OIL STATES INTERNATIONAL, INC 10-K

Item 9A. Controls and Procedures (i) Evaluation of Disclosure Controls and Procedures As of the end of the period covered by this Annual Report on Form 10‑K, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) of the Exchange Act. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2020 at the reasonable assurance level. Pursuant to section 906 of The Sarbanes-Oxley Act of 2002, our Chief Executive Officer and Chief Financial Officer have provided certain certifications to the SEC. These certifications accompanied this report when filed with the SEC, but are not set forth herein. (ii) Internal Control over Financial Reporting (a) Management's annual report on internal control over financial reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of management and our directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. -52- Accordingly, even effective internal control over financial reporting can only provide reasonable assurance of achieving their control objectives. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2020 was conducted. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control–Integrated Framework (2013 Framework). Based on our assessment we believe that, as of December 31, 2020, our internal control over financial reporting is effective based on those criteria. The effectiveness of Oil States' internal control over financial reporting as of December 31, 2020 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as described below. (b) Attestation report of the registered public accounting firm. The attestation report of Ernst & Young LLP, our independent registered public accounting firm, on our internal control over financial reporting is set forth in this Annual Report on Form 10‑K on page 62 and is incorporated herein by reference. (c) Changes in internal control over financial reporting. There have been no changes in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during our fourth fiscal quarter ended December 31, 2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information There was no information required to be disclosed in a report on Form 8‑K during the fourth quarter of 2020 that was not reported on a Form 8‑K during such time. Executive Officer Retirement On February 17, 2021, Mr. Lias J. "Jeff" Steen, our Executive Vice President, Human Resources & Legal voluntarily retired from his executive officer position. He will continue to be employed in a non-executive officer role on a part-time basis by Oil States for an indefinite period of time. -53- PART III Item 10. Directors, Executive Officers and Corporate Governance (1) Information concerning directors, including our audit committee financial experts, appears in our Definitive Proxy Statement for the 2021 Annual Meeting of Stockholders, under "Election of Directors." This portion of the Definitive Proxy Statement is incorporated herein by reference. (2) Information with respect to executive officers appears in our Definitive Proxy Statement for the 2021 Annual Meeting of Stockholders, under "Executive Officers of the Registrant." This portion of the Definitive Proxy Statement is incorporated herein by reference. (3) Information concerning Section 16(a) beneficial ownership reporting compliance appears in our Definitive Proxy Statement for the 2021 Annual Meeting of Stockholders, under "Section 16(a) Beneficial Ownership Reporting Compliance." This portion of the Definitive Proxy Statement is incorporated herein by reference. (4) Information concerning corporate governance and our code of ethics appears in our Definitive Proxy Statement for the 2021 Annual Meeting of Stockholders, under "Financial Code of Ethics for Senior Officers." This portion of the Definitive Proxy Statement is incorporated herein by reference. Item 11. Executive Compensation The information required by Item 11 hereby is incorporated by reference to such information as set forth in our Definitive Proxy Statement for the 2021 Annual Meeting of Stockholders. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by Item 12 hereby is incorporated by reference to such information as set forth in our Definitive Proxy Statement for the 2021 Annual Meeting of Stockholders. Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by Item 13 hereby is incorporated by reference to such information as set forth in our Definitive Proxy Statement for the 2021 Annual Meeting of Stockholders. Item 14. Principal Accounting Fees and Services Information concerning principal accounting fees and services and the audit committee's preapproval policies and procedures appear in our Definitive Proxy Statement for the 2021 Annual Meeting of Stockholders under the heading "Fees Paid to Ernst & Young LLP" and is incorporated herein by reference. -54- PART IV Item 15. Exhibits, Financial Statement Schedules (a) Index to Financial Statements, Financial Statement Schedules and Exhibits (1) Financial Statements: Reference is made to the index set forth on page 59 of this Annual Report on Form 10‑K. (2) Financial Statement Schedules: No schedules have been included herein because the information required to be submitted has been included in the Consolidated Financial Statements or the Notes thereto, or the required information is inapplicable. (3) Index of Exhibits: See Index of Exhibits, below, for a list of those exhibits filed herewith, which index also includes and identifies management contracts or compensatory plans or arrangements required to be filed as exhibits to this Annual Report on Form 10‑K by Item 601 of Regulation S‑K. (b) Index of Exhibits Exhibit No. Description 2.1 — Stock Purchase Agreement, dated as of December 12, 2017, by and among GEODynamics B.V., GEODynamics, Inc., the Seller Shareholders, GD Development Corporation and Oil States International, Inc. (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K, as filed with the SEC on December 13, 2017 (File No. 001-16337)). 3.1 — Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10‑K for the year ended December 31, 2000, as filed with the SEC on March 30, 2001 (File No. 001‑16337)). 3.2 — Fourth Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8‑K, as filed with the SEC on May 8, 2019 (File No. 001‑16337)). 3.3 — Certificate of Designations of Special Preferred Voting Stock of Oil States International, Inc. (incorporated by reference to Exhibit 3.3 to the Company's Annual Report on Form 10‑K for the year ended December 31, 2000, as filed with the SEC on March 30, 2001 (File No. 001‑16337)). 4.1 — Form of common stock certificate (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S‑1, as filed with the SEC on November 7, 2000 (File No. 333‑43400)). 4. 2 — Indenture, dated January 30, 2018, between Oil States International, Inc., and Wells Fargo Bank, National Association, as trustee, relating to the Company's 1.50% Convertible Senior Notes Due 2023 (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K, as filed with the SEC on February 2, 2018 (File No. 001-16337)). 4. 3 — Description of Common Stock. 10.1+ — Oil States International, Inc. 2018 Equity Participation Plan (incorporated by reference to Exhibit 4.5 to the Company's Registration Statement on Form S-8, as filed with the SEC on May 17, 2018 (File No. 333‑224988)). 10.2+ — Second Amended and Restated 2001 Equity Participation Plan effective January 1, 2017 (incorporated by reference to Exhibit 10.2 to the Company's Annual Report on Form 10 K for the year ended December 31, 2016, as filed with the SEC on February 17, 2017 (File No. 001 16337)). 10.3+ — Deferred Compensation Plan effective January 1, 2012 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10‑Q for the quarter ended March 31, 2013, as filed with the SEC on April 25, 2013 (File No. 001‑16337)). 10.4+ — Annual Incentive Compensation Plan, dated January 1, 2017 (incorporated by reference to Exhibit 10.4 to the Company's Annual Report on Form 10‑K for the year ended December 31, 2016, as filed with the SEC on February 17, 2017 (File No. 001‑16337)). 10.5+ — Executive Agreement between Oil States International, Inc. and Cindy B. Taylor (incorporated by Reference to Exhibit 10.9 to the Company's Annual Report on Form 10‑K for the year ended December 31, 2000, as filed with the SEC on March 30, 2001 (File No. 001‑16337)). 10.6+ — Form of Change of Control Severance Plan for Selected Members of Management (incorporated by reference to Exhibit 10.11 of the Company's Registration Statement on Form S‑1, as filed with the SEC on December 12, 2000 (File No. 333‑43400)). 10. 7 — Asset-based Credit Agreement, dated as of February 10, 2021, among Oil States International, Inc., as Borrower, the Lenders from time to time party thereto, and Wells Fargo Bank, National Association as Agent (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, as filed with the SEC on February 12 , 2021 (File No. 001-16337)). -55- 10. 8 — Amended and Restated Credit Agreement dated January 30, 2018, among the Company, Wells Fargo Bank, N.A., as administrative agent and the financial institutions party thereto (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, as filed with the SEC on February 2, 2018 (File No. 001-16337)). 10. 9 — Amendment No. 1 to the Amended and Restated Credit Agreement, dated May 14, 2018, among the Company, Wells Fargo Bank, N.A., as administrative agent and the financial institutions party thereto (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, as filed with the SEC on July 31, 2018 (File No. 001-16337)). 10. 10 — Omnibus Amendment to Credit Agreement (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, as filed with the Commission on June 18, 2020 (File No. 001-16337)). 10. 11 — Form of Indemnification Agreement (incorporated by reference to Exhibit 10.14 to the Company's Quarterly Report on Form 10‑Q for the quarter ended September 30, 2004, as filed with the SEC on November 5, 2004 (File No. 001‑16337)). 10. 12 + — Form of Director Stock Option Agreement under the Company's 2001 Equity Participation Plan (incorporated by reference to Exhibit 10.18 to the Company's Annual Report on Form 10‑K for the year ended December 31, 2004, as filed with the SEC on March 2, 2005 (File No. 001‑16337)). 10. 13 + — Form of Employee Nonqualified Stock Option Agreement under the Company's 2018 Equity Participation Plan (incorporated by reference to Exhibit 10.3 to the Company's Registration Statement on Form S-8, as filed with the SEC on May 17, 2018 (File No. 333‑224988)). 10. 14 + — Form of Restricted Stock Agreement under the Company's 2018 Equity Participation Plan (incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-8, as filed with the SEC on May 17, 2018 (File No. 333‑224988)). 10. 15 + — Form of Deferred Stock Performance Award Agreement under the Company's Second Amended and Restated 2001 Equity Participation Plan (incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10‑K for the year ended December 31, 2016, as filed with the SEC on February 17, 2017 (File No. 001‑16337)). 10. 16 + — Form of Performance Award Agreement under the Company's 2018 Equity Participation Plan (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, as filed with the SEC on July 29, 2019 (File No. 001-16337)). 10. 17 + — Non-Employee Director Compensation Summary (incorporated by reference to Exhibit 10.21 to the Company's Report on Form 8‑K as filed with the SEC on November 15, 2006 (File No. 001‑16337)). 10. 18 + — Executive Agreement between Oil States International, Inc. and named executive officer (Mr. Cragg) (incorporated by reference to Exhibit 10.22 to the Company's Quarterly Report on Form 10‑Q for the quarter ended March 31, 2005, as filed with the SEC on April 29, 2005 (File No. 001‑16337)). 10. 19 + — Form of Non-Employee Director Restricted Stock Agreement under the Company's 2018 Equity Participation Plan (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, as filed with the SEC on July 29, 2019 (File No. 001-16337)). 10. 20 + — Amendment to the Executive Agreement of Cindy Taylor, effective January 1, 2009 (incorporated by reference to Exhibit 10.21 to the Company's Annual Report on Form 10‑K for the year ended December 31, 2008, as filed with the SEC on February 20, 2009 (File No. 001‑16337)). 10. 21 + — Amendment to the Executive Agreement of Christopher Cragg, effective January 1, 2009 (incorporated by reference to Exhibit 10.24 to the Company's Annual Report on Form 10‑K for the year ended December 31, 2008, as filed with the SEC on February 20, 2009 (File No. 001‑16337)). 10. 22 + — Deferred Stock Performance Award Agreement (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8‑K, as filed with the SEC on February 23, 2012 (File No. 001‑16337)). 10. 23 + — Deferred Stock Agreement effective February 19, 2013 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10‑Q for the quarter ended March 31, 2013, as filed with the SEC on April 25, 2013 (File No. 001‑16337)). 10. 24 + — Executive Agreement between Oil States International, Inc. and named executive officer (Lloyd A. Hajdik) effective December 9, 2013 (incorporated by reference to Exhibit 10.31 to the Company's Annual Report on Form 10‑K for the year ended December 31, 2013, as filed with the SEC on February 25, 2014 (File No. 001‑16337)). 10. 25 + — Executive Agreement between Oil States International, Inc. and named executive officer (Lias J. Steen) effective May, 20, 2009 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10‑Q for the quarter ended March 31, 2014, as filed with the SEC on May 2, 2014 (File No. 001‑16337)). 10. 26 + — Executive Agreement between Oil States International, Inc. and named executive officer (Philip S. Moses) effective July 1, 2015 (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8‑K, as filed with the SEC on July 8, 2015 (File No. 001‑16337)). 10. 27 — Annual Incentive Compensation Plan, dated January 1, 2020 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, as filed with the SEC on May 1, 2020 (File No. 001-16337)). -56- 21.1* — List of subsidiaries of the Company. 23.1* — Consent of Independent Registered Public Accounting Firm. 24.1* — Powers of Attorney for Directors. 31.1* — Certification of Chief Executive Officer of Oil States International, Inc. pursuant to Rules 13a‑14(a) or 15d‑14(a) under the Securities Exchange Act of 1934. 31.2* — Certification of Chief Financial Officer of Oil States International, Inc. pursuant to Rules 13a‑14(a) or 15d‑14(a) under the Securities Exchange Act of 1934. 32.1** — Certification of Chief Executive Officer of Oil States International, Inc. pursuant to Rules 13a‑14(b) or 15d‑14(b) under the Securities Exchange Act of 1934. 32.2** — Certification of Chief Financial Officer of Oil States International, Inc. pursuant to Rules 13a‑14(b) or 15d‑14(b) under the Securities Exchange Act of 1934. 101.INS* — XBRL Instance Document 101.SCH* — XBRL Taxonomy Extension Schema Document 101.CAL* — XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF* — XBRL Taxonomy Extension Definition Linkbase Document 101.LAB* — XBRL Taxonomy Extension Label Linkbase Document 101.PRE* — XBRL Taxonomy Extension Presentation Linkbase Document 104.1* — Cover Page Interactive Data File (embedded within the Inline XBRL document) --------- * Filed herewith. ** Furnished herewith. + Management contracts or compensatory plans or arrangements. Item 16. Form 10-K Summary None. -57- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on February 22, 2021. OIL STATES INTERNATIONAL, INC. By /s/ Cindy B. Taylor Cindy B. Taylor President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant in the capacities indicated on February 22, 2021. Signature Title * Chairman of the Board Robert L. Potter /s/ Cindy B. Taylor Director, President & Chief Executive Officer Cindy B. Taylor (Principal Executive Officer) /s/ Lloyd A. Hajdik Executive Vice President, Chief Financial Officer Lloyd A. Hajdik and Treasurer (Principal Financial Officer) /s/ Brian E. Taylor Vice President, Controller and Chief Accounting Officer Brian E. Taylor (Principal Accounting Officer) * Director Lawrence R. Dickerson * Director Darrell E. Hollek * Director S. James Nelson, Jr. * Director Christopher T. Seaver * Director William T. Van Kleef * Director Hallie A. Vanderhider * Director E. Joseph Wright *By: /s/ Lloyd A. Hajdik Lloyd A. Hajdik, pursuant to a power of attorney filed as Exhibit 24.1 to this Annual Report on Form 10-K -58- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements 60 Report of Independent Registered Public Accounting Firm on the Company's Internal Control Over Financial Reporting 62 Consolidated Statements of Operations 63 Consolidated Statements of Comprehensive Loss 64 Consolidated Balance Sheets 65 Consolidated Statements of Stockholders' Equity 66 Consolidated Statements of Cash Flows 67 Notes to Consolidated Financial Statements 68 -59- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Oil States International, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Oil States International, Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 22, 2021 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. -60- Goodwill Impairment - Offshore/Manufactured Products Description of the Matter As discussed in Note 2 to the consolidated financial statements, goodwill is assessed for impairment annually and when an event occurs or circumstances change to suggest that the carrying amount may not be recoverable. Given the significance of the March 2020 events described in Note 6, the Company performed a quantitative assessment of goodwill for impairment at March 31, 2020. Based on this quantitative assessment, the Company recognized non-cash goodwill impairment charges of $406.1 million, which included a partial goodwill impairment charge of $86.5 million in its Offshore/Manufactured Products reporting unit. As reflected in the Company's consolidated financial statements at December 31, 2020, the Company's remaining goodwill was $76.5 million in the Offshore/Manufactured Products reporting unit. Auditing management's interim goodwill impairment assessment for the Company's Offshore/Manufactured Products reporting unit was subjective and required the involvement of specialists due to the significant measurement uncertainty in determining the fair value of the reporting unit. In particular, the fair value estimate attributable to the income approach was sensitive to changes in significant assumptions, such as the discount rate and the revenue growth rate, both of which are affected by market forecasts of commodity prices and the level of capital expenditures in the oil and gas industry. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company's goodwill impairment assessment process. For example, we tested controls over the Company's forecasting process as well as controls over management's review of the significant assumptions in estimating the fair value of the reporting unit and the related evaluation of management's specialist. To test the estimated fair value of the reporting unit, our audit procedures included, among others, assessing the valuation methodology and testing the significant assumptions discussed herein. For example, we compared the revenue growth rate in the prospective financial data used by management to external forecasted spending trends in industry, analysts' forecasted commodity prices and historical performance. We performed sensitivity analyses of certain significant assumptions to evaluate the change in the fair value resulting from changes in the significant assumptions. We also involved our valuation specialists to assist in the evaluation of the fair value methodology and the discount rate assumption in the fair value estimate. We further tested the completeness and accuracy of the underlying data used in the fair value estimate. /s/ Ernst & Young LLP We have served as the Company‘s auditor since 2000. Houston, Texas February 22, 2021 -61- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Oil States International, Inc. Opinion on Internal Control Over Financial Reporting We have audited Oil States International, Inc. and subsidiaries' internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Oil States International, Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2020 and the related notes, and our report dated February 22, 2021 expressed an unqualified opinion thereon. Basis for Opinion The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's annual report on internal control over financial reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Houston, Texas February 22, 2021 -62- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Amounts) Year Ended December 31, 2020 2019 2018 Revenues: Products $ 331,272 $ 483,359 $ 501,822 Service 306,803 533,995 586,311 638,075 1,017,354 1,088,133 Costs and expenses: Product costs 287,615 369,194 366,453 Service costs 274,190 433,395 468,060 Cost of revenues (exclusive of depreciation and amortization expense presented below) 561,805 802,589 834,513 Selling, general and administrative expenses 94,102 122,932 138,070 Depreciation and amortization expense 98,543 123,319 123,530 Impairments of goodwill 406,056 165,000 — Impairments of fixed and lease assets 12,447 33,697 — Other operating income, net ( 538 ) ( 2,003 ) ( 2,104 ) 1,172,415 1,245,534 1,094,009 Operating loss ( 534,340 ) ( 228,180 ) ( 5,876 ) Interest expense ( 14,259 ) ( 17,898 ) ( 19,314 ) Interest income 390 262 319 Other income, net 13,880 5,089 3,139 Loss before income taxes ( 534,329 ) ( 240,727 ) ( 21,732 ) Income tax benefit 65,946 8,919 2,627 Net loss $ ( 468,383 ) $ ( 231,808 ) $ ( 19,105 ) Net loss per share: Basic $ ( 7.83 ) $ ( 3.90 ) $ ( 0.33 ) Diluted ( 7.83 ) ( 3.90 ) ( 0.33 ) Weighted average number of common shares outstanding: Basic 59,812 59,379 58,712 Diluted 59,812 59,379 58,712 The accompanying notes are an integral part of these financial statements. -63- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (In Thousands) Year Ended December 31, 2020 2019 2018 Net loss $ ( 468,383 ) $ ( 231,808 ) $ ( 19,105 ) Other comprehensive income (loss): Currency translation adjustments, net of tax ( 3,750 ) 3,462 ( 13,088 ) Other 111 189 184 Total other comprehensive income (loss) ( 3,639 ) 3,651 ( 12,904 ) Comprehensive loss $ ( 472,022 ) $ ( 228,157 ) $ ( 32,009 ) The accompanying notes are an integral part of these financial statements. -64- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share Amounts) December 31, 2020 2019 ASSETS Current assets: Cash and cash equivalents $ 72,011 $ 8,493 Accounts receivable, net 163,135 233,487 Inventories, net 170,376 221,342 Prepaid expenses and other current assets 18,071 20,107 Total current assets 423,593 483,429 Property, plant and equipment, net 383,562 459,724 Operating lease assets, net 33,140 43,616 Goodwill, net 76,489 482,306 Other intangible assets, net 205,749 230,091 Other noncurrent assets 29,727 28,701 Total assets $ 1,152,260 $ 1,727,867 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 17,778 $ 25,617 Accounts payable 46,433 78,368 Accrued liabilities 44,504 48,840 Current operating lease liabilities 7,620 8,311 Income taxes payable 2,413 4,174 Deferred revenue 43,384 17,761 Total current liabilities 162,132 183,071 Long-term debt 165,759 222,552 Long-term operating lease liabilities 29,166 35,777 Deferred income taxes 14,263 38,079 Other noncurrent liabilities 23,309 24,421 Total liabilities 394,629 503,900 Stockholders' equity: Common stock, $ 0.01 par value, 200,000,000 shares authorized, 73,288,976 shares and 72,546,321 shares issued, respectively 733 726 Additional paid-in capital 1,122,945 1,114,521 Retained earnings 329,327 797,710 Accumulated other comprehensive loss ( 71,385 ) ( 67,746 ) Treasury stock, at cost, 12,283,817 and 12,045,065 shares, respectively ( 623,989 ) ( 621,244 ) Total stockholders' equity 757,631 1,223,967 Total liabilities and stockholders' equity $ 1,152,260 $ 1,727,867 The accompanying notes are an integral part of these financial statements. -65- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In Thousands) Common Stock Additional Paid‑In Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Stockholders' Equity Balance, December 31, 2017 $ 627 $ 754,607 $ 1,048,623 $ ( 58,493 ) $ ( 612,651 ) $ 1,132,713 Net loss — — ( 19,105 ) — — ( 19,105 ) Currency translation adjustment (excluding intercompany advances) — — — ( 10,984 ) — ( 10,984 ) Currency translation adjustment on intercompany advances — — — ( 2,104 ) — ( 2,104 ) Other comprehensive income — — — 184 — 184 Stock-based compensation expense: Restricted stock 4 22,153 — — — 22,157 Stock options — 492 — — — 492 Issuance of common stock in connection with GEODynamics Acquisition 87 294,823 — — — 294,910 Issuance of 1.50 % convertible senior notes, net of income taxes of $ 7,744 — 25,683 — — — 25,683 Surrender of stock to settle taxes on restricted stock awards — — — — ( 4,178 ) ( 4,178 ) Balance, December 31, 2018 718 1,097,758 1,029,518 ( 71,397 ) ( 616,829 ) 1,439,768 Net loss — — ( 231,808 ) — — ( 231,808 ) Currency translation adjustment (excluding intercompany advances) — — — 3,925 — 3,925 Currency translation adjustment on intercompany advances — — — ( 463 ) — ( 463 ) Other comprehensive income — — — 189 — 189 Stock-based compensation expense: Restricted stock 8 16,707 — — — 16,715 Stock options — 53 — — — 53 Stock repurchases — — — — ( 757 ) ( 757 ) Surrender of stock to settle taxes on restricted stock awards — — — — ( 3,698 ) ( 3,698 ) Common stock withdrawn from deferred compensation plan — 3 — — 40 43 Balance, December 31, 2019 726 1,114,521 797,710 ( 67,746 ) ( 621,244 ) 1,223,967 Net loss — — ( 468,383 ) — — ( 468,383 ) Currency translation adjustment (excluding intercompany advances) — — — 2,065 — 2,065 Currency translation adjustment on intercompany advances — — — ( 5,815 ) — ( 5,815 ) Other comprehensive income — — — 111 — 111 Stock-based compensation expense: Restricted stock 7 8,424 — — — 8,431 Surrender of stock to settle taxes on restricted stock awards — — — — ( 2,745 ) ( 2,745 ) Balance, December 31, 2020 $ 733 $ 1,122,945 $ 329,327 $ ( 71,385 ) $ ( 623,989 ) $ 757,631 The accompanying notes are an integral part of these financial statements. -66- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) Year Ended December 31, 2020 2019 2018 Cash flows from operating activities: Net loss $ ( 468,383 ) $ ( 231,808 ) $ ( 19,105 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization expense 98,543 123,319 123,530 Impairments of goodwill 406,056 165,000 — Impairments of inventories 31,151 — — Impairments of fixed and lease assets 12,447 33,697 — Stock-based compensation expense 8,431 16,768 22,649 Amortization of debt discount and deferred financing costs 7,736 7,884 7,408 Deferred income tax benefit ( 24,404 ) ( 15,469 ) ( 3,489 ) Gains on extinguishment of 1.50 % convertible senior notes ( 10,721 ) — — Gains on disposals of assets ( 2,444 ) ( 4,291 ) ( 6,288 ) Other, net 4,668 3,079 1,411 Changes in operating assets and liabilities, net of effect from acquired businesses: Accounts receivable 63,876 50,257 ( 16,792 ) Inventories 17,578 ( 10,774 ) ( 7,283 ) Accounts payable and accrued liabilities ( 37,315 ) ( 6,173 ) 5,796 Deferred revenue 25,549 3,470 ( 4,808 ) Other operating assets and liabilities, net ( 13 ) 2,473 141 Net cash flows provided by operating activities 132,755 137,432 103,170 Cash flows from investing activities: Capital expenditures ( 12,749 ) ( 56,116 ) ( 88,024 ) Proceeds from disposition of property, plant and equipment 9,601 6,046 3,659 Acquisitions of businesses, net of cash acquired — — ( 379,676 ) Proceeds from flood insurance claims — — 3,850 Other, net ( 581 ) ( 1,912 ) ( 1,184 ) Net cash flows used in investing activities ( 3,729 ) ( 51,982 ) ( 461,375 ) Cash flows from financing activities: Revolving credit facility borrowings 72,173 246,828 835,467 Revolving credit facility repayments ( 105,104 ) ( 331,041 ) ( 699,322 ) Issuance of 1.50 % convertible senior notes — — 200,000 Purchases of 1.50 % convertible senior notes ( 20,078 ) ( 6,724 ) — Other debt and finance lease repayments, net ( 8,222 ) ( 500 ) ( 537 ) Payment of financing costs ( 1,041 ) ( 16 ) ( 7,372 ) Shares added to treasury stock as a result of net share settlements due to vesting of restricted stock ( 2,745 ) ( 3,698 ) ( 4,178 ) Purchases of treasury stock — ( 757 ) — Net cash flows (used in) provided by financing activities ( 65,017 ) ( 95,908 ) 324,058 Effect of exchange rate changes on cash and cash equivalents ( 491 ) ( 365 ) 4 Net change in cash and cash equivalents 63,518 ( 10,823 ) ( 34,143 ) Cash and cash equivalents, beginning of year 8,493 19,316 53,459 Cash and cash equivalents, end of year $ 72,011 $ 8,493 $ 19,316 Cash paid (received) for: Interest $ 6,402 $ 9,626 $ 9,864 Income taxes, net ( 36,766 ) ( 1,303 ) 2,993 The accompanying notes are an integral part of these financial statements. -67- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Basis of Presentation The Consolidated Financial Statements include the accounts of Oil States International, Inc. ("Oil States" or the "Company") and its consolidated subsidiaries. Investments in unconsolidated affiliates, in which the Company is able to exercise significant influence, are accounted for using the equity method. All significant intercompany accounts and transactions between the Company and its consolidated subsidiaries have been eliminated in the accompanying consolidated financial statements. Certain prior-year amounts in the Company's consolidated financial statements have been reclassified to conform to the current year presentation. The Company, through its subsidiaries, is a leading provider of specialty products and services to oil and gas and industrial companies throughout the world. The Company operates in a substantial number of the world's active resource intensive regions, including: onshore and offshore United States, West Africa, the North Sea, the Middle East, South America and Southeast and Central Asia. The Company operates through three business segments – Well Site Services, Downhole Technologies and Offshore/Manufactured Products. On January 12, 2018, the Company acquired GEODynamics, Inc., ("GEODynamics" and the "GEODynamics Acquisition"). These acquired operations are reported as the Downhole Technologies segment. On February 28, 2018, the Company acquired Falcon Flowback Services, LLC ("Falcon"), which was integrated into the Completion Services business unit. There have been no other changes in reporting structure. 2. Summary of Significant Accounting Policies Use of Estimates As further discussed in Note 14, "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 numerous 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 2020, the Company recorded asset impairments, severance and restructuring 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 consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Examples of such estimates include goodwill and long-lived asset impairments, revenue and income recognized over time, valuation allowances recorded on deferred tax assets, the fair value of assets and liabilities acquired including identification of associated goodwill and intangible assets, reserves on inventory, allowances for doubtful accounts, settlement of litigation and potential future adjustments related to contractual indemnification and other agreements. Actual results could materially differ from those estimates. Cash and Cash Equivalents All highly liquid investments purchased with an original maturity of three months or less are classified as cash equivalents. Fair Value of Financial Instruments Financial instruments consist of cash and cash equivalents, investments, receivables, payables and debt instruments. The carrying values of these instruments, other than the 1.50 % convertible senior notes due February 2023 (the "Notes") described in Note 7, "Long-term Debt," on the accompanying consolidated balance sheets, approximates their fair values. The estimated fair value of the Notes as of December 31, 2020 was $ 120.6 million, based on quoted market prices (a Level 2 fair value measurement), which compares to $ 157.4 million principal amount of the Notes. -68- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Inventories Inventories consist of consumable oilfield products, manufactured equipment, spare parts for manufactured equipment, and work-in-process. Inventories also include raw materials, labor, subcontractor charges, manufacturing overhead and supplies and are carried at the lower of cost or net realizable value. The cost of inventories is determined on an average cost or specific-identification method. A reserve for excess and/or obsolete inventory is maintained based on the age, turnover, condition, expected near-term utility and market pricing of the goods. Property, Plant, and Equipment Property, plant, and equipment are recorded at cost, or at estimated fair market value at acquisition date if acquired in a business combination, and depreciation is computed, for assets owned or recorded under a finance lease, using the straight-line method over the estimated useful lives of the assets, after allowing for estimated salvage value where applicable. Leasehold improvements are capitalized and amortized over the lesser of the life of the lease or the estimated useful life of the asset. Expenditures for repairs and maintenance are charged to expense when incurred. Expenditures for major renewals and betterments, which extend the useful lives of existing equipment, are capitalized and depreciated. Upon retirement or disposition of property and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the statements of operations. Goodwill Goodwill represents the excess after impairments, if applicable, of the purchase price for acquired businesses over the allocated fair value of related net assets. In accordance with current accounting guidance, the Company does not amortize goodwill, but rather assesses goodwill for impairment annually and when an event occurs or circumstances change that indicate the carrying amounts may not be recoverable. In the evaluation of goodwill, each reporting unit with goodwill on its balance sheet is assessed separately using relevant events and circumstances. Management estimates the fair value of each reporting unit and compares that fair value to its recorded carrying value. Management utilizes, depending on circumstances, a combination of valuation methodologies including a market approach and an income approach, as well as guideline public company comparables. Projected cash flows are discounted using a long-term weighted average cost of capital for each reporting unit based on estimates of investment returns that would be required by a market participant. As part of the process of assessing goodwill for potential impairment, the total market capitalization of the Company is compared to the sum of the fair values of all reporting units to assess the reasonableness of aggregated fair values. If the carrying amount of a reporting unit exceeds its fair value, goodwill is considered impaired and an impairment loss is recorded. As further discussed in Note 6, "Goodwill and Other Intangible Assets," the Company recognized non-cash goodwill impairment charges of $ 406.1 million in the first quarter of 2020 and $ 165.0 million in the fourth quarter of 2019. These impairment charges did not impact the Company's liquidity position, debt covenants or cash flows. Long-Lived Assets The Company amortizes the cost of long-lived assets, including finite-lived intangible assets, over their estimated useful life. The recoverability of the carrying values of long-lived assets is assessed at the asset group level whenever, in management's judgment, events or changes in circumstances indicate that the carrying value of such asset groups may not be recoverable based on estimated undiscounted future cash flows. If this assessment indicates that the carrying values will not be recoverable, an impairment loss equal to the excess of the carrying value over the fair value of the asset group is recognized. The fair value of the asset group is based on appraised values, prices of similar assets (if available), or discounted cash flows. As further discussed in Note 4, "Details of Selected Balance Sheet Accounts," and Note 8, "Operating Leases," the Company recognized non-cash asset impairment charges totaling $ 12.4 million and $ 33.7 million in 2020 and 2019, respectively, to reduce the carrying value of certain equipment and facilities (owned and leased) to their estimated realizable value. Based on the Company's review, the carrying values of its other long-lived assets are recoverable, and no impairment losses were recorded during the periods presented. -69- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Leases The Company leases a portion of its facilities, office space, equipment and vehicles under contracts which provide it with the right to control identified assets. The Company recognizes the right to use identified assets under operating leases (with an initial term of greater than 12 months) as operating lease assets and the related obligations to make payments under the lease arrangements as operating lease liabilities. Finance lease obligations, which are not material, are classified within long-term debt while related assets are included within property, plant and equipment. Lease assets and liabilities are recorded at the commencement date based on the present value of lease payments over the lease term. The Company has lease agreements with lease and non-lease components, which are generally accounted for as a single lease component. Most of the Company's leases do not provide an implicit interest rate. Therefore, the Company's incremental borrowing rate, based on available information at the lease commencement date, is used to determine the present value of lease payments. Most of the Company's operating leases include one or more options to renew, with renewal terms that can extend the lease term from one to 20 years. The exercise of lease renewal options is at the Company's sole discretion. The depreciable lives of lease-related assets and leasehold improvements are limited by the expected lease term. Certain operating lease agreements include rental payments adjusted periodically for inflation. The Company's operating lease agreements do not contain any material residual value guarantees or material restrictive covenants. While the Company rents or subleases certain real estate to third parties, such amounts are not material. Cash outflows related to operating leases are presented within cash flows from operations. Research and Development Costs Costs incurred internally in researching and developing products are charged to expense until technological feasibility has been established for the product. Research and development expenses totaled $ 6.1 million, $ 7.0 million and $ 6.6 million in 2020, 2019 and 2018, respectively, and are reported within cost of revenues in the accompanying consolidated statements of operations. Foreign Currency and Other Comprehensive Loss Gains and losses resulting from balance sheet translation of international operations where the local currency is the functional currency are included as a component of accumulated other comprehensive loss within stockholders' equity and represent substantially all of the accumulated other comprehensive loss balance. Remeasurements of intercompany advances denominated in a currency other than the functional currency of the entity that are of a long-term investment nature are recognized as a separate component of other comprehensive loss within stockholders' equity. Gains and losses resulting from balance sheet remeasurements of assets and liabilities denominated in a different currency than the functional currency, other than intercompany advances that are of a long-term investment nature, are included in the consolidated statements of operations within "other operating income, net" as incurred and were not material during the periods presented. Currency Exchange Rate Risk A portion of revenues, earnings and net investments in operations outside the United States are exposed to changes in currency exchange rates. The Company seeks to manage its currency exchange risk in part through operational means, including managing expected local currency revenues in relation to local currency costs and local currency assets in relation to local currency liabilities. In order to reduce exposure to fluctuations in currency exchange rates, the Company may enter into currency exchange agreements with financial institutions. As of December 31, 2020 and 2019, the Company had no outstanding foreign currency forward purchase contracts. Revenue and Cost Recognition The Company's revenue contracts may include one or more promises to transfer a distinct good or service to the customer, which is referred to as a "performance obligation," and to which revenue is allocated. The Company recognizes revenue and the related cost when, or as, the performance obligations are satisfied. The majority of significant contracts for custom engineered products have a single performance obligation as no individual good or service is separately identifiable from other performance obligations in the contracts. For contracts with multiple distinct performance obligations, the Company allocates revenue to the identified performance obligations in the contract. The Company's product sales terms do not include significant post-performance obligations. -70- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The Company's performance obligations may be satisfied at a point in time or over time as work progresses. Revenues from products and services transferred to customers at a point in time accounted for approximately 38 %, 34 % and 29 % of consolidated revenues for the years ended December 31, 2020, 2019 and 2018, respectively. The majority of the Company's revenue recognized at a point in time is derived from short-term contracts for standard products. Revenue on these contracts is recognized when control over the product has transferred to the customer. Indicators the Company considers in determining when transfer of control to the customer occurs include: right to payment for the product, transfer of legal title to the customer, transfer of physical possession of the product, transfer of risk and customer acceptance of the product. Revenues from products and services transferred to customers over time accounted for approximately 62 %, 66 % and 71 % of consolidated revenues for the years ended December 31, 2020, 2019 and 2018, respectively. The majority of the Company's revenue recognized over time is for services provided under short-term contracts, with revenue recognized as the customer receives and consumes the services. In addition, the Company manufactures certain products to individual customer specifications under short-term contracts for which control passes to the customer as the performance obligations are fulfilled and for which revenue is recognized over time. For significant project-related contracts involving custom engineered products within the Offshore/Manufactured Products segment (also referred to as "project-driven products"), revenues are typically recognized over time using an input measure such as the percentage of costs incurred to date relative to total estimated costs at completion for each contract (cost-to-cost method). Contract costs include labor, material and overhead. Management believes this method is the most appropriate measure of progress on large contracts. Billings on such contracts in excess of costs incurred and estimated profits are classified as a contract liability (deferred revenue). Costs incurred and estimated profits in excess of billings on these contracts are recognized as a contract asset (a component of accounts receivable). Contract estimates for project-related contracts involving custom engineered products are based on various assumptions to project the outcome of future events that may span several years. Changes in assumptions that may affect future project costs and margins include production efficiencies, the complexity of the work to be performed and the availability and costs of labor, materials and subcomponents. As a significant change in one or more of these estimates could affect the profitability of the Company's contracts, contract-related estimates are reviewed regularly. The Company recognizes adjustments in estimated costs and profits on contracts in the period the adjustment is identified. Revenue and profit in future periods of contract performance are recognized using the adjusted estimate. If at any time the estimate of contract profitability indicates an anticipated loss will be incurred on the contract, the full loss is recognized in the period it is identified. Product costs and service costs include all direct material and labor costs and those costs related to contract performance, such as indirect labor, supplies, tools and repairs. As disclosed in the consolidated statements of operations, product costs and service costs exclude depreciation and amortization expense and impairment of fixed assets, which are separately presented. Selling, general and administrative costs are charged to expense as incurred. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, and that are collected by the Company from a customer, are excluded from revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of products. Proceeds from customers for the cost of oilfield rental equipment that is damaged or lost downhole are reflected as gains or losses on the disposition of assets after considering the write-off of the remaining net book value of the equipment. As of December 31, 2020, the Company had $ 161.9 million of remaining backlog related to contracts with an original expected duration of greater than one year . Approximately 53 % of this remaining backlog is expected to be recognized as revenue in 2021 and the balance thereafter. Income Taxes The Company follows the liability method of accounting for income taxes. Under this method, deferred income taxes are recorded based upon the differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws in effect at the time the underlying assets or liabilities are recovered or settled. -71- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) As further discussed in Note 9, "Income Taxes," on December 22, 2017, legislation commonly known as the Tax Cuts and Jobs Act ("Tax Reform Legislation") was signed into law which enacted significant changes to U.S. tax and related laws, including certain key U.S. federal income tax provisions applicable to oilfield service and manufacturing companies such as the Company. In accordance with the Securities and Exchange Commission's Staff Accounting Bulletin No. 118, the Company recorded provisional estimates to reflect the effect of the Tax Reform Legislation on the Company's income tax assets and liabilities as of December 31, 2017. During 2018, the Company adjusted these provisional estimates based upon additional guidance issued by the Internal Revenue Service. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security ("CARES") Act was signed into law, which allowed the carryback of U.S. federal net operating losses. Prior to the enactment of the CARES Act, such tax losses could only be carried forward. As of December 31, 2020, the Company's total investment in foreign subsidiaries is considered to be indefinitely reinvested outside of the United States. The Company accounts for the U.S. tax effect of global intangible low-taxed income earned by foreign subsidiaries in the period that such income is earned. The Company records a valuation allowance in the reporting period when management believes that it is more likely than not that any deferred tax asset will not be realized. This assessment requires analysis of changes in tax laws as well as available positive and negative evidence, including consideration of losses in recent years, reversals of temporary differences, forecasts of future income and assessment of future business and tax planning strategies. During 2020, 2019 and 2018, the Company recorded valuation allowances primarily with respect to foreign and U.S. state net operating loss ("NOL") carryforwards. The calculation of tax liabilities involves assessing uncertainties regarding the application of complex tax regulations. The Company recognizes liabilities for tax expenses based on estimates of whether, and the extent to which, additional taxes will be due. If management ultimately determines that payment of these amounts is unnecessary, the liability is reversed and a tax benefit is recognized during the period in which management determines that the liability is no longer necessary. An additional charge is recorded as a provision for taxes in the period in which management determines that the recorded tax liability is less than the expected ultimate assessment. Receivables and Concentration of Credit Risk Based on the nature of its customer base, the Company does not believe that it has any significant concentrations of credit risk other than its concentration in the worldwide oil and gas industry. Note 15, "Segments and Related Information," provides further information with respect to the Company's geographic revenues and significant customers. The Company evaluates the credit-worthiness of significant customers' financial condition and, generally, the Company does not require significant collateral from its customers. Allowances for Doubtful Accounts The Company maintains allowances for estimated losses resulting from the inability of the Company's customers to make required payments. Determination of the collectability of amounts due from customers requires management to make judgments regarding future events and trends. Allowances for doubtful accounts are established through an assessment of the Company's portfolio on an individual customer and consolidated basis taking into account current and expected future market conditions and trends. This process consists of a thorough review of historical collection experience, current aging status of customer accounts, and financial condition of the Company's customers as well as political and economic factors in countries of operations and other customer-specific factors. Based on a review of these factors, the Company establishes or adjusts allowances for trade and unbilled receivables as well as contract assets. If the financial condition of the Company's customers were to deteriorate further, adversely affecting their ability to make payments, additional allowances may be required. If a customer receivable is deemed to be uncollectible, the receivable is charged-off against allowance for doubtful accounts. Earnings per Share Basic earnings per share ("EPS") on the face of the accompanying consolidated statements of operations is computed by dividing the net income or loss applicable to the Company's common stockholders by the weighted average shares of outstanding common stock. The calculation of diluted EPS is similar to basic EPS, except that the denominator includes dilutive common stock equivalents and the income or loss in the numerator excludes the impact, if any, of dilutive common stock equivalents. -72- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Diluted EPS includes the effect, if dilutive, of the Company's outstanding stock options, restricted stock and convertible securities under the treasury stock method. Currently issued and outstanding shares of restricted stock remain subject to vesting requirements. The Company is required to compute EPS amounts under the two class method in periods with earnings. Holders of shares of unvested restricted stock are entitled to the same liquidation and dividend rights as holders of outstanding common stock and are thus considered participating securities. Under applicable accounting guidance, undistributed earnings, if any, for each period are allocated based on the participation rights of both the common stockholders and holders of any participating securities as if earnings for the respective periods had been distributed. Because both the liquidation and dividend rights are identical, undistributed earnings are allocated on a proportionate basis. Stock-Based Compensation The fair value of share-based payments is estimated using the quoted market price of the Company's common stock and pricing models as of the date of grant as further discussed in Note 12, "Long-Term Incentive and Deferred Compensation Plans." The resulting cost, net of estimated forfeitures, is recognized over the period during which an employee is required to provide service in exchange for the awards, usually the vesting period. In addition to service-based awards, the Company issues performance-based awards, which are conditional based upon Company performance and may vest in an amount that will depend on the Company's achievement of specified performance objectives. Guarantees Some product sales in the Offshore/Manufactured Products segment are sold with an assurance warranty, generally ranging from 12 to 18 months. Parts and labor are covered under the terms of the warranty agreement. Warranty provisions are estimated based upon historical experience by product, configuration and geographic region. During the ordinary course of business, the Company also provides standby letters of credit or other guarantee instruments to certain parties as required for certain transactions initiated by either the Company or its subsidiaries. As of December 31, 2020, the maximum potential amount of future payments that the Company could be required to make under these guarantee agreements (letters of credit) was $ 29.2 million. The Company has not recorded any liability in connection with these guarantee arrangements. The Company does not believe, based on historical experience and information currently available, that it is likely that any material amounts will be required to be paid under these guarantee arrangements. Accounting for Contingencies The Company has contingent liabilities and future claims for which estimates of the amount of the eventual cost to liquidate such liabilities are accrued. These liabilities and claims sometimes involve threatened or actual litigation where damages have been quantified and an assessment of exposure has been made and recorded in an amount estimated to cover the expected loss. Other claims or liabilities have been estimated based on their fair value or management's experience in such matters and, when appropriate, the advice of outside counsel or other outside experts. Upon the ultimate resolution of these uncertainties, future reported financial results will be impacted by the difference between the accruals and actual amounts paid in settlement. Examples of areas with important estimates of future liabilities include duties, income taxes, litigation, insurance claims, warranty claims, contractual claims and obligations and discontinued operations. 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 eliminated the requirement that the carrying value of convertible debt instruments, such as the Company's Notes, be allocated between the debt and equity components. As permitted under the standard, the Company adopted the new guidance on January 1, 2021, using the modified retrospective transition method. Adoption of the standard resulted in a $ 12.2 million increase in the net carrying value of the Notes, a $ 3.7 million decrease in deferred income taxes and an $ 8.5 million net decrease in stockholders' equity. The effective interest rate associated with the Notes after adoption decreased from approximately 6 % to approximately 2 %, which compares to the contractual interest rate of 1.50 %. -73- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) In June 2016, the FASB issued guidance on credit impairment for short-term receivables which, as amended, introduced 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 $ 44 and $ 43 per barrel, respectively, in the fourth quarter of 2020, these average prices continue to remain below historical price levels. Demand for most of the Company's products and services depends substantially on the level of capital expenditures invested in the oil and natural gas industry, which reached 15-year lows in 2020. The decline in crude oil prices, coupled with higher crude oil inventory levels in 2020, caused rapid reductions in most of the Company's customers' drilling, completion and production activities and their related spending on products and services, particularly those supporting activities in the U.S. shale play regions. These conditions have and may continue to result in a material adverse impact on certain customers' liquidity and financial position, leading to further spending reductions, delays in the collection of amounts owed and, in certain instances, non-payments of amounts owed. Consistent with most oilfield service industry peers, the Company's stock price declined dramatically during the first quarter of 2020, with its market capitalization falling substantially below the carrying value of stockholders' equity. Following these March 2020 events, the Company immediately implemented significant cost reduction initiatives. The Company also assessed the carrying value of goodwill, long-lived and other assets based on the industry outlook regarding overall demand for and pricing of its products and services, other market considerations and the financial condition of the Company's customers. As a result of these events, actions and assessments during 2020, the Company recorded the following charges (in thousands): Completion Services Drilling Services Downhole Technologies Offshore/ Manufactured Products Corporate Pre-tax Total Tax After-tax Total Impairments of: Goodwill (Note 6) $ 127,054 $ — $ 192,502 $ 86,500 $ — $ 406,056 $ 19,600 $ 386,456 Fixed assets (Note 4) 3,647 5,198 1,623 — — 10,468 2,198 8,270 Operating lease assets (Note 8) — — 1,979 — — 1,979 416 1,563 Inventories (Note 4) 8,981 — 5,921 16,249 — 31,151 5,979 25,172 Severance and restructuring charges 4,094 217 2,018 1,355 1,385 9,069 1,904 7,165 During 2019, the Company recorded the following charges (in thousands): Completion Services Drilling Services Downhole Technologies Offshore/ Manufactured Products Corporate Pre-tax Total Tax After-tax Total Impairments of: Goodwill (Note 6) $ — $ — $ 165,000 $ — $ — $ 165,000 $ — $ 165,000 Fixed assets (Note 4) — 33,697 — — — 33,697 7,076 26,621 Severance and restructuring charges 1,847 — — 1,655 — 3,502 735 2,767 -74- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) During 2018, the Company recorded the following charges (in thousands): Completion Services Drilling Services Downhole Technologies Offshore/ Manufactured Products Corporate Pre-tax Total Tax After-tax Total Patent defense costs $ — $ — $ 8,365 $ — $ — $ 8,365 $ 1,757 $ 6,608 Transaction-related costs (Note 5) — — 327 — 3,274 3,601 756 2,845 Fair Labor Standards Act claim settlements 3,034 — — — — 3,034 637 2,397 Severance and restructuring charges 151 — — 1,478 — 1,629 342 1,287 4. Details of Selected Balance Sheet Accounts Additional information regarding selected balance sheet accounts as of December 31, 2020 and 2019 is presented below (in thousands). 2020 2019 Accounts receivable, net: Trade $ 109,294 $ 178,813 Unbilled revenue 23,173 28,341 Contract assets 35,870 26,034 Other 3,102 9,044 Total accounts receivable 171,439 242,232 Allowance for doubtful accounts ( 8,304 ) ( 8,745 ) $ 163,135 $ 233,487 2020 2019 Deferred revenue (contract liabilities) $ 43,384 $ 17,761 As of December 31, 2020, accounts receivable, net in the United States and the United Kingdom represented 63 % and 21 %, respectively, of the total. No other country or single customer accounted for more than 10% of the Company's total accounts receivable as of December 31, 2020. A summary of activity in the allowance for doubtful accounts for the years ended December 31, 2020, 2019 and 2018 is provided in Note 17, "Valuation Allowances." For the majority of contracts with customers, the Company receives payments based upon established contractual terms as products are delivered and services are performed. The Company's larger project-related contracts within the Offshore/Manufactured Products segment often provide for customer payments as milestones are achieved. Contract assets relate to the Company's right to consideration for work completed but not billed as of December 31, 2020 and 2019 on certain project-related contracts within the Offshore/Manufactured Products segment. Contract assets are transferred to unbilled or trade receivables when the right to consideration becomes unconditional. Contract liabilities primarily relate to advance consideration received from customers (i.e. milestone payments) for contracts for project-driven products as well as others which require significant advance investment in materials. Consistent with industry practice, the Company classifies assets and liabilities related to long-term contracts as current, even though some of these amounts may not be realized within one year. All contracts are reported on the consolidated balance sheets in a net asset (contract asset) or liability (deferred revenue) position on a contract-by-contract basis at the end of each reporting period. In the normal course of business, the Company also receives advance consideration from customers on many other short-term, smaller product and service contracts which is deferred and recognized as revenue once the related performance obligation is satisfied. For the year ended December 31, 2020, the $ 9.8 million net increase in contract assets was primarily attributable to $ 32.4 million in revenue recognized during the year, which was partially offset by $ 22.8 million transferred to accounts receivable. Deferred revenue (contract liabilities) increased by $ 25.6 million in 2020, reflecting $ 41.6 million in new customer billings which were not recognized as revenue during the year, partially offset by the recognition of $ 16.0 million of revenue that was deferred at the beginning of the period. -75- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) For the year ended December 31, 2019, the $ 4.8 million net increase in contract assets was primarily attributable to $ 25.0 million in revenue recognized during the year, which was more than offset by $ 20.0 million transferred to accounts receivable. Deferred revenue (contract liabilities) increased by $ 3.6 million in 2019, reflecting $ 12.2 million in new customer billings which were not recognized as revenue during the year, partially offset by the recognition of $ 8.5 million of revenue that was deferred at the beginning of the period. 2020 2019 Inventories, net: Finished goods and purchased products $ 88,634 $ 107,691 Work in process 27,063 21,963 Raw materials 95,410 110,719 Total inventories 211,107 240,373 Allowance for excess or obsolete inventory (1) ( 40,731 ) ( 19,031 ) $ 170,376 $ 221,342 ____________________ (1) During 2020, the Company recorded impairment charges totaling $ 31.2 million to reduce the carrying value of inventories to their estimated net realizable value based on changes in expectations regarding the near-term utility, customer demand and market pricing of certain goods. Estimated Useful Life (in years) 2020 2019 Property, plant and equipment, net: Land $ 34,968 $ 37,507 Buildings and leasehold improvements 1 – 40 267,072 273,384 Machinery and equipment 2 – 28 239,986 246,826 Completion Services equipment 2 – 10 507,755 510,737 Office furniture and equipment 1 – 10 35,767 45,309 Vehicles 3 – 10 81,607 97,264 Construction in progress 7,207 13,281 Total property, plant and equipment 1,174,362 1,224,308 Accumulated depreciation ( 790,800 ) ( 764,584 ) $ 383,562 $ 459,724 For the years ended December 31, 2020, 2019 and 2018, depreciation expense was $ 74.0 million, $ 96.5 million and $ 97.2 million, respectively. During 2019, the Company made the strategic decision to reduce the scope of its Drilling Services business unit (adjusting from 34 rigs to 9 rigs) due to the ongoing weakness in customer demand for vertical drilling rigs in the U.S. land market, particularly the Permian Basin. As a result of this decision, the carrying value of 25 rigs, which were decommissioned or sold, was reduced to their estimated realizable value, resulting in the recognition of a $ 25.5 million non-cash impairment charge. The Company also performed a fair value assessment on the remaining drilling rigs and recognized an additional non-cash impairment charge of $ 8.2 million (a Level 3 fair value measurement). These non-cash 2019 fixed asset impairment charges totaled $ 33.7 million. During 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' fixed assets to their estimated realizable value. Additionally, during 2020, the Completion Services reporting unit recognized non-cash impairment charges of $ 3.6 million to reduce the carrying value of certain facilities to their estimated realizable value and the Downhole Technologies reporting unit recognized a non-cash impairment charge of $ 1.6 million to reduce the carrying value of the business' fixed assets to their estimated realizable value. During 2018, the Company and its insurance carriers reached a final settlement on flood insurance claims resulting from Hurricane Harvey in 2017. In connection with this settlement, the Company's Offshore/Manufactured Products segment recognized a gain of $ 3.8 million following the remediation and repair of buildings and equipment. This gain is reported as other operating income in the accompanying consolidated statement of operations for the year ended December 31, 2018. -76- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 2020 2019 Other noncurrent assets: Deferred compensation plan $ 22,801 $ 22,268 Deferred income taxes 1,280 685 Other 5,646 5,748 $ 29,727 $ 28,701 2020 2019 Accrued liabilities: Accrued compensation $ 18,463 $ 27,428 Insurance liabilities 7,694 9,108 Accrued taxes, other than income taxes 7,307 3,424 Accrued interest 2,202 2,387 Accrued commissions 1,416 1,481 Other 7,422 5,012 $ 44,504 $ 48,840 5. Business Acquisitions GEODynamics Acquisition On January 12, 2018, the Company acquired GEODynamics for a purchase price consisting of (i) $ 295.4 million in cash (net of cash acquired), which was funded through borrowings under the Company's Revolving Credit Facility (as defined in Note 7, "Long-term Debt,"), (ii) approximately 8.66 million shares of the Company's common stock (having a market value of $ 294.9 million as of the closing date of the GEODynamics Acquisition) and (iii) an unsecured $ 25 million promissory note that bears interest at 2.5 % per annum. Under the terms of agreements with the seller in the GEODynamics Acquisition (the "Seller"), the Company believes it is entitled to indemnification in respect of certain matters occurring prior to the GEODynamics Acquisition and payments due under the promissory note are subject to set-off, in part or in full, in respect of such indemnified matters. As a result of certain indemnity claims pending against the Seller, the Company has reduced the carrying amount of such note in the consolidated balance sheet to $ 17.1 million as of December 31, 2020, which is its current best estimate of what is owed after set-off for indemnification matters. See Note 14, "Commitments and Contingencies." GEODynamics' results of operations (reported as the Downhole Technologies segment) have been included in the Company's consolidated financial statements subsequent to the closing of the GEODynamics Acquisition on January 12, 2018. Falcon Acquisition On February 28, 2018, the Company acquired Falcon, a full-service provider of flowback and well testing services for the separation and recovery of fluids, solid debris and proppant used during hydraulic fracturing operations. The purchase price was $ 84.2 million (net of cash acquired). Under the terms of the purchase agreement, the Company is entitled to indemnification in respect of certain matters occurring prior to the acquisition. Falcon's results of operations have been included in the Company's consolidated financial statements and have been reported within the Completion Services business subsequent to the closing of the acquisition on February 28, 2018. During the year ended December 31, 2018, the Company expensed $ 3.6 million in transaction-related costs incurred in connection with the acquisitions of GEODynamics and Falcon, which are included within selling, general and administrative expense and within other operating income, net. -77- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 6. Goodwill and Other Intangible Assets Goodwill Changes in the carrying amount of goodwill for the years ended December 31, 2020 and 2019 are as follows (in thousands): Well Site Services Downhole Technologies Offshore / Manufactured Products Total Completion Services Drilling Services Subtotal Balance as of December 31, 2018 Goodwill $ 221,582 $ 22,767 $ 244,349 $ 357,502 $ 162,462 $ 764,313 Accumulated impairment losses ( 94,528 ) ( 22,767 ) ( 117,295 ) — — ( 117,295 ) 127,054 — 127,054 357,502 162,462 647,018 Goodwill impairment (December 2019) — — — ( 165,000 ) — ( 165,000 ) Foreign currency translation — — — — 288 288 Balance as of December 31, 2019 $ 127,054 $ — $ 127,054 $ 192,502 $ 162,750 $ 482,306 Balance as of December 31, 2019 Goodwill $ 221,582 $ 22,767 $ 244,349 $ 357,502 $ 162,750 $ 764,601 Accumulated impairment losses ( 94,528 ) ( 22,767 ) ( 117,295 ) ( 165,000 ) — ( 282,295 ) 127,054 — 127,054 192,502 162,750 482,306 Goodwill impairments (March 2020) ( 127,054 ) — ( 127,054 ) ( 192,502 ) ( 86,500 ) ( 406,056 ) Foreign currency translation — — — — 239 239 Balance as of December 31, 2020 $ — $ — $ — $ — $ 76,489 $ 76,489 Balance as of December 31, 2020 Goodwill $ 221,582 $ 22,767 $ 244,349 $ 357,502 $ 162,989 $ 764,840 Accumulated impairment losses ( 221,582 ) ( 22,767 ) ( 244,349 ) ( 357,502 ) ( 86,500 ) ( 688,351 ) $ — $ — $ — $ — $ 76,489 $ 76,489 As further discussed in Note 2, "Significant Accounting Policies," goodwill is allocated to each reporting unit based on acquisitions made by the Company and is assessed for impairment annually and when an event occurs or circumstances change that indicate the carrying amounts may not be recoverable. December 2019 Impairment The Company had three reporting units – Completion Services, Downhole Technologies and Offshore/Manufactured Products – whose goodwill balances totaled approximately $ 647 million as of September 30, 2019. During the fourth quarter of 2019, U.S. land-based completion activity declined significantly from levels experienced over the previous three quarters. Additionally, a number of other market indicators declined to levels not experienced in recent years. Consistent with most other oilfield service industry peers, the Company's stock price declined and its market capitalization was below the carrying value of stockholders' equity. Given these market conditions, the Company reduced its near-term demand outlook for its short-cycle products and services in the U.S. shale play regions. This refined outlook was incorporated in the December 1, 2019 annual impairment assessment. Management utilizes, depending on circumstances, a combination of valuation methodologies including a market approach and an income approach, as well as guideline public company comparables. The valuation techniques used in the December 1, 2019 assessment were consistent with those used during previous testing, except for the Downhole Technologies reporting unit where the income approach was used to estimate its fair value – with the market approach used only to validate the results in 2019. The fair value of the Company's reporting units were determined using significant unobservable inputs (a Level 3 fair value measurement). -78- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The income approach estimates the fair value of each reporting unit by discounting the Company's current forecast of future cash flows by its estimate of the discount rate (or expected return) that a market participant would require. The market approach includes the use of comparative multiples to corroborate the discounted cash flow results. The market approach involves judgment in the selection of the appropriate peer group companies and valuation multiples. Significant assumptions used in the income approach include, among others, the estimated future net annual cash flows and discount rates for each reporting unit. Management selected estimates used in the discounted cash flow projections using historical data as well as then-current and anticipated market conditions and estimated growth rates. These estimates were based upon assumptions that considered published industry trends and market forecasts of commodity prices, rig count, well count and offshore/onshore drilling and completion spending, and were believed to be reasonable at the time. Based on this quantitative assessment, the Company concluded that the goodwill amount recorded in its Downhole Technologies reporting unit was partially impaired and recognized a non-cash goodwill impairment charge of $ 165.0 million in the fourth quarter of 2019. The discount rates used to value the Company's reporting units as of December 1, 2019 ranged between 12.5 % and 13.0 %. Holding all other assumptions and inputs used in each of the respective discounted cash flow analysis constant, a 50 basis point increase in the discount rate assumption would have increased the goodwill impairment charge by approximately $ 28 million. March 2020 Impairments Given the significance of the March 2020 events described in Note 3, "Asset Impairments and Other Charges," the Company performed a quantitative assessment of goodwill for further impairment as of March 31, 2020. This interim assessment indicated that the fair value of each of the reporting units was less than their respective carrying amounts due to, among other factors, the significant decline in the Company's stock price and that of its peers and reduced growth rate expectations given weak energy market conditions resulting from the demand destruction caused by the global response to the COVID-19 pandemic. In addition, the estimated returns required by market participants increased materially in the Company's March 31, 2020 assessment from the assessment performed as of December 1, 2019, resulting in higher discount rates used in the discounted cash flow analysis. The valuation techniques used in the March 31, 2020 assessment were consistent with those used during the December 1, 2019 assessment, except for the Completion Services reporting unit where the income approach was used to estimate its fair value – with the market approach used only to validate the results in 2020. The fair value of the Company's reporting units were determined using significant unobservable inputs (a Level 3 fair value measurement). Significant assumptions and estimates used in the income approach include, among others, estimated future net annual cash flows and discount rates for each reporting unit, current and anticipated market conditions, estimated growth rates and historical data. These estimates relied upon significant management judgment, particularly given the uncertainties regarding the COVID-19 pandemic and its impact on activity levels and commodity prices as well as future global economic growth. Based on this quantitative assessment as of March 31, 2020, the Company concluded that goodwill recorded in the Completion Services and Downhole Technologies businesses was fully impaired while goodwill recorded in the Offshore/Manufactured Products business was partially impaired. The Company therefore recognized non-cash goodwill impairment charges totaling $ 406.1 million in the first quarter of 2020, as presented in further detail in the table above. The discount rates used to value the Company's reporting units as of March 31, 2020 ranged between 16.8 % and 18.5 %. Holding all other assumptions and inputs used in the discounted cash flow analysis constant, a 50 basis point increase in the discount rate assumption for the Offshore/Manufactured Products reporting unit would have increased the goodwill impairment charge by approximately $ 10 million. December 2020 Assessment As of December 1, 2020, the Company had only one reporting unit – Offshore/Manufactured Products – with a goodwill balance of $ 76 million. The Company performed its annual quantitative assessment of goodwill for impairment, which indicated that the fair value of the Offshore/Manufactured Products reporting unit was greater than its carrying amount and no additional provision for impairment was required. The fair value of the Offshore/Manufactured Products reporting unit was determined using significant unobservable inputs (a Level 3 fair value measurement). -79- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The valuation techniques used in the December 1, 2020 assessment were consistent with those used during the March 31, 2020 assessment. The discount rate used to value the Offshore/Manufactured Products reporting unit as of December 1, 2020 was approximately 15 %. The estimated returns required by market participants decreased in the Company's December 1, 2020 assessment from the assessment as of March 31, 2020, resulting in lower discount rate used in the discounted cash flow analysis. Holding all other assumptions and inputs used in the discounted cash flow analysis constant, a 100 basis point increase in the discount rate assumption for the Offshore/Manufactured Products reporting unit would not result in a goodwill impairment. The March 2020 and December 2019 impairment charges did not impact the Company's liquidity position, debt covenants or cash flows. Other Intangible Assets The following table presents the gross carrying amount and the related accumulated amortization for major intangible asset classes as of December 31, 2020 and 2019 (in thousands): 2020 2019 Other Intangible Assets Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Customer relationships $ 168,288 $ 55,380 $ 112,908 $ 168,278 $ 44,296 $ 123,982 Patents/Technology/Know-how 75,920 26,124 49,796 85,919 30,791 55,128 Noncompete agreements 16,044 14,742 1,302 17,125 11,061 6,064 Tradenames and other 53,708 11,965 41,743 53,708 8,791 44,917 Total other intangible assets $ 313,960 $ 108,211 $ 205,749 $ 325,030 $ 94,939 $ 230,091 Amortization expense was $ 24.9 million, $ 26.8 million and $ 26.3 million in the years ended December 31, 2020, 2019 and 2018, respectively. The weighted average remaining amortization period for all intangible assets, other than goodwill, was 12.4 years as of December 31, 2020 and 12.9 years as of December 31, 2019. Amortization expense is expected to total $ 20.6 million in 2021, $ 19.8 million in 2022, $ 16.8 million in 2023, $ 16.7 million in 2024 and $ 16.6 million in 2025. As of December 31, 2020 and 2019, no provisions for impairment of other intangible assets were required. 7. Long-term Debt As of December 31, 2020 and 2019, long-term debt consisted of the following (in thousands): 2020 2019 Revolving credit facility (1) $ 18,408 $ 50,534 1.50 % convertible senior notes due February 2023 (2) 143,242 167,594 Promissory note 17,095 25,000 Other debt and finance lease obligations 4,792 5,041 Total debt 183,537 248,169 Less: Current portion ( 17,778 ) ( 25,617 ) Total long-term debt $ 165,759 $ 222,552 ____________________ (1) Presented net of $ 0.6 million and $ 1.4 million of unamortized debt issuance costs as of December 31, 2020 and 2019, respectively. (2) The outstanding principal amount of the 1.50 % convertible senior notes was $ 157.4 million and $ 192.3 million as of December 31, 2020 and 2019, respectively. -80- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Scheduled maturities of total debt as of December 31, 2020, are as follows (in thousands): 2021 $ 17,778 2022 19,126 2023 143,744 2024 485 2025 512 Thereafter 1,892 $ 183,537 Asset-based Revolving Credit Facility On February 10, 2021, the Company entered into a senior secured credit facility with certain lenders, which provides for a $ 125.0 million asset-based revolving credit facility (the "Asset-based Revolving Credit Facility") under which credit availability is subject to a borrowing base calculation. Concurrent with entering into this facility, the Amended Credit Agreement (further discussed below) was terminated. The Asset-based Revolving Credit Facility is governed by a credit agreement with Wells Fargo Bank, National Association, as administrative agent and the lenders and other financial institutions from time to time party thereto (the "Asset-based Credit Agreement"). The Asset-based Credit Agreement matures on February 10, 2025 with a springing maturity 91 days prior to the maturity of any outstanding indebtedness with a principal amount in excess of $ 17.5 million (excluding the unsecured promissory note to the Seller). The Asset-based Credit Agreement provides funding based on a borrowing base calculation that includes eligible U.S. customer accounts receivable and inventory and provides for a $ 50.0 million sub-limit for the issuance of letters of credit. Borrowings under the Asset-based Credit Agreement are secured by a pledge of substantially all of the Company's domestic assets and the stock of certain foreign subsidiaries. Borrowings under the Asset-based Credit Agreement bear interest at a rate equal to the London Interbank Offered Rate ("LIBOR") plus a margin of 2.75 % to 3.25 % and subject to a LIBOR floor rate of 0.50 %, or at a base rate plus a margin of 1.75 % to 2.25 %, in each case based on average borrowing availability. The Company must also quarterly pay a commitment fee of 0.375 % to 0.50 % per annum, based on unused commitments under the Asset-based Credit Agreement. The Asset-based Credit Agreement places restrictions on the Company's ability to incur additional indebtedness, grant liens on assets, pay dividends or make distributions on equity interests, dispose of assets, make investments, repay other indebtedness (including the Notes), engage in mergers, and other matters, in each case, subject to certain exceptions. The Asset-based Credit Agreement contains customary default provisions, which, if triggered, could result in acceleration of all amounts then outstanding. The Asset-based Credit Agreement also requires the Company to satisfy and maintain a fixed charge coverage ratio of not less than 1.0 to 1.0 for specified periods of time in the event that availability under the Asset-based Credit Agreement is less than the greater of 15 % of the borrowing base and $ 14.1 million or if an event of default has occurred and is continuing. Revolving Credit Facility Until its termination on February 10, 2021, the Company's former senior secured revolving credit facility, (the "Revolving Credit Facility") was governed by an amended and restated credit agreement with Wells Fargo Bank, N.A., as administrative agent for the lenders party thereto and collateral agent for the secured parties thereunder, and the lenders and other financial institutions from time to time party thereto, dated as of January 30, 2018, as amended and restated (the "Credit Agreement"), which was scheduled to mature on January 30, 2022. The Credit Agreement governed the Company's Revolving Credit Facility. Prior to June 17, 2020, the Revolving Credit Facility provided for $ 350 million in lender commitments including $ 50 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") was limited to 85 % of the lesser of (i) $ 200.0 million or (ii) a borrowing base, calculated monthly, equal to the -81- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) sum of 70 % of the consolidated net book value of eligible receivables and 20 % of the consolidated net book value of eligible inventory (the "Borrowing Base"). As of December 31, 2020, the Company had $ 19.0 million of borrowings outstanding under the Credit Agreement and $ 29.2 million of outstanding letters of credit. The total amount available to be drawn as of January 1, 2021 was $ 69.3 million, calculated based on 85 % of the Borrowing Base less outstanding borrowings and letters of credit. Prior to June 17, 2020, amounts outstanding under the Revolving Credit Facility accrued interest at LIBOR plus a margin of 1.75 % to 3.00 %, or at a base rate plus a margin of 0.75 % to 2.00 %, in each case based on a ratio of the Company's total net funded debt to consolidated EBITDA (as defined in the Credit Agreement). The Company was also required to pay a quarterly commitment fee of 0.25 % to 0.50 %, based on the Company's ratio of total net funded debt to consolidated EBITDA, on the unused commitments under the Credit Agreement. Effective June 17, 2020, borrowings outstanding under the Amended Revolving Credit Facility accrued interest at LIBOR plus a margin of 2.50 % to 3.75 %, or at a base rate plus a margin of 1.50 % to 2.75 %, in each case based on a ratio of the Company's total net funded debt to consolidated EBITDA. The Company also paid a quarterly commitment fee of 0.50 %, based on unused commitments under the Amended Credit Agreement. The Company expensed $ 0.5 million of previously deferred financing costs in 2020, which is included in interest expense, net, as a result of the amendment of the Credit Agreement. As of December 31, 2020, the Company was in compliance with its debt covenants under the Amended Credit Agreement. 1.50 % Convertible Senior Notes due February 2023 On January 30, 2018, the Company issued $ 200 million aggregate principal amount of the Notes pursuant to an indenture, dated as of January 30, 2018 (the "Indenture"), between the Company and Wells Fargo Bank, National Association, as trustee. Net proceeds from the Notes, after deducting issuance costs, were approximately $ 194 million, which was used by the Company to repay a portion of the outstanding borrowings under the Revolving Credit Facility during the first quarter of 2018. During 2020, the Company purchased $ 34.9 million principal amount of the outstanding Notes for $ 20.1 million in cash. The net carrying amount of the liability component of these Notes totaled $ 30.8 million. In connection with extinguishment of these Notes, the Company recognized non-cash gains totaling $ 10.7 million during 2020, which is included within other income, net. During 2019, the Company repurchased $ 7.8 million principal amount of the outstanding Notes for $ 6.7 million in cash, which approximated the net carrying amount of the related liability. The initial carrying amount of the Notes recorded in the Company's consolidated balance sheet was less than the $ 200 million in principal amount of the Notes, in accordance with then-applicable accounting principles, reflective of the estimated fair value of a similar debt instrument that does not have a conversion feature. The Company recorded the value of the conversion feature as a debt discount, to be amortized as interest expense over the term of the Notes, with a similar amount allocated to additional paid-in capital. As a result of this amortization, the interest expense the Company recognized related to the Notes for accounting purposes was based on an effective interest rate of approximately 6 %, which is greater than the cash interest payments the Company is obligated to pay on the Notes. Interest expense associated with the Notes for the years ended December 31, 2020, 2019 and 2018 was $ 9.3 million, $ 10.2 million and $ 9.0 million, respectively, while the related contractual cash interest expense totaled $ 2.6 million, $ 3.0 million and $ 2.8 million, respectively. The following table presents the carrying amounts of the Notes in the Company's consolidated balance sheets (in thousands): December 31, 2020 2019 Principal amount of the liability component $ 157,369 $ 192,250 Less: Unamortized discount 12,308 21,544 Less: Unamortized issuance costs 1,819 3,112 Net carrying amount of the liability component $ 143,242 $ 167,594 Net carrying amount of the equity component $ 25,683 $ 25,683 See Note 2, "Summary of Significant Accounting Policies," for discussion of the recent revision to accounting guidance for convertible instruments, which changed the Company's method of accounting for the Notes upon its adoption of the standard effective January 1, 2021. -82- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The Notes bear interest at a rate of 1.50 % per year until maturity. Interest is payable semi-annually in arrears on February 15 and August 15 of each year. In addition, additional interest and special interest may accrue on the Notes under certain circumstances as described in the Indenture. The Notes will mature on February 15, 2023, unless earlier repurchased, redeemed or converted. The initial conversion rate is 22.2748 shares of the Company's common stock per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $ 44.89 per share of common stock). The conversion rate, and thus the conversion price, may be adjusted under certain circumstances as described in the Indenture. The Company's intent is to repay the principal amount of the Notes in cash and settle the conversion feature in shares of the Company's common stock. Noteholders may convert their Notes, at their option only in the following circumstances: (1) if the last reported sale price per share of the Company's common stock exceeds 130 % of the conversion price for each of at least 20 trading days during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter; (2) during the 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 such trading day and the conversion rate on such trading day; (3) upon the occurrence of certain corporate events or distributions on the Company's common stock, as described in the Indenture; or (4) if the Company calls the Notes for redemption, or at any time from, and including, November 15, 2022 until the close of business on the second scheduled trading day immediately before the maturity date. The Company will settle conversions by paying or delivering, as applicable, cash, shares of common stock or a combination of cash and shares of common stock, at the Company's election, based on the applicable conversion rate(s). If the Company elects to deliver cash or a combination of cash and shares of common stock, then the consideration due upon conversion will be based on a defined observation period. The Notes will be redeemable, in whole or in part, at the Company's option at any time, and from time to time, on or after February 15, 2021, at a cash redemption price equal to the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, but only if the last reported sale price per share of common stock exceeds 130 % of the conversion price on each of at least 20 trading days during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice. If specified change in control events involving the Company as defined in the Indenture occur, then noteholders may require the Company to repurchase their Notes at a cash repurchase price equal to the principal amount of the Notes to be repurchased, plus accrued and unpaid interest. Additionally, the Indenture contains certain events of default, including certain defaults by the Company with respect to other indebtedness of at least $ 40.0 million. As of December 31, 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 GEODynamics Acquisition, 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. The Company believes that payments due under the promissory note are subject to set-off, in full or in part, against certain claims related to matters occurring prior to the GEODynamics Acquisition. The Company has provided notice to and asserted indemnification claims against the Seller, and the Seller has filed a breach of contract suit against the Company and one of its wholly-owned subsidiaries alleging that payments due under the promissory note are required to be, but have not been, repaid in accordance with the terms of the note. The Company has incurred settlement costs and expenses of $ 7.9 million related to such indemnification claims, and believes that the maturity date of the note is extended until the resolution of these claims and expects that the amount ultimately paid in respect of such note will be reduced as a result of the indemnification claims. Accordingly, the Company has reduced the carrying amount of such note in the consolidated balance sheet to $ 17.1 million as of December 31, 2020, which is its current best estimate of what is owed after set-off for indemnification matters. See Note 14, "Commitments and Contingencies." -83- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 8. Operating Leases Operating Lease Assets The following table presents the carry value of operating lease assets in the Company's consolidated sheets (in thousands): 2020 2019 Operating lease assets, net $ 33,140 $ 43,616 Operating lease asset additions are offset by a corresponding increase to operating lease liabilities and do not impact the consolidated statement of cash flows at commencement. The non-cash effect of operating lease additions in 2020 and 2019 totaled $ 1.9 million and $ 53.7 million (inclusive of $ 47.7 million recognized in 2019 upon adoption of the revised lease accounting guidance), respectively. Operating lease expense was $ 16.6 million, $ 17.9 million and $ 14.9 million for the years ended December 31, 2020, 2019 and 2018, respectively. The following table provides details regarding the components of operating lease expense based on the initial term of underlying agreements for the years ended December 31, 2020 and 2019 (in thousands): 2020 2019 Operating lease expense components: Leases with initial term of greater than 12 months $ 12,564 $ 11,972 Leases with initial term of 12 months or less 4,024 5,906 Total operating lease expense $ 16,588 $ 17,878 During 2020, the Downhole Technologies segment made decisions to close certain lease facilities in connection with restructuring activities and recognized a non-cash impairment charge of $ 2.0 million to reduce the carrying value of the related operating lease assets to their estimated realizable value. Operating Lease Liabilities The following table provides the scheduled maturities of operating lease liabilities as of December 31, 2020 (in thousands): 2021 $ 9,293 2022 6,534 2023 5,204 2024 4,562 2025 4,461 Thereafter 13,787 Total lease payments 43,841 Less: Imputed interest ( 7,055 ) Present value of operating lease liabilities 36,786 Less: Current portion ( 7,620 ) Total long-term operating lease liabilities $ 29,166 Weighted-average remaining lease term (years) 6.8 Weighted-average discount rate 5.0 % -84- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 9. Income Taxes Consolidated loss before income taxes for the years ended December 31, 2020, 2019 and 2018 consisted of the following (in thousands): 2020 2019 2018 United States $ ( 534,452 ) $ ( 254,291 ) $ ( 29,424 ) Foreign 123 13,564 7,692 Total $ ( 534,329 ) $ ( 240,727 ) $ ( 21,732 ) The 2020 and 2019 U.S. losses before income taxes included non-cash goodwill impairment charges of $ 406.1 million and $ 165.0 million, respectively, and non-cash fixed asset and lease impairment charges of $ 12.4 million and $ 33.7 million, respectively. Regarding the goodwill impairment charges recognized in 2020 and 2019, approximately $ 313.1 million and $ 165.0 million, respectively, were not deductible for income tax purposes. Components of income tax benefit for the years ended December 31, 2020, 2019 and 2018 consisted of the following (in thousands): 2020 2019 2018 Current: United States $ ( 44,399 ) $ 300 $ ( 5,549 ) U.S. state 235 292 1,534 Foreign 2,622 5,958 4,877 ( 41,542 ) 6,550 862 Deferred: United States ( 20,913 ) ( 13,972 ) ( 2,592 ) U.S. state ( 1,798 ) ( 473 ) ( 95 ) Foreign ( 1,693 ) ( 1,024 ) ( 802 ) ( 24,404 ) ( 15,469 ) ( 3,489 ) Total income tax benefit $ ( 65,946 ) $ ( 8,919 ) $ ( 2,627 ) A reconciliation of the U.S. statutory tax benefit rate to the effective tax benefit rate for the years ended December 31, 2020, 2019 and 2018 is as follows: 2020 2019 2018 U.S. statutory tax benefit rate ( 21.0 ) % ( 21.0 ) % ( 21.0 ) % Impairments of goodwill 12.3 14.4 — Effect of CARES Act ( 3.1 ) — — Effect of Tax Reform Legislation — — ( 26.1 ) Valuation allowance against tax assets 0.3 0.8 14.0 Non-deductible compensation 0.1 0.3 5.7 Other non-deductible expenses 0.1 0.2 12.6 Effect of foreign income taxed at different rates 0.1 0.7 0.5 State income taxes, net of federal benefits ( 1.1 ) ( 0.4 ) ( 0.3 ) Other, net — 1.3 2.5 Effective tax benefit rate ( 12.3 ) % ( 3.7 ) % ( 12.1 ) % -85- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The significant items giving rise to the deferred tax assets and liabilities as of December 31, 2020 and 2019 are as follows (in thousands): 2020 2019 Deferred tax assets: Foreign tax credit carryforwards $ 20,870 $ 20,360 Net operating loss carryforwards 37,838 54,772 Employee benefits 7,353 10,778 Inventory 9,696 7,725 Operating lease liabilities 6,697 8,171 Other 7,649 4,562 Gross deferred tax asset 90,103 106,368 Valuation allowance ( 35,497 ) ( 35,828 ) Net deferred tax asset 54,606 70,540 Deferred tax liabilities: Tax over book depreciation ( 27,613 ) ( 36,387 ) Intangible assets ( 30,392 ) ( 56,867 ) Convertible senior notes discount ( 2,790 ) ( 4,964 ) Operating lease assets ( 5,884 ) ( 8,047 ) Other ( 910 ) ( 1,669 ) Deferred tax liability ( 67,589 ) ( 107,934 ) Net deferred tax liability $ ( 12,983 ) $ ( 37,394 ) 2020 2019 Balance sheet classification: Other non-current assets $ 1,280 $ 685 Deferred tax liability ( 14,263 ) ( 38,079 ) Net deferred tax liability $ ( 12,983 ) $ ( 37,394 ) On March 27, 2020, the CARES Act was signed into law. In accordance with the rules and provisions under the CARES Act, the Company has filed carryback claims regarding U.S. net operating losses generated in 2018 and 2019. Prior to the enactment of the CARES Act, such tax losses could only be carried forward. The Company recognized a discrete tax benefit of $ 16.4 million and received cash of $ 41.3 million related to these CARES Act carryback claims in 2020. On December 22, 2017, the United States enacted Tax Reform Legislation which resulted in significant changes to U.S. tax and related laws, including certain key U.S. federal income tax provisions applicable to multinational companies such as the Company. These changes included, among others, the implementation of a territorial tax system with a one-time mandatory tax on undistributed foreign earnings of subsidiaries and a reduction in the U.S. corporate income tax rate to 21% from 35% beginning in 2018. During 2018, the Company adjusted its December 2017 provisional estimates with respect to Tax Reform Legislation resulting in an income tax benefit of $ 5.8 million. The Company had $ 74.6 million of U.S. federal NOL carryforwards as of December 31, 2020, which can be carried forward indefinitely. Approximately $ 37.6 million of the U.S. federal NOL carryforwards are attributable to the acquired GEODynamics operations and are subject to certain limitation provisions. The Company's U.S. state NOL carryforwards as of December 31, 2020 totaled $ 171.8 million, of which $ 13.9 million are attributable to the acquired GEODynamics operations and are subject to certain limitation provisions. As of December 31, 2020, the Company had NOL carryforwards related to certain of its international operations totaling $ 35.0 million, of which $ 14.1 million can be carried forward indefinitely. As of December 31, 2020 and 2019, the Company had recorded valuation allowances of $ 18.4 million and $ 15.5 million, respectively, with respect to foreign and U.S. state NOL carryforwards. As of December 31, 2020, the Company's foreign tax credit carryforwards totaled $ 20.9 million. These foreign tax credits will expire in varying amounts from 2022 to 2029. As of December 31, 2020 and 2019, the Company had recorded valuation allowances of $ 17.1 million and $ 20.4 million, respectively, with respect to foreign tax credit carryforwards. -86- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The Company files tax returns in the jurisdictions in which they are required. These returns are subject to examination or audit and possible adjustment as a result of assessments by taxing authorities. The Company believes that it has recorded sufficient tax liabilities and does not expect that the resolution of any examination or audit of its tax returns will have a material adverse effect on its consolidated operating results, financial condition or liquidity. Tax years subsequent to 2013 remain open to U.S. federal tax audit. Foreign subsidiary federal tax returns subsequent to 2012 are subject to audit by various foreign tax authorities. Uncertain tax positions are accounted for using a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. The total amount of unrecognized tax benefits as of December 31, 2020 and 2019 was nil . The Company accrues interest and penalties related to unrecognized tax benefits as a component of the Company's provision for income taxes. As of December 31, 2020 and 2019, the Company had no accrued interest expense or penalties. 10. Stockholders' Equity Common and Preferred Stock The following table provides details with respect to changes in the number of shares of common stock, $ 0.01 par value, issued, held in treasury and outstanding during 2020 and 2019 (in thousands). Issued Treasury Stock Outstanding Shares of common stock - December 31, 2018 71,754 11,784 59,970 Restricted stock awards, net of forfeitures 792 — 792 Shares withheld for taxes on vesting of restricted stock awards — 210 ( 210 ) Purchase of treasury stock — 51 ( 51 ) Shares of common stock - December 31, 2019 72,546 12,045 60,501 Restricted stock awards, net of forfeitures 743 — 743 Shares withheld for taxes on vesting of restricted stock awards — 239 ( 239 ) Shares of common stock - December 31, 2020 73,289 12,284 61,005 As of December 31, 2020 and 2019, the Company had 25 million shares of preferred stock, $ 0.01 par value, authorized, with no shares issued or outstanding. The Company maintained a share repurchase program, which was allowed to expire on July 29, 2020. During 2020, there were no repurchases of common stock under the program. During 2019, the Company repurchased 51 thousand shares of common stock at a total cost of $ 0.8 million. Accumulated Other Comprehensive Loss Accumulated other comprehensive loss increased from $ 67.7 million at December 31, 2019 to $ 71.4 million at December 31, 2020, due primarily to changes in currency exchange rates. Accumulated other comprehensive loss is primarily related to fluctuations in currency exchange rates against the U.S. dollar as used to translate certain international operations. For 2020 and 2019, currency translation adjustments recognized as a component of other comprehensive loss were primarily attributable to the United Kingdom and Brazil. During the year ended December 31, 2020, the exchange rate of the British pound strengthened by 3 % compared to the U.S. dollar while the Brazilian real weakened by 23 % compared to the U.S. dollar, contributing to other comprehensive loss of $ 3.6 million. During the year ended December 31, 2019, the exchange rate of the British pound strengthened by 4 % compared to the U.S. dollar while the Brazilian real weakened by 4 % compared to the U.S. dollar during the same period, contributing to other comprehensive loss of $ 3.7 million. -87- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 11. 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 years ended December 31, 2020, 2019 and 2018 (in thousands, except per share amounts): 2020 2019 2018 Numerators: Net loss $ ( 468,383 ) $ ( 231,808 ) $ ( 19,105 ) Less: Income attributable to unvested restricted stock awards — — — Numerator for basic net loss per share ( 468,383 ) ( 231,808 ) ( 19,105 ) Effect of dilutive securities: Unvested restricted stock awards — — — Numerator for diluted net loss per share $ ( 468,383 ) $ ( 231,808 ) $ ( 19,105 ) Denominators: Weighted average number of common shares outstanding 60,953 60,424 59,680 Less: Weighted average number of unvested restricted stock awards outstanding ( 1,141 ) ( 1,045 ) ( 968 ) Denominator for basic and diluted net loss per share 59,812 59,379 58,712 Net loss per share: Basic $ ( 7.83 ) $ ( 3.90 ) $ ( 0.33 ) Diluted ( 7.83 ) ( 3.90 ) ( 0.33 ) The calculation of diluted net loss per share for the years ended December 31, 2020, 2019 and 2018 excluded 582 thousand shares, 659 thousand shares and 696 thousand shares, respectively, issuable pursuant to outstanding stock options and restricted stock awards, due to their antidilutive effect. Additionally, shares issuable upon conversion of the 1.50 % convertible senior notes were excluded for the years ended December 31, 2020, 2019 and 2018, due to their antidilutive effect. 12. Long-Term Incentive and Deferred Compensation Plans The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The fair value of service-based restricted stock awards is determined by the quoted market price of the Company's common stock on the date of grant. The fair value of performance-based restricted awards in 2017 was estimated using a Monte Carlo simulation model due to the inclusion of performance metrics that are not based solely on the performance of the Company's common stock. The resulting cost, net of estimated forfeitures, is recognized over the period during which an employee is required to provide service in exchange for the awards, usually the vesting period. Stock-based compensation pre-tax expense recognized in the years ended December 31, 2020, 2019 and 2018 totaled $ 8.4 million, $ 16.8 million and $ 22.6 million, respectively. Restricted Stock Awards The restricted stock program consists of a combination of service-based restricted stock and performance-based restricted stock. The number of performance-based restricted shares ultimately issued under the program is dependent upon achievement of predefined specific performance objectives generally measured over a three-year period. The performance objectives for performance-based stock units granted during 2020, 2019 and 2018 are based on the Company's EBITDA growth rate over a three-year period. In the event the predefined targets are exceeded for any performance-based award, additional shares up to a maximum of 200 % of the target award may be granted. Conversely, if actual performance falls below the predefined target, the number of shares vested is reduced. If the actual performance falls below the threshold performance level, no restricted shares will vest. Service-based restricted stock awards generally vest on a straight-line basis over their term, which is generally three to four years . -88- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The following table presents changes in restricted stock awards and related information for the year ended December 31, 2020 (shares in thousands): Service-based Restricted Stock Performance-based Restricted Stock Number of Shares Weighted Average Grant Date Fair Value Number of Shares Weighted Average Grant Date Fair Value Total Number of Restricted Shares Unvested, December 31, 2019 1,064 $ 22.84 248 1,312 Granted 687 10.01 180 $ 11.15 867 Performance adjustment (1) — — 23 23 Vested ( 595 ) 24.44 ( 125 ) 62.66 ( 720 ) Forfeited ( 69 ) 19.42 ( 17 ) 11.15 ( 85 ) Unvested, December 31, 2020 1,087 14.07 310 1,397 ____________________ (1) Reflects an adjustment to the number of shares to be issued upon vesting of the 2018 performance-based awards. The total fair value of restricted stock awards that vested in 2020, 2019 and 2018 was $ 14.5 million, $ 18.2 million and $ 19.4 million, respectively. As of December 31, 2020, there was $ 8.6 million of total compensation costs related to unvested restricted stock awards not yet recognized, which is expected to be recognized over a weighted average vesting period of 1.5 years. As of December 31, 2020, approximately 1.0 million shares were available for future grant under the Oil States International, Inc. 2018 Equity Participation Plan. Stock Options The Company has not awarded stock options since 2015. The fair value of historical option grants were estimated on the date of grant using a Black Scholes Merton option pricing model. No options were exercised in 2020, 2019 or 2018. The following table presents the changes in stock options outstanding (all exercisable) and related information for the year ended December 31, 2020 (shares in thousands): Options Weighted Average Exercise Price (1) Weighted Average Contractual Life (years) Aggregate Intrinsic Value (thousands) Outstanding Options, December 31, 2019 636 $ 48.81 3.0 $ — Forfeited/Expired ( 105 ) 49.52 Outstanding Options, December 31, 2020 530 48.67 2.3 — ____________________ (1) Exercise prices ranged from $ 41.60 to $ 58.54 as of December 31, 2020. Long-Term Cash Incentive Awards During 2020 and 2019, the Company issued conditional long-term cash incentive awards ("Cash Awards") of approximately $ 2.0 million and $ 1.4 million, respectively, with the ultimate dollar amount to be awarded ranging from 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. Deferred Compensation Plan The Company maintains a nonqualified deferred compensation plan (the "Deferred Compensation Plan") that permits eligible employees and directors to elect to defer the receipt of all or a portion of their directors' fees and/or salary and annual bonuses. Employee contributions to the Deferred Compensation Plan are matched by the Company at the same percentage as if the employee was a participant in the Company's 401(k) Retirement Plan and was not subject to the IRS limitations on match-eligible compensation. In the second quarter of 2020, the Company suspended matching contributions to the Deferred Compensation Plan in response to the significant decline in activity levels due to the COVID-19 pandemic. The Deferred Compensation Plan also permits the Company to make discretionary contributions to any employee's account, although none have been made to date. Directors' contributions are not matched by the Company. Since inception of the plan, this -89- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) discretionary contribution provision has been limited to a matching of the participants' contributions on a basis equivalent to matching permitted under the Company's 401(k) Retirement Savings Plan. The vesting of contributions to the participants' accounts is also equivalent to the vesting requirements of the Company's 401(k) Retirement Savings Plan. The Deferred Compensation Plan does not have dollar limits on tax-deferred contributions. The assets of the Deferred Compensation Plan are held in a Rabbi Trust (the "Trust") and, therefore, are available to satisfy the claims of the Company's creditors in the event of bankruptcy or insolvency of the Company. Participants have the ability to direct the Plan Administrator to invest the assets in their individual accounts, including any discretionary contributions by the Company, in over 30 preapproved mutual funds held by the Trust which cover a variety of securities and mutual funds. In addition, participants currently have the right to request that the Plan Administrator re-allocate the portfolio of investments (i.e. cash or mutual funds) in the participants' individual accounts within the Trust. Company contributions are in the form of cash. Distributions from the plan are generally made upon the participants' termination as a director and/or employee, as applicable, of the Company. Participants receive payments from the Deferred Compensation Plan in cash. As of December 31, 2020, Trust assets totaled $ 22.8 million, the majority of which is classified as "Other noncurrent assets" in the Company's consolidated balance sheet. The fair value of the investments was based on quoted market prices in active markets (a Level 1 fair value measurement). Amounts payable to the plan participants as of December 31, 2020, including the fair value of the shares of the Company's common stock that are reflected as treasury stock, was $ 22.8 million and is classified as "Other noncurrent liabilities" in the Company's consolidated balance sheet. The Company accounts for the Deferred Compensation Plan in accordance with current accounting standards regarding the accounting for deferred compensation arrangements where amounts earned are held in the Trust and invested. Increases or decreases in the value of the Trust assets, exclusive of the shares of common stock of the Company held by the Trust, have been included as compensation adjustments in the consolidated statements of operations. Increases or decreases in the fair value of the deferred compensation liability, including the shares of common stock of the Company held by the Trust, while recorded as treasury stock, are also included as compensation adjustments in the consolidated statements of operations. 13. Retirement Plans The Company sponsors defined contribution plans. Participation in these plans is available to substantially all employees. The Company recognized expenses of $ 3.4 million, $ 9.5 million and $ 8.6 million, respectively, related to matching contributions under its various defined contribution plans during the years ended December 31, 2020, 2019 and 2018, respectively. In the second quarter of 2020, the Company suspended matching contributions to the Company's 401(k) Retirement Savings Plan in response to the significant decline in activity levels due to the COVID-19 pandemic. 14. Commitments and Contingencies The impact of the COVID-19 pandemic and related economic, business and market disruptions continues to evolve and its future effects remain uncertain. The most direct and immediate impact that the Company has experienced and expects to continue to experience from the COVID-19 pandemic is decreased demand for its products and services due to lower activity levels by its customers resulting from the precipitous decline in crude oil prices. The overall impact of the pandemic and oil price collapse on the Company and its customers will depend on numerous factors, many of which are beyond management's control and knowledge. In response to public health concerns related to COVID-19, many federal, state, local and other authorities around the world have imposed mandatory regulations directing individuals to stay at home and have limited their ability to travel domestically or internationally. In certain cases, when travel is permitted, a multi-week quarantine period is required before an individual can work in the area. Additionally, rules and regulations regarding employer responsibilities continue to be promulgated. Facility closures, quarantines, travel restrictions, and possible future workforce shortages may, among numerous other impacts, result in delays by the Company in fulfilling its existing contractual obligations to its customers, which could result in adverse financial consequences. Additionally, the Company procures a variety of raw materials and component products, including steel, in the manufacture of its products from companies which may be impacted by similar challenges. The Company continues to monitor the effect of COVID-19 on its employees, customers, critical suppliers and other stakeholders. The ultimate magnitude and duration of the COVID-19 pandemic, resulting governmental restrictions placing limitations on the mobility and ability to work of the worldwide population, and the related impact on crude oil prices and the U.S. and global economy and capital markets remains uncertain. Following the GEODynamics Acquisition in January 2018, the Company determined that certain steel products historically imported by GEODynamics from China for use in its manufacturing process were potentially be subject to anti-dumping and countervailing duties. Following an internal review, the Company voluntarily disclosed this matter to U.S. Customs and Border Protection ("CBP") and, in December 2020, reached an agreement with CBP to settle this matter for $ 7.3 million. The Company believes that the Seller is required to indemnify and hold the Company harmless against the amount of this and other -90- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) settlements and related costs of $ 7.9 million, and the Company has provided notice to and asserted indemnification claims against the Seller. Additionally, the Company believes that its agreements with the Seller allow it to set-off such amounts against payments due under the $ 25.0 million promissory note and that, because the Company has asserted indemnification claims, the maturity date of the note is extended until the resolution of such claims. Accordingly, the Company has reduced the carrying amount of such note in its consolidated balance sheet to $ 17.1 million as of December 31, 2020, which is the Company's current best estimate of what is owed after set-off for indemnification matters. In August 2020, the Seller filed a breach of contract suit against the Company and one of its wholly-owned subsidiaries in federal court alleging that payments due under the promissory note are required to be, but have not been, repaid in accordance with the terms of the note. Additionally, the Seller alleged that it was entitled to approximately $ 19 million in U.S. federal income tax carryback claims received by the Company under the provisions of the CARES Act. On February 15, 2021, the Seller dismissed the federal lawsuit without prejudice and refiled in state court. The Company denies the validity of these breach of contract claims and plans to vigorously defend against this lawsuit. The Company is a party to various other pending or threatened claims, lawsuits and administrative proceedings seeking damages or other remedies concerning its commercial operations, products, employees and other matters, including occasional claims by individuals alleging exposure to hazardous materials as a result of the Company's products or operations. Some of these claims relate to matters occurring prior to the acquisition of businesses, and some relate to businesses the Company has sold. In certain cases, the Company is entitled to indemnification from the sellers of businesses and, in other cases, the Company has indemnified the buyers of businesses. Although the Company can give no assurance about the outcome of pending legal and administrative proceedings and the effect such outcomes may have on the Company, management believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by indemnity or insurance, will not have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity. 15. Segments and Related Information The Company's reportable segments represent strategic business units that offer different products and services. They are managed separately as each business requires different technologies and marketing strategies. Recent acquisitions, except for the GEODynamics Acquisition, have been direct extensions to existing business segments. Accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Well Site Services segment provides a broad range of equipment and services that are used to drill for, establish and maintain the flow of oil and natural gas from a well throughout its life cycle. In this segment, operations primarily include completion-focused equipment and services. The segment provides solutions to its customers using its completion tools, drilling rigs and highly-trained personnel throughout its service offerings which include wireline support, frac stacks, isolation tools, extended reach tools, ball launchers, well testing and flowback operations, thru tubing activity, sand control and land drilling. Separate business lines within the Well Site Services segment have been disclosed to provide additional detail with respect to its operations. The Downhole Technologies segment provides oil and gas perforation systems and downhole tools in support of completion, intervention, wireline and well abandonment operations. This segment designs, manufactures and markets its consumable engineered products to oilfield service as well as exploration and production companies, which are completing complex wells with longer lateral lengths, increased frac stages and more perforation clusters to increase unconventional well productivity. The Offshore/Manufactured Products segment designs, manufactures and markets capital equipment utilized on floating production systems, subsea pipeline infrastructure, and offshore drilling rigs and vessels, along with short-cycle and other products. Driven principally by longer-term customer investments for offshore oil and natural gas projects, project-driven product revenues include flexible bearings, advanced connector systems, high-pressure riser systems, deepwater mooring systems, cranes, subsea pipeline products and blow-out preventer stack integration. Short-cycle products manufactured by the segment include valves, elastomers and other specialty products generally used in the land-based drilling and completion markets. Other products manufactured and offered by the segment include a variety of products for use in industrial, military and other applications outside the oil and gas industry. The segment also offers a broad line of complementary, value-added services including specialty welding, fabrication, cladding and machining services, offshore installation services, and inspection and repair services. -91- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Corporate information includes corporate expenses, such as those related to corporate governance, stock-based compensation and other infrastructure support, as well as impacts from corporate-wide decisions for which individual operating units are not evaluated. Financial information by business segment for each of the three years ended December 31, 2020, 2019 and 2018, is summarized in the following table (in thousands). Revenues Depreciation and amortization Operating income (loss) Capital expenditures Total assets 2020 Well Site Services - Completion Services (1) $ 191,529 $ 52,922 $ ( 187,869 ) $ 6,823 $ 241,038 Drilling Services (2) 8,310 318 ( 5,519 ) 114 3,894 Total Well Site Services 199,839 53,240 ( 193,388 ) 6,937 244,932 Downhole Technologies (3) 97,936 22,649 ( 224,414 ) 3,230 280,096 Offshore/Manufactured Products (4) 340,300 21,881 ( 80,794 ) 2,913 547,962 Corporate — 773 ( 35,744 ) ( 331 ) 79,270 Total $ 638,075 $ 98,543 $ ( 534,340 ) $ 12,749 $ 1,152,260 2019 Well Site Services - Completion Services $ 390,748 $ 68,440 $ ( 11,621 ) $ 30,806 $ 459,078 Drilling Services (5) 41,346 9,973 ( 43,419 ) 2,664 19,171 Total Well Site Services 432,094 78,413 ( 55,040 ) 33,470 478,249 Downhole Technologies (6) 182,314 21,247 ( 164,008 ) 13,808 529,677 Offshore/Manufactured Products 402,946 22,842 36,022 7,692 677,036 Corporate — 817 ( 45,154 ) 1,146 42,905 Total $ 1,017,354 $ 123,319 $ ( 228,180 ) $ 56,116 $ 1,727,867 2018 Well Site Services - Completion Services $ 411,019 $ 66,415 $ ( 7,647 ) $ 50,423 $ 523,235 Drilling Services 69,235 14,354 ( 9,363 ) 6,591 64,661 Total Well Site Services 480,254 80,769 ( 17,010 ) 57,014 587,896 Downhole Technologies 213,813 18,649 26,705 16,167 691,874 Offshore/Manufactured Products 394,066 23,207 38,914 13,797 683,285 Corporate — 905 ( 54,485 ) 1,046 40,766 Total $ 1,088,133 $ 123,530 $ ( 5,876 ) $ 88,024 $ 2,003,821 ___________ (1) Operating loss in 2020 included a non-cash inventory impairment charge of $ 9.0 million and a non-cash goodwill impairment charge of $ 127.1 million to reduce the carrying value of the Completion Services reporting unit to its estimated fair value and non-cash fixed asset impairment charges of $ 3.6 million to reduce the carrying value of certain of the unit's facilities to their estimated realizable value. (2) Operating loss in 2020 included a non-cash fixed asset impairment charge of $ 5.2 million to further reduce the carrying value of the Drilling Services business's fixed assets to their estimated realizable value. (3) Operating loss in 2020 included a non-cash inventory impairment charge of $ 5.9 million, non-cash fixed and operating lease impairment charges of $ 3.6 million to reduce the carrying of these assets to their estimated realizable value and a non-cash goodwill impairment charge of $ 192.5 million to reduce the carrying value of the Downhole Technologies reporting unit to its estimated fair value. (4) Operating loss in 2020 included a non-cash inventory impairment charge of $ 16.2 million and a non-cash goodwill impairment charge of $ 86.5 million to reduce the carrying value of the Offshore/Manufactured Products reporting unit to its estimated fair value. (5) In late 2019, the Company reduced the scope of its Drilling Services business (adjusting from 34 rigs to 9 rigs) due to weakness in customer demand for vertical drilling rigs in the U.S. land market. Operating loss for the Drilling Services business included a non-cash fixed asset impairment charge of $ 33.7 million. (6) Operating loss in 2019 for the Downhole Technologies segment included a non-cash goodwill impairment charge of $ 165.0 million. See Note 3, "Asset Impairments and Other Charges," Note 4, "Details of Selected Balance Sheet Accounts," Note 6, “Goodwill and Other Intangible Assets,” and Note 8, "Operating Leases," for further discussion of these and other charges. -92- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) No customer individually accounted for greater than 10% of the Company's 2020 or 2019 consolidated revenues or individually accounted for greater than 10% of the Company's consolidated accounts receivable at December 31, 2020. One customer accounted for 10 % of the Company's 2018 consolidated revenues. For the Company's Well Site Services segment, substantially all depreciation and amortization expense relates to cost of services while substantially all depreciation and amortization expense for the Downhole Technologies segment relates to cost of products. The Offshore/Manufactured Products segment has numerous facilities around the world that generate both product and service revenues, and it is common for the segment to provide both installation and other services for products manufactured by this segment. While substantially all depreciation and amortization expense for the Offshore/Manufactured Products segment relates to cost of revenues, it does not segregate or capture depreciation or amortization expense of intangible assets between product and service cost. Operating income (loss) excludes equity in net income of unconsolidated affiliates, which is immaterial and not reported separately herein. The following table provides supplemental disaggregated revenue from contracts with customers by business segment for the three years ended December 31, 2020, 2019 and 2018 (in thousands): Well Site Services Downhole Technologies Offshore/Manufactured Products 2020 2019 2018 2020 2019 2018 2020 2019 2018 Major revenue categories - Project-driven products $ — $ — $ — $ — $ — $ — $ 165,497 $ 159,205 $ 120,894 Short-cycle: Completion products and services 191,529 390,748 411,019 97,936 182,314 213,813 26,148 95,806 116,383 Drilling services 8,310 41,346 69,235 — — — — — — Other products — — — — — — 21,994 27,416 27,984 Total short-cycle 199,839 432,094 480,254 97,936 182,314 213,813 48,142 123,222 144,367 Other products and services — — — — — — 126,661 120,519 128,805 $ 199,839 $ 432,094 $ 480,254 $ 97,936 $ 182,314 $ 213,813 $ 340,300 $ 402,946 $ 394,066 Financial information by geographic location for each of the three years ended December 31, 2020, 2019 and 2018, is summarized below (in thousands). Revenues are attributable to countries based on the location of the entity selling the products or performing the services and include export sales. Long-lived assets are attributable to countries based on the physical location of the operations and its operating assets and do not include intercompany receivable balances. United States United Kingdom Singapore Other Total 2020 Revenues from unaffiliated customers $ 463,382 $ 76,808 $ 57,513 $ 40,372 $ 638,075 Long-lived assets 554,926 78,622 16,509 48,883 698,940 2019 Revenues from unaffiliated customers $ 831,317 $ 70,641 $ 56,170 $ 59,226 $ 1,017,354 Long-lived assets 1,046,250 81,855 18,260 69,372 1,215,737 2018 Revenues from unaffiliated customers $ 930,151 $ 64,564 $ 37,938 $ 55,480 $ 1,088,133 Long-lived assets 1,278,504 74,394 19,116 70,732 1,442,746 -93- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 16. Related Party Transactions GEODynamics historically leased certain land and facilities from an equity holder and former employee of the Company, following the GEODynamics Acquisition. In connection with the GEODynamics Acquisition, the Company assumed these leases. The Company exercised its option to purchase the most significant leased facility and associated land for approximately $ 5.4 million in September 2018. Rent expense related to leases with this former employee for the years ended December 31, 2020, 2019 and 2018 totaled $ 44 thousand, $ 157 thousand and $ 330 thousand, respectively. Additionally, in 2020 and 2019, GEODynamics purchased products from and sold products to a company in which this former employee is an investor. In 2020, sales to this company were $ 1.8 million. In 2019, sales to this company were $ 1.4 million and purchases from this company were $ 1.3 million. 17. Valuation Allowances Activity in the valuation accounts was as follows (in thousands): Balance at Beginning of Period Charged to Costs and Expenses Deductions (net of recoveries) Translation and Other, Net (1) Balance at End of Period Year Ended December 31, 2020: Allowance for doubtful accounts receivable $ 8,745 $ 3,409 $ ( 5,049 ) $ 1,199 $ 8,304 Allowance for excess or obsolete inventory 19,031 32,974 ( 11,719 ) 445 40,731 Valuation allowance on deferred tax assets 35,828 1,890 — ( 2,221 ) 35,497 Year Ended December 31, 2019: Allowance for doubtful accounts receivable $ 6,701 $ 2,776 $ ( 819 ) $ 87 $ 8,745 Allowance for excess or obsolete inventory 18,551 3,040 ( 2,644 ) 84 19,031 Valuation allowance on deferred tax assets 33,762 2,558 — ( 492 ) 35,828 Year Ended December 31, 2018: Allowance for doubtful accounts receivable $ 7,316 $ 1,520 $ ( 887 ) $ ( 1,248 ) $ 6,701 Allowance for excess or obsolete inventory 15,649 2,683 ( 2,917 ) 3,136 18,551 Valuation allowance on deferred tax assets 37,904 ( 4,124 ) — ( 18 ) 33,762 ____________________ (1) For the year ended December 31, 2018, amount presented within allowance for doubtful accounts receivables and excess or obsolete inventory included $ 0.6 million and $ 3.3 million, respectively, related to the acquired GEODynamics operations. -94- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 18. Quarterly Financial Information (Unaudited) The following table summarizes quarterly financial information for 2020 and 2019 (in thousands, except per share amounts): First Quarter (1) Second Quarter (2) Third Quarter (3) Fourth Quarter (4) 2020 Revenues $ 219,694 $ 146,245 $ 134,759 $ 137,377 Gross profit (5) ( 4,156 ) ( 6,301 ) ( 9,885 ) ( 1,159 ) Net loss ( 405,041 ) ( 24,626 ) ( 19,969 ) ( 18,747 ) Basic and diluted net loss per share ( 6.79 ) ( 0.41 ) ( 0.33 ) ( 0.31 ) 2019 Revenues $ 250,611 $ 264,685 $ 263,697 $ 238,361 Gross profit (5) 19,452 24,872 31,431 16,508 Net loss ( 14,648 ) ( 9,740 ) ( 31,868 ) ( 175,552 ) Basic and diluted net loss per share ( 0.25 ) ( 0.16 ) ( 0.54 ) ( 2.95 ) ____________________ (1) During the first quarter of 2020, the Company recognized non-cash goodwill impairment charges of $ 406.1 million (pre-tax), a non-cash fixed asset impairment charge of $ 5.2 million (pre-tax), non-cash inventory charges of $ 25.2 million (pre-tax) and severance and restructuring charges of $ 0.7 million (pre-tax). During the first quarter of 2019, the Company recognized $ 1.0 million (pre-tax) of severance and restructuring charges. (2) During the second quarter of 2020, the Company recognized a non-cash fixed asset impairment charge of $ 3.0 million (pre-tax) and severance and restructuring charges of $ 5.4 million (pre-tax). During the second quarter of 2019, the Company recognized $ 1.3 million (pre-tax) of severance and restructuring charges. (3) During the third quarter of 2020, the Company recognized a non-cash inventory impairment charge of $ 5.9 million (pre-tax) and severance charges of $ 0.3 million (pre-tax). During the third quarter of 2019, the Company recognized a non-cash fixed asset impairment charge of $ 33.7 million (pre-tax) and $ 0.7 million (pre-tax) of severance and restructuring charges. (4) During the fourth quarter of 2020, the Company recognized non-cash fixed asset and lease impairment charges of $ 4.3 million (pre-tax) and severance and restructuring charges of $ 2.7 million (pre-tax). During the fourth quarter of 2019, the Company recognized a non-cash goodwill impairment charge of $ 165.0 million (pre-tax) and $ 0.6 million (pre-tax) of severance and restructuring charges. (5) Gross profit is calculated as revenues less costs of products and services and segment level depreciation and amortization expense. The calculation of gross profit excluded non-cash goodwill and fixed asset impairment charges totaling $ 411.3 million in the first quarter of 2020, a non-cash fixed asset impairment charge of $ 3.0 million in the second quarter of 2020 and non-cash fixed asset and lease impairment charges totaling $ 4.3 million in the fourth quarter of 2020. The calculation of gross profit excluded the $ 33.7 million non-cash fixed asset impairment charge recognized in the third quarter of 2019 and the $ 165.0 million non-cash goodwill impairment charge recognized in the fourth quarter of 2019. Amounts are calculated independently for each of the quarters presented. Therefore, the sum of the quarterly amounts may not equal the total calculated for the year. -95-