OIL STATES INTERNATIONAL, INC 10-Q

ITEM 1. Financial Statements OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Amounts) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Revenues: Products $ 72,598 $ 122,067 $ 258,221 $ 363,360 Services 62,161 141,630 242,477 415,633 134,759 263,697 500,698 778,993 Costs and expenses: Product costs 66,789 90,796 224,623 275,353 Service costs 53,822 110,294 221,673 333,727 Cost of revenues (exclusive of depreciation and amortization expense presented below) 120,611 201,090 446,296 609,080 Selling, general and administrative expense 21,389 31,935 71,505 93,527 Depreciation and amortization expense 24,251 31,366 75,306 94,800 Impairments of goodwill — — 406,056 — Impairments of fixed assets — 33,697 8,190 33,697 Other operating expense (income), net ( 652 ) 519 ( 679 ) 34 165,599 298,607 1,006,674 831,138 Operating loss ( 30,840 ) ( 34,910 ) ( 505,976 ) ( 52,145 ) Interest expense, net ( 3,549 ) ( 4,352 ) ( 11,232 ) ( 13,721 ) Other income, net 6,744 1,190 13,512 2,866 Loss before income taxes ( 27,645 ) ( 38,072 ) ( 503,696 ) ( 63,000 ) Income tax benefit 7,676 6,204 54,060 6,744 Net loss $ ( 19,969 ) $ ( 31,868 ) $ ( 449,636 ) $ ( 56,256 ) Net loss per share: Basic $ ( 0.33 ) $ ( 0.54 ) $ ( 7.52 ) $ ( 0.95 ) Diluted ( 0.33 ) ( 0.54 ) ( 7.52 ) ( 0.95 ) Weighted average number of common shares outstanding: Basic 59,871 59,423 59,788 59,362 Diluted 59,871 59,423 59,788 59,362 The accompanying notes are an integral part of these financial statements. 3 OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (In Thousands) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Net loss $ ( 19,969 ) $ ( 31,868 ) $ ( 449,636 ) $ ( 56,256 ) Other comprehensive income (loss): Currency translation adjustments 3,357 ( 5,672 ) ( 12,664 ) ( 5,535 ) Comprehensive loss $ ( 16,612 ) $ ( 37,540 ) $ ( 462,300 ) $ ( 61,791 ) The accompanying notes are an integral part of these financial statements. 4 OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share Amounts) September 30, 2020 December 31, 2019 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 79,701 $ 8,493 Accounts receivable, net 158,184 233,487 Inventories, net 180,497 221,342 Prepaid expenses and other current assets 14,921 20,107 Total current assets 433,303 483,429 Property, plant, and equipment, net 390,962 459,724 Operating lease assets, net 36,902 43,616 Goodwill, net 76,051 482,306 Other intangible assets, net 211,804 230,091 Other noncurrent assets 31,764 28,701 Total assets $ 1,180,786 $ 1,727,867 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 25,620 $ 25,617 Accounts payable 36,666 78,368 Accrued liabilities 49,755 48,840 Current operating lease liabilities 7,942 8,311 Income taxes payable 3,501 4,174 Deferred revenue 48,851 17,761 Total current liabilities 172,335 183,071 Long-term debt 163,526 222,552 Long-term operating lease liabilities 30,459 35,777 Deferred income taxes 26,643 38,079 Other noncurrent liabilities 23,485 24,421 Total liabilities 416,448 503,900 Stockholders' equity: Common stock, $ .01 par value, 200,000,000 shares authorized, 73,301,564 shares and 72,546,321 shares issued, respectively 733 726 Additional paid-in capital 1,119,860 1,114,521 Retained earnings 348,074 797,710 Accumulated other comprehensive loss ( 80,410 ) ( 67,746 ) Treasury stock, at cost, 12,270,511 and 12,045,065 shares, respectively ( 623,919 ) ( 621,244 ) Total stockholders' equity 764,338 1,223,967 Total liabilities and stockholders' equity $ 1,180,786 $ 1,727,867 The accompanying notes are an integral part of these financial statements. 5 OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In Thousands) Three Months Ended September 30, 2020 Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Stockholders' Equity Balance, June 30, 2020 $ 733 $ 1,117,771 $ 368,043 $ ( 83,767 ) $ ( 623,911 ) $ 778,869 Net loss — — ( 19,969 ) — — ( 19,969 ) Currency translation adjustments (excluding intercompany advances) — — — 4,624 — 4,624 Currency translation adjustments on intercompany advances — — — ( 1,267 ) — ( 1,267 ) Stock-based compensation expense: Restricted stock — 2,089 — — — 2,089 Surrender of stock to settle taxes on restricted stock awards — — — — ( 8 ) ( 8 ) Balance, September 30, 2020 $ 733 $ 1,119,860 $ 348,074 $ ( 80,410 ) $ ( 623,919 ) $ 764,338 Nine Months Ended September 30, 2020 Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Stockholders' Equity Balance, December 31, 2019 $ 726 $ 1,114,521 $ 797,710 $ ( 67,746 ) $ ( 621,244 ) $ 1,223,967 Net loss — — ( 449,636 ) — — ( 449,636 ) Currency translation adjustments (excluding intercompany advances) — — — ( 4,524 ) — ( 4,524 ) Currency translation adjustments on intercompany advances — — — ( 8,140 ) — ( 8,140 ) Stock-based compensation expense: Restricted stock 7 5,339 — — — 5,346 Surrender of stock to settle taxes on restricted stock awards — — — — ( 2,675 ) ( 2,675 ) Balance, September 30, 2020 $ 733 $ 1,119,860 $ 348,074 $ ( 80,410 ) $ ( 623,919 ) $ 764,338 The accompanying notes are an integral part of these financial statements. 6 OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In Thousands) Three Months Ended September 30, 2019 Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Stockholders' Equity Balance, June 30, 2019 $ 726 $ 1,106,340 $ 1,005,130 $ ( 71,260 ) $ ( 621,208 ) $ 1,419,728 Net loss — — ( 31,868 ) — — ( 31,868 ) Currency translation adjustments (excluding intercompany advances) — — — ( 4,448 ) — ( 4,448 ) Currency translation adjustments on intercompany advances — — — ( 1,224 ) — ( 1,224 ) Stock-based compensation expense: Restricted stock — 4,232 — — — 4,232 Stock options — — — — — — Stock repurchases — — — — — — Surrender of stock to settle taxes on restricted stock awards — — — — ( 76 ) ( 76 ) Balance, September 30, 2019 $ 726 $ 1,110,572 $ 973,262 $ ( 76,932 ) $ ( 621,284 ) $ 1,386,344 Nine Months Ended September 30, 2019 Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Stockholders' Equity Balance, December 31, 2018 $ 718 $ 1,097,758 $ 1,029,518 $ ( 71,397 ) $ ( 616,829 ) $ 1,439,768 Net loss — — ( 56,256 ) — — ( 56,256 ) Currency translation adjustments (excluding intercompany advances) — — — ( 4,841 ) — ( 4,841 ) Currency translation adjustments on intercompany advances — — — ( 694 ) — ( 694 ) Stock-based compensation expense: Restricted stock 8 12,761 — — — 12,769 Stock options — 53 — — — 53 Stock repurchases — — — — ( 757 ) ( 757 ) Surrender of stock to settle taxes on restricted stock awards — — — — ( 3,698 ) ( 3,698 ) Balance, September 30, 2019 $ 726 $ 1,110,572 $ 973,262 $ ( 76,932 ) $ ( 621,284 ) $ 1,386,344 The accompanying notes are an integral part of these financial statements. 7 OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) Nine Months Ended September 30, 2020 2019 Cash flows from operating activities: Net loss $ ( 449,636 ) $ ( 56,256 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization expense 75,306 94,800 Impairments of goodwill 406,056 — Impairments of inventories 31,151 — Impairments of fixed assets 8,190 33,697 Stock-based compensation expense 5,346 12,822 Amortization of debt discount and deferred financing costs 5,937 5,903 Deferred income tax benefit ( 16,915 ) ( 11,935 ) Gains on extinguishment of 1.50 % convertible senior notes ( 10,721 ) — Gains on disposals of assets ( 2,088 ) ( 2,310 ) Other, net 3,732 1,216 Changes in operating assets and liabilities: Accounts receivable 67,371 24,993 Inventories 9,174 ( 6,867 ) Accounts payable and accrued liabilities ( 39,594 ) 3,143 Income taxes payable 248 1,948 Deferred revenue 31,114 11,793 Other operating assets and liabilities, net 6,471 2,947 Net cash flows provided by operating activities 131,142 115,894 Cash flows from investing activities: Capital expenditures ( 11,277 ) ( 45,832 ) Proceeds from disposition of property, plant and equipment 8,984 3,619 Other, net ( 444 ) ( 1,534 ) Net cash flows used in investing activities ( 2,737 ) ( 43,747 ) Cash flows from financing activities: Revolving credit facility borrowings 72,173 175,306 Revolving credit facility repayments ( 105,104 ) ( 246,450 ) Purchases of 1.50 % convertible senior notes ( 20,078 ) ( 858 ) Other debt and finance lease repayments, net ( 337 ) ( 434 ) Payment of financing costs ( 962 ) ( 18 ) Shares added to treasury stock as a result of net share settlements due to vesting of stock awards ( 2,675 ) ( 3,698 ) Purchases of treasury stock — ( 757 ) Net cash flows used in financing activities ( 56,983 ) ( 76,909 ) Effect of exchange rate changes on cash and cash equivalents ( 214 ) 101 Net change in cash and cash equivalents 71,208 ( 4,661 ) Cash and cash equivalents, beginning of period 8,493 19,316 Cash and cash equivalents, end of period $ 79,701 $ 14,655 Cash paid (received) for: Interest $ 5,716 $ 8,378 Income taxes, net ( 37,393 ) ( 2,522 ) The accompanying notes are an integral part of these financial statements. 8 OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Basis of Presentation The accompanying unaudited condensed consolidated financial statements of Oil States International, Inc. and its subsidiaries (referred to in this report as "we" or the "Company") have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "Commission") pertaining to interim financial information. Certain information in footnote disclosures normally included with financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") have been condensed or omitted pursuant to these rules and regulations. The unaudited financial statements included in this report reflect all the adjustments, consisting of normal recurring adjustments, which the Company considers necessary for a fair statement of the results of operations for the interim periods covered and for the financial condition of the Company at the date of the interim balance sheet. Results for the interim periods are not necessarily indicative of results for the full year. Certain prior-year amounts in the Company's unaudited condensed consolidated financial statements have been reclassified to conform to the current year presentation. As further discussed in Note 13, "Commitments and Contingencies," the impact of the Coronavirus Disease 2019 ("COVID-19") pandemic and the related economic, business and market disruptions continues to evolve and its future effects remain uncertain. The actual impact of these developments on the Company will depend on many factors, many of which are beyond management's control and knowledge. It is therefore difficult for management to assess or predict with precision the broad future effect of this health crisis on the global economy, the energy industry or the Company. During the first nine months of 2020, the Company recorded asset impairments, severance and facility closure charges in response to these recent developments, as further discussed in Note 3, "Asset Impairments and Other Charges." As additional information becomes available, events or circumstances change and strategic operational decisions are made by management, further adjustments may be required which could have a material adverse impact on the Company's consolidated financial position, results of operations and cash flows. The preparation of condensed consolidated financial statements in conformity with GAAP requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Examples of such estimates include, but are not limited to, goodwill and other asset impairments, revenue and income recognized over time, valuation allowances recorded on deferred tax assets, reserves on inventory, allowances for doubtful accounts, and potential future adjustments related to contractual indemnification and other agreements. Actual results could materially differ from those estimates. The financial statements included in this report should be read in conjunction with the Company's audited financial statements and accompanying notes included in its Annual Report on Form 10-K for the year ended December 31, 2019. 2. Recent Accounting Pronouncements From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the "FASB"), which are adopted by the Company as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company's consolidated financial statements upon adoption. In August 2020, the FASB issued updated guidance to simplify the accounting for convertible instruments and contracts in an entity's own equity. This new guidance will eliminate the current requirement that the carrying value of convertible debt instruments, including the Company's 1.50 % convertible senior notes due 2023 (the "Notes"), be allocated between the debt and equity components. As permitted under the standard, the Company plans to adopt the new guidance on January 1, 2021 using the modified retrospective transition method. Upon initial evaluation, the Company believes the key changes upon adoption will be to increase the carrying value of the debt component of the Notes and reduce the reported level of interest expense recognized over the remaining life of the Notes. Based on the $ 157.4 million principal amount of the Notes outstanding as of September 30, 2020, the Company estimates that the adoption of the standard on January 1, 2021 will result in a $ 12.2 million increase in the net carrying value of the Notes, a $ 3.7 million decrease in deferred income taxes and an $ 8.5 million net decrease in stockholders' equity. Beginning on January 1, 2021, the effective interest rate associated with the Notes is expected to decrease from approximately 6 % to approximately 2 %, which compares to the contractual cash interest rate of 1.50 %. 9 OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) In June 2016, the FASB issued guidance on credit impairment for short-term receivables which, as amended, introduces the recognition of management's current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The Company adopted this guidance on January 1, 2020, using the optional transition method of recognizing any cumulative effect of adopting this guidance as an adjustment to the opening balance of retained earnings. The cumulative impact of the adoption of the new standard was not material to the Company's consolidated financial statements. Prior periods were not retrospectively adjusted. 3. Asset Impairments and Other Charges In March of 2020, the spot price of West Texas Intermediate ("WTI") crude oil declined over 50 % in response to current and expected material reductions in global demand stemming from the global response to the COVID-19 pandemic, coupled with announcements by Saudi Arabia and Russia of plans to increase crude oil production. Following this unprecedented collapse in crude oil prices, the spot price of Brent and WTI crude oil closed at $ 15 and $ 21 per barrel, respectively, on March 31, 2020. Crude oil prices further declined in April of 2020 to record low levels, and while the spot price of Brent and WTI crude oil increased to an average of $ 43 and $ 41 per barrel, respectively, in the third quarter of 2020, these average prices continue to be depressed versus historical price levels. Demand for most of the Company's products and services depends substantially on the level of capital expenditures by the oil and natural gas industry. The decline in oil prices has, and is expected to continue to, result in further near-term reductions to most of the Company's customers' drilling, completion and production activities and their related spending on products and services, particularly in the U.S. shale play regions. These conditions may also result in a material adverse impact on certain customers' liquidity and financial position, leading to further spending reductions, delays in the collection of amounts owed and in certain instances, non-payment of amounts owed. Consistent with oilfield service industry peers, the Company's stock price declined dramatically during the first quarter of 2020, with its market capitalization falling substantially below the carrying value of stockholders' equity. Following these March 2020 events, the Company immediately implemented significant cost reduction initiatives. The Company also assessed the carrying value of goodwill, long-lived and other assets based on the industry outlook regarding overall demand for and pricing of its products and services, other market considerations and the financial condition of the Company's customers. As a result of these events, actions and assessments, the Company recorded the following charges during the first quarter of 2020 (in thousands): Completion Services Drilling Services Downhole Technologies Offshore/ Manufactured Products Pre-tax Total Tax After-tax Total Impairments of goodwill $ 127,054 $ — $ 192,502 $ 86,500 $ 406,056 $ 19,600 $ 386,456 Impairments of fixed assets — 5,198 — — 5,198 1,092 4,106 Impairments of inventories (Note 4) 8,981 — — 16,249 25,230 4,736 20,494 Severance and facility closure costs 331 217 — 112 660 139 521 During the second and third quarters of 2020, the Company further reduced its workforce and closed additional facilities in the United States and continued to assess the carrying value of its assets based on the industry outlook regarding demand for and pricing of its products and services, and recorded the following charges (in thousands): Completion Services Downhole Technologies Offshore/ Manufactured Products Corporate Pre-tax Total Tax After-tax Total Second quarter 2020 Impairments of fixed assets $ 2,992 $ — $ — $ — $ 2,992 $ 628 $ 2,364 Severance and facility closure costs 3,544 1,315 322 216 5,397 1,133 4,264 Third quarter 2020 Impairments of inventories (Note 4) $ — $ 5,921 $ — $ — $ 5,921 $ 1,243 $ 4,678 Severance and facility closure costs — — 288 — 288 60 228 10 OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Goodwill The Company has three reporting units – Completion Services, Downhole Technologies and Offshore/Manufactured Products – with goodwill balances totaling $ 482.3 million as of December 31, 2019. Goodwill is allocated to each reporting unit from acquisitions made by the Company. In accordance with current accounting guidance, the Company does not amortize goodwill, but rather assesses goodwill for impairment annually and when an event occurs or circumstances change that indicate the carrying amounts may not be recoverable. If the carrying amount of a reporting unit exceeds its fair value, goodwill is considered impaired and an impairment loss is recorded. Given the significance of the March 2020 events described above, the Company performed a quantitative assessment of goodwill for impairment as of March 31, 2020. This interim assessment indicated that the fair value of each of the reporting units was less than their respective carrying amounts. Management utilizes, depending on circumstances, a combination of valuation methodologies including a market approach and an income approach, as well as guideline public company comparables. The valuation techniques used in the March 31, 2020 assessment were consistent with those used during the December 1, 2019 assessment, except for the Completion Services reporting unit where the income approach was used to estimate its fair value – with the market approach used only to validate the results in 2020. The fair values of each of the Company's reporting units were determined using significant unobservable inputs (Level 3 fair value measurements). This approach estimates fair value by discounting the Company's forecasts of future cash flows by a discount rate (expected return) that a market participant is expected to require. Significant assumptions and estimates used in the income approach include, among others, estimated future net annual cash flows and discount rates for each reporting unit, current and anticipated market conditions, estimated growth rates and historical data. These estimates rely upon significant management judgment, particularly given the continued uncertainties regarding the COVID-19 pandemic and its impact on activity levels and commodity prices as well as future global economic growth. Based on this quantitative assessment as of March 31, 2020, the Company concluded that goodwill recorded in the Completion Services and Downhole Technologies businesses was fully impaired while goodwill recorded in the Offshore/Manufactured Products business was partially impaired. The Company therefore recognized non-cash goodwill impairment charges totaling $ 406.1 million in the first quarter of 2020. These impairment charges did not impact the Company's liquidity position, debt covenants or cash flows. The discount rates used to value the Company's reporting units as of March 31, 2020 ranged between 16.8 % and 18.5 %. Holding all other assumptions and inputs used in the discounted cash flow analysis constant, a 50 basis point increase in the discount rate assumption for the Offshore/Manufactured Products reporting unit would have increased the goodwill impairment charge by approximately $ 10 million. A summary of changes in the carrying values of goodwill by reporting unit in the first nine months of 2020 is presented in Note 4, "Details of Selected Balance Sheet Accounts." Long-lived Assets The Company also assesses the carrying value of long-lived assets, including property, plant and equipment, operating lease assets and other intangible assets held by each of its four reporting units. As a result of the March 2020 assessment, the Company concluded that property and equipment held by the Drilling Services reporting unit was further impaired and recognized a non-cash fixed asset impairment charge of $ 5.2 million in the first quarter of 2020. During the second quarter of 2020, the Company concluded that certain facilities held for sale by the Completion Services reporting unit were impaired and recognized a non-cash fixed asset impairment charge of $ 3.0 million to reduce the carrying value of the facilities to their estimated realizable value based on the current market environment. The Company performed a qualitative assessment of goodwill and long-lived assets as of September 30, 2020 and concluded that no further impairment evaluation was required. As a result, no material impairments of goodwill or long-lived assets were recorded in the third quarter of 2020. Should, among other events and circumstances, global economic and industry conditions further deteriorate, the COVID-19 pandemic business and market disruptions worsen, the outlook for future operating results and cash flow for any of the Company's reporting units decline, income tax rates increase or regulations change, costs of equity or debt capital increase, valuations for comparable public companies or comparable acquisition valuations decrease, or management implement strategic decisions based on industry conditions, the Company may need to recognize additional impairment losses in future periods. 11 OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 4. Details of Selected Balance Sheet Accounts Additional information regarding selected balance sheet accounts as of September 30, 2020 and December 31, 2019 is presented below (in thousands): September 30, 2020 December 31, 2019 Accounts receivable, net: Trade $ 114,204 $ 178,813 Unbilled revenue 25,461 28,341 Contract assets 25,276 26,034 Other 3,443 9,044 Total accounts receivable 168,384 242,232 Allowance for doubtful accounts ( 10,200 ) ( 8,745 ) $ 158,184 $ 233,487 Allowance for doubtful accounts as a percentage of total accounts receivable 6 % 4 % September 30, 2020 December 31, 2019 Deferred revenue (contract liabilities) $ 48,851 $ 17,761 For the nine months ended September 30, 2020, the $ 0.8 million net decrease in contract assets was primarily attributable to $ 22.8 million transferred to accounts receivable, which was substantially offset by $ 22.0 million in revenue recognized during the period. Deferred revenue (contract liabilities) increased by $ 31.1 million in 2020, primarily reflecting $ 46.4 million in new customer billings which were not recognized as revenue during the period, partially offset by the recognition of $ 15.2 million of revenue that was deferred at the beginning of the period. As of September 30, 2020, accounts receivable, net in the United States, the United Kingdom and Singapore represented 62 %, 17 % and 12 %, respectively, of the respective total. No other country or single customer accounted for more than 10% of the Company's total accounts receivable as of September 30, 2020. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of the Company's customers to make required payments. Determination of the collectability of amounts due from customers requires us to make judgments regarding future events and trends. Allowances for doubtful accounts are established through an assessment of the Company's portfolio on an individual customer and consolidated basis taking into account current and expected future market conditions and trends. This process consists of a thorough review of historical collection experience, current aging status of the customer accounts, and financial condition of the Company's customers as well as political and economic factors in countries of operations and other customer-specific factors. Based on a review of these factors, the Company establishes or adjusts allowances for trade and unbilled receivables as well as contract assets. If a customer receivable is deemed to be uncollectible, the receivable is charged-off against allowance for doubtful accounts. If the financial condition of the Company's customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. The following provides a summary of activity in the allowance for doubtful accounts for the nine months ended September 30, 2020 and 2019 (in thousands): 2020 2019 Allowance for doubtful accounts – January 1 $ 8,745 $ 6,701 Provisions 2,787 1,222 Write-offs ( 2,490 ) ( 894 ) Other 1,158 ( 58 ) Allowance for doubtful accounts – September 30 10,200 6,971 12 OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2020 December 31, 2019 Inventories, net: Finished goods and purchased products $ 96,753 $ 107,691 Work in process 23,390 21,963 Raw materials 102,621 110,719 Total inventories 222,764 240,373 Allowance for excess or obsolete inventory ( 42,267 ) ( 19,031 ) $ 180,497 $ 221,342 The Company recorded an impairment charge of $ 5.9 million in the third quarter of 2020 to reduce the carrying value of inventories within the Downhole Technologies segment to their estimated net realizable value based on changes in expectations regarding the near-term utility, customer demand and market pricing of certain goods. The Company recorded impairment charges totaling $ 25.2 million in the first quarter of 2020 to reduce the carrying value of inventories to their estimated net realizable value following the March 2020 decline in crude oil prices, which reduced the near-term utility of certain goods within the Offshore/Manufactured Products and Completion Services operations. September 30, 2020 December 31, 2019 Property, plant and equipment, net: Land $ 34,046 $ 37,507 Buildings and leasehold improvements 264,434 273,384 Machinery and equipment 238,579 246,826 Completion Services equipment 507,769 510,737 Office furniture and equipment 35,419 45,309 Vehicles 82,161 97,264 Construction in progress 7,777 13,281 Total property, plant and equipment 1,170,185 1,224,308 Accumulated depreciation ( 779,223 ) ( 764,584 ) $ 390,962 $ 459,724 For the three months ended September 30, 2020 and 2019, depreciation expense was $ 18.0 million and $ 24.6 million, respectively. Depreciation expense was $ 56.6 million and $ 74.5 million for the nine months ended September 30, 2020 and 2019, respectively. During the third quarter of 2019, the Company made the strategic decision to reduce the scope of its Drilling Services reporting unit (adjusting from 34 rigs to 9 rigs) due to the ongoing weakness in customer demand for vertical drilling rigs in the U.S. land market, particularly the Permian Basin, which resulted in the recognition of a $ 33.7 million non-cash fixed asset impairment charge. As discussed in Note 3, "Asset Impairments and Other Charges," during the first quarter of 2020 the Drilling Services reporting unit recognized a non-cash impairment charge of $ 5.2 million to further reduce the carrying value of the business's fixed assets to their estimated realizable value. Additionally, in the second quarter of 2020, the Completion Services reporting unit recognized a non-cash impairment charge of $ 3.0 million to reduce the carrying value of certain facilities to their estimated realizable value. September 30, 2020 December 31, 2019 Other noncurrent assets: Deferred compensation plan $ 22,767 $ 22,268 Other 8,997 6,433 $ 31,764 $ 28,701 13 OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2020 December 31, 2019 Accrued liabilities: Accrued compensation $ 20,146 $ 27,428 Insurance liabilities 8,079 9,108 Accrued taxes, other than income taxes 12,427 3,424 Accrued interest 2,052 2,387 Accrued commissions 1,934 1,481 Other 5,117 5,012 $ 49,755 $ 48,840 Goodwill: Well Site Services Downhole Technologies Offshore/ Manufactured Products Total Completion Services Drilling Services Subtotal Balance as of December 31, 2019 Goodwill $ 221,582 $ 22,767 $ 244,349 $ 357,502 $ 162,750 $ 764,601 Accumulated impairment losses ( 94,528 ) ( 22,767 ) ( 117,295 ) ( 165,000 ) — ( 282,295 ) 127,054 — 127,054 192,502 162,750 482,306 Goodwill impairments (1) ( 127,054 ) — ( 127,054 ) ( 192,502 ) ( 86,500 ) ( 406,056 ) Foreign currency translation — — — — ( 199 ) ( 199 ) Balance as of September 30, 2020 $ — $ — $ — $ — $ 76,051 $ 76,051 ________________ (1) See Note 3, "Asset Impairments and Other Charges" for discussion of first quarter 2020 goodwill impairments. Other Intangible Assets: September 30, 2020 December 31, 2019 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Customer relationships $ 168,271 $ 52,598 $ 115,673 $ 168,278 $ 44,296 $ 123,982 Patents/Technology/Know-how 75,741 24,617 51,124 85,919 30,791 55,128 Noncompete agreements 16,010 13,542 2,468 17,125 11,061 6,064 Tradenames and other 53,708 11,169 42,539 53,708 8,791 44,917 $ 313,730 $ 101,926 $ 211,804 $ 325,030 $ 94,939 $ 230,091 For the three months ended September 30, 2020 and 2019, amortization expense was $ 6.2 million and $ 6.8 million, respectively. Amortization expense was $ 18.7 million and $ 20.3 million for the nine months ended September 30, 2020 and 2019, respectively. 14 OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 5. Net Loss Per Share The table below provides a reconciliation of the numerators and denominators of basic and diluted net loss per share for the three and nine months ended September 30, 2020 and 2019 (in thousands, except per share amounts): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Numerators: Net loss $ ( 19,969 ) $ ( 31,868 ) $ ( 449,636 ) $ ( 56,256 ) Less: Income attributable to unvested restricted stock awards — — — — Numerator for basic net loss per share ( 19,969 ) ( 31,868 ) ( 449,636 ) ( 56,256 ) Effect of dilutive securities: Unvested restricted stock awards — — — — Numerator for diluted net loss per share $ ( 19,969 ) $ ( 31,868 ) $ ( 449,636 ) $ ( 56,256 ) Denominators: Weighted average number of common shares outstanding 61,028 60,493 60,928 60,400 Less: Weighted average number of unvested restricted stock awards outstanding ( 1,157 ) ( 1,070 ) ( 1,140 ) ( 1,038 ) Denominator for basic and diluted net loss per share 59,871 59,423 59,788 59,362 Net loss per share: Basic $ ( 0.33 ) $ ( 0.54 ) $ ( 7.52 ) $ ( 0.95 ) Diluted ( 0.33 ) ( 0.54 ) ( 7.52 ) ( 0.95 ) The calculation of diluted net loss per share for the three and nine months ended September 30, 2020 excluded 560 thousand shares and 595 thousand shares, respectively, issuable pursuant to outstanding stock options, due to their antidilutive effect. The calculation of diluted net loss per share for the three and nine months ended September 30, 2019 excluded 643 thousand shares and 665 thousand shares, respectively, issuable pursuant to outstanding stock options, due to their antidilutive effect. Additionally, shares issuable upon conversion of the 1.50 % convertible senior notes were excluded for the three and nine month periods ended September 30, 2020 and 2019, due to their antidilutive effect. 6. Long-term Debt As of September 30, 2020 and December 31, 2019, long-term debt consisted of the following (in thousands): September 30, 2020 December 31, 2019 Revolving credit facility due January 2022 (1) $ 17,682 $ 50,534 1.50 % convertible senior notes due February 2023 (2) 141,692 167,594 Promissory note 25,000 25,000 Other debt and finance lease obligations 4,772 5,041 Total debt 189,146 248,169 Less: Current portion ( 25,620 ) ( 25,617 ) Total long-term debt $ 163,526 $ 222,552 ____________________ (1) Presented net of $ 1.3 million and $ 1.4 million of unamortized debt issuance costs as of September 30, 2020 and December 31, 2019, respectively. (2) The outstanding principal amount of the 1.50 % convertible senior notes was $ 157.4 million and $ 192.3 million as of September 30, 2020 and December 31, 2019, respectively. 15 OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Revolving Credit Facility due January 2022 The Company's senior secured revolving credit facility (the "Revolving Credit Facility") is governed by an amended and restated credit agreement with Wells Fargo Bank, N.A., as administrative agent for the lenders party thereto, and the lenders and other financial institutions from time to time party thereto, dated as of January 30, 2018 (the "Credit Agreement"), which matures on January 30, 2022. Prior to June 17, 2020, the Revolving Credit Facility provided for $ 350.0 million in lender commitments, including $ 50.0 million available for the issuance of letters of credit. On June 17, 2020, the Company entered into an omnibus amendment to the Credit Agreement (as amended, the "Amended Credit Agreement"). Lender commitments under the Amended Credit Agreement were reduced to $ 200.0 million in exchange for the suspension of the financial covenants described below from July 1, 2020 through March 30, 2021. During the financial covenant suspension period, borrowing availability under the Revolving Credit Facility (as amended, the "Amended Revolving Credit Facility") is limited to 85 % of the lesser of (i) $ 200.0 million or (ii) a borrowing base, calculated monthly, equal to the sum of 70 % of the consolidated net book value of eligible receivables and 20 % of the consolidated net book value of eligible inventory (the "Borrowing Base"). As of September 30, 2020, the Company had $ 19.0 million of borrowings outstanding under the Amended Revolving Credit Facility and $ 31.2 million of outstanding letters of credit. The total amount available to be drawn as of October 1, 2020 was $ 83.8 million, calculated based on 85 % of the current Borrowing Base less outstanding borrowings and letters of credit. Prior to June 17, 2020, amounts outstanding under the Revolving Credit Facility accrued interest at LIBOR plus a margin of 1.75 % to 3.00 %, or at a base rate plus a margin of 0.75 % to 2.00 %, in each case based on a ratio of the Company's total net funded debt to consolidated EBITDA (as defined in the Credit Agreement). The Company was also required to pay a quarterly commitment fee of 0.25 % to 0.50 %, based on the Company's ratio of total net funded debt to consolidated EBITDA, on the unused commitments under the Credit Agreement. Effective June 17, 2020, borrowings outstanding under the Amended Revolving Credit Facility bear interest at LIBOR plus a margin of 2.50 % to 3.75 %, or at a base rate plus a margin of 1.50 % to 2.75 %, in each case based on a ratio of the Company's total net funded debt to consolidated EBITDA. The Company must also pay a quarterly commitment fee of 0.50 %, based on unused commitments under the Amended Credit Agreement. The Company expensed $ 0.5 million of previously deferred financing costs in the second quarter of 2020, which is included in interest expense, net, as a result of the amendment of the Credit Agreement. The Amended Credit Agreement contains customary financial covenants and restrictions. Specifically, except for the period from July 1, 2020 through March 30, 2021, the Company must maintain an interest coverage ratio, defined as the ratio of consolidated EBITDA to consolidated interest expense, of at least 3.0 to 1.0, a maximum senior secured leverage ratio, defined as the ratio of senior secured debt to consolidated EBITDA, of no greater than 2.25 to 1.0 and a total net leverage ratio, defined as the ratio of total net funded debt to consolidated EBITDA, of no greater than 3.75 to 1.0. The various components used in the calculation of these ratios are defined in the Amended Credit Agreement. Consolidated EBITDA and consolidated interest expense, as defined, exclude non-cash goodwill, fixed asset and inventory impairment charges, gains or losses on the extinguishment of debt, debt discount amortization, stock-based compensation expense and other non-cash charges. Borrowings under the Amended Credit Agreement are secured by a pledge of substantially all of the Company's assets and the assets of its domestic subsidiaries. The Company's obligations under the Amended Credit Agreement are guaranteed by its significant domestic subsidiaries. The Amended Credit Agreement also contains negative covenants that limit the Company's ability to accumulate cash in excess of $ 45.0 million in the United States, borrow additional funds, encumber assets, pay dividends, sell assets, repurchase shares of common stock and enter into other significant transactions. Under the Amended Credit Agreement, the occurrence of specified change of control events involving the Company would constitute an event of default that would permit the banks to, among other things, accelerate the maturity of the facility and cause it to become immediately due and payable in full. 16 OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 1.50 % Convertible Senior Notes due February 2023 On January 30, 2018, the Company issued $ 200 million aggregate principal amount of the Notes pursuant to an indenture, dated as of January 30, 2018 (the "Indenture"), between the Company and Wells Fargo Bank, National Association, as trustee. During the three months ended September 30, 2020, the Company purchased $ 17.2 million principal amount of the outstanding Notes for $ 9.5 million in cash. The net carrying amount of the liability component of these Notes totaled $ 15.4 million. In connection with extinguishment of these Notes, the Company recognized non-cash gains totaling $ 5.9 million during the third quarter of 2020, which is included within other income, net. During the nine months ended September 30, 2020, the Company purchased $ 34.9 million principal amount of the outstanding Notes for $ 20.1 million in cash. The net carrying amount of the liability component of these Notes totaled $ 30.8 million. In connection with extinguishment of these Notes, the Company recognized non-cash gains totaling $ 10.7 million during the first nine months of 2020, which is included within other income, net. Since September 2019, the Company has purchased $ 42.6 million principal amount of the outstanding notes for $ 26.8 million in cash. The initial carrying amount of the Notes recorded in the consolidated balance sheet was less than the $ 200 million principal amount of the Notes, in accordance with the currently applicable accounting principles, reflective of the estimated fair value of a similar debt instrument that does not have a conversion feature. The Company recorded the value of the conversion feature as a debt discount, which is amortized as interest expense over the term of the Notes, with a similar amount allocated to additional paid-in capital. As a result of this amortization, interest expense currently recognized on the Notes for accounting purposes, reflecting an effective interest rate of approximately 6 %, is greater than cash interest the Company is obligated to pay. Reported interest expense associated with the Notes for the three and nine months ended September 30, 2020 was $ 2.3 million and $ 7.2 million, respectively, while the related contractual cash interest expense totaled $ 0.6 million and $ 2.0 million, respectively. Reported interest expense associated with the Notes for the three and nine months ended September 30, 2019 was $ 2.6 million and $ 7.7 million, respectively, while the related contractual cash interest expense totaled $ 0.8 million and $ 2.3 million, respectively. The following table presents the carrying amount of the Notes in the consolidated balance sheets as of September 30, 2020 and December 31, 2019 (in thousands): September 30, 2020 December 31, 2019 Principal amount of the liability component $ 157,369 $ 192,250 Less: Unamortized discount 13,667 21,544 Less: Unamortized issuance costs 2,010 3,112 Net carrying amount of the liability component $ 141,692 $ 167,594 Net carrying amount of the equity component $ 25,683 $ 25,683 See Note 2, "Recent Accounting Pronouncement," for discussion of the FASB's recent revision to accounting guidance for convertible instruments, which will change the Company's method of accounting for the Notes upon its adoption of the standard effective January 1, 2021. The Notes bear interest at a rate of 1.50 % per year until maturity. Interest is payable semi-annually in arrears on February 15 and August 15 of each year. In addition, additional interest and special interest may accrue on the Notes under certain circumstances as described in the Indenture. The Notes will mature on February 15, 2023, unless earlier repurchased, redeemed or converted. The initial conversion rate is 22.2748 shares of the Company's common stock per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $ 44.89 per share of common stock). The conversion rate, and thus the conversion price, may be adjusted under certain circumstances as described in the Indenture. The Company's intent is to repay the principal amount of the Notes in cash and settle the conversion feature in shares of the Company's common stock. Noteholders may convert their Notes, at their option, only in the following circumstances: (1) if the last reported sale price per share of the Company's common stock exceeds 130 % of the conversion price for each of at least 20 trading days during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter; (2) during the five consecutive business days immediately after any five consecutive trading day period (such five consecutive trading day period, the "measurement period") in which the trading price per $1,000 principal amount of the Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price per share of the Company's common stock on 17 OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) such trading day and the conversion rate on such trading day; (3) upon the occurrence of certain corporate events or distributions on the Company's common stock, as described in the Indenture; or (4) if the Company calls the Notes for redemption, or at any time from, and including, November 15, 2022 until the close of business on the second scheduled trading day immediately before the maturity date. The Company will settle conversions by paying or delivering, as applicable, cash, shares of common stock or a combination of cash and shares of common stock, at the Company's election, based on the applicable conversion rate(s). If the Company elects to deliver cash or a combination of cash and shares of common stock, then the consideration due upon conversion will be based on a defined observation period. The Notes will be redeemable, in whole or in part, at the Company's option at any time, and from time to time, on or after February 15, 2021, at a cash redemption price equal to the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, but only if the last reported sale price per share of common stock exceeds 130 % of the conversion price on each of at least 20 trading days during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice. If specified change in control events involving the Company as defined in the Indenture occur, then noteholders may require the Company to repurchase their Notes at a cash repurchase price equal to the principal amount of the Notes to be repurchased, plus accrued and unpaid interest. Additionally, the Indenture contains certain events of default, including certain defaults by the Company with respect to other indebtedness of at least $ 40.0 million. As of September 30, 2020, none of the conditions allowing holders of the Notes to convert, or requiring the Company to repurchase the Notes, had been met. Promissory Note In connection with the 2018 acquisition of GEODynamics, Inc. ("GEODynamics"), the Company issued a $ 25.0 million promissory note that bears interest at 2.50 % per annum and was scheduled to mature on July 12, 2019. Payments due under the promissory note are subject to set off, in part or in full, against certain indemnification claims related to matters occurring prior to the Company's acquisition of GEODynamics. The Company has provided notice to and asserted indemnification claims against the seller of GEODynamics. As a result, the maturity date of the note is extended until these indemnity claims are resolved. The Company expects that the amount ultimately paid in respect of such note to be reduced by these indemnification claims. See Note 13, "Commitments and Contingencies," for additional discussion. 7. Fair Value Measurements The Company's financial instruments consist of cash and cash equivalents, investments, receivables, payables and debt instruments. The Company believes that the carrying values of these instruments, other than the Notes, on the accompanying consolidated balance sheets approximate their fair values. The estimated fair value of the Notes as of September 30, 2020 was $ 89.7 million based on quoted market prices (a Level 1 fair value measurement), which compares to the $ 157.4 million principal amount of the Notes. See Note 2, "Recent Accounting Pronouncements." 8. Stockholders' Equity The following table provides details with respect to the changes to the number of shares of common stock, $ 0.01 par value, outstanding during the first nine months of 2020 (in thousands): Shares of common stock outstanding – December 31, 2019 60,501 Restricted stock awards, net of forfeitures 755 Shares withheld for taxes on vesting of stock awards and transferred to treasury ( 225 ) Shares of common stock outstanding – September 30, 2020 61,031 As of September 30, 2020 and December 31, 2019, the Company had 25,000,000 shares of preferred stock, $ 0.01 par value, authorized, with no shares issued or outstanding. The Company historically maintained a share repurchase program, which was allowed to expire on July 29, 2020. 18 OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 9. Accumulated Other Comprehensive Loss Accumulated other comprehensive loss, reported as a component of stockholders' equity, increased from $ 67.7 million at December 31, 2019 to $ 80.4 million at September 30, 2020, due to changes in currency exchange rates. Accumulated other comprehensive loss is primarily related to fluctuations in the currency exchange rates compared to the U.S. dollar which are used to translate certain of the international operations of the Company's reportable segments. For the nine months ended September 30, 2020 and 2019, currency translation adjustments recognized as a component of other comprehensive loss were primarily attributable to the United Kingdom and Brazil. As of September 30, 2020, the exchange rates for the British pound and the Brazilian real compared to the U.S. dollar weakened by 2 % and 29 %, respectively, compared to the exchange rates at December 31, 2019, contributing to other comprehensive loss of $ 12.7 million reported for the nine months ended September 30, 2020. During the first nine months of 2019, the exchange rate for the British pound and the Brazilian real compared to the U.S. dollar weakened by 4 % and 7 %, respectively, compared to the exchange rate at December 31, 2018, contributing to other comprehensive loss of $ 5.5 million reported for the nine months ended September 30, 2019. 10. Long-Term Incentive Compensation The following table presents a summary of activity for stock options, service-based restricted stock awards and performance-based stock unit awards for the nine months ended September 30, 2020 (in thousands): Stock Options Service-based Restricted Stock Performance-based Stock Units Outstanding – December 31, 2019 636 1,064 248 Granted — 686 181 Vested — ( 540 ) ( 125 ) Forfeited ( 86 ) ( 55 ) — Outstanding – September 30, 2020 550 1,155 304 Weighted average grant date fair value (2020 awards) $ — $ 10.02 $ 11.15 The restricted stock program consists of a combination of service-based restricted stock and performance-based stock units. Service-based restricted stock awards generally vest on a straight-line basis over their term, which is generally three years . Performance-based restricted stock awards generally vest at the end of a three-year period, with the number of shares ultimately issued under the program dependent upon achievement of predefined specific performance measures. In the event the predefined targets are exceeded for any performance-based award, additional shares up to a maximum of 200 % of the target award may be granted. Conversely, if actual performance falls below the predefined target, the number of shares vested is reduced. If the actual performance falls below the threshold performance level, no restricted shares will vest. The performance measure for outstanding awards is the Company's EBITDA growth rate over a three-year period. During the first quarters of 2020 and 2019, the Company issued conditional long-term cash incentive awards ("Cash Awards") of approximately $ 2.0 million and $ 1.4 million, respectively, with the ultimate dollar amount to be awarded ranging from zero to a maximum of $ 4.0 million for the 2020 Cash Award and from zero to a maximum of $ 2.7 million for the 2019 Cash Award. The performance measure for these Cash Awards is relative total stockholder return compared to a peer group of companies measured over a three-year period. The ultimate dollar amount to be awarded for the 2020 and 2019 Cash Awards is limited to their targeted award value ($ 2.0 million and $ 1.4 million, respectively) if the Company's total stockholder return is negative over the performance period. The obligation related to the Cash Awards is classified as a liability and recognized over the vesting period. Stock-based compensation expense recognized during the three and nine months ended September 30, 2020 totaled $ 2.1 million and $ 5.3 million, respectively. Stock-based compensation expense recognized during the three and nine months ended September 30, 2019 totaled $ 4.2 million and $ 12.8 million, respectively. As of September 30, 2020, there was $ 11.3 million of pre-tax compensation costs related to service-based and performance-based stock awards, which will be recognized in future periods as vesting conditions are satisfied. 19 OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 11. Income Taxes The income tax benefit for the three and nine month periods ended September 30, 2020 was calculated using a discrete approach. This methodology was used because changes in the Company's results of operations and non-deductible expenses can materially impact the estimated annual effective tax rate. For the three months ended September 30, 2020, the Company's income tax benefit was $ 7.7 million on a pre-tax loss of $ 27.6 million, which includes certain non-deductible expenses and discrete tax benefits. This compares to an income tax benefit of $ 6.2 million on a pre-tax loss of $ 38.1 million, which includes certain non-deductible expenses, for the three months ended September 30, 2019. For the nine months ended September 30, 2020, the Company's income tax benefit was $ 54.1 million on a pre-tax loss of $ 503.7 million, which included non-cash goodwill charges (approximately $ 313.1 million) and other expenses that are not deductible for income tax purposes. The impact of these non-deductible expenses was partially offset by a $ 16.4 million discrete tax benefit related to the carryback of U.S. net operating losses under the Coronavirus Aid, Relief, and Economic Security ("CARES") Act. This compares to an income tax benefit of $ 6.7 million on a pre-tax loss of $ 63.0 million, which includes certain non-deductible expenses, for the nine months ended September 30, 2019. 12. Segments and Related Information The Company operates through three reportable segments: Well Site Services, Downhole Technologies and Offshore/Manufactured Products. The Company's reportable segments represent strategic business units that generally offer different products and services. They are managed separately because each business often requires different technologies and marketing strategies. Financial information by business segment for the three and nine months ended September 30, 2020 and 2019 is summarized in the following tables (in thousands). Revenues Depreciation and amortization Operating income (loss) Capital expenditures Total assets Three Months Ended September 30, 2020 Well Site Services – Completion Services $ 34,893 $ 12,914 $ ( 14,330 ) $ 1,579 $ 248,715 Drilling Services 2,479 16 458 — 5,166 Total Well Site Services 37,372 12,930 ( 13,872 ) 1,579 253,881 Downhole Technologies (1) 18,713 5,701 ( 12,594 ) 78 294,768 Offshore/Manufactured Products 78,674 5,401 3,875 686 541,661 Corporate — 219 ( 8,249 ) 19 90,476 Total $ 134,759 $ 24,251 $ ( 30,840 ) $ 2,362 $ 1,180,786 Revenues Depreciation and amortization Operating income (loss) Capital expenditures Total assets Three Months Ended September 30, 2019 Well Site Services – Completion Services $ 103,966 $ 17,024 $ 1,719 $ 6,088 $ 496,684 Drilling Services (2) 12,034 3,164 ( 36,495 ) 538 21,464 Total Well Site Services 116,000 20,188 ( 34,776 ) 6,626 518,148 Downhole Technologies 42,882 5,309 659 4,045 700,789 Offshore/Manufactured Products 104,815 5,680 11,139 3,147 673,947 Corporate — 189 ( 11,932 ) 437 41,080 Total $ 263,697 $ 31,366 $ ( 34,910 ) $ 14,255 $ 1,933,964 20 OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Revenues Depreciation and amortization Operating income (loss) Capital expenditures Total assets Nine months ended September 30, 2020 Well Site Services – Completion Services (3) $ 153,994 $ 41,032 $ ( 176,408 ) $ 6,440 $ 248,715 Drilling Services (4) 7,179 302 ( 5,338 ) 114 5,166 Total Well Site Services 161,173 41,334 ( 181,746 ) 6,554 253,881 Downhole Technologies (5) 74,743 16,904 ( 216,395 ) 2,892 294,768 Offshore/Manufactured Products (6) 264,782 16,505 ( 82,202 ) 2,208 541,661 Corporate — 563 ( 25,633 ) ( 377 ) 90,476 Total $ 500,698 $ 75,306 $ ( 505,976 ) $ 11,277 $ 1,180,786 Revenues Depreciation and amortization Operating income (loss) Capital expenditures Total assets Nine months ended September 30, 2019 Well Site Services – Completion Services $ 307,928 $ 51,558 $ ( 2,282 ) $ 24,971 $ 496,684 Drilling Services (2) 32,430 9,729 ( 43,655 ) 2,452 21,464 Total Well Site Services 340,358 61,287 ( 45,937 ) 27,423 518,148 Downhole Technologies 143,912 15,631 3,251 11,121 700,789 Offshore/Manufactured Products 294,723 17,240 26,207 6,413 673,947 Corporate — 642 ( 35,666 ) 875 41,080 Total $ 778,993 $ 94,800 $ ( 52,145 ) $ 45,832 $ 1,933,964 ________________ (1) Operating loss includes a non-cash inventory impairment charge of $ 5.9 million to reduce the carrying of the Downhole Technologies reporting unit's inventory to its estimated realizable value. (2) Operating loss includes a non-cash fixed asset impairment charge of $ 33.7 million to reduce the carrying value of the Drilling Services reporting unit's fixed assets to their estimated realizable value. (3) Operating loss includes a non-cash goodwill impairment charge of $ 127.1 million to reduce the carrying value of the Completion Services reporting unit to its estimated fair value, a non-cash inventory impairment charge of $ 9.0 million to reduce the carrying value of the Completion Services reporting unit's inventory to its estimated realizable value and a non-cash fixed asset impairment charge of $ 3.0 million to reduce the carrying value of certain of the Completion Services reporting unit's facilities to their estimated realizable value. (4) Operating loss includes a non-cash fixed asset impairment charge of $ 5.2 million to further reduce the carrying value of the Drilling Services reporting unit's fixed assets to their estimated realizable value. (5) Operating loss includes a non-cash goodwill impairment charge of $ 192.5 million to reduce the carrying value of the Downhole Technologies reporting unit to its estimated fair value and a non-cash inventory impairment charge of $ 5.9 million to reduce the carrying value of the Downhole Technologies reporting unit's inventory to its estimated realizable value. (6) Operating loss includes a non-cash goodwill impairment charge of $ 86.5 million to reduce the carrying value of the Offshore/Manufactured Products reporting unit to its estimated fair value and a non-cash inventory impairment charge of $ 16.2 million to reduce the carrying value of the Offshore/Manufactured Products reporting unit's inventory to its estimated net realizable value. See Note 3, "Asset Impairments and Other Charges" and Note 4, "Details of Selected Balance Sheet Accounts," for further discussion of these and other charges recorded during the first nine months of 2020 and 2019. 21 OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following tables provide supplemental disaggregated revenue from contracts with customers by business segment for the three and nine months ended September 30, 2020 and 2019 (in thousands): Well Site Services Downhole Technologies Offshore/Manufactured Products Total 2020 2019 2020 2019 2020 2019 2020 2019 Three months ended September 30 Major revenue categories - Project-driven products $ — $ — $ — $ — $ 41,004 $ 39,474 $ 41,004 $ 39,474 Short-cycle: Completion products and services 34,893 103,966 18,713 42,882 3,664 26,710 57,270 173,558 Drilling services 2,479 12,034 — — — — 2,479 12,034 Other products — — — — 4,200 7,988 4,200 7,988 Total short-cycle 37,372 116,000 18,713 42,882 7,864 34,698 63,949 193,580 Other products and services — — — — 29,806 30,643 29,806 30,643 $ 37,372 $ 116,000 $ 18,713 $ 42,882 $ 78,674 $ 104,815 $ 134,759 $ 263,697 Well Site Services Downhole Technologies Offshore/Manufactured Products Total 2020 2019 2020 2019 2020 2019 2020 2019 Nine months ended September 30 Major revenue categories - Project-driven products $ — $ — $ — $ — $ 129,157 $ 105,236 $ 129,157 $ 105,236 Short-cycle: Completion products and services 153,994 307,928 74,743 143,912 22,080 80,250 250,817 532,090 Drilling services 7,179 32,430 — — — — 7,179 32,430 Other products — — — — 19,254 21,472 19,254 21,472 Total short-cycle 161,173 340,358 74,743 143,912 41,334 101,722 277,250 585,992 Other products and services — — — — 94,291 87,765 94,291 87,765 $ 161,173 $ 340,358 $ 74,743 $ 143,912 $ 264,782 $ 294,723 $ 500,698 $ 778,993 No customer individually accounted for 10% of the Company's consolidated revenue for the nine months ended September 30, 2020 and 2019. Revenues from products and services transferred to customers over time accounted for approximately 62 % and 67 % of consolidated revenues for the nine months ended September 30, 2020 and 2019, respectively. The balance of revenues for the respective periods relates to products and services transferred to customers at a point in time. As of September 30, 2020, the Company had $ 157 million of remaining backlog related to contracts with an original expected duration of greater than one year. Approximately 14 % of this remaining backlog is expected to be recognized as revenue over the remaining three months of 2020, with an additional 38 % in 2021 and the balance thereafter. 13. Commitments and Contingencies The impact of the recent COVID-19 pandemic and related economic, business and market disruptions continues to evolve and its future effects remain uncertain. The most direct and immediate impact that the Company has experienced and expects to continue to experience from the COVID-19 pandemic is decreased demand for its products and services due to lower activity levels by its customers resulting from the precipitous decline in crude oil prices. The overall impact of the pandemic and oil price collapse on the Company and its customers will depend on many factors, many of which are beyond management's control and knowledge. In response to public health concerns related to COVID-19, many federal, state, local and other authorities around the world have imposed mandatory regulations directing individuals to stay at home and have limited their ability to travel domestically or internationally. In certain cases, when travel is permitted, a multi-week quarantine period is required before an individual can work in the area. Additionally, rules and regulations regarding employer responsibilities continue to be promulgated. Facility closures, quarantines, travel restrictions, and possible future workforce shortages may, among numerous other impacts, result in delays by the Company in fulfilling its existing contractual obligations to its customers, which could result in adverse financial consequences. Additionally, the Company procures a variety of raw materials and component products, 22 OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) including steel, in the manufacture of its products from companies which may be impacted by similar challenges. The Company continues to monitor the effect of COVID-19 on its employees, customers, critical suppliers and other stakeholders. The ultimate magnitude and duration of the COVID-19 pandemic, resulting governmental restrictions placing limitations on the mobility and ability to work of the worldwide population, and the related impact on crude oil prices and the U.S. and global economy and capital markets remains uncertain. Following the Company's acquisition of GEODynamics in January 2018, the Company determined that certain steel products historically imported by GEODynamics from China for use in its manufacturing process may potentially be subject to anti-dumping and countervailing duties based on clarifications/decisions rendered by the U.S. Department of Commerce and the U.S. Court of International Trade. Following these findings, the Company commenced an internal review of this matter and ceased further purchases of these potentially affected Chinese products. As part of the Company's internal review, the Company engaged trade counsel and decided to voluntarily disclose this matter to U.S. Customs and Border Protection in September 2018. In connection with the acquisition of GEODynamics, the seller of GEODynamics (the "Seller") agreed to indemnify and hold the Company harmless against certain claims related to matters such as this, and the Company has provided notice to and asserted indemnification claims against the Seller. Additionally, the Company's agreements with the Seller allow the Company to set off payments due under the $ 25.0 million promissory note (see Note 6, "Long-term Debt") issued to the Seller in respect of indemnification claims. Such note was scheduled to mature on July 12, 2019, but, because the Company has provided notice to and asserted indemnification claims, the maturity date of the note is extended until the resolution of such claim. Although, as explained below, the Seller now claims the note has matured, the Company believes its position is correct and expects that the amount ultimately paid in respect of such note will be reduced as a result of any payments made to U.S. Customs and Border Protection associated with these indemnification claims. In August 2020, the Seller filed a breach of contract suit against the Company and one of its wholly-owned subsidiaries alleging that payments due under the promissory note discussed above have not been repaid in accordance with the terms of the note. Additionally, the Seller alleges in this suit that it is entitled to approximately $ 19 million in U.S. federal income tax carryback claims received by the Company under the provisions of the CARES Act legislation enacted in March 2020. The Company denies the validity of these breach of contract claims and plans to vigorously defend against this lawsuit. Additionally, in the ordinary course of conducting its business, the Company becomes involved in litigation and other claims from private party actions, as well as judicial and administrative proceedings involving governmental authorities at the federal, state and local levels. The Company is a party to various pending or threatened claims, lawsuits and administrative proceedings seeking damages or other remedies concerning its commercial operations, products, employees and other matters, including occasional claims by individuals alleging exposure to hazardous materials as a result of the Company's products or operations. Some of these claims relate to matters occurring prior to the acquisition of businesses, and some relate to businesses the Company has sold. In certain cases, the Company is entitled to indemnification from the sellers of businesses and, in other cases, the Company has indemnified the buyers of businesses. Although the Company can give no assurance about the outcome of pending legal and administrative proceedings and the effect such outcomes may have on the Company, management believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by indemnity or insurance, will not have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity. 23 C autionary Statement Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q and other statements we make contain certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of important factors, including incorrect or changed assumptions. For a discussion of known material factors that could affect our results, please refer to "Part I, Item 1. Business," "Part I, Item 1A. Risk Factors," "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Part II, Item 7A. Quantitative and Qualitative Disclosures about Market Risk" included in our 2019 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 21, 2020 as well as "Part II. Item 1A. Risk Factors" included in this Quarterly Report on Form 10-Q. You can typically identify "forward-looking statements" by the use of forward-looking words such as "may," "will," "could," "project," "believe," "anticipate," "expect," "estimate," "potential," "plan," "forecast," "proposed," "should," "seek," and other similar words. Such statements may relate to our future financial position, budgets, capital expenditures, projected costs, plans and objectives of management for future operations and possible future strategic transactions. Actual results frequently differ from assumed facts and such differences can be material, depending upon the circumstances. While we believe we are providing forward-looking statements expressed in good faith and on a reasonable basis, there can be no assurance that actual results will not differ from such forward-looking statements. The following are important factors that could cause actual results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, our Company: • public health crises, such as the Coronavirus Disease 2019 ("COVID-19") outbreak at the beginning of 2020, which has negatively impacted the global economy, and correspondingly, the price of crude oil; • the level of supply of and demand for oil and natural gas; • fluctuations in current and future prices of oil and natural gas; • the cyclical nature of the oil and natural gas industry; • the level of exploration, drilling and completion activity; • the financial health of our customers; • political, economic and legal efforts to restrict or eliminate certain oil and natural gas exploration, development and production activities due to concerns over the threat of climate change; • the availability of and access to attractive oil and natural gas field prospects by our customers, which may be affected by governmental actions or actions of other parties which may restrict drilling and completion activities; • the level of offshore oil and natural gas developmental activities; • general global economic conditions; • the ability of the Organization of Petroleum Exporting Countries ("OPEC") to set and maintain production levels and pricing; • global weather conditions and natural disasters; • changes in tax laws and regulations; • the impact of tariffs and duties on imported raw materials and exported finished goods; • impact of environmental matters, including future regulatory efforts to adopt environmental or climate change regulations that may result in increased operating costs or reduced commodity demand globally; • our ability to timely obtain critical permits for constructing or operating our facilities and find and retain skilled personnel; • negative outcome of litigation, threatened litigation or government proceedings; • our ability to develop new competitive technologies and products; • fluctuations in currency exchange rates; • physical, digital, cyber, internal and external security breaches; • the availability and cost of capital; • our ability to protect our intellectual property rights; • our ability to complete the integration of acquired businesses and achieve the expected accretion in earnings; and • the other factors identified in "Part I, Item 1A. Risk Factors" in our 2019 Annual Report on Form 10-K and "Part II, Item 1A. Risk Factors" included in this Quarterly Report on Form 10-Q. 24 Should one or more of these risks or uncertainties materialize, or should the assumptions on which our forward-looking statements are based prove incorrect or change, actual results may differ materially from those expected, estimated or projected. In addition, the factors identified above may not necessarily be all of the important factors that could cause actual results to differ materially from those expressed in any forward-looking statement made by us, or on our behalf. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake no responsibility to publicly release the result of any revision of our forward-looking statements after the date they are made. In addition, in certain places in this Quarterly Report on Form 10-Q, we refer to information and reports published by third parties that purport to describe trends or developments in the energy industry. We do so for the convenience of our stockholders and in an effort to provide information available in the market that will assist our investors in better understanding the market environment in which we operate. However, we specifically disclaim any responsibility for the accuracy and completeness of such information and undertake no obligation to update such information.