority revenue recognized time services provided shortterm contracts revenue recognized customer receives consumes services provided segments addition manufacture certain products individual customer specifications shortterm contracts control passes customer performance obligations fulfilled revenue recognized time significant projectrelated contracts involving custom engineered products within offshoremanufactured products segment also referred projectdriven products revenues typically recognized time using input measure percentage costs incurred date relative total estimated costs completion contract costtocost method contract costs include labor material overhead management believes method appropriate measure progress large contracts billings contracts excess costs incurred estimated profits classified contract liability deferred revenue costs incurred estimated profits excess billings contracts recognized contract asset component accounts receivable contract estimates projectrelated contracts involving custom engineered products based various assumptions project outcome future events may span several years changes assumptions may affect future project costs margins include production efficiencies complexity work performed availability costs labor materials subcomponents significant change one estimates could affect profitability contracts contractrelated estimates reviewed regularly recognize adjustments estimated profit contracts cumulative catchup method impact adjustment profit recorded date recognized period adjustment identified revenue profit future periods contract performance recognized using adjusted estimate time estimate contract profitability indicates anticipated loss incurred contract loss recognized period identified cost goods sold includes direct material labor costs related contract performance indirect labor supplies tools repairs presented consolidated statements operations costs goods sold excludes depreciation amortization expense selling general administrative costs charged expense incurred taxes assessed governmental authority imposed concurrent specific revenueproducing transaction collect customer excluded revenue shipping handling costs associated outbound freight control product transferred customer accounted fulfillment cost included cost products proceeds customers cost oilfield rental equipment damaged lost downhole reflected gains losses disposition assets considering writeoff remaining net book value equipment purchase price allocation acquisitions allocate fair value purchase price consideration acquired business identifiable assets liabilities based estimated fair values excess purchase price fair value acquired assets liabilities recorded goodwill use available information estimate fair values including quoted market prices carrying value acquired assets widely accepted valuation techniques discounted cash flows determining fair value assets liabilities acquired well intangible assets relate items customer relationships technology knowhow trade names noncompete agreements involves significant professional judgment ultimately based acquisition models managements assessment value assets acquired extent available thirdparty assessments judgments made determining estimated fair value assigned class assets acquired liabilities assumed well asset lives could materially impact results operations accounting contingencies contingent liabilities future claims made estimates amount eventual cost liquidate liabilities claims liabilities claims sometimes involve threatened actual litigation damages quantified made assessment exposure recorded amount estimated cover expected loss claims liabilities estimated based fair value experience matters appropriate advice outside counsel outside experts upon ultimate resolution uncertainties future reported financial results impacted difference estimates actual amounts paid settle liability examples areas made important estimates future liabilities include duties income taxes litigation insurance claims contractual claims obligations estimation useful lives selection useful lives many assets requires judgments operating personnel judgment area influenced historical experience operating assets technological developments expectations future demand assets estimates long short might eventually report disproportionate number losses gains upon disposition retirement longlived assets believe estimates useful lives appropriate income taxes follow liability method accounting income taxes accordance current accounting standards regarding accounting income taxes method deferred income taxes recorded based upon differences financial reporting tax bases assets liabilities measured using enacted tax rates laws effect time underlying assets liabilities recovered settled december 22 2017 tax reform legislation signed law enacts significant changes us tax related laws including certain key us federal income tax provisions applicable oilfield service manufacturing companies company us state regulatory bodies finalized potential changes existing laws regulations may result new us tax related laws accordance secs staff accounting bulletin 118 recorded provisional estimates reflect effect tax reform legislation income tax assets liabilities december 31 2017 2018 adjusted provisional estimates based additional guidance issued internal revenue service prior december 22 2017 majority earnings international subsidiaries considered indefinitely reinvested outside united states provision us income taxes made earnings however certain historical foreign earnings considered indefinitely reinvested outside united states subject us income tax earned subsidiaries distributed earnings form dividends otherwise generally subject us income taxes subject adjustment foreign tax credits withholding taxes payable various foreign countries december 31 2019 total investment including earnings profits foreign subsidiaries considered permanently reinvested record valuation allowance reporting period management believes likely deferred tax asset realized assessment requires analysis changes tax laws available positive negative evidence including consideration losses recent years reversals temporary differences forecasts future income assessment future business tax planning strategies 2019 2018 2017 recorded valuation allowances primarily respect net operating loss carryforwards certain operations outside united states result changes us tax laws 2017 recorded valuation allowance foreign tax credit carryforwards fourth quarter 2017 calculation tax liabilities involves assessing uncertainties regarding application complex tax regulations recognize liabilities tax expenses based estimate whether extent additional taxes due ultimately determine payment amounts unnecessary reverse liability recognize tax benefit period determine liability longer necessary record additional charge provision taxes period determine recorded tax liability less expect ultimate assessment recent accounting pronouncements time new accounting pronouncements issued financial accounting standards board fasb adopted us specified effective date unless otherwise discussed management believes impact recently issued standards yet effective material impact consolidated financial statements upon adoption item 7aitem 7 managements discussion analysis financial condition results operations managements discussion analysis financial condition results operations read conjunction consolidated financial statements related notes appearing part ii item 8 financial statements supplementary data section annual report form 10k generally discusses 2020 2019 items yeartoyear comparisons 2020 2019 discussions 2018 items yeartoyear comparisons 2019 2018 included annual report form 10k found part ii item 7 management’s discussion analysis financial condition results operations annual report form 10k fiscal year ended december 31 2019 discussion contains forwardlooking statements within meaning section 27a securities act section 21e exchange act based current expectations estimates projections business operations actual results may differ materially currently anticipated expressed forwardlooking statements result numerous factors including known material factors set forth part item 1a risk factors read following discussion analysis together consolidated financial statements notes statements included elsewhere annual report form 10k order understand factors business combinations charges credit financing transactions may impact comparability period provide broad range products services customers three business segments demand products services cyclical substantially dependent upon activity levels oil gas industry particularly customers willingness invest capital exploration development crude oil natural gas reserves customers capital spending programs generally based cash flows outlook nearterm longterm commodity prices economic growth commodity demand estimates resource production result demand products services largely sensitive future expectations respect crude oil natural gas prices recent developments disruptions caused covid19 pandemic measures taken prevent spread mitigate effects domestically international impacted results operations march 2020 spot price wti crude oil declined 50 response actual forecasted reductions global demand crude oil due covid19 pandemic coupled announcements saudi arabia russia plans increase crude oil production effort protect market share opec members statecontrolled oil companies ultimately agreed reduce production following crude oil price collapse many operators shutin production united states effort address rapidly collapsing demand crude oil prices recovered losses since reaching record low levels april 2020 spot price brent wti crude oil averaged 42 39 per barrel 2020 35 31 respectively comparable 2019 averages ultimate magnitude duration covid19 pandemic timing extent governmental restrictions placing limitations mobility ability work worldwide population related impact crude oil prices global economy capital markets remains uncertain difficult assess predict precision broad future effect pandemic global economy energy industry us expect covid19 pandemic continue adversely affect demand products services 2021 demand products services depends substantially level capital expenditures invested oil natural gas industry reached 15year lows 2020 decline crude oil prices coupled higher crude oil inventory levels 2020 caused rapid reductions customers drilling completion production activities related spending products services particularly supporting activities us shale play regions conditions may continue result material adverse impact certain customers liquidity financial position leading spending reductions delays collection amounts owed certain instances nonpayments amounts owed additionally future actions among opec members oil producing nations production levels prices could result declines crude oil prices would prove detrimental particularly given weak demand environment crude oil associated products caused ongoing covid19 pandemic following unprecedented events commencing march 2020 immediately began aggressive implementation cost reduction initiatives effort reduce expenditures protect financial health company including following •reduced headcount 32 december 31 2019 december 31 2020 •reduced capital expenditures 2020 77 compared 2019 •reduced annual shortterm longterm incentive awards •consolidated closed certain facilities given covid19 induced economic destruction assessed carrying value goodwill assets based industry outlook regarding overall demand pricing products services result events actions assessments recorded following charges 2020 •noncash goodwill impairment charges 4061 million reduce carrying value reporting units estimated fair value •noncash impairment charges 312 million reduce carrying value inventory estimated realizable value •noncash impairment charges 124 million decrease carrying value fixed assets leases estimated realizable value •employee severance restructuring charges 91 million discussed detail liquidity capital resources matters financing activities revolving credit facility amended existing revolving credit facility second quarter 2020 connection amendment revolving credit facility size reduced 350 million 200 million advances subject monthly borrowing base calculation exchange suspension existing financial covenants july 1 2020 march 30 2021 february 10 2021 discussed detail liquidity capital resources matters financing activities assetbased revolving credit facility entered assetbased revolving credit facility order extend maturity provides 1250 million assetbased revolving credit facility credit availability subject monthly borrowing base calculation assetbased revolving credit facility matures february 2025 concurrent entering assetbased revolving credit facility existing amended credit agreement terminated addition discussed detail liquidity capital resources matters financing activities 150 convertible senior notes due february 2023 opportunistically purchased total 349 million principal amount notes 201 million cash recognized noncash gains totaling 107 million 2020 see note 3 asset impairments charges note 4 details selected balance sheet accounts note 6 goodwill intangible assets note 7 longterm debt note 8 operating leases consolidated financial statements included annual report form 10k discussion crude oil natural gas industry highly cyclical may result declines demand prices products services inability failure customers meet obligations us sustained decline market capitalization potentially adverse market conditions could require us incur additional asset impairment charges record additional deferred tax valuation allowances andor write value goodwill intangible assets may otherwise adversely impact results operations cash flows financial position overview current expected future pricing wti crude oil along belief regulatory access allowed factors continue influence customers willingness invest us shale play developments allocate capital strive financial discipline spending levels within capital budgets cash flows expectations longerterm price brent crude oil continue influence customers spending related global offshore drilling development thus significant portion activity offshoremanufactured products segment crude oil prices likely remain highly volatile due numerous factors including global uncertainties related covid19 pandemic higher global inventory levels increasing domestic international crude oil production changes governmental regulations trade tensions china sanctions iranian production tensions iran civil unrest libya venezuela use alternative fuels improved vehicle fuel efficiency sustained movement electric vehicles andor potential ongoing supplydemand imbalances capital investment customers 15year low underinvestment coupled potential instability foreign producing nations could lead sustained recovery wti brent crude oil prices demand recovers following pandemic event crude oil price improvements depend upon balance global supply demand corresponding continued reduction global inventories customer spending natural gas shale plays limited due significant technological advancements led significant amounts natural gas produced prolific basins northeastern united states associated gas produced drilling completion unconventional oil wells north america recent wti crude oil brent crude oil natural gas pricing trends follows 1source us energy information administration february 12 2021 wti crude oil brent crude oil natural gas traded 5950 per barrel 6247 per barrel 612 per mmbtu respectively us drilling completion activity turn financial results sensitive nearterm fluctuations commodity prices particularly wti crude oil prices given shortterm callout nature us operations primarily supply equipment service personnel utilized completion initial production new recompleted wells us activity dependent primarily upon level complexity drilling completion workover activity areas operations well intensity complexity increased continuing transition multiwell pads drilling longer lateral wells increased downhole pressures along increased number frac stages completed horizontal wells downhole technologies segment comprised geodynamics business acquired january 2018 provides oil gas perforation systems downhole tools services support completion intervention wireline well abandonment operations segment designs manufactures markets consumable engineered products oilfield service well exploration production companies product service offerings segment include innovations perforation technology patented proprietary systems combined advanced modeling analysis tools expertise led optimization perforation hole size depth quality tunnels key factors maximizing effectiveness hydraulic fracturing additional offerings include proprietary toe valve frac plug products focused zonal isolation hydraulic fracturing horizontal wells broad range consumable products setting tools bridge plugs used completion intervention decommissioning applications demand drivers downhole technologies segment include continued trends toward longer lateral lengths increased frac stages perforation clusters target increased unconventional well productivity requires ongoing technological product developments demand completion products services within segments highly correlated changes total number wells drilled united states total footage drilled number drilled wells completed changes drilling rig count following table sets forth summary average us drilling rig count measured baker hughes periods indicated us energy industry primarily focused crude oil liquidsrich exploration development activities us shale plays utilizing horizontal drilling completion techniques december 31 2020 oildirected drilling accounted 76 total us rig count balance largely natural gas related due unprecedented decline crude oil prices march april 2020 drilling completion activity united states collapsed active drilling rig count declining 52 march 31 2020 351 rigs working december 31 2020 result average us rig count 2020 decreased 510 rigs 54 2019 average offshoremanufactured products segment provides technologydriven highlyengineered products services offshore oil natural gas production systems facilities well certain products services offshore landbased drilling completion markets segment particularly influenced global spending deepwater drilling production primarily driven customers longerterm commodity demand forecasts outlook crude oil natural gas prices approximately 49 offshoremanufactured products sales 2020 driven customers capital spending products used exploratory developmental drilling greenfield offshore production infrastructure subsea pipeline tiein repair system applications along upgraded equipment existing offshore drilling rigs vessels referred herein projectdriven products deepwater oil gas development projects typically involve significant capital investments multiyear development plans projects generally undertaken larger exploration field development production companies primarily international oil companies iocs staterun national oil companies nocs using relatively conservative crude oil natural gas pricing assumptions given long lead times associated field development believe deepwater projects approved development generally less susceptible shortterm fluctuations price crude oil natural gas customers focused improving economics major deepwater projects lower commodity breakeven prices rebidding projects identifying advancements technology reducing overall project costs equipment standardization bidding quoting activity along orders customers deepwater projects improved 2019 2018 levels however reduced market visibility given significant decline crude oil prices began march 2020 associated reductions customer spending segments 2020 bookings lower levels achieved 2019 backlog reported offshoremanufactured products segment decreased 280 million december 31 2019 219 million december 31 2020 following table sets forth backlog reported offshoremanufactured products segment dates indicated millions reduced demand products services coupled reduction prices able charge customers products services adversely affected results operations cash flows financial position current pricing environment crude oil improved levels experienced 2020 prices decline customers may required reduce capital expenditures causing additional declines demand prices products services would adversely affect results operations cash flows financial position use variety domestically produced imported raw materials component products including steel manufacturing products united states imposed tariffs variety imported products including steel aluminum response us tariffs steel aluminum european union several countries including canada china threatened andor imposed retaliatory tariffs effect tariffs application interpretation existing trade agreements customs antidumping countervailing duty regulations continue evolve continue monitor matters encounter difficulty procuring raw materials component products prices pay products increase result customs antidumping countervailing duty regulations otherwise unable pass corresponding cost increases customers financial position results operations could adversely affected furthermore uncertainty respect potential costs drilling completion oil gas wells could cause customers delay cancel planned projects occurred would adversely affect financial position cash flows results operations see note 14 commitments contingencies consolidated financial statements included annual report form 10k discussion factors affect business financial results include limited general global economic environment competitive pricing pressures public health crises climaterelated regulatory changes tax laws united states international markets continue monitor global economy demand prices crude oil natural gas resultant impact capital spending plans operations customers order plan manage business consolidated results operations manage measure business performance three operating segments well site services downhole technologies offshoremanufactured products selected financial information business segment years ended december 31 2020 2019 follows thousands 1in late 2019 reduced scope drilling services business due weakness customer demand vertical drilling rigs us resulting noncash fixed asset impairment charge 337 million 2019 operating loss included noncash fixed asset impairment charge 52 million 2020 2operating loss 2020 included noncash inventory impairment charge 90 million noncash goodwill impairment charge 1271 million noncash fixed asset impairment charge 36 million 3operating loss 2020 2019 included noncash goodwill impairment charges 1925 million 1650 million respectively operating loss 2020 also included noncash inventory impairment charge 59 million noncash asset impairment charges 36 million 4operating loss 2020 included noncash inventory impairment charge 162 million noncash goodwill impairment charge 865 million 5operating loss included noncash asset impairment charges totaling 4497 million 1987 million 2020 2019 respectively see note 3 asset impairments charges note 4 details selected balance sheet accounts note 6 goodwill intangible assets note 8 operating leases consolidated financial statements included annual report form 10k discussion charges recognized 2020 2019 year ended december 31 2020 compared year ended december 31 2019 reported net loss year ended december 31 2020 4684 million 783 per share reported loss included noncash impairment charges totaling 4497 million 4215 million tax 704 per share related write downs goodwill inventories fixed assets leases 91 million 72 million aftertax 012 per share severance restructuring charges noncash gains 107 million 85 million aftertax 014 per share associated convertible debt extinguishment discrete tax benefits 164 million 027 per share associated carryback tax losses allowed cares act results compare net loss year ended december 31 2019 2318 million 390 per share included noncash goodwill fixed asset impairment charges totaling 1987 million 1916 million aftertax 323 per share 35 million 28 million aftertax 005 per share severance restructuring charges reported results operations 2020 reflect negative impact unprecedented decline crude oil prices starting march april 2020 stemming global response covid19 pandemic ongoing uncertainties related future crude oil demand spot price wti crude oil averaged 39 per barrel 2020 31 prioryear average decline crude oil prices coupled high crude oil inventory levels negative impact customer drilling completion production activity beginning march 2020 additionally operations negatively impacted governmentimposed business closures mandates outside united states enacted effort control covid19 pandemic limited wellsite operations required us number suppliers temporarily cease certain operations expect customerdriven activity improve 2020s low levels remain tempered 2021 given continued high crude oil inventory levels uncertainty around demand recovery due continued severity covid19 pandemic current pricing environment crude oil continue improve declines customers may required reduce planned capital expenditures causing additional declines demand prices products services revenues consolidated total revenues 2020 decreased 3793 million 37 2019 consolidated product revenues 2020 decreased 1521 million 31 2019 driven primarily lower us landbased customer activity well associated impact competitive pricing pressures products downhole technologies segment partially offset higher projectdriven sales offshoremanufactured products segment consolidated service revenues 2020 decreased 2272 million 43 2019 due primarily reduced customer spending us shale play regions derived following table 54 consolidated revenues 2020 related shortcycle product service offerings compared 73 2019 reflecting negative impact covid19 pandemic us operations following table provides supplemental disaggregated revenue information operating segment years ended december 31 2020 2019 thousands cost revenues exclusive depreciation amortization expense consolidated total cost revenues exclusive depreciation amortization expense decreased 2408 million 30 2020 compared 2019 cost revenues 2020 included noncash inventory impairment provisions totaling 312 million driven unprecedented market downturn began march 2020 excluding 2020 provisions consolidated cost revenues decreased 2719 million 34 2019 consolidated product costs 2020 included noncash inventory impairment provisions 179 million decreased 816 million 22 2019 excluding charges consolidated product costs decreased 995 million 27 prioryear period consolidated service costs 2020 included noncash inventory impairment provisions 133 million decreased 1592 million 37 2019 excluding inventory impairment provisions consolidated service costs declined 1725 million 40 due primarily significantly lower activity levels us shale play regions selling general administrative expense selling general administrative expense decreased 288 million 23 2020 2019 due primarily reductions short longterm compensation costs personnel levels travel expense implemented costsaving initiatives depreciation amortization expense depreciation amortization expense decreased 248 million 20 2020 compared prioryear period driven primarily decision exit drilling operations west texas third quarter 2019 along reduced capital investments made completion services business recent years see note 15 segments related information consolidated financial statements included annual report form 10k expense segment impairments goodwill first quarter 2020 completion services downhole technologies offshoremanufactured products operations recognized noncash goodwill impairment charges 1271 million 1925 million 865 million respectively arising among factors significant decline stock price peers reduced growth rate expectations given weak energy market conditions resulting demand destruction caused global response covid19 pandemic addition estimated returns required market participants increased materially march 31 2020 assessment december 1 2019 resulting higher discount rates used discounted cash flow analysis fourth quarter 2019 downhole technologies segment recognized noncash goodwill impairment charge 1650 million see note 6 goodwill intangible assets consolidated financial statements included annual report form 10k discussion impairments fixed lease assets 2020 drilling services completion services downhole technologies businesses recognized noncash fixed asset lease impairment charges 52 million 36 million 36 million respectively following significant decline crude oil prices beginning march 2020 decisions consolidate exit certain facilities third quarter 2019 made strategic decision reduce scope drilling services business due ongoing weakness customer demand vertical drilling rigs us land market result decision drilling services business recorded noncash impairment charge 337 million see note 4 details selected balance sheet accounts note 8 operating leases consolidated financial statements included annual report form 10k discussion operating loss consolidated operating loss 5343 million 2020 included 4185 million noncash goodwill inventory fixed asset lease impairment charges 91 million severance restructuring charges compares consolidated operating loss 2282 million 2019 included 1987 million noncash goodwill fixed asset impairment charges 35 million severance restructuring charges interest expense net interest expense totaled 139 million 2020 decrease 38 million 2019 due reductions level debt outstanding interest expense included amortization debt discount deferred financing costs percentage total average debt outstanding approximately 6 2020 2019 contractual cash interest expense percentage total debt outstanding substantially lower averaging approximately 2 2020 3 2019 connection adoption recent revision accounting guidance convertible instruments january 1 2021 interest expense associated notes 2021 decrease approximately 2 outstanding principal balance compares contractual interest rate 150 additionally expect recognize noncash expense approximately 06 million previously deferred financing costs associated amended revolving credit facility written first quarter 2021 income net income net 2020 included noncash gains 107 million recognized connection purchases 349 million principal amount notes 201 million cash balance consisting primarily gains recognized sale property equipment income tax income tax benefit 2020 totaled 659 million pretax loss 5343 million included noncash goodwill impairment charges approximately 3131 million expenses deductible tax purposes impact nondeductible expenses partially offset 164 million discrete tax benefits related carryback us federal net operating losses cares act compares income tax benefit 2019 89 million pretax loss 2407 million included noncash goodwill impairment charge 1650 million expenses deductible tax purposes comprehensive income loss reported comprehensive loss sum reported net income loss comprehensive income loss comprehensive loss 36 million 2020 compared comprehensive income 37 million 2019 due fluctuations foreign currency exchange rates compared us dollar certain international operations reportable segments 2020 2019 currency translation adjustments recognized component comprehensive income loss primarily attributable united kingdom brazil 2020 2019 exchange rate british pound strengthened compared us dollar brazilian real weakened compared us dollar segment operating results well site services revenues well site services segment revenues decreased 2323 million 54 2020 compared 2019 completion services revenue decreased 1992 million 51 driven decline us landbased customer completion production activity response lower commodity prices drilling services revenues decreased 330 million 80 yearoveryear due primarily exit drilling operations west texas region fourth quarter 2019 operating loss 2020 2019 well site services segment recorded noncash impairment charges totaling 1449 million 337 million respectively excluding impairment charges well site services segment operating loss increased 272 million 2020 2019 completion services operating loss 2020 excluding noncash impairment charges 482 million compared operating loss 116 million prioryear period given 51 decrease revenues 41 million severance restructuring charges partially offset 155 million reduction depreciation expense excluding noncash fixed asset impairment charges drilling services operating loss 2020 03 million compared operating loss 97 million prioryear period downhole technologies revenues downhole technologies segment revenues decreased 844 million 46 2020 compared 2019 due primarily decline us landbased customer completion activity competitive pricing pressures operating income loss 2020 downhole technologies segment recorded noncash goodwill impairment charge 1925 million noncash inventory impairment charge 59 million noncash fixed asset lease impairment charges 36 million severance restructuring charges 20 million 2019 segment recognized noncash goodwill impairment charge 1650 million excluding impairment charges operating income declined 234 million 2020 2019 due primarily 46 decline revenues partially offset benefit cost reduction measures 2020 offshoremanufactured products revenues given backlog entering year offshoremanufactured products segment revenues resilient declined 626 million 16 2020 compared 2019 significant reduction sales shortcycle products elastomer valve products partially offset increase projectdriven product sales operating income loss 2020 offshoremanufactured products segment recorded noncash impairment charges 865 million related goodwill 162 million related inventory excluding charges offshoremanufactured products segment operating income decreased 141 million 39 2020 compared 2019 backlog offshoremanufactured products totaled 219 million december 31 2020 decrease 22 december 31 2019 orders totaled 286 million 2020 yielding booktobill ratio 08x corporate expenses decreased 94 million 21 2020 2019 due primarily personnel reductions well reductions short longterm compensation implemented cost reduction measures liquidity capital resources matters primary liquidity needs fund operating capital expenditures new product development general working capital needs addition capital used fund strategic business acquisitions repay debt fund share repurchases primary sources funds cash flow operations proceeds borrowings credit facilities less frequently capital market transactions operating activities cash flows operations totaling 1328 million generated year ended december 31 2020 compared 1374 million provided operations 2019 2020 697 million provided net working capital decreases primarily due collections accounts receivable increase deferred revenue partially offset decreases accounts payable accrued liabilities additionally filed carryback claims regarding us net operating losses generated 2018 2019 accordance rules provisions cares act received cash 413 million benefited cash flow operations 2019 393 million provided net working capital decreases reduction accounts receivable partially offset increase inventories investing activities net cash 37 million used investing activities year ended december 31 2020 compared 520 million used 2019 capital expenditures totaled 127 million 561 million years ended december 31 2020 2019 respectively proceeds sale property equipment totaled 96 million 60 million respectively expect spend approximately 15 million total capital expenditures 2021 whether planned expenditures actually made 2021 depends industry conditions project approvals schedules vendor delivery timing free cash flow generation careful monitoring levels liquidity plan fund capital expenditures available cash internally generated funds necessary borrowings assetbased revolving credit facility discussed financing activities net cash 650 million used financing activities year ended december 31 2020 primarily associated 329 million reduction bank debt purchases 349 million principal amount notes cash totaling 201 million net cash 959 million used financing activities year ended december 31 2019 primarily associated repayment 842 million net borrowings revolving credit facility repurchase discount 78 million principal amount notes cash totaling 67 million december 31 2020 cash onhand 720 million compared 85 million december 31 2019 december 31 2020 190 million outstanding amended revolving credit facility 1574 million principal amount notes outstanding reported interest expense included noncash amortization debt discount deferred financing costs 77 million substantially contractual cash interest expense 2020 contractual interest expense 62 million approximately 2 average principal balance debt outstanding believe cash onhand cash flow operations borrowing capacity available assetbased revolving credit facility sufficient meet liquidity needs coming twelve months plans assumptions change inaccurate may need raise additional capital ability obtain capital additional projects implement growth strategy longer term depend upon future operating performance financial condition broadly availability equity debt financing capital availability affected prevailing conditions industry global economy global financial markets stakeholder scrutiny environmental social governance matters factors many beyond control regard effect covid19 pandemic resulted significant disruption global financial markets companies like support energy industry disruption exacerbated global crude oil supply demand imbalance resulting decline crude oil prices negatively impacted value common stock may continue reduce ability access capital bank capital markets may continue result capital available less favorable terms could future negatively affect liquidity assetbased revolving credit facility february 10 2021 entered senior secured credit facility certain lenders provides 1250 million assetbased revolving credit facility assetbased revolving credit facility credit availability subject borrowing base calculation concurrent entering assetbased revolving credit facility amended credit agreement terminated assetbased revolving credit facility governed credit agreement wells fargo bank national association administrative agent lenders financial institutions time party thereto assetbased credit agreement assetbased credit agreement matures february 10 2025 springing maturity 91 days prior maturity outstanding indebtedness principal amount excess 175 million excluding unsecured promissory note seller geodynamics assetbased credit agreement provides funding based borrowing base calculation includes eligible us customer accounts receivable inventory provides 500 million sublimit issuance letters credit borrowings assetbased credit agreement secured pledge substantially domestic assets stock certain foreign subsidiaries borrowings assetbased credit agreement bear interest rate equal london interbank offered rate libor plus margin 275 325 subject libor floor rate 050 base rate plus margin 175 225 case based average borrowing availability must also quarterly pay commitment fee 0375 050 per annum based unused commitments assetbased credit agreement assetbased credit agreement places restrictions ability incur additional indebtedness grant liens assets pay dividends make distributions equity interests dispose assets make investments repay indebtedness including notes engage mergers matters case subject certain exceptions assetbased credit agreement contains customary default provisions triggered could result acceleration amounts outstanding assetbased credit agreement also requires us satisfy maintain fixed charge coverage ratio less 10 specified periods time event availability assetbased credit agreement less greater 15 borrowing base 141 million event default occurred continuing see note 7 longterm debt consolidated financial statements included annual report form 10k information regarding terms assetbased credit agreement february 10 2021 121 million borrowings outstanding assetbased revolving credit facility 290 million outstanding letters credit total amount available drawn february 10 2021 approximately 29 million calculated based initial borrowing base less outstanding borrowings letters credit revolving credit facility termination february 10 2021 former senior secured revolving credit facility revolving credit facility governed amended restated credit agreement among company wells fargo bank na administrative agent lenders party thereto lenders financial institutions time party thereto dated january 30 2018 credit agreement scheduled mature january 30 2022 prior june 17 2020 revolving credit facility provided 350 million lender commitments including 50 million issuance letters credit june 17 2020 entered omnibus amendment credit agreement amended credit agreement lender commitments amended credit agreement reduced 200 million exchange suspension financial covenants july 1 2020 march 30 2021 financial covenant suspension period borrowing availability revolving credit facility amended revolving credit facility limited 85 lesser 200 million ii borrowing base calculated monthly equal sum 70 consolidated net book value eligible receivables 20 consolidated net book value eligible inventory borrowing base expensed approximately 05 million previously deferred financing costs 2020 included interest expense net result amendment credit agreement see note 7 longterm debt consolidated financial statements included annual report form 10k information regarding terms credit agreement amendment thereto december 31 2020 190 million borrowings outstanding amended revolving credit facility 292 million outstanding letters credit total amount available drawn january 1 2021 693 million calculated based 85 borrowing base less outstanding borrowings letters credit 150 convertible senior notes due february 2023 january 30 2018 issued 2000 million aggregate principal amount notes pursuant indenture dated january 30 2018 indenture us wells fargo bank na trustee indenture contains certain events default including certain defaults us respect indebtedness least 400 million 2020 opportunistically purchased 349 million principal amount outstanding notes 201 million cash 107 million net carrying amount related liability resulting recognition noncash gains 2019 repurchased 78 million principal amount outstanding notes 67 million approximated carrying amount related liability initial carrying amount notes recorded consolidated balance sheet january 30 2018 less 2000 million principal amount notes reflective estimated fair value similar debt instrument conversion feature recorded value conversion feature debt discount date issuance amortized interest expense term notes similar amount allocated additional paidin capital result amortization debt discount interest expense recognized notes accounting purposes reflecting effective interest rate approximately 6 greater cash interest payments obligated pay notes interest expense associated notes 2020 2019 93 million 102 million respectively related cash interest expense 26 million 30 million respectively december 31 2020 none conditions allowing holders notes convert requiring us repurchase notes met see note 7 longterm debt consolidated financial statements included annual report form 10k information regarding notes see note 2 summary significant accounting policies consolidated financial statements included annual report form 10k discussion recent revision accounting guidance convertible instruments changed method accounting notes upon adoption standard effective january 1 2021 promissory note connection geodynamics acquisition issued 250 million promissory note bears interest 25 per annum scheduled mature july 12 2019 believe payments due promissory note subject setoff full part certain claims related matters occurring prior geodynamics acquisition provided notice asserted indemnification claims seller geodynamics seller filed breach contract suit us one whollyowned subsidiaries alleging payments due promissory note required repaid accordance terms note incurred settlement costs expenses 79 million related indemnification claims believe maturity date note extended claims resolved accordingly reduced carrying amount note consolidated balance sheet 171 million december 31 2020 current best estimate owed setoff indemnification matters see note 14 commitments contingencies consolidated financial statements included annual report form 10k total debt represented 20 combined total debt stockholders equity december 31 2020 compared 17 december 31 2019 stock repurchase program historically maintained share repurchase program allowed expire july 29 2020 repurchase shares common stock program 2019 repurchased approximately 51 thousand shares common stock program total cost 08 million contractual obligations following summarizes contractual obligations december 31 2020 effect obligations expected liquidity cash flow next five years thousands 1excludes interest variablerate debt scheduled mature january 2022 since cannot predict certainty amount interest due revolving debt due expected variability interest rates principal amounts outstanding include obligations assume interest payment amounts calculated using outstanding principal balances interest rates december 31 2020 include applicable commitment fees estimated interest payments variablerate debt would 07 million due less one year 01 million due one three years discussed entered new assetbased revolving credit facility february 10 2021 matures february 2025 concurrent entering assetbased revolving credit facility borrowings amended revolving credit facility repaid related agreement terminated see note 7 longterm debt consolidated financial statements included annual report form 10k additional information 2amount represents full principal amount notes together cash interest payments due semiannually 3amount represents net principal amount 25 million promissory note together accrued unpaid interest february 22 2021 25 million promissory note together accrued unpaid interest issued connection geodynamics acquisition scheduled mature july 12 2019 believe payments due promissory note subject setoff full part certain claims related matters occurring prior geodynamics acquisition fully described note 14 commitments contingencies consolidated financial statements provided notice asserted indemnification claims seller filed breach contract suit us alleging payments due promissory note required repaid accordance terms note result believe maturity date note extended resolution claims expect amount ultimately paid respect note reduced result indemnification claims accordingly reduced carrying amount note consolidated balance sheet 171 million december 31 2020 current best estimate owed setoff indemnification matters 4amount represents payment obligations including implied interest operating leases initial term greater 12 months operating lease obligations recorded consolidated balance sheet operating lease liabilities rightofuse assets included within operating lease assets 5our purchase obligations primarily relate open purchase orders offshoremanufactured products completion services operations contingencies obligations party various pending threatened claims lawsuits administrative proceedings seeking damages remedies concerning commercial operations products employees matters including occasional claims individuals alleging exposure hazardous materials result products operations claims relate matters occurring prior acquisition businesses relate businesses sold certain cases entitled indemnification sellers businesses cases indemnified buyers businesses addition seller geodynamics acquisition filed breach contract suit us federal court august 2020 seller alleged among contractual breaches entitled approximately 19 million us federal income tax carryback claims received provisions cares act legislation february 15 2021 seller dismissed federal lawsuit without prejudice refiled state court although give assurance outcome pending legal administrative proceedings effect outcomes may us believe ultimate liability resulting outcome proceedings extent otherwise provided covered indemnity insurance material adverse effect consolidated financial position results operations liquidity see note 14 commitments contingencies consolidated financial statements included annual report form 10k discussion effects inflation revenues results operations materially impacted inflation past three fiscal years offbalance sheet arrangements december 31 2020 offbalance sheet arrangements defined item 303a4ii regulation sk tariffs use variety domestically produced imported raw materials component products including steel manufacture products 2018 united states imposed tariffs variety imported products including steel aluminum response us tariffs steel aluminum european union several countries including canada china threatened andor imposed retaliatory tariffs effect tariffs application interpretation existing trade agreements customs antidumping countervailing duty regulations continues evolve continue monitor matters encounter difficulty procuring raw materials component products prices pay products increase result customs antidumping countervailing duty regulations otherwise unable pass corresponding cost increases customers financial position results operations could adversely affected furthermore uncertainty respect potential costs drilling completion oil gas wells could cause customers delay cancel planned projects occurred would adversely affect financial position results operations see note 14 commitments contingencies consolidated financial statements included annual report form 10k additional discussion tax matters see note 2 summary significant accounting policies note 9 income taxes consolidated financial statements included annual report form 10k additional information respect tax matters critical accounting policies consolidated financial statements included annual report form 10k prepared accordance accounting principles generally accepted united states gaap require make numerous estimates assumptions actual results could differ estimates assumptions thus impacting reported results operations financial position critical accounting policies estimates described section important depiction financial condition results operations application requires subjective judgments making estimates effect matters inherently uncertain describe significant accounting policies fully note 2 summary significant accounting policies consolidated financial statements included annual report form 10k goodwill longlived tangible intangible assets goodwill totaled 765 million representing 7 total assets december 31 2020 longlived tangible assets totaled 4167 million representing 36 total assets december 31 2020 longlived intangible assets totaled 2057 million representing 18 total assets remainder assets largely consisted cash accounts receivable inventories goodwill represents excess impairments applicable purchase price acquired businesses allocated fair value related net assets accordance current accounting guidance amortize goodwill rather assess goodwill impairment annually event occurs circumstances change indicate carrying amounts may recoverable evaluation goodwill reporting unit goodwill balance sheet assessed separately using relevant events circumstances estimate fair value reporting unit compare fair value recorded carrying value utilize depending circumstances combination valuation methodologies including market approach income approach well guideline public company comparables projected cash flows discounted using longterm weighted average cost capital reporting unit based estimates investment returns would required market participant part process assessing goodwill potential impairment total market capitalization compared sum fair values reporting units assess reasonableness aggregated fair values carrying amount reporting unit exceeds fair value goodwill considered impaired impairment loss recorded december 2019 impairment fourth quarter 2019 us landbased completion activity declined significantly levels experienced previous three quarters additionally number market indicators declined levels experienced recent years consistent oilfield service industry peers stock price declined market capitalization carrying value stockholders equity given market conditions reduced nearterm demand outlook shortcycle products services us shale play regions refined outlook incorporated december 1 2019 annual impairment assessment based quantitative assessment concluded goodwill amount recorded downhole technologies reporting unit partially impaired recognized noncash goodwill impairment charge 1650 million fourth quarter 2019 discount rates used value reporting units december 1 2019 ranged 125 130 holding assumptions inputs used respective discounted cash flow analysis constant 50 basis point increase discount rate assumption would increased goodwill impairment charge approximately 28 million march 2020 impairments march 2020 spot price wti crude oil declined 50 response current expected material reductions global demand stemming global response covid19 pandemic coupled announcements saudi arabia russia plans increase crude oil production following unprecedented collapse crude oil prices spot price brent wti crude oil closed 15 21 per barrel respectively march 31 2020 consistent oilfield service industry peers stock price also declined dramatically first quarter 2020 market capitalization falling substantially carrying value stockholders equity given significance march 2020 events performed quantitative assessment goodwill impairment march 31 2020 interim assessment indicated fair value reporting units less respective carrying amounts due among factors significant decline stock price peers reduced growth rate expectations given weak energy market conditions resulting demand destruction caused global response covid19 pandemic addition estimated returns required market participants increased materially march 31 2020 assessment performed december 1 2019 resulting higher discount rates used discounted cash flow analysis significant assumptions estimates used income approach include among others estimated future net annual cash flows discount rates reporting unit current anticipated market conditions estimated growth rates historical data estimates relied upon significant management judgment particularly given uncertainties regarding covid19 pandemic impact activity levels commodity prices well future global economic growth based quantitative assessment march 31 2020 concluded goodwill recorded completion services downhole technologies businesses fully impaired goodwill recorded offshoremanufactured products business partially impaired therefore recognized noncash goodwill impairment charges totaling 4061 million first quarter 2020 discount rates used value reporting units march 31 2020 ranged 168 185 holding assumptions inputs used discounted cash flow analysis constant 50 basis point increase discount rate assumption offshoremanufactured products reporting unit would increased goodwill impairment charge approximately 10 million december 2020 assessment december 1 2020 one reporting unit offshoremanufactured products goodwill balance 76 million performed annual quantitative assessment goodwill impairment indicated fair value offshoremanufactured products reporting unit greater carrying amount additional provision impairment required valuation techniques used december 1 2020 assessment consistent used march 31 2020 assessment discount rate used value offshoremanufactured products reporting unit december 1 2020 approximately 15 estimated returns required market participants decreased december 1 2020 assessment march 31 2020 resulting lower discount rate used discounted cash flow analysis holding assumptions inputs used discounted cash flow analysis constant 100 basis point increase discount rate assumption offshoremanufactured products reporting unit would result goodwill impairment december 31 2020 market capitalization 306 million 452 million equity carrying value march 2020 december 2019 goodwill impairment charges impact liquidity position debt covenants cash flows continue monitor commodity prices significant assumptions used forecasts experience prolonged decline longterm demand crude oil natural gas significant sustained increases commodity supplies serve lower commodity prices long term required update discounted cash flow analysis potentially required record goodwill impairment future longlived tangible intangible assets assessment impairment longlived tangible intangible assets conducted whenever changes facts circumstances indicate loss value may occurred indicators impairment might include persistent negative economic trends affecting markets serve recurring losses lowered expectations future cash flows generated assets necessary determination amount impairment based quoted market prices available judgment future operating cash flows generated assets throughout estimated useful lives 2020 2019 recognized noncash asset impairment charges totaling 124 million 337 million respectively reduce carrying value certain equipment facilities owned leased estimated realizable value based impairment assessment 2020 carrying values longlived tangible intangible assets recoverable impairment losses recorded however industry cyclicality downturns may result future changes estimates projected operating cash flows timing could potentially cause future impairment values longlived assets including finitelived intangible assets revenue cost recognition revenue contracts may include one promises transfer distinct good service customer referred performance obligation revenue allocated recognize revenue related cost performance obligations satisfied majority significant contracts custom engineered products single performance obligation individual good service separately identifiable performance obligations contracts multiple distinct performance obligations allocate revenue identified performance obligations contract product sales terms include significant postperformance obligations performance obligations may satisfied point time work progresses revenues goods services transferred customers point time accounted approximately 38 34 29 consolidated revenues years ended december 31 2020 2019 2018 respectively majority revenue recognized point time derived shortterm contracts standard products offered us revenue contracts recognized control product transferred customer indicators consider determining transfer control customer occurs include right payment product transfer legal title customer transfer physical possession product transfer risk customer acceptance product revenues products services transferred customers time accounted approximately 62 66 71 consolidated revenues years ended december 31 2020 2019 2018 respectively majority revenue recognized time services provided shortterm contracts revenue recognized customer receives consumes services provided segments addition manufacture certain products individual customer specifications shortterm contracts control passes customer performance obligations fulfilled revenue recognized time significant projectrelated contracts involving custom engineered products within offshoremanufactured products segment also referred projectdriven products revenues typically recognized time using input measure percentage costs incurred date relative total estimated costs completion contract costtocost method contract costs include labor material overhead believe method appropriate measure progress large contracts billings contracts excess costs incurred estimated profits classified contract liability deferred revenue costs incurred estimated profits excess billings contracts recognized contract asset component accounts receivable contract estimates projectrelated contracts involving custom engineered products based various assumptions project outcome future events may span several years changes assumptions may affect future project costs margins include production efficiencies complexity work performed availability costs labor materials subcomponents significant change one estimates could affect profitability contracts contractrelated estimates reviewed regularly recognize adjustments estimated profit contracts cumulative catchup method impact adjustment profit recorded date recognized period adjustment identified revenue profit future periods contract performance recognized using adjusted estimate time estimate contract profitability indicates anticipated loss incurred contract loss recognized period identified cost goods sold includes direct material labor costs related contract performance indirect labor supplies tools repairs presented consolidated statements operations costs goods sold excludes depreciation amortization expense selling general administrative costs charged expense incurred taxes assessed governmental authority imposed concurrent specific revenueproducing transaction collect customer excluded revenue shipping handling costs associated outbound freight control product transferred customer accounted fulfillment cost included cost products proceeds customers cost oilfield rental equipment damaged lost downhole reflected gains losses disposition assets considering writeoff remaining net book value equipment accounting contingencies contingent liabilities future claims made estimates amount eventual cost liquidate liabilities claims liabilities claims sometimes involve threatened actual litigation damages quantified made assessment exposure recorded amount estimated cover expected loss claims liabilities estimated based fair value experience matters appropriate advice outside counsel outside experts upon ultimate resolution uncertainties future reported financial results impacted difference estimates actual amounts paid settle liability examples areas made important estimates future liabilities include duties income taxes litigation insurance claims contractual claims obligations estimation useful lives selection useful lives many assets requires judgments operating personnel judgment area influenced historical experience operating assets technological developments expectations future demand assets estimates long short might eventually report disproportionate number losses gains upon disposition retirement longlived assets believe estimates useful lives appropriate income taxes follow liability method accounting income taxes method deferred income taxes recorded based upon differences financial reporting tax bases assets liabilities measured using enacted tax rates laws effect time underlying assets liabilities recovered settled march 27 2020 cares act signed law allowed carryback us federal net operating losses prior enactment cares act tax losses could carried forward december 22 2017 tax reform legislation signed law enacted significant changes us tax related laws including certain key us federal income tax provisions applicable oilfield service manufacturing companies accordance secs staff accounting bulletin 118 recorded provisional estimates reflect effect tax reform legislation income tax assets liabilities december 31 2017 2018 adjusted provisional estimates based additional guidance issued internal revenue service december 31 2020 total investment including earnings profits foreign subsidiaries considered permanently reinvested record valuation allowance reporting period believe likely deferred tax asset realized assessment requires analysis changes tax laws available positive negative evidence including consideration losses recent years reversals temporary differences forecasts future income assessment future business tax planning strategies 2020 2019 2018 recorded valuation allowances primarily respect foreign us state net operating loss carryforwards calculation tax liabilities involves assessing uncertainties regarding application complex tax regulations recognize liabilities tax expenses based estimate whether extent additional taxes due ultimately determine payment amounts unnecessary reverse liability recognize tax benefit period determine liability longer necessary record additional charge provision taxes period determine recorded tax liability less expect ultimate assessment recent accounting pronouncements time new accounting pronouncements issued financial accounting standards board fasb adopted us specified effective date unless otherwise discussed believe impact recently issued standards yet effective material impact consolidated financial statements upon adoption august 2020 fasb issued updated guidance simplify accounting convertible instruments contracts entitys equity new guidance eliminates requirement carrying value convertible debt instruments notes allocated debt equity components permitted standard adopted new guidance january 1 2021 using modified retrospective transition method adoption standard resulted 122 million increase net carrying value notes 37 million decrease deferred income taxes 85 million net decrease stockholders equity effective interest rate associated notes adoption guidance decreased approximately 6 approximately 2 compares contractual interest rate 150 june 2016 fasb issued guidance credit impairment shortterm receivables amended introduced recognition managements current estimate credit losses expected occur remaining life financial asset adopted guidance january 1 2020 using optional transition method recognizing cumulative effect adopting guidance adjustment opening balance retained earnings cumulative impact adoption new standard material consolidated financial statements prior periods retrospectively adjusted item 7aitem 7 management’s discussion analysis financial condition results operations read following discussion analysis together consolidated financial statements notes statements included elsewhere annual report form 10k overview provide broad range products services oil gas industry offshore products tubular services well site services business segments demand products services cyclical substantially dependent upon activity levels oil gas industry particularly customers’ willingness spend capital exploration development oil gas reserves demand products services customers highly sensitive current expected oil natural gas prices generally tubular services well site services segments respond rapidly shorterterm movements oil natural gas prices offshore products segment offshore products segment provides highly engineered technically designed products offshore oil gas development production systems facilities sales offshore products services depend upon development offshore production systems repairs upgrades existing drilling rigs construction new drilling rigs segment particularly influenced deepwater drilling production activities driven largely customers’ outlook longerterm future oil prices tubular services segment distribute broad range casing tubing sales tubular products services depend upon overall level drilling activity types wells drilled level oil country tubular goods octg pricing historically tubular services gross margins expand periods rising octg prices contract periods decreasing octg prices well site services business segment provide shallow land drilling services hydraulic well control services work force accommodations catering logistics services rental tools demand drilling services driven land drilling activity texas new mexico ohio rocky mountains area us workover services conducted us south america africa middle east dependent upon level workover activity areas rental tools services depend primarily upon level type drilling completion workover activity us canada central south america accommodations business conducted primarily canada activity levels historically driven oil gas drilling mining activities past year seen increased demand work force accommodation business result oil sands development activities northern alberta canada revenues derived oil sands development activities accommodations business increased 468 million 246 total accommodations revenues 2004 1310 million 456 total accommodations revenues 2005 continuing see significant opportunities make capital investments result oil sands development activities alberta canada support remote accommodations needs primarily us canada diversified product service offering exposure throughout oil gas cycle demand tubular services well site services segments highly correlated changes rig count united states canada table sets forth summary north american rig activity measured baker hughes incorporated periods indicated average north american rig count year ended december 31 2005 increased 282 rigs 181 compared year ended december 31 2004 overall increase activity tempered somewhat lower activity levels us gulf mexico contribute increased revenues tubular services well site services segments well site services segment results year 2005 also benefited capital spending aggregated 730 million year ended december 31 2005 acquisition elenburg february 1 2005 total consideration 221 million acquisition stinger may 1 2005 june 1 2005 total consideration 961 million impact increased activity levels pricing gains certain business lines canadian rig count increased 241 year 2005 compared year 2004 remote accommodations catering logistics services activities benefited increased activities northern alberta oil sands area lesser extent canadian rig count increase hurricanes katrina rita materially affect operating results 2005 despite activity delays lack cost absorption manufacturing facilities activities negatively impacted storms offshore tubular octg sales offshore rental tools usage temporary downtime offshore products manufacturing facilities houma louisiana houston texas repair activity resulting hurricanes benefited offshore products us gulf accommodations businesses prolonged periods reduced offshore activity due repair efforts could negatively impact offshore drilling workover activity would adversely affect hydraulic workover rental tool businesses addition delaying octg sales 2005 results generated canadian workforce accommodations catering logistics operations benefited strengthening canadian currency generally hedge year ended december 31 2005 canadian dollar averaged 083 us dollars canadian dollar compared 077 year ended december 31 2004 increase 78 may 11 2004 tubular services segment purchased octg distribution business hunting energy services lp hunting 472 million including purchase price adjustments june 2 2005 acquired outstanding stock phillips total consideration 312 million acquisitions resulted increased octg inventory revenues date acquisition tubular services segment shipped 405300 tons octg 2005 118600 tons fourth quarter 2005 compared 339800 tons 2004 97800 tons fourth quarter 2004 tubular services segment benefited past year 184 year increase average us land drilling activity acquisition hunting phillips octg distribution businesses increased octg prices tubular services gross margins historically high levels 2004 2005 tubular services gross margin percent revenues increased 122 2005 compared gross margin percent 119 2004 2002 2003 gross margins 64 58 respectively increases decreases gross margins attributable many factors including fundamental supply demand timing frequency price changes inventory sold mix octg grades sold typically alloy octg grades carry higher margin carbon octg grades increased slightly percentage carbon grade octg inventory acquisition phillips offshore products segment reported much improved operating results 2005 compared 2004 result increased activity greater fixed cost absorption offshore products backlog totaled 1107 million december 31 2005 975 million december 31 2004 believe offshore construction development business characterized lengthy projects long “leadtime” order cycle change backlog levels one quarter next necessarily evidence longterm trend believe activity levels offshore products segment increase future quarters given strength backlog december 31 2005 addition strong business prospects management believes fundamental oil gas supply demand factors continue support high level drilling activity north america continue positively impact company particularly tubular services well site service segments however recent declines natural gas prices could lead reduced drilling activity near term would negatively impact operating financial results customers increasing spending deepwater offshore exploration development benefit offshore products segment however assurance expectations realized risk high energy prices could negatively impact worldwide economic growth correspondingly reduce demand energy causing oil gas expenditures decline would adverse business consolidated results operations year ended december 31 2005 compared year ended december 31 2004 revenues total revenues increased 5606 million 577 15316 million year ended december 31 2005 compared revenues 9710 million year ended december 31 2004 offshore products revenues increased 644 million 311 due higher activity levels supporting offshore production facility construction tubular services revenues tons shipped increased 2844 million 666 65500 tons 193 respectively year ended december 31 2005 compared year ended december 31 2004 due increased industry demand higher octg prices hunting acquisition completed may 2004 phillips acquisition closed june 2005 average octg selling prices increased 398 year 2004 year 2005 well site services revenues increased 2118 million 629 5487 million year 2005 compared 3369 million year 2004 drilling revenues increased 403 million 869 contributions elenburg acquisition added seven rigs february 2005 higher dayrates earned additional rigs added fleet elenburg acquisition contributed 218 million 403 million increase revenues generated company’s drilling operations hydraulic workover revenues increased 63 million 188 year 2005 compared year 2004 higher activity primary operating areas especially us gulf mexico venezuela rental tools generated revenues year ended december 31 2005 1348 million 679 million 1015 higher year ended december 31 2004 due acquisition stinger capital expenditures made since last year improving us drilling activity modest price increases stinger acquisition accounted 553 million 679 million revenue increase generated company’s rental tools business line accommodations revenues year ended december 31 2005 2873 million increase 973 million 512 accommodations revenues reported year ended december 31 2004 primarily increased activity support oil sands developments canada gross margin gross margins calculate deduction depreciation expense increased 1291 million 657 1964 million year ended december 31 2004 3255 million year ended december 31 2005 overall gross margin percent revenues 213 year 2005 compared 202 2004 gross margin percentages increased businesses except accommodations greater percentage revenues generated manufacturing activities generally earn significantly lower margin accommodations rental service activities total gross margins offshore products 617 million year 2005 compared 376 million 2004 representing increase 641 offshore products gross margin percentage improved 182 2004 228 2005 due higher activity resulted greater overhead absorption cost savings efficiencies resulting manufacturing facility consolidations occurred 2004 tubular services gross margins increased 358 million 706 year ended december 31 2005 compared year ended december 31 2004 result price increases increased oil gas drilling activity strengthened demand tubular products services tubular services segment gross margin percent revenues increased 119 2004 122 2005 well site services gross margins increased 692 million 640 year 2005 compared year 2004 well site services gross margin percentage revenues increased slightly 323 2005 compared 321 2004 drilling gross margins year ended december 31 2005 totaled 329 million compared 146 million year ended december 31 2004 increase 183 million 1253 183 million increase drilling gross margins 87 million generated elenburg acquisition one newly constructed rigs placed service june 2005 rocky mountain area drilling services gross margin percentage improved 379 revenues 2005 315 revenues 2004 due higher dayrates move billing footage rate basis billing dayrate basis many drilling rigs daywork drilling contract customer pays certain costs company would normally provide drilling footage basis assumes risks footage basis workover gross margins improved 42 million 553 year 2005 compared prior year higher activity us gulf mexico venezuela workover gross margin percentage increased 296 revenues 2005 compared 226 year 2004 due primarily higher utilization dayrates rental tools gross margins totaled 664 million year ended december 31 2005 compared 304 million year ended december 31 2004 increase 360 million 1184 rental tools gross margin percentage increased 454 year 2004 493 2005 improvement resulted higher utilization tools modestly higher rental rates positive impact stinger acquisition accommodations gross margins year ended december 31 2005 totaled 662 million compared 555 million year ended december 31 2004 increase 107 million 193 gross margin percentage declined 230 2005 compared 292 gross margin percentage realized 2004 due higher relative mix lower margin manufacturing revenues extended warm weather fourth quarter increased mobilization costs late 2005 compared late 2004 selling general administrative expenses selling general administrative expenses sga increased 199 million 306 year 2005 compared 2004 year ended december 31 2005 sga totaled 847 million 55 revenues compared sga 648 million 67 revenues year ended december 31 2004 sga increase rate revenues able successfully leverage fixed cost structure increased sga expense associated acquisitions completed since 2004 higher ad valorem taxes increased levels octg inventory increased incentive compensation expense higher professional fees associated sarbanesoxley compliance primary factors causing increased sga 2005 compared 2004 depreciation amortization depreciation amortization expense increased 107 million 298 year 2005 compared year 2004 due primarily acquisitions businesses capital expenditures made past year operating income operating income represents revenues less cost sales ii selling general administrative expenses iii depreciation amortization expense iv operating income expense operating income increased 995 million 1046 1946 million year ended december 31 2005 951 million year ended december 31 2004 offshore products operating income increased 194 million tubular services operating income increased 340 million well site services operating income increased 492 million increases partially offset higher corporate costs 31 million interest expense interest expense increased 62 million 813 year ended december 31 2005 compared year ended december 31 2004 interest expense increased due higher debt levels resulting acquisitions completed since december 31 2004 capital expenditures combined higher interest rates income tax expense income tax expense totaled 607 million 333 pretax income year ended december 31 2005 compared 294 million 331 pretax income year ended december 31 2004 see “management’s discussion analysis financial condition results operations tax matters” discussion year ended december 31 2004 compared year ended december 31 2003 revenues increased 2473 million 342 9710 million year ended december 31 2004 compared revenues 7237 million year ended december 31 2003 tubular services revenues tons shipped increased 1916 million 813 708 thousand tons 263 respectively year ended december 31 2004 compared revenues tons shipped year ended december 31 2003 due increased industry demand higher octg prices contributions acquisition hunting octg distribution business closed may 2004 well site services revenues increased 808 million 316 offshore products revenues decreased 251 million 108 period well site services revenues increased compared prior year due primarily increased drilling activity united states increased oil sands development activity canada international catering facilities management contract favorable canadian dollar exchange rates impact capital expenditures made since december 31 2003 rental tool acquisitions acquired total consideration 520 million rental tool acquisitions completed fourth quarter 2003 january april 2004 offshore products revenues decreased result lower activity supporting offshore production facility construction given typical lengthy time period offshore discoveries installation production facilities gross margin gross margins calculate deduction depreciation expense increased 458 million 304 1506 million year ended december 31 2003 1964 million year ended december 31 2004 overall gross margin percent revenues essentially flat 2004 compared 2003 well site services gross margins increased 272 million 336 1081 million year ended december 31 2004 compared year ended december 31 2003 within well site services segment shallow drilling specialty rental tool businesses’ gross margins increased 43 million 417 90 million 421 respectively year ended december 31 2004 compared year 2003 three drilling rigs added shallow drilling business added december 2003 february 2004 december 2004 addition realized higher utilization footage drilling rates drilling rigs contributions rental tool acquisitions completed fourth quarter 2003 january april 2004 also well site services work force accommodations catering logistics services modular building construction services gross margins increased 148 million 364 year ended december 31 2004 compared year ended december 31 2003 primarily increased camp catering activity supporting oil sands development canada international catering facilities management contract hydraulic workover gross margins decreased 09 million 106 result decreased utilization especially west africa middle east well site services gross margin percent increased slightly 321 year ended december 31 2004 compared 316 year ended december 31 2003 offshore products gross margins decreased 184 million 329 560 million year ended december 31 2003 376 million year ended december 31 2004 due decreased activity reduced fixed cost absorption inefficiencies associated various facilities consolidations undertaken 2004 additionally offshore products margins lower 2004 compared 2003 due less favorable mix higher margin connector products factors caused offshore products gross margin percent decline 241 revenues year 2003 182 year 2004 tubular services gross margins increased 507 million 119 tubular services revenues year ended december 31 2004 compared 137 million 58 tubular services revenues year ended december 31 2003 result increased oil gas drilling activity increased demand tubular products services significant increase octg prices 2004 acquisition octg distribution business hunting 472 million may 2004 including purchase price adjustment settled october 2004 tubular services margins expanded 2004 reached historically high levels given significant increase octg prices coupled strong demand selling general administrative expenses year ended december 31 2004 selling general administrative expenses sga totaled 648 million 67 revenues compared sga 577 million 80 revenues year ended december 31 2003 sga expense increased primarily result acquisitions completed 2003 2004 higher postretirement benefit costs 2004 due recording gain upon settlement plan liabilities 2003 higher professional fees higher bonus accruals incentive compensation plan increase professional fees largely attributable costs associated sarbanesoxley compliance depreciation amortization depreciation amortization expense increased 81 million 2004 compared 2003 due primarily acquisitions businesses completed since 2003 capital expenditures made 2003 operating income operating income represents revenues less cost sales ii selling general administrative expenses iii depreciation amortization expense iv operating expense income operating income increased 299 million 459 951 million year ended december 31 2004 652 million year ended december 31 2003 well site services operating income increased 183 million 2003 2004 offshore products operating income decreased 207 million tubular services operating income increased 349 million corporate charges increased 26 million 2004 compared 2003 interest expense interest expense lower 02 million year ended december 31 2004 compared year ended december 31 2003 increased interest expense attributable higher debt levels resulting acquisitions completed first half 2004 higher interest rates 2004 offset lower debt issuance cost amortization compared 2003 income tax expense income tax expense totaled 294 million 331 pretax income year ended december 31 2004 compared 142 million 242 pretax income year ended december 31 2003 see “management’s discussion analysis financial condition results operations tax matters” discussion liquidity capital resources primary liquidity needs fund capital expenditures expanding accommodations facilities expanding upgrading manufacturing facilities equipment increasing replacing drilling rig rental tool workover assets funding new product development funding general working capital needs addition capital needed fund strategic business acquisitions primary sources funds cash flow operations proceeds borrowings bank facilities recently proceeds convertible note offering see note 7 consolidated financial statements included annual report form 10k cash totaling 334 million provided operations year ended december 31 2005 compared cash totaling 972 million provided operations year ended december 31 2004 2005 1382 million used fund working capital significantly increased working capital invested tubular services inventory 1291 million total working capital invested 2005 due increased volumes prices paid december 31 2005 tubular services inventory increased 70000 tons december 31 2004 per ton cost inventory also increased 1192 per ton december 31 2004 1578 per ton december 31 2005 additionally trade receivables increased result higher revenues partially offset higher accounts payable accrued liability levels cash used investing activities years ended december 31 2005 2004 amount 2299 million 1377 million respectively capital expenditures totaled 834 million 600 million years ended december 31 2005 2004 respectively capital expenditures years consisted principally purchases assets well site services segment addition completed various acquisitions totaling 1476 million 808 million net cash acquired years 2005 2004 respectively february 1 2005 completed acquisition elenburg exploration company inc elenburg wyoming based land drilling company cash consideration 213 million net cash acquired including transaction costs excluding note payable former owners 08 million elenburg owned operated 7 rigs provide shallow land drilling services montana wyoming colorado utah effective may 1 2005 acquired stinger wellhead protection inc certain affiliated companies related intellectual property effective june 1 2005 completed acquisition stinger’s international operations collectively stinger cash consideration 847 million net cash acquired including transaction costs excluding note payable former owners 50 million stinger provides wellhead isolation equipment services 29 locations united states canada central south america stinger’s patented equipment utilized pressure pumping operations isolates customers’ blowout preventers wellheads pressure abrasion experienced fracturing process oil gas well stinger acquisition expanded rental tool services capabilities especially pressure pumping market june 2 2005 purchased phillips casing tubing lp phillips cash consideration 312 million including transaction costs phillips distributes oil country tubular goods octg primarily carbon erw electronic resistance welded pipe facilities midland godley texas june 6 2005 acquired noble structures inc cash consideration 79 million including transaction costs excluding note payable 08 million acquisition expanded accommodation manufacturing capabilities canada order meet increased demand remote site facilities principally oil sands region cash consideration paid acquisitions period initially funded utilizing existing bank credit facility 25 million bridge loan see note 7 consolidated financial statements included annual report form 10k accounting acquisitions made period finalized subject adjustments purchase price allocation period expected exceed period one year respective acquisition dates currently expect spend total approximately 1250 million capital expenditures 2006 maintenance upgrade equipment facilities also expand product service offerings expect fund capital expenditures internally generated funds proceeds borrowings revolving credit facilities net cash 1953 million provided financing activities year ended december 31 2005 primarily result revolving credit borrowings issuance 175 million aggregate principal amount 2 38 contingent convertible senior notes due 2025 238 notes second third quarters 2005 see note 7 consolidated financial statements included annual report form 10k net proceeds 238 notes utilized repurchase 30 million common stock classified treasury stock december 31 2005 repay outstanding bridge loan 25 million repay indebtedness 1145 million revolving credit facility first quarter 2005 board directors authorized repurchase 50 million common stock par value 01 per share two year period december 31 2005 total 30 million stock 1183432 shares acquired portion proceeds issuance 238 notes repurchased program shares stock repurchased three months ended december 31 2005 total 20 million remains available program primary bank credit facility credit facility matures january 2010 provides 325 million revolving credit agreement governs credit facility credit agreement contains customary financial covenants restrictions including restrictions ability declare pay dividends borrowings credit agreement secured pledge substantially assets subsidiaries obligations credit agreement guaranteed significant subsidiaries borrowings credit agreement accrue interest rate equal either libor another benchmark interest rate election plus applicable margin based leverage ratio defined credit agreement must pay quarterly commitment fee based leverage ratio unused commitments credit agreement year 2005 applicable margin libor ranged 1 2 125 december 31 2005 weighted average interest rate paid credit agreement 46 year ended december 31 2005 36 year ended december 31 2004 december 31 2005 2225 million outstanding credit facility additional 120 million outstanding letters credit leaving 905 million available drawn facility addition floating rate bank credit facilities us uk provide aggregate borrowing capacity 84 million borrowings outstanding facilities december 31 2005 total debt represented 390 total capitalization december 31 2005 believe cash operations available borrowings credit facilities sufficient meet liquidity needs coming twelve months plans assumptions change inaccurate make acquisitions may need raise additional capital however assurance able raise additional funds able raise funds favorable terms following summarizes debt lease obligations december 31 2005 thousands debt obligations december 31 2005 included consolidated balance sheet part consolidated financial statements included annual report form 10k entered material leases subsequent december 31 2005 balance sheet arrangements tax matters primary deferred tax asset totaled 98 million december 31 2005 related 279 million available federal net operating loss carryforwards nols date nols expire varying amounts years 2010 2011 first used offset taxable income generated ability utilize significant portion nols currently limited section 382 internal revenue code due change control occurred 1995 currently believe substantially nol’s utilized income tax provision year ended december 31 2005 totaled 607 million 333 pretax income tax provision year 2005 included 47 million income tax benefit related reversal substantially remaining valuation allowance applied nols recorded prior year end based upon review potential effects pertinent evidence concluded substantially remaining valuation allowance recorded nol deferred tax asset unnecessary critical accounting policies selection critical accounting policies objective properly reflect financial position results operations reporting period manner understood utilize financial statements often must use judgment uncertainties several critical accounting policies put practice important effect reported financial results contingent liabilities future claims made estimates amount eventual cost liquidate liabilities claims liabilities claims sometimes involve threatened actual litigation damages quantified made assessment exposure recorded provision accounts cover expected loss claims liabilities estimated based experience matters appropriate advice outside counsel outside experts upon ultimate resolution uncertainties future reported financial results impacted difference estimates actual amounts paid settle liability examples areas made important estimates future liabilities include litigation taxes fines penalties interest warranty claims contract claims discontinued operations determination impairment longlived assets including goodwill conducted indicators impairment present indicators present determination amount impairment would based judgments future operating cash flows generated assets throughout estimated useful lives industry highly cyclical estimates period future cash flows generated well predictability cash flows significant impact carrying value assets periods prolonged cycles may result impairment charges recognize revenue profit work progresses longterm fixed price contracts using percentageofcompletion method relies estimates total expected contract revenue costs follow method since reasonably dependable estimates revenue costs applicable various stages contract made recognized revenues profit subject revisions contract progresses completion revisions profit estimates charged income expense period facts circumstances give rise revision become known provisions estimated losses uncompleted contracts made period losses determined valuation allowances especially related potential bad debts accounts receivable obsolescence market value declines inventory involve reviews underlying details assets known trends marketplace application historical factors provide us basis recording allowances market conditions less favorable projected management historical experience materially different future experience additional allowances may required past years recorded valuation allowance reduce deferred tax assets amount likely realized see “note 9 income taxes” “tax matters” herein selection useful lives many assets requires judgments operating personnel length useful lives estimates long short might eventually report disproportionate number losses gains upon disposition retirement longlived assets believe estimates useful lives appropriate purchase transactions must estimate fair values assets liabilities acquired judgment required determine valuations amounts assigned individual assets liabilities impact future results operations recent accounting pronouncements november 2004 fasb issued statement financial accounting standards 151 “inventory costs amendment arb 43 chapter 4” “sfas 151” sfas 151 clarifies accounting abnormal amounts idle facility expense freight handling costs wasted material paragraph 5 accounting research bulletin “arb” 43 chapter 4 “inventory pricing” previously stated “ certain circumstances items idle facility expense excessive spoilage double freight rehandling costs may abnormal require treatment currentperiod charges ” sfas 151 requires items recognized currentperiod charges regardless whether meet criterion “so abnormal” addition sfas 151 requires allocation fixed production overheads costs conversion based normal capacity production facilities sfas 151 effective fiscal years beginning june 15 2005 company believe implementation sfas 151 material impact company’s financial position results operations cash flows december 16 2004 fasb issued fasb statement 123 revised 2004 sharebased payment revision fasb statement 123 accounting stockbased compensation statement 123r supersedes apb opinion 25 accounting stock issued employees amends fasb statement 95 statement cash flows generally approach statement 123r similar approach described statement 123 however statement 123r requires sharebased payments employees including grants employee stock options recognized income statement based fair values pro forma disclosure longer acceptable alternative permitted sfas 123 company currently accounts sharebased payments employees using apb 25 intrinsic value method generally recognizes compensation cost employee stock options accordingly adoption sfas 123r’s fair value method impact results operations although impact overall financial position adopted sfas 123r prior periods impact standard would approximated impact sfas 123 described disclosure pro forma net income earnings per share note 12 annual report form 10k statement 123r also requires benefits tax deductions excess recognized compensation cost reported financing cash flow rather operating cash flow requirement reduce net operating cash flows increase net financing cash flows periods adoption company cannot estimate amounts future depend among things employees exercise stock options amount operating cash flows recognized prior periods excess tax deductions stock option exercises 37 million 11 million 18 million 2005 2004 2003 respectively adopted provisions statement january 1 2006 using modified prospective method continue study provisions new pronouncement determine impact financial statements may 2005 financial accounting standards board fasb issued statement financial accounting standards sfas 154 “accounting changes error corrections replacement apb opinion 20 fasb statement 3” among changes statement requires retrospective application voluntary changes accounting principles unless impractical guidance provided account changes retrospective application impractical statement effective prospective basis beginning january 1 2006 item 7aitem 7 management’s discussion analysis financial condition results operations item 7 contains “forwardlooking statements” within meaning section 27a securities act section 21e exchange act based management’s current expectations estimates projections business operations actual results may differ materially currently anticipated expressed forwardlooking statements result numerous factors including known material factors set forth “part item 1a risk factors” read following discussion analysis together consolidated financial statements notes statements included elsewhere annual report form 10k macroeconomic environment provide broad range products services oil gas industry accommodations offshore products well site services tubular services business segments accommodations segment support oil gas mining industries demand products services cyclical substantially dependent upon activity levels oil gas mining industries particularly customers’ willingness spend capital exploration development oil natural gas met coal mineral reserves customers’ spending plans generally based outlook nearterm longterm commodity prices economic growth commodity demand estimates resource production result demand products services highly sensitive current expected commodity prices principally crude oil met coal lesser extent natural gas 44 past years crude oil prices volatile due global economic movements uncertainties including regional takeaway capacity first quarter 2012 price west texas intermediates wti crude oil increased monthly average price 100 per barrel january 106 per barrel march positive economic news related growth rates projected china emerging markets consumer spending us consumer confidence indicating economic recovery underway addition prices increased response tensions middle east region caused fears supply disruption however crude oil prices came pressure second quarter 2012 due increased crude oil inventories insufficient takeaway capacity cushing oklahoma higher output expectations amid new technology lower economic growth forecasts addition certain regional markets bakken permian basin eagle ford negatively impacted significant discounts wti due insufficient pipeline rail takeaway capacity spot price wti crude oil decreased low 78 per barrel second quarter 2012 since end second quarter 2012 spot price crude oil substantially recovered february 19 2013 trading approximately 97 per barrel wti crude approximately 118 per barrel intercontinental exchange ice brent crude global supply oil global inventory levels continue decrease due government instability many oilproducing nations energy demand continues increase countries china india us could see continued andor additional increases wti oil prices could positively affect future us drilling activity canada western canadian select wcs crude price many oil sands accommodations customers receive traded discount wti ranged 725 4250 per barrel 2012 wcs discount primarily due increasing crude production canadian oil sands region coupled limited pipeline rail capacity transport oil sands crude heavy oil refineries either us canada wcs discount likely continue negative impact oil sands customers’ desire invest increased oil sands production february 19 2013 wcs trading discount wti 2500 spite wti’s recovery 90 per barrel late 2012 first quarter 2013 remains risk crude prices deteriorate going forward due potentially slowing growth rates china fiscal financial uncertainty various european countries prolonged level relatively high unemployment us advanced economies inflation risks certain emerging markets recent wti brent crude pricing trends follows 1 source wti brent prices us energy information administration eia wcs prices bloomberg 45 due significant oversupply natural gas stemming increased production shale plays natural gas prices fell precipitously fourth quarter 2011 first half 2012 reaching low 182 april 2012 since lows prices natural gas united states improved subsequent april 2012 largely due increased demand natural gas electrical power generation switching coal gas continue weak due rise production unconventional natural gas resources north america specifically onshore shale production resulting broad application horizontal drilling hydraulic fracturing techniques natural gas prices trading approximately 330 per mcf february 19 2013 addition considerable amount natural gas derived byproduct drilling crude oil natural gas liquidsoriented wells liquids rich onshore basins result us gasrelated working rig count declined 800 rigs beginning 2012 less 430 rigs february 19 2013 although still overstocked natural gas inventories us declined 60 5year average end first quarter 2012 12 5year average end 2012 increases supply natural gas whether supply comes conventional unconventional production associated gas production oil wells could constrain prices natural gas extended period result fewer rigs drilling gas nearterm recent natural gas pricing trends follows 1 source natural gas prices eia chinese steel production growth fallen year european economies contracted us economic growth anemic lowering demand steel inputs met coal iron ore result prices met coal iron ore fell throughout 2012 appear stabilized current levels met coal prices decreased 200metric ton beginning 2012 approximately 160metric ton end 2012 depressed met coal prices led coal mine closures well delays startup coal mining projects australia various oil gas industry analysts projected increased 2013 global exploration production expenditures compared 2012 north american capital spending plans likely lower yearoveryear expected focused oilrelated onshore shale areas international exploration production budgets expected increase primarily spent offshore projects overview demand accommodations offshore products segments primarily tied longterm outlook commodity prices contrast demand well site services tubular services segments responds shorterterm movements oil natural gas prices specifically changes north american drilling completion activity factors affect business financial results include general global economic environment regulatory changes us internationally generally oil sands mining accommodations’ customers making multibillion dollar investments develop prospects estimated reserve lives ten years excess thirty years consequently investments dependent customers longerterm view commodity demand prices oil sands development activity increased past several years positive impact accommodations segment recent announcements new expanded oil sands projects create opportunity extensions existing accommodations contracts incremental accommodations contracts us canada example third quarter 2012 awarded tenyear contract support future operations personnel working kearl project one canadian oil sands potentially largest mining operations addition several major national oil companies announced acquisitions joint ventures develop oil sands leases acquisitions oil sands exposure bode well future oil sands investment result demand oil sands accommodations wcs discount wti several oil sands customers announced deferral new oil sands projects could negatively affect ability expand oil sands room count occupancy levels expanding australian accommodations capacity meet increasing demand notably bowen basin queensland gunnedah hunter basins new south wales support coal production western australia support lng energyrelated projects accommodations deployed support onshore us drilling activity several active shale play regions also favorably contributed results 46 offshore products segment provides highly engineered products offshore oil natural gas drilling production systems facilities sales offshore products services depend primarily upon development infrastructure offshore production systems subsea pipelines repairs upgrades existing offshore drilling rigs construction new offshore drilling rigs vessels segment particularly influenced global deepwater drilling production spending driven largely customers’ longerterm outlook oil natural gas prices well site services business segment predominantly provide completion services lesser extent land drilling services completion services business provides equipment service personnel utilized completion initial production new recompleted wells activity completion services business dependent primarily upon level complexity drilling completion workover activity throughout north america well complexity increased number productive zones completed connection horizontal drilling increased demand drilling services driven land drilling activity primary drilling markets west texas primarily drill oil wells rocky mountain area us drill liquidsrich natural gas wells tubular services segment distribute broad range casing tubing used drilling completion oil natural gas wells primarily united states accordingly sales gross margins tubular services segment depend upon overall level drilling activity types wells drilled movements global steel input prices overall industry level octg inventory pricing historically tubular services gross margin generally expands periods rising octg prices contracts periods decreasing octg prices diversified product service offering led exposure activities conducted throughout oil gas cycle demand tubular services land drilling completion services businesses highly correlated changes drilling rig count united states much lesser extent canada table sets forth summary north american rig activity measured baker hughes incorporated periods indicated rig count fell precipitously first half 2009 response impact global economic downturn negatively impacted energy prices substantially recovered june 2009 low average north american rig count year ended december 31 2012 decreased fourteen rigs less 1 compared average year ended december 31 2011 largely due decline natural gas drilling partially offset growth us land oil rig count factor influences financial results accommodations segment exchange rate us dollar canadian dollar lesser extent exchange rate us dollar australian dollar accommodations segment derived majority revenues operating income canada since 2011 australia revenues profits translated us dollars us gaap financial reporting purposes year ended december 31 2012 average us dollar canadian australian dollar exchange rates comparable less 1 change average exchange rates 2011 steel input prices influence pricing decisions octg suppliers thereby impacting pricing margins tubular services segment steel prices global basis declined precipitously recession 2009 industry inventories increased materially rig count declined octg imports remained high levels developments octg marketplace material detrimental impact octg pricing accordingly revenues margins realized last half 2009 tubular services segment negative trends moderated 2010 reduction imports largely due imposition trade sanctions chinese octg imports coupled increases us rig count 47 2011 2012 octg marketplace supply demand became balanced compared previous two years increased supplies octg met increased demand created expanded drilling activity throughout 2011 2012 imports octg increased particularly goods imported canada korea followed india mexico japan additionally domestic octg mill capacity increased 2012 increases supply response increased well complexity coupled 2 yearoveryear increase drilling rig count us octg situation report suggests industry octg inventory levels increased throughout 2012 currently stand five six months supply ample industry inventory ground along increasing imports domestic production coupled modestly declining drilling activity put downward pressure octg prices throughout 2012 average octg prices declined 9 2012 remain focused working capital management generating returns invested capital tubular services segment continue monitor industry inventory levels forecasted drilling completion activity octg prices global demand oil natural gas significant factors influencing business generally certain factors also influence business pace worldwide economic growth recovery us gulf mexico drilling following lifting government imposed drilling moratorium although higher 2011 drilling rig count 2012 us gulf mexico remains historical levels following april 2010 macondo well incident resultant oil spill us gulf mexico beginning third quarter 2011 however us gulf mexico drilling activity shown signs slow steady recovery permitting levels improved new well permitting increased 109 permits issued 2011 179 permits issued 2012 continue monitor global economy demand crude oil met coal natural gas resultant impact capital spending plans operations customers order plan business capital expenditures 2012 totaled 488 million compared 2011 capital expenditures 487 million 2012 capital expenditures included funding expand canadian oil sands australian mining related accommodations facilities fund product service offerings upgrade equipment facilities approximately twothirds total 2012 capital expenditures spent accommodations segment well site services segment continue monitor industry capacity additions make future capital expenditure decisions based evaluation market outlook industry fundamentals currently expect spend total approximately 600 million 650 million capital expenditures 2013 recent acquisitions december 14 2012 acquired equity tempress purchase price consideration 483 million consisting 325 million cash contingent consideration fair value 158 million company funded escrow accounts totaling 253 million related contingent consideration seller transaction indemnities classified “other noncurrent assets” december 31 2012 consolidated balance sheet liabilities contingent consideration escrowed amounts potentially due seller total 211 million december 31 2012 classified “other noncurrent liabilities” consolidated balance sheet headquartered kent washington tempress designs develops markets suite highly specialized hydraulicallyactivated tools utilized downhole completion activities operations tempress included well site services segment since acquisition date july 2 2012 acquired operating assets piper total cash consideration 480 million headquartered oklahoma city oklahoma piper designs manufactures high pressure valves manifold components oil gas industry projects located offshore surface subsea onshore operations piper included offshore products segment since acquisition date november 1 2011 purchased open camp accommodations facility located carrizo springs texas total consideration 22 million facility provides accommodations support customers working eagle ford shale basin operations carrizo springs facility included accommodations segment since acquisition date 48 december 30 2010 acquired ordinary shares mac scheme arrangement scheme corporations act australia mac headquartered sydney australia supplies accommodations services australian natural resources market terms scheme shareholder mac received 395 a390 per share cash total purchase price 638 million net cash acquired plus debt assumed 87 million mac’s operations included accommodations segment beginning 2011 december 20 2010 also acquired operating assets mountain west total consideration 471 million including estimated contingent consideration 40 million headquartered vernal utah operations rockies bakken shale region mountain west provides remote site workforce accommodations oil gas industry mountain west included accommodations segment since acquisition date october 5 2010 purchased equity acute total consideration 302 million headquartered houston texas additional operations brazil acute provides metallurgical welding engineering consulting services oil gas industry support critical complex subsea component manufacturing deepwater riser fabrication global basis acute included offshore products segment since date acquisition company funded acquisitions cash hand andor amounts available senior secured credit facilities see note 8 consolidated financial statements included annual report form 10k additional information senior secured bank facilities 49 consolidated results operations millions year ended december 31 2012 compared year ended december 31 2011 reported net income attributable company year ended december 31 2012 4486 million 810 per diluted share including gain 179 million 023 per diluted share aftertax favorable contract settlement reported us accommodations business pretax gain 25 million 003 per diluted share aftertax related insurance proceeds received excess net book value constructive total loss drilling rig lost fire occurred first quarter 2012 results compare net income attributable company 3225 million 586 per diluted share reported year ended december 31 2011 revenues consolidated revenues increased 9339 million 27 2012 compared 2011 well site services segment revenues increased 597 million 9 2012 compared 2011 primarily due increases completion services revenues drilling services revenues completion services revenues increased 346 million 7 2012 compared 2011 primarily due increased demand completion services supporting 2 increase us rig count favorable mix higher value rentals services greater service intensity drilling services revenues increased 251 million 15 2012 compared 2011 primarily result increases pricing average day rates rising 18000 per day 2012 16400 per day 2011 increased utilization rigs average approximately 82 2011 average approximately 88 2012 50 accommodations segment reported revenues 2012 2488 million 29 2011 increase accommodations revenue primarily resulted increased revenues expanded room capacity canada australia along 183 million revenue favorable contract settlement reported us accommodations business first quarter 2012 revenues average available rooms revenue per available room revpar lodges villages increased 36 23 11 respectively 2012 compared 2011 offshore products segment revenues increased 2183 million 37 2012 compared 2011 increase primarily result higher levels manufacturing service activity improved revenue mix favoring production equipment connector products along contributions acquisition piper closed july 2012 tubular services segment revenues increased 4071 million 30 2012 compared 2011 increase primarily result increase tons shipped 699000 2011 862700 2012 increase 163700 tons 23 higher volume resulted 2 increase us drilling completion activity market share gains us incremental customer programs us gulf mexico certain us shale basins also reported 5 increase realized revenues per ton shipped 2012 compared 2011 due favorable mix octg grades sold cost sales service consolidated cost sales increased 6937 million 27 2012 compared 2011 cost sales increase directly related increase revenue consolidated gross margin percentage revenues remained constant 25 2012 2011 well site services segment cost sales increased 367 million 9 2012 compared 2011 result 262 million 9 increase completion services cost sales 105 million 9 increase drilling services cost sales well site services segment gross margin percentage revenues remained constant 36 2012 2011 completion services gross margin percentage revenues declined modestly 38 2012 compared 39 2011 drilling services gross margin percentage revenues increased 26 2011 30 2012 primarily due increased day rates rig utilization cost absorption accommodations segment cost sales increased 959 million 21 2012 compared 2011 primarily due increased revenues room capacity canada australia accommodations segment gross margin percentage revenues increased 47 2011 50 2012 primarily due 11 increase revpar lodges villages 2012 compared 2011 increase revpar 2012 compared 2011 primarily due increased occupancy levels offshore products segment cost sales increased 1659 million 39 2012 compared 2011 primarily due increased revenues offshore products segment gross margin percentage revenues decreased modestly 26 2012 compared 27 2011 tubular services segment cost sales increased 3952 million 31 2012 compared 2011 primarily result increase tons shipped tubular services segment gross margin percentage revenues decreased 60 2011 53 2012 primarily due lower margin sales certain onshore markets result declining octg prices throughout 2012 selling general administrative expenses selling general administrative sga expense increased 212 million 12 2012 compared 2011 primarily due increased employeerelated costs related 8 increase total headcount commissions office expenses along sga expense associated inclusion piper acquired july 2012 depreciation amortization depreciation amortization expense increased 420 million 22 2012 compared 2011 primarily due capital expenditures made 2011 2012 largely related investments canadian australian accommodations completion services businesses 51 operating income consolidated operating income increased 1763 million 35 2012 compared 2011 primarily result increase operating income accommodations segment 1157 million 46 due expanded room capacity canada australia along favorable contract settlement reported us accommodations business increase operating income offshore products segment 394 million 42 addition operating income well site services segment increased 155 million 11 largely due increased dayrates rig utilization drilling services business favorable mix services increased activity completion services business operating income tubular services segment increased 106 million 16 2012 compared 2011 primarily result increase tons shipped interest expense interest income net interest expense increased 115 million 21 2012 compared 2011 primarily due interest expense 6 12 senior notes due 2019 6 12 notes issued june 1 2011 partially offset decreased interest expense 2 38 notes due 2025 2 38 notes due conversion july 2012 weighted average interest rate borrowings outstanding company’s credit facilities 30 2012 compared 31 2011 interest income decreased result decreased cash balances interest bearing accounts income tax expense income tax provision 2012 totaled 1770 million 282 pretax income compared income tax expense 1316 million 289 pretax income 2011 effective tax rates 282 289 years ended december 31 2012 2011 respectively comparable lower us statutory rates lower foreign tax rates year ended december 31 2011 compared year ended december 31 2010 reported net income attributable company year ended december 31 2011 3225 million 586 per diluted share results compare net income attributable company 1680 million 319 per diluted share reported year ended december 31 2010 revenues consolidated revenues increased 11 billion 44 2011 compared 2010 well site services segment revenues increased 1777 million 37 2011 compared 2010 increase primarily due significantly increased completion services revenues completion services revenues increased 1450 million 42 primarily due increased demand completion services supporting increase us rig count favorable mix higher value rentals services increased equipment utilization additional capital investment rental equipment better pricing drilling services revenues increased 327 million 25 2011 compared 2010 primarily result increases pricing average day rates rising 164 thousand per day 2011 142 thousand per day 2010 increased utilization rigs average approximately 72 2010 average approximately 82 2011 accommodations segment reported revenues 2011 3270 million 61 2010 increase accommodations revenue resulted contribution fourth quarter 2010 acquisitions mac mountain west along increased revenues generated expanded room capacity canada australia revenues average available rooms oil sands lodges increased 40 30 respectively 2011 compared 2010 offshore products segment revenues increased 1569 million 37 2011 compared 2010 increase primarily result higher demand production equipment elastomer products along contributions acquisition acute tubular services segment revenues increased 4056 million 42 2011 compared 2010 increase result increase tons shipped 502800 tons 2010 699000 tons 2011 increase 196200 tons 39 driven increased us drilling completion activity cost sales service consolidated cost sales increased 7250 million 39 2011 compared 2010 cost sales increase directly related increase revenue consolidated gross margin percentage revenues increased 22 2010 25 2011 primarily due increased proportion relatively higher margin accommodations well site services segment revenues 2011 compared 2010 higher margins realized accommodations well site services segments partially offset increased proportion relatively lower margin tubular services segment revenues 2011 compared 2010 52 well site services segment cost sales increased 955 million 29 2011 compared 2010 primarily result 783 million 36 increase completion services cost sales well site services segment gross margin percentage revenues increased 32 2010 36 2011 completion services gross margin percentage revenues increased 36 2010 39 2011 primarily due favorable mix higher value rentals services improved pricing along higher fixed cost absorption result increased rental tool utilization drilling services cost sales increased 172 million 16 2011 compared 2010 drilling services gross margin percentage revenues increased 21 2010 26 2011 primarily due increase day rates rig utilization improved cost absorption accommodations segment cost sales increased 1420 million 45 2011 compared 2010 primarily result operating costs associated acquisitions mac mountain west 362 million 12 increase cost sales canadian accommodations business primarily due increased revenues room capacity accommodations segment gross margin percentage revenues increased 42 2010 47 2011 primarily due higher margins realized lodges villages offshore products cost sales increased 1135 million 36 2011 compared 2010 primarily due increased revenues offshore products segment gross margin percentage revenues increased modestly 26 2010 compared 27 2011 tubular services segment cost sales increased 3740 million 41 2011 compared 2010 primarily result increase tons shipped tubular services segment gross margin percentage revenues increased 5 2010 6 2011 due primarily 2 increase revenue per ton selling general administrative expenses sga expense increased 316 million 21 2011 compared 2010 due primarily acquisition mac increased employeerelated costs higher sga costs canadian accommodations business due strengthening canadian dollar increased thirdparty professional fees increased commissions expense sga 52 revenues 2011 compared 63 revenues 2010 depreciation amortization depreciation amortization expense increased 639 million 51 2011 compared 2010 due primarily 506 million depreciation amortization expense associated acquisitions made fourth quarter 2010 capital expenditures made 2010 2011 largely related investments made canadian accommodations business operating income consolidated operating income doubled 2519 million 2011 compared 2010 primarily result increase operating income well site services segment 933 million 195 largely due favorable mix improved pricing increased activity completion services business coupled increase operating income result addition mac addition operating income offshore products segment increased 340 million 56 2011 compared 2010 operating income tubular services segment increased 285 million 79 primarily result increase tons shipped operating income 2011 2010 included 22 million 70 million respectively acquisition related expenses interest expense interest income net interest expense increased 403 million 260 2011 compared 2010 due increased debt levels interest expense 6 12 notes issued june 1 2011 increase noncash interest expense result amortization debt issuance costs revolving credit term loan facilities 6 12 notes weighted average interest rate borrowings outstanding companys revolving credit term loan facilities 31 2011 compared 36 2010 interest income increased result increased cash balances interest bearing accounts income tax expense income tax provision 2011 totaled 1316 million 289 pretax income compared 720 million 299 pretax income 2010 decrease effective tax rate prior year largely result foreign sourced income 2011 taxed lower statutory rates compared 2010 partially offset increase state taxes 53 liquidity capital resources primary liquidity needs fund capital expenditures past included expanding accommodations facilities expanding upgrading offshore products manufacturing facilities equipment replacing increasing completion services assets funding new product development general working capital needs addition capital used repay debt fund strategic business acquisitions primary sources funds cash flow operations proceeds borrowings credit facilities capital market transactions see note 8 consolidated financial statements included annual report form 10k cash totaling 6375 million provided operations year ended december 31 2012 compared cash totaling 2159 million provided operations year ended december 31 2011 2012 749 million used fund working capital primarily due increased investments receivables inventory offshore products segment coupled higher octg inventory tubular services segment due increased order activity 2011 3403 million used fund working capital primarily due increased investments receivables inventory tubular services offshore products segments due higher activity levels cash used investing activities years ended december 31 2012 2011 amounts 5770 million 4890 million respectively capital expenditures totaled 4879 million 4875 million years ended december 31 2012 2011 respectively capital expenditures years consisted principally purchases installation assets accommodations well site services segments particular accommodations investments made support canadian oil sands developments australian mining developments year ended december 31 2012 spent cash 804 million acquire operating assets piper equity tempress addition company funded escrow accounts totaling 253 million related contingent consideration seller transaction indemnities tempress acquisition compares 22 million spent year ended december 31 2011 acquire open camp accommodations facility carrizo springs texas provide accommodations support customers working eagle ford shale basin company funded acquisitions piper tempress amounts available company’s us revolving credit facility see note 8 consolidated financial statements included annual report form 10k currently expect spend total approximately 600 million 650 million capital expenditures 2013 expand canadian oil sands australian mining related accommodations facilities fund product service offerings upgrade equipment facilities approximately twothirds total estimated 2013 capital expenditures expected spent accommodations segment expect fund capital expenditures cash available internally generated funds borrowings us canadian australian credit facilities foregoing capital expenditure forecast include funds strategic acquisitions company could pursue depending economic environment industry availability transactions prices deemed attractive company december 31 2012 cash totaling 1917 million held foreign subsidiaries primarily canada united kingdom case canada assumed indefinite reinvestment earnings recorded us tax liability upon assumed repatriation foreign earnings believe cash balances utilized future investment outside united states net cash 1206 million provided financing activities year ended december 31 2012 primarily result proceeds issuance fourth quarter 2012 400 million aggregate principal amount 5 18 senior notes due 2023 5 18 notes offset net repayments outstanding amounts revolving credit facilities payments principal amounts conversion 2 38 notes repayments us canadian term loans see note 8 consolidated financial statements included annual report form 10k additional information credit facilities net cash 2579 million provided financing activities year ended december 31 2011 primarily result proceeds issuance second quarter 2011 600 million aggregate principal amount 6 12 notes due 2019 offset net repayments outstanding amounts revolving credit facilities incurred 79 million costs secure financings 2012 compared 135 million 2011 see note 8 consolidated financial statements included annual report additional information debt offerings 54 may 17 2012 company gave notice redemption outstanding 2 38 notes due 2025 totaling 175 million aggregate principal amount july 6 2012 redemption price equal 100 principal amount thereof plus accrued interest 2 38 notes convertible holders thereof shares company’s common stock conversion rate 31496 shares common stock 1000 principal amount 2 38 notes converted july 2012 rather 2 38 notes redeemed prior july 5 2012 holders 175 million aggregate principal amount 2 38 notes converted 2 38 notes received cash principal amount 3012380 shares company’s common stock valued 2206 million see note 8 consolidated financial statements included annual report form 10k believe cash hand cash flow operations available borrowings credit facilities sufficient meet liquidity needs coming twelve months plans assumptions change inaccurate make acquisitions may need raise additional capital acquisitions management believes acquisitions continue key element business strategy timing size success acquisition effort associated potential capital commitments unpredictable uncertain may seek fund part efforts proceeds debt andor equity issuances ability obtain capital additional projects implement growth strategy longer term depend upon future operating performance financial condition broadly availability equity debt financing capital availability affected prevailing conditions industry global economy global financial markets factors many beyond control addition additional debt service requirements could based higher interest rates shorter maturities could impose significant burden results operations financial condition issuance additional equity securities could result significant dilution stockholders stock repurchase program august 23 2012 company announced board directors authorized 200 million repurchase company’s common stock par value 01 per share authorization replaced prior share repurchase authorization set expire september 1 2012 december 31 2012 company approximately 547 million shares common stock outstanding board directors’ authorization limited duration expires september 1 2014 subject applicable securities laws purchases times amounts company deems appropriate december 31 2012 total 152 million stock 225796 shares repurchased program leaving total authorization approximately 1848 million remaining available program credit facilities current bank credit facilities include us revolving credit facility us term loan canadian revolving facility canadian term loan credit facilities governed amended restated credit agreement dated december 10 2010 credit agreement among company pti group inc pti premium camp services ltd lenders party thereto wells fargo bank na administrative agent us collateral agent royal bank canada canadian administrative agent canadian collateral agent us canadian revolving credit facilities contain total commitments available 105 billion including total us commitments defined credit agreement us 700 million including 200 million us term loans total canadian commitments defined credit agreement us 350 million including 100 million canadian term loans maturity date credit agreement december 10 2015 current principal balance term loans repayable rate 25 per quarter aggregate principal amount maturity december 10 2015 remaining principal due currently 19 lenders credit agreement commitments ranging 253 million 150 million experienced anticipate difficulties obtaining funding lenders time lack delay funding significant member banking group could negatively affect liquidity position 55 credit agreement contains customary financial covenants restrictions including restrictions ability declare pay dividends specifically must maintain interest coverage ratio defined ratio consolidated ebitda consolidated interest expense least 30 10 maximum leverage ratio defined ratio total debt consolidated ebitda greater 325 10 2012 30 10 thereafter factors considered calculations ratios defined credit agreement ebitda consolidated interest defined exclude goodwill impairments debt discount amortization noncash charges december 31 2012 compliance debt covenants expect continue compliance 2013 borrowings credit agreement secured pledge substantially assets subsidiaries obligations credit agreement guaranteed significant subsidiaries borrowings credit agreement accrue interest rate equal either libor another benchmark interest rate election plus applicable margin based leverage ratio defined credit agreement must pay quarterly commitment fee based leverage ratio unused commitments credit agreement year 2012 applicable margin libor ranged 200 225 200 december 31 2012 weighted average interest rate paid credit agreement 27 year ended december 31 2012 30 year ended december 31 2011 december 31 2012 2558 million outstanding credit agreement additional 411 million outstanding letters credit leaving 7089 million available drawn us canadian facilities september 18 2012 company’s australian accommodations subsidiary mac services group pty limited mac entered aud300 million revolving loan facility governed syndicated facility agreement mac group facility agreement mac jp morgan australia limited australian agent security trustee jpmorgan chase bank na us agent lenders party thereto guaranteed company mac’s subsidiaries maturity date mac group facility agreement december 10 2015 mac group facility agreement replaced mac’s previous aud150 million revolving loan facility december 31 2012 aud46 million outstanding australian credit facility leaving aud254 million available drawn facility weighted average interest rate paid mac group facility agreement 54 period beginning september 18 2012 ending december 31 2012 5 18 notes december 21 2012 company sold 400 million aggregate principal amount 5 18 notes private placement qualified institutional buyers 5 18 notes senior unsecured obligations company guaranteed material us subsidiaries guarantors bear interest rate 5 18 per annum mature january 1 2023 time prior january 15 2016 company may redeem 35 5 18 notes redemption price 105125 principal amount plus accrued unpaid interest redemption date proceeds certain equity offerings prior january 15 2018 company may redeem 5 18 notes cash redemption price equal 100 principal amount plus applicable makewhole premium accrued unpaid interest redemption date january 15 2018 company may redeem 5 18 notes redemption prices expressed percentages principal amount plus accrued unpaid interest redemption date optional redemption prices percentage principal amount follows company utilized approximately 334 million net proceeds 5 18 notes repay borrowings us credit facility remaining net proceeds approximately 61 million utilized general corporate purposes 56 december 21 2012 connection issuance 5 18 notes company entered indenture 5 18 notes indenture guarantors wells fargo bank na trustee 5 18 notes indenture restricts companys ability guarantors incur additional debt ii pay distributions redeem repurchase equity interests iii make certain investments iv incur liens v enter transactions affiliates vi merge consolidate another company vii transfer sell assets covenants subject number important exceptions qualifications time 5 18 notes rated investment grade either moodys investors service inc standard poors ratings services default defined 5 18 notes indenture occurred continuing many covenants terminate company subsidiaries cease subject covenants 5 18 notes indenture contains customary events default december 31 2012 company compliance covenants 5 18 notes indenture 6 12 notes june 1 2011 company sold 600 million aggregate principal amount 6 12 notes private placement qualified institutional buyers 6 12 notes senior unsecured obligations company guaranteed guarantors bear interest rate 6 12 per annum mature june 1 2019 time prior june 1 2014 company may redeem 35 6 12 notes redemption price 1065 principal amount plus accrued unpaid interest redemption date proceeds certain equity offerings prior june 1 2014 company may redeem 6 12 notes cash redemption price equal 100 principal amount plus applicable makewhole premium accrued unpaid interest redemption date june 1 2014 company may redeem 6 12 notes redemption prices expressed percentages principal amount plus accrued unpaid interest redemption date optional redemption prices percentage principal amount follows company utilized approximately 515 million net proceeds 6 12 note offering june 2011 repay borrowings us canadian credit facilities remaining net proceeds approximately 75 million utilized general corporate purposes june 1 2011 connection issuance 6 12 notes company entered indenture 6 12 notes indenture guarantors wells fargo bank na trustee indenture restricts companys ability guarantors incur additional debt ii pay distributions redeem repurchase equity interests iii make certain investments iv incur liens v enter transactions affiliates vi merge consolidate another company vii transfer sell assets covenants subject number important exceptions qualifications time 6 12 notes rated investment grade either moodys investors service inc standard poors ratings services default defined 6 12 notes indenture occurred continuing many covenants terminate company subsidiaries cease subject covenants 6 12 notes indenture contains customary events default december 31 2012 company compliance covenants 6 12 notes indenture total debt represented 347 combined total debt shareholders’ equity december 31 2012 compared 375 december 31 2011 57 contractual obligations following summarizes contractual obligations december 31 2012 effect obligations expected liquidity cash flow next five years thousands 1 includes interest fixedrate debt excludes interest variablerate debt cannot predict certainty amount interest due revolving debt due expected variability interest rates principal amounts outstanding assume interest payment amounts calculated using outstanding principal balances interest rates foreign currency exchange rates december 31 2012 include applicable commitment fees estimated interest payments credit facilities would 200 million “due less one year” 369 million “due one three years” case outstanding term loans applicable principal pay amounts reflected interest payment calculations see note 8 consolidated financial statements included annual report form 10k additional information credit facilities 2 see note 13 consolidated financial statements included annual report form 10k additional information debt obligations december 31 2012 included consolidated balance sheet part consolidated financial statements included annual report form 10k entered material leases subsequent december 31 2012 due uncertainty respect timing future cash flows associated uncertain tax positions december 31 2012 unable make reasonably reliable estimates period cash settlement respective taxing authorities therefore 10 million uncertain tax positions including interest penalties excluded contractual obligations table effects inflation revenues results operations materially impacted inflation past three fiscal years offbalance sheet arrangements december 31 2012 offbalance sheet arrangements defined item 303a4ii regulation sk tax matters primary deferred tax assets december 31 2012 related employee benefit costs equity participation plan deductible goodwill intangibles inventory allowance obsolescence foreign tax credit carryforwards foreign tax credits expire varying amounts 2019 income tax provision year ended december 31 2012 totaled 1770 million 282 pretax income compared 1316 million 289 pretax income year ended december 31 2011 effective tax rates 282 289 years ended december 31 2012 2011 respectively comparable lower us statutory rates lower foreign tax rates 58 number legislative proposals change united states tax laws related multinational corporations proposals various stages discussion possible time predict proposals would impact business whether could result increased tax costs critical accounting policies consolidated financial statements included annual report form 10k prepared accordance accounting principles generally accepted united states gaap require management make numerous estimates assumptions actual results could differ estimates assumptions thus impacting reported results operations financial position critical accounting policies estimates described section important depiction financial condition results operations application requires management’s subjective judgments making estimates effect matters inherently uncertain describe significant accounting policies fully note 2 consolidated financial statements included annual report form 10k accounting contingencies contingent liabilities future claims made estimates amount eventual cost liquidate liabilities claims liabilities claims sometimes involve threatened actual litigation damages quantified made assessment exposure recorded provision accounts cover expected loss claims liabilities estimated based fair value experience matters appropriate advice outside counsel outside experts upon ultimate resolution uncertainties future reported financial results impacted difference estimates actual amounts paid settle liability examples areas made important estimates future liabilities include future consideration due sellers result terms business combination litigation taxes interest insurance claims warranty claims contract claims obligations discontinued operations asset retirement obligations recognize initial estimated asset retirement obligations aro related properties liabilities associated increase property equipment asset’s estimated retirement cost accretion expense recognized estimated productive life related assets fair value estimated aro changes adjustment recorded aro capitalized asset retirement cost revisions estimated liabilities result changes estimated inflation rates changes service equipment costs changes estimated timing settling aro company derecognizes aro liabilities related obligations settled december 31 2012 55 million aro included consolidated balance sheet “other noncurrent liabilities” aro liability reflects estimated present value amount asset removal site reclamation costs related retirement assets company’s accommodations business total accretion expense related aro 03 million 2012 company utilizes current retirement costs estimate expected cash outflows retirement obligations company estimates ultimate productive life properties riskadjusted discount rate order determine current present value obligation tangible intangible assets including goodwill totaled 5208 million 117 total assets december 31 2012 intangible assets totaled 1461 million 33 total assets december 31 2012 assessment impairment longlived assets including intangibles conducted whenever changes facts circumstances indicate loss value occurred indicators impairment might include persistent negative economic trends affecting markets serve recurring losses lowered expectations future cash flows expected generated assets determination amount impairment would based quoted market prices available upon judgments future operating cash flows generated assets throughout estimated useful lives industry highly cyclical estimates period future cash flows generated well predictability cash flows determination whether decline value investment occurred significant impact carrying value assets periods prolonged cycles may result impairment losses 59 review reporting unit least annually interim basis indicator impairment determined occur defined current accounting standards regarding goodwill assess goodwill potential impairment reporting units include completion services drilling accommodations offshore products tubular services remaining goodwill drilling tubular services reporting units subsequent full impairment goodwill reporting units december 31 2008 part goodwill impairment analysis current accounting standards give us option first perform qualitative assessment determine whether likely likelihood 50 percent fair value reporting unit less carrying amount including goodwill determined likely fair value reporting unit greater carrying amount performing currently prescribed twostep impairment test unnecessary developing qualitative assessment meet “morelikelythannot” threshold reporting unit goodwill balance sheet assessed separately different relevant events circumstances evaluated unit determined likely fair value reporting unit less carrying amount prescribed twostep impairment test performed current accounting standards also give us option bypass qualitative assessment reporting unit period proceed directly performing first step twostep goodwill impairment test 2012 company chose bypass qualitative assessment reporting units goodwill remaining perform twostep impairment test performing twostep impairment test estimate implied fair value ifv reporting unit compare ifv carrying value unit carrying value none reporting units publically quoted market price must determine value willing buyers sellers would place reporting unit routine sale process level 3 fair value measurement analysis target ifv represents value would placed reporting unit market participants value reporting unit based historical projected results throughout cycle value reporting unit based trough peak earnings utilize depending circumstances trading multiples analyses discounted projected cash flow calculations estimated terminal values acquisition comparables estimate ifv reporting units affected future oil natural gas prices anticipated spending customers cost capital part process assess goodwill impairment also compare total market capitalization company sum ifvs reporting units assess reasonableness ifvs aggregate carrying amount reporting unit exceeds ifv goodwill considered potentially impaired additional analysis accordance current accounting standards conducted determine amount impairment 2012 quantitative assessment potential goodwill impairment based analysis comparison trading multiples indicated likely fair value reporting units greater carrying amount date goodwill impairment test 2012 ifv offshore products accommodations completion services reporting units exceeded carrying values 172 50 101 respectively part process assess goodwill impairment 2012 also compared total market capitalization company sum ifv’s reporting units assess reasonableness ifv’s aggregate revenue cost recognition revenue sale products accounted utilizing percentageofcompletion method recognized delivery acceptance customer occurred title significant risks ownership passed customer collectability probable pricing fixed determinable product sales terms include significant postdelivery obligations significant projects revenues recognized percentageofcompletion method measured percentage costs incurred date compared estimated total costs contract costtocost method billings contracts excess costs incurred estimated profits classified deferred revenue costs incurred estimated profits excess billings percentageofcompletion contracts recognized unbilled receivables management believes method appropriate measure progress large contracts provisions estimated losses uncompleted contracts made period losses determined factors may affect future project costs margins include shipyard access weather production efficiencies availability costs labor materials subcomponents factors significantly impact accuracy company’s estimates materially impact company’s future reported earnings accommodations well site services segments revenues recognized based periodic usually daily room rate services rendered proceeds customers cost oilfield rental equipment damaged lost downhole reflected gains losses disposition assets considering writeoff remaining net book value equipment drilling services contracts based footage drilled recognize revenues footage drilled revenues exclude taxes assessed based revenues sales value added taxes 60 cost goods sold includes direct material labor costs related contract performance indirect labor supplies tools repairs selling general administrative costs charged expense incurred valuation allowances valuation allowances especially related potential bad debts accounts receivable obsolescence market value declines inventory involve reviews underlying details assets known trends marketplace application historical factors provide us basis recording allowances market conditions less favorable projected management historical experience materially different future experience additional allowances may required past years recorded valuation allowance reduce deferred tax assets amount likely realized estimation useful lives selection useful lives many assets requires judgments operating personnel length useful lives judgment area influenced historical experience operating assets technological developments expectations future demand assets estimates long short might eventually report disproportionate number losses gains upon disposition retirement longlived assets believe estimates useful lives appropriate stock based compensation since adoption accounting standards regarding sharebased payments required estimate fair value stock compensation made pursuant awards 2001 equity participation plan initial estimate fair value stock option restricted stock award determines amount stock compensation expense recognize future estimate value stock option awards plan selected fair value calculation model chosen black scholes merton “closed form” model value stock options awarded plan chosen model option awards made straightforward vesting terms option prices option lives utilizing black scholes merton model requires us estimate length time options remain outstanding risk free interest rate estimated period options assumed outstanding forfeiture rates future dividends volatility common stock assumptions affect amount timing future stock compensation expense recognition continually monitor actual experience change assumptions future awards consider appropriate income taxes company follows liability method accounting income taxes accordance current accounting standards regarding accounting income taxes method deferred income taxes recorded based upon differences financial reporting tax bases assets liabilities measured using enacted tax rates laws effect time underlying assets liabilities recovered settled companys earnings foreign subsidiaries considered indefinitely reinvested provision us income taxes made earnings subsidiaries distribution earnings form dividends otherwise company would subject us income taxes subject adjustment foreign tax credits withholding taxes payable various foreign countries 61 accordance current accounting standards company records valuation allowance reporting period management believes likely deferred tax asset created realized management continue evaluate appropriateness valuation allowance future based upon operating results company accounting income taxes required provisions current accounting standards regarding accounting uncertainty income taxes estimate liability future income taxes calculation tax liabilities involves dealing uncertainties application complex tax regulations recognize liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due ultimately determine payment amounts unnecessary reverse liability recognize tax benefit period determine liability longer necessary record additional charge provision taxes period determine recorded tax liability less expect ultimate assessment recent accounting pronouncements time new accounting pronouncements issued financial accounting standards board fasb adopted company specified effective date unless otherwise discussed management believes impact recently issued standards yet effective material impact company’s consolidated financial statements upon adoption june 2011 fasb issued amendments disclosure requirements presentation comprehensive income guidance eliminates option present components comprehensive income part statement changes stockholders’ equity amendments require nonowner changes stockholders’ equity presented either single continuous statement comprehensive income two separate consecutive statements twostatement approach first statement present total net income components followed consecutively second statement present total comprehensive income components comprehensive income total comprehensive income amendments applied retrospectively public entities amendments effective fiscal years interim periods within years beginning december 15 2011 amendments require transition disclosures december 2011 fasb issued amendment deferring effective date requirement present reclassification adjustments accumulated comprehensive income face consolidated statement income company adopted standard quarterly report form 10q three month period ended march 31 2012 september 2011 fasb issued accounting standards update intended simplify goodwill impairment testing giving entity option first assess qualitative factors determine whether likely fair value reporting unit less carrying amount entity determines likely fair value reporting unit greater carrying amount performing currently prescribed twostep impairment test unnecessary entity option bypass qualitative assessment reporting unit period proceed directly performing first step twostep goodwill impairment test entity may resume performing qualitative assessment subsequent period amendments effective annual interim goodwill impairment tests performed fiscal years beginning december 15 2011 company adopted standard annual goodwill impairment tests 2011 adoption standard material effect consolidated financial statements july 2012 fasb issued accounting standards update intended reduce cost complexity performing impairment test indefinitelived intangible assets simplifying entity tests assets impairment update also intended improve consistency impairment testing guidance among longlived asset categories previous guidance required entity test indefinitelived intangible assets impairment comparing fair value asset carrying amount least annual basis carrying amount exceeded fair value entity needed recognize impairment loss amount excess amendment update allows entity first assess qualitative factors determine whether likely indefinitelived intangible asset impaired assessment determine whether necessary perform quantitative impairment tests type testing results guidance similar september 2011 accounting standards update issued goodwill impairment testing described amendments effective annual interim impairment tests performed fiscal years beginning september 15 2012 early adoption permitted adopted provisions 2012 adoption standard material effect consolidated financial statements 62 item 7aitem 7 managements discussion analysis financial condition results operations read following discussion analysis together selected financial data financial statements notes statements included elsewhere annual report form 10k discussion contains forwardlooking statements based current expectations assumptions estimates projections us industry forwardlooking statements involve risks uncertainties actual results could differ materially indicated forwardlooking statements result certain factors fully described cautionary statement regarding forwardlooking statements form 10k except extent required law undertake obligation update publicly forwardlooking statements even new information becomes available events occur future critical accounting policies selection critical accounting policies objective properly reflect financial position results operations reporting period manner understood utilize financial statements often must use judgment uncertainties several critical accounting policies put practice important effect reported financial results contingent liabilities future claims made estimates amount eventual cost liquidate liabilities claims liabilities claims sometimes involve threatened actual litigation damages quantified made assessment exposure recorded provision accounts cover expected loss claims liabilities estimated based experience matters appropriate advice outside counsel outside experts upon ultimate resolution uncertainties future reported financial results impacted difference estimates actual amounts paid settle liability examples areas made important estimates future liabilities include litigation taxes postretirement benefits warranty claims contract claims determination impairment longlived assets including goodwill conducted indicators impairment present indicators present determination amount impairment would based judgments future operating cash flows generated assets throughout estimated useful lives industry highly cyclical estimates period future cash flows generated well predictability cash flows significant impact carrying value assets periods prolonged cycles may result impairment charges recognize revenue profit work progresses longterm fixed price contracts using percentageofcompletion method relies estimates total expected contract revenue costs follow method since reasonably dependable estimates revenue costs applicable various stages contract made recognized revenues profit subject revisions contract progresses completion revisions profit estimates charged income expense period facts circumstances give rise revision become known provisions estimated losses uncompleted contracts made period losses determined valuation allowances especially related potential bad debts accounts receivable obsolescence market value declines inventory involve reviews underlying details assets known trends marketplace application historical factors provide us basis recording allowances market conditions less favorable projected management historical experience materially different future experience additional allowances may required record valuation allowance reduce deferred tax assets amount likely realized considered future taxable income ongoing prudent feasible tax planning strategies assessing need valuation allowance event determine would able realize deferred tax assets future excess net recorded amount adjustment deferred tax asset would increase income period determination made likewise determine would likely able realize part net deferred tax asset future adjustment deferred tax asset would charged expense period determination made selection useful lives many assets requires judgments operating personnel length useful lives estimates long short might eventually report disproportionate number losses gains upon disposition retirement longlived assets believe estimates useful lives appropriate overview provide broad range products services oil gas industry offshore products well site services tubular services business segments demand products services cyclical substantially dependent upon activity levels oil gas industry particularly customers willingness spend capital exploration development oil gas reserves demand products services customers highly sensitive current expected oil natural gas prices offshore products segment provides highly engineered technically designed products offshore oil gas development production systems facilities sales offshore products services depend upon development offshore production systems repairs upgrades existing drilling rigs construction new drilling rigs segment particularly influenced deepwater drilling production activities well site services business segment provide hydraulic well control services pressure control equipment rental tools drilling rigs work force accommodations catering logistics services demand well site services depends upon level worldwide drilling workover activity tubular services segment distribute broad range casing tubing sales tubular products services depend upon overall level drilling activity types wells drilled energy oilfield service activities highly cyclical depending upon crude oil natural gas pricing among things beginning late 1996 continuing early part 1998 stabilization oil gas prices led increases drilling activity well refurbishment new construction drilling rigs second half 1998 crude oil prices declined substantially reached levels 11 per barrel early 1999 decline pricing many customers substantially reduced capital spending related activities industry downturn continued 1999 price crude oil natural gas increased 1999 levels 2000 2001 due improved demand oil supply reductions opec member countries reductions natural gas storage levels crude oil natural gas prices decreased significantly levels reached early 2001 end 2001 economic slowdown united states rest world moderate weather resultant increased inventories oil gas especially united states contributed price declines price reductions customers responded decreased drilling activity spending exploration development early 2002 oil gas prices began increase currently relatively high historic levels diversified product service offering exposure throughout oil gas cycle demand tubular services well site services highly correlated movements rig count united states table sets forth summary north american rig activity measured baker hughes incorporated periods indicated 1 canadian rig counts typically increase peak winter drilling season rig count united states canada measured baker hughes incorporated fell 1481 rigs february 1998 559 rigs april 1999 downturn activity 1998 1999 material adverse effect demand products services results operations decreased significantly business benefited improvement crude oil natural gas pricing 2000 early 2001 resulting increases rig count 2000 first half 2001 2002 us rig count decreased first half year us rig count reached lowest level since 1999 totaled 738 rigs april 15 2002 since us rig count risen totaled 1404 december 31 2003 believe offshore products segment lagged general market recovery 2000 2001 sales primarily relate offshore construction production facility development generally occur later exploration development cycle worldwide offshore construction development activity improved 2002 backlog offshore products segment increased 1001 million december 31 2002 compared 724 million december 31 2001 reported record results offshore product segment 2002 2003 result increased backlog decreased 626 million december 31 2003 reflecting decreased activity support offshore construction production facility development result expect 2004 activity offshore products segment result reduced revenues compared 2003 smaller projects lower margin work throughout 2003 north american oilfield activity levels measured rig counts increased exploration production companies spent additional cash flows resulting higher oil gas prices however rig count increase resulted primarily shallow land drilling activity us offshore gulf mexico rig count remained relatively flat 2003 tubular services well site services businesses results operations impacted activity levels us gulf mexico lack increased drilling us gulf mexico serviceoriented areas versus shallow land wells drilled resulted lower anticipated increase oil service revenue profitability 2003 expect strong canadian us land drilling activity continue 2004 addition contributions late 2003 early 2004 acquisitions favorably impact results operations well site services segment 2004 management believes fundamental oil gas supply demand factors lead increased drilling activity north america time combination declining us natural gas production relatively high cash flow exploration production companies solid demand growth oil natural gas expected continued opec discipline lead continued rise oilfield activity levels however assurance expectations realized increased activity regions benefit business segments view recent increases oil natural gas prices reduction related supplies important steps toward increased demand oilfield service activity combination prior initial public offering february 2001 scfiii lp owned majority interests oil states hwc pti scfiv lp owned majority interest sooner l e simmons associates incorporated ultimate general partner scfiii lp scfiv lp le simmons chairman board directors sole shareholder le simmons associates incorporated immediately prior closing initial public offering combination closed hwc pti sooner merged wholly owned subsidiaries oil states result hwc sooner pti became wholly owned subsidiaries financial results oil states hwc pti combined beginning calendar 2001 february 14 2001 using reorganization accounting yields results similar pooling interests method combined results oil states hwc pti form basis discussion results operations periods operations oil states hwc pti represent two business segments offshore products well site services concurrently closing initial public offering february 2001 oil states acquired sooner acquisition accounted using purchase method accounting pro forma financial statement year ended december 31 2001 reflects acquisition sooner effective january 1 2001 following acquisition sooner reported three business segments consolidated pro forma results operations year ended december 31 2003 compared year ended december 31 2002 revenues increased 1069 million 173 7237 million year ended december 31 2003 compared revenues 6168 million year ended december 31 2002 well site services revenues increased 463 million 221 offshore products revenues increased 413 million 217 period well site services revenues increased compared prior year primarily due increased drilling activity canada united states favorable canadian dollar exchange rates strengthened compared us dollar 2003 compared 2002 resulting increase approximately 140 million impact acquisitions completed third quarter 2002 canadian expenses also impacted exchange rate movements 2003 compared 2002 offset revenue gains offshore products revenues increased primarily result greater activity supporting offshore production facility construction primarily us gulf mexico impact acquisitions completed third quarter 2002 tubular services revenues increased 193 million 89 year ended december 31 2003 compared prior year revenue increase resulted greater quantities shipped caused higher rig counts partially offset lower international sales reduced revenue per ton shipped caused product mix oriented shallow land drilling gross margin gross margins calculate deduction depreciation expense increased 208 million 160 1298 million year ended december 31 2002 1506 million year ended december 31 2003 well site services gross margins increased 178 million 282 809 million year ended december 31 2003 within well site services segment shallow drilling specialty rental tool businesses gross margins increased 40 million 619 30 million 162 respectively year ended december 31 2003 compared year ended december 31 2002 primarily result rigs added fleet rental tool acquisitions completed also well site services segment work force accommodations catering logistics services modular building construction services gross margins increased 111 million 375 year ended december 31 2003 compared year ended december 31 2002 increased camp catering activity canada work supporting canadian military afghanistan bosnia hydraulic workover gross margins decreased 03 million 23 result decreased activity venezuela reclassification certain field expenses formerly classified selling general administrative expenses operating expense decreases almost fully offset increased gross margin work algeria commenced late 2002 gross margin percent revenues well site services increased 301 2002 316 2003 primarily profitable accommodations operations caused higher activity levels offshore products gross margins increased 31 million 59 529 million year ended december 31 2002 560 million 2003 primarily due increased revenues shipments work progress offshore products gross margin percentage declined 37 due primarily greater percentage lowermargin fabrication work compared prior period certain project losses incurred subsea pipeline operations reduced margins winch crane businesses tubular services gross margins decreased 137 million 58 tubular services revenues year ended december 31 2003 compared 138 million 64 tubular services revenues year ended december 31 2002 result higher margin sales 2002 especially fourth quarter foreign sales occurred primarily first half 2002 reoccur 2003 selling general administrative expenses year ended december 31 2003 selling general administrative expenses sga totaled 577 million 80 revenues compared sga 518 million 84 revenues year ended december 31 2002 increased sga expense primarily resulted acquisitions completed third quarter 2002 increase partially offset lower post employment benefit costs caused settlement certain plan liabilities current year explained footnote 7 consolidated combined financial statements contained annual report form 10k depreciation amortization depreciation amortization expense increased 46 million 2003 compared 2002 due primarily acquisitions businesses completed 2002 capital expenditures made 2002 2003 operating income operating income represents revenues less cost sales ii selling general administrative expenses iii depreciation amortization expense plus operating income operating income increased 106 million 194 652 million year ended december 31 2003 546 million 2002 well site services operating income increased 98 million 358 offshore products operating income increased 06 million 22 tubular services operating income 60 million year ended december 31 2003 compared 54 million year ended december 31 2002 increase 06 million 111 corporate charges increased 04 million 2003 compared 2002 interest expense interest expense increased 30 million 612 79 million year ended december 31 2003 compared 49 million year ended december 31 2002 increased interest expense attributable higher debt levels resulting acquisitions completed third quarter 2002 capital expenditures made 2002 2003 writeoff 12 million taxes unamortized debt issue costs fourth quarter 2003 upon closing new bank credit agreement income tax expense income tax expense totaled 142 million 242 pretax income year ended december 31 2003 compared 114 million 223 pretax income year ended december 31 2002 decreased amounts net operating loss carryforwards available offset currently taxable income resulted higher annual effective tax rate year 2003 compared 2002 year ended december 31 2002 compared pro forma year ended december 31 2001 revenues decreased 1029 million 143 year ended december 31 2002 6168 million compared year ended december 31 2001 revenues well site services segment decreased 300 million 125 year ended december 31 2002 compared previous year within well site services comparing year 2002 year 2001 work force accommodations catering logistics services modular building construction services revenues decreased 185 million 136 due lower activity canada us gulf mexico land drilling revenues decreased 31 million 101 due lower activity drilling rates primarily west texas rental tool services revenues decreased 03 million 08 lower activity us gulf mexico locations partially offset impact acquisitions made company march august 2002 workover services revenues decreased 81 million 218 activity especially us gulf mexico decreased compared 2001 offshore products segment revenues increased 613 million 474 year 2002 compared year 2001 due significantly increased activity supporting offshore production facility construction primarily deepwater locations tubular services segment revenues year 2002 1342 million 383 lower year 2001 decreased drilling activity united states significantly lower foreign sales 2002 compared 2001 gross margins gross margins calculate deduction depreciation amortization expense decreased 70 million 51 1298 million year 2002 compared year 2001 gross margin percent revenue improved 190 year 2001 210 2002 due favorable mix revenues consisting higher margin offshore products well site services activities less 2002 revenues consisting tubular sales offshore products gross margins increased 234 million 793 year 2002 compared year 2001 gross margin percentage increased 278 year 2002 compared 228 year 2001 higher volumes product shipments lead increased operating efficiencies year 2002 well site services gross margins decreased 231 million 268 631 million year 2002 compared year 2001 gross margin percentage well site services declined 301 year 2002 compared 359 2001 within well site services segment land drilling business gross margins decreased 51 million 447 63 million 2002 compared total gross margin 114 million 2001 decreased drilling activity lower prices obtained drilling services rental tool business reported 2002 gross margins totaling 184 million 515 revenue compared 2001 gross margins totaling 189 million 525 revenue 2001 saw increased price competition rental tools offset positive effect 2002 rental tool business acquisitions workover services gross margins year 2002 totaled 87 million 303 revenues compared 2001 gross margins 134 million 361 revenues decreased us gulf mexico margins activity offset positive effect higher international activity work force accommodations catering logistics services modular building construction services businesses gross margin decreased 2002 296 million 252 revenue compared 424 million 312 revenue previous year impact lower drilling activity 2002 canada us gulf mexico greater percentage revenues resulted relatively low margin construction activity tubular services margins year 2002 totaled 138 million decrease 83 million 376 compared year 2001 tubular services gross margins approximately last two years volume tubular products shipped 2002 decreased approximately 29 compared 2001 selling general administrative expense year 2002 selling general administrative expenses sga increased 06 million 12 518 million 512 million year 2001 percent revenues sga increased 84 2002 compared 71 2001 increased costs year 2002 compared 2001 offshore products segment driven higher activity increased employee incentive costs partially offset lower well site services segment costs associated decreased activity within segment depreciation amortization depreciation amortization expense totaled 233 million year 2002 compared 287 million 2001 54 million decrease principally related elimination goodwill amortization 2002 comparison amortized 75 million goodwill year 2001 partially offset additional depreciation amortization associated capital additions intangibles recorded part business acquisitions years 2001 2002 operating income operating income represents revenues less cost sales ii sga iii depreciation amortization expense plus operating income operating income decreased 27 million 47 546 million 2002 573 million 2001 operating income well site services segment decreased 200 million 474 million 2001 274 million 2002 operating income offshore products segment increased 207 million 273 million 2002 compared 66 million 2001 operating income tubular services segment decreased 71 million 125 million 2001 54 million 2002 corporateother operating loss improved loss 92 million 2001 loss 55 million 2002 primarily discontinuance goodwill amortization 2002 net interest expense net interest expense totaled 44 million year 2002 decrease 51 million 536 compared net interest expense 95 million 2001 interest rates average debt balances lower 2002 compared 2001 additionally total 08 million unamortized debt issue costs expensed 2001 upon execution new credit facility income tax expense income tax expense totaled 114 million 223 pretax income year 2002 compared 21 million 43 pretax income year 2001 increased tax expense primarily due higher effective tax rate increased 2002 compared 2001 result lower amount net operating loss carryforwards available offset taxable income liquidity capital resources primary liquidity needs fund capital expenditures expanding upgrading manufacturing facilities equipment increasing replacing drilling rig rental tool workover assets accommodation units funding new product development funding general working capital needs addition capital needed fund strategic business acquisitions primary sources funds cash flow operations proceeds borrowings bank facilities cash provided operations years ended december 31 2003 2002 amounts 587 million 454 million respectively cash provided operations 2003 generated net income plus depreciation amortization partially offset working capital invested 2003 offshore products tubular services businesses cash used investing activities years ended december 31 2003 2002 amounts 549 million 894 million respectively capital expenditures totaled 413 million 261 million years ended december 31 2003 2002 respectively capital expenditures 2003 2002 consisted principally purchases assets well site services businesses expansion offshore products manufacturing capacity completed acquisitions cash consideration totaling 163 million 648 million respectively years ended december 31 2003 2002 currently expect spend total approximately 350 million 2004 upgrade equipment facilities expand product service offerings expect fund capital expenditures internally generated funds proceeds borrowings revolving credit facilities january 2004 company completed acquisition several related rental tool companies cash consideration 347 million acquisition funded companys revolving credit facility see note 18 consolidated combined financial statements contained annual report form 10k net cash 43 million provided financing activities year ended december 31 2003 primarily result revolving credit borrowings proceeds stock option exercises december 31 2003 1287 million outstanding primary bank credit facility additional 103 million outstanding letters credit leaving 860 million available drawn facility total debt represented 232 total capitalization december 31 2003 following summarizes debt lease obligations december 31 2003 thousands debt obligations december 31 2003 included consolidated balance sheet part consolidated financial statements included annual report form 10k entered material leases subsequent december 31 2003 balance sheet arrangements october 2003 entered new 225 million senior secured revolving credit facility group banks 450 million commitments credit facility available form loans denominated canadian dollars may made principal canadian operating subsidiaries credit facility replaced existing facility matures october 30 2007 unless extended additional one year period consent lenders company option expand facility 250 million amounts borrowed facility bear interest election either variable rate equal libor case canadian dollar denominated loans bankers acceptance discount rate plus margin ranging 15 25 alternate base rate equal higher banks prime rate federal funds effective rate plus 05 case canadian dollar denominated loans canadian prime rate plus margin ranging 05 15 depending upon ratio total debt ebitda defined credit facility pay commitment fees ranging 0375 05 per year undrawn portion facility depending upon leverage ratio weighted average interest rate companys outstanding borrowings facility december 31 2003 36 credit facility guaranteed active domestic subsidiaries cases canadian foreign subsidiaries credit facility secured first priority lien inventory accounts receivable material tangible intangible assets well active subsidiaries however 65 voting stock foreign subsidiary required pledged pledge greater percentage would result adverse tax consequences ability borrow facility subject certain customary conditions including continuing accuracy representations warranties lack material adverse changes continuing compliance laws lack defaults facility credit facility contains negative covenants restrict ability borrow additional funds encumber assets pay dividends sell assets except normal course business enter significant transactions addition credit facility requires us maintain ratio ebitda less maintenance capital expenditures interest expense certain current maturities debt less 25 10 level consolidated net worth less 370 million plus 50 quarters consolidated net income loss 75 equity offerings maximum ratio total debt ebitda greater 30 10 credit facility occurrence specified change control events involving company would constitute event default would permit banks among things accelerate maturity facility cause become immediately due payable full aggregate approximately 84 million subordinated debt capital leases outstanding december 31 2003 subordinated debt become due payable various times september 2007 see note 6 consolidated combined financial statements included annual report form 10k believe cash operations available borrowings credit facility sufficient meet liquidity needs foreseeable future plans assumptions change inaccurate make significant acquisitions individually aggregate may need raise additional capital however assurance able raise additional funds able raise funds favorable terms tax matters year ended december 31 2003 deferred tax liabilities net deferred tax assets approximately 43 million federal income tax purposes application valuation allowances primary deferred tax assets net operating loss carry forwards nols total approximately 63 million valuation allowance currently provided majority nols expire period 2020 nols currently limited section 382 internal revenue code due change control occurred 1995 2004 approximately 31 million nols available use sufficient income generated successive change control triggered 2003 pursuant section 382 however significantly lessen amount nols available 2003 effective tax rate approximately 24 low effective tax rate due partial utilization net operating losses benefited consolidated group combination 2003 paid cash taxes 129 million recent accounting pronouncements june 2001 financial accounting standards board issued statements financial accounting standards sfas 141 business combinations 142 goodwill intangible assets statements effective fiscal years beginning december 15 2001 new rules goodwill intangible assets deemed indefinite lives longer amortized subject annual impairment tests accordance statements intangible assets continue amortized useful lives began applying new rules accounting goodwill intangible assets first quarter 2002 application nonamortization provisions statements resulted increase net income approximately 80 million 16 per diluted share year 2002 performed required impairment tests goodwill indefinite lived intangible assets december 31 2002 2003 impairment assets indicated june 2001 financial accounting standards board issued sfas 143 accounting asset retirement obligations required adopt statement effective january 1 2003 impact consolidated financial statements august 2001 financial accounting standards board issued sfas 144 accounting impairment disposal longlived assets required adopt statement effective january 1 2002 impact consolidated financial statements april 2002 financial accounting standards board issued sfas 145 among things rescinded sfas 4 reporting gains losses extinguishment debt adopted statement 2003 result classified interest expense 12 million noncash writeoff taxes unamortized debt issue costs resulting new financing completed october 2003 reclassified 08 million losses incurred 2001 debt restructuring formerly classified extraordinary loss interest expense adopted disclosure requirements sfas 148 accounting stock based compensation transition disclosure issued december 2002 effective december 31 2002 consolidated combined financial statements related footnotes january 2003 financial accounting standards board fasb issued fasb interpretation 46 fin 46 consolidation variable interest entities interpretation arb 51 fin 46 provides guidance 1 identification entities control achieved means voting rights known variable interest entities vies 2 business enterprise primary beneficiary consolidate vie new requirement consolidation applies entities 1 equity investors controlling financial interest 2 whose equity investment risk insufficient finance entitys activities without receiving additional subordinated financial support parties addition fin 46 requires primary beneficiary enterprises significant variable interest vie make additional disclosures fin 46 effective new vies created acquired january 31 2003 vies created acquired prior february 1 2003 provisions fin 46 must applied first interim annual period ending december 15 2003 certain disclosures effective immediately implementation fin 46 affect company item 7aitem 7 management’s discussion analysis financial condition results operations management’s discussion analysis financial condition results operations contains “forwardlooking statements” within meaning section 27a securities act section 21e exchange act based management’s current expectations estimates projections business operations actual results may differ materially currently anticipated expressed forwardlooking statements result numerous factors including known material factors set forth “part item 1a risk factors” read following discussion analysis together consolidated financial statements notes statements included elsewhere annual report form 10k macroeconomic environment provide broad range products services oil gas industry accommodations offshore products well site services business segments accommodations segment also supports mining industry demand products services cyclical substantially dependent upon activity levels oil gas mining industries particularly customers’ willingness invest capital exploration development oil natural gas met coal mineral reserves customers’ capital spending programs generally based outlook nearterm longterm commodity prices economic growth commodity demand estimates resource production result demand products services largely sensitive expected commodity prices principally related crude oil met coal natural gas past years crude oil prices north america volatile due global economic uncertainties well inadequate regional takeaway pipeline capacity however crude oil prices continue trade relatively high historic levels price volatility moderated 2013 fluctuations crude oil prices resulting changing market sentiment regarding outlook economic growth us china decreased crude oil production organization petroleum exporting countries opec heightened geopolitical risks middle east north africa increased oil production us price west texas intermediate wti crude oil increased average price 88 per barrel fourth quarter 2012 98 per barrel 2013 finishing 2013 98 per barrel price intercontinental exchange ice brent crude decreased modestly average price 110 per barrel fourth quarter 2012 109 per barrel 2013 finishing 2013 110 per barrel february 19 2014 wti crude traded approximately 103 per barrel ice brent crude traded approximately 110 per barrel price wti influence customers’ spending us shale play developments bakken niobrara eagle ford well permian basin texas spending regions influence overall drilling completion activity area therefore activity well site services segment canada western canadian select wcs crude benchmark price oil sands accommodations’ customers pricing wcs driven several factors significant factor affecting wcs pricing underlying price wti prices improved past years global economic recovery wcs prices also improved another significant factor affecting wcs pricing transportation historically wcs traded discount wti creating “wcs basis differential” due transportation costs limited capacity move growing canadian heavy oil production us refineries depending extent pipeline capacity availability wcs basis differential varied increase global oil prices increased transportation capacity oil sands region due rail barge alternatives absolute price wcs increased wcs basis differential decreased wcs prices 2013 averaged 7358 per barrel compared 7180 per barrel 2012 however wcs basis differential widened substantially 15 per barrel 25 per barrel february 19 2014 production increased demand us refineries declined due maintenance requirements price wti decline wcs basis differential widen oil sands customers’ may delay additional investments reduce spending oil sands region given historical volatility crude prices wcs discount remains risk prices could deteriorate going forward due increased domestic crude oil production slowing growth rates china fiscal financial uncertainty us various european countries prolonged level relatively high unemployment us advanced economies however global supply oil global inventory levels decrease due government instability major oilproducing nation energy demand continues increase countries china india us could see continued andor additional increases wti crude prices coupled improvement takeaway capacity oil sands could improve wcs pricing turn could lead oil sands customers increasing investments oil sands production conversely wcs crude prices continue experience significant discount wti crude oil sands customers may incentive delay additional investments oil sands assets prices natural gas united states improved 2013 early 2014 largely due average storage withdrawals response colder normal weather continued elevated demand natural gas electric power generation lower net imports canada higher industrial demand however natural gas prices continue weak relative prices experienced 2006 2008 due rise production unconventional natural gas resources north america specifically onshore shale production resulting broad application horizontal drilling hydraulic fracturing techniques natural gas prices traded approximately 604 per mcf february 19 2014 result natural gas production growth outpacing demand us gasrelated working rig count declined 800 rigs beginning 2012 less 341 rigs february 14 2014 natural gas inventories us declined 12 5year average end 2012 9 5year average end 2013 increases supply natural gas whether supply comes conventional unconventional production associated gas production oil wells could constrain prices natural gas extended period result fewer rigs drilling gas nearterm australian villages bowen basin primarily serve coal mines region met coal pricing growth production bowen basin region influenced levels steel production chinese steel production growing slower pace experienced 2010 early 2011 chinese demand imported steel inputs met coal iron ore decreased 2013 compared 2012 met coal prices decreased materially 200metric ton beginning 2012 approximately 150metric ton end 2013 depressed met coal prices led implementation cost control measures customers coal mine closures delays startup new coal mining projects australia continued depressed met coal price impact customers’ future capital spending programs however steel consumption per capita china less onethird amount installed us economy suggesting favorable outlook chinese steel production met coal demand longer horizon recent wti crude ice brent crude wcs crude queensland hard coking coal natural gas pricing trends follows 1 source wti crude ice brent crude natural gas prices us energy information administration eia wcs crude prices queensland hard coking coal index bloomberg overview demand accommodations offshore products segments primarily tied longterm outlook commodity prices contrast demand well site services segment responds shorterterm movements oil natural gas prices specifically changes north american drilling completion activity factors affect business financial results include general global economic environment regulatory changes us canada australia international markets generally oil sands mining accommodations’ customers making multibillion dollar investments develop prospects estimated reserve lives ten years excess thirty years consequently investments dependent customers longerterm view commodity demand prices oil sands development production activity increased past several years positive impact canadian accommodations business however growth rate slowed 2012 2013 due weaker wcs crude pricing compared prior years concerns lack transportation infrastructure given delays us government approving keystone xl pipeline sanctioning new expanded oil sands projects customers occur may create opportunity extensions existing accommodations contracts incremental accommodations contracts canada expanded australian accommodations room capacity 2012 2013 meet increasing demand notably bowen basin queensland gunnedah basin new south wales support coal production western australia support lng energyrelated projects early 2013 confluence low met coal pricing additional carbon mining taxes australian accommodations customers several years cost inflation caused several customers delay materially reduce growth plans negatively affected ability expand room count led decrease occupancy levels also caused one customers renegotiate contracts us reduce forward room commitments beginning march 2014 return termination compensation beginning march 2014 offshore products segment provides highly engineered products offshore oil natural gas drilling production systems facilities sales offshore products services depend primarily upon capital spending offshore production systems subsea pipelines repairs upgrades existing offshore drilling rigs construction new offshore drilling rigs vessels segment particularly influenced global deepwater drilling production spending driven largely customers’ longerterm outlook oil natural gas prices well site services business segment predominantly provide completion services lesser extent land drilling services completion services business provides equipment service personnel utilized completion initial production new recompleted wells activity completion services business dependent primarily upon level complexity drilling completion workover activity throughout north america well complexity increased continuing transition multiwell pads drilling longer laterals along increased number frac stages completed demand drilling services driven land drilling activity primary drilling markets west texas primarily drill oil wells rocky mountain area us drill liquidsrich natural gas wells diversified product service offering exposure activities conducted throughout oil gas cycle demand land drilling completion services businesses highly correlated changes drilling rig count united states much lesser extent canada table sets forth summary north american rig activity measured baker hughes incorporated periods indicated average north american rig count fell precipitously first half 2009 response impact global economic downturn negatively impacted energy prices since substantially recovered june 2009 low average north american rig count year ended december 31 2013 decreased 168 rigs 74 compared average year ended december 31 2012 largely due decline natural gas drilling another factor influences financial results accommodations segment exchange rate us dollar canadian dollar us dollar australian dollar accommodations segment derives vast majority revenues operating income canada australia revenues profits translated us dollars us gaap financial reporting purposes canadian dollar valued average exchange rate us 097 year ended december 31 2013 compared us 100 year ended december 31 2012 decrease 3 australian dollar valued average exchange rate us 097 year ended december 31 2013 compared us 104 year ended december 31 2012 decrease 7 importantly exchange rates weakened end 2013 ending year us 089 per australian dollar us 094 per canadian dollar respectively december 31 2013 australian canadian exchange rates us 090 us 091 respectively february 19 2014 weakening canadian australian dollars may continue proportionately negative impact translation earnings generated canadian australian subsidiaries therefore financial results accommodations segment global demand oil natural gas significant factors influencing business generally certain factors also influence business pace worldwide economic growth recovery us gulf mexico drilling following lifting government imposed drilling moratorium although 19 higher 2012 drilling rig count 2013 us gulf mexico remains peak levels following april 2010 macondo well incident resultant oil spill us gulf mexico beginning third quarter 2011 however us gulf mexico drilling activity shown signs slow steady recovery continue monitor global economy demand crude oil met coal natural gas resultant impact capital spending plans operations customers order plan business capital expenditures continuing operations 2013 totaled 457 million compared 2012 capital expenditures 483 million 2013 capital expenditures included funding expand canadian oil sands australian mining related accommodations facilities fund product service offerings upgrade equipment facilities approximately twothirds total 2013 capital expenditures spent accommodations segment expect spend total approximately 600 million 650 million capital expenditures 2014 expand accommodations facilities fund product service offerings upgrade equipment facilities whether planned expenditures actually spent 2014 depends industry conditions project approvals schedules vendor delivery timing approximately onehalf total estimated 2014 capital expenditures expected spent accommodations segment 160 million estimated spent well site services 135 million offshore products expect fund capital expenditures available cash internally generated funds borrowings credit facilities well site services segment continue monitor industry capacity additions make future capital expenditure decisions based evaluation market outlook industry fundamentals strategic actions july 30 2013 announced board directors approved pursuing spinoff accommodations business standalone publicly traded corporation taxfree distribution accommodations business shareholders spinoff subject market conditions receipt affirmative irs ruling independent tax opinion completion review commission form 10 filed accommodations business execution separation intercompany agreements final approval board directors expected completed second quarter 2014 accommodations business initially spunoff ccorporation offers faster path separation accommodations business continue assess feasibility advisability potential future conversion real estate investment trust reit september 6 2013 company entered stock purchase agreement marubeniitochu sale sooner comprised entirety company’s tubular services segment total consideration received company 6000 million cash remains subject customary postclosing adjustments recognized net gain disposal 1284 million 840 million aftertax 2013 included within “net income discontinued operations net tax” consolidated statements income operating results company’s tubular services business classified discontinued operations periods presented recent acquisitions december 2 2013 acquired equity qcs total cash consideration 425 million headquartered houston texas qcs designs manufactures markets portfolio proprietary deep shallow water pipeline connectors subsea pipeline construction repair expansion projects operations qcs included offshore products segment since acquisition date december 14 2012 acquired equity tempress purchase price consideration 498 million consisting 328 million cash plus contingent consideration estimated fair value 170 million closing 2013 estimated fair market value contingent liability increased 200 million due favorable developments related patent application tempress resulting 30 million 005 per diluted share charge operating expense patent granted third quarter 2013 200 million contingent consideration paid former shareholders tempress company’s current escrowed deposits 53 million include consideration seller transaction indemnities considered restricted cash classified “other current assets” december 31 2013 consolidated balance sheet “other noncurrent assets” december 31 2012 consolidated balance sheet liabilities escrowed amounts expected paid seller also totaled 53 million classified “other current liabilities” december 31 2013 consolidated balance sheet “other noncurrent liabilities” december 31 2012 consolidated balance sheet headquartered kent washington tempress designs develops markets suite highly specialized hydraulicallyactivated tools utilized downhole completion activities operations tempress included well site services segment since acquisition date july 2 2012 acquired operating assets piper total cash consideration 480 million headquartered oklahoma city oklahoma piper designs manufactures high pressure valves manifold components oil gas industry projects located offshore surface subsea onshore operations piper included offshore products segment since acquisition date funded 2013 2012 acquisitions cash hand andor amounts available credit facilities see note 10 consolidated financial statements included annual report form 10k additional information senior secured bank facilities consolidated results operations millions year ended december 31 2013 compared year ended december 31 2012 reported net income continuing operations attributable company year ended december 31 2013 3149 million 563 per diluted share including loss extinguishment debt 74 million 009 per diluted share tax gain disposal land associated building 46 million 006 per diluted share tax gain 40 million 005 per diluted share tax decrease liability associated contingent acquisition consideration us accommodations business charge 30 million 004 per diluted share increase contingent acquisition consideration completion services business addition company incurred 57 million 007 per diluted share tax transaction costs 2013 included “other operating income expense” primarily related proposed spinoff accommodations segment results compare net income continuing operations attributable company 4015 million 725 per diluted share reported year ended december 31 2012 including gain 179 million 023 per diluted share tax favorable contract settlement reported us accommodations business gain 25 million 003 per diluted share tax related insurance proceeds received land drilling rig lost fire occurred first quarter 2012 revenues consolidated revenues increased 390 million 1 2013 compared 2012 well site services segment revenues increased 329 million 5 2013 compared 2012 due increase completion services revenues partially offset decrease drilling services revenues completion services revenues increased 534 million 10 2013 compared 2012 spite 8 decrease north american land rig count result increased service intensity active shale basins along contributions tempress acquisition completed fourth quarter 2012 revenue per ticket increased 8 yearoveryear excluding contribution acquisition tempress industry favored higher specification equipment number service tickets issued 2013 decreased 1 compared 2012 also excluding contribution acquisition tempress due primarily reduced activity particularly haynesville barnett shale regions resulting reduced customer spending dry gas markets partially offset increased activity bakken region drilling services revenues decreased 205 million 11 2013 compared 2012 primarily result decreased utilization rigs average approximately 88 2012 average approximately 75 2013 accommodations segment reported revenues 2013 724 million 7 lower 2012 decrease primarily due weakening average exchange rates canadian australian dollars relative us dollar 3 7 respectively 2013 compared 2012 addition segment experienced 10 decline accommodations revenue favorable contract settlement reported us accommodations business 183 million first quarter 2012 1 decline lodge village revenue accommodations revenue declined 2013 due lower mobile camp activity canada lower utilization us accommodation assets coupled lower thirdparty manufacturing revenues lodge village revenues declined due 9 yearoveryear decrease revpar related lower contracted rates canada lower occupancy levels primarily australia result continued slowdown mining activity partially offset 12 increase average available rooms 2013 compared 2012 us utilization accommodations negatively impacted poor weather conditions bakken region weaker land drilling market regions serve well surplus available room capacity us market offshore products segment revenues increased 785 million 10 2013 compared 2012 increase primarily result increased drilling subsea product sales along contributions acquisition piper acquired july 2012 cost sales service consolidated cost sales increased 567 million 4 2013 compared 2012 result increased cost sales offshore products well site services segments 448 million 8 147 million 3 respectively due increased activity revenues segments consolidated gross margin percentage revenues decreased slightly 39 2012 38 2013 primarily due favorable contract settlement reported us accommodations business 2012 lower margins realized canadian accommodations business 2013 well site services segment cost sales increased 147 million 3 2013 compared 2012 result 284 million 9 increase completion services cost sales partially offset 137 million 10 decrease drilling services cost sales completion services segment gross margin percentage revenues 39 2013 compared 38 2012 drilling services gross margin percentage revenues 30 2013 2012 decrease drilling revenues mostly offset reduction operating costs accommodations segment cost sales decreased 28 million 1 2013 compared 2012 primarily due lower thirdparty manufacturing costs partially offset costs increased room capacity canada accommodations segment gross margin percentage revenues decreased 50 2012 47 2013 primarily due lower contracted rates canada favorable contract settlement reported us accommodations business 2012 recur 2013 offshore products segment cost sales increased 448 million 8 2013 compared 2012 primarily due increased revenues offshore products segment gross margin percentage revenues increased modestly 26 2012 27 2013 selling general administrative expenses sga expense increased 299 million 16 2013 compared 2012 primarily due increased employeerelated costs sga expense associated inclusion piper tempress acquired july december 2012 respectively increased professional fees insurance costs advertising trade show expenses partially offset weakening australian canadian dollars us dollar exchange rates 2013 compared 2012 depreciation amortization depreciation amortization expense increased 487 million 21 2013 compared 2012 primarily due capital expenditures made previous twelve months largely related investments accommodations segment completion services business operating income consolidated operating income decreased 980 million 16 2013 compared 2012 primarily result decrease operating income accommodations segment 969 million 27 primarily due favorable contract settlement reported us accommodations business 2012 lower contracted rates canada lower occupancy levels australia increased depreciation expense accommodations assets lower utilization us accommodations assets partially offset increase average available rooms 2013 compared 2012 addition operating income decreased 2013 compared 2012 due increase corporate sga expense 113 million 26 primarily related increased stock compensation 57 million transactionrelated costs decreases operating income partially offset increase operating income offshore products segment 229 million 17 due increased revenues interest expense interest income net interest expense increased 62 million 9 2013 compared 2012 primarily due interest expense 5 18 notes issued december 21 2012 partially offset decreased interest expense 2 38 notes due 2025 2 38 notes due conversion july 2012 weighted average annual interest rate company’s total outstanding debt 55 2013 compared 48 2012 interest income increased result increased cash balances interest bearing accounts loss extinguishment debt 2013 wrote 33 million unamortized deferred financing costs associated full repayment us canadian term loans additionally fourth quarter 2013 repurchased portion 5 18 notes resulting loss 41 million including writeoff 04 million unamortized deferred financing costs income tax expense income tax provision 2013 totaled 1200 million 275 pretax income compared income tax expense 1490 million 270 pretax income 2012 effective tax rates 2013 2012 comparable lower us statutory rates lower foreign tax rates discontinued operations exclusive 1284 million pretax gain 840 million tax recorded disposal tubular services business net income discontinued operations 2013 223 million compared 471 million 2012 revenues reported within discontinued operations 10731 million 17819 million 2013 2012 respectively decrease revenue primarily relates disposal tubular services business september 6 2013 operating income included within discontinued operations 401 million 735 million 2013 2012 respectively comprehensive income loss comprehensive income decreased comprehensive income 327 million 2012 comprehensive loss 1928 million 2013 primarily result foreign currency translation adjustments due decreases canadian australian dollar exchange rates compared us dollar canadian dollar exchange rate compared us dollar decreased 6 2013 compared 2 increase 2012 australian dollar exchange rate compared us dollar decreased 14 2013 compared 1 increase 2012 year ended december 31 2012 compared year ended december 31 2011 reported net income continuing operations attributable company year ended december 31 2012 4015 million 758 per diluted share including gain 179 million 023 per diluted share aftertax favorable contract settlement reported us accommodations business pretax gain 25 million 003 per diluted share aftertax related insurance proceeds received excess net book value constructive total loss drilling rig lost fire occurred first quarter 2012 results compare net income attributable company 2822 million 551 per diluted share reported year ended december 31 2011 revenues consolidated revenues increased 5268 million 25 2012 compared 2011 well site services segment revenues increased 597 million 9 2012 compared 2011 primarily due increases completion services revenues drilling services revenues completion services revenues increased 346 million 7 2012 compared 2011 primarily due increased demand completion services supporting 2 increase us rig count favorable mix higher value rentals services greater service intensity drilling services revenues increased 251 million 15 2012 compared 2011 primarily result increases pricing average day rates rising 18000 per day 2012 16400 per day 2011 increased utilization rigs average approximately 82 2011 average approximately 88 2012 accommodations segment reported revenues 2012 2488 million 29 2011 increase accommodations revenue primarily resulted increased revenues expanded room capacity canada australia along 183 million revenue favorable contract settlement reported us accommodations business first quarter 2012 revenues average available rooms revenue per available room revpar lodges villages increased 36 23 11 respectively 2012 compared 2011 offshore products segment revenues increased 2183 million 37 2012 compared 2011 increase primarily result higher levels manufacturing service activity improved revenue mix favoring production equipment connector products along contributions acquisition piper closed july 2012 cost sales service consolidated cost sales increased 2986 million 23 2012 compared 2011 cost sales increase directly related increase revenue consolidated gross margin percentage revenues increased 38 2011 39 2012 well site services segment cost sales increased 367 million 9 2012 compared 2011 result 262 million 9 increase completion services cost sales 105 million 9 increase drilling services cost sales well site services segment gross margin percentage revenues remained constant 36 2012 2011 completion services gross margin percentage revenues declined modestly 38 2012 compared 39 2011 drilling services gross margin percentage revenues increased 26 2011 30 2012 primarily due increased day rates rig utilization cost absorption accommodations segment cost sales increased 959 million 21 2012 compared 2011 primarily due increased revenues room capacity canada australia accommodations segment gross margin percentage revenues increased 47 2011 50 2012 primarily due 11 increase revpar lodges villages 2012 compared 2011 increase revpar 2012 compared 2011 primarily due increased occupancy levels offshore products segment cost sales increased 1659 million 39 2012 compared 2011 primarily due increased revenues offshore products segment gross margin percentage revenues decreased modestly 26 2012 compared 27 2011 selling general administrative expenses sga expense increased 201 million 12 2012 compared 2011 primarily due increased employeerelated costs related 7 increase total headcount commissions office expenses along sga expense associated inclusion piper acquired july 2012 depreciation amortization depreciation amortization expense increased 414 million 22 2012 compared 2011 primarily due capital expenditures made 2011 2012 largely related investments canadian australian accommodations completion services businesses operating income consolidated operating income increased 1660 million 37 2012 compared 2011 primarily result increase operating income accommodations segment 1157 million 46 due expanded room capacity canada australia along favorable contract settlement reported us accommodations business increase operating income offshore products segment 394 million 42 addition operating income well site services segment increased 155 million 11 largely due increased dayrates rig utilization drilling services business favorable mix services increased activity completion services business interest expense interest income net interest expense increased 115 million 21 2012 compared 2011 primarily due interest expense 6 12 notes issued june 1 2011 partially offset decreased interest expense 2 38 notes due 2025 2 38 notes due conversion july 2012 weighted average annual interest rate company’s total outstanding debt 48 2012 compared 49 2011 interest income decreased result decreased cash balances interest bearing accounts income tax expense income tax provision 2012 totaled 1490 million 270 pretax income compared income tax expense 1076 million 275 pretax income 2011 effective tax rates 2012 2011 comparable lower us statutory rates lower foreign tax rates liquidity capital resources primary liquidity needs fund capital expenditures past included expanding accommodations facilities expanding upgrading offshore products manufacturing facilities equipment replacing increasing completion services assets funding new product development general working capital needs addition capital used repay debt fund stock repurchase program fund strategic business acquisitions primary sources funds cash flow operations proceeds borrowings credit facilities capital market transactions 2013 also received significant funds result disposition tubular services business see note 10 consolidated financial statements included annual report form 10k additional information credit facilities debt offerings cash flows discontinued operations combined cash flows continuing operations within cash flow statement category company’s consolidated statements cash flows cash totaling 6873 million provided operations year ended december 31 2013 compared cash totaling 6372 million provided operations year ended december 31 2012 2013 873 million provided net working capital reductions primarily due decreased investments working capital tubular services business 2012 749 million used fund working capital primarily due increased investments receivables inventory offshore products segment coupled higher octg inventory tubular services segment due increased order activity cash provided investing activities year ended december 31 2013 amount 1084 million cash used investing activities year ended december 31 2012 amount 5770 million total 600 million cash proceeds received sale tubular services business september 2013 capital expenditures totaled 4575 million 4879 million years ended december 31 2013 2012 respectively capital expenditures years consisted principally purchases assets accommodations well site services segments particular construction installation assets lodges villages primarily support canadian oil sands projects australian mining production development year ended december 31 2013 spent cash 443 million acquire equity qcs compares 804 million spent year ended december 31 2012 acquire operating assets piper equity tempress addition 2012 company funded escrow accounts totaling 253 million related contingent consideration seller transaction indemnities tempress acquisition funded piper tempress acquisitions using amounts available company’s us revolving credit facility see note 10 consolidated financial statements included annual report form 10k additional information credit facilities expect spend total approximately 600 million 650 million capital expenditures 2014 expand accommodations facilities fund product service offerings upgrade equipment facilities whether planned expenditures actually spent 2014 depends industry conditions project approvals schedules vendor delivery timing approximately onehalf total estimated 2014 capital expenditures expected spent accommodations segment expect fund capital expenditures available cash internally generated funds borrowings credit facilities foregoing capital expenditure forecast include funds strategic acquisitions company could pursue depending economic environment industry availability transactions prices deemed attractive company complete proposed spinoff accommodations business 2014 remaining capital expenditures related accommodations business funded new entity december 31 2013 cash totaling 2745 million held foreign subsidiaries primarily canada united kingdom case canada assumed permanent reinvestment earnings recorded us tax liability upon assumed repatriation foreign earnings intent utilize cash balances future investment outside united states net cash 4306 million used financing activities year ended december 31 2013 primarily result repayment amounts outstanding us canadian term loans repurchases common stock repayments australian credit facility repurchases 5 18 notes net cash 1206 million provided financing activities year ended december 31 2012 primarily result proceeds issuance fourth quarter 2012 400 million aggregate principal amount 5 18 notes offset net repayments outstanding amounts revolving credit facilities payments principal amounts conversion 2 38 notes repayments us canadian term loans incurred 02 million costs secure financings 2013 compared 79 million 2012 see note 10 consolidated financial statements included annual report form 10k additional information credit facilities debt offerings may 17 2012 company gave notice redemption outstanding 2 38 notes due 2025 totaling 175 million aggregate principal amount july 6 2012 redemption price equal 100 principal amount thereof plus accrued interest 2 38 notes convertible holders thereof shares company’s common stock conversion rate 31496 shares common stock 1000 principal amount 2 38 notes converted july 2012 rather 2 38 notes redeemed prior july 5 2012 holders 175 million aggregate principal amount 2 38 notes converted 2 38 notes received cash principal amount 3012380 shares company’s common stock valued 2206 million company’s discontinued operations impacted cash flows company summarized table thousands cash used infrom financing activities 2013 primarily represents net transfers cash discontinued operations sooner oil states international inc absence cash flows discontinued operations expected adversely affect investing financing activities company believe cash hand cash flow operations available borrowings credit facilities sufficient meet liquidity needs coming twelve months anticipate need replace existing facility us connection announced spinoff accommodations business second quarter 2014 likely redeem call senior notes book value 966 million fair value 1050 million december 31 2013 expect receive distribution approximately 650 million 850 million connection spinoff accommodations business addition also recognize need separately capitalize accommodations business distributed shareholders taxfree spinoff plans assumptions change inaccurate make acquisitions may need raise additional capital acquisitions management believes acquisitions continue key element business strategy timing size success acquisition effort associated potential capital commitments unpredictable uncertain may seek fund part efforts proceeds debt andor equity issuances ability obtain capital additional projects implement growth strategy longer term depend upon future operating performance financial condition broadly availability equity debt financing capital availability affected prevailing conditions industry global economy global financial markets factors many beyond control addition additional debt service requirements could based higher interest rates shorter maturities could impose significant burden results operations financial condition issuance additional equity securities could result significant dilution stockholders proposed spinoff accommodations business july 30 2013 announced board directors approved pursuing spinoff accommodations business standalone publicly traded corporation taxfree distribution accommodations business shareholders connection proposed spinoff anticipate refinance existing debt specifically intend commence tender offer outstanding 5 18 notes 6 12 notes intend fund tender offer part proceeds cash dividend paid us accommodations business immediately prior consummation proposed spinoff anticipate cash dividend within range 6500 million 8500 million connection spinoff also plan refinance existing credit facilities single us revolving credit facility stock repurchase program september 6 2013 company announced increase boardauthorized company stock repurchase program 200 million 500 million repurchase company’s common stock par value 01 per share december 31 2013 company approximately 542 million shares common stock outstanding board directors’ authorization limited duration expires september 1 2014 subject applicable securities laws purchases times amounts company deems appropriate december 31 2013 total 1312 million stock 1385388 shares repurchased program leaving total authorization approximately 3688 million remaining available program year end january 27 2014 purchased additional 1009665 shares 1000 million leaving 2688 million remaining program credit facilities current bank credit facilities include us revolving credit facility canadian revolving facility credit facilities governed amended restated credit agreement dated december 10 2010 credit agreement among company pti group inc pti premium camp services ltd lenders party thereto wells fargo bank na administrative agent us collateral agent royal bank canada canadian administrative agent canadian collateral agent us canadian bank credit facilities currently contain total commitments available 750 million including total us commitments defined credit agreement us 500 million total canadian commitments defined credit agreement us 250 million repaid canadian us term loan balances previously outstanding full 2013 permanent reductions availability credit facilities maturity date credit agreement december 10 2015 currently 19 lenders credit agreement commitments ranging 190 million 1071 million credit agreement contains customary financial covenants restrictions including restrictions ability declare pay dividends specifically must maintain interest coverage ratio defined ratio consolidated ebitda consolidated interest expense least 30 10 maximum leverage ratio defined ratio total debt consolidated ebitda greater 325 10 2012 30 10 thereafter factors considered calculations ratios defined credit agreement ebitda consolidated interest defined exclude goodwill impairments debt discount amortization noncash charges december 31 2013 compliance debt covenants expect continue compliance 2014 borrowings credit agreement secured pledge substantially assets subsidiaries obligations credit agreement guaranteed significant subsidiaries borrowings credit agreement accrue interest rate equal libor another benchmark interest rate election plus applicable margin based leverage ratio defined credit agreement must pay quarterly commitment fee based leverage ratio unused commitments credit agreement 2013 applicable margin libor 200 weighted average annual interest rate paid credit agreement 26 year ended december 31 2013 27 year ended december 31 2012 december 31 2013 borrowings outstanding credit agreement 336 million outstanding letters credit leaving 7164 million available drawn us canadian facilities september 18 2012 company’s australian accommodations subsidiary mac services group pty limited mac entered a300 million revolving loan facility governed syndicated facility agreement mac group facility agreement mac jp morgan australia limited australian agent security trustee jpmorgan chase bank na us agent lenders party thereto guaranteed company mac’s subsidiaries currently 11 lenders mac group facility agreement commitments ranging a14 million a35 million maturity date mac group facility agreement december 10 2015 mac group facility agreement replaced mac’s previous a150 million revolving loan facility december 31 2013 borrowings outstanding mac group facility agreement weighted average annual interest rate paid mac group facility agreement 51 year ended december 31 2013 54 period beginning september 18 2012 ending december 31 2012 connection proposed spinoff accommodations business intend refinance existing credit facilities enter new us revolving credit facility please see “proposed spinoff accommodations business” 5 18 notes december 21 2012 company sold 400 million aggregate principal amount 5 18 notes private placement qualified institutional buyers 5 18 notes senior unsecured obligations company guaranteed material us subsidiaries guarantors bear interest rate 5 18 per annum mature january 1 2023 time prior january 15 2016 company may redeem 35 5 18 notes redemption price 105125 principal amount plus accrued unpaid interest redemption date proceeds certain equity offerings prior january 15 2018 company may redeem 5 18 notes cash redemption price equal 100 principal amount plus applicable makewhole premium accrued unpaid interest redemption date january 15 2018 company may redeem 5 18 notes redemption prices expressed percentages principal amount plus accrued unpaid interest redemption date optional redemption prices percentage principal amount follows company utilized approximately 334 million net proceeds 5 18 notes repay borrowings us credit facility remaining net proceeds approximately 61 million utilized general corporate purposes december 21 2012 connection issuance 5 18 notes company entered indenture 5 18 notes indenture guarantors wells fargo bank na trustee 5 18 notes indenture restricts companys ability guarantors incur additional debt ii pay distributions redeem repurchase equity interests iii make certain investments iv incur liens v enter transactions affiliates vi merge consolidate another company vii transfer sell assets covenants subject number important exceptions qualifications time 5 18 notes rated investment grade either moodys investors service inc standard poors ratings services default defined 5 18 notes indenture occurred continuing many covenants terminate company subsidiaries cease subject covenants 5 18 notes indenture contains customary events default december 31 2013 company compliance covenants 5 18 notes indenture fourth quarter 2013 company repurchased 340 million aggregate principal amount 5 18 notes result transaction company recognized loss extinguishment debt 41 million connection proposed spinoff accommodations business intend commence tender offer outstanding 5 18 notes intend fund tender offer part proceeds cash dividend paid us accommodations business immediately prior consummation proposed spinoff please see “proposed spinoff accommodations business” 6 12 notes june 1 2011 company sold 600 million aggregate principal amount 6 12 notes private placement qualified institutional buyers 6 12 notes senior unsecured obligations company guaranteed guarantors bear interest rate 6 12 per annum mature june 1 2019 time prior june 1 2014 company may redeem 35 6 12 notes redemption price 1065 principal amount plus accrued unpaid interest redemption date proceeds certain equity offerings prior june 1 2014 company may redeem 6 12 notes cash redemption price equal 100 principal amount plus applicable makewhole premium accrued unpaid interest redemption date june 1 2014 company may redeem 6 12 notes redemption prices expressed percentages principal amount plus accrued unpaid interest redemption date optional redemption prices percentage principal amount follows company utilized approximately 515 million net proceeds 6 12 note offering june 2011 repay borrowings credit facilities remaining net proceeds approximately 75 million utilized general corporate purposes june 1 2011 connection issuance 6 12 notes company entered indenture 6 12 notes indenture guarantors wells fargo bank na trustee indenture restricts companys ability guarantors incur additional debt ii pay distributions redeem repurchase equity interests iii make certain investments iv incur liens v enter transactions affiliates vi merge consolidate another company vii transfer sell assets covenants subject number important exceptions qualifications time 6 12 notes rated investment grade either moodys investors service inc standard poors ratings services default defined 6 12 notes indenture occurred continuing many covenants terminate company subsidiaries cease subject covenants 6 12 notes indenture contains customary events default december 31 2013 company compliance covenants 6 12 notes indenture total debt represented 270 combined total debt stockholders’ equity december 31 2013 compared 347 december 31 2012 connection proposed spinoff accommodations business intend commence tender offer outstanding 6 12 notes intend fund tender offer part proceeds cash dividend paid us accommodations business immediately prior consummation proposed spinoff please see “proposed spinoff accommodations business” contractual obligations following summarizes contractual obligations december 31 2013 effect obligations expected liquidity cash flow next five years thousands 1 includes interest fixedrate debt excludes interest variablerate debt since cannot predict certainty amount interest due revolving debt due expected variability interest rates principal amounts outstanding include obligations assume interest payment amounts calculated using outstanding principal balances interest rates foreign currency exchange rates december 31 2013 include applicable commitment fees estimated interest payments variablerate debt would 44 million “due less one year” 41 million “due one three years” see note 10 consolidated financial statements included annual report form 10k additional information credit facilities 2 see note 14 consolidated financial statements included annual report form 10k additional information debt obligations december 31 2013 included consolidated balance sheet part consolidated financial statements included annual report form 10k entered material leases subsequent december 31 2013 due uncertainty respect timing future cash flows associated uncertain tax positions december 31 2013 unable make reasonably reliable estimates period cash settlement respective taxing authorities therefore 10 million uncertain tax positions including interest penalties excluded contractual obligations table effects inflation revenues results operations materially impacted inflation past three fiscal years offbalance sheet arrangements december 31 2013 offbalance sheet arrangements defined item 303a4ii regulation sk tax matters primary deferred tax assets december 31 2013 related employee benefit costs equity participation plan deductible goodwill intangibles inventory allowance obsolescence foreign tax credit carryforwards foreign tax credits expire varying amounts 2019 income tax provision year ended december 31 2013 totaled 1200 million 275 pretax income compared 1490 million 270 pretax income year ended december 31 2012 effective tax rates 2013 2012 comparable lower us statutory rates lower foreign tax rates number legislative proposals change united states tax laws related multinational corporations australia proposed changes tax laws could negatively impact deductibility interest expense intercompany debt proposals various stages discussion possible time predict proposals would impact business whether could result increased tax costs critical accounting policies consolidated financial statements included annual report form 10k prepared accordance accounting principles generally accepted united states gaap require management make numerous estimates assumptions actual results could differ estimates assumptions thus impacting reported results operations financial position critical accounting policies estimates described section important depiction financial condition results operations application requires management’s subjective judgments making estimates effect matters inherently uncertain describe significant accounting policies fully note 2 consolidated financial statements included annual report form 10k accounting contingencies contingent liabilities future claims made estimates amount eventual cost liquidate liabilities claims liabilities claims sometimes involve threatened actual litigation damages quantified made assessment exposure recorded provision accounts cover expected loss claims liabilities estimated based fair value experience matters appropriate advice outside counsel outside experts upon ultimate resolution uncertainties future reported financial results impacted difference estimates actual amounts paid settle liability examples areas made important estimates future liabilities include future consideration due sellers result terms business combination litigation taxes interest insurance claims warranty claims contract claims obligations asset retirement obligations discontinued operations asset retirement obligations recognize initial estimated asset retirement obligations aro related properties liabilities associated increase property equipment asset’s estimated retirement cost obligation expensed estimated productive life related assets fair value estimated aro changes adjustment recorded aro capitalized asset revisions estimated liabilities result changes estimated inflation rates changes service equipment costs changes estimated timing settling aro company relieves aro liabilities related obligations settled december 31 2013 2012 61 million 55 million respectively aro included consolidated balance sheet “other noncurrent liabilities” aro liability reflects estimated present value amount asset removal site reclamation costs related retirement assets company’s accommodations business total expense related aro 03 million 2013 2012 expense related aro 2011 company utilizes current retirement costs estimate expected cash outflows retirement obligations company estimates ultimate productive life properties riskadjusted discount rate order determine current present value obligation tangible intangible assets including goodwill totaled 5137 million 124 total assets december 31 2013 intangible assets totaled 1335 million 32 total assets december 31 2013 assessment impairment longlived assets including intangibles conducted whenever changes facts circumstances indicate loss value occurred indicators impairment might include persistent negative economic trends affecting markets serve recurring losses lowered expectations future cash flows expected generated assets determination amount impairment would based quoted market prices available upon judgments future operating cash flows generated assets throughout estimated useful lives industry cyclical estimates period future cash flows generated well predictability cash flows determination whether decline value investment occurred significant impact carrying value assets periods prolonged cycles may result impairment losses evaluate reporting unit least annually interim basis indicator impairment determined occur defined current accounting standards regarding goodwill assess goodwill potential impairment reporting units include completion services drilling services accommodations offshore products remaining goodwill drilling services reporting unit subsequent full impairment goodwill reporting unit december 31 2008 part goodwill impairment analysis current accounting standards give us option first perform qualitative assessment determine whether likely likelihood 50 percent fair value reporting unit less carrying amount including goodwill determined likely fair value reporting unit greater carrying amount performing currently prescribed twostep impairment test unnecessary developing qualitative assessment meet “morelikelythannot” threshold reporting unit goodwill balance sheet assessed separately different relevant events circumstances evaluated unit determined likely fair value reporting unit less carrying amount prescribed twostep impairment test performed current accounting standards also give us option bypass qualitative assessment reporting unit period proceed directly performing first step twostep goodwill impairment test 2013 chose bypass qualitative assessment reporting units goodwill remaining perform twostep impairment test performing twostep impairment test estimate implied fair value ifv reporting unit compare ifv carrying value unit none reporting units publically quoted market price must determine value willing buyers sellers would place reporting unit routine sale process level 3 fair value measurement analysis target ifv represents value would placed reporting unit market participants value reporting unit based historical projected results throughout cycle value reporting unit based trough peak earnings utilize depending circumstances trading multiples analyses discounted projected cash flow calculations estimated terminal values acquisition comparables estimate ifv reporting units affected future oil coal natural gas prices anticipated spending customers cost capital part process assess goodwill impairment also compare total market capitalization company sum ifvs reporting units assess reasonableness ifvs aggregate carrying amount reporting unit exceeds ifv goodwill considered potentially impaired additional analysis accordance current accounting standards conducted determine amount impairment date goodwill impairment test 2013 ifv offshore products accommodations completion services reporting units exceeded carrying values part process assess goodwill impairment 2013 also compared total market capitalization company sum ifv’s reporting units assess reasonableness ifv’s aggregate revenue cost recognition revenue sale products accounted utilizing percentageofcompletion method recognized delivery acceptance customer occurred title significant risks ownership passed customer collectability probable pricing fixed determinable product sales terms include significant postdelivery obligations significant projects revenues recognized percentageofcompletion method measured percentage costs incurred date compared estimated total costs contract costtocost method billings contracts excess costs incurred estimated profits classified deferred revenue costs incurred estimated profits excess billings percentageofcompletion contracts recognized unbilled receivables management believes method appropriate measure progress large contracts provisions estimated losses uncompleted contracts made period losses determined factors may affect future project costs margins include shipyard access weather production efficiencies availability costs labor materials subcomponents factors significantly impact accuracy company’s estimates materially impact company’s future reported earnings accommodations segment derives majority revenue lodging related ancillary services accommodations segment revenue recognized period services provided pursuant terms contractual relationships customers contracts rates may vary contract term cases revenue may deferred recognized straightline basis contract term well site services segment revenues recognized based periodic usually daily rate services rendered proceeds customers cost oilfield rental equipment damaged lost downhole reflected gains losses disposition assets considering writeoff remaining net book value equipment drilling services contracts based footage drilled recognize revenues footage drilled revenues exclude taxes assessed based revenues sales value added taxes cost goods sold includes direct material labor costs related contract performance indirect labor supplies tools repairs accommodations segment cost services includes labor food utility costs cleaning supplies costs operating accommodations facilities sga costs charged expense incurred valuation allowances valuation allowances especially related potential bad debts accounts receivable obsolescence market value declines inventory involve reviews underlying details assets known trends marketplace application historical factors provide us basis recording allowances market conditions less favorable projected management historical experience materially different future experience additional allowances may required past years recorded valuation allowance reduce deferred tax assets amount likely realized estimation useful lives selection useful lives many assets requires judgments operating personnel length useful lives judgment area influenced historical experience operating assets technological developments expectations future demand assets estimates long short might eventually report disproportionate number losses gains upon disposition retirement longlived assets believe estimates useful lives appropriate stockbased compensation since adoption accounting standards regarding sharebased payments required estimate fair value stock compensation made pursuant awards 2001 equity participation plan initial estimate fair value stock option restricted stock award determines amount stock compensation expense recognize future estimate value stock option awards plan selected fair value calculation model chosen black scholes merton “closed form” model value stock options awarded plan chosen model option awards made straightforward vesting terms option prices option lives utilizing black scholes merton model requires us estimate length time options remain outstanding risk free interest rate estimated period options assumed outstanding forfeiture rates future dividends volatility common stock assumptions affect amount timing future stock compensation expense recognition continually monitor actual experience change assumptions future awards consider appropriate income taxes company follows liability method accounting income taxes accordance current accounting standards regarding accounting income taxes method deferred income taxes recorded based upon differences financial reporting tax bases assets liabilities measured using enacted tax rates laws effect time underlying assets liabilities recovered settled companys earnings foreign subsidiaries considered indefinitely reinvested provision us income taxes made earnings subsidiaries distribution earnings form dividends otherwise company would subject us income taxes subject adjustment foreign tax credits withholding taxes payable various foreign countries accordance current accounting standards company records valuation allowance reporting period management believes likely deferred tax asset created realized management continue evaluate appropriateness valuation allowance future based upon operating results company accounting income taxes required provisions current accounting standards regarding accounting uncertainty income taxes estimate liability future income taxes calculation tax liabilities involves dealing uncertainties application complex tax regulations recognize liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due ultimately determine payment amounts unnecessary reverse liability recognize tax benefit period determine liability longer necessary record additional charge provision taxes period determine recorded tax liability less expect ultimate assessment discontinued operations operating results component business either disposed classified held sale presented discontinued operations following conditions met operations cash flows component eliminated ongoing operations result disposal transaction b significant continuing involvement operations disposed component consider component business one comprises operations cash flows clearly distinguished operationally financial reporting purposes rest business recent accounting pronouncements time new accounting pronouncements issued financial accounting standards board fasb adopted company specified effective date unless otherwise discussed management believes impact recently issued standards yet effective material impact company’s consolidated financial statements upon adoption item 7a item 7a quantitative qualitative disclosures market risk interest rate risk longterm debt revolving lines credit subject risk loss associated movements interest rates currently floating rate obligations totaling approximately 1106 million amounts borrowed revolving lines credit floatingrate obligations expose us risk increased interest expense event increases shortterm interest rates floating interest rate increase 1 december 31 2000 levels combined interest expense would increase total approximately 92000 per month foreign currency exchange rate risk operations conducted various countries around world number different currencies earnings subject change due movements foreign currency exchange rates transactions denominated currencies us dollar functional currency order mitigate effects exchange rate risks generally pay portion expenses local currencies substantial portion contracts provide collections customers us dollars december 31 2000 canadian dollardenominated debt totaling approximately 25 million hedged foreign currency exposure december 31 2000 item 8item 7a quantitative qualitative disclosures market risk interest rate risk longterm debt revolving lines credit subject risk loss associated movements interest rates currently floating rate obligations totaling approximately 692 million amounts borrowed revolving lines credit floatingrate obligations expose us risk increased interest expense event increases shortterm interest rates floating interest rate increase 1 december 31 2001 levels combined interest expense would increase total approximately 692000 annually foreign currency exchange rate risk operations conducted various countries around world number different currencies earnings subject change due movements foreign currency exchange rates transactions denominated currencies us dollar functional currency order mitigate effects exchange rate risks generally pay portion expenses local currencies substantial portion contracts provide collections customers us dollars december 31 2001 canadian dollardenominated debt totaling approximately 17 million interest rate hedges forward foreign exchange contracts december 31 2001 item 8item 7a quantitative qualitative disclosures market risk interest rate risk longterm debt revolving lines credit subject risk loss associated movements interest rates december 31 2002 floating rate obligations totaling approximately 1243 million amounts borrowed revolving credit facility floatingrate obligations expose us risk increased interest expense event increases shortterm interest rates floating interest rate increase 1 december 31 2002 levels consolidated interest expense would increase total approximately 12 million annually foreign currency exchange rate risk operations conducted various countries around world number different currencies earnings subject movements foreign currency exchange rates transactions denominated currencies us dollar functional currency order mitigate effects exchange rate risks generally pay portion expenses local currencies substantial portion contracts provide collections customers us dollars december 31 2002 canadian dollardenominated debt totaling approximately 32 million december 31 2002 foreign currency forward purchase option contracts totaling 50 million rates significantly different actual rates december 31 2002 incurred material gains losses foreign currency hedging activities item 8item 7a quantitative qualitative disclosures market risk interest rate risk longterm debt revolving lines credit subject risk loss associated movements interest rates december 31 2004 floating rate obligations totaling approximately 1726 million amounts borrowed revolving credit facilities floatingrate obligations expose us risk increased interest expense event increases shortterm interest rates floating interest rate increase 1 december 31 2004 levels consolidated interest expense would increase total approximately 17 million annually foreign currency exchange rate risk operations conducted various countries around world number different currencies earnings subject movements foreign currency exchange rates transactions denominated currencies us dollar functional currency functional currency subsidiaries necessarily us dollar order mitigate effects exchange rate risks generally pay portion expenses local currencies substantial portion contracts provide collections customers us dollars 2004 realized foreign exchange losses 13 million primarily result strengthening uk pound versus us dollar losses included operating expense income consolidated statements income uk subsidiary us dollar denominated receivables us dollar cash balances resulted majority foreign exchange losses 2004 item 8item 7a quantitative qualitative disclosures market risk interest rate risk longterm debt revolving lines credit subject risk loss associated movements interest rates december 31 2006 floating rate obligations totaling approximately 2154 million amounts borrowed revolving credit facilities floatingrate obligations expose us risk increased interest expense event increases shortterm interest rates floating interest rate increase 1 december 31 2006 levels consolidated interest expense would increase total approximately 22 million annually foreign currency exchange rate risk operations conducted various countries around world number different currencies earnings subject movements foreign currency exchange rates transactions denominated currencies us dollar functional currency functional currency subsidiaries necessarily us dollar order mitigate effects exchange rate risks generally pay portion expenses local currencies substantial portion contracts provide collections customers us dollars 2006 realized foreign exchange losses 04 million included operating expense income consolidated statements income item 8item 7a quantitative qualitative disclosures market risk interest rate risk longterm debt revolving lines credit subject risk loss associated movements interest rates december 31 2007 floating rate obligations totaling approximately 3072 million amounts borrowed revolving credit facilities floatingrate obligations expose us risk increased interest expense event increases shortterm interest rates floating interest rate increase 1 december 31 2007 levels consolidated interest expense would increase total approximately 31 million annually foreign currency exchange rate risk operations conducted various countries around world receive revenue operations number different currencies earnings subject movements foreign currency exchange rates transactions denominated currencies us dollar functional currency functional currency subsidiaries necessarily us dollar order mitigate effects exchange rate risks generally pay portion expenses local currencies substantial portion contracts provide collections customers us dollars 2007 realized foreign exchange losses 09 million included operating expense income consolidated statements income item 8item 7a quantitative qualitative disclosures market risk interest rate risk longterm debt revolving lines credit subject risk loss associated movements interest rates december 31 2008 floating rate obligations totaling approximately 2914 million amounts borrowed revolving credit facilities floatingrate obligations expose us risk increased interest expense event increases shortterm interest rates floating interest rate increase 1 december 31 2008 levels consolidated interest expense would increase total approximately 29 million annually foreign currency exchange rate risk operations conducted various countries around world receive revenue operations number different currencies earnings subject movements foreign currency exchange rates transactions denominated currencies us dollar functional currency functional currency subsidiaries necessarily us dollar order mitigate effects exchange rate risks generally pay portion expenses local currencies substantial portion contracts provide collections customers us dollars 2008 realized foreign exchange gains 16 million included operating expense income consolidated statements income item 8item 7a quantitative qualitative disclosures market risk interest rate risk revolving lines credit subject risk higher interest charges associated increases interest rates december 31 2009 floating rate obligations drawn revolving credit facilities foreign currency exchange rate risk operations conducted various countries around world receive revenue operations number different currencies earnings subject movements foreign currency exchange rates transactions denominated currencies us dollar functional currency ii functional currency subsidiaries necessarily us dollar order mitigate effects exchange rate risks generally pay portion expenses local currencies substantial portion contracts provide collections customers us dollars 2009 realized foreign exchange losses 03 million included operating expense income consolidated statements income item 8item 7a quantitative qualitative disclosures market risk interest rate risk credit facilities subject risk higher interest charges associated increases interest rates december 31 2010 floating rate obligations totaling approximately 7356 million drawn credit facilities floatingrate obligations expose us risk increased interest expense event increases shortterm interest rates floating interest rate increase 1 december 31 2010 levels consolidated interest expense would increase total approximately 74 million annually foreign currency exchange rate risk operations conducted various countries around world receive revenue operations number different currencies earnings subject movements foreign currency exchange rates transactions denominated currencies us dollar functional currency ii functional currency subsidiaries necessarily us dollar order mitigate effects exchange rate risks areas outside united states generally pay portion expenses local currencies substantial portion contracts provide collections customers us dollars 2010 realized foreign exchange losses 11 million included operating income expense consolidated statements income item 8item 7a quantitative qualitative disclosures market risk interest rate risk credit facilities subject risk higher interest charges associated increases interest rates december 31 2011 floating rate obligations totaling approximately 3949 million drawn credit facilities floatingrate obligations expose us risk increased interest expense event increases shortterm interest rates floating interest rate 1 higher december 31 2011 levels consolidated annual interest expense would increased total approximately 39 million foreign currency exchange rate risk operations conducted various countries around world receive revenue operations number different currencies earnings subject movements foreign currency exchange rates transactions denominated currencies us dollar functional currency ii functional currency subsidiaries necessarily us dollar order mitigate effects exchange rate risks areas outside us primarily offshore products segment generally pay portion expenses local currencies substantial portion contracts provide collections customers us dollars 2011 realized foreign exchange losses 14 million included “other operating incomeexpense” consolidated statements income foreign operations conducted whollyowned foreign subsidiaries functional currencies us dollar currently subsidiaries whose functional currencies canadian dollar australian dollar british pound singapore dollar assets liabilities subsidiaries translated us dollars exchange rate effect balance sheet date resulting translation gains losses reflected “accumulated comprehensive income” “stockholders’ equity” section consolidated balance sheets item 8item 7a quantitative qualitative disclosures market risk market risk refers potential losses arising changes interest rates foreign currency fluctuations exchange rates equity prices commodity prices including correlation among factors volatility principal market risks exposure changes interest rates foreign currency exchange rates enter derivative instruments extent considered necessary meet risk management objectives use derivative contracts speculative purposes 54 interest rate risk credit facilities subject risk higher interest charges associated increases interest rates december 31 2014 floatingrate obligations totaling approximately 1407 million drawn credit facility floatingrate obligations expose us risk increased interest expense event increases shortterm interest rates floating interest rates increased 1 december 31 2014 levels consolidated interest expense would increase total approximately 14 million annually foreign currency exchange rate risk operations conducted various countries around world receive revenue operations number different currencies earnings subject movements foreign currency exchange rates transactions denominated currencies us dollar functional currency ii functional currency subsidiaries necessarily us dollar order mitigate effects exchange rate risks areas outside us primarily offshore products segment generally pay portion expenses local currencies substantial portion contracts provide collections customers us dollars 2014 reported foreign exchange losses 04 million included “other operating expense” consolidated statements income order reduce exposure fluctuations currency exchange rates may enter foreign exchange agreements financial institutions december 31 2014 2013 outstanding foreign currency forward purchase contracts notional amounts 54 million 74 million respectively related expected cash flows denominated euros result contracts recorded comprehensive income 04 million year ended december 31 2013 09 million foreign exchange loss related amounts reclassified accumulated comprehensive loss expense income statement year ended december 31 2013 item 8item 7a quantitative qualitative disclosures market risk market risk refers potential losses arising changes interest rates foreign currency fluctuations exchange rates equity prices commodity prices including correlation among factors volatility principal market risks exposure changes interest rates foreign currency exchange rates enter derivative instruments extent considered necessary meet risk management objectives use derivative contracts speculative purposes interest rate risk credit facilities subject risk higher interest charges associated increases interest rates december 31 2015 floatingrate obligations totaling 1229 million drawn credit facility floatingrate obligations expose us risk increased interest expense event increases shortterm interest rates floating interest rates increased 1 december 31 2015 levels consolidated interest expense would increase total approximately 12 million annually foreign currency exchange rate risk operations conducted various countries around world receive revenue operations number different currencies earnings subject movements foreign currency exchange rates transactions denominated currencies us dollar functional currency ii functional currency subsidiaries necessarily us dollar order mitigate effects exchange rate risks areas outside us primarily offshore products segment generally pay portion expenses local currencies substantial portion contracts provide collections customers us dollars 2015 reported foreign exchange gains 37 million included “other operating expense” consolidated statements income order reduce exposure fluctuations currency exchange rates may enter foreign exchange agreements financial institutions december 31 2015 2014 outstanding foreign currency forward purchase contracts notional amounts 54 million related expected cash flows denominated euros result contracts recorded comprehensive income 03 million year ended december 31 2015 04 million foreign exchange loss related amounts reclassified accumulated comprehensive loss expense income statement year ended december 31 2015 accumulated comprehensive loss reported component stockholders’ equity increased 221 million december 31 2014 507 million december 31 2015 primarily result foreign currency exchange rate differences current year 278 million comprehensive loss primarily related fluctuations foreign currency exchange rates compared us dollar used remeasure foreign operations reportable segments primarily united kingdom brazil canada certain foreign currency denominated intercompany borrowings average exchange rates british pound brazilian real canadian dollar compared us dollar weakened 5 31 16 respectively 2015 compared 2014 item 8item 7a quantitative qualitative disclosures market risk market risk refers potential losses arising changes interest rates foreign currency fluctuations exchange rates equity prices commodity prices including correlation among factors volatility principal market risks exposure changes interest rates foreign currency exchange rates enter derivative instruments extent considered necessary meet risk management objectives use derivative contracts speculative purposes interest rate risk credit facilities subject risk higher interest charges associated increases interest rates december 31 2016 floatingrate obligations totaling 422 million drawn credit facility floatingrate obligations expose us risk increased interest expense event increases shortterm interest rates floating interest rates increased 1 december 31 2016 levels consolidated interest expense would increase total approximately 04 million annually foreign currency exchange rate risk operations conducted various countries around world receive revenue operations number different currencies earnings subject movements foreign currency exchange rates transactions denominated currencies us dollar functional currency ii functional currency subsidiaries necessarily us dollar order mitigate effects exchange rate risks areas outside us primarily offshore products segment generally pay portion expenses local currencies substantial portion contracts provide collections customers us dollars 2016 reported foreign exchange gains 47 million included “other operating income expense net” consolidated statements operations order reduce exposure fluctuations currency exchange rates may enter foreign exchange agreements financial institutions december 31 2016 2015 outstanding foreign currency forward purchase contracts notional amounts 22 million 54 million respectively related expected cash flows denominated euros result currency contracts becoming ineffective 2015 recorded 04 million foreign exchange loss related amounts reclassified accumulated comprehensive loss expense statement operations 2015 accumulated comprehensive loss reported component stockholders’ equity increased 507 million december 31 2015 703 million december 31 2016 primarily result foreign currency exchange rate differences current year 198 million comprehensive loss due primarily fluctuations currency exchange rates compared us dollar certain international operations reportable segments december 31 2016 exchange rate british pound compared us dollar weakened 16 compared exchange rate december 31 2015 exchange rates brazilian real canadian dollar compared us dollar strengthened 22 3 respectively period december 31 2015 exchange rates british pound brazilian real canadian dollar compared us dollar weakened 5 31 16 respectively compared exchange rates december 31 2014 item 8item 7a quantitative qualitative disclosures market risk market risk refers potential losses arising changes interest rates foreign currency fluctuations exchange rates equity prices commodity prices including correlation among factors volatility principal market risks exposure changes interest rates foreign currency exchange rates enter derivative instruments extent considered necessary meet risk management objectives use derivative contracts speculative purposes interest rate risk revolving credit facility subject risk higher interest charges associated increases interest rates december 31 2017 floatingrate obligations drawn revolving credit facility use floatingrate obligations would expose us risk increased interest expense event increases shortterm interest rates foreign currency exchange rate risk operations conducted various countries around world receive revenue operations number different currencies earnings subject movements foreign currency exchange rates transactions denominated currencies us dollar functional currency ii functional currency subsidiaries necessarily us dollar order mitigate effects foreign currency exchange rate risks areas outside united states primarily offshoremanufactured products segment generally pay portion expenses local currencies substantial portion contracts provide collections customers us dollars 2017 reported foreign currency exchange gains 05 million included “other operating income expense net” consolidated statements operations order reduce exposure fluctuations foreign currency exchange rates may enter foreign currency exchange agreements financial institutions december 31 2017 2016 outstanding foreign currency forward purchase contracts notional amounts 24 million 22 million respectively related expected cash flows denominated euros result currency contracts becoming ineffective 2015 recorded 04 million foreign exchange loss related amounts reclassified accumulated comprehensive loss expense statement operations 2015 accumulated comprehensive loss reported component stockholders’ equity decreased 703 million december 31 2016 585 million december 31 2017 primarily result foreign currency exchange rate differences current year 118 million comprehensive income primarily related fluctuations currency exchange rates compared us dollar certain international operations reportable segments december 31 2017 exchange rate british pound compared us dollar strengthened 9 compared exchange rate december 31 2016 exchange rate brazilian real compared us dollar weakened 2 period december 31 2016 exchange rate british pound compared us dollar weakened 16 compared exchange rate december 31 2015 exchange rate brazilian real compared us dollar strengthened 22 period item 8item 7a quantitative qualitative disclosures market risk market risk refers potential losses arising changes interest rates foreign currency fluctuations exchange rates equity prices commodity prices including correlation among factors volatility principal market risks exposure changes interest rates foreign currency exchange rates enter derivative instruments extent considered necessary meet risk management objectives use derivative contracts speculative purposes interest rate risk revolving credit facility subject risk higher interest charges associated increases interest rates december 31 2018 1361 million floatingrate obligations drawn amended revolving credit facility use floatingrate obligations exposes us risk increased interest expense event increases shortterm interest rates floating interest rates increased 1 december 31 2018 levels consolidated interest expense would increase total approximately 14 million annually foreign currency exchange rate risk operations conducted various countries around world receive revenue operations number different currencies earnings subject movements foreign currency exchange rates transactions denominated currencies us dollar functional currency ii functional currency subsidiaries necessarily us dollar order mitigate effects foreign currency exchange rate risks areas outside united states primarily offshoremanufactured products segment generally pay portion expenses local currencies substantial portion contracts provide collections customers us dollars 2018 reported foreign currency exchange losses 01 million included “other operating income expense net” consolidated statements operations order reduce exposure fluctuations foreign currency exchange rates may enter foreign currency exchange agreements financial institutions december 31 2017 outstanding foreign currency forward purchase contracts notional amounts 24 million related expected cash flows denominated euros foreign currency contracts outstanding december 31 2018 accumulated comprehensive loss reported component stockholders’ equity increased 585 million december 31 2017 714 million december 31 2018 primarily result foreign currency exchange rate differences current year 131 million comprehensive income primarily related fluctuations currency exchange rates compared us dollar certain international operations reportable segments december 31 2018 exchange rate british pound brazilian real compared us dollar weakened 6 14 respectively compared exchange rate december 31 2017 december 31 2017 exchange rate british pound compared us dollar strengthened 9 compared exchange rate december 31 2016 exchange rate brazilian real compared us dollar weakened 2 period item 8item 7a quantitative qualitative disclosures market risk market risk refers potential losses arising changes interest rates foreign currency fluctuations exchange rates equity prices commodity prices including correlation among factors volatility principal market risks exposure changes interest rates foreign currency exchange rates enter derivative instruments extent considered necessary meet risk management objectives use derivative contracts speculative purposes interest rate risk revolving credit facility subject risk higher interest charges associated increases interest rates december 31 2019 519 million floatingrate obligations drawn revolving credit facility use floatingrate obligations exposes us risk increased interest expense event increases shortterm interest rates floating interest rates increased 1 december 31 2019 levels consolidated interest expense would increase total approximately 05 million annually foreign currency exchange rate risk operations conducted various countries around world receive revenue operations number different currencies earnings subject movements foreign currency exchange rates transactions denominated currencies us dollar functional currency ii functional currency subsidiaries necessarily us dollar order mitigate effects foreign currency exchange rate risks areas outside united states primarily offshoremanufactured products segment generally pay portion expenses local currencies substantial portion contracts provide collections customers us dollars 2019 reported foreign currency exchange losses 01 million included operating income expense net consolidated statements operations order reduce exposure fluctuations foreign currency exchange rates may enter foreign currency exchange agreements financial institutions foreign currency contracts outstanding december 31 2019 2018 accumulated comprehensive loss reported component stockholders equity decreased 714 million december 31 2018 677 million december 31 2019 primarily result foreign currency exchange rate differences current year 35 million comprehensive income primarily related fluctuations currency exchange rates compared us dollar certain international operations reportable segments 2019 exchange rate british pound strengthened 4 compared us dollar brazilian real weakened 4 compared us dollar 2018 exchange rate british pound brazilian real compared us dollar weakened 6 14 respectively item 8item 7a quantitative qualitative disclosures market risk market risk refers potential losses arising changes interest rates foreign currency fluctuations exchange rates equity prices commodity prices including correlation among factors volatility principal market risks exposure changes interest rates foreign currency exchange rates enter derivative instruments extent considered necessary meet risk management objectives use derivative contracts speculative purposes interest rate risk revolving credit facility subject risk higher interest charges associated increases interest rates december 31 2020 190 million floatingrate obligations drawn amended revolving credit facility use floatingrate obligations exposes us risk increased interest expense event increases shortterm interest rates floating interest rates increased 1 december 31 2020 levels consolidated interest expense would increase total approximately 02 million annually foreign currency exchange rate risk operations conducted various countries around world receive revenue operations number different currencies earnings subject movements foreign currency exchange rates transactions denominated currencies us dollar functional currency ii functional currency subsidiaries necessarily us dollar order mitigate effects foreign currency exchange rate risks areas outside united states primarily offshoremanufactured products segment generally pay portion expenses local currencies substantial portion contracts provide collections customers us dollars 2020 reported foreign currency exchange losses 02 million included operating income expense net consolidated statements operations order reduce exposure fluctuations foreign currency exchange rates may enter foreign currency exchange agreements financial institutions foreign currency contracts outstanding december 31 2020 2019 accumulated comprehensive loss reported component stockholders equity increased 677 million december 31 2019 714 million december 31 2020 primarily result foreign currency exchange rate differences 38 million current year comprehensive income primarily related fluctuations currency exchange rates compared us dollar certain international operations reportable segments 2020 exchange rate british pound strengthened 3 compared us dollar brazilian real weakened 23 compared us dollar 2019 exchange rate british pound strengthened 4 compared us dollar brazilian real weakened 4 compared us dollar item 8item 7a quantitative qualitative disclosures market risk interest rate risk longterm debt revolving lines credit subject risk loss associated movements interest rates december 31 2005 floating rate obligations totaling approximately 2225 million amounts borrowed revolving credit facilities floatingrate obligations expose us risk increased interest expense event increases shortterm interest rates floating interest rate increase 1 december 31 2005 levels consolidated interest expense would increase total approximately 22 million annually foreign currency exchange rate risk operations conducted various countries around world number different currencies earnings subject movements foreign currency exchange rates transactions denominated currencies us dollar functional currency functional currency subsidiaries necessarily us dollar order mitigate effects exchange rate risks generally pay portion expenses local currencies substantial portion contracts provide collections customers us dollars 2005 realized foreign exchange gains 02 million gains included operating expense income consolidated statements income item 8item 7a quantitative qualitative disclosures market risk principal market risks exposure changes interest rates foreign currency exchange rates interest rate risk credit facilities subject risk higher interest charges associated increases interest rates december 31 2012 floatingrate obligations totaling approximately 3036 million drawn credit facilities floatingrate obligations expose us risk increased interest expense event increases shortterm interest rates floating interest rates increase 1 consolidated interest expense would increase total approximately 30 million annually based floating debt obligations december 31 2012 foreign currency exchange rate risk operations conducted various countries around world receive revenue operations number different currencies earnings subject movements foreign currency exchange rates transactions denominated currencies us dollar functional currency ii functional currency subsidiaries necessarily us dollar order mitigate effects exchange rate risks areas outside us primarily offshore products segment generally pay portion expenses local currencies substantial portion contracts provide collections customers us dollars 2012 reported foreign exchange losses 21 million included “other operating incomeexpense” consolidated statements income order reduce exposure fluctuations currency exchange rates may enter foreign exchange agreements financial institutions december 31 2012 outstanding foreign currency forward purchase contracts notional amount 124 million hedging expected cash flows denominated euros recorded comprehensive loss 10 million 2012 result contract december 31 2011 active hedge contracts outstanding item 8item 7a quantitative qualitative disclosures market risk interest rate risk longterm debt revolving lines credit subject risk loss associated movements interest rates december 31 2003 floating rate obligations totaling approximately 1287 million amounts borrowed revolving credit facility floatingrate obligations expose us risk increased interest expense event increases shortterm interest rates floating interest rate increase 1 december 31 2003 levels consolidated interest expense would increase total approximately 13 million annually foreign currency exchange rate risk operations conducted various countries around world number different currencies earnings subject movements foreign currency exchange rates transactions denominated currencies us dollar functional currency order mitigate effects exchange rate risks generally pay portion expenses local currencies substantial portion contracts provide collections customers us dollars december 31 2003 foreign currency forward purchase option contract totaling 50 million served cash flow hedge uk operations incurred material gains losses foreign currency hedging activities item 8item 7a quantitative qualitative disclosures market risk principal market risks exposure changes interest rates foreign currency exchange rates interest rate risk credit facilities subject risk higher interest charges associated increases interest rates december 31 2013 floatingrate obligations outstanding credit facilities foreign currency exchange rate risk operations conducted various countries around world receive revenue operations number different currencies earnings subject movements foreign currency exchange rates transactions denominated currencies us dollar functional currency ii functional currency subsidiaries necessarily us dollar order mitigate effects exchange rate risks areas outside us primarily offshore products segment generally pay portion expenses local currencies substantial portion contracts provide collections customers us dollars 2013 reported foreign exchange losses 08 million included “other operating income expense” consolidated statements income excluding intercompany balances canadian dollar australian dollar functional currency net assets total approximately c983 million a957 million respectively december 31 2013 order reduce exposure fluctuations currency exchange rates may enter foreign exchange agreements financial institutions december 31 2013 2012 outstanding foreign currency forward purchase contracts notional amounts 74 million 124 million respectively hedging expected cash flows denominated euros result contract recorded comprehensive losses 04 million 10 million years ended december 31 2013 2012 respectively 09 million foreign exchange loss related amounts reclassified accumulated comprehensive income year ended december 31 2013 item 8 item 8 financial statements supplementary data combined pro forma combined consolidated financial statements supplementary data company appear pages 51 125 hereof incorporated reference item 8 selected quarterly financial data set forth note 17 notes combined financial statements incorporated herein reference item 9item 8 financial statements supplementary data combined pro forma combined consolidated financial statements supplementary data company appear pages 39 82 hereof incorporated reference item 8 selected quarterly financial data set forth note 18 consolidated combined financial statements incorporated herein reference item 9item 8 financial statements supplementary data combined pro forma combined consolidated financial statements supplementary data company appear pages 41 74 annual report form 10k incorporated reference item 8 selected quarterly financial data set forth note 16 consolidated combined financial statements incorporated herein reference item 9item 8 financial statements supplementary data consolidated financial statements supplementary data company appear pages 41 66 annual report form 10k incorporated reference item 8 selected quarterly financial data set forth note 12 consolidated financial statements incorporated herein reference item 9item 8 financial statements supplementary data consolidated financial statements supplementary data company appear pages 43 74 annual report form 10k incorporated reference item 8 selected quarterly financial data set forth note 15 consolidated financial statements incorporated herein reference item 9item 8 financial statements supplementary data consolidated financial statements supplementary data company appear pages 51 79 annual report form 10k incorporated reference item 8 selected quarterly financial data set forth note 15 consolidated financial statements incorporated herein reference item 9item 8 financial statements supplementary data consolidated financial statements supplementary data company appear pages 52 84 annual report form 10k incorporated reference item 8 selected quarterly financial data set forth note 15 consolidated financial statements incorporated herein reference item 9item 8 financial statements supplementary data consolidated financial statements supplementary data company appear pages 57 86 annual report form 10k incorporated reference item 8 selected quarterly financial data set forth note 17 consolidated financial statements incorporated herein reference item 9item 8 financial statements supplementary data consolidated financial statements supplementary data company appear pages 62 90 annual report form 10k incorporated reference item 8 selected quarterly financial data set forth note 15 consolidated financial statements incorporated herein reference item 9item 8 financial statements supplementary data consolidated financial statements supplementary data company appear pages 65 102 annual report form 10k incorporated reference item 8 selected quarterly financial data set forth note 16 consolidated financial statements incorporated herein reference index financial statements item 9item 8 financial statements supplementary data consolidated financial statements supplementary data company begin page 66 annual report form 10k incorporated reference item 8 selected quarterly financial data set forth note 18 consolidated financial statements incorporated herein reference item 9item 8 financial statements supplementary data consolidated financial statements supplementary data company begin page 64 annual report form 10k incorporated reference item 8 selected quarterly financial data set forth note 18 consolidated financial statements incorporated herein reference item 9item 8 financial statements supplementary data consolidated financial statements supplementary data company begin page 57 annual report form 10k incorporated reference item 8 selected quarterly financial data set forth note 18 consolidated financial statements incorporated herein reference 48 item 9item 8 financial statements supplementary data consolidated financial statements supplementary data company begin page 57 annual report form 10k incorporated reference item 8 selected quarterly financial data set forth note 17 consolidated financial statements incorporated herein reference item 9item 8 financial statements supplementary data consolidated financial statements supplementary data company begin page 60 annual report form 10k incorporated reference item 8 selected quarterly financial data set forth note 17 consolidated financial statements incorporated herein reference item 9item 8 financial statements supplementary data consolidated financial statements supplementary data company begin page 59 annual report form 10k incorporated reference item 8 selected quarterly financial data set forth note 18 quarterly financial information unaudited consolidated financial statements incorporated herein reference item 9item 8 financial statements supplementary data consolidated financial statements supplementary data begin page 59 annual report form 10k incorporated reference item 8 selected quarterly financial data set forth note 18 quarterly financial information unaudited consolidated financial statements incorporated herein reference item 9item 8 financial statements supplementary data consolidated financial statements supplementary data company appear pages 42 71 annual report form 10k incorporated reference item 8 selected quarterly financial data set forth note 14 consolidated financial statements incorporated herein reference item 9item 8 financial statements supplementary data consolidated financial statements supplementary data company appear pages 72 114 annual report form 10k incorporated reference item 8 selected quarterly financial data set forth note 16 consolidated financial statements incorporated herein reference item 9item 8 financial statements supplementary data combined pro forma combined consolidated financial statements supplementary data company appear pages 41 74 annual report form 10k incorporated reference item 8 selected quarterly financial data set forth note 16 consolidated combined financial statements incorporated herein reference item 9item 8 financial statements supplementary data consolidated financial statements supplementary data company appear pages 75 116 annual report form 10k incorporated reference item 8 selected quarterly financial data set forth note 18 consolidated financial statements incorporated herein reference item 9 nannanitem 15 exhibits financial statement schedules reports form 8k index financial statements financial statement schedules exhibits 1 financial statements reference made index set forth page 38 annual report form 10k 2 financial statement schedules included herein information required submitted included pro forma consolidated combined financial statements consolidated combined financial statements notes thereto required information inapplicable 3 index exhibits see index exhibits list exhibits filed herewith index also includes identifies management contracts compensatory plans arrangements required filed exhibits annual report form 10k item 60110iii regulation sk b reports form 8k reports form 8k filed last quarter period covered report c index exhibits filed herewith management contracts compensatory plans arrangements signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized oil states international inc douglas e swanson douglas e swanson president chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated march 13 2003 certification chief executive officer douglas e swanson certify 1 reviewed annual report form 10k oil states international inc registrant 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrants certifying officer responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrants disclosure controls procedures date within 90 days prior filing date annual report evaluation date c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrants certifying officer disclosed based recent evaluation registrants auditors audit committee registrants board directors persons performing equivalent functions significant deficiencies design operation internal controls could adversely affect registrants ability record process summarize report financial data identified registrants auditors material weaknesses internal controls b fraud whether material involves management employees significant role registrants internal controls 6 registrants certifying officer indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses douglas e swanson douglas e swanson president chief executive officer date march 13 2003 certification chief financial officer cindy taylor certify 1 reviewed annual report form 10k oil states international inc registrant 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrants certifying officer responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrants disclosure controls procedures date within 90 days prior filing date annual report evaluation date c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrants certifying officer disclosed based recent evaluation registrants auditors audit committee registrants board directors persons performing equivalent functions significant deficiencies design operation internal controls could adversely affect registrants ability record process summarize report financial data identified registrants auditors material weaknesses internal controls b fraud whether material involves management employees significant role registrants internal controls 6 registrants certifying officer indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses cindy b taylor cindy b taylor senior vice president chief financial officer date march 13 2003 oil states international inc subsidiaries index combined pro forma combined consolidated financial statements unaudited pro forma consolidated combined financial statements consolidated financial statements oil states international inc reflect companys financial position results operations changes stockholders equity periods subsequent february 14 2001 date companys initial public offering combination oil states international inc oil states hwc energy services inc hwc pti group inc pti collectively controlled group among things fully described footnotes follow combined financial statements reflect financial position results operations changes stockholders equity predecessor entities comprise oil states international inc based reorganization accounting pro forma financial information follows reflect companys historical consolidated combined statements operations depending upon period involved give effect pro forma transactions adjustments fully described following tables set forth unaudited pro forma consolidated combined financial information oil states giving effect combination oil states hwc pti entities common control scfiii lp scf iii based upon reorganization accounting yields results similar pooling interest accounting effective dates entities became controlled scf iii conversion common stock held minority interests entity controlled group shares companys common stock based purchase method accounting conversion outstanding common stock sooner inc sooner shares companys common stock based purchase method accounting exchange 4275555 shares common stock 360 million debt sooner oil states companys sale 10000000 shares common stock offering application net proceeds totaling 841 million proceeds received offering company repaid 437 million outstanding subordinated debt controlled group sooner redeemed 218 million preferred stock oil states paid accrued interest subordinated debt accrued dividends preferred stock aggregating 71 million repurchased common stock non accredited shareholders holding preemptive stock purchase rights 16 million balance proceeds used reduce amounts outstanding bank lines credit unaudited pro forma consolidated combined statements operations years ended december 31 2001 2000 prepared based upon historical consolidated combined financial statements controlled group adjusted conform accounting policies give effect companys acquisition minority interests controlled group companys acquisition sooner companys exchange shares common stock debt sooner oil states companys sale shares offering transactions occurred january 1 2000 2001 respectively unaudited pro forma combined financial statements purport indicative results would obtained transactions described completed indicated dates may obtained future unaudited pro forma combined financial statements read conjunction historical consolidated combined financial statements notes thereto included elsewhere annual report form 10k oil states international inc pro forma consolidated combined statement operations year ended december 31 2001 oil states international inc pro forma combined statement operations year ended december 31 2000 oil states international inc notes unaudited pro forma consolidated combined financial statements basis presentation purchase method accounting used reflect acquisition minority interests company controlled group concurrent closing offering purchase price based fair value shares owned minority interests valued initial public offering price 900 per share accounting method excess purchase price fair value assets liabilities allocable minority interests acquired reflected goodwill book value minority interests exceeded purchase price excess reduced property plant equipment purposes pro forma combined financial statements goodwill recorded connection transaction initially amortized 20 years using straightline method based managements evaluation nature duration customer relationships considering competitive technological developments industry note however accounting goodwill changed new accounting pronouncements see note 3 consolidated combined financial statements unaudited pro forma statements operations years ended december 31 2001 2000 adjusted effects purchase accounting described purchase method accounting also used reflect acquisition outstanding common stock sooner concurrent closing offering purchase price based fair value shares sooner valued initial public offering price 900 per share excess purchase price fair value assets liabilities sooner reflected goodwill purposes pro forma combined financial statements goodwill recorded connection transaction initially amortized 15 years using straightline method based managements evaluation nature duration customer relationships considering competitive technological developments industry note however accounting goodwill changed new accounting pronouncements see note 3 consolidated combined financial statements unaudited pro forma statements operations years ended december 31 2001 2000 include historical financial statements sooner converted calendar year end adjusted effects purchase accounting presented note 1 combining adjustments minority interest income loss related tax effect controlled group presented thousands note 2 acquisition sooner certain reclassifications made conform presentation sooners financial statements controlled group oil states international inc notes unaudited pro forma consolidated combined financial statements continued reflect acquisition outstanding common shares sooner exchange 7597152 shares oil states common stock valued estimated offering price per share 900 millions 1 purchase price sooner includes estimated fair value sooner stock options 11 million converted oil states stock options note 3 acquisition minority interests reflect acquisition minority interests company controlled group exchange shares oil states common stock elimination historical amounts reflected combined group millions except share per share information note 4 offering adjust interest expense debt repaid offering proceeds result exchange shares subordinated debt b adjust costs associated new corporate office including executives hired connection offering costs fully reflected historical financial statements costs continuing impact companys operations c eliminate preferred stock dividends due redemption preferred stock adjust income tax expense reduction deferred taxes due formation combined group oil states international inc subsidiaries report independent auditors board directors stockholders oil states international inc audited accompanying consolidated balance sheets oil states international inc subsidiaries december 31 2002 2001 related consolidated statements income stockholders equity comprehensive income loss cash flows year ended december 31 2002 related consolidated combined statements income stockholders equity comprehensive income loss cash flows year ended december 31 2001 combined statements income stockholders equity comprehensive income loss cash flows year ended december 31 2000 audit financial statements pti group inc period prior january 1 2001 represented 36 total revenue 2000 financial statements audited auditors whose report furnished us opinion insofar relates amounts included pti group inc period noted based solely report auditors financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion based audits report auditors financial statements referred present fairly material respects consolidated financial position oil states international inc subsidiaries december 31 2002 2001 consolidated results operations cash flows year ended december 31 2002 consolidated combined results operations cash flows year ended december 31 2001 combined results operations cash flows year ended december 31 2000 conformity accounting principles generally accepted united states discussed note 3 consolidated combined financial statements effective january 1 2002 company adopted statement financial accounting standards 142 goodwill intangible assets ernst young llp houston texas january 31 2003 auditors report shareholders directors pti group inc audited consolidated balance sheets pti group inc december 31 2000 1999 consolidated statements earnings shareholders equity cash flows years ended december 31 2000 1999 1998 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance generally accepted auditing standards canada united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation opinion consolidated financial statements present fairly material respects financial position company december 31 2000 1999 results operations cash flows years ended december 31 2000 1999 1998 accordance united states generally accepted accounting principles pricewaterhousecoopers llp chartered accountants edmonton alberta february 26 2001 oil states international inc subsidiaries consolidated combined statements income accompanying notes integral part financial statements oil states international inc subsidiaries consolidated balance sheets accompanying notes integral part financial statements oil states international inc subsidiaries consolidated combined statements stockholders equity comprehensive income loss accompanying notes integral part financial statements oil states international inc subsidiaries consolidated combined statements cash flows accompanying notes integral part financial statements oil states international inc subsidiaries notes consolidated combined financial statements 1 organization basis presentation consolidated financial statements include accounts oil states international inc oil states company consolidated subsidiaries since february 14 2001 february 14 2001 company acquired three companies hwc energy services inc hwc pti group inc pti sooner inc sooner reported combined pro forma financial statements presented herein combined financial statements include activities oil states hwc pti collectively controlled group period prior february 14 2001 utilizing reorganization accounting reorganization accounting method yields results similar pooling interests method used preparation combined financial statements controlled group entities common control scfiii lp scfiii private equity fund focuses investments energy industry method accounting historical financial statements hwc pti combined oil states year ended december 31 2000 period february 14 2001 oil states hwc pti merged oil states acquired sooner exchange common stock february 14 2001 consolidated financial statements oil states include results subsidiaries including hwc pti sooner combined financial statements adjusted reflect minority interests controlled group significant intercompany accounts transactions consolidated entities eliminated accompanying consolidated combined pro forma financial statements oil states industries inc oil states industries inc osi subsidiary oil states leading designer manufacturer diverse range products offshore platforms subsea pipelines defense general industrial applications major product lines include flexible bearings advanced connectors mooring lifting systems winches services installing removing offshore platforms downhole production equipment custom molded products sales made primarily major oil companies large small independent oil gas companies drilling contractors well service workover operators worldwide basis osi facilities arlington houston lampasas texas houma louisiana tulsa oklahoma scotland brazil england singapore pti group inc pti located alberta canada supplier integrated housing food site management logistics support services remote sites utilized natural resources industries primarily canada united states hwc energy services inc hwc provides worldwide well control services drilling services rental equipment oil gas industry hwc operates primarily texas louisiana ohio oklahoma new mexico wyoming along foreign operations conducted venezuela middle east africa hydraulic well control operations provide globally hydraulic workover snubbing units emergency well control situations selected markets various hydraulic well control solutions involving well drilling workover completion activities west texas ohio hwc operates subsidiary capstar drilling lp shallow well drilling rigs automated pipe handling capabilities specialty rental tools supply lp subsidiary hwc provides rental equipment drilling workover operations texas louisiana mississippi new mexico oklahoma wyoming oil states international inc subsidiaries notes consolidated combined financial statements continued sooner inc sooner distributor oilfield tubular products operations located primarily united states majority sales large fully integrated independent oil companies headquartered us 2 initial public offering merger transactions refinancing february 9 2001 companys common stock began trading new york stock exchange symbol ois pursuant completion initial public offering february 14 2001 company closed business combination offering thereby acquiring minority interests pti hwc 100 sooner operations company recorded additional goodwill 619 million result acquisition minority interests concurrently offering company acquired sooner 695 million company exchanged 7597152 shares common stock outstanding common shares sooner company accounted acquisition using purchase method accounting recorded approximately 40 million goodwill concurrently closing offering company issued 4275555 shares common stock scfiii scfiv lp scfiv exchange approximately 360 million indebtedness oil states sooner held scfiii scfiv scf exchange proceeds received offering company repaid 437 million outstanding subordinated debt controlled group sooner redeemed 218 million preferred stock oil states paid accrued interest subordinated debt accrued dividends preferred stock aggregating 71 million repurchased common stock nonaccredited shareholders holding preemptive stock purchase rights 16 million balance proceeds used reduce amounts outstanding bank lines credit february 14 2001 company entered senior secured revolving credit facility credit facility replaced existing bank credit facilities see note 6 3 summary significant accounting policies cash equivalents company considers highly liquid investments purchased original maturity three months less cash equivalents fair value financial instruments companys financial instruments consist cash equivalents investments receivables payables debt instruments company believes carrying values instruments accompanying consolidated balance sheets approximate fair values inventories consist tubular oilfield products manufactured equipment spare parts manufactured equipment inventories include raw materials work process finished goods labor manufacturing overhead cost tubular goods inventories determined using firstin firstout fifo method cost remaining inventories determined average cost specificidentification method oil states international inc subsidiaries notes consolidated combined financial statements continued property plant equipment property plant equipment stated cost estimated fair market value acquisition date acquired business combination depreciation computed using straightline method estimated useful lives assets leasehold improvements capitalized amortized lesser life lease estimated useful life asset expenditures repairs maintenance charged expense incurred expenditures major renewals betterments extend useful lives existing equipment capitalized depreciated upon retirement disposition property equipment cost related accumulated depreciation removed accounts resulting gain loss recognized statements income goodwill represents excess purchase price acquired businesses allocated value related net assets prior 2002 goodwill amortized straightline basis period 15 40 years based managements evaluation nature duration customer relationships considering competitive technological developments industry goodwill stated net accumulated amortization 174 million 182 million december 31 2002 2001 respectively amount accumulated amortization goodwill declined 2002 compared 2001 changes foreign currency exchange rates 2001 financial accounting standards board issued new standard affected goodwill amortization see recent accounting pronouncements impairment longlived assets compliance statement financial accounting standards sfas 121 accounting impairment longlived assets longlived assets disposed recoverability carrying values property plant equipment assessed minimum annually whenever managements judgment events changes circumstances indicate carrying value assets may recoverable based estimated future cash flows assessment indicates carrying values recoverable determined based undiscounted cash flows remaining useful lives impairment loss recognized impairment loss equals excess carrying value fair value asset fair value asset based prices similar assets available discounted cash flows based companys review carrying value assets recoverable impairment losses recorded periods presented august 2001 financial accounting standards board issued sfas 144 accounting impairment disposal longlived assets company required adopt statement effective january 1 2002 impact foreign currency comprehensive income gains losses resulting balance sheet translation foreign operations foreign currency functional currency included separate component accumulated comprehensive income within stockholders equity gains losses resulting balance sheet translation foreign operations us dollar functional currency included consolidated statements income incurred revenue cost recognition revenue sale products recognized upon shipment customer significant risks ownership passed customer significant fabrication projects built customer specifications revenues recognized percentageofcompletion method measured oil states international inc subsidiaries notes consolidated combined financial statements continued percentage costs incurred date estimated total costs contract costtocost method billings contracts excess costs incurred estimated profits classified deferred revenue management believes method appropriate measure progress large fabrication contracts provisions estimated losses uncompleted contracts made period losses determined rental equipment services revenues recognized based periodic usually daily rental rate services rendered proceeds customers cost oilfield rental equipment damaged lost downhole reflected revenues drilling contracts based footage drilled recognize revenues footage drilled cost goods sold includes direct material labor costs related contract performance indirect labor supplies tools repairs selling general administrative costs charged expense incurred income taxes company follows liability method accounting income taxes accordance sfas 109 accounting income taxes method deferred income taxes recorded based upon differences financial reporting tax bases assets liabilities measured using enacted tax rates laws effect underlying assets liabilities recovered settled companys earnings foreign subsidiaries considered indefinitely reinvested provision us income taxes made earnings subsidiaries distribution earnings form dividends otherwise company would subject us income taxes subject adjustment foreign tax credits withholding taxes payable various foreign countries accordance sfas 109 company records valuation reserve reporting period management believes likely deferred tax asset created realized management continue evaluate appropriateness reserve future based upon operating results company receivables concentration credit risk based nature customer base company believe significant concentrations credit risk concentration oil gas industry company evaluates creditworthiness major new existing customers financial condition generally company require significant collateral domestic customers allowances doubtful accounts company maintains allowances doubtful accounts estimated losses resulting inability companys customers make required payments trade receivable deemed uncollectible receivable chargedoff allowance doubtful accounts company considers following factors determining collection revenue reasonably assured customer creditworthiness past transaction history customer current economic industry trends changes customer payment terms company previous experience customer company typically obtains reports various credit organizations ensure customer history paying creditors company may also request financial information including financial statements documents ensure customer means making payment factors indicate collection reasonably assured company would require prepayment arrangement support revenue recognition recording trade receivable financial condition companys customers deteriorate adversely affecting ability make payments additional allowances would required oil states international inc subsidiaries notes consolidated combined financial statements continued earnings per share companys basic income loss per share eps amounts computed based average number common shares outstanding including 824546 3601329 shares common stock december 31 2002 2001 respectively issuable upon exercise exchangeable shares one companys canadian subsidiaries exchangeable shares issued certain former shareholders pti combination intended characteristics essentially equivalent companys common stock prior exchange treated shares common stock issuable upon exchange exchangeable shares outstanding diluted eps amounts include effect companys outstanding stock options treasury stock method effect convertible preferred stock periods preferred shares outstanding shares awarded companys equity participation plan included companys fully diluted shares stockbased compensation company accounts stockbased compensation plans principles prescribed accounting principles boards opinion 25 apb 25 accounting stock issued employees stock options awarded equity participation plan normally result recognition compensation expense however 100000 shares restricted stock awarded equity participation plan february 2001 considered compensatory nature accordingly company recognized 03 million noncash general administrative expenses 2002 2001 company accounts assets held rabbi trust certain participants companys deferred compensation plan accordance eitf 9714 see note 14 reclassifications certain amounts prior years financial statements reclassified conform current year presentation use estimates preparation consolidated financial statements conformity accounting principles generally accepted united states requires use estimates assumptions management determining reported amounts assets liabilities disclosures contingent assets liabilities date consolidated financial statements reported amounts revenues expenses reporting period examples estimates include costs associated disposal discontinued operations including potential future adjustments result contractual agreements revenue income recognized percentageofcompletion method valuation allowance recorded net deferred tax assets actual results could differ estimates recent accounting pronouncements effective january 1 2002 company adopted sfas 142 goodwill intangible assets sfas 142 connection adoption sfas 142 company ceased amortizing goodwill sfas 142 goodwill longer amortized tested impairment using fair value approach reporting unit level reporting unit operating segment business one level operating segment component level discrete financial information prepared regularly reviewed management component level recognize impairment charge amount carrying amount reporting units goodwill exceeds fair value use comparative market multiples establish fair values oil states international inc subsidiaries notes consolidated combined financial statements continued amortize cost intangibles estimated useful lives unless lives deemed indefinite amortizable intangible assets tested impairment based undiscounted cash flows impaired written fair value based either discounted cash flows appraised values intangible assets indefinite lives tested impairment written fair value required provision goodwill intangibles impairment required based evaluations performed changes carrying amount goodwill year ended december 31 2002 follows thousands following tables present reported income available common stockholders extraordinary items net income extraordinary items per share would periods presented exclusive amortization expense recognized periods related goodwill thousands except per share amounts oil states international inc subsidiaries notes consolidated combined financial statements continued june 2001 financial accounting standards board issued sfas 143 accounting asset retirement obligations statement effective fiscal years beginning june 15 2002 company expects adopt statement effective january 1 2003 company expects statement immaterial effect companys consolidated financial statements august 2001 financial accounting standards board issued sfas 144 accounting impairment disposal longlived assets company required adopt statement effective january 1 2002 impact consolidated financial statements april 2002 financial accounting standards board issued sfas 145 among things rescinded sfas 4 reporting gains losses extinguishment debt company required adopt statement 2003 company expects material impact financial statements company adopted disclosure requirements sfas 148 accounting stock based compensation transition disclosure issued december 2002 effective december 31 2002 consolidated combined financial statements related footnotes 4 details selected balance sheet accounts additional information regarding selected balance sheet accounts december 31 2002 2001 presented thousands oil states international inc subsidiaries notes consolidated combined financial statements continued 5 acquisitions 2002 company acquired following six businesses total consideration approximately 720 million financed primarily borrowings companys credit facility effective march 1 2002 company acquired southeastern rentals llc based mississippi effective august 1 2002 company acquired edge wireline rentals inc certain affiliated companies located louisiana jv oilfield rentals supply inc certain affiliated companies located louisiana suppliers rental tools oil gas service industry businesses merged companys existing rental tool business included well site services segment oil states international inc subsidiaries notes consolidated combined financial statements continued effective july 16 2002 company acquired barlow hunt inc based oklahoma elastomer molding company became part companys existing elastomer business included offshore products segment effective august 14 2002 company acquired certain assets liabilities big inch marine services inc texasbased subsidiary stolt offshore inc provides subsea pipeline equipment repair services similar provided companys offshore products segment effective september 26 2002 applied hydraulic systems inc ahsi acquired company ahsi louisiana based offshore crane manufacturer repair service provider became part companys offshore products segment goodwill recognized acquisitions amounted 401 million 91 million expected deductible tax purposes see note 3 details goodwill segment additionally company allocated 37 million total consideration paid certain noncompete agreements amortized life agreements allocation purchase price paid acquisitions detailed assigned assets liabilities based upon estimated fair value assets liabilities acquisition dates allocation based companys internal evaluation assets supplemented independent appraisals balances included consolidated balance sheet related current year acquisitions based upon preliminary information subject change additional information concerning final asset liability valuations obtained however material changes preliminary allocations anticipated february 14 2001 company acquired 100 issued outstanding shares sooner 695 million companys common stock see note 2 6 longterm debt december 31 2002 2001 longterm debt consisted following thousands oil states international inc subsidiaries notes consolidated combined financial statements continued scheduled maturities combined longterm debt december 31 2002 follows thousands companys capital leases consist primarily plant facilities equipment capitalized lease assets value related accumulated depreciation totaled 42 million 11 million december 31 2002 respectively capitalized lease assets value related accumulated depreciation totaled 17 million 06 million december 31 2001 respectively current debt instruments company currently 1677 million senior secured revolving credit facility group banks 450 million credit facility available form loans denominated canadian dollars may made companys principal canadian operating subsidiaries facility matures january 25 2005 unless extended one additional year period consent lenders amounts borrowed facility bear interest companys election either variable rate equal libor case canadian dollar denominated loans bankers acceptance discount rate plus margin ranging 175 30 alternate base rate equal higher banks prime rate federal funds effective rate plus 05 case canadian dollar denominated loans canadian prime rate plus margin ranging 075 20 depending upon ratio total debt ebitda defined credit facility commitment fees 05 per year paid undrawn portion facility subject exceptions commitments companys credit facility permanently reduced loans prepaid amount equal 100 net cash proceeds nonordinary course asset sales issuance additional debt 50 issuance equity securities mandatory commitment reductions allocated pro rata based amounts outstanding us dollar denominated facility canadian dollar denominated facility addition voluntary reductions commitments permitted oil states international inc subsidiaries notes consolidated combined financial statements continued credit facility guaranteed companys active domestic subsidiaries cases companys canadian foreign subsidiaries credit facility secured first priority lien companys inventory accounts receivable material tangible intangible assets well companys active subsidiaries however 65 voting stock foreign subsidiary required pledged pledge greater percentage would result adverse tax consequences credit facility contains negative covenants restrict companys ability borrow additional funds pay dividends sell assets except normal course business enter significant transactions companys credit facility occurrence specified change control events involving company would constitute event default would permit banks among things accelerate maturity facility cause become immediately due payable full december 31 2002 1243 million outstanding facility additional 81 million outstanding letters credit leaving 353 million available drawn facility companys weighted average interest rate companys outstanding borrowings facility december 31 2002 37 conjunction executing senior secured revolving credit facility january 25 2001 osi recognized extraordinary charge net tax benefit 078 million extraordinary charge due writeoff deferred financing costs related osis credit facilities payment prepayment penalties 025 million june 12 2002 company renewed overdraft credit facility providing borrowings totaling l50 million uk operations interest payable quarterly margin 15 per annum banks variable base rate borrowings facility payable demand 7 postretirement healthcare insurance benefits company provides healthcare insurance benefits approximately 600 eligible retired employees dependent spouses plan longer available current employees healthcare plans contributory contain costsharing features deductibles lifetime maximums copayment requirements oil states international inc subsidiaries notes consolidated combined financial statements continued healthcare plans funded companys policy pay benefits incurred accumulated benefit obligation determined actuarial assumption using healthcare cost trend rate 90 medical 120 prescription drugs 2003 gradually declining approximately 5 year 2009 thereafter projected payout period benefits accumulated benefit obligations determined using assumed discount rate 675 725 december 31 2002 2001 respectively plans provisions companys prescription costs capped annual benefit limits one percentagepoint increase decrease assumed healthcare cost trend rates would immaterial accumulated postretirement benefit obligation net periodic benefit cost december 31 2002 8 retirement plans prior january 2002 company sponsored number defined contribution plans effective january 2002 company merged domestic defined contribution plans single plan sponsored company participation plans available substantially employees company recognized expense 25 million 17 million 17 million related various defined contribution plans years ended december 31 2002 2001 2000 respectively 9 preferred stock cash dividends paid preferred stock 2001 related preferred stock either repaid cash converted common stock connection offering completed february 2001 see note 2 oil states international inc subsidiaries notes consolidated combined financial statements continued 10 income taxes consolidated pretax income loss years ended december 31 2002 2001 2000 consisted following thousands components income tax provision benefit extraordinary items years ended december 31 2002 2001 2000 consisted following thousands provision taxes extraordinary items differs amount computed statutory rates follows years ended december 31 2002 2001 2000 thousands oil states international inc subsidiaries notes consolidated combined financial statements continued significant items giving rise deferred tax assets liabilities december 31 2002 2001 follows thousands reclassifications companys deferred tax balance based net current items net noncurrent items december 31 2002 follows thousands us federal income tax purposes company net operating loss carryforwards approximately 760 million regular income taxes expire years 2005 2020 portion companys net operating loss carryforwards subject limitations section 382 internal revenue code 1986 amended based limitations years carryforwards expire uncertainty achieving levels taxable income required utilization company provided valuation allowance portion carryforwards company federal alternative minimum tax net operating loss carryforwards 580 million expire years 2005 2020 appropriate us foreign income taxes provided earnings foreign subsidiary companies expected remitted near future cumulative amount undistributed earnings foreign subsidiaries company intends permanently reinvest upon deferred us income taxes provided 696 million december 31 2002 upon distribution earnings form dividends otherwise company may subject us income taxes foreign oil states international inc subsidiaries notes consolidated combined financial statements continued withholding taxes practical however estimate amount taxes may payable eventual remittance earnings consideration available foreign tax credits presently foreign tax credits available offset part additional us tax would due upon repatriation earnings year ended december 31 2002 company recognized tax benefit triggered employee exercises stock options totaling 04 million benefit credited additional paidin capital portion deferred tax assets associated property plant equipment net operating loss carryforwards relates companys canadian subsidiarys chilean operation deferred tax assets realized income earned chile valuation allowance provided operating loss carryforwards approximately 29 million available reduce future years taxable income expiration date 11 supplemental cash flow information cash paid years ended december 31 2002 2001 2000 interest income taxes follows thousands components cash used acquisitions reflected consolidated statements cash flows years ended december 31 2002 2001 2000 summarized follows thousands connection acquisitions made 2002 company noncash transactions consisting issuance 20 million notes payable assumption capital leases totaling 33 million 12 commitments contingencies company leases portion equipment office space computer equipment automobiles trucks leases expire various dates oil states international inc subsidiaries notes consolidated combined financial statements continued minimum future operating lease obligations effect december 31 2002 follows thousands rental expense operating leases 43 million 39 million 30 million years ended december 31 2002 2001 2000 respectively december 31 2002 company entered forward purchase option contracts february 26 2003 bank totaling 50 million purchase foreign currency hedge expected future billings contract purchase rates significantly different december 31 2002 currency exchange rates incurred material gains losses foreign currency hedging activities company party various pending threatened claims lawsuits administrative proceedings seeking damages remedies concerning commercial operations products employees matters including occasional claims individuals alleging exposure hazardous materials result products operations claims relate matters occurring prior acquisition businesses relate businesses sold certain cases company entitled indemnification sellers businesses cases indemnified buyers businesses although company give assurance outcome pending legal administrative proceedings effect outcomes may management believes ultimate liability resulting outcome proceedings extent otherwise provided covered insurance material adverse effect consolidated financial position results operations liquidity 13 relatedparty transactions company incurred legal fees totaling 024 million 2001 services rendered law firm connection possible acquisition company member companys board directors partner law firm transaction resulted acquisition effort company currently rents land buildings officer subsidiary company pays monthly rent 5100 officer previous owner business acquired oil states l e simmons associates incorporated served financial advisor company past explored opportunities mergers acquisitions divestitures professional advisory fees outofpocket expenses totaling approximately 008 million paid l e simmons associates incorporated 2000 14 stockbased compensation october 1995 fasb issued sfas 123 accounting stockbased compensation requires company record stockbased compensation fair value december 2002 fasb issued sfas 148 accounting stock based compensation transition disclosure company adopted disclosure requirements sfas 148 elected record employee compensation expense utilizing intrinsic value method permitted accounting principles board apb opinion 25 accounting stock issued employees oil states international inc subsidiaries notes consolidated combined financial statements continued company accounts employee stockbased compensation plan apb opinion 25 related interpretations accordingly deferred compensation expense would recorded stock options based excess market value common stock date options granted aggregate exercise price options deferred compensation would amortized vesting period option company authorized grant common stock based awards covering 5700000 shares common stock 2001 equity participation plan amended restated stock option plan employees consultants directors amounts exercise prices vesting schedules determined companys compensation committee board directors since february 2001 option grants priced closing price day grant vest 25 per year tenyear life exercise price options granted stock option plan equal greater market price companys stock date grant compensation expense related plan recorded compensation expense stock option plan determined consistent sfas 123 utilizing fair value method companys net income earnings per share december 31 2002 2001 2000 would follows thousands except per share amounts oil states international inc subsidiaries notes consolidated combined financial statements continued following table summarizes stock option activity years ended december 31 2000 2001 2002 following table summarizes information stock options outstanding december 31 2002 december 31 2002 2894156 options available future grant stock option plan weighted average fair values options granted 2002 2001 2000 531 548 198 per share respectively fair value option grant estimated date grant using blackscholes option pricing model following weighted average assumptions used grants 2002 2001 2000 respectively riskfree interest rates 52 50 49 expected dividend yield expected lives 100 83 53 years expected volatility 45 0 oil states international inc subsidiaries notes consolidated combined financial statements continued deferred compensation plan company maintains deferred compensation plan deferred compensation plan available directors certain officers managers company plan allows participants defer portion directors fees andor salary annual bonuses applicable permits company make discretionary contributions participants account contributions participants accounts vest immediately deferred compensation plan dollar limits taxdeferred contributions assets deferred compensation plan held rabbi trust therefore available satisfy claims companys creditors event bankruptcy insolvency company participants ability direct plan administrator invest assets accounts including discretionary contributions company common stock preapproved mutual funds held trust addition participants right request plan administrator reallocate portfolio investments ie cash mutual funds company common stock participants individual accounts within trust company contributions form either cash company stock distributions plan generally made upon participants termination director andor employee applicable company participants receive payments plan cash december 31 2002 balance assets trust totaled 07 million including 18078 shares common stock company reflected treasury stock value 02 million company accounts deferred compensation plan accordance eitf 9714 accounting deferred compensation arrangements amounts earned held rabbi trust invested assets trust common stock company invested ten funds covering variety securities investment strategies mutual funds publicly quoted reported market value company accounts investments accordance sfas 115 accounting certain investments debt equity securities trust also holds common shares company companys common stock held trust classified treasury stock stockholders equity section consolidated balance sheet market value assets held trust exclusive market value shares companys common stock reflected treasury stock december 31 2002 06 million classified noncurrent assets consolidated balance sheet amounts payable plan participants december 31 2002 including market value shares companys common stock reflected treasury stock 08 million classified liabilities consolidated balance sheet accordance eitf 9714 market value fluctuations trust assets reflected consolidated combined statements income increases decreases value plan assets exclusive shares common stock company included compensation adjustments respective statements income increases decreases market value deferred compensation liability including shares common stock company held trust recorded treasury stock also included compensation adjustments consolidated combined statements income response changes total market value trust company recorded net compensation expense adjustments 01 million 2002 15 segment related information accordance sfas 131 disclosures segments enterprise related information company identified following reportable segments offshore products wellsite services tubular services companys reportable segments strategic business units offer different products services managed separately business requires different technology marketing strategies businesses acquired unit management time acquisition retained oil states international inc subsidiaries notes consolidated combined financial statements continued financial information industry segment three years ended december 31 2002 2001 2000 summarized following table thousands company evaluates performance allocates resources based ebitda defined calculated operating income plus depreciation amortization calculations ebitda defined viewed substitute calculations accounting principles generally accepted us particular operating income net income addition ebitda calculations one company may comparable another company accounting policies segments described summary significant accounting policies financial information geographic segment three years ended december 31 2002 2001 2000 summarized thousands revenues us include export sales revenues attributable countries based location entity selling products performing services total assets attributable countries based physical location entity operating assets include intercompany balances net assets discontinued operations oil states international inc subsidiaries notes consolidated combined financial statements continued one customer accounted approximately 6 companys revenues years ended december 31 2002 2001 customer accounted 5 companys revenues periods presented 16 quarterly financial information unaudited following table summarizes quarterly financial information 2002 2001 2000 thousands except per share amounts oil states international inc subsidiaries notes consolidated combined financial statements continued earnings per share computed independently quarters presented therefore sum quarterly earnings per share may equal total computed year represents revenues less product costs service costs included companys consolidated combined statements operations 1 companys business well site services segment particularly canada seasonal highest activity occurring winter months 2 effective february 14 2001 company acquired sooner results sooner included acquisition date 17 valuation allowances activity valuation accounts follows thousands exhibit index filed herewith management contracts compensatory plans arrangementsitem 15 exhibits financial statement schedules index financial statements financial statement schedules exhibits 1 financial statements reference made index set forth page 41 annual report form 10k 2 financial statement schedules included herein information required submitted included consolidated financial statements notes thereto required information inapplicable 3 index exhibits see index exhibits list exhibits filed herewith index also includes identifies management contracts compensatory plans arrangements required filed exhibits annual report form 10k item 60110iii regulation sk b index exhibits filed herewith management contracts compensatory plans arrangements furnished herewith signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized oil states international inc douglas e swanson douglas e swanson president chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated march 1 2005 oil states international inc subsidiaries index consolidated financial statements oil states international inc subsidiaries managements annual report internal control financial reporting stockholders board directors oil states international inc management oil states international inc responsible establishing maintaining adequate internal control financial reporting oil states international incs internal control system designed provide reasonable assurance companys management board directors regarding preparation fair presentation published financial statements internal control systems matter well designed inherent limitations therefore even systems determined effective provide reasonable assurance respect financial statement preparation presentation oil states international inc management assessed effectiveness companys internal control financial reporting december 31 2004 making assessment used criteria set forth committee sponsoring organizations treadway commission coso internal control integrated framework based assessment believe december 31 2004 companys internal control financial reporting effective based criteria oil states international incs independent registered public accounting firm audited assessment companys internal control financial reporting report appears page 46 oil states international inc houston texas march 1 2005 oil states international inc subsidiaries report independent registered public accounting firm board directors stockholders oil states international inc audited accompanying consolidated balance sheets oil states international inc subsidiaries company december 31 2004 2003 related consolidated statements income stockholders equity comprehensive income cash flows three years period ended december 31 2004 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position company december 31 2004 2003 consolidated results operations cash flows three years period ended december 31 2004 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states effectiveness companys internal control financial reporting december 31 2004 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission report dated march 1 2005 expressed unqualified opinion thereon ernst young llp houston texas march 1 2005 oil states international inc subsidiaries report independent registered public accounting firm board directors stockholders oil states international inc audited managements assessment included accompanying managements annual report internal control financial reporting oil states international inc subsidiaries company maintained effective internal control financial reporting december 31 2004 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso criteria companys management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting responsibility express opinion managements assessment opinion effectiveness companys internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting evaluating managements assessment testing evaluating design operating effectiveness internal control performing procedures considered necessary circumstances believe audit provides reasonable basis opinion companys internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion managements assessment company maintained effective internal control financial reporting december 31 2004 fairly stated material respects based coso criteria also opinion company maintained material respects effective internal control financial reporting december 31 2004 based coso criteria also audited accordance standards public company accounting oversight board united states accompanying consolidated balance sheets company december 31 2004 2003 related consolidated statements income stockholders equity comprehensive income cash flows three years period ended december 31 2004 report dated march 1 2005 expressed unqualified opinion thereon ernst young llp houston texas march 1 2005 oil states international inc subsidiaries consolidated statements income accompanying notes integral part financial statements oil states international inc subsidiaries consolidated balance sheets accompanying notes integral part financial statements oil states international inc subsidiaries consolidated statements stockholders equity comprehensive income accompanying notes integral part financial statements oil states international inc subsidiaries consolidated statements cash flows accompanying notes integral part financial statements oil states international inc subsidiaries notes consolidated financial statements 1 organization basis presentation consolidated financial statements include accounts oil states international inc oil states company consolidated subsidiaries investments unconsolidated affiliates company able exercise significant influence accounted using equity method february 14 2001 company acquired three companies hwc energy services inc hwc pti group inc pti sooner inc sooner significant intercompany accounts transactions company consolidated subsidiaries eliminated accompanying consolidated financial statements company principally comprised following entities respective subsidiaries oil states industries inc oil states industries inc osi subsidiary oil states leading designer manufacturer diverse range products offshore platforms subsea pipelines defense general industrial applications major product lines include flexible bearings advanced connectors winches mooring lifting systems services installing removing offshore platforms downhole production equipment custom molded products sales made primarily major oil companies large small independent oil gas companies drilling contractors well service workover operators worldwide basis osi facilities arlington houston lampasas texas houma louisiana tulsa oklahoma scotland brazil england singapore pti group inc pti located alberta canada supplier integrated housing food site management logistics support services remote sites utilized natural resources industries primarily canada europe middle east united states hwc energy services inc hwc provides worldwide well control services drilling services rental equipment oil gas industry hwc operates primarily texas louisiana ohio oklahoma new mexico wyoming along foreign operations conducted venezuela middle east africa hydraulic well control operations provide globally hydraulic workover snubbing units emergency well control situations selected markets various hydraulic well control solutions involving well drilling workover completion activities west texas ohio hwc operates subsidiary capstar drilling lp shallow well drilling rigs automated pipe handling capabilities specialty rental tools supply lp subsidiary hwc provides rental equipment drilling workover operations texas louisiana mississippi new mexico oklahoma wyoming sooner inc sooner distributor oilfield tubular products operations located primarily united states majority sales large fully integrated independent oil companies headquartered us 2 summary significant accounting policies cash equivalents company considers highly liquid investments purchased original maturity three months less cash equivalents oil states international inc subsidiaries notes consolidated financial statements continued fair value financial instruments companys financial instruments consist cash equivalents investments receivables payables debt instruments company believes carrying values instruments accompanying consolidated balance sheets approximate fair values inventories consist tubular oilfield products manufactured equipment spare parts manufactured equipment supplies remote accommodation facilities inventories include raw materials labor manufacturing overhead carried lower cost market cost inventories determined average cost specificidentification method property plant equipment property plant equipment stated cost estimated fair market value acquisition date acquired business combination depreciation computed using straightline method estimated useful lives assets leasehold improvements capitalized amortized lesser life lease estimated useful life asset expenditures repairs maintenance charged expense incurred expenditures major renewals betterments extend useful lives existing equipment capitalized depreciated upon retirement disposition property equipment cost related accumulated depreciation removed accounts resulting gain loss recognized statements income goodwill represents excess purchase price acquired businesses allocated value related net assets goodwill stated net accumulated amortization 183 million 180 million december 31 2004 2003 respectively amount accumulated amortization goodwill increased 2004 compared 2003 changes foreign currency exchange rates impairment longlived assets compliance statement financial accounting standards sfas 144 accounting impairment disposal longlived assets recoverability carrying values property plant equipment assessed minimum annually whenever managements judgment events changes circumstances indicate carrying value assets may recoverable based estimated future cash flows assessment indicates carrying values recoverable determined based undiscounted cash flows remaining useful lives impairment loss recognized impairment loss equals excess carrying value fair value asset fair value asset based prices similar assets available discounted cash flows based companys review carrying value assets recoverable impairment losses recorded periods presented foreign currency comprehensive income gains losses resulting balance sheet translation foreign operations foreign currency functional currency included separate component accumulated comprehensive income within stockholders equity gains losses resulting balance sheet translation foreign operations us dollar functional currency included consolidated statements income incurred oil states international inc subsidiaries notes consolidated financial statements continued foreign exchange risk portion revenues earnings net investments foreign affiliates exposed changes foreign exchange rates seek manage foreign exchange risk part operational means including managing expected local currency revenues relation local currency costs local currency assets relation local currency liabilities foreign exchange risk also managed use derivative financial instruments foreign currency denominated debt financial instruments serve protect net income impact translation us dollars certain foreign exchange denominated transactions financial instruments employed manage foreign exchange risk consisted forward exchange contracts notional amounts 5 million december 31 2003 company contracts outstanding december 31 2004 net gains losses foreign currency exchange contracts designated hedges recognized income statement offset foreign currency gain loss underlying transaction exchange gains losses totaled 13 million loss 2004 02 million gain 2003 01 million loss 2001 included operating expense income revenue cost recognition revenue sale products accounted utilizing percentage completion method recognized delivery acceptance customer occurred title significant risks ownership passed customer collectibility probable pricing fixed determinable product sales terms include significant post delivery obligations significant projects built customer specifications revenues recognized percentageofcompletion method measured percentage costs incurred date estimated total costs contract costtocost method billings contracts excess costs incurred estimated profits classified deferred revenue management believes method appropriate measure progress large contracts provisions estimated losses uncompleted contracts made period losses determined rental equipment services revenues recognized based periodic usually daily rental rate services rendered proceeds customers cost oilfield rental equipment damaged lost downhole reflected revenues drilling contracts based footage drilled recognize revenues footage drilled cost goods sold includes direct material labor costs related contract performance indirect labor supplies tools repairs selling general administrative costs charged expense incurred income taxes company follows liability method accounting income taxes accordance sfas 109 accounting income taxes method deferred income taxes recorded based upon differences financial reporting tax bases assets liabilities measured using enacted tax rates laws effect underlying assets liabilities recovered settled companys earnings foreign subsidiaries considered indefinitely reinvested provision us income taxes made earnings subsidiaries distribution earnings form dividends otherwise company would subject us income taxes subject adjustment foreign tax credits withholding taxes payable various foreign countries accordance sfas 109 company records valuation reserve reporting period management believes likely deferred tax asset created oil states international inc subsidiaries notes consolidated financial statements continued realized management continue evaluate appropriateness reserve future based upon operating results company receivables concentration credit risk concentration suppliers based nature customer base company believe significant concentrations credit risk concentration oil gas industry company evaluates creditworthiness major new existing customers financial condition generally company require significant collateral domestic customers purchased 69 oilfield tubular goods three suppliers 2004 largest supplier representing 50 purchases period loss significant supplier tubular services segment could adversely affect us allowances doubtful accounts company maintains allowances doubtful accounts estimated losses resulting inability companys customers make required payments trade receivable deemed uncollectible receivable chargedoff allowance doubtful accounts company considers following factors determining collection revenue reasonably assured customer creditworthiness past transaction history customer current economic industry trends changes customer payment terms company previous experience customer company typically obtains reports various credit organizations ensure customer history paying creditors company may also request financial information including financial statements documents ensure customer means making payment factors indicate collection reasonably assured company would require prepayment arrangement support revenue recognition recording trade receivable financial condition companys customers deteriorate adversely affecting ability make payments additional allowances would required earnings per share companys basic income per share eps amounts computed based average number common shares outstanding including 277183 340971 shares common stock december 31 2004 2003 respectively issuable upon exercise exchangeable shares one companys canadian subsidiaries exchangeable shares issued certain former shareholders pti connection companys ipo combination pti company intended characteristics essentially equivalent companys common stock prior exchange treated shares common stock issuable upon exchange exchangeable shares outstanding diluted eps amounts include effect companys outstanding stock options treasury stock method shares awarded companys equity participation plan included companys fully diluted shares stockbased compensation company accounts stockbased compensation plans principles prescribed accounting principles boards opinion 25 apb 25 accounting stock issued employees stock options awarded equity participation plan normally result recognition compensation expense however 100000 shares restricted stock awarded equity participation plan february 2001 considered compensatory nature accordingly company recognized 03 million noncash general administrative expenses award two years ended december 31 2003 less 01 million 2004 additional 01 million recognized 2004 oil states international inc subsidiaries notes consolidated financial statements continued 2003 stock option performance award company accounts assets held rabbi trust certain participants companys deferred compensation plan accordance eitf 9714 see note 10 guarantees company adopted fasb interpretation 45 fin 45 guarantors accounting disclosure requirements guarantees including indirect indebtedness others 2003 fin 45 requires disclosures accounting companys obligations certain guarantees pursuant fin 45 company required disclose changes product warranty reserves products offshore products accommodations businesses sold warranty generally 12 18 months parts labor covered terms warranty agreement warranty provisions based historical experience product configuration geographic region changes warranty reserves follows thousands current warranty provisions typically related current years sales warranty consumption associated current prior years net sales 2004 company recorded 10 million increase warranty reserves related potential warranty claim associated international subsea pipeline project installed 2000 addition smaller accruals recurring nature ordinary course business company also provides standby letters credit guarantee instruments certain parties required certain transactions initiated either company subsidiaries december 31 2004 maximum potential amount future payments company could required make guarantee agreements approximately 111 million company recorded liability connection guarantee arrangements beyond required appropriately account underlying transaction guaranteed company believe based historical experience information currently available probable amounts required paid guarantee arrangements reclassifications certain amounts prior years financial statements reclassified conform current year presentation use estimates preparation consolidated financial statements conformity accounting principles generally accepted united states requires use estimates assumptions management determining reported amounts assets liabilities disclosures contingent assets liabilities date consolidated financial statements reported amounts revenues expenses reporting period examples estimates include costs associated disposal discontinued operations including potential future adjustments result contractual agreements revenue income oil states international inc subsidiaries notes consolidated financial statements continued recognized percentageofcompletion method valuation allowance recorded net deferred tax assets warranty inventory bad debt reserves actual results could differ estimates discontinued operations prior initial public offering february 2001 sold businesses reported operating results businesses discontinued operations existing reserves related discontinued operations december 31 2004 2003 represent estimate remaining contingent liabilities associated companys exit businesses 3 details selected balance sheet accounts additional information regarding selected balance sheet accounts december 31 2004 2003 presented thousands oil states international inc subsidiaries notes consolidated financial statements continued 4 recent accounting pronouncements effective january 1 2002 company adopted sfas 142 goodwill intangible assets sfas 142 connection adoption sfas 142 company ceased amortizing goodwill sfas 142 goodwill longer amortized tested impairment using fair value approach reporting unit level reporting unit operating segment business one level operating segment component level discrete financial information prepared regularly reviewed management component level recognize impairment charge amount carrying amount reporting units goodwill exceeds units fair value company uses comparative market multiples establish fair values company amortizes cost intangibles estimated useful lives unless lives deemed indefinite amortizable intangible assets tested impairment based undiscounted cash flows impaired written fair value based either discounted cash flows appraised values intangible assets indefinite lives tested impairment written fair value required provision impairment required based evaluations performed oil states international inc subsidiaries notes consolidated financial statements continued changes carrying amount goodwill year ended december 31 2004 2003 follows thousands goodwill deductible tax purposes totals approximately 186 million december 31 2004 following table presents total amount assigned total amount amortized major intangible asset classes december 31 2004 2003 thousands weighted average remaining amortization period intangible assets goodwill 36 years 44 years december 31 2004 2003 respectively total amortization expense expected 23 million 22 million 17 million 2005 2006 2007 respectively january 2003 financial accounting standards board fasb issued fasb interpretation 46 fin 46 december 2003 amendment fin 46r fin 46 entitled consolidation variable interest entities interpretation arb 51 fin 46 provides guidance 1 identification entities control achieved means voting rights known variable interest entities vies 2 business enterprise primary beneficiary consolidate vie new requirement consolidation applies entities 1 equity investors controlling financial interest 2 whose equity investment risk insufficient finance entitys activities without receiving additional subordinated financial support parties addition fin 46 requires primary beneficiary enterprises significant variable interest vie make additional disclosures fin 46 effective new vies created acquired january 31 2003 vies created acquired prior february 1 2003 provisions fin 46 must applied first interim annual period ending december 15 2003 implementation fin 46 affect company november 2004 fasb issued statement financial accounting standards 151 inventory costs amendment arb 43 chapter 4 sfas 151 sfas 151 clarifies accounting abnormal amounts idle facility expense freight handling costs wasted material paragraph 5 accounting research bulletin arb 43 chapter 4 inventory pricing previously stated certain circumstances items idle facility expense excessive spoilage double freight rehandling costs may abnormal require treatment currentperiod charges sfas 151 requires items recognized currentperiod charges regardless whether meet criterion abnormal oil states international inc subsidiaries notes consolidated financial statements continued addition sfas 151 requires allocation fixed production overheads costs conversion based normal capacity production facilities sfas 151 effective fiscal years beginning june 15 2005 company believe implementation sfas 151 material impact companys financial position results operations cash flows december 2004 fasb issued two fasb staff positions fsps provide accounting guidance companies account effects american jobs creation act 2004 act signed law october 22 2004 act could affect companies report deferred income tax balances first fsp fas 1091 fas 1091 second fsp fas 1092 fas 1092 fas 1091 fasb concludes tax relief special tax deduction domestic manufacturing act accounted special deduction instead tax rate reduction fas 1092 gives company additional time evaluate effects act plan reinvestment repatriation foreign earnings purposes applying fasb statement 109 accounting income taxes however companies must provide certain disclosures choose utilize additional time granted fasb company still evaluating impact fsps may results operations financial condition cash flows december 16 2004 fasb issued fasb statement 123 revised 2004 sharebased payment revision fasb statement 123 accounting stockbased compensation statement 123r supersedes apb opinion 25 accounting stock issued employees amends fasb statement 95 statement cash flows generally approach statement 123r similar approach described statement 123 however statement 123r requires sharebased payments employees including grants employee stock options recognized income statement based fair values pro forma disclosure longer acceptable alternative statement 123r must adopted later july 1 2005 expect adopt statement 123r july 1 2005 company plans adopt statement 123r using modifiedprospective method whereby compensation cost recognized beginning effective date based requirements statement 123r sharebased payments granted effective date b based requirements statement 123r awards granted employees prior effective date statement 123r remain unvested effective date permitted sfas 123 company currently accounts sharebased payments employees using apb 25 intrinsic value method generally recognizes compensation cost employee stock options accordingly adoption sfas 123rs fair value method impact results operations although impact overall financial position adopted sfas 123r prior periods impact standard would approximated impact sfas 123 described disclosure pro forma net income earnings per share note 10 annual report form 10k statement 123r also requires benefits tax deductions excess recognized compensation cost reported financing cash flow rather operating cash flow requirement reduce net operating cash flows increase net financing cash flows periods adoption company cannot estimate amounts future depend among things employees exercise stock options amount operating cash flows recognized prior periods excess tax deductions stock option exercises 11 million 18 million 04 million 2004 2003 2002 respectively oil states international inc subsidiaries notes consolidated financial statements continued 5 longterm debt december 31 2004 2003 longterm debt consisted following thousands scheduled maturities combined longterm debt december 31 2004 follows thousands 1 company amended bank credit agreement effective january 31 2005 extend maturity year 2010 companys capital leases consist primarily plant facilities equipment value capitalized leases related accumulated depreciation totaled 31 million 16 million respectively december 31 2004 value capitalized leases related accumulated depreciation totaled 43 million 15 million respectively december 31 2003 oil states international inc subsidiaries notes consolidated financial statements continued current debt instruments october 30 2003 company replaced existing credit facility 2250 million senior secured revolving credit facility group banks 450 million credit facility available form loans denominated canadian dollars may made companys principal canadian operating subsidiaries may 2004 company exercised option increase maximum borrowings credit facility 250 million facility mature october 30 2007 unless extended one additional year period consent lenders see note 14 subsequent events information related amendment credit facility amounts borrowed facility bear interest companys election either variable rate equal libor case canadian dollar denominated loans bankers acceptance discount rate plus margin ranging 15 25 alternate base rate equal higher banks prime rate federal funds effective rate plus 05 case canadian dollar denominated loans canadian prime rate plus margin ranging 05 15 depending upon ratio total debt ebitda defined credit facility commitment fees ranging 0375 05 per year paid undrawn portion facility depending upon leverage ratio credit facility guaranteed companys active domestic subsidiaries cases companys canadian foreign subsidiaries credit facility secured first priority lien companys inventory accounts receivable material tangible intangible assets well companys active subsidiaries however 65 voting stock foreign subsidiary required pledged pledge greater percentage would result adverse tax consequences credit facility contains negative covenants restrict companys ability borrow additional funds encumber assets pay dividends sell assets except normal course business enter significant transactions companys credit facility occurrence specified change control events involving company would constitute event default would permit banks among things accelerate maturity facility cause become immediately due payable full december 31 2004 1726 million outstanding facility additional 108 million outstanding letters credit leaving 666 million available drawn facility conjunction executing senior secured revolving credit facility october 30 2003 company recognized additional noncash interest expense 12 million taxes writeoff deferred financing costs related prior credit facility february 26 2004 company renewed overdraft credit facility providing borrowings totaling l20 million uk operations interest payable quarterly margin 15 per annum banks variable base rate borrowings facility payable demand amounts outstanding facility december 31 2004 6 retirement plans company sponsors defined contribution plan participation plans available substantially employees company recognized expense 31 million 29 million 25 million respectively related various defined contribution plans years ended december 31 2004 2003 2002 respectively oil states international inc subsidiaries notes consolidated financial statements continued 7 income taxes consolidated pretax income years ended december 31 2004 2003 2002 consisted following thousands components income tax provision years ended december 31 2004 2003 2002 consisted following thousands provision taxes differs amount computed statutory rates follows years ended december 31 2004 2003 2002 thousands oil states international inc subsidiaries notes consolidated financial statements continued significant items giving rise deferred tax assets liabilities december 31 2004 2003 follows thousands reclassifications companys deferred tax balance based net current items net noncurrent items december 31 2004 2003 follows thousands primary deferred tax asset totaled approximately 125 million december 31 2004 related 358 million available federal net operating loss carryforwards nols date valuation allowance approximately 51 million provided deferred tax asset associated nols december 31 2004 nols expire varying amounts years 2010 2020 first used offset taxable income generate ability utilize significant portion available nols currently limited section 382 internal revenue code due change control occurred 1995 successive change control triggered 2003 pursuant section 382 however significantly change nol utilization expectations oil states international inc subsidiaries notes consolidated financial statements continued income tax provision year ended december 31 2004 totaled 294 million 331 pretax income tax provision year 2004 included 69 million income tax benefit related partial reversal valuation allowance applied nols recorded prior year end based upon positive earnings generated financial tax reporting purposes since formation believed would likely generate sufficient taxable income future years realize benefit 51 million deferred tax asset associated net operating losses following recognition 69 million income tax benefit year 2004 recognized associated income tax benefit cumulative basis approximately 212 million 358 million available federal net operating loss carryforwards company federal alternative minimum tax net operating loss carryforwards 189 million expire years 2010 2020 company 29 million net operating loss carryforwards associated canadian subsidiarys chilean operations december 31 2004 losses may carried forward indefinitely however losses may used offset future chilean taxable income accordingly company provided full valuation allowance associated deferred tax asset appropriate us foreign income taxes provided earnings foreign subsidiary companies expected remitted near future cumulative amount undistributed earnings foreign subsidiaries company intends permanently reinvest upon deferred us income taxes provided 1260 million december 31 2004 upon distribution earnings form dividends otherwise company may subject us income taxes subject adjustment foreign tax credits foreign withholding taxes practical however estimate amount taxes may payable eventual remittance earnings consideration available foreign tax credits year ended december 31 2004 company recognized tax benefit triggered employee exercises stock options totaling 11 million benefit credited additional paidin capital october 2004 american jobs creation act 2004 jobs act signed law introduced special onetime dividends received deduction repatriation foreign earnings us taxpayer repatriation provision provided certain criteria met act provides special onetime deduction 85 percent certain foreign earnings repatriated either companys last tax year began enactment date first tax year begins oneyear period beginning date enactment maximum amount companys foreign earnings qualify temporary deduction 696 million company process evaluating whether repatriate foreign earnings repatriation provisions jobs act amount repatriated range reasonably possible amounts company considering repatriation would eligible temporary deduction zero 696 million company awaiting issuance regulatory guidance passage statutory technical corrections respect certain provisions jobs act prior determining amounts repatriate company expects determine amounts sources foreign earnings repatriated 2005 company yet position determine impact qualifying repatriation choose make one income tax expense 2005 amount indefinitely reinvested foreign earnings range income tax effects amount deferred tax liability respect foreign earnings company files tax returns jurisdictions required returns subject examination audit possible adjustment result assessments taxing authorities company believes recorded sufficient tax liabilities expect resolution oil states international inc subsidiaries notes consolidated financial statements continued examination audit tax returns would material adverse effect operating results financial condition liquidity 8 supplemental cash flow information cash paid years ended december 31 2004 2003 2002 interest income taxes follows thousands components cash used acquisitions reflected consolidated statements cash flows years ended december 31 2004 2003 2002 summarized follows thousands connection acquisition made 2004 company noncash transaction consisting issuance 46 million note payable seller connection acquisitions made 2002 company noncash transactions consisting issuance 20 million notes payable assumption capital lease totaling 33 million 2002 acquired following six businesses total consideration 721 million financed primarily borrowings credit facility southeastern rentals llc based mississippi edge wireline rentals inc certain affiliated companies located louisiana jv oilfield rentals supply inc certain affiliated companies located louisiana suppliers rental tools oil gas service industry businesses merged existing rental tool business included well site services segment barlow hunt inc based oklahoma elastomer molding company become part existing elastomer business included offshore products segment certain assets related liabilities big inch marine services inc texasbased subsidiary stolt offshore inc provides subsea pipeline equipment repair services similar provided us offshore products segment applied hydraulic systems inc louisianabased offshore crane manufacturer crane repair service provider become part offshore products segment 2003 spent 168 million including acquisition costs acquire five businesses three businesses rental tool companies acquired total consideration 105 million acquired rental tool companies conduct operations south texas louisiana combined existing rental tool business within well site services segment remaining two businesses acquired aggregate consideration 63 million combined offshore products segment oil states international inc subsidiaries notes consolidated financial statements continued january 2004 completed acquisition several related rental tool companies 348 million companies based south texas leading providers thrutubing services ancillary equipment rentals companies combined rental tool subsidiary report well site services segment completed additional acquisition rental tool company april 2004 48 million may 2004 purchased oil country tubular goods octg distribution business hunting energy services lp whollyowned affiliate hunting plc 470 million including purchase price adjustment settled october 2004 connection transaction purchased huntings us tubular inventory assumed certain customer contracts entered supply distribution relationships hunting future huntings distribution operations merged tubular services segment october 2004 offshore products segment acquired small business 04 million become part existing elastomers business 9 commitments contingencies company leases portion equipment office space computer equipment automobiles trucks leases expire various dates minimum future operating lease obligations effect december 31 2004 follows thousands rental expense operating leases 45 million 49 million 43 million years ended december 31 2004 2003 2002 respectively december 31 2003 company entered forward purchase option contracts february 25 2004 bank totaling 50 million purchase foreign currency hedge expected future billings 2004 realized gain 09 million upon settlement forward option purchase contract contracts outstanding december 31 2004 company party various pending threatened claims lawsuits administrative proceedings seeking damages remedies concerning commercial operations products employees matters including warranty product liability claims occasional claims individuals alleging exposure hazardous materials result products operations claims relate matters occurring prior acquisition businesses relate businesses sold certain cases company entitled indemnification sellers businesses cases indemnified buyers businesses although company give assurance outcome pending legal administrative proceedings effect outcomes may management believes ultimate liability resulting outcome proceedings extent otherwise provided covered insurance material adverse effect consolidated financial position results operations liquidity oil states international inc subsidiaries notes consolidated financial statements continued february 18 2005 company announced conducted internal investigation prompted discovery billings totaling 439000 one subsidiaries subsidiary government owned oil company south america billings detected company routine financial review procedures appropriate financial statement adjustments included previously reported fourth quarter 2004 results company independent counsel retained companys audit committee conducted separate investigations consisting interviews thorough examination facts circumstances matter company voluntarily reported results investigation securities exchange commission sec fully cooperate requests information received sec 10 stockbased compensation october 1995 fasb issued sfas 123 accounting stockbased compensation requires company record stockbased compensation fair value december 2002 fasb issued sfas 148 accounting stock based compensation transition disclosure company adopted disclosure requirements sfas 148 elected record employee compensation expense utilizing intrinsic value method permitted accounting principles board apb opinion 25 accounting stock issued employees company accounts employee stockbased compensation plan apb opinion 25 related interpretations accordingly deferred compensation expense would recorded stock options based excess market value common stock date options granted aggregate exercise price options deferred compensation would amortized vesting period option company authorized grant common stock based awards covering 5700000 shares common stock 2001 equity participation plan amended restated equity participation plan employees consultants directors amounts exercise prices vesting schedules determined companys compensation committee board directors option grants made february 2001 december 2004 priced closing price day grant vest 25 per year life ranging 6 10 years exercise price options granted equity participation plan equal greater market price companys stock date grant compensation expense related plan recorded compensation expense equity participation plan determined consistent sfas 123 utilizing fair value method companys net income earnings per share december 31 2004 2003 2002 would follows thousands except per share amounts oil states international inc subsidiaries notes consolidated financial statements continued following table summarizes stock option activity three years ended december 31 2004 following table summarizes information stock options outstanding december 31 2004 december 31 2004 1329802 shares available future grant stock option plan weighted average fair values options granted 2004 2003 2002 518 455 531 per share respectively fair value option grant estimated date grant using blackscholes option pricing model following weighted average assumptions used grants 2004 2003 2002 respectively riskfree interest rates 31 30 52 expected dividend yield expected lives 50 55 100 years expected volatility 37 45 oil states international inc subsidiaries notes consolidated financial statements continued deferred compensation plan company maintains deferred compensation plan deferred compensation plan available directors certain officers managers company plan allows participants defer portion directors fees andor salary annual bonuses applicable permits company make discretionary contributions participants account since inception plan discretionary contribution provision limited matching employee participants contribution basis equivalent matching permitted companys 401k retirement savings plan contributions participants accounts vest immediately deferred compensation plan dollar limits taxdeferred contributions assets deferred compensation plan held rabbi trust therefore available satisfy claims companys creditors event bankruptcy insolvency company participants ability direct plan administrator invest assets accounts including discretionary contributions company preapproved mutual funds held trust prior november 1 2003 participants also ability direct plan administrator invest assets accounts company common stock addition participants currently right request plan administrator reallocate portfolio investments ie cash mutual funds participants individual accounts within trust current balances invested company common stock may increased company contributions form cash distributions plan generally made upon participants termination director andor employee applicable company participants receive payments plan cash december 31 2004 balance assets trust totaled 35 million including 31028 shares common stock company reflected treasury stock value 03 million company accounts deferred compensation plan accordance eitf 9714 accounting deferred compensation arrangements amounts earned held rabbi trust invested assets trust common stock company invested nine funds covering variety securities investment strategies mutual funds publicly quoted reported market value company accounts investments accordance sfas 115 accounting certain investments debt equity securities trust also holds common shares company companys common stock held trust classified treasury stock stockholders equity section consolidated balance sheet market value assets held trust exclusive market value shares companys common stock reflected treasury stock december 31 2004 32 million classified noncurrent assets consolidated balance sheet amounts payable plan participants december 31 2004 including market value shares companys common stock reflected treasury stock 38 million classified liabilities consolidated balance sheet accordance eitf 9714 market value fluctuations trust assets reflected consolidated statements income increases decreases value plan assets exclusive shares common stock company included compensation adjustments respective statements income increases decreases market value deferred compensation liability including shares common stock company held trust recorded treasury stock also included compensation adjustments consolidated statements income response changes total market value companys common stock held trust company recorded net compensation expense adjustments 02 million 2004 01 million 2003 2002 11 segment related information accordance sfas 131 disclosures segments enterprise related information company identified following reportable segments offshore products wellsite services tubular services companys reportable segments strategic business units offer oil states international inc subsidiaries notes consolidated financial statements continued different products services managed separately business requires different technology marketing strategies businesses acquired unit management time acquisition retained financial information industry segment three years ended december 31 2004 2003 2002 summarized following table thousands accounting policies segments described summary significant accounting policies oil states international inc subsidiaries notes consolidated financial statements continued financial information geographic segment three years ended december 31 2004 2003 2002 summarized thousands revenues us include export sales revenues attributable countries based location entity selling products performing services total assets attributable countries based physical location entity operating assets include intercompany balances customers accounted 10 companys revenues years ended december 31 2004 2003 2002 oil states international inc subsidiaries notes consolidated financial statements continued 12 quarterly financial information unaudited following table summarizes quarterly financial information 2004 2003 2002 thousands except per share amounts earnings per share computed independently quarters presented therefore sum quarterly earnings per share may equal total computed year represents revenues less product costs service costs included companys consolidated statements operations 1 companys business well site services segment particularly canada seasonal highest activity occurring winter months oil states international inc subsidiaries notes consolidated financial statements continued 13 valuation allowances activity valuation accounts follows thousands 14 subsequent events february 2005 company completed acquisition elenburg exploration company inc elenburg total consideration 220 million cash portion purchase price 213 million funded companys existing credit lines elenburg wyoming based land drilling company become part well site services segment elenburg owns seven drilling rigs operate primarily montana wyoming colorado utah january 31 2005 company amended existing revolving credit facility current group lenders terms amendment oil states increased facility 325 million 250 million extended term facility january 2010 amendment also adjusted several covenants lowered borrowing rates across pricing grid companys board directors authorized repurchase shares companys common stock par value 01 per share board directors authorized expenditure 50 million repurchase shares index exhibits filed herewith management contracts compensatory plans arrangements furnished herewithitem 15 exhibits financial statement schedules index financial statements financial statement schedules exhibits 1 financial statements reference made index set forth page 45 annual report form 10k 2 financial statement schedules included herein information required submitted included consolidated financial statements notes thereto required information inapplicable 3 index exhibits see index exhibits list exhibits filed herewith index also includes identifies management contracts compensatory plans arrangements required filed exhibits annual report form 10k item 60110iii regulation sk b index exhibits filed herewith management contracts compensatory plans arrangements furnished herewith signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized oil states international inc douglas e swanson douglas e swanson chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 28 2007 oil states international inc subsidiaries index consolidated financial statements oil states international inc subsidiaries management’s annual report internal control financial reporting stockholders board directors oil states international inc management oil states international inc subsidiaries oil states international inc company responsible establishing maintaining adequate internal control financial reporting oil states international inc’s internal control system designed provide reasonable assurance company’s management board directors regarding preparation fair presentation published financial statements internal control systems matter well designed inherent limitations therefore even systems determined effective provide reasonable assurance respect financial statement preparation presentation oil states international inc’s management assessed effectiveness company’s internal control financial reporting december 31 2006 making assessment management used criteria set forth committee sponsoring organizations treadway commission coso internal control integrated framework based assessment believe december 31 2006 company’s internal control financial reporting effective based criteria oil states international inc’s independent registered public accounting firm audited assessment effectiveness company’s internal control financial reporting report appears page 45 oil states international inc houston texas oil states international inc subsidiaries report independent registered public accounting firm board directors stockholders oil states international inc audited accompanying consolidated balance sheets oil states international inc subsidiaries “company” december 31 2006 2005 related consolidated statements income stockholders’ equity comprehensive income cash flows three years period ended december 31 2006 financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position company december 31 2006 2005 consolidated results operations cash flows three years period ended december 31 2006 conformity us generally accepted accounting principles discussed note 4 consolidated financial statements effective january 1 2006 company adopted provisions statement financial accounting standards 123 revised 2004 sharebased payment also audited accordance standards public company accounting oversight board united states effectiveness company’s internal control financial reporting december 31 2006 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission report dated february 23 2007 expressed unqualified opinion thereon ernst young llp houston texas february 23 2007 oil states international inc subsidiaries report independent registered public accounting firm board directors stockholders oil states international inc audited management’s assessment included accompanying management’s annual report internal control financial reporting oil states international inc subsidiaries oil states international inc “company” maintained effective internal control financial reporting december 31 2006 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso criteria company’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting responsibility express opinion management’s assessment opinion effectiveness company’s internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting evaluating management’s assessment testing evaluating design operating effectiveness internal control performing procedures considered necessary circumstances believe audit provides reasonable basis opinion company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion management’s assessment company maintained effective internal control financial reporting december 31 2006 fairly stated material respects based coso criteria also opinion company maintained material respects effective internal control financial reporting december 31 2006 based coso criteria also audited accordance standards public company accounting oversight board united states accompanying consolidated balance sheets company december 31 2006 2005 related consolidated statements income stockholders’ equity comprehensive income cash flows three years period ended december 31 2006 report dated february 23 2007 expressed unqualified opinion thereon ernst young llp houston texas february 23 2007 oil states international inc subsidiaries consolidated statements income accompanying notes integral part financial statements oil states international inc subsidiaries consolidated balance sheets accompanying notes integral part financial statements oil states international inc subsidiaries consolidated statements stockholders’ equity comprehensive income accompanying notes integral part financial statements oil states international inc subsidiaries consolidated statements cash flows accompanying notes integral part financial statements oil states international inc subsidiaries notes consolidated financial statements oil states international inc subsidiaries notes consolidated financial statements continued 1 organization basis presentation consolidated financial statements include accounts oil states international inc oil states company consolidated subsidiaries investments unconsolidated affiliates company able exercise significant influence accounted using equity method february 14 2001 company acquired three companies hwc energy services inc hwc pti group inc pti sooner inc sooner significant intercompany accounts transactions company consolidated subsidiaries eliminated accompanying consolidated financial statements company principally comprised following entities respective subsidiaries oil states industries inc oil states industries inc osi comprises offshore products segment subsidiary oil states leading designer manufacturer diverse range products offshore platforms subsea pipelines defense general industrial applications major product lines include flexible bearings advanced connectors winches mooring lifting systems services installing removing offshore platforms downhole production equipment custom molded products sales made primarily major oil companies large small independent oil gas companies drilling contractors well service workover operators worldwide basis osi facilities arlington houston lampasas texas houma louisiana tulsa oklahoma scotland brazil england singapore thailand pti group inc pti part well site services segment located alberta canada supplier integrated housing food site management logistics support services remote sites utilized extractive industries primarily canada europe middle east united states oil states energy services inc formerly hwc energy services inc oil states energy services inc oses part well site services segment provides drilling services rental equipment oil gas industry west texas ohio rocky mountains area oses operates subsidiaries capstar drilling lp elenburg exploration company shallow medium depth drilling rigs automated pipe handling capabilities specialty rental tools supply lp subsidiary oses provides rental equipment drilling workover operations texas louisiana mississippi new mexico oklahoma arkansas wyoming stinger wellhead protection inc affiliates stinger subsidiary oses provides wellhead isolation equipment services us canada south america central america sooner inc sooner comprises tubular services segment distributor oilfield tubular products operations located primarily united states majority sales large fully integrated independent oil companies headquartered us 2 summary significant accounting policies cash equivalents company considers highly liquid investments purchased original maturity three months less cash equivalents oil states international inc subsidiaries notes consolidated financial statements continued fair value financial instruments company’s financial instruments consist cash equivalents investments receivables notes receivable payables debt instruments company believes carrying values instruments fixed rate contingent convertible senior notes accompanying consolidated balance sheets approximate fair values fair value 238 contingent convertible senior notes estimated based prices quoted thirdparty financial institutions carrying fair values notes follows thousands inventories consist tubular oilfield products manufactured equipment spare parts manufactured equipment raw materials supplies raw materials remote accommodation facilities inventories include raw materials labor subcontractor charges manufacturing overhead carried lower cost market cost inventories determined average cost specificidentification method property plant equipment property plant equipment stated cost estimated fair market value acquisition date acquired business combination depreciation computed assets owned recorded capital lease using straightline method estimated useful lives assets leasehold improvements capitalized amortized lesser life lease estimated useful life asset expenditures repairs maintenance charged expense incurred expenditures major renewals betterments extend useful lives existing equipment capitalized depreciated upon retirement disposition property equipment cost related accumulated depreciation removed accounts resulting gain loss recognized statements income goodwill represents excess purchase price acquired businesses allocated value related net assets goodwill stated net accumulated amortization 174 million december 31 2006 183 million december 31 2005 impairment longlived assets compliance statement financial accounting standards sfas 144 “accounting impairment disposal longlived assets” recoverability carrying values property plant equipment assessed minimum annually whenever management’s judgment events changes circumstances indicate carrying value assets may recoverable based estimated future cash flows assessment indicates carrying values recoverable determined based undiscounted cash flows remaining useful lives impairment loss recognized impairment loss equals excess carrying value fair value asset fair value asset based prices similar assets available discounted cash flows based company’s review carrying value assets recoverable impairment losses recorded periods presented oil states international inc subsidiaries notes consolidated financial statements continued foreign currency comprehensive income gains losses resulting balance sheet translation foreign operations foreign currency functional currency included separate component accumulated comprehensive income within stockholders’ equity representing substantially balances within accumulated comprehensive income gains losses resulting balance sheet translation foreign operations us dollar functional currency included consolidated statements income incurred foreign exchange risk portion revenues earnings net investments foreign affiliates exposed changes foreign exchange rates seek manage foreign exchange risk part operational means including managing expected local currency revenues relation local currency costs local currency assets relation local currency liabilities foreign exchange risk also managed use derivative financial instruments foreign currency denominated debt financial instruments serve protect net income impact translation us dollars certain foreign exchange denominated transactions financial instruments employed manage foreign exchange risk consisted forward exchange contracts notional amounts 15 million december 31 2005 company contracts outstanding december 31 2006 december 31 2004 net gains losses foreign currency exchange contracts designated hedges recognized income statement offset foreign currency gain loss underlying transaction exchange gains losses totaled 04 million loss 2006 02 million gain 2005 13 million loss 2004 included operating expense income interest capitalization interest costs construction certain longterm assets capitalized amortized related assets’ estimated useful lives year ended december 31 2006 01 million capitalized interest capitalized 2005 2004 revenue cost recognition revenue sale products accounted utilizing percentageofcompletion method recognized delivery acceptance customer occurred title significant risks ownership passed customer collectibility probable pricing fixed determinable product sales terms include significant post delivery obligations significant projects built customer specifications revenues recognized percentageofcompletion method measured percentage costs incurred date estimated total costs contract costtocost method billings contracts excess costs incurred estimated profits classified deferred revenue management believes method appropriate measure progress large contracts provisions estimated losses uncompleted contracts made period losses determined drilling services rental tool services revenues recognized based periodic usually daily rental rate services rendered proceeds customers cost oilfield rental equipment damaged lost downhole reflected gains losses disposition assets drilling services contracts based footage drilled recognize revenues footage drilled revenues exclude taxes assessed based revenues sales value added taxes cost goods sold includes direct material labor costs related contract performance indirect labor supplies tools repairs selling general administrative costs charged expense incurred oil states international inc subsidiaries notes consolidated financial statements continued income taxes company follows liability method accounting income taxes accordance sfas 109 “accounting income taxes” method deferred income taxes recorded based upon differences financial reporting tax bases assets liabilities measured using enacted tax rates laws effect underlying assets liabilities recovered settled company’s earnings foreign subsidiaries considered indefinitely reinvested provision us income taxes made earnings subsidiaries distribution earnings form dividends otherwise company would subject us income taxes subject adjustment foreign tax credits withholding taxes payable various foreign countries accordance sfas 109 company records valuation reserve reporting period management believes likely deferred tax asset created realized management continue evaluate appropriateness reserve future based upon operating results company receivables concentration credit risk concentration suppliers based nature customer base company believe significant concentrations credit risk concentration oil gas industry company evaluates creditworthiness major new existing customers’ financial condition generally company require significant collateral domestic customers purchased 79 oilfield tubular goods three suppliers 2006 largest supplier representing 46 purchases period loss significant supplier tubular services segment could adversely affect us allowances doubtful accounts company maintains allowances doubtful accounts estimated losses resulting inability company’s customers make required payments trade receivable deemed uncollectible receivable chargedoff allowance doubtful accounts company considers following factors determining collection revenue reasonably assured customer creditworthiness past transaction history customer current economic industry trends changes customer payment terms company previous experience customer company typically obtains reports various credit organizations ensure customer history paying creditors company may also request financial information including financial statements documents ensure customer means making payment factors indicate collection reasonably assured company would require prepayment arrangement support revenue recognition recording trade receivable financial condition company’s customers deteriorate adversely affecting ability make payments additional allowances would required earnings per share company’s basic income per share eps amounts computed based average number common shares outstanding including 256787 267348 shares common stock december 31 2006 2005 respectively issuable upon exercise exchangeable shares one company’s canadian subsidiaries exchangeable shares issued certain former shareholders pti connection company’s ipo combination pti company intended characteristics essentially equivalent company’s common stock prior exchange treated shares common stock issuable upon exchange exchangeable shares outstanding diluted eps amounts include effect oil states international inc subsidiaries notes consolidated financial statements continued company’s outstanding stock options treasury stock method shares restricted stock awarded company’s equity participation plan included company’s fully diluted shares assumed issued upon conversion company’s 238 contingent convertible notes averaged 391434 87210 years ended december 31 2006 december 31 2005 respectively included calculation fully diluted earnings per share stockbased compensation adopted statement financial accounting standards 123r sfas 123r effective january 1 2006 pronouncement requires companies measure cost employee services received exchange award equity instruments typically stock options based grantdate fair value award fair value estimated using optionpricing models resulting cost recognized period employee required provide service exchange awards usually vesting period prior adoption sfas 123r accounting treatment optional pro forma disclosures required year ended december 31 2006 company recognized noncash general administrative expenses stock options restricted stock awards totaling 76 million prior adoption sfas 123r shares restricted stock awarded equity participation plan considered compensatory nature accordingly company recognized noncash general administrative expenses restricted stock awards totaled 06 million 01 million years ended december 31 2005 2004 respectively additional 01 million recognized 2004 stock option performance award company accounts assets held rabbi trust certain participants company’s deferred compensation plan accordance eitf 9714 see note 13 guarantees company applies fasb interpretation 45 fin 45 “guarantor’s accounting disclosure requirements guarantees including indirect indebtedness others” company’s obligations certain guarantees pursuant fin 45 company required disclose changes product warranty reserves products offshore products accommodations businesses sold warranty generally 12 18 months parts labor covered terms warranty agreement warranty provisions based historical experience product configuration geographic region changes warranty reserves follows thousands current warranty provisions typically related current year’s sales warranty consumption associated current prior year’s net sales 2004 company recorded 10 million increase warranty reserves related potential warranty claim associated international subsea pipeline project installed 2000 addition smaller accruals recurring nature international subsea pipeline project warranty issue settled 2005 amount approximately equal amount reserved issue oil states international inc subsidiaries notes consolidated financial statements continued ordinary course business company also provides standby letters credit guarantee instruments certain parties required certain transactions initiated either company subsidiaries december 31 2006 maximum potential amount future payments company could required make guarantee agreements approximately 113 million company recorded liability connection guarantee arrangements beyond required appropriately account underlying transaction guaranteed company believe based historical experience information currently available probable amounts required paid guarantee arrangements reclassifications certain amounts prior years’ financial statements reclassified conform current year presentation use estimates preparation consolidated financial statements conformity accounting principles generally accepted united states requires use estimates assumptions management determining reported amounts assets liabilities disclosures contingent assets liabilities date consolidated financial statements reported amounts revenues expenses reporting period examples estimates include costs associated disposal discontinued operations including potential future adjustments result contractual agreements revenue income recognized percentageofcompletion method estimate company’s share earnings equity method investments valuation allowance recorded net deferred tax assets warranty inventory bad debt reserves actual results could differ estimates discontinued operations prior initial public offering february 2001 sold businesses reported operating results businesses discontinued operations existing reserves related discontinued operations december 31 2006 2005 represent estimate remaining contingent liabilities associated company’s exit businesses 3 details selected balance sheet accounts additional information regarding selected balance sheet accounts december 31 2006 2005 presented thousands oil states international inc subsidiaries notes consolidated financial statements continued depreciation expense 505 million 433 million 337 million years ended december 31 2006 2005 2004 respectively 4 recent accounting pronouncements adopted statement financial accounting standards 123r sfas 123r effective january 1 2006 pronouncement requires companies measure cost employee services received exchange award equity instruments typically stock options based grantdate fair value award fair value estimated using optionpricing models resulting cost recognized period employee required provide service exchange awards usually vesting period prior adoption oil states international inc subsidiaries notes consolidated financial statements continued sfas 123r accounting treatment optional pro forma disclosures required adopted sfas 123r using modified prospective transition method see note 13 may 2005 financial accounting standards board fasb issued statement financial accounting standards sfas 154 “accounting changes error corrections replacement apb opinion 20 fasb statement 3” among changes statement requires retrospective application voluntary changes accounting principles unless impractical guidance provided account changes retrospective application impractical statement effective beginning january 1 2006 september 2006 fasb issued statement financial accounting standards 157 sfas 157 “fair value measurements” defines fair value establishes guidelines measuring fair value expands disclosures regarding fair value measurements sfas 157 require new fair value measurements rather eliminates inconsistencies guidance found various prior accounting pronouncements sfas 157 effective fiscal years beginning november 15 2007 earlier adoption permitted provided company yet issued financial statements including interim periods fiscal year company plans adopt provisions sfas 157 2008 expect adoption sfas 157 material impact results operations financial position june 2006 fasb issued interpretation 48 accounting uncertainty income taxes interpretation fasb statement 109 fin 48 clarifies accounting disclosure uncertain tax positions defined fin 48 requires companies meet “morelikelythannot” threshold ie greater 50 percent likelihood tax position sustained examination prior recording benefit tax position fin 48 seeks reduce diversity practice associated certain aspects recognition measurement related accounting income taxes interpretation effective fiscal years beginning december 15 2006 company yet determined impact interpretation results operations financial position 5 earnings per share eps 6 goodwill intangible assets effective january 1 2002 company adopted sfas 142 “goodwill intangible assets” sfas 142 connection adoption sfas 142 company ceased amortizing goodwill sfas 142 goodwill longer amortized tested impairment using fair value approach oil states international inc subsidiaries notes consolidated financial statements continued “reporting unit” level reporting unit operating segment business one level operating segment “component” level discrete financial information prepared regularly reviewed management component level six reporting units december 31 2006 decrease one since december 31 2005 due sale workover services business see note 7 goodwill allocated reporting units based actual acquisitions made company subsidiaries would recognize impairment charge amount carrying amount reporting unit’s goodwill exceeds unit’s fair value company uses comparative market multiples establish fair values company never recognized goodwill impairment company amortizes cost intangibles estimated useful lives unless lives deemed indefinite amortizable intangible assets reviewed impairment based undiscounted cash flows impaired written fair value based either discounted cash flows appraised values intangible assets indefinite lives tested impairment written fair value required provision impairment required based evaluations performed changes carrying amount goodwill year ended december 31 2006 2005 follows thousands 1 effective march 1 2006 company sold workover services business see note 7 total 9340 goodwill removed connection workover services business sold considered calculation gain recognized transaction remainder change well site services relates foreign currency changes portion goodwill deductible tax purposes totals approximately 13 million december 31 2006 following table presents total amount assigned total amount amortized major intangible asset classes december 31 2006 2005 thousands intangible assets goodwill included within noncurrent assets consolidated balance sheet weighted average remaining amortization period intangible assets goodwill indefinite lived intangibles 65 years 67 years december 31 2006 2005 respectively total amortization expense expected 36 million 22 million 16 million 08 million 04 million oil states international inc subsidiaries notes consolidated financial statements continued 2007 2008 2009 2010 2011 respectively amortization expense 39 million 34 million 23 million years ended december 31 2006 2005 2004 respectively 7 workover services business transaction investment boots coots notes receivable boots coots effective march 1 2006 completed transaction combine workover services business boots coots exchange 265 million shares boots coots common stock senior subordinated promissory notes totaling 212 million workover services business part well site services segment prior combination result closing transaction acquired approximately 456 outstanding common stock boots coots stock issued boots coots subsequent march 1 2006 reduced company’s ownership percentage 446 december 31 2006 senior subordinated promissory notes received transaction bear fixed annual interest rate 10 mature four one half years closing transaction notes included noncurrent assets consolidated balance sheet connection transaction also entered registration rights agreement requiring boots coots file shelf registration statement within 30 days boots coots shares received transaction also allowing us certain rights include shares common stock boots coots registration statement filed boots coots shelf registration statement filed boots coots declared effective fourth quarter 2006 transaction terms also allowed us designate three additional members boots coots’ existing fivemember board directors three directors designated us joined boots coots board directors january 1 2007 transaction resulted noncash pretax gain 207 million 94 million recognized accordance guidance emerging issues task force issue 012 covering gain recognition involving noncash transactions retained equity interests gain adjustment income taxes transaction 59 million 012 per diluted share impact net income earnings per share respectively first quarter 2006 account investment boots coots utilizing equity method accounting differences boots coots’ total book equity transaction net company’s interest carrying value investment boots coots principally attributable unrecognized gain sale workover services business goodwill december 31 2006 investment boots coots totaled 346 million included within investments unconsolidated affiliates consolidated balance sheet aggregate market value boots coots shares owned december 31 2006 593 million oil states international inc subsidiaries notes consolidated financial statements continued 8 longterm debt december 31 2006 2005 longterm debt consisted following thousands scheduled maturities combined longterm debt december 31 2006 follows thousands company’s capital leases consist primarily plant facilities equipment value capitalized leases related accumulated depreciation totaled 10 million 05 million respectively december 31 2006 value capitalized leases related accumulated depreciation totaled 22 million 13 million respectively december 31 2005 238 contingent convertible senior notes june 15 2005 company sold 125 million aggregate principal amount 238 contingent convertible senior notes due 2025 placement qualified institutional buyers pursuant sec’s rule 144a company granted initial purchaser notes 30day option purchase additional 50 million oil states international inc subsidiaries notes consolidated financial statements continued aggregate principal amount notes option exercised july 2005 additional 50 million notes sold time notes senior unsecured obligations company bear interest rate 238 per annum notes mature july 1 2025 may redeemed company prior july 6 2012 holders notes may require company repurchase notes july 1 2012 2015 2020 notes provide net share settlement therefore may convertible certain circumstances combination cash principal amount notes common stock company excess principal amount notes initial conversion price 3175 per share shares underlying notes included calculation diluted earnings per share year company’s stock price exceeded initial conversion price 3175 period terms notes require company’s stock price quarter period prior july 1 2023 120 initial conversion price 3810 per share least 20 trading days defined period notes convertible assuming stock price contingency feature met holders notes elect convert stock price 3810 per share company would required deliver 175 million cash plus accrued interest approximately 919000 shares common stock notes callable company convertible note holders anytime 2006 connection note offering company agreed register notes within 180 days issuance keep registration effective two years subsequent initial issuance notes registered november 2005 company keep registration statement effective approximately next eighteen months additional contingent interest would paid note holders subject certain provisions maximum amount contingent interest could potentially inure note holders time period material consolidated financial position results operations company utilized 30 million net proceeds offering june 15 2005 repurchase 1183432 shares common stock remaining portion net proceeds repay 250 million bridge loan repay approximately 660 million borrowings senior secured credit facility net proceeds additional notes sold july 2005 totaling 485 million utilized repay borrowings company’s senior secured credit facility may 11 2005 company borrowed 25 million bridge loan bank due 2010 loan unsecured repaid full june 21 2005 average interest rate bridge loan period outstanding 60 revolving credit facility december 5 2006 company amended credit agreement dated october 30 2003 company’s credit facility totals 400 million senior secured revolving credit facility group banks 100 million available form loans denominated canadian dollars may made company’s principal canadian operating subsidiaries facility matures december 5 2011 credit agreement permits company incremental borrowings 100 million credit agreement subject lender approval terms conditions amounts borrowed facility bear interest company’s election either • variable rate equal libor case canadian dollar denominated loans bankers’ acceptance discount rate plus margin ranging 05 125 • alternate base rate equal higher bank’s prime rate federal funds effective rate case canadian dollar denominated loans canadian prime rate commitment fees ranging 0175 025 per year paid undrawn portion facility depending upon leverage ratio oil states international inc subsidiaries notes consolidated financial statements continued credit facility guaranteed company’s active domestic subsidiaries cases company’s canadian foreign subsidiaries credit facility secured first priority lien company’s inventory accounts receivable material tangible intangible assets well company’s active subsidiaries however 65 voting stock foreign subsidiary required pledged pledge greater percentage would result adverse tax consequences credit facility contains negative covenants limit company’s ability borrow additional funds encumber assets pay dividends sell assets enter significant transactions company’s credit facility occurrence specified change control events involving company would constitute event default would permit banks among things accelerate maturity facility cause become immediately due payable full december 31 2006 2154 million outstanding facility additional 107 million outstanding letters credit leaving 1739 million available drawn facility january 11 2005 company renewed overdraft credit facility providing borrowings totaling £20 million uk operations interest payable quarterly margin 15 per annum bank’s variable base rate borrowings facility payable demand amounts outstanding facility december 31 2006 letters credit totaling £03 million outstanding december 31 2006 leaving £17 million available drawn facility company maintains additional revolving credit facility bank total 10 million outstanding facility december 31 2006 facility consists swing line bank borrowings used working capital efficiencies 9 retirement plans company sponsors defined contribution plans participation plans available substantially employees company recognized expense 54 million 43 million 31 million respectively related various defined contribution plans years ended december 31 2006 2005 2004 respectively 10 income taxes consolidated pretax income years ended december 31 2006 2005 2004 consisted following thousands oil states international inc subsidiaries notes consolidated financial statements continued components income tax provision years ended december 31 2006 2005 2004 consisted following thousands provision taxes differs amount computed statutory rates follows years ended december 31 2006 2005 2004 thousands oil states international inc subsidiaries notes consolidated financial statements continued significant items giving rise deferred tax assets liabilities december 31 2006 2005 follows thousands reclassifications company’s deferred tax balance based net current items net noncurrent items december 31 2006 2005 follows thousands primary deferred tax asset totaled 82 million december 31 2006 related 234 million available federal net operating loss carryforwards nols date nols expire varying amounts years 2010 2011 first used offset taxable income generate ability utilize significant portion available nols currently limited section 382 internal revenue code due change control occurred 1995 currently believe substantially nols utilized company federal alternative minimum tax net operating loss carryforwards 60 million expire years 2011 2020 income tax provision year ended december 31 2006 totaled 1040 million 345 pretax income year ended december 31 2006 company recognized tax benefit triggered employee exercises stock options totaling 50 million benefit credited additional paidin capital income oil states international inc subsidiaries notes consolidated financial statements continued tax provision year ended december 31 2005 totaled 607 million 333 pretax income tax provision year 2005 included 47 million income tax benefit related reversal substantially remaining valuation allowance applied nols recorded prior year end appropriate us foreign income taxes provided earnings foreign subsidiary companies expected remitted near future cumulative amount undistributed earnings foreign subsidiaries company intends permanently reinvest upon deferred us income taxes provided 260 million december 31 2006 majority generated canada upon distribution earnings form dividends otherwise company may subject us income taxes subject adjustment foreign tax credits foreign withholding taxes practical however estimate amount taxes may payable eventual remittance earnings consideration available foreign tax credits fourth quarter 2006 internal revenue service “irs” began audit company’s 2004 consolidated federal income tax return early stages audit information supplied requested american jobs creation act 2004 signed law october 2004 introduced requirement companies disclose penalties imposed consolidated subsidiaries irs failing satisfy tax disclosure requirements relating “reportable transactions” year ended december 31 2006 penalties imposed company consolidated subsidiaries failure disclose reportable transactions irs company files tax returns jurisdictions required returns subject examination audit possible adjustment result assessments taxing authorities company believes recorded sufficient tax liabilities expect resolution examination audit tax returns would material adverse effect operating results financial condition liquidity 11 supplemental cash flow information cash paid years ended december 31 2006 2005 2004 interest income taxes follows thousands oil states international inc subsidiaries notes consolidated financial statements continued components cash used acquisitions reflected consolidated statements cash flows years ended december 31 2006 2005 2004 summarized follows thousands january 2004 completed acquisition several related rental tool companies 366 million companies based south texas leading providers thrutubing services ancillary equipment rentals companies combined rental tool subsidiary report well site services segment completed additional acquisition rental tool company april 2004 48 million may 2004 purchased oil country tubular goods “octg” distribution business hunting energy services lp whollyowned affiliate hunting plc 472 million including purchase price adjustment settled october 2004 connection transaction purchased hunting’s us tubular inventory assumed certain customer contracts entered supply distribution relationships hunting future hunting’s distribution operations merged tubular services segment october 2004 offshore products segment acquired small business 05 million become part existing elastomers business february 1 2005 company completed acquisition elenburg exploration company inc elenburg wyoming based land drilling company cash consideration 221 million including transaction costs plus note payable former owners 08 million date acquisition elenburg owned operated 7 rigs provided shallow land drilling services montana wyoming colorado utah elenburg acquisition allowed us expand drilling business different geographic areas operations elenburg included drilling services business within well site services segment effective may 1 2005 june 1 2005 acquired stinger wellhead protection inc certain affiliated companies related intellectual property collectively stinger consideration 961 million including transaction costs note payable former owners 50 million stinger provides wellhead isolation equipment services 30 locations united states canada central south america stinger’s patented equipment utilized pressure pumping operations isolates customers’ blowout preventers wellheads pressure abrasion experienced fracturing process oil gas well stinger acquisition expanded rental tool services capabilities especially pressure pumping market operations stinger included rental tools business within well site services segment june 2 2005 purchased phillips casing tubing lp phillips cash consideration 312 million net cash acquired including transaction costs phillips distributes octg primarily carbon erw electronic resistance welded pipe facilities midland godley texas operations phillips combined tubular services segment june 6 2005 acquired noble structures inc noble cash consideration 87 million plus note payable 08 million acquisition expanded company’s accommodation manufacturing capabilities canada order meet increased demand remote site facilities principally oil sands region operations noble included accommodations business within well site services segment december 2005 acquired product line offshore products segment cash consideration 04 million august 2006 acquired three drilling rigs operating west texas eagle rock drilling total consideration 140 million including note payable seller 05 million rigs acquired oil states international inc subsidiaries notes consolidated financial statements continued classified part capital expenditures 2006 added existing west texas drilling fleet drilling services business 12 commitments contingencies company leases portion equipment office space computer equipment automobiles trucks leases expire various dates minimum future operating lease obligations effect december 31 2006 follows thousands rental expense operating leases 67 million 57 million 45 million years ended december 31 2006 2005 2004 respectively company party various pending threatened claims lawsuits administrative proceedings seeking damages remedies concerning commercial operations products employees matters including warranty product liability claims occasional claims individuals alleging exposure hazardous materials result products operations claims relate matters occurring prior acquisition businesses relate businesses sold certain cases company entitled indemnification sellers businesses cases indemnified buyers businesses although company give assurance outcome pending legal administrative proceedings effect outcomes may management believes ultimate liability resulting outcome proceedings extent otherwise provided covered insurance material adverse effect consolidated financial position results operations liquidity february 18 2005 company announced conducted internal investigation prompted discovery billings totaling approximately 400000 one subsidiaries “subsidiary” government owned oil company south america billings detected company routine financial review procedures appropriate financial statement adjustments included previously reported fourth quarter 2004 results independent counsel retained audit committee conducted separate investigations consisting interviews thorough examination facts circumstances matter voluntarily reported results investigation securities exchange commission “sec” fully cooperated requests information received sec october 31 2005 company’s counsel received “wells notice” staff sec indicating made preliminary decision recommend sec bring civil action company alleging violations provisions securities exchange act 1934 act relating maintenance books records internal accounting controls procedures set forth sections 13b2a b act company reached settlement agreement sec april 27 2006 company consented order sec order without admitting denying findings order required company cease desist committing causing violations “books records” “internal control provisions” act settlement require company pay monetary penalty oil states international inc subsidiaries notes consolidated financial statements continued 13 stockbased compensation adopted sfas 123r effective january 1 2006 pronouncement requires companies measure cost employee services received exchange award equity instruments typically stock options based grantdate fair value award fair value estimated using optionpricing models resulting cost recognized period employee required provide service exchange awards usually vesting period prior adoption sfas 123r accounting treatment optional pro forma disclosures required adopted sfas 123r using modified prospective transition method explained sfas 123r effective stock options grant beginning january 1 2006 stock option awards granted prior january 1 2006 vesting period complete used modified prospective transition method permitted sfas 123r method accounting remaining unamortized value nonvested options expensed remaining vesting period using grantdate fair values options typically vest equal annual installments four year service period expense related option grant recognized straight line basis specific vesting period options fair value options determined grant date using blackscholes option pricing model requires us make several assumptions including riskfree interest rate dividend yield volatity expected term riskfree interest rate based us treasury yield curve effect expected term option time grant dividend yield common stock assumed zero since pay dividends current plans future expected market price volatility common stock based estimate made us considers historical implied volatility common stock well peer group companies time period equal expected term option expected life options awarded 2006 based formula considering vesting period term options awarded permitted us securities exchange commission regulations oil states international inc subsidiaries notes consolidated financial statements continued following table summarizes stock option activity three years ended december 31 2006 total intrinsic value options exercised 2006 2005 2004 183 million 131 million 30 million respectively cash received company option exercises 2006 2005 2004 totaled 85 million 75 million 40 million respectively weighted average fair values options granted 2006 2005 2004 1289 832 518 per share respectively fair value option grant estimated date grant using blackscholes option pricing model following weighted average assumptions used grants 2006 2005 2004 respectively riskfree weighted interest rates 46 39 31 expected dividend yield expected lives 43 50 years expected volatility 37 following table summarizes information stock options outstanding december 31 2006 december 31 2006 total 2173103 shares available future grant stock option plan oil states international inc subsidiaries notes consolidated financial statements continued 2006 granted restricted stock awards totaling 113787 shares valued total 39 million total 24250 awards vest four equal annual installments 61400 awards vest two equal annual installments remaining 28137 awards vest one year options awarded 2006 term six years granted exercise prices grant date closing market price 2006 total 223379 outstanding options awards held 9 participants 7 employed workover services business sold march 2006 vesting accelerated 13 million additional stock compensation expense recorded result accelerated vesting total fair value restricted stock awards vesting year ended december 31 2006 12 million total 56952 shares restricted stock awarded 2005 aggregate value 12 million restricted stock awards made 2004 impact adoption sfas 123r stock based compensation pretax expense recognized sfas 123r year ended december 31 2006 totaled 76 million 010 per basic diluted share year ended december 31 2005 stock compensation expense related primarily restricted stock awards totaled 558000 december 31 2006 103 million compensation cost related unvested stock options restricted stock awards attributable future performance yet recognized following table illustrates pro forma effect net income per share years ended december 31 2005 2004 applied fair value recognition provisions sfas 123 “accounting stockbased compensation” thousands except per share amounts deferred compensation plan company maintains deferred compensation plan “deferred compensation plan” plan available directors certain officers managers company plan allows participants defer portion directors fees andor salary annual bonuses applicable permits company make discretionary contributions employee’s account since inception plan discretionary contribution provision limited matching employee participants contribution basis equivalent matching permitted company’s 401k retirement savings plan contributions participants’ accounts vest immediately deferred compensation plan dollar limits taxdeferred contributions assets deferred compensation plan held rabbi trust “trust” therefore available satisfy claims company’s creditors event bankruptcy insolvency company participants ability direct plan administrator invest assets accounts including discretionary contributions company preapproved mutual funds held trust prior november 1 2003 participants also ability direct plan administrator invest assets accounts company common stock addition participants currently right request plan administrator reallocate portfolio investments ie cash mutual funds participants’ individual accounts within trust oil states international inc subsidiaries notes consolidated financial statements continued current balances invested company common stock may increased company contributions form cash distributions plan generally made upon participants’ termination director andor employee applicable company participants receive payments plan cash december 31 2006 balance assets trust totaled 57 million including 24897 shares common stock company reflected treasury stock value 03 million company accounts deferred compensation plan accordance eitf 9714 “accounting deferred compensation arrangements amounts earned held rabbi trust invested” assets trust common stock company invested nine funds covering variety securities investment strategies mutual funds publicly quoted reported market value company accounts investments accordance sfas 115 “accounting certain investments debt equity securities” trust also holds common shares company’s common stock held trust classified treasury stock stockholders’ equity section consolidated balance sheet market value assets held trust exclusive market value shares company’s common stock reflected treasury stock december 31 2006 55 million classified “other noncurrent assets” consolidated balance sheet amounts payable plan participants december 31 2006 including market value shares company’s common stock reflected treasury stock 63 million classified “other liabilities” consolidated balance sheet accordance eitf 9714 market value fluctuations trust assets reflected consolidated statements income increases decreases value plan assets exclusive shares common stock company included compensation adjustments respective statements income increases decreases market value deferred compensation liability including shares common stock company held trust recorded treasury stock also included compensation adjustments consolidated statements income response changes total market value company’s common stock held trust company recorded net compensation expense adjustments 283 thousand 2006 04 million 2005 02 million 2004 14 segment related information accordance sfas 131 “disclosures segments enterprise related information” company identified following reportable segments offshore products wellsite services tubular services company’s reportable segments strategic business units offer different products services managed separately business requires different technology marketing strategies businesses acquired unit management time acquisition retained oil states international inc subsidiaries notes consolidated financial statements continued financial information industry segment three years ended december 31 2006 2005 2004 summarized following table thousands accounting policies segments described summary significant accounting policies 1 subsequent march 1 2006 effective date sale workover services business see note 7 classified equity interest boots coots notes receivable acquired transaction “drilling other” oil states international inc subsidiaries notes consolidated financial statements continued financial information geographic segment three years ended december 31 2006 2005 2004 summarized thousands revenues us include export sales revenues attributable countries based location entity selling products performing services total assets attributable countries based physical location entity operating assets include intercompany balances customers accounted 10 company’s revenues years ended december 31 2006 2005 2004 equity net income unconsolidated affiliates included operating income 15 quarterly financial information unaudited following table summarizes quarterly financial information 2006 2005 thousands except per share amounts calculated independently quarters presented therefore sum quarterly amounts may equal total calculated year represents “revenues” less “product costs” “service costs” included company’s consolidated statements operations oil states international inc subsidiaries notes consolidated financial statements continued 16 valuation allowances activity valuation accounts follows thousands exhibit index filed herewith management contracts compensatory plans arrangements furnished herewithitem 15 exhibits financial statement schedules index financial statements financial statement schedules exhibits 1 financial statements reference made index set forth page 47 annual report form 10k 2 financial statement schedules included herein information required submitted included consolidated financial statements notes thereto required information inapplicable 3 index exhibits see index exhibits list exhibits filed herewith index also includes identifies management contracts compensatory plans arrangements required filed exhibits annual report form 10k item 60110iii regulation sk b index exhibits filed herewith management contracts compensatory plans arrangements furnished herewith signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized oil states international inc cindy b taylor cindy b taylor chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 22 2008 oil states international inc subsidiaries index consolidated financial statements oil states international inc subsidiaries management’s annual report internal control financial reporting stockholders board directors oil states international inc management responsible establishing maintaining adequate internal control financial reporting defined rules 13a15f 15d15f exchange act internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation consolidated financial statements external purposes accordance accounting principles generally accepted united states gaap internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance gaap receipts expenditures made accordance authorizations management directors iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition assets could material effect consolidated financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate accordingly even effective internal control financial reporting provide reasonable assurance achieving control objectives oil states international inc’s management assessed effectiveness company’s internal control financial reporting december 31 2007 making assessment management used criteria set forth committee sponsoring organizations treadway commission coso internal control integrated framework based assessment believe december 31 2007 company’s internal control financial reporting effective based criteria 2007 company acquired businesses wire line service ltd well testing schooner petroleum services inc separate purchase transactions reliance guidance contained “frequently asked questions” interpretive release issued staff sec’s office chief accountant division corporation finance june 2004 revised october 6 2004 management elected exclude wire line service ltd well testing schooner petroleum services inc scope assessment effectiveness company’s internal control financial reporting december 31 2007 entities whollyowned subsidiaries company december 31 2007 total assets net assets revenues operating income wire line service ltd well testing schooner petroleum services inc represent approximately 70 106 22 30 respectively consolidated total assets net assets revenues operating income company year ended december 31 2007 oil states international inc’s independent registered public accounting firm audited company’s internal control financial reporting report appears page 50 oil states international inc houston texas oil states international inc subsidiaries report independent registered public accounting firm board directors stockholders oil states international inc audited accompanying consolidated balance sheets oil states international inc subsidiaries “company” december 31 2007 2006 related consolidated statements income stockholders’ equity comprehensive income cash flows three years period ended december 31 2007 financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position company december 31 2007 2006 consolidated results operations cash flows three years period ended december 31 2007 conformity us generally accepted accounting principles discussed note 10 consolidated financial statements effective january 1 2007 company adopted provisions financial accounting standards board interpretation 48 accounting uncertainty income taxes interpretation fasb statement 109 discussed note 2 consolidated financial statements effective january 1 2006 company adopted provisions statement financial accounting standards 123 revised 2004 sharebased payment also audited accordance standards public company accounting oversight board united states company’s internal control financial reporting december 31 2007 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission report dated february 19 2008 expressed unqualified opinion thereon ernst young llp houston texas february 19 2008 oil states international inc subsidiaries report independent registered public accounting firm board directors stockholders oil states international inc audited oil states international inc subsidiaries’ “company” internal control financial reporting december 31 2007 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission “coso criteria” company’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s annual report internal control financial reporting responsibility express opinion company’s internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk performing procedures considered necessary circumstances believe audit provides reasonable basis opinion company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate indicated accompanying management’s annual report internal control financial reporting management’s assessment conclusion effectiveness internal control financial reporting include internal controls wire line services ltd “well testing” schooner petroleum services inc “schooner” included 2007 consolidated financial statements company together constituted 70 106 total net assets respectively december 31 2007 22 30 revenues operating income respectively year ended audit internal control financial reporting company also include evaluation internal control financial reporting well testing schooner opinion company maintained material respects effective internal control financial reporting december 31 2007 based coso criteria also audited accordance standards public company accounting oversight board united states consolidated balance sheets company december 31 2007 2006 related consolidated statements income stockholders’ equity comprehensive income cash flows three years period ended december 31 2007 report dated february 19 2008 expressed unqualified opinion thereon ernst young llp houston texas february 19 2008 oil states international inc subsidiaries consolidated statements income accompanying notes integral part financial statements oil states international inc subsidiaries consolidated balance sheets accompanying notes integral part financial statements oil states international inc subsidiaries consolidated statements stockholders’ equity comprehensive income thousands accompanying notes integral part financial statements oil states international inc subsidiaries consolidated statements cash flows accompanying notes integral part financial statements oil states international inc subsidiaries notes consolidated financial statements 1 organization basis presentation consolidated financial statements include accounts oil states international inc oil states company consolidated subsidiaries investments unconsolidated affiliates company able exercise significant influence accounted using equity method company’s operations prior 2001 conducted oil states industries inc osi february 14 2001 company acquired three companies hwc energy services inc hwc pti group inc pti sooner inc sooner significant intercompany accounts transactions company consolidated subsidiaries eliminated accompanying consolidated financial statements company subsidiaries leading provider specialty products services oil gas drilling production companies throughout world operates substantial number world’s active oil gas producing regions including gulf mexico us onshore west africa north sea canada south america southeast asia company operates three principal business segments offshore products tubular services well site services company’s well site services segment includes accommodations rental tools drilling services businesses 2 summary significant accounting policies cash equivalents company considers highly liquid investments purchased original maturity three months less cash equivalents fair value financial instruments company’s financial instruments consist cash equivalents investments receivables notes receivable payable debt instruments company believes carrying values instruments fixed rate contingent convertible senior notes accompanying consolidated balance sheets approximate fair values fair value 238 contingent convertible senior notes estimated based prices quoted thirdparty financial institutions carrying fair values notes follows thousands inventories consist tubular oilfield products manufactured equipment spare parts manufactured equipment raw materials supplies raw materials accommodation facilities inventories include raw materials labor subcontractor charges manufacturing overhead carried lower cost market cost inventories determined average cost specificidentification method property plant equipment property plant equipment stated cost estimated fair market value acquisition date acquired business combination depreciation computed assets owned recorded capital lease using straightline method estimated useful lives assets leasehold improvements capitalized amortized lesser life lease estimated useful life asset oil states international inc subsidiaries notes consolidated financial statements continued expenditures repairs maintenance charged expense incurred expenditures major renewals betterments extend useful lives existing equipment capitalized depreciated upon retirement disposition property equipment cost related accumulated depreciation removed accounts resulting gain loss recognized statements income goodwill represents excess purchase price acquired businesses allocated value related net assets goodwill stated net accumulated amortization 180 million december 31 2007 174 million december 31 2006 impairment longlived assets compliance statement financial accounting standards sfas 144 “accounting impairment disposal longlived assets” recoverability carrying values property plant equipment assessed minimum annually whenever management’s judgment events changes circumstances indicate carrying value assets may recoverable based estimated future cash flows assessment indicates carrying values recoverable determined based undiscounted cash flows remaining useful lives impairment loss recognized impairment loss equals excess carrying value fair value asset fair value asset based prices similar assets available discounted cash flows based company’s review carrying value assets recoverable impairment losses recorded periods presented foreign currency comprehensive income gains losses resulting balance sheet translation foreign operations foreign currency functional currency included separate component accumulated comprehensive income within stockholders’ equity representing substantially balances within accumulated comprehensive income gains losses resulting balance sheet translation foreign operations us dollar functional currency included consolidated statements income incurred foreign exchange risk portion revenues earnings net investments foreign affiliates exposed changes foreign exchange rates seek manage foreign exchange risk part operational means including managing expected local currency revenues relation local currency costs local currency assets relation local currency liabilities past foreign exchange risk also managed use derivative financial instruments foreign currency denominated debt financial instruments serve protect net income impact translation us dollars certain foreign exchange denominated transactions financial instruments employed manage foreign exchange risk consisted forward exchange contracts notional amounts 15 million december 31 2005 company contracts outstanding december 31 2007 december 31 2006 net gains losses foreign currency exchange contracts designated hedges recognized income statement offset foreign currency gain loss underlying transaction exchange gains losses totaled 09 million loss 2007 04 million loss 2006 02 million gain 2005 included operating income interest capitalization interest costs construction certain longterm assets capitalized amortized related assets’ estimated useful lives years ended december 31 2007 december 31 2006 10 million 01 million capitalized respectively interest capitalized 2005 oil states international inc subsidiaries notes consolidated financial statements continued revenue cost recognition revenue sale products accounted utilizing percentageofcompletion method recognized delivery acceptance customer occurred title significant risks ownership passed customer collectibility probable pricing fixed determinable product sales terms include significant post delivery obligations significant projects built customer specifications revenues recognized percentageofcompletion method measured percentage costs incurred date estimated total costs contract costtocost method billings contracts excess costs incurred estimated profits classified deferred revenue management believes method appropriate measure progress large contracts provisions estimated losses uncompleted contracts made period losses determined drilling services rental tool services revenues recognized based periodic usually daily rental rate services rendered proceeds customers cost oilfield rental equipment damaged lost downhole reflected gains losses disposition assets drilling services contracts based footage drilled recognize revenues footage drilled revenues exclude taxes assessed based revenues sales value added taxes cost goods sold includes direct material labor costs related contract performance indirect labor supplies tools repairs selling general administrative costs charged expense incurred income taxes company follows liability method accounting income taxes accordance sfas 109 “accounting income taxes” method deferred income taxes recorded based upon differences financial reporting tax bases assets liabilities measured using enacted tax rates laws effect underlying assets liabilities recovered settled company’s earnings foreign subsidiaries considered indefinitely reinvested provision us income taxes made earnings subsidiaries distribution earnings form dividends otherwise company would subject us income taxes subject adjustment foreign tax credits withholding taxes payable various foreign countries accordance sfas 109 company records valuation reserve reporting period management believes likely deferred tax asset created realized management continue evaluate appropriateness reserve future based upon operating results company accounting income taxes required provisions fasb interpretation 48 “accounting uncertainty income taxes” estimate liability future income taxes calculation tax liabilities involves dealing uncertainties application complex tax regulations recognize liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due ultimately determine payment amounts unnecessary reverse liability recognize tax benefit period determine liability longer necessary record additional charge provision taxes period determine recorded tax liability less expect ultimate assessment receivables concentration credit risk concentration suppliers based nature customer base company believe significant concentrations credit risk concentration oil gas industry company evaluates creditworthiness major new existing customers’ financial condition generally company require significant collateral domestic customers oil states international inc subsidiaries notes consolidated financial statements continued company purchased 81 oilfield tubular goods three suppliers 2007 largest supplier representing 61 purchases period loss significant supplier tubular services segment could adversely affect allowances doubtful accounts company maintains allowances doubtful accounts estimated losses resulting inability company’s customers make required payments trade receivable deemed uncollectible receivable chargedoff allowance doubtful accounts company considers following factors determining collection revenue reasonably assured customer creditworthiness past transaction history customer current economic industry trends customer solvency changes customer payment terms company previous experience customer company typically obtains reports various credit organizations ensure customer history paying creditors company may also request financial information including financial statements documents ensure customer means making payment factors indicate collection reasonably assured company would require prepayment arrangement support revenue recognition recording trade receivable financial condition company’s customers deteriorate adversely affecting ability make payments additional allowances would required earnings per share company’s basic income per share eps amounts computed based average number common shares outstanding including 201757 256787 shares common stock december 31 2007 2006 respectively issuable upon exercise exchangeable shares one company’s canadian subsidiaries exchangeable shares issued certain former shareholders pti connection company’s ipo combination pti company intended characteristics essentially equivalent company’s common stock prior exchange treated shares common stock issuable upon exchange exchangeable shares outstanding diluted eps amounts include effect company’s outstanding stock options treasury stock method shares restricted stock awarded company’s equity participation plan included company’s fully diluted shares assumed issued upon conversion company’s 238 contingent convertible senior subordinated notes averaged 729830 391434 years ended december 31 2007 december 31 2006 respectively included calculation fully diluted shares outstanding fully diluted earnings per share stockbased compensation adopted statement financial accounting standards 123r sfas 123r “sharebased payment” effective january 1 2006 pronouncement requires companies measure cost employee services received exchange award equity instruments typically stock options based grantdate fair value award fair value estimated using optionpricing models resulting cost recognized period employee required provide service exchange awards usually vesting period prior adoption sfas 123r accounting treatment optional pro forma disclosures required years ended december 31 2007 december 31 2006 company recognized noncash general administrative expenses stock options restricted stock awards totaling 80 million 76 million respectively prior adoption sfas 123r shares restricted stock awarded 2001 equity participation plan oil states international inc equity participation plan considered compensatory nature accordingly company recognized noncash general administrative expenses restricted stock awards totaled 06 million year ended december 31 2005 company accounts oil states international inc subsidiaries notes consolidated financial statements continued assets held rabbi trust certain participants company’s deferred compensation plan accordance eitf 9714 see note 13 guarantees company applies fasb interpretation 45 fin 45 “guarantor’s accounting disclosure requirements guarantees including indirect indebtedness others” company’s obligations certain guarantees pursuant fin 45 company required disclose changes product warranty reserves products offshore products accommodations businesses sold warranty generally ranging 12 18 months parts labor covered terms warranty agreement warranty provisions based historical experience product configuration geographic region changes warranty reserves follows thousands current warranty provisions typically related current year’s sales warranty consumption associated current prior year’s net sales ordinary course business company also provides standby letters credit guarantee instruments certain parties required certain transactions initiated either company subsidiaries december 31 2007 maximum potential amount future payments company could required make guarantee agreements approximately 122 million company recorded liability connection guarantee arrangements beyond required appropriately account underlying transaction guaranteed company believe based historical experience information currently available probable amounts required paid guarantee arrangements reclassifications certain amounts prior years’ financial statements reclassified conform current year presentation use estimates preparation consolidated financial statements conformity accounting principles generally accepted united states requires use estimates assumptions management determining reported amounts assets liabilities disclosures contingent assets liabilities date consolidated financial statements reported amounts revenues expenses reporting period examples estimates include costs associated disposal discontinued operations including potential future adjustments result contractual agreements revenue income recognized percentageofcompletion method estimate company’s share earnings equity method investments valuation allowance recorded net deferred tax assets warranty inventory bad debt reserves actual results could differ estimates oil states international inc subsidiaries notes consolidated financial statements continued discontinued operations prior initial public offering february 2001 sold businesses reported operating results businesses discontinued operations existing reserves related discontinued operations december 31 2007 2006 represent estimate remaining contingent liabilities associated company’s exit businesses 3 details selected balance sheet accounts additional information regarding selected balance sheet accounts december 31 2007 2006 presented thousands oil states international inc subsidiaries notes consolidated financial statements continued depreciation expense 665 million 505 million 433 million years ended december 31 2007 2006 2005 respectively 4 recent accounting pronouncements september 2006 fasb issued statement financial accounting standards 157 sfas 157 “fair value measurements” defines fair value establishes guidelines measuring fair value expands disclosures regarding fair value measurements sfas 157 require new fair value measurements rather eliminates inconsistencies guidance found various prior accounting pronouncements sfas 157 effective fiscal years beginning november 15 2007 february 2008 fasb issued fasb staff position fsp 1572 “effective date fasb statement 157” defers effective date statement 157 nonfinancial assets nonfinancial liabilities except items recognized disclosed fair value entity’s financial statements recurring basis least annually fiscal years beginning november 15 2008 interim periods within fiscal years earlier adoption permitted provided company yet issued financial statements including interim periods fiscal year january 1 2008 company recurring fair value measurements opted deferral accordingly company implemented currently evaluating impact sfas 157 expect adoption sfas 157 material impact results operations financial position february 2007 fasb issued statement financial accounting standards 159 sfas 159 “the fair value option financial assets financial liabilities including amendment fasb statement 115” sfas 159 permits entities measure eligible assets liabilities fair value unrealized gains losses items fair value option elected reported earnings sfas 159 effective fiscal years beginning november 15 2007 january 1 2008 company elect fair value option financial instruments certain items permitted sfas 159 august 2007 fasb issued proposed fasb staff position fsp apb 14a “accounting convertible debt instruments may settled cash upon conversion including partial cash settlement” issued would change accounting company’s 238 contingent convertible senior subordinated notes 238 notes proposed new rules convertible debt instruments may settled entirely partially cash upon conversion entity would required separately account liability equity components instrument manner reflects issuer’s nonconvertible debt borrowing rate effect proposed new rules 238 notes equity component would classified part stockholders’ equity balance sheet value equity component would treated original issue discount purposes accounting debt component 238 notes higher noncash interest expense would result recognizing accretion discounted carrying value 238 notes interest expense estimated life 238 notes using effective interest rate method amortization however would effect company’s cash interest payments proposed fsp delayed effective 2008 however expected delayed effective fiscal years beginning oil states international inc subsidiaries notes consolidated financial statements continued december 15 2008 rule enacted proposed require retrospective application company currently evaluating impact proposed fsp december 2007 fasb issued statement financial accounting standards 141 revised 2007 sfas 141r “business combinations” replaces sfas 141 sfas 141r establishes principles requirements acquirer recognizes measures financial statements identifiable assets acquired liabilities assumed noncontrolling interest acquiree goodwill acquired statement also establishes disclosure requirements enable users evaluate nature financial effects business combination sfas 141r effective fiscal years beginning december 15 2008 adoption sfas 141r expected material impact company’s results operations financial position december 2007 fasb also issued statement financial accounting standards 160 sfas 160 “noncontrolling interests consolidated financial statements amendment arb 51” sfas 160 requires accounting reporting minority interests recharacterized noncontrolling interests classified component equity sfas 160 also establishes reporting requirements provide sufficient disclosures clearly identify distinguish interests parent interests noncontrolling owners sfas 160 applies entities prepare consolidated financial statements except notforprofit organizations affect entities outstanding noncontrolling interest one subsidiaries deconsolidate subsidiary statement effective fiscal years beginning december 15 2008 adoption sfas 160 expected material impact results operations financial position see also note 10 income taxes change accounting principle discussion fasb’s interpretation 48 accounting uncertainty income taxes 5 earnings per share eps 6 goodwill intangible assets effective january 1 2002 company adopted sfas 142 “goodwill intangible assets” sfas 142 connection adoption sfas 142 company ceased amortizing goodwill sfas 142 goodwill longer amortized tested impairment using fair value approach “reporting unit” level reporting unit operating segment business one level operating oil states international inc subsidiaries notes consolidated financial statements continued segment “component” level discrete financial information prepared regularly reviewed management component level company five reporting units december 31 2007 goodwill allocated reporting units based actual acquisitions made company subsidiaries company would recognize impairment charge amount carrying amount reporting unit’s goodwill exceeds unit’s fair value company uses comparative market multiples establish fair values company never recognized goodwill impairment company amortizes cost intangibles estimated useful lives unless lives deemed indefinite amortizable intangible assets reviewed impairment based undiscounted cash flows impaired written fair value based either discounted cash flows appraised values intangible assets indefinite lives tested impairment written fair value required december 31 2007 provision impairment required based evaluations performed changes carrying amount goodwill year ended december 31 2007 2006 follows thousands 1 effective march 1 2006 company sold workover services business see note 7 total 9340 goodwill removed connection workover services business sold considered calculation gain recognized transaction remainder change well site services segment relates foreign currency changes portion goodwill deductible tax purposes totals approximately 57 million december 31 2007 following table presents total amount assigned total amount amortized major intangible asset classes december 31 2007 2006 thousands intangible assets goodwill included within noncurrent assets consolidated balance sheet weighted average remaining amortization period intangible assets goodwill indefinite lived intangibles 118 years 65 years december 31 2007 2006 respectively total amortization expense expected 37 million 31 million 22 million 18 million 16 million 2008 2009 2010 2011 2012 respectively amortization expense 42 million 39 million 34 million years ended december 31 2007 2006 2005 respectively oil states international inc subsidiaries notes consolidated financial statements continued 7 workover services business transaction investment boots coots notes receivable boots coots effective march 1 2006 company completed transaction combine workover services business boots coots exchange 265 million shares boots coots common stock valued 145 per share closing senior subordinated promissory notes totaling 212 million result closing transaction company initially owned 456 boots coots senior subordinated promissory notes received transaction classified noncurrent assets december 31 2007 2006 bear fixed annual interest rate 10 mature september 1 2010 connection transaction company also entered registration rights agreement requiring boots coots file shelf registration statement within 30 days shares company received transaction also allowing company certain rights include shares common stock boots coots registration statement filed shelf registration statement filed boots coots finalized effective fourth quarter 2006 transaction terms also allowed company designate three additional members boots coots’ existing fivemember board directors presently company two remaining representatives boots coots eightmember board directors closing transaction resulted noncash pretax gain 207 million accordance guidance emerging issues task force issue 012 covering gain recognition involving noncash transactions retained equity interests 94 million 96 million march 31 2006 recognized connection initial sale workover services business gain adjustment income taxes transaction contributed gain 59 million 012 per diluted share net income earnings per share respectively first quarter 2006 company accounts investment boots coots utilizing equity method accounting differences boots coots’ total book equity transaction net company’s interest carrying value investment boots coots principally attributable unrecognized gain sale workover services business goodwill april 2007 company sold pursuant registration statement filed boots coots 14950000 shares boots coots stock owned net proceeds 294 million result company recognized net tax gain 84 million approximately 017 per diluted share second quarter 2007 sale boots coots shares company sale primary shares stock directly boots coots april 2007 company’s ownership interest boots coots reduced approximately 15 equity method accounting continues used account company’s remaining investment boots coots common stock 115 million shares carrying value fair value company’s remaining investment boots coots stock totals 196 million 188 million respectively december 31 2007 oil states international inc subsidiaries notes consolidated financial statements continued 8 longterm debt december 31 2007 2006 longterm debt consisted following thousands scheduled maturities combined longterm debt december 31 2007 follows thousands company’s capital leases consist primarily plant facilities equipment value capitalized leases related accumulated depreciation totaled 11 million 05 million respectively december 31 2007 value capitalized leases related accumulated depreciation totaled 10 million 05 million respectively december 31 2006 238 contingent convertible senior notes june 15 2005 company sold 125 million aggregate principal amount 238 contingent convertible senior notes due 2025 placement qualified institutional buyers pursuant sec’s rule 144a company granted initial purchaser notes 30day option purchase additional 50 million aggregate principal amount notes option exercised july 2005 additional 50 million notes sold time notes senior unsecured obligations company bear interest rate 238 per annum notes mature july 1 2025 may redeemed company prior july 6 2012 holders notes may require company repurchase notes july 1 2012 2015 2020 notes provide oil states international inc subsidiaries notes consolidated financial statements continued net share settlement therefore may convertible certain circumstances combination cash principal amount notes common stock company excess principal amount notes initial conversion price 3175 per share shares underlying notes included calculation diluted earnings per share year company’s stock price exceeded initial conversion price 3175 period terms notes require company’s stock price quarter period prior july 1 2023 120 initial conversion price 3810 per share least 20 trading days defined period notes convertible assuming stock price contingency feature met holders notes elect convert stock price 3810 per share company would required deliver 175 million cash plus accrued interest approximately 919000 shares common stock connection note offering company agreed register notes within 180 days issuance keep registration effective two years subsequent initial issuance notes registered november 2005 maximum amount contingent interest could potentially inure note holders time period material consolidated financial position results operations company revolving credit facility december 13 2007 company exercised accordion feature available credit agreement dated october 30 2003 amended company’s credit facility currently totals 500 million available commitments senior secured revolving credit facility group banks 175 million available form loans denominated canadian dollars may made company’s principal canadian operating subsidiaries facility matures december 5 2011 amounts borrowed facility bear interest company’s election either • variable rate equal libor case canadian dollar denominated loans bankers’ acceptance discount rate plus margin ranging 05 125 • alternate base rate equal higher bank’s prime rate federal funds effective rate case canadian dollar denominated loans canadian prime rate commitment fees ranging 0175 025 per year paid undrawn portion facility depending upon leverage ratio credit facility guaranteed company’s active domestic subsidiaries cases company’s canadian foreign subsidiaries credit facility secured first priority lien company’s inventory accounts receivable material tangible intangible assets well company’s active subsidiaries however 65 voting stock foreign subsidiary required pledged pledge greater percentage would result adverse tax consequences credit facility contains negative covenants limit company’s ability borrow additional funds encumber assets pay dividends sell assets enter significant transactions company’s credit facility occurrence specified change control events involving company would constitute event default would permit banks among things accelerate maturity facility cause become immediately due payable full december 31 2007 3039 million outstanding facility additional 108 million outstanding letters credit leaving 1853 million available drawn facility january 11 2005 company renewed overdraft credit facility providing borrowings totaling £20 million uk operations interest payable quarterly margin 15 per annum bank’s variable base rate borrowings facility payable demand amounts outstanding facility december 31 2007 letters credit totaling £07 million outstanding december 31 2007 leaving £13 million available drawn facility oil states international inc subsidiaries notes consolidated financial statements continued subsidiary company maintains additional revolving credit facility bank total 33 million outstanding facility december 31 2007 facility consists swing line bank borrowings used working capital efficiencies 9 retirement plans company sponsors defined contribution plans participation plans available substantially employees company recognized expense 61 million 54 million 43 million respectively related various defined contribution plans years ended december 31 2007 2006 2005 respectively 10 income taxes consolidated pretax income years ended december 31 2007 2006 2005 consisted following thousands components income tax provision years ended december 31 2007 2006 2005 consisted following thousands oil states international inc subsidiaries notes consolidated financial statements continued provision taxes differs amount computed statutory rates follows years ended december 31 2007 2006 2005 thousands significant items giving rise deferred tax assets liabilities december 31 2007 2006 follows thousands oil states international inc subsidiaries notes consolidated financial statements continued reclassifications company’s deferred tax balance based net current items net noncurrent items december 31 2007 2006 follows thousands primary deferred tax assets december 31 2007 related employee benefit costs equity participation plan annual incentive compensation plan 19 million available federal net operating loss carryforwards nols date nols expire varying amounts years 2010 2011 first used offset taxable income generate ability utilize significant portion available nols currently limited section 382 internal revenue code due change control occurred 1995 currently believe substantially nols utilized company federal alternative minimum tax net operating loss carryforwards 15 million expire years 2011 2020 income tax provision year ended december 31 2007 totaled 970 million 323 pretax income compared 1040 million 345 pretax income year ended december 31 2006 lower foreign taxes income dividends higher allowable manufacturing credit completion irs audit company’s 2004 federal income tax return lowered effective tax rate year ended december 31 2007 addition effective tax rates higher 2006 2007 higher effective tax rate applicable gain sale workover services business recognized 2006 appropriate us foreign income taxes provided earnings foreign subsidiary companies expected remitted near future cumulative amount undistributed earnings foreign subsidiaries company intends permanently reinvest upon deferred us income taxes provided 363 million december 31 2007 majority generated canada upon distribution earnings form dividends otherwise company may subject us income taxes subject adjustment foreign tax credits foreign withholding taxes practical however estimate amount taxes may payable eventual remittance earnings consideration available foreign tax credits american jobs creation act 2004 signed law october 2004 introduced requirement companies disclose penalties imposed consolidated subsidiaries irs failing satisfy tax disclosure requirements relating “reportable transactions” year ended december 31 2007 penalties imposed company consolidated subsidiaries failure disclose reportable transactions irs company files tax returns jurisdictions required returns subject examination audit possible adjustment result assessments taxing authorities company believes recorded sufficient tax liabilities expect resolution examination audit tax returns would material adverse effect operating results financial condition liquidity examination company’s consolidated us federal tax return year 2004 internal revenue service completed third quarter 2007 significant adjustments proposed result examination tax years subsequent 2004 remain open us federal tax audit net operating losses nol’s utilized company years 1994 2002 remain subject federal tax audit respect nol’s available tax carryforward canadian subsidiaries’ federal tax returns subsequent 2003 subject audit canada revenue agency oil states international inc subsidiaries notes consolidated financial statements continued june 2006 fasb issued interpretation 48 accounting uncertainty income taxes interpretation fasb statement 109 fin 48 clarifies accounting disclosure uncertain tax positions defined interpretation prescribes recognition threshold measurement attribute financial statement recognition measurement tax positions taken expected taken tax return benefits recognized tax position must morelikelythannot sustained upon examination taxing authorities amount recognized measured largest amount benefit greater 50 percent likely realized upon ultimate settlement interpretation seeks reduce diversity practice associated certain aspects recognition measurement related accounting income taxes company adopted provisions fin 48 january 1 2007 adoption fin 48 resulted transition adjustment reducing beginning retained earnings 03 million consisting 02 million taxes 01 million interest total amount unrecognized tax benefits december 31 2007 25 million amount 11 million unrecognized tax benefits recognized would affect effective tax rate company recognizes interest penalties accrued related unrecognized tax benefits component company’s provision income taxes december 31 2007 company accrued 07 million interest expense year ended december 31 2007 company recognized 04 million interest expense excluding 05 million interest benefit result settlement taxing authority reconciliation beginning ending amount unrecognized tax benefits follows thousand reasonably possible amount unrecognized tax benefits change next twelve months due closing statute limitations change occur could favorable impact results operation 11 acquisitions supplemental cash flow information components cash used acquisitions reflected consolidated statements cash flows years ended december 31 2007 2006 2005 summarized follows thousands february 1 2005 company completed acquisition elenburg exploration company inc elenburg wyoming based land drilling company cash consideration 221 million including transaction costs plus note payable former owners 08 million date acquisition elenburg owned operated seven rigs provided shallow land drilling services montana wyoming colorado utah elenburg acquisition allowed us expand drilling business different geographic areas operations oil states international inc subsidiaries notes consolidated financial statements continued elenburg included drilling services business within well site services segment since date acquisition effective may 1 2005 june 1 2005 acquired stinger wellhead protection inc certain affiliated companies related intellectual property collectively stinger consideration 961 million including transaction costs note payable former owners 50 million stinger provides wellhead isolation equipment services 31 locations united states canada south america stinger’s patented equipment utilized pressure pumping operations isolates customers’ blowout preventers wellheads pressure abrasion experienced fracturing process oil gas well stinger acquisition expanded rental tool services capabilities especially pressure pumping market operations stinger included rental tools business within well site services segment since date acquisition june 2 2005 purchased phillips casing tubing lp phillips cash consideration 312 million net cash acquired including transaction costs phillips distributes octg primarily carbon erw electronic resistance welded pipe facilities midland godley texas operations phillips combined tubular services segment since date acquisition june 6 2005 acquired noble structures inc noble cash consideration 87 million plus note payable 08 million acquisition expanded company’s accommodation manufacturing capabilities canada order meet increased demand remote site facilities principally oil sands region operations noble included accommodations business within well site services segment since date acquisition august 2006 acquired three drilling rigs operating west texas eagle rock drilling total consideration 140 million including note payable seller 05 million rigs acquired classified part capital expenditures 2006 added existing west texas drilling fleet drilling services business july 1 2007 acquired business wire line service ltd well testing cash consideration 434 million including transaction costs plus note payable former owner 30 million well testing provides well testing flowback services locations texas new mexico operations well testing included rental tools business within well site services segment since date acquisition august 1 2007 acquired business schooner petroleum services inc schooner cash consideration 597 million net cash acquired including transactions costs plus note payable former owner 60 million schooner headquartered houston texas primarily provides completionrelated rental tools services eleven locations texas louisiana wyoming arkansas operations schooner included rental tools business within well site services segment since date acquisition accounting two acquisitions made 2007 finalized subject adjustments purchase price allocation period expected exceed period one year respective acquisition dates oil states international inc subsidiaries notes consolidated financial statements continued cash paid years ended december 31 2007 2006 2005 interest income taxes follows thousands 12 commitments contingencies company leases portion equipment office space computer equipment automobiles trucks leases expire various dates minimum future operating lease obligations effect december 31 2007 follows thousands rental expense operating leases 79 million 67 million 57 million years ended december 31 2007 2006 2005 respectively september 2006 entered construction agreement build new office facility offshore products operations houston texas total cost facility expected approximately 70 million expected completed march 2008 upon completion facility enter 21 year capital lease annual payments totaling approximately 07 million company party various pending threatened claims lawsuits administrative proceedings seeking damages remedies concerning commercial operations products employees matters including warranty product liability claims occasional claims individuals alleging exposure hazardous materials result products operations claims relate matters occurring prior acquisition businesses relate businesses sold certain cases company entitled indemnification sellers businesses cases indemnified buyers businesses although company give assurance outcome pending legal administrative proceedings effect outcomes may management believes ultimate liability resulting outcome proceedings extent otherwise provided covered insurance material adverse effect consolidated financial position results operations liquidity oil states international inc subsidiaries notes consolidated financial statements continued 13 stockbased compensation adopted sfas 123r effective january 1 2006 pronouncement requires companies measure cost employee services received exchange award equity instruments typically stock options based grantdate fair value award fair value estimated using optionpricing models resulting cost recognized period employee required provide service exchange awards usually vesting period prior adoption sfas 123r accounting treatment optional pro forma disclosures required adopted sfas 123r using modified prospective transition method explained sfas 123r effective stock options grant beginning january 1 2006 stock option awards granted prior january 1 2006 vesting period complete used modified prospective transition method permitted sfas 123r method accounting remaining unamortized value nonvested options expensed remaining vesting period using grantdate fair values options typically vest equal annual installments four year service period expense related option grant recognized straight line basis specific vesting period options fair value options determined grant date using blackscholes option pricing model requires us make several assumptions including riskfree interest rate dividend yield volatility expected term riskfree interest rate based us treasury yield curve effect expected term option time grant dividend yield common stock assumed zero since pay dividends current plans future expected market price volatility common stock based estimate made us considers historical implied volatility common stock well peer group companies time period equal expected term option expected life options awarded 2006 2007 based formula considering vesting period term options awarded permitted us securities exchange commission regulations oil states international inc subsidiaries notes consolidated financial statements continued following table summarizes stock option activity three years ended december 31 2007 total intrinsic value options exercised 2007 2006 2005 269 million 183 million 131 million respectively cash received company option exercises 2007 2006 2005 totaled 138 million 85 million 75 million respectively weighted average fair values options granted 2007 2006 2005 1116 1289 832 per share respectively fair value option grant estimated date grant using blackscholes option pricing model following weighted average assumptions used grants 2007 2006 2005 respectively riskfree weighted interest rates 47 46 39 expected dividend yield expected lives 43 50 years expected volatility 37 oil states international inc subsidiaries notes consolidated financial statements continued following table summarizes information stock options outstanding december 31 2007 december 31 2007 total 1497547 shares available future grant equity participation plan 2007 granted restricted stock awards totaling 197563 shares valued total 63 million total 162707 awards vest four equal annual installments 15860 awards vest three equal annual installments 3800 awards vest two annual installments remaining 15196 awards vest one year options awarded 2007 term six years granted exercise prices grant date closing market price total fair value restricted stock awards vesting year ended december 31 2007 22 million total 113787 shares restricted stock awarded 2006 aggregate value 39 million total 56952 shares restricted stock awarded 2005 aggregate value 12 million impact adoption sfas 123r stock based compensation pretax expense recognized sfas 123r year ended december 31 2007 totaled 80 million 011 per basic diluted share stock based compensation pretax expense recognized sfas 123r year ended december 31 2006 totaled 76 million 010 per basic diluted share year ended december 31 2005 stock compensation expense related primarily restricted stock awards totaled 558000 december 31 2007 141 million compensation cost related unvested stock options restricted stock awards attributable future performance yet recognized following table illustrates pro forma effect net income per share year ended december 31 2005 applied fair value recognition provisions sfas 123 “accounting stockbased compensation” thousands except per share amounts oil states international inc subsidiaries notes consolidated financial statements continued deferred compensation plan company maintains deferred compensation plan “deferred compensation plan” plan available directors certain officers managers company plan allows participants defer portion directors fees andor salary annual bonuses applicable permits company make discretionary contributions employee’s account since inception plan discretionary contribution provision limited matching employee participants contribution basis equivalent matching permitted company’s 401k retirement savings plan vesting contributions participants’ accounts also equivalent vesting requirements company’s 401k retirement savings plan deferred compensation plan dollar limits taxdeferred contributions assets deferred compensation plan held rabbi trust “trust” therefore available satisfy claims company’s creditors event bankruptcy insolvency company participants ability direct plan administrator invest assets accounts including discretionary contributions company preapproved mutual funds held trust prior november 1 2003 participants also ability direct plan administrator invest assets accounts company common stock addition participants currently right request plan administrator reallocate portfolio investments ie cash mutual funds participants’ individual accounts within trust current balances invested company common stock may increased company contributions form cash distributions plan generally made upon participants’ termination director andor employee applicable company participants receive payments plan cash december 31 2007 balance assets trust totaled 68 million including 17850 shares common stock company reflected treasury stock value 02 million company accounts deferred compensation plan accordance eitf 9714 “accounting deferred compensation arrangements amounts earned held rabbi trust invested” assets trust common stock company invested nine funds covering variety securities investment strategies mutual funds publicly quoted reported market value company accounts investments accordance sfas 115 “accounting certain investments debt equity securities” trust also holds common shares company’s common stock held trust classified treasury stock stockholders’ equity section consolidated balance sheet market value assets held trust exclusive market value shares company’s common stock reflected treasury stock december 31 2007 66 million classified “other noncurrent assets” consolidated balance sheet amounts payable plan participants december 31 2007 including market value shares company’s common stock reflected treasury stock 72 million classified “other liabilities” consolidated balance sheet accordance eitf 9714 market value fluctuations trust assets reflected consolidated statements income increases decreases value plan assets exclusive shares common stock company included compensation adjustments respective statements income increases decreases market value deferred compensation liability including shares common stock company held trust recorded treasury stock also included compensation adjustments consolidated statements income response changes total market value company’s common stock held trust company recorded net compensation expense adjustments 442 thousand 2007 283 thousand 2006 04 million 2005 14 segment related information accordance sfas 131 “disclosures segments enterprise related information” company identified following reportable segments offshore products well site services tubular services company’s reportable segments strategic business units offer different products services managed separately business requires different technology marketing strategies businesses acquired unit management time acquisition retained oil states international inc subsidiaries notes consolidated financial statements continued financial information industry segment three years ended december 31 2007 2006 2005 summarized following table thousands accounting policies segments described summary significant accounting policies 1 subsequent march 1 2006 effective date sale workover services business see note 7 classified equity interest boots coots notes receivable acquired transaction “drilling “ 2 includes 05 million noncash capital expenditures related acquisition drilling assets eagle rock oil states international inc subsidiaries notes consolidated financial statements continued financial information geographic segment three years ended december 31 2007 2006 2005 summarized thousands revenues us include export sales revenues attributable countries based location entity selling products performing services total assets attributable countries based physical location entity operating assets include intercompany balances customers accounted 10 company’s revenues years ended december 31 2007 2006 2005 equity net income unconsolidated affiliates included operating income 15 quarterly financial information unaudited following table summarizes quarterly financial information 2007 2006 thousands except per share amounts calculated independently quarters presented therefore sum quarterly amounts may equal total calculated year represents “revenues” less “product costs” “service costs” included company’s consolidated statements income oil states international inc subsidiaries notes consolidated financial statements continued 16 valuation allowances activity valuation accounts follows thousands 17 subsequent events january 11 2008 additional 50 million approved board share repurchase program duration program extended december 31 2009 february 1 2008 purchased equity christina lake enterprises ltd owners accommodations lodge “christina lake lodge” conklin area alberta canada christina lake lodge provides lodging catering 92 people southern area oil sands region expanded accommodate future growth consideration lodge consisted c65 million cash funded borrowings company’s existing credit facility subject postclosing working capital adjustments february 15 2008 acquired waterfront facility houston ship channel use offshore products segment new waterfront facility expand ability manufacture assemble test load larger subsea production drilling rig equipment thereby expanding capabilities consideration facility approximately 225 million cash funded borrowings company’s existing credit facility exhibit index filed herewith management contracts compensatory plans arrangements furnished herewithitem 15 exhibits financial statement schedules index financial statements financial statement schedules exhibits 1 financial statements reference made index set forth page 52 annual report form 10k 2 financial statement schedules included herein information required submitted included consolidated financial statements notes thereto required information inapplicable 3 index exhibits see index exhibits list exhibits filed herewith index also includes identifies management contracts compensatory plans arrangements required filed exhibits annual report form 10k item 60110iii regulation sk b index exhibits filed herewith management contracts compensatory plans arrangements furnished herewith signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized oil states international inc cindy b taylor cindy b taylor president chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 20 2009 oil states international inc subsidiaries index consolidated financial statements oil states international inc subsidiaries management’s annual report internal control financial reporting stockholders board directors oil states international inc management responsible establishing maintaining adequate internal control financial reporting defined rules 13a15f 15d15f exchange act internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation consolidated financial statements external purposes accordance accounting principles generally accepted united states gaap internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance gaap receipts expenditures made accordance authorizations management directors iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition assets could material effect consolidated financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate accordingly even effective internal control financial reporting provide reasonable assurance achieving control objectives oil states international inc’s management assessed effectiveness company’s internal control financial reporting december 31 2008 making assessment management used criteria set forth committee sponsoring organizations treadway commission coso internal control integrated framework based assessment believe december 31 2008 company’s internal control financial reporting effective based criteria oil states international inc’s independent registered public accounting firm audited company’s internal control financial reporting report appears page 55 oil states international inc houston texas oil states international inc subsidiaries report independent registered public accounting firm board directors stockholders oil states international inc audited accompanying consolidated balance sheets oil states international inc subsidiaries “company” december 31 2008 2007 related consolidated statements income stockholders’ equity comprehensive income cash flows three years period ended december 31 2008 financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position company december 31 2008 2007 consolidated results operations cash flows three years period ended december 31 2008 conformity us generally accepted accounting principles discussed note 10 consolidated financial statements effective january 1 2007 company adopted provisions financial accounting standards board interpretation 48 accounting uncertainty income taxes interpretation fasb statement 109 also audited accordance standards public company accounting oversight board united states company’s internal control financial reporting december 31 2008 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission report dated february 18 2009 expressed unqualified opinion thereon ernst young llp houston texas february 18 2009 oil states international inc subsidiaries report independent registered public accounting firm board directors stockholders oil states international inc audited oil states international inc subsidiaries’ “company” internal control financial reporting december 31 2008 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission “coso criteria” company’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s annual report internal control financial reporting responsibility express opinion company’s internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk performing procedures considered necessary circumstances believe audit provides reasonable basis opinion company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion company maintained material respects effective internal control financial reporting december 31 2008 based coso criteria also audited accordance standards public company accounting oversight board united states consolidated balance sheets company december 31 2008 2007 related consolidated statements income stockholders’ equity comprehensive income cash flows three years period ended december 31 2008 report dated february 18 2009 expressed unqualified opinion thereon ernst young llp houston texas february 18 2009 oil states international inc subsidiaries consolidated statements income accompanying notes integral part financial statements oil states international inc subsidiaries consolidated balance sheets accompanying notes integral part financial statements oil states international inc subsidiaries consolidated statements stockholders’ equity comprehensive income thousands accompanying notes integral part financial statements oil states international inc subsidiaries consolidated statements cash flows accompanying notes integral part financial statements oil states international inc subsidiaries notes consolidated financial statements 1 organization basis presentation consolidated financial statements include accounts oil states international inc oil states company consolidated subsidiaries investments unconsolidated affiliates company able exercise significant influence accounted using equity method company’s operations prior 2001 conducted oil states industries inc osi february 14 2001 company acquired three companies hwc energy services inc hwc pti group inc pti sooner inc sooner significant intercompany accounts transactions company consolidated subsidiaries eliminated accompanying consolidated financial statements company subsidiaries leading provider specialty products services oil gas drilling production companies throughout world operates substantial number world’s active oil gas producing regions including gulf mexico us onshore west africa north sea canada south america southeast asia company operates three principal business segments well site services offshore products tubular services company’s well site services segment includes accommodations rental tools drilling services businesses 2 summary significant accounting policies cash equivalents company considers highly liquid investments purchased original maturity three months less cash equivalents fair value financial instruments company’s financial instruments consist cash equivalents investments receivables notes receivable payables debt instruments company believes carrying values instruments fixed rate contingent convertible senior notes accompanying consolidated balance sheets approximate fair values fair value 238 contingent convertible senior notes estimated based prices quoted thirdparty financial institutions carrying fair values notes follows thousands december 31 2008 estimated fair value company’s debt outstanding revolving credit facility estimated lower carrying value since terms facility favorable might expected available current credit lending environment unable estimate fair value company’s bank debt due potential variability expected outstanding balances facility refer note 8 terms company’s credit facility inventories consist tubular oilfield products manufactured equipment spare parts manufactured equipment raw materials supplies raw materials remote accommodation facilities inventories include raw materials labor subcontractor charges manufacturing overhead carried lower cost market cost inventories determined average cost specificidentification method oil states international inc subsidiaries notes consolidated financial statements continued property plant equipment property plant equipment stated cost estimated fair market value acquisition date acquired business combination depreciation computed assets owned recorded capital lease using straightline method estimated useful lives assets leasehold improvements capitalized amortized lesser life lease estimated useful life asset expenditures repairs maintenance charged expense incurred expenditures major renewals betterments extend useful lives existing equipment capitalized depreciated upon retirement disposition property equipment cost related accumulated depreciation removed accounts resulting gain loss recognized statements income goodwill represents excess purchase price acquired businesses allocated value related net assets impairments applicable goodwill stated net accumulated amortization 108 million december 31 2008 180 million december 31 2007 accumulated amortization goodwill decreased 2008 compared 2007 primarily result goodwill impairment recognized 2008 evaluate goodwill impairment annually event occurs circumstances change suggest carrying amount may recoverable impairment goodwill tested reporting unit level comparing reporting unit’s carrying amount including goodwill implied fair value ifv reporting unit reporting units goodwill remaining include offshore products accommodations rental tools 100 impairment goodwill associated tubular services drilling reporting units discussed note 6 consolidated financial statements ifv reporting units estimated using primarily analysis trading multiples comparable companies reporting units also utilize discounted projected cash flows acquisition multiples analyses certain circumstances discount projected cash flows using long term weighted average cost capital reporting unit based estimate investment returns would required market participant carrying amount reporting unit exceeds fair value goodwill considered impaired second step performed determine amount impairment conduct annual impairment test december year see note 6 goodwill intangible assets impairment longlived assets compliance statement financial accounting standards 144 “accounting impairment disposal longlived assets” recoverability carrying values property plant equipment assessed minimum annually whenever management’s judgment events changes circumstances indicate carrying value assets may recoverable based estimated future cash flows assessment indicates carrying values recoverable determined based undiscounted cash flows remaining useful lives impairment loss recognized impairment loss equals excess carrying value fair value asset fair value asset based prices similar assets available discounted cash flows based company’s review carrying value assets recoverable impairment losses recorded periods presented foreign currency comprehensive income gains losses resulting balance sheet translation foreign operations foreign currency functional currency included separate component accumulated comprehensive income within stockholders’ equity representing substantially balances within accumulated comprehensive income gains losses resulting balance sheet translation foreign operations us dollar functional currency included consolidated statements income incurred oil states international inc subsidiaries notes consolidated financial statements continued foreign exchange risk portion revenues earnings net investments foreign affiliates exposed changes foreign exchange rates seek manage foreign exchange risk part operational means including managing expected local currency revenues relation local currency costs local currency assets relation local currency liabilities past foreign exchange risk also managed use derivative financial instruments foreign currency denominated debt financial instruments serve protect net income impact translation us dollars certain foreign exchange denominated transactions company currency contracts outstanding december 31 2008 december 31 2007 december 31 2006 net gains losses foreign currency exchange contracts designated hedges would recognized income statement offset foreign currency gain loss underlying transaction exchange gains losses associated operations totaled 16 million gain 2008 09 million loss 2007 04 million loss 2006 included operating income interest capitalization interest costs construction certain longterm assets capitalized amortized related assets’ estimated useful lives interest capitalized year ended december 31 2008 years ended december 31 2007 december 31 2006 10 million 01 million capitalized respectively revenue cost recognition revenue sale products accounted utilizing percentageofcompletion method recognized delivery acceptance customer occurred title significant risks ownership passed customer collectibility probable pricing fixed determinable product sales terms include significant post delivery obligations significant projects built customer specifications revenues recognized percentageofcompletion method measured percentage costs incurred date estimated total costs contract costtocost method billings contracts excess costs incurred estimated profits classified deferred revenue management believes method appropriate measure progress large contracts provisions estimated losses uncompleted contracts made period losses determined drilling services rental tool services revenues recognized based periodic usually daily rental rate services rendered proceeds customers cost oilfield rental equipment damaged lost downhole reflected gains losses disposition assets drilling services contracts based footage drilled recognize revenues footage drilled revenues exclude taxes assessed based revenues sales value added taxes cost goods sold includes direct material labor costs related contract performance indirect labor supplies tools repairs selling general administrative costs charged expense incurred income taxes company follows liability method accounting income taxes accordance sfas 109 “accounting income taxes” method deferred income taxes recorded based upon differences financial reporting tax bases assets liabilities measured using enacted tax rates laws effect underlying assets liabilities recovered settled company’s earnings foreign subsidiaries considered indefinitely reinvested provision us income taxes made earnings subsidiaries distribution earnings form dividends otherwise company would subject us income taxes subject adjustment foreign tax credits withholding taxes payable various foreign countries oil states international inc subsidiaries notes consolidated financial statements continued accordance sfas 109 company records valuation reserve reporting period management believes likely deferred tax asset created realized management continue evaluate appropriateness reserve future based upon operating results company accounting income taxes required provisions fasb interpretation 48 “accounting uncertainty income taxes” fin 48 estimate liability future income taxes calculation tax liabilities involves dealing uncertainties application complex tax regulations recognize liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due ultimately determine payment amounts unnecessary reverse liability recognize tax benefit period determine liability longer necessary record additional charge provision taxes period determine recorded tax liability less expect ultimate assessment receivables concentration credit risk concentration suppliers based nature customer base company believe significant concentrations credit risk concentration oil gas industry company evaluates creditworthiness major new existing customers’ financial condition generally company require significant collateral domestic customers company purchased 75 oilfield tubular goods three suppliers 2008 largest supplier representing 58 purchases period loss significant supplier tubular services segment could adversely affect allowances doubtful accounts company maintains allowances doubtful accounts estimated losses resulting inability company’s customers make required payments trade receivable deemed uncollectible receivable chargedoff allowance doubtful accounts company considers following factors determining collection revenue reasonably assured customer creditworthiness past transaction history customer current economic industry trends customer solvency changes customer payment terms company previous experience customer company typically obtains reports various credit organizations ensure customer history paying creditors company may also request financial information including financial statements documents ensure customer means making payment factors indicate collection reasonably assured company would require prepayment arrangement support revenue recognition recording trade receivable financial condition company’s customers deteriorate adversely affecting ability make payments additional allowances would required earnings per share company’s basic income per share eps amounts computed based average number common shares outstanding including 201757 shares common stock december 31 2008 2007 issuable upon exercise exchangeable shares one company’s canadian subsidiaries exchangeable shares issued certain former shareholders pti connection company’s ipo combination pti company intended characteristics essentially equivalent company’s common stock prior exchange treated shares common stock issuable upon exchange exchangeable shares outstanding shares restricted stock awarded company’s equity participation plan included company’s basic fully diluted shares restricted stock shares vest oil states international inc subsidiaries notes consolidated financial statements continued diluted eps amounts include effect company’s outstanding stock options treasury stock method addition shares assumed issued upon conversion company’s 238 contingent convertible senior subordinated notes averaged 1270433 729830 years ended december 31 2008 december 31 2007 respectively included calculation fully diluted shares outstanding fully diluted earnings per share stockbased compensation adopted statement financial accounting standards 123r sfas 123r “sharebased payment” effective january 1 2006 pronouncement requires companies measure cost employee services received exchange award equity instruments typically stock options based grantdate fair value award fair value estimated using optionpricing models resulting cost recognized period employee required provide service exchange awards usually vesting period prior adoption sfas 123r accounting treatment optional pro forma disclosures required years ended december 31 2008 december 31 2007 december 31 2006 company recognized noncash general administrative expenses stock options restricted stock awards totaling 109 million 80 million 76 million respectively company accounts assets held rabbi trust certain participants company’s deferred compensation plan accordance eitf 9714 see note 13 guarantees company applies fasb interpretation 45 fin 45 “guarantor’s accounting disclosure requirements guarantees including indirect indebtedness others” company’s obligations certain guarantees pursuant fin 45 company required disclose changes product warranty reserves products offshore products accommodations businesses sold warranty generally ranging 12 18 months parts labor covered terms warranty agreement warranty provisions based historical experience product configuration geographic region changes warranty reserves follows thousands current warranty provisions typically related current year’s sales warranty consumption associated current prior year’s net sales ordinary course business company also provides standby letters credit guarantee instruments certain parties required certain transactions initiated either company subsidiaries december 31 2008 maximum potential amount future payments company could required make guarantee agreements approximately 168 million company recorded liability connection guarantee arrangements beyond required appropriately account underlying transaction guaranteed company believe based historical experience information currently available probable amounts required paid guarantee arrangements oil states international inc subsidiaries notes consolidated financial statements continued use estimates preparation consolidated financial statements conformity accounting principles generally accepted united states requires use estimates assumptions management determining reported amounts assets liabilities disclosures contingent assets liabilities date consolidated financial statements reported amounts revenues expenses reporting period examples estimates include costs associated disposal discontinued operations including potential future adjustments result contractual agreements revenue income recognized percentageofcompletion method estimate company’s share earnings equity method investments valuation allowance recorded net deferred tax assets warranty inventory bad debt reserves actual results could differ estimates discontinued operations prior initial public offering february 2001 sold businesses reported operating results businesses discontinued operations existing reserves related discontinued operations december 31 2008 2007 represent estimate remaining contingent liabilities associated company’s exit businesses 3 details selected balance sheet accounts additional information regarding selected balance sheet accounts december 31 2008 2007 presented thousands oil states international inc subsidiaries notes consolidated financial statements continued depreciation expense 990 million 665 million 505 million years ended december 31 2008 2007 2006 respectively 4 recent accounting pronouncements september 2006 fasb issued statement financial accounting standards 157 sfas 157 “fair value measurements” defines fair value establishes guidelines measuring fair value expands disclosures regarding fair value measurements sfas 157 require new fair value measurements rather eliminates inconsistencies guidance found various prior accounting pronouncements sfas 157 effective fiscal years beginning november 15 2007 february 2008 fasb issued fasb staff position fsp 1572 “effective date fasb statement 157” defers effective date statement 157 nonfinancial assets nonfinancial liabilities except items recognized disclosed fair value entity’s financial statements recurring basis least annually fiscal years beginning november 15 2008 interim periods within fiscal years earlier adoption permitted provided company yet issued financial statements including interim periods fiscal year adopted provisions sfas 157 unaffected delay first quarter 2008 adoption material effect consolidated statements financial position results operations cash flows company material recurring fair value measurements february 2007 fasb issued sfas 159 sfas 159 “the fair value option financial assets financial liabilities including amendment fasb statement 115” sfas 159 permits entities measure eligible assets liabilities fair value unrealized gains losses items fair value oil states international inc subsidiaries notes consolidated financial statements continued option elected reported earnings sfas 159 effective fiscal years beginning november 15 2007 company chosen adopt elective provisions sfas 159 existing financial instruments december 2007 fasb issued statement financial accounting standards 141 revised 2007 sfas 141r “business combinations” replaces sfas 141 sfas 141r establishes principles requirements acquirer recognizes measures financial statements identifiable assets acquired liabilities assumed noncontrolling interest acquiree goodwill acquired statement also establishes disclosure requirements enable users evaluate nature financial effects business combination sfas 141r effective fiscal years beginning december 15 2008 since sfas 141r adopted prospectively possible determine effect company’s results operations financial position december 2007 fasb also issued statement financial accounting standards 160 sfas 160 “noncontrolling interests consolidated financial statements amendment arb 51” sfas 160 requires accounting reporting minority interests recharacterized noncontrolling interests classified component equity sfas 160 also establishes reporting requirements provide sufficient disclosures clearly identify distinguish interests parent interests noncontrolling owners sfas 160 applies entities prepare consolidated financial statements except notforprofit organizations affect entities outstanding noncontrolling interest one subsidiaries deconsolidate subsidiary statement effective fiscal years beginning december 15 2008 adoption sfas 160 expected material impact results operations financial position may 2008 fasb issued fasb staff position fsp apb 141 “accounting convertible debt instruments may settled cash upon conversion including partial cash settlement” change accounting 238 notes new rules convertible debt instruments may settled entirely partially cash upon conversion entity required separately account liability equity components instrument manner reflects issuer’s nonconvertible debt borrowing rate effect new rules 238 notes equity component classified part stockholders’ equity balance sheet value equity component treated original issue discount purposes accounting debt component 238 notes higher noncash interest expense result recognizing accretion discounted carrying value debt component 238 notes interest expense estimated life 238 notes using effective interest rate method amortization however would effect cash interest payments fsp effective fiscal years beginning december 15 2008 rule requires retrospective application addition reduction debt balances increase stockholders’ equity consolidated balance sheets period presented expect retrospective application fsp apb 141 result noncash increase annual historical interest expense net amounts capitalized approximately 3 million 5 million 6 million 6 million 2005 2006 2007 2008 respectively additionally expect adoption result noncash increase projected annual interest expense net amounts expected capitalized approximately 7 million 7 million 8 million 4 million 2009 2010 2011 2012 respectively january 1 2009 amortized balance 238 notes 1491 million see also note 10 income taxes change accounting principle discussion fasb’s interpretation 48 accounting uncertainty income taxes oil states international inc subsidiaries notes consolidated financial statements continued 5 earnings per share eps 6 goodwill intangible assets effective january 1 2002 company adopted sfas 142 “goodwill intangible assets” sfas 142 connection adoption sfas 142 company ceased amortizing goodwill sfas 142 goodwill longer amortized tested impairment using fair value approach “reporting unit” level reporting unit operating segment business one level operating segment “component” level discrete financial information prepared regularly reviewed management component level company five reporting units december 31 2008 prior 100 impairment two reporting units’ goodwill amounts discussed goodwill allocated reporting units based actual acquisitions made company subsidiaries company would recognize impairment charge amount carrying amount reporting unit’s goodwill exceeds unit’s fair value company uses appropriate current circumstance comparative market multiples discounted cash flow calculations acquisition comparables establish fair values company amortizes cost intangibles estimated useful lives unless lives deemed indefinite amortizable intangible assets reviewed impairment based undiscounted cash flows impaired written fair value based either discounted cash flows appraised values intangible assets indefinite lives tested impairment written fair value required december 31 2008 provision impairment intangible assets required based evaluations performed oil states international inc subsidiaries notes consolidated financial statements continued changes carrying amount goodwill year ended december 31 2008 2007 follows thousands sfas 142 prescribes twostep method determining goodwill impairment company historically employed trading multiples valuation method determine fair value reporting units given market turmoil caused global economic recession credit market disruption second half 2008 company augmented valuation methodology include discounted cash flow valuations reporting units based expected cash flows units based combination factors including current global economic environment company’s near term outlook us drilling activity higher costs equity debt capital decline market capitalization company comparable oilfield service companies company concluded goodwill amounts previously recorded tubular services drilling reporting units impaired entirety total goodwill impairment charge recognized fourth quarter 2008 856 million taxes 798 million aftertax majority impairment charge related goodwill recorded prior conjunction company’s initial public offering 2001 noncash charge impact company’s liquidity position debt covenants cash flows portion goodwill deductible tax purposes totaled approximately 72 million december 31 2008 following table presents total amount assigned total amount amortized major intangible asset classes december 31 2008 2007 thousands intangible assets goodwill included within noncurrent assets consolidated balance sheets weighted average remaining amortization period intangible assets goodwill indefinite lived intangibles 114 years 118 years december 31 2008 2007 respectively total amortization expense expected 32 million 23 million 18 million 17 million 15 million 2009 2010 2011 2012 2013 respectively amortization expense 36 million 42 million 39 million years ended december 31 2008 2007 2006 respectively oil states international inc subsidiaries notes consolidated financial statements continued 7 workover services business transaction investment boots coots notes receivable boots coots effective march 1 2006 completed transaction combine workover services business boots coots international well control inc boots coots exchange 265 million shares boots coots common stock valued 145 per share closing senior subordinated promissory notes totaling 212 million workover services business part well site services segment prior combination closing transaction resulted noncash pretax gain 207 million result closing transaction initially owned 456 boots coots senior subordinated promissory notes received transaction bear fixed annual interest rate 10 mature september 1 2010 see note 17 subsequent events connection transaction also entered registration rights agreement requiring boots coots file shelf registration statement shelf registration statement finalized boots coots effective fourth quarter 2006 sold shares 2007 2008 described april 2007 company sold pursuant registration statement filed boots coots 14950000 shares boots coots common stock owned net proceeds 294 million result recognized net tax gain 84 million approximately 017 per diluted share second quarter 2007 sale boots coots shares sale primary shares stock directly boots coots april 2007 ownership interest boots coots reduced approximately 15 continued use equity method accounting account company’s remaining investment boots coots common stock 115 million shares carrying value company’s remaining investment boots coots common stock totaled 196 million december 31 2007 company sold aggregate total 11512137 shares boots coots stock representing remaining shares owned series transactions may june august 2008 sale boots coots stock resulted net proceeds 274 million net tax gain 36 million approximately 007 per diluted share twelve months ended december 31 2008 june 30 2008 ownership interest boots coots approximately 7 result decreased ownership percentage reconsidered method accounting utilized investment concluded discontinue use equity method accounting since longer ability significantly influence boots coots therefore began account remaining investment boots coots common stock 54 million shares june 30 2008 available sale security defined statement financial accounting standards sfas 115 “accounting certain investments debt equity securities” effective june 30 2008 accordance sfas 115 carrying value remaining shares owned company adjusted fair value unrealized tax holding gain amount 20 million recorded comprehensive income twelve months ended december 31 2008 sale remaining 54 million shares august 2008 resulted reclassification 20 million unrealized tax gain accumulated comprehensive income earnings twelve months ended december 31 2008 carrying value company’s note receivable due boots coots september 2 2010 212 million december 31 2008 included noncurrent assets balance sheet see note 17 subsequent events oil states international inc subsidiaries notes consolidated financial statements continued 8 longterm debt december 31 2008 2007 longterm debt consisted following thousands scheduled maturities combined longterm debt december 31 2008 follows thousands company’s capital leases consist primarily plant facilities office building equipment value capitalized leases related accumulated depreciation totaled 97 million 09 million respectively december 31 2008 value capitalized leases related accumulated depreciation totaled 11 million 05 million respectively december 31 2007 238 contingent convertible senior notes june 2005 sold 125 million aggregate principal amount 238 contingent convertible senior notes due 2025 placement qualified institutional buyers pursuant sec’s rule 144a company granted initial purchaser notes 30day option purchase additional 50 million aggregate principal amount notes option exercised july 2005 additional 50 million notes sold time notes senior unsecured obligations company bear interest rate 238 per annum notes mature july 1 2025 may redeemed company prior july 6 2012 holders notes may require company repurchase notes july 1 2012 2015 2020 assumed oil states international inc subsidiaries notes consolidated financial statements continued redemption notes date note holders first optional redemption date 2012 schedule debt maturities notes provide net share settlement therefore may convertible certain circumstances combination cash principal amount notes common stock company excess principal amount notes initial conversion price 3175 per share shares underlying notes included calculation diluted earnings per share periods average stock price exceeded initial conversion price 3175 per share terms notes require stock price quarter period prior july 1 2023 120 initial conversion price 3810 per share least 20 trading days defined period notes convertible note holder chooses present notes conversion future quarter prior first putcall date july 2012 would receive cash 1000 238 note plus company common stock excess valuation 1000 using conversion rate 238 notes 31496 multiplied company’s average common stock price ten trading day period following presentation 238 notes conversion connection note offering company agreed register notes within 180 days issuance keep registration effective two years subsequent initial issuance notes registered november 2005 maximum amount contingent interest could potentially inure note holders time period material consolidated financial position results operations company revolving credit facility december 13 2007 exercised accordion feature available credit agreement dated october 30 2003 amended company’s credit facility currently totals 500 million available commitments senior secured revolving credit facility group banks 175 million available form loans denominated canadian dollars may made company’s principal canadian operating subsidiaries facility matures december 5 2011 amounts borrowed facility bear interest company’s election either • variable rate equal libor case canadian dollar denominated loans bankers’ acceptance discount rate plus margin ranging 05 125 • alternate base rate equal higher bank’s prime rate federal funds effective rate case canadian dollar denominated loans canadian prime rate commitment fees ranging 0175 025 per year paid undrawn portion facility depending upon leverage ratio credit facility guaranteed company’s active domestic subsidiaries cases company’s canadian foreign subsidiaries credit facility secured first priority lien company’s inventory accounts receivable material tangible intangible assets well company’s active subsidiaries however 65 voting stock foreign subsidiary required pledged pledge greater percentage would result adverse tax consequences credit agreement governs credit facility contains customary financial covenants restrictions including restrictions ability declare pay dividends specifically must maintain interest coverage ratio defined ratio consolidated ebitda consolidated interest expense least 30 10 maximum leverage ratio defined ratio total debt consolidated ebitda greater 325 10 2009 30 10 thereafter factors considered calculations ratios defined credit agreement ebitda consolidated interest defined exclude goodwill impairments debt discount amortization noncash charges december 31 2008 compliance debt covenants credit facility also contains negative covenants limit company’s ability borrow additional funds encumber assets pay dividends sell assets enter significant transactions oil states international inc subsidiaries notes consolidated financial statements continued company’s credit facility occurrence specified change control events involving company would constitute event default would permit banks among things accelerate maturity facility cause become immediately due payable full april 7 2008 2872 million outstanding facility additional 168 million outstanding letters credit leaving 1960 million available drawn facility january 11 2005 company renewed overdraft credit facility providing borrowings totaling £20 million uk operations interest payable quarterly margin 15 per annum bank’s variable base rate borrowings facility payable demand amounts outstanding facility december 31 2008 letters credit totaling £07 million outstanding december 31 2008 leaving £13 million available drawn facility subsidiary company maintains additional revolving credit facility bank total 42 million outstanding facility december 31 2008 facility consists swing line bank borrowings used working capital efficiencies 9 retirement plans company sponsors defined contribution plans participation plans available substantially employees company recognized expense 84 million 61 million 54 million respectively related various defined contribution plans years ended december 31 2008 2007 2006 respectively 10 income taxes consolidated pretax income years ended december 31 2008 2007 2006 consisted following thousands components income tax provision years ended december 31 2008 2007 2006 consisted following thousands oil states international inc subsidiaries notes consolidated financial statements continued provision taxes differs amount computed statutory rates follows years ended december 31 2008 2007 2006 thousands significant items giving rise deferred tax assets liabilities december 31 2008 2007 follows thousands oil states international inc subsidiaries notes consolidated financial statements continued reclassifications company’s deferred tax balance based net current items net noncurrent items december 31 2008 2007 follows thousands primary deferred tax assets december 31 2008 related employee benefit costs equity participation plan deductible goodwill 15 million available federal net operating loss carryforwards regular tax nols date regular tax nols expire varying amounts years 2010 2011 first used offset taxable income generate ability utilize significant portion available regular tax nols currently limited section 382 internal revenue code due change control occurred 1995 currently believe substantially regular tax nols utilized company utilized federal alternative minimum tax net operating loss carryforwards income tax provision year ended december 31 2008 totaled 1563 million 412 pretax income compared 970 million 323 pretax income year ended december 31 2007 higher effective tax rate primarily due impairment goodwill majority deductible tax purposes appropriate us foreign income taxes provided earnings foreign subsidiary companies expected remitted near future cumulative amount undistributed earnings foreign subsidiaries company intends permanently reinvest upon deferred us income taxes provided 461 million december 31 2008 majority generated canada upon distribution earnings form dividends otherwise company may subject us income taxes subject adjustment foreign tax credits foreign withholding taxes practical however estimate amount taxes may payable eventual remittance earnings consideration available foreign tax credits american jobs creation act 2004 signed law october 2004 introduced requirement companies disclose penalties imposed consolidated subsidiaries irs failing satisfy tax disclosure requirements relating “reportable transactions” year ended december 31 2008 penalties imposed company consolidated subsidiaries failure disclose reportable transactions irs company files tax returns jurisdictions required returns subject examination audit possible adjustment result assessments taxing authorities company believes recorded sufficient tax liabilities expect resolution examination audit tax returns would material adverse effect operating results financial condition liquidity examination company’s consolidated us federal tax return year 2004 internal revenue service completed third quarter 2007 significant adjustments proposed result examination tax years subsequent 2005 remain open us federal tax audit net operating losses nol’s utilized company years 1994 2002 remain subject federal tax audit respect nol’s available tax carryforward canadian subsidiaries’ federal tax returns subsequent 2004 subject audit canada revenue agency june 2006 fasb issued fin 48 clarifies accounting disclosure uncertain tax positions defined interpretation prescribes recognition threshold measurement attribute financial statement recognition measurement tax positions taken expected taken tax return benefits recognized tax position must morelikelythannot sustained upon examination oil states international inc subsidiaries notes consolidated financial statements continued taxing authorities amount recognized measured largest amount benefit greater 50 percent likely realized upon ultimate settlement interpretation seeks reduce diversity practice associated certain aspects recognition measurement related accounting income taxes company adopted provisions fin 48 january 1 2007 adoption fin 48 resulted transition adjustment reducing beginning retained earnings 03 million consisting 02 million taxes 01 million interest total amount unrecognized tax benefits december 31 2008 43 million amount 21 million unrecognized tax benefits recognized would affect effective tax rate company recognizes interest penalties accrued related unrecognized tax benefits component company’s provision income taxes december 31 2008 company accrued 09 million interest expense 05 million penalties year ended december 31 2008 company recognized 04 million interest expense excluding 01 million interest reduction due lapse statute limitations reconciliation beginning ending amount unrecognized tax benefits follows thousand reasonably possible amount unrecognized tax benefits change next twelve months due closing statute limitations change occur could favorable impact results operation 11 acquisitions supplemental cash flow information components cash used acquisitions reflected consolidated statements cash flows years ended december 31 2008 2007 2006 summarized follows thousands august 2006 acquired three drilling rigs operating west texas total consideration 140 million funded borrowings company’s existing credit facility including note payable seller 05 million rigs acquired classified part capital expenditures 2006 added existing west texas drilling fleet drilling services business oil states international inc subsidiaries notes consolidated financial statements continued july 2007 acquired business wire line service ltd well testing cash consideration 434 million including transaction costs funded borrowings company’s existing credit facility plus note payable former owner 30 million mature july 1 2009 well testing provides well testing flowback services locations texas new mexico colorado arkansas operations well testing included rental tools business within well site services segment since date acquisition august 2007 acquired business schooner petroleum services inc schooner cash consideration 597 million net cash acquired including transactions costs funded borrowings company’s existing credit facility plus note payable former owner 60 million mature august 1 2009 schooner headquartered houston texas primarily provides completionrelated rental tools services nine locations texas louisiana wyoming arkansas operations schooner included rental tools business within well site services segment since date acquisition february 1 2008 purchased equity christina lake enterprises ltd owners accommodations lodge christina lake lodge conklin area alberta canada christina lake lodge provides lodging catering southern area oil sands region consideration lodge consisted 69 million cash net cash acquired including transaction costs funded borrowings company’s existing credit facility assumption certain liabilities subject postclosing working capital adjustments christina lake lodge included accommodations business within well site services segment since date acquisition february 15 2008 acquired waterfront facility houston ship channel use offshore products segment new waterfront facility expanded ability manufacture assemble test load larger subsea production drilling rig equipment thereby expanding capabilities consideration facility approximately 229 million cash including transaction costs funded borrowings company’s existing credit facility cash paid years ended december 31 2008 2007 2006 interest income taxes follows thousands 12 commitments contingencies company leases portion equipment office space computer equipment automobiles trucks leases expire various dates oil states international inc subsidiaries notes consolidated financial statements continued minimum future operating lease obligations effect december 31 2007 follows thousands rental expense operating leases 91 million 79 million 67 million years ended december 31 2008 2007 2006 respectively company party various pending threatened claims lawsuits administrative proceedings seeking damages remedies concerning commercial operations products employees matters including warranty product liability claims occasional claims individuals alleging exposure hazardous materials result products operations claims relate matters occurring prior acquisition businesses relate businesses sold certain cases company entitled indemnification sellers businesses cases indemnified buyers businesses although company give assurance outcome pending legal administrative proceedings effect outcomes may management believes ultimate liability resulting outcome proceedings extent otherwise provided covered insurance material adverse effect consolidated financial position results operations liquidity 13 stockbased compensation adopted sfas 123r effective january 1 2006 pronouncement requires companies measure cost employee services received exchange award equity instruments typically stock options based grantdate fair value award fair value estimated using optionpricing models resulting cost recognized period employee required provide service exchange awards usually vesting period prior adoption sfas 123r accounting treatment optional pro forma disclosures required adopted sfas 123r using modified prospective transition method explained sfas 123r effective stock options grant beginning january 1 2006 stock option awards granted prior january 1 2006 vesting period complete used modified prospective transition method permitted sfas 123r method accounting remaining unamortized value nonvested options expensed remaining vesting period using grantdate fair values options typically vest equal annual installments four year service period expense related option grant recognized straight line basis specific vesting period options fair value options determined grant date using blackscholes option pricing model requires us make several assumptions including riskfree interest rate dividend yield volatility expected term riskfree interest rate based us treasury yield curve effect expected term option time grant dividend yield common stock assumed zero since pay dividends current plans future expected market price volatility common stock based estimate made us considers historical implied volatility common stock well peer group companies time period equal expected term option expected life options oil states international inc subsidiaries notes consolidated financial statements continued awarded 2006 2007 2008 based formula considering vesting period term options awarded permitted us securities exchange commission regulations following table summarizes stock option activity three years ended december 31 2008 total intrinsic value options exercised 2008 2007 2006 123 million 269 million 183 million respectively cash received company option exercises 2008 2007 2006 totaled 89 million 138 million 85 million respectively weighted average fair values options granted 2008 2007 2006 1249 1116 1289 per share respectively fair value option grant estimated date grant using blackscholes option pricing model following weighted average assumptions used grants 2008 2007 2006 respectively riskfree weighted interest rates 26 47 46 expected dividend yield expected lives 43 years expected volatility 37 oil states international inc subsidiaries notes consolidated financial statements continued following table summarizes information stock options outstanding december 31 2008 december 31 2008 total 3338752 shares available future grant equity participation plan 2008 granted restricted stock awards totaling 271771 shares valued total 117 million total 195450 awards vest four equal annual installments 58750 awards vest two annual installments 16672 awards vest one year remaining 899 awards vest immediately options awarded 2008 term six years granted exercise prices grant date closing market price total fair value restricted stock awards vesting year ended december 31 2008 50 million total 197563 shares restricted stock awarded 2007 aggregate value 63 million total 113787 shares restricted stock awarded 2006 aggregate value 39 million stock based compensation pretax expense recognized years ended december 31 2008 december 31 2007 december 31 2006 totaled 109 million 80 million 76 million 012 011 010 per diluted share tax respectively december 31 2008 194 million compensation cost related unvested stock options restricted stock awards attributable future performance yet recognized deferred compensation plan company maintains deferred compensation plan “deferred compensation plan” plan available directors certain officers managers company plan allows participants defer portion directors fees andor salary annual bonuses employee contributions deferred compensation plan matched company percentage employee participant company’s 401k retirement plan subject irs limitations matcheligible compensation deferred compensation plan also permits company make discretionary contributions employee’s account director’s contributions matched company since inception plan discretionary contribution provision limited matching employee participants contribution basis equivalent matching permitted company’s 401k retirement savings plan vesting contributions participants’ accounts also equivalent vesting requirements company’s 401k retirement savings plan deferred compensation plan dollar limits taxdeferred contributions assets deferred compensation plan held rabbi trust “trust” therefore available satisfy claims company’s creditors event bankruptcy insolvency company participants ability direct plan administrator invest assets accounts including discretionary contributions company preapproved mutual funds held trust prior november 1 2003 participants also ability direct plan administrator invest assets accounts company common stock addition participants currently right request plan administrator reallocate portfolio investments ie cash mutual funds participants’ individual accounts within trust current balances invested oil states international inc subsidiaries notes consolidated financial statements continued company common stock may increased company contributions form cash distributions plan generally made upon participants’ termination director andor employee applicable company participants receive payments plan cash december 31 2008 balance assets trust totaled 56 million including 17746 shares common stock company reflected treasury stock value 02 million company accounts deferred compensation plan accordance eitf 9714 “accounting deferred compensation arrangements amounts earned held rabbi trust invested” assets trust common stock company invested nine funds covering variety securities investment strategies mutual funds publicly quoted reported market value company accounts investments accordance sfas 115 “accounting certain investments debt equity securities” trust also holds common shares company’s common stock held trust classified treasury stock stockholders’ equity section consolidated balance sheets market value assets held trust exclusive market value shares company’s common stock reflected treasury stock december 31 2008 54 million classified “other noncurrent assets” consolidated balance sheet amounts payable plan participants december 31 2008 including market value shares company’s common stock reflected treasury stock 57 million classified “other noncurrent liabilities” consolidated balance sheet accordance eitf 9714 market value fluctuations trust assets reflected consolidated statements income increases decreases value plan assets exclusive shares common stock company included compensation adjustments respective statements income increases decreases market value deferred compensation liability including shares common stock company held trust recorded treasury stock also included compensation adjustments consolidated statements income response changes total market value company’s common stock held trust company recorded net compensation expense adjustments 03 million 2008 less 01 million 2007 283 million 2006 14 segment related information accordance sfas 131 “disclosures segments enterprise related information” company identified following reportable segments offshore products well site services tubular services company’s reportable segments strategic business units offer different products services managed separately business requires different technology marketing strategies businesses acquired unit management time acquisition retained oil states international inc subsidiaries notes consolidated financial statements continued financial information industry segment three years ended december 31 2008 2007 2006 summarized following table thousands accounting policies segments described summary significant accounting policies 1 subsequent march 1 2006 effective date sale workover services business see note 7 classified equity interest boots coots notes receivable acquired transaction “drilling other” 2 includes 05 million noncash capital expenditures related acquisition drilling assets eagle rock oil states international inc subsidiaries notes consolidated financial statements continued financial information geographic segment three years ended december 31 2008 2007 2006 summarized thousands revenues us include export sales revenues attributable countries based location entity selling products performing services total assets attributable countries based physical location entity operating assets include intercompany balances customers accounted 10 company’s revenues years ended december 31 2008 2007 2006 equity net income unconsolidated affiliates included operating income 15 quarterly financial information unaudited following table summarizes quarterly financial information 2008 2007 thousands except per share amounts calculated independently quarters presented therefore sum quarterly amounts may equal total calculated year represents “revenues” less “product costs” “service costs” included company’s consolidated statements income oil states international inc subsidiaries notes consolidated financial statements continued 16 valuation allowances activity valuation accounts follows thousands 17 subsequent events unaudited february 2009 company received cash boots coots totaling 212 million full payment senior subordinated promissory notes due mature september 1 2010 see note 7 consolidated financial statements included annual report form 10k january 2009 company agreed amend contract customer canadian oil sands accommodations business related construction rental 1016 bed facility customer announced suspension activities associated development project supported 1016 bed facility november 2008 result amendment customer purchased buildings facility company reimbursed company expenses incurred site preparation transportation installation related facility agreement also provides possible startup facility future maintenance assets purchased company result amended contract company reclassified 211 million construction progress december 31 2008 work process inventory exhibit index filed herewith management contracts compensatory plans arrangements furnished herewithitem 15 exhibits financial statement schedules index financial statements financial statement schedules exhibits 1 financial statements reference made index set forth page 57 annual report form 10k 2 financial statement schedules included herein information required submitted included consolidated financial statements notes thereto required information inapplicable 3 index exhibits see index exhibits list exhibits filed herewith index also includes identifies management contracts compensatory plans arrangements required filed exhibits annual report form 10k item 60110iii regulation sk b index exhibits filed herewith management contracts compensatory plans arrangements furnished herewith signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized oil states international inc cindy b taylor cindy b taylor president chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 22 2010 oil states international inc subsidiaries index consolidated financial statements oil states international inc subsidiaries report independent registered public accounting firm board directors stockholders oil states international inc audited accompanying consolidated balance sheets oil states international inc subsidiaries “company” december 31 2009 2008 related consolidated statements income stockholders’ equity comprehensive income cash flows three years period ended december 31 2009 financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position company december 31 2009 2008 consolidated results operations cash flows three years period ended december 31 2009 conformity us generally accepted accounting principles discussed note 4 consolidated financial statements consolidated financial statements retrospectively adjusted reflect application new accounting standards updates related convertible debt instruments noncontrolling interests discussed note 10 consolidated financial statements effective january 1 2007 company adopted amendments accounting standards related accounting uncertain tax positions also audited accordance standards public company accounting oversight board united states company’s internal control financial reporting december 31 2009 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission report dated february 22 2010 expressed unqualified opinion thereon ernst young llp houston texas february 22 2010 oil states international inc subsidiaries report independent registered public accounting firm board directors stockholders oil states international inc audited oil states international inc subsidiaries’ “company” internal control financial reporting december 31 2009 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission “coso criteria” company’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s annual report internal control financial reporting responsibility express opinion company’s internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk performing procedures considered necessary circumstances believe audit provides reasonable basis opinion company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion company maintained material respects effective internal control financial reporting december 31 2009 based coso criteria also audited accordance standards public company accounting oversight board united states consolidated balance sheets company december 31 2009 2008 related consolidated statements income stockholders’ equity comprehensive income cash flows three years period ended december 31 2009 report dated february 22 2010 expressed unqualified opinion thereon ernst young llp houston texas february 22 2010 oil states international inc subsidiaries consolidated statements income 1 see note 16 regarding adoption new accounting standard accounting convertible debt accompanying notes integral part financial statements oil states international inc subsidiaries consolidated balance sheets 1 see note 16 regarding adoption new accounting standard accounting convertible debt accompanying notes integral part financial statements oil states international inc subsidiaries consolidated statements stockholders’ equity comprehensive income 1 see note 16 regarding adoption new accounting standard accounting convertible debt accompanying notes integral part financial statements oil states international inc subsidiaries consolidated statements cash flows 1 see note 16 regarding adoption new accounting standard accounting convertible debt accompanying notes integral part financial statements oil states international inc subsidiaries notes consolidated financial statements 1 organization basis presentation consolidated financial statements include accounts oil states international inc oil states company consolidated subsidiaries investments unconsolidated affiliates company able exercise significant influence accounted using equity method company’s operations prior 2001 conducted oil states industries inc osi february 14 2001 company acquired three companies oil states energy services inc oses formerly known hwc energy services inc pti group inc pti sooner inc sooner significant intercompany accounts transactions company consolidated subsidiaries eliminated accompanying consolidated financial statements company subsidiaries leading provider specialty products services oil gas drilling production companies throughout world operates substantial number world’s active oil gas producing regions including gulf mexico us onshore west africa north sea canada south america southeast asia company operates three principal business segments well site services offshore products tubular services company’s well site services segment includes accommodations rental tools drilling services businesses connection preparation consolidated financial statements accordance current accounting standards company evaluated subsequent events balance sheet date december 31 2009 filing date february 22 2010 material subsequent events requiring additional disclosure amendment annual financial statements february 22 2010 2 summary significant accounting policies cash equivalents company considers highly liquid investments purchased original maturity three months less cash equivalents fair value financial instruments company’s financial instruments consist cash equivalents investments receivables notes receivable payables debt instruments company believes carrying values instruments fixed rate contingent convertible senior notes accompanying consolidated balance sheets approximate fair values fair value 238 contingent convertible senior notes estimated based quoted price active market level 1 fair value measurement carrying fair values notes follows thousands december 31 2009 company outstanding borrowings revolving credit facility unable estimate fair value company’s bank debt due potential variability expected outstanding balances facility refer note 8 terms company’s credit facility oil states international inc subsidiaries notes consolidated financial statements continued inventories consist tubular oilfield products manufactured equipment spare parts manufactured equipment raw materials supplies raw materials remote accommodation facilities inventories include raw materials labor subcontractor charges manufacturing overhead carried lower cost market cost inventories determined average cost specificidentification method property plant equipment property plant equipment stated cost estimated fair market value acquisition date acquired business combination depreciation computed assets owned recorded capital lease using straightline method estimated useful lives assets leasehold improvements capitalized amortized lesser life lease estimated useful life asset expenditures repairs maintenance charged expense incurred expenditures major renewals betterments extend useful lives existing equipment capitalized depreciated upon retirement disposition property equipment cost related accumulated depreciation removed accounts resulting gain loss recognized statements income goodwill represents excess purchase price acquired businesses allocated value related net assets impairments applicable goodwill stated net accumulated amortization 107 million december 31 2009 108 million december 31 2008 evaluate goodwill impairment annually event occurs circumstances change suggest carrying amount may recoverable impairment goodwill tested reporting unit level comparing reporting unit’s carrying amount including goodwill implied fair value ifv reporting unit reporting units goodwill remaining include offshore products accommodations rental tools 100 impairment goodwill associated tubular services drilling reporting units discussed note 6 consolidated financial statements ifv reporting units estimated using analysis trading multiples comparable companies reporting units also utilize discounted projected cash flows acquisition multiples analyses certain circumstances discount projected cash flows using longterm weighted average cost capital reporting unit based estimate investment returns would required market participant carrying amount reporting unit exceeds fair value goodwill considered impaired second step performed determine amount impairment conduct annual impairment test december year see note 6 goodwill intangible assets impairment longlived assets compliance current accounting standards regarding accounting impairment disposal longlived assets recoverability carrying values property plant equipment assessed minimum annually whenever management’s judgment events changes circumstances indicate carrying value assets may recoverable based estimated future cash flows assessment indicates carrying values recoverable determined based undiscounted cash flows remaining useful lives impairment loss recognized impairment loss equals excess carrying value fair value asset fair value asset based prices similar assets available discounted cash flows based company’s review carrying value assets recoverable impairment losses recorded periods presented oil states international inc subsidiaries notes consolidated financial statements continued foreign currency comprehensive income gains losses resulting balance sheet translation foreign operations foreign currency functional currency included separate component accumulated comprehensive income within stockholders’ equity representing substantially balances within accumulated comprehensive income gains losses resulting balance sheet translation foreign operations us dollar functional currency included consolidated statements income incurred foreign exchange risk portion revenues earnings net investments foreign affiliates exposed changes foreign exchange rates seek manage foreign exchange risk part operational means including managing expected local currency revenues relation local currency costs local currency assets relation local currency liabilities past foreign exchange risk also managed use derivative financial instruments foreign currency denominated debt financial instruments serve protect net income impact translation us dollars certain foreign exchange denominated transactions company currency contracts outstanding december 31 2009 december 31 2008 december 31 2007 net gains losses foreign currency exchange contracts designated hedges would recognized income statement offset foreign currency gain loss underlying transaction foreign exchange gains losses associated operations totaled 03 million loss 2009 16 million gain 2008 09 million loss 2007 included operating income interest capitalization interest costs construction certain longterm assets capitalized amortized related assets’ estimated useful lives years ended december 31 2009 december 31 2007 01 million 10 million capitalized respectively interest capitalized year ended december 31 2008 revenue cost recognition revenue sale products accounted utilizing percentageofcompletion method recognized delivery acceptance customer occurred title significant risks ownership passed customer collectibility probable pricing fixed determinable product sales terms include significant post delivery obligations significant projects revenues recognized percentageofcompletion method measured percentage costs incurred date estimated total costs contract costtocost method billings contracts excess costs incurred estimated profits classified deferred revenue management believes method appropriate measure progress large contracts provisions estimated losses uncompleted contracts made period losses determined drilling services rental tool services revenues recognized based periodic usually daily rental rate services rendered proceeds customers cost oilfield rental equipment damaged lost downhole reflected gains losses disposition assets drilling services contracts based footage drilled recognize revenues footage drilled revenues exclude taxes assessed based revenues sales value added taxes cost goods sold includes direct material labor costs related contract performance indirect labor supplies tools repairs selling general administrative costs charged expense incurred oil states international inc subsidiaries notes consolidated financial statements continued income taxes company follows liability method accounting income taxes accordance current accounting standards regarding accounting income taxes method deferred income taxes recorded based upon differences financial reporting tax bases assets liabilities measured using enacted tax rates laws effect underlying assets liabilities recovered settled company’s earnings foreign subsidiaries considered indefinitely reinvested provision us income taxes made earnings subsidiaries distribution earnings form dividends otherwise company would subject us income taxes subject adjustment foreign tax credits withholding taxes payable various foreign countries accordance current accounting standards company records valuation reserve reporting period management believes likely deferred tax asset created realized management continue evaluate appropriateness reserve future based upon operating results company accounting income taxes required provisions current accounting standards regarding accounting uncertainty income taxes estimate liability future income taxes calculation tax liabilities involves dealing uncertainties application complex tax regulations recognize liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due ultimately determine payment amounts unnecessary reverse liability recognize tax benefit period determine liability longer necessary record additional charge provision taxes period determine recorded tax liability less expect ultimate assessment receivables concentration credit risk concentration suppliers based nature customer base company believe significant concentrations credit risk concentration oil gas industry company evaluates creditworthiness significant new existing customers’ financial condition generally company require significant collateral domestic customers company purchased 71 oilfield tubular goods three suppliers 2009 largest supplier representing 53 purchases period loss significant supplier tubular services segment could adversely affect allowances doubtful accounts company maintains allowances doubtful accounts estimated losses resulting inability company’s customers make required payments trade receivable deemed uncollectible receivable chargedoff allowance doubtful accounts company considers following factors determining collection revenue reasonably assured customer creditworthiness past transaction history customer current economic industry trends customer solvency changes customer payment terms company previous experience customer company typically obtains reports various credit organizations ensure customer history paying creditors company may also request financial information including financial statements documents ensure customer means making payment factors indicate collection reasonably assured company would require prepayment arrangement support revenue recognition recording trade receivable financial condition company’s customers deteriorate adversely affecting ability make payments additional allowances would required oil states international inc subsidiaries notes consolidated financial statements continued earnings per share company’s basic earnings per share eps amounts computed based average number common shares outstanding including 101757 shares common stock december 31 2009 201757 shares december 31 2008 issuable upon exercise exchangeable shares one company’s canadian subsidiaries exchangeable shares issued certain former shareholders pti connection company’s ipo combination pti company intended characteristics essentially equivalent company’s common stock prior exchange treated shares common stock issuable upon exchange exchangeable shares outstanding shares restricted stock awarded company’s equity participation plan included company’s basic fully diluted shares restricted stock shares vest diluted eps amounts include effect company’s outstanding stock options treasury stock method addition shares assumed issued upon conversion company’s 238 contingent convertible senior subordinated notes averaged 202820 1270433 years ended december 31 2009 december 31 2008 respectively included calculation fully diluted shares outstanding fully diluted earnings per share stockbased compensation current accounting standards regarding sharebased payments require companies measure cost employee services received exchange award equity instruments typically stock options based grantdate fair value award fair value estimated using optionpricing models resulting cost recognized period employee required provide service exchange awards usually vesting period years ended december 31 2009 2008 2007 company recognized noncash general administrative expenses stock options restricted stock awards totaling 115 million 109 million 80 million respectively company accounts assets held rabbi trust certain participants company’s deferred compensation plan accordance eitf 9714 see note 13 guarantees company applies current accounting standards regarding guarantor’s accounting disclosure requirements guarantees including indirect indebtedness others company’s obligations certain guarantees pursuant standards company required disclose changes product warranty reserves products offshore products accommodations businesses sold warranty generally ranging 12 18 months parts labor covered terms warranty agreement warranty provisions based historical experience product configuration geographic region changes warranty reserves follows thousands oil states international inc subsidiaries notes consolidated financial statements continued current warranty provisions typically related current year’s sales warranty consumption associated current prior year’s net sales ordinary course business company also provides standby letters credit guarantee instruments certain parties required certain transactions initiated either company subsidiaries december 31 2009 maximum potential amount future payments company could required make guarantee agreements approximately 205 million company recorded liability connection guarantee arrangements beyond required appropriately account underlying transaction guaranteed company believe based historical experience information currently available probable amounts required paid guarantee arrangements use estimates preparation consolidated financial statements conformity accounting principles generally accepted united states requires use estimates assumptions management determining reported amounts assets liabilities disclosures contingent assets liabilities date consolidated financial statements reported amounts revenues expenses reporting period examples estimates include costs associated disposal discontinued operations including potential future adjustments result contractual agreements revenue income recognized percentageofcompletion method estimate company’s share earnings equity method investments valuation allowance recorded net deferred tax assets warranty inventory bad debt reserves actual results could differ estimates discontinued operations prior initial public offering february 2001 sold businesses reported operating results businesses discontinued operations existing reserves related discontinued operations december 31 2009 2008 represent estimate remaining contingent liabilities associated company’s exit businesses 3 details selected balance sheet accounts additional information regarding selected balance sheet accounts december 31 2009 2008 presented thousands oil states international inc subsidiaries notes consolidated financial statements continued depreciation expense 1147 million 990 million 665 million years ended december 31 2009 2008 2007 respectively 4 recent accounting pronouncements september 2006 fasb issued new accounting standard fair value measurements defines fair value establishes guidelines measuring fair value expands disclosures regarding fair value measurements accounting standard require new fair value measurements rather eliminates inconsistencies guidance found various prior accounting pronouncements effective fiscal years beginning oil states international inc subsidiaries notes consolidated financial statements continued november 15 2007 february 2008 fasb issued accounting standards update deferring effective date fair value accounting standard nonfinancial assets nonfinancial liabilities except items recognized disclosed fair value entity’s financial statements recurring basis least annually fiscal years beginning november 15 2008 interim periods within fiscal years earlier adoption permitted provided company yet issued financial statements including interim periods fiscal year adopted provisions sfas 157 unaffected delay first quarter 2008 first quarter 2009 adopted remaining provisions accounting standard certain assets measured fair value nonrecurring basis subject fair value adjustments certain circumstances example evidence impairment adoption material effect consolidated statements financial position results operations cash flows september 2009 fasb issued accounting standards update effective future reporting periods measuring fair value liabilities implementation expected material impact company’s financial condition results operation disclosures contained notes consolidated financial statements december 2007 fasb issued new accounting standard business combinations new accounting standard establishes principles requirements acquirer recognizes measures financial statements identifiable assets acquired liabilities assumed noncontrolling interest acquiree goodwill acquired accounting standard also establishes disclosure requirements enable users evaluate nature financial effects business combination accounting standard applies prospectively business combinations acquisition date beginning first annual reporting period beginning december 15 2008 interim periods within fiscal years accounting standard effective beginning january 1 2009 accordingly business combinations engage date recorded disclosed accordance accounting standard business combination transactions occurred year ended december 31 2009 december 2007 fasb also issued new accounting standard noncontrolling interests consolidated financial statements accounting standard requires accounting reporting minority interests recharacterized noncontrolling interests classified component equity also establishes reporting requirements provide sufficient disclosures clearly identify distinguish interests parent interests noncontrolling owners accounting standard applies entities prepare consolidated financial statements except notforprofit organizations affect entities outstanding noncontrolling interest one subsidiaries deconsolidate subsidiary new accounting standard effective fiscal years interim periods within fiscal years beginning december 15 2008 accounting standard applies prospectively except presentation disclosure requirements applied retrospectively effective january 1 2009 presented noncontrolling interests accordance standard may 2008 fasb issued new accounting standard accounting convertible debt instruments may settled cash upon conversion including partial cash settlement changed accounting 238 notes new rules convertible debt instruments settled entirely partially cash upon conversion entity required separately account liability equity components instrument manner reflects issuer’s nonconvertible debt borrowing rate difference bond cash proceeds estimated fair value recorded debt discount accreted interest expense expected life bond although accounting standard impact company’s actual past future cash flows requires company record material increase noncash interest expense debt discount amortized accounting standard became effective company beginning january 1 2009 applied oil states international inc subsidiaries notes consolidated financial statements continued retrospectively periods presented see note 16 consolidated financial statements annual report form 10k may 2009 fasb issued new accounting standard subsequent events establishes general standards accounting disclosures events occur balance sheet date financial statements issued available issued new accounting standard current practice entity must record effects subsequent events provide evidence conditions existed balance sheet date must disclose record effects subsequent events provide evidence conditions exist balance sheet date accounting standard effective fiscal years interim periods within fiscal years ending june 15 2009 adoption accounting standard material impact company’s financial condition results operation disclosures contained notes consolidated financial statements june 2009 fasb issued new accounting standard “the fasb accounting standards codification hierarchy generally accepted accounting principles” new accounting standard established “fasb accounting standards codification” fasb asc source authoritative gaap recognized fasb nongovernmental entities existing accounting standards superseded accounting literature included fasb asc considered nonauthoritative subsequent issuances new standards form accounting standards updates asu included asc generally fasb asc expected change gaap pursuant adoption new accounting standard adjusted references authoritative accounting literature financial statements adoption standard effect financial condition results operations cash flows october 2009 fasb issued accounting standards update modified accounting disclosures revenue recognition multipleelement arrangement amendments effective fiscal years beginning june 15 2010 early adoption permitted modify criteria recognizing revenue multiple element arrangements scope constitutes nonsoftware deliverable company currently assessing impact amendments financial condition results operations december 2009 fasb issued accounting standards update amends previously issued accounting guidance consolidation variable interest entities vie’s amendments require qualitative approach identifying controlling financial interest vie requires ongoing assessment whether entity vie whether interest vie makes holder primary beneficiary vie amendments effective annual reporting periods beginning november 15 2009 expect adoption amendments material impact financial condition results operations cash flows january 2010 fasb issued accounting standards update requires reporting entities make new disclosures recurring nonrecurring fair value measurements including significant transfers level 1 level 2 fair value measurements information purchases sales issuances settlements gross basis reconciliation level 3 fair value measurements amendments effective annual reporting periods beginning december 15 2009 except level 3 reconciliation disclosures effective annual periods beginning december 15 2010 expect adoption amendments material impact financial condition results operations cash flows see also note 10 income taxes discussion fasb’s interpretation 48 accounting uncertainty income taxes oil states international inc subsidiaries notes consolidated financial statements continued 5 earnings per share eps 1 see note 16 regarding adoption new accounting standard accounting convertible debt calculations diluted earnings per share years ended december 31 2009 2008 2007 exclude 1505619 shares 721298 shares 577445 shares respectively issuable pursuant outstanding stock options restricted stock awards due antidilutive effect 6 goodwill intangible assets company amortize goodwill tests impairment using fair value approach “reporting unit” level reporting unit operating segment business one level operating segment “component” level discrete financial information prepared regularly reviewed management component level company three reporting units goodwill december 31 2009 remaining goodwill drilling tubular services reporting units subsequent full writeoff goodwill reporting units december 31 2008 goodwill allocated reporting units based actual acquisitions made company subsidiaries company recognizes impairment charge amount carrying amount reporting unit’s goodwill exceeds unit’s fair value company uses appropriate current circumstance comparative market multiples discounted cash flow calculations acquisition comparables establish unit’s fair value level 3 fair value measurement company amortizes cost intangibles estimated useful lives unless lives deemed indefinite amortizable intangible assets reviewed impairment based undiscounted cash flows impaired written fair value based either discounted cash flows appraised values intangible assets indefinite lives tested impairment annually written fair value required december 31 2009 provision impairment intangible assets required based evaluations performed oil states international inc subsidiaries notes consolidated financial statements continued changes carrying amount goodwill years ended december 31 2009 2008 follows thousands current accounting standards prescribe twostep method determining goodwill impairment company historically employed trading multiples valuation method determine fair value reporting units given market turmoil caused global economic recession credit market disruption second half 2008 company augmented valuation methodology include discounted cash flow valuations reporting units based expected cash flows units based combination factors including global economic environment company’s outlook us drilling activity pricing current market capitalization company comparable oilfield service companies company concluded goodwill amounts previously recorded rental tools reporting units partially impaired june 30 2009 total goodwill impairment charge recognized second quarter 2009 945 million taxes 812 million aftertax 2008 based similar factors company concluded goodwill amounts previously recorded tubular services drilling reporting units impaired entirety total goodwill impairment charge recognized fourth quarter 2008 856 million taxes 798 million aftertax majority impairment charge taken 2008 related goodwill recorded prior conjunction company’s initial public offering 2001 impairment charges impact company’s liquidity position debt covenants cash flows oil states international inc subsidiaries notes consolidated financial statements continued following table presents total amount assigned total amount amortized major intangible asset classes december 31 2009 2008 thousands intangible assets goodwill included within noncurrent assets consolidated balance sheets weighted average remaining amortization period intangible assets goodwill indefinite lived intangibles 115 years 114 years december 31 2009 2008 respectively total amortization expense expected 24 million 17 million 16 million 16 million 16 million 2010 2011 2012 2013 2014 respectively amortization expense 34 million 36 million 42 million years ended december 31 2009 2008 2007 respectively 7 investment boots coots notes receivable boots coots april 2007 company sold pursuant registration statement filed boots coots 14950000 shares boots coots common stock owned net proceeds 294 million result recognized net tax gain 84 million approximately 017 per diluted share second quarter 2007 carrying value company’s remaining investment boots coots common stock totaled 196 million december 31 2007 company sold aggregate total 11512137 shares boots coots stock representing remaining shares owned series transactions may june august 2008 sale boots coots stock resulted net proceeds 274 million net tax gain 36 million approximately 007 per diluted share twelve months ended december 31 2008 june 30 2008 ownership interest boots coots approximately 7 result decreased ownership percentage reconsidered method accounting utilized investment concluded discontinue use equity method accounting since longer ability significantly influence boots coots therefore began account remaining investment boots coots common stock 54 million shares june 30 2008 available sale security defined current accounting standards regarding accounting certain investments debt equity securities effective june 30 2008 accordance standards carrying value remaining shares owned company adjusted fair value unrealized tax holding gain amount 20 million recorded comprehensive income twelve months ended december 31 2008 sale remaining 54 million shares august 2008 resulted reclassification 20 million unrealized tax gain accumulated comprehensive income earnings twelve months ended december 31 2008 february 2009 company received cash boots coots totaling 212 million full payment senior subordinated promissory notes due mature september 1 2010 oil states international inc subsidiaries notes consolidated financial statements continued 8 longterm debt december 31 2009 2008 longterm debt consisted following thousands 1 see note 16 regarding adoption new accounting standard accounting convertible debt scheduled maturities combined longterm debt december 31 2009 follows thousands company’s capital leases consist primarily plant facilities office building equipment value capitalized leases related accumulated depreciation totaled 96 million 13 million respectively december 31 2009 value capitalized leases related accumulated depreciation totaled 97 million 09 million respectively december 31 2008 238 contingent convertible senior notes june 2005 sold 125 million aggregate principal amount 238 contingent convertible senior notes due 2025 placement qualified institutional buyers pursuant sec’s rule 144a company granted initial purchaser notes 30day option purchase additional 50 million aggregate principal amount notes option exercised july 2005 additional 50 million notes sold time oil states international inc subsidiaries notes consolidated financial statements continued notes senior unsecured obligations company bear interest rate 238 per annum notes mature july 1 2025 may redeemed company prior july 6 2012 holders notes may require company repurchase notes july 1 2012 2015 2020 assumed redemption notes date note holders first optional redemption date 2012 schedule debt maturities notes provide net share settlement therefore may convertible certain circumstances combination cash principal amount notes common stock company excess principal amount notes initial conversion price 3175 per share shares underlying notes included calculation diluted earnings per share periods average stock price exceeded initial conversion price 3175 per share terms notes require stock price quarter period prior july 1 2023 120 initial conversion price 3810 per share least 20 trading days defined period notes convertible note holder chooses present notes conversion future quarter prior first putcall date july 2012 would receive cash 1000 238 note plus company common stock excess valuation 1000 using conversion rate 238 notes 31496 multiplied company’s average common stock price ten trading day period following presentation 238 notes conversion connection note offering company agreed register notes within 180 days issuance keep registration effective two years subsequent initial issuance notes registered november 2005 maximum amount contingent interest could potentially inure note holders time period material consolidated financial position results operations company following table presents carrying amount 238 notes consolidated balance sheets thousands effective interest rate 717 238 notes interest expense excluding amortization debt issue costs follows thousands revolving credit facility december 13 2007 exercised accordion feature available credit agreement dated october 30 2003 amended company’s credit facility currently totals 500 million available oil states international inc subsidiaries notes consolidated financial statements continued commitments senior secured revolving credit facility group banks 175 million available form loans denominated canadian dollars may made company’s principal canadian operating subsidiaries facility matures december 5 2011 amounts borrowed facility bear interest company’s election either • variable rate equal libor case canadian dollar denominated loans bankers’ acceptance discount rate plus margin ranging 05 125 • alternate base rate equal higher bank’s prime rate federal funds effective rate case canadian dollar denominated loans canadian prime rate commitment fees ranging 0175 025 per year paid undrawn portion facility depending upon leverage ratio credit facility guaranteed company’s active domestic subsidiaries cases company’s canadian foreign subsidiaries credit facility secured first priority lien company’s inventory accounts receivable material tangible intangible assets well company’s active subsidiaries however 65 voting stock foreign subsidiary required pledged pledge greater percentage would result adverse tax consequences credit agreement governs credit facility contains customary financial covenants restrictions including restrictions ability declare pay dividends specifically must maintain interest coverage ratio defined ratio consolidated ebitda consolidated interest expense least 30 10 maximum leverage ratio defined ratio total debt consolidated ebitda greater 30 10 factors considered calculations ratios defined credit agreement ebitda consolidated interest defined exclude goodwill impairments debt discount amortization noncash charges december 31 2009 compliance debt covenants credit facility also contains negative covenants limit company’s ability borrow additional funds encumber assets pay dividends sell assets enter significant transactions company’s credit facility occurrence specified change control events involving company would constitute event default would permit banks among things accelerate maturity facility cause become immediately due payable full december 31 2009 borrowings outstanding facility 203 million outstanding letters credit leaving 4797 million available drawn facility subsidiary company maintains additional revolving credit facility bank borrowings outstanding facility december 31 2009 facility consists swing line bank borrowings used working capital efficiencies 9 retirement plans company sponsors defined contribution plans participation plans available substantially employees company recognized expense 73 million 84 million 61 million respectively related various defined contribution plans years ended december 31 2009 2008 2007 respectively oil states international inc subsidiaries notes consolidated financial statements continued 10 income taxes consolidated pretax income years ended december 31 2009 2008 2007 consisted following thousands components income tax provision years ended december 31 2009 2008 2007 consisted following thousands provision taxes differs amount computed statutory rates follows years ended december 31 2009 2008 2007 consisted thousands oil states international inc subsidiaries notes consolidated financial statements continued significant items giving rise deferred tax assets liabilities december 31 2009 2008 follows thousands reclassifications company’s deferred tax balance based net current items net noncurrent items december 31 2009 2008 follows thousands 1 see note 16 regarding adoption new accounting standard accounting convertible debt primary deferred tax assets december 31 2009 related employee benefit costs equity participation plan deductible goodwill foreign tax credit carryforwards 10 million available federal net operating loss carryforwards regular tax nols date regular tax nols expire varying amounts years 2010 2011 first used offset taxable income generate ability utilize significant portion available regular tax nols currently limited section 382 internal revenue code due change control occurred 1995 currently believe substantially regular tax nols utilized company utilized federal alternative minimum tax net operating loss carryforwards oil states international inc subsidiaries notes consolidated financial statements continued income tax provision year ended december 31 2009 totaled 461 million 436 pretax income compared 1542 million 413 pretax income year ended december 31 2008 higher effective tax rate primarily due impairment goodwill majority deductible tax purposes absent goodwill impairment 2009 effective tax rate 2009 favorably influenced lower statutory rates applicable foreign sourced income appropriate us foreign income taxes provided earnings foreign subsidiary companies expected remitted near future cumulative amount undistributed earnings foreign subsidiaries company intends permanently reinvest upon deferred us income taxes provided 507 million december 31 2009 majority generated canada upon distribution earnings form dividends otherwise company may subject us income taxes subject adjustment foreign tax credits foreign withholding taxes practical however estimate amount taxes may payable eventual remittance earnings consideration available foreign tax credits american jobs creation act 2004 signed law october 2004 introduced requirement companies disclose penalties imposed consolidated subsidiaries irs failing satisfy tax disclosure requirements relating “reportable transactions” year ended december 31 2009 penalties imposed company consolidated subsidiaries failure disclose reportable transactions irs company files tax returns jurisdictions required returns subject examination audit possible adjustment result assessments taxing authorities company believes recorded sufficient tax liabilities expect resolution examination audit tax returns would material adverse effect operating results financial condition liquidity examination company’s consolidated us federal tax return year 2004 internal revenue service completed third quarter 2007 significant adjustments proposed result examination tax years subsequent 2006 remain open us federal tax audit net operating losses nol’s utilized company years 1994 2002 remain subject federal tax audit respect nol’s available tax carryforward canadian subsidiaries’ federal tax returns subsequent 2005 subject audit canada revenue agency june 2006 fasb issued new accounting standard clarifies accounting disclosure uncertain tax positions defined interpretation prescribes recognition threshold measurement attribute financial statement recognition measurement tax positions taken expected taken tax return benefits recognized tax position must morelikelythannot sustained upon examination taxing authorities amount recognized measured largest amount benefit greater 50 percent likely realized upon ultimate settlement interpretation seeks reduce diversity practice associated certain aspects recognition measurement related accounting income taxes company adopted provisions new accounting standard january 1 2007 total amount unrecognized tax benefits december 31 2009 40 million amount 29 million unrecognized tax benefits recognized would affect effective tax rate company recognizes interest penalties accrued related unrecognized tax benefits component company’s provision income taxes december 31 2009 2008 company accrued 28 million 14 million respectively interest expense penalties oil states international inc subsidiaries notes consolidated financial statements continued reconciliation beginning ending amount unrecognized tax benefits follows thousand reasonably possible amount unrecognized tax benefits change next twelve months due closing statute limitations change occur could favorable impact results operation 11 acquisitions supplemental cash flow information components cash used acquisitions reflected consolidated statements cash flows years ended december 31 2009 2008 2007 summarized follows thousands july 2007 acquired business wire line service ltd well testing cash consideration 434 million including transaction costs funded borrowings company’s existing credit facility plus note payable former owner 30 million matured july 1 2009 well testing provides well testing flowback services locations texas new mexico colorado arkansas operations well testing included rental tools business within well site services segment since date acquisition august 2007 acquired business schooner petroleum services inc schooner cash consideration 597 million net cash acquired including transactions costs funded borrowings company’s existing credit facility plus note payable former owner 60 million matured august 1 2009 schooner headquartered houston texas primarily provides completionrelated rental tools services nine locations texas louisiana wyoming arkansas operations schooner included rental tools business within well site services segment since date acquisition february 1 2008 purchased equity christina lake enterprises ltd owners accommodations lodge christina lake lodge conklin area alberta canada christina lake lodge provides lodging catering southern area oil sands region consideration lodge consisted 69 million cash net cash acquired including transaction costs funded borrowings company’s existing credit facility assumption certain liabilities subject postclosing working capital adjustments christina lake lodge included accommodations business within well site services segment since date acquisition oil states international inc subsidiaries notes consolidated financial statements continued february 15 2008 acquired waterfront facility houston ship channel use offshore products segment new waterfront facility expanded ability manufacture assemble test load larger subsea production drilling rig equipment thereby expanding capabilities consideration facility approximately 229 million cash including transaction costs funded borrowings company’s existing credit facility june 2009 acquired 51 majority interest venture previously accounted equity method business acquired supplies accommodations services mining operations canada consideration paid business 23 million cash estimated contingent consideration 03 million operations business included accommodations business within well site services segment supplemental cash flow information cash paid years ended december 31 2009 2008 2007 interest income taxes follows thousands 12 commitments contingencies company leases portion equipment office space computer equipment automobiles trucks leases expire various dates minimum future operating lease obligations effect december 31 2009 follows thousands rental expense operating leases 104 million 91 million 79 million years ended december 31 2009 2008 2007 respectively oil states international inc subsidiaries notes consolidated financial statements continued company party various pending threatened claims lawsuits administrative proceedings seeking damages remedies concerning commercial operations products employees matters including warranty product liability claims occasional claims individuals alleging exposure hazardous materials result products operations claims relate matters occurring prior acquisition businesses relate businesses sold certain cases company entitled indemnification sellers businesses cases indemnified buyers businesses although company give assurance outcome pending legal administrative proceedings effect outcomes may management believes ultimate liability resulting outcome proceedings extent otherwise provided covered insurance material adverse effect consolidated financial position results operations liquidity 13 stockbased compensation current accounting standards require companies measure cost employee services received exchange award equity instruments typically stock options based grantdate fair value award fair value estimated using optionpricing models resulting cost recognized period employee required provide service exchange awards usually vesting period fair value options determined grant date using blackscholes option pricing model requires us make several assumptions including riskfree interest rate dividend yield volatility expected term riskfree interest rate based us treasury yield curve effect expected term option time grant dividend yield common stock assumed zero since pay dividends current plans future expected market price volatility common stock based estimate made us considers historical implied volatility common stock well peer group companies time period equal expected term option expected life options awarded 2007 2008 2009 based formula considering vesting period term options awarded oil states international inc subsidiaries notes consolidated financial statements continued following table summarizes stock option activity three years ended december 31 2009 total intrinsic value options exercised 2009 2008 2007 32 million 123 million 269 million respectively cash received company option exercises 2009 2008 2007 totaled 35 million 89 million 138 million respectively tax benefit realized tax deduction stock options exercised 2009 2008 2007 totaled 12 million 37 million 90 million respectively weighted average fair values options granted 2009 2008 2007 776 1249 1116 per share respectively fair value option grant estimated date grant using blackscholes option pricing model following weighted average assumptions used grants 2009 2008 2007 respectively riskfree weighted interest rates 18 26 47 expected dividend yield expected lives 43 years expected volatility 55 37 options awarded 2009 term six years granted exercise prices grant date closing market price oil states international inc subsidiaries notes consolidated financial statements continued following table summarizes information stock options outstanding december 31 2009 december 31 2009 total 2450208 shares available future grant equity participation plan 2009 granted restricted stock awards totaling 192027 shares valued total 36 million total 121500 awards vest four equal annual installments 25500 awards vest entirety three years service 43328 awards made directors vest one year remaining 1699 awards vest immediately part compensation paid chairman company’s board directors total 271771 shares restricted stock awarded 2008 aggregate value 117 million total 197563 shares restricted stock awarded 2007 aggregate value 63 million stock based compensation pretax expense recognized years ended december 31 2009 december 31 2008 december 31 2007 totaled 115 million 109 million 80 million 013 012 011 per diluted share tax respectively december 31 2009 157 million compensation cost related unvested stock options restricted stock awards attributable future performance yet recognized deferred compensation plan company maintains deferred compensation plan “deferred compensation plan” plan available directors certain officers managers company plan allows participants defer portion directors fees andor salary annual bonuses employee contributions deferred compensation plan matched company percentage employee participant company’s 401k retirement plan subject irs limitations matcheligible compensation deferred compensation plan also permits company make discretionary contributions employee’s account director’s contributions matched company since inception plan discretionary contribution provision limited matching participants’ contributions basis equivalent matching permitted company’s 401k retirement savings plan vesting contributions participants’ accounts also equivalent vesting requirements company’s 401k retirement savings plan deferred compensation plan dollar limits taxdeferred contributions assets deferred compensation plan held rabbi trust “trust” therefore available satisfy claims company’s creditors event bankruptcy insolvency company participants ability direct plan administrator invest assets accounts including discretionary contributions company preapproved mutual funds held trust prior november 1 2003 participants also ability direct plan administrator invest assets accounts company common stock addition participants currently right request plan administrator reallocate portfolio investments ie cash mutual funds participants’ individual accounts within trust current balances invested company common stock may increased company contributions form cash distributions oil states international inc subsidiaries notes consolidated financial statements continued plan generally made upon participants’ termination director andor employee applicable company participants receive payments plan cash december 31 2009 balance assets trust totaled 73 million including 17850 shares common stock company reflected treasury stock value 02 million company accounts deferred compensation plan accordance current accounting standards regarding accounting deferred compensation arrangements amounts earned held rabbi trust invested assets trust common stock company invested nine funds covering variety securities investment strategies mutual funds publicly quoted reported fair value company accounts investments accordance current accounting standards regarding accounting certain investments debt equity securities trust also holds common shares company’s common stock held trust classified treasury stock stockholders’ equity section consolidated balance sheets fair value assets held trust exclusive fair value shares company’s common stock reflected treasury stock december 31 2009 72 million classified “other noncurrent assets” consolidated balance sheet fair value investments based quoted market prices active markets level 1 fair value measurement amounts payable plan participants december 31 2009 including fair value shares company’s common stock reflected treasury stock 78 million classified “other noncurrent liabilities” consolidated balance sheet accordance current accounting standards fair value fluctuations trust assets reflected consolidated statements income increases decreases value plan assets exclusive shares common stock company included compensation adjustments respective statements income increases decreases fair value deferred compensation liability including shares common stock company held trust recorded treasury stock also included compensation adjustments consolidated statements income response changes total fair value company’s common stock held trust company recorded net compensation expense adjustments 04 million 2009 03 million 2008 less 01 million 2007 14 segment related information accordance current accounting standards regarding disclosures segments enterprise related information company identified following reportable segments well site services offshore products tubular services company’s reportable segments strategic business units offer different products services managed separately business requires different technology marketing strategies businesses acquired unit management time acquisition retained oil states international inc subsidiaries notes consolidated financial statements continued financial information industry segment three years ended december 31 2009 2008 2007 summarized following table thousands accounting policies segments described summary significant accounting policies 1 subsequent march 1 2006 effective date sale workover services business see note 7 classified equity interest boots coots notes receivable acquired transaction “drilling other” financial information geographic segment three years ended december 31 2009 2008 2007 summarized thousands revenues us include export sales revenues attributable countries based location entity selling products performing services total assets oil states international inc subsidiaries notes consolidated financial statements continued attributable countries based physical location entity operating assets include intercompany balances customers accounted 10 company’s revenues years ended december 31 2009 2008 2007 equity net income unconsolidated affiliates included operating income 15 valuation allowances activity valuation accounts follows thousands oil states international inc subsidiaries notes consolidated financial statements continued 16 adoption new accounting standard accounting convertible debt effective january 1 2009 adopted new accounting standard accounting convertible debt instruments settled cash upon conversion including partial cash settlement new rules convertible debt instruments settled entirely partially cash upon conversion entity required separately account liability equity components instrument manner reflects issuer’s nonconvertible debt borrowing rate accounting standard requires retrospective restatement periods presented back date issuance cumulative effect change accounting principle prior periods recognized beginning first period adoption new accounting standard affects accounting retrospectively prospectively 238 notes issued june 2005 although accounting standard impact company’s actual past future cash flows requires company record material increase noncash interest expense debt discount amortized following tables present effect adoption new accounting standard consolidated statements income years ended december 31 2008 2007 consolidated balance sheets december 31 2008 2007 applied retrospectively thousands except per share data see note 4 regarding adoption new accounting standard regarding noncontrolling interests oil states international inc subsidiaries notes consolidated financial statements continued debt issue costs recorded noncurrent assets decreased result adoption new accounting standard caused reclassification portion debt issue costs additional paidin capital required accounting standard cumulative effect change retained earnings january 1 2007 50 million due retrospective increase interest expense years 2005 2006 17 quarterly financial information unaudited following table summarizes quarterly financial information 2009 2008 thousands except per share amounts 1 net income second quarter 2009 fourth quarter 2008 included tax losses 812 million approximately 162 per diluted share 798 million approximately 155 per diluted share respectively impairment goodwill represents “revenues” less “product costs” “service costs” included company’s consolidated statements income amounts calculated independently quarters presented therefore sum quarterly amounts may equal total calculated year exhibit index filed herewith management contracts compensatory plans arrangements furnished herewithitem 15 exhibits financial statement schedules index financial statements financial statement schedules exhibits 1 financial statements reference made index set forth page 62 annual report form 10k 2 financial statement schedules included herein information required submitted included consolidated financial statements notes thereto required information inapplicable 3 index exhibits see index exhibits list exhibits filed herewith index also includes identifies management contracts compensatory plans arrangements required filed exhibits annual report form 10k item 60110iii regulation sk b index exhibits filed herewith management contracts compensatory plans arrangements furnished herewith signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized oil states international inc cindy b taylor cindy b taylor president chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 22 2011 exhibit index filed herewith management contracts compensatory plans arrangements furnished herewith oil states international inc subsidiaries index consolidated financial statements oil states international inc subsidiaries report independent registered public accounting firm board directors stockholders oil states international inc audited accompanying consolidated balance sheets oil states international inc subsidiaries december 31 2010 2009 related consolidated statements income stockholders’ equity comprehensive income cash flows three years period ended december 31 2010 financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position oil states international inc subsidiaries december 31 2010 2009 consolidated results operations cash flows three years period ended december 31 2010 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states oil states international inc subsidiaries’ internal control financial reporting december 31 2010 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission report dated february 22 2011 expressed unqualified opinion thereon ernst young llp houston texas february 22 2011 oil states international inc subsidiaries report independent registered public accounting firm board directors stockholders oil states international inc audited oil states international inc subsidiaries’ internal control financial reporting december 31 2010 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso criteria oil states international inc subsidiaries’ management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s annual report internal control financial reporting responsibility express opinion company’s internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk performing procedures considered necessary circumstances believe audit provides reasonable basis opinion company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion oil states international inc subsidiaries maintained material respects effective internal control financial reporting december 31 2010 based coso criteria also audited accordance standards public company accounting oversight board united states consolidated balance sheets oil states international inc subsidiaries december 31 2010 2009 related consolidated statements income stockholders’ equity comprehensive income cash flows three years period ended december 31 2010 report dated february 22 2011 expressed unqualified opinion thereon ernst young llp houston texas february 22 2011 oil states international inc subsidiaries consolidated statements income accompanying notes integral part financial statements oil states international inc subsidiaries consolidated balance sheets accompanying notes integral part financial statements oil states international inc subsidiaries consolidated statements stockholders’ equity comprehensive income accompanying notes integral part financial statements oil states international inc subsidiaries consolidated statements cash flows accompanying notes integral part financial statements oil states international inc subsidiaries notes consolidated financial statements 1 organization basis presentation consolidated financial statements include accounts oil states international inc oil states company consolidated subsidiaries investments unconsolidated affiliates company able exercise significant influence accounted using equity method company’s operations prior 2001 conducted oil states industries inc osi february 14 2001 company acquired three companies oil states energy services inc oses formerly known hwc energy services inc pti group inc pti sooner inc sooner significant intercompany accounts transactions company consolidated subsidiaries eliminated accompanying consolidated financial statements company subsidiaries leading provider specialty products services oil gas drilling production companies throughout world accommodations business company also serves natural resource markets principally australia operates substantial number world’s active oil gas producing regions including gulf mexico us onshore west africa north sea canada australia south america southeast asia india company operates four principal business segments accommodations offshore products well site services tubular services 2 summary significant accounting policies cash equivalents company considers highly liquid investments purchased original maturity three months less cash equivalents fair value financial instruments company’s financial instruments consist cash equivalents investments receivables payables debt instruments company believes carrying values instruments fixed rate contingent convertible senior subordinated notes accompanying consolidated balance sheets approximate fair values fair value 238 notes estimated based quoted price active market level 1 fair value measurement carrying fair values notes follows thousands december 31 2010 estimated fair value company’s debt outstanding credit facilities estimated fair value december 31 2010 company approximately 964 million cash equivalents 3177 million company’s 105 billion us canadian credit facilities available future financing needs company also availability totaling 506 million australian credit facility inventories consist tubular oilfield products manufactured equipment spare parts manufactured equipment raw materials supplies materials construction remote accommodation facilities inventories include raw materials labor subcontractor charges manufacturing overhead oil states international inc subsidiaries notes consolidated financial statements continued carried lower cost market cost inventories determined average cost specificidentification method property plant equipment property plant equipment stated cost estimated fair market value acquisition date acquired business combination depreciation computed assets owned recorded capital lease using straightline method allowing salvage value applicable estimated useful lives assets leasehold improvements capitalized amortized lesser life lease estimated useful life asset expenditures repairs maintenance charged expense incurred expenditures major renewals betterments extend useful lives existing equipment capitalized depreciated upon retirement disposition property equipment cost related accumulated depreciation removed accounts resulting gain loss recognized statements income goodwill intangible assets goodwill represents excess purchase price acquired businesses allocated fair value related net assets impairments applicable goodwill stated net accumulated amortization 109 million december 31 2010 107 million december 31 2009 evaluate goodwill impairment annually event occurs circumstances change suggest carrying amount may recoverable impairment goodwill tested reporting unit level comparing reporting unit’s carrying amount including goodwill implied fair value ifv reporting unit reporting units goodwill remaining include offshore products accommodations rental tools 100 impairment goodwill associated tubular services drilling reporting units discussed note 7 consolidated financial statements ifv reporting units estimated using analysis trading multiples comparable companies reporting units also utilize discounted projected cash flows acquisition multiples analyses certain circumstances discount projected cash flows using longterm weighted average cost capital reporting unit based estimate investment returns would required market participant carrying amount reporting unit exceeds fair value goodwill considered impaired second step performed determine amount impairment conduct annual impairment test december year intangible assets facts circumstances indicate loss value occurred compare carrying value intangible asset fair value intangible asset intangible assets amortize review useful life intangible asset evaluate reporting period whether events circumstances warrant revision remaining useful life evaluate remaining useful life intangible asset amortized reporting period determine whether events circumstances continue support indefinite useful life see note 7 goodwill intangible assets impairment longlived assets compliance current accounting standards regarding accounting impairment disposal longlived assets asset group level recoverability carrying values property plant equipment assessed minimum annually whenever management’s judgment events changes circumstances indicate carrying value asset groups may recoverable based estimated future cash flows assessment indicates carrying values recoverable determined based undiscounted cash flows remaining useful lives impairment loss recognized impairment loss equals excess carrying value fair value asset fair value asset based prices similar assets oil states international inc subsidiaries notes consolidated financial statements continued available discounted cash flows based company’s review carrying values asset groups recoverable impairment losses recorded periods presented foreign currency comprehensive income gains losses resulting balance sheet translation foreign operations foreign currency functional currency included separate component accumulated comprehensive income within stockholders’ equity representing substantially balances within accumulated comprehensive income remeasurements intercompany loans denominated different currency functional currency entity longterm investment nature recognized comprehensive income within stockholders’ equity gains losses resulting balance sheet remeasurements assets liabilities denominated different currency functional currency intercompany loans longterm investment nature included consolidated statements income incurred foreign exchange risk portion revenues earnings net investments foreign affiliates exposed changes foreign exchange rates seek manage foreign exchange risk part operational means including managing expected local currency revenues relation local currency costs local currency assets relation local currency liabilities foreign exchange risk also managed foreign currency denominated debt company currency contracts outstanding december 31 2010 december 31 2009 december 31 2008 net gains losses foreign currency exchange contracts designated hedges would recognized income statement offset foreign currency gain loss underlying transaction foreign exchange gains losses associated operations totaled 11 million loss 2010 03 million loss 2009 16 million gain 2008 included operating income interest capitalization interest costs construction certain longterm assets capitalized amortized related assets’ estimated useful lives years ended december 31 2010 december 31 2009 02 million 01 million capitalized respectively interest capitalized year ended december 31 2008 revenue cost recognition revenue sale products accounted utilizing percentageofcompletion method recognized delivery acceptance customer occurred title significant risks ownership passed customer collectability probable pricing fixed determinable product sales terms include significant post delivery obligations significant projects revenues recognized percentageofcompletion method measured percentage costs incurred date estimated total costs contract costtocost method billings contracts excess costs incurred estimated profits classified deferred revenue management believes method appropriate measure progress large contracts provisions estimated losses uncompleted contracts made period losses determined drilling services rental tool services revenues recognized based periodic usually daily rental rate services rendered proceeds customers cost oilfield rental equipment damaged lost downhole reflected gains losses disposition assets drilling services contracts based footage drilled recognize revenues footage drilled revenues exclude taxes assessed based revenues sales value added taxes cost goods sold includes direct material labor costs related contract performance indirect labor supplies tools repairs selling general administrative costs charged expense incurred oil states international inc subsidiaries notes consolidated financial statements continued income taxes company follows liability method accounting income taxes accordance current accounting standards regarding accounting income taxes method deferred income taxes recorded based upon differences financial reporting tax bases assets liabilities measured using enacted tax rates laws effect underlying assets liabilities recovered settled company’s earnings foreign subsidiaries considered indefinitely reinvested provision us income taxes made earnings subsidiaries distribution earnings form dividends otherwise company would subject us income taxes subject adjustment foreign tax credits withholding taxes payable various foreign countries accordance current accounting standards company records valuation allowance reporting period management believes likely deferred tax asset created realized management continue evaluate appropriateness valuation allowance future based upon operating results company accounting income taxes required provisions current accounting standards regarding accounting uncertainty income taxes estimate liability future income taxes calculation tax liabilities involves dealing uncertainties application complex tax regulations recognize liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due ultimately determine payment amounts unnecessary reverse liability recognize tax benefit period determine liability longer necessary record additional charge provision taxes period determine recorded tax liability less expect ultimate assessment receivables concentration credit risk concentration suppliers based nature customer base company believe significant concentrations credit risk concentration oil gas industry company evaluates creditworthiness significant new existing customers’ financial condition generally company require significant collateral customers company purchased 72 oilfield tubular goods three suppliers 2010 largest supplier representing 56 purchases period loss significant supplier tubular services segment could adversely affect allowances doubtful accounts company maintains allowances doubtful accounts estimated losses resulting inability company’s customers make required payments trade receivable deemed uncollectible receivable chargedoff allowance doubtful accounts company considers following factors determining collection revenue reasonably assured customer creditworthiness past transaction history customer current economic industry trends customer solvency changes customer payment terms company previous experience customer company typically obtains reports various credit organizations ensure customer history paying creditors company may also request financial information including financial statements documents ensure customer means making payment factors indicate collection reasonably assured company would require prepayment arrangement support revenue recognition recording trade receivable financial condition company’s customers deteriorate adversely affecting ability make payments additional allowances would required oil states international inc subsidiaries notes consolidated financial statements continued earnings per share company’s basic earnings per share eps amounts computed based average number common shares outstanding including 1757 shares common stock december 31 2010 101757 shares december 31 2009 issuable upon exercise exchangeable shares one company’s canadian subsidiaries exchangeable shares issued certain former shareholders pti group inc connection company’s ipo combination pti company intended characteristics essentially equivalent company’s common stock prior exchange treated shares common stock issuable upon exchange exchangeable shares outstanding shares restricted stock awarded company’s equity participation plan included company’s basic fully diluted shares restricted stock shares vest diluted eps amounts include effect company’s outstanding stock options restricted stock shares treasury stock method addition shares assumed issued upon conversion company’s 238 contingent convertible senior subordinated notes averaged 1647321 202820 1270433 years ended december 31 2010 december 31 2009 december 31 2008 respectively included calculation fully diluted shares outstanding fully diluted earnings per share stockbased compensation current accounting standards regarding sharebased payments require companies measure cost employee services received exchange award equity instruments typically stock options based grantdate fair value award fair value estimated using optionpricing models resulting cost recognized period employee required provide service exchange awards usually vesting period years ended december 31 2010 2009 2008 company recognized noncash general administrative expenses stock options restricted stock awards totaling 126 million 115 million 109 million respectively company accounts assets held rabbi trust certain participants company’s deferred compensation plan accordance current accounting standards see note 12 guarantees company applies current accounting standards regarding guarantor’s accounting disclosure requirements guarantees including indirect indebtedness others company’s obligations certain guarantees pursuant standards company required disclose changes product warranty liabilities products offshore products accommodations businesses sold warranty generally ranging 12 18 months parts labor covered terms warranty agreement warranty provisions based historical experience product configuration geographic region changes warranty liabilities follows thousands oil states international inc subsidiaries notes consolidated financial statements continued current warranty provisions typically related current year’s sales warranty consumption associated payments service warranty obligations ordinary course business company also provides standby letters credit guarantee instruments certain parties required certain transactions initiated either company subsidiaries december 31 2010 maximum potential amount future payments company could required make guarantee agreements approximately 222 million company recorded liability connection guarantee arrangements beyond required appropriately account underlying transaction guaranteed company believe based historical experience information currently available probable amounts required paid guarantee arrangements use estimates preparation consolidated financial statements conformity accounting principles generally accepted united states requires use estimates assumptions management determining reported amounts assets liabilities disclosures contingent assets liabilities date consolidated financial statements reported amounts revenues expenses reporting period examples estimates include costs associated disposal discontinued operations including potential future adjustments result contractual agreements revenue income recognized percentageofcompletion method estimate company’s share earnings equity method investments valuation allowance recorded net deferred tax assets warranty inventory allowance doubtful accounts actual results could differ estimates discontinued operations prior initial public offering february 2001 sold businesses reported operating results businesses discontinued operations existing liabilities related discontinued operations december 31 2010 2009 represent estimate remaining contingent liabilities associated company’s exit businesses 3 details selected balance sheet accounts additional information regarding selected balance sheet accounts december 31 2010 2009 presented thousands oil states international inc subsidiaries notes consolidated financial statements continued depreciation expense 1216 million 1147 million 990 million years ended december 31 2010 2009 2008 respectively 4 recent accounting pronouncements october 2009 fasb issued accounting standards update modified accounting disclosures revenue recognition multipleelement arrangement amendments effective fiscal years beginning june 15 2010 early adoption permitted modify criteria recognizing revenue multiple element arrangements scope constitutes nonsoftware deliverable oil states international inc subsidiaries notes consolidated financial statements continued company early adopted standard impact amendments material company’s reported results december 2009 fasb issued accounting standards update amends previously issued accounting guidance consolidation variable interest entities vie’s amendments require qualitative approach identifying controlling financial interest vie requires ongoing assessment whether entity vie whether interest vie makes holder primary beneficiary vie amendments effective annual reporting periods beginning november 15 2009 adoption standard effect financial condition results operations cash flows january 2010 fasb issued accounting standards update requires reporting entities make new disclosures recurring nonrecurring fair value measurements including significant transfers level 1 level 2 fair value measurements information purchases sales issuances settlements gross basis reconciliation level 3 fair value measurements amendments effective annual reporting periods beginning december 15 2009 except level 3 reconciliation disclosures effective annual periods beginning december 15 2010 expect adoption amendments material impact disclosures december 2010 fasb issued accounting standards update disclosures supplementary pro forma information business combinations amendments specify public entity presents comparative financial statements entity disclose revenue earnings combined entity though business combinations occurred current year occurred beginning comparable prior annual reporting period amendments also expand supplemental pro forma disclosures include description nature amount material nonrecurring pro forma adjustments directly attributable business combination included reported pro forma revenue earnings amendments effective prospectively business combinations acquisition date beginning first annual reporting period beginning december 15 2010 early adopted provisions amendment 2010 reflected pro forma disclosures 5 acquisitions supplemental cash flow information components cash used acquisitions reflected consolidated statements cash flows years ended december 31 2010 2009 2008 summarized follows thousands december 30 2010 acquired ordinary shares mac services group limited mac scheme arrangement scheme corporations act australia mac headquartered sydney australia supplies accommodations services coal mining construction resource industries result acquisition significantly expand existing accommodations business strategically position growing australian natural resources market mac currently 5210 rooms six locations queensland lesser extent western australia terms scheme shareholder mac received 395 a390 per share cash total purchase price 638 million net cash acquired plus debt assumed 87 million company funded acquisition cash oil states international inc subsidiaries notes consolidated financial statements continued hand borrowings available new fiveyear 105 billion senior secured bank facilities see note 8 additional information senior secured bank facilities prospectively mac’s operations reported part accommodations segment following table summarizes estimated fair values assets acquired liabilities assumed acquisition date thousands goodwill recorded based amount purchase price exceeds fair value net assets acquired none goodwill expected deductible income tax purposes fair value property plant equipment intangible assets related deferred taxes provisional pending receipt final valuations assets fair values property plant equipment intangible assets determined based level 3 measurements cost approach estimates value determining current cost replacing asset another equivalent economic utilities used appropriate property plant equipment cost replace given asset reflects estimated reproduction replacement cost asset less allowance loss value due depreciation income approach primarily used value intangible assets consisting primarily customer relationships brand income approach indicates value subject asset based present value cash flows projected generated asset projected cash flows discounted required market rate return reflects relative risk achieving cash flows time value money 1045 million acquired intangible assets 97 million provisionally assigned mac’s brand name recognition subject amortization 948 million provisionally assigned customer contract relationship assets estimated useful life 10 years noted earlier fair value acquired identifiable intangible assets provisional pending receipt final valuations assets company recognized 66 million acquisition costs expensed year ended december 31 2010 costs included acquisition related expenses consolidated statement income given december 30 2010 acquisition date revenues earnings mac included company’s consolidated statement income year ended december 31 2010 oil states international inc subsidiaries notes consolidated financial statements continued following unaudited pro forma supplemental financial information presents consolidated results operations company mac acquisition mac occurred january 1 2009 company adjusted historical financial information give effect pro forma items directly attributable acquisition expected continuing impact consolidated results items include adjustments record incremental amortization depreciation expense related increase fair values acquired assets interest expense related borrowings company’s senior credit facilities fund acquisition reclassify certain items conform company’s financial reporting presentation unaudited pro forma purport indicative results operations transaction occurred date indicated future results combined entities thousands except per share data included pro forma results years ended december 31 2010 2009 depreciation increased fair value property plant equipment acquired part mac totaling 53 million 46 million respectively net tax 010 009 respectively per diluted share amortization expense intangibles acquired part purchase mac totaling 55 million 47 million respectively net tax 010 009 respectively per diluted share interest expense 104 million 106 million respectively net tax 020 021 respectively per diluted share year ended december 31 2010 pro forma results also include mac acquisition costs approximately 133 million 42 million recorded company’s books 91 million recorded mac’s books net tax 025 per diluted share december 20 2010 also acquired operating assets mountain west oilfield service supplies inc ufford leasing llc mountain west total consideration 471 million estimated contingent consideration 40 million headquartered vernal utah operations rockies bakken shale region mountain west provides remote site workforce accommodations oil gas industry mountain west included accommodations segment since date acquisition october 5 2010 purchased equity acute technological services inc acute total consideration 300 million headquartered houston texas operations brazil acute provides metallurgical welding innovations oil gas industry support critical complex subsea component manufacturing deepwater riser fabrication global basis acute included offshore products segment since date acquisition funded acute mountain west acquisitions using cash hand existing credit facility accounting three acquisitions made 2010 finalized subject adjustments purchase price allocation period expected exceed period one year respective acquisition dates acquisitions acute mountain west material company’s consolidated financial statements therefore company present pro forma information acquisitions oil states international inc subsidiaries notes consolidated financial statements continued june 2009 acquired 51 majority interest venture previously accounted equity method business acquired supplies accommodations services mining operations canada consideration paid business 23 million cash estimated contingent consideration 03 million operations business included accommodations segment since date acquisition february 1 2008 purchased equity christina lake enterprises ltd owners accommodations lodge christina lake lodge conklin area alberta canada christina lake lodge provides lodging catering southern area oil sands region consideration lodge consisted 69 million cash net cash acquired including transaction costs funded borrowings company’s existing credit facility assumption certain liabilities christina lake lodge included accommodations segment since date acquisition february 15 2008 acquired waterfront facility houston ship channel use offshore products segment new waterfront facility expanded ability manufacture assemble test load larger subsea production drilling rig equipment thereby expanding capabilities consideration facility approximately 229 million cash including transaction costs funded borrowings company’s existing credit facility operations business included offshore products segment since date acquisition supplemental cash flow information cash paid years ended december 31 2010 2009 2008 interest income taxes follows thousands oil states international inc subsidiaries notes consolidated financial statements continued 6 earnings per share eps calculations diluted earnings per share years ended december 31 2010 2009 2008 exclude 364345 shares 1505619 shares 721298 shares respectively issuable pursuant outstanding stock options restricted stock awards due antidilutive effect 7 goodwill intangible assets company amortize goodwill tests impairment using fair value approach “reporting unit” level reporting unit operating segment business one level operating segment “component” level discrete financial information prepared regularly reviewed management component level company three reporting units goodwill december 31 2010 remaining goodwill drilling tubular services reporting units subsequent full impairment goodwill reporting units december 31 2008 goodwill allocated reporting units based actual acquisitions made company subsidiaries company recognizes impairment loss amount carrying amount reporting unit’s goodwill exceeds unit’s fair value company uses appropriate current circumstance comparative market multiples discounted cash flow calculations acquisition comparables establish unit’s fair value level 3 fair value measurement company amortizes cost intangibles estimated useful lives unless lives deemed indefinite amortizable intangible assets reviewed impairment based undiscounted cash flows impaired written fair value based either discounted cash flows appraised values intangible assets indefinite lives tested impairment annually written fair value required december 31 2010 provision impairment intangible assets required based evaluations performed oil states international inc subsidiaries notes consolidated financial statements continued changes carrying amount goodwill years ended december 31 2010 2009 follows thousands increase goodwill 2010 due acquisitions completed fourth quarter 2010 see note 5 consolidated financial statements included annual report form 10k current accounting standards prescribe twostep method determining goodwill impairment company historically employed trading multiples valuation method determine fair value reporting units given market turmoil caused global economic recession credit market disruption second half 2008 company augmented valuation methodology 2008 2009 include discounted cash flow valuations reporting units based expected cash flows units following table presents total amount assigned total accumulated amortization major intangible asset classes december 31 2010 2009 thousands oil states international inc subsidiaries notes consolidated financial statements continued weighted average remaining amortization period intangible assets goodwill indefinite lived intangibles 96 years 115 years december 31 2010 2009 respectively total amortization expense expected 131 million 129 million 125 million 125 million 124 million 2011 2012 2013 2014 2015 respectively amortization expense 26 million 34 million 36 million years ended december 31 2010 2009 2008 respectively 8 longterm debt december 31 2010 2009 longterm debt consisted following thousands oil states international inc subsidiaries notes consolidated financial statements continued scheduled maturities combined longterm debt december 31 2010 follows thousands company’s capital leases consist primarily plant facilities office building equipment value capitalized leases related accumulated depreciation totaled 115 million 27 million respectively december 31 2010 value capitalized leases related accumulated depreciation totaled 96 million 13 million respectively december 31 2009 238 contingent convertible senior notes june 2005 sold 125 million aggregate principal amount 238 contingent convertible senior notes due 2025 placement qualified institutional buyers pursuant sec’s rule 144a company granted initial purchaser notes 30day option purchase additional 50 million aggregate principal amount notes option exercised july 2005 additional 50 million notes sold time notes senior unsecured obligations company bear interest rate 238 per annum notes mature july 1 2025 may redeemed company prior july 6 2012 holders notes may require company repurchase notes july 1 2012 2015 2020 notes provide net share settlement therefore may convertible certain circumstances combination cash principal amount notes common stock company excess principal amount notes initial conversion price 3175 per share shares underlying notes included calculation diluted earnings per share periods average stock price exceeded initial conversion price 3175 per share terms notes require stock price quarter period prior july 1 2023 120 initial conversion price 3810 per share least 20 trading days defined period notes convertible note holder chooses present notes conversion future quarter prior first putcall date july 2012 would receive cash 1000 238 note plus company common stock excess valuation 1000 using conversion rate 238 notes 31496 multiplied company’s average common stock price ten trading day period following presentation 238 notes conversion december 31 2010 contingent conversion thresholds met result assumed conversion notes first quarter 2011 schedule debt maturities connection note offering company agreed register notes within 180 days issuance keep registration effective two years subsequent initial issuance notes oil states international inc subsidiaries notes consolidated financial statements continued following table presents carrying amount 238 notes consolidated balance sheets thousands effective interest rate 717 238 notes interest expense notes excluding amortization debt issue costs follows thousands 1 calculation based company’s december 31 2010 closing stock price 6409 credit facilities december 10 2010 replaced existing bank credit facility senior credit facilities governed amended restated credit agreement company’s credit facilities currently total 105 billion available commitments consisting revolving borrowings 750 million term borrowings 300 million company borrowed term commitment connection acquisition mac senior secured revolving credit facilities group banks 350 million available form loans denominated canadian dollars may made company’s principal canadian operating subsidiaries facilities mature december 10 2015 amounts borrowed facilities bear interest company’s election either • variable rate equal libor case canadian dollar denominated loans bankers’ acceptance discount rate plus margin ranging 20 30 • alternate base rate equal higher bank’s prime rate federal funds effective rate case canadian dollar denominated loans canadian prime rate commitment fees ranging 0375 050 per year paid undrawn portion facilities depending upon leverage ratio credit facilities guaranteed company’s active domestic subsidiaries cases company’s canadian foreign subsidiaries credit facilities secured first priority lien company’s inventory accounts receivable material tangible intangible assets well company’s active subsidiaries however 65 voting stock foreign subsidiary required pledged pledge greater percentage would result adverse tax consequences oil states international inc subsidiaries notes consolidated financial statements continued credit agreement governs credit facilities contains customary financial covenants restrictions including restrictions ability declare pay dividends specifically must maintain interest coverage ratio defined ratio consolidated ebitda consolidated interest expense least 30 10 maximum leverage ratio defined ratio total debt consolidated ebitda greater 35 10 2011 325 10 2012 30 10 thereafter factors considered calculations ratios defined credit agreement ebitda consolidated interest defined exclude goodwill impairments debt discount amortization noncash charges december 31 2010 compliance debt covenants expect continue compliance 2011 credit facilities also contain negative covenants limit company’s ability borrow additional funds encumber assets pay dividends sell assets enter significant transactions company’s credit facilities occurrence specified change control events involving company would constitute event default would permit banks among things accelerate maturity facilities cause become immediately due payable full december 31 2010 7102 million outstanding facilities additional 221 million outstanding letters credit leaving 3177 million available drawn facilities also australian floating rate credit facility supporting australian accommodations business provides aggregate borrowing capacity 759 million a75 million 253 million a250 million outstanding december 31 2010 9 retirement plans company sponsors defined contribution plans participation plans available substantially employees company recognized expense 77 million 73 million 84 million respectively related various defined contribution plans years ended december 31 2010 2009 2008 respectively 10 income taxes consolidated pretax income loss years ended december 31 2010 2009 2008 consisted following thousands oil states international inc subsidiaries notes consolidated financial statements continued components income tax provision years ended december 31 2010 2009 2008 consisted following thousands provision taxes differs amount computed statutory rates follows years ended december 31 2010 2009 2008 consisted thousands oil states international inc subsidiaries notes consolidated financial statements continued significant items giving rise deferred tax assets liabilities december 31 2010 2009 follows thousands reclassifications company’s deferred tax balance based net current items net noncurrent items december 31 2010 2009 follows thousands primary deferred tax assets december 31 2010 related employee benefit costs equity participation plan deductible goodwill allowance inventory obsolescence foreign tax credit carryforwards 56 million available federal net operating loss carryforwards regular tax nols date regular tax nols expire varying amounts year 2011 first used offset taxable income generate ability utilize portion available regular tax nols currently limited section 382 internal revenue code due change control occurred 1995 currently believe substantially regular tax nols utilized company utilized federal alternative minimum tax net operating loss carryforwards income tax provision year ended december 31 2010 totaled 720 million 299 pretax income compared 461 million 436 pretax income year ended december 31 2009 oil states international inc subsidiaries notes consolidated financial statements continued effective tax rate 2009 impacted significant portion goodwill impairment loss recognized period nondeductible tax purposes excluding goodwill impairment effective tax rate 2009 would approximated 297 appropriate us foreign income taxes provided earnings foreign subsidiary companies expected remitted near future cumulative amount undistributed earnings foreign subsidiaries company intends permanently reinvest upon deferred us income taxes provided 658 million december 31 2010 majority generated canada upon distribution earnings form dividends otherwise company may subject us income taxes subject adjustment foreign tax credits foreign withholding taxes practical however estimate amount taxes may payable eventual remittance earnings consideration available foreign tax credits american jobs creation act 2004 signed law october 2004 introduced requirement companies disclose penalties imposed consolidated subsidiaries irs failing satisfy tax disclosure requirements relating “reportable transactions” year ended december 31 2010 penalties imposed company consolidated subsidiaries failure disclose reportable transactions irs company files tax returns jurisdictions required returns subject examination audit possible adjustment result assessments taxing authorities company believes recorded sufficient tax liabilities expect resolution examination audit tax returns would material adverse effect operating results financial condition liquidity examination company’s consolidated us federal tax return year 2004 internal revenue service completed third quarter 2007 significant adjustments proposed result examination tax years subsequent 2007 remain open us federal tax audit nol’s utilized company years 1994 2002 remain subject federal tax audit respect nol’s available tax carryforward canadian subsidiaries’ federal tax returns subsequent 2006 subject audit canada revenue agency june 2006 fasb issued new accounting standard clarifies accounting disclosure uncertain tax positions defined interpretation prescribes recognition threshold measurement attribute financial statement recognition measurement tax positions taken expected taken tax return benefits recognized tax position must morelikelythannot sustained upon examination taxing authorities amount recognized measured largest amount benefit greater 50 percent likely realized upon ultimate settlement interpretation seeks reduce diversity practice associated certain aspects recognition measurement related accounting income taxes company adopted provisions new accounting standard january 1 2007 total amount unrecognized tax benefits december 31 2010 30 million amount 24 million unrecognized tax benefits recognized would affect effective tax rate company recognizes interest penalties accrued related unrecognized tax benefits component company’s provision income taxes december 31 2010 2009 company accrued 27 million 28 million respectively interest expense penalties oil states international inc subsidiaries notes consolidated financial statements continued reconciliation beginning ending amount unrecognized tax benefits follows thousands reasonably possible amount unrecognized tax benefits change next twelve months due closing statute limitations change occur could favorable impact results operation 11 commitments contingencies company leases portion equipment office space computer equipment automobiles trucks leases expire various dates minimum future operating lease obligations effect december 31 2010 follows thousands rental expense operating leases 129 million 104 million 91 million years ended december 31 2010 2009 2008 respectively company party various pending threatened claims lawsuits administrative proceedings seeking damages remedies concerning commercial operations products employees matters including warranty product liability claims occasional claims individuals alleging exposure hazardous materials result products operations claims relate matters occurring prior acquisition businesses relate businesses sold certain cases company entitled indemnification sellers businesses cases indemnified buyers businesses although company give assurance outcome pending legal administrative proceedings effect outcomes may management believes ultimate liability resulting outcome proceedings extent otherwise provided covered insurance material adverse effect consolidated financial position results operations liquidity 12 stockbased compensation current accounting standards require companies measure cost employee services received exchange award equity instruments typically stock options based grantdate fair value award fair value estimated using optionpricing models resulting cost recognized period employee required provide service exchange awards usually vesting period oil states international inc subsidiaries notes consolidated financial statements continued fair value option grant estimated date grant using blackscholes option pricing model uses assumptions noted following table riskfree interest rate based us treasury yield curve effect expected term option time grant dividend yield common stock assumed zero since pay dividends current plans future expected market price volatility common stock based estimate made us considers historical implied volatility common stock well peer group companies time period equal expected term option expected life options awarded 2008 2009 2010 based formula considering vesting period term options awarded following table summarizes stock option activity three years ended december 31 2010 weighted average fair values options granted 2010 2009 2008 1713 776 1249 per share respectively options awarded 2010 term six years granted exercise prices grant date closing market price total intrinsic value options exercised 2010 2009 2008 199 million 32 million 123 million respectively cash received company option exercises 2010 2009 2008 totaled 234 million 35 million 89 million respectively tax benefit realized tax deduction stock options exercised 2010 2009 2008 totaled 61 million 12 million 37 million respectively oil states international inc subsidiaries notes consolidated financial statements continued following table summarizes information stock options outstanding december 31 2010 december 31 2010 total 1934315 shares available future grant equity participation plan 2010 granted restricted stock awards totaling 233493 shares valued total 91 million restricted stock awards granted 2010 total 214000 awards vest four equal annual installments total 192027 shares restricted stock awarded 2009 aggregate value 36 million total 271771 shares restricted stock awarded 2008 aggregate value 117 million stock based compensation pretax expense recognized years ended december 31 2010 2009 2008 totaled 126 million 115 million 109 million 018 013 012 per diluted share tax respectively december 31 2010 179 million compensation cost related unvested stock options restricted stock awards attributable future performance yet recognized deferred compensation plan company maintains deferred compensation plan deferred compensation plan available directors certain officers managers company plan allows participants defer receipt portion directors’ fees andor salary annual bonuses employee contributions deferred compensation plan matched company percentage employee participant company’s 401k retirement plan subject irs limitations matcheligible compensation deferred compensation plan also permits company make discretionary contributions employee’s account director’s contributions matched company since inception plan discretionary contribution provision limited matching participants’ contributions basis equivalent matching permitted company’s 401k retirement savings plan vesting contributions participants’ accounts also equivalent vesting requirements company’s 401k retirement savings plan deferred compensation plan dollar limits taxdeferred contributions assets deferred compensation plan held rabbi trust therefore available satisfy claims company’s creditors event bankruptcy insolvency company participants ability direct plan administrator invest assets accounts including discretionary contributions company preapproved mutual funds held trust prior november 1 2003 participants also ability direct plan administrator invest assets accounts company common stock addition participants currently right request plan administrator reallocate portfolio investments ie cash mutual funds participants’ individual accounts within trust current balances invested company common stock may increased company contributions form cash distributions plan generally made upon participants’ termination director andor employee applicable company participants receive payments plan cash december 31 2010 balance assets oil states international inc subsidiaries notes consolidated financial statements continued trust totaled 85 million including 17554 shares common stock company reflected treasury stock value 02 million company accounts deferred compensation plan accordance current accounting standards regarding accounting deferred compensation arrangements amounts earned held rabbi trust invested assets trust common stock company invested nine funds covering variety securities investment strategies mutual funds publicly quoted reported fair value company accounts investments accordance current accounting standards regarding accounting certain investments debt equity securities trust also holds common shares company’s common stock held trust classified treasury stock stockholders’ equity section consolidated balance sheets fair value assets held trust exclusive fair value shares company’s common stock reflected treasury stock december 31 2010 83 million classified “other noncurrent assets” consolidated balance sheet fair value investments based quoted market prices active markets level 1 fair value measurement amounts payable plan participants december 31 2010 including fair value shares company’s common stock reflected treasury stock 94 million classified “other noncurrent liabilities” consolidated balance sheet accordance current accounting standards fair value fluctuations trust assets reflected consolidated statements income increases decreases value plan assets exclusive shares common stock company included compensation adjustments respective statements income increases decreases fair value deferred compensation liability including shares common stock company held trust recorded treasury stock also included compensation adjustments consolidated statements income response changes total fair value company’s common stock held trust company recorded net compensation expense adjustments 04 million 2010 04 million 2009 03 million 2008 13 segment related information accordance current accounting standards regarding disclosures segments enterprise related information company identified following reportable segments well site services accommodations offshore products tubular services company’s reportable segments strategic business units offer different products services managed separately business requires different technology marketing strategies past acquisitions direct extensions business segments historically company’s accommodations business aggregated along rental tool land drilling services business lines well site services segment however time since original identification aggregation reportable segments accommodations business grown significant rate primarily due increased activity supporting oil sands developments decreased activity support conventional well drilling northern alberta canada unlike land drilling rental tools activities significantly influenced current prices oil natural gas demand oil sands accommodations influenced greater extent longterm outlook energy prices particularly crude oil prices given multiyear time frame complete oil sands projects significant costs associated development largescale projects based factors began presenting accommodations separate reportable segment effective quarterly report form 10q period ended march 31 2010 well site services segment consists rental tool land drilling services business lines prior period segment information restated accordance change oil states international inc subsidiaries notes consolidated financial statements continued financial information industry segment three years ended december 31 2010 2009 2008 summarized following table thousands accounting policies segments described summary significant accounting policies 1 subsequent march 1 2006 effective date sale workover services business classified equity interest boots coots notes receivable acquired transaction “drilling other” financial information geographic segment three years ended december 31 2010 2009 2008 summarized thousands revenues us include export sales revenues attributable countries based location entity selling products performing services total assets oil states international inc subsidiaries notes consolidated financial statements continued attributable countries based physical location entity operating assets include intercompany balances customers accounted 10 company’s revenues years ended december 31 2010 2009 2008 equity net income unconsolidated affiliates included operating income 14 valuation allowances activity valuation accounts follows thousands oil states international inc subsidiaries notes consolidated financial statements continued 15 quarterly financial information unaudited following table summarizes quarterly financial information 2010 2009 thousands except per share amounts 1 gross profit net income fourth quarter 2010 included 63 million acquisition costs related three acquisitions quarter 2 net income second quarter 2009 included tax loss 812 million approximately 162 per diluted share impairment goodwill amounts calculated independently quarters presented therefore sum quarterly amounts may equal total calculated year represents “revenues” less “product costs” “service costs” included company’s consolidated statements incomeitem 15 exhibits financial statement schedules index financial statements financial statement schedules exhibits 1 financial statements reference made index set forth page 65 annual report form 10k 2 financial statement schedules included herein information required submitted included consolidated financial statements notes thereto required information inapplicable 3 index exhibits see index exhibits list exhibits filed herewith index also includes identifies management contracts compensatory plans arrangements required filed exhibits annual report form 10k item 601 regulation sk b index exhibits index financial statements index financial statements index financial statements index financial statements filed herewith management contracts compensatory plans arrangements furnished herewith index financial statements signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized february 17 2012 oil states international inc cindy b taylor cindy b taylor president chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 17 2012 signature title stephen wells stephen wells chairman board cindy b taylor cindy b taylor director president chief executive officer principal executive officer bradley j dodson bradley j dodson senior vice president chief financial officer treasurer principal financial officer robert w hampton robert w hampton senior vice president accounting corporate secretary principal accounting officer martin lambert martin lambert director james nelson jr james nelson jr director mark g papa mark g papa director gary l rosenthal gary l rosenthal director christopher seaver christopher seaver director douglas e swanson douglas e swanson director william van kleef william van kleef director bradley j dodson bradley j dodson pursuant power attorney filed exhibit 241 annual report form 10k index financial statements oil states international inc subsidiaries index consolidated financial statements index financial statements oil states international inc subsidiaries report independent registered public accounting firm board directors stockholders oil states international inc audited accompanying consolidated balance sheets oil states international inc subsidiaries december 31 2011 2010 related consolidated statements income stockholders’ equity comprehensive income cash flows three years period ended december 31 2011 financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position oil states international inc subsidiaries december 31 2011 2010 consolidated results operations cash flows three years period ended december 31 2011 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states oil states international inc subsidiaries’ internal control financial reporting december 31 2011 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated february 17 2012 expressed unqualified opinion thereon ernst young llp houston texas february 17 2012 index financial statements oil states international inc subsidiaries report independent registered public accounting firm board directors stockholders oil states international inc audited oil states international inc subsidiaries’ internal control financial reporting december 31 2011 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso criteria oil states international inc subsidiaries’ management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s annual report internal control financial reporting responsibility express opinion company’s internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk performing procedures considered necessary circumstances believe audit provides reasonable basis opinion company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion oil states international inc subsidiaries maintained material respects effective internal control financial reporting december 31 2011 based coso criteria also audited accordance standards public company accounting oversight board united states consolidated balance sheets oil states international inc subsidiaries december 31 2011 2010 related consolidated statements income stockholders’ equity comprehensive income cash flows three years period ended december 31 2011 report dated february 17 2012 expressed unqualified opinion thereon ernst young llp houston texas february 17 2012 index financial statements oil states international inc subsidiaries consolidated statements income accompanying notes integral part financial statements index financial statements oil states international inc subsidiaries consolidated balance sheets accompanying notes integral part financial statements index financial statements oil states international inc subsidiaries consolidated statements stockholders’ equity comprehensive income accompanying notes integral part financial statements index financial statements oil states international inc subsidiaries consolidated statements cash flows accompanying notes integral part financial statements index financial statements oil states international inc subsidiaries notes consolidated financial statements 1 organization basis presentation consolidated financial statements include accounts oil states international inc oil states company consolidated subsidiaries investments unconsolidated affiliates company able exercise significant influence accounted using equity method company’s operations prior 2001 conducted oil states industries inc osi february 2001 company acquired three companies oil states energy services inc oses formerly known hwc energy services inc pti group inc pti sooner inc sooner completed initial public offering significant intercompany accounts transactions company consolidated subsidiaries eliminated accompanying consolidated financial statements company subsidiaries leading provider specialty products services oil gas drilling production companies throughout world accommodations business company also serves natural resource markets principally australia operates substantial number world’s active oil gas producing regions including gulf mexico us onshore canada australia north sea southeast asia south america west africa india company operates four principal business segments accommodations offshore products well site services tubular services 2 summary significant accounting policies cash equivalents company considers highly liquid investments purchased original maturity three months less cash equivalents fair value financial instruments company’s financial instruments consist cash equivalents investments receivables payables debt instruments company believes carrying values instruments 2 38 notes 6 12 notes accompanying consolidated balance sheets approximate fair values fair values 2 38 6 12 notes estimated based quoted prices active markets level 1 fair value measurements carrying amounts fair values notes follows thousands december 31 2011 estimated fair value company’s debt outstanding credit facilities estimated fair value december 31 2011 company approximately 717 million cash equivalents 6568 million company’s us canadian revolving credit facilities available future financing needs company also availability totaling a108 million australian credit facility december 31 2011 274 million outstanding letters credit index financial statements oil states international inc subsidiaries notes consolidated financial statementscontinued inventories consist tubular oilfield products manufactured equipment spare parts manufactured equipment raw materials supplies materials construction remote accommodation facilities inventories include raw materials labor subcontractor charges manufacturing overhead carried lower cost market cost inventories determined average cost specificidentification method property plant equipment property plant equipment stated cost estimated fair market value acquisition date acquired business combination depreciation computed assets owned recorded capital lease using straightline method allowing salvage value applicable estimated useful lives assets use component depreciation method drilling services australian accommodations assets leasehold improvements capitalized amortized lesser life lease estimated useful life asset expenditures repairs maintenance charged expense incurred expenditures major renewals betterments extend useful lives existing equipment capitalized depreciated upon retirement disposition property equipment cost related accumulated depreciation removed accounts resulting gain loss recognized statements income asset retirement obligations recognize initial estimated asset retirement obligations aro related properties liabilities associated increase property equipment asset’s estimated retirement cost accretion expense recognized estimated productive life related assets fair value estimated aro changes adjustment recorded aro capitalized asset retirement cost revisions estimated liabilities result changes estimated inflation rates changes service equipment costs changes estimated timing settling aro company relieves aro liabilities related obligations settled december 31 2011 46 million aro included consolidated balance sheet “other noncurrent liabilities” aro liability reflects estimated present value amount asset removal site reclamation costs related retirement assets company’s accommodations business company utilizes current retirement costs estimate expected cash outflows retirement obligations company estimates ultimate productive life properties riskadjusted discount rate order determine current present value obligation goodwill intangible assets goodwill represents excess purchase price paid acquired businesses allocated fair value related net assets impairments applicable goodwill stated net accumulated amortization 11 million december 31 2011 2010 evaluate goodwill impairment annually event occurs circumstances change suggest carrying amount may recoverable reporting units goodwill remaining include accommodations offshore products rental tools services 2008 2009 100 goodwill associated tubular services drilling reporting units impaired discussed note 7 consolidated financial statements impairment goodwill tested reporting unit level first performing qualitative assessment determine whether likely likelihood 50 percent fair value reporting unit less carrying amount including goodwill determined likely fair value reporting unit greater carrying amount performing currently prescribed twostep impairment test unnecessary developing qualitative index financial statements oil states international inc subsidiaries notes consolidated financial statementscontinued assessment meet “morelikelythannot” threshold reporting unit goodwill balance sheet assessed separately different relevant events circumstances evaluated unit determined likely fair value reporting unit less carrying amount prescribed twostep impairment test performed performing twostep impairment test compare reporting unit’s carrying amount including goodwill implied fair value ifv reporting unit ifv reporting units estimated using analysis trading multiples comparable companies reporting units also utilize discounted projected cash flows acquisition multiples analyses certain circumstances discount projected cash flows using longterm weighted average cost capital reporting unit based estimate investment returns would required market participant carrying amount reporting unit exceeds fair value goodwill considered impaired second step performed determine amount impairment conduct annual impairment test december year intangible assets amortize review useful life intangible asset evaluate reporting period whether events circumstances warrant revision remaining useful life evaluate remaining useful life intangible asset amortized reporting period determine whether events circumstances continue support indefinite useful life see note 7 goodwill intangible assets impairment longlived assets compliance current accounting standards regarding accounting impairment disposal longlived assets asset group level recoverability carrying values longlived assets including intangible assets assessed minimum annually whenever management’s judgment events changes circumstances indicate carrying value asset groups may recoverable based estimated future cash flows assessment indicates carrying values recoverable determined based undiscounted cash flows remaining useful lives impairment loss recognized impairment loss equals excess carrying value fair value asset fair value asset based prices similar assets available discounted cash flows based company’s review carrying values asset groups recoverable impairment losses recorded periods presented foreign currency comprehensive income gains losses resulting balance sheet translation foreign operations foreign currency functional currency included separate component accumulated comprehensive income within stockholders’ equity representing substantially balances within accumulated comprehensive income remeasurements intercompany loans denominated different currency functional currency entity longterm investment nature recognized comprehensive income within stockholders’ equity gains losses resulting balance sheet remeasurements assets liabilities denominated different currency functional currency intercompany loans longterm investment nature included consolidated statements income incurred foreign exchange risk portion revenues earnings net investments foreign affiliates exposed changes foreign exchange rates seek manage foreign exchange risk part operational means including managing expected local currency revenues relation local currency costs local currency assets relation local currency liabilities foreign exchange risk also managed foreign currency denominated debt company foreign currency exchange contracts outstanding december 31 2011 december 31 2010 net gains losses foreign currency exchange contracts designated index financial statements oil states international inc subsidiaries notes consolidated financial statementscontinued hedges would recognized income statement offset realized foreign currency gain loss underlying transaction foreign exchange gains losses associated operations totaled 14 million loss 2011 11 million loss 2010 03 million loss 2009 included “other operating incomeexpense” interest capitalization interest costs construction certain longterm assets capitalized amortized related assets’ estimated useful lives years ended december 31 2011 2010 2009 53 million 02 million 01 million capitalized respectively revenue cost recognition revenue sale products accounted utilizing percentageofcompletion method recognized delivery acceptance customer occurred title significant risks ownership passed customer collectability probable pricing fixed determinable product sales terms include significant post delivery obligations significant projects revenues recognized percentageofcompletion method measured percentage costs incurred date estimated total costs contract costtocost method billings contracts excess costs incurred estimated profits classified deferred revenue management believes method appropriate measure progress large contracts provisions estimated losses uncompleted contracts made period losses determined accommodations well site services segments revenues recognized based periodic usually daily rental room rate services rendered proceeds customers cost oilfield rental equipment damaged lost downhole reflected gains losses disposition assets drilling services contracts based footage drilled recognize revenues footage drilled revenues exclude taxes assessed based revenues sales value added taxes cost goods sold includes direct material labor costs related contract performance indirect labor supplies tools repairs selling general administrative costs charged expense incurred income taxes company follows liability method accounting income taxes accordance current accounting standards regarding accounting income taxes method deferred income taxes recorded based upon differences financial reporting tax bases assets liabilities measured using enacted tax rates laws effect underlying assets liabilities recovered settled company’s earnings foreign subsidiaries considered indefinitely reinvested provision us income taxes made earnings subsidiaries distribution earnings form dividends otherwise company would subject us income taxes subject adjustment foreign tax credits withholding taxes payable various foreign countries accordance current accounting standards company records valuation allowance reporting period management believes likely deferred tax asset created realized management continue evaluate appropriateness valuation allowance future based upon operating results company accounting income taxes required provisions current accounting standards regarding accounting uncertainty income taxes estimate liability future income taxes calculation index financial statements oil states international inc subsidiaries notes consolidated financial statementscontinued tax liabilities involves dealing uncertainties application complex tax regulations recognize liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due ultimately determine payment amounts unnecessary reverse liability recognize tax benefit period determine liability longer necessary record additional charge provision taxes period determine recorded tax liability less expect ultimate assessment receivables concentration credit risk concentration suppliers based nature customer base company believe significant concentrations credit risk concentration oil gas industry company evaluates creditworthiness significant new existing customers’ financial condition generally company require significant collateral customers company purchased 85 oilfield tubular goods three suppliers 2011 largest supplier representing 58 purchases period loss significant supplier tubular services segment could materially adversely affect allowances doubtful accounts company maintains allowances doubtful accounts estimated losses resulting inability company’s customers make required payments trade receivable deemed uncollectible receivable chargedoff allowance doubtful accounts company considers following factors determining collection revenue reasonably assured customer creditworthiness past transaction history customer current economic industry trends customer solvency changes customer payment terms company previous experience customer company typically obtains reports various credit organizations ensure customer history paying creditors company may also request financial information including financial statements documents ensure customer means making payment factors indicate collection reasonably assured company would require prepayment arrangement support revenue recognition recording trade receivable financial condition company’s customers deteriorate adversely affecting ability make payments additional allowances would required earnings per share company’s basic earnings per share eps amounts computed based average number common shares outstanding including 1757 shares common stock december 31 2010 issuable upon exercise exchangeable shares one company’s canadian subsidiaries exchangeable shares issued certain former shareholders pti group inc connection company’s ipo combination pti company intended characteristics essentially equivalent company’s common stock prior exchange treated shares common stock issuable upon exchange exchangeable shares outstanding exchangeable shares outstanding december 31 2011 shares restricted stock awarded company’s equity participation plan included company’s basic shares vest fully diluted shares restricted stock shares awarded diluted eps amounts include effect company’s outstanding stock options restricted stock shares treasury stock method addition shares assumed issued upon conversion company’s 2 38 notes averaged 3023420 1647321 202820 years ended december 31 2011 december 31 2010 december 31 2009 respectively included calculation fully diluted shares outstanding fully diluted earnings per share index financial statements oil states international inc subsidiaries notes consolidated financial statementscontinued stockbased compensation current accounting standards regarding sharebased payments require companies measure cost employee services received exchange award equity instruments typically stock options based grantdate fair value award fair value estimated using optionpricing models resulting cost recognized period employee required provide service exchange awards usually vesting period years ended december 31 2011 2010 2009 company recognized noncash general administrative expenses stock options restricted stock awards totaling 146 million 126 million 115 million respectively company accounts assets held rabbi trust certain participants company’s deferred compensation plan accordance current accounting standards see note 13 guarantees company applies current accounting standards regarding guarantor’s accounting disclosure requirements guarantees including indirect indebtedness others company’s obligations certain guarantees pursuant standards company required disclose changes product warranty liabilities products offshore products accommodations businesses sold warranty generally ranging 12 18 months parts labor covered terms warranty agreement warranty provisions estimated based upon historical experience product configuration geographic region changes warranty liabilities follows thousands current warranty provisions typically related current year’s sales warranty settlements associated payments service warranty obligations ordinary course business company also provides standby letters credit guarantee instruments certain parties required certain transactions initiated either company subsidiaries december 31 2011 maximum potential amount future payments company could required make guarantee agreements letters credit approximately 274 million company recorded liability connection guarantee arrangements beyond required appropriately account underlying transaction guaranteed company believe based historical experience information currently available likely amounts required paid guarantee arrangements use estimates preparation consolidated financial statements conformity accounting principles generally accepted united states requires use estimates assumptions management determining reported amounts assets liabilities disclosures contingent assets liabilities date index financial statements oil states international inc subsidiaries notes consolidated financial statementscontinued consolidated financial statements reported amounts revenues expenses reporting period examples estimates include potential future adjustments result contractual agreements revenue income recognized percentageofcompletion method estimates amount timing costs incurred asset retirement obligations valuation allowance recorded net deferred tax assets warranty inventory allowance doubtful accounts actual results could materially differ estimates discontinued operations prior initial public offering february 2001 sold businesses reported operating results businesses discontinued operations existing liabilities related discontinued operations december 31 2011 2010 represent estimate remaining contingent liabilities associated company’s exit businesses subsequent events accordance authoritative guidance company evaluates events transactions occur balance sheet date financial statements issued possible recognition disclosure 3 details selected balance sheet accounts additional information regarding selected balance sheet accounts december 31 2011 2010 presented thousands index financial statements oil states international inc subsidiaries notes consolidated financial statementscontinued depreciation expense 1749 million 1216 million 1147 million years ended december 31 2011 2010 2009 respectively 4 recent accounting pronouncements time new accounting pronouncements issued financial accounting standards board fasb adopted company specified effective date unless otherwise discussed management believes impact recently issued standards yet effective material impact company’s consolidated financial statements upon adoption june 2011 fasb issued amendments disclosure requirements presentation comprehensive income guidance eliminates option present components comprehensive income part statement changes stockholders’ equity amendments require nonowner changes stockholders’ equity presented either single continuous statement comprehensive income two separate consecutive statements twostatement approach first statement present total net income components followed consecutively second statement present total comprehensive income components comprehensive income total comprehensive income amendments applied retrospectively public entities amendments effective fiscal years interim periods within years beginning december 15 2011 early adoption permitted compliance amendments already permitted amendments require transition index financial statements oil states international inc subsidiaries notes consolidated financial statementscontinued disclosures december 2011 fasb issued amendment deferring effective date requirement present reclassification adjustments accumulated comprehensive income face consolidated statement income expect adoption standard material effect consolidated financial statements september 2011 fasb issued accounting standards update intended simplify goodwill impairment testing giving entity option first assess qualitative factors determine whether likely fair value reporting unit less carrying amount entity determines likely fair value reporting unit greater carrying amount performing currently prescribed twostep impairment test unnecessary entity option bypass qualitative assessment reporting unit period proceed directly performing first step twostep goodwill impairment test entity may resume performing qualitative assessment subsequent period amendments effective annual interim goodwill impairment tests performed fiscal years beginning december 15 2011 early adoption permitted including annual interim goodwill impairment tests performed entity’s financial statements recent annual interim period yet issued company early adopted standard annual goodwill impairment tests 2011 adoption standard material effect consolidated financial statements 5 acquisitions supplemental cash flow information components cash used acquisitions reflected consolidated statements cash flows years ended december 31 2011 2010 2009 summarized follows thousands november 1 2011 purchased open camp accommodations facility located carrizo springs texas total consideration 22 million facility provide accommodations support customers working eagle ford shale oil gas basin texas operations carrizo springs facility included accommodations segment since date acquisition december 30 2010 acquired ordinary shares mac services group limited mac scheme arrangement scheme corporations act australia mac headquartered sydney australia supplies accommodations services australian natural resources market terms scheme shareholder mac received 395 a390 per share cash total purchase price 638 million net cash acquired plus debt assumed 87 million mac’s operations included part accommodations segment beginning 2011 following unaudited pro forma supplemental financial information presents consolidated results operations company mac acquisition mac occurred january 1 2009 company adjusted historical financial information give effect pro forma items directly index financial statements oil states international inc subsidiaries notes consolidated financial statementscontinued attributable acquisition expected continuing impact consolidated results items include adjustments record incremental amortization depreciation expense related increase fair values acquired assets interest expense related borrowings company’s senior credit facilities fund acquisition reclassify certain items conform company’s financial reporting presentation unaudited pro forma purport indicative results operations transaction occurred date indicated future results combined entities thousands except per share data included pro forma results years ended december 31 2010 2009 1 depreciation increased fair value property plant equipment acquired part mac totaling 86 million 74 million respectively net tax 016 015 respectively per diluted share 2 amortization expense intangibles acquired part purchase mac totaling 60 million 52 million respectively net tax 011 010 respectively per diluted share 3 interest expense 108 million 110 million respectively net tax 020 022 respectively per diluted share year ended december 31 2010 pro forma results also include mac acquisition costs approximately 125 million 46 million recorded company’s books 79 million recorded mac’s books net tax 024 per diluted share december 20 2010 also acquired operating assets mountain west oilfield service supplies inc ufford leasing llc mountain west total consideration 471 million estimated contingent consideration 36 million headquartered vernal utah operations rockies bakken shale region mountain west provides remote site workforce accommodations oil gas industry mountain west included accommodations segment since date acquisition company funded acquisitions mac mountain west cash hand draws senior secured credit facilities see note 8 additional information senior secured bank facilities october 5 2010 purchased equity acute technological services inc acute total consideration 302 million headquartered houston texas additional operations brazil acute provides metallurgical welding engineering consulting services oil gas industry support critical complex subsea component manufacturing deepwater riser fabrication global basis acute included offshore products segment since date acquisition company funded acute acquisition using cash hand existing credit facility acquisitions acute mountain west material company’s consolidated financial statements therefore company present pro forma information acquisitions june 2009 acquired 51 majority interest venture previously accounted equity method acquired business supplies accommodations services mining operations index financial statements oil states international inc subsidiaries notes consolidated financial statementscontinued canada consideration paid business 23 million cash estimated contingent consideration 03 million operations business included accommodations segment since date acquisition supplemental cash flow information cash paid years ended december 31 2011 2010 2009 interest income taxes follows thousands 6 earnings per share eps calculations diluted earnings per share years ended december 31 2011 2010 2009 exclude 179804 shares 364345 shares 1505619 shares respectively issuable pursuant outstanding stock options restricted stock awards due antidilutive effect 7 goodwill intangible assets company amortize goodwill tests impairment using fair value approach “reporting unit” level reporting unit operating segment business one level operating segment “component” level discrete financial information prepared regularly reviewed management component level company three reporting units goodwill december 31 2011 remaining goodwill drilling tubular services reporting units subsequent full impairment index financial statements oil states international inc subsidiaries notes consolidated financial statementscontinued goodwill reporting units december 31 2008 goodwill allocated reporting units based actual acquisitions made company subsidiaries company recognizes impairment loss amount carrying amount reporting unit’s goodwill exceeds unit’s fair value initial qualitative assessment potential goodwill impairment indicates likely fair value reporting unit less carrying amount including goodwill company uses appropriate current circumstance comparative market multiples discounted cash flow calculations acquisition comparables establish reporting unit’s fair value level 3 fair value measurement company amortizes cost intangibles estimated useful lives unless lives deemed indefinite amortizable intangible assets reviewed impairment based undiscounted cash flows impaired written fair value based either discounted cash flows appraised values intangible assets indefinite lives tested impairment annually written fair value required december 31 2011 provision impairment intangible assets required based evaluations performed changes carrying amount goodwill years ended december 31 2011 2010 follows thousands index financial statements oil states international inc subsidiaries notes consolidated financial statementscontinued increase goodwill 2010 due acquisitions completed fourth quarter 2010 see note 5 following table presents total amount intangibles assigned total accumulated amortization major intangible asset classes december 31 2011 2010 thousands weighted average remaining amortization period intangible assets goodwill indefinite lived intangibles 86 years 96 years december 31 2011 2010 respectively total amortization expense expected 131 million 2012 127 million 2013 2014 2015 126 million 2016 respectively amortization expense 133 million 26 million 34 million years ended december 31 2011 2010 2009 respectively index financial statements oil states international inc subsidiaries notes consolidated financial statementscontinued 8 longterm debt december 31 2011 2010 longterm debt consisted following thousands index financial statements oil states international inc subsidiaries notes consolidated financial statementscontinued scheduled maturities combined longterm debt december 31 2011 follows thousands 1 december 31 2011 classified 1750 million principal amount 2 38 notes net unamortized discount noncurrent liability based ability intent refinance 2 38 notes utilizing borrowings available senior secured credit facilities company’s capital leases consist primarily plant facilities equipment value capitalized leases related accumulated depreciation totaled 21 million 14 million respectively december 31 2011 value capitalized leases related accumulated depreciation totaled 115 million 27 million respectively december 31 2010 2011 company’s purchased office building previously held capital lease 612 senior unsecured notes june 1 2011 company sold 600 million aggregate principal amount 6 12 senior unsecured notes 6 12 notes due 2019 private placement qualified institutional buyers 6 12 notes senior unsecured obligations company guaranteed material us subsidiaries guarantors bear interest rate 6 12 per annum mature june 1 2019 time prior june 1 2014 company may redeem 35 6 12 notes redemption price 106500 principal amount plus accrued unpaid interest redemption date proceeds certain equity offerings prior june 1 2014 company may redeem 6 12 notes cash redemption price equal 100 principal amount plus applicable makewhole premium accrued unpaid interest redemption date june 1 2014 company may redeem 6 12 notes redemption prices expressed percentages principal amount plus accrued unpaid interest redemption date optional redemption prices percentage principal amount follows company utilized approximately 515 million net proceeds 6 12 note offering june 2011 repay borrowings outstanding senior secured credit facilities remaining net proceeds approximately 75 million utilized general corporate purposes index financial statements oil states international inc subsidiaries notes consolidated financial statementscontinued 238 contingent convertible senior notes june 2005 sold 125 million aggregate principal amount 2 38 contingent convertible senior notes due 2025 placement qualified institutional buyers pursuant securities exchange commission’s rule 144a company granted initial purchaser notes 30day option purchase additional 50 million aggregate principal amount notes option exercised july 2005 additional 50 million notes sold time notes senior unsecured obligations company bear interest rate 2 38 per annum notes mature july 1 2025 may redeemed company prior july 6 2012 holders notes may require company repurchase notes july 1 2012 2015 2020 notes provide net share settlement therefore may convertible certain circumstances combination cash principal amount notes common stock company excess principal amount notes initial conversion price 3175 per share shares underlying notes included calculation diluted earnings per share periods average stock price exceeded initial conversion price 3175 per share terms notes require stock price quarter period prior july 1 2023 120 initial conversion price 3810 per share least 20 trading days defined period notes convertible note holder chooses present notes conversion future quarter prior first putcall date july 2012 receive cash 1000 2 38 note plus company common stock excess valuation 1000 using conversion rate 2 38 notes approximately 31496 multiplied company’s average common stock price ten trading day period following presentation 2 38 notes conversion december 31 2011 contingent conversion thresholds met result assumed conversion notes first quarter 2012 schedule debt maturities december 31 2011 classified 1750 million principal amount 2 38 notes net unamortized discount noncurrent liability based ability intent refinance 2 38 notes utilizing borrowings available senior secured credit facilities year ended december 31 2011 holder converted 10 2 38 notes principal amount 10000 cash 10000 plus 189 shares common stock following table presents carrying amount 2 38 notes consolidated balance sheets thousands unamortized discount 2 38 notes effective interest rate 717 applied issuance date 2 38 notes accordance asc 47020 debt conversion options interest expense 2 38 notes excluding amortization debt issue costs follows thousands index financial statements oil states international inc subsidiaries notes consolidated financial statementscontinued 1 calculation based company’s december 30 2011 closing stock price 7637 credit facilities december 10 2010 replaced existing 500 million bank credit facility 105 billion senior credit facilities governed amended restated credit agreement new credit facilities totaled 105 billion available commitments consisting revolving borrowings 750 million term borrowings 300 million company borrowed term commitment connection acquisition mac senior secured revolving credit facilities group banks 350 million available form loans denominated canadian dollars may made company’s principal canadian operating subsidiaries facilities mature december 10 2015 current principal balance term loans repayable rate 25 per quarter aggregate principal amount maturity december 10 2015 remaining principal due amounts borrowed facilities bear interest company’s election either • variable rate equal libor case canadian dollar denominated loans bankers’ acceptance discount rate plus margin ranging 20 30 • alternate base rate equal higher bank’s prime rate federal funds effective rate case canadian dollar denominated loans canadian prime rate commitment fees ranging 0375 050 per year paid undrawn portion facilities depending upon leverage ratio credit facilities guaranteed company’s active domestic subsidiaries cases company’s canadian foreign subsidiaries credit facilities secured first priority lien company’s inventory accounts receivable material tangible intangible assets well company’s active subsidiaries however 65 voting stock foreign subsidiary required pledged pledge greater percentage would result adverse tax consequences credit agreement governs credit facilities contains customary financial covenants restrictions including restrictions ability declare pay dividends specifically must maintain interest coverage ratio defined ratio consolidated ebitda consolidated interest expense least 30 10 maximum leverage ratio defined ratio total debt consolidated ebitda greater 325 10 2012 30 10 thereafter factors considered calculations ratios defined credit agreement ebitda consolidated interest defined exclude goodwill impairments debt discount amortization noncash charges december 31 2011 compliance debt covenants expect continue compliance 2012 credit facilities also contain negative covenants limit company’s ability borrow additional funds encumber assets pay dividends sell assets enter significant transactions company’s credit facilities occurrence specified change control events involving company would constitute event default would permit banks among things accelerate maturity facilities cause become immediately due payable full index financial statements oil states international inc subsidiaries notes consolidated financial statementscontinued december 31 2011 3519 million outstanding facilities additional 251 million outstanding letters credit leaving 6568 million available drawn facilities july 13 2011 mac entered a150 million revolving loan facility governed facility agreement facility agreement mac national australia bank limited guaranteed company facility agreement amended mac’s existing a75 million revolving loan facility substantially terms including maturity date facility agreement november 30 2013 december 31 2011 431 million outstanding australian facility interest expense consolidated statements income net capitalized interest 53 million 02 million 01 million respectively years ended december 31 2011 2010 2009 9 stock repurchase program august 27 2010 company announced board directors authorized 100 million repurchase company’s common stock par value 01 per share authorization replaced prior share repurchase authorization expired december 31 2009 company presently approximately 513 million shares common stock outstanding board directors’ authorization limited duration expires september 1 2012 subject applicable securities laws purchases times amounts company deems appropriate december 31 2011 total 126 million stock 209300 shares repurchased program leaving total authorization approximately 874 million remaining available program 10 retirement plans company sponsors defined contribution plans participation plans available substantially employees company recognized expense 111 million 77 million 73 million respectively related matching contributions various defined contribution plans years ended december 31 2011 2010 2009 respectively 11 income taxes consolidated pretax income loss years ended december 31 2011 2010 2009 consisted following thousands index financial statements oil states international inc subsidiaries notes consolidated financial statementscontinued components income tax provision years ended december 31 2011 2010 2009 consisted following thousands provision taxes differs amount computed statutory rates follows years ended december 31 2011 2010 2009 consisted thousands index financial statements oil states international inc subsidiaries notes consolidated financial statementscontinued significant items giving rise deferred tax assets liabilities december 31 2011 2010 follows thousands reclassifications company’s deferred tax balance based net current items net noncurrent items december 31 2011 2010 follows thousands primary deferred tax assets december 31 2011 related employee benefit costs equity participation plan deductible goodwill intangibles allowance inventory obsolescence foreign tax credit carryforwards foreign tax credits expire varying amounts 2019 income tax provision year ended december 31 2011 totaled 1316 million 289 pretax income compared 720 million 299 pretax income year ended december 31 2010 index financial statements oil states international inc subsidiaries notes consolidated financial statementscontinued appropriate us foreign income taxes provided earnings foreign subsidiary companies expected remitted near future cumulative amount undistributed earnings foreign subsidiaries company intends permanently reinvest upon foreign taxes accrued paid deferred us income taxes provided 888 million december 31 2011 majority generated canada upon distribution earnings form dividends otherwise company may subject us income taxes subject adjustment foreign tax credits foreign withholding taxes practical however estimate amount taxes may payable eventual remittance earnings consideration available foreign tax credits american jobs creation act 2004 signed law october 2004 introduced requirement companies disclose penalties imposed consolidated subsidiaries irs failing satisfy tax disclosure requirements relating “reportable transactions” year ended december 31 2011 penalties imposed company consolidated subsidiaries failure disclose reportable transactions irs company files tax returns jurisdictions required returns subject examination audit possible adjustment result assessments taxing authorities company believes recorded sufficient tax liabilities expect resolution examination audit tax returns would material adverse effect operating results financial condition liquidity tax years subsequent 2008 remain open us federal tax audit net operating losses nol’s utilized company years 1994 2002 remain subject federal tax audit respect nol’s available tax carryforward canadian subsidiaries’ federal tax returns subsequent 2007 subject audit canada revenue agency australian subsidiary’s federal tax returns subsequent 2006 subject audit australian taxation office account uncertain tax positions using recognition threshold measurement attribute financial statement recognition measurement tax positions taken expected taken tax return benefits recognized tax position must morelikelythannot sustained upon examination taxing authorities amount recognized measured largest amount benefit greater 50 percent likely realized upon ultimate settlement total amount unrecognized tax benefits december 31 2011 18 million unrecognized tax benefits recognized would affect effective tax rate company accrues interest penalties related unrecognized tax benefits component company’s provision income taxes december 31 2011 2010 company accrued 23 million 27 million respectively interest expense penalties reconciliation beginning ending amount unrecognized tax benefits follows thousands reasonably possible amount unrecognized tax benefits change next twelve months due closing statute limitations change occur could favorable impact results operation index financial statements oil states international inc subsidiaries notes consolidated financial statementscontinued 12 commitments contingencies company leases portion equipment office space computer equipment automobiles trucks leases expire various dates minimum future operating lease obligations effect december 31 2011 follows thousands rental expense operating leases 145 million 129 million 104 million years ended december 31 2011 2010 2009 respectively company party various pending threatened claims lawsuits administrative proceedings seeking damages remedies concerning commercial operations products employees matters including warranty product liability claims occasional claims individuals alleging exposure hazardous materials result products operations claims relate matters occurring prior acquisition businesses relate businesses sold certain cases company entitled indemnification sellers businesses cases indemnified buyers businesses although company give assurance outcome pending legal administrative proceedings effect outcomes may management believes ultimate liability resulting outcome proceedings extent otherwise provided covered insurance material adverse effect consolidated financial position results operations liquidity index financial statements oil states international inc subsidiaries notes consolidated financial statementscontinued 13 stockbased compensation current accounting standards require companies measure cost employee services received exchange award equity instruments typically stock options based grantdate fair value award fair value estimated using optionpricing models resulting cost recognized period employee required provide service exchange awards usually vesting period fair value option grant estimated date grant using blackscholes option pricing model uses assumptions noted following table riskfree interest rate based us treasury yield curve effect expected term option time grant dividend yield common stock assumed zero since pay dividends current plans future expected market price volatility common stock based estimate made us considers historical implied volatility common stock well peer group companies time period equal expected term option expected life options awarded 2009 2010 2011 based formula considering vesting period term options awarded past experience following table summarizes stock option activity three years ended december 31 2011 weighted average fair values options granted 2011 2010 2009 3323 1713 776 per share respectively options awarded 2011 term ten years granted exercise prices grant date closing market price total intrinsic value options exercised 2011 2010 2009 249 million 199 million 32 million respectively cash received company option exercises 2011 2010 2009 totaled 142 million 234 million 35 million respectively tax benefit realized tax deduction stock options exercised 2011 2010 2009 totaled 78 million 61 million 12 million respectively index financial statements oil states international inc subsidiaries notes consolidated financial statementscontinued following table summarizes information stock options outstanding december 31 2011 december 31 2011 total 1499997 shares available future grant equity participation plan 2011 awarded 217415 shares restricted stock valued total 163 million restricted stock awards granted 2011 total 200504 awards vest four equal annual installments starting february 2012 total 233493 shares restricted stock awarded 2010 aggregate value 91 million total 192027 shares restricted stock awarded 2009 aggregate value 36 million stock based compensation pretax expense recognized years ended december 31 2011 2010 2009 totaled 146 million 126 million 115 million 020 018 013 per diluted share tax respectively december 31 2011 240 million compensation cost related unvested stock options restricted stock awards attributable future performance yet recognized deferred compensation plan company maintains deferred compensation plan deferred compensation plan available directors certain officers managers company plan allows participants defer receipt portion directors’ fees andor salary annual bonuses employee contributions deferred compensation plan matched company percentage employee participant company’s 401k retirement plan subject irs limitations matcheligible compensation deferred compensation plan also permits company make discretionary contributions employee’s account director’s contributions matched company since inception plan discretionary contribution provision limited matching participants’ contributions basis equivalent matching permitted company’s 401k retirement savings plan vesting contributions participants’ accounts also equivalent vesting requirements company’s 401k retirement savings plan deferred compensation plan dollar limits taxdeferred contributions assets deferred compensation plan held rabbi trust therefore available satisfy claims company’s creditors event bankruptcy insolvency company participants ability direct plan administrator invest assets individual accounts including discretionary contributions company ten preapproved mutual funds held trust cover variety securities mutual funds prior november 1 2003 participants also ability direct plan administrator invest assets accounts company common stock addition participants currently right request plan administrator reallocate portfolio investments ie cash mutual funds participants’ individual accounts within trust current balances invested company common stock may increased company contributions form cash distributions plan generally made upon participants’ termination director andor employee applicable company participants receive payments plan cash december 31 2011 trust assets totaled 95 million including 17459 shares common stock company index financial statements oil states international inc subsidiaries notes consolidated financial statementscontinued included treasury stock value 02 million remaining 93 million trust assets classified “other noncurrent assets” company’s consolidated balance sheet fair value investments based quoted market prices active markets level 1 fair value measurement amounts payable plan participants december 31 2011 including fair value shares company’s common stock reflected treasury stock 106 million classified “other noncurrent liabilities” consolidated balance sheet company accounts deferred compensation plan accordance current accounting standards regarding accounting deferred compensation arrangements amounts earned held rabbi trust invested accordance current accounting standards fair value fluctuations trust assets reflected consolidated statements income increases decreases value plan assets exclusive shares common stock company included compensation adjustments respective statements income increases decreases fair value deferred compensation liability including shares common stock company held trust recorded treasury stock also included compensation adjustments consolidated statements income response changes total fair value company’s common stock held trust company recorded net compensation expense adjustments liability 02 million 2011 04 million 2010 04 million 2009 14 segment related information accordance current accounting standards regarding disclosures segments enterprise related information company identified following reportable segments well site services accommodations offshore products tubular services company’s reportable segments represent strategic business units offer different products services managed separately business requires different technology marketing strategies businesses initially acquired unit management time acquisition retained subsequent acquisitions direct extensions business segments separate business lines within well site services segment disclosed provide additional detail segment index financial statements oil states international inc subsidiaries notes consolidated financial statementscontinued financial information industry segment three years ended december 31 2011 2010 2009 summarized following table thousands accounting policies segments described summary significant accounting policies index financial statements oil states international inc subsidiaries notes consolidated financial statementscontinued financial information geographic segment three years ended december 31 2011 2010 2009 summarized thousands revenues us include export sales revenues attributable countries based location entity selling products performing services total assets attributable countries based physical location entity operating assets include intercompany balances customers accounted 10 company’s revenues years ended december 31 2011 2010 2009 equity net income unconsolidated affiliates included operating income 15 valuation allowances activity valuation accounts follows thousands index financial statements oil states international inc subsidiaries notes consolidated financial statementscontinued 16 quarterly financial information unaudited following table summarizes quarterly financial information 2011 2010 thousands except per share amounts 1 represents “revenues” less “product costs” “service costs” included company’s consolidated statements income 2 gross profit net income fourth quarter 2010 included 63 million acquisition costs related three acquisitions quarter amounts calculated independently quarters presented therefore sum quarterly amounts may equal total calculated year 17 condensed consolidating financial information certain whollyowned subsidiaries detailed guarantor subsidiaries fully unconditionally guaranteed 6 12 notes issued oil states international inc 2011 2 38 notes issued 2005 following condensed consolidating financial information included separate financial statements guarantor subsidiaries required filed commission condensed consolidating financial information presents investments consolidated unconsolidated affiliates using equity method accounting following condensed consolidating financial information presents consolidating statements income years ended december 31 2011 2010 2009 condensed consolidating balance sheets december 31 2011 december 31 2010 statements cash flows years ended december 31 2011 2010 2009 company parentguarantor b acute technological services inc capstar drilling lp llc capstar holding llc capstar drilling inc capstar drilling gp llc general marine leasing llc oil states energy services inc oil states management inc oil states industries inc oil states skagit smatco llc pti group usa llc pti mars holdco 1 llc sooner inc sooner pipe llc sooner holding company specialty rental tools supply llc stinger wellhead protection incorporated well testing inc guarantor subsidiaries c nonguarantor subsidiaries consolidating adjustments necessary consolidate company subsidiaries e company consolidated basis index financial statements oil states international inc subsidiaries notes consolidated financial statementscontinued condensed consolidating statements income index financial statements oil states international inc subsidiaries notes consolidated financial statementscontinued condensed consolidating statements income index financial statements oil states international inc subsidiaries notes consolidated financial statementscontinued condensed consolidating statements income index financial statements oil states international inc subsidiaries notes consolidated financial statementscontinued condensed consolidating balance sheets index financial statements oil states international inc subsidiaries notes consolidated financial statementscontinued condensed consolidating balance sheets index financial statements oil states international inc subsidiaries notes consolidated financial statementscontinued condensed consolidating statements cash flows index financial statements oil states international inc subsidiaries notes consolidated financial statementscontinued condensed consolidating statements cash flows index financial statements oil states international inc subsidiaries notes consolidated financial statementscontinued condensed consolidating statements cash flows index financial statements exhibit index financial statements index financial statements index financial statements index financial statements filed herewith management contracts compensatory plans arrangements furnished herewithitem 15 exhibits financial statement schedules index financial statements financial statement schedules exhibits 1 financial statements reference made index set forth page 63 annual report form 10k 2 financial statement schedules included herein information required submitted included consolidated financial statements notes thereto required information inapplicable 3 index exhibits see index exhibits list exhibits filed herewith index also includes identifies management contracts compensatory plans arrangements required filed exhibits annual report form 10k item 601 regulation sk b index exhibits 57 58 59 60 filed herewith management contracts compensatory plans arrangements furnished herewith 61 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized february 23 2015 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 23 2014 signature title stephen wells chairman board stephen wells cindy b taylor director president chief executive officer cindy b taylor principal executive officer lloyd hajdik senior vice president chief financial officer lloyd hajdik treasurer principal financial officer robert w hampton senior vice president accounting corporate secretary robert w hampton principal accounting officer lawrence r dickerson director lawrence r dickerson james nelson jr director james nelson jr mark g papa director mark g papa gary l rosenthal director gary l rosenthal christopher seaver director christopher seaver william van kleef director william van kleef lloyd hajdik lloyd hajdik pursuant power attorney filed exhibit 241 annual report form 10k 62 oil states international inc subsidiaries index consolidated financial statements 63 oil states international inc subsidiaries report independent registered public accounting firm board directors stockholders oil states international inc audited accompanying consolidated balance sheets oil states international inc subsidiaries december 31 2014 2013 related consolidated statements income comprehensive income stockholders’ equity cash flows three years period ended december 31 2014 financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position oil states international inc subsidiaries december 31 2014 2013 consolidated results operations cash flows three years period ended december 31 2014 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states oil states international inc subsidiaries’ internal control financial reporting december 31 2014 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission 2013 framework report dated february 23 2015 expressed unqualified opinion thereon ernst young llp houston texas february 23 2015 64 oil states international inc subsidiaries report independent registered public accounting firm board directors stockholders oil states international inc audited oil states international inc subsidiaries’ internal control financial reporting december 31 2014 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission 2013 framework coso criteria oil states international inc subsidiaries’ management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s annual report internal control financial reporting responsibility express opinion company’s internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk performing procedures considered necessary circumstances believe audit provides reasonable basis opinion company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion oil states international inc subsidiaries maintained material respects effective internal control financial reporting december 31 2014 based coso criteria also audited accordance standards public company accounting oversight board united states consolidated balance sheets oil states international inc subsidiaries december 31 2014 2013 related consolidated statements income comprehensive income stockholders’ equity cash flows three years period ended december 31 2014 report dated february 23 2015 expressed unqualified opinion thereon ernst young llp houston texas february 23 2015 65 oil states international inc subsidiaries consolidated statements income thousands except per share amounts accompanying notes integral part financial statements 66 oil states international inc subsidiaries consolidated statements comprehensive income thousands accompanying notes integral part financial statements 67 oil states international inc subsidiaries consolidated balance sheets thousands except share amounts accompanying notes integral part financial statements 68 oil states international inc subsidiaries consolidated statements stockholders equity thousands accompanying notes integral part financial statements 69 oil states international inc subsidiaries consolidated statements cash flows thousands accompanying notes integral part financial statements 70 oil states international inc subsidiaries notes consolidated financial statements 1 organization basis presentation consolidated financial statements include accounts oil states international inc oil states company consolidated subsidiaries investments unconsolidated affiliates company able exercise significant influence accounted using equity method significant intercompany accounts transactions company consolidated subsidiaries eliminated accompanying consolidated financial statements may 30 2014 completed spinoff accommodations business standalone publicly traded corporation civeo corporation civeo results operations accommodations business classified discontinued operations periods presented see note 2 consolidated financial statements included annual report form 10k additional information unless otherwise indicated disclosures amounts notes consolidated financial statements relate company’s continuing operations september 2013 company entered stock purchase agreement marubeniitochu tubulars america inc marubeniitochu sale sooner inc subsidiaries sooner comprised entirety company’s tubular services segment results operations tubular services segment classified discontinued operations periods presented company subsidiaries leading provider specialty products services oil gas companies throughout world operate substantial number worlds active oil natural gas producing regions onshore offshore us canada west africa north sea south america southeast central asia company operates two principal reportable business segments offshore products well site services 2 spinoff accommodations business civeo may 30 2014 completed spinoff civeo standalone publicly traded corporation taxfree distribution civeo shares company’s shareholders spinoff close new york stock exchange may 30 2014 distribution date stockholders record oil states common stock 500 pm eastern time may 21 2014 record date received two shares civeo common stock share oil states common stock held record date following distribution date oil states ceased shares civeo common stock objectives spinoff allow respective management team effectively focus two distinct businesses allow company civeo opportunity pursue tailored aggressive growth strategies optimization operating efficiencies company civeo among objectives connection spinoff received private letter ruling internal revenue service taxfree status spinoff connection spinoff refinanced existing debt specifically june 2014 commenced completed tender offers outstanding 5 18 senior notes due 2023 5 18 notes 6 12 senior notes due 2019 6 12 notes tender offers funded part proceeds 750 million special cash dividend paid us civeo connection spinoff 750 million dividend received civeo partially offset 299 million cash transferred civeo connection spinoff see note 11 consolidated financial statements included annual report form 10k additional information regarding tender offers new credit facility order effect spinoff govern relationship civeo spinoff entered separation distribution agreement indemnification release agreement tax sharing agreement employee matters agreement transition services agreement separation distribution agreement governed spinoff distribution civeo’s shares common stock stockholders transfer assets intellectual property matters related relationship civeo indemnification release agreement provides crossindemnities company civeo established procedures handling claims subject indemnification related matters evaluated impact indemnifications given civeo indemnifications received spinoff date concluded fair values immaterial 71 oil states international inc subsidiaries notes consolidated financial statements continued tax sharing agreement governs respective rights responsibilities obligations company civeo respect payment taxes filing tax returns reimbursements taxes control audits matters regarding taxes addition tax sharing agreement reflects company’s rights obligations related taxes attributable periods prior including spinoff date taxes resulting transactions effected connection spinoff general tax sharing agreement company responsible us federal state local foreign income taxes attributable company subsidiaries tax period begins date spinoff civeo responsible taxes attributable subsidiaries whether accruing spinoff addition tax sharing agreement imposes certain restrictions civeo subsidiaries including restrictions share issuances business combinations sales assets similar transactions designed preserve taxfree status spinoff certain related transactions employee matters agreement governs company’s civeo’s compensation employee benefit obligations respect current former employees nonemployee directors company generally allocates liabilities responsibilities relating employee compensation benefit plans programs provides treatment outstanding equity compensation awards programs company employee matters agreement provides civeo generally responsible liabilities obligations relating employees former employees company’s accommodations business including obligations pursuant collective bargaining employment agreements civeo employee company addition employee matters agreement provides employees civeo cease active participation benefit plans sponsored company employee matters agreement sets forth general principles relating employee matters also addresses special circumstances transition period employee matters agreement also provides spinoff constitute change control existing plans programs agreements arrangements ii spinoff assignment transfer continuation employment employees another entity constitute severance event applicable plans programs agreements arrangements transition services agreement company providing andor making available various administrative services assets civeo period nine months beginning distribution date spinoff possible extension one month aggregate ten months services include information technology services treasury services internal audit services tax services legal services risk management services accounting services consideration services civeo paying fees company services provided fees generally amounts intended allow company recover direct indirect costs incurred providing services 72 oil states international inc subsidiaries notes consolidated financial statements continued carrying values major categories assets liabilities civeo reflected consolidated balance sheet december 31 2013 follows thousands see note 8 consolidated financial statements included annual report form 10k selected financial information regarding results operations accommodations business reported discontinued operations 3 summary significant accounting policies cash equivalents company considers highly liquid investments purchased original maturity three months less cash equivalents fair value financial instruments company’s financial instruments consist cash equivalents investments receivables payables bank debt foreign currency forward contracts company believes carrying values instruments accompanying consolidated balance sheets approximate fair values fair values company’s 6 12 notes 5 18 notes estimated based quoted prices analysis similar instruments level 2 fair value measurements december 31 2013 carrying values fair values notes follows thousands 73 oil states international inc subsidiaries notes consolidated financial statements continued inventories consist oilfield products manufactured equipment spare parts manufactured equipment workinprocess inventories also include raw materials labor subcontractor charges manufacturing overhead supplies carried lower cost market cost inventories determined average cost specificidentification method reserve excess damaged andor obsolete inventory maintained based age turnover condition inventory property plant equipment property plant equipment stated cost estimated fair market value acquisition date acquired business combination depreciation computed assets owned recorded capital lease using straightline method allowing salvage value applicable estimated useful lives assets use component depreciation method drilling services assets leasehold improvements capitalized amortized lesser life lease estimated useful life asset expenditures repairs maintenance charged expense incurred expenditures major renewals betterments extend useful lives existing equipment capitalized depreciated upon retirement disposition property equipment cost related accumulated depreciation removed accounts resulting gain loss recognized statements income goodwill intangible assets goodwill represents excess purchase price paid acquired businesses allocated fair value related net assets impairments applicable significant portion goodwill accumulated amortization balance december 31 2013 related accommodations business transferred civeo date spinoff see note 2 spinoff accommodations business civeo additional information spinoff evaluate goodwill impairment annually event occurs circumstances change suggest carrying amount may recoverable reporting units goodwill december 31 2014 include offshore products completion services part goodwill impairment analysis current accounting standards give us option first perform qualitative assessment determine whether likely likelihood 50 percent fair value reporting unit less carrying amount including goodwill determined likely fair value reporting unit greater carrying amount performing currently prescribed twostep impairment test unnecessary developing qualitative assessment meet “morelikelythannot” threshold reporting unit goodwill balance sheet assessed separately different relevant events circumstances evaluated unit determined likely fair value reporting unit less carrying amount prescribed twostep impairment test performed current accounting standards also give us option bypass qualitative assessment reporting unit period proceed directly performing first step twostep goodwill impairment test 2014 chose bypass qualitative assessment reporting units goodwill remaining perform twostep impairment test given stock value declines energy sector performing twostep impairment test estimate implied fair value ifv reporting unit compare ifv carrying value unit utilize depending circumstances combination trading multiples analyses discounted projected cash flow calculations estimated terminal values acquisition comparables estimate ifv discount projected cash flows using longterm weighted average cost capital reporting unit based estimate investment returns would required market participant part process assess goodwill impairment also compare total market capitalization company sum ifvs reporting units assess reasonableness ifvs aggregate carrying amount reporting unit exceeds ifv goodwill considered potentially impaired additional analysis accordance current accounting standards conducted determine amount impairment conduct annual impairment test december year 2012 2013 2014 goodwill impairment tests indicated fair value reporting units greater carrying amount 74 oil states international inc subsidiaries notes consolidated financial statements continued intangible assets amortize review useful life intangible asset evaluate reporting period whether events circumstances warrant revision remaining useful life based company’s review carrying values intangible assets recoverable impairment losses recorded periods presented see note 10 goodwill intangible assets impairment longlived assets recoverability carrying values longlived assets asset group level including finitelived intangible assets assessed whenever managements judgment events changes circumstances indicate carrying value asset groups may recoverable based estimated future cash flows assessment indicates carrying values recoverable determined based undiscounted cash flows remaining useful lives impairment loss recognized impairment loss equals excess carrying value fair value asset group fair value asset group based prices similar assets available discounted cash flows based companys review carrying values asset groups recoverable impairment losses recorded periods presented foreign currency comprehensive income gains losses resulting balance sheet translation foreign operations foreign currency functional currency included separate component accumulated comprehensive income within stockholders equity representing substantially balances within accumulated comprehensive income remeasurements intercompany loans denominated different currency functional currency entity longterm investment nature recognized comprehensive income within stockholders’ equity gains losses resulting balance sheet remeasurements assets liabilities denominated different currency functional currency intercompany loans longterm investment nature included consolidated statements income incurred foreign currency exchange rate risk portion revenues earnings net investments foreign affiliates exposed changes foreign currency exchange rates seek manage foreign exchange risk part operational means including managing expected local currency revenues relation local currency costs local currency assets relation local currency liabilities order reduce exposure fluctuations currency exchange rates may enter foreign exchange agreements financial institutions december 31 2014 2013 outstanding foreign currency forward purchase contracts notional amounts 54 million 74 million respectively related expected cash flows denominated euros result contracts recorded comprehensive income 04 million year ended december 31 2013 09 million foreign exchange loss related amounts reclassified accumulated comprehensive loss expense income statement year ended december 31 2013 foreign exchange losses associated continuing operations totaled 04 million 2014 16 million 2013 22 million 2012 included “other operating expense” 75 oil states international inc subsidiaries notes consolidated financial statements continued revenue cost recognition revenue sale products accounted utilizing percentageofcompletion method recognized delivery acceptance customer occurred title significant risks ownership passed customer collectability probable pricing fixed determinable product sales terms include significant postdelivery obligations significant projects revenues recognized percentageofcompletion method measured percentage costs incurred date compared estimated total costs contract costtocost method billings contracts excess costs incurred estimated profits classified deferred revenue costs incurred estimated profits excess billings percentageofcompletion contracts recognized unbilled receivables management believes method appropriate measure progress large contracts provisions estimated losses uncompleted contracts made period losses determined factors may affect future project costs margins include shipyard access weather production efficiencies availability costs labor materials subcomponents factors significantly impact accuracy company’s estimates materially impact company’s future reported earnings well site services segment revenues recognized based periodic usually daily rate services rendered proceeds customers cost oilfield rental equipment damaged lost downhole reflected gains losses disposition assets considering writeoff remaining net book value equipment drilling services contracts based footage drilled recognize revenues footage drilled revenues exclude taxes assessed based revenues sales value added taxes cost goods sold includes direct material labor costs related contract performance indirect labor supplies tools repairs selling general administrative costs charged expense incurred income taxes company follows liability method accounting income taxes accordance current accounting standards regarding accounting income taxes method deferred income taxes recorded based upon differences financial reporting tax bases assets liabilities measured using enacted tax rates laws effect time underlying assets liabilities recovered settled companys earnings foreign subsidiaries considered indefinitely reinvested provision us income taxes made earnings subsidiaries distribution earnings form dividends otherwise company would subject us income taxes subject adjustment foreign tax credits withholding taxes payable various foreign countries company records valuation allowance reporting period management believes likely deferred tax asset created realized management continue evaluate appropriateness valuation allowance future based upon operating results company calculation tax liabilities involves accessing uncertainties regarding application complex tax regulations recognize liabilities tax expenses based estimate whether extent additional taxes due ultimately determine payment amounts unnecessary reverse liability recognize tax benefit period determine liability longer necessary record additional charge provision taxes period determine recorded tax liability less expect ultimate assessment 76 oil states international inc subsidiaries notes consolidated financial statements continued discontinued operations operating results component business either disposed classified held sale presented discontinued operations following conditions met operations cash flows component eliminated ongoing operations result disposal transaction b significant continuing involvement operations disposed component consider component business one comprises operations cash flows clearly distinguished operationally financial reporting purposes rest business receivables concentration credit risk based nature customer base company believe significant concentrations credit risk concentration worldwide oil gas industry company evaluates creditworthiness significant new existing customers financial condition generally company require significant collateral customers allowances doubtful accounts company maintains allowances doubtful accounts estimated losses resulting inability companys customers make required payments trade receivable deemed uncollectible receivable chargedoff allowance doubtful accounts company considers following factors determining collection revenue reasonably assured customer creditworthiness past transaction history customer solvency changes customer payment terms company previous experience customer company typically obtains reports various credit organizations ensure customer history paying creditors company may also request financial information including financial statements documents ensure customer means making payment factors indicate collection reasonably assured company would require prepayment arrangement support revenue recognition recording trade receivable financial condition companys customers deteriorate adversely affecting ability make payments additional allowances would required earnings per share diluted eps amounts include effect companys outstanding stock options restricted stock shares treasury stock method shares restricted stock issued outstanding remain subject vesting requirements holders shares unvested restricted stock entitled liquidation dividend rights holders outstanding common stock thus considered participating securities applicable accounting guidance undistributed earnings period allocated based participation rights common shareholders holders participating securities earnings respective periods distributed liquidation dividend rights identical undistributed earnings allocated proportionate basis required compute earnings per share eps amounts two class method periods earnings continuing operations presentation basic eps amounts face accompanying consolidated statements operations computed dividing net income applicable company’s common shareholders weighted average shares outstanding common stock calculation diluted eps similar basic eps except denominator includes dilutive common stock equivalents income included numerator excludes effects impact dilutive common stock equivalents addition conversion july 2012 shares 2 38 contingent convertible senior subordinated notes 2 38 notes assumed issued upon conversion included calculation fully diluted shares outstanding fully diluted earnings per share weighted average number shares totaled 1793244 year ended december 31 2012 77 oil states international inc subsidiaries notes consolidated financial statements continued stockbased compensation fair value share based payments estimated using optionpricing models based grantdate fair value award resulting cost recognized period employee required provide service exchange awards usually vesting period addition service based awards 2014 2013 2012 company also issued performance based awards may vest amount depend company’s achievement specified performance objectives performance based awards performance criteria measured based upon company’s achievement levels average aftertax annual return invested capital years ended december 31 2014 2013 2012 continuing operations company recognized noncash general administrative expenses stock options restricted stock awards totaling 256 million 225 million 152 million respectively pursuant employee matters agreement see note 2 spinoff accommodations business civeo made certain adjustments exercise price number stock based compensation awards intention preserving intrinsic value awards immediately prior spinoff outstanding unvested restricted stock award outstanding stock option company whether exercisable held current former employee company director company director civeo immediately prior spinoff adjusted holder received additional number restricted stock awards stock options company common stock based calculated ratio outstanding stock options per share exercise price adjusted factor equal per share exercise price option prior spinoff divided calculated ratio calculated ratio obtained dividing prespinoff price company’s common stock postspinoff price company’s common stock outstanding unvested restricted stock award outstanding stock option company whether exercisable held current employee civeo immediately prior spinoff cancelled holder received number restricted stock awards stock options civeo common stock adjustments stock based compensation awards result additional compensation expense equitable adjustment required made result spinoff result spinoff conversions outstanding equity awards resulted issuance additional 452981 restricted stock awards 395454 additional stock options shares available future awards equity plan increased 1876109 shares adjust lower postspinoff stock price company connection september 2013 sale tubular services business sooner modifications made outstanding equity options awards sooner employees resulted 44 million expense recognized expense included “net income discontinued operations net tax” consolidated statement income year ended december 31 2013 included transaction costs considered calculation 1284 million pretax gain disposal sooner guarantees product sales offshore products businesses sold warranty generally ranging 12 18 months parts labor covered terms warranty agreement warranty provisions estimated based upon historical experience product configuration geographic region total liability related estimated warranties continuing operations 28 million 22 million december 31 2014 2013 respectively ordinary course business company also provides standby letters credit guarantee instruments certain parties required certain transactions initiated either company subsidiaries december 31 2014 maximum potential amount future payments company could required make guarantee agreements letters credit approximately 429 million company recorded liability connection guarantee arrangements company believe based historical experience information currently available likely amounts required paid guarantee arrangements 78 oil states international inc subsidiaries notes consolidated financial statements continued use estimates preparation consolidated financial statements conformity accounting principles generally accepted united states requires use estimates assumptions management determining reported amounts assets liabilities disclosures contingent assets liabilities date consolidated financial statements reported amounts revenues expenses reporting period examples estimates include potential future adjustments result contingent consideration arrangements pursuant business combinations contractual agreements revenue income recognized percentageofcompletion method valuation allowance recorded net deferred tax assets warranty reserves inventory allowance doubtful accounts actual results could materially differ estimates accounting contingencies contingent liabilities future claims made estimates amount eventual cost liquidate liabilities claims liabilities claims sometimes involve threatened actual litigation damages quantified made assessment exposure recorded provision accounts cover expected loss claims liabilities estimated based fair value experience matters appropriate advice outside counsel outside experts upon ultimate resolution uncertainties future reported financial results impacted difference estimates actual amounts paid settle liability examples areas made important estimates future liabilities include future consideration due sellers result terms business combination litigation taxes interest insurance claims warranty claims contract claims obligations discontinued operations subsequent events accordance authoritative guidance company evaluates events transactions occur balance sheet date financial statements issued possible recognition disclosure see note 20 subsequent events 79 oil states international inc subsidiaries notes consolidated financial statements continued 4 details selected balance sheet accounts additional information regarding selected balance sheet accounts december 31 2014 2013 presented thousands significant portion accounts receivable 1778 million inventories 298 million property plant equipment 13 billion accrued liabilities 252 million december 31 2013 related accommodations business transferred civeo date spinoff see note 2 spin accommodations business civeo additional information spinoff depreciation expense continuing operations 1177 million 1042 million 860 million years ended december 31 2014 2013 2012 respectively 5 recent accounting pronouncements time new accounting pronouncements issued financial accounting standards board fasb adopted company specified effective date unless otherwise discussed management believes impact recently issued standards yet effective material impact company’s consolidated financial statements upon adoption 80 oil states international inc subsidiaries notes consolidated financial statements continued april 2014 fasb issued guidance reporting discontinued operations amends definition types asset disposals considered discontinued operations amends required disclosures discontinued operations assets held sale amendments update effective fiscal periods beginning december 15 2014 interim periods within annual periods beginning december 15 2015 company currently evaluating impact standard consolidated financial statements standard early adopted connection spinoff may 2014 fasb issued guidance revenue contracts customers supersede current revenue recognition guidance including industryspecific guidance underlying principle entity recognize revenue depict transfer goods services customers amount entity expects entitled exchange goods services guidance provides fivestep analysis transactions determine revenue recognized major provisions include capitalization certain contract costs consideration time value money transaction price allowing estimates variable consideration recognized contingencies resolved certain circumstances guidance also requires enhanced disclosures regarding nature amount timing uncertainty revenue cash flows arising entity’s contracts customers guidance effective interim annual periods beginning december 15 2016 early adoption permitted guidance permits use either retrospective cumulative effect transition method yet selected transition method currently evaluating impact amended guidance consolidated financial position results operations related disclosures november 2014 fasb issued guidance business combinations provides acquired entity option apply pushdown accounting separate financial statements upon occurrence event acquirer obtains control acquired entity acquired entity may elect option apply pushdown accounting reporting period changeincontrol event occurs subsequent reporting period acquired entity’s recent changeincontrol event guidance effective november 18 2014 implementation standard effect company’s consolidated financial statements 6 accumulated comprehensive loss accumulated comprehensive loss decreased 857 million december 31 2013 221 million december 31 2014 primarily result spinoff civeo see note 2 spinoff accommodations business civeo additional information prior spinoff accumulated comprehensive loss primarily related fluctuations canadian australian dollar exchange rates compared us dollar canadian australian operations primarily related accommodations business subsequent spinoff accumulated comprehensive loss primarily related fluctuations foreign currency exchange rates compared us dollar foreign operations offshore products segment primarily united kingdom brazil thailand 7 acquisitions supplemental cash flow information components cash used acquisitions related continuing operations reflected consolidated statements cash flows years ended december 31 2013 2012 summarized follows thousands 81 oil states international inc subsidiaries notes consolidated financial statements continued december 2 2013 acquired operating assets quality connector systems llc qcs total cash consideration 423 million headquartered houston texas qcs designs manufactures markets portfolio proprietary deep shallow water pipeline connectors subsea pipeline construction repair expansion projects operations qcs included offshore products segment since acquisition date december 14 2012 acquired equity tempress technologies inc tempress purchase price consideration 528 million headquartered kent washington tempress designs develops markets suite highly specialized hydraulicallyactivated tools utilized downhole completion activities operations tempress included well site services segment since acquisition date july 2 2012 acquired operating assets piper valve systems ltd piper total cash consideration 480 million headquartered oklahoma city oklahoma piper designs manufactures high pressure valves manifold components oil gas industry projects offshore surface subsea onshore pipers valve technology complements offshore products segment allowing us integrate valve products services existing subsea products pipeline end manifolds terminals increasing suite global deepwater product service offerings operations piper included offshore products segment since acquisition date company funded acquisitions cash hand andor amounts available credit facilities see note 11 longterm debt additional information senior secured credit facilities supplemental cash flow information cash paid years ended december 31 2014 2013 2012 interest income taxes continuing operations follows thousands 8 discontinued operations may 30 2014 completed spinoff accommodations business civeo corporation company’s stockholders may 30 2014 stockholders record oil states common stock close business record date received two shares civeo common stock share oil states common stock held record date following distribution date oil states ceased shares civeo common stock september 6 2013 company entered stock purchase agreement marubeniitochu sale sooner comprised entirety company’s tubular services segment total consideration received company 600 million recognized net gain disposal 1284 million 840 million aftertax 2013 included within “net income discontinued operations net tax” connection transactions parties entered transition services agreements company provide certain information technology applications infrastructure various administrative services civeo sooner transition period exchange monthly service fees transition services agreement company sooner expired february 28 2014 transition services agreement company civeo period nine months beginning distribution date spinoff possible extension one month aggregate ten months cash flows disposed businesses company resulting transition services agreements significant dodid constitute significant continuing involvement civeo sooner 82 oil states international inc subsidiaries notes consolidated financial statements continued civeo sooner previously presented separate reporting segments meet criteria reported discontinued operations reclassified continuing operations discontinued operations 2014 reflect operating results civeo distribution date adjustments related revaluation outstanding equity awards options previously awarded sooner employees discontinued operations 2013 2012 reflect operating results civeo sooner connection spinoff holders 5 18 notes 6 12 notes right require company repurchase notes allocated portion interest expense related outstanding 5 18 notes 6 12 notes discontinued operations based ratio net assets accommodations business total net assets company excluding consolidated debt year ended december 31 2014 2013 2012 allocated 137 million 310 million 107 million interest expense related outstanding 5 18 notes 6 12 notes discontinued operations june 2014 commenced completed tender offers outstanding 5 18 notes 6 12 notes redeemed remaining notes tendered connection spinoff see note 11 longterm debt additional information regarding tender offers following table provides components net income discontinued operations net tax operating segment thousands 1284 million 840 million aftertax net gain related disposal sooner excluded 83 oil states international inc subsidiaries notes consolidated financial statements continued 9 earnings per share eps numerator income denominator shares used computation basic diluted earnings per share continuing operations follows thousands calculation diluted earnings per share years ended december 31 2014 2013 2012 excluded 224739 shares 263838 shares 399134 shares respectively issuable pursuant outstanding stock options restricted stock awards due antidilutive effect 10 goodwill intangible assets company tests impairment using fair value approach reporting unit level reporting unit operating segment business one level operating segment component level discrete financial information prepared regularly reviewed management component level company two reporting units goodwill december 31 2014 goodwill allocated reporting units based actual acquisitions made company subsidiaries company recognizes impairment loss amount carrying amount reporting units goodwill exceeds reporting units ifv goodwill initial qualitative assessment potential goodwill impairment indicates likely fair value reporting unit less carrying amount including goodwill company uses appropriate current circumstance comparative market multiples discounted cash flow calculations acquisition comparables establish reporting units fair value level 3 fair value measurement 84 oil states international inc subsidiaries notes consolidated financial statements continued company amortizes cost intangibles estimated useful lives unless lives deemed indefinite amortizable intangible assets reviewed impairment indicators impairment based undiscounted cash flows impaired written fair value based either discounted cash flows appraised values intangible assets indefinite lives tested impairment annually comparing fair value indefinitelived intangible asset carrying value measurement impairment based excess carrying value fair value december 31 2014 provision impairment intangible assets required changes carrying amount goodwill years ended december 31 2014 2013 follows thousands 85 oil states international inc subsidiaries notes consolidated financial statements continued following table presents total amount intangibles assigned total accumulated amortization major intangible asset classes december 31 2014 2013 thousands significant portion intangible assets 757 million december 31 2013 related accommodations business transferred civeo date spinoff see note 2 spin accommodations business civeo additional information spinoff weighted average remaining amortization period intangible assets goodwill indefinite lived intangibles 36 years december 31 2014 89 years december 31 2013 total amortization expense expected 63 million 2015 62 million 2016 61 million 2017 59 million 2018 57 million 2019 amortization expense continuing operations 70 million 51 million 27 million years ended december 31 2014 2013 2012 respectively 11 longterm debt december 31 2014 2013 longterm debt consisted following thousands 86 oil states international inc subsidiaries notes consolidated financial statements continued scheduled maturities combined longterm debt december 31 2014 follows thousands companys capital leases consist primarily plant facilities equipment value capitalized leases related accumulated depreciation totaled 15 million 07 million respectively december 31 2014 value capitalized leases related accumulated depreciation totaled 17 million 06 million respectively december 31 2013 credit facility connection spinoff company terminated existing bank credit facility may 28 2014 entered new 600 million senior secured revolving credit facility company option increase maximum borrowings revolving credit facility 750 million subject additional lender commitments prior maturity may 28 2019 credit facility governed credit agreement dated may 28 2014 credit agreement among company lenders party thereto wells fargo bank na administrative agent swing line lender issuing bank royal bank canada syndication agent compass bank documentation agent amounts outstanding revolving credit facility bear interest libor plus margin 150 250 base rate plus margin 050 150 case based ratio company’s total leverage ebitda defined credit agreement may 28 2014 december 31 2014 applicable margin libor 150 must also pay quarterly commitment fee based leverage ratio unused commitments credit agreement unused commitment fee 0375 period may 28 2014 december 31 2014 credit agreement contains customary financial covenants restrictions specifically must maintain interest coverage ratio defined ratio consolidated ebitda consolidated interest expense least 30 10 maximum leverage ratio defined ratio total debt consolidated ebitda greater 325 10 factors considered calculations ratios defined credit agreement ebitda consolidated interest exclude goodwill impairments debt discount amortization noncash charges december 31 2014 compliance debt covenants borrowings credit agreement secured pledge substantially assets domestic subsidiaries obligations credit agreement guaranteed significant domestic subsidiaries credit facility also contains negative covenants limit companys ability borrow additional funds encumber assets pay dividends sell assets enter significant transactions companys credit facilities occurrence specified change control events involving company would constitute event default would permit banks among things accelerate maturity facilities cause become immediately due payable full december 31 2014 1407 million outstanding credit agreement additional 355 million outstanding letters credit leaving 4238 million available drawn credit facility december 31 2014 company approximately 533 million cash equivalents 5 18 senior unsecured notes december 21 2012 company sold 400 million aggregate principal amount 5 18 senior notes due 2023 5 18 notes private placement qualified institutional buyers fourth quarter 2013 company repurchased 340 million aggregate principal amount 5 18 notes connection spinoff repurchased remaining 3660 million aggregate principal amount second quarter 2014 primarily tender offer tender offer funded proceeds 750 million special cash dividend paid us civeo connection spinoff borrowings new credit agreement available cash hand 87 oil states international inc subsidiaries notes consolidated financial statements continued 6 12 senior unsecured notes june 1 2011 company sold 600 million aggregate principal amount 6 12 senior notes due 2019 6 12 notes private placement qualified institutional buyers connection spinoff company repurchased 6000 million aggregate principal amount 6 12 notes second quarter 2014 primarily tender offer tender offer funded proceeds 750 million special cash dividend paid us civeo connection spinoff borrowings new credit agreement available cash hand loss extinguishment debt 2014 recognized losses extinguishment debt totaling 1004 million primarily due repurchase remaining 6 12 notes 5 18 notes second quarter resulted loss 967 million consisting premium paid book value notes writeoff unamortized deferred financing costs associated notes premium paid repurchase 6 12 5 18 notes due fair market value exceeding book value date tendered redeemed addition result refinancing existing credit facility second quarter 2014 recognized loss extinguishment 37 million net 18 million allocated discontinued operations canadian portion facility writeoff unamortized deferred financing costs 2013 recognized loss extinguishment debt totaling 62 million repurchase portion 5 18 notes fourth quarter 2013 resulting loss 41 million including writeoff 04 million unamortized deferred financing costs additionally wrote 21 million unamortized deferred financing costs associated full repayment us term loan pursuant rule 310 regulation sx company past periodic reports including annual report form 10k year ended december 31 2013 included footnote financial statements condensed consolidating financial information company whollyowned guarantor subsidiaries combined basis nonwholly owned guarantor subsidiaries combined basis nonguarantor subsidiaries combined basis consolidating adjustments total consolidated amounts given repurchase outstanding 5 18 notes 6 12 notes june 30 2014 company longer required present expanded information respect guarantor nonguarantor subsidiaries 12 stock repurchase program september 6 2013 company announced increase boardauthorized company stock repurchase program 200 million 500 million providing repurchase company’s common stock par value 01 per share board directors’ authorization limited duration set expire september 1 2014 august 20 2014 board directors authorized extension authorized company stock repurchase program set expire september 1 2015 subject applicable securities laws purchases times amounts company deems appropriate december 31 2014 total 3501 million stock 4228530 shares repurchased program subsequent end year february 20 2015 repurchased additional 700 million stock 1619832 shares open market transactions pursuant 10b51 agreement entered prior december 31 2014 amount remaining current share repurchase authorization february 20 2015 approximately 799 million 13 retirement plans company sponsors defined contribution plans participation plans available substantially employees continuing operations company recognized expense 130 million 97 million 96 million respectively related matching contributions various defined contribution plans years ended december 31 2014 2013 2012 respectively 88 oil states international inc subsidiaries notes consolidated financial statements continued 14 income taxes consolidated income continuing operations income taxes years ended december 31 2014 2013 2012 consisted following thousands components income tax provision benefit years ended december 31 2014 2013 2012 consisted following thousands reconciliation federal statutory tax rate effective tax rate years ended december 31 2014 2013 2012 follows 89 oil states international inc subsidiaries notes consolidated financial statements continued significant items giving rise deferred tax assets liabilities december 31 2014 2013 follows thousands companys deferred tax balance based net current items net noncurrent items december 31 2014 2013 follows thousands analysis deferred tax assets liabilities detailed december 31 2013 relate continuing discontinued operations significant portion net deferred tax balances 677 million december 31 2013 related accommodations business transferred civeo date spinoff see note 2 spin accommodations business civeo additional information spinoff primary deferred tax assets december 31 2014 related foreign tax credit carryforwards employee benefit costs equity participation plan allowance inventory obsolescence foreign tax credits expire varying amounts 2019 december 31 2014 company foreign nol’s carryforward 06 million 12 million 64 million india thailand brazil respectively nol’s carryforward thailand india expire 2019 2022 respectively nol’s carryforward brazil carried indefinitely appropriate us foreign income taxes provided earnings foreign subsidiary companies expected remitted future cumulative amount undistributed earnings foreign subsidiaries company intends indefinitely reinvest upon foreign taxes accrued paid deferred us income taxes provided 2305 million december 31 2014 majority generated uk singapore upon distribution earnings form dividends otherwise company may subject us income taxes subject adjustment foreign tax credits foreign withholding taxes practical however estimate amount taxes may payable eventual remittance earnings consideration available foreign tax credits 90 oil states international inc subsidiaries notes consolidated financial statements continued company files tax returns jurisdictions required returns subject examination audit possible adjustment result assessments taxing authorities company believes recorded sufficient tax liabilities expect resolution examination audit tax returns would material adverse effect operating results financial condition liquidity tax years subsequent 2010 remain open us federal tax audit nols utilized company years 1994 2002 remain subject federal tax audit respect nols available tax carryforward canadian subsidiaries federal tax returns subsequent 2009 subject audit canada revenue agency account uncertain tax positions using recognition threshold measurement attribute financial statement recognition measurement tax positions taken expected taken tax return benefits recognized tax position must morelikelythannot sustained upon examination taxing authorities amount recognized measured largest amount benefit greater 50 percent likely realized upon ultimate settlement total amount unrecognized tax benefits december 31 2014 nil total amount unrecognized tax benefits december 31 2013 08 million balance related accommodations business distributed civeo time spinoff company accrues interest penalties related unrecognized tax benefits component companys provision income taxes december 31 2014 2013 company accrued nil 01 million respectively interest expense penalties reconciliation beginning ending amount unrecognized tax benefits follows thousands 91 oil states international inc subsidiaries notes consolidated financial statements continued 15 commitments contingencies company leases portion equipment office space computer equipment automobiles trucks leases expire various dates minimum future operating lease obligations effect december 31 2014 follows thousands rental expense operating leases continuing operations 115 million 123 million 112 million years ended december 31 2014 2013 2012 respectively ordinary course conducting business become involved litigation claims private party actions well judicial administrative proceedings involving governmental authorities federal state local levels 2014 two lawsuits filed several current former employees federal court company one subsidiaries alleging violations fair labor standards act “flsa” plaintiffs’ seek damages penalties company’s alleged failure properly classify field service employees “nonexempt” flsa pay hourly basis including overtime plaintiffs’ seek recovery behalf seek certification class similarly situated employees investigating allegations plan vigorously defend litigation although give assurance outcome pending legal administrative proceedings effect outcomes may us believe ultimate liability resulting outcome proceedings material adverse effect consolidated financial position results operations liquidity 16 stockbased deferred compensation plans current accounting standards require companies measure cost employee services received exchange award equity instruments typically stock options based grantdate fair value award fair value estimated using optionpricing models resulting cost recognized period employee required provide service exchange awards usually vesting period pursuant employee matters agreement see note 2 spinoff accommodations business civeo made certain adjustments exercise price number stock based compensation awards intention preserving intrinsic value awards immediately prior spinoff outstanding unvested restricted stock award outstanding stock option company whether exercisable held current former employee company director company director civeo immediately prior spinoff adjusted holder received additional number restricted stock awards stock options company common stock based calculated ratio outstanding stock options per share exercise price adjusted factor equal per share exercise price option prior spinoff divided calculated ratio calculated ratio obtained dividing prespinoff price company’s common stock postspinoff price company’s common stock outstanding unvested restricted stock award outstanding stock option company whether exercisable held current employee civeo immediately prior spinoff cancelled holder received number restricted stock awards stock options civeo common stock adjustments stock based compensation awards result additional compensation expense equitable adjustment required made result spinoff result spinoff conversions outstanding equity awards resulted issuance additional 452981 restricted stock awards 395454 additional stock options shares available future awards equity plan increased 1876109 shares adjust lower postspinoff stock price company 92 oil states international inc subsidiaries notes consolidated financial statements continued stockbased compensation pretax expense continuing operations recognized years ended december 31 2014 2013 2012 totaled 256 million 225 million 152 million respectively stockbased compensation pretax expense discontinued operations recognized years ended december 31 2014 2013 2012 totaled 38 million 120 million 48 million respectively tables reflect activity continuing discontinued operations connection 2013 sale sooner modifications made outstanding equity options awards sooner employees resulted 44 million expense included “net income discontinued operations net tax” consolidated statement income year ended december 31 2013 included transaction costs considered calculation 1284 million pretax gain disposal sooner stock options fair value option grant estimated date grant using black scholes merton option pricing model uses assumptions noted following table riskfree interest rate based us treasury yield curve effect expected term option time grant dividend yield common stock assumed zero since pay dividends current plans future expected market price volatility common stock based estimate made us considers historical implied volatility common stock well peer group companies time period equal expected term option expected life options awarded 2014 2013 2012 based formula considering vesting period term options awarded past experience following table presents changes stock options outstanding related information year ended december 31 2014 weighted average fair values options granted 2014 2013 2012 3203 2831 3738 per share respectively options awarded 2014 term ten years granted exercise prices grant date closing market price total intrinsic value options exercised 2014 2013 2012 281 million 436 million 383 million respectively cash received company option exercises 2014 2013 2012 totaled 105 million 164 million 136 million respectively tax benefit realized tax deduction stock options exercised 2014 2013 2012 totaled 69 million 74 million 69 million respectively 93 oil states international inc subsidiaries notes consolidated financial statements continued following table summarizes information outstanding stock options outstanding december 31 2014 restricted stock awards following table presents changes restricted stock awards related information 2014 granted restricted stock awards totaling 294208 shares valued total 274 million restricted stock awards granted 2014 231000 awards vest four equal annual installments beginning february 2015 48900 awards performance based awards may vest december 2016 amount depend company’s achievement specified performance objectives 3000 awards vest 100 february 2015 10528 awards vest 100 may 2015 2014 performance based awards 48900 shares target performance level twoandahalfyear cliff vesting performance criteria measured based upon company’s achievement levels average aftertax annual return invested capital two half year period commencing july 1 2014 ending december 31 2016 weighted average grant date fair value per share restricted stock awards granted 2014 2013 2012 9309 8205 8446 respectively total fair value restricted stock awards vested 2014 2013 2012 272 million 187 million 161 million respectively december 31 2014 334 million total compensation costs related nonvested restricted stock awards yet recognized expected recognized weighted average period 2 years december 31 2014 total 2447745 shares available future grant equity participation plan 94 oil states international inc subsidiaries notes consolidated financial statements continued deferred compensation plan company maintains nonqualified deferred compensation plan deferred compensation plan permits eligible employees directors elect defer receipt portion directors’ fees andor salary annual bonuses employee contributions deferred compensation plan matched company percentage employee participant companys 401k retirement plan subject irs limitations matcheligible compensation deferred compensation plan also permits company make discretionary contributions employees account although none made date directors contributions matched company since inception plan discretionary contribution provision limited matching participants contributions basis equivalent matching permitted companys 401k retirement savings plan vesting contributions participants’ accounts also equivalent vesting requirements companys 401k retirement savings plan deferred compensation plan dollar limits taxdeferred contributions assets deferred compensation plan held rabbi trust therefore available satisfy claims companys creditors event bankruptcy insolvency company participants ability direct plan administrator invest assets individual accounts including discretionary contributions company ten preapproved mutual funds held trust cover variety securities mutual funds addition participants currently right request plan administrator reallocate portfolio investments ie cash mutual funds participants individual accounts within trust company contributions form cash distributions plan generally made upon participants termination director andor employee applicable company participants receive payments deferred compensation plan cash december 31 2014 trust assets totaled 145 million majority classified “other noncurrent assets” company’s consolidated balance sheet fair value investments based quoted market prices active markets level 1 fair value measurement amounts payable plan participants december 31 2014 including fair value shares companys common stock reflected treasury stock 148 million classified noncurrent liabilities consolidated balance sheet company accounts deferred compensation plan accordance current accounting standards regarding accounting deferred compensation arrangements amounts earned held rabbi trust invested accordance current accounting standards fair value fluctuations trust assets reflected consolidated statements income increases decreases value plan assets exclusive shares common stock company included compensation adjustments respective statements income increases decreases fair value deferred compensation liability including shares common stock company held trust recorded treasury stock also included compensation adjustments consolidated statements income response changes total fair value companys common stock held trust company recorded net compensation expense adjustments liability less 01 million 2014 05 million 2013 01 million 2012 17 segment related information accordance current accounting standards regarding disclosures segments enterprise related information company identified following reportable segments continuing operations well site services offshore products companys reportable segments represent strategic business units offer different products services managed separately business requires different technologies marketing strategies businesses initially acquired unit management time acquisition retained subsequent acquisitions direct extensions business segments separate business lines within well site services segment disclosed provide additional detail segment financial information business segment continuing operations three years ended december 31 2014 2013 2012 summarized following table thousands accounting policies segments described summary significant accounting policies 95 oil states international inc subsidiaries notes consolidated financial statements continued financial information geographic segment continuing operations three years ended december 31 2014 2013 2012 summarized thousands revenues united states include export sales revenues attributable countries based location entity selling products performing services total assets attributable countries based physical location entity operating assets include intercompany balances customers accounted 10 companys revenues years ended december 31 2014 2013 2012 equity net income unconsolidated affiliates included operating income 96 oil states international inc subsidiaries notes consolidated financial statements continued 18 valuation allowances activity valuation accounts continuing operations follows thousands 19 quarterly financial information unaudited following table summarizes quarterly financial information 2014 2013 thousands except per share amounts 1 represents revenues less product costs service costs included companys consolidated statements income 2 first quarter 2014 incurred 14 million 002 per diluted share aftertax thirdparty transaction costs continuing operations primarily related spinoff first quarter 2013 recognized gain 40 million 005 per diluted share aftertax continuing operations decrease liability associated contingent acquisition consideration completion services business 97 oil states international inc subsidiaries notes consolidated financial statements continued 3 second quarter 2014 recognized continuing operations pretax loss extinguishment debt 1004 million 122 per diluted share aftertax 96 million 011 per diluted share aftertax representing transaction costs primarily related spinoff second quarter 2013 recognized continuing operations charge 30 million 005 per diluted share increase contingent acquisition consideration completion services business incurred 15 million 002 per diluted share aftertax transaction costs primarily related spinoff 4 third quarter 2013 recognized net gain disposal tubular services segment 1286 million 151 per diluted share aftertax included within net income attributable discontinued operations addition third quarter 2013 recognized pretax loss extinguishment debt 33 million 004 per diluted share aftertax 21 million 003 per diluted share aftertax continuing operations 12 million 001 per diluted share aftertax discontinued operations incurred 26 million 003 per diluted share aftertax transaction costs continuing operations related spinoff 5 fourth quarter 2013 recognized pretax loss extinguishment debt continuing operations 62 million 007 per diluted share aftertax incurred 16 million 002 per diluted share aftertax transaction costs continuing operations primarily related spinoff amounts calculated independently quarters presented therefore sum quarterly amounts may equal total calculated year 20 subsequent events january 2 2015 acquired equity montgomery machine company inc mmc headquartered houston texas mmc combines machining proprietary cladding technology services manufacture highspecification components offshore capital equipment industry global basis believe acquisition mmc strengthen position offshore products segment supplier subsea components enhanced capabilities proprietary technology logistical advantages subject customary postclosing adjustments total transaction consideration 340 million funded amounts available company’s credit facility operations mmc included offshore products segment subsequent end year february 20 2015 repurchased additional 700 million stock 1619832 shares open market transactions pursuant 10b51 agreement entered prior december 31 2014 amount remaining current share repurchase authorization february 20 2015 approximately 799 million 98 item 15 exhibits financial statement schedules index financial statements financial statement schedules exhibits 1 financial statements reference made index set forth page 64 annual report form 10k 2 financial statement schedules included herein information required submitted included consolidated financial statements notes thereto required information inapplicable 3 index exhibits see index exhibits list exhibits filed herewith index also includes identifies management contracts compensatory plans arrangements required filed exhibits annual report form 10k item 601 regulation sk b index exhibits exhibit description 21 separation distribution agreement oil states international inc civeo corporation dated may 27 2014 incorporated reference exhibit 21 company’s current report form 8k filed commission june 2 2014 file 00116337 31 amended restated certificate incorporation incorporated reference exhibit 31 companys annual report form 10k year ended december 31 2000 filed commission march 30 2001 file 00116337 32 third amended restated bylaws incorporated reference exhibit 31 companys current report form 8k filed commission march 13 2009 file 00116337 33 certificate designations special preferred voting stock oil states international inc incorporated reference exhibit 33 companys annual report form 10k year ended december 31 2000 filed commission march 30 2001 file 00116337 41 form common stock certificate incorporated reference exhibit 41 companys registration statement form s1 filed commission november 7 2000 file 33343400 42 amended restated registration rights agreement incorporated reference exhibit 42 companys annual report form 10k year ended december 31 2000 filed commission march 30 2001 file 00116337 43 first amendment amended restated registration rights agreement dated may 17 2002 incorporated reference exhibit 43 companys annual report form 10k year ended december 31 2002 filed commission march 13 2003 file 00116337 44 third supplemental indenture dated may 29 2014 indenture dated june 1 2011 among oil states international inc guarantors named therein wells fargo bank na trustee incorporated reference exhibit 41 company’s current report form 8k filed commission june 2 2014 file 00116337 45 supplemental indenture dated may 29 2014 indenture dated december 21 2012 among oil states international inc guarantors named therein wells fargo bank na trustee incorporated reference exhibit 42 company’s current report form 8k filed commission june 2 2014 file 00116337 101 combination agreement dated july 31 2000 among oil states international inc hwc energy services inc merger subhwc inc sooner inc merger subsooner inc pti group inc incorporated reference exhibit 101 companys registration statement form s1 filed commission august 10 2000 file 33343400 102 second amended restated 2001 equity participation plan effective february 19 2013 incorporated reference exhibit 101 company’s quarterly report form 10q filed commission july 31 2013 file 00116337 103 deferred compensation plan effective january 1 2012 incorporated reference exhibit 101 companys quarterly report form 10q quarter ended march 31 2013 filed commission april 25 2013 file 00116337 104 annual incentive compensation plan incorporated reference exhibit 107 companys annual report form 10k year ended december 31 2000 filed commission march 30 2001 file 00116337 105 executive agreement oil states international inc cindy b taylor incorporated reference exhibit 109 companys annual report form 10k year ended december 31 2000 filed commission march 30 2001 file 00116337 106 form change control severance plan selected members management incorporated reference exhibit 1011 companys registration statement form s1 filed commission december 12 2000 file 33343400 107 credit agreement dated may 28 2014 among oil states international inc borrower lenders time party thereto wells fargo bank na administrative agent swing line lender issuing bank royal bank canada syndication agent compass bank documentation agent incorporated reference exhibit 105 company’s current report form 8k filed commission june 2 2014 file 00116337 108 form indemnification agreement incorporated reference exhibit 1014 companys quarterly report form 10q quarter ended september 30 2004 filed commission november 5 2004 file 00116337 109 form director stock option agreement companys 2001 equity participation plan incorporated reference exhibit 1018 companys annual report form 10k year ended december 31 2004 filed commission march 2 2005 file 00116337 1010 form employee non qualified stock option agreement companys 2001 equity participation plan incorporated reference exhibit 1019 companys annual report form 10k year ended december 31 2004 filed commission march 2 2005 file 00116337 1011 form restricted stock agreement companys 2001 equity participation plan incorporated reference exhibit 1020 companys annual report form 10k year ended december 31 2004 filed commission march 2 2005 file 00116337 1012 nonemployee director compensation summary incorporated reference exhibit 1021 companys report form 8k filed commission november 15 2006 file 00116337 1013 executive agreement oil states international inc named executive officer mr cragg incorporated reference exhibit 1022 companys quarterly report form 10q quarter ended march 31 2005 filed commission april 29 2005 file 00116337 1014 form nonemployee director restricted stock agreement companys 2001 equity participation plan incorporated reference exhibit 1022 companys report form 8k filed commission may 24 2005 file 00116337 1015 amendment executive agreement cindy taylor effective january 1 2009 incorporated reference exhibit 1021 companys annual report form 10k year ended december 31 2008 filed commission february 20 2009 file 00116337 1016 amendment executive agreement christopher cragg effective january 1 2009 incorporated reference exhibit 1024 companys annual report form 10k year ended december 31 2008 filed commission february 20 2009 file 00116337 1017 deferred stock performance award agreement incorporated reference exhibit 101 company’s current report form 8k filed commission february 23 2012 file 00116337 1018 deferred stock agreement effective february 19 2013 incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended march 31 2013 filed commission april 25 2013 file 00116337 1019 executive agreement oil states international inc named executive officer lloyd hajdik effective december 9 2013 incorporated reference exhibit 1031 companys annual report form 10k year ended december 31 2013 filed commission february 25 2014 file 00116337 1020 executive agreement oil states international inc named executive officer lias j steen effective may 20 2009 incorporated reference exhibit 101 companys quarterly report form 10q quarter ended march 31 2014 filed commission may 2 2014 file 00116337 1021 indemnification release agreement oil states international inc civeo corporation dated may 27 2014 incorporated reference exhibit 101 company’s current report form 8k filed commission june 2 2014 file 00116337 1022 tax sharing agreement oil states international inc civeo corporation dated may 27 2014 incorporated reference exhibit 102 company’s current report form 8k filed commission june 2 2014 file 00116337 1023 employee matters agreement oil states international inc civeo corporation dated may 27 2014 incorporated reference exhibit 103 company’s current report form 8k filed commission june 2 2014 file 00116337 1024 transition services agreement oil states international inc civeo corporation dated may 27 2014 incorporated reference exhibit 104 company’s current report form 8k filed commission june 2 2014 file 00116337 1025 executive agreement oil states international inc named executive officer philip moses effective july 1 2015 incorporated reference exhibit 101 companys current report form 8k filed commission july 8 2015 file 00116337 211 list subsidiaries company 231 consent independent registered public accounting firm 241 powers attorney directors 311 certification chief executive officer oil states international inc pursuant rules 13a14a 15d14a securities exchange act 1934 312 certification chief financial officer oil states international inc pursuant rules 13a14a 15d14a securities exchange act 1934 321 certification chief executive officer oil states international inc pursuant rules 13a14b 15d14b securities exchange act 1934 322 certification chief financial officer oil states international inc pursuant rules 13a14b 15d14b securities exchange act 1934 101ins xbrl instance document 101sch xbrl taxonomy extension schema document 101cal xbrl taxonomy extension calculation linkbase document 101def xbrl taxonomy extension definition linkbase document 101lab xbrl taxonomy extension label linkbase document 101pre xbrl taxonomy extension presentation linkbase document filed herewith management contracts compensatory plans arrangements furnished herewith signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized february 19 2016 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 19 2016 signature title mark g papa chairman board mark g papa cindy b taylor director president chief executive officer cindy b taylor principal executive officer lloyd hajdik senior vice president chief financial officer treasurer lloyd hajdik principal financial officer sarah amunson vice president controller chief accounting officer sarah munson principal accounting officer lawrence r dickerson director lawrence r dickerson james nelson jr director james nelson jr stephen wells director stephen wells gary l rosenthal director gary l rosenthal christopher seaver director christopher seaver william van kleef director william van kleef lloyd hajdik lloyd hajdik pursuant power attorney filed exhibit 241 annual report form 10k oil states international inc subsidiaries index consolidated financial statements report independent registered public accounting firm board directors stockholders oil states international inc audited accompanying consolidated balance sheets oil states international inc subsidiaries december 31 2015 2014 related consolidated statements income comprehensive income stockholders’ equity cash flows three years period ended december 31 2015 financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position oil states international inc subsidiaries december 31 2015 2014 consolidated results operations cash flows three years period ended december 31 2015 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states oil states international inc subsidiaries’ internal control financial reporting december 31 2015 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission 2013 framework report dated february 19 2016 expressed unqualified opinion thereon ernst young llp houston texas february 19 2016 report independent registered public accounting firm board directors stockholders oil states international inc audited oil states international inc subsidiaries’ internal control financial reporting december 31 2015 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission 2013 framework coso criteria oil states international inc subsidiaries’ management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s annual report internal control financial reporting responsibility express opinion company’s internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk performing procedures considered necessary circumstances believe audit provides reasonable basis opinion company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion oil states international inc subsidiaries maintained material respects effective internal control financial reporting december 31 2015 based coso criteria also audited accordance standards public company accounting oversight board united states consolidated balance sheets oil states international inc subsidiaries december 31 2015 2014 related consolidated statements income comprehensive income stockholders’ equity cash flows three years period ended december 31 2015 report dated february 19 2016 expressed unqualified opinion thereon ernst young llp houston texas february 19 2016 oil states international inc subsidiaries consolidated statements income thousands except per share amounts accompanying notes integral part financial statements oil states international inc subsidiaries consolidated statements comprehensive income thousands accompanying notes integral part financial statements oil states international inc subsidiaries consolidated balance sheets thousands except share amounts accompanying notes integral part financial statements oil states international inc subsidiaries consolidated statements stockholders equity thousands accompanying notes integral part financial statements oil states international inc subsidiaries consolidated statements cash flows thousands accompanying notes integral part financial statements oil states international inc subsidiaries notes consolidated financial statements 1 organization basis presentation consolidated financial statements include accounts oil states international inc oil states company consolidated subsidiaries investments unconsolidated affiliates company able exercise significant influence accounted using equity method significant intercompany accounts transactions company consolidated subsidiaries eliminated accompanying consolidated financial statements certain prior year amounts company’s consolidated financial statements reclassified conform current year presentation may 30 2014 completed spinoff accommodations business standalone publicly traded corporation civeo corporation civeo spinoff results operations accommodations business classified discontinued operations periods presented unless indicated otherwise information notes consolidated financial statements relates continuing operations company subsidiaries leading provider specialty products services oil gas companies throughout world operate substantial number worlds active oil natural gas producing regions onshore offshore us canada west africa north sea south america southeast central asia company operates two principal reportable business segments offshore products well site services 2 summary significant accounting policies cash equivalents company considers highly liquid investments purchased original maturity three months less cash equivalents fair value financial instruments company’s financial instruments consist cash equivalents investments receivables payables bank debt foreign currency forward contracts company believes carrying values instruments accompanying consolidated balance sheets approximate fair values inventories consist oilfield products manufactured equipment spare parts manufactured equipment workinprocess inventories also include raw materials labor subcontractor charges manufacturing overhead supplies carried lower cost market cost inventories determined average cost specificidentification method reserve excess damaged andor obsolete inventory maintained based age turnover condition inventory property plant equipment property plant equipment stated cost estimated fair market value acquisition date acquired business combination depreciation computed assets owned recorded capital lease using straightline method allowing salvage value applicable estimated useful lives assets use component depreciation method drilling services assets leasehold improvements capitalized amortized lesser life lease estimated useful life asset expenditures repairs maintenance charged expense incurred expenditures major renewals betterments extend useful lives existing equipment capitalized depreciated upon retirement disposition property equipment cost related accumulated depreciation removed accounts resulting gain loss recognized statements income oil states international inc subsidiaries notes consolidated financial statements continued goodwill intangible assets goodwill represents excess purchase price paid acquired businesses allocated fair value related net assets impairments applicable evaluate goodwill impairment annually event occurs circumstances change suggest carrying amount may recoverable reporting units goodwill december 31 2015 include offshore products completion services part goodwill impairment analysis current accounting standards give us option first perform qualitative assessment determine whether likely likelihood 50 percent fair value reporting unit less carrying amount including goodwill determined likely fair value reporting unit greater carrying amount performing currently prescribed twostep impairment test unnecessary developing qualitative assessment meet “morelikelythannot” threshold reporting unit goodwill balance sheet assessed separately different relevant events circumstances evaluated unit determined likely fair value reporting unit less carrying amount prescribed twostep impairment test performed current accounting standards also give us option bypass qualitative assessment reporting unit period proceed directly performing first step twostep goodwill impairment test 2015 performed twostep impairment test given stock value declines energy sector impact low oil prices operating results performing twostep impairment test estimate implied fair value ifv reporting unit compare ifv carrying value unit utilize depending circumstances combination trading multiples analyses discounted projected cash flow calculations estimated terminal values acquisition comparables estimate ifv discount projected cash flows using longterm weighted average cost capital reporting unit based estimate investment returns would required market participant part process assess goodwill impairment also compare total market capitalization company sum ifvs reporting units assess reasonableness ifvs aggregate carrying amount reporting unit exceeds ifv goodwill considered potentially impaired additional analysis accordance current accounting standards conducted determine amount impairment conduct annual impairment test december year 2013 2014 2015 goodwill impairment tests indicated fair value reporting units greater carrying amount intangible assets amortize review useful life intangible asset evaluate reporting period whether events circumstances warrant revision remaining useful life based company’s review carrying values intangible assets recoverable impairment losses recorded periods presented see note 9 goodwill intangible assets impairment longlived assets recoverability carrying values longlived assets asset group level including finitelived intangible assets assessed whenever managements judgment events changes circumstances indicate carrying value asset groups may recoverable based estimated future cash flows assessment indicates carrying values recoverable determined based undiscounted cash flows remaining useful lives impairment loss recognized impairment loss equals excess carrying value fair value asset group fair value asset group based prices similar assets available discounted cash flows based companys review carrying values asset groups recoverable impairment losses recorded periods presented foreign currency comprehensive income gains losses resulting balance sheet translation foreign operations foreign currency functional currency included separate component accumulated comprehensive income within stockholders equity representing substantially balances within accumulated comprehensive income remeasurements intercompany loans denominated different currency functional currency entity longterm investment nature recognized comprehensive income within stockholders’ equity gains losses resulting balance sheet remeasurements assets liabilities denominated different currency functional currency intercompany loans longterm investment nature included consolidated statements income incurred oil states international inc subsidiaries notes consolidated financial statements continued foreign currency exchange rate risk portion revenues earnings net investments foreign affiliates exposed changes foreign currency exchange rates seek manage foreign exchange risk part operational means including managing expected local currency revenues relation local currency costs local currency assets relation local currency liabilities order reduce exposure fluctuations currency exchange rates may enter foreign exchange agreements financial institutions december 31 2015 2014 outstanding foreign currency forward purchase contracts notional amounts 54 million related expected cash flows denominated euros result contracts recorded comprehensive income 03 million 04 million respectively years ended december 31 2015 december 31 2013 addition recorded 04 million 09 million respectively foreign exchange losses related amounts reclassified accumulated comprehensive loss expense income statement years ended december 31 2015 december 31 2013 foreign exchange gains losses totaled gains 37 million 2015 losses 04 million 16 million 2014 2013 respectively included “other operating income expense” revenue cost recognition revenue sale products accounted utilizing percentageofcompletion method recognized delivery acceptance customer occurred title significant risks ownership passed customer collectability probable pricing fixed determinable product sales terms include significant postdelivery obligations significant projects revenues recognized percentageofcompletion method measured percentage costs incurred date compared estimated total costs contract costtocost method billings contracts excess costs incurred estimated profits classified deferred revenue costs incurred estimated profits excess billings percentageofcompletion contracts recognized unbilled receivables management believes method appropriate measure progress large contracts provisions estimated losses uncompleted contracts made period losses determined factors may affect future project costs margins include weather production efficiencies availability costs labor materials subcomponents factors significantly impact accuracy company’s estimates materially impact company’s future reported earnings well site services segment revenues recognized based periodic usually daily rate services rendered proceeds customers cost oilfield rental equipment damaged lost downhole reflected gains losses disposition assets considering writeoff remaining net book value equipment drilling services contracts based footage drilled recognize revenues footage drilled revenues exclude taxes assessed based revenues sales value added taxes cost goods sold includes direct material labor costs related contract performance indirect labor supplies tools repairs selling general administrative costs charged expense incurred income taxes company follows liability method accounting income taxes accordance current accounting standards regarding accounting income taxes method deferred income taxes recorded based upon differences financial reporting tax bases assets liabilities measured using enacted tax rates laws effect time underlying assets liabilities recovered settled oil states international inc subsidiaries notes consolidated financial statements continued companys earnings foreign subsidiaries considered indefinitely reinvested provision us income taxes made earnings subsidiaries distribution earnings form dividends otherwise company would subject us income taxes subject adjustment foreign tax credits withholding taxes payable various foreign countries 2015 repatriated 352 million foreign subsidiaries used reduce outstanding borrowings credit facility company records valuation allowance reporting period management believes likely deferred tax asset created realized management continue evaluate appropriateness valuation allowance future based upon operating results company calculation tax liabilities involves accessing uncertainties regarding application complex tax regulations recognize liabilities tax expenses based estimate whether extent additional taxes due ultimately determine payment amounts unnecessary reverse liability recognize tax benefit period determine liability longer necessary record additional charge provision taxes period determine recorded tax liability less expect ultimate assessment discontinued operations operating results component business either disposed classified held sale presented discontinued operations following conditions met operations cash flows component eliminated ongoing operations result disposal transaction b significant continuing involvement operations disposed component consider component business one comprises operations cash flows clearly distinguished operationally financial reporting purposes rest business receivables concentration credit risk based nature customer base company believe significant concentrations credit risk concentration worldwide oil gas industry company evaluates creditworthiness significant new existing customers financial condition generally company require significant collateral customers allowances doubtful accounts company maintains allowances doubtful accounts estimated losses resulting inability companys customers make required payments trade receivable deemed uncollectible receivable chargedoff allowance doubtful accounts company considers following factors determining collection revenue reasonably assured customer creditworthiness past transaction history customer solvency changes customer payment terms company previous experience customer company typically obtains reports various credit organizations ensure customer history paying creditors company may also request financial information including financial statements documents ensure customer means making payment factors indicate collection reasonably assured company may require prepayment arrangement support revenue recognition recording trade receivable financial condition companys customers deteriorate adversely affecting ability make payments additional allowances would required earnings per share diluted eps amounts include effect companys outstanding stock options restricted stock shares treasury stock method shares restricted stock issued outstanding remain subject vesting requirements holders shares unvested restricted stock entitled liquidation dividend rights holders outstanding common stock thus considered participating securities applicable accounting guidance undistributed earnings period allocated based participation rights common shareholders holders participating securities earnings respective periods distributed liquidation dividend rights identical undistributed earnings allocated proportionate basis required compute earnings per share eps amounts two class method periods earnings continuing operations oil states international inc subsidiaries notes consolidated financial statements continued presentation basic eps amounts face accompanying consolidated statements operations computed dividing net income applicable company’s common shareholders weighted average shares outstanding common stock calculation diluted eps similar basic eps except denominator includes dilutive common stock equivalents income included numerator excludes effects impact dilutive common stock equivalents stockbased compensation fair value sharebased payments estimated using optionpricing models based grantdate fair value award resulting cost recognized period employee required provide service exchange awards usually vesting period addition servicebased awards 2015 2014 2013 company issued performancebased awards conditional based upon performance may vest amount depend company’s achievement specified performance objectives performancebased awards issued 2014 2015 performance criteria measured based upon company’s achievement levels average aftertax annual return invested capital years ended december 31 2015 2014 2013 company recognized noncash general administrative expenses stock options restricted stock awards totaling 218 million 256 million 225 million respectively guarantees product sales offshore products businesses sold warranty generally ranging 12 18 months parts labor covered terms warranty agreement warranty provisions estimated based upon historical experience product configuration geographic region total liability related estimated warranties 26 million 28 million december 31 2015 2014 respectively ordinary course business company also provides standby letters credit guarantee instruments certain parties required certain transactions initiated either company subsidiaries december 31 2015 maximum potential amount future payments company could required make guarantee agreements letters credit 466 million company recorded liability connection guarantee arrangements company believe based historical experience information currently available likely amounts required paid guarantee arrangements use estimates preparation consolidated financial statements conformity accounting principles generally accepted united states requires use estimates assumptions management determining reported amounts assets liabilities disclosures contingent assets liabilities date consolidated financial statements reported amounts revenues expenses reporting period examples estimates include potential future adjustments result contingent consideration arrangements pursuant business combinations contractual agreements revenue income recognized percentageofcompletion method valuation allowance recorded net deferred tax assets warranty reserves inventory allowance doubtful accounts actual results could materially differ estimates oil states international inc subsidiaries notes consolidated financial statements continued accounting contingencies contingent liabilities future claims made estimates amount eventual cost liquidate liabilities claims liabilities claims sometimes involve threatened actual litigation damages quantified made assessment exposure recorded provision accounts cover expected loss claims liabilities estimated based fair value experience matters appropriate advice outside counsel outside experts upon ultimate resolution uncertainties future reported financial results impacted difference estimates actual amounts paid settle liability examples areas made important estimates future liabilities include future consideration due sellers result terms business combination litigation taxes insurance claims warranty claims contract claims obligations discontinued operations subsequent events accordance authoritative guidance company evaluates events transactions occur balance sheet date financial statements issued possible recognition disclosure 3 details selected balance sheet accounts additional information regarding selected balance sheet accounts december 31 2015 2014 presented thousands oil states international inc subsidiaries notes consolidated financial statements continued depreciation expense 1235 million 1177 million 1042 million years ended december 31 2015 2014 2013 respectively 4 recent accounting pronouncements time new accounting pronouncements issued financial accounting standards board fasb adopted company specified effective date unless otherwise discussed management believes impact recently issued standards yet effective material impact company’s consolidated financial statements upon adoption november 2015 fasb issued guidance balance sheet classification deferred taxes requires deferred tax liabilities assets classified noncurrent classified statement financial position current requirement deferred tax liabilities assets taxpaying component entity offset presented single amount affected new guidance public business entities guidance effective fiscal years beginning december 15 2016 interim periods within fiscal years earlier application permitted entities beginning interim annual reporting period guidance may applied either prospectively deferred tax liabilities assets retrospectively periods presented due simplification accounting presentation deferred income taxes elected early adopt guidance prospectively fourth quarter 2015 result presented deferred tax assets liabilities noncurrent consolidated balance sheet december 31 2015 adjusted december 31 2014 consolidated balance sheet result adoption september 2015 fasb issued guidance measurementperiod adjustments business combinations require acquirer recognize adjustments provisional amounts identified measurement period corresponding adjustment goodwill reporting period adjustment amounts determined opposed revising prior periods presented financial statements previously required thus acquirer shall record period’s financial statements effect earnings changes depreciation amortization income effects result change provisional amounts calculated accounting completed acquisition date guidance requires entity present separately face income statement disclose notes portion amount recorded currentperiod earnings line item would recorded previous reporting periods adjustment provisional amounts recognized acquisition date public business entities guidance effective fiscal years beginning december 15 2015 interim periods within fiscal years guidance applied prospectively adjustments provisional amounts occur effective date guidance earlier application permitted financial statements issued expect adoption standard material effect consolidated financial statements july 2015 fasb issued guidance measurement inventory simplifies guidance subsequent measurement inventory excluding inventory measured using lastin first retail inventory method guidance inventory measured lower cost net realizable value guidance effective interim annual periods beginning december 15 2016 early adoption permitted evaluating impact guidance consolidated financial statements timing adoption expect adoption guidance material effect consolidated financial statements oil states international inc subsidiaries notes consolidated financial statements continued april 2015 fasb issued guidance presentation debt issuance costs requires debt issuance costs related recognized debt liability presented balance sheet direct deduction carrying amount debt liability consistent debt discounts august 2015 fasb issued additional guidance topic adds comments commission addressing guidance issued april 2015 debt issuance costs related lineofcredit arrangements commission commented would object entity deferring presenting debt issuance costs asset subsequently amortizing deferred debt issuance costs ratably term lineofcredit arrangement regardless whether outstanding borrowings lineofcredit arrangement recognition measurement guidance debt issuance costs affected guidance public business entities guidance effective financial statements issued fiscal years beginning december 15 2015 interim periods within fiscal years expect adoption standard material effect consolidated financial statements may 2014 fasb issued guidance revenue contracts customers supersede current revenue recognition guidance including industryspecific guidance underlying principle entity recognize revenue depict transfer goods services customers amount entity expects entitled exchange goods services guidance provides fivestep analysis transactions determine revenue recognized major provisions include capitalization certain contract costs consideration time value money transaction price allowing estimates variable consideration recognized contingencies resolved certain circumstances guidance also requires enhanced disclosures regarding nature amount timing uncertainty revenue cash flows arising entity’s contracts customers august 2015 fasb issued guidance deferring effective date one year december 15 2017 fiscal years interim periods within years beginning date permitted early adoption standard original effective date december 15 2016 guidance permits use either retrospective cumulative effect transition method yet selected transition method continue evaluate impact amended guidance consolidated financial position results operations related disclosures 5 accumulated comprehensive loss accumulated comprehensive loss reported component stockholders’ equity increased 221 million december 31 2014 507 million december 31 2015 primarily result foreign currency exchange rate differences accumulated comprehensive loss primarily related fluctuations foreign currency exchange rates compared us dollar used remeasure foreign operations reportable segments primarily united kingdom brazil canada average exchange rates british pound brazilian real canadian dollar compared us dollar weakened 5 31 16 respectively 2015 compared 2014 6 acquisitions supplemental cash flow information components cash used acquisitions reflected consolidated statements cash flows years ended december 31 2015 2013 summarized follows thousands oil states international inc subsidiaries notes consolidated financial statements continued january 2 2015 acquired equity montgomery machine company inc mmc headquartered houston texas mmc combines machining proprietary cladding technology services manufacture highspecification components offshore capital equipment industry believe acquisition mmc strengthen position offshore products segment supplier subsea components enhanced capabilities proprietary technology logistical advantages total transaction consideration 334 million net cash acquired operations mmc included offshore products segment since acquisition date december 2 2013 acquired operating assets quality connector systems llc qcs total cash consideration 423 million headquartered houston texas qcs designs manufactures markets portfolio proprietary deep shallow water pipeline connectors subsea pipeline construction repair expansion projects operations qcs included offshore products segment since acquisition date company funded acquisitions cash hand andor amounts available credit facilities see note 10 longterm debt additional information senior secured credit facilities supplemental cash flow information cash paid years ended december 31 2015 2014 2013 interest income taxes follows thousands 7 discontinued operations may 30 2014 completed spinoff accommodations business civeo corporation company’s stockholders may 30 2014 stockholders record oil states common stock close business may 21 2014 record date received two shares civeo common stock share oil states common stock held record date following spinoff oil states ceased shares civeo common stock following table provides components net income discontinued operations net tax operating segment thousands 1284 million 840 million aftertax net gain related disposal sooner 2013 excluded oil states international inc subsidiaries notes consolidated financial statements continued 8 earnings per share eps numerator income denominator shares used computation basic diluted earnings per share continuing operations follows thousands oil states international inc subsidiaries notes consolidated financial statements continued calculation diluted earnings per share years ended december 31 2015 2014 2013 excluded 747839 shares 224739 shares 263838 shares respectively issuable pursuant outstanding stock options restricted stock awards due antidilutive effect 9 goodwill intangible assets company tests impairment using fair value approach reporting unit level reporting unit operating segment business one level operating segment component level discrete financial information prepared regularly reviewed management component level company two reporting units goodwill december 31 2015 goodwill allocated reporting units based actual acquisitions made company subsidiaries company recognizes impairment loss amount carrying amount reporting units goodwill exceeds reporting units ifv goodwill initial qualitative assessment potential goodwill impairment indicates likely fair value reporting unit less carrying amount including goodwill company uses appropriate current circumstance comparative market multiples discounted cash flow calculations acquisition comparables establish reporting units fair value level 3 fair value measurement company amortizes cost intangibles estimated useful lives unless lives deemed indefinite amortizable intangible assets reviewed impairment indicators impairment based undiscounted cash flows impaired written fair value based either discounted cash flows appraised values december 31 2015 provision impairment intangible assets required changes carrying amount goodwill years ended december 31 2015 2014 follows thousands oil states international inc subsidiaries notes consolidated financial statements continued following table presents total amount intangibles assigned total accumulated amortization major intangible asset classes december 31 2015 2014 thousands weighted average remaining amortization period intangible assets goodwill 87 years december 31 2015 93 years december 31 2014 total amortization expense expected 79 million 2016 78 million 2017 71 million 2018 69 million 2019 66 million 2020 amortization expense 78 million 70 million 51 million years ended december 31 2015 2014 2013 respectively 10 longterm debt december 31 2015 2014 longterm debt consisted following thousands scheduled maturities combined longterm debt december 31 2015 follows thousands companys capital leases consist primarily plant facilities equipment value capitalized leases related accumulated depreciation totaled 15 million 09 million respectively december 31 2015 value capitalized leases related accumulated depreciation totaled 15 million 07 million respectively december 31 2014 oil states international inc subsidiaries notes consolidated financial statements continued credit facility connection spinoff company terminated existing bank credit facility may 28 2014 entered new 600 million senior secured revolving credit facility company option increase maximum borrowings revolving credit facility 750 million subject additional lender commitments prior maturity may 28 2019 credit facility governed credit agreement dated may 28 2014 credit agreement among company lenders party thereto wells fargo bank na administrative agent swing line lender issuing bank royal bank canada syndication agent compass bank documentation agent amounts outstanding revolving credit facility bear interest libor plus margin 150 250 base rate plus margin 050 150 case based ratio company’s total leverage ebitda defined credit agreement may 28 2014 december 31 2014 applicable margin libor 150 must also pay quarterly commitment fee based leverage ratio unused commitments credit agreement unused commitment fee 0375 period may 28 2014 december 31 2014 credit agreement contains customary financial covenants restrictions specifically must maintain interest coverage ratio defined ratio consolidated ebitda consolidated interest expense least 30 10 maximum leverage ratio defined ratio total debt consolidated ebitda greater 325 10 factors considered calculations ratios defined credit agreement ebitda consolidated interest exclude goodwill impairments debt discount amortization noncash charges december 31 2015 compliance debt covenants borrowings credit agreement secured pledge substantially assets domestic subsidiaries obligations credit agreement guaranteed significant domestic subsidiaries credit facility also contains negative covenants limit companys ability borrow additional funds encumber assets pay dividends sell assets enter significant transactions companys credit facilities occurrence specified change control events involving company would constitute event default would permit banks among things accelerate maturity facilities cause become immediately due payable full december 31 2015 1229 million outstanding credit agreement additional 377 million outstanding letters credit leaving 4394 million available drawn credit facility however total amount available drawn revolving credit facility expected significantly reduced trailing twelve months ebitda moves lower 2016 given accordance credit agreement total debt cannot exceed 325 times trailing twelve months ebitda december 31 2015 company 360 million cash equivalents loss extinguishment debt 2014 recognized losses extinguishment debt totaling 1004 million primarily due repurchase remaining 6 12 notes 5 18 notes completed connection spinoff second quarter resulted loss 967 million consisting premium paid book value notes writeoff unamortized deferred financing costs associated notes premium paid repurchase 6 12 5 18 notes due fair market value exceeding book value date tendered redeemed addition result refinancing existing credit facility second quarter 2014 recognized loss extinguishment 37 million net 18 million allocated discontinued operations canadian portion facility writeoff unamortized deferred financing costs 2013 recognized loss extinguishment debt totaling 62 million repurchase portion 5 18 notes fourth quarter 2013 resulting loss 41 million including writeoff 04 million unamortized deferred financing costs additionally wrote 21 million unamortized deferred financing costs associated full repayment us term loan 11 stock repurchase program september 6 2013 company announced increase boardauthorized company stock repurchase program 200 million 500 million providing repurchase company’s common stock par value 01 per share july 29 2015 company’s board directors approved termination existing share repurchase program authorized new program providing repurchase 150 million company’s common stock par value 01 per share new program set expire july 29 2016 2015 total 1059 million stock 2674218 shares repurchased programs compared 2189 million 2843142 shares 2014 december 31 2015 total 4560 million stock 6902748 shares approximately 13 outstanding shares common stock initiation initial share repurchase authorization august 2012 repurchased programs amount remaining current share repurchase authorization december 31 2015 1368 million subject applicable securities laws purchases times amounts company deems appropriate oil states international inc subsidiaries notes consolidated financial statements continued 12 retirement plans company sponsors defined contribution plans participation plans available substantially employees company recognized expense 80 million 130 million 97 million respectively related matching contributions various defined contribution plans years ended december 31 2015 2014 2013 respectively 13 income taxes consolidated income loss continuing operations income taxes years ended december 31 2015 2014 2013 consisted following thousands components income tax provision benefit years ended december 31 2015 2014 2013 consisted following thousands reconciliation federal statutory tax rate effective tax rate years ended december 31 2015 2014 2013 follows oil states international inc subsidiaries notes consolidated financial statements continued significant items giving rise deferred tax assets liabilities december 31 2015 2014 follows thousands primary deferred tax assets december 31 2015 related foreign tax credit carryforwards employee benefit costs equity participation plan allowance inventory obsolescence foreign tax credits expire varying amounts 2021 2024 december 31 2015 company state net operating loss nol carryforwards 158 million foreign nol carryforwards 07 million 26 million 73 million india thailand brazil respectively nol carryforwards states expire 2021and 2035 nol carryforwards thailand india expire 2019 2022 respectively nol carryforwards brazil carried forward indefinitely appropriate us foreign income taxes provided earnings foreign subsidiary companies expected remitted future cumulative amount undistributed earnings foreign subsidiaries company intends indefinitely reinvest upon foreign taxes accrued paid deferred us income taxes provided 2487 million december 31 2015 majority generated uk company’s representation permanently reinvest earnings uk removed singapore distribution earnings form dividends otherwise occur company may subject us income taxes subject adjustment foreign tax credits foreign withholding taxes practical however estimate amount taxes may payable eventual remittance earnings consideration available foreign tax credits 2015 repatriated 352 million foreign subsidiaries used reduce outstanding borrowings credit facility company files tax returns jurisdictions required returns subject examination audit possible adjustment result assessments taxing authorities company believes recorded sufficient tax liabilities expect resolution examination audit tax returns would material adverse effect operating results financial condition liquidity tax years subsequent 2013 remain open us federal tax audit foreign subsidiaries federal tax returns subsequent 2010 subject audit various foreign tax authorities account uncertain tax positions using recognition threshold measurement attribute financial statement recognition measurement tax positions taken expected taken tax return benefits recognized tax position must morelikelythannot sustained upon examination taxing authorities amount recognized measured largest amount benefit greater 50 percent likely realized upon ultimate settlement oil states international inc subsidiaries notes consolidated financial statements continued total amount unrecognized tax benefits december 31 2015 december 31 2014 nil company accrues interest penalties related unrecognized tax benefits component companys provision income taxes december 31 2015 2014 company accrued interest expense penalties reconciliation beginning ending amount unrecognized tax benefits follows thousands 14 commitments contingencies company leases portion equipment office space computer equipment automobiles trucks leases expire various dates minimum future operating lease obligations effect december 31 2015 follows thousands rental expense operating leases 113 million 115 million 123 million years ended december 31 2015 2014 2013 respectively ordinary course conducting business become involved litigation claims private party actions well judicial administrative proceedings involving governmental authorities federal state local levels 2014 early 2015 number lawsuits filed current former employees federal court company one subsidiaries alleging violations fair labor standards act “flsa” plaintiffs seek damages penalties company’s alleged failure properly classify field service employees “nonexempt” flsa pay hourly basis including overtime plaintiffs seeking recovery behalf well class similarly situated employees settlement class action company approved judgment entered november 19 2015 company settled vast majority claims evaluating potential settlements remaining individual plaintiffs’ claims expected significant party various pending threatened claims lawsuits administrative proceedings seeking damages remedies concerning commercial operations products employees matters including occasional claims individuals alleging exposure hazardous materials result products operations claims relate matters occurring prior acquisition businesses relate businesses sold certain cases entitled indemnification sellers businesses cases indemnified buyers businesses us although give assurance outcome pending legal administrative proceedings effect outcomes may us believe ultimate liability resulting outcome proceedings extent otherwise provided covered indemnity insurance material adverse effect consolidated financial position results operations liquidity oil states international inc subsidiaries notes consolidated financial statements continued 15 stockbased deferred compensation plans current accounting standards require companies measure cost employee services received exchange award equity instruments based grantdate fair value award fair value estimated using optionpricing models resulting cost recognized period employee required provide service exchange awards usually vesting period stockbased compensation pretax expense continuing operations recognized years ended december 31 2015 2014 2013 totaled 218 million 256 million 225 million respectively stock options fair value option grant estimated date grant using black scholes merton option pricing model uses assumptions noted following table riskfree interest rate based us treasury yield curve effect expected term option time grant dividend yield common stock assumed zero since pay dividends current plans future expected market price volatility common stock based estimate made us considers historical implied volatility common stock well peer group companies time period equal expected term option expected life options awarded 2015 2014 2013 based formula considering vesting period term options awarded past experience following table presents changes stock options outstanding related information year ended december 31 2015 weighted average fair values options granted 2015 2014 2013 1332 3203 2831 per share respectively options awarded 2015 term ten years granted exercise prices grant date closing market price total intrinsic value options exercised 2015 2014 2013 124 million 281 million 436 million respectively cash received company option exercises 2015 2014 2013 totaled 59 million 105 million 164 million respectively tax benefit realized tax deduction stock options exercised 2015 2014 2013 totaled 65 million 69 million 74 million respectively oil states international inc subsidiaries notes consolidated financial statements continued following table summarizes information outstanding stock options outstanding december 31 2015 restricted stock awards following table presents changes restricted stock awards related information 2015 granted restricted stock awards totaling 559207 shares valued total 237 million restricted stock awards granted 2015 461658 awards vest four equal annual installments beginning february 2016 75900 awards performancebased awards may currently appear unlikely vest february 2018 amount depend company’s achievement specified performance objectives 20062 awards director compensation vest 100 may 2016 1587 awards also director compensation vested 100 immediately 2015 performancebased awards 75900 shares target performance level threeyear cliff vesting performance criteria measured based upon company’s achievement levels average aftertax annual return invested capital three year period commencing january 1 2015 ending december 31 2017 weighted average grant date fair value per share restricted stock awards granted 2015 2014 2013 4239 9309 8205 respectively total fair value restricted stock awards vested 2015 2014 2013 189 million 272 million 187 million respectively december 31 2015 293 million total compensation costs related nonvested restricted stock awards yet recognized expected recognized weighted average period 2 years december 31 2015 total 1837279 shares available future grant equity participation plan oil states international inc subsidiaries notes consolidated financial statements continued deferred compensation plan company maintains nonqualified deferred compensation plan deferred compensation plan permits eligible employees directors elect defer receipt portion directors’ fees andor salary annual bonuses employee contributions deferred compensation plan matched company percentage employee participant companys 401k retirement plan subject irs limitations matcheligible compensation deferred compensation plan also permits company make discretionary contributions employees account although none made date directors contributions matched company since inception plan discretionary contribution provision limited matching participants contributions basis equivalent matching permitted companys 401k retirement savings plan vesting contributions participants’ accounts also equivalent vesting requirements companys 401k retirement savings plan deferred compensation plan dollar limits taxdeferred contributions assets deferred compensation plan held rabbi trust therefore available satisfy claims companys creditors event bankruptcy insolvency company participants ability direct plan administrator invest assets individual accounts including discretionary contributions company ten preapproved mutual funds held trust cover variety securities mutual funds addition participants currently right request plan administrator reallocate portfolio investments ie cash mutual funds participants individual accounts within trust company contributions form cash distributions plan generally made upon participants termination director andor employee applicable company participants receive payments deferred compensation plan cash december 31 2015 trust assets totaled 169 million majority classified “other noncurrent assets” company’s consolidated balance sheet fair value investments based quoted market prices active markets level 1 fair value measurement amounts payable plan participants december 31 2015 including fair value shares companys common stock reflected treasury stock 170 million classified noncurrent liabilities consolidated balance sheet company accounts deferred compensation plan accordance current accounting standards regarding accounting deferred compensation arrangements amounts earned held rabbi trust invested accordance current accounting standards fair value fluctuations trust assets reflected consolidated statements income increases decreases value plan assets exclusive shares common stock company included compensation adjustments respective statements income increases decreases fair value deferred compensation liability including shares common stock company held trust recorded treasury stock also included compensation adjustments consolidated statements income response changes total fair value companys common stock held trust company recorded net compensation expense adjustments liability 02 million 2015 less 01 million 2014 05 million 2013 16 segment related information accordance current accounting standards regarding disclosures segments enterprise related information company identified following reportable segments continuing operations well site services offshore products companys reportable segments represent strategic business units offer different products services managed separately business requires different technologies marketing strategies businesses initially acquired unit management time acquisition retained subsequent acquisitions direct extensions business segments separate business lines within well site services segment disclosed provide additional detail segment financial information business segment three years ended december 31 2015 2014 2013 summarized following table thousands accounting policies segments described summary significant accounting policies oil states international inc subsidiaries notes consolidated financial statements continued financial information geographic segment three years ended december 31 2015 2014 2013 summarized thousands revenues united states include export sales revenues attributable countries based location entity selling products performing services total assets attributable countries based physical location entity operating assets include intercompany balances customers accounted 10 companys revenues years ended december 31 2015 2014 2013 equity net income unconsolidated affiliates included operating income oil states international inc subsidiaries notes consolidated financial statements continued 17 valuation allowances activity valuation accounts follows thousands 18 quarterly financial information unaudited following table summarizes quarterly financial information 2015 2014 thousands except per share amounts 1 represents revenues less product costs service costs included companys consolidated statements income 2 first quarter 2015 net income attributable continuing operations included 21 million pretax severance downsizing initiatives higher effective tax rate driven primarily 23 million deferred tax adjustment certain prior period nondeductible items first quarter 2014 incurred 14 million pretax thirdparty transaction costs continuing operations primarily related spinoff oil states international inc subsidiaries notes consolidated financial statements continued 3 second quarter 2015 recognized 17 million pretax severance downsizing charges second quarter 2014 recognized continuing operations pretax loss extinguishment debt 1004 million 96 million pretax representing transaction costs primarily related spinoff 4 third quarter 2015 net income attributable continuing operations included higher effective tax rate driven primarily 32 million valuation allowance recorded company’s deferred tax assets related loss carryforwards 07 million pretax severance related costs 5 fourth quarter 2015 recognized 34 million leasehold restoration provision one offshore products uk facilities 19 million pretax severance downsizing charges higher effective tax rate driven primarily 12 million tax adjustments primarily related nondeductible items 06 million valuation allowance recorded company’s tax loss carryforwards various foreign jurisdictions amounts calculated independently quarters presented therefore sum quarterly amounts may equal total calculated year 93 item 15 exhibits financial statement schedules index financial statements financial statement schedules exhibits 1 financial statements reference made index set forth page 57 annual report form 10k 2 financial statement schedules included herein information required submitted included consolidated financial statements notes thereto required information inapplicable 3 index exhibits see index exhibits list exhibits filed herewith index also includes identifies management contracts compensatory plans arrangements required filed exhibits annual report form 10k item 601 regulation sk b index exhibits exhibit description 21 separation distribution agreement oil states international inc civeo corporation dated may 27 2014 incorporated reference exhibit 21 company’s current report form 8k filed commission june 2 2014 file 00116337 31 amended restated certificate incorporation incorporated reference exhibit 31 companys annual report form 10k year ended december 31 2000 filed commission march 30 2001 file 00116337 32 third amended restated bylaws incorporated reference exhibit 31 companys current report form 8k filed commission march 13 2009 file 00116337 33 certificate designations special preferred voting stock oil states international inc incorporated reference exhibit 33 companys annual report form 10k year ended december 31 2000 filed commission march 30 2001 file 00116337 41 form common stock certificate incorporated reference exhibit 41 companys registration statement form s1 filed commission november 7 2000 file 33343400 42 amended restated registration rights agreement incorporated reference exhibit 42 companys annual report form 10k year ended december 31 2000 filed commission march 30 2001 file 00116337 43 first amendment amended restated registration rights agreement dated may 17 2002 incorporated reference exhibit 43 companys annual report form 10k year ended december 31 2002 filed commission march 13 2003 file 00116337 44 third supplemental indenture dated may 29 2014 indenture dated june 1 2011 among oil states international inc guarantors named therein wells fargo bank na trustee incorporated reference exhibit 41 company’s current report form 8k filed commission june 2 2014 file 00116337 52 45 supplemental indenture dated may 29 2014 indenture dated december 21 2012 among oil states international inc guarantors named therein wells fargo bank na trustee incorporated reference exhibit 42 company’s current report form 8k filed commission june 2 2014 file 00116337 101 combination agreement dated july 31 2000 among oil states international inc hwc energy services inc merger subhwc inc sooner inc merger subsooner inc pti group inc incorporated reference exhibit 101 companys registration statement form s1 filed commission august 10 2000 file 33343400 102 second amended restated 2001 equity participation plan effective january 1 2017 103 deferred compensation plan effective january 1 2012 incorporated reference exhibit 101 companys quarterly report form 10q quarter ended march 31 2013 filed commission april 25 2013 file 00116337 104 annual incentive compensation plan dated january 1 2017 105 executive agreement oil states international inc cindy b taylor incorporated reference exhibit 109 companys annual report form 10k year ended december 31 2000 filed commission march 30 2001 file 00116337 106 form change control severance plan selected members management incorporated reference exhibit 1011 companys registration statement form s1 filed commission december 12 2000 file 33343400 107 credit agreement dated may 28 2014 among oil states international inc borrower lenders time party thereto wells fargo bank na administrative agent swing line lender issuing bank royal bank canada syndication agent compass bank documentation agent incorporated reference exhibit 105 company’s current report form 8k filed commission june 2 2014 file 00116337 108 consent amendment 1 credit agreement dated may 28 2014 among oil states international inc borrower guarantors named therein lenders named therein “lenders” wells fargo bank na administrative agent incorporated reference exhibit 101 company’s report form 8k filed commission october 5 2016 file 00116337 109 form indemnification agreement incorporated reference exhibit 1014 companys quarterly report form 10q quarter ended september 30 2004 filed commission november 5 2004 file 00116337 1010 form director stock option agreement companys 2001 equity participation plan incorporated reference exhibit 1018 companys annual report form 10k year ended december 31 2004 filed commission march 2 2005 file 00116337 1011 form employee non qualified stock option agreement companys second amended restated 2001 equity participation plan 1012 form restricted stock agreement companys second amended restated 2001 equity participation plan 1013 form deferred stock performance award agreement company’s second amended restated 2001 equity participation plan 1014 nonemployee director compensation summary incorporated reference exhibit 1021 companys report form 8k filed commission november 15 2006 file 00116337 1015 executive agreement oil states international inc named executive officer mr cragg incorporated reference exhibit 1022 companys quarterly report form 10q quarter ended march 31 2005 filed commission april 29 2005 file 00116337 1016 form nonemployee director restricted stock agreement companys 2001 equity participation plan incorporated reference exhibit 1022 companys report form 8k filed commission may 24 2005 file 00116337 1017 amendment executive agreement cindy taylor effective january 1 2009 incorporated reference exhibit 1021 companys annual report form 10k year ended december 31 2008 filed commission february 20 2009 file 00116337 1018 amendment executive agreement christopher cragg effective january 1 2009 incorporated reference exhibit 1024 companys annual report form 10k year ended december 31 2008 filed commission february 20 2009 file 00116337 1019 deferred stock performance award agreement incorporated reference exhibit 101 company’s current report form 8k filed commission february 23 2012 file 00116337 1020 deferred stock agreement effective february 19 2013 incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended march 31 2013 filed commission april 25 2013 file 00116337 1021 executive agreement oil states international inc named executive officer lloyd hajdik effective december 9 2013 incorporated reference exhibit 1031 companys annual report form 10k year ended december 31 2013 filed commission february 25 2014 file 00116337 1022 executive agreement oil states international inc named executive officer lias j steen effective may 20 2009 incorporated reference exhibit 101 companys quarterly report form 10q quarter ended march 31 2014 filed commission may 2 2014 file 00116337 1023 indemnification release agreement oil states international inc civeo corporation dated may 27 2014 incorporated reference exhibit 101 company’s current report form 8k filed commission june 2 2014 file 00116337 1024 tax sharing agreement oil states international inc civeo corporation dated may 27 2014 incorporated reference exhibit 102 company’s current report form 8k filed commission june 2 2014 file 00116337 1025 employee matters agreement oil states international inc civeo corporation dated may 27 2014 incorporated reference exhibit 103 company’s current report form 8k filed commission june 2 2014 file 00116337 1026 transition services agreement oil states international inc civeo corporation dated may 27 2014 incorporated reference exhibit 104 company’s current report form 8k filed commission june 2 2014 file 00116337 1027 executive agreement oil states international inc named executive officer philip moses effective july 1 2015 incorporated reference exhibit 101 companys current report form 8k filed commission july 8 2015 file 00116337 211 list subsidiaries company 231 consent independent registered public accounting firm 241 powers attorney directors 311 certification chief executive officer oil states international inc pursuant rules 13a14a 15d14a securities exchange act 1934 312 certification chief financial officer oil states international inc pursuant rules 13a14a 15d14a securities exchange act 1934 321 certification chief executive officer oil states international inc pursuant rules 13a14b 15d14b securities exchange act 1934 322 certification chief financial officer oil states international inc pursuant rules 13a14b 15d14b securities exchange act 1934 101ins xbrl instance document 101sch xbrl taxonomy extension schema document 101cal xbrl taxonomy extension calculation linkbase document 101def xbrl taxonomy extension definition linkbase document 101lab xbrl taxonomy extension label linkbase document 101pre xbrl taxonomy extension presentation linkbase document filed herewith furnished herewith management contracts compensatory plans arrangements 55 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized february 17 2017 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 17 2017 56 oil states international inc subsidiaries index consolidated financial statements 57 report independent registered public accounting firm board directors stockholders oil states international inc audited accompanying consolidated balance sheets oil states international inc subsidiaries december 31 2016 2015 related consolidated statements operations comprehensive income loss stockholders’ equity cash flows three years period ended december 31 2016 financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position oil states international inc subsidiaries december 31 2016 2015 consolidated results operations cash flows three years period ended december 31 2016 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states oil states international inc subsidiaries’ internal control financial reporting december 31 2016 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission 2013 framework report dated february 17 2017 expressed unqualified opinion thereon ernst young llp houston texas february 17 2017 58 report independent registered public accounting firm board directors stockholders oil states international inc audited oil states international inc subsidiaries’ internal control financial reporting december 31 2016 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission 2013 framework coso criteria oil states international inc subsidiaries’ management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s annual report internal control financial reporting responsibility express opinion company’s internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk performing procedures considered necessary circumstances believe audit provides reasonable basis opinion company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion oil states international inc subsidiaries maintained material respects effective internal control financial reporting december 31 2016 based coso criteria also audited accordance standards public company accounting oversight board united states consolidated balance sheets oil states international inc subsidiaries december 31 2016 2015 related consolidated statements operations comprehensive income loss stockholders’ equity cash flows three years period ended december 31 2016 report dated february 17 2017 expressed unqualified opinion thereon ernst young llp houston texas february 17 2017 59 oil states international inc subsidiaries consolidated statements operations thousands except per share amounts accompanying notes integral part financial statements 60 oil states international inc subsidiaries consolidated statements comprehensive income loss thousands accompanying notes integral part financial statements 61 oil states international inc subsidiaries consolidated balance sheets thousands except share amounts accompanying notes integral part financial statements 62 oil states international inc subsidiaries consolidated statements stockholders equity thousands accompanying notes integral part financial statements 63 oil states international inc subsidiaries consolidated statements cash flows thousands accompanying notes integral part financial statements 64 oil states international inc subsidiaries notes consolidated financial statements 1 organization basis presentation consolidated financial statements include accounts oil states international inc “oil states” “company” consolidated subsidiaries investments unconsolidated affiliates company able exercise significant influence accounted using equity method significant intercompany accounts transactions company consolidated subsidiaries eliminated accompanying consolidated financial statements certain prioryear amounts company’s consolidated financial statements reclassified conform current year presentation may 30 2014 completed spinoff accommodations business standalone publiclytraded corporation “civeo corporation” “civeo” “spinoff” results operations accommodations business classified discontinued operations periods presented unless indicated otherwise information notes consolidated financial statements relates continuing operations company subsidiaries leading provider specialty products services oil gas companies throughout world operate substantial number worlds active crude oil natural gas producing regions onshore offshore united states canada west africa north sea south america southeast central asia company operates two business segments offshore products well site services 2 summary significant accounting policies cash equivalents company considers highly liquid investments purchased original maturity three months less cash equivalents fair value financial instruments company’s financial instruments consist cash equivalents investments receivables payables bank debt foreign currency forward contracts company believes carrying values instruments accompanying consolidated balance sheets approximate fair values inventories consist oilfield products manufactured equipment spare parts manufactured equipment workinprocess inventories also include raw materials labor subcontractor charges manufacturing overhead supplies carried lower cost market cost inventories determined average cost specificidentification method reserve excess damaged andor obsolete inventory maintained based age turnover condition inventory property plant equipment property plant equipment stated cost estimated fair market value acquisition date acquired business combination depreciation computed assets owned recorded capital lease using straightline method allowing salvage value applicable estimated useful lives assets use component depreciation method drilling services assets leasehold improvements capitalized amortized lesser life lease estimated useful life asset expenditures repairs maintenance charged expense incurred expenditures major renewals betterments extend useful lives existing equipment capitalized depreciated upon retirement disposition property equipment cost related accumulated depreciation removed accounts resulting gain loss recognized statements operations 65 oil states international inc subsidiaries notes consolidated financial statements continued goodwill intangible assets goodwill represents excess purchase price paid acquired businesses allocated fair value related net assets impairments applicable evaluate goodwill impairment annually event occurs circumstances change suggest carrying amount may recoverable reporting units goodwill december 31 2016 include offshore products completion services part goodwill impairment analysis current accounting standards give us option first perform qualitative assessment determine whether likely likelihood 50 percent fair value reporting unit less carrying amount including goodwill determined likely fair value reporting unit greater carrying amount performing currently prescribed twostep impairment test unnecessary developing qualitative assessment meet “morelikelythannot” threshold reporting unit goodwill balance sheet assessed separately different relevant events circumstances evaluated unit determined likely fair value reporting unit less carrying amount prescribed twostep impairment test performed current accounting standards also give us option bypass qualitative assessment reporting unit period proceed directly performing first step twostep goodwill impairment test 2016 performed twostep impairment test given impact low oil prices operating results performing twostep impairment test estimate implied fair value “ifv” reporting unit compare ifv carrying value unit utilize depending circumstances combination trading multiples analyses discounted projected cash flow calculations estimated terminal values acquisition comparables estimate ifv discount projected cash flows using longterm weighted average cost capital reporting unit based estimate investment returns would required market participant part process assess goodwill impairment also compare total market capitalization company sum ifvs reporting units assess reasonableness ifvs aggregate carrying amount reporting unit exceeds ifv goodwill considered potentially impaired additional analysis accordance current accounting standards conducted determine amount impairment 2014 2015 2016 goodwill impairment tests indicated fair value reporting units greater carrying amount intangible assets amortize review useful life intangible asset evaluate reporting period whether events circumstances warrant revision remaining useful life based company’s review carrying values intangible assets recoverable impairment losses recorded periods presented see note 9 goodwill intangible assets impairment longlived assets recoverability carrying values longlived assets asset group level including finitelived intangible assets assessed whenever managements judgment events changes circumstances indicate carrying value asset groups may recoverable based estimated future cash flows assessment indicates carrying values recoverable determined based undiscounted cash flows remaining useful lives impairment loss recognized impairment loss equals excess carrying value fair value asset group fair value asset group based prices similar assets available discounted cash flows based companys review carrying values asset groups recoverable impairment losses recorded periods presented foreign currency comprehensive loss gains losses resulting balance sheet translation international operations local currency functional currency included separate component accumulated comprehensive loss within stockholders equity representing substantially balances within accumulated comprehensive loss remeasurements intercompany loans denominated currency functional currency entity longterm investment nature recognized component comprehensive loss within stockholders’ equity gains losses resulting balance sheet remeasurements assets liabilities denominated different currency functional currency intercompany loans longterm investment nature included consolidated statements operations incurred 66 oil states international inc subsidiaries notes consolidated financial statements continued currency exchange rate risk portion revenues earnings net investments operations outside united states exposed changes currency exchange rates seek manage currency exchange risk part operational means including managing expected local currency revenues relation local currency costs local currency assets relation local currency liabilities order reduce exposure fluctuations currency exchange rates may enter currency exchange agreements financial institutions december 31 2016 2015 outstanding foreign currency forward purchase contracts notional amounts 22 million 54 million respectively related expected cash flows denominated euros result currency contracts becoming ineffective 2015 recorded 04 million currency exchange losses related amounts reclassified accumulated comprehensive loss expense statement operations 2015 currency exchange gains losses totaled gains 47 million 37 million 2016 2015 respectively losses 04 million 2014 included “other operating income expense” revenue cost recognition revenue sale products accounted utilizing percentageofcompletion method recognized delivery acceptance customer occurred title significant risks ownership passed customer collectability probable pricing fixed determinable product sales terms include significant postdelivery obligations significant projects revenues recognized percentageofcompletion method measured percentage costs incurred date compared estimated total costs contract costtocost method billings contracts excess costs incurred estimated profits classified deferred revenue costs incurred estimated profits excess billings percentageofcompletion contracts recognized unbilled receivables management believes method appropriate measure progress large contracts provisions estimated losses uncompleted contracts made period losses determined factors may affect future project costs margins include weather production efficiencies availability costs labor materials subcomponents factors significantly impact accuracy company’s estimates materially impact company’s future reported earnings well site services segment revenues recognized based periodic usually daily rate services rendered proceeds customers cost oilfield rental equipment damaged lost downhole reflected gains losses disposition assets considering writeoff remaining net book value equipment drilling services contracts based footage drilled recognize revenues footage drilled revenues exclude taxes assessed based revenues sales value added taxes cost goods sold includes direct material labor costs related contract performance indirect labor supplies tools repairs selling general administrative costs charged expense incurred income taxes company follows liability method accounting income taxes accordance current accounting standards regarding accounting income taxes method deferred income taxes recorded based upon differences financial reporting tax bases assets liabilities measured using enacted tax rates laws effect time underlying assets liabilities recovered settled 67 oil states international inc subsidiaries notes consolidated financial statements continued companys earnings international subsidiaries considered indefinitely reinvested provision us income taxes made earnings subsidiaries distribution earnings form dividends otherwise company would subject us income taxes subject adjustment foreign tax credits withholding taxes payable various foreign countries 2016 2015 repatriated 201 352 million respectively international subsidiaries used reduce outstanding borrowings revolving credit facility company records valuation allowance reporting period management believes likely deferred tax asset created realized assessment requires analysis available positive negative evidence including losses recent years reversals temporary differences forecasts future income assessment future business assumptions tax planning strategies 2015 2016 recorded valuation allowances primarily respect net operating loss carryforwards certain operations outside united states future increases valuation allowance possible estimates assumptions particularly relate forecast revised reduce estimates future taxable income carryforward period calculation tax liabilities involves accessing uncertainties regarding application complex tax regulations recognize liabilities tax expenses based estimate whether extent additional taxes due ultimately determine payment amounts unnecessary reverse liability recognize tax benefit period determine liability longer necessary record additional charge provision taxes period determine recorded tax liability less expect ultimate assessment discontinued operations operating results component business either disposed classified held sale presented discontinued operations following conditions met operations cash flows component eliminated ongoing operations result disposal transaction b significant continuing involvement operations disposed component consider component business one comprises operations cash flows clearly distinguished operationally financial reporting purposes balance business components business disposed classified held sale subsequent 2014 receivables concentration credit risk based nature customer base company believe significant concentrations credit risk concentration worldwide oil gas industry company evaluates creditworthiness significant new existing customers financial condition generally company require significant collateral customers allowances doubtful accounts company maintains allowances doubtful accounts estimated losses resulting inability companys customers make required payments trade receivable deemed uncollectible receivable chargedoff allowance doubtful accounts company considers following factors determining collection revenue reasonably assured customer creditworthiness past transaction history customer solvency changes customer payment terms company previous experience customer company typically obtains reports various credit organizations ensure customer history paying creditors company may also request financial information including financial statements documents ensure customer means making payment factors indicate collection reasonably assured company may require prepayment arrangement support revenue recognition recording trade receivable financial condition companys customers deteriorate adversely affecting ability make payments additional allowances would required earnings per share diluted earnings per share “eps” amounts include effect companys outstanding stock options restricted stock shares treasury stock method shares restricted stock issued outstanding remain subject vesting requirements holders shares unvested restricted stock entitled liquidation dividend rights holders outstanding common stock thus considered participating securities applicable accounting guidance undistributed earnings period allocated based participation rights common stockholders holders participating securities earnings respective periods distributed liquidation dividend rights identical undistributed earnings allocated proportionate basis required compute earnings per share amounts two class method periods earnings continuing operations 68 oil states international inc subsidiaries notes consolidated financial statements continued presentation basic eps amounts face accompanying consolidated statements operations computed dividing net income loss applicable company’s common stockholders weighted average shares outstanding common stock calculation diluted eps similar basic eps except denominator includes dilutive common stock equivalents income included numerator excludes effects impact dilutive common stock equivalents stockbased compensation fair value sharebased payments estimated using quoted market price company’s stock pricing models date grant discussed note 15 resulting cost recognized period employee required provide service exchange awards usually vesting period addition servicebased awards 2016 2015 2014 company issued performancebased awards conditional based upon performance may vest amount depend company’s achievement specified performance objectives guarantees product sales offshore products businesses sold warranty generally ranging 12 18 months parts labor covered terms warranty agreement warranty provisions estimated based upon historical experience product configuration geographic region total liability related estimated warranties 11 million 26 million december 31 2016 2015 respectively ordinary course business company also provides standby letters credit guarantee instruments certain parties required certain transactions initiated either company subsidiaries december 31 2016 maximum potential amount future payments company could required make guarantee agreements letters credit 361 million company recorded liability connection guarantee arrangements company believe based historical experience information currently available likely amounts required paid guarantee arrangements use estimates preparation consolidated financial statements conformity accounting principles generally accepted united states requires use estimates assumptions management determining reported amounts assets liabilities disclosures contingent assets liabilities date consolidated financial statements reported amounts revenues expenses reporting period examples estimates include revenue income recognized percentageofcompletion method valuation allowance recorded net deferred tax assets warranty reserves inventory allowance doubtful accounts potential future adjustments related contractual agreements actual results could materially differ estimates 69 oil states international inc subsidiaries notes consolidated financial statements continued accounting contingencies contingent liabilities future claims made estimates amount eventual cost liquidate liabilities claims liabilities claims sometimes involve threatened actual litigation damages quantified made assessment exposure recorded provision accounts cover expected loss claims liabilities estimated based fair value experience matters appropriate advice outside counsel outside experts upon ultimate resolution uncertainties future reported financial results impacted difference estimates actual amounts paid settle liability examples areas made important estimates future liabilities include litigation taxes insurance claims warranty claims contractual claims obligations discontinued operations 3 details selected balance sheet accounts additional information regarding selected balance sheet accounts december 31 2016 2015 presented thousands 70 oil states international inc subsidiaries notes consolidated financial statements continued depreciation expense 1105 million 1235 million 1177 million years ended december 31 2016 2015 2014 respectively 4 recent accounting pronouncements may 2014 fasb issued guidance revenue contracts customers supersede current revenue recognition guidance including industryspecific guidance underlying principle entity recognize revenue depict transfer goods services customers amount entity expects entitled receive exchange goods services guidance permits use either retrospective modified retrospective transition method company adopt guidance january 1 2018 currently anticipates using modified retrospective transition method continue review contracts certain customers within offshore products segment determine impact standard contracts consolidated financial statements february 2016 fasb issued guidance leases introduces recognition lease assets lease liabilities lessees leases shortterm nature new standard requires modified retrospective transition capital operating leases existing entered beginning earliest comparative period presented financial statements company adopt guidance january 1 2019 upon initial evaluation believe key change upon adoption balance sheet recognition leases income statement recognition appears similar current methodology company’s future obligations operating leases december 31 2016 summarized note 14 “commitments contingencies” march 2016 fasb issued guidance employee sharebased payment accounting modifies existing guidance related accounting forfeitures employer tax withholding stockbased compensation financial statement presentation excess tax benefits deficiencies company adopted guidance january 1 2017 expect material impact consolidated financial statements january 2017 fasb issued guidance simplifies test goodwill impairment revised standard company longer required determine implied fair value goodwill assigning fair value reporting unit individual assets liabilities reporting unit acquired business combination revised guidance requires prospective transition permits early adoption interim annual goodwill impairment tests performed january 1 2017 company adopted standard effective january 1 2017 see note 9 goodwill intangible assets april 2015 fasb issued guidance presentation debt issuance costs requires debt issuance costs related recognized debt liability presented balance sheet direct deduction carrying amount debt liability consistent debt discounts company adopted new guidance effective january 1 2016 resulting reclassification deferred financing costs associated revolving credit agreement noncurrent assets reduction longterm debt retrospective basis company’s consolidated balance sheet included deferred financing costs 27 million december 31 2015 reclassified noncurrent assets longterm debt december 31 2016 20 million deferred financing costs included reduction longterm debt consolidated balance sheet 5 accumulated comprehensive loss accumulated comprehensive loss reported component stockholders’ equity increased 507 million december 31 2015 703 million december 31 2016 due primarily changes currency exchange rates accumulated comprehensive loss primarily related fluctuations currency exchange rates compared us dollar used translate certain international operations reportable segments 2016 2015 currency translation adjustments recognized component comprehensive loss primarily attributable united kingdom brazil canada december 31 2016 exchange rate british pound compared us dollar weakened 16 compared exchange rate december 31 2015 exchange rates brazilian real canadian dollar compared us dollar strengthened 22 3 respectively period december 31 2015 exchange rates british pound brazilian real canadian dollar compared us dollar weakened 5 31 16 respectively compared exchange rates december 31 2014 71 oil states international inc subsidiaries notes consolidated financial statements continued 6 acquisitions supplemental cash flow information january 2 2015 offshore products segment acquired montgomery machine company inc mmc combines machining proprietary cladding technology services manufacture highspecification components offshore capital equipment industry global basis believe acquisition mmc strengthened offshore products segment’s position supplier subsea components enhanced capabilities proprietary technology logistical advantages total transaction consideration 334 million net cash acquired components cash used connection acquisition reflected consolidated statements cash flows year ended december 31 2015 summarized follows thousands cash paid years ended december 31 2016 2015 2014 interest income taxes follows thousands 7 discontinued operations may 30 2014 completed spinoff accommodations business civeo corporation company’s stockholders may 30 2014 stockholders record oil states common stock close business may 21 2014 record date received two shares civeo common stock share oil states common stock held record date following spinoff oil states ceased shares civeo common stock following table provides components net income discontinued operations net tax operating segment thousands 72 oil states international inc subsidiaries notes consolidated financial statements continued 8 net income loss per share table provides reconciliation numerators denominators basic diluted net income loss per share years ended december 31 2016 2015 thousands except per share amounts calculation diluted net income loss per share years ended december 31 2016 2015 2014 excluded 748552 shares 747839 shares 224739 shares respectively issuable pursuant outstanding stock options restricted stock awards due antidilutive effect 9 goodwill intangible assets company tests impairment using fair value approach reporting unit level reporting unit operating segment business one level operating segment component level discrete financial information prepared regularly reviewed management component level company two reporting units offshore products completion services goodwill december 31 2016 goodwill allocated reporting units based actual acquisitions made company subsidiaries company recognizes impairment loss amount carrying amount reporting units goodwill exceeds reporting units ifv goodwill initial qualitative assessment potential goodwill impairment indicates likely fair value reporting unit less carrying amount including goodwill company uses appropriate current circumstance comparative market multiples discounted cash flow calculations acquisition comparables establish reporting units fair value level 3 fair value measurement company amortizes cost intangibles estimated useful lives unless lives deemed indefinite amortizable intangible assets reviewed impairment indicators impairment based undiscounted cash flows impaired written fair value based either discounted cash flows appraised values december 31 2016 2015 provision impairment intangible assets required 73 oil states international inc subsidiaries notes consolidated financial statements continued changes carrying amount goodwill years ended december 31 2016 2015 follows thousands following table presents total gross carrying amount intangibles total accumulated amortization major intangible asset classes december 31 2016 2015 thousands weighted average remaining amortization period intangible assets goodwill 82 years december 31 2016 87 years december 31 2015 total amortization expense expected 81 million 2017 74 million 2018 72 million 2019 70 million 2020 60 million 2021 amortization expense 82 million 78 million 70 million years ended december 31 2016 2015 2014 respectively 74 oil states international inc subsidiaries notes consolidated financial statements continued 10 longterm debt december 31 2016 2015 longterm debt consisted following thousands 1 amounts presented net 20 million 27 million respectively unamortized debt issuance costs scheduled maturities combined longterm debt december 31 2016 follows thousands companys capital leases consist primarily plant facilities equipment value capitalized leases related accumulated depreciation totaled 11 million 08 million respectively december 31 2016 value capitalized leases related accumulated depreciation totaled 15 million 09 million respectively december 31 2015 credit facility company 600 million senior secured revolving credit facility revolving credit facility option increase maximum borrowings revolving credit facility 750 million subject additional lender commitments prior maturity may 28 2019 december 31 2016 422 million outstanding credit agreement additional 307 million outstanding letters credit leaving 1531 million available drawn revolving credit facility total amount available drawn revolving credit facility less lender commitments december 31 2016 due maximum leverage ratio covenant revolving credit facility serves limit borrowings expect availability continue limited maximum leverage ratio covenant 2017 based upon forecast trailing twelvemonth ebitda defined credit agreement discussed revolving credit facility governed credit agreement dated may 28 2014 amended credit agreement among company lenders party thereto wells fargo bank na administrative agent swing line lender issuing bank royal bank canada syndication agent compass bank documentation agent october 3 2016 company amended revolving credit facility among things allow certain intercompany transactions among company subsidiaries may otherwise considered investments permitted credit agreement make certain technical changes modifications amounts outstanding revolving credit facility bear interest libor plus margin 150 250 base rate plus margin 050 150 case based ratio company’s total leverage ebitda year ended december 31 2016 applicable margin libor 150 must also pay quarterly commitment fee based leverage ratio unused commitments credit agreement unused commitment fee 0375 year ended december 31 2016 credit agreement contains customary financial covenants restrictions specifically must maintain interest coverage ratio defined ratio consolidated ebitda consolidated interest expense least 30 10 maximum leverage ratio defined ratio total debt consolidated ebitda greater 325 10 factors considered calculations ratios defined credit agreement ebitda consolidated interest defined exclude goodwill impairments losses extinguishment debt discount amortization noncash charges december 31 2016 compliance debt covenants 75 oil states international inc subsidiaries notes consolidated financial statements continued borrowings credit agreement secured pledge substantially assets domestic subsidiaries obligations credit agreement guaranteed significant domestic subsidiaries revolving credit facility also contains negative covenants limit companys ability borrow additional funds encumber assets pay dividends sell assets enter significant transactions companys credit agreement occurrence specified change control events involving company would constitute event default would permit banks among things accelerate maturity facility cause become immediately due payable full loss extinguishment debt 2014 recognized losses extinguishment debt totaling 1004 million primarily due repurchase remaining 6 12 notes 5 18 notes completed connection spinoff second quarter resulted loss 967 million consisting premium paid book value notes writeoff unamortized deferred financing costs associated notes premium paid repurchase 6 12 5 18 notes due fair market value exceeding book value date tendered redeemed addition result refinancing existing credit facility 2014 recognized loss extinguishment 37 million net 18 million allocated discontinued operations canadian portion facility writeoff unamortized deferred financing costs 11 stock repurchase program july 29 2015 company’s board directors approved termination existing share repurchase program authorized new program providing repurchase 150 million company’s common stock scheduled expire july 29 2016 july 27 2016 board directors extended share repurchase program one year july 29 2017 year ended december 31 2016 repurchases common stock made program 2015 total 1059 million common stock 2674218 shares repurchased programs compared 2189 million 2843142 shares 2014 amount remaining current share repurchase authorization december 31 2016 1368 million subject applicable securities laws purchases times amounts company deems appropriate 12 retirement plans company sponsors defined contribution plans participation plans available substantially employees company recognized expense 68 million 80 million 130 million respectively related matching contributions various defined contribution plans years ended december 31 2016 2015 2014 respectively 76 oil states international inc subsidiaries notes consolidated financial statements continued 13 income taxes consolidated income loss continuing operations income taxes years ended december 31 2016 2015 2014 consisted following thousands components income tax provision benefit respect income loss continuing operations years ended december 31 2016 2015 2014 consisted following thousands reconciliation federal statutory tax provision benefit rate effective tax provision benefit rate years ended december 31 2016 2015 2014 follows significant items giving rise deferred tax assets liabilities december 31 2016 2015 follows thousands 77 oil states international inc subsidiaries notes consolidated financial statements continued primary deferred tax assets december 31 2016 related foreign tax credit carryforwards net operating loss carryforwards employee benefits stockbased compensation allowance inventory obsolescence foreign tax credits expire varying amounts 2021 2026 december 31 2016 company us federal net operating loss “nol” carryforwards 366 million state nol carryforwards 509 million december 31 2016 company foreign nol carryforwards 21 million 32 million 117 million 10 million india thailand brazil mexico respectively us federal nol carryforwards expire 2036 nol carryforwards states expire 2021 2036 nol carryforwards thailand india expire 2019 2022 respectively nol carryforwards brazil carried forward indefinitely appropriate us foreign income taxes provided earnings foreign subsidiary companies expected remitted future cumulative amount undistributed earnings foreign subsidiaries company intends indefinitely reinvest upon foreign taxes accrued paid deferred us income taxes provided approximately 240 million december 31 2016 majority generated united kingdom company’s representation permanently reinvest earnings united kingdom removed singapore distribution earnings form dividends otherwise occur company may subject us income taxes subject adjustment foreign tax credits foreign withholding taxes practical however estimate amount taxes may payable eventual remittance earnings consideration available foreign tax credits 2016 2015 repatriated 201 million 352 million respectively foreign subsidiaries used reduce outstanding borrowings revolving credit facility company files tax returns jurisdictions required returns subject examination audit possible adjustment result assessments taxing authorities company believes recorded sufficient tax liabilities expect resolution examination audit tax returns would material adverse effect operating results financial condition liquidity tax years subsequent 2013 remain open us federal tax audit foreign subsidiaries federal tax returns subsequent 2010 subject audit various foreign tax authorities account uncertain tax positions using recognition threshold measurement attribute financial statement recognition measurement tax positions taken expected taken tax return benefits recognized tax position must morelikelythannot sustained upon examination taxing authorities amount recognized measured largest amount benefit greater fifty percent likely realized upon ultimate settlement total amount unrecognized tax benefits december 31 2016 2015 2014 nil company accrues interest penalties related unrecognized tax benefits component companys provision income taxes december 31 2016 2015 company accrued interest expense penalties 78 oil states international inc subsidiaries notes consolidated financial statements continued 14 commitments contingencies company leases portion equipment office space computer equipment automobiles trucks leases expire various dates minimum future operating lease obligations december 31 2016 follows thousands rental expense operating leases 102 million 113 million 115 million years ended december 31 2016 2015 2014 respectively ordinary course conducting business become involved litigation claims private party actions well judicial administrative proceedings involving governmental authorities federal state local levels 2014 2015 2016 number lawsuits filed federal court company one subsidiaries current former employees alleging violations fair labor standards act “flsa” plaintiffs seek damages penalties company’s alleged failure properly classify field service employees “nonexempt” flsa pay hourly basis including overtime plaintiffs seeking recovery behalf well behalf class similarly situated employees settlement class action company approved judgment entered november 19 2015 company settled vast majority claims evaluating potential settlements remaining individual plaintiffs’ claims expected significant party various pending threatened claims lawsuits administrative proceedings seeking damages remedies concerning commercial operations products employees matters including occasional claims individuals alleging exposure hazardous materials result products operations claims relate matters occurring prior acquisition businesses relate businesses sold certain cases entitled indemnification sellers businesses cases indemnified buyers businesses us although give assurance outcome pending legal administrative proceedings effect outcomes may us believe ultimate liability resulting outcome proceedings extent otherwise provided covered indemnity insurance material adverse effect consolidated financial position results operations liquidity 15 stockbased deferred compensation plans current accounting standards require companies measure cost employee services received exchange award equity instruments based grantdate fair value award fair value stock option awards estimated using optionpricing models fair value servicebased performancebased restricted stock awarded determined quoted market price company’s common stock date grant except limited number performancebased restricted awards valued using monte carlo simulation model result inclusion performance metrics based solely performance company’s common stock resulting cost recognized period employee required provide service exchange awards usually vesting period stockbased compensation pretax expense continuing operations recognized years ended december 31 2016 2015 2014 totaled 213 million 218 million 256 million respectively 79 oil states international inc subsidiaries notes consolidated financial statements continued stock options fair value option grant estimated date grant using black scholes merton option pricing model uses assumptions noted following table riskfree interest rate based us treasury yield curve effect expected term option time grant dividend yield common stock assumed zero since pay dividends current plans future expected market price volatility common stock based estimate made us considers historical implied volatility common stock well peer group companies time period equal expected term option expected life options awarded 2015 2014 options awarded 2016 based formula considering vesting period term options awarded past experience following table presents changes stock options outstanding related information year ended december 31 2016 weighted average fair values options granted 2015 2014 1332 3203 per share respectively options awarded 2015 term ten years granted exercise prices grant date closing market price total intrinsic value options exercised 2016 2015 2014 04 million 124 million 281 million respectively cash received company option exercises 2016 2015 2014 totaled 04 million 59 million 105 million respectively tax benefit realized tax deduction stock options exercised 2016 2015 2014 totaled less 01 million 65 million 69 million respectively following table summarizes information stock options outstanding december 31 2016 80 oil states international inc subsidiaries notes consolidated financial statements continued restricted stock awards restricted stock program consists combination servicebased restricted stock performancebased restricted stock number performancebased restricted shares ultimately issued program dependent upon achievement predefined specific performance measures generally measured threeyear period performance measure 2016 awards relative total stockholder return compared peer group companies performance measure specified 2015 2014 awards average aftertax return invested capital 2014 performance metric threshold achieved performancebased equity earned award currently unlikely 2015 performance measure threshold met would result additional performance forfeiture 80000 shares 2017 event predefined targets exceeded performancebased award additional shares maximum 200 target award may granted conversely actual performance falls predefined target number shares vested reduced actual performance falls threshold performance level restricted shares vest timebased restricted stock generally vest straightline basis term generally three four years following table presents changes restricted stock awards related information 2016 weighted average grant date fair value per share restricted stock awards granted 2016 2015 2014 2552 4239 9309 respectively total fair value restricted stock awards vested 2016 2015 2014 118 million 189 million 272 million respectively december 31 2016 279 million total compensation costs related nonvested restricted stock awards yet recognized expected recognized weighted average vesting period two years december 31 2016 total 1276175 shares available future grant equity participation plan deferred compensation plan company maintains nonqualified deferred compensation plan deferred compensation plan permits eligible employees directors elect defer receipt portion directors’ fees andor salary annual bonuses employee contributions deferred compensation plan matched company percentage employee participant companys 401k retirement plan subject irs limitations matcheligible compensation deferred compensation plan also permits company make discretionary contributions employees account although none made date directors contributions matched company since inception plan discretionary contribution provision limited matching participants contributions basis equivalent matching permitted companys 401k retirement savings plan vesting contributions participants’ accounts also equivalent vesting requirements companys 401k retirement savings plan deferred compensation plan dollar limits taxdeferred contributions assets deferred compensation plan held rabbi trust “trust” therefore available satisfy claims companys creditors event bankruptcy insolvency company participants ability direct plan administrator invest assets individual accounts including discretionary contributions company ten preapproved mutual funds held trust cover variety securities mutual funds addition participants currently right request plan administrator reallocate portfolio investments ie cash mutual funds participants individual accounts within trust company contributions form cash distributions plan generally made upon participants termination director andor employee applicable company participants receive payments deferred compensation plan cash december 31 2016 trust assets totaled 188 million majority classified “other noncurrent assets” company’s consolidated balance sheet fair value investments based quoted market prices active markets level 1 fair value measurement amounts payable plan participants december 31 2016 including fair value shares companys common stock reflected treasury stock 190 million classified noncurrent liabilities consolidated balance sheet company accounts deferred compensation plan accordance current accounting standards regarding accounting deferred compensation arrangements amounts earned held rabbi trust invested 81 oil states international inc subsidiaries notes consolidated financial statements continued accordance current accounting standards fair value fluctuations trust assets reflected consolidated statements income increases decreases value plan assets exclusive shares common stock company included compensation adjustments respective statements operations increases decreases fair value deferred compensation liability including shares common stock company held trust recorded treasury stock also included compensation adjustments consolidated statements operations 16 segment related information company operates two reportable segments well site services offshore products companys reportable segments represent strategic business units offer different products services managed separately business requires different technologies marketing strategies acquisitions direct extensions business segments separate business lines within well site services segment disclosed provide additional detail segment financial information business segment three years ended december 31 2016 2015 2014 summarized following table thousands accounting policies segments described summary significant accounting policies 82 oil states international inc subsidiaries notes consolidated financial statements continued financial information geographic location three years ended december 31 2016 2015 2014 summarized thousands revenues attributable countries based location entity selling products performing services include export sales longlived assets attributable countries based physical location operations operating assets include intercompany balances customers accounted 10 companys revenues years ended december 31 2016 2015 2014 equity net income unconsolidated affiliates included operating income 83 oil states international inc subsidiaries notes consolidated financial statements continued 17 valuation allowances activity valuation accounts follows thousands 84 oil states international inc subsidiaries notes consolidated financial statements continued 18 quarterly financial information unaudited following table summarizes quarterly financial information 2016 2015 thousands except per share amounts 1 represents product service revenues less product service costs included companys consolidated statements operations 2 first quarter 2016 recognized 16 million pretax severance downsizing charges first quarter 2015 net income attributable continuing operations included 21 million pretax severance downsizing initiatives higher effective tax rate driven primarily 23 million deferred tax adjustment certain prior period nondeductible items 3 second quarter 2016 recognized 11 million pretax severance downsizing charges second quarter 2015 recognized 17 million pretax severance downsizing charges 4 third quarter 2016 recognized 20 million pretax severance downsizing charges third quarter 2015 net income attributable continuing operations included higher effective tax rate driven primarily 32 million valuation allowance recorded company’s deferred tax assets related loss carryforwards 07 million pretax severance related costs 5 fourth quarter 2016 recognized 06 million pretax severance downsizing charges fourth quarter 2015 recognized 34 million pretax leasehold restoration provision one offshore products uk facilities 19 million pretax severance downsizing charges higher effective tax rate driven primarily 12 million tax adjustments primarily related nondeductible items 06 million valuation allowance recorded company’s tax loss carryforwards various foreign jurisdictions amounts calculated independently quarters presented therefore sum quarterly amounts may equal total calculated year 85 item 15 exhibits financial statement schedules index financial statements financial statement schedules exhibits 1 financial statements reference made index set forth page 57 annual report form 10k 2 financial statement schedules included herein information required submitted included consolidated financial statements notes thereto required information inapplicable 3 index exhibits see index exhibits list exhibits filed herewith index also includes identifies management contracts compensatory plans arrangements required filed exhibits annual report form 10k item 601 regulation sk b index exhibits filed herewith furnished herewith management contracts compensatory plans arrangements signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized february 20 2018 oil states international inc cindy b taylor cindy b taylor president chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 20 2018 signature title chairman board mark g papa cindy b taylor director president chief executive officer cindy b taylor principal executive officer lloyd hajdik executive vice president chief financial officer lloyd hajdik treasurer principal financial officer brian e taylor vice president controller chief accounting officer brian e taylor principal accounting officer director lawrence r dickerson director james nelson jr director robert l potter director christopher seaver director william van kleef director stephen wells lloyd hajdik lloyd hajdik pursuant power attorney filed exhibit 241 annual report form 10k oil states international inc subsidiaries index consolidated financial statements report independent registered public accounting firm board directors stockholders oil states international inc opinion financial statements audited accompanying consolidated balance sheets oil states international inc subsidiaries company december 31 2017 2016 related consolidated statements operations comprehensive income loss stockholders’ equity cash flows three years period ended december 31 2017 related notes collectively referred financial statements opinion financial statements present fairly material respects consolidated financial position company december 31 2017 2016 consolidated results operations cash flows three years period ended december 31 2017 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states pcaob company’s internal control financial reporting december 31 2017 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission 2013 framework report dated february 20 2018 expressed unqualified opinion thereon basis opinion financial statements responsibility company’s management responsibility express opinion company’s financial statements based audits public accounting firm registered pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement whether due error fraud audits included performing procedures assess risks material misstatement financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation financial statements believe audits provide reasonable basis opinion ernst young llp served company‘s auditor since 2000 houston texas february 20 2018 report independent registered public accounting firm board directors stockholders oil states international inc opinion internal control financial reporting audited oil states international inc subsidiaries’ internal control financial reporting december 31 2017 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission 2013 framework coso criteria opinion oil states international inc subsidiaries company maintained material respects effective internal control financial reporting december 31 2017 based coso criteria also audited accordance standards public company accounting oversight board united states pcaob consolidated balance sheets company december 31 2017 2016 related consolidated statements operations comprehensive income loss stockholders’ equity cash flows three years period ended december 31 2017 related notes report dated february 20 2018 expressed unqualified opinion thereon basis opinion company’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s annual report internal control financial reporting responsibility express opinion company’s internal control financial reporting based audit public accounting firm registered pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audit accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk performing procedures considered necessary circumstances believe audit provides reasonable basis opinion definition limitations internal control financial reporting company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate ernst young llp houston texas february 20 2018 oil states international inc subsidiaries consolidated statements operations thousands except per share amounts accompanying notes integral part financial statements oil states international inc subsidiaries consolidated statements comprehensive income loss thousands accompanying notes integral part financial statements oil states international inc subsidiaries consolidated balance sheets thousands except share amounts accompanying notes integral part financial statements oil states international inc subsidiaries consolidated statements stockholders equity thousands accompanying notes integral part financial statements oil states international inc subsidiaries consolidated statements cash flows thousands accompanying notes integral part financial statements oil states international inc subsidiaries notes consolidated financial statements 1 organization basis presentation consolidated financial statements include accounts oil states international inc “oil states” “company” consolidated subsidiaries investments unconsolidated affiliates company able exercise significant influence accounted using equity method significant intercompany accounts transactions company consolidated subsidiaries eliminated accompanying consolidated financial statements company subsidiaries leading provider specialty products services oil gas companies throughout world operate substantial number worlds active crude oil natural gas producing regions onshore offshore united states canada west africa north sea south america southeast central asia periods presented herein company operated two business segments offshoremanufactured products well site services discussed note 18 “subsequent events” january 12 2018 acquired geodynamics inc “geodynamics” total consideration approximately 615 million “geodynamics acquisition” geodynamics provides oil gas perforation systems downhole tools support completion intervention wireline well abandonment operations geodynamics operations reported separate business segment beginning first quarter 2018 name “downhole technologies” first quarter 2017 modified name “offshore products” segment “offshoremanufactured products” segment given higher proportional weighting shortercycle manufactured products much driven landbased activity total revenues generated segment company also provided supplemental disclosure note 15 “segments related information” respect product service revenues generated offshoremanufactured products segment including projectdriven products shortcycle products services operational reporting material changes related offshoremanufactured products segment 2 summary significant accounting policies cash equivalents company considers highly liquid investments purchased original maturity three months less cash equivalents fair value financial instruments company’s financial instruments consist cash equivalents investments receivables payables debt foreign currency forward contracts company believes carrying values instruments accompanying consolidated balance sheets approximate fair values inventories consist oilfield products manufactured equipment spare parts manufactured equipment workinprocess inventories also include raw materials labor subcontractor charges manufacturing overhead supplies carried lower cost market cost inventories determined average cost specificidentification method reserve excess damaged andor obsolete inventory maintained based age turnover condition inventory property plant equipment property plant equipment stated cost estimated fair market value acquisition date acquired business combination depreciation computed assets owned recorded capital lease using straightline method allowing salvage value applicable estimated useful lives assets use component depreciation method drilling services assets leasehold improvements capitalized amortized lesser life lease estimated useful life asset oil states international inc subsidiaries notes consolidated financial statements continued expenditures repairs maintenance charged expense incurred expenditures major renewals betterments extend useful lives existing equipment capitalized depreciated upon retirement disposition property equipment cost related accumulated depreciation removed accounts resulting gain loss recognized statements operations goodwill intangible assets goodwill represents excess purchase price paid acquired businesses allocated fair value related net assets impairments applicable evaluate goodwill impairment annually event occurs circumstances change suggest carrying amount may recoverable reporting units goodwill december 31 2017 include offshoremanufactured products completion services evaluation goodwill reporting unit goodwill balance sheet assessed separately different relevant events circumstances evaluated unit estimate fair value reporting unit compare fair value book carrying value utilize depending circumstances combination trading multiples analyses discounted projected cash flow calculations estimated terminal values acquisition comparables discount projected cash flows using longterm weighted average cost capital reporting unit based estimate investment returns would required market participant part process assess goodwill impairment also compare total market capitalization company sum fair values reporting units assess reasonableness aggregated fair values carrying amount reporting unit exceeds fair value goodwill considered impaired impairment loss recorded past three years goodwill impairment tests indicated fair value reporting units greater carrying amount intangible assets amortize review useful life intangible asset evaluate reporting period whether events circumstances warrant revision remaining useful life based company’s review carrying values intangible assets recoverable impairment losses recorded periods presented see note 8 goodwill intangible assets impairment longlived assets recoverability carrying values longlived assets asset group level including finitelived intangible assets assessed whenever managements judgment events changes circumstances indicate carrying value asset groups may recoverable based estimated future cash flows assessment indicates carrying values recoverable determined based undiscounted cash flows remaining useful lives impairment loss recognized impairment loss equals excess carrying value fair value asset group fair value asset group based prices similar assets available discounted cash flows based companys review carrying values asset groups recoverable impairment losses recorded periods presented see note 8 goodwill intangible assets foreign currency comprehensive loss gains losses resulting balance sheet translation international operations local currency functional currency included separate component accumulated comprehensive loss within stockholders equity representing substantially balances within accumulated comprehensive loss remeasurements intercompany advances denominated currency functional currency entity longterm investment nature recognized component comprehensive loss within stockholders’ equity gains losses resulting balance sheet remeasurements assets liabilities denominated different currency functional currency intercompany advances longterm investment nature included consolidated statements operations within operating income expense net incurred currency exchange rate risk portion revenues earnings net investments operations outside united states exposed changes currency exchange rates seek manage currency exchange risk part operational means including managing expected local currency revenues relation local currency costs local currency assets relation local currency liabilities order reduce exposure fluctuations currency exchange rates may enter currency exchange agreements financial oil states international inc subsidiaries notes consolidated financial statements continued institutions december 31 2017 2016 outstanding foreign currency forward purchase contracts notional amounts 24 million 22 million respectively related expected cash flows denominated euros designated accounting hedges currency exchange losses 05 million 2017 exchange gains totaling 47 million 37 million 2016 2015 respectively included “other operating income expense net” revenue cost recognition revenue sale products accounted utilizing percentageofcompletion method recognized delivery acceptance customer occurred title significant risks ownership passed customer collectability probable pricing fixed determinable product sales terms include significant postperformance obligations significant projects revenues recognized percentageofcompletion method measured percentage costs incurred date compared estimated total costs contract costtocost method billings contracts excess costs incurred estimated profits classified deferred revenue costs incurred estimated profits excess billings percentageofcompletion contracts recognized unbilled receivables management believes method appropriate measure progress large contracts provisions estimated losses uncompleted contracts made period losses determined factors may affect future project costs margins include weather production efficiencies availability costs labor materials subcomponents factors significantly impact accuracy company’s estimates materially impact company’s future reported earnings well site services segment revenues recognized based periodic usually daily rate services rendered proceeds customers cost oilfield rental equipment damaged lost downhole reflected gains losses disposition assets considering writeoff remaining net book value equipment drilling services contracts based footage drilled recognize revenues footage drilled revenues exclude taxes assessed based revenues sales value added taxes see note 4 recent accounting pronouncements discussion respect companys adoption new guidance recognition revenue contracts customers january 1 2018 cost goods sold includes direct material labor costs related contract performance indirect labor supplies tools repairs selling general administrative costs charged expense incurred income taxes company follows liability method accounting income taxes accordance current accounting standards regarding accounting income taxes method deferred income taxes recorded based upon differences financial reporting tax bases assets liabilities measured using enacted tax rates laws effect time underlying assets liabilities recovered settled discussed note 12 income taxes december 22 2017 legislation commonly known tax cuts jobs act tax reform legislation signed law enacts significant changes us tax related laws including certain key us federal income tax provisions applicable oilfield service manufacturing companies company us state regulatory bodies finalized potential changes existing laws regulations may result new us tax related laws accordance securities exchange commission’s staff accounting bulletin 118 “sab 118” company recorded provisional estimates reflect effect provisions recently enacted us tax related laws company’s income tax assets liabilities december 31 2017 company continues collect additional information support refine calculations impact changes operations recorded income tax assets liabilities may result adjustments december 2018 allowed sab 118 prior december 22 2017 majority companys earnings international subsidiaries considered indefinitely reinvested outside united states provision us income taxes made earnings however certain historical foreign earnings considered indefinitely reinvested outside united states subject us income tax earned companys subsidiaries distributed earnings form dividends otherwise company generally subject us income taxes subject adjustment foreign tax credits withholding taxes payable various foreign countries 2016 repatriated 201 million international subsidiaries used reduce outstanding borrowings revolving credit facility oil states international inc subsidiaries notes consolidated financial statements continued december 31 2017 company’s total investment foreign subsidiaries considered permanently reinvested except cumulative foreign earnings deemed repatriated tax reform legislation company records valuation allowance reporting period management believes likely deferred tax asset created realized assessment requires analysis changes tax laws available positive negative evidence including losses recent years reversals temporary differences forecasts future income assessment future business assumptions tax planning strategies 2017 2016 recorded valuation allowances primarily respect net operating loss carryforwards certain operations outside united states result changes us tax laws 2017 recorded valuation allowance respect foreign tax credit carryforwards fourth quarter 2017 calculation tax liabilities involves assessing uncertainties regarding application complex tax regulations recognize liabilities tax expenses based estimate whether extent additional taxes due ultimately determine payment amounts unnecessary reverse liability recognize tax benefit period determine liability longer necessary record additional charge provision taxes period determine recorded tax liability less expect ultimate assessment receivables concentration credit risk based nature customer base company believe significant concentrations credit risk concentration worldwide oil gas industry note 15 segments related information provides information respect companys geographic revenues significant customers company evaluates creditworthiness significant new existing customers financial condition generally company require significant collateral customers allowances doubtful accounts company maintains allowances doubtful accounts estimated losses resulting inability companys customers make required payments trade receivable deemed uncollectible receivable chargedoff allowance doubtful accounts company considers following factors determining collection revenue reasonably assured customer creditworthiness past transaction history customer solvency changes customer payment terms company previous experience customer company typically obtains reports various credit organizations ensure customer history paying creditors company may also request financial information including financial statements documents ensure customer means making payment factors indicate collection reasonably assured company may require prepayment arrangement support revenue recognition recording trade receivable financial condition companys customers deteriorate adversely affecting ability make payments additional allowances would required earnings per share diluted earnings per share “eps” amounts include effect companys outstanding stock options restricted stock shares treasury stock method shares restricted stock issued outstanding remain subject vesting requirements holders shares unvested restricted stock entitled liquidation dividend rights holders outstanding common stock thus considered participating securities applicable accounting guidance undistributed earnings period allocated based participation rights common stockholders holders participating securities earnings respective periods distributed liquidation dividend rights identical undistributed earnings allocated proportionate basis required compute earnings per share amounts two class method periods earnings presentation basic eps amounts face accompanying consolidated statements operations computed dividing net income loss applicable company’s common stockholders weighted average shares outstanding common stock calculation diluted eps similar basic eps except denominator includes dilutive common stock equivalents income included numerator excludes effects impact dilutive common stock equivalents oil states international inc subsidiaries notes consolidated financial statements continued stockbased compensation fair value sharebased payments estimated using quoted market price company’s common stock pricing models date grant discussed note 14 stockbased deferred compensation plans resulting cost net estimated forfeitures recognized period employee required provide service exchange awards usually vesting period addition servicebased awards company issues performancebased awards conditional based upon company performance may vest amount depend company’s achievement specified performance objectives guarantees product sales offshoremanufactured products businesses sold assurance warranty generally ranging 12 18 months parts labor covered terms warranty agreement warranty provisions estimated based upon historical experience product configuration geographic region ordinary course business company also provides standby letters credit guarantee instruments certain parties required certain transactions initiated either company subsidiaries december 31 2017 maximum potential amount future payments company could required make guarantee agreements letters credit 212 million company recorded liability connection guarantee arrangements company believe based historical experience information currently available likely amounts required paid guarantee arrangements use estimates preparation consolidated financial statements conformity accounting principles generally accepted united states requires use estimates assumptions management determining reported amounts assets liabilities disclosures contingent assets liabilities date consolidated financial statements reported amounts revenues expenses reporting period examples estimates include revenue income recognized percentageofcompletion method valuation allowances recorded deferred tax assets reserves inventory allowances doubtful accounts warranty obligations potential future adjustments related contractual agreements actual results could materially differ estimates accounting contingencies contingent liabilities future claims made estimates amount eventual cost liquidate liabilities claims liabilities claims sometimes involve threatened actual litigation damages quantified made assessment exposure recorded provision accounts cover expected loss claims liabilities estimated based fair value experience matters appropriate advice outside counsel outside experts upon ultimate resolution uncertainties future reported financial results impacted difference estimates actual amounts paid settle liability examples areas made important estimates future liabilities include income taxes litigation insurance claims warranty claims contractual claims obligations discontinued operations discontinued operations net income loss discontinued operations includes immaterial amounts 2016 2015 related company’s former accommodations business spunoff standalone publiclytraded corporation 2014 tubular services business sold 2013 components business disposed classified held sale subsequent 2014 oil states international inc subsidiaries notes consolidated financial statements continued 3 details selected balance sheet accounts additional information regarding selected balance sheet accounts december 31 2017 2016 presented thousands depreciation expense 990 million 1105 million 1235 million years ended december 31 2017 2016 2015 respectively oil states international inc subsidiaries notes consolidated financial statements continued 4 recent accounting pronouncements time new accounting pronouncements issued financial accounting standards board “fasb” adopted company specified effective date unless otherwise discussed management believes impact recently issued standards yet effective material impact company’s consolidated financial statements upon adoption may 2014 fasb issued guidance revenue contracts customers supersede current revenue recognition guidance including industryspecific guidance underlying principle entity recognize revenue depict transfer goods services customers amount entity expects entitled receive exchange goods services guidance permitted use either full retrospective modified retrospective transition method company adopted guidance january 1 2018 using modified retrospective transition method applied contracts completed date january 1 2018 required recognize cumulative effect adopting guidance adjustment opening balance retained earnings prior periods retrospectively adjusted based detailed analysis existing contracts customers company concluded cumulative impact new standard material consolidated financial statements january 1 2018 accordance guidance expand revenue recognition disclosures 2018 address new qualitative quantitative requirements also required evaluate implications new revenue recognition guidance contracts customers acquired connection geodynamics acquisition expect complete evaluation march 31 2018 february 2016 fasb issued guidance leases introduces recognition lease assets lease liabilities lessees leases shortterm nature new standard requires modified retrospective transition capital operating leases existing entered beginning earliest comparative period presented financial statements company adopt guidance january 1 2019 upon initial evaluation believe key change upon adoption balance sheet recognition leases income statement recognition appears similar current methodology company’s future undiscounted obligations operating leases december 31 2017 totaled 258 million summarized note 13 “commitments contingencies” march 2016 fasb issued guidance employee sharebased payment accounting modifies existing guidance related accounting forfeitures employer tax withholding stockbased compensation financial statement presentation excess tax benefits deficiencies company adopted guidance january 1 2017 adoption standard retrospective impact company’s financial statements impact company’s income tax provision 2017 material oil states international inc subsidiaries notes consolidated financial statements continued january 2017 fasb issued guidance simplifies test goodwill impairment revised standard company longer required determine implied fair value goodwill assigning fair value reporting unit individual assets liabilities reporting unit acquired business combination revised guidance requires prospective transition permits early adoption interim annual goodwill impairment tests performed january 1 2017 company adopted standard effective january 1 2017 see note 8 goodwill intangible assets 5 accumulated comprehensive loss accumulated comprehensive loss reported component stockholders’ equity decreased 703 million december 31 2016 585 million december 31 2017 due primarily changes currency exchange rates accumulated comprehensive loss primarily related fluctuations currency exchange rates compared us dollar used translate certain international operations reportable segments 2017 2016 currency translation adjustments recognized component comprehensive loss primarily attributable united kingdom brazil year ended december 31 2017 exchange rate british pound strengthened 9 compared us dollar brazilian real weakened 2 compared us dollar period contributing comprehensive income 118 million year ended december 31 2016 exchange rate british pound weakened 16 compared us dollar brazilian real strengthened 22 compared us dollar period contributing comprehensive loss 196 million 6 acquisitions supplemental cash flow information january 2017 offshoremanufactured products segment acquired intellectual property assets complementary product lines global crane manufacturing service operations acquisition included adding active heave compensation technology knuckleboom crane designs existing portfolio april 2017 offshoremanufactured products segment acquired assets intellectual property complementary riser testing inspection repair service offerings complementary technology allows segment provide automated inspection techniques either board offshore vessel quayside without requirements transport facility remove buoyancy materials january 2015 offshoremanufactured products segment acquired montgomery machine company inc mmc combines machining proprietary cladding technology services manufacture highspecification components offshore capital equipment industry global basis believe acquisition mmc strengthened offshoremanufactured products segment’s position supplier subsea components enhanced capabilities proprietary technology logistical advantages components cash used connection acquisitions reflected consolidated statements cash flows years ended december 31 2017 2016 2015 summarized follows thousands see note 18 subsequent events discussion geodynamics acquisition completed january 12 2018 cash paid years ended december 31 2017 2016 2015 interest income taxes net refunds follows thousands oil states international inc subsidiaries notes consolidated financial statements continued borrowings repayments revolving credit facility years ended december 31 2017 2016 2015 follows thousands 7 net income loss per share table provides reconciliation numerators denominators basic diluted net income loss per share years ended december 31 2017 2016 thousands except per share amounts calculation diluted net income loss per share years ended december 31 2017 2016 2015 excluded 709292 shares 748552 shares 747839 shares respectively issuable pursuant outstanding stock options restricted stock awards due antidilutive effect oil states international inc subsidiaries notes consolidated financial statements continued 8 goodwill intangible assets company tests impairment using fair value approach reporting unit level reporting unit operating segment business one level operating segment component level discrete financial information prepared regularly reviewed management component level company two reporting units offshoremanufactured products completion services goodwill december 31 2017 goodwill allocated reporting units based actual acquisitions made company subsidiaries company recognizes impairment loss amount carrying amount reporting units goodwill exceeds reporting units fair value goodwill assessment potential goodwill impairment reporting unit uses appropriate current circumstance comparative market multiples discounted cash flow calculations acquisition comparables establish reporting units fair value level 3 fair value measurement company amortizes cost intangibles estimated useful lives unless lives deemed indefinite amortizable intangible assets reviewed impairment indicators impairment based undiscounted cash flows impaired written fair value based either discounted cash flows appraised values december 31 2017 2016 provision impairment intangible assets required changes carrying amount goodwill years ended december 31 2017 2016 follows thousands oil states international inc subsidiaries notes consolidated financial statements continued following table presents total gross carrying amount intangibles total accumulated amortization major intangible asset classes december 31 2017 2016 thousands weighted average remaining amortization period intangible assets goodwill 78 years december 31 2017 82 years december 31 2016 total amortization expense expected 85 million 2018 80 million 2019 65 million 2020 64 million 2021 57 million 2022 amortization expense 87 million 82 million 78 million years ended december 31 2017 2016 2015 respectively see note 18 subsequent events information respect geodynamics acquisition completed january 12 2018 9 longterm debt december 31 2017 2016 longterm debt consisted following thousands 1 presented net 20 million unamortized debt issuance costs december 31 2016 unamortized debt issuance costs 16 million december 31 2017 classified noncurrent assets scheduled maturities total debt december 31 2017 follows thousands credit facility company’s senior secured revolving credit facility “revolving credit facility” amended december 12 2017 among things expressly permit geodynamics acquisition connection amendment total commitments available revolving credit facility reduced 600 million 425 million ability draw incremental accordion facility removed december 31 2017 borrowings outstanding revolving credit facility 212 million outstanding letters credit leaving 1593 million available drawn revolving credit facility total amount available drawn revolving credit facility less lender commitments december 31 2017 due maximum leverage ratio covenant revolving credit facility serves limit borrowings oil states international inc subsidiaries notes consolidated financial statements continued december 31 2017 revolving credit facility governed credit agreement dated may 28 2014 amended credit agreement among company lenders party thereto wells fargo bank na administrative agent swing line lender issuing bank royal bank canada syndication agent compass bank documentation agent following provides summary significant provisions revolving credit facility 2017 1 based unused commitments credit agreement 2 defined ratio consolidated ebitda consolidated interest expense 3 defined ratio total debt consolidated ebitda factors considered calculations ratios defined credit agreement ebitda consolidated interest expense defined exclude goodwill impairments noncash stockbased compensation expense losses extinguishment debt discount amortization noncash charges december 31 2017 compliance debt covenants borrowings credit agreement secured pledge substantially assets domestic subsidiaries obligations credit agreement guaranteed significant domestic subsidiaries revolving credit facility also contains negative covenants limit companys ability borrow additional funds encumber assets pay dividends sell assets enter significant transactions companys credit agreement occurrence specified change control events involving company would constitute event default would permit banks among things accelerate maturity facility cause become immediately due payable full discussed note 18 subsequent events company amended restated revolving credit facility january 30 2018 contemporaneously issued 200 million principal amount 150 convertible senior notes due 2023 10 stockholders equity following table provides details respect changes number shares common stock 001 par value issued held treasury outstanding 2017 oil states international inc subsidiaries notes consolidated financial statements continued december 31 2017 2016 company 25000000 shares preferred stock 001 par value authorized shares issued outstanding july 29 2015 company’s board directors approved termination existing share repurchase program authorized new program providing repurchase 150 million company’s common stock following extension scheduled expire july 29 2017 july 26 2017 board directors extended share repurchase program one year july 29 2018 year ended december 31 2017 company repurchased 561765 shares common stock program total cost 162 million 2016 repurchases common stock compared total 1059 million 2674218 shares repurchased programs 2015 amount remaining current share repurchase authorization december 31 2017 1205 million subject applicable securities laws purchases times amounts company deems appropriate discussed note 18 subsequent events company issued 866 million shares common stock connection geodynamics acquisition 11 retirement plans company sponsors defined contribution plans participation plans available substantially employees company recognized expense 68 million 68 million 80 million respectively related matching contributions various defined contribution plans years ended december 31 2017 2016 2015 respectively 12 income taxes consolidated income loss continuing operations income taxes years ended december 31 2017 2016 2015 consisted following thousands components income tax provision benefit respect income loss continuing operations years ended december 31 2017 2016 2015 consisted following thousands oil states international inc subsidiaries notes consolidated financial statements continued reconciliation us statutory tax provision benefit rate effective tax provision benefit rate years ended december 31 2017 2016 2015 follows significant items giving rise deferred tax assets liabilities december 31 2017 2016 follows thousands december 22 2017 united states enacted legislation commonly known tax cuts jobs act “tax reform legislation” resulted significant changes us tax related laws including certain key federal income tax provisions applicable multinational companies company changes include among others implementation territorial tax system onetime mandatory tax undistributed foreign earnings subsidiaries reduction us corporate income tax rate 21 35 beginning 2018 result us tax law changes company recorded net charge 282 million within income tax provision benefit consisting primarily incremental income tax expense 414 million related onetime mandatory transition tax company’s unremitted foreign subsidiary earnings transition tax valuation allowance established company’s foreign tax credit carryforwards recorded assets prior tax reform legislation offset tax oil states international inc subsidiaries notes consolidated financial statements continued benefit 132 million related remeasurement company’s us net deferred tax liabilities based new 21 us corporate income tax rate company expect incur material cash tax payable respect transition tax reform legislation also includes many new provisions including changes bonus depreciation deduction executive compensation interest expense potential incremental taxes related certain foreign earnings many provisions apply company 2018 company assessing impact provisions tax reform legislation company’s net deferred tax liability december 31 2017 excludes impact potential future us income taxes related certain foreign activities transactions described tax reform legislation company continues examine implications arising transition tax provisions new tax laws believes provisional estimates recorded reflect reasonable estimate impact based information available todate additional regulatory accounting guidance becomes available information obtained connection preparation company’s 2017 us federal various foreign income tax returns company record necessary adjustments provisional estimates 2018 ultimate impact tax reform legislation may differ company’s provisional estimates possibly materially due changes interpretations assumptions made company well additional regulatory accounting guidance may issued actions company may take result tax reform legislation additionally third quarter 2017 company decided carryback 2016 us federal net operating loss nol 2014 received related refund prior december 31 2017 effect carryback resulted loss certain previously claimed deductions result company recorded discrete tax charge 10 million period company us federal nol carryforwards december 31 2017 company’s state nol carryforwards december 31 2017 totaled 752 million december 31 2017 company nol carryforwards related certain international operations totaling 267 million 149 million carried forward indefinitely december 31 2017 2016 company recorded valuation allowances 109 million 70 million respectively respect state foreign nol carryforwards december 31 2017 company’s foreign tax credit carryforwards totaled 270 million foreign tax credits expire varying amounts 2021 2026 discussed result enactment tax reform legislation company provided full valuation allowance foreign tax credits due uncertainties respect ability utilize credits future periods prior december 22 2017 appropriate us foreign income taxes provided earnings foreign subsidiary companies expected remitted future cumulative amount undistributed earnings foreign subsidiaries company intended indefinitely reinvest upon foreign taxes accrued paid deferred us income taxes provided approximately 240 million december 31 2016 repatriated 201 million foreign subsidiaries used reduce outstanding borrowings revolving credit facility company files tax returns jurisdictions required returns subject examination audit possible adjustment result assessments taxing authorities company believes recorded sufficient tax liabilities expect resolution examination audit tax returns material adverse effect consolidated operating results financial condition liquidity tax years subsequent 2013 remain open us federal tax audit foreign subsidiaries federal tax returns subsequent 2011 subject audit various foreign tax authorities account uncertain tax positions using recognition threshold measurement attribute financial statement recognition measurement tax positions taken expected taken tax return benefits recognized tax position must morelikelythannot sustained upon examination taxing authorities amount recognized measured largest amount benefit greater fifty percent likely realized upon ultimate settlement total amount unrecognized tax benefits december 31 2017 2016 nil company accrues interest penalties related unrecognized tax benefits component companys provision income taxes december 31 2017 2016 company accrued interest expense penalties oil states international inc subsidiaries notes consolidated financial statements continued 13 commitments contingencies company leases portion equipment office space computer equipment vehicles leases expire various dates minimum future operating lease obligations december 31 2017 follows thousands rental expense operating leases 91 million 102 million 113 million years ended december 31 2017 2016 2015 respectively ordinary course conducting business company becomes involved litigation claims private party actions well judicial administrative proceedings involving governmental authorities federal state local levels preceding three years number lawsuits filed federal court company one subsidiaries current former employees alleging violations fair labor standards act “flsa” plaintiffs seek damages penalties company’s alleged failure properly classify field service employees “nonexempt” flsa pay hourly basis including overtime plaintiffs seeking recovery behalf well behalf class similarly situated employees settlement class action company approved judgment entered november 19 2015 company settled vast majority claims evaluating potential settlements remaining individual plaintiffs’ claims expected significant company party various pending threatened claims lawsuits administrative proceedings seeking damages remedies concerning commercial operations products employees matters including occasional claims individuals alleging exposure hazardous materials result companys products operations claims relate matters occurring prior acquisition businesses relate businesses company sold certain cases entitled indemnification sellers businesses cases company indemnified buyers businesses us although company give assurance outcome pending legal administrative proceedings effect outcomes may company believe ultimate liability resulting outcome proceedings extent otherwise provided covered indemnity insurance material adverse effect companys consolidated financial position results operations liquidity 14 stockbased deferred compensation plans company measures cost employee services received exchange award equity instruments based grantdate fair value award fair value servicebased restricted stock awarded determined quoted market price company’s common stock date grant fair value performancebased restricted awarded 2017 2016 valued using monte carlo simulation model due inclusion performance metrics based solely performance company’s common stock fair value stock option awards estimated using optionpricing models resulting cost net estimated forfeitures recognized period employee required provide service exchange awards usually vesting period stockbased compensation pretax expense recognized years ended december 31 2017 2016 2015 totaled 230 million 213 million 218 million respectively restricted stock awards restricted stock program consists combination servicebased restricted stock performancebased restricted stock number performancebased restricted shares ultimately issued program dependent upon achievement oil states international inc subsidiaries notes consolidated financial statements continued predefined specific performance measures generally measured threeyear period performance measure 2017 2016 awards relative total stockholder return compared peer group companies performance measure specified 2015 awards average aftertax return invested capital 2015 performance metric threshold achieved performancebased equity earned award event predefined targets exceeded performancebased award additional shares maximum 200 target award may granted conversely actual performance falls predefined target number shares vested reduced actual performance falls threshold performance level restricted shares vest timebased restricted stock generally vest straightline basis term generally three four years following table presents changes restricted stock awards related information 2017 total fair value restricted stock awards vested 2017 2016 2015 175 million 118 million 189 million respectively december 31 2017 274 million total compensation costs related nonvested restricted stock awards yet recognized expected recognized weighted average vesting period 15 years december 31 2017 approximately 871 thousand shares available future grant equity participation plan stock options company awarded stock options since 2015 fair value historical option grants estimated date grant using black scholes merton option pricing model fair value options awarded 2015 calculated using following assumptions riskfree weighted interest rate 12 dividend yield 0 expected life 43 years expected volatility 37 following table presents changes stock options outstanding related information year ended december 31 2017 weighted average fair value options granted 2015 1332 per share options awarded 2015 term ten years granted exercise prices grant date closing market price total intrinsic value options exercised 2016 2015 04 million 124 million respectively cash received company option exercises 2016 2015 totaled 04 million 59 million respectively tax benefit realized tax deduction stock options exercised 2016 2015 totaled 01 million 65 million respectively oil states international inc subsidiaries notes consolidated financial statements continued following table summarizes information stock options outstanding december 31 2017 deferred compensation plan company maintains nonqualified deferred compensation plan deferred compensation plan permits eligible employees directors elect defer receipt portion directors’ fees andor salary annual bonuses employee contributions deferred compensation plan matched company percentage employee participant companys 401k retirement plan subject irs limitations matcheligible compensation deferred compensation plan also permits company make discretionary contributions employees account although none made date directors contributions matched company since inception plan discretionary contribution provision limited matching participants contributions basis equivalent matching permitted companys 401k retirement savings plan vesting contributions participants’ accounts also equivalent vesting requirements companys 401k retirement savings plan deferred compensation plan dollar limits taxdeferred contributions assets deferred compensation plan held rabbi trust “trust” therefore available satisfy claims companys creditors event bankruptcy insolvency company participants ability direct plan administrator invest assets individual accounts including discretionary contributions company 30 preapproved mutual funds held trust cover variety securities mutual funds addition participants currently right request plan administrator reallocate portfolio investments ie cash mutual funds participants individual accounts within trust company contributions form cash distributions plan generally made upon participants termination director andor employee applicable company participants receive payments deferred compensation plan cash december 31 2017 trust assets totaled 210 million majority classified “other noncurrent assets” company’s consolidated balance sheet fair value investments based quoted market prices active markets level 1 fair value measurement amounts payable plan participants december 31 2017 including fair value shares companys common stock reflected treasury stock 212 million classified noncurrent liabilities consolidated balance sheet company accounts deferred compensation plan accordance current accounting standards regarding accounting deferred compensation arrangements amounts earned held rabbi trust invested increases decreases value trust assets exclusive shares common stock company held trust included compensation adjustments consolidated statements operations increases decreases fair value deferred compensation liability including shares common stock company held trust recorded treasury stock also included compensation adjustments consolidated statements operations 15 segments related information periods presented company operated two reportable segments well site services offshoremanufactured products companys reportable segments represent strategic business units offer different products services managed separately business requires different technologies marketing strategies acquisitions direct extensions business segments accounting policies segments described summary significant accounting policies see note 18 subsequent events discussion geodynamics acquisition completed january 12 2018 well site services segment provides broad range equipment services used drill establish maintain flow oil natural gas well throughout life cycle segment operations primarily include completionfocused equipment services well land drilling services completion services operations provide solutions oil states international inc subsidiaries notes consolidated financial statements continued customers using completion tools highlytrained personnel throughout service offerings include wireline support frac stacks isolations tools extended reach tools ball launchers well testing operations thru tubing activity sand control drilling services provides land drilling services shallow medium depth wells west texas rocky mountain region united states separate business lines within well site services segment disclosed provide additional detail respect operations substantially revenue generated well site services segment classified service revenue consolidated statement operations offshoremanufactured products segment designs manufactures markets capital equipment utilized floating production systems subsea pipeline infrastructure offshore drilling rigs vessels along shortcycle products driven principally longerterm customer investments offshore oil natural gas projects “projectdriven product” revenues include flexible bearings advanced connector systems highpressure riser systems deepwater mooring systems cranes subsea pipeline products blowout preventer stack integration “shortcycle products” manufactured segment include valves elastomers specialty products generally used landbased drilling completion markets “other products” manufactured offered segment include variety products use industrial military applications outside oil gas industry segment also offers broad line complementary valueadded services including specialty welding fabrication cladding machining services offshore installation services inspection repair services corporate information includes corporate expenses including related corporate governance stockbased compensation infrastructure support well impacts corporatewide decisions individual operating units evaluated financial information business segment three years ended december 31 2017 2016 2015 summarized following table thousands oil states international inc subsidiaries notes consolidated financial statements continued following table provides supplemental revenue information offshoremanufactured products segment three years ended december 31 2017 2016 2015 thousands one customer individually accounted 16 companys consolidated revenues whose receivables individually accounted 13 companys consolidated accounts receivable year ended december 31 2017 customer accounted 10 companys revenues accounts receivable years ended december 31 2016 2015 operating income loss excludes equity net income unconsolidated affiliates immaterial reported separately herein financial information geographic location three years ended december 31 2017 2016 2015 summarized thousands revenues attributable countries based location entity selling products performing services include export sales longlived assets attributable countries based physical location operations operating assets include intercompany balances 16 valuation allowances activity valuation accounts follows thousands oil states international inc subsidiaries notes consolidated financial statements continued 17 quarterly financial information unaudited following table summarizes quarterly financial information 2017 2016 thousands except per share amounts 1 represents product service revenues less product service costs included companys consolidated statements operations 2 first quarter 2017 2016 company recognized 08 million pretax 16 million pretax respectively severance downsizing charges 3 second quarter 2017 2016 company recognized 08 million pretax 11 million pretax respectively severance downsizing charges 4 third quarter 2017 company’s results operations adversely affected hurricane harvey lower revenues underabsorption manufacturing facility costs primarily offshoremanufactured products segment fieldlevel downtime due employee dislocations resulting storm third quarter 2017 company also recognized 04 million pretax severance downsizing charges 10 million discrete tax charges resulting decision carryback 2016 us net operating losses 2014 third quarter 2016 company recognized 20 million pretax severance downsizing charges 5 fourth quarter 2017 company recorded 282 million discrete tax charges resulting tax reform legislation discussed note 12 income taxes 14 million pretax acquisition related expenses fourth quarter 2016 company recognized 06 million pretax severance downsizing charges amounts calculated independently quarters presented therefore sum quarterly amounts may equal total calculated year 18 subsequent events geodynamics acquisition january 12 2018 company acquired geodynamics purchase price consisting 295 million cash net cash acquired funded borrowings companys revolving credit facility ii approximately 866 million shares companys common stock market value approximately 295 million closing date iii unsecured 25 million promissory note bears interest 25 per annum matures july 12 2019 “geodynamics acquisition” years ended december 31 2017 2016 geodynamics generated 1664 million 721 million revenues respectively 244 million 01 million net income respectively respect approximately 866 million shares companys common stock issued geodynamics acquisition company also entered registration rights agreement pursuant agreed among things file make effective registration statement registering resale shares ii facilitate two underwritten offerings selling stockholders iii facilitate certain block trades selling stockholders iv provide certain piggyback registration rights selling stockholders filed shelf registration statement resale shares accordance agreement january 19 2018 oil states international inc subsidiaries notes consolidated financial statements continued geodynamics acquisition accounted using acquisition method accounting following table summarizes companys preliminary estimates fair value assets acquired liabilities assumed acquisition based geodynamics historical balance sheet december 31 2017 thousands company completed purchase price allocation preliminary estimates subject revision final purchase price allocation determined company finalized january 12 2018 balance sheet geodynamics completed detailed valuations necessary calculations final allocation could differ materially preliminary allocation final allocation may include 1 changes identifiable net assets 2 changes allocations intangible assets tradenames patentstechnologyknowhow customer relationships well goodwill 3 changes fair values property plant equipment 4 changes assets liabilities supplemental unaudited pro forma financial information following supplemental unaudited pro forma results operations data gives pro forma effect consummation geodynamics acquisition occurred january 1 2016 supplemental unaudited pro forma financial information prepared based historical financial information adjusted give pro forma effect purchase accounting adjustments interest expense related tax effects among others supplemental pro forma financial information unaudited may reflect combined operations would acquisition occurred january 1 2016 presented informational purposes thousands supplemental unaudited pro forma results operations data reflects adjustments required business combinations based upon among things preliminary estimates fair value assets acquired liabilities assumed certain assumptions company believes reasonable revisions preliminary estimates fair value may significant impact pro forma amounts depreciation amortization expense income tax benefit oil states international inc subsidiaries notes consolidated financial statements continued issuance 150 convertible senior notes january 30 2018 company issued 200 million aggregate principal amount 150 convertible senior notes due 2023 notes pursuant indenture dated january 30 2018 “indenture” company wells fargo bank national association trustee net proceeds deducting discounts expenses approximately 1940 million company used net proceeds repay portion outstanding borrowings revolving credit facility notes bear interest rate 150 per year maturity interest payable semiannually arrears february 15 august 15 year beginning august 15 2018 addition additional interest special interest may accrue notes certain circumstances described indenture notes mature february 15 2023 unless earlier repurchased redeemed converted initial conversion rate 222748 shares companys common stock per 1000 principal amount notes equivalent initial conversion price approximately 4489 per share common stock conversion rate thus conversion price may adjusted certain circumstances described indenture noteholders may convert notes option upon certain circumstances described indenture company settle conversions paying delivering applicable cash shares common stock combination cash shares common stock companys election based applicable conversion rates company elects deliver cash combination cash shares common stock consideration due upon conversion based defined observation period notes redeemable whole part companys option time february 15 2021 cash redemption price equal principal amount notes redeemed plus accrued unpaid interest excluding redemption date last reported sale price per share common stock exceeds 130 conversion price least 20 trading days 30 consecutive trading days ending including trading day immediately date company sends related redemption notice specified change control events involving company defined indenture occur noteholders may require company repurchase notes cash repurchase price equal principal amount notes repurchased plus accrued unpaid interest amendment restatement credit agreement company amended restated credit agreement january 30 2018 “amended credit agreement” extend maturity revolving credit facility january 2022 permit issuance notes discussed provide 350 million borrowing capacity amended revolving credit facility amended revolving credit facility 50 million available issuance letters credit amounts outstanding companys amended revolving credit facility bear interest libor plus margin 175 300 base rate plus margin 075 200 case based ratio companys total net funded debt consolidated ebitda defined amended credit agreement company must also pay quarterly commitment fee 025 050 based companys ratio total net funded debt consolidated ebitda unused commitments amended credit agreement amended credit agreement contains customary financial covenants restrictions specifically company must maintain interest coverage ratio defined ratio consolidated ebitda consolidated interest expense least 30 10 maximum senior secured leverage ratio defined ratio senior secured debt consolidated ebitda greater 225 10 total net leverage ratio defined ratio total net funded debt consolidated ebitda greater 40 10 fiscal quarter ending december 31 2018 greater 375 10 thereafter financial covenants give pro forma effect issuance notes acquired businesses impact annualized ebitda acquired businesses fiscal quarters ending march 31 2018 june 30 2018 january 31 2018 company 970 million outstanding amended revolving credit facility additional 212 million outstanding letters credititem 15 exhibits financial statement schedules index financial statements financial statement schedules exhibits 1 financial statements reference made index set forth page 60 annual report form 10k 2 financial statement schedules included herein information required submitted included consolidated financial statements notes thereto required information inapplicable 3 index exhibits see index exhibits list exhibits filed herewith index also includes identifies management contracts compensatory plans arrangements required filed exhibits annual report form 10k item 601 regulation sk b index exhibits filed herewith furnished herewith management contracts compensatory plans arrangements signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized february 19 2019 oil states international inc cindy b taylor cindy b taylor president chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 19 2019 signature title chairman board robert l potter cindy b taylor director president chief executive officer cindy b taylor principal executive officer lloyd hajdik executive vice president chief financial officer lloyd hajdik treasurer principal financial officer brian e taylor vice president controller chief accounting officer brian e taylor principal accounting officer director lawrence r dickerson director darrell hollek director james nelson jr director christopher seaver director william van kleef director stephen wells director edwin j wright lloyd hajdik lloyd hajdik pursuant power attorney filed exhibit 241 annual report form 10k oil states international inc subsidiaries index consolidated financial statements report independent registered public accounting firm stockholders board directors oil states international inc opinion financial statements audited accompanying consolidated balance sheets oil states international inc subsidiaries company december 31 2018 2017 related consolidated statements operations comprehensive loss stockholders’ equity cash flows three years period ended december 31 2018 related notes collectively referred consolidated financial statements opinion consolidated financial statements present fairly material respects financial position company december 31 2018 2017 results operations cash flows three years period ended december 31 2018 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states pcaob company’s internal control financial reporting december 31 2018 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission 2013 framework report dated february 19 2019 expressed unqualified opinion thereon basis opinion financial statements responsibility company’s management responsibility express opinion company’s financial statements based audits public accounting firm registered pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement whether due error fraud audits included performing procedures assess risks material misstatement financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation financial statements believe audits provide reasonable basis opinion ernst young llp served company‘s auditor since 2000 houston texas february 19 2019 report independent registered public accounting firm stockholders board directors oil states international inc opinion internal control financial reporting audited oil states international inc subsidiaries’ internal control financial reporting december 31 2018 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission 2013 framework coso criteria opinion oil states international inc subsidiaries company maintained material respects effective internal control financial reporting december 31 2018 based coso criteria indicated accompanying managements annual report internal control financial reporting management’s assessment conclusion effectiveness internal control financial reporting include internal controls geodynamics included 2018 consolidated financial statements company constituted 7 6 total net assets excluding goodwill intangibles acquired respectively december 31 2018 20 revenues 267 million operating income year ended audit internal control financial reporting company also include evaluation internal control financial reporting geodynamics also audited accordance standards public company accounting oversight board united states pcaob consolidated balance sheets company december 31 2018 2017 related consolidated statements operations comprehensive loss stockholders’ equity cash flows three years period ended december 31 2018 related notes report dated february 19 2019 expressed unqualified opinion thereon basis opinion company’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s annual report internal control financial reporting responsibility express opinion company’s internal control financial reporting based audit public accounting firm registered pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audit accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk performing procedures considered necessary circumstances believe audit provides reasonable basis opinion definition limitations internal control financial reporting company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate ernst young llp houston texas february 19 2019 oil states international inc subsidiaries consolidated statements operations thousands except per share amounts accompanying notes integral part financial statements oil states international inc subsidiaries consolidated statements comprehensive loss thousands accompanying notes integral part financial statements oil states international inc subsidiaries consolidated balance sheets thousands except share amounts accompanying notes integral part financial statements oil states international inc subsidiaries consolidated statements stockholders equity thousands accompanying notes integral part financial statements oil states international inc subsidiaries consolidated statements cash flows thousands accompanying notes integral part financial statements oil states international inc subsidiaries notes consolidated financial statements 1 organization basis presentation consolidated financial statements include accounts oil states international inc “oil states” “company” consolidated subsidiaries investments unconsolidated affiliates company able exercise significant influence accounted using equity method significant intercompany accounts transactions company consolidated subsidiaries eliminated accompanying consolidated financial statements certain prioryear amounts companys consolidated financial statements reclassified conform current year presentation company subsidiaries leading provider specialty products services oil gas companies throughout world operate substantial number worlds active crude oil natural gas producing regions including onshore offshore united states canada west africa north sea middle east south america southeast central asia company currently operates three business segments well site services downhole technologies offshoremanufactured products january 12 2018 company acquired geodynamics inc “geodynamics” “geodynamics acquisition” acquired operations reported downhole technologies segment february 28 2018 company acquired falcon flowback services llc “falcon” integrated completion services business unit changes reporting structure 2 summary significant accounting policies use estimates preparation consolidated financial statements conformity accounting principles generally accepted united states requires use estimates assumptions management determining reported amounts assets liabilities disclosures contingent assets liabilities date consolidated financial statements reported amounts revenues expenses reporting period examples estimates include goodwill longlived asset impairment revenue income recognized time valuation allowances recorded deferred tax assets fair value assets liabilities acquired identification associated goodwill intangible assets reserves inventory allowances doubtful accounts warranty obligations potential future adjustments related contractual indemnification agreements actual results could materially differ estimates cash equivalents highly liquid investments purchased original maturity three months less considered cash equivalents fair value financial instruments financial instruments consist cash equivalents investments receivables payables debt instruments foreign currency forward contracts company believes carrying values instruments 150 convertible senior notes due 2023 notes described note 7 longterm debt accompanying consolidated balance sheets approximate fair values estimated fair value notes december 31 2018 166 million based quoted market prices level 1 fair value measurement compares 200 million principal amount notes inventories consist consumable oilfield products manufactured equipment spare parts manufactured equipment workinprocess inventories also include raw materials labor subcontractor charges manufacturing overhead supplies carried lower cost market estimated fair market value acquisition date acquired business combination cost inventories determined average cost specificidentification method reserve excess andor obsolete inventory maintained based age turnover condition inventory property plant equipment property plant equipment stated cost estimated fair market value acquisition date acquired business combination depreciation computed assets owned recorded capital lease using straightline method allowing salvage value applicable estimated useful lives assets company uses component oil states international inc subsidiaries notes consolidated financial statements continued depreciation method drilling services assets leasehold improvements capitalized amortized lesser life lease estimated useful life asset expenditures repairs maintenance charged expense incurred expenditures major renewals betterments extend useful lives existing equipment capitalized depreciated upon retirement disposition property equipment cost related accumulated depreciation removed accounts resulting gain loss recognized statements operations goodwill intangible assets goodwill represents excess purchase price paid acquired businesses allocated fair value related net assets impairments applicable goodwill evaluated impairment annually december 1 event occurs circumstances change suggest carrying amount may recoverable reporting units goodwill december 31 2018 include completion services downhole technologies offshoremanufactured products evaluation goodwill reporting unit goodwill balance sheet assessed separately different relevant events circumstances evaluated unit management estimates fair value reporting unit compares fair value recorded carrying value management utilizes depending circumstances combination trading multiples analyses discounted projected cash flow calculations estimated terminal values acquisition comparables projected cash flows discounted using longterm weighted average cost capital reporting unit based estimates investment returns would required market participant part process assessing goodwill potential impairment total market capitalization company compared sum fair values reporting units assess reasonableness aggregated fair values carrying amount reporting unit exceeds fair value goodwill considered impaired impairment loss recorded past three years goodwill impairment tests indicated fair value reporting unit greater carrying amount amortized intangible assets useful life intangible asset reviewed evaluated reporting period events circumstances may warrant revision remaining useful life based company’s review carrying values intangible assets recoverable impairment losses recorded periods presented see note 6 goodwill intangible assets impairment longlived assets recoverability carrying values longlived assets asset group level including finitelived intangible assets assessed whenever managements judgment events changes circumstances indicate carrying value asset groups may recoverable based estimated future cash flows assessment indicates carrying values recoverable determined based undiscounted cash flows remaining useful lives impairment loss recognized impairment loss equals excess carrying value fair value asset group fair value asset group based appraised values prices similar assets available discounted cash flows based companys review carrying values asset groups recoverable impairment losses recorded periods presented foreign currency comprehensive loss gains losses resulting balance sheet translation international operations local currency functional currency included component accumulated comprehensive loss within stockholders equity represent substantially accumulated comprehensive loss balance remeasurements intercompany advances denominated currency functional currency entity longterm investment nature recognized separate component comprehensive loss within stockholders’ equity gains losses resulting balance sheet remeasurements assets liabilities denominated different currency functional currency intercompany advances longterm investment nature included consolidated statements operations within operating income expense net incurred currency exchange rate risk portion revenues earnings net investments operations outside united states exposed changes currency exchange rates company seeks manage currency exchange risk part operational means including managing expected local currency revenues relation local currency costs local currency assets relation local currency liabilities oil states international inc subsidiaries notes consolidated financial statements continued order reduce exposure fluctuations currency exchange rates company may enter currency exchange agreements financial institutions december 31 2018 company outstanding foreign currency forward purchase contracts december 31 2017 company outstanding foreign currency forward purchase contracts notional amounts 24 million related expected cash flows denominated euros designated accounting hedges currency exchange losses 01 million 2018 05 million 2017 exchange gains totaling 47 million 2016 included “other operating income expense net” revenue cost recognition company accounts revenue accordance financial accounting standards board fasb guidance revenue contracts customers “asc 606” company adopted january 1 2018 new guidance material impact company’s recognition revenues company expanded revenue recognition disclosures address new qualitative quantitative disclosure requirements contractual terms may vary contract customer may impact timing revenue recognition standard future periods companys revenue contracts may include one promises transfer distinct good service customer referred asc 606 performance obligation revenue allocated company recognizes revenue related cost performance obligations satisfied majority significant contracts custom engineered products single performance obligation individual good service separately identifiable performance obligations contracts multiple distinct performance obligations company allocates revenue identified performance obligations contract company’s product sales terms include significant postperformance obligations company’s performance obligations may satisfied point time work progresses revenues products services transferred customers point time accounted approximately 29 22 25 consolidated revenues years ended december 31 2018 2017 2016 respectively majority companys revenue recognized point time derived shortterm contracts standard products revenue contracts recognized control product transferred customer indicators company considers determining transfer control customer occurs include right payment product transfer legal title customer transfer physical possession product transfer risk customer acceptance product revenues products services transferred customers time accounted approximately 71 78 75 consolidated revenues years ended december 31 2018 2017 2016 respectively majority company’s revenue recognized time services provided shortterm contracts revenue recognized customer receives consumes services addition company manufactures certain products individual customer specifications shortterm contracts control passes customer performance obligations fulfilled new standard revenue recognized time significant projectrelated contracts involving custom engineered products within offshoremanufactured products segment also referred projecteddriven products revenues typically recognized time using input measure percentage costs incurred date relative total estimated costs completion contract costtocost method contract costs include labor material overhead management believes method appropriate measure progress large contracts billings contracts excess costs incurred estimated profits classified contract liability deferred revenue costs incurred estimated profits excess billings contracts recognized contract asset component accounts receivable contract estimates projectrelated contracts involving custom engineered products based various assumptions project outcome future events may span several years changes assumptions may affect future project costs margins include production efficiencies complexity work performed availability costs labor materials subcomponents significant change one estimates could affect profitability company’s contracts contractrelated estimates reviewed regularly company recognizes adjustments estimated profit contracts cumulative catchup method impact adjustment profit recorded date recognized period adjustment identified revenue profit future periods contract performance recognized using adjusted estimate time estimate contract profitability indicates anticipated loss incurred contract loss recognized period identified oil states international inc subsidiaries notes consolidated financial statements continued taxes assessed governmental authority imposed concurrent specific revenueproducing transaction collected company customer excluded revenue shipping handling costs associated outbound freight control product transferred customer accounted fulfillment cost included cost products proceeds customers cost oilfield rental equipment damaged lost downhole reflected gains losses disposition assets considering writeoff remaining net book value equipment product costs service costs include direct material labor costs related contract performance indirect labor supplies tools repairs disclosed consolidated statements operations product costs service costs exclude depreciation amortization expense separately presented selling general administrative costs charged expense incurred company applied practical expedient asc 606 disclose information remaining performance obligations backlog original expected durations one year less december 31 2018 company 416 million remaining backlog related contracts original expected duration greater one year approximately 53 remaining backlog expected recognized revenue 2019 balance thereafter income taxes company follows liability method accounting income taxes method deferred income taxes recorded based upon differences financial reporting tax bases assets liabilities measured using enacted tax rates laws effect time underlying assets liabilities recovered settled discussed note 8 income taxes december 22 2017 legislation commonly known tax cuts jobs act tax reform legislation signed law enacts significant changes us tax related laws including certain key us federal income tax provisions applicable oilfield service manufacturing companies company us state regulatory bodies finalized potential changes existing laws regulations may result new us tax related laws accordance securities exchange commission’s staff accounting bulletin 118 company recorded provisional estimates reflect effect tax reform legislation company’s income tax assets liabilities december 31 2017 2018 company adjusted provisional estimates based upon additional guidance issued internal revenue service prior december 22 2017 majority companys earnings international subsidiaries considered indefinitely reinvested outside united states provision us income taxes made earnings however certain historical foreign earnings considered indefinitely reinvested outside united states subject us income tax earned companys subsidiaries distributed earnings form dividends otherwise company generally subject us income taxes subject adjustment foreign tax credits withholding taxes payable various foreign countries december 31 2018 company’s total investment foreign subsidiaries considered indefinitely reinvested outside united states company records valuation allowance reporting period management believes likely deferred tax asset realized assessment requires analysis changes tax laws available positive negative evidence including consideration losses recent years reversals temporary differences forecasts future income assessment future business tax planning strategies 2018 2017 2016 company recorded valuation allowances primarily respect net operating loss carryforwards certain operations outside united states result changes us tax laws 2017 discussed company also recorded valuation allowance foreign tax credit carryforwards fourth quarter 2017 calculation tax liabilities involves assessing uncertainties regarding application complex tax regulations company recognizes liabilities tax expenses based estimates whether extent additional taxes due management ultimately determines payment amounts unnecessary liability reversed tax benefit recognized period management determines liability longer necessary additional charge recorded provision taxes period management determines recorded tax liability less expected ultimate assessment oil states international inc subsidiaries notes consolidated financial statements continued receivables concentration credit risk based nature customer base company believe significant concentrations credit risk concentration worldwide oil gas industry note 14 segments related information provides information respect companys geographic revenues significant customers company evaluates creditworthiness significant new existing customers financial condition generally company require significant collateral customers allowances doubtful accounts company maintains allowances doubtful accounts estimated losses resulting inability companys customers make required payments trade receivable deemed uncollectible receivable chargedoff allowance doubtful accounts company considers following factors determining collection revenue reasonably assured customer creditworthiness past transaction history customer solvency changes customer payment terms company previous experience customer company typically obtains reports various credit organizations ensure customer history paying creditors company may also request financial information including financial statements documents ensure customer means making payment factors indicate collection reasonably assured company may require prepayment arrangement support revenue recognition recording trade receivable financial condition companys customers deteriorate adversely affecting ability make payments additional allowances would required earnings per share diluted earnings per share “eps” amounts include effect dilutive companys outstanding stock options restricted stock convertible securities treasury stock method currently issued outstanding shares restricted stock remain subject vesting requirements holders shares unvested restricted stock entitled liquidation dividend rights holders outstanding common stock thus considered participating securities applicable accounting guidance undistributed earnings period allocated based participation rights common stockholders holders participating securities earnings respective periods distributed liquidation dividend rights identical undistributed earnings allocated proportionate basis company required compute earnings per share amounts two class method periods earnings presentation basic eps amounts face accompanying consolidated statements operations computed dividing net income loss applicable company’s common stockholders weighted average shares outstanding common stock calculation diluted eps similar basic eps except denominator includes dilutive common stock equivalents income loss included numerator excludes impact dilutive common stock equivalents stockbased compensation fair value sharebased payments estimated using quoted market price company’s common stock pricing models date grant discussed note 11 longterm incentive deferred compensation plans resulting cost net estimated forfeitures recognized period employee required provide service exchange awards usually vesting period addition servicebased awards company issues performancebased awards conditional based upon company performance may vest amount depend company’s achievement specified performance objectives guarantees product sales offshoremanufactured products segment sold assurance warranty generally ranging 12 18 months parts labor covered terms warranty agreement warranty provisions estimated based upon historical experience product configuration geographic region ordinary course business company also provides standby letters credit guarantee instruments certain parties required certain transactions initiated either company subsidiaries december 31 2018 maximum potential amount future payments company could required make guarantee agreements letters credit 226 million company recorded liability connection guarantee arrangements company believe based historical experience information currently available likely material amounts required paid guarantee arrangements oil states international inc subsidiaries notes consolidated financial statements continued accounting contingencies company contingent liabilities future claims estimates amount eventual cost liquidate liabilities accrued liabilities claims sometimes involve threatened actual litigation damages quantified assessment exposure made recorded amount estimated cover expected loss claims liabilities estimated based fair value managements experience matters appropriate advice outside counsel outside experts upon ultimate resolution uncertainties future reported financial results impacted difference accruals actual amounts paid settlement examples areas important estimates future liabilities include duties income taxes litigation insurance claims warranty claims contractual claims obligations discontinued operations discontinued operations net loss discontinued operations includes immaterial amounts 2016 related company’s former accommodations business spunoff standalone publiclytraded corporation 2014 3 recent accounting pronouncements time new accounting pronouncements issued fasb adopted company specified effective date unless otherwise discussed management believes impact recently issued standards yet effective material impact company’s consolidated financial statements upon adoption may 2014 fasb issued guidance revenue contracts customers superseded thencurrent revenue recognition guidance including industryspecific guidance often referred asc 606 underlying principle entity recognizes revenue depict transfer goods services customers amount entity expects entitled receive exchange goods services company adopted guidance january 1 2018 using modified retrospective transition method applied contracts completed date january 1 2018 company required recognize cumulative effect adopting guidance adjustment opening balance retained earnings prior periods retrospectively adjusted based analysis existing contracts customers company concluded cumulative impact new standard material consolidated financial statements january 1 2018 february 2016 fasb issued guidance leases amended introduces recognition lease assets lease liabilities lessees leases shortterm nature connection required adoption guidance january 1 2019 company elected optional transition method recognizing cumulative effect adopting guidance adjustment opening balance retained earnings prior periods retrospectively adjusted based analysis existing longterm leases december 31 2018 company estimates adoption standard result approximately 45 million additional assets liabilities reflected consolidated balance sheet material cumulative impact expected recorded opening balance retained earnings 4 details selected balance sheet accounts additional information regarding selected balance sheet accounts december 31 2018 2017 presented thousands see note 5 business acquisitions contributory impact geodynamics falcon acquisitions oil states international inc subsidiaries notes consolidated financial statements continued majority contracts customers company receives payments based upon established contractual terms products delivered services performed company’s larger projectdriven contracts within offshoremanufactured products segment often provide customer payments milestones achieved contract assets relate companys right consideration work completed billed december 31 2018 2017 certain projectdriven contracts within offshoremanufactured products segment contract assets transferred unbilled trade receivables right consideration becomes unconditional contract liabilities primarily relate advance consideration received customers ie milestone payments contracts projectdriven products well others require significant advance investment materials consistent industry practice company classifies assets liabilities related longterm contracts current even though amounts may realized within one year contracts reported consolidated balance sheets net asset contract asset liability deferred revenue position contractbycontract basis end reporting period normal course business company also receives advance consideration customers many shortterm smaller product service contracts deferred recognized revenue related performance obligation satisfied year ended december 31 2018 200 million net decrease contract assets primarily attributable 177 million revenue recognized year offset 380 million transferred accounts receivable deferred revenue decreased 41 million 2018 reflecting recognition 111 million revenue deferred beginning period partially offset 74 million new customer billings recognized revenue year 2018 company insurance carriers reached final settlement flood insurance claims resulting hurricane harvey 2017 connection settlement companys offshoremanufactured products segment recognized gain 38 million following remediation repair buildings equipment lesser extent disposal oil states international inc subsidiaries notes consolidated financial statements continued equipment damaged beyond repair gain reported income accompanying consolidated statement operations year ended december 31 2018 depreciation expense 972 million 990 million 1105 million years ended december 31 2018 2017 2016 respectively 5 business acquisitions geodynamics acquisition january 12 2018 company acquired geodynamics purchase price consisting 2954 million cash net cash acquired funded borrowings companys revolving credit facility defined note 7 longterm debt ii approximately 866 million shares companys common stock market value approximately 295 million closing date acquisition iii unsecured 25 million promissory note bears interest 25 per annum scheduled mature july 12 2019 terms purchase agreement company may entitled indemnification respect certain matters occurring prior acquisition payments due promissory note may subject setoff part full regarding indemnified matters see note 13 commitments contingencies geodynamics’ results operations included company’s consolidated financial statements subsequent closing acquisition january 12 2018 acquired geodynamics operations reported downhole technologies segment contributed revenues 2138 million operating income 267 million period january 12 2018 december 31 2018 see note 14 segments related information respect downhole technologies segment operations connection geodynamics acquisition company entered registration rights agreement covering stock issued company filed shelf registration statement resale shares accordance agreement january 19 2018 selling stockholder sold approximately 593 million shares companys common stock underwritten offering late february 2018 december 31 2018 company expect material obligations registration rights agreement falcon acquisition february 28 2018 company acquired falcon full service provider flowback well testing services separation recovery fluids solid debris proppant used hydraulic fracturing operations falcon provides additional scale diversity completion services well testing operations key shale plays united states purchase price 842 million net cash acquired falcon acquisition funded borrowings companys amended revolving credit facility defined note 7 longterm debt terms purchase agreement company may entitled indemnification certain matters occurring prior acquisition falcon’s results operations oil states international inc subsidiaries notes consolidated financial statements continued included company’s consolidated financial statements reported within completion services business subsequent closing acquisition february 28 2018 geodynamics falcon acquisitions accounted using acquisition method accounting following table summarizes companys estimates fair value assets acquired liabilities assumed acquisitions respective dates acquisitions thousands connection acquisition accounting geodynamics company provided deferred taxes related among items fair value adjustments acquired property plant equipment intangible assets us tax net operating loss carryforwards b goodwill recognized primarily attributable expected synergies result combining operations company geodynamics well intangible assets qualify separate recognition amount goodwill deductible income tax purposes significant c goodwill recognized primarily attributable expected synergies result combining operations company falcon well intangible assets qualify separate recognition goodwill deductible income tax purposes years ended december 31 2018 2017 company expensed 36 million 09 million respectively transactionrelated costs incurred connection acquisitions geodynamics falcon included within selling general administrative expense within operating income expense oil states international inc subsidiaries notes consolidated financial statements continued supplemental unaudited pro forma financial information following supplemental unaudited pro forma results operations data company gives pro forma effect consummation geodynamics falcon acquisitions occurred january 1 2017 supplemental unaudited pro forma financial information company prepared based historical financial information adjusted give pro forma effect fair value adjustments depreciation amortization expense interest expense related tax effects among others pro forma results year ended december 31 2018 2017 reflect adjustments exclude aftertax impact transaction costs 28 million 06 million respectively supplemental pro forma financial information unaudited may reflect results combined operations would acquisitions occurred january 1 2017 presented informational purposes thousands except per share amounts supplemental unaudited pro forma results operations data reflects adjustments required business combinations based upon among things estimates fair value assets acquired liabilities assumed certain assumptions company believes reasonable acquisitions 2017 company invested total 129 million cash connection acquisitions discussed january 2017 companys offshoremanufactured products segment acquired intellectual property assets complementary product lines global crane manufacturing service operations acquisition included adding active heave compensation technology knuckleboom crane designs existing portfolio april 2017 companys offshoremanufactured products segment acquired assets intellectual property complementary riser testing inspection repair service offerings complementary technology allows segment provide automated inspection techniques either board offshore vessel quayside without requirements transport facility remove buoyancy materials 6 goodwill intangible assets company tests impairment reporting unit level using fair value approach reporting unit operating segment business one level operating segment component level discrete financial information prepared regularly reviewed management component level company three reporting units completion services downhole technologies offshoremanufactured products goodwill december 31 2018 goodwill allocated reporting unit based acquisitions made company subsidiaries company recognizes impairment loss amount carrying amount reporting units goodwill exceeds reporting units fair value goodwill assessment potential goodwill impairment reporting unit uses comparative market multiples discounted cash flow calculations acquisition comparables establish reporting units fair value level 3 fair value measurement company amortizes cost intangibles estimated useful lives unless lives deemed indefinite amortizable intangible assets reviewed impairment indicators impairment based undiscounted cash flows impaired written fair value based either appraised values discounted cash flows december 31 2018 2017 provision impairment goodwill intangible assets required oil states international inc subsidiaries notes consolidated financial statements continued changes carrying amount goodwill years ended december 31 2018 2017 follows thousands following table presents total gross carrying amount intangibles total accumulated amortization major intangible asset classes december 31 2018 2017 thousands amortization expense 263 million 87 million 82 million years ended december 31 2018 2017 2016 respectively weighted average remaining amortization period intangible assets goodwill 135 years december 31 2018 78 years december 31 2017 amortization expense expected total 268 million 2019 249 million 2020 204 million 2021 196 million 2022 166 million 2023 oil states international inc subsidiaries notes consolidated financial statements continued 7 longterm debt december 31 2018 2017 longterm debt consisted following thousands 1 presented net 20 million unamortized debt issuance costs december 31 2018 unamortized debt issuance costs 16 million december 31 2017 classified noncurrent assets 2 principal amount 150 convertible senior notes 200 million see issuance 150 convertible senior notes scheduled maturities total debt december 31 2018 follows thousands revolving credit facility prior january 30 2018 companys senior secured revolving credit facility revolving credit facility governed credit agreement wells fargo bank na administrative agent lenders party thereto collateral agent secured parties thereunder lenders financial institutions time party thereto dated may 28 2014 amended credit agreement scheduled mature may 28 2019 january 30 2018 subsequently may 14 2018 company amended revolving credit facility amended restated credit agreement amended revolving credit facility amended credit agreement respectively extend maturity january 30 2022 permit issuance convertible senior notes discussed amended credit agreement governs amended revolving credit facility amended revolving credit facility provides 3500 million lender commitments option increase maximum borrowings 5000 million subject additional lender commitments prior maturity january 30 2022 amended revolving credit facility 50 million available issuance letters credit december 31 2018 company 1361 million borrowings outstanding amended credit agreement 226 million outstanding letters credit leaving 1562 million available drawn total amount available drawn amended revolving credit facility less lender commitments december 31 2018 due limits imposed maintenance covenants amended credit agreement amounts outstanding amended revolving credit facility bear interest libor plus margin 175 300 base rate plus margin 075 200 case based ratio companys total net funded debt consolidated ebitda defined amended credit agreement company must also pay quarterly commitment fee 025 050 based companys ratio total net funded debt consolidated ebitda unused commitments amended credit agreement connection amendment restatement credit agreement company expensed 04 million previously deferred financing costs 2018 03 million previously deferred financing costs 2017 included interest expense amended credit agreement contains customary financial covenants restrictions specifically company must maintain interest coverage ratio defined ratio consolidated ebitda consolidated interest expense least 30 10 maximum senior secured leverage ratio defined ratio senior secured debt consolidated ebitda greater oil states international inc subsidiaries notes consolidated financial statements continued 225 10 total net leverage ratio defined ratio total net funded debt consolidated ebitda greater 40 10 fiscal quarter ending december 31 2018 greater 375 10 thereafter amended financial covenants give pro forma effect issuance convertible senior notes discussed acquired businesses annualization ebitda acquired businesses factors considered calculation ratios defined amended credit agreement consolidated ebitda consolidated interest defined exclude goodwill impairments losses extinguishment debt discount amortization stockbased compensation expense noncash charges borrowings amended credit agreement secured pledge substantially companys assets domestic subsidiaries companys obligations amended credit agreement guaranteed significant domestic subsidiaries amended credit agreement also contains negative covenants limit companys ability borrow additional funds encumber assets pay dividends sell assets enter significant transactions amended credit agreement occurrence specified change control events involving company would constitute event default would permit banks among things accelerate maturity facility cause become immediately due payable full december 31 2018 company compliance debt covenants 150 convertible senior notes january 30 2018 company issued 200 million aggregate principal amount 150 convertible senior notes due 2023 pursuant indenture dated january 30 2018 “indenture” company wells fargo bank national association trustee net proceeds notes deducting issuance costs approximately 194 million used company repay portion borrowings outstanding revolving credit facility initial carrying amount notes recorded consolidated balance sheet january 30 2018 less 200 million principal amount notes accordance applicable accounting principles reflective estimated fair value similar debt instrument conversion feature company recorded value conversion feature 344 million debt discount amortized interest expense term notes similar amount allocated additional paidin capital 257 million net issuance costs deferred taxes result amortization interest expense company recognizes related notes accounting purposes based effective interest rate approximately 60 greater cash interest payments company obligated pay notes interest expense associated notes year ended december 31 2018 90 million includes cash interest component 28 million following table presents carrying amount notes consolidated balance sheet december 31 2018 thousands notes bear interest rate 150 per year maturity interest payable semiannually arrears february 15 august 15 year beginning august 15 2018 addition additional interest special interest may accrue notes certain circumstances described indenture notes mature february 15 2023 unless earlier repurchased redeemed converted initial conversion rate 222748 shares companys common stock per 1000 principal amount notes equivalent initial conversion price approximately 4489 per share common stock conversion rate thus conversion price may adjusted certain circumstances described indenture company’s intent repay principal amount notes cash conversion feature shares company’s common stock oil states international inc subsidiaries notes consolidated financial statements continued noteholders may convert notes option following circumstances 1 last reported sale price per share company’s common stock exceeds 130 conversion price least 20 trading days 30 consecutive trading days ending including last trading day immediately preceding calendar quarter 2 five consecutive business days immediately five consecutive trading day period five consecutive trading day period “measurement period” trading price per 1000 principal amount notes trading day measurement period less 98 product last reported sale price per share company’s common stock trading day conversion rate trading day 3 upon occurrence certain corporate events distributions company’s common stock described indenture 4 company calls notes redemption time including november 15 2022 close business second scheduled trading day immediately maturity date company settle conversions paying delivering applicable cash shares common stock combination cash shares common stock companys election based applicable conversion rates company elects deliver cash combination cash shares common stock consideration due upon conversion based defined observation period notes redeemable whole part companys option time february 15 2021 cash redemption price equal principal amount notes redeemed plus accrued unpaid interest excluding redemption date last reported sale price per share common stock exceeds 130 conversion price least 20 trading days 30 consecutive trading days ending including trading day immediately date company sends related redemption notice specified change control events involving company defined indenture occur noteholders may require company repurchase notes cash repurchase price equal principal amount notes repurchased plus accrued unpaid interest additionally notes contain certain events default set forth indenture december 31 2018 none conditions allowing holders notes convert requiring company repurchase notes met companys intent settle principal portion notes cash company uses treasury stock method calculating diluted earnings per share effect variable number shares would issued upon conversion settle conversion feature promissory note connection geodynamics acquisition company issued 250 million promissory note bears interest 250 per annum scheduled mature july 12 2019 payments due promissory note may subject setoff part full certain claims related matters occurring prior companys acquisition geodynamics expected delay andor reduce amounts paid promissory note see note 13 commitments contingencies oil states international inc subsidiaries notes consolidated financial statements continued 8 income taxes consolidated loss income taxes years ended december 31 2018 2017 2016 consisted following thousands components income tax provision benefit years ended december 31 2018 2017 2016 consisted following thousands reconciliation us statutory tax benefit rate effective tax provision benefit rate years ended december 31 2018 2017 2016 follows oil states international inc subsidiaries notes consolidated financial statements continued significant items giving rise deferred tax assets liabilities december 31 2018 2017 follows thousands 1 289 million increase net deferred tax liability december 31 2018 2017 includes impact geodynamics acquisition issuance notes completed january 2018 december 22 2017 united states enacted tax reform legislation resulted significant changes us tax related laws including certain key federal income tax provisions applicable multinational companies company changes included among others implementation territorial tax system onetime mandatory tax undistributed foreign earnings subsidiaries reduction us corporate income tax rate 21 35 beginning 2018 result us tax law changes 2017 company recorded net provisional charge 282 million within income tax provision consisting primarily incremental income tax expense 414 million related onetime mandatory transition tax company’s unremitted foreign subsidiary earnings transition tax valuation allowance established company’s foreign tax credit carryforwards recorded assets prior tax reform legislation offset tax benefit 132 million related remeasurement company’s us net deferred tax liabilities based new 21 us corporate income tax rate company incur material cash tax payable respect transition tax 2018 company adjusted december 2017 provisional estimates respect tax reform legislation resulting income tax benefit 58 million adjustment primarily attributable guidance issued us internal revenue service irs 2018 allowing taxpayers including company elect carry back carry forward 2017 us net operating losses rather requiring tax losses used offset transition tax based guidance company elected utilize available foreign tax credits fully satisfy transition tax file carryback claim 2015 us federal income tax return expects receive approximately 55 million cash oil states international inc subsidiaries notes consolidated financial statements continued tax reform legislation also included many new provisions including changes bonus depreciation deduction executive compensation interest expense potential incremental taxes related certain foreign earnings many provisions apply company january 1 2018 company continued assess impact provisions tax reform legislation 2018 net deferred tax liability december 31 2018 2017 excludes impact potential future us income taxes related certain foreign activities transactions described tax reform legislation 2017 company decided carry back 2016 us federal net operating loss nol 2014 received related refund prior december 31 2017 effect carryback resulted loss certain previously claimed deductions result company recorded discrete tax charge 10 million period company 1577 million us federal nol carryforwards december 31 2018 carried forward indefinitely approximately 1060 million us federal nol carryforwards attributable acquired geodynamics operations subject certain limitation provisions company’s state nol carryforwards december 31 2018 totaled 1173 million 188 million attributable acquired geodynamics operations subject certain limitation provisions december 31 2018 company nol carryforwards related certain international operations totaling 337 million 164 million carried forward indefinitely december 31 2018 2017 company recorded valuation allowances 139 million 109 million respectively respect state foreign nol carryforwards december 31 2018 company’s foreign tax credit carryforwards totaled 198 million foreign tax credits expire varying amounts 2021 2026 discussed result enactment tax reform legislation company provided full valuation allowance foreign tax credits 2017 due uncertainties respect ability utilize credits future periods prior december 22 2017 appropriate us foreign income taxes provided earnings foreign subsidiary companies expected remitted future cumulative amount undistributed earnings foreign subsidiaries company intended indefinitely reinvest upon foreign taxes accrued paid deferred us income taxes provided approximately 240 million december 31 2016 2018 company repatriated 450 million foreign subsidiaries subject additional us income taxes used reduce outstanding borrowings amended revolving credit facility company files tax returns jurisdictions required returns subject examination audit possible adjustment result assessments taxing authorities company believes recorded sufficient tax liabilities expect resolution examination audit tax returns material adverse effect consolidated operating results financial condition liquidity tax years subsequent 2013 remain open us federal tax audit foreign subsidiary federal tax returns subsequent 2012 subject audit various foreign tax authorities uncertain tax positions accounted using recognition threshold measurement attribute financial statement recognition measurement tax positions taken expected taken tax return benefits recognized tax position must morelikelythannot sustained upon examination taxing authorities amount recognized measured largest amount benefit greater fifty percent likelihood realized upon ultimate settlement total amount unrecognized tax benefits december 31 2018 2017 nil company accrues interest penalties related unrecognized tax benefits component companys provision income taxes december 31 2018 2017 company accrued interest expense penalties oil states international inc subsidiaries notes consolidated financial statements continued 9 stockholders equity common preferred stock following table provides details respect changes number shares common stock 001 par value issued held treasury outstanding 2018 december 31 2018 2017 company 25000000 shares preferred stock 001 par value authorized shares issued outstanding company maintains share repurchase program extended july 29 2019 companys board directors year ended december 31 2018 repurchases common stock program 2017 company repurchased 561765 shares common stock total cost 162 million shares repurchased 2016 amount remaining current share repurchase authorization december 31 2018 1205 million subject applicable securities laws purchases times amounts company deems appropriate accumulated comprehensive loss accumulated comprehensive loss increased 585 million december 31 2017 714 million december 31 2018 due primarily changes currency exchange rates accumulated comprehensive loss primarily related fluctuations currency exchange rates us dollar used translate certain international operations 2018 2017 currency translation adjustments recognized component comprehensive loss primarily attributable united kingdom brazil year ended december 31 2018 exchange rate british pound brazilian real compared us dollar weakened 6 14 respectively contributing comprehensive loss 129 million year ended december 31 2017 exchange rate british pound weakened 9 compared us dollar brazilian real strengthened 2 compared us dollar period contributing comprehensive loss 118 million oil states international inc subsidiaries notes consolidated financial statements continued 10 net loss per share table provides reconciliation numerators denominators basic diluted net loss per share years ended december 31 2018 2017 thousands except per share amounts calculation diluted net loss per share years ended december 31 2018 2017 2016 excluded 695572 shares 709292 shares 748552 shares respectively issuable pursuant outstanding stock options restricted stock awards due antidilutive effect additionally shares issuable upon conversion 150 convertible senior notes convertible therefore excluded year ended december 31 2018 due antidilutive effect 11 longterm incentive deferred compensation plans company measures cost employee services received exchange award equity instruments based grantdate fair value award fair value servicebased restricted stock awards determined quoted market price company’s common stock date grant fair value performancebased restricted awards 2018 also determined using quoted market price companys common stock date grant fair value performancebased restricted awarded 2017 2016 valued using monte carlo simulation model due inclusion performance metrics based solely performance company’s common stock fair value stock option awards estimated using optionpricing models resulting cost net estimated forfeitures recognized period employee required provide service exchange awards usually vesting period oil states international inc subsidiaries notes consolidated financial statements continued stockbased compensation pretax expense recognized years ended december 31 2018 2017 2016 totaled 226 million 230 million 213 million respectively restricted stock awards restricted stock program consists combination servicebased restricted stock performancebased restricted stock number performancebased restricted shares ultimately issued program dependent upon achievement predefined specific performance objectives generally measured threeyear period performance objective performancebased stock units granted 2018 based companys ebitda growth rate threeyear period performance objective 2017 2016 awards relative total stockholder return compared peer group companies event predefined targets exceeded performancebased award additional shares maximum 200 target award may granted conversely actual performance falls predefined target number shares vested reduced actual performance falls threshold performance level restricted shares vest timebased restricted stock generally vest straightline basis term generally three four years following table presents changes restricted stock awards related information year ended december 31 2018 1 reflects adjustment number shares issued upon vesting 2016 performancebased awards resulting 125 achievement level compared target total fair value restricted stock awards vested 2018 2017 2016 194 million 175 million 118 million respectively december 31 2018 185 million total compensation costs related nonvested restricted stock awards yet recognized expected recognized weighted average vesting period 11 years may 8 2018 effective date company’s stockholders approved oil states international inc 2018 equity participation plan “plan” maximum number shares common stock reserved available issuance plan sum 2000000 shares plus shares common stock effective date available issuance oil states international inc 2001 equity participation plan amended time “prior plan” subject outstanding awards prior plan effective date ii shares common stock subject outstanding awards prior plan effective date vested andor subsequently expired forfeited canceled reason subject certain adjustment provided plan extent additional shares common stock remain subject outstanding awards prior plan otherwise would returned prior plan may 8 2018 account expiration forfeiture cancellation without delivery shares outstanding awards shares common stock instead included reserve shares common stock issuance plan company filed registration statement form s8 became effective may 17 2018 respect shares common stock reserved issuance plan december 31 2018 approximately 25 million shares available future grant plan oil states international inc subsidiaries notes consolidated financial statements continued stock options company awarded stock options since 2015 fair value historical option grants estimated date grant using black scholes merton option pricing model following table presents changes stock options outstanding related information year ended december 31 2018 options exercised 2018 2017 options exercised 2016 total intrinsic value 04 million cash received company 04 million tax benefit realized tax deduction 01 million following table summarizes information stock options outstanding december 31 2018 longterm cash incentive awards 2018 company issued conditional longterm cash incentive awards cash awards approximately 13 million ultimate dollar amount awarded ranging zero maximum 27 million performance measure cash awards relative total stockholder return compared peer group companies measured threeyear period obligation related cash awards classified liability recognized vesting period deferred compensation plan company maintains nonqualified deferred compensation plan deferred compensation plan permits eligible employees directors elect defer receipt portion directors’ fees andor salary annual bonuses employee contributions deferred compensation plan matched company percentage employee participant companys 401k retirement plan subject irs limitations matcheligible compensation deferred compensation plan also permits company make discretionary contributions employees account although none made date directors contributions matched company since inception plan discretionary contribution provision limited matching participants contributions basis equivalent matching permitted companys 401k retirement savings plan vesting contributions participants’ accounts also equivalent vesting requirements companys 401k retirement savings plan deferred compensation plan dollar limits taxdeferred contributions assets deferred compensation plan held rabbi trust “trust” therefore available satisfy claims companys creditors event bankruptcy insolvency company participants ability direct plan administrator invest assets individual accounts including discretionary contributions company 30 preapproved mutual funds held trust cover variety securities mutual funds addition participants currently right request plan administrator reallocate portfolio investments ie cash mutual funds participants individual accounts within trust company contributions form cash distributions plan generally made upon participants termination director andor employee applicable company participants receive payments deferred compensation plan cash december 31 2018 trust assets totaled 205 million majority classified “other noncurrent assets” company’s consolidated balance sheet fair value investments based quoted market prices active markets level 1 fair value measurement amounts payable plan participants december 31 oil states international inc subsidiaries notes consolidated financial statements continued 2018 including fair value shares companys common stock reflected treasury stock 206 million classified noncurrent liabilities consolidated balance sheet company accounts deferred compensation plan accordance current accounting standards regarding accounting deferred compensation arrangements amounts earned held rabbi trust invested increases decreases value trust assets exclusive shares common stock company held trust included compensation adjustments consolidated statements operations increases decreases fair value deferred compensation liability including shares common stock company held trust recorded treasury stock also included compensation adjustments consolidated statements operations 12 retirement plans company sponsors defined contribution plans participation plans available substantially employees company recognized expenses 86 million 68 million 68 million respectively related matching contributions various defined contribution plans years ended december 31 2018 2017 2016 respectively 13 commitments contingencies company leases portion facilities office space equipment vehicles leases expire various dates minimum future operating lease obligations december 31 2018 follows thousands rental expense operating leases 149 million 91 million 102 million years ended december 31 2018 2017 2016 respectively following companys acquisition geodynamics january 2018 company determined certain steel products historically imported geodynamics china use manufacturing process may potentially subject antidumping countervailing duties based recent clarificationsdecisions rendered us department commerce us court international trade following findings company commenced internal review matter ceased purchases potentially affected chinese products part companys internal review company engaged trade counsel decided voluntarily disclose matter us customs border protection september 2018 connection geodynamics acquisition seller agreed indemnify hold company harmless certain claims related matters additionally company able set payments due 250 million promissory note see note 7 longterm debt issued seller geodynamics respect indemnification claims could affect timing payment amount due promissory note additionally ordinary course conducting business company becomes involved litigation claims private party actions well judicial administrative proceedings involving governmental authorities federal state local levels past years number lawsuits filed federal court company andor one subsidiaries current former employees alleging violations fair labor standards act flsa company reached final settlement remaining individual plaintiffs’ claims 2018 company party various pending threatened claims lawsuits administrative proceedings seeking damages remedies concerning commercial operations products employees matters including occasional claims individuals alleging exposure hazardous materials result companys products operations claims relate matters occurring prior acquisition businesses including geodynamics falcon relate businesses company sold certain cases company entitled indemnification sellers businesses cases company indemnified buyers businesses although company give assurance outcome pending legal administrative proceedings effect outcomes may company management believes oil states international inc subsidiaries notes consolidated financial statements continued ultimate liability resulting outcome proceedings extent otherwise provided covered indemnity insurance material adverse effect companys consolidated financial position results operations liquidity 14 segments related information discussed note 5 “business acquisitions” january 12 2018 company completed geodynamics acquisition beginning first quarter 2018 reported separate business segment name downhole technologies following acquisition company operates three reportable segments well site services downhole technologies offshoremanufactured products companys reportable segments represent strategic business units offer different products services managed separately business requires different technologies marketing strategies recent acquisitions except geodynamics acquisition direct extensions existing business segments accounting policies segments described summary significant accounting policies well site services segment provides broad range equipment services used drill establish maintain flow oil natural gas well throughout life cycle segment operations primarily include completionfocused equipment services well land drilling services completion services operations provide solutions customers using completion tools highlytrained personnel throughout service offerings include wireline support frac stacks isolations tools extended reach tools ball launchers well testing flowback operations thru tubing activity sand control drilling services provides land drilling services shallow medium depth wells west texas rocky mountain region united states separate business lines within well site services segment disclosed provide additional detail respect operations substantially revenue generated well site services segment classified service revenue consolidated statement operations following closing geodynamics acquisition january 12 2018 downhole technologies segment provides oil gas perforation systems downhole tools support completion intervention wireline well abandonment operations segment designs manufactures markets consumable engineered products oilfield service well exploration production companies completing complex wells longer lateral lengths increased frac stages perforation clusters increase unconventional well productivity substantially revenue generated downhole technologies segment classified product revenue consolidated statements operations offshoremanufactured products segment designs manufactures markets capital equipment utilized floating production systems subsea pipeline infrastructure offshore drilling rigs vessels along shortcycle products driven principally longerterm customer investments offshore oil natural gas projects projectdriven product revenues include flexible bearings advanced connector systems highpressure riser systems deepwater mooring systems cranes subsea pipeline products blowout preventer stack integration shortcycle products manufactured segment include valves elastomers specialty products generally used landbased drilling completion markets products manufactured offered segment include variety products use industrial military applications outside oil gas industry segment also offers broad line complementary valueadded services including specialty welding fabrication cladding machining services offshore installation services inspection repair services corporate information includes corporate expenses related corporate governance stockbased compensation infrastructure support well impacts corporatewide decisions individual operating units evaluated oil states international inc subsidiaries notes consolidated financial statements continued financial information business segment three years ended december 31 2018 2017 2016 summarized following table thousands one customer individually accounted 10 companys 2018 consolidated revenues whose receivables individually accounted 11 companys consolidated accounts receivable december 31 2018 one customer accounted 16 companys 2017 consolidated revenues whose receivables individually accounted 13 companys consolidated accounts receivable december 31 2017 customer accounted 10 companys revenues accounts receivable 2016 company’s well site services segment substantially depreciation amortization expense relates cost services substantially depreciation amortization expense downhole technologies segment relates cost products offshoremanufactured products segment numerous facilities around world generate product service revenues common segment provide installation services products manufactured segment substantially depreciation amortization expense offshoremanufactured products segment relates cost revenues segregate capture depreciation amortization expense intangible assets product service cost operating income loss excludes equity net income unconsolidated affiliates immaterial reported separately herein oil states international inc subsidiaries notes consolidated financial statements continued following table provides supplemental disaggregated revenue contracts customers business segment three years ended december 31 2018 2017 2016 thousands financial information geographic location three years ended december 31 2018 2017 2016 summarized thousands revenues attributable countries based location entity selling products performing services include export sales longlived assets attributable countries based physical location operations operating assets include intercompany receivable balances oil states international inc subsidiaries notes consolidated financial statements continued 15 related party transactions geodynamics historically leased certain land facilities indirect equity holder employee geodynamics connection acquisition geodynamics company assumed leases rent expense related leases year ended december 31 2018 totaled 330 thousand company exercised option purchase significant leased facility associated land approximately 54 million september 2018 16 valuation allowances activity valuation accounts follows thousands 1 year ended december 31 2018 amount presented within allowance doubtful accounts receivables excess obsolete inventory includes 06 million 33 million respectively related acquired geodynamics operations oil states international inc subsidiaries notes consolidated financial statements continued 17 quarterly financial information unaudited following table summarizes quarterly financial information 2018 2017 thousands except per share amounts 1 first quarter 2018 company recognized 08 million pretax severance downsizing charges 26 million pretax acquisitionrelated expenses 09 million pretax legal fees incurred patent defense 07 million pretax provision flsa claims settlements first quarter 2017 company recognized 08 million pretax severance downsizing charges 2 second quarter 2017 company recognized 08 million pretax severance downsizing charges 15 million pretax legal fees incurred patent defense 3 third quarter 2018 company recognized 35 million pretax legal fees incurred patent defense recorded 26 million pretax provision flsa claims settlements additionally third quarter 2018 company recognized 58 million discrete net tax benefit resulting tax reform legislation discussed note 8 income taxes third quarter 2017 company’s results operations adversely affected hurricane harvey lower revenues underabsorption manufacturing facility costs primarily offshoremanufactured products segment fieldlevel downtime due employee dislocations resulting storm additionally third quarter 2017 company also recognized 04 million pretax severance downsizing charges 10 million discrete tax charges resulting decision carryback 2016 us net operating losses 2014 4 fourth quarter 2018 company recognized 24 million pretax legal fees incurred patent defense 08 million pretax severance downsizing charges 07 million pretax acquisitionrelated expenses fourth quarter 2017 company recorded 282 million discrete tax charges resulting tax reform legislation discussed note 8 income taxes 14 million pretax acquisition related expenses 5 gross profit calculated revenues less costs products services segment level depreciation amortization amounts calculated independently quarters presented therefore sum quarterly amounts may equal total calculated yearitem 15 exhibits financial statement schedules index financial statements financial statement schedules exhibits 1 financial statements reference made index set forth page 59 annual report form 10k 2 financial statement schedules included herein information required submitted included consolidated financial statements notes thereto required information inapplicable 3 index exhibits see index exhibits list exhibits filed herewith index also includes identifies management contracts compensatory plans arrangements required filed exhibits annual report form 10k item 601 regulation sk b index exhibits filed herewith furnished herewith management contracts compensatory plans arrangements item 16 form 10k summary none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized february 21 2020 oil states international inc cindy b taylor cindy b taylor president chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 21 2020 signature title chairman board robert l potter cindy b taylor director president chief executive officer cindy b taylor principal executive officer lloyd hajdik executive vice president chief financial officer lloyd hajdik treasurer principal financial officer brian e taylor vice president controller chief accounting officer brian e taylor principal accounting officer director lawrence r dickerson director darrell e hollek director james nelson jr director christopher seaver director william van kleef director hallie vanderhider director e joseph wright lloyd hajdik lloyd hajdik pursuant power attorney filed exhibit 241 annual report form 10k oil states international inc subsidiaries index consolidated financial statements report independent registered public accounting firm stockholders board directors oil states international inc opinion financial statements audited accompanying consolidated balance sheets oil states international inc subsidiaries company december 31 2019 2018 related consolidated statements operations comprehensive loss stockholders equity cash flows three years period ended december 31 2019 related notes collectively referred consolidated financial statements opinion consolidated financial statements present fairly material respects financial position company december 31 2019 2018 results operations cash flows three years period ended december 31 2019 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states pcaob companys internal control financial reporting december 31 2019 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission 2013 framework report dated february 21 2020 expressed unqualified opinion thereon basis opinion financial statements responsibility companys management responsibility express opinion companys financial statements based audits public accounting firm registered pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement whether due error fraud audits included performing procedures assess risks material misstatement financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation financial statements believe audits provide reasonable basis opinion critical audit matter critical audit matter communicated matter arising current period audit financial statements communicated required communicated audit committee 1 relates accounts disclosures material financial statements 2 involved especially challenging subjective complex judgments communication critical audit matter alter way opinion consolidated financial statements taken whole communicating critical audit matter providing separate opinion critical audit matter accounts disclosures relates goodwill impairment downhole technologies description matter discussed note 2 consolidated financial statements goodwill evaluated impairment annually december 1 event occurs circumstances change suggest carrying amount may recoverable based quantitative assessment company concluded goodwill amount recorded downhole technologies reporting unit partially impaired recognized goodwill impairment charge 1650 million fourth quarter 2019 reflected companys consolidated financial statements december 31 2019 companys goodwill 1925 million downhole technologies reporting unit auditing managements goodwill impairment test companys reporting unit subjective required involvement specialists due significant measurement uncertainty determining fair value reporting unit particular fair value estimate attributable income approach sensitive changes significant assumptions estimated future net annual cash flows discount rate affected published industry trends market forecasts commodity prices rig count well count onshore drilling completion spending addressed matter audit obtained understanding evaluated design tested operating effectiveness controls companys goodwill impairment assessment process example tested controls companys forecasting process well controls managements review significant assumptions estimating fair value reporting unit related evaluation managements specialist test fair value reporting unit specifically using income approach audit procedures included assessing methodologies testing significant assumptions underlying data used company evaluated companys forecast comparing significant assumptions current industry economic trends also assessing historical accuracy managements estimates example evaluated forecasted revenue analyzing trends market growth related margin assumptions well changes estimates compared historical results addition also performed sensitivity analyses significant assumptions evaluate changes fair value reporting unit resulting changes assumptions also involved valuation specialist assist evaluating significant assumptions fair value estimate ernst young llp served company‘s auditor since 2000 houston texas february 21 2020 report independent registered public accounting firm stockholders board directors oil states international inc opinion internal control financial reporting audited oil states international inc subsidiaries internal control financial reporting december 31 2019 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission 2013 framework coso criteria opinion oil states international inc subsidiaries company maintained material respects effective internal control financial reporting december 31 2019 based coso criteria also audited accordance standards public company accounting oversight board united states pcaob consolidated balance sheets company december 31 2019 2018 related consolidated statements operations comprehensive loss stockholders equity cash flows three years period ended december 31 2019 related notes report dated february 21 2020 expressed unqualified opinion thereon basis opinion companys management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying managements annual report internal control financial reporting responsibility express opinion companys internal control financial reporting based audit public accounting firm registered pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audit accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk performing procedures considered necessary circumstances believe audit provides reasonable basis opinion definition limitations internal control financial reporting companys internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate ernst young llp houston texas february 21 2020 oil states international inc subsidiaries consolidated statements operations thousands except per share amounts accompanying notes integral part financial statements oil states international inc subsidiaries consolidated statements comprehensive loss thousands accompanying notes integral part financial statements oil states international inc subsidiaries consolidated balance sheets thousands except share amounts accompanying notes integral part financial statements oil states international inc subsidiaries consolidated statements stockholders equity thousands accompanying notes integral part financial statements oil states international inc subsidiaries consolidated statements cash flows thousands accompanying notes integral part financial statements oil states international inc subsidiaries notes consolidated financial statements 1 organization basis presentation consolidated financial statements include accounts oil states international inc oil states company consolidated subsidiaries investments unconsolidated affiliates company able exercise significant influence accounted using equity method significant intercompany accounts transactions company consolidated subsidiaries eliminated accompanying consolidated financial statements certain prioryear amounts companys consolidated financial statements reclassified conform current year presentation company subsidiaries leading provider specialty products services oil gas companies throughout world company operates substantial number worlds active crude oil natural gas producing regions including onshore offshore united states west africa north sea middle east south america southeast central asia company operates three business segments well site services downhole technologies offshoremanufactured products january 12 2018 company acquired geodynamics inc geodynamics acquisition acquired operations reported downhole technologies segment february 28 2018 company acquired falcon flowback services llc falcon integrated completion services business unit changes reporting structure 2 summary significant accounting policies use estimates preparation consolidated financial statements conformity accounting principles generally accepted united states requires use estimates assumptions management determining reported amounts assets liabilities disclosures contingent assets liabilities date consolidated financial statements reported amounts revenues expenses reporting period examples estimates include goodwill longlived asset impairment revenue income recognized time valuation allowances recorded deferred tax assets fair value assets liabilities acquired identification associated goodwill intangible assets reserves inventory allowances doubtful accounts potential future adjustments related contractual indemnification agreements actual results could materially differ estimates cash equivalents highly liquid investments purchased original maturity three months less considered cash equivalents fair value financial instruments financial instruments consist cash equivalents investments receivables payables debt instruments foreign currency forward contracts company believes carrying values instruments 150 convertible senior notes due 2023 notes described note 7 longterm debt accompanying consolidated balance sheets approximate fair values estimated fair value notes december 31 2019 1739 million based quoted market prices level 1 fair value measurement compares 1923 million principal amount notes inventories consist consumable oilfield products manufactured equipment spare parts manufactured equipment workinprocess inventories also include raw materials labor subcontractor charges manufacturing overhead supplies carried lower cost net realizable value estimated fair market value acquisition date acquired business combination cost inventories determined average cost specificidentification method reserve excess andor obsolete inventory maintained based age turnover condition inventory property plant equipment property plant equipment stated cost estimated fair market value acquisition date acquired business combination depreciation computed assets owned recorded finance lease using straightline method allowing estimated salvage value applicable estimated useful lives assets leasehold improvements capitalized amortized lesser life lease estimated useful life asset oil states international inc subsidiaries notes consolidated financial statements continued expenditures repairs maintenance charged expense incurred expenditures major renewals betterments extend useful lives existing equipment capitalized depreciated upon retirement disposition property equipment cost related accumulated depreciation removed accounts resulting gain loss recognized statements operations goodwill intangible assets goodwill represents excess purchase price paid acquired businesses allocated fair value related net assets impairments applicable goodwill evaluated impairment annually december 1 event occurs circumstances change suggest carrying amount may recoverable reporting units goodwill december 31 2019 include completion services downhole technologies offshoremanufactured products evaluation goodwill reporting unit goodwill balance sheet assessed separately different relevant events circumstances evaluated unit management estimates fair value reporting unit compares fair value recorded carrying value management utilizes depending circumstances combination valuation methodologies including market approach income approach well guideline public company comparables projected cash flows discounted using longterm weighted average cost capital reporting unit based estimates investment returns would required market participant part process assessing goodwill potential impairment total market capitalization company compared sum fair values reporting units assess reasonableness aggregated fair values carrying amount reporting unit exceeds fair value goodwill considered impaired impairment loss recorded discussed note 6 “goodwill intangible assets” company concluded goodwill recorded downhole technologies segment partially impaired fourth quarter 2019 recognized noncash impairment charge 1650 million goodwill impairment test performed december 1 2019 indicated fair value reporting unit greater carrying amount goodwill impairment losses recorded periods presented amortized intangible assets useful life intangible asset reviewed evaluated reporting period events circumstances may warrant revision remaining useful life based companys review carrying values intangible assets recoverable impairment losses recorded periods presented see note 6 goodwill intangible assets impairment longlived assets recoverability carrying values longlived assets asset group level including finitelived intangible assets assessed whenever managements judgment events changes circumstances indicate carrying value asset groups may recoverable based estimated future cash flows assessment indicates carrying values recoverable determined based undiscounted cash flows remaining useful lives impairment loss recognized impairment loss equals excess carrying value fair value asset group fair value asset group based appraised values prices similar assets available discounted cash flows discussed note 4 “details selected balance sheet accounts” company reduced carrying value vertical drilling rigs third quarter 2019 estimated salvage fair value recorded noncash fixed asset impairment charge 337 million additional impairment losses recorded periods presented leases company leases portion facilities office space equipment vehicles contracts provide right control identified assets following adoption new lease accounting guidance effective january 1 2019 company recognizes right use identified assets operating leases initial term greater 12 months operating lease assets related obligations make payments lease arrangements operating lease liabilities consistent companys historical practice finance lease obligations material classified within longterm debt related assets included within property plant equipment lease assets liabilities recorded commencement date based present value lease payments lease term company lease agreements lease nonlease components generally accounted single lease component companys leases provide implicit interest rate therefore companys incremental borrowing rate based available information lease commencement date used determine present value lease payments oil states international inc subsidiaries notes consolidated financial statements continued companys operating leases include one options renew renewal terms extend lease term one 20 years exercise lease renewal options companys sole discretion depreciable life leaserelated assets leasehold improvements limited expected lease term certain operating lease agreements include rental payments adjusted periodically inflation companys operating lease agreements contain material residual value guarantees material restrictive covenants company rents subleases certain real estate third parties amounts material cash outflows related operating leases presented within cash flows operations research development costs incurred internally researching developing products charged expense technological feasibility established product research development expense totaled 70 million 66 million 53 million 2019 2018 2017 respectively foreign currency comprehensive loss gains losses resulting balance sheet translation international operations local currency functional currency included component accumulated comprehensive loss within stockholders equity represent substantially accumulated comprehensive loss balance remeasurements intercompany advances denominated currency functional currency entity longterm investment nature recognized separate component comprehensive loss within stockholders equity gains losses resulting balance sheet remeasurements assets liabilities denominated different currency functional currency intercompany advances longterm investment nature included consolidated statements operations within operating income expense net incurred material periods presented currency exchange rate risk portion revenues earnings net investments operations outside united states exposed changes currency exchange rates company seeks manage currency exchange risk part operational means including managing expected local currency revenues relation local currency costs local currency assets relation local currency liabilities order reduce exposure fluctuations currency exchange rates company may enter currency exchange agreements financial institutions december 31 2019 2018 company outstanding foreign currency forward purchase contracts revenue cost recognition company accounts revenue accordance financial accounting standards board fasb guidance revenue contracts customers asc 606 company adopted january 1 2018 adoption new guidance material impact companys recognition revenues companys revenue contracts may include one promises transfer distinct good service customer referred asc 606 performance obligation revenue allocated company recognizes revenue related cost performance obligations satisfied majority significant contracts custom engineered products single performance obligation individual good service separately identifiable performance obligations contracts multiple distinct performance obligations company allocates revenue identified performance obligations contract companys product sales terms include significant postperformance obligations companys performance obligations may satisfied point time work progresses revenues products services transferred customers point time accounted approximately 34 29 22 consolidated revenues years ended december 31 2019 2018 2017 respectively majority companys revenue recognized point time derived shortterm contracts standard products revenue contracts recognized control product transferred customer indicators company considers determining transfer control customer occurs include right payment product transfer legal title customer transfer physical possession product transfer risk customer acceptance product revenues products services transferred customers time accounted approximately 66 71 78 consolidated revenues years ended december 31 2019 2018 2017 respectively majority companys revenue recognized time services provided shortterm contracts revenue recognized customer receives oil states international inc subsidiaries notes consolidated financial statements continued consumes services addition company manufactures certain products individual customer specifications shortterm contracts control passes customer performance obligations fulfilled new standard revenue recognized time significant projectrelated contracts involving custom engineered products within offshoremanufactured products segment also referred projectdriven products revenues typically recognized time using input measure percentage costs incurred date relative total estimated costs completion contract costtocost method contract costs include labor material overhead management believes method appropriate measure progress large contracts billings contracts excess costs incurred estimated profits classified contract liability deferred revenue costs incurred estimated profits excess billings contracts recognized contract asset component accounts receivable contract estimates projectrelated contracts involving custom engineered products based various assumptions project outcome future events may span several years changes assumptions may affect future project costs margins include production efficiencies complexity work performed availability costs labor materials subcomponents significant change one estimates could affect profitability companys contracts contractrelated estimates reviewed regularly company recognizes adjustments estimated costs profits contracts period adjustment identified revenue profit future periods contract performance recognized using adjusted estimate time estimate contract profitability indicates anticipated loss incurred contract full loss recognized period identified taxes assessed governmental authority imposed concurrent specific revenueproducing transaction collected company customer excluded revenue shipping handling costs associated outbound freight control product transferred customer accounted fulfillment cost included cost products proceeds customers cost oilfield rental equipment damaged lost downhole reflected gains losses disposition assets considering writeoff remaining net book value equipment product costs service costs include direct material labor costs related contract performance indirect labor supplies tools repairs disclosed consolidated statements operations product costs service costs exclude depreciation amortization expense impairment fixed assets separately presented selling general administrative costs charged expense incurred december 31 2019 company 1591 million remaining backlog related contracts original expected duration greater one year approximately 42 remaining backlog expected recognized revenue 2020 balance thereafter income taxes company follows liability method accounting income taxes method deferred income taxes recorded based upon differences financial reporting tax bases assets liabilities measured using enacted tax rates laws effect time underlying assets liabilities recovered settled discussed note 9 income taxes december 22 2017 legislation commonly known tax cuts jobs act tax reform legislation signed law enacts significant changes us tax related laws including certain key us federal income tax provisions applicable oilfield service manufacturing companies company us state regulatory bodies finalized potential changes existing laws regulations may result new us tax related laws accordance securities exchange commissions staff accounting bulletin 118 company recorded provisional estimates reflect effect tax reform legislation companys income tax assets liabilities december 31 2017 2018 company adjusted provisional estimates based upon additional guidance issued internal revenue service prior december 22 2017 majority companys earnings international subsidiaries considered indefinitely reinvested outside united states provision us income taxes made earnings however certain historical foreign earnings considered indefinitely reinvested outside united states subject us income tax earned companys subsidiaries distributed earnings form dividends otherwise oil states international inc subsidiaries notes consolidated financial statements continued company generally subject us income taxes subject adjustment foreign tax credits withholding taxes payable various foreign countries december 31 2019 companys total investment foreign subsidiaries considered indefinitely reinvested outside united states company accounts us tax effect global intangible lowtaxed income earned foreign subsidiaries period income earned company records valuation allowance reporting period management believes likely deferred tax asset realized assessment requires analysis changes tax laws well available positive negative evidence including consideration losses recent years reversals temporary differences forecasts future income assessment future business tax planning strategies 2019 2018 2017 company recorded valuation allowances primarily respect net operating loss carryforwards certain operations outside united states result changes us tax laws 2017 discussed company also recorded valuation allowance foreign tax credit carryforwards fourth quarter 2017 calculation tax liabilities involves assessing uncertainties regarding application complex tax regulations company recognizes liabilities tax expenses based estimates whether extent additional taxes due management ultimately determines payment amounts unnecessary liability reversed tax benefit recognized period management determines liability longer necessary additional charge recorded provision taxes period management determines recorded tax liability less expected ultimate assessment receivables concentration credit risk based nature customer base company believe significant concentrations credit risk concentration worldwide oil gas industry note 15 segments related information provides information respect companys geographic revenues significant customers company evaluates creditworthiness significant new existing customers financial condition generally company require significant collateral customers allowances doubtful accounts determination collectability amounts due customers requires us make judgments regarding future events trends allowances doubtful accounts determined based continuous process assessing portfolio individual customer basis taking account current expected future market conditions trends process consists thorough review historical collection experience current aging status customer accounts financial condition customers based review factors establish adjust allowances trade unbilled receivables company maintains allowances doubtful accounts estimated losses resulting inability companys customers make required payments trade receivable deemed uncollectible receivable chargedoff allowance doubtful accounts company considers following factors determining collection revenue reasonably assured customer creditworthiness past transaction history customer solvency changes customer payment terms company previous experience customer company typically obtains reports various credit organizations ensure customer history paying creditors company may also request financial information including financial statements documents ensure customer means making payment factors indicate collection reasonably assured company may require prepayment arrangement support revenue recognition recording trade receivable financial condition companys customers deteriorate adversely affecting ability make payments additional allowances would required earnings per share diluted earnings per share eps amounts include effect dilutive companys outstanding stock options restricted stock convertible securities treasury stock method currently issued outstanding shares restricted stock remain subject vesting requirements company required compute earnings per share amounts two class method periods earnings holders shares unvested restricted stock entitled liquidation dividend rights holders outstanding common stock thus considered participating securities applicable accounting guidance undistributed earnings period allocated based participation rights common stockholders oil states international inc subsidiaries notes consolidated financial statements continued holders participating securities earnings respective periods distributed liquidation dividend rights identical undistributed earnings allocated proportionate basis presentation basic eps amounts face accompanying consolidated statements operations computed dividing net income loss applicable companys common stockholders weighted average shares outstanding common stock calculation diluted eps similar basic eps except denominator includes dilutive common stock equivalents income loss included numerator excludes impact dilutive common stock equivalents stockbased compensation fair value sharebased payments estimated using quoted market price companys common stock pricing models date grant discussed note 12 longterm incentive deferred compensation plans resulting cost net estimated forfeitures recognized period employee required provide service exchange awards usually vesting period addition servicebased awards company issues performancebased awards conditional based upon company performance may vest amount depend companys achievement specified performance objectives guarantees product sales offshoremanufactured products segment sold assurance warranty generally ranging 12 18 months parts labor covered terms warranty agreement warranty provisions estimated based upon historical experience product configuration geographic region ordinary course business company also provides standby letters credit guarantee instruments certain parties required certain transactions initiated either company subsidiaries december 31 2019 maximum potential amount future payments company could required make guarantee agreements letters credit 193 million company recorded liability connection guarantee arrangements company believe based historical experience information currently available likely material amounts required paid guarantee arrangements accounting contingencies company contingent liabilities future claims estimates amount eventual cost liquidate liabilities accrued liabilities claims sometimes involve threatened actual litigation damages quantified assessment exposure made recorded amount estimated cover expected loss claims liabilities estimated based fair value managements experience matters appropriate advice outside counsel outside experts upon ultimate resolution uncertainties future reported financial results impacted difference accruals actual amounts paid settlement examples areas important estimates future liabilities include duties income taxes litigation insurance claims warranty claims contractual claims obligations discontinued operations 3 recent accounting pronouncements time new accounting pronouncements issued fasb adopted company specified effective date unless otherwise discussed management believes impact recently issued standards yet effective material impact companys consolidated financial statements upon adoption february 2016 fasb issued guidance leases amended introduces recognition lease assets lease liabilities lessees leases shortterm nature company adopted guidance january 1 2019 using optional transition method recognizing cumulative effect adopting guidance adjustment opening balance retained earnings cumulative impact adoption new standard material companys consolidated financial statements prior periods retrospectively adjusted addition company elected package practical expedients permitted transition guidance new standard among things allowed carryforward historical lease classification company lease agreements lease nonlease components generally accounted single lease component companys leases provide implicit interest rate therefore companys incremental borrowing rate based available information lease commencement date used determine present value lease payments oil states international inc subsidiaries notes consolidated financial statements continued connection adoption new standard company recorded 477 million operating lease assets liabilities january 1 2019 standard materially impact companys consolidated statement operations impact cash flows december 31 2019 net operating lease assets liabilities totaled 436 million 441 million respectively january 1 2018 company adopted fasb issued guidance revenue contracts customers superseded previous revenue recognition guidance using modified retrospective transition method prior periods retrospectively adjusted based analysis existing contracts customers company concluded cumulative impact new standard material consolidated financial statements january 1 2018 4 details selected balance sheet accounts additional information regarding selected balance sheet accounts december 31 2019 2018 presented thousands majority contracts customers company receives payments based upon established contractual terms products delivered services performed companys larger projectrelated contracts within offshoremanufactured products segment often provide customer payments milestones achieved contract assets relate companys right consideration work completed billed december 31 2019 2018 certain projectrelated contracts within offshoremanufactured products segment contract assets transferred unbilled trade receivables right consideration becomes unconditional contract liabilities primarily relate advance consideration received customers ie milestone payments contracts projectdriven products well others require significant advance investment materials consistent industry practice company classifies assets liabilities related longterm contracts current even though amounts may realized within one year contracts reported consolidated balance sheets net asset contract asset liability deferred revenue position contractbycontract basis end reporting period normal course business company also receives advance consideration customers many shortterm smaller product service contracts deferred recognized revenue related performance obligation satisfied year ended december 31 2019 48 million net increase contract assets primarily attributable 250 million revenue recognized year partially offset 200 million transferred accounts receivable deferred revenue increased 36 million 2019 reflecting 122 million new customer billings recognized revenue year partially offset recognition 85 million revenue deferred beginning period year ended december 31 2018 200 million net decrease contract assets primarily attributable 177 million revenue recognized year offset 380 million transferred accounts receivable deferred revenue decreased 41 million 2018 reflecting recognition 111 million revenue deferred beginning period partially offset 74 million new customer billings recognized revenue year oil states international inc subsidiaries notes consolidated financial statements continued third quarter 2019 company made strategic decision reduce scope drilling services business unit adjusting 34 rigs 9 rigs due ongoing weakness customer demand vertical drilling rigs us land market particularly permian basin result decision carrying value 25 rigs decommissioned sold reduced estimated salvage value resulting recognition 255 million noncash impairment charge additionally indicators impairment identified remaining rigs company plans continue operating company performed fair value assessment remaining drilling rigs recognized additional noncash impairment charge 82 million level 3 fair value measurement fixed asset impairment charge based part estimated future cash flows assets projected generate income approach included unobservable inputs required significant judgments including projected day rates costs rig utilization remaining economic useful life income approach also weighted market approach included estimates selling price drilling rig resulting fair value measurement 49 million noncash charges totaling 337 million reported drilling services business separately presented consolidated statement operations connection fixed asset impairment reflected preceding table cost basis drilling rigs included machinery equipment fixed assets along related accumulated depreciation reduced total 2578 million 2019 2018 company insurance carriers reached final settlement flood insurance claims resulting hurricane harvey 2017 connection settlement companys offshoremanufactured products segment recognized gain 38 million following remediation repair buildings equipment lesser extent disposal equipment damaged beyond repair gain reported operating income accompanying consolidated statement operations year ended december 31 2018 depreciation expense 965 million 972 million 990 million years ended december 31 2019 2018 2017 respectively oil states international inc subsidiaries notes consolidated financial statements continued 5 business acquisitions geodynamics acquisition january 12 2018 company acquired geodynamics purchase price consisting 2954 million cash net cash acquired funded borrowings companys revolving credit facility defined note 7 longterm debt ii approximately 866 million shares companys common stock market value approximately 295 million closing date acquisition iii unsecured 25 million promissory note bears interest 25 per annum terms purchase agreement company entitled indemnification respect certain matters occurring prior acquisition payments due promissory note subject setoff part full respect indemnified matters see note 14 commitments contingencies geodynamics results operations reported downhole technologies segment included companys consolidated financial statements subsequent closing acquisition january 12 2018 falcon acquisition february 28 2018 company acquired falcon fullservice provider flowback well testing services separation recovery fluids solid debris proppant used hydraulic fracturing operations falcon provides additional scale diversity completion services well testing operations key shale plays united states purchase price 842 million net cash acquired falcon acquisition funded borrowings companys revolving credit facility terms purchase agreement company entitled indemnification respect certain matters occurring prior acquisition falcons results operations included companys consolidated financial statements reported within completion services business subsequent closing acquisition february 28 2018 oil states international inc subsidiaries notes consolidated financial statements continued geodynamics falcon acquisitions accounted using acquisition method accounting following table summarizes fair value assets acquired liabilities assumed acquisitions respective dates acquisitions thousands connection acquisition accounting geodynamics company provided deferred taxes related among items fair value adjustments acquired property plant equipment intangible assets us tax net operating loss carryforwards b goodwill recognized primarily attributable expected synergies resulting combining operations company geodynamics well intangible assets qualify separate recognition amount goodwill deductible income tax purposes significant c goodwill recognized primarily attributable expected synergies resulting combining operations company falcon well intangible assets qualify separate recognition goodwill deductible income tax purposes accordance fasb issued guidance 866 million shares common stock issued company valued 3405 per share closing price companys common stock january 12 2018 companys common stock price 2340 per share december 12 2017 entered definitive agreement purchase geodynamics years ended december 31 2018 2017 company expensed 36 million 09 million respectively transactionrelated costs incurred connection acquisitions geodynamics falcon included within selling general administrative expense within operating income expense net oil states international inc subsidiaries notes consolidated financial statements continued supplemental unaudited pro forma financial information following supplemental unaudited pro forma results operations data company gives pro forma effect consummation geodynamics falcon acquisitions occurred january 1 2017 supplemental unaudited pro forma financial information company prepared based historical financial information adjusted give pro forma effect fair value adjustments depreciation amortization expense interest expense related tax effects among others pro forma results year ended december 31 2018 2017 reflect adjustments exclude aftertax impact transaction costs 28 million 06 million respectively supplemental pro forma financial information unaudited may reflect results combined operations would acquisitions occurred january 1 2017 presented informational purposes thousands except per share amounts acquisitions 2017 company invested total 129 million cash connection acquisitions discussed january 2017 companys offshoremanufactured products segment acquired intellectual property assets complementary product lines global crane manufacturing service operations acquisition included adding active heave compensation technology knuckleboom crane designs existing portfolio april 2017 companys offshoremanufactured products segment acquired assets intellectual property complementary riser testing inspection repair service offerings complementary technology allows segment provide automated inspection techniques either board offshore vessel quayside without requirements transport facility remove buoyancy materials 6 goodwill intangible assets company tests impairment goodwill reporting unit level using fair value approach reporting unit operating segment business one level operating segment component level discrete financial information prepared regularly reviewed management component level company three reporting units completion services downhole technologies offshoremanufactured products goodwill balances totaling 6467 million september 30 2019 goodwill allocated reporting unit based acquisitions made company accordance current accounting guidance company amortize goodwill rather assesses goodwill impairment annually event occurs circumstances change indicate carrying amounts may recoverable carrying amount reporting unit exceeds fair value goodwill considered impaired impairment loss recorded fourth quarter 2019 us landbased completion activity declined significantly levels experienced previous three quarters additionally number market indicators declined levels experienced recent years consistent oilfield service industry peers companys stock price declined market capitalization carrying value stockholders equity given current market conditions company reduced nearterm outlook demand related shortcycle products services us shale play regions refined outlook incorporated december 1 2019 annual impairment assessment indicated fair value downhole technologies segment less carrying amount oil states international inc subsidiaries notes consolidated financial statements continued management utilizes depending circumstances combination valuation methodologies including market approach income approach well guideline public company comparables valuation techniques used december 1 2019 assessment consistent used previous testing except downhole technologies reporting unit income approach used estimate fair value market approach used validate results 2019 fair value companys reporting units determined using significant unobservable inputs level 3 fair value measurement income approach estimates fair value reporting unit discounting companys current forecast future cash flows estimate discount rate expected return market participant would require starting point reporting units forecasted cash flows based reporting units 2020 operating plan market approach includes use comparative multiples corroborate discounted cash flow results market approach involves judgment selection appropriate peer group companies valuation multiples significant assumptions used income approach include among others estimated future net annual cash flows discount rates reporting unit management selected estimates used discounted cash flow projections using historical data well current anticipated market conditions estimated growth rates estimates based upon assumptions consider published industry trends market forecasts commodity prices rig count well count offshoreonshore drilling completion spending believed reasonable however given inherent estimation uncertainty assumptions underlying discounted cash flow analysis actual conditions may differ materially companys estimates could result additional impairment charges based quantitative assessment company concluded goodwill amount recorded downhole technologies reporting unit partially impaired recognized noncash goodwill impairment charge 1650 million fourth quarter 2019 impairment charge impact companys liquidity position debt covenants cash flows following impairment charge downhole technologies reporting unit fair value substantially excess carrying amount fair value completion services offshoremanufactured products reporting units exceeded carrying amounts 24 38 respectively december 1 2019 discount rates used value companys reporting units ranged 125 130 holding assumptions inputs used respective discounted cash flow analysis constant 50 basis point increase discount rate assumption would increased goodwill impairment charge approximately 28 million company amortizes cost intangible assets estimated useful lives unless lives deemed indefinite amortizable intangible assets reviewed impairment indicators impairment based undiscounted cash flows impaired written fair value based either appraised values discounted cash flows december 31 2019 2018 provisions impairment intangible assets required oil states international inc subsidiaries notes consolidated financial statements continued changes carrying amount goodwill years ended december 31 2019 2018 follows thousands following table presents gross carrying amount related accumulated amortization major intangible asset classes december 31 2019 2018 thousands amortization expense 268 million 263 million 87 million years ended december 31 2019 2018 2017 respectively weighted average remaining amortization period intangible assets goodwill 129 years december 31 2019 135 years december 31 2018 amortization expense expected total 250 million 2020 206 million 2021 197 million 2022 167 million 2023 167 million 2024 oil states international inc subsidiaries notes consolidated financial statements continued 7 longterm debt december 31 2019 2018 longterm debt consisted following thousands 1 presented net 14 million 20 million unamortized debt issuance costs december 31 2019 2018 respectively 2 outstanding principal amount 150 convertible senior notes 1923 million 2000 million december 31 2019 2018 respectively scheduled maturities total debt december 31 2019 follows thousands revolving credit facility companys senior secured revolving credit facility amended revolving credit facility governed credit agreement wells fargo bank na administrative agent lenders party thereto collateral agent secured parties thereunder lenders financial institutions time party thereto dated january 30 2018 amended restated credit agreement matures january 30 2022 credit agreement governs companys revolving credit facility revolving credit facility provides 350 million lender commitments option increase maximum borrowings 500 million subject additional lender commitments prior maturity january 30 2022 revolving credit facility 50 million available issuance letters credit december 31 2019 company 519 million borrowings outstanding credit agreement 193 million outstanding letters credit leaving 1311 million available drawn total amount available drawn revolving credit facility less lender commitments december 31 2019 due limits imposed maintenance covenants credit agreement amounts outstanding revolving credit facility bear interest libor plus margin 175 300 base rate plus margin 075 200 case based ratio companys total net funded debt consolidated ebitda defined credit agreement company must also pay quarterly commitment fee 025 050 based companys ratio total net funded debt consolidated ebitda unused commitments credit agreement credit agreement contains customary financial covenants restrictions specifically company must maintain interest coverage ratio defined ratio consolidated ebitda consolidated interest expense least 30 10 maximum senior secured leverage ratio defined ratio senior secured debt consolidated ebitda greater 225 10 total net leverage ratio defined ratio total net funded debt consolidated ebitda greater 375 10 financial covenants give pro forma effect acquired businesses annualization ebitda acquired businesses oil states international inc subsidiaries notes consolidated financial statements continued factors considered calculation ratios defined credit agreement consolidated ebitda consolidated interest defined exclude noncash goodwill fixed asset impairment charges losses extinguishment debt discount amortization stockbased compensation expense noncash charges borrowings credit agreement secured pledge substantially companys assets domestic subsidiaries companys obligations credit agreement guaranteed significant domestic subsidiaries credit agreement also contains negative covenants limit companys ability borrow additional funds encumber assets pay dividends sell assets enter significant transactions credit agreement occurrence specified change control events involving company would constitute event default would permit banks among things accelerate maturity facility cause become immediately due payable full december 31 2019 company compliance debt covenants 150 convertible senior notes january 30 2018 company issued 200 million aggregate principal amount 150 convertible senior notes due 2023 notes pursuant indenture dated january 30 2018 indenture company wells fargo bank national association trustee net proceeds notes deducting issuance costs approximately 194 million used company repay portion outstanding borrowings revolving credit facility first quarter 2018 2019 company repurchased 78 million principal amount outstanding notes 67 million approximated net carrying amount related liability initial carrying amount notes recorded consolidated balance sheet less 200 million principal amount notes accordance applicable accounting principles reflective estimated fair value similar debt instrument conversion feature company recorded value conversion feature debt discount amortized interest expense term notes similar amount allocated additional paidin capital result amortization interest expense company recognizes related notes accounting purposes based effective interest rate approximately 60 greater cash interest payments company obligated pay notes interest expense associated notes years ended december 31 2019 2018 102 million 90 million respectively related contractual cash interest expense totaled 30 million 28 million respectively following table presents carrying amounts notes consolidated balance sheets thousands notes bear interest rate 150 per year maturity interest payable semiannually arrears february 15 august 15 year beginning august 15 2018 addition additional interest special interest may accrue notes certain circumstances described indenture notes mature february 15 2023 unless earlier repurchased redeemed converted initial conversion rate 222748 shares companys common stock per 1000 principal amount notes equivalent initial conversion price approximately 4489 per share common stock conversion rate thus conversion price may adjusted certain circumstances described indenture companys intent repay principal amount notes cash conversion feature shares companys common stock oil states international inc subsidiaries notes consolidated financial statements continued noteholders may convert notes option following circumstances 1 last reported sale price per share companys common stock exceeds 130 conversion price least 20 trading days 30 consecutive trading days ending including last trading day immediately preceding calendar quarter 2 five consecutive business days immediately five consecutive trading day period five consecutive trading day period measurement period trading price per 1000 principal amount notes trading day measurement period less 98 product last reported sale price per share companys common stock trading day conversion rate trading day 3 upon occurrence certain corporate events distributions companys common stock described indenture 4 company calls notes redemption time including november 15 2022 close business second scheduled trading day immediately maturity date company settle conversions paying delivering applicable cash shares common stock combination cash shares common stock companys election based applicable conversion rates company elects deliver cash combination cash shares common stock consideration due upon conversion based defined observation period notes redeemable whole part companys option time february 15 2021 cash redemption price equal principal amount notes redeemed plus accrued unpaid interest excluding redemption date last reported sale price per share common stock exceeds 130 conversion price least 20 trading days 30 consecutive trading days ending including trading day immediately date company sends related redemption notice specified change control events involving company defined indenture occur noteholders may require company repurchase notes cash repurchase price equal principal amount notes repurchased plus accrued unpaid interest additionally notes contain certain events default set forth indenture december 31 2019 none conditions allowing holders notes convert requiring company repurchase notes met promissory note connection geodynamics acquisition company issued 250 million promissory note bears interest 250 per annum scheduled mature july 12 2019 payments due promissory note subject setoff part full certain indemnification claims related matters occurring prior companys acquisition geodynamics fully described note 14 commitments contingencies company provided notice asserted indemnification claims seller geodynamics result maturity date note extended resolution indemnity claims company expects amount ultimately paid respect note reduced result indemnification claims oil states international inc subsidiaries notes consolidated financial statements continued 8 leases following table provides scheduled maturities operating lease liabilities december 31 2019 thousands operating lease expense 179 million 149 million 91 million years ended december 31 2019 2018 2017 respectively following table provides details regarding components operating lease expense based initial term underlying agreements year ended december 31 2019 thousands following table provides information regarding noncash impact operating lease additions year ended december 31 2019 thousands oil states international inc subsidiaries notes consolidated financial statements continued 9 income taxes consolidated loss income taxes years ended december 31 2019 2018 2017 consisted following thousands 2019 us loss income taxes includes noncash goodwill impairment charge 1650 million noncash fixed asset impairment charge 337 million goodwill impairment charge deductible income tax purposes components income tax provision benefit years ended december 31 2019 2018 2017 consisted following thousands reconciliation us statutory tax benefit rate effective tax provision benefit rate years ended december 31 2019 2018 2017 follows oil states international inc subsidiaries notes consolidated financial statements continued significant items giving rise deferred tax assets liabilities december 31 2019 2018 follows thousands december 22 2017 united states enacted tax reform legislation resulted significant changes us tax related laws including certain key federal income tax provisions applicable multinational companies company changes included among others implementation territorial tax system onetime mandatory tax undistributed foreign earnings subsidiaries reduction us corporate income tax rate 21 35 beginning 2018 result us tax law changes 2017 company recorded net provisional charge 282 million within income tax provision consisting primarily incremental income tax expense 414 million related onetime mandatory transition tax companys unremitted foreign subsidiary earnings transition tax valuation allowance established companys foreign tax credit carryforwards recorded assets prior tax reform legislation offset tax benefit 132 million related remeasurement companys us net deferred tax liabilities based new 21 us corporate income tax rate company incur material cash tax payable respect transition tax 2018 company adjusted december 2017 provisional estimates respect tax reform legislation resulting income tax benefit 58 million company 1663 million us federal net operating loss nol carryforwards december 31 2019 carried forward indefinitely approximately 1062 million us federal nol carryforwards attributable acquired geodynamics operations subject certain limitation provisions companys state nol carryforwards december 31 2019 totaled 1385 million 150 million attributable acquired geodynamics operations subject certain limitation provisions december 31 2019 company nol carryforwards related certain international operations totaling 392 million 185 million carried forward indefinitely december 31 2019 2018 company recorded valuation allowances 155 million 139 million respectively respect state foreign nol carryforwards december 31 2019 companys foreign tax credit carryforwards totaled 204 million foreign tax credits expire varying amounts 2021 2026 discussed result enactment tax reform legislation company provided full valuation allowance foreign tax credits 2017 due uncertainties respect ability utilize credits future periods oil states international inc subsidiaries notes consolidated financial statements continued company files tax returns jurisdictions required returns subject examination audit possible adjustment result assessments taxing authorities company believes recorded sufficient tax liabilities expect resolution examination audit tax returns material adverse effect consolidated operating results financial condition liquidity tax years subsequent 2013 remain open us federal tax audit foreign subsidiary federal tax returns subsequent 2012 subject audit various foreign tax authorities uncertain tax positions accounted using recognition threshold measurement attribute financial statement recognition measurement tax positions taken expected taken tax return benefits recognized tax position must morelikelythannot sustained upon examination taxing authorities amount recognized measured largest amount benefit greater fifty percent likelihood realized upon ultimate settlement total amount unrecognized tax benefits december 31 2019 2018 nil company accrues interest penalties related unrecognized tax benefits component companys provision income taxes december 31 2019 2018 company accrued interest expense penalties 10 stockholders equity common preferred stock following table provides details respect changes number shares common stock 001 par value issued held treasury outstanding 2019 2018 thousands december 31 2019 2018 company 25 million shares preferred stock 001 par value authorized shares issued outstanding company maintains share repurchase program extended july 29 2020 companys board directors 2019 company repurchased 51 thousand shares common stock total cost 08 million 2018 repurchases common stock program 2017 company repurchased 562 thousand shares common stock total cost 162 million amount remaining current share repurchase authorization december 31 2019 1198 million subject applicable securities laws purchases times amounts company deems appropriate accumulated comprehensive loss accumulated comprehensive loss decreased 714 million december 31 2018 677 million december 31 2019 due primarily changes currency exchange rates accumulated comprehensive loss primarily related fluctuations currency exchange rates us dollar used translate certain international operations 2019 2018 currency translation adjustments recognized component comprehensive loss primarily attributable united kingdom brazil year ended december 31 2019 exchange rate british pound strengthened 4 compared us dollar brazilian real weakened 4 compared us dollar period contributing comprehensive income 37 million year ended december 31 2018 exchange rate british pound brazilian real compared us dollar weakened 6 14 respectively contributing comprehensive loss 129 million oil states international inc subsidiaries notes consolidated financial statements continued 11 net loss per share table provides reconciliation numerators denominators basic diluted net loss per share years ended december 31 2019 2018 2017 thousands except per share amounts calculation diluted net loss per share years ended december 31 2019 2018 2017 excluded 659 thousand shares 696 thousand shares 709 thousand shares respectively issuable pursuant outstanding stock options restricted stock awards due antidilutive effect additionally shares issuable upon conversion 150 convertible senior notes convertible therefore excluded year ended december 31 2019 due antidilutive effect 12 longterm incentive deferred compensation plans company measures cost employee services received exchange award equity instruments based grantdate fair value award fair value servicebased restricted stock awards determined quoted market price companys common stock date grant fair value performancebased restricted awards 2017 estimated using monte carlo simulation model due inclusion performance metrics based solely performance companys common stock fair value stock option awards estimated using optionpricing models resulting cost net estimated forfeitures recognized period employee required provide service exchange awards usually vesting period stockbased compensation pretax expense recognized years ended december 31 2019 2018 2017 totaled 168 million 226 million 230 million respectively restricted stock awards restricted stock program consists combination servicebased restricted stock performancebased restricted stock number performancebased restricted shares ultimately issued program dependent upon achievement predefined specific performance objectives generally measured threeyear period performance objectives performancebased stock units granted 2019 2018 based companys ebitda growth rate threeyear period performance objective 2017 awards relative total stockholder return compared peer group companies event predefined targets exceeded performancebased award additional shares maximum 200 target award may granted conversely actual performance falls predefined target number shares vested reduced actual performance falls threshold performance level restricted shares vest servicebased restricted stock awards generally vest straightline basis term generally three four years oil states international inc subsidiaries notes consolidated financial statements continued following table presents changes restricted stock awards related information year ended december 31 2019 shares thousands 1 reflects adjustment number shares issued upon vesting 2017 performancebased awards resulting 167 achievement level compared target total fair value restricted stock awards vested 2019 2018 2017 182 million 194 million 175 million respectively december 31 2019 140 million total compensation costs related nonvested restricted stock awards yet recognized expected recognized weighted average vesting period 15 years december 31 2019 approximately 17 million shares available future grant oil states international inc 2018 equity participation plan stock options company awarded stock options since 2015 fair value historical option grants estimated date grant using black scholes merton option pricing model options exercised 2019 2018 2017 following table presents changes stock options outstanding related information year ended december 31 2019 shares thousands 1 exercise prices ranged 4149 5854 december 31 2019 longterm cash incentive awards 2019 2018 company issued conditional longterm cash incentive awards cash awards approximately 13 million year ultimate dollar amount awarded ranging zero maximum 27 million performance measure cash awards relative total stockholder return compared peer group companies measured threeyear period obligation related cash awards classified liability recognized vesting period ultimate dollar amount awarded 2019 cash awards limited targeted award value 13 million companys total stockholder return negative threeyear performance period deferred compensation plan company maintains nonqualified deferred compensation plan deferred compensation plan permits eligible employees directors elect defer receipt portion directors fees andor salary annual bonuses employee contributions deferred compensation plan matched company percentage employee participant companys 401k retirement plan subject irs limitations matcheligible compensation deferred compensation plan also permits company make discretionary contributions employees account although none made date directors contributions matched company since inception oil states international inc subsidiaries notes consolidated financial statements continued plan discretionary contribution provision limited matching participants contributions basis equivalent matching permitted companys 401k retirement savings plan vesting contributions participants accounts also equivalent vesting requirements companys 401k retirement savings plan deferred compensation plan dollar limits taxdeferred contributions assets deferred compensation plan held rabbi trust therefore available satisfy claims companys creditors event bankruptcy insolvency company participants ability direct plan administrator invest assets individual accounts including discretionary contributions company 30 preapproved mutual funds held trust cover variety securities mutual funds addition participants currently right request plan administrator reallocate portfolio investments ie cash mutual funds participants individual accounts within trust company contributions form cash distributions plan generally made upon participants termination director andor employee applicable company participants receive payments deferred compensation plan cash december 31 2019 trust assets totaled 223 million majority classified noncurrent assets companys consolidated balance sheet fair value investments based quoted market prices active markets level 1 fair value measurement amounts payable plan participants december 31 2019 including fair value shares companys common stock reflected treasury stock 223 million classified noncurrent liabilities consolidated balance sheet company accounts deferred compensation plan accordance current accounting standards regarding accounting deferred compensation arrangements amounts earned held rabbi trust invested increases decreases value trust assets exclusive shares common stock company held trust included compensation adjustments consolidated statements operations increases decreases fair value deferred compensation liability including shares common stock company held trust recorded treasury stock also included compensation adjustments consolidated statements operations 13 retirement plans company sponsors defined contribution plans participation plans available substantially employees company recognized expenses 95 million 86 million 68 million respectively related matching contributions various defined contribution plans years ended december 31 2019 2018 2017 respectively 14 commitments contingencies following companys acquisition geodynamics january 2018 company determined certain steel products historically imported geodynamics china use manufacturing process may potentially subject antidumping countervailing duties based recent clarificationsdecisions rendered us department commerce us court international trade following findings company commenced internal review matter ceased purchases potentially affected chinese products part companys internal review company engaged trade counsel decided voluntarily disclose matter us customs border protection september 2018 connection geodynamics acquisition seller agreed indemnify hold company harmless certain claims related matters company provided notice asserted indemnification claims seller additionally company able setoff payments due 250 million promissory note see note 7 longterm debt issued seller geodynamics respect indemnification claims could affect timing payment amount due promissory note scheduled mature july 12 2019 company provided notice asserted indemnification claims maturity date note extended resolution claims company expects amount ultimately paid respect note reduced result indemnification claims additionally ordinary course conducting business company becomes involved litigation claims private party actions well judicial administrative proceedings involving governmental authorities federal state local levels past years number lawsuits filed federal court company andor one subsidiaries current former employees alleging violations fair labor standards act flsa company reached final settlement remaining individual plaintiffs claims 2018 company party various pending threatened claims lawsuits administrative proceedings seeking damages remedies concerning commercial operations products employees matters including occasional claims individuals alleging exposure hazardous materials result companys products operations claims relate matters occurring prior acquisition businesses including geodynamics falcon relate businesses company sold certain cases company entitled indemnification sellers businesses oil states international inc subsidiaries notes consolidated financial statements continued cases company indemnified buyers businesses although company give assurance outcome pending legal administrative proceedings effect outcomes may company management believes ultimate liability resulting outcome proceedings extent otherwise provided covered indemnity insurance material adverse effect companys consolidated financial position results operations liquidity 15 segments related information discussed note 5 business acquisitions january 12 2018 company completed geodynamics acquisition beginning first quarter 2018 reported separate business segment name downhole technologies following acquisition company operates three reportable segments well site services downhole technologies offshoremanufactured products companys reportable segments represent strategic business units offer different products services managed separately business requires different technologies marketing strategies recent acquisitions except geodynamics acquisition direct extensions existing business segments accounting policies segments described summary significant accounting policies well site services segment provides broad range equipment services used drill establish maintain flow oil natural gas well throughout life cycle segment operations primarily include completionfocused equipment services well land drilling services completion services operations provide solutions customers using completion tools highlytrained personnel throughout service offerings include wireline support frac stacks isolations tools extended reach tools ball launchers well testing flowback operations thru tubing activity sand control drilling services provides land drilling services shallow medium depth wells united states separate business lines within well site services segment disclosed provide additional detail respect operations following closing geodynamics acquisition january 12 2018 downhole technologies segment provides oil gas perforation systems downhole tools support completion intervention wireline well abandonment operations segment designs manufactures markets consumable engineered products oilfield service well exploration production companies completing complex wells longer lateral lengths increased frac stages perforation clusters increase unconventional well productivity offshoremanufactured products segment designs manufactures markets capital equipment utilized floating production systems subsea pipeline infrastructure offshore drilling rigs vessels along shortcycle products driven principally longerterm customer investments offshore oil natural gas projects projectdriven product revenues include flexible bearings advanced connector systems highpressure riser systems deepwater mooring systems cranes subsea pipeline products blowout preventer stack integration shortcycle products manufactured segment include valves elastomers specialty products generally used landbased drilling completion markets products manufactured offered segment include variety products use industrial military applications outside oil gas industry segment also offers broad line complementary valueadded services including specialty welding fabrication cladding machining services offshore installation services inspection repair services corporate information includes corporate expenses related corporate governance stockbased compensation infrastructure support well impacts corporatewide decisions individual operating units evaluated oil states international inc subsidiaries notes consolidated financial statements continued financial information business segment three years ended december 31 2019 2018 2017 summarized following table thousands 1 operating loss drilling services business includes noncash fixed asset impairment charge 337 million see note 4 “details selected balance sheet accounts” discussion 2 operating loss downhole technologies segment includes noncash goodwill impairment charge 1650 million see note 6 goodwill intangible assets discussion customer individually accounted greater 10 companys 2019 consolidated revenues individually accounted greater 10 companys consolidated accounts receivable december 31 2019 one customer accounted 10 companys 2018 consolidated revenues whose receivables individually accounted 11 companys consolidated accounts receivable december 31 2018 one customer accounted 16 companys 2017 consolidated revenues companys well site services segment substantially depreciation amortization expense relates cost services substantially depreciation amortization expense downhole technologies segment relates cost products offshoremanufactured products segment numerous facilities around world generate product service revenues common segment provide installation services products manufactured segment substantially depreciation amortization expense offshoremanufactured products segment relates cost revenues segregate capture depreciation amortization expense intangible assets product service cost operating income loss excludes equity net income unconsolidated affiliates immaterial reported separately herein oil states international inc subsidiaries notes consolidated financial statements continued following table provides supplemental disaggregated revenue contracts customers business segment three years ended december 31 2019 2018 2017 thousands financial information geographic location three years ended december 31 2019 2018 2017 summarized thousands revenues attributable countries based location entity selling products performing services include export sales longlived assets attributable countries based physical location operations operating assets include intercompany receivable balances oil states international inc subsidiaries notes consolidated financial statements continued 16 related party transactions geodynamics historically leased certain land facilities equity holder employee company following acquisition geodynamics connection acquisition geodynamics company assumed leases company exercised option purchase significant leased facility associated land approximately 54 million september 2018 rent expense related leases employee years ended december 31 2019 2018 totaled 157 thousand 330 thousand respectively additionally geodynamics purchased products sold products company employee investor 2019 purchases company 13 million 2019 sales company geodynamics 14 million 2019 17 valuation allowances activity valuation accounts follows thousands 1 year ended december 31 2018 amount presented within allowance doubtful accounts receivables excess obsolete inventory includes 06 million 33 million respectively related acquired geodynamics operations oil states international inc subsidiaries notes consolidated financial statements continued 18 quarterly financial information unaudited following table summarizes quarterly financial information 2019 2018 thousands except per share amounts 1 first quarter 2019 company recognized 10 million pretax severance downsizing charges first quarter 2018 company recognized 08 million pretax severance downsizing charges 26 million pretax acquisitionrelated expenses 09 million pretax legal fees incurred patent defense 07 million pretax provision flsa claims settlements 2 second quarter 2019 company recognized 13 million pretax severance downsizing charges 3 third quarter 2019 company recognized noncash fixed asset impairment charge 337 million pretax 07 million pretax severance downsizing charges third quarter 2018 company recognized 35 million pretax legal fees incurred patent defense recorded 26 million pretax provision flsa claims settlements additionally third quarter 2018 company recognized 58 million discrete net tax benefit resulting tax reform legislation discussed note 9 income taxes 4 fourth quarter 2019 company recognized noncash goodwill impairment charge 1650 million pre aftertax 05 million pretax severance downsizing charges fourth quarter 2018 company recognized 24 million pretax legal fees incurred patent defense 08 million pretax severance downsizing charges 07 million pretax acquisition related expenses 5 gross profit calculated revenues less costs products services segment level depreciation amortization expense calculation gross profit excluded 337 million noncash fixed asset impairment charge recognized third quarter 2019 1650 million noncash goodwill impairment charge recognized fourth quarter 2019 amounts calculated independently quarters presented therefore sum quarterly amounts may equal total calculated yearitem 15 exhibits financial statement schedules index financial statements financial statement schedules exhibits 1 financial statements reference made index set forth page 59 annual report form 10k 2 financial statement schedules included herein information required submitted included consolidated financial statements notes thereto required information inapplicable 3 index exhibits see index exhibits list exhibits filed herewith index also includes identifies management contracts compensatory plans arrangements required filed exhibits annual report form 10k item 601 regulation sk b index exhibits filed herewith furnished herewith management contracts compensatory plans arrangements item 16 form 10k summary none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized february 22 2021 oil states international inc bys cindy b taylor cindy b taylor president chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 22 2021 signature title chairman board robert l potter cindy b taylor director president chief executive officer cindy b taylor principal executive officer lloyd hajdik executive vice president chief financial officer lloyd hajdik treasurer principal financial officer brian e taylor vice president controller chief accounting officer brian e taylor principal accounting officer director lawrence r dickerson director darrell e hollek director james nelson jr director christopher seaver director william van kleef director hallie vanderhider director e joseph wright lloyd hajdik lloyd hajdik pursuant power attorney filed exhibit 241 annual report form 10k oil states international inc subsidiaries index consolidated financial statements report independent registered public accounting firm stockholders board directors oil states international inc opinion financial statements audited accompanying consolidated balance sheets oil states international inc subsidiaries company december 31 2020 2019 related consolidated statements operations comprehensive loss stockholders equity cash flows three years period ended december 31 2020 related notes collectively referred consolidated financial statements opinion consolidated financial statements present fairly material respects financial position company december 31 2020 2019 results operations cash flows three years period ended december 31 2020 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states pcaob companys internal control financial reporting december 31 2020 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission 2013 framework report dated february 22 2021 expressed unqualified opinion thereon basis opinion financial statements responsibility companys management responsibility express opinion companys financial statements based audits public accounting firm registered pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement whether due error fraud audits included performing procedures assess risks material misstatement financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation financial statements believe audits provide reasonable basis opinion critical audit matter critical audit matter communicated matter arising current period audit financial statements communicated required communicated audit committee 1 relates accounts disclosures material financial statements 2 involved especially challenging subjective complex judgments communication critical audit matter alter way opinion consolidated financial statements taken whole communicating critical audit matter providing separate opinion critical audit matter accounts disclosures relates goodwill impairment offshoremanufactured products description matter discussed note 2 consolidated financial statements goodwill assessed impairment annually event occurs circumstances change suggest carrying amount may recoverable given significance march 2020 events described note 6 company performed quantitative assessment goodwill impairment march 31 2020 based quantitative assessment company recognized noncash goodwill impairment charges 4061 million included partial goodwill impairment charge 865 million offshoremanufactured products reporting unit reflected companys consolidated financial statements december 31 2020 companys remaining goodwill 765 million offshoremanufactured products reporting unit auditing managements interim goodwill impairment assessment companys offshoremanufactured products reporting unit subjective required involvement specialists due significant measurement uncertainty determining fair value reporting unit particular fair value estimate attributable income approach sensitive changes significant assumptions discount rate revenue growth rate affected market forecasts commodity prices level capital expenditures oil gas industry addressed matter audit obtained understanding evaluated design tested operating effectiveness controls companys goodwill impairment assessment process example tested controls companys forecasting process well controls managements review significant assumptions estimating fair value reporting unit related evaluation managements specialist test estimated fair value reporting unit audit procedures included among others assessing valuation methodology testing significant assumptions discussed herein example compared revenue growth rate prospective financial data used management external forecasted spending trends industry analysts forecasted commodity prices historical performance performed sensitivity analyses certain significant assumptions evaluate change fair value resulting changes significant assumptions also involved valuation specialists assist evaluation fair value methodology discount rate assumption fair value estimate tested completeness accuracy underlying data used fair value estimate ernst young llp served company‘s auditor since 2000 houston texas february 22 2021 report independent registered public accounting firm stockholders board directors oil states international inc opinion internal control financial reporting audited oil states international inc subsidiaries internal control financial reporting december 31 2020 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission 2013 framework coso criteria opinion oil states international inc subsidiaries company maintained material respects effective internal control financial reporting december 31 2020 based coso criteria also audited accordance standards public company accounting oversight board united states pcaob consolidated balance sheets company december 31 2020 2019 related consolidated statements operations comprehensive loss stockholders equity cash flows three years period ended december 31 2020 related notes report dated february 22 2021 expressed unqualified opinion thereon basis opinion companys management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying managements annual report internal control financial reporting responsibility express opinion companys internal control financial reporting based audit public accounting firm registered pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audit accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk performing procedures considered necessary circumstances believe audit provides reasonable basis opinion definition limitations internal control financial reporting companys internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate ernst young llp houston texas february 22 2021 oil states international inc subsidiaries consolidated statements operations thousands except per share amounts accompanying notes integral part financial statements oil states international inc subsidiaries consolidated statements comprehensive loss thousands accompanying notes integral part financial statements oil states international inc subsidiaries consolidated balance sheets thousands except share amounts accompanying notes integral part financial statements oil states international inc subsidiaries consolidated statements stockholders equity thousands accompanying notes integral part financial statements oil states international inc subsidiaries consolidated statements cash flows thousands accompanying notes integral part financial statements oil states international inc subsidiaries notes consolidated financial statements 1 organization basis presentation consolidated financial statements include accounts oil states international inc oil states company consolidated subsidiaries investments unconsolidated affiliates company able exercise significant influence accounted using equity method significant intercompany accounts transactions company consolidated subsidiaries eliminated accompanying consolidated financial statements certain prioryear amounts companys consolidated financial statements reclassified conform current year presentation company subsidiaries leading provider specialty products services oil gas industrial companies throughout world company operates substantial number worlds active resource intensive regions including onshore offshore united states west africa north sea middle east south america southeast central asia company operates three business segments well site services downhole technologies offshoremanufactured products january 12 2018 company acquired geodynamics inc geodynamics acquisition acquired operations reported downhole technologies segment february 28 2018 company acquired falcon flowback services llc falcon integrated completion services business unit changes reporting structure 2 summary significant accounting policies use estimates discussed note 14 commitments contingencies impact coronavirus disease 2019 covid19 pandemic related economic business market disruptions continues evolve future effects remain uncertain actual impact developments company depend numerous factors many beyond managements control knowledge therefore difficult management assess predict precision broad future effect health crisis global economy energy industry company 2020 company recorded asset impairments severance restructuring charges response recent developments discussed note 3 asset impairments charges additional information becomes available events circumstances change strategic operational decisions made management adjustments may required could material adverse impact companys consolidated financial position results operations cash flows preparation consolidated financial statements conformity accounting principles generally accepted united states requires use estimates assumptions management determining reported amounts assets liabilities disclosures contingent assets liabilities date consolidated financial statements reported amounts revenues expenses reporting period examples estimates include goodwill longlived asset impairments revenue income recognized time valuation allowances recorded deferred tax assets fair value assets liabilities acquired including identification associated goodwill intangible assets reserves inventory allowances doubtful accounts settlement litigation potential future adjustments related contractual indemnification agreements actual results could materially differ estimates cash equivalents highly liquid investments purchased original maturity three months less classified cash equivalents fair value financial instruments financial instruments consist cash equivalents investments receivables payables debt instruments carrying values instruments 150 convertible senior notes due february 2023 notes described note 7 longterm debt accompanying consolidated balance sheets approximates fair values estimated fair value notes december 31 2020 1206 million based quoted market prices level 2 fair value measurement compares 1574 million principal amount notes oil states international inc subsidiaries notes consolidated financial statements continued inventories consist consumable oilfield products manufactured equipment spare parts manufactured equipment workinprocess inventories also include raw materials labor subcontractor charges manufacturing overhead supplies carried lower cost net realizable value cost inventories determined average cost specificidentification method reserve excess andor obsolete inventory maintained based age turnover condition expected nearterm utility market pricing goods property plant equipment property plant equipment recorded cost estimated fair market value acquisition date acquired business combination depreciation computed assets owned recorded finance lease using straightline method estimated useful lives assets allowing estimated salvage value applicable leasehold improvements capitalized amortized lesser life lease estimated useful life asset expenditures repairs maintenance charged expense incurred expenditures major renewals betterments extend useful lives existing equipment capitalized depreciated upon retirement disposition property equipment cost related accumulated depreciation removed accounts resulting gain loss recognized statements operations goodwill represents excess impairments applicable purchase price acquired businesses allocated fair value related net assets accordance current accounting guidance company amortize goodwill rather assesses goodwill impairment annually event occurs circumstances change indicate carrying amounts may recoverable evaluation goodwill reporting unit goodwill balance sheet assessed separately using relevant events circumstances management estimates fair value reporting unit compares fair value recorded carrying value management utilizes depending circumstances combination valuation methodologies including market approach income approach well guideline public company comparables projected cash flows discounted using longterm weighted average cost capital reporting unit based estimates investment returns would required market participant part process assessing goodwill potential impairment total market capitalization company compared sum fair values reporting units assess reasonableness aggregated fair values carrying amount reporting unit exceeds fair value goodwill considered impaired impairment loss recorded discussed note 6 goodwill intangible assets company recognized noncash goodwill impairment charges 4061 million first quarter 2020 1650 million fourth quarter 2019 impairment charges impact companys liquidity position debt covenants cash flows longlived assets company amortizes cost longlived assets including finitelived intangible assets estimated useful life recoverability carrying values longlived assets assessed asset group level whenever managements judgment events changes circumstances indicate carrying value asset groups may recoverable based estimated undiscounted future cash flows assessment indicates carrying values recoverable impairment loss equal excess carrying value fair value asset group recognized fair value asset group based appraised values prices similar assets available discounted cash flows discussed note 4 details selected balance sheet accounts note 8 operating leases company recognized noncash asset impairment charges totaling 124 million 337 million 2020 2019 respectively reduce carrying value certain equipment facilities owned leased estimated realizable value based companys review carrying values longlived assets recoverable impairment losses recorded periods presented oil states international inc subsidiaries notes consolidated financial statements continued leases company leases portion facilities office space equipment vehicles contracts provide right control identified assets company recognizes right use identified assets operating leases initial term greater 12 months operating lease assets related obligations make payments lease arrangements operating lease liabilities finance lease obligations material classified within longterm debt related assets included within property plant equipment lease assets liabilities recorded commencement date based present value lease payments lease term company lease agreements lease nonlease components generally accounted single lease component companys leases provide implicit interest rate therefore companys incremental borrowing rate based available information lease commencement date used determine present value lease payments companys operating leases include one options renew renewal terms extend lease term one 20 years exercise lease renewal options companys sole discretion depreciable lives leaserelated assets leasehold improvements limited expected lease term certain operating lease agreements include rental payments adjusted periodically inflation companys operating lease agreements contain material residual value guarantees material restrictive covenants company rents subleases certain real estate third parties amounts material cash outflows related operating leases presented within cash flows operations research development costs incurred internally researching developing products charged expense technological feasibility established product research development expenses totaled 61 million 70 million 66 million 2020 2019 2018 respectively reported within cost revenues accompanying consolidated statements operations foreign currency comprehensive loss gains losses resulting balance sheet translation international operations local currency functional currency included component accumulated comprehensive loss within stockholders equity represent substantially accumulated comprehensive loss balance remeasurements intercompany advances denominated currency functional currency entity longterm investment nature recognized separate component comprehensive loss within stockholders equity gains losses resulting balance sheet remeasurements assets liabilities denominated different currency functional currency intercompany advances longterm investment nature included consolidated statements operations within operating income net incurred material periods presented currency exchange rate risk portion revenues earnings net investments operations outside united states exposed changes currency exchange rates company seeks manage currency exchange risk part operational means including managing expected local currency revenues relation local currency costs local currency assets relation local currency liabilities order reduce exposure fluctuations currency exchange rates company may enter currency exchange agreements financial institutions december 31 2020 2019 company outstanding foreign currency forward purchase contracts revenue cost recognition companys revenue contracts may include one promises transfer distinct good service customer referred performance obligation revenue allocated company recognizes revenue related cost performance obligations satisfied majority significant contracts custom engineered products single performance obligation individual good service separately identifiable performance obligations contracts multiple distinct performance obligations company allocates revenue identified performance obligations contract companys product sales terms include significant postperformance obligations oil states international inc subsidiaries notes consolidated financial statements continued companys performance obligations may satisfied point time work progresses revenues products services transferred customers point time accounted approximately 38 34 29 consolidated revenues years ended december 31 2020 2019 2018 respectively majority companys revenue recognized point time derived shortterm contracts standard products revenue contracts recognized control product transferred customer indicators company considers determining transfer control customer occurs include right payment product transfer legal title customer transfer physical possession product transfer risk customer acceptance product revenues products services transferred customers time accounted approximately 62 66 71 consolidated revenues years ended december 31 2020 2019 2018 respectively majority companys revenue recognized time services provided shortterm contracts revenue recognized customer receives consumes services addition company manufactures certain products individual customer specifications shortterm contracts control passes customer performance obligations fulfilled revenue recognized time significant projectrelated contracts involving custom engineered products within offshoremanufactured products segment also referred projectdriven products revenues typically recognized time using input measure percentage costs incurred date relative total estimated costs completion contract costtocost method contract costs include labor material overhead management believes method appropriate measure progress large contracts billings contracts excess costs incurred estimated profits classified contract liability deferred revenue costs incurred estimated profits excess billings contracts recognized contract asset component accounts receivable contract estimates projectrelated contracts involving custom engineered products based various assumptions project outcome future events may span several years changes assumptions may affect future project costs margins include production efficiencies complexity work performed availability costs labor materials subcomponents significant change one estimates could affect profitability companys contracts contractrelated estimates reviewed regularly company recognizes adjustments estimated costs profits contracts period adjustment identified revenue profit future periods contract performance recognized using adjusted estimate time estimate contract profitability indicates anticipated loss incurred contract full loss recognized period identified product costs service costs include direct material labor costs related contract performance indirect labor supplies tools repairs disclosed consolidated statements operations product costs service costs exclude depreciation amortization expense impairment fixed assets separately presented selling general administrative costs charged expense incurred taxes assessed governmental authority imposed concurrent specific revenueproducing transaction collected company customer excluded revenue shipping handling costs associated outbound freight control product transferred customer accounted fulfillment cost included cost products proceeds customers cost oilfield rental equipment damaged lost downhole reflected gains losses disposition assets considering writeoff remaining net book value equipment december 31 2020 company 1619 million remaining backlog related contracts original expected duration greater one year approximately 53 remaining backlog expected recognized revenue 2021 balance thereafter income taxes company follows liability method accounting income taxes method deferred income taxes recorded based upon differences financial reporting tax bases assets liabilities measured using enacted tax rates laws effect time underlying assets liabilities recovered settled oil states international inc subsidiaries notes consolidated financial statements continued discussed note 9 income taxes december 22 2017 legislation commonly known tax cuts jobs act tax reform legislation signed law enacted significant changes us tax related laws including certain key us federal income tax provisions applicable oilfield service manufacturing companies company accordance securities exchange commissions staff accounting bulletin 118 company recorded provisional estimates reflect effect tax reform legislation companys income tax assets liabilities december 31 2017 2018 company adjusted provisional estimates based upon additional guidance issued internal revenue service march 27 2020 coronavirus aid relief economic security cares act signed law allowed carryback us federal net operating losses prior enactment cares act tax losses could carried forward december 31 2020 companys total investment foreign subsidiaries considered indefinitely reinvested outside united states company accounts us tax effect global intangible lowtaxed income earned foreign subsidiaries period income earned company records valuation allowance reporting period management believes likely deferred tax asset realized assessment requires analysis changes tax laws well available positive negative evidence including consideration losses recent years reversals temporary differences forecasts future income assessment future business tax planning strategies 2020 2019 2018 company recorded valuation allowances primarily respect foreign us state net operating loss nol carryforwards calculation tax liabilities involves assessing uncertainties regarding application complex tax regulations company recognizes liabilities tax expenses based estimates whether extent additional taxes due management ultimately determines payment amounts unnecessary liability reversed tax benefit recognized period management determines liability longer necessary additional charge recorded provision taxes period management determines recorded tax liability less expected ultimate assessment receivables concentration credit risk based nature customer base company believe significant concentrations credit risk concentration worldwide oil gas industry note 15 segments related information provides information respect companys geographic revenues significant customers company evaluates creditworthiness significant customers financial condition generally company require significant collateral customers allowances doubtful accounts company maintains allowances estimated losses resulting inability companys customers make required payments determination collectability amounts due customers requires management make judgments regarding future events trends allowances doubtful accounts established assessment companys portfolio individual customer consolidated basis taking account current expected future market conditions trends process consists thorough review historical collection experience current aging status customer accounts financial condition companys customers well political economic factors countries operations customerspecific factors based review factors company establishes adjusts allowances trade unbilled receivables well contract assets financial condition companys customers deteriorate adversely affecting ability make payments additional allowances may required customer receivable deemed uncollectible receivable chargedoff allowance doubtful accounts earnings per share basic earnings per share eps face accompanying consolidated statements operations computed dividing net income loss applicable companys common stockholders weighted average shares outstanding common stock calculation diluted eps similar basic eps except denominator includes dilutive common stock equivalents income loss numerator excludes impact dilutive common stock equivalents oil states international inc subsidiaries notes consolidated financial statements continued diluted eps includes effect dilutive companys outstanding stock options restricted stock convertible securities treasury stock method currently issued outstanding shares restricted stock remain subject vesting requirements company required compute eps amounts two class method periods earnings holders shares unvested restricted stock entitled liquidation dividend rights holders outstanding common stock thus considered participating securities applicable accounting guidance undistributed earnings period allocated based participation rights common stockholders holders participating securities earnings respective periods distributed liquidation dividend rights identical undistributed earnings allocated proportionate basis stockbased compensation fair value sharebased payments estimated using quoted market price companys common stock pricing models date grant discussed note 12 longterm incentive deferred compensation plans resulting cost net estimated forfeitures recognized period employee required provide service exchange awards usually vesting period addition servicebased awards company issues performancebased awards conditional based upon company performance may vest amount depend companys achievement specified performance objectives guarantees product sales offshoremanufactured products segment sold assurance warranty generally ranging 12 18 months parts labor covered terms warranty agreement warranty provisions estimated based upon historical experience product configuration geographic region ordinary course business company also provides standby letters credit guarantee instruments certain parties required certain transactions initiated either company subsidiaries december 31 2020 maximum potential amount future payments company could required make guarantee agreements letters credit 292 million company recorded liability connection guarantee arrangements company believe based historical experience information currently available likely material amounts required paid guarantee arrangements accounting contingencies company contingent liabilities future claims estimates amount eventual cost liquidate liabilities accrued liabilities claims sometimes involve threatened actual litigation damages quantified assessment exposure made recorded amount estimated cover expected loss claims liabilities estimated based fair value managements experience matters appropriate advice outside counsel outside experts upon ultimate resolution uncertainties future reported financial results impacted difference accruals actual amounts paid settlement examples areas important estimates future liabilities include duties income taxes litigation insurance claims warranty claims contractual claims obligations discontinued operations recent accounting pronouncements time new accounting pronouncements issued financial accounting standards board fasb adopted company specified effective date unless otherwise discussed management believes impact recently issued standards yet effective material impact companys consolidated financial statements upon adoption august 2020 fasb issued updated guidance simplify accounting convertible instruments contracts entitys equity new guidance eliminated requirement carrying value convertible debt instruments companys notes allocated debt equity components permitted standard company adopted new guidance january 1 2021 using modified retrospective transition method adoption standard resulted 122 million increase net carrying value notes 37 million decrease deferred income taxes 85 million net decrease stockholders equity effective interest rate associated notes adoption decreased approximately 6 approximately 2 compares contractual interest rate 150 oil states international inc subsidiaries notes consolidated financial statements continued june 2016 fasb issued guidance credit impairment shortterm receivables amended introduced recognition managements current estimate credit losses expected occur remaining life financial asset company adopted guidance january 1 2020 using optional transition method recognizing cumulative effect adopting guidance adjustment opening balance retained earnings cumulative impact adoption new standard material companys consolidated financial statements prior periods retrospectively adjusted 3 asset impairments charges march 2020 spot price west texas intermediate wti crude oil declined 50 response current expected material reductions global demand stemming global response covid19 pandemic coupled announcements saudi arabia russia plans increase crude oil production following unprecedented collapse crude oil prices spot price brent wti crude oil closed 15 21 per barrel respectively march 31 2020 crude oil prices declined april 2020 record low levels spot price brent wti crude oil increased average 44 43 per barrel respectively fourth quarter 2020 average prices continue remain historical price levels demand companys products services depends substantially level capital expenditures invested oil natural gas industry reached 15year lows 2020 decline crude oil prices coupled higher crude oil inventory levels 2020 caused rapid reductions companys customers drilling completion production activities related spending products services particularly supporting activities us shale play regions conditions may continue result material adverse impact certain customers liquidity financial position leading spending reductions delays collection amounts owed certain instances nonpayments amounts owed consistent oilfield service industry peers companys stock price declined dramatically first quarter 2020 market capitalization falling substantially carrying value stockholders equity following march 2020 events company immediately implemented significant cost reduction initiatives company also assessed carrying value goodwill longlived assets based industry outlook regarding overall demand pricing products services market considerations financial condition companys customers result events actions assessments 2020 company recorded following charges thousands 2019 company recorded following charges thousands oil states international inc subsidiaries notes consolidated financial statements continued 2018 company recorded following charges thousands 4 details selected balance sheet accounts additional information regarding selected balance sheet accounts december 31 2020 2019 presented thousands december 31 2020 accounts receivable net united states united kingdom represented 63 21 respectively total country single customer accounted 10 companys total accounts receivable december 31 2020 summary activity allowance doubtful accounts years ended december 31 2020 2019 2018 provided note 17 valuation allowances majority contracts customers company receives payments based upon established contractual terms products delivered services performed companys larger projectrelated contracts within offshoremanufactured products segment often provide customer payments milestones achieved contract assets relate companys right consideration work completed billed december 31 2020 2019 certain projectrelated contracts within offshoremanufactured products segment contract assets transferred unbilled trade receivables right consideration becomes unconditional contract liabilities primarily relate advance consideration received customers ie milestone payments contracts projectdriven products well others require significant advance investment materials consistent industry practice company classifies assets liabilities related longterm contracts current even though amounts may realized within one year contracts reported consolidated balance sheets net asset contract asset liability deferred revenue position contractbycontract basis end reporting period normal course business company also receives advance consideration customers many shortterm smaller product service contracts deferred recognized revenue related performance obligation satisfied year ended december 31 2020 98 million net increase contract assets primarily attributable 324 million revenue recognized year partially offset 228 million transferred accounts receivable deferred revenue contract liabilities increased 256 million 2020 reflecting 416 million new customer billings recognized revenue year partially offset recognition 160 million revenue deferred beginning period oil states international inc subsidiaries notes consolidated financial statements continued year ended december 31 2019 48 million net increase contract assets primarily attributable 250 million revenue recognized year offset 200 million transferred accounts receivable deferred revenue contract liabilities increased 36 million 2019 reflecting 122 million new customer billings recognized revenue year partially offset recognition 85 million revenue deferred beginning period 1during 2020 company recorded impairment charges totaling 312 million reduce carrying value inventories estimated net realizable value based changes expectations regarding nearterm utility customer demand market pricing certain goods years ended december 31 2020 2019 2018 depreciation expense 740 million 965 million 972 million respectively 2019 company made strategic decision reduce scope drilling services business unit adjusting 34 rigs 9 rigs due ongoing weakness customer demand vertical drilling rigs us land market particularly permian basin result decision carrying value 25 rigs decommissioned sold reduced estimated realizable value resulting recognition 255 million noncash impairment charge company also performed fair value assessment remaining drilling rigs recognized additional noncash impairment charge 82 million level 3 fair value measurement noncash 2019 fixed asset impairment charges totaled 337 million 2020 drilling services reporting unit recognized noncash impairment charge 52 million reduce carrying value business fixed assets estimated realizable value additionally 2020 completion services reporting unit recognized noncash impairment charges 36 million reduce carrying value certain facilities estimated realizable value downhole technologies reporting unit recognized noncash impairment charge 16 million reduce carrying value business fixed assets estimated realizable value 2018 company insurance carriers reached final settlement flood insurance claims resulting hurricane harvey 2017 connection settlement companys offshoremanufactured products segment recognized gain 38 million following remediation repair buildings equipment gain reported operating income accompanying consolidated statement operations year ended december 31 2018 oil states international inc subsidiaries notes consolidated financial statements continued 5 business acquisitions geodynamics acquisition january 12 2018 company acquired geodynamics purchase price consisting 2954 million cash net cash acquired funded borrowings companys revolving credit facility defined note 7 longterm debt ii approximately 866 million shares companys common stock market value 2949 million closing date geodynamics acquisition iii unsecured 25 million promissory note bears interest 25 per annum terms agreements seller geodynamics acquisition seller company believes entitled indemnification respect certain matters occurring prior geodynamics acquisition payments due promissory note subject setoff part full respect indemnified matters result certain indemnity claims pending seller company reduced carrying amount note consolidated balance sheet 171 million december 31 2020 current best estimate owed setoff indemnification matters see note 14 commitments contingencies geodynamics results operations reported downhole technologies segment included companys consolidated financial statements subsequent closing geodynamics acquisition january 12 2018 falcon acquisition february 28 2018 company acquired falcon fullservice provider flowback well testing services separation recovery fluids solid debris proppant used hydraulic fracturing operations purchase price 842 million net cash acquired terms purchase agreement company entitled indemnification respect certain matters occurring prior acquisition falcons results operations included companys consolidated financial statements reported within completion services business subsequent closing acquisition february 28 2018 year ended december 31 2018 company expensed 36 million transactionrelated costs incurred connection acquisitions geodynamics falcon included within selling general administrative expense within operating income net oil states international inc subsidiaries notes consolidated financial statements continued 6 goodwill intangible assets goodwill changes carrying amount goodwill years ended december 31 2020 2019 follows thousands discussed note 2 significant accounting policies goodwill allocated reporting unit based acquisitions made company assessed impairment annually event occurs circumstances change indicate carrying amounts may recoverable december 2019 impairment company three reporting units completion services downhole technologies offshoremanufactured products whose goodwill balances totaled approximately 647 million september 30 2019 fourth quarter 2019 us landbased completion activity declined significantly levels experienced previous three quarters additionally number market indicators declined levels experienced recent years consistent oilfield service industry peers companys stock price declined market capitalization carrying value stockholders equity given market conditions company reduced nearterm demand outlook shortcycle products services us shale play regions refined outlook incorporated december 1 2019 annual impairment assessment management utilizes depending circumstances combination valuation methodologies including market approach income approach well guideline public company comparables valuation techniques used december 1 2019 assessment consistent used previous testing except downhole technologies reporting unit income approach used estimate fair value market approach used validate results 2019 fair value companys reporting units determined using significant unobservable inputs level 3 fair value measurement oil states international inc subsidiaries notes consolidated financial statements continued income approach estimates fair value reporting unit discounting companys current forecast future cash flows estimate discount rate expected return market participant would require market approach includes use comparative multiples corroborate discounted cash flow results market approach involves judgment selection appropriate peer group companies valuation multiples significant assumptions used income approach include among others estimated future net annual cash flows discount rates reporting unit management selected estimates used discounted cash flow projections using historical data well thencurrent anticipated market conditions estimated growth rates estimates based upon assumptions considered published industry trends market forecasts commodity prices rig count well count offshoreonshore drilling completion spending believed reasonable time based quantitative assessment company concluded goodwill amount recorded downhole technologies reporting unit partially impaired recognized noncash goodwill impairment charge 1650 million fourth quarter 2019 discount rates used value companys reporting units december 1 2019 ranged 125 130 holding assumptions inputs used respective discounted cash flow analysis constant 50 basis point increase discount rate assumption would increased goodwill impairment charge approximately 28 million march 2020 impairments given significance march 2020 events described note 3 asset impairments charges company performed quantitative assessment goodwill impairment march 31 2020 interim assessment indicated fair value reporting units less respective carrying amounts due among factors significant decline companys stock price peers reduced growth rate expectations given weak energy market conditions resulting demand destruction caused global response covid19 pandemic addition estimated returns required market participants increased materially companys march 31 2020 assessment performed december 1 2019 resulting higher discount rates used discounted cash flow analysis valuation techniques used march 31 2020 assessment consistent used december 1 2019 assessment except completion services reporting unit income approach used estimate fair value market approach used validate results 2020 fair value companys reporting units determined using significant unobservable inputs level 3 fair value measurement significant assumptions estimates used income approach include among others estimated future net annual cash flows discount rates reporting unit current anticipated market conditions estimated growth rates historical data estimates relied upon significant management judgment particularly given uncertainties regarding covid19 pandemic impact activity levels commodity prices well future global economic growth based quantitative assessment march 31 2020 company concluded goodwill recorded completion services downhole technologies businesses fully impaired goodwill recorded offshoremanufactured products business partially impaired company therefore recognized noncash goodwill impairment charges totaling 4061 million first quarter 2020 presented detail table discount rates used value companys reporting units march 31 2020 ranged 168 185 holding assumptions inputs used discounted cash flow analysis constant 50 basis point increase discount rate assumption offshoremanufactured products reporting unit would increased goodwill impairment charge approximately 10 million december 2020 assessment december 1 2020 company one reporting unit offshoremanufactured products goodwill balance 76 million company performed annual quantitative assessment goodwill impairment indicated fair value offshoremanufactured products reporting unit greater carrying amount additional provision impairment required fair value offshoremanufactured products reporting unit determined using significant unobservable inputs level 3 fair value measurement oil states international inc subsidiaries notes consolidated financial statements continued valuation techniques used december 1 2020 assessment consistent used march 31 2020 assessment discount rate used value offshoremanufactured products reporting unit december 1 2020 approximately 15 estimated returns required market participants decreased companys december 1 2020 assessment march 31 2020 resulting lower discount rate used discounted cash flow analysis holding assumptions inputs used discounted cash flow analysis constant 100 basis point increase discount rate assumption offshoremanufactured products reporting unit would result goodwill impairment march 2020 december 2019 impairment charges impact companys liquidity position debt covenants cash flows intangible assets following table presents gross carrying amount related accumulated amortization major intangible asset classes december 31 2020 2019 thousands amortization expense 249 million 268 million 263 million years ended december 31 2020 2019 2018 respectively weighted average remaining amortization period intangible assets goodwill 124 years december 31 2020 129 years december 31 2019 amortization expense expected total 206 million 2021 198 million 2022 168 million 2023 167 million 2024 166 million 2025 december 31 2020 2019 provisions impairment intangible assets required 7 longterm debt december 31 2020 2019 longterm debt consisted following thousands 1presented net 06 million 14 million unamortized debt issuance costs december 31 2020 2019 respectively 2the outstanding principal amount 150 convertible senior notes 1574 million 1923 million december 31 2020 2019 respectively oil states international inc subsidiaries notes consolidated financial statements continued scheduled maturities total debt december 31 2020 follows thousands assetbased revolving credit facility february 10 2021 company entered senior secured credit facility certain lenders provides 1250 million assetbased revolving credit facility assetbased revolving credit facility credit availability subject borrowing base calculation concurrent entering facility amended credit agreement discussed terminated assetbased revolving credit facility governed credit agreement wells fargo bank national association administrative agent lenders financial institutions time party thereto assetbased credit agreement assetbased credit agreement matures february 10 2025 springing maturity 91 days prior maturity outstanding indebtedness principal amount excess 175 million excluding unsecured promissory note seller assetbased credit agreement provides funding based borrowing base calculation includes eligible us customer accounts receivable inventory provides 500 million sublimit issuance letters credit borrowings assetbased credit agreement secured pledge substantially companys domestic assets stock certain foreign subsidiaries borrowings assetbased credit agreement bear interest rate equal london interbank offered rate libor plus margin 275 325 subject libor floor rate 050 base rate plus margin 175 225 case based average borrowing availability company must also quarterly pay commitment fee 0375 050 per annum based unused commitments assetbased credit agreement assetbased credit agreement places restrictions companys ability incur additional indebtedness grant liens assets pay dividends make distributions equity interests dispose assets make investments repay indebtedness including notes engage mergers matters case subject certain exceptions assetbased credit agreement contains customary default provisions triggered could result acceleration amounts outstanding assetbased credit agreement also requires company satisfy maintain fixed charge coverage ratio less 10 specified periods time event availability assetbased credit agreement less greater 15 borrowing base 141 million event default occurred continuing revolving credit facility termination february 10 2021 companys former senior secured revolving credit facility revolving credit facility governed amended restated credit agreement wells fargo bank na administrative agent lenders party thereto collateral agent secured parties thereunder lenders financial institutions time party thereto dated january 30 2018 amended restated credit agreement scheduled mature january 30 2022 credit agreement governed companys revolving credit facility prior june 17 2020 revolving credit facility provided 350 million lender commitments including 50 million available issuance letters credit june 17 2020 company entered omnibus amendment credit agreement amended credit agreement lender commitments amended credit agreement reduced 2000 million exchange suspension financial covenants described july 1 2020 march 30 2021 financial covenant suspension period borrowing availability revolving credit facility amended revolving credit facility limited 85 lesser 2000 million ii borrowing base calculated monthly equal oil states international inc subsidiaries notes consolidated financial statements continued sum 70 consolidated net book value eligible receivables 20 consolidated net book value eligible inventory borrowing base december 31 2020 company 190 million borrowings outstanding credit agreement 292 million outstanding letters credit total amount available drawn january 1 2021 693 million calculated based 85 borrowing base less outstanding borrowings letters credit prior june 17 2020 amounts outstanding revolving credit facility accrued interest libor plus margin 175 300 base rate plus margin 075 200 case based ratio companys total net funded debt consolidated ebitda defined credit agreement company also required pay quarterly commitment fee 025 050 based companys ratio total net funded debt consolidated ebitda unused commitments credit agreement effective june 17 2020 borrowings outstanding amended revolving credit facility accrued interest libor plus margin 250 375 base rate plus margin 150 275 case based ratio companys total net funded debt consolidated ebitda company also paid quarterly commitment fee 050 based unused commitments amended credit agreement company expensed 05 million previously deferred financing costs 2020 included interest expense net result amendment credit agreement december 31 2020 company compliance debt covenants amended credit agreement 150 convertible senior notes due february 2023 january 30 2018 company issued 200 million aggregate principal amount notes pursuant indenture dated january 30 2018 indenture company wells fargo bank national association trustee net proceeds notes deducting issuance costs approximately 194 million used company repay portion outstanding borrowings revolving credit facility first quarter 2018 2020 company purchased 349 million principal amount outstanding notes 201 million cash net carrying amount liability component notes totaled 308 million connection extinguishment notes company recognized noncash gains totaling 107 million 2020 included within income net 2019 company repurchased 78 million principal amount outstanding notes 67 million cash approximated net carrying amount related liability initial carrying amount notes recorded companys consolidated balance sheet less 200 million principal amount notes accordance thenapplicable accounting principles reflective estimated fair value similar debt instrument conversion feature company recorded value conversion feature debt discount amortized interest expense term notes similar amount allocated additional paidin capital result amortization interest expense company recognized related notes accounting purposes based effective interest rate approximately 6 greater cash interest payments company obligated pay notes interest expense associated notes years ended december 31 2020 2019 2018 93 million 102 million 90 million respectively related contractual cash interest expense totaled 26 million 30 million 28 million respectively following table presents carrying amounts notes companys consolidated balance sheets thousands see note 2 summary significant accounting policies discussion recent revision accounting guidance convertible instruments changed companys method accounting notes upon adoption standard effective january 1 2021 oil states international inc subsidiaries notes consolidated financial statements continued notes bear interest rate 150 per year maturity interest payable semiannually arrears february 15 august 15 year addition additional interest special interest may accrue notes certain circumstances described indenture notes mature february 15 2023 unless earlier repurchased redeemed converted initial conversion rate 222748 shares companys common stock per 1000 principal amount notes equivalent initial conversion price approximately 4489 per share common stock conversion rate thus conversion price may adjusted certain circumstances described indenture companys intent repay principal amount notes cash settle conversion feature shares companys common stock noteholders may convert notes option following circumstances 1 last reported sale price per share companys common stock exceeds 130 conversion price least 20 trading days 30 consecutive trading days ending including last trading day immediately preceding calendar quarter 2 five consecutive business days immediately five consecutive trading day period five consecutive trading day period measurement period trading price per 1000 principal amount notes trading day measurement period less 98 product last reported sale price per share companys common stock trading day conversion rate trading day 3 upon occurrence certain corporate events distributions companys common stock described indenture 4 company calls notes redemption time including november 15 2022 close business second scheduled trading day immediately maturity date company settle conversions paying delivering applicable cash shares common stock combination cash shares common stock companys election based applicable conversion rates company elects deliver cash combination cash shares common stock consideration due upon conversion based defined observation period notes redeemable whole part companys option time february 15 2021 cash redemption price equal principal amount notes redeemed plus accrued unpaid interest excluding redemption date last reported sale price per share common stock exceeds 130 conversion price least 20 trading days 30 consecutive trading days ending including trading day immediately date company sends related redemption notice specified change control events involving company defined indenture occur noteholders may require company repurchase notes cash repurchase price equal principal amount notes repurchased plus accrued unpaid interest additionally indenture contains certain events default including certain defaults company respect indebtedness least 400 million december 31 2020 none conditions allowing holders notes convert requiring company repurchase notes met promissory note connection geodynamics acquisition company issued 250 million promissory note bears interest 250 per annum scheduled mature july 12 2019 company believes payments due promissory note subject setoff full part certain claims related matters occurring prior geodynamics acquisition company provided notice asserted indemnification claims seller filed breach contract suit company one whollyowned subsidiaries alleging payments due promissory note required repaid accordance terms note company incurred settlement costs expenses 79 million related indemnification claims believes maturity date note extended resolution claims expects amount ultimately paid respect note reduced result indemnification claims accordingly company reduced carrying amount note consolidated balance sheet 171 million december 31 2020 current best estimate owed setoff indemnification matters see note 14 commitments contingencies oil states international inc subsidiaries notes consolidated financial statements continued 8 operating leases operating lease assets following table presents carry value operating lease assets companys consolidated sheets thousands operating lease asset additions offset corresponding increase operating lease liabilities impact consolidated statement cash flows commencement noncash effect operating lease additions 2020 2019 totaled 19 million 537 million inclusive 477 million recognized 2019 upon adoption revised lease accounting guidance respectively operating lease expense 166 million 179 million 149 million years ended december 31 2020 2019 2018 respectively following table provides details regarding components operating lease expense based initial term underlying agreements years ended december 31 2020 2019 thousands 2020 downhole technologies segment made decisions close certain lease facilities connection restructuring activities recognized noncash impairment charge 20 million reduce carrying value related operating lease assets estimated realizable value operating lease liabilities following table provides scheduled maturities operating lease liabilities december 31 2020 thousands oil states international inc subsidiaries notes consolidated financial statements continued 9 income taxes consolidated loss income taxes years ended december 31 2020 2019 2018 consisted following thousands 2020 2019 us losses income taxes included noncash goodwill impairment charges 4061 million 1650 million respectively noncash fixed asset lease impairment charges 124 million 337 million respectively regarding goodwill impairment charges recognized 2020 2019 approximately 3131 million 1650 million respectively deductible income tax purposes components income tax benefit years ended december 31 2020 2019 2018 consisted following thousands reconciliation us statutory tax benefit rate effective tax benefit rate years ended december 31 2020 2019 2018 follows oil states international inc subsidiaries notes consolidated financial statements continued significant items giving rise deferred tax assets liabilities december 31 2020 2019 follows thousands march 27 2020 cares act signed law accordance rules provisions cares act company filed carryback claims regarding us net operating losses generated 2018 2019 prior enactment cares act tax losses could carried forward company recognized discrete tax benefit 164 million received cash 413 million related cares act carryback claims 2020 december 22 2017 united states enacted tax reform legislation resulted significant changes us tax related laws including certain key us federal income tax provisions applicable multinational companies company changes included among others implementation territorial tax system onetime mandatory tax undistributed foreign earnings subsidiaries reduction us corporate income tax rate 21 35 beginning 2018 company adjusted december 2017 provisional estimates respect tax reform legislation resulting income tax benefit 58 million company 746 million us federal nol carryforwards december 31 2020 carried forward indefinitely approximately 376 million us federal nol carryforwards attributable acquired geodynamics operations subject certain limitation provisions companys us state nol carryforwards december 31 2020 totaled 1718 million 139 million attributable acquired geodynamics operations subject certain limitation provisions december 31 2020 company nol carryforwards related certain international operations totaling 350 million 141 million carried forward indefinitely december 31 2020 2019 company recorded valuation allowances 184 million 155 million respectively respect foreign us state nol carryforwards december 31 2020 companys foreign tax credit carryforwards totaled 209 million foreign tax credits expire varying amounts 2022 2029 december 31 2020 2019 company recorded valuation allowances 171 million 204 million respectively respect foreign tax credit carryforwards oil states international inc subsidiaries notes consolidated financial statements continued company files tax returns jurisdictions required returns subject examination audit possible adjustment result assessments taxing authorities company believes recorded sufficient tax liabilities expect resolution examination audit tax returns material adverse effect consolidated operating results financial condition liquidity tax years subsequent 2013 remain open us federal tax audit foreign subsidiary federal tax returns subsequent 2012 subject audit various foreign tax authorities uncertain tax positions accounted using recognition threshold measurement attribute financial statement recognition measurement tax positions taken expected taken tax return benefits recognized tax position must morelikelythannot sustained upon examination taxing authorities amount recognized measured largest amount benefit greater fifty percent likelihood realized upon ultimate settlement total amount unrecognized tax benefits december 31 2020 2019 nil company accrues interest penalties related unrecognized tax benefits component companys provision income taxes december 31 2020 2019 company accrued interest expense penalties 10 stockholders equity common preferred stock following table provides details respect changes number shares common stock 001 par value issued held treasury outstanding 2020 2019 thousands december 31 2020 2019 company 25 million shares preferred stock 001 par value authorized shares issued outstanding company maintained share repurchase program allowed expire july 29 2020 repurchases common stock program 2019 company repurchased 51 thousand shares common stock total cost 08 million accumulated comprehensive loss accumulated comprehensive loss increased 677 million december 31 2019 714 million december 31 2020 due primarily changes currency exchange rates accumulated comprehensive loss primarily related fluctuations currency exchange rates us dollar used translate certain international operations 2020 2019 currency translation adjustments recognized component comprehensive loss primarily attributable united kingdom brazil year ended december 31 2020 exchange rate british pound strengthened 3 compared us dollar brazilian real weakened 23 compared us dollar contributing comprehensive loss 36 million year ended december 31 2019 exchange rate british pound strengthened 4 compared us dollar brazilian real weakened 4 compared us dollar period contributing comprehensive loss 37 million oil states international inc subsidiaries notes consolidated financial statements continued 11 net loss per share table provides reconciliation numerators denominators basic diluted net loss per share years ended december 31 2020 2019 2018 thousands except per share amounts calculation diluted net loss per share years ended december 31 2020 2019 2018 excluded 582 thousand shares 659 thousand shares 696 thousand shares respectively issuable pursuant outstanding stock options restricted stock awards due antidilutive effect additionally shares issuable upon conversion 150 convertible senior notes excluded years ended december 31 2020 2019 2018 due antidilutive effect 12 longterm incentive deferred compensation plans company measures cost employee services received exchange award equity instruments based grantdate fair value award fair value servicebased restricted stock awards determined quoted market price companys common stock date grant fair value performancebased restricted awards 2017 estimated using monte carlo simulation model due inclusion performance metrics based solely performance companys common stock resulting cost net estimated forfeitures recognized period employee required provide service exchange awards usually vesting period stockbased compensation pretax expense recognized years ended december 31 2020 2019 2018 totaled 84 million 168 million 226 million respectively restricted stock awards restricted stock program consists combination servicebased restricted stock performancebased restricted stock number performancebased restricted shares ultimately issued program dependent upon achievement predefined specific performance objectives generally measured threeyear period performance objectives performancebased stock units granted 2020 2019 2018 based companys ebitda growth rate threeyear period event predefined targets exceeded performancebased award additional shares maximum 200 target award may granted conversely actual performance falls predefined target number shares vested reduced actual performance falls threshold performance level restricted shares vest servicebased restricted stock awards generally vest straightline basis term generally three four years oil states international inc subsidiaries notes consolidated financial statements continued following table presents changes restricted stock awards related information year ended december 31 2020 shares thousands 1reflects adjustment number shares issued upon vesting 2018 performancebased awards total fair value restricted stock awards vested 2020 2019 2018 145 million 182 million 194 million respectively december 31 2020 86 million total compensation costs related unvested restricted stock awards yet recognized expected recognized weighted average vesting period 15 years december 31 2020 approximately 10 million shares available future grant oil states international inc 2018 equity participation plan stock options company awarded stock options since 2015 fair value historical option grants estimated date grant using black scholes merton option pricing model options exercised 2020 2019 2018 following table presents changes stock options outstanding exercisable related information year ended december 31 2020 shares thousands 1exercise prices ranged 4160 5854 december 31 2020 longterm cash incentive awards 2020 2019 company issued conditional longterm cash incentive awards cash awards approximately 20 million 14 million respectively ultimate dollar amount awarded ranging zero maximum 40 million 2020 cash award zero maximum 27 million 2019 cash award performance measure cash awards relative total stockholder return compared peer group companies measured threeyear period ultimate dollar amount awarded 2020 2019 cash awards limited targeted award value 20 million 14 million respectively companys total stockholder return negative performance period obligation related cash awards classified liability recognized vesting period deferred compensation plan company maintains nonqualified deferred compensation plan deferred compensation plan permits eligible employees directors elect defer receipt portion directors fees andor salary annual bonuses employee contributions deferred compensation plan matched company percentage employee participant companys 401k retirement plan subject irs limitations matcheligible compensation second quarter 2020 company suspended matching contributions deferred compensation plan response significant decline activity levels due covid19 pandemic deferred compensation plan also permits company make discretionary contributions employees account although none made date directors contributions matched company since inception plan oil states international inc subsidiaries notes consolidated financial statements continued discretionary contribution provision limited matching participants contributions basis equivalent matching permitted companys 401k retirement savings plan vesting contributions participants accounts also equivalent vesting requirements companys 401k retirement savings plan deferred compensation plan dollar limits taxdeferred contributions assets deferred compensation plan held rabbi trust therefore available satisfy claims companys creditors event bankruptcy insolvency company participants ability direct plan administrator invest assets individual accounts including discretionary contributions company 30 preapproved mutual funds held trust cover variety securities mutual funds addition participants currently right request plan administrator reallocate portfolio investments ie cash mutual funds participants individual accounts within trust company contributions form cash distributions plan generally made upon participants termination director andor employee applicable company participants receive payments deferred compensation plan cash december 31 2020 trust assets totaled 228 million majority classified noncurrent assets companys consolidated balance sheet fair value investments based quoted market prices active markets level 1 fair value measurement amounts payable plan participants december 31 2020 including fair value shares companys common stock reflected treasury stock 228 million classified noncurrent liabilities companys consolidated balance sheet company accounts deferred compensation plan accordance current accounting standards regarding accounting deferred compensation arrangements amounts earned held trust invested increases decreases value trust assets exclusive shares common stock company held trust included compensation adjustments consolidated statements operations increases decreases fair value deferred compensation liability including shares common stock company held trust recorded treasury stock also included compensation adjustments consolidated statements operations 13 retirement plans company sponsors defined contribution plans participation plans available substantially employees company recognized expenses 34 million 95 million 86 million respectively related matching contributions various defined contribution plans years ended december 31 2020 2019 2018 respectively second quarter 2020 company suspended matching contributions companys 401k retirement savings plan response significant decline activity levels due covid19 pandemic 14 commitments contingencies impact covid19 pandemic related economic business market disruptions continues evolve future effects remain uncertain direct immediate impact company experienced expects continue experience covid19 pandemic decreased demand products services due lower activity levels customers resulting precipitous decline crude oil prices overall impact pandemic oil price collapse company customers depend numerous factors many beyond managements control knowledge response public health concerns related covid19 many federal state local authorities around world imposed mandatory regulations directing individuals stay home limited ability travel domestically internationally certain cases travel permitted multiweek quarantine period required individual work area additionally rules regulations regarding employer responsibilities continue promulgated facility closures quarantines travel restrictions possible future workforce shortages may among numerous impacts result delays company fulfilling existing contractual obligations customers could result adverse financial consequences additionally company procures variety raw materials component products including steel manufacture products companies may impacted similar challenges company continues monitor effect covid19 employees customers critical suppliers stakeholders ultimate magnitude duration covid19 pandemic resulting governmental restrictions placing limitations mobility ability work worldwide population related impact crude oil prices us global economy capital markets remains uncertain following geodynamics acquisition january 2018 company determined certain steel products historically imported geodynamics china use manufacturing process potentially subject antidumping countervailing duties following internal review company voluntarily disclosed matter us customs border protection cbp december 2020 reached agreement cbp settle matter 73 million company believes seller required indemnify hold company harmless amount oil states international inc subsidiaries notes consolidated financial statements continued settlements related costs 79 million company provided notice asserted indemnification claims seller additionally company believes agreements seller allow setoff amounts payments due 250 million promissory note company asserted indemnification claims maturity date note extended resolution claims accordingly company reduced carrying amount note consolidated balance sheet 171 million december 31 2020 companys current best estimate owed setoff indemnification matters august 2020 seller filed breach contract suit company one whollyowned subsidiaries federal court alleging payments due promissory note required repaid accordance terms note additionally seller alleged entitled approximately 19 million us federal income tax carryback claims received company provisions cares act february 15 2021 seller dismissed federal lawsuit without prejudice refiled state court company denies validity breach contract claims plans vigorously defend lawsuit company party various pending threatened claims lawsuits administrative proceedings seeking damages remedies concerning commercial operations products employees matters including occasional claims individuals alleging exposure hazardous materials result companys products operations claims relate matters occurring prior acquisition businesses relate businesses company sold certain cases company entitled indemnification sellers businesses cases company indemnified buyers businesses although company give assurance outcome pending legal administrative proceedings effect outcomes may company management believes ultimate liability resulting outcome proceedings extent otherwise provided covered indemnity insurance material adverse effect companys consolidated financial position results operations liquidity 15 segments related information companys reportable segments represent strategic business units offer different products services managed separately business requires different technologies marketing strategies recent acquisitions except geodynamics acquisition direct extensions existing business segments accounting policies segments described summary significant accounting policies well site services segment provides broad range equipment services used drill establish maintain flow oil natural gas well throughout life cycle segment operations primarily include completionfocused equipment services segment provides solutions customers using completion tools drilling rigs highlytrained personnel throughout service offerings include wireline support frac stacks isolation tools extended reach tools ball launchers well testing flowback operations thru tubing activity sand control land drilling separate business lines within well site services segment disclosed provide additional detail respect operations downhole technologies segment provides oil gas perforation systems downhole tools support completion intervention wireline well abandonment operations segment designs manufactures markets consumable engineered products oilfield service well exploration production companies completing complex wells longer lateral lengths increased frac stages perforation clusters increase unconventional well productivity offshoremanufactured products segment designs manufactures markets capital equipment utilized floating production systems subsea pipeline infrastructure offshore drilling rigs vessels along shortcycle products driven principally longerterm customer investments offshore oil natural gas projects projectdriven product revenues include flexible bearings advanced connector systems highpressure riser systems deepwater mooring systems cranes subsea pipeline products blowout preventer stack integration shortcycle products manufactured segment include valves elastomers specialty products generally used landbased drilling completion markets products manufactured offered segment include variety products use industrial military applications outside oil gas industry segment also offers broad line complementary valueadded services including specialty welding fabrication cladding machining services offshore installation services inspection repair services oil states international inc subsidiaries notes consolidated financial statements continued corporate information includes corporate expenses related corporate governance stockbased compensation infrastructure support well impacts corporatewide decisions individual operating units evaluated financial information business segment three years ended december 31 2020 2019 2018 summarized following table thousands 1operating loss 2020 included noncash inventory impairment charge 90 million noncash goodwill impairment charge 1271 million reduce carrying value completion services reporting unit estimated fair value noncash fixed asset impairment charges 36 million reduce carrying value certain units facilities estimated realizable value 2operating loss 2020 included noncash fixed asset impairment charge 52 million reduce carrying value drilling services businesss fixed assets estimated realizable value 3operating loss 2020 included noncash inventory impairment charge 59 million noncash fixed operating lease impairment charges 36 million reduce carrying assets estimated realizable value noncash goodwill impairment charge 1925 million reduce carrying value downhole technologies reporting unit estimated fair value 4operating loss 2020 included noncash inventory impairment charge 162 million noncash goodwill impairment charge 865 million reduce carrying value offshoremanufactured products reporting unit estimated fair value 5in late 2019 company reduced scope drilling services business adjusting 34 rigs 9 rigs due weakness customer demand vertical drilling rigs us land market operating loss drilling services business included noncash fixed asset impairment charge 337 million 6operating loss 2019 downhole technologies segment included noncash goodwill impairment charge 1650 million see note 3 asset impairments charges note 4 details selected balance sheet accounts note 6 “goodwill intangible assets” note 8 operating leases discussion charges oil states international inc subsidiaries notes consolidated financial statements continued customer individually accounted greater 10 companys 2020 2019 consolidated revenues individually accounted greater 10 companys consolidated accounts receivable december 31 2020 one customer accounted 10 companys 2018 consolidated revenues companys well site services segment substantially depreciation amortization expense relates cost services substantially depreciation amortization expense downhole technologies segment relates cost products offshoremanufactured products segment numerous facilities around world generate product service revenues common segment provide installation services products manufactured segment substantially depreciation amortization expense offshoremanufactured products segment relates cost revenues segregate capture depreciation amortization expense intangible assets product service cost operating income loss excludes equity net income unconsolidated affiliates immaterial reported separately herein following table provides supplemental disaggregated revenue contracts customers business segment three years ended december 31 2020 2019 2018 thousands financial information geographic location three years ended december 31 2020 2019 2018 summarized thousands revenues attributable countries based location entity selling products performing services include export sales longlived assets attributable countries based physical location operations operating assets include intercompany receivable balances oil states international inc subsidiaries notes consolidated financial statements continued 16 related party transactions geodynamics historically leased certain land facilities equity holder former employee company following geodynamics acquisition connection geodynamics acquisition company assumed leases company exercised option purchase significant leased facility associated land approximately 54 million september 2018 rent expense related leases former employee years ended december 31 2020 2019 2018 totaled 44 thousand 157 thousand 330 thousand respectively additionally 2020 2019 geodynamics purchased products sold products company former employee investor 2020 sales company 18 million 2019 sales company 14 million purchases company 13 million 17 valuation allowances activity valuation accounts follows thousands 1for year ended december 31 2018 amount presented within allowance doubtful accounts receivables excess obsolete inventory included 06 million 33 million respectively related acquired geodynamics operations oil states international inc subsidiaries notes consolidated financial statements continued 18 quarterly financial information unaudited following table summarizes quarterly financial information 2020 2019 thousands except per share amounts 1during first quarter 2020 company recognized noncash goodwill impairment charges 4061 million pretax noncash fixed asset impairment charge 52 million pretax noncash inventory charges 252 million pretax severance restructuring charges 07 million pretax first quarter 2019 company recognized 10 million pretax severance restructuring charges 2during second quarter 2020 company recognized noncash fixed asset impairment charge 30 million pretax severance restructuring charges 54 million pretax second quarter 2019 company recognized 13 million pretax severance restructuring charges 3during third quarter 2020 company recognized noncash inventory impairment charge 59 million pretax severance charges 03 million pretax third quarter 2019 company recognized noncash fixed asset impairment charge 337 million pretax 07 million pretax severance restructuring charges 4during fourth quarter 2020 company recognized noncash fixed asset lease impairment charges 43 million pretax severance restructuring charges 27 million pretax fourth quarter 2019 company recognized noncash goodwill impairment charge 1650 million pretax 06 million pretax severance restructuring charges 5gross profit calculated revenues less costs products services segment level depreciation amortization expense calculation gross profit excluded noncash goodwill fixed asset impairment charges totaling 4113 million first quarter 2020 noncash fixed asset impairment charge 30 million second quarter 2020 noncash fixed asset lease impairment charges totaling 43 million fourth quarter 2020 calculation gross profit excluded 337 million noncash fixed asset impairment charge recognized third quarter 2019 1650 million noncash goodwill impairment charge recognized fourth quarter 2019 amounts calculated independently quarters presented therefore sum quarterly amounts may equal total calculated yearitem 15 exhibits financial statement schedules index financial statements financial statement schedules exhibits 1 financial statements reference made index set forth page 44 annual report form 10k 2 financial statement schedules included herein information required submitted included consolidated financial statements notes thereto required information inapplicable 3 index exhibits see index exhibits list exhibits filed herewith index also includes identifies management contracts compensatory plans arrangements required filed exhibits annual report form 10k item 60110iii regulation sk b index exhibits filed herewith management contracts compensatory plans arrangements furnished herewith signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized oil states international inc douglas e swanson douglas e swanson president chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated march 1 2006 oil states international inc subsidiaries index consolidated financial statements management’s annual report internal control financial reporting report independent registered public accounting firm consolidated financial statements report independent registered public accounting firm management’s assessment effectiveness company’s internal control financial reporting effectiveness company’s internal control financial reporting 4748 consolidated statements income years ended december 31 2005 2004 2003 consolidated balance sheets december 31 2005 2004 consolidated statements stockholders’ equity comprehensive income years ended december 31 2005 2004 2003 consolidated statements cash flows years ended december 31 2005 2004 2003 notes consolidated financial statements 5376 oil states international inc subsidiaries management’s annual report internal control financial reporting stockholders board directors oil states international inc management oil states international inc subsidiaries oil states international inc company responsible establishing maintaining adequate internal control financial reporting oil states international inc’s internal control system designed provide reasonable assurance company’s management board directors regarding preparation fair presentation published financial statements internal control systems matter well designed inherent limitations therefore even systems determined effective provide reasonable assurance respect financial statement preparation presentation oil states international inc’s management assessed effectiveness company’s internal control financial reporting december 31 2005 making assessment management used criteria set forth committee sponsoring organizations treadway commission coso internal control integrated framework based assessment believe december 31 2005 company’s internal control financial reporting effective based criteria 2005 company acquired elenburg exploration company inc stinger wellhead protection inc related companies noble structures inc separate purchase business combinations reliance guidance contained “frequently asked questions” interpretive release issued staff sec’s office chief accountant division corporation finance june 2004 revised october 6 2004 management elected exclude elenburg exploration company inc stinger wellhead protection inc related companies noble structures inc scope assessment effectiveness company’s internal control financial reporting december 31 2005 entities whollyowned subsidiaries company december 31 2005 total assets total revenues elenburg exploration company inc stinger wellhead protection inc related companies noble structures inc represent approximately 109 52 respectively total consolidated assets total consolidated revenues company year ended december 31 2005 oil states international inc’s independent registered public accounting firm audited assessment effectiveness company’s internal control financial reporting report appears page 47 oil states international inc houston texas march 1 2006 oil states international inc subsidiaries report independent registered public accounting firm board directors stockholders oil states international inc audited accompanying consolidated balance sheets oil states international inc subsidiaries “company” december 31 2005 2004 related consolidated statements income stockholders’ equity comprehensive income cash flows three years period ended december 31 2005 financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position company december 31 2005 2004 consolidated results operations cash flows three years period ended december 31 2005 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states effectiveness company’s internal control financial reporting december 31 2005 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission report dated march 1 2006 expressed unqualified opinion thereon ernst young llp houston texas march 1 2006 oil states international inc subsidiaries report independent registered public accounting firm board directors stockholders oil states international inc audited management’s assessment included accompanying management’s annual report internal control financial reporting oil states international inc subsidiaries oil states international inc “company” maintained effective internal control financial reporting december 31 2005 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso criteria company’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting responsibility express opinion management’s assessment opinion effectiveness company’s internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting evaluating management’s assessment testing evaluating design operating effectiveness internal control performing procedures considered necessary circumstances believe audit provides reasonable basis opinion company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate indicated accompanying management’s annual report internal control financial reporting management’s assessment conclusion effectiveness internal control financial reporting include internal controls elenburg exploration company inc stinger wellhead protection inc related companies noble structures inc included 2005 consolidated financial statements oil states international inc constituted approximately 109 52 respectively total consolidated assets total consolidated revenues company year ended december 31 2005 management elected assess effectiveness internal control financial reporting entities oil states international inc acquired entities purchase business combinations 2005 audit internal control financial reporting oil states international inc also include evaluation internal control financial reporting elenburg exploration company inc stinger wellhead protection inc related companies noble structures inc opinion management’s assessment company maintained effective internal control financial reporting december 31 2005 fairly stated material respects based coso criteria also opinion company maintained material respects effective internal control financial reporting december 31 2005 based coso criteria also audited accordance standards public company accounting oversight board united states accompanying consolidated balance sheets company december 31 2005 2004 related consolidated statements income stockholders’ equity comprehensive income cash flows three years period ended december 31 2005 report dated march 1 2006 expressed unqualified opinion thereon ernst young llp houston texas march 1 2006 oil states international inc subsidiaries consolidated statements income accompanying notes integral part financial statements oil states international inc subsidiaries consolidated balance sheets accompanying notes integral part financial statements oil states international inc subsidiaries consolidated statements stockholders’ equity comprehensive income accompanying notes integral part financial statements oil states international inc subsidiaries consolidated statements cash flows accompanying notes integral part financial statements oil states international inc subsidiaries notes consolidated financial statements 1 organization basis presentation consolidated financial statements include accounts oil states international inc oil states company consolidated subsidiaries investments unconsolidated affiliates company able exercise significant influence accounted using equity method february 14 2001 company acquired three companies hwc energy services inc hwc pti group inc pti sooner inc sooner significant intercompany accounts transactions company consolidated subsidiaries eliminated accompanying consolidated financial statements company principally comprised following entities respective subsidiaries oil states industries inc oil states industries inc osi subsidiary oil states leading designer manufacturer diverse range products offshore platforms subsea pipelines defense general industrial applications major product lines include flexible bearings advanced connectors winches mooring lifting systems services installing removing offshore platforms downhole production equipment custom molded products sales made primarily major oil companies large small independent oil gas companies drilling contractors well service workover operators worldwide basis osi facilities arlington houston lampasas texas houma louisiana tulsa oklahoma scotland brazil england singapore thailand pti group inc pti located alberta canada supplier integrated housing food site management logistics support services remote sites utilized extractive industries primarily canada europe middle east united states hwc energy services inc hwc provides worldwide well control services drilling services rental equipment oil gas industry hwc operates primarily texas louisiana ohio oklahoma new mexico wyoming along foreign operations conducted venezuela middle east africa hydraulic well control operations provide globally hydraulic workover snubbing units emergency well control situations selected markets various hydraulic well control solutions involving well drilling workover completion activities west texas ohio rocky mountain area hwc operates subsidiaries capstar drilling lp elenburg exploration company shallow well drilling rigs automated pipe handling capabilities specialty rental tools supply lp subsidiary hwc provides rental equipment drilling workover operations texas louisiana mississippi new mexico oklahoma wyoming stinger wellhead protection inc affiliates stinger subsidiary hwc provides wellhead isolation equipment services us canada south america central america sooner inc sooner distributor oilfield tubular products operations located primarily united states majority sales large fully integrated independent oil companies headquartered us 2 summary significant accounting policies cash equivalents company considers highly liquid investments purchased original maturity three months less cash equivalents oil states international inc subsidiaries notes consolidated financial statements continued fair value financial instruments company’s financial instruments consist cash equivalents investments receivables payables debt instruments company believes carrying values instruments accompanying consolidated balance sheets approximate fair values inventories consist tubular oilfield products manufactured equipment spare parts manufactured equipment supplies remote accommodation facilities inventories include raw materials labor manufacturing overhead carried lower cost market cost inventories determined average cost specificidentification method property plant equipment property plant equipment stated cost estimated fair market value acquisition date acquired business combination depreciation computed using straightline method estimated useful lives assets leasehold improvements capitalized amortized lesser life lease estimated useful life asset expenditures repairs maintenance charged expense incurred expenditures major renewals betterments extend useful lives existing equipment capitalized depreciated upon retirement disposition property equipment cost related accumulated depreciation removed accounts resulting gain loss recognized statements income goodwill represents excess purchase price acquired businesses allocated value related net assets goodwill stated net accumulated amortization 183 million december 31 2005 2004 impairment longlived assets compliance statement financial accounting standards sfas 144 “accounting impairment disposal longlived assets” recoverability carrying values property plant equipment assessed minimum annually whenever management’s judgment events changes circumstances indicate carrying value assets may recoverable based estimated future cash flows assessment indicates carrying values recoverable determined based undiscounted cash flows remaining useful lives impairment loss recognized impairment loss equals excess carrying value fair value asset fair value asset based prices similar assets available discounted cash flows based company’s review carrying value assets recoverable impairment losses recorded periods presented foreign currency comprehensive income gains losses resulting balance sheet translation foreign operations foreign currency functional currency included separate component accumulated comprehensive income within stockholders’ equity gains losses resulting balance sheet translation foreign operations us dollar functional currency included consolidated statements income incurred oil states international inc subsidiaries notes consolidated financial statements continued foreign exchange risk portion revenues earnings net investments foreign affiliates exposed changes foreign exchange rates seek manage foreign exchange risk part operational means including managing expected local currency revenues relation local currency costs local currency assets relation local currency liabilities foreign exchange risk also managed use derivative financial instruments foreign currency denominated debt financial instruments serve protect net income impact translation us dollars certain foreign exchange denominated transactions financial instruments employed manage foreign exchange risk consisted forward exchange contracts notional amounts 15 million december 31 2005 company contracts outstanding december 31 2004 net gains losses foreign currency exchange contracts designated hedges recognized income statement offset foreign currency gain loss underlying transaction exchange gains losses totaled 02 million gain 2005 13 million loss 2004 02 million gain 2003 included operating expense income revenue cost recognition revenue sale products accounted utilizing percentageofcompletion method recognized delivery acceptance customer occurred title significant risks ownership passed customer collectibility probable pricing fixed determinable product sales terms include significant post delivery obligations significant projects built customer specifications revenues recognized percentageofcompletion method measured percentage costs incurred date estimated total costs contract costtocost method billings contracts excess costs incurred estimated profits classified deferred revenue management believes method appropriate measure progress large contracts provisions estimated losses uncompleted contracts made period losses determined drilling services rental tool services revenues recognized based periodic usually daily rental rate services rendered proceeds customers cost oilfield rental equipment damaged lost downhole reflected revenues drilling services contracts based footage drilled recognize revenues footage drilled cost goods sold includes direct material labor costs related contract performance indirect labor supplies tools repairs selling general administrative costs charged expense incurred income taxes company follows liability method accounting income taxes accordance sfas 109 “accounting income taxes” method deferred income taxes recorded based upon differences financial reporting tax bases assets liabilities measured using enacted tax rates laws effect underlying assets liabilities recovered settled company’s earnings foreign subsidiaries considered indefinitely reinvested provision us income taxes made earnings subsidiaries distribution earnings form dividends otherwise company would subject us income taxes subject adjustment foreign tax credits withholding taxes payable various foreign countries accordance sfas 109 company records valuation reserve reporting period management believes likely deferred tax asset created oil states international inc subsidiaries notes consolidated financial statements continued realized management continue evaluate appropriateness reserve future based upon operating results company receivables concentration credit risk concentration suppliers based nature customer base company believe significant concentrations credit risk concentration oil gas industry company evaluates creditworthiness major new existing customers’ financial condition generally company require significant collateral domestic customers purchased 73 oilfield tubular goods three suppliers 2005 largest supplier representing 52 purchases period loss significant supplier tubular services segment could adversely affect us allowances doubtful accounts company maintains allowances doubtful accounts estimated losses resulting inability company’s customers make required payments trade receivable deemed uncollectible receivable chargedoff allowance doubtful accounts company considers following factors determining collection revenue reasonably assured customer creditworthiness past transaction history customer current economic industry trends changes customer payment terms company previous experience customer company typically obtains reports various credit organizations ensure customer history paying creditors company may also request financial information including financial statements documents ensure customer means making payment factors indicate collection reasonably assured company would require prepayment arrangement support revenue recognition recording trade receivable financial condition company’s customers deteriorate adversely affecting ability make payments additional allowances would required earnings per share company’s basic income per share eps amounts computed based average number common shares outstanding including 267348 277183 shares common stock december 31 2005 2004 respectively issuable upon exercise exchangeable shares one company’s canadian subsidiaries exchangeable shares issued certain former shareholders pti connection company’s ipo combination pti company intended characteristics essentially equivalent company’s common stock prior exchange treated shares common stock issuable upon exchange exchangeable shares outstanding diluted eps amounts include effect company’s outstanding stock options treasury stock method shares restricted stock awarded company’s equity participation plan included company’s fully diluted shares assumed issued upon conversion company’s 238 contingent convertible notes averaged 240138 fourth quarter 2005 included calculation fully diluted earnings per share stockbased compensation company accounts stockbased compensation plans principles prescribed accounting principles board’s opinion 25 “apb 25” “accounting stock issued employees” stock options awarded equity participation plan normally result recognition compensation expense shares restricted stock awarded equity participation plan oil states international inc subsidiaries notes consolidated financial statements continued considered compensatory nature accordingly company recognized noncash general administrative expenses restricted stock awards totaled 06 million 01 million 03 million years ended december 31 2005 2004 2003 respectively additional 01 million recognized 2004 stock option performance award effective january 1 2006 company begin recording stockbased compensation expense accordance fasb statement 123r see note 4 company accounts assets held rabbi trust certain participants company’s deferred compensation plan accordance eitf 9714 see note 12 guarantees company adopted fasb interpretation 45 fin 45 “guarantor’s accounting disclosure requirements guarantees including indirect indebtedness others” 2003 fin 45 requires disclosures accounting company’s obligations certain guarantees pursuant fin 45 company required disclose changes product warranty reserves products offshore products accommodations businesses sold warranty generally 12 18 months parts labor covered terms warranty agreement warranty provisions based historical experience product configuration geographic region changes warranty reserves follows thousands current warranty provisions typically related current year’s sales warranty consumption associated current prior year’s net sales 2004 company recorded 10 million increase warranty reserves related potential warranty claim associated international subsea pipeline project installed 2000 addition smaller accruals recurring nature international subsea pipeline project warranty issue settled 2005 amount approximately equal amount reserved issue ordinary course business company also provides standby letters credit guarantee instruments certain parties required certain transactions initiated either company subsidiaries december 31 2005 maximum potential amount future payments company could required make guarantee agreements approximately 120 million company recorded liability connection guarantee arrangements beyond required appropriately account underlying transaction guaranteed company believe based historical experience information currently available probable amounts required paid guarantee arrangements reclassifications certain amounts prior years’ financial statements reclassified conform current year presentation oil states international inc subsidiaries notes consolidated financial statements continued use estimates preparation consolidated financial statements conformity accounting principles generally accepted united states requires use estimates assumptions management determining reported amounts assets liabilities disclosures contingent assets liabilities date consolidated financial statements reported amounts revenues expenses reporting period examples estimates include costs associated disposal discontinued operations including potential future adjustments result contractual agreements revenue income recognized percentageofcompletion method valuation allowance recorded net deferred tax assets warranty inventory bad debt reserves actual results could differ estimates discontinued operations prior initial public offering february 2001 sold businesses reported operating results businesses discontinued operations existing reserves related discontinued operations december 31 2005 2004 represent estimate remaining contingent liabilities associated company’s exit businesses 3 details selected balance sheet accounts additional information regarding selected balance sheet accounts december 31 2005 2004 presented thousands oil states international inc subsidiaries notes consolidated financial statements continued depreciation expense 433 million 337 million 267 million years ended december 31 2005 2004 2003 respectively 4 recent accounting pronouncements november 2004 fasb issued statement financial accounting standards 151 “inventory costs amendment arb 43 chapter 4” “sfas 151” sfas 151 clarifies accounting abnormal amounts idle facility expense freight handling costs wasted material paragraph 5 accounting research bulletin “arb” 43 chapter 4 “inventory pricing” previously stated “ certain circumstances items idle facility expense excessive spoilage double freight rehandling costs may abnormal require treatment currentperiod charges ” sfas 151 requires items recognized currentperiod charges regardless whether meet criterion “so abnormal” addition sfas 151 requires allocation fixed production overheads costs conversion based normal capacity production facilities sfas 151 effective fiscal years beginning june 15 2005 company believe implementation sfas 151 material impact company’s financial position results operations cash flows december 16 2004 fasb issued fasb statement 123 revised 2004 sharebased payment revision fasb statement 123 accounting stockbased compensation statement 123r supersedes apb opinion 25 accounting stock issued employees amends fasb statement 95 statement cash flows generally approach statement 123r similar approach described statement 123 however statement 123r requires sharebased payments oil states international inc subsidiaries notes consolidated financial statements continued employees including grants employee stock options recognized income statement based fair values pro forma disclosure longer acceptable alternative permitted sfas 123 company currently accounts sharebased payments employees using apb 25 intrinsic value method generally recognizes compensation cost employee stock options accordingly adoption sfas 123r’s fair value method impact results operations although impact overall financial position adopted sfas 123r prior periods impact standard would approximated impact sfas 123 described disclosure pro forma net income earnings per share note 12 annual report form 10k statement 123r also requires benefits tax deductions excess recognized compensation cost reported financing cash flow rather operating cash flow requirement reduce net operating cash flows increase net financing cash flows periods adoption company cannot estimate amounts future depend among things employees exercise stock options amount operating cash flows recognized prior periods excess tax deductions stock option exercises 37 million 11 million 18 million 2005 2004 2003 respectively adopted provisions statement january 1 2006 using modified prospective method continue study provisions new pronouncement determine impact financial statements may 2005 financial accounting standards board fasb issued statement financial accounting standards sfas 154 “accounting changes error corrections replacement apb opinion 20 fasb statement 3” among changes statement requires retrospective application voluntary changes accounting principles unless impractical guidance provided account changes retrospective application impractical statement effective prospective basis beginning january 1 2006 5 earnings per share eps 6 goodwill intangible assets effective january 1 2002 company adopted sfas 142 “goodwill intangible assets” sfas 142 connection adoption sfas 142 company ceased amortizing goodwill sfas 142 goodwill longer amortized tested impairment using fair value oil states international inc subsidiaries notes consolidated financial statements continued approach “reporting unit” level reporting unit operating segment business one level operating segment “component” level discrete financial information prepared regularly reviewed management component level seven reporting units december 31 2005 increase one since december 31 2004 2003 goodwill allocated reporting units based actual acquisitions made company subsidiaries recognize impairment charge amount carrying amount reporting unit’s goodwill exceeds unit’s fair value company uses comparative market multiples establish fair values company amortizes cost intangibles estimated useful lives unless lives deemed indefinite amortizable intangible assets tested impairment based undiscounted cash flows impaired written fair value based either discounted cash flows appraised values intangible assets indefinite lives tested impairment written fair value required provision impairment required based evaluations performed changes carrying amount goodwill year ended december 31 2005 2004 follows thousands portion goodwill deductible tax purposes totals approximately 199 million december 31 2005 following table presents total amount assigned total amount amortized major intangible asset classes december 31 2005 2004 thousands intangible assets goodwill included within noncurrent assets consolidated balance sheet weighted average remaining amortization period intangible assets goodwill indefinite lived intangibles 67 years 36 years december 31 2005 2004 respectively total amortization expense expected 38 million 34 million 20 million 16 million 07 million 2006 2007 2008 2009 2010 respectively amortization expense 34 million 23 million 12 million years ended december 31 2005 2004 2003 respectively oil states international inc subsidiaries notes consolidated financial statements continued 7 longterm debt december 31 2005 2004 longterm debt consisted following thousands scheduled maturities combined longterm debt december 31 2005 follows thousands company’s capital leases consist primarily plant facilities equipment value capitalized leases related accumulated depreciation totaled 22 million 13 million respectively december 31 2005 value capitalized leases related accumulated depreciation totaled 31 million 16 million respectively december 31 2004 238 contingent convertible senior notes june 15 2005 company sold 125 million aggregate principal amount 238 contingent convertible senior notes due 2025 placement qualified institutional buyers pursuant sec’s rule 144a company granted initial purchaser notes 30day option purchase additional 50 million aggregate principal amount notes option exercised july 2005 additional 50 million notes sold time oil states international inc subsidiaries notes consolidated financial statements continued notes senior unsecured obligations company bear interest rate 238 per annum notes mature july 1 2025 may redeemed company prior july 6 2012 holders notes may require company repurchase notes july 1 2012 2015 2020 notes provide net share settlement therefore may convertible certain circumstances combination cash principal amount notes common stock company excess principal amount notes initial conversion price 3175 per share shares underlying notes included calculation diluted earnings per share fourth quarter company’s stock price exceeded initial conversion price 3175 period terms notes require company’s stock price quarter period prior july 1 2023 120 initial conversion price 3810 per share least 20 trading days defined period notes convertible assuming stock price contingency feature met holders notes elect convert stock price 3810 per share company would required deliver 175 million cash plus accrued interest approximately 919000 shares common stock notes callable company convertible note holders anytime 2005 connection note offering company agreed register notes within 180 days issuance keep registration effective two years subsequent initial issuance notes registered november 2005 company keep registration statement effective approximately next eighteen months additional contingent interest would paid note holders subject certain provisions maximum amount contingent interest could potentially inure note holders time period material consolidated financial position results operations company utilized 30 million net proceeds offering june 15 2005 repurchase 1183432 shares common stock remaining portion net proceeds repay 250 million bridge loan repay approximately 660 million borrowings senior secured credit facility net proceeds additional notes sold july 2005 totaling 485 million utilized repay borrowings company’s senior secured credit facility may 11 2005 company borrowed 25 million bridge loan bank due 2010 loan unsecured repaid full june 21 2005 average interest rate bridge loan period outstanding 60 revolving credit facility january 31 2005 company amended credit agreement dated october 30 2003 company’s credit facility totals 3250 million senior secured revolving credit facility group banks 450 million available form loans denominated canadian dollars may made company’s principal canadian operating subsidiaries facility matures january 31 2010 amounts borrowed facility bear interest company’s election either • variable rate equal libor case canadian dollar denominated loans bankers’ acceptance discount rate plus margin ranging 10 175 • alternate base rate equal higher bank’s prime rate federal funds effective rate plus 05 case canadian dollar denominated loans canadian prime rate plus margin ranging 075 depending upon ratio total debt ebitda defined credit facility commitment fees ranging 0375 05 per year paid undrawn portion facility depending upon leverage ratio credit facility guaranteed company’s active domestic subsidiaries cases company’s canadian foreign subsidiaries credit facility secured first priority lien oil states international inc subsidiaries notes consolidated financial statements continued company’s inventory accounts receivable material tangible intangible assets well company’s active subsidiaries however 65 voting stock foreign subsidiary required pledged pledge greater percentage would result adverse tax consequences credit facility contains negative covenants restrict company’s ability borrow additional funds encumber assets pay dividends sell assets except normal course business enter significant transactions company’s credit facility occurrence specified change control events involving company would constitute event default would permit banks among things accelerate maturity facility cause become immediately due payable full december 31 2005 2225 million outstanding facility additional 120 million outstanding letters credit leaving 905 million available drawn facility conjunction executing senior secured revolving credit facility october 30 2003 company recognized additional noncash interest expense 12 million taxes writeoff deferred financing costs related prior credit facility january 11 2005 company renewed overdraft credit facility providing borrowings totaling £20 million uk operations interest payable quarterly margin 15 per annum bank’s variable base rate borrowings facility payable demand amounts outstanding facility december 31 2005 8 retirement plans company sponsors defined contribution plans participation plans available substantially employees company recognized expense 43 million 31 million 29 million respectively related various defined contribution plans years ended december 31 2005 2004 2003 respectively 9 income taxes consolidated pretax income years ended december 31 2005 2004 2003 consisted following thousands oil states international inc subsidiaries notes consolidated financial statements continued components income tax provision years ended december 31 2005 2004 2003 consisted following thousands provision taxes differs amount computed statutory rates follows years ended december 31 2005 2004 2003 thousands oil states international inc subsidiaries notes consolidated financial statements continued significant items giving rise deferred tax assets liabilities december 31 2005 2004 follows thousands reclassifications company’s deferred tax balance based net current items net noncurrent items december 31 2005 2004 follows thousands primary deferred tax asset totaled 98 million december 31 2005 related 279 million available federal net operating loss carryforwards nols date nols expire varying amounts years 2010 2011 first used offset taxable income generate ability utilize significant portion available nols currently limited section 382 internal revenue code due change control occurred 1995 currently believe substantially nol’s utilized income tax provision year ended december 31 2005 totaled 607 million 333 pretax income tax provision year 2005 included 47 million income tax benefit related reversal substantially remaining valuation allowance applied nols recorded oil states international inc subsidiaries notes consolidated financial statements continued prior year end based upon review potential effects pertinent evidence concluded substantially remaining valuation allowance recorded nol deferred tax asset unnecessary believe likely generate sufficient taxable income future years realize benefit substantially deferred tax asset associated net operating losses company federal alternative minimum tax net operating loss carryforwards 104 million expire years 2010 2020 appropriate us foreign income taxes provided earnings foreign subsidiary companies expected remitted near future cumulative amount undistributed earnings foreign subsidiaries company intends permanently reinvest upon deferred us income taxes provided 192 million december 31 2005 majority generated canada upon distribution earnings form dividends otherwise company may subject us income taxes subject adjustment foreign tax credits foreign withholding taxes practical however estimate amount taxes may payable eventual remittance earnings consideration available foreign tax credits year ended december 31 2005 company recognized tax benefit triggered employee exercises stock options totaling 37 million benefit credited additional paidin capital american jobs creation act 2004 “jobs act” signed law october 2004 introduced special onetime dividends received deduction repatriation foreign earnings us taxpayer repatriation provision provided certain criteria met act provides special onetime deduction 85 percent certain foreign earnings repatriated either company’s last tax year began enactment date first tax year begins oneyear period beginning date enactment company use one time dividend received deduction incentive jobs act also introduced requirement companies disclose penalties imposed consolidated subsidiaries internal revenue service “irs” failing satisfy tax disclosure requirements relating “reportable transactions” year ended december 31 2005 penalties imposed company consolidated subsidiaries failure disclose reportable transactions irs company files tax returns jurisdictions required returns subject examination audit possible adjustment result assessments taxing authorities company believes recorded sufficient tax liabilities expect resolution examination audit tax returns would material adverse effect operating results financial condition liquidity 10 supplemental cash flow information cash paid years ended december 31 2005 2004 2003 interest income taxes follows thousands oil states international inc subsidiaries notes consolidated financial statements continued components cash used acquisitions reflected consolidated statements cash flows years ended december 31 2005 2004 2003 summarized follows thousands connection acquisitions made 2005 2004 company noncash transactions consisting issuance 66 million 46 million respectively notes payable sellers 2003 spent 168 million including acquisition costs acquire five businesses three businesses rental tool companies acquired total consideration excluding cash acquired 105 million acquired rental tool companies conduct operations south texas louisiana combined existing rental tool business within well site services segment remaining two businesses acquired aggregate consideration 63 million excluding cash acquired combined offshore products segment january 2004 completed acquisition several related rental tool companies 366 million companies based south texas leading providers thrutubing services ancillary equipment rentals companies combined rental tool subsidiary report well site services segment completed additional acquisition rental tool company april 2004 48 million may 2004 purchased oil country tubular goods “octg” distribution business hunting energy services lp whollyowned affiliate hunting plc 472 million including purchase price adjustment settled october 2004 connection transaction purchased hunting’s us tubular inventory assumed certain customer contracts entered supply distribution relationships hunting future hunting’s distribution operations merged tubular services segment october 2004 offshore products segment acquired small business 05 million become part existing elastomers business february 1 2005 company completed acquisition elenburg exploration company inc elenburg wyoming based land drilling company cash consideration 221 million including transaction costs plus note payable former owners 08 million elenburg owns operates 7 rigs provide shallow land drilling services montana wyoming colorado utah elenburg acquisition allowed us expand drilling business different geographic areas operations elenburg included drilling services business within well site services segment effective may 1 2005 june 1 2005 acquired stinger wellhead protection inc certain affiliated companies related intellectual property collectively stinger consideration 961 million including transaction costs note payable former owners 50 million stinger provides wellhead isolation equipment services 29 locations united states canada central south america stinger’s patented equipment utilized pressure pumping operations isolates customers’ blowout preventers wellheads pressure abrasion experienced fracturing process oil gas well stinger acquisition expanded rental tool services capabilities especially pressure pumping market operations stinger included rental tools business within well site services segment june 2 2005 purchased phillips casing tubing lp phillips cash consideration 312 million net cash acquired including transaction costs phillips distributes oil country tubular oil states international inc subsidiaries notes consolidated financial statements continued goods octg primarily carbon erw electronic resistance welded pipe facilities midland godley texas operations phillips combined tubular services segment june 6 2005 acquired noble structures inc noble cash consideration 87 million plus note payable 08 million acquisition expanded company’s accommodation manufacturing capabilities canada order meet increased demand remote site facilities principally oil sands region cash consideration paid company’s acquisitions period initially funded utilizing existing bank credit facility 25 million bridge loan see note 7 consolidated financial statements included annual report form 10k operations noble included accommodations business within well site services segments 11 commitments contingencies company leases portion equipment office space computer equipment automobiles trucks leases expire various dates minimum future operating lease obligations effect december 31 2005 follows thousands rental expense operating leases 57 million 45 million 49 million years ended december 31 2005 2004 2003 respectively december 31 2005 company outstanding forward purchase option contract january 2006 bank totaling 15 million purchase foreign currency hedge expected future billings significant unrealized gain loss associated contract company party various pending threatened claims lawsuits administrative proceedings seeking damages remedies concerning commercial operations products employees matters including warranty product liability claims occasional claims individuals alleging exposure hazardous materials result products operations claims relate matters occurring prior acquisition businesses relate businesses sold certain cases company entitled indemnification sellers businesses cases indemnified buyers businesses although company give assurance outcome pending legal administrative proceedings effect outcomes may management believes ultimate liability resulting outcome proceedings extent otherwise provided covered insurance material adverse effect consolidated financial position results operations liquidity february 18 2005 company announced conducted internal investigation prompted discovery billings totaling approximately 400000 one subsidiaries “subsidiary” oil states international inc subsidiaries notes consolidated financial statements continued government owned oil company south america billings detected company routine financial review procedures appropriate financial statement adjustments included previously reported fourth quarter 2004 results company independent counsel retained company’s audit committee conducted separate investigations consisting interviews thorough examination facts circumstances matter company voluntarily reported results investigation securities exchange commission “sec” fully cooperated requests information received sec recently completed informal investigation matter october 31 2005 company’s counsel received “wells notice” staff sec indicating staff made preliminary decision recommend sec bring civil action company alleging violations provisions securities exchange act 1934 relating maintenance books records internal accounting controls procedures set forth sections 13b2a b act alleged violations related billings matter “wells notice” formal allegation proof wrongdoing company responded sec staff regarding “wells notice” currently discussions sec staff regarding matter 12 stockbased compensation october 1995 fasb issued sfas 123 “accounting stockbased compensation” requires company record stockbased compensation fair value december 2002 fasb issued sfas 148 “accounting stock based compensation transition disclosure” company adopted disclosure requirements sfas 148 elected record employee compensation expense utilizing intrinsic value method permitted accounting principles board apb opinion 25 “accounting stock issued employees” company accounts employee stockbased compensation plan apb opinion 25 related interpretations accordingly deferred compensation expense would recorded stock options based excess market value common stock date options granted aggregate exercise price options deferred compensation would amortized vesting period option company authorized grant common stock based awards covering 7700000 shares common stock 2001 equity participation plan amended restated equity participation plan employees consultants directors amounts exercise prices vesting schedules determined company’s compensation committee board directors since february 2001 option grants priced closing price day grant except variable option award granted 2002 100000 shares based various performance criteria whose outcome determined 2003 specific award ultimately totaled 67000 option shares priced based 2002 award date price addition options vest 25 per year life ranging six ten years exercise price options granted equity participation plan equal greater market price company’s shares common stock date grant compensation expense related plan recorded exercise price per share option award lower current market price per share case one instance 2002 variable option award compensation expense recognized intrinsic value award required apb opinion 25 total 56952 shares restricted stock awarded 2005 employees directors aggregate value 12 million restricted stock awards made 2003 2004 fair market value awards charged expense vesting period restricted stock awards compensation expense equity participation plan determined consistent sfas 123 oil states international inc subsidiaries notes consolidated financial statements continued utilizing fair value method company’s net income earnings per share december 31 2005 2004 2003 would follow thousands except per share amounts following table summarizes stock option activity three years ended december 31 2005 oil states international inc subsidiaries notes consolidated financial statements continued following table summarizes information stock options outstanding december 31 2005 december 31 2005 2732383 shares available future grant stock option plan weighted average fair values options granted 2005 2004 2003 832 518 455 per share respectively fair value option grant estimated date grant using blackscholes option pricing model following weighted average assumptions used grants 2005 2004 2003 respectively riskfree interest rates 39 31 30 expected dividend yield expected lives 50 55 years expected volatility 37 deferred compensation plan company maintains deferred compensation plan “deferred compensation plan” plan available directors certain officers managers company plan allows participants defer portion directors fees andor salary annual bonuses applicable permits company make discretionary contributions employee’s account since inception plan discretionary contribution provision limited matching employee participants contribution basis equivalent matching permitted company’s 401k retirement savings plan contributions participants’ accounts vest immediately deferred compensation plan dollar limits taxdeferred contributions assets deferred compensation plan held rabbi trust “trust” therefore available satisfy claims company’s creditors event bankruptcy insolvency company participants ability direct plan administrator invest assets accounts including discretionary contributions company preapproved mutual funds held trust prior november 1 2003 participants also ability direct plan administrator invest assets accounts company common stock addition participants currently right request plan administrator reallocate portfolio investments ie cash mutual funds participants’ individual accounts within trust current balances invested company common stock may increased company contributions form cash distributions plan generally made upon participants’ termination director andor employee applicable company participants receive payments plan cash december 31 2005 balance assets trust totaled 42 million including 31000 shares common stock company reflected treasury stock value 03 million company accounts deferred compensation plan accordance eitf 9714 “accounting deferred compensation arrangements amounts earned held rabbi trust invested” assets trust common stock company invested nine funds covering variety securities investment strategies mutual funds publicly quoted reported market value company accounts investments accordance sfas 115 “accounting oil states international inc subsidiaries notes consolidated financial statements continued certain investments debt equity securities” trust also holds common shares company’s common stock held trust classified treasury stock stockholders’ equity section consolidated balance sheet market value assets held trust exclusive market value shares company’s common stock reflected treasury stock december 31 2005 39 million classified “other noncurrent assets” consolidated balance sheet amounts payable plan participants december 31 2005 including market value shares company’s common stock reflected treasury stock 49 million classified “other liabilities” consolidated balance sheet accordance eitf 9714 market value fluctuations trust assets reflected consolidated statements income increases decreases value plan assets exclusive shares common stock company included compensation adjustments respective statements income increases decreases market value deferred compensation liability including shares common stock company held trust recorded treasury stock also included compensation adjustments consolidated statements income response changes total market value company’s common stock held trust company recorded net compensation expense adjustments 04 million 2005 02 million 2004 01 million 2003 13 segment related information accordance sfas 131 “disclosures segments enterprise related information” company identified following reportable segments offshore products wellsite services tubular services company’s reportable segments strategic business units offer different products services managed separately business requires different technology marketing strategies businesses acquired unit management time acquisition retained financial information industry segment three years ended december 31 2005 2004 2003 summarized following table thousands accounting policies segments described summary significant accounting policies oil states international inc subsidiaries notes consolidated financial statements continued financial information geographic segment three years ended december 31 2005 2004 2003 summarized thousands revenues us include export sales revenues attributable countries based location entity selling products performing services total assets attributable countries based physical location entity operating assets include intercompany balances customers accounted 10 company’s revenues years ended december 31 2005 2004 2003 oil states international inc subsidiaries notes consolidated financial statements continued 14 quarterly financial information unaudited following table summarizes quarterly financial information 2005 2004 2003 thousands except per share amounts earnings per share computed independently quarters presented therefore sum quarterly earnings per share may equal total computed year represents “revenues” less “product costs” “service costs” included company’s consolidated statements operations 15 valuation allowances activity valuation accounts follows thousands oil states international inc subsidiaries notes consolidated financial statements continued 16 workover business merger november 12 2005 announced one subsidiaries signed definitive agreement combine hydraulic workover business hydraulic well control boots coots international well control inc amex wel boots coots exchange 265 million shares boots coots common stock senior subordinated promissory notes totaling 150 million transaction subject approval boots coots’ shareholders expected close march 2006 discussed herein hydraulic well control based houma louisiana provides live dead well workover services throughout world utilizing fleet 27 owned operated hydraulic workover units hydraulic well control operations us venezuela algeria west africa middle east hydraulic well control financial information included item 7 management’s discussion analysis financial condition results operations consolidated financial statements footnote 11 segment related information caption “hydraulic workover” upon closing transaction oil states approximately 44 combined company receive senior subordinated promissory notes totaling 150 million aggregate principal boots coots bearing fixed annual interest rate 10 maturing four one half years closing transaction addition right transaction agreement nominate three additional members boots coots’ existing fivemember board directors index exhibits filed herewith management contracts compensatory plans arrangements furnished herewithitem 15 exhibits financial statement schedules index financial statements financial statement schedules exhibits 1 financial statements reference made index set forth page 72 annual report form 10k 2 financial statement schedules included herein information required submitted included consolidated financial statements notes thereto required information inapplicable 65 3 index exhibits see index exhibits list exhibits filed herewith index also includes identifies management contracts compensatory plans arrangements required filed exhibits annual report form 10k item 601 regulation sk b index exhibits exhibit index exhibit description 21 scheme implementation deed dated october 15 2010 oil states international inc mac services group limited incorporated reference exhibit 21 oil states’ current report form 8k filed commission october 15 2010 file 00116337 31 amended restated certificate incorporation incorporated reference exhibit 31 companys annual report form 10k year ended december 31 2000 filed commission march 30 2001 file 00116337 32 third amended restated bylaws incorporated reference exhibit 31 companys current report form 8k filed commission march 13 2009 file 00116337 33 certificate designations special preferred voting stock oil states international inc incorporated reference exhibit 33 companys annual report form 10k year ended december 31 2000 filed commission march 30 2001 file 00116337 41 form common stock certificate incorporated reference exhibit 41 companys registration statement form s1 filed commission november 7 2000 file 33343400 42 amended restated registration rights agreement incorporated reference exhibit 42 companys annual report form 10k year ended december 31 2000 filed commission march 30 2001 file 00116337 43 first amendment amended restated registration rights agreement dated may 17 2002 incorporated reference exhibit 43 companys annual report form 10k year ended december 31 2002 filed commission march 13 2003 file 00116337 44 registration rights agreement dated june 21 2005 oil states international inc rbc capital markets corporation incorporated reference exhibit 44 oil states current report form 8k filed commission june 23 2005 file 00116337 45 indenture dated june 21 2005 oil states international inc wells fargo bank national association trustee incorporated reference exhibit 45 oil states current report form 8k filed commission june 23 2005 file 00116337 46 global notes representing 175000000 aggregate principal amount 2 38 contingent convertible senior notes due 2025 incorporated reference section 22 exhibit 45 oil states current reports form 8k filed commission june 23 2005 july 13 2005 file 00116337 47 indenture dated june 1 2011 among company guarantors wells fargo bank na trustee incorporated reference exhibit 41 company’s current report form 8k filed commission june 1 2011 file 00116337 48 supplemental indenture dated june 1 2011 among company guarantors wells fargo bank na trustee incorporated reference exhibit 42 company’s current report form 8k filed commission june 1 2011 file 00116337 49 first supplemental indenture dated september 10 2012 among oil states energy services llc oil states international inc together successors assigns thenexisting guarantor indenture wells fargo bank na trustee paying agent registrar indenture incorporated reference exhibit 41 company’s current report form 8k filed commission september 18 2012 file 00116337 410 indenture dated december 21 2012 among oil states international inc guarantors named therein wells fargo bank na trustee paying agent registrar incorporated reference exhibit 41 company’s current report form 8k filed commission december 21 2012 file 00116337 411 first supplemental indenture dated february 15 2013 among tempress technologies inc oil states international inc together successors assigns thenexisting guarantor indenture wells fargo bank na trustee paying agent registrar indenture 412 second supplemental indenture dated february 15 2013 among tempress technologies inc oil states international inc together successors assigns thenexisting guarantor indenture wells fargo bank na trustee paying agent registrar indenture 101 combination agreement dated july 31 2000 among oil states international inc hwc energy services inc merger subhwc inc sooner inc merger subsooner inc pti group inc incorporated reference exhibit 101 companys registration statement form s1 filed commission august 10 2000 file 33343400 102 plan arrangement pti group inc incorporated reference exhibit 102 companys annual report form 10k year ended december 31 2000 filed commission march 30 2001 file 00116337 103 support agreement oil states international inc pti holdco incorporated reference exhibit 103 companys annual report form 10k year ended december 31 2000 filed commission march 30 2001 file 00116337 104 voting exchange trust agreement among oil states international inc pti holdco montreal trust company canada incorporated reference exhibit 104 companys annual report form 10k year ended december 31 2000 filed commission march 30 2001 file 00116337 105 second amended restated 2001 equity participation plan effective march 30 2009 incorporated reference exhibit 105 oil states current report form 8k filed commission april 2 2009 file 00116337 106 deferred compensation plan effective november 1 2003 incorporated reference exhibit 106 companys annual report form 10k year ended december 31 2003 filed commission march 5 2004 file 00116337 107 annual incentive compensation plan incorporated reference exhibit 107 companys annual report form 10k year ended december 31 2000 filed commission march 30 2001 file 00116337 108 executive agreement oil states international inc cindy b taylor incorporated reference exhibit 109 companys annual report form 10k year ended december 31 2000 filed commission march 30 2001 file 00116337 109 form change control severance plan selected members management incorporated reference exhibit 1011 companys registration statement form s1 filed commission december 12 2000 file 33343400 1010 credit agreement dated october 30 2003 among oil states international inc lenders named therein wells fargo bank texas national association administrative agent us collateral agent bank nova scotia canadian administrative agent canadian collateral agent hibernia national bank royal bank canada cosyndication agents bank one na credit lyonnais new york branch codocumentation agents incorporated reference exhibit 1012 companys quarterly report form 10q three months ended september 30 2003 filed commission november 12 2003 file 00116337 1010a incremental assumption agreement dated may 10 2004 among oil states international inc wells fargo national association lenders listed increasing lender incorporated reference exhibit 1012a companys quarterly report form 10q three months ended june 30 2004 filed commission august 4 2004 file 00116337 1010b amendment 1 dated january 31 2005 credit agreement among oil states international inc lenders named therein wells fargo bank texas national association administrative agent us collateral agent bank nova scotia canadian administrative agent canadian collateral agent hibernia national bank royal bank canada cosyndication agents bank one na credit lyonnais new york branch codocumentation agents incorporated reference exhibit 1012b companys annual report form 10k year ended december 31 2004 filed commission march 2 2005 file 00116337 1010c amendment 2 dated december 5 2006 credit agreement among oil states international inc lenders named therein wells fargo bank na lead arranger us administrative agent us collateral agent bank nova scotia canadian administrative agent canadian collateral agent capital one na royal bank canada cosyndication agents jp morgan chase bank na calyon new york branch codocumentation agents incorporated reference exhibit 1012c companys current report form 8k filed commission december 8 2006 file 00116337 1010d incremental assumption agreement dated december 13 2007 among oil states international inc wells fargo national association lenders listed increasing lender incorporated reference exhibit 1012d companys current report form 8k filed commission december 18 2007 file 00116337 1010e amendment 3 dated october 1 2009 credit agreement among oil states international inc lenders named therein wells fargo bank na lead arranger us administrative agent us collateral agent bank nova scotia canadian administrative agent canadian collateral agent capital one na royal bank canada cosyndication agents jp morgan chase bank na calyon new york branch codocumentation agents incorporated reference exhibit 1011e companys current report form 8k filed commission october 2 2009 file 00116337 1010f amended restated credit agreement dated december 10 2010 among oil states international inc pti group inc pti premium camp services ltd borrowers lenders named therein wells fargo bank na administrative agent us collateral agent us swing line lender issuing bank royal bank canada canadian administrative agent canadian collateral agent canadian swing line lender jp morgan chase bank na syndication agent wells fargo securities llc rbc capital markets jp morgan securities llc colead arrangers joint bookrunners incorporated reference exhibit 101 companys current report form 8k filed commission december 20 2010 file 00116337 1010g facility agreement dated july 13 2011 mac services group pty limited national australia bank limited incorporated reference exhibit 101 company’s current report form 8k filed commission july 15 2011 file 00116337 1010h syndicated facility agreement dated september 18 2012 among mac services group pty limited borrower lenders named therein jp morgan australia limited australian agent security trustee jpmorgan chase bank na us agent issuing bank swing line lender incorporated reference exhibit 101 company’s current report form 8k filed commission september 18 2012 file 00116337 1010i amendment 1 amended restated credit agreement dated september 18 2012 among oil states international inc pti group inc pti premium camp services ltd guarantors named therein lenders party thereto wells fargo bank na administrative agent lenders incorporated reference exhibit 102 company’s current report form 8k filed commission september 18 2012 file 00116337 1011 form indemnification agreement incorporated reference exhibit 1014 companys quarterly report form 10q quarter ended september 30 2004 filed commission november 5 2004 file 00116337 1012 form director stock option agreement companys 2001 equity participation plan incorporated reference exhibit 1018 companys annual report form 10k year ended december 31 2004 filed commission march 2 2005 file 00116337 1013 form employee non qualified stock option agreement companys 2001 equity participation plan incorporated reference exhibit 1019 companys annual report form 10k year ended december 31 2004 filed commission march 2 2005 file 00116337 1014 form restricted stock agreement companys 2001 equity participation plan incorporated reference exhibit 1020 companys annual report form 10k year ended december 31 2004 filed commission march 2 2005 file 00116337 1015 nonemployee director compensation summary incorporated reference exhibit 1021 companys report form 8k filed commission november 15 2006 file 00116337 1016 executive agreement oil states international inc named executive officer mr cragg incorporated reference exhibit 1022 companys quarterly report form 10q quarter ended march 31 2005 filed commission april 29 2005 file 00116337 1017 form nonemployee director restricted stock agreement companys 2001 equity participation plan incorporated reference exhibit 1022 companys report form 8k filed commission may 24 2005 file 00116337 1018 executive agreement oil states international inc named executive officer bradley dodson effective october 10 2006 incorporated reference exhibit 1024 companys quarterly report form 10q quarter ended september 30 2006 filed commission november 3 2006 file 00116337 1019 executive agreement oil states international inc named executive officer ron r green effective may 17 2007 incorporated reference exhibit 1025 companys quarterly report form 10q quarter ended june 30 2007 filed commission august 2 2007 file 00116337 filed herewith management contracts compensatory plans arrangements furnished herewith 70 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized february 20 2013 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 20 2013 71 oil states international inc subsidiaries index consolidated financial statements 72 oil states international inc subsidiaries report independent registered public accounting firm board directors stockholders oil states international inc audited accompanying consolidated balance sheets oil states international inc subsidiaries december 31 2012 2011 related consolidated statements income comprehensive income stockholders’ equity cash flows three years period ended december 31 2012 financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position oil states international inc subsidiaries december 31 2012 2011 consolidated results operations cash flows three years period ended december 31 2012 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states oil states international inc subsidiaries’ internal control financial reporting december 31 2012 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission report dated february 20 2013 expressed unqualified opinion thereon ernst young llp houston texas february 20 2013 73 oil states international inc subsidiaries report independent registered public accounting firm board directors stockholders oil states international inc audited oil states international inc subsidiaries’ internal control financial reporting december 31 2012 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso criteria oil states international inc subsidiaries’ management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s annual report internal control financial reporting responsibility express opinion company’s internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk performing procedures considered necessary circumstances believe audit provides reasonable basis opinion company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate indicated accompanying managements annual report internal control financial reporting management’s assessment conclusion effectiveness internal control financial reporting include internal controls business acquired piper valve systems ltd tempress technologies inc included 2012 consolidated financial statements oil states international inc subsidiaries constituted 26 percent total assets december 31 2012 less 1 percent revenues year ended audit internal control financial reporting oil states international inc subsidiaries’ also include evaluation internal control financial reporting business acquired piper valve systems ltd tempress technologies inc opinion oil states international inc subsidiaries maintained material respects effective internal control financial reporting december 31 2012 based coso criteria also audited accordance standards public company accounting oversight board united states consolidated balance sheets oil states international inc subsidiaries december 31 2012 2011 related consolidated statements income comprehensive income stockholders’ equity cash flows three years period ended december 31 2012 report dated february 20 2013 expressed unqualified opinion thereon ernst young llp houston texas february 20 2013 74 oil states international inc subsidiaries consolidated statements income thousands except per share amounts accompanying notes integral part financial statements 75 oil states international inc subsidiaries consolidated statements comprehensive income thousands accompanying notes integral part financial statements 76 oil states international inc subsidiaries consolidated balance sheets thousands except share amounts accompanying notes integral part financial statements 77 oil states international inc subsidiaries consolidated statements stockholders equity thousands accompanying notes integral part financial statements 78 oil states international inc subsidiaries consolidated statements cash flows thousands accompanying notes integral part financial statements 79 oil states international inc subsidiaries notes consolidated financial statements 1 organization basis presentation consolidated financial statements include accounts oil states international inc oil states company consolidated subsidiaries investments unconsolidated affiliates company able exercise significant influence accounted using equity method significant intercompany accounts transactions company consolidated subsidiaries eliminated accompanying consolidated financial statements company subsidiaries leading provider specialty products services natural resources companies throughout world operate substantial number worlds active oil natural gas coal producing regions including canada onshore offshore us australia west africa north sea south america southeast central asia company operates four principal reportable business segments accommodations offshore products well site services tubular services 2 summary significant accounting policies cash equivalents company considers highly liquid investments purchased original maturity three months less cash equivalents fair value financial instruments company’s financial instruments consist cash equivalents investments receivables payables debt instruments foreign currency forward contracts company believes carrying values instruments 6 12 5 18 2 38 notes redemption july 2012 accompanying consolidated balance sheets approximate fair values fair values 6 12 5 18 2 38 notes redemption july 2012 estimated based quoted prices analysis similar instruments level 2 fair value measurements company changed level 1 fair value measurement standard level 2 fair value measurement standard second quarter 2012 consideration relatively low daily trading volume debt instruments carrying values fair values notes follows periods indicated thousands 80 oil states international inc subsidiaries notes consolidated financial statements continued see note 9 “derivative instruments hedging activities” discussion fair values company’s foreign currency forward contracts december 31 2012 2011 carrying value companys debt outstanding credit facilities estimated fair value restricted cash december 31 2012 cash 253 million held escrow accounts subject terms acquisition agreements providing contingent consideration seller representation warranty provisions included “other noncurrent assets” consolidated balance sheets inventories consist tubular oilfield products manufactured equipment spare parts manufactured equipment workinprocess raw materials supplies materials construction remote accommodation facilities inventories include raw materials labor subcontractor charges manufacturing overhead carried lower cost market cost inventories determined average cost specificidentification method reserve excess damaged remnants andor obsolete inventory maintained based age turnover condition inventory property plant equipment property plant equipment stated cost estimated fair market value acquisition date acquired business combination depreciation computed assets owned recorded capital lease using straightline method allowing salvage value applicable estimated useful lives assets use component depreciation method drilling services australian accommodations assets leasehold improvements capitalized amortized lesser life lease estimated useful life asset expenditures repairs maintenance charged expense incurred expenditures major renewals betterments extend useful lives existing equipment capitalized depreciated upon retirement disposition property equipment cost related accumulated depreciation removed accounts resulting gain loss recognized statements income asset retirement obligations recognize initial estimated asset retirement obligations aro related properties liabilities associated increase property equipment asset’s estimated retirement cost accretion expense recognized estimated productive life related assets fair value estimated aro changes adjustment recorded aro capitalized asset retirement cost revisions estimated liabilities result changes estimated inflation rates changes service equipment costs changes estimated timing settling aro company relieves aro liabilities related obligations settled december 31 2012 55 million aro included consolidated balance sheet “other noncurrent liabilities” aro liability reflects estimated present value amount asset removal site reclamation costs related retirement assets company’s accommodations business total accretion expense related aro 03 million 2012 company utilizes current retirement costs estimate expected cash outflows retirement obligations company estimates ultimate productive life properties riskadjusted discount rate order determine current present value obligation 81 oil states international inc subsidiaries notes consolidated financial statements continued goodwill intangible assets goodwill represents excess purchase price paid acquired businesses allocated fair value related net assets impairments applicable goodwill stated net accumulated amortization 11 million december 31 2012 2011 evaluate goodwill impairment annually event occurs circumstances change suggest carrying amount may recoverable reporting units goodwill include accommodations offshore products completion services accordance current accounting standards given option test impairment goodwill first performing qualitative assessment determine whether likely likelihood 50 percent fair value reporting unit less carrying amount including goodwill determined likely fair value reporting unit greater carrying amount performing currently prescribed twostep impairment test unnecessary developing qualitative assessment meet “morelikelythannot” threshold reporting unit goodwill balance sheet assessed separately different relevant events circumstances evaluated unit determined likely fair value reporting unit less carrying amount prescribed twostep impairment test performed current accounting standards also give us option bypass qualitative assessment reporting unit period proceed directly performing first step twostep goodwill impairment test 2012 company chose bypass qualitative assessment reporting units goodwill remaining perform twostep impairment test performing twostep impairment test compare reporting units carrying amount including goodwill implied fair value ifv reporting unit ifv reporting units estimated using analysis trading multiples comparable companies reporting units also utilize discounted projected cash flows acquisition multiples analyses certain circumstances discount projected cash flows using longterm weighted average cost capital reporting unit based estimate investment returns would required market participant carrying amount reporting unit exceeds fair value goodwill considered impaired second step performed determine amount impairment conduct annual impairment test december year 2012 quantitative assessment potential goodwill impairment based analysis comparison trading multiples indicated likely fair value reporting units greater carrying amount intangible assets amortize review useful life intangible asset evaluate reporting period whether events circumstances warrant revision remaining useful life evaluate remaining useful life intangible asset amortized reporting period determine whether events circumstances continue support indefinite useful life see note 7 goodwill intangible assets impairment longlived assets compliance current accounting standards regarding accounting impairment disposal longlived assets asset group level recoverability carrying values longlived assets including finitelived intangible assets assessed minimum annually whenever managements judgment events changes circumstances indicate carrying value asset groups may recoverable based estimated future cash flows assessment indicates carrying values recoverable determined based undiscounted cash flows remaining useful lives impairment loss recognized impairment loss equals excess carrying value fair value asset group fair value asset group based prices similar assets available discounted cash flows based companys review carrying values asset groups recoverable impairment losses recorded periods presented 82 oil states international inc subsidiaries notes consolidated financial statements continued foreign currency comprehensive income gains losses resulting balance sheet translation foreign operations foreign currency functional currency included separate component accumulated comprehensive income within stockholders equity representing substantially balances within accumulated comprehensive income remeasurements intercompany loans denominated different currency functional currency entity longterm investment nature recognized comprehensive income within stockholders’ equity gains losses resulting balance sheet remeasurements assets liabilities denominated different currency functional currency intercompany loans longterm investment nature included consolidated statements income incurred foreign exchange risk portion revenues earnings net investments foreign affiliates exposed changes foreign exchange rates seek manage foreign exchange risk part operational means including managing expected local currency revenues relation local currency costs local currency assets relation local currency liabilities order reduce exposure fluctuations currency exchange rates may also enter foreign exchange agreements financial institutions december 31 2012 outstanding foreign currency forward purchase contracts notional amount 124 million hedging expected cash flows denominated euros recorded comprehensive loss 10 million 2012 result contract december 31 2011 active hedge contracts outstanding foreign exchange losses associated operations totaled 21 million 2012 14 million 2011 11 million 2010 included “other operating expense” interest capitalization interest costs construction certain longterm assets capitalized amortized related assets estimated useful lives years ended december 31 2012 2011 2010 35 million 53 million 02 million capitalized respectively revenue cost recognition revenue sale products accounted utilizing percentageofcompletion method recognized delivery acceptance customer occurred title significant risks ownership passed customer collectability probable pricing fixed determinable product sales terms include significant postdelivery obligations significant projects revenues recognized percentageofcompletion method measured percentage costs incurred date compared estimated total costs contract costtocost method billings contracts excess costs incurred estimated profits classified deferred revenue costs incurred estimated profits excess billings percentageofcompletion contracts recognized unbilled receivables management believes method appropriate measure progress large contracts provisions estimated losses uncompleted contracts made period losses determined factors may affect future project costs margins include shipyard access weather production efficiencies availability costs labor materials subcomponents factors significantly impact accuracy company’s estimates materially impact company’s future reported earnings accommodations well site services segments revenues recognized based periodic usually daily room rate services rendered proceeds customers cost oilfield rental equipment damaged lost downhole reflected gains losses disposition assets considering writeoff remaining net book value equipment drilling services contracts based footage drilled recognize revenues footage drilled revenues exclude taxes assessed based revenues sales value added taxes cost goods sold includes direct material labor costs related contract performance indirect labor supplies tools repairs selling general administrative costs charged expense incurred 83 oil states international inc subsidiaries notes consolidated financial statements continued income taxes company follows liability method accounting income taxes accordance current accounting standards regarding accounting income taxes method deferred income taxes recorded based upon differences financial reporting tax bases assets liabilities measured using enacted tax rates laws effect underlying assets liabilities recovered settled companys earnings foreign subsidiaries considered indefinitely reinvested provision us income taxes made earnings subsidiaries distribution earnings form dividends otherwise company would subject us income taxes subject adjustment foreign tax credits withholding taxes payable various foreign countries accordance current accounting standards company records valuation allowance reporting period management believes likely deferred tax asset created realized management continue evaluate appropriateness valuation allowance future based upon operating results company accounting income taxes required provisions current accounting standards regarding accounting uncertainty income taxes estimate liability future income taxes calculation tax liabilities involves dealing uncertainties application complex tax regulations recognize liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due ultimately determine payment amounts unnecessary reverse liability recognize tax benefit period determine liability longer necessary record additional charge provision taxes period determine recorded tax liability less expect ultimate assessment receivables concentration credit risk concentration suppliers based nature customer base company believe significant concentrations credit risk concentration worldwide oil gas australian mining industries company evaluates creditworthiness significant new existing customers financial condition generally company require significant collateral customers company purchased 81 oilfield tubular goods three suppliers 2012 loss significant supplier tubular services segment could materially adversely affect allowances doubtful accounts company maintains allowances doubtful accounts estimated losses resulting inability companys customers make required payments trade receivable deemed uncollectible receivable chargedoff allowance doubtful accounts company considers following factors determining collection revenue reasonably assured customer creditworthiness past transaction history customer current economic industry trends customer solvency changes customer payment terms company previous experience customer company typically obtains reports various credit organizations ensure customer history paying creditors company may also request financial information including financial statements documents ensure customer means making payment factors indicate collection reasonably assured company would require prepayment arrangement support revenue recognition recording trade receivable financial condition companys customers deteriorate adversely affecting ability make payments additional allowances would required 84 oil states international inc subsidiaries notes consolidated financial statements continued earnings per share diluted eps amounts include effect companys outstanding stock options restricted stock shares treasury stock method addition conversion july 2012 shares 2 38 contingent convertible senior subordinated notes 2 38 notes assumed issued upon conversion included calculation fully diluted shares outstanding fully diluted earnings per share weighted average number shares totaled 1793244 3023420 1647321 years ended december 31 2012 december 31 2011 december 31 2010 respectively stockbased compensation current accounting standards regarding sharebased payments require companies measure cost employee services received exchange award equity instruments typically stock options based grantdate fair value award fair value estimated using optionpricing models resulting cost recognized period employee required provide service exchange awards usually vesting period addition service based awards 2012 company also issued performance based awards may vest amount depend company’s achievement specified performance objectives performance based awards performance criteria measured based upon company’s achievement levels average aftertax annual return invested capital 2012 company also granted phantom shares newly created canadian longterm incentive plan provides granting units phantom shares key canadian employees awards vest equal annual installments accounted liability participants granted units phantom shares entitled lump sum cash payment equal fair market value share company’s common stock vesting date years ended december 31 2012 2011 2010 company recognized noncash general administrative expenses stock options restricted stock awards totaling 189 million 146 million 126 million respectively company accounts assets held rabbi trust certain participants companys deferred compensation plan accordance current accounting standards see note 14 guarantees company applies current accounting standards regarding guarantors accounting disclosure requirements guarantees including indirect indebtedness others companys obligations certain guarantees products offshore products accommodations businesses sold warranty generally ranging 12 18 months parts labor covered terms warranty agreement warranty provisions estimated based upon historical experience product configuration geographic region total liability related warranties 18 million december 31 2012 2011 ordinary course business company also provides standby letters credit guarantee instruments certain parties required certain transactions initiated either company subsidiaries december 31 2012 maximum potential amount future payments company could required make guarantee agreements letters credit approximately 494 million company recorded liability connection guarantee arrangements company believe based historical experience information currently available likely amounts required paid guarantee arrangements use estimates preparation consolidated financial statements conformity accounting principles generally accepted united states requires use estimates assumptions management determining reported amounts assets liabilities disclosures contingent assets liabilities date consolidated financial statements reported amounts revenues expenses reporting period examples estimates include potential future adjustments result contingent consideration arrangements pursuant business combinations contractual agreements revenue income recognized percentageofcompletion method estimates amount timing costs incurred asset retirement obligations valuation allowance recorded net deferred tax assets warranty reserves inventory allowance doubtful accounts actual results could materially differ estimates 85 oil states international inc subsidiaries notes consolidated financial statements continued accounting contingencies contingent liabilities future claims made estimates amount eventual cost liquidate liabilities claims liabilities claims sometimes involve threatened actual litigation damages quantified made assessment exposure recorded provision accounts cover expected loss claims liabilities estimated based fair value experience matters appropriate advice outside counsel outside experts upon ultimate resolution uncertainties future reported financial results impacted difference estimates actual amounts paid settle liability examples areas made important estimates future liabilities include future consideration due sellers result terms business combination litigation taxes interest insurance claims warranty claims contract claims obligations discontinued operations subsequent events accordance authoritative guidance company evaluates events transactions occur balance sheet date financial statements issued possible recognition disclosure 3 details selected balance sheet accounts additional information regarding selected balance sheet accounts december 31 2012 2011 presented thousands 86 oil states international inc subsidiaries notes consolidated financial statements continued 1 december 31 2011 reclassified 547 million buildings leasehold improvements accommodations assets comparability purposes depreciation expense 2165 million 1749 million 1216 million years ended december 31 2012 2011 2010 respectively 4 recent accounting pronouncements time new accounting pronouncements issued financial accounting standards board fasb adopted company specified effective date unless otherwise discussed management believes impact recently issued standards yet effective material impact company’s consolidated financial statements upon adoption june 2011 fasb issued amendments disclosure requirements presentation comprehensive income guidance eliminates option present components comprehensive income part statement changes stockholders’ equity amendments require nonowner changes stockholders’ equity presented either single continuous statement comprehensive income two separate consecutive statements twostatement approach first statement present total net income components followed consecutively second statement present total comprehensive income components comprehensive income total comprehensive income amendments applied retrospectively public entities amendments effective fiscal years interim periods within years beginning december 15 2011 amendments require transition disclosures december 2011 fasb issued amendment deferring effective date requirement present reclassification adjustments accumulated comprehensive income face consolidated statement income company adopted standard quarterly report form 10q three month period ended march 31 2012 september 2011 fasb issued accounting standards update intended simplify goodwill impairment testing giving entity option first assess qualitative factors determine whether likely fair value reporting unit less carrying amount entity determines likely fair value reporting unit greater carrying amount performing currently prescribed twostep impairment test unnecessary entity option bypass qualitative assessment reporting unit period proceed directly performing first step twostep goodwill impairment test entity may resume performing qualitative assessment subsequent period amendments effective annual interim goodwill impairment tests performed fiscal years beginning december 15 2011 company adopted standard annual goodwill impairment tests 2011 2012 company chose option bypass qualitative assessment performed quantitative assessment goodwill impairment adoption standard material effect consolidated financial statements 87 oil states international inc subsidiaries notes consolidated financial statements continued july 2012 fasb issued accounting standards update intended reduce cost complexity performing impairment test indefinitelived intangible assets simplifying entity tests assets impairment update also intended improve consistency impairment testing guidance among longlived asset categories previous guidance required entity test indefinitelived intangible assets impairment comparing fair value asset carrying amount least annual basis carrying amount exceeded fair value entity needed recognize impairment loss amount excess amendment update allows entity first assess qualitative factors determine whether likely indefinitelived intangible asset impaired assessment determine whether necessary perform quantitative impairment tests type testing results guidance similar september 2011 accounting standards update issued goodwill impairment testing described amendments effective annual interim impairment tests performed fiscal years beginning september 15 2012 early adoption permitted adopted provisions 2012 adoption standard material effect consolidated financial statements 5 acquisitions supplemental cash flow information components cash used acquisitions reflected consolidated statements cash flows years ended december 31 2012 2011 2010 summarized follows thousands december 14 2012 acquired equity tempress technologies inc tempress purchase price consideration 483 million consisting 325 million cash contingent consideration fair value 158 million company funded escrow accounts totaling 253 million related contingent consideration seller transaction indemnities classified “other noncurrent assets” december 31 2012 consolidated balance sheet liabilities contingent consideration escrowed amounts potentially due seller total 211 million december 31 2012 classified “other noncurrent liabilities” consolidated balance sheet headquartered kent washington tempress designs develops markets suite highly specialized hydraulicallyactivated tools utilized downhole completion activities operations tempress included well site services segment since acquisition date july 2 2012 acquired piper valve systems ltd piper headquartered oklahoma city oklahoma piper designs manufactures high pressure valves manifold components oil gas industry projects offshore surface subsea onshore pipers valve technology complements offshore products segment allowing us integrate valve products services existing subsea products pipeline end manifolds terminals increasing suite global deepwater product service offerings subject customary postclosing adjustments total cash consideration 480 million operations piper included offshore products segment since acquisition date 88 oil states international inc subsidiaries notes consolidated financial statements continued november 1 2011 purchased open camp accommodations facility located carrizo springs texas total consideration 22 million facility provides accommodations support customers working eagle ford shale oil gas basin texas operations carrizo springs facility included accommodations segment since acquisition date december 30 2010 acquired ordinary shares mac services group limited mac scheme arrangement scheme corporations act australia mac headquartered sydney australia supplies accommodations services australian natural resources market terms scheme shareholder mac received 395 a390 per share cash total purchase price 638 million net cash acquired plus debt assumed 87 million mac’s operations included part accommodations segment beginning 2011 following unaudited pro forma supplemental financial information presents consolidated results operations company mac acquisition mac occurred january 1 2010 company adjusted historical financial information give effect pro forma items directly attributable acquisition expected continuing impact consolidated results items include adjustments record incremental amortization depreciation expense related increase fair values acquired assets interest expense related borrowings company’s senior credit facilities fund acquisition reclassify certain items conform company’s financial reporting presentation unaudited pro forma purport indicative results operations transaction occurred date indicated future results combined entities thousands except per share data included pro forma results year ended december 31 2010 1 depreciation increased fair value property plant equipment acquired part mac totaling 86 million net tax 016 per diluted share 2 amortization expense intangibles acquired part purchase mac totaling 60 million net tax 011 per diluted share 3 interest expense 108 million net tax 020 per diluted share year ended december 31 2010 pro forma results also include mac acquisition costs approximately 125 million 46 million recorded company’s books 79 million recorded mac’s books net tax 024 per diluted share december 20 2010 also acquired operating assets mountain west oilfield service supplies inc ufford leasing llc mountain west total consideration 471 million including estimated contingent consideration 40 million headquartered vernal utah operations rockies bakken shale region mountain west provides remote site workforce accommodations oil gas industry mountain west included accommodations segment since acquisition date october 5 2010 purchased equity acute technological services inc acute total consideration 302 million headquartered houston texas additional operations brazil acute provides metallurgical welding engineering consulting services oil gas industry support critical complex subsea component manufacturing deepwater riser fabrication global basis acute included offshore products segment since acquisition date 89 oil states international inc subsidiaries notes consolidated financial statements continued acquisitions tempress piper carrizo springs acute mountain west material company’s consolidated financial statements therefore company present pro forma information acquisitions company funded acquisitions cash hand andor draws senior secured credit facilities see note 8 long term debt additional information senior secured credit facilities supplemental cash flow information cash paid years ended december 31 2012 2011 2010 interest income taxes follows thousands 6 earnings per share eps calculations diluted earnings per share years ended december 31 2012 2011 2010 exclude 399134 shares 179804 shares 364345 shares respectively issuable pursuant outstanding stock options restricted stock awards due antidilutive effect see note 8 long term debt discussion conversion 2 38 notes 90 oil states international inc subsidiaries notes consolidated financial statements continued 7 goodwill intangible assets company amortize goodwill tests impairment using fair value approach reporting unit level reporting unit operating segment business one level operating segment component level discrete financial information prepared regularly reviewed management component level company three reporting units goodwill december 31 2012 goodwill allocated reporting units based actual acquisitions made company subsidiaries company recognizes impairment loss amount carrying amount reporting units goodwill exceeds reporting units ifv goodwill initial qualitative assessment potential goodwill impairment indicates likely fair value reporting unit less carrying amount including goodwill company uses appropriate current circumstance comparative market multiples discounted cash flow calculations acquisition comparables establish reporting units fair value level 3 fair value measurement company amortizes cost intangibles estimated useful lives unless lives deemed indefinite amortizable intangible assets reviewed impairment indicators impairment based undiscounted cash flows impaired written fair value based either discounted cash flows appraised values intangible assets indefinite lives tested impairment annually written fair value required december 31 2012 provision impairment intangible assets required changes carrying amount goodwill years ended december 31 2012 2011 follows thousands 91 oil states international inc subsidiaries notes consolidated financial statements continued following table presents total amount intangibles assigned total accumulated amortization major intangible asset classes december 31 2012 2011 thousands weighted average remaining amortization period intangible assets goodwill indefinite lived intangibles 86 years december 31 2012 december 31 2011 total amortization expense expected 155 million 2013 2014 154 million 2015 153 million 2016 150 million 2017 amortization expense 136 million 133 million 26 million years ended december 31 2012 2011 2010 respectively 92 oil states international inc subsidiaries notes consolidated financial statements continued 8 longterm debt december 31 2012 2011 longterm debt consisted following thousands scheduled maturities combined longterm debt december 31 2012 follows thousands 93 oil states international inc subsidiaries notes consolidated financial statements continued companys capital leases consist primarily plant facilities equipment value capitalized leases related accumulated depreciation totaled 14 million 10 million respectively december 31 2012 value capitalized leases related accumulated depreciation totaled 21 million 14 million respectively december 31 2011 company’s purchased office building previously held capital lease 5 18 senior unsecured notes december 21 2012 company sold 400 million aggregate principal amount 5 18 senior notes due 2023 5 18 notes private placement qualified institutional buyers 5 18 notes senior unsecured obligations company guaranteed material us subsidiaries guarantors bear interest rate 5 18 per annum mature january 1 2023 time prior january 15 2016 company may redeem 35 5 18 notes redemption price 105125 principal amount plus accrued unpaid interest redemption date proceeds certain equity offerings prior january 15 2018 company may redeem 5 18 notes cash redemption price equal 100 principal amount plus applicable makewhole premium accrued unpaid interest redemption date january 15 2018 company may redeem 5 18 notes redemption prices expressed percentages principal amount plus accrued unpaid interest redemption date optional redemption prices percentage principal amount follows company utilized approximately 334 million net proceeds 5 18 notes repay borrowings us revolving credit facility remaining net proceeds approximately 61 million utilized general corporate purposes december 21 2012 connection issuance 5 18 notes company entered indenture 5 18 notes indenture guarantors wells fargo bank na trustee 5 18 notes indenture restricts companys ability guarantors incur additional debt ii pay distributions redeem repurchase equity interests iii make certain investments iv incur liens v enter transactions affiliates vi merge consolidate another company vii transfer sell assets covenants subject number important exceptions qualifications time 5 18 notes rated investment grade either moodys investors service inc standard poors ratings services default defined 5 18 notes indenture occurred continuing many covenants terminate company subsidiaries cease subject covenants indenture contains customary events default december 31 2012 company compliance covenants 5 18 notes indenture 94 oil states international inc subsidiaries notes consolidated financial statements continued 6 12 senior unsecured notes june 1 2011 company sold 600 million aggregate principal amount 6 12 senior notes due 2019 6 12 notes private placement qualified institutional buyers 6 12 notes senior unsecured obligations company guaranteed material us subsidiaries guarantors bear interest rate 6 12 per annum mature june 1 2019 time prior june 1 2014 company may redeem 35 6 12 notes redemption price 106500 principal amount plus accrued unpaid interest redemption date proceeds certain equity offerings prior june 1 2014 company may redeem 6 12 notes cash redemption price equal 100 principal amount plus applicable makewhole premium accrued unpaid interest redemption date june 1 2014 company may redeem 6 12 notes redemption prices expressed percentages principal amount plus accrued unpaid interest redemption date optional redemption prices percentage principal amount follows company utilized approximately 515 million net proceeds 6 12 note offering june 2011 repay borrowings outstanding senior secured credit facilities remaining net proceeds approximately 75 million utilized general corporate purposes june 1 2011 connection issuance 6 12 notes company entered indenture 6 12 notes indenture guarantors wells fargo bank na trustee indenture restricts companys ability guarantors incur additional debt ii pay distributions redeem repurchase equity interests iii make certain investments iv incur liens v enter transactions affiliates vi merge consolidate another company vii transfer sell assets covenants subject number important exceptions qualifications time 6 12 notes rated investment grade either moodys investors service inc standard poors ratings services default defined 6 12 notes indenture occurred continuing many covenants terminate company subsidiaries cease subject covenants 6 12 notes indenture contains customary events default december 31 2012 company compliance covenants 6 12 notes indenture 2 38 contingent convertible senior notes may 17 2012 company gave notice redemption outstanding 2 38 notes due 2025 2 38 notes totaling 175 million redemption price equal 100 principal amount thereof plus accrued interest july 2012 rather 2 38 notes redeemed prior july 5 2012 holders 175 million aggregate principal amount 2 38 notes converted 2 38 notes received cash principal amount 3012380 shares company’s common stock valued 2206 million carrying amount 2 38 notes december 31 2011 consolidated balance sheet thousands effective interest rate 717 applied issuance date 2 38 notes accordance asc 47020 debt conversion options interest expense 2 38 notes excluding amortization debt issue costs follows thousands 95 oil states international inc subsidiaries notes consolidated financial statements continued credit facilities december 10 2010 replaced existing 500 million bank credit facility 105 billion senior credit facilities governed amended restated credit agreement new credit facilities totaled 105 billion available commitments consisting revolving borrowings 750 million term borrowings 300 million company borrowed term commitment connection acquisition mac senior secured revolving credit facilities group banks 350 million available form loans denominated canadian dollars may made companys principal canadian operating subsidiaries facilities mature december 10 2015 current principal balance term loans repayable rate 25 per quarter aggregate principal amount maturity december 10 2015 remaining principal due amounts borrowed facilities bear interest companys election either • variable rate equal libor case canadian dollar denominated loans bankers acceptance discount rate plus margin ranging 20 30 • alternate base rate equal higher banks prime rate federal funds effective rate case canadian dollar denominated loans canadian prime rate commitment fees ranging 0375 050 per year paid undrawn portion facilities depending upon leverage ratio credit facilities guaranteed companys active domestic subsidiaries cases companys canadian foreign subsidiaries credit facilities secured first priority lien companys inventory accounts receivable material tangible intangible assets well companys active subsidiaries however 65 voting stock foreign subsidiary required pledged pledge greater percentage would result adverse tax consequences credit agreement contains customary financial covenants restrictions including restrictions ability declare pay dividends specifically must maintain interest coverage ratio defined ratio consolidated ebitda consolidated interest expense least 30 10 maximum leverage ratio defined ratio total debt consolidated ebitda greater 325 10 2012 30 10 thereafter factors considered calculations ratios defined credit agreement ebitda consolidated interest defined exclude goodwill impairments debt discount amortization noncash charges december 31 2012 compliance debt covenants credit facilities also contain negative covenants limit companys ability borrow additional funds encumber assets pay dividends sell assets enter significant transactions companys credit facilities occurrence specified change control events involving company would constitute event default would permit banks among things accelerate maturity facilities cause become immediately due payable full december 31 2012 2558 million outstanding facilities additional 411 million outstanding letters credit leaving 7089 million available drawn facilities 96 oil states international inc subsidiaries notes consolidated financial statements continued september 18 2012 company’s australian accommodations subsidiary mac services group pty limited mac entered aud300 million revolving loan facility governed syndicated facility agreement mac group facility agreement mac jp morgan australia limited australian agent security trustee jpmorgan chase bank na us agent lenders party thereto guaranteed company mac’s subsidiaries maturity date mac group facility agreement december 10 2015 terms mac group facility agreement loans bear interest particular interest period rate per annum equal sum average interest rate paid banks loans equivalent period applicable percentage ranging 200 300 based upon australian borrower’s leverage ratio mac group facility agreement contains representations warranties covenants customary similar credit arrangements including among things covenants relating financial reporting notification payment obligations notification certain events financial covenants mac group facility agreement also require mac permit interest coverage ratio consolidated ebitda consolidated interest expense less 40 10 period four consecutive fiscal quarters mac ii leverage ratio total debt consolidated ebitda greater 30 10 period four consecutive fiscal quarters mac factors considered calculations ratios defined mac group facility agreement mac group facility agreement contains various customary restrictive covenants subject certain exceptions limit mac subsidiaries among things incurring additional indebtedness guarantees creating liens encumbrances property entering merger similar transaction selling transferring certain property making certain restricted payments entering transactions affiliates december 31 2012 compliance australian debt covenants mac group facility agreement replaced mac’s previous aud150 million revolving loan facility december 31 2012 aud46 million outstanding australian credit facility leaving aud254 million available drawn facility interest expense consolidated statements income net capitalized interest 35 million 53 million 02 million respectively years ended december 31 2012 2011 2010 9 derivative instruments hedging activities company conducts business various foreign countries therefore settles transactions foreign currencies company time utilize foreign currency forward contracts offset risk associated effects certain foreign currency exposure derivative contracts consistent company’s strategy managing financial risks july 2012 company entered foreign currency forward contracts designated qualify cash flow hedges reduce company’s exposure foreign currency fluctuations revenue contract denominated foreign currency company initially reports gain loss effective portion cash flow hedge component comprehensive income subsequently reclassifies gain loss product revenues hedged revenues recorded portion instruments qualify cash flow hedge treatment remeasured fair value balance sheet date resulting gains losses recognized net income december 31 2012 total notional amount derivative contracts 124 million €100 million december 31 2012 company’s derivative contracts designated hedges company derivative contracts outstanding december 31 2011 derivative contract entered company seeks obtain cash flow hedge accounting treatment company formally documents relationships hedging instruments hedged items well risk management objective strategy undertaking hedge transaction nature risk hedged hedging instrument’s effectiveness offsetting hedged risk assessed prospectively retrospectively description method measuring ineffectiveness process includes linking derivatives specific firm commitments forecasted transactions designating derivatives cash flow hedges company also formally assesses hedge’s inception ongoing basis whether derivative contracts used hedging transactions highly effective offsetting changes cash flows hedged items effective portion hedged items reflected comprehensive income determined derivative contract highly effective ceased highly effective hedge company required discontinue hedge accounting respect derivative contract prospectively december 31 2012 company’s foreign currency forward contracts remaining maturities ranging less one month twentyone months balance sheet location fair values derivative instruments thousands amount gains losses related company’s derivative contracts designated hedging instruments year ended december 31 2012 thousands december 31 2012 10 million unrealized pretax loss outstanding derivatives accumulated comprehensive loss majority expected reclassified net sales within next twentyone months result underlying hedged transactions also recorded net sales 97 oil states international inc subsidiaries notes consolidated financial statements continued year ended december 31 2012 gains losses derivative contracts designated hedging instruments recognized net sales zero 10 stock repurchase program august 23 2012 company announced board directors authorized 200 million repurchase company’s common stock par value 01 per share authorization replaced prior share repurchase authorization set expire september 1 2012 december 31 2012 company approximately 547 million shares common stock outstanding board directors’ authorization limited duration expires september 1 2014 subject applicable securities laws purchases times amounts board directors deems appropriate december 31 2012 total 152 million stock 225796 shares repurchased program leaving total authorization approximately 1848 million remaining available repurchase program 11 retirement plans company sponsors defined contribution plans participation plans available substantially employees company recognized expense 137 million 111 million 77 million respectively related matching contributions various defined contribution plans years ended december 31 2012 2011 2010 respectively 12 income taxes consolidated pretax income loss years ended december 31 2012 2011 2010 consisted following thousands components income tax provision years ended december 31 2012 2011 2010 consisted following thousands 98 oil states international inc subsidiaries notes consolidated financial statements continued provision taxes differs amount computed us statutory rates follows years ended december 31 2012 2011 2010 consisted thousands significant items giving rise deferred tax assets liabilities december 31 2012 2011 follows thousands reclassifications companys deferred tax balance based net current items net noncurrent items december 31 2012 2011 follows thousands primary deferred tax assets december 31 2012 related employee benefit costs equity participation plan deductible goodwill intangibles allowance inventory obsolescence foreign tax credit carryforwards foreign tax credits expire varying amounts 2019 income tax provision year ended december 31 2012 totaled 1770 million 282 pretax income compared 1316 million 289 pretax income year ended december 31 2011 appropriate us foreign income taxes provided earnings foreign subsidiary companies expected remitted near future cumulative amount undistributed earnings foreign subsidiaries company intends indefinitely reinvest upon foreign taxes accrued paid deferred us income taxes provided 11 billion december 31 2012 majority generated canada australia upon distribution earnings form dividends otherwise company may subject us income taxes subject adjustment foreign tax credits foreign withholding taxes practical however estimate amount taxes may payable eventual remittance earnings consideration available foreign tax credits 99 oil states international inc subsidiaries notes consolidated financial statements continued american jobs creation act 2004 signed law october 2004 introduced requirement companies disclose penalties imposed consolidated subsidiaries irs failing satisfy tax disclosure requirements relating reportable transactions year ended december 31 2012 penalties imposed company consolidated subsidiaries failure disclose reportable transactions irs company files tax returns jurisdictions required returns subject examination audit possible adjustment result assessments taxing authorities company believes recorded sufficient tax liabilities expect resolution examination audit tax returns would material adverse effect operating results financial condition liquidity tax years subsequent 2009 remain open us federal tax audit net operating losses nols utilized company years 1994 2002 remain subject federal tax audit respect nols available tax carryforward canadian subsidiaries federal tax returns subsequent 2008 subject audit canada revenue agency australian subsidiary’s federal tax returns subsequent 2007 subject audit australian taxation office account uncertain tax positions using recognition threshold measurement attribute financial statement recognition measurement tax positions taken expected taken tax return benefits recognized tax position must morelikelythannot sustained upon examination taxing authorities amount recognized measured largest amount benefit greater 50 percent likely realized upon ultimate settlement total amount unrecognized tax benefits december 31 2012 07 million unrecognized tax benefits recognized would affect effective tax rate company accrues interest penalties related unrecognized tax benefits component companys provision income taxes december 31 2012 2011 company accrued 02 million 23 million respectively interest expense penalties reconciliation beginning ending amount unrecognized tax benefits follows thousands reasonably possible amount unrecognized tax benefits change next twelve months due closing statute limitations change occur could favorable unfavorable impact results operation 13 commitments contingencies company leases portion equipment office space computer equipment automobiles trucks leases expire various dates 100 oil states international inc subsidiaries notes consolidated financial statements continued minimum future operating lease obligations effect december 31 2012 follows thousands rental expense operating leases 170 million 145 million 129 million years ended december 31 2012 2011 2010 respectively company party various pending threatened claims lawsuits administrative proceedings seeking damages remedies concerning commercial operations products employees matters including warranty product liability claims occasional claims individuals alleging exposure hazardous materials result products operations claims relate matters occurring prior acquisition businesses relate businesses sold certain cases company entitled indemnification sellers businesses cases indemnified buyers businesses although company give assurance outcome pending legal administrative proceedings effect outcomes may management believes ultimate liability resulting outcome proceedings extent otherwise provided covered insurance material adverse effect consolidated financial position results operations liquidity 14 stockbased compensation current accounting standards require companies measure cost employee services received exchange award equity instruments typically stock options based grantdate fair value award fair value estimated using optionpricing models resulting cost recognized period employee required provide service exchange awards usually vesting period fair value option grant estimated date grant using blackscholes option pricing model uses assumptions noted following table riskfree interest rate based us treasury yield curve effect expected term option time grant dividend yield common stock assumed zero since pay dividends current plans future expected market price volatility common stock based estimate made us considers historical implied volatility common stock well peer group companies time period equal expected term option expected life options awarded 2012 2011 2010 based formula considering vesting period term options awarded past experience 101 oil states international inc subsidiaries notes consolidated financial statements continued following table summarizes stock option activity three years ended december 31 2012 2011 2010 weighted average fair values options granted 2012 2011 2010 3738 3323 1713 per share respectively options awarded 2012 term ten years granted exercise prices grant date closing market price total intrinsic value options exercised 2012 2011 2010 383 million 249 million 199 million respectively cash received company option exercises 2012 2011 2010 totaled 136 million 142 million 234 million respectively tax benefit realized tax deduction stock options exercised 2012 2011 2010 totaled 69 million 78 million 61 million respectively following table summarizes information stock options outstanding december 31 2012 december 31 2012 total 1018285 shares available future grant equity participation plan 2012 granted restricted stock awards totaling 357544 shares valued total 292 million restricted stock awards granted 2012 218000 awards vest four equal annual installments beginning february 2013 55250 awards vest 40 october 2013 60 october 2014 47625 awards performance based awards may vest february 2015 amount depend company’s achievement specified performance objectives 23625 awards vest 100 february 2016 12464 awards vest 100 may 2013 performance based awards performance criteria measured based upon company’s achievement levels average aftertax annual return invested capital three year period commencing january 1 2012 company also granted 54950 units phantom shares newly created canadian longterm incentive plan provides granting units phantom shares key canadian employees awards vest three equal annual installments beginning february 2013 accounted liability participants granted units phantom shares entitled lump sum cash payment equal fair market value share company’s common stock vesting date total 217415 233493 shares restricted stock awarded 2011 2010 respectively aggregate values 163 million 91 million respectively 102 oil states international inc subsidiaries notes consolidated financial statements continued stock based compensation pretax expense recognized years ended december 31 2012 2011 2010 totaled 189 million 146 million 126 million 025 020 018 per diluted share tax respectively december 31 2012 394 million compensation cost related unvested stock options restricted stock awards attributable future performance yet recognized deferred compensation plan company maintains deferred compensation plan deferred compensation plan available directors certain officers managers company plan allows participants defer receipt portion directors’ fees andor salary annual bonuses employee contributions deferred compensation plan matched company percentage employee participant companys 401k retirement plan subject irs limitations matcheligible compensation deferred compensation plan also permits company make discretionary contributions employees account although none made date directors contributions matched company since inception plan discretionary contribution provision limited matching participants contributions basis equivalent matching permitted companys 401k retirement savings plan vesting contributions participants’ accounts also equivalent vesting requirements companys 401k retirement savings plan deferred compensation plan dollar limits taxdeferred contributions assets deferred compensation plan held rabbi trust therefore available satisfy claims companys creditors event bankruptcy insolvency company participants ability direct plan administrator invest assets individual accounts including discretionary contributions company ten preapproved mutual funds held trust cover variety securities mutual funds addition participants currently right request plan administrator reallocate portfolio investments ie cash mutual funds participants individual accounts within trust company contributions form cash distributions plan generally made upon participants termination director andor employee applicable company participants receive payments deferred compensation plan cash december 31 2012 trust assets totaled 116 million majority classified “other noncurrent assets” company’s consolidated balance sheet fair value investments based quoted market prices active markets level 1 fair value measurement amounts payable plan participants december 31 2012 including fair value shares companys common stock reflected treasury stock 127 million classified noncurrent liabilities consolidated balance sheet company accounts deferred compensation plan accordance current accounting standards regarding accounting deferred compensation arrangements amounts earned held rabbi trust invested accordance current accounting standards fair value fluctuations trust assets reflected consolidated statements income increases decreases value plan assets exclusive shares common stock company included compensation adjustments respective statements income increases decreases fair value deferred compensation liability including shares common stock company held trust recorded treasury stock also included compensation adjustments consolidated statements income response changes total fair value companys common stock held trust company recorded net compensation expense adjustments liability 01 million 2012 02 million 2011 04 million 2010 15 segment related information accordance current accounting standards regarding disclosures segments enterprise related information company identified following reportable segments well site services accommodations offshore products tubular services companys reportable segments represent strategic business units offer different products services managed separately business requires different technology marketing strategies businesses initially acquired unit management time acquisition retained subsequent acquisitions direct extensions business segments separate business lines within well site services segment disclosed provide additional detail segment 103 oil states international inc subsidiaries notes consolidated financial statements continued financial information industry segment three years ended december 31 2012 2011 2010 summarized following table thousands accounting policies segments described summary significant accounting policies financial information geographic segment three years ended december 31 2012 2011 2010 summarized thousands revenues united states include export sales revenues attributable countries based location entity selling products performing services total assets attributable countries based physical location entity operating assets include intercompany balances customers accounted 10 companys revenues years ended december 31 2012 2011 2010 equity net income unconsolidated affiliates included operating income 104 oil states international inc subsidiaries notes consolidated financial statements continued 16 valuation allowances activity valuation accounts follows thousands 17 quarterly financial information unaudited following table summarizes quarterly financial information 2012 2011 thousands except per share amounts 1 represents revenues less product costs service costs included companys consolidated statements income 2 first quarter 2012 recorded gain 179 million 023 per diluted share aftertax favorable contract settlement reported us accommodations business 3 second quarter 2012 recorded pretax gain 25 million 003 per diluted share aftertax related insurance proceeds received excess net book value constructive total loss drilling rig lost fire 4 third quarter 2012 recorded outofperiod adjustments decreased revenues 31 million increased cost sales 44 million total adjustment 75 million 010 per diluted share tax related corrections accruals customer credits related returned inventory due accounting reporting system design implementation issues along adjustments cost accruals tubular services segment evaluating quantitative qualitative aspects corrections management determined previously issued quarterly annual consolidated financial statements materially misstated outofperiod adjustments immaterial full year 2012 results earnings’ trends amounts calculated independently quarters presented therefore sum quarterly amounts may equal total calculated year 105 oil states international inc subsidiaries notes consolidated financial statements continued 18 condensed consolidating financial information certain whollyowned subsidiaries detailed guarantor subsidiaries guaranteed 6 12 notes issued oil states international inc 2011 5 18 notes issued 2012 guarantees full unconditional subject following release provisions · connection sale exchange transfer merger consolidation otherwise capital stock guarantor longer restricted subsidiary · upon proper designation guarantor company unrestricted subsidiary · upon release discharge outstanding guarantees guarantor indebtedness company restricted subsidiaries credit facility · upon legal covenant defeasance satisfaction discharge indenture · upon dissolution guarantor provided event default occurred indentures continuing following condensed consolidating financial information included separate financial statements guarantor subsidiaries required filed commission condensed consolidating financial information presents investments consolidated unconsolidated affiliates using equity method accounting following consolidating financial information presents condensed consolidating statements income years ended december 31 2012 2011 2010 condensed consolidating balance sheets december 31 2012 december 31 2011 statements cash flows years ended december 31 2012 2011 2010 company parentguarantor b acute technological services inc capstar holding llc capstar drilling inc general marine leasing llc oil states energy services llc oil states energy services holding inc oil states energy services international holding llc oil states management inc oil states industries inc oil states skagit smatco llc pti group usa llc pti mars holdco 1 llc sooner inc sooner pipe llc sooner holding company specialty rental tools supply llc stinger wellhead protection incorporated tempress technologies inc well testing inc guarantor subsidiaries c nonguarantor subsidiaries consolidating adjustments necessary consolidate company subsidiaries e company consolidated basis january 1 2012 specialty rental tools supply llc stinger wellhead protection incorporated well testing inc combined form oil states energy services llc corrected presentation condensed consolidating statements income years ended december 31 2011 2010 condensed consolidating balance sheet december 31 2011 statement cash flows years ended december 31 2011 2010 properly reflect investment equity earnings certain nonguarantor subsidiaries certain guarantor subsidiaries accordance sec regulation sx previously presented parentguarantor column also corrected immaterial amounts previously disclosed properly present activity balances certain guarantor subsidiary guarantor subsidiaries column previously presented parentguarantor column ii activity balances certain nonguarantor subsidiary nonguarantors column previously presented guarantor subsidiaries column effect corrections increased net income guarantor subsidiaries nonguarantor subsidiaries 1586 million 48 million respectively year ended december 31 2011 increased net income guarantor subsidiaries nonguarantor subsidiaries 17 million 10 million respectively year ended december 31 2010 effect correction guarantor subsidiaries’ investments unconsolidated affiliates balance december 31 2011 increase 1034 million changes impact consolidated results previously reported 106 oil states international inc subsidiaries notes consolidated financial statements continued condensed consolidating statements income comprehensive income 107 oil states international inc subsidiaries notes consolidated financial statements continued condensed consolidating statements income comprehensive income 108 oil states international inc subsidiaries notes consolidated financial statements continued condensed consolidating statements income comprehensive income 109 oil states international inc subsidiaries notes consolidated financial statements continued condensed consolidating balance sheets 110 oil states international inc subsidiaries notes consolidated financial statements continued condensed consolidating balance sheets 111 oil states international inc subsidiaries notes consolidated financial statements continued condensed consolidating statements cash flows 112 oil states international inc subsidiaries notes consolidated financial statements continued condensed consolidating statements cash flows 113 oil states international inc subsidiaries notes consolidated financial statements continued condensed consolidating statements cash flows 114 item 15 exhibits financial statement schedules reports form 8k index financial statements financial statement schedules exhibits 1 financial statements reference made index set forth page 41 annual report form 10k 2 financial statement schedules included herein information required submitted included consolidated combined financial statements notes thereto required information inapplicable 3 index exhibits see index exhibits list exhibits filed herewith index also includes identifies management contracts compensatory plans arrangements required filed exhibits annual report form 10k item 60110iii regulation sk b reports form 8k 1 form 8k dated october 28 2003 item 12 results operations financial condition quarter ended september 30 2003 earnings press release 2 form 8k dated november 3 2003 item 5 events new credit agreement c index exhibits filed herewith management contracts compensatory plans arrangements furnished herewith signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized oil states international inc douglas e swanson douglas e swanson president chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated march 5 2004 cindy b taylor cindy b taylor pursuant power attorney filed exhibit 241 annual report form 10k oil states international inc subsidiaries index combined pro forma combined consolidated financial statements unaudited pro forma consolidated combined financial statement consolidated financial statements oil states international inc reflect companys financial position results operations changes stockholders equity periods subsequent february 14 2001 date companys initial public offering combination oil states international inc oil states hwc energy services inc hwc pti group inc pti collectively controlled group among things fully described footnotes follow combined financial statements reflect financial position results operations changes stockholders equity predecessor entities comprise oil states international inc based reorganization accounting pro forma financial information follows reflect companys historical consolidated combined statements operations depending upon period involved give effect pro forma transactions adjustments fully described following tables set forth unaudited pro forma consolidated combined financial information oil states giving effect combination oil states hwc pti entities common control scfiii lp scf iii based upon reorganization accounting yields results similar pooling interest accounting effective dates entities became controlled scf iii conversion common stock held minority interests entity controlled group shares companys common stock based purchase method accounting conversion outstanding common stock sooner inc sooner shares companys common stock based purchase method accounting exchange 4275555 shares common stock 360 million debt sooner oil states companys sale 10000000 shares common stock offering application net proceeds totaling 841 million proceeds received offering company repaid 437 million outstanding subordinated debt controlled group sooner redeemed 218 million preferred stock oil states paid accrued interest subordinated debt accrued dividends preferred stock aggregating 71 million repurchased common stock nonaccredited shareholders holding preemptive stock purchase rights 16 million balance proceeds used reduce amounts outstanding bank lines credit unaudited pro forma consolidated combined statement operations years ended december 31 2001 prepared based upon historical consolidated combined financial statements controlled group adjusted conform accounting policies give effect companys acquisition minority interests controlled group companys acquisition sooner companys exchange shares common stock debt sooner oil states companys sale shares offering transactions occurred january 1 2001 unaudited pro forma combined financial statement purport indicative results would obtained transactions described completed indicated date may obtained future unaudited pro forma combined financial statement read conjunction historical consolidated combined financial statements notes thereto included elsewhere annual report form 10k oil states international inc pro forma consolidated combined statement operations year ended december 31 2001 oil states international inc notes unaudited pro forma consolidated combined financial statement basis presentation purchase method accounting used reflect acquisition minority interests company controlled group concurrent closing offering purchase price based fair value shares owned minority interests valued initial public offering price 900 per share accounting method excess purchase price fair value assets liabilities allocable minority interests acquired reflected goodwill book value minority interests exceeded purchase price excess reduced property plant equipment purposes pro forma combined financial statement goodwill recorded connection transaction initially amortized 20 years using straightline method based managements evaluation nature duration customer relationships considering competitive technological developments industry note however accounting goodwill changed new accounting pronouncements see note 3 consolidated combined financial statements unaudited pro forma statement operations year ended december 31 2001 adjusted effects purchase accounting described purchase method accounting also used reflect acquisition outstanding common stock sooner concurrent closing offering purchase price based fair value shares sooner valued initial public offering price 900 per share excess purchase price fair value assets liabilities sooner reflected goodwill purposes pro forma combined financial statement goodwill recorded connection transaction initially amortized 15 years using straightline method based managements evaluation nature duration customer relationships considering competitive technological developments industry note however accounting goodwill changed new accounting pronouncements see note 3 consolidated combined financial statements unaudited pro forma statement operations year ended december 31 2001 includes historical financial statements sooner converted calendar year end adjusted effects purchase accounting presented note 1 combining adjustments minority interest income loss related tax effect controlled group presented thousands note 2 acquisition sooner certain reclassifications made conform presentation sooners financial statements controlled group reflect acquisition outstanding common shares sooner exchange 7597152 shares oil states common stock valued estimated offering price per share 900 millions 1 purchase price sooner includes estimated fair value sooner stock options 11 million converted oil states stock options note 3 acquisition minority interests reflect acquisition minority interests company controlled group exchange shares oil states common stock elimination historical amounts reflected combined group millions except share per share information note 4 offering adjust interest expense debt repaid offering proceeds result exchange shares subordinated debt b eliminate preferred stock dividends due redemption preferred stock c adjust income tax expense reduction deferred taxes due formation combined group oil states international inc subsidiaries report independent auditors board directors stockholders oil states international inc audited accompanying consolidated balance sheets oil states international inc subsidiaries december 31 2003 2002 related consolidated statements income stockholders equity comprehensive income loss cash flows two years period ended december 31 2003 related consolidated combined statements income stockholders equity comprehensive income loss cash flows year ended december 31 2001 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position oil states international inc subsidiaries december 31 2003 2002 consolidated results operations cash flows two years period ended december 31 2003 consolidated combined results operations cash flows year ended december 31 2001 conformity accounting principles generally accepted united states discussed note 3 consolidated combined financial statements effective january 1 2002 company adopted statement financial accounting standards 142 goodwill intangible assets ernst young llp houston texas february 2 2004 oil states international inc subsidiaries consolidated combined statements income accompanying notes integral part financial statements oil states international inc subsidiaries consolidated balance sheets accompanying notes integral part financial statements oil states international inc subsidiaries consolidated combined statements stockholders equity comprehensive income loss accompanying notes integral part financial statements oil states international inc subsidiaries consolidated combined statements cash flows accompanying notes integral part financial statements oil states international inc subsidiaries notes consolidated combined financial statements 1 organization basis presentation consolidated financial statements include accounts oil states international inc oil states company consolidated subsidiaries since february 14 2001 february 14 2001 company acquired three companies hwc energy services inc hwc pti group inc pti sooner inc sooner reported combined financial statements presented herein combined financial statements include activities oil states hwc pti collectively controlled group period prior february 14 2001 utilizing reorganization accounting reorganization accounting method yields results similar pooling interests method used preparation combined financial statements controlled group entities common control scfiii lp scfiii private equity fund focuses investments energy industry method accounting historical financial statements hwc pti combined oil states period february 14 2001 oil states hwc pti merged oil states acquired sooner exchange common stock february 14 2001 consolidated financial statements oil states include results subsidiaries including hwc pti sooner combined financial statements adjusted reflect minority interests controlled group significant intercompany accounts transactions entities eliminated accompanying consolidated combined financial statements oil states industries inc oil states industries inc osi subsidiary oil states leading designer manufacturer diverse range products offshore platforms subsea pipelines defense general industrial applications major product lines include flexible bearings advanced connectors winches mooring lifting systems services installing removing offshore platforms downhole production equipment custom molded products sales made primarily major oil companies large small independent oil gas companies drilling contractors well service workover operators worldwide basis osi facilities arlington houston lampasas texas houma louisiana tulsa oklahoma scotland brazil england singapore pti group inc pti located alberta canada supplier integrated housing food site management logistics support services remote sites utilized natural resources industries primarily canada united states hwc energy services inc hwc provides worldwide well control services drilling services rental equipment oil gas industry hwc operates primarily texas louisiana ohio oklahoma new mexico wyoming along foreign operations conducted venezuela middle east africa hydraulic well control operations provide globally hydraulic workover snubbing units emergency well control situations selected markets various hydraulic well control solutions involving well drilling workover completion activities west texas ohio hwc operates subsidiary capstar drilling lp shallow well drilling rigs automated pipe handling capabilities specialty rental tools supply lp subsidiary hwc provides rental equipment drilling workover operations texas louisiana mississippi new mexico oklahoma wyoming sooner inc sooner distributor oilfield tubular products operations located primarily united states majority sales large fully integrated independent oil companies headquartered us 2 initial public offering merger transactions refinancing february 9 2001 companys common stock began trading new york stock exchange symbol ois pursuant completion initial public offering february 14 2001 company closed business combination offering thereby acquiring minority interests pti hwc 100 sooner operations company recorded additional goodwill 619 million result acquisition minority interests concurrently offering company acquired sooner 695 million company exchanged 7597152 shares common stock outstanding common shares sooner company accounted acquisition using purchase method accounting recorded approximately 40 million goodwill concurrently closing offering company issued 4275555 shares common stock scfiii scfiv lp scfiv exchange approximately 360 million indebtedness oil states sooner held scfiii scfiv scf exchange proceeds received offering company repaid 437 million outstanding subordinated debt controlled group sooner redeemed 218 million preferred stock oil states paid accrued interest subordinated debt accrued dividends preferred stock aggregating 71 million repurchased common stock nonaccredited shareholders holding preemptive stock purchase rights 16 million balance proceeds used reduce amounts outstanding bank lines credit 3 summary significant accounting policies cash equivalents company considers highly liquid investments purchased original maturity three months less cash equivalents fair value financial instruments companys financial instruments consist cash equivalents investments receivables payables debt instruments company believes carrying values instruments accompanying consolidated balance sheets approximate fair values inventories consist tubular oilfield products manufactured equipment spare parts manufactured equipment inventories include raw materials labor manufacturing overhead cost tubular goods inventories determined using firstin firstout fifo method cost remaining inventories determined average cost specificidentification method property plant equipment property plant equipment stated cost estimated fair market value acquisition date acquired business combination depreciation computed using straightline method estimated useful lives assets leasehold improvements capitalized amortized lesser life lease estimated useful life asset expenditures repairs maintenance charged expense incurred expenditures major renewals betterments extend useful lives existing equipment capitalized depreciated upon retirement disposition property equipment cost related accumulated depreciation removed accounts resulting gain loss recognized statements income goodwill represents excess purchase price acquired businesses allocated value related net assets prior 2002 goodwill amortized straightline basis period 15 40 years based managements evaluation nature duration customer relationships considering competitive technological developments industry goodwill stated net accumulated amortization 180 million 174 million december 31 2003 2002 respectively amount accumulated amortization goodwill increased 2003 compared 2002 changes foreign currency exchange rates 2001 financial accounting standards board issued new standard affected goodwill amortization see recent accounting pronouncements impairment longlived assets compliance statement financial accounting standards sfas 144 accounting impairment disposal longlived assets recoverability carrying values property plant equipment assessed minimum annually whenever managements judgment events changes circumstances indicate carrying value assets may recoverable based estimated future cash flows assessment indicates carrying values recoverable determined based undiscounted cash flows remaining useful lives impairment loss recognized impairment loss equals excess carrying value fair value asset fair value asset based prices similar assets available discounted cash flows based companys review carrying value assets recoverable impairment losses recorded periods presented foreign currency comprehensive income gains losses resulting balance sheet translation foreign operations foreign currency functional currency included separate component accumulated comprehensive income within stockholders equity gains losses resulting balance sheet translation foreign operations us dollar functional currency included consolidated statements income incurred foreign exchange risk portion revenues earnings net investments foreign affiliates exposed changes foreign exchange rates seek manage foreign exchange risk part operational means including managing expected local currency revenues relation local currency costs local currency assets relation local currency liabilities foreign exchange risk also managed use derivative financial instruments foreign currency denominated debt financial instruments serve protect net income impact translation us dollars certain foreign exchange denominated transactions december 31 2003 2002 financial instruments employed manage foreign exchange risk consisted forward exchange contracts notional amounts 5 million yearend net gains losses foreign currency exchange contracts designated hedges recognized income statement offset foreign currency gain loss underlying transaction exchange gains losses material results operations company revenue cost recognition revenue sale products accounted utilizing percentage completion method recognized upon shipment customer significant risks ownership passed customer significant fabrication projects built customer specifications revenues recognized percentageofcompletion method measured percentage costs incurred date estimated total costs contract costtocost method billings contracts excess costs incurred estimated profits classified deferred revenue management believes method appropriate measure progress large fabrication contracts provisions estimated losses uncompleted contracts made period losses determined rental equipment services revenues recognized based periodic usually daily rental rate services rendered proceeds customers cost oilfield rental equipment damaged lost downhole reflected revenues drilling contracts based footage drilled recognize revenues footage drilled cost goods sold includes direct material labor costs related contract performance indirect labor supplies tools repairs selling general administrative costs charged expense incurred income taxes company follows liability method accounting income taxes accordance sfas 109 accounting income taxes method deferred income taxes recorded based upon differences financial reporting tax bases assets liabilities measured using enacted tax rates laws effect underlying assets liabilities recovered settled companys earnings foreign subsidiaries considered indefinitely reinvested provision us income taxes made earnings subsidiaries distribution earnings form dividends otherwise company would subject us income taxes subject adjustment foreign tax credits withholding taxes payable various foreign countries accordance sfas 109 company records valuation reserve reporting period management believes likely deferred tax asset created realized management continue evaluate appropriateness reserve future based upon operating results company receivables concentration credit risk based nature customer base company believe significant concentrations credit risk concentration oil gas industry company evaluates creditworthiness major new existing customers financial condition generally company require significant collateral domestic customers allowances doubtful accounts company maintains allowances doubtful accounts estimated losses resulting inability companys customers make required payments trade receivable deemed uncollectible receivable chargedoff allowance doubtful accounts company considers following factors determining collection revenue reasonably assured customer creditworthiness past transaction history customer current economic industry trends changes customer payment terms company previous experience customer company typically obtains reports various credit organizations ensure customer history paying creditors company may also request financial information including financial statements documents ensure customer means making payment factors indicate collection reasonably assured company would require prepayment arrangement support revenue recognition recording trade receivable financial condition companys customers deteriorate adversely affecting ability make payments additional allowances would required earnings per share companys basic income loss per share eps amounts computed based average number common shares outstanding including 340971 824546 shares common stock december 31 2003 2002 respectively issuable upon exercise exchangeable shares one companys canadian subsidiaries exchangeable shares issued certain former shareholders pti connection companys ipo combination pti company intended characteristics essentially equivalent companys common stock prior exchange treated shares common stock issuable upon exchange exchangeable shares outstanding diluted eps amounts include effect companys outstanding stock options treasury stock method effect convertible preferred stock periods preferred shares outstanding shares awarded companys equity participation plan included companys fully diluted shares stockbased compensation company accounts stockbased compensation plans principles prescribed accounting principles boards opinion 25 apb 25 accounting stock issued employees stock options awarded equity participation plan normally result recognition compensation expense however 100000 shares restricted stock awarded equity participation plan february 2001 considered compensatory nature accordingly company recognized 03 million noncash general administrative expenses award three years ended december 31 2003 additional 01 million recognized 2003 stock option performance award company accounts assets held rabbi trust certain participants companys deferred compensation plan accordance eitf 9714 see note 14 guarantees company adopted fasb interpretation 45 fin 45 guarantors accounting disclosure requirements guarantees including indirect indebtedness 2003 fin 45 requires disclosures accounting companys obligations certain guarantees pursuant fin 45 company required disclose changes product warranty reserves products offshore products accommodations businesses sold warranty generally 12 18 months parts labor covered terms warranty agreement warranty provision based historical experience product configuration geographic region changes warranty reserves follows thousands noted certain products sold 12 18 month warranty accordingly current warranty provisions related current years sales warranty consumption associated current prior years net sales ordinary course business company also provides standby letters credit guarantee instruments certain parties required certain transactions initiated either company subsidiaries december 31 2003 maximum potential amount future payments company could required make guarantee agreements approximately 103 million company recorded liability connection guarantee arrangements beyond required appropriately account underlying transaction guaranteed company believe based historical experience information currently available probable amounts required paid guarantee arrangements reclassifications certain amounts prior years financial statements reclassified conform current year presentation use estimates preparation consolidated financial statements conformity accounting principles generally accepted united states requires use estimates assumptions management determining reported amounts assets liabilities disclosures contingent assets liabilities date consolidated financial statements reported amounts revenues expenses reporting period examples estimates include costs associated disposal discontinued operations including potential future adjustments result contractual agreements revenue income recognized percentageofcompletion method valuation allowance recorded net deferred tax assets warranty bad debt reserves actual results could differ estimates 4 details selected balance sheet accounts additional information regarding selected balance sheet accounts december 31 2003 2002 presented thousands 5 recent accounting pronouncements effective january 1 2002 company adopted sfas 142 goodwill intangible assets sfas 142 connection adoption sfas 142 company ceased amortizing goodwill sfas 142 goodwill longer amortized tested impairment using fair value approach reporting unit level reporting unit operating segment business one level operating segment component level discrete financial information prepared regularly reviewed management component level recognize impairment charge amount carrying amount reporting units goodwill exceeds fair value company uses comparative market multiples establish fair values company amortizes cost intangibles estimated useful lives unless lives deemed indefinite amortizable intangible assets tested impairment based undiscounted cash flows impaired written fair value based either discounted cash flows appraised values intangible assets indefinite lives tested impairment written fair value required provision goodwill intangibles impairment required based evaluations performed changes carrying amount goodwill year ended december 31 2002 2003 follows thousands following table presents reported income available common stockholders net income per share would periods presented exclusive amortization expense recognized periods related goodwill thousands except per share amounts following table presents total amount assigned total amount amortized major intangible asset classes december 31 2003 2002 thousands weighted average remaining amortization period intangible assets 44 years 58 years december 31 2003 2002 respectively total amortization expense expected 16 million 14 million 13 million 2004 2005 2006 respectively april 2002 financial accounting standards board issued sfas 145 among things rescinded sfas 4 reporting gains losses extinguishment debt company adopted statement 2003 conjunction executing new revolving credit facility october 30 2003 company recognized additional noncash interest expense 12 million taxes writeoff deferred financing costs related prior credit facility reclassified 08 million losses incurred 2001 debt restructuring formerly classified extraordinary loss interest expense company adopted disclosure requirements sfas 148 accounting stock based compensation transition disclosure issued december 2002 effective december 31 2002 consolidated combined financial statements related footnotes january 2003 financial accounting standards board fasb issued fasb interpretation 46 fin 46 consolidation variable interest entities interpretation arb 51 fin 46 provides guidance 1 identification entities control achieved means voting rights known variable interest entities vies 2 business enterprise primary beneficiary consolidate vie new requirement consolidation applies entities 1 equity investors controlling financial interest 2 whose equity investment risk insufficient finance entitys activities without receiving additional subordinated financial support parties addition fin 46 requires primary beneficiary enterprises significant variable interest vie make additional disclosures fin 46 effective new vies created acquired january 31 2003 vies created acquired prior february 1 2003 provisions fin 46 must applied first interim annual period ending december 15 2003 certain disclosures effective immediately implementation fin 46 affect company 6 longterm debt december 31 2003 2002 longterm debt consisted following thousands scheduled maturities combined longterm debt december 31 2003 follows thousands companys capital leases consist primarily plant facilities equipment capitalized lease assets value related accumulated depreciation totaled 43 million 15 million december 31 2003 respectively capitalized lease assets value related accumulated depreciation totaled 42 million 11 million december 31 2002 respectively current debt instruments october 30 2003 company replaced existing credit facility 2250 million senior secured revolving credit facility group banks 450 million credit facility available form loans denominated canadian dollars may made companys principal canadian operating subsidiaries company option increase maximum borrowings new facility 250 million prior maturity facility matures october 30 2007 unless extended one additional year period consent lenders amounts borrowed facility bear interest companys election either variable rate equal libor case canadian dollar denominated loans bankers acceptance discount rate plus margin ranging 15 25 alternate base rate equal higher banks prime rate federal funds effective rate plus 05 case canadian dollar denominated loans canadian prime rate plus margin ranging 05 15 depending upon ratio total debt ebitda defined credit facility commitment fees ranging 0375 05 per year paid undrawn portion facility depending upon leverage ratio credit facility guaranteed companys active domestic subsidiaries cases companys canadian foreign subsidiaries credit facility secured first priority lien companys inventory accounts receivable material tangible intangible assets well companys active subsidiaries however 65 voting stock foreign subsidiary required pledged pledge greater percentage would result adverse tax consequences credit facility contains negative covenants restrict companys ability borrow additional funds encumber assets pay dividends sell assets except normal course business enter significant transactions companys credit facility occurrence specified change control events involving company would constitute event default would permit banks among things accelerate maturity facility cause become immediately due payable full december 31 2003 1287 million outstanding facility additional 103 million outstanding letters credit leaving 860 million available drawn facility companys weighted average interest rate companys outstanding borrowings facility december 31 2003 36 conjunction executing senior secured revolving credit facility october 30 2003 company recognized additional noncash interest expense 12 million taxes writeoff deferred financing costs related prior credit facility february 28 2003 company renewed overdraft credit facility providing borrowings totaling pound50 million uk operations interest payable quarterly margin 15 per annum banks variable base rate borrowings facility payable demand amounts outstanding facility december 31 2003 7 postretirement healthcare insurance benefits company provides healthcare insurance benefits approximately 360 eligible retired employees dependent spouses plan longer available current employees healthcare plans contributory contain costsharing features deductibles lifetime maximums copayment requirements healthcare plans funded companys policy pay benefits incurred 2003 company terminated medicare part b benefits offered buyout plan participants resulted total reduction 33 million accumulated benefit obligation gain 14 million gain credited expense second third quarters 2003 net periodic benefit cost accumulated benefit obligation determined actuarial assumption using healthcare cost trend rate 90 medical 120 prescription drugs gradually declining approximately 5 year 2009 thereafter projected payout period benefits accumulated benefit obligations determined using assumed discount rate 600 675 december 31 2003 2002 respectively plans provisions companys prescription costs capped annual benefit limits one percentagepoint increase decrease assumed healthcare cost trend rates would immaterial accumulated postretirement benefit obligation net periodic benefit cost december 31 2003 january 2004 financial staff position fas 1061 issued addresses accounting disclosure requirements related medicare prescription drug improvement modernization act 2003 act enacted december 8 2003 act introduced medicare prescription drug benefit federal subsidy sponsors retiree healthcare plans provide benefit least actuarially equivalent medicare benefit effects act reflected measurement accumulated postretirement benefit obligation net periodic benefit cost company elected defer recognizing effects act authoritative guidance accounting federal subsidy issued certain events occur would require remeasurement plans benefit obligation company believe act material impact measurement accumulated postretirement benefit obligation net periodic benefit cost however authoritative guidance issued could require us change previously reported information 8 retirement plans prior january 2002 company sponsored number defined contribution plans effective january 2002 company merged domestic defined contribution plans single plan sponsored company participation plans available substantially employees company recognized expense 29 million 25 million 17 million related various defined contribution plans years ended december 31 2003 2002 2001 respectively 9 preferred stock cash dividends paid preferred stock 2001 related preferred stock either repaid cash converted common stock connection offering completed february 2001 see note 2 10 income taxes consolidated pretax income years ended december 31 2003 2002 2001 consisted following thousands components income tax provision benefit years ended december 31 2003 2002 2001 consisted following thousands provision taxes differs amount computed statutory rates follows years ended december 31 2003 2002 2001 thousands significant items giving rise deferred tax assets liabilities december 31 2003 2002 follows thousands reclassifications companys deferred tax balance based net current items net noncurrent items december 31 2003 follows thousands us federal income tax purposes company net operating loss carryforwards approximately 632 million regular income taxes expire years 2008 2020 companys net operating loss carryforwards subject limitations section 382 internal revenue code 1986 amended based limitations years carryforwards expire uncertainty achieving levels taxable income required utilization company provided valuation allowance portion carryforwards company federal alternative minimum tax net operating loss carryforwards 445 million expire years 2010 2020 company 29 million net operating loss carryforwards associated canadian subsidiarys chilean operations december 31 2003 losses may carried forward indefinitely however losses may used offset future chilean taxable income accordingly company provided full valuation allowance associated deferred tax asset appropriate us foreign income taxes provided earnings foreign subsidiary companies expected remitted near future cumulative amount undistributed earnings foreign subsidiaries company intends permanently reinvest upon deferred us income taxes provided 987 million december 31 2003 upon distribution earnings form dividends otherwise company may subject us income taxes foreign withholding taxes practical however estimate amount taxes may payable eventual remittance earnings consideration available foreign tax credits december 31 2003 company valuation allowance 120 million reflects 76 million decrease amount december 31 2002 reduction valuation allowance made management believes based weight available evidence likely additional portion companys net operating losses utilized prior expiration carryforward period year ended december 31 2003 company recognized tax benefit triggered employee exercises stock options totaling 16 million benefit credited additional paidin capital 11 supplemental cash flow information cash paid years ended december 31 2003 2002 2001 interest income taxes follows thousands components cash used acquisitions reflected consolidated statements cash flows years ended december 31 2003 2002 2001 summarized follows thousands connection acquisitions made 2002 company noncash transactions consisting issuance 20 million notes payable assumption capital leases totaling 33 million 12 commitments contingencies company leases portion equipment office space computer equipment automobiles trucks leases expire various dates minimum future operating lease obligations effect december 31 2003 follows thousands rental expense operating leases 49 million 43 million 39 million years ended december 31 2003 2002 2001 respectively december 31 2003 company entered forward purchase option contracts february 25 2004 bank totaling 50 million purchase foreign currency hedge expected future billings contract purchase rate favorable december 31 2003 currency exchange rate almost 15 incurred material gains losses foreign currency hedging activities company party various pending threatened claims lawsuits administrative proceedings seeking damages remedies concerning commercial operations products employees matters including occasional claims individuals alleging exposure hazardous materials result products operations claims relate matters occurring prior acquisition businesses relate businesses sold certain cases company entitled indemnification sellers businesses cases indemnified buyers businesses although company give assurance outcome pending legal administrative proceedings effect outcomes may management believes ultimate liability resulting outcome proceedings extent otherwise provided covered insurance material adverse effect consolidated financial position results operations liquidity 13 relatedparty transactions company incurred legal fees totaling 240000 2001 services rendered law firm connection possible acquisition company member companys board directors partner law firm transaction resulted acquisition effort company currently rents land buildings former officer subsidiary company pays monthly rent 5556 officer previous owner business acquired oil states 14 stockbased compensation october 1995 fasb issued sfas 123 accounting stockbased compensation requires company record stockbased compensation fair value december 2002 fasb issued sfas 148 accounting stock based compensation transition disclosure company adopted disclosure requirements sfas 148 elected record employee compensation expense utilizing intrinsic value method permitted accounting principles board apb opinion 25 accounting stock issued employees company accounts employee stockbased compensation plan apb opinion 25 related interpretations accordingly deferred compensation expense would recorded stock options based excess market value common stock date options granted aggregate exercise price options deferred compensation would amortized vesting period option company authorized grant common stock based awards covering 5700000 shares common stock 2001 equity participation plan amended restated stock option plan employees consultants directors amounts exercise prices vesting schedules determined companys compensation committee board directors option grants made february 2001 december 2003 priced closing price day grant vest 25 per year tenyear life exercise price options granted stock option plan equal greater market price companys stock date grant compensation expense related plan recorded compensation expense stock option plan determined consistent sfas 123 utilizing fair value method companys net income earnings per share december 31 2003 2002 2001 would follows thousands except per share amounts following table summarizes stock option activity years ended december 31 2001 2002 2003 following table summarizes information stock options outstanding december 31 2003 december 31 2003 2014044 options available future grant stock option plan weighted average fair values options granted 2003 2002 2001 455 531 548 per share respectively fair value option grant estimated date grant using blackscholes option pricing model following weighted average assumptions used grants 2003 2002 2001 respectively riskfree interest rates 30 52 50 expected dividend yield expected lives 55 100 83 years expected volatility 37 45 deferred compensation plan company maintains deferred compensation plan deferred compensation plan available directors certain officers managers company plan allows participants defer portion directors fees andor salary annual bonuses applicable permits company make discretionary contributions participants account contributions participants accounts vest immediately deferred compensation plan dollar limits taxdeferred contributions assets deferred compensation plan held rabbi trust therefore available satisfy claims companys creditors event bankruptcy insolvency company participants ability direct plan administrator invest assets accounts including discretionary contributions company preapproved mutual funds held trust prior november 1 2003 participants also ability direct plan administrator invest assets accounts company common stock addition participants currently right request plan administrator reallocate portfolio investments ie cash mutual funds participants individual accounts within trust current balances invested company common stock may increased company contributions form cash distributions plan generally made upon participants termination director andor employee applicable company participants receive payments plan cash december 31 2003 balance assets trust totaled 24 million including 33423 shares common stock company reflected treasury stock value 03 million company accounts deferred compensation plan accordance eitf 9714 accounting deferred compensation arrangements amounts earned held rabbi trust invested assets trust common stock company invested nine funds covering variety securities investment strategies mutual funds publicly quoted reported market value company accounts investments accordance sfas 115 accounting certain investments debt equity securities trust also holds common shares company companys common stock held trust classified treasury stock stockholders equity section consolidated balance sheet market value assets held trust exclusive market value shares companys common stock reflected treasury stock december 31 2003 20 million classified noncurrent assets consolidated balance sheet amounts payable plan participants december 31 2003 including market value shares companys common stock reflected treasury stock 25 million classified liabilities consolidated balance sheet accordance eitf 9714 market value fluctuations trust assets reflected consolidated combined statements income increases decreases value plan assets exclusive shares common stock company included compensation adjustments respective statements income increases decreases market value deferred compensation liability including shares common stock company held trust recorded treasury stock also included compensation adjustments consolidated combined statements income response changes total market value companys common stock held trust company recorded net compensation expense adjustments 01 million 2003 2002 15 segment related information accordance sfas 131 disclosures segments enterprise related information company identified following reportable segments offshore products wellsite services tubular services companys reportable segments strategic business units offer different products services managed separately business requires different technology marketing strategies businesses acquired unit management time acquisition retained financial information industry segment three years ended december 31 2003 2002 2001 summarized following table thousands accounting policies segments described summary significant accounting policies financial information geographic segment three years ended december 31 2003 2002 2001 summarized thousands revenues us include export sales revenues attributable countries based location entity selling products performing services total assets attributable countries based physical location entity operating assets include intercompany balances one customer accounted 5 7 companys revenues years ended december 31 2003 2002 2001 customer accounted 5 companys revenues periods presented 16 quarterly financial information unaudited following table summarizes quarterly financial information 2003 2002 2001 thousands except per share amounts earnings per share computed independently quarters presented therefore sum quarterly earnings per share may equal total computed year represents revenues less product costs service costs included companys consolidated combined statements operations 1 companys business well site services segment particularly canada seasonal highest activity occurring winter months 2 effective february 14 2001 company acquired sooner results sooner included acquisition date 17 valuation allowances activity valuation accounts follows thousands 18 subsequent event unaudited january 2004 company completed acquisition several related rental tool companies based south texas leading providers thrutubing services ancillary equipment rentals companies combined rental tool subsidiary report well site services segment company paid total 347 million cash stock companies funded companys credit facility combined revenues acquired companies year ended december 31 2003 approximately 154 million exhibit index filed herewith management contracts compensatory plans arrangements furnished herewithitem 15 exhibits financial statement schedules index financial statements financial statement schedules exhibits 1 financial statements reference made index set forth page 75 annual report form 10k 2 financial statement schedules included herein information required submitted included consolidated financial statements notes thereto required information inapplicable 3 index exhibits see index exhibits list exhibits filed herewith index also includes identifies management contracts compensatory plans arrangements required filed exhibits annual report form 10k item 601 regulation sk b index exhibits exhibit description 21 stock purchase agreement among marubeniitochu tubulars america inc sooner inc oil states international inc dated september 5 2013 incorporated reference exhibit 21 company’s current report form 8k filed commission september 6 2013 file 00116337 31 amended restated certificate incorporation incorporated reference exhibit 31 companys annual report form 10k year ended december 31 2000 filed commission march 30 2001 file 00116337 32 third amended restated bylaws incorporated reference exhibit 31 companys current report form 8k filed commission march 13 2009 file 00116337 33 certificate designations special preferred voting stock oil states international inc incorporated reference exhibit 33 companys annual report form 10k year ended december 31 2000 filed commission march 30 2001 file 00116337 41 form common stock certificate incorporated reference exhibit 41 companys registration statement form s1 filed commission november 7 2000 file 33343400 42 amended restated registration rights agreement incorporated reference exhibit 42 companys annual report form 10k year ended december 31 2000 filed commission march 30 2001 file 00116337 43 first amendment amended restated registration rights agreement dated may 17 2002 incorporated reference exhibit 43 companys annual report form 10k year ended december 31 2002 filed commission march 13 2003 file 00116337 44 registration rights agreement dated june 21 2005 oil states international inc rbc capital markets corporation incorporated reference exhibit 44 oil states current report form 8k filed commission june 23 2005 file 00116337 45 indenture dated june 21 2005 oil states international inc wells fargo bank national association trustee incorporated reference exhibit 45 oil states current report form 8k filed commission june 23 2005 file 00116337 46 global notes representing 175000000 aggregate principal amount 2 38 contingent convertible senior notes due 2025 incorporated reference section 22 exhibit 45 oil states current reports form 8k filed commission june 23 2005 july 13 2005 file 00116337 47 indenture dated june 1 2011 among company guarantors wells fargo bank na trustee incorporated reference exhibit 41 company’s current report form 8k filed commission june 1 2011 file 00116337 48 supplemental indenture dated june 1 2011 among company guarantors wells fargo bank na trustee incorporated reference exhibit 42 company’s current report form 8k filed commission june 1 2011 file 00116337 49 first supplemental indenture dated september 10 2012 among oil states energy services llc oil states international inc together successors assigns thenexisting guarantor indenture wells fargo bank na trustee paying agent registrar indenture incorporated reference exhibit 41 company’s current report form 8k filed commission september 18 2012 file 00116337 410 indenture dated december 21 2012 among oil states international inc guarantors named therein wells fargo bank na trustee paying agent registrar incorporated reference exhibit 41 company’s current report form 8k filed commission december 21 2012 file 00116337 411 first supplemental indenture dated february 15 2013 among tempress technologies inc oil states international inc together successors assigns thenexisting guarantor indenture wells fargo bank na trustee paying agent registrar indenture 412 second supplemental indenture dated february 15 2013 among tempress technologies inc oil states international inc together successors assigns thenexisting guarantor indenture wells fargo bank na trustee paying agent registrar indenture 101 combination agreement dated july 31 2000 among oil states international inc hwc energy services inc merger subhwc inc sooner inc merger subsooner inc pti group inc incorporated reference exhibit 101 companys registration statement form s1 filed commission august 10 2000 file 33343400 102 plan arrangement pti group inc incorporated reference exhibit 102 companys annual report form 10k year ended december 31 2000 filed commission march 30 2001 file 00116337 103 support agreement oil states international inc pti holdco incorporated reference exhibit 103 companys annual report form 10k year ended december 31 2000 filed commission march 30 2001 file 00116337 104 voting exchange trust agreement among oil states international inc pti holdco montreal trust company canada incorporated reference exhibit 104 companys annual report form 10k year ended december 31 2000 filed commission march 30 2001 file 00116337 105 second amended restated 2001 equity participation plan effective february 19 2013 incorporated reference exhibit 101 company’s quarterly report form 10q filed commission july 31 2013 file 00116337 106 deferred compensation plan effective january 1 2012 incorporated reference exhibit 101 companys quarterly report form 10q quarter ended march 31 2013 filed commission april 25 2013 file 00116337 107 annual incentive compensation plan incorporated reference exhibit 107 companys annual report form 10k year ended december 31 2000 filed commission march 30 2001 file 00116337 108 executive agreement oil states international inc cindy b taylor incorporated reference exhibit 109 companys annual report form 10k year ended december 31 2000 filed commission march 30 2001 file 00116337 109 form change control severance plan selected members management incorporated reference exhibit 1011 companys registration statement form s1 filed commission december 12 2000 file 33343400 1010 credit agreement dated october 30 2003 among oil states international inc lenders named therein wells fargo bank texas national association administrative agent us collateral agent bank nova scotia canadian administrative agent canadian collateral agent hibernia national bank royal bank canada cosyndication agents bank one na credit lyonnais new york branch codocumentation agents incorporated reference exhibit 1012 companys quarterly report form 10q three months ended september 30 2003 filed commission november 12 2003 file 00116337 1010a incremental assumption agreement dated may 10 2004 among oil states international inc wells fargo national association lenders listed increasing lender incorporated reference exhibit 1012a companys quarterly report form 10q three months ended june 30 2004 filed commission august 4 2004 file 00116337 1010b amendment 1 dated january 31 2005 credit agreement among oil states international inc lenders named therein wells fargo bank texas national association administrative agent us collateral agent bank nova scotia canadian administrative agent canadian collateral agent hibernia national bank royal bank canada cosyndication agents bank one na credit lyonnais new york branch codocumentation agents incorporated reference exhibit 1012b companys annual report form 10k year ended december 31 2004 filed commission march 2 2005 file 00116337 1010c amendment 2 dated december 5 2006 credit agreement among oil states international inc lenders named therein wells fargo bank na lead arranger us administrative agent us collateral agent bank nova scotia canadian administrative agent canadian collateral agent capital one na royal bank canada cosyndication agents jp morgan chase bank na calyon new york branch codocumentation agents incorporated reference exhibit 1012c companys current report form 8k filed commission december 8 2006 file 00116337 1010d incremental assumption agreement dated december 13 2007 among oil states international inc wells fargo national association lenders listed increasing lender incorporated reference exhibit 1012d companys current report form 8k filed commission december 18 2007 file 00116337 1010e amendment 3 dated october 1 2009 credit agreement among oil states international inc lenders named therein wells fargo bank na lead arranger us administrative agent us collateral agent bank nova scotia canadian administrative agent canadian collateral agent capital one na royal bank canada cosyndication agents jp morgan chase bank na calyon new york branch codocumentation agents incorporated reference exhibit 1011e companys current report form 8k filed commission october 2 2009 file 00116337 1010f amended restated credit agreement dated december 10 2010 among oil states international inc pti group inc pti premium camp services ltd borrowers lenders named therein wells fargo bank na administrative agent us collateral agent us swing line lender issuing bank royal bank canada canadian administrative agent canadian collateral agent canadian swing line lender jp morgan chase bank na syndication agent wells fargo securities llc rbc capital markets jp morgan securities llc colead arrangers joint bookrunners incorporated reference exhibit 101 companys current report form 8k filed commission december 20 2010 file 00116337 1010g facility agreement dated july 13 2011 mac services group pty limited national australia bank limited incorporated reference exhibit 101 company’s current report form 8k filed commission july 15 2011 file 00116337 1010h syndicated facility agreement dated september 18 2012 among mac services group pty limited borrower lenders named therein jp morgan australia limited australian agent security trustee jpmorgan chase bank na us agent issuing bank swing line lender incorporated reference exhibit 101 company’s current report form 8k filed commission september 18 2012 file 00116337 1010i amendment 1 amended restated credit agreement dated september 18 2012 among oil states international inc pti group inc pti premium camp services ltd guarantors named therein lenders party thereto wells fargo bank na administrative agent lenders incorporated reference exhibit 102 company’s current report form 8k filed commission september 18 2012 file 00116337 1011 form indemnification agreement incorporated reference exhibit 1014 companys quarterly report form 10q quarter ended september 30 2004 filed commission november 5 2004 file 00116337 1012 form director stock option agreement companys 2001 equity participation plan incorporated reference exhibit 1018 companys annual report form 10k year ended december 31 2004 filed commission march 2 2005 file 00116337 1013 form employee non qualified stock option agreement companys 2001 equity participation plan incorporated reference exhibit 1019 companys annual report form 10k year ended december 31 2004 filed commission march 2 2005 file 00116337 1014 form restricted stock agreement companys 2001 equity participation plan incorporated reference exhibit 1020 companys annual report form 10k year ended december 31 2004 filed commission march 2 2005 file 00116337 1015 nonemployee director compensation summary incorporated reference exhibit 1021 companys report form 8k filed commission november 15 2006 file 00116337 1016 executive agreement oil states international inc named executive officer mr cragg incorporated reference exhibit 1022 companys quarterly report form 10q quarter ended march 31 2005 filed commission april 29 2005 file 00116337 1017 form nonemployee director restricted stock agreement companys 2001 equity participation plan incorporated reference exhibit 1022 companys report form 8k filed commission may 24 2005 file 00116337 1018 executive agreement oil states international inc named executive officer bradley dodson effective october 10 2006 incorporated reference exhibit 1024 companys quarterly report form 10q quarter ended september 30 2006 filed commission november 3 2006 file 00116337 1019 executive agreement oil states international inc named executive officer ron r green effective may 17 2007 incorporated reference exhibit 1025 companys quarterly report form 10q quarter ended june 30 2007 filed commission august 2 2007 file 00116337 1020 amendment executive agreement cindy taylor effective january 1 2009 incorporated reference exhibit 1021 companys annual report form 10k year ended december 31 2008 filed commission february 20 2009 file 00116337 1021 amendment executive agreement bradley dodson effective january 1 2009 incorporated reference exhibit 1022 companys annual report form 10k year ended december 31 2008 filed commission february 20 2009 file 00116337 1022 amendment executive agreement christopher cragg effective january 1 2009 incorporated reference exhibit 1024 companys annual report form 10k year ended december 31 2008 filed commission february 20 2009 file 00116337 1023 amendment executive agreement ron green effective january 1 2009 incorporated reference exhibit 1025 companys annual report form 10k year ended december 31 2008 filed commission february 20 2009 file 00116337 1024 amendment executive agreement robert hampton effective january 1 2009 incorporated reference exhibit 1026 companys annual report form 10k year ended december 31 2008 filed commission february 20 2009 file 00116337 1025 executive agreement oil states international inc named executive officer charles moses effective march 4 2010 incorporated reference exhibit 1026 companys quarterly report form 10q quarter ended march 31 2010 filed commission april 30 2010 file 00116337 1026 call option agreement dated october 15 2010 marley holdings pty limited pti holding company 2 pty limited incorporated reference exhibit 101 oil states’ current report form 8k filed commission october 5 2010 file 00116337 1027 assignment letter company ron green effective may 3 2011 incorporated reference exhibit 101 company’s current report form 8k filed commission may 6 2011 file 00116337 1028 deferred stock performance award agreement incorporated reference exhibit 101 company’s current report form 8k filed commission february 23 2012 file 00116337 1029 deferred stock agreement effective february 19 2013 incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended march 31 2013 filed commission april 25 2013 file 00116337 1030 canadian long term incentive plan effective february 19 2013 incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended march 31 2013 filed commission april 25 2013 file 00116337 1031 executive agreement oil states international inc named executive officer lloyd hajdik effective december 9 2013 211 list subsidiaries company 231 consent independent registered public accounting firm 241 powers attorney directors 311 certification chief executive officer oil states international inc pursuant rules 13a14a 15d14a securities exchange act 1934 312 certification chief financial officer oil states international inc pursuant rules 13a14a 15d14a securities exchange act 1934 321 certification chief executive officer oil states international inc pursuant rules 13a14b 15d14b securities exchange act 1934 322 certification chief financial officer oil states international inc pursuant rules 13a14b 15d14b securities exchange act 1934 101ins xbrl instance document 101sch xbrl taxonomy extension schema document 101cal xbrl taxonomy extension calculation linkbase document 101def xbrl taxonomy extension definition linkbase document 101lab xbrl taxonomy extension label linkbase document 101pre xbrl taxonomy extension presentation linkbase document filed herewith management contracts compensatory plans arrangements furnished herewith signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized february 24 2014 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 24 2014 signature title stephen wells chairman board stephen wells cindy b taylor director president chief executive officer cindy b taylor principal executive officer lloyd hajdik senior vice president chief financial officer lloyd hajdik treasurer principal financial officer robert w hampton senior vice president accounting corporate secretary robert w hampton principal accounting officer martin lambert director martin lambert james nelson jr director james nelson jr mark g papa director mark g papa gary l rosenthal director gary l rosenthal christopher seaver director christopher seaver douglas e swanson director douglas e swanson william van kleef director william van kleef lloyd hajdik lloyd hajdik pursuant power attorney filed exhibit 241 annual report form 10k oil states international inc subsidiaries index consolidated financial statements oil states international inc subsidiaries report independent registered public accounting firm board directors stockholders oil states international inc audited accompanying consolidated balance sheets oil states international inc subsidiaries december 31 2013 2012 related consolidated statements income comprehensive income stockholders’ equity cash flows three years period ended december 31 2013 financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position oil states international inc subsidiaries december 31 2013 2012 consolidated results operations cash flows three years period ended december 31 2013 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states oil states international inc subsidiaries’ internal control financial reporting december 31 2013 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission 1992 framework report dated february 24 2014 expressed unqualified opinion thereon ernst young llp houston texas february 24 2014 oil states international inc subsidiaries report independent registered public accounting firm board directors stockholders oil states international inc audited oil states international inc subsidiaries’ internal control financial reporting december 31 2013 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission 1992 framework coso criteria oil states international inc subsidiaries’ management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s annual report internal control financial reporting responsibility express opinion company’s internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk performing procedures considered necessary circumstances believe audit provides reasonable basis opinion company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate indicated accompanying managements annual report internal control financial reporting management’s assessment conclusion effectiveness internal control financial reporting include internal controls business acquired quality connector systems llc included 2013 consolidated financial statements oil states international inc subsidiaries constituted 12 percent total assets december 31 2013 less 1 percent revenues year ended audit internal control financial reporting oil states international inc subsidiaries’ also include evaluation internal control financial reporting business acquired quality connector systems llc opinion oil states international inc subsidiaries maintained material respects effective internal control financial reporting december 31 2013 based coso criteria also audited accordance standards public company accounting oversight board united states consolidated balance sheets oil states international inc subsidiaries december 31 2013 2012 related consolidated statements income comprehensive income stockholders’ equity cash flows three years period ended december 31 2013 report dated february 24 2014 expressed unqualified opinion thereon ernst young llp houston texas february 24 2014 oil states international inc subsidiaries consolidated statements income thousands except per share amounts accompanying notes integral part financial statements oil states international inc subsidiaries consolidated statements comprehensive income thousands accompanying notes integral part financial statements oil states international inc subsidiaries consolidated balance sheets thousands except share amounts accompanying notes integral part financial statements oil states international inc subsidiaries consolidated statements stockholders equity thousands accompanying notes integral part financial statements oil states international inc subsidiaries consolidated statements cash flows thousands accompanying notes integral part financial statements oil states international inc subsidiaries notes consolidated financial statements 1 organization basis presentation consolidated financial statements include accounts oil states international inc oil states company consolidated subsidiaries investments unconsolidated affiliates company able exercise significant influence accounted using equity method significant intercompany accounts transactions company consolidated subsidiaries eliminated accompanying consolidated financial statements september 2013 company entered stock purchase agreement marubeniitochu tubulars america inc marubeniitochu sale sooner inc subsidiaries sooner comprised entirety company’s tubular services segment applicable assets liabilities business classified held sale consolidated balance sheet december 31 2012 consolidated statements income periods presented reclassified reflect presentation discontinued operations unless otherwise indicated disclosures amounts notes consolidated financial statements relate company’s continuing operations company subsidiaries leading provider specialty products services natural resources companies throughout world operate substantial number worlds active oil natural gas coal producing regions including canada onshore offshore us australia west africa north sea south america southeast central asia company operates three principal reportable business segments accommodations offshore products well site services 2 summary significant accounting policies cash equivalents company considers highly liquid investments purchased original maturity three months less cash equivalents fair value financial instruments company’s financial instruments consist cash equivalents investments receivables payables bank debt foreign currency forward contracts company believes carrying values instruments accompanying consolidated balance sheets approximate fair values fair values company’s 6 12 notes 5 18 notes estimated based quoted prices analysis similar instruments level 2 fair value measurements carrying values fair values notes follows periods indicated thousands oil states international inc subsidiaries notes consolidated financial statements continued restricted cash december 31 2013 cash 53 million held escrow accounts subject terms acquisition agreements providing contingent consideration seller representation warranty provisions included “other noncurrent assets” consolidated balance sheets inventories consist oilfield products manufactured equipment spare parts manufactured equipment workinprocess raw materials supplies materials construction operation remote accommodation facilities inventories also include food raw materials labor subcontractor charges manufacturing overhead catering supplies inventories carried lower cost market cost inventories determined standard cost average cost specificidentification method reserve excess damaged andor obsolete inventory maintained based age turnover condition inventory property plant equipment property plant equipment stated cost estimated fair market value acquisition date acquired business combination depreciation computed assets owned recorded capital lease using straightline method allowing salvage value applicable estimated useful lives assets use component depreciation method drilling services australian accommodations assets leasehold improvements capitalized amortized lesser life lease estimated useful life asset expenditures repairs maintenance charged expense incurred expenditures major renewals betterments extend useful lives existing equipment capitalized depreciated upon retirement disposition property equipment cost related accumulated depreciation removed accounts resulting gain loss recognized statements income asset retirement obligations recognize initial estimated asset retirement obligations aro related properties liabilities associated increase property equipment asset’s estimated retirement cost obligation expensed estimated productive life related assets fair value estimated aro changes adjustment recorded aro capitalized asset revisions estimated liabilities result changes estimated inflation rates changes service equipment costs changes estimated timing settling aro company relieves aro liabilities related obligations settled december 31 2013 2012 61 million 55 million respectively aro included consolidated balance sheet “other noncurrent liabilities” aro liability reflects estimated present value amount asset removal site reclamation costs related retirement assets company’s accommodations business total expense related aro 03 million 2013 2012 expense related aro 2011 company utilizes current retirement costs estimate expected cash outflows retirement obligations company estimates ultimate productive life properties riskadjusted discount rate order determine current present value obligation goodwill intangible assets goodwill represents excess purchase price paid acquired businesses allocated fair value related net assets impairments applicable goodwill stated net accumulated amortization 11 million december 31 2013 2012 oil states international inc subsidiaries notes consolidated financial statements continued evaluate goodwill impairment annually event occurs circumstances change suggest carrying amount may recoverable reporting units goodwill include accommodations offshore products completion services accordance current accounting standards given option test impairment goodwill first performing qualitative assessment determine whether likely likelihood 50 percent fair value reporting unit less carryingamount including goodwill determined likely fair value reporting unit greater carrying amount performing currently prescribed twostep impairment test unnecessary developing qualitative assessment meet “morelikelythannot” threshold reporting unit goodwill balance sheet assessed separately different relevant events circumstances evaluated unit determined likely fair value reporting unit less carrying amount prescribed twostep impairment test performed current accounting standards also give us option bypass qualitative assessment reporting unit period proceed directly performing first step twostep goodwill impairment test 2013 company chose bypass qualitative assessment reporting units goodwill remaining perform twostep impairment test performing twostep impairment test compare reporting units carrying amount including goodwill implied fair value ifv reporting unit ifv reporting units estimated using analysis trading multiples comparable companies reporting units also utilize discounted projected cash flows acquisition multiples analyses certain circumstances discount projected cash flows using longterm weighted average cost capital reporting unit based estimate investment returns would required market participant carrying amount reporting unit exceeds fair value goodwill considered impaired second step performed determine amount impairment conduct annual impairment test december year 2011 2012 2013 goodwill impairment tests indicated fair value reporting units greater carrying amount intangible assets amortize review useful life intangible asset evaluate reporting period whether events circumstances warrant revision remaining useful life evaluate remaining useful life intangible asset amortized reporting period determine whether events circumstances continue support indefinite useful life required evaluate indefinitelived intangible assets impairment annually event occurs circumstances change suggest carrying amount may recoverable performing impairment test compare fair value indefinitelived intangible asset carrying amount measurement impairment based excess carrying value fair value see note 9 goodwill intangible assets impairment longlived assets compliance current accounting standards regarding accounting impairment disposal longlived assets asset group level recoverability carrying values longlived assets including finitelived intangible assets assessed minimum annually whenever managements judgment events changes circumstances indicate carrying value asset groups may recoverable based estimated future cash flows assessment indicates carrying values recoverable determined based undiscounted cash flows remaining useful lives impairment loss recognized impairment loss equals excess carrying value fair value asset group fair value asset group based prices similar assets available discounted cash flows based companys review carrying values asset groups recoverable impairment losses recorded periods presented foreign currency comprehensive income gains losses resulting balance sheet translation foreign operations foreign currency functional currency included separate component accumulated comprehensive income within stockholders equity representing substantially balances within accumulated comprehensive income remeasurements intercompany loans denominated different currency functional currency entity longterm investment nature recognized comprehensive income within stockholders’ equity gains losses resulting balance sheet remeasurements assets liabilities denominated different currency functional currency intercompany loans longterm investment nature included consolidated statements income incurred oil states international inc subsidiaries notes consolidated financial statements continued foreign exchange risk portion revenues earnings net investments foreign affiliates exposed changes foreign currency exchange rates seek manage foreign exchange risk part operational means including managing expected local currency revenues relation local currency costs local currency assets relation local currency liabilities order reduce exposure fluctuations currency exchange rates may also enter foreign exchange agreements financial institutions december 31 2013 2012 outstanding foreign currency forward purchase contracts notional amounts 74 million 124 million respectively hedging expected cash flows denominated euros result contract recorded comprehensive income 04 million loss 10 million years ended december 31 2013 2012 respectively 09 million foreign exchange loss related amounts reclassified accumulated comprehensive loss expense income statement year ended december 31 2013 foreign exchange losses associated operations totaled 08 million 2013 21 million 2012 14 million 2011 included “other operating expense” interest capitalization interest costs construction certain longterm assets capitalized amortized related assets estimated useful lives years ended december 31 2013 2012 2011 08 million 35 million 53 million capitalized respectively revenue cost recognition revenue sale products accounted utilizing percentageofcompletion method recognized delivery acceptance customer occurred title significant risks ownership passed customer collectability probable pricing fixed determinable product sales terms include significant postdelivery obligations significant projects revenues recognized percentageofcompletion method measured percentage costs incurred date compared estimated total costs contract costtocost method billings contracts excess costs incurred estimated profits classified deferred revenue costs incurred estimated profits excess billings percentageofcompletion contracts recognized unbilled receivables management believes method appropriate measure progress large contracts provisions estimated losses uncompleted contracts made period losses determined factors may affect future project costs margins include shipyard access weather production efficiencies availability costs labor materials subcomponents factors significantly impact accuracy company’s estimates materially impact company’s future reported earnings accommodations segment derives majority revenue lodging related ancillary services accommodations segment revenue recognized period services provided pursuant terms contractual relationships customers contracts rates may vary contract term cases revenue may deferred recognized straightline basis contract term well site services segment revenues recognized based periodic usually daily rate services rendered proceeds customers cost oilfield rental equipment damaged lost downhole reflected gains losses disposition assets considering writeoff remaining net book value equipment drilling services contracts based footage drilled recognize revenues footage drilled revenues exclude taxes assessed based revenues sales value added taxes cost goods sold includes direct material labor costs related contract performance indirect labor supplies tools repairs accommodations segment cost services includes labor food utility costs cleaning supplies costs operating accommodations facilities selling general administrative costs charged expense incurred oil states international inc subsidiaries notes consolidated financial statements continued income taxes company follows liability method accounting income taxes accordance current accounting standards regarding accounting income taxes method deferred income taxes recorded based upon differences financial reporting tax bases assets liabilities measured using enacted tax rates laws effect underlying assets liabilities recovered settled companys earnings foreign subsidiaries considered indefinitely reinvested provision us income taxes made earnings subsidiaries distribution earnings form dividends otherwise company would subject us income taxes subject adjustment foreign tax credits withholding taxes payable various foreign countries accordance current accounting standards company records valuation allowance reporting period management believes likely deferred tax asset created realized management continue evaluate appropriateness valuation allowance future based upon operating results company accounting income taxes required provisions current accounting standards regarding accounting uncertainty income taxes estimate liability future income taxes calculation tax liabilities involves dealing uncertainties application complex tax regulations recognize liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due ultimately determine payment amounts unnecessary reverse liability recognize tax benefit period determine liability longer necessary record additional charge provision taxes period determine recorded tax liability less expect ultimate assessment discontinued operations operating results component business either disposed classified held sale presented discontinued operation following conditions met operations cash flows component eliminated ongoing operations result disposal transaction b significant continuing involvement operations disposed component consider component business one comprises operations cash flows clearly distinguished operationally financial reporting purposes rest business receivables concentration credit risk based nature customer base company believe significant concentrations credit risk concentration worldwide oil gas australian mining industries company evaluates creditworthiness significant new existing customers financial condition generally company require significant collateral customers allowances doubtful accounts company maintains allowances doubtful accounts estimated losses resulting inability companys customers make required payments trade receivable deemed uncollectible receivable chargedoff allowance doubtful accounts company considers following factors determining collection revenue reasonably assured customer creditworthiness past transaction history customer current economic industry trends customer solvency changes customer payment terms company previous experience customer company typically obtains reports various credit organizations ensure customer history paying creditors company may also request financial information including financial statements documents ensure customer means making payment factors indicate collection reasonably assured company would require prepayment arrangement support revenue recognition recording trade receivable financial condition companys customers deteriorate adversely affecting ability make payments additional allowances would required oil states international inc subsidiaries notes consolidated financial statements continued earnings per share diluted eps amounts include effect companys outstanding stock options restricted stock shares treasury stock method shares restricted stock issued outstanding remain subject vesting requirements holders shares unvested restricted stock entitled liquidation dividend rights holders outstanding common stock thus considered participating securities applicable accounting guidance undistributed earnings period allocated based participation rights common shareholders holders participating securities earnings respective periods distributed liquidation dividend rights identical undistributed earnings allocated proportionate basis required compute earnings per share eps amounts two class method periods earnings continuing operations presentation basic eps amounts face accompanying consolidated statements operations computed dividing net income applicable company’s common shareholders weighted average shares outstanding common stock calculation diluted eps similar basic eps except denominator includes dilutive common stock equivalents income included numerator excludes effects impact dilutive common stock equivalents addition conversion july 2012 shares 2 38 contingent convertible senior subordinated notes 2 38 notes assumed issued upon conversion included calculation fully diluted shares outstanding fully diluted earnings per share weighted average number shares totaled 1793244 3023420 years ended december 31 2012 december 31 2011 respectively stockbased compensation current accounting standards regarding sharebased payments require companies measure cost employee services received exchange award equity instruments based grantdate fair value award fair value estimated using optionpricing models resulting cost recognized period employee required provide service exchange awards usually vesting period addition service based awards 2013 2012 company also issued performance based awards may vest amount depend company’s achievement specified performance objectives performance based awards performance criteria measured based upon company’s achievement levels average aftertax annual return invested capital 2013 2012 company also granted phantom shares canadian longterm incentive plan provides granting units phantom shares key canadian employees awards vest equal annual installments accounted liability based fair value company’s stock price participants granted units phantom shares entitled lump sum cash payment equal fair market value share company’s common stock vesting date years ended december 31 2013 2012 2011 continuing operations company recognized noncash general administrative expenses stock options restricted stock awards deferred stock awards totaling 250 million 174 million 134 million respectively company accounts assets held rabbi trust certain participants companys deferred compensation plan accordance current accounting standards described note 15 connection september 2013 sale tubular services business sooner modifications made outstanding equity options awards sooner employees resulted 44 million expense recognized expense included “net income discontinued operations net tax” consolidated statement income year ended december 31 2013 included transaction costs considered calculation 1284 million pretax gain disposal sooner oil states international inc subsidiaries notes consolidated financial statements continued guarantees company applies current accounting standards regarding guarantors accounting disclosure requirements guarantees including indirect indebtedness others companys obligations certain guarantees product sales offshore products accommodations businesses sold warranty generally ranging 12 18 months parts labor covered terms warranty agreement warranty provisions estimated based upon historical experience product configuration geographic region total liability related estimated warranties 24 million 18 million december 31 2013 2012 respectively ordinary course business company also provides standby letters credit guarantee instruments certain parties required certain transactions initiated either company subsidiaries december 31 2013 maximum potential amount future payments company could required make guarantee agreements letters credit approximately 392 million company recorded liability connection guarantee arrangements company believe based historical experience information currently available likely amounts required paid guarantee arrangements use estimates preparation consolidated financial statements conformity accounting principles generally accepted united states requires use estimates assumptions management determining reported amounts assets liabilities disclosures contingent assets liabilities date consolidated financial statements reported amounts revenues expenses reporting period examples estimates include potential future adjustments result contingent consideration arrangements pursuant business combinations contractual agreements revenue income recognized percentageofcompletion method estimates amount timing costs incurred asset retirement obligations valuation allowance recorded net deferred tax assets warranty reserves inventory allowance doubtful accounts actual results could materially differ estimates accounting contingencies contingent liabilities future claims made estimates amount eventual cost liquidate liabilities claims liabilities claims sometimes involve threatened actual litigation damages quantified made assessment exposure recorded provision accounts cover expected loss claims liabilities estimated based fair value experience matters appropriate advice outside counsel outside experts upon ultimate resolution uncertainties future reported financial results impacted difference estimates actual amounts paid settle liability examples areas made important estimates future liabilities include future consideration due sellers result terms business combination litigation taxes interest insurance claims warranty claims contract claims obligations discontinued operations subsequent events accordance authoritative guidance company evaluates events transactions occur balance sheet date financial statements issued possible recognition disclosure oil states international inc subsidiaries notes consolidated financial statements continued 3 details selected balance sheet accounts additional information regarding selected balance sheet accounts december 31 2013 2012 presented thousands depreciation expense 2612 million 2142 million 1732 million years ended december 31 2013 2012 2011 respectively 4 recent accounting pronouncements time new accounting pronouncements issued financial accounting standards board fasb adopted company specified effective date unless otherwise discussed management believes impact recently issued standards yet effective material impact company’s consolidated financial statements upon adoption oil states international inc subsidiaries notes consolidated financial statements continued 5 accumulated comprehensive income loss accumulated comprehensive income decreased 1071 million december 31 2012 accumulated comprehensive loss 857 million december 31 2013 net change 1928 million primarily result decreases canadian australian dollar exchange rates compared us dollar canadian dollar valued exchange rate us 094 december 31 2013 compared us 101 december 31 2012 decrease 6 australian dollar valued exchange rate us 089 december 31 2013 compared us 104 december 31 2012 decrease 14 excluding intercompany balances canadian dollar australian dollar functional currency net assets totaled approximately c983 million a957 million c785 million a869 million respectively december 30 2013 2012 6 acquisitions supplemental cash flow information components cash used acquisitions reflected consolidated statements cash flows years ended december 31 2013 2012 2011 summarized follows thousands december 2 2013 acquired equity quality connector systems llc qcs headquartered houston texas qcs designs manufactures markets portfolio proprietary deep shallow water pipeline connectors subsea pipeline construction repair expansion projects subject customary postclosing adjustments total cash consideration 425 million operations qcs included offshore products segment since acquisition date december 14 2012 acquired equity tempress technologies inc tempress purchase price consideration 498 million consisting 328 million cash plus contingent consideration estimated fair value 170 million closing 2013 estimated fair market value contingent liability increased 200 million due favorable developments related patent application tempress resulting 30 million 005 per diluted share charge operating expense patent granted third quarter 2013 200 million contingent consideration paid former shareholders tempress company’s current escrowed deposits 53 million include consideration seller transaction indemnities considered restricted cash classified “other current assets” december 31 2013 consolidated balance sheet “other noncurrent assets” december 31 2012 consolidated balance sheet liabilities escrowed amounts expected paid seller also totaled 53 million classified “other current liabilities” december 31 2013 consolidated balance sheet “other noncurrent liabilities” december 31 2012 consolidated balance sheet headquartered kent washington tempress designs develops markets suite highly specialized hydraulicallyactivated tools utilized downhole completion activities operations tempress included well site services segment since acquisition date july 2 2012 acquired piper valve systems ltd piper headquartered oklahoma city oklahoma piper designs manufactures high pressure valves manifold components oil gas industry projects offshore surface subsea onshore pipers valve technology complements offshore products segment allowing us integrate valve products services existing subsea products pipeline end manifolds terminals increasing suite global deepwater product service offerings cash consideration paid acquisition totaled 480 million operations piper included offshore products segment since acquisition date oil states international inc subsidiaries notes consolidated financial statements continued december 2010 acquired operating assets mountain west oilfield service supplies inc ufford leasing llc mountain west total consideration 471 million including estimated contingent consideration 40 million first quarter 2013 liability estimated contingent consideration recorded connection transaction adjusted estimated fair value zero resulting income 40 million recorded “other operating expense net” consolidated income statement contingent consideration mountain west acquisition estimated based upon amount earnings interest depreciation amortization taxes expected earned acquired business threeyear period ended december 31 2013 subject adjustment capital spending levels company funded acquisitions cash hand andor draws credit facilities see note 10 longterm debt additional information credit facilities supplemental cash flow information cash paid years ended december 31 2013 2012 2011 interest income taxes follows thousands 7 discontinued operations september 6 2013 company entered stock purchase agreement marubeniitochu sale sooner comprised entirety company’s tubular services segment total consideration received company 600 million remains subject customary postclosing adjustments recognized net gain disposal 1284 million 840 million aftertax included within “net income discontinued operations net tax” connection transaction parties entered transition services agreement company provide certain information technology applications infrastructure various administrative services sooner transition period ranging one three months closing date depending nature service provided exchange monthly service fees either party option terminate transition services notice time sooner may also request extend services transition services extended february 2014 future continuing cash flows disposed business company resulting transition services agreement significant constitute material continuing financial interest sooner oil states international inc subsidiaries notes consolidated financial statements continued sooner previously presented separate reporting unit meets criteria reported discontinued operation reclassified continuing operations amounts table reflect operating results sooner reported discontinued operations years ended december 31 2013 2012 2011 thousands includes 1284 million 840 aftertax net gain related disposal sooner following table summarizes major classes assets liabilities held sale company’s consolidated balance sheet related sooner thousands 8 earnings per share eps calculations diluted earnings per share years ended december 31 2013 2012 2011 exclude 263838 shares 399134 shares 179804 shares respectively issuable pursuant outstanding stock options restricted stock awards due antidilutive effect 9 goodwill intangible assets company amortize goodwill tests impairment using fair value approach reporting unit level reporting unit operating segment business one level operating segment component level discrete financial information prepared regularly reviewed management component level company three reporting units goodwill december 31 2013 goodwill allocated reporting units based actual acquisitions made company subsidiaries company recognizes impairment loss amount carrying amount reporting units goodwill exceeds reporting units ifv goodwill initial qualitative assessment potential goodwill impairment indicates likely fair value reporting unit less carrying amount including goodwill company uses appropriate current circumstance comparative market multiples discounted cash flow calculations acquisition comparables establish reporting units fair value level 3 fair value measurement oil states international inc subsidiaries notes consolidated financial statements continued company amortizes cost intangibles estimated useful lives unless lives deemed indefinite amortizable intangible assets reviewed impairment indicators impairment based undiscounted cash flows impaired written fair value based either discounted cash flows appraised values intangible assets indefinite lives tested impairment annually comparing fair value indefinitelived intangible asset carrying value measurement impairment based excess carrying value fair value december 31 2013 provision impairment intangible assets required changes carrying amount goodwill years ended december 31 2013 2012 follows thousands following table presents total amount intangibles assigned total accumulated amortization major intangible asset classes december 31 2013 2012 thousands weighted average remaining amortization period intangible assets goodwill indefinite lived intangibles 89 years december 31 2013 86 years december 31 2012 total amortization expense expected 150 million 2014 134 million 2015 2016 132 million 2017 131 million 2018 amortization expense 153 million 136 million 132 million years ended december 31 2013 2012 2011 respectively oil states international inc subsidiaries notes consolidated financial statements continued 10 longterm debt december 31 2013 2012 longterm debt consisted following thousands scheduled maturities combined longterm debt december 31 2013 follows thousands companys capital leases consist primarily plant facilities equipment value capitalized leases related accumulated depreciation totaled 17 million 06 million respectively december 31 2013 value capitalized leases related accumulated depreciation totaled 14 million 10 million respectively december 31 2012 oil states international inc subsidiaries notes consolidated financial statements continued 5 18 senior unsecured notes december 21 2012 company sold 400 million aggregate principal amount 5 18 senior notes due 2023 5 18 notes private placement qualified institutional buyers 5 18 notes senior unsecured obligations company guaranteed material us subsidiaries guarantors bear interest rate 5 18 per annum mature january 1 2023 time prior january 15 2016 company may redeem 35 5 18 notes redemption price 105125 principal amount plus accrued unpaid interest redemption date proceeds certain equity offerings prior january 15 2018 company may redeem 5 18 notes cash redemption price equal 100 principal amount plus applicable makewhole premium accrued unpaid interest redemption date january 15 2018 company may redeem 5 18 notes redemption prices expressed percentages principal amount plus accrued unpaid interest redemption date optional redemption prices percentage principal amount follows company utilized approximately 334 million net proceeds 5 18 notes repay borrowings us revolving credit facility remaining net proceeds approximately 61 million utilized general corporate purposes december 21 2012 connection issuance 5 18 notes company entered indenture 5 18 notes indenture guarantors wells fargo bank na trustee 5 18 notes indenture restricts companys ability guarantors incur additional debt ii pay distributions redeem repurchase equity interests iii make certain investments iv incur liens v enter transactions affiliates vi merge consolidate another company vii transfer sell assets covenants subject number important exceptions qualifications time 5 18 notes rated investment grade either moodys investors service inc standard poors ratings services default defined 5 18 notes indenture occurred continuing many covenants terminate company subsidiaries cease subject covenants indenture contains customary events default december 31 2013 company compliance covenants 5 18 notes indenture fourth quarter 2013 company repurchased 340 million aggregate principal amount 5 18 notes result transaction company recognized loss extinguishment debt 41 million 6 12 senior unsecured notes june 1 2011 company sold 600 million aggregate principal amount 6 12 senior notes due 2019 6 12 notes private placement qualified institutional buyers 6 12 notes senior unsecured obligations company guaranteed material us subsidiaries guarantors bear interest rate 6 12 per annum mature june 1 2019 time prior june 1 2014 company may redeem 35 6 12 notes redemption price 106500 principal amount plus accrued unpaid interest redemption date proceeds certain equity offerings prior june 1 2014 company may redeem 6 12 notes cash redemption price equal 100 principal amount plus applicable makewhole premium accrued unpaid interest redemption date june 1 2014 company may redeem 6 12 notes redemption prices expressed percentages principal amount plus accrued unpaid interest redemption date optional redemption prices percentage principal amount follows oil states international inc subsidiaries notes consolidated financial statements continued company utilized approximately 515 million net proceeds 6 12 note offering june 2011 repay borrowings outstanding credit facilities remaining net proceeds approximately 75 million utilized general corporate purposes june 1 2011 connection issuance 6 12 notes company entered indenture 6 12 notes indenture guarantors wells fargo bank na trustee indenture restricts companys ability guarantors incur additional debt ii pay distributions redeem repurchase equity interests iii make certain investments iv incur liens v enter transactions affiliates vi merge consolidate another company vii transfer sell assets covenants subject number important exceptions qualifications time 6 12 notes rated investment grade either moodys investors service inc standard poors ratings services default defined 6 12 notes indenture occurred continuing many covenants terminate company subsidiaries cease subject covenants 6 12 notes indenture contains customary events default december 31 2013 company compliance covenants 6 12 notes indenture 2 38 contingent convertible senior notes may 17 2012 company gave notice redemption outstanding 2 38 notes due 2025 2 38 notes totaling 175 million redemption price equal 100 principal amount thereof plus accrued interest july 2012 rather 2 38 notes redeemed prior july 5 2012 holders 174990000 aggregate principal amount 2 38 notes converted 2 38 notes received cash principal amount aggregate 3012380 shares company’s common stock valued 2206 million effective interest rate 717 applied issuance date 2 38 notes accordance asc 47020 debt conversion options interest expense 2 38 notes excluding amortization debt issue costs follows thousands credit facilities current bank credit facilities include us revolving credit facility canadian revolving facility credit facilities governed amended restated credit agreement dated december 10 2010 credit agreement among company pti group inc pti premium camp services ltd lenders party thereto wells fargo bank na administrative agent us collateral agent royal bank canada canadian administrative agent canadian collateral agent us canadian bank credit facilities currently contain total commitments available 750 million including total us commitments defined credit agreement us 500 million total canadian commitments defined credit agreement us 250 million repaid canadian us term loan balances previously outstanding full 2013 permanent reductions availability credit facilities maturity date credit agreement december 10 2015 amounts borrowed facilities bear interest companys election either • variable rate equal libor case canadian dollar denominated borrowings bankers acceptance discount rate plus margin ranging 20 30 • alternate base rate equal higher banks prime rate federal funds effective rate case canadian dollar denominated borrowings canadian prime rate oil states international inc subsidiaries notes consolidated financial statements continued commitment fees ranging 0375 050 per year paid undrawn portion facilities depending upon leverage ratio credit facilities guaranteed companys active domestic subsidiaries cases companys canadian foreign subsidiaries credit facilities secured first priority lien companys inventory accounts receivable material tangible intangible assets well companys active subsidiaries however 65 voting stock foreign subsidiary required pledged pledge greater percentage would result adverse tax consequences credit agreement contains customary financial covenants restrictions including restrictions ability declare pay dividends specifically must maintain interest coverage ratio defined ratio consolidated ebitda consolidated interest expense least 30 10 maximum leverage ratio defined ratio total debt consolidated ebitda greater 30 10 factors considered calculations ratios defined credit agreement ebitda consolidated interest defined exclude goodwill impairments debt discount amortization noncash charges december 31 2013 compliance debt covenants credit facilities also contain negative covenants limit companys ability borrow additional funds encumber assets pay dividends sell assets enter significant transactions companys credit facilities occurrence specified change control events involving company would constitute event default would permit banks among things accelerate maturity facilities cause become immediately due payable full december 31 2013 336 million outstanding letters credit leaving 7164 million available drawn facilities september 18 2012 company’s australian accommodations subsidiary mac services group pty limited mac entered a300 million revolving loan facility governed syndicated facility agreement mac group facility agreement mac jp morgan australia limited australian agent security trustee jpmorgan chase bank na us agent lenders party thereto guaranteed company mac’s subsidiaries maturity date mac group facility agreement december 10 2015 terms mac group facility agreement loans bear interest particular interest period rate per annum equal sum average interest rate paid banks loans equivalent period applicable percentage ranging 200 300 based upon australian borrower’s leverage ratio mac group facility agreement contains representations warranties covenants customary similar credit arrangements including among things covenants relating financial reporting notification payment obligations notification certain events financial covenants mac group facility agreement also require mac permit interest coverage ratio consolidated ebitda consolidated interest expense less 40 10 period four consecutive fiscal quarters mac ii leverage ratio total debt consolidated ebitda greater 30 10 period four consecutive fiscal quarters mac factors considered calculations ratios defined mac group facility agreement mac group facility agreement contains various customary restrictive covenants subject certain exceptions limit mac subsidiaries among things incurring additional indebtedness guarantees creating liens encumbrances property entering merger similar transaction selling transferring certain property making certain restricted payments entering transactions affiliates december 31 2013 compliance australian debt covenants mac group facility agreement replaced mac’s previous a150 million revolving loan facility december 31 2013 borrowings outstanding mac group facility agreement oil states international inc subsidiaries notes consolidated financial statements continued 11 stock repurchase program september 6 2013 company announced increase boardauthorized company stock repurchase program 200 million 500 million repurchase company’s common stock par value 01 per share december 31 2013 company approximately 542 million shares common stock outstanding board directors’ authorization limited duration expires september 1 2014 subject applicable securities laws purchases times amounts company deems appropriate december 31 2013 total 1312 million stock 1385388 shares repurchased program leaving total authorization approximately 3688 million remaining available program year end january 27 2014 purchased additional 1009665 shares 1000 million leaving 2688 million remaining program 12 retirement plans company sponsors defined contribution plans participation plans available substantially employees company recognized expense 282 million 266 million 194 million respectively related matching contributions various defined contribution plans years ended december 31 2013 2012 2011 respectively 13 income taxes consolidated pretax income loss years ended december 31 2013 2012 2011 consisted following thousands components income tax provision years ended december 31 2013 2012 2011 consisted following thousands provision taxes differs amount computed us statutory rates follows years ended december 31 2013 2012 2011 consisted thousands oil states international inc subsidiaries notes consolidated financial statements continued significant items giving rise deferred tax assets liabilities december 31 2013 2012 follows thousands reclassifications companys deferred tax balance based net current items net noncurrent items december 31 2012 2011 follows thousands analysis deferred tax assets liabilities detailed december 31 2012 relate continuing discontinued operations primary deferred tax assets december 31 2013 related employee benefit costs equity participation plan deductible goodwill intangibles allowance inventory obsolescence foreign tax credit carryforwards foreign tax credits expire varying amounts 2019 income tax provision year ended december 31 2013 totaled 1200 million 2750 pretax income compared 1490 million 2701 pretax income year ended december 31 2012 income tax provision year ended december 31 2011 totaled 1076 million 2750 pretax income appropriate us foreign income taxes provided earnings foreign subsidiary companies expected remitted near future cumulative amount undistributed earnings foreign subsidiaries company intends indefinitely reinvest upon foreign taxes accrued paid deferred us income taxes provided 13 billion december 31 2013 majority generated canada australia upon distribution earnings form dividends otherwise company may subject us income taxes subject adjustment foreign tax credits foreign withholding taxes practical however estimate amount taxes may payable eventual remittance earnings consideration available foreign tax credits american jobs creation act 2004 signed law october 2004 introduced requirement companies disclose penalties imposed consolidated subsidiaries irs failing satisfy tax disclosure requirements relating reportable transactions year ended december 31 2013 penalties imposed company consolidated subsidiaries failure disclose reportable transactions irs oil states international inc subsidiaries notes consolidated financial statements continued company files tax returns jurisdictions required returns subject examination audit possible adjustment result assessments taxing authorities company believes recorded sufficient tax liabilities expect resolution examination audit tax returns would material adverse effect operating results financial condition liquidity tax years subsequent 2009 remain open us federal tax audit net operating losses nols utilized company years 1994 2002 remain subject federal tax audit respect nols available tax carryforward canadian subsidiaries federal tax returns subsequent 2008 subject audit canada revenue agency australian subsidiary’s federal tax returns subsequent 2007 subject audit australian taxation office account uncertain tax positions using recognition threshold measurement attribute financial statement recognition measurement tax positions taken expected taken tax return benefits recognized tax position must morelikelythannot sustained upon examination taxing authorities amount recognized measured largest amount benefit greater 50 percent likely realized upon ultimate settlement total amount unrecognized tax benefits december 31 2013 08 million unrecognized tax benefits recognized would affect effective tax rate company accrues interest penalties related unrecognized tax benefits component companys provision income taxes december 31 2013 2012 company accrued 01 million 02 million respectively interest expense penalties reconciliation beginning ending amount unrecognized tax benefits follows thousands reasonably possible amount unrecognized tax benefits change next twelve months due closing statute limitations change occur could favorable unfavorable impact results operation 14 commitments contingencies company leases portion equipment office space computer equipment automobiles trucks leases expire various dates minimum future operating lease obligations effect december 31 2013 follows thousands rental expense operating leases 194 million 165 million 140 million years ended december 31 2013 2012 2011 respectively company party various pending threatened claims lawsuits administrative proceedings seeking damages remedies concerning commercial operations products employees matters including warranty product liability claims occasional claims individuals alleging exposure hazardous materials result products operations claims relate matters occurring prior acquisition businesses relate businesses sold certain cases company entitled indemnification sellers businesses cases indemnified buyers businesses although give assurance outcome pending legal administrative proceedings effect outcomes may us believe ultimate liability resulting outcome proceedings extent otherwise provided covered indemnity insurance material adverse effect consolidated financial position results operations liquidity oil states international inc subsidiaries notes consolidated financial statements continued 15 stockbased compensation current accounting standards require companies measure cost employee services received exchange award equity instruments typically stock options based grantdate fair value award fair value estimated using optionpricing models resulting cost recognized period employee required provide service exchange awards usually vesting period stockbased compensation pretax expense continuing operations recognized years ended december 31 2013 2012 2011 totaled 289 million 185 million 134 million 039 024 017 per diluted share tax respectively stockbased compensation pretax expense discontinued operations recognized years ended december 31 2013 2012 2011 totaled 56 million 15 million 12 million 007 002 per diluted share tax respectively tables reflect activity continuing discontinued operations connection 2013 sale sooner modifications made outstanding equity options awards sooner employees resulted 44 million expense included “net income discontinued operations net tax” consolidated statement income year ended december 31 2013 included transaction costs considered calculation 1284 million pretax gain disposal sooner stock options fair value option grant estimated date grant using blackscholes option pricing model uses assumptions noted following table riskfree interest rate based us treasury yield curve effect expected term option time grant dividend yield common stock assumed zero since pay dividends current plans future expected market price volatility common stock based estimate made us considers historical implied volatility common stock well peer group companies time period equal expected term option expected life options awarded 2013 2012 2011 based formula considering vesting period term options awarded past experience following table presents changes stock options outstanding related information three years ended december 31 2013 2012 2011 weighted average fair values options granted 2013 2012 2011 2831 3738 3323 per share respectively options awarded 2013 term ten years granted exercise prices grant date closing market price total intrinsic value options exercised 2013 2012 2011 436 million 383 million 249 million respectively cash received company option exercises 2013 2012 2011 totaled 164 million 136 million 142 million respectively tax benefit realized tax deduction stock options exercised 2013 2012 2011 totaled 74 million 69 million 78 million respectively following table summarizes information outstanding stock options outstanding december 31 2013 oil states international inc subsidiaries notes consolidated financial statements continued restricted stock awards following table presents changes restricted stock awards related information 2013 granted restricted stock deferred stock awards totaling 325733 shares valued total 267 million restricted deferred stock awards granted 2013 278757 awards vest four equal annual installments beginning february 2014 30314 awards performance based awards may vest february 2016 amount depend company’s achievement specified performance objectives 9800 awards vest 100 may 2014 3500 awards vest 100 february 2014 2750 awards vest 100 march 2014 2013 performance based awards 30314 shares target performance level threeyear cliff vesting performance criteria measured based upon company’s achievement levels average aftertax annual return invested capital three year period commencing january 1 2013 ending december 31 2015 2013 company also granted 71500 units phantom shares canadian longterm incentive plan provides granting units phantom shares key canadian employees awards vest three equal annual installments beginning february 2014 accounted liability based market price company’s stock participants granted units phantom shares entitled lump sum cash payment equal fair market value share company’s common stock vesting date total 357544 217415 shares restricted stock deferred stock awarded 2012 2011 respectively aggregate values 292 million 163 million respectively 2012 performance shares awarded 47625 shares target level performance threeyear cliff vesting performance criteria measured based upon company’s achievement levels average aftertax annual return invested capital three year period commencing january 1 2012 ending december 31 2014 weighted average grant date fair value per share restricted stock awards granted 2013 2012 2011 8205 8446 7497 respectively total fair value restricted stock awards vested 2013 2012 2011 187 million 161 million 132 million respectively december 31 2013 548 million total compensation costs related nonvested restricted stock deferred stock awards yet recognized expected recognized weighted average period 2 years oil states international inc subsidiaries notes consolidated financial statements continued december 31 2013 total 1783009 shares available future grant equity participation plan deferred compensation plan company maintains nonqualified deferred compensation plan deferred compensation plan permits eligible employees directors elect defer receipt portion directors’ fees andor salary annual bonuses employee contributions deferred compensation plan matched company percentage employee participant companys 401k retirement plan subject irs limitations matcheligible compensation deferred compensation plan also permits company make discretionary contributions employees account although none made date directors contributions matched company since inception plan discretionary contribution provision limited matching participants contributions basis equivalent matching permitted companys 401k retirement savings plan vesting contributions participants’ accounts also equivalent vesting requirements companys 401k retirement savings plan deferred compensation plan dollar limits taxdeferred contributions assets deferred compensation plan held rabbi trust therefore available satisfy claims companys creditors event bankruptcy insolvency company participants ability direct plan administrator invest assets individual accounts including discretionary contributions company ten preapproved mutual funds held trust cover variety securities mutual funds addition participants currently right request plan administrator reallocate portfolio investments ie cash mutual funds participants individual accounts within trust company contributions form cash distributions plan generally made upon participants termination director andor employee applicable company participants receive payments deferred compensation plan cash december 31 2013 trust assets totaled 152 million majority classified “other noncurrent assets” company’s consolidated balance sheet fair value investments based quoted market prices active markets level 1 fair value measurement amounts payable plan participants december 31 2013 including fair value shares companys common stock reflected treasury stock 168 million classified noncurrent liabilities consolidated balance sheet company accounts deferred compensation plan accordance current accounting standards regarding accounting deferred compensation arrangements amounts earned held rabbi trust invested accordance current accounting standards fair value fluctuations trust assets reflected consolidated statements income increases decreases value plan assets exclusive shares common stock company included compensation adjustments respective statements income increases decreases fair value deferred compensation liability including shares common stock company held trust recorded treasury stock also included compensation adjustments consolidated statements income response changes total fair value companys common stock held trust company recorded net compensation expense adjustments liability 05 million 2013 01 million 2012 02 million 2011 16 segment related information accordance current accounting standards regarding disclosures segments enterprise related information company identified following reportable segments well site services accommodations offshore products companys reportable segments represent strategic business units offer different products services managed separately business requires different technologies marketing strategies businesses initially acquired unit management time acquisition retained subsequent acquisitions direct extensions business segments separate business lines within well site services segment disclosed provide additional detail segment oil states international inc subsidiaries notes consolidated financial statements continued financial information business segment continuing operations three years ended december 31 2013 2012 2011 summarized following table thousands accounting policies segments described summary significant accounting policies financial information geographic segment continuing operations three years ended december 31 2013 2012 2011 summarized thousands revenues united states include export sales revenues attributable countries based location entity selling products performing services total assets attributable countries based physical location entity operating assets include intercompany balances imperial oil accounted 10 companys revenues years ended december 31 2013 2012 2011 equity net income unconsolidated affiliates included operating income oil states international inc subsidiaries notes consolidated financial statements continued 17 valuation allowances activity valuation accounts follows thousands 18 quarterly financial information unaudited following table summarizes quarterly financial information 2013 2012 thousands except per share amounts 1 represents revenues less product costs service costs included companys consolidated statements income 2 first quarter 2013 recognized gain 40 million 005 per diluted share aftertax decrease liability associated contingent acquisition consideration us accommodations business first quarter 2012 recognized gain 179 million 023 per diluted share aftertax favorable contract settlement reported us accommodations business 3 second quarter 2013 recognized charge 30 million 005 per diluted share increase contingent acquisition consideration completion services business incurred 19 million 002 per diluted share tax transaction costs primarily related proposed spinoff accommodations segment second quarter 2012 recognized pretax gain 25 million 003 per diluted share aftertax related insurance proceeds received excess net book value constructive total loss drilling rig lost fire oil states international inc subsidiaries notes consolidated financial statements continued 4 third quarter 2013 recognized net gain disposal tubular services segment 1286 million 151 per diluted share aftertax included within net income attributable discontinued operations addition third quarter 2013 recognized pretax gain disposal land associated building 46 million 006 per diluted share tax pretax loss extinguishment debt 33 million 004 per diluted share tax incurred 26 million 003 per diluted share tax transaction costs related proposed spinoff accommodations segment 5 fourth quarter 2013 recognized pretax loss extinguishment debt 41 million 005 per diluted share tax incurred 16 million 002 per diluted share aftertax transaction costs related proposed spinoff accommodations segment amounts calculated independently quarters presented therefore sum quarterly amounts may equal total calculated year 19 proposed spinoff accommodations business july 30 2013 announced board directors approved pursuing spinoff accommodations business standalone publicly traded corporation taxfree distribution accommodations business company’s shareholders objective spinoff effectively focus two distinct businesses achieve lower cost capital accommodations business pursue tailored aggressive growth strategies optimize operating efficiencies among objectives spinoff subject market conditions receipt affirmative irs ruling independent tax opinion completion review commission form 10 filed accommodations business execution separation intercompany agreements final approval board directors expected completed second quarter 2014 connection proposed spinoff anticipate refinance existing debt specifically intend commence tender offer outstanding 5 18 notes 6 12 notes intend fund tender offer part proceeds cash dividend paid us accommodations business immediately prior consummation proposed spinoff anticipate cash dividend within range 6500 million 8500 million connection spinoff also intend refinance existing credit facilities single us revolving credit facility accommodations business initially spunoff ccorporation offers faster path separation accommodations business continue assess feasibility advisability potential future conversion real estate investment trust reit connection announced spinoff anticipate need separately capitalize accommodations business refinance company’s existing debt 20 condensed consolidating financial information certain whollyowned subsidiaries detailed guarantor subsidiaries guaranteed 6 12 notes 5 18 notes guarantees full unconditional subject following release provisions ● connection sale exchange transfer merger consolidation otherwise capital stock guarantor longer restricted subsidiary ● upon proper designation guarantor company unrestricted subsidiary ● upon release discharge outstanding guarantees guarantor indebtedness company restricted subsidiaries credit facility ● upon legal covenant defeasance satisfaction discharge indenture ● upon dissolution guarantor provided event default occurred indentures continuing following condensed consolidating financial information included separate financial statements guarantor subsidiaries required filed commission condensed consolidating financial information presents investments consolidated unconsolidated affiliates using equity method accounting following consolidating financial information presents condensed consolidating statements income years ended december 31 2013 2012 2011 condensed consolidating balance sheets december 31 2013 december 31 2012 statements cash flows years ended december 31 2013 2012 2011 company parentguarantor b acute technological services inc capstar holding llc capstar drilling inc general marine leasing llc oil states energy services llc oil states energy services holding inc oses international holding llc oil states management inc oil states industries inc oil states skagit smatco llc pti group usa llc pti mars holdco 1 llc tempress technologies inc guarantor subsidiaries c nonguarantor subsidiaries consolidating adjustments necessary consolidate company subsidiaries e company consolidated basis sale sooner inc september 6 2013 longer guarantor subsidiary condensed consolidated statements income balance sheets reclassified periods presented reflect company’s continuing operations oil states international inc subsidiaries notes consolidated financial statements continued condensed consolidating statements income comprehensive income oil states international inc subsidiaries notes consolidated financial statements continued condensed consolidating statements income comprehensive income oil states international inc subsidiaries notes consolidated financial statements continued condensed consolidating statements income comprehensive income oil states international inc subsidiaries notes consolidated financial statements continued condensed consolidating balance sheets oil states international inc subsidiaries notes consolidated financial statements continued condensed consolidating balance sheets oil states international inc subsidiaries notes consolidated financial statements continued condensed consolidating statements cash flows oil states international inc subsidiaries notes consolidated financial statements continued condensed consolidating statements cash flows oil states international inc subsidiaries notes consolidated financial statements continued condensed consolidating statements cash flows