OIL STATES INTERNATIONAL, INC 10-Q

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read together with our condensed consolidated financial statements and the notes to those statements included elsewhere in this Quarterly Report on Form 10-Q and our consolidated financial statements and notes to those statements included in our 2020 Annual Report on Form 10-K in order to understand factors, such as charges and credits, financing transactions and changes in tax regulations, which may impact comparability from period to period. We provide a broad range of manufactured products and services to customers in the energy, industrial and military sectors through our Offshore/Manufactured Products, Downhole Technologies and Well Site Services segments. Demand for our products and services is cyclical and substantially dependent upon activity levels in the oil and gas industry, particularly our customers' willingness to invest capital in the exploration for and development of crude oil and natural gas reserves. Our customers' capital spending programs are generally based on their cash flows and their outlook for near-term and long-term commodity prices, economic growth, commodity demand and estimates of resource production. As a result, demand for our products and services is sensitive to future expectations with respect to crude oil and natural gas prices. Recent Developments In March of 2020, the spot price of West Texas Intermediate ("WTI") crude oil declined over 50% in response to actual and forecasted reductions in global demand for crude oil due to the COVID-19 pandemic, coupled with announcements by Saudi Arabia and Russia of plans to increase crude oil production. Demand for most of our products and services depends substantially on the level of capital expenditures by the oil and natural gas industry, and these conditions caused rapid reductions to most of our 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. While the prices of and demand for crude oil have increased significantly since reaching record low levels in April 2020, uncertainty remains regarding the timing of demand recovery to pre-COVID-19 levels and the willingness of operators to invest in U.S. land-based drilling, completion and production activities given regulatory pressures around environmental, social and governance ("ESG") considerations. Following the unprecedented events in March 2020, we immediately began aggressive implementation of cost reduction initiatives in an effort to reduce our expenditures to protect the financial health of our company, stabilize our cash flows and protect liquidity. In addition, as discussed in more detail below and under "– ABL Facility," "– 2023 Notes," and "– 2026 Notes," we completed two significant financing transactions during the first quarter of 2021, which served to extend the maturity profile of our debt and provide greater access to liquidity. On February 10, 2021, we entered into a new $125.0 million asset-based revolving credit facility (the "ABL Facility") under which credit availability is subject to a borrowing base calculation that includes eligible U.S. customer accounts receivable and inventory. The ABL Facility matures in February 2025. Concurrent with entering into the ABL Facility, our former senior secured revolving credit facility was terminated. On March 16, 2021, we secured an amendment that permitted us to incur the indebtedness represented by the 2026 Notes discussed below. 25 On March 19, 2021, we issued $135.0 million aggregate principal amount of our 4.75% convertible senior notes due 2026 (the "2026 Notes"). Net proceeds from the 2026 Notes offering, after deducting issuance costs, totaled $130.6 million. We used $120.0 million of the cash proceeds to purchase $125.0 million principal amount of our outstanding 1.50% convertible senior notes due 2023 (the "2023 Notes") at a discount, with the balance added to cash on-hand. Hurricane Ida formed and rapidly intensified in the Gulf of Mexico before making landfall in southeast Louisiana on August 30, 2021. While our facilities in the direct path of Hurricane Ida did not sustain major damage, power was not fully restored until late-September. Results of operations within our Offshore/Manufactured Products and Well Site Services segments were negatively impacted due to cessation of work in the Gulf of Mexico, temporary facility closures, local workforce challenges and resulting delays in the production and shipment of goods to our customers. On a consolidated basis, we estimate that Hurricane Ida resulted in reductions to third-quarter 2021 revenues and operating income of $5.9 million and $3.0 million, respectively. Brent and WTI crude oil and natural gas pricing trends were as follows: Average Price (1) for quarter ended Average Price (1) for year ended December 31 Year March 31 June 30 September 30 December 31 Brent Crude (per bbl) 2021 $ 61.04 $ 68.98 $ 73.51 2020 $ 50.27 $ 29.70 $ 42.91 $ 44.32 $ 41.96 WTI Crude (per bbl) 2021 $ 58.09 $ 66.19 $ 70.58 2020 $ 45.34 $ 27.96 $ 40.89 $ 42.52 $ 39.16 Henry Hub Natural Gas (per MMBtu) 2021 $ 3.50 $ 2.95 $ 4.35 2020 $ 1.91 $ 1.70 $ 2.00 $ 2.52 $ 2.03 ________________ (1) Source: U.S. Energy Information Administration (spot prices). On October 22, 2021, Brent crude oil, WTI crude oil and natural gas spot prices closed at $85.43 per barrel, $84.53 per barrel and $5.10 per MMBtu, respectively. Additionally, as presented in more detail below, the U.S. drilling rig count reported on October 22, 2021 was 542 rigs, 9% above the third quarter 2021 average. Overview Our Offshore/Manufactured Products segment provides technology-driven, highly-engineered products and services for offshore oil and natural gas production systems and facilities, as well as certain products and services to the offshore and land-based drilling and completion markets. The segment also produces a variety of products for use in industrial, military and other applications outside the traditional energy industry. This segment is particularly influenced by global spending on deepwater drilling and production, which is primarily driven by our customers' longer-term commodity demand forecasts and outlook for crude oil and natural gas prices. Approximately 38% of Offshore/Manufactured Products segment sales in the first nine months of 2021 were driven by our customers' capital spending for products used in exploratory and developmental drilling, greenfield offshore production infrastructure, and subsea pipeline tie-in and repair system applications, along with upgraded equipment for existing offshore drilling rigs and other vessels (referred to herein as "project-driven products"). Deepwater oil and gas development projects typically involve significant capital investments and multi-year development plans. Such projects are generally undertaken by larger exploration, field development and production companies (primarily international oil companies and state-run national oil companies) using relatively conservative crude oil and natural gas pricing assumptions. Given the long lead times associated with field development, we believe some of these deepwater projects, once approved for development, are generally less susceptible to short-term fluctuations in the price of crude oil and natural gas. Backlog reported by our Offshore/Manufactured Products segment totaled $249 million as of September 30, 2021, with quarterly bookings totaling $106 million, yielding a quarterly book-to-bill ratio of 1.5x and a year-to-date ratio of 1.2x. The following table sets forth backlog as of the dates indicated (in millions). Backlog as of Year March 31 June 30 September 30 December 31 2021 $ 226 $ 214 $ 249 2020 $ 267 $ 235 $ 227 $ 219 2019 $ 234 $ 283 $ 293 $ 280 26 Our Downhole Technologies segment, comprised of the GEODynamics, Inc. ("GEODynamics") business we acquired in 2018, provides oil and gas perforation systems, downhole tools and services in support of completion, intervention, wireline and well abandonment operations. This segment designs, manufactures and markets its consumable engineered products to oilfield service as well as exploration and production companies. Product and service offerings for this segment include innovations in perforation technology through patented and proprietary systems combined with advanced modeling and analysis tools. This expertise has led to the optimization of perforation hole size, depth, and quality of tunnels, which are key factors for maximizing the effectiveness of hydraulic fracturing. Additional offerings include proprietary frac plug and toe valve products, which are focused on zonal isolation for hydraulic fracturing of horizontal wells, and a broad range of consumable products, such as setting tools and bridge plugs, that are used in completion, intervention and decommissioning applications. Demand drivers for the Downhole Technologies segment include continued trends toward longer lateral lengths, increased frac stages and more perforation clusters to target increased unconventional well productivity, which requires ongoing technological and product developments. Our Well Site Services segment provides completion services and, to a much lesser extent land drilling services, in the United States (including the Gulf of Mexico) and the rest of the world. U.S. drilling and completion activity and, in turn, our Well Site Services results, are sensitive to near-term fluctuations in commodity prices, particularly WTI crude oil prices, given the short-term, call-out nature of its operations. We primarily supply equipment and service personnel utilized in the completion and initial production of new and recompleted wells. Our U.S. activity is dependent primarily upon the level and complexity of drilling, completion and workover activity in our areas of operations. Well intensity and complexity has increased with the continuing transition to multi-well pads, the drilling of longer lateral wells and increased downhole pressures, along with the increased number of frac stages completed in horizontal wells. Demand for our completion products and services within each of our segments is highly correlated to changes in the total number of wells drilled in the United States, total footage drilled, the number of drilled wells that are completed and changes in the drilling rig count. The following table sets forth a summary of the average U.S. and international drilling rig count, as measured by Baker Hughes Company, for the periods indicated. Average for the As of October 22, 2021 Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 United States: Land – Oil 428 382 167 337 370 Land – Natural gas and other 99 101 74 96 90 Offshore 15 13 13 15 17 542 496 254 448 477 International: Land 739 596 679 757 Offshore 184 183 177 212 923 779 856 969 1,419 1,033 1,304 1,446 The U.S. energy industry is primarily focused on crude oil and liquids-rich exploration and development activities in U.S. shale plays utilizing horizontal drilling and completion techniques. As of September 30, 2021, oil-directed drilling accounted for 81% of the total U.S. rig count – with the balance largely natural gas related. Due to the unprecedented decline in crude oil prices in March and April of 2020, drilling and completion activity in the United States collapsed – with the active drilling rig count declining from 790 rigs as of February 29, 2020 to a trough of 244 rigs as of August 14, 2020. Since August 14, 2020, the U.S. rig count has increased 114% to 521 rigs as of September 30, 2021. As can be derived from the table above, the average U.S. rig count for the three months ended September 30, 2021 increased by 242 rigs, or 95%, compared to the average for the three months ended September 30, 2020. Reduced demand for our products and services, coupled with a reduction in the prices we charge our customers for our products and services, has adversely affected our results of operations, cash flows and financial position. If the current pricing environment for crude oil declines from current levels, our customers may be required to further reduce their capital expenditures, causing declines in the demand for and prices of our products and services, which would adversely affect our results of operations, cash flows and financial position. We use a variety of domestically produced and imported raw materials and component products, including steel, in the manufacture of our products. The United States has imposed tariffs on a variety of imported products, including steel and aluminum. In response to the U.S. tariffs on steel and aluminum, the European Union and several other countries, including 27 Canada and China, have threatened and/or imposed retaliatory tariffs. The effect of these tariffs and the application and interpretation of existing trade agreements and customs, anti-dumping and countervailing duty regulations continue to evolve, and we continue to monitor these matters. If we encounter difficulty in procuring these raw materials and component products, or if the prices we have to pay for these products increase and we are unable to pass corresponding cost increases on to our customers, our financial position, cash flows and results of operations could be adversely affected. Furthermore, uncertainty with respect to potential costs in the drilling and completion of oil and gas wells could cause our customers to delay or cancel planned projects which, if this occurred, would adversely affect our financial position, cash flows and results of operations. See Note 13, "Commitments and Contingencies." Other factors that can affect our business and financial results include but are not limited to the general global economic environment, competitive pricing pressures, public health crises, natural disasters, labor market constraints, supply chain disruptions, inflation, climate-related and other regulatory changes, and changes in tax laws in the United States and international markets. We continue to monitor the global economy, the prices of and demand for crude oil and natural gas, and the resultant impact on the capital spending plans and operations of our customers in order to plan and manage our business. Human Capital For more information on our health and safety, diversity and other workforce policies, please see "Part I, Item 1. Business – Human Capital" in our Annual Report on Form 10-K for the year ended December 31, 2020. Selected Financial Data This selected financial data should be read in conjunction with our Unaudited Condensed Consolidated Financial Statements and related notes included in "Part I, Item 1. Financial Statements" of this Quarterly Report on Form 10-Q and "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and our Consolidated Financial Statements and related notes included in "Part II, Item 8. Financial Statements and Supplementary Data" of our Annual Report on Form 10-K for the year ended December 31, 2020 in order to understand factors, such as charges and credits, financing transactions and changes in tax regulations, which may impact the comparability of the selected financial data. 28 Unaudited Consolidated Results of Operations Data The following summarizes our unaudited consolidated results of operations for the three and nine months ended September 30, 2021 and 2020 (in thousands, except per share amounts): Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 Variance 2021 2020 Variance Revenues: Products $ 70,409 $ 72,598 $ (2,189) $ 209,892 $ 258,221 $ (48,329) Services 70,119 62,161 7,958 201,949 242,477 (40,528) 140,528 134,759 5,769 411,841 500,698 (88,857) Costs and expenses: Product costs 60,310 66,789 (6,479) 173,699 224,623 (50,924) Service costs 56,897 53,822 3,075 163,450 221,673 (58,223) Cost of revenues (exclusive of depreciation and amortization expense presented below) (1) 117,207 120,611 (3,404) 337,149 446,296 (109,147) Selling, general and administrative expenses 20,078 21,389 (1,311) 63,395 71,505 (8,110) Depreciation and amortization expense 19,657 24,251 (4,594) 62,086 75,306 (13,220) Impairments of goodwill (2) — — — — 406,056 (406,056) Impairments of fixed and lease assets (3) — — — 3,444 8,190 (4,746) Other operating income, net (275) (652) 377 (714) (679) (35) 156,667 165,599 (8,932) 465,360 1,006,674 (541,314) Operating loss (16,139) (30,840) 14,701 (53,519) (505,976) 452,457 Interest expense, net (2,569) (3,549) 980 (7,593) (11,232) 3,639 Other income (4) 2,137 6,744 (4,607) 7,917 13,512 (5,595) Loss before income taxes (16,571) (27,645) 11,074 (53,195) (503,696) 450,501 Income tax benefit (5) 3,529 7,676 (4,147) 9,072 54,060 (44,988) Net loss $ (13,042) $ (19,969) $ 6,927 $ (44,123) $ (449,636) $ 405,513 Net loss per share: Basic $ (0.22) $ (0.33) $ (0.73) $ (7.52) Diluted (0.22) (0.33) (0.73) (7.52) Weighted average number of common shares outstanding: Basic 60,377 59,871 60,264 59,788 Diluted 60,377 59,871 60,264 59,788 ________________ (1) Cost of revenues (exclusive of depreciation and amortization expense) included a non-cash inventory impairment charge of $2.1 million (in product costs) recognized in the third quarter of 2021. Cost of revenues (exclusive of depreciation and amortization expense) included non-cash inventory impairment charges of $5.9 million (in product costs) and $25.2 million ($12.0 million in product costs and $13.2 million in service costs) recognized in the third and first quarters of 2020, respectively. (2) During the first quarter of 2020, we recognized non-cash goodwill impairment charges totaling $406.1 million to reduce the carrying value of our reporting units to their estimated fair value. (3) During the first nine months of 2021 and 2020, we recognized non-cash impairment charges of $3.4 million and $8.2 million, respectively, to reduce the carrying value of the segment's fixed and operating lease assets to their estimated realizable value. (4) During the nine months ended September 30, 2021, we recognized non-cash gains of $4.0 million in connection with our purchases of $131.4 million principal amount of our 2023 Notes. During the third quarter of 2020, we recognized non-cash gains of $5.9 million in connection with our purchases of $17.2 million principal amount of our 2023 Notes. During the nine months ended September 30, 2020, we recognized non-cash gains of $10.7 million in connection with our purchases of $34.9 million principal amount of our 2023 Notes. (5) During the first nine months of 2020, we recognized a discrete tax benefit of $16.4 million related to U.S. net operating loss carrybacks under provisions of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). See Note 3, "Asset Impairments and Other Restructuring Items," Note 4, "Details of Selected Balance Sheet Accounts," Note 5, "Long-term Debt," and Note 9, "Income Taxes," to the Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further discussion of these and other charges and benefits recognized in the first nine months of 2021 and 2020. 29 Unaudited Operating Segment Financial Data We manage and measure our business performance in three distinct operating segments: Offshore/Manufactured Products, Downhole Technologies and Well Site Services. Supplemental unaudited financial information by operating segment for the three and nine months ended September 30, 2021 and 2020 is summarized below (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 Variance 2021 2020 Variance Revenues Offshore/Manufactured Products $ 69,003 $ 78,674 $ (9,671) $ 206,520 $ 264,782 $ (58,262) Downhole Technologies 25,527 18,713 6,814 77,717 74,743 2,974 Well Site Services 45,998 37,372 8,626 127,604 161,173 (33,569) Total $ 140,528 $ 134,759 $ 5,769 $ 411,841 $ 500,698 $ (88,857) Operating income (loss) Offshore/Manufactured Products (1) $ 1,764 $ 3,875 $ (2,111) $ 7,645 $ (82,202) $ 89,847 Downhole Technologies (2) (5,035) (12,594) 7,559 (8,945) (216,395) 207,450 Well Site Services (3) (5,250) (13,872) 8,622 (26,693) (181,746) 155,053 Corporate (7,618) (8,249) 631 (25,526) (25,633) 107 Total $ (16,139) $ (30,840) $ 14,701 $ (53,519) $ (505,976) $ 452,457 ________________ (1) Operating loss in the first quarter of 2020 included non-cash goodwill and inventory impairment charges of $86.5 million and $16.2 million, respectively. (2) Operating loss in the third quarter of 2021 included a non-cash inventory impairment charge of $2.1 million. Operating loss in the first quarter of 2020 included a non-cash goodwill charge of $192.5 million. Operating loss in the third quarter of 2020 included a non-cash inventory impairment charge of $5.9 million. (3) Operating loss in the first quarter of 2021 included non-cash fixed asset impairment charges of $0.7 million. Operating loss in the second quarter of 2021 included non-cash operating lease asset impairment charges of $2.8 million. Operating loss in the first quarter of 2020 included non-cash goodwill, inventory and fixed asset impairment charges of $127.1 million, $9.0 million and $5.2 million, respectively. Operating loss in the second quarter of 2020 included a non-cash fixed asset impairment charge of $3.0 million. See Note 3, "Asset Impairments and Other Restructuring Items," and Note 4, "Details of Selected Balance Sheet Accounts," to the Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further discussion of these and other charges and benefits recognized in the first nine months of 2021 and 2020. 30 Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020 Consolidated Operating Results We reported a net loss for the three months ended September 30, 2021 of $13.0 million, or $0.22 per share. Reported third quarter results reflect the impact of Hurricane Ida, which negatively affected operations in southeast Louisiana and the Gulf of Mexico. The third quarter 2021 loss also included a non-cash inventory impairment charge of $2.1 million ($1.7 million after-tax, or $0.03 per share) and severance and restructuring costs of $0.7 million ($0.6 million after-tax, or $0.01 per share). These results compare to a net loss for the three months ended September 30, 2020 of $20.0 million, or $0.33 per share. The reported third quarter 2020 loss included: a non-cash inventory impairment charge of $5.9 million ($4.7 million after-tax, or $0.08 per share); non-cash gains of $5.9 million ($4.7 million after-tax, or $0.08 per share) associated with debt extinguishment; and $0.3 million ($0.2 million after-tax) of severance and restructuring costs. Hurricane Ida formed and rapidly intensified in the Gulf of Mexico before making landfall in southeast Louisiana on August 30, 2021. While our facilities in the direct path of Hurricane Ida did not sustain major damage, power was not fully restored until late-September. Results of operations within our Offshore/Manufactured Products and Well Site Services segments were negatively impacted due to cessation of work in the Gulf of Mexico, temporary facility closures, local workforce challenges and resulting delays in the production and shipment of goods to our customers. On a consolidated basis, we estimate that Hurricane Ida resulted in reductions to third-quarter 2021 revenues and operating income of $5.9 million and $3.0 million, respectively. Our reported results of operations also reflect the negative impact of the global response to the COVID-19 pandemic, ongoing uncertainties related to future crude oil demand and supply and, to a lesser extent, supply chain disruptions. Customer-driven activity has improved off of 2020's low levels but uncertainty remains regarding the timing of demand recovery to pre-COVID-19 levels and the willingness of operators to invest in U.S. land-based drilling, completion and production activities given regulatory pressures around ESG considerations. If the pricing environment for crude oil declines from current levels, our customers may be required to moderate or reduce their planned capital expenditures, leading to declines in the demand for and prices of our products and services. During the third quarter of 2021, we recognized an aggregate $1.2 million reduction of payroll tax expense (within cost of revenues and selling, general and administrative expense) as part of the CARES Act employee retention credit program. We continue to evaluate additional benefits potentially available to us under the CARES Act. Revenues. Consolidated total revenues in the third quarter of 2021 increased $5.8 million, or 4%, from the third quarter of 2020. Consolidated product revenues in the third quarter of 2021 decreased $2.2 million, or 3%, from the third quarter of 2020, driven by reduced project-driven customer demand for connector products and the impact of Hurricane Ida, partially offset by an increase in U.S. land-based customer activity and production equipment revenue. Consolidated service revenues in the third quarter of 2021 increased $8.0 million, or 13%, from the third quarter of 2020 due primarily to higher customer spending in the U.S. shale play regions as activity continues to recover from the 2020 COVID-19 induced lows, partially offset by the effects of Hurricane Ida which caused a temporary cessation of work in the Gulf of Mexico. As can be derived from the following table, 64% of our consolidated revenues in the third quarter of 2021 were derived from sales of our short-cycle product and service offerings, which compares to 47% in the same period last year. 31 The following table provides supplemental disaggregated revenue from contracts with customers by operating segment for the three months ended September 30, 2021 and 2020 (in thousands): Offshore/ Manufactured Products Downhole Technologies Well Site Services Total Three Months Ended September 30 2021 2020 2021 2020 2021 2020 2021 2020 Major revenue categories - Project-driven products $ 25,294 $ 41,004 $ — $ — $ — $ — $ 25,294 $ 41,004 Short-cycle: Completion products and services 11,544 3,664 25,527 18,713 42,714 34,893 79,785 57,270 Drilling services — — — — 3,284 2,479 3,284 2,479 Other products 7,138 4,200 — — — — 7,138 4,200 Total short-cycle 18,682 7,864 25,527 18,713 45,998 37,372 90,207 63,949 Other products and services 25,027 29,806 — — — — 25,027 29,806 $ 69,003 $ 78,674 $ 25,527 $ 18,713 $ 45,998 $ 37,372 $ 140,528 $ 134,759 Percentage of total revenue by type - Products 70 % 69 % 86 % 97 % — % — % 50 % 54 % Services 30 % 31 % 14 % 3 % 100 % 100 % 50 % 46 % Cost of Revenues (exclusive of Depreciation and Amortization Expense). Our consolidated total cost of revenues (exclusive of depreciation and amortization expense) decreased $3.4 million, or 3%, in the third quarter of 2021 compared to the third quarter of 2020. Cost of revenues in the third quarter of 2021 and 2020 included charges totaling $2.1 million and $5.9 million, respectively, for non-cash inventory impairments. Excluding these charges, consolidated cost of revenues increased $0.4 million from the prior-year period. Consolidated product costs were $60.3 million in the third quarter of 2021, which included a $2.1 million non-cash inventory impairment charge. This compares to consolidated product costs of $66.8 million in the third quarter of 2020, which included a $5.9 million non-cash inventory impairment charge. Excluding these charges, consolidated product costs decreased $2.7 million or, 4%, due to the decline in product revenue. Consolidated service costs in the third quarter of 2021, increased $3.1 million, or 6%, from the third quarter of 2020 due to the year-over-year revenue growth discussed previously. Selling, General and Administrative Expense. Selling, general and administrative expense decreased $1.3 million, or 6%, in the third quarter of 2021 from the third quarter of 2020. Depreciation and Amortization Expense. Depreciation and amortization expense decreased $4.6 million, or 19%, in the third quarter of 2021 compared to the prior-year quarter, driven primarily by reduced capital investments made in our Well Site Services segment in recent years. Note 12, "Segments and Related Information," presents depreciation and amortization expense by segment. Operating Income (Loss). Our consolidated operating loss was $16.1 million in the third quarter of 2021, which included a $2.1 million non-cash inventory impairment charge and $0.7 million of severance and restructuring charges. This compares to a consolidated operating loss of $30.8 million recognized in the third quarter of 2020, which included a $5.9 million non-cash inventory impairment charge and $0.3 million of severance and restructuring charges. Interest Expense, Net. Net interest expense was $2.6 million in the third quarter of 2021, which compares to $3.5 million in the same period of 2020. Interest expense, which included amortization of deferred financing costs in 2021 and amortization of debt discount and deferred financing costs in 2020, as a percentage of total debt outstanding was approximately 6% in the third quarter of 2021 and 2020. Other Income, Net. Net other income for third quarter of 2020 included non-cash gains of $5.9 million recognized in connection with our purchases of $17.2 million principal amount of our 2023 Notes for $9.5 million in cash. Income Tax. For the three months ended September 30, 2021, our income tax benefit was $3.5 million, or 21% of the pre-tax loss of $16.6 million. This compares to an income tax benefit of $7.7 million, or 28% of the pre-tax loss of $27.6 million for the three months ended September 30, 2020, which included certain expenses that are not deductible for income tax purposes. 32 Other Comprehensive Income (Loss). Reported comprehensive loss is the sum of reported net loss and other comprehensive income (loss). Other comprehensive loss was $5.8 million in the third quarter of 2021 compared to income of $3.4 million in the third quarter of 2020 due to fluctuations in currency exchange rates compared to the U.S. dollar which are used to translate certain of the international operations of our operating segments. For the three months ended September 30, 2021 and 2020, currency translation adjustments recognized as a component of other comprehensive income (loss) were primarily attributable to the United Kingdom and Brazil. During the third quarter of 2021, the exchange rate for both the British pound and the Brazilian real weakened compared to the U.S. dollar. This compares to the third quarter of 2020, when the exchange rate for the British pound strengthened compared to the U.S. dollar and the Brazilian real weakened compared to the U.S. dollar. Segment Operating Results Offshore/Manufactured Products Revenues. Our Offshore/Manufactured Products segment revenues decreased $9.7 million, or 12%, in the third quarter of 2021 compared to the third quarter of 2020 due primarily to reduced customer demand for connector products and Hurricane Ida, which caused the temporary closure of a manufacturing and service facility in southeast Louisiana in September. Reported results for the third quarter of 2021 included the adverse impact of Hurricane Ida, which reduced revenues and operating income by an estimated $4.8 million and $2.1 million, respectively. Operating Income. Our Offshore/Manufactured Products segment reported operating income of $1.8 million in the third quarter of 2021, compared to operating income of $3.9 million in the third quarter of 2020 due primarily to the decrease in revenue. Backlog. Backlog in our Offshore/Manufactured Products segment totaled $249 million as of September 30, 2021, with third quarter 2021 bookings of $106 million and a quarterly book-to-bill ratio of 1.5x. Downhole Technologies Revenues. Our Downhole Technologies segment revenues increased $6.8 million, or 36%, in the third quarter of 2021 from the prior-year period due primarily to an increase in U.S. land-based customer completion activity. Operating Loss. Our Downhole Technologies segment reported an operating loss of $5.0 million in the third quarter of 2021, which included a $2.1 million non-cash inventory impairment charge. This compares to an operating loss of $12.6 million in the prior-year period, which included a $5.9 million non-cash inventory impairment charge. Excluding these charges, our Downhole Technologies operating loss decreased $3.8 million from the prior-year period, driven by the significant increase in revenues and implemented cost reduction measures. Well Site Services Revenues. Our Well Site Services segment revenues increased $8.6 million, or 23%, in the third quarter of 2021 compared to the prior-year quarter, driven by higher customer drilling, completion and production activity. The impact of higher land-based activity was partially offset by lower activity in the Gulf of Mexico in September of 2021 due to Hurricane Ida. Reported results for the third quarter of 2021 included the adverse impact of Hurricane Ida, which reduced revenues and operating income by an estimated $1.1 million and $0.9 million, respectively. Operating Loss. Our Well Site Services segment reported an operating loss of $5.3 million in the third quarter of 2021, which included $0.4 million in severance and restructuring charges. The segment reported an operating loss of $13.9 million in the third quarter of 2020, which included $1.2 million in expenses associated with prior-year insurance claims and a bad debt provision on a receivable from a customer claiming bankruptcy protection. Excluding these charges, our Well Site Services operating loss decreased $7.8 million from the prior-year period due to the increase in revenues, decrease in depreciation and amortization expense and implemented cost reduction measures. Corporate Corporate expenses decreased $0.6 million, or 8%, in the third quarter of 2021 from the prior-year period. 33 Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020 Consolidated Operating Results We reported a net loss for the nine months ended September 30, 2021 of $44.1 million, or $0.73 per share. The reported first nine months of 2021 loss included: non-cash impairment charges of $5.6 million ($4.4 million after-tax, or $0.08 per share) associated with write-downs of inventories and fixed and lease assets; $6.7 million ($5.3 million after-tax, or $0.09 per share) of severance and restructuring costs; and non-cash gains of $4.0 million ($3.2 million after-tax, or $0.05 per share) associated with debt extinguishment. These results compare to a net loss for the nine months ended September 30, 2020 of $449.6 million, or $7.52 per share. The reported first nine months of 2020 loss included: non-cash impairment charges totaling $445.4 million ($418.1 million after-tax, or $6.99 per share) related to write-downs of goodwill, inventories and fixed assets; $6.3 million ($5.0 million after-tax, or $0.08 per share) of severance and downsizing costs; $2.2 million ($1.7 million after-tax, or $0.03 per share) in bad debt provisions related to customer bankruptcies; non-cash gains of $10.7 million ($8.5 million after-tax, or $0.14 per share) associated with debt extinguishment; and a discrete tax benefit of $16.4 million, or $0.27 per share, associated with the carryback of tax losses allowed under the CARES Act. Our reported results of operations reflect the negative impact of the global response to the COVID-19 pandemic, ongoing uncertainties related to future crude oil demand and supply and, to a lesser extent, supply chain disruptions. Customer-driven activity has improved off of 2020's low levels but uncertainty remains around the timing of demand recovery to pre-COVID-19 levels and the willingness of operators to invest in U.S. land-based drilling, completion and production activities given regulatory pressures around ESG considerations. If the pricing environment for crude oil declines from current levels, our customers may be required to moderate or reduce their planned capital expenditures, leading to declines in the demand for and prices of our products and services. During the first nine months of 2021, we recognized an aggregate $8.8 million reduction of payroll tax expense (within cost of revenues and selling, general and administrative expense) as part of the CARES Act employee retention credit program. During the first nine months of 2020, we also recognized a discrete income tax benefit of $16.4 million related to U.S. net operating loss carrybacks under provisions of the CARES Act. We continue to evaluate additional benefits potentially available to us under the CARES Act. Revenues. Consolidated total revenues in the first nine months of 2021 decreased $88.9 million, or 18%, from the first nine months of 2020. Consolidated product revenues in the first nine months of 2021 decreased $48.3 million, or 19%, from the first nine months of 2020, driven by the significant decline in U.S. land-based customer activity beginning in March 2020 and reduced project-driven customer demand for connector products. Consolidated service revenues in the first nine months of 2021 decreased $40.5 million, or 17%, from the first nine months of 2020 due primarily to higher customer spending in the U.S. shale play regions in the first quarter of 2020, prior to the significant impact of the COVID-19 pandemic on our operating results. As can be derived from the following table, 61% of our consolidated revenues in the first nine months of 2021 were derived from sales of our short-cycle product and service offerings, which compares to 55% in the same period last year. The following table provides supplemental disaggregated revenue from contracts with customers by operating segment for the nine months ended September 30, 2021 and 2020 (in thousands): Offshore/ Manufactured Products Downhole Technologies Well Site Services Total Nine Months Ended September 30 2021 2020 2021 2020 2021 2020 2021 2020 Major revenue categories - Project-driven products $ 78,494 $ 129,157 $ — $ — $ — $ — $ 78,494 $ 129,157 Short-cycle: Completion products and services 30,105 22,080 77,717 74,743 120,596 153,994 228,418 250,817 Drilling services — — — — 7,008 7,179 7,008 7,179 Other products 16,857 19,254 — — — — 16,857 19,254 Total short-cycle 46,962 41,334 77,717 74,743 127,604 161,173 252,283 277,250 Other products and services 81,064 94,291 — — — — 81,064 94,291 $ 206,520 $ 264,782 $ 77,717 $ 74,743 $ 127,604 $ 161,173 $ 411,841 $ 500,698 Percentage of total revenue by type - Products 69 % 71 % 86 % 93 % — % — % 51 % 52 % Services 31 % 29 % 14 % 7 % 100 % 100 % 49 % 48 % 34 Cost of Revenues (exclusive of Depreciation and Amortization Expense). Our consolidated total cost of revenues (exclusive of depreciation and amortization expense) decreased $109.1 million, or 24%, in the first nine months of 2021 compared to the first nine months of 2020. Cost of revenues in the first nine months of 2021 and 2020 included $2.1 million and $31.2 million, respectively, of non-cash inventory impairment charges. Excluding these charges, consolidated cost of revenues decreased $80.1 million, or 19%, from the prior-year period. Consolidated product costs were $173.7 million in the first nine months of 2021, which included a $2.1 million non-cash inventory impairment charge. This compares to consolidated product costs of $224.6 million in the first nine months of 2020, which included $17.9 million of non-cash inventory impairment charges. Excluding these charges, consolidated product costs decreased $35.1 million, or 17%, from the prior-year period due to reduced sales volumes. Consolidated service costs in the first nine months of 2021, decreased $58.2 million, or 26%, from the first nine months of 2020, which included non-cash inventory impairment charges of $13.3 million. Excluding these charges, consolidated service costs decreased $45.0 million, or 22%, from the prior-year period due to the decrease in revenues and implemented cost reduction measures. Selling, General and Administrative Expense. Selling, general and administrative expense decreased $8.1 million, or 11%, in the first nine months of 2021 from the first nine months of 2020 due primarily to reductions in personnel, compensation levels, travel and bad debt expenses along with other implemented cost reduction measures, partially offset by $3.7 million in severance and restructuring costs recognized in the first nine months of 2021. Depreciation and Amortization Expense. Depreciation and amortization expense decreased $13.2 million, or 18%, in the first nine months of 2021 compared to the prior-year period, driven primarily by reduced capital investments made in our Well Site Services segment in recent years. Note 12, "Segments and Related Information," presents depreciation and amortization expense by segment. Impairments of Goodwill. During the first quarter of 2020, our Offshore/Manufactured Products, Downhole Technologies and Well Site Services operations recognized non-cash goodwill impairment charges of $86.5 million, $192.5 million and $127.1 million, respectively, arising from, among other factors, the significant decline in our stock price (and that of most of our peers) and reduced growth rate expectations given weak energy market conditions resulting from the demand destruction caused by the global response to the COVID-19 pandemic. In addition, the estimated returns required by market participants increased materially in our March 31, 2020 assessment from our assessment as of December 1, 2019, resulting in higher discount rates used in the discounted cash flow analysis. Impairments of Fixed and Lease Assets. During the first nine months of 2021 and 2020, our Well Site Services segment recorded non-cash impairment charges of $3.4 million and $8.2 million, respectively, to reduce the carrying value of certain of the segment's fixed and lease assets to their estimated realizable value. Operating Income (Loss). Our consolidated operating loss was $53.5 million in the first nine months of 2021, which included $5.6 million of non-cash asset impairment charges and $6.7 million of severance and restructuring costs. This compares to a consolidated operating loss of $506.0 million recognized in the first nine months of 2020, which included the impact of $445.4 million non-cash asset impairment charges and $6.3 million in severance and restructuring costs. Interest Expense, Net. Net interest expense was $7.6 million in the first nine months of 2021, which compares to $11.2 million in the same period of 2020. Interest expense, which included amortization of deferred financing costs in 2021 and amortization of debt discount and deferred financing costs in 2020, as a percentage of total debt outstanding was approximately 5% in the first nine months of 2021 and 6% in the first nine months of 2020. Other Income, Net. Net other income for the first nine months of 2021 included non-cash gains of $4.0 million recognized in connection with our purchases of $131.4 million principal amount of our 2023 Notes for $126.0 million in cash. In the first nine months of 2020, we recognized non-cash gains of $10.7 million recognized in connection with our purchases of $34.9 million principal amount of our 2023 Notes for $20.1 million in cash. Income Tax. For the nine months ended September 30, 2021, our income tax benefit was $9.1 million, or 17% of the pre-tax loss of $53.2 million, which included certain non-deductible expenses and discrete tax items. This compares to an income tax benefit of $54.1 million, or 11% of the pre-tax loss of $503.7 million for the nine months ended September 30, 2020, which included non-cash goodwill charges (approximately $313.1 million) and other expenses that are not deductible for income tax purposes. In the first nine months of 2020, the impact of these non-deductible expenses was partially offset by a $16.4 million discrete tax benefit related to the carryback of U.S. net operating losses under the CARES Act. 35 Other Comprehensive Loss. Reported comprehensive loss is the sum of reported net loss and other comprehensive loss. Other comprehensive loss was $4.2 million in the first nine months of 2021 compared to loss of $12.7 million in the first nine months of 2020 due to fluctuations in foreign currency exchange rates compared to the U.S. dollar for certain of the international operations of our operating segments. For the nine months ended September 30, 2021 and 2020, currency translation adjustments recognized as a component of other comprehensive loss were primarily attributable to the United Kingdom and Brazil. During the first nine months of 2021 and 2020, the exchange rate for the British pound and the Brazilian real both weakened compared to the U.S. dollar. Segment Operating Results Offshore/Manufactured Products Revenues. Our Offshore/Manufactured Products segment revenues declined $58.3 million, or 22%, in the first nine months of 2021 compared to the first nine months of 2020 due primarily to a reduction in sales of connector and short-cycle products and service activities. Operating Income (Loss). Our Offshore/Manufactured Products segment reported operating income of $7.6 million in the first nine months of 2021, which included $0.5 million of severance and restructuring charges. The segment reported an operating loss of $82.2 million in the first nine months of 2020, which included severance and restructuring costs of $0.7 million and non-cash impairment charges of $86.5 million related to goodwill and $16.2 million related to inventory. Excluding these charges, our Offshore/Manufactured Products segment operating income decreased $13.1 million in the first nine months of 2021 compared to the first nine months of 2020, with the impact of the year-over-year decrease in revenues partially offset by implemented cost reduction measures. Backlog. Backlog in our Offshore/Manufactured Products segment totaled $249 million as of September 30, 2021, a increase of 14% from December 31, 2020. Bookings during first nine months 2021 totaled $240 million, yielding a year-to-date book-to-bill ratio of 1.2x. Downhole Technologies Revenues. Our Downhole Technologies segment revenues increased $3.0 million, or 4%, in the first nine months of 2021 from the prior-year period due primarily to higher U.S. land-based customer completion activity. Operating Loss. Our Downhole Technologies segment reported an operating loss of $8.9 million in the first nine months of 2021, which included a non-cash inventory impairment charge of $2.1 million and $0.6 million of severance and restructuring charges. The segment reported an operating loss of $216.4 million in the prior-year period, which included severance and restructuring costs of $1.3 million and non-cash impairment charges of $192.5 million related to goodwill and $5.9 million related to inventory. Excluding these charges, operating loss decreased $10.4 million in the first nine months of 2021 from the prior-year period due primarily to implemented cost reduction measures. Well Site Services Revenues. Our Well Site Services segment revenues decreased $33.6 million, or 21%, in the first nine months of 2021 compared to the prior-year period, driven by higher customer completion and production activity during the first quarter of 2020, prior to the significant impact of the COVID-19 pandemic on our operating results. Operating Loss. Our Well Site Services segment reported an operating loss of $26.7 million in the first nine months of 2021, which included $4.0 million in severance and restructuring costs and non-cash fixed and lease asset impairment charges of $3.4 million. The segment reported an operating loss of $181.7 million in the first nine months of 2020, which included severance and restructuring costs of $4.1 million and non-cash impairment charges of $127.1 million related to goodwill, $9.0 million related to inventory and $8.2 million related to fixed assets. Excluding these charges, our Well Site Services operating loss decreased $14.2 million from the prior-year period with the impact of a $9.7 million decrease in depreciation and amortization expense and implemented cost reduction measures partially offset by the impact of the decrease in revenues. Corporate Corporate expenses in the first nine months of 2021 were comparable to the prior-year period, with $1.6 million of severance costs incurred in the first quarter of 2021 substantially offset by implemented cost reduction measures. 36 Liquidity, Capital Resources and Other Matters Our primary liquidity needs are to fund operating and capital expenditures, new product development and general working capital needs. In addition, capital has been used to fund strategic business acquisitions, repay debt, and fund share repurchases. Our primary sources of funds are cash flow from operations, proceeds from borrowings under our credit facilities and, less frequently, capital markets transactions. Operating Activities Cash flows from operations totaling $20.6 million were generated during the first nine months of 2021, compared to $131.1 million generated by operations during the same period of 2020. During the first nine months of 2021, $6.6 million was provided by net working capital decreases, primarily due to an increase in accounts payable and accrued liabilities, partially offset by an increase in inventories. During the first nine months of 2020, we received cash of $41.3 million related to carryback claims regarding U.S. net operating losses generated in 2018 and 2019 that were filed in accordance with the rules and procedures of the CARES Act. Additionally, during the first nine months of 2020, $74.8 million was provided by net working capital decreases, primarily due to collections of accounts receivable and an increase in deferred revenue, partially offset by decreases in accounts payable and accrued liabilities. Investing Activities Cash used in investing activities during the first nine months of 2021 totaled $5.3 million, compared to $2.7 million used in investing activities during the first nine months of 2020. Capital expenditures totaled $11.0 million and $11.3 million during the first nine months of 2021 and 2020, respectively. These investments were partially offset by proceeds from the sale of property and equipment of $6.2 million and $9.0 million during the nine months ended September 30, 2021 and 2020, respectively. We expect to spend approximately $15 million in capital expenditures during 2021. Whether planned expenditures will actually be made in 2021 depends on industry conditions, project approvals and schedules, vendor delivery timing, free cash flow generation and careful monitoring of our levels of liquidity. We plan to fund these capital expenditures with available cash, internally generated funds and, if necessary, borrowings under our ABL Facility. Financing Activities During the nine months ended September 30, 2021, net cash of $19.4 million was used in financing activities including our purchases of $131.4 million principal amount of our 2023 Notes for cash totaling $126.0 million and $19.0 million of net repayments under our ABL Facility. Partially offsetting these uses was our issuance of $135.0 million principal amount of our 2026 Notes yielding net cash proceeds of $130.6 million. This compares to $57.0 million of cash provided by financing activities during the nine months ended September 30, 2020, primarily as a result of $32.9 million in net borrowings under our former revolving credit facility, partially offset by our purchases of $34.9 million principal amount of our 2023 Notes for $20.1 million. As of September 30, 2021, we had cash and cash equivalents totaling $67.6 million, which compared to $72.0 million as of December 31, 2020. As of September 30, 2021, we had no borrowings outstanding under our ABL Facility (discussed below), $135.0 million principal amount of our 2026 Notes outstanding, $26.0 million principal amount of our 2023 Notes outstanding and other debt of $21.8 million. Our reported interest expense, which appropriately included amortization of deferred financing costs of $1.8 million during the first nine months of 2021, was above our contractual cash interest expense. For the first nine months of 2021, our contractual cash interest expense was $5.8 million, or approximately 4% of the average principal balance of debt outstanding. We believe that cash on-hand, cash flow from operations and borrowing capacity available under our ABL Facility will be sufficient to meet our liquidity needs in the coming twelve months. If our plans or assumptions change, or are inaccurate, we may need to raise additional capital. Our ability to obtain capital for additional projects to implement our growth strategy over the longer term will depend upon our future operating performance, financial condition and, more broadly, on the availability of equity and debt financing. Capital availability will be affected by prevailing conditions in our industry, the global economy, the global financial markets, stakeholder scrutiny of environmental, social and governance matters and other factors, many of which are beyond our control. In this regard, the effect of the COVID-19 pandemic has resulted in significant disruption of global financial markets. For companies like ours that support the energy industry, this disruption has been exacerbated by the 37 global crude oil supply and demand imbalance and resulting decline in crude oil prices during 2020, which has negatively impacted the value of our common stock; has and may continue to reduce our ability to access capital in the bank and capital markets; and has and may continue to result in such capital being available on less favorable terms, which could in the future negatively affect our liquidity. ABL Facility. On February 10, 2021, we entered into the ABL Facility under which credit availability is subject to a borrowing base calculation. Concurrent with entering into the ABL Facility, we terminated our former revolving credit facility. On March 16, 2021, we entered into an amendment to the ABL Facility that permitted us to incur the indebtedness represented by the 2026 Notes. The ABL Facility is governed by a credit agreement, as amended, with Wells Fargo Bank, National Association, as administrative agent and the lenders and other financial institutions from time to time party thereto (the "ABL Agreement"). The ABL Agreement matures on February 10, 2025 with a springing maturity 91 days prior to the maturity of any outstanding indebtedness with a principal amount in excess of $17.5 million (excluding the unsecured promissory note to the seller of GEODynamics). The ABL 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 ABL Agreement are secured by a pledge of substantially all of our domestic assets (other than real property) and the stock of certain foreign subsidiaries. Borrowings under the ABL 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. We must also pay a quarterly commitment fee of 0.375% to 0.50% per annum, based on unused commitments under the ABL Agreement. The ABL Agreement places restrictions on our 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 2023 Notes and 2026 Notes), engage in mergers, and other matters, in each case, subject to certain exceptions. The ABL Agreement contains customary default provisions, which, if triggered, could result in acceleration of all amounts then outstanding. The ABL Agreement also requires us 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 ABL Agreement is less than the greater of 15% of the borrowing base and $14.1 million; to complete certain specified transactions; or if an event of default has occurred and is continuing. As of September 30, 2021, we had $16.5 million of outstanding letters of credit, but no borrowings outstanding under the ABL Agreement. The total amount available to be drawn as of September 30, 2021 was $61.4 million, calculated based on the current borrowing base less outstanding letters of credit. 2026 Notes. On March 16, 2021, we issued $135.0 million aggregate principal amount of the 2026 Notes pursuant to an indenture, dated as of March 16, 2021 (the "2026 Indenture"), between the Company and Wells Fargo Bank, National Association, as trustee. Net proceeds from the 2026 Notes offering, after deducting issuance costs, totaled $130.6 million. We used $120.0 million of the cash proceeds to purchase $125.0 million principal amount of the outstanding 2023 Notes, with the balance added to cash on-hand. The 2026 Indenture contains certain events of default, including certain defaults by the Company with respect to other indebtedness of at least $40.0 million. See Note 5, "Long-term Debt," for further information regarding the 2026 Notes. As of September 30, 2021, none of the conditions allowing holders of the 2026 Notes to convert, or requiring us to repurchase the 2026 Notes, had been met. 2023 Notes. On January 30, 2018, we issued $200.0 million aggregate principal amount of the 2023 Notes pursuant to an indenture, dated as of January 30, 2018 (the "2023 Indenture"), between the Company and Wells Fargo Bank, National Association, as trustee. The 2023 Indenture contains certain events of default, including certain defaults by the Company with respect to other indebtedness of at least $40.0 million. 38 During the first nine months of 2021, we purchased $131.4 million principal amount of the outstanding 2023 Notes for $126.0 million in cash. Since September 2019, we have purchased a cumulative $174.0 million principal amount of the 2023 Notes for $152.8 million in cash. See Note 5, "Long-term Debt," for further information regarding the 2023 Notes. As of September 30, 2021, none of the conditions allowing holders of the 2023 Notes to convert, or requiring us to repurchase the 2023 Notes, had been met. Promissory Note. In connection with the 2018 acquisition of GEODynamics (the "GEODynamics Acquisition"), we issued a $25.0 million promissory note that bears interest at 2.5% per annum and was scheduled to mature on July 12, 2019. Payments due under the promissory note are subject to set-off, in full or in part, against certain indemnification claims related to matters occurring prior to our acquisition of GEODynamics. We have provided notice to and asserted indemnification claims against the seller of GEODynamics (the "Seller"), and the Seller has filed a breach of contract suit against us and one of our wholly-owned subsidiaries alleging that payments due under the promissory note are required to be, but have not been, repaid in accordance with the terms of such note. We have incurred settlement costs and expenses of $7.5 million related to such indemnification claims and believe that the maturity date of such note is extended until the resolution of such indemnity claims and that we are permitted to set-off the principal amount owed by the amount of such costs and expenses. Accordingly, we have reduced the carrying amount of such note in our consolidated balance sheet to $17.5 million as of September 30, 2021, which is our current best estimate of what is owed after set-off for indemnification matters. See Note 13, "Commitments and Contingencies," to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional discussion. Our total debt represented 20% of our combined total debt and stockholders' equity as of September 30, 2021 and December 31, 2020. Contingencies and Other Obligations. We are a party to various pending or threatened claims, lawsuits and administrative proceedings seeking damages or other remedies concerning our commercial operations, products, employees and other matters, including occasional claims by individuals alleging exposure to hazardous materials as a result of our product or operations. Some of these claims relate to matters occurring prior to the acquisition of businesses, and some relate to businesses we have sold. In certain cases, we are entitled to indemnification from the sellers of the businesses and, in other cases, we have indemnified the buyers of businesses. In addition, the Seller in the GEODynamics Acquisition filed a breach of contract suit against us in federal court in August 2020, in which the Seller alleged, among other contractual breaches, that it was entitled to approximately $19 million in U.S. federal income tax carryback claims we received under the provisions of the CARES Act legislation. On February 15, 2021, the Seller dismissed the federal lawsuit without prejudice and refiled its lawsuit in state court. On September 20, 2021, a motion by the Seller for partial summary judgement was dismissed. Although we can give no assurance about the outcome of pending legal and administrative proceedings and the effect such outcomes may have on us, we believe that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by indemnity or insurance, will not have a material adverse effect on our consolidated financial position, results of operations or liquidity. See Note 13, "Commitments and Contingencies," to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional discussion. Off-Balance Sheet Arrangements As of September 30, 2021, we had no off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K. Availability and Cost of Products We use a variety of domestically produced and imported raw materials and component products, including steel, in the manufacture of our products. The United States has imposed tariffs on a variety of imported products, including steel and aluminum. In response to the U.S. tariffs on steel and aluminum, the European Union and several other countries, including Canada and China, have threatened and/or imposed retaliatory tariffs. The effect of these tariffs and the application and interpretation of existing trade agreements and customs, anti-dumping and countervailing duty regulations continue to evolve, and we continue to monitor these matters. If we encounter difficulty in procuring these raw materials and component products as a result of tariffs, supply chain disruptions or other events, or if the prices we have to pay for these products increase and we are unable to pass corresponding cost increases on to our customers, our financial position, cash flows and results of operations could be adversely affected. Furthermore, uncertainty with respect to potential costs in the drilling and completion of oil and gas wells could cause our customers to delay or cancel planned projects which, if this occurred, would adversely affect our financial position, cash flows and results of operations. See Note 13, "Commitments and Contingencies," to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional discussion. 39 Critical Accounting Policies For a discussion of the critical accounting policies and estimates that we use in the preparation of our condensed consolidated financial statements, see "Part II Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2020 Annual Report on Form 10-K. These estimates require significant judgments, assumptions and estimates. We have discussed the development, selection, and disclosure of these critical accounting policies and estimates with the audit committee of our Board of Directors. There have been no material changes to the judgments, assumptions and estimates upon which our critical accounting estimates are based. Recent Accounting Pronouncements From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the "FASB"), which are adopted by us 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 our consolidated financial statements upon adoption. In August 2020, the FASB issued updated guidance to simplify the accounting for convertible instruments and contracts in an entity’s own equity (referred to as "ASU 2020-06"). This guidance eliminated the requirement that the carrying value of convertible debt instruments, such as our 2023 Notes, be allocated between the debt and equity components. As permitted under the standard, we adopted the 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 2023 Notes, a $2.7 million decrease in deferred income taxes and an $9.5 million net decrease in stockholders' equity. The effective interest rate associated with the 2023 Notes after adoption of the standard decreased from approximately 6% to approximately 2%, which compares to the contractual cash interest rate of 1.50%. As further discussed in Note 5, "Long-term Debt," we issued $135 million principal amount of our 2026 Notes on March 19, 2021, which have been accounted for in accordance with the provisions of ASU 2020-06.