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, 2021 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. 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, 2021 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, 2021, 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, 2021 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 61 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, 2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. -51- Item 9B. Other Information There was no information required to be disclosed in a report on Form 8‑K during the fourth quarter of 2021 that was not reported on a Form 8‑K during such time. -52- 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 2022 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 2022 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 2022 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 2022 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 2022 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 2022 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 2022 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 2022 Annual Meeting of Stockholders under the heading "Fees Paid to Ernst & Young LLP" and is incorporated herein by reference. -53- 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 58 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 — Indenture, dated March 19, 2021, by and among Oil States International, Inc. and Wells Fargo Bank, National Association, as trustee, relating to the 4.75% Convertible Senior Notes due 2026 (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K, as filed with the Commission on March 22, 2021 (File No. 001-16337)). 4. 4 — Description of Common Stock (incorporated by reference to Exhibit 4.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC on February 21, 2020) . 10.1+ — Amended and Restated Equity Participation Plan of Oil States International, Inc. (incorporated by reference to Exhibit 4. 4 to the Company's Registration Statement on Form S-8, as filed with the SEC on May 28 , 2021 (File No. 333‑ 2565777 )). 10.2* — Form of Deferred Stock Award Election under the Company's Amended and Restated Equity Participation Plan. 10.3* — Form of Deferred Stock Grant Notice and Agreement under the Company's Amended and Restated Equity Participation Plan. 10. 4 + — 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. 5 + — 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)). -54- 10. 6 + — 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. 7 + — 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. 8 — 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)). 10. 9 — First Amendment to Credit Agreement , dated March 16, 2021, among Oil States International, Inc. , as Borrower, the Lenders from time to t ime hereto, and Wells Fargo Bank, National Asso ciation 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 March 22, 2021 (File No. 001-16337)). 10. 10 — 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. 11 + — 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. 12 + — Form of Employee Nonqualified Stock Option Agreement under the Company's Amended and Restated Equity Participation Plan (incorporated by reference to Exhibit 4.7 to the Company's Registration Statement on Form S-8, as filed with the SEC on May 28, 2021 (File No. 333‑2565777)). 10. 13 + — Form of Restricted Stock Agreement under the Company's Amended and Restated 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 28, 2021 (File No. 333‑2565777)). 10. 14 + — Form of Performance Award Agreement under the Company's Amended and Restated Equity Participation Plan (incorporated by reference to Exhibit 4. 8 to the Company's Registration Statement on Form S-8, as filed with the SEC on May 28, 2021 (File No. 333‑2565777)). 10. 15 + — Form of Cash Award Agreement (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, as filed with the SEC on April 29, 2021 (File No. 001-16337)). 10. 16 + — 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. 17 + — Form of Non-Employee Director Restricted Stock Agreement under the Company's Amended and Restated Equity Participation Plan (incorporated by reference to Exhibit 4. 6 to the Company's Registration Statement on Form S-8, as filed with the SEC on May 28, 2021 (File No. 333‑2565777)). 10. 18 + — 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. 19 + — 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. 20 + — 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 . 21 — 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)). 21.1* — List of subsidiaries of the Company. 23.1* — Consent of Independent Registered Public Accounting Firm. 24.1* — Powers of Attorney for Directors. -55- 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. -56- 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, 2022. 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, 2022. 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 Senior Vice President, Controller and Chief Accounting Officer Brian E. Taylor (Principal Accounting Officer) * Director Denise Castillo-Rhodes * Director Lawrence R. Dickerson * Director Darrell E. Hollek * Director Christopher T. Seaver * 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 -57- INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements (PCAOB ID: 42 ) 59 Report of Independent Registered Public Accounting Firm on the Company's Internal Control Over Financial Reporting 61 Consolidated Statements of Operations 62 Consolidated Statements of Comprehensive Loss 63 Consolidated Balance Sheets 64 Consolidated Statements of Stockholders' Equity 65 Consolidated Statements of Cash Flows 66 Notes to Consolidated Financial Statements 67 -58- 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, 2021 and 2020, 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, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, 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, 2021, 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, 2022 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. -59- Goodwill Impairment Assessment – Offshore/Manufactured Products Description of the Matter At December 31, 2021, the Company's goodwill in the Offshore/Manufactured Products reporting unit was $76.4 million. As described in Note 2 to the consolidated financial statements, goodwill is assessed for impairment annually (as of December 1) and when an event occurs or circumstances change to suggest that the carrying amount may not be recoverable. 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 impairment was required for the year ended December 31, 2021. Auditing management's annual 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 annual 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, 2022 -60- 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, 2021, 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, 2021, 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, 2021 and 2020, 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, 2021 and the related notes, and our report dated February 22, 2022 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, 2022 -61- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Amounts) Year Ended December 31, 2021 2020 2019 Revenues: Products $ 299,293 $ 331,272 $ 483,359 Services 273,868 306,803 533,995 573,161 638,075 1,017,354 Costs and expenses: Product costs 246,589 287,615 369,194 Service costs 223,807 274,190 433,395 Cost of revenues (exclusive of depreciation and amortization expense presented below) 470,396 561,805 802,589 Selling, general and administrative expense 83,692 94,102 122,932 Depreciation and amortization expense 80,741 98,543 123,319 Impairments of goodwill — 406,056 165,000 Impairments of fixed and lease assets 4,166 12,447 33,697 Other operating income, net ( 1,042 ) ( 538 ) ( 2,003 ) 637,953 1,172,415 1,245,534 Operating loss ( 64,792 ) ( 534,340 ) ( 228,180 ) Interest expense ( 10,328 ) ( 14,259 ) ( 17,898 ) Interest income 158 390 262 Other income, net 1,628 13,880 5,089 Loss before income taxes ( 73,334 ) ( 534,329 ) ( 240,727 ) Income tax benefit 9,341 65,946 8,919 Net loss $ ( 63,993 ) $ ( 468,383 ) $ ( 231,808 ) Net loss per share: Basic $ ( 1.06 ) $ ( 7.83 ) $ ( 3.90 ) Diluted ( 1.06 ) ( 7.83 ) ( 3.90 ) Weighted average number of common shares outstanding: Basic 60,293 59,812 59,379 Diluted 60,293 59,812 59,379 The accompanying notes are an integral part of these financial statements. -62- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (In Thousands) Year Ended December 31, 2021 2020 2019 Net loss $ ( 63,993 ) $ ( 468,383 ) $ ( 231,808 ) Other comprehensive income (loss): Release of currency translation adjustments on liquidation of an international operation 9,320 — — Other currency translation adjustments ( 4,044 ) ( 3,750 ) 3,462 Other 78 111 189 Total other comprehensive income (loss) 5,354 ( 3,639 ) 3,651 Comprehensive loss $ ( 58,639 ) $ ( 472,022 ) $ ( 228,157 ) The accompanying notes are an integral part of these financial statements. -63- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share Amounts) December 31, 2021 December 31, 2020 ASSETS Current assets: Cash and cash equivalents $ 52,852 $ 72,011 Accounts receivable, net 186,080 163,135 Inventories, net 168,573 170,376 Prepaid expenses and other current assets 19,222 18,071 Total current assets 426,727 423,593 Property, plant, and equipment, net 338,583 383,562 Operating lease assets, net 25,388 33,140 Goodwill, net 76,412 76,489 Other intangible assets, net 185,749 205,749 Other noncurrent assets 32,889 29,727 Total assets $ 1,085,748 $ 1,152,260 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 18,262 $ 17,778 Accounts payable 63,343 46,433 Accrued liabilities 43,401 44,504 Current operating lease liabilities 6,481 7,620 Income taxes payable 2,564 2,413 Deferred revenue 43,236 43,384 Total current liabilities 177,287 162,132 Long-term debt 160,488 165,759 Long-term operating lease liabilities 23,452 29,166 Deferred income taxes 3,637 14,263 Other noncurrent liabilities 25,058 23,309 Total liabilities 389,922 394,629 Stockholders' equity: Common stock, $ .01 par value, 200,000,000 shares authorized, 73,900,160 shares and 73,288,976 shares issued, respectively 739 733 Additional paid-in capital 1,105,135 1,122,945 Retained earnings 281,567 329,327 Accumulated other comprehensive loss ( 66,031 ) ( 71,385 ) Treasury stock, at cost, 12,521,834 and 12,283,817 shares, respectively ( 625,584 ) ( 623,989 ) Total stockholders' equity 695,826 757,631 Total liabilities and stockholders' equity $ 1,085,748 $ 1,152,260 The accompanying notes are an integral part of these financial statements. -64- 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, 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 Net loss — — ( 63,993 ) — — ( 63,993 ) Currency translation adjustments (excluding intercompany advances) — — — ( 1,096 ) — ( 1,096 ) Currency translation adjustments on intercompany advances — — — ( 2,948 ) — ( 2,948 ) Release of currency translation adjustments on liquidation of an international operation — — — 9,320 — 9,320 Other comprehensive income — — — 78 — 78 Stock-based compensation expense: Restricted stock 6 7,873 — — — 7,879 Surrender of stock to settle taxes on restricted stock awards — — — — ( 1,595 ) ( 1,595 ) Adoption of ASU 2020-06 — ( 25,683 ) 16,233 — — ( 9,450 ) Balance, December 31, 2021 $ 739 $ 1,105,135 $ 281,567 $ ( 66,031 ) $ ( 625,584 ) $ 695,826 The accompanying notes are an integral part of these financial statements. -65- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) Year Ended December 31, 2021 2020 2019 Cash flows from operating activities: Net loss $ ( 63,993 ) $ ( 468,383 ) $ ( 231,808 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization expense 80,741 98,543 123,319 Impairments of goodwill — 406,056 165,000 Impairments of inventories 3,581 31,151 — Impairments of fixed and lease assets 4,166 12,447 33,697 Stock-based compensation expense 7,879 8,431 16,768 Amortization of debt discount and deferred financing costs 2,314 7,736 7,884 Deferred income tax benefit ( 8,639 ) ( 24,404 ) ( 15,469 ) Release of foreign currency translation adjustments on liquidation of an international operation 9,320 — — Gains on extinguishment of 1.50 % convertible senior notes ( 4,022 ) ( 10,721 ) — Gains on disposals of assets ( 6,472 ) ( 2,444 ) ( 4,291 ) Other, net ( 511 ) 4,668 3,079 Changes in operating assets and liabilities: Accounts receivable ( 24,407 ) 63,876 50,257 Inventories ( 10,334 ) 17,578 ( 10,774 ) Accounts payable and accrued liabilities 17,727 ( 37,315 ) ( 6,173 ) Deferred revenue ( 148 ) 25,549 3,470 Other operating assets and liabilities, net ( 8 ) ( 13 ) 2,473 Net cash flows provided by operating activities 7,194 132,755 137,432 Cash flows from investing activities: Capital expenditures ( 17,517 ) ( 12,749 ) ( 56,116 ) Proceeds from disposition of property and equipment 11,527 9,601 6,046 Other, net ( 636 ) ( 581 ) ( 1,912 ) Net cash flows used in investing activities ( 6,626 ) ( 3,729 ) ( 51,982 ) Cash flows from financing activities: Revolving credit facility borrowings 12,873 72,173 246,828 Revolving credit facility repayments ( 31,873 ) ( 105,104 ) ( 331,041 ) Issuance of 4.75 % convertible senior notes 135,000 — — Purchases of 1.50 % convertible senior notes ( 125,952 ) ( 20,078 ) ( 6,724 ) Other debt and finance lease repayments, net ( 230 ) ( 8,222 ) ( 500 ) Payment of financing costs ( 7,791 ) ( 1,041 ) ( 16 ) Purchases of treasury stock — — ( 757 ) Shares added to treasury stock as a result of net share settlements due to vesting of stock awards ( 1,595 ) ( 2,745 ) ( 3,698 ) Net cash flows used in financing activities ( 19,568 ) ( 65,017 ) ( 95,908 ) Effect of exchange rate changes on cash and cash equivalents ( 159 ) ( 491 ) ( 365 ) Net change in cash and cash equivalents ( 19,159 ) 63,518 ( 10,823 ) Cash and cash equivalents, beginning of period 72,011 8,493 19,316 Cash and cash equivalents, end of period $ 52,852 $ 72,011 $ 8,493 Cash paid (received) for: Interest $ 6,532 $ 6,402 $ 9,626 Income taxes, net 152 ( 36,766 ) ( 1,303 ) The accompanying notes are an integral part of these financial statements. -66- 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. The Company operates through three business segments – Offshore/Manufactured Products, Downhole Technologies and Well Site Services – and, through its subsidiaries, is a leading provider of specialty products and services to oil and gas and industrial companies around 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. 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 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 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 and 2021, the Company recorded asset impairments, severance and restructuring charges in response to these developments, as further discussed in Note 3, "Asset Impairments and Other Restructuring Items." 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 generally accepted accounting principles 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, but are not limited to, goodwill and long-lived asset impairments, revenue and income recognized over time, valuation allowances recorded on deferred tax 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 The Company's financial instruments consist of cash and cash equivalents, investments, receivables, payables and debt instruments. The Company believes that the carrying values of these instruments, other than the 2023 Notes (as defined below) and 2026 Notes (as defined below), on the accompanying consolidated balance sheets approximate their fair values. The estimated fair value of the 2023 Notes as of December 31, 2021 was $ 24.3 million based on quoted market prices (a Level 2 fair value measurement), which compares to the principal amount of $ 26.0 million. The estimated fair value of the 2026 Notes as of December 31, 2021 was $ 122.9 million based on quoted market prices (a Level 2 fair value measurement), which compares to the principal amount of $ 135.0 million. 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- -67- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 (as of December 1) 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 based on the excess of the carrying amount over the reporting unit's fair value. As further discussed in Note 5, "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. 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 7, "Operating Leases," the Company recognized non-cash asset impairment charges totaling $ 4.2 million, $ 12.4 million and $ 33.7 million in 2021, 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 additional impairment losses were recorded during the periods presented. 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 -68- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 $ 4.4 million, $ 6.1 million and $ 7.0 million in 2021, 2020 and 2019, respectively, and are reported within cost of revenues in the accompanying consolidated statements of operations. Foreign Currency and Other Comprehensive Loss 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, 2021 and 2020, the Company had no outstanding foreign currency forward purchase contracts. 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. 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. 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 35 %, 38 % and 34 % of consolidated revenues for the years ended December 31, 2021, 2020 and 2019, 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. -69- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Revenues from products and services transferred to customers over time accounted for approximately 65 %, 62 % and 66 % of consolidated revenues for the years ended December 31, 2021, 2020 and 2019, 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, 2021, the Company had $ 153.6 million of remaining backlog related to contracts with an original expected duration of greater than one year . Approximately 40 % of this remaining backlog is expected to be recognized as revenue in 2022 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. As of December 31, 2021, the Company's total investment in foreign subsidiaries is considered to be permanently 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 -70- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) future income and assessment of future business and tax planning strategies. During 2021, 2020 and 2019, 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. 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. 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 13, "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. 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. -71- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 11, "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. Performance-based award expense, and ultimate vesting, is recognized in an amount that depends on the Company's probable 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, 2021, the maximum potential amount of future payments that the Company could be required to make under these guarantee agreements (letters of credit) was $ 16.1 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 and contractual claims and obligations. 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 (referred to as "ASU 2020-06"). This guidance eliminated the requirement that the carrying value of convertible debt instruments, such as the Company's 1.50 % convertible senior notes due 2023 (the "2023 Notes"), be allocated between debt and equity components. As permitted under the standard, the Company 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 a $ 9.5 million net decrease in stockholders' equity. The effective interest rate associated with the 2023 Notes after adoption decreased from approximately 6 % to approximately 2 %, which compares to the contractual interest rate of 1.50 %. As further discussed in Note 6, "Long-term Debt," the Company issued $ 135.0 million principal amount of its 4.75 % convertible senior notes due 2026 (the "2026 Notes") on March 19, 2021, which have been accounted for in accordance with the provisions of ASU 2020-06. -72- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 3. Asset Impairments and Other Restructuring Items During 2019, the Company recorded the following charges (in thousands): Offshore/ Manufactured Products Downhole Technologies Well Site Services Corporate Pre-tax Total Tax After-tax Total Impairments of: Goodwill (Note 5) $ — $ 165,000 $ — $ — $ 165,000 $ — $ 165,000 Fixed assets (Note 4) — — 33,697 — 33,697 7,076 26,621 Severance and restructuring costs 1,655 — 1,847 — 3,502 735 2,767 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. As demand for most of the Company's products and services depends substantially on the level of capital expenditures by the oil and natural gas industry, these conditions caused rapid reductions to most of the Company's customers' drilling, completion and production activities and their related spending on the Company's products and services, particularly those supporting activities in the U.S. shale play regions, until the supply/demand imbalances eased. 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 considerations. Following these March 2020 events, the Company immediately implemented significant cost reduction initiatives. The Company also assessed the carrying value of goodwill, long-lived and other assets based on the industry outlook regarding overall demand for and pricing of its products and services, other market considerations and the financial condition of the Company's customers. As a result of these events, actions and assessments, the Company recorded the following charges during 2020 (in thousands): Offshore/ Manufactured Products Downhole Technologies Well Site Services Corporate Pre-tax Total Tax After-tax Total Impairments of: Goodwill (Note 5) $ 86,500 $ 192,502 $ 127,054 $ — $ 406,056 $ 19,600 $ 386,456 Fixed assets (Note 4) — 1,623 8,845 — 10,468 2,198 8,270 Operating lease assets (Note 7) — 1,979 — — 1,979 416 1,563 Inventories (Note 4) 16,249 5,921 8,981 — 31,151 5,979 25,172 Severance and restructuring costs 1,355 2,018 4,311 1,385 9,069 1,904 7,165 During 2021, the Company continued its restructuring efforts, closed additional facilities in the United States, liquidated an international operation and continued to assess the carrying value of its assets based on management actions and the industry outlook regarding demand for and pricing of its products and services, and recorded the following charges (in thousands): Offshore/ Manufactured Products Downhole Technologies Well Site Services Corporate Pre-tax Total Tax After-tax Total Impairments of: Fixed assets (Note 4) $ — $ — $ 1,372 $ — $ 1,372 $ 289 $ 1,083 Operating lease assets (Note 7) — — 2,794 — 2,794 587 2,207 Inventories (Note 4) — 2,113 1,468 — 3,581 752 2,829 Severance and restructuring costs (1) 868 809 4,266 1,555 7,498 1,573 5,925 Release of foreign currency translation adjustments on liquidation of an international operation (Note 8) — — — 9,320 9,320 — 9,320 ____________________ (1) Includes recognition of $ 1.9 million in additional lease-related liabilities associated with the exit of a long-term lease supporting the Well Site Services segment. -73- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Additionally, during 2021, the Company recognized $ 8.8 million in aggregate reductions to payroll tax expense (within cost of revenues and selling, general and administrative expense) as part of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") employee retention credit program. Should, among other events and circumstances, global economic and industry conditions deteriorate, the COVID-19 pandemic business and market disruptions continue, the outlook for future operating results and cash flow for any of the Company's segments decline, income tax rates increase or regulations change, climate and environmental regulations change, costs of equity or debt capital increase, valuations for comparable public companies or comparable acquisition valuations decrease, or management implement strategic decisions based on industry conditions, the Company may need to recognize additional impairment losses in future periods. 4. Details of Selected Balance Sheet Accounts Additional information regarding selected balance sheet accounts as of December 31, 2021 and December 31, 2020 is presented below (in thousands): 2021 2020 Accounts receivable, net: Trade $ 116,434 $ 109,294 Unbilled revenue 24,389 23,173 Contract assets 39,755 35,870 Other 9,973 3,102 Total accounts receivable 190,551 171,439 Allowance for doubtful accounts ( 4,471 ) ( 8,304 ) $ 186,080 $ 163,135 Allowance for doubtful accounts as a percentage of total accounts receivable 2 % 5 % 2021 2020 Deferred revenue (contract liabilities) $ 43,236 $ 43,384 As of December 31, 2021, accounts receivable, net in the United States and the United Kingdom represented 73 % and 14 %, 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, 2021. A summary of activity in the allowance for doubtful accounts for the years ended December 31, 2021, 2020 and 2019 is provided in Note 15, "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, 2021 and 2020 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, 2021, the $ 3.9 million net increase in contract assets was primarily attributable to $ 38.9 million in revenue recognized during the period, which was partially offset by $ 35.0 million transferred to accounts receivable. Deferred revenue (contract liabilities) decreased by $ 0.1 million in 2021, reflecting the recognition of $ 10.5 million of revenue that was deferred at the beginning of the period, offset by $ 10.4 million in new customer billings which were not recognized as revenue during the period. -74- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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. 2021 2020 Inventories, net: Finished goods and purchased products $ 87,934 $ 88,634 Work in process 24,722 27,063 Raw materials 96,357 95,410 Total inventories 209,013 211,107 Allowance for excess or obsolete inventory ( 40,440 ) ( 40,731 ) $ 168,573 $ 170,376 During 2021, the Company recorded impairment charges totaling $ 3.6 million to reduce the carrying value of inventories to their estimated net realizable value based primarily on management's decisions to exit certain product and service offerings. 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 (years) 2021 2020 Property, plant and equipment, net: Land $ 33,536 $ 34,968 Buildings and leasehold improvements 1 – 40 255,530 267,072 Machinery and equipment 2 – 28 247,285 239,986 Completion-related rental equipment 1 – 10 510,816 507,755 Office furniture and equipment 1 – 10 33,155 35,767 Vehicles 3 – 10 66,431 81,607 Construction in progress 4,780 7,207 Total property, plant and equipment 1,151,533 1,174,362 Accumulated depreciation ( 812,950 ) ( 790,800 ) $ 338,583 $ 383,562 For the years ended December 31, 2021, 2020 and 2019, depreciation expense was $ 60.1 million, $ 73.6 million and $ 96.5 million, respectively. During 2019, the Company made the strategic decision to reduce the scope of its drilling operations (adjusting from 34 rigs to 9 rigs) within the Well Sites Services segment 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). During 2020, the Well Site Services segment recognized a non-cash impairment charge of $ 5.2 million to further reduce the carrying value of the segment's remaining drilling rigs to their estimated realizable value and $ 3.6 million to reduce the carrying value of certain other facilities to their estimated realizable value. Also during 2020, the Downhole Technologies segment recognized a non-cash impairment charge of $ 1.6 million to reduce the carrying value of certain of the segment's fixed assets to their estimated realizable value. During 2021, the Well Site Services segment recognized non-cash impairment charges of $ 1.4 million to reduce the carrying value of certain of the segment's fixed assets to their estimated realizable value. -75- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2021 2020 Other noncurrent assets: Deferred compensation plan $ 23,348 $ 22,801 Deferred financing costs 2,674 — Deferred income taxes 1,878 1,280 Other 4,989 5,646 $ 32,889 $ 29,727 2021 2020 Accrued liabilities: Accrued compensation $ 20,904 $ 18,463 Accrued taxes, other than income taxes 5,130 7,307 Insurance liabilities 6,361 7,694 Accrued interest 3,629 2,202 Accrued commissions 2,194 1,416 Other 5,183 7,422 $ 43,401 $ 44,504 5. Goodwill and Other Intangible Assets Goodwill Changes in the carrying amount of goodwill for the years ended December 31, 2021 and 2020 were as follows (in thousands): Offshore / Manufactured Products Downhole Technologies Well Site Services Total Balance as of December 31, 2019 Goodwill $ 162,750 $ 357,502 $ 244,349 $ 764,601 Accumulated impairment losses — ( 165,000 ) ( 117,295 ) ( 282,295 ) 162,750 192,502 127,054 482,306 Goodwill impairment (March 2020) ( 86,500 ) ( 192,502 ) ( 127,054 ) ( 406,056 ) Foreign currency translation 239 — — 239 Balance as of December 31, 2020 $ 76,489 $ — $ — $ 76,489 Balance as of December 31, 2020 Goodwill $ 162,989 $ 357,502 $ 244,349 $ 764,840 Accumulated impairment losses ( 86,500 ) ( 357,502 ) ( 244,349 ) ( 688,351 ) 76,489 — — 76,489 Foreign currency translation ( 77 ) — — ( 77 ) Balance as of December 31, 2021 $ 76,412 $ — $ — $ 76,412 Balance as of December 31, 2021 Goodwill $ 162,912 $ 357,502 $ 244,349 $ 764,763 Accumulated impairment losses ( 86,500 ) ( 357,502 ) ( 244,349 ) ( 688,351 ) $ 76,412 $ — $ — $ 76,412 As further discussed in Note 2, "Summary of 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. -76- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 2019 Impairment The Company had three reporting units – Offshore/Manufactured Products, Downhole Technologies and Well Site Services – 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). 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. The discount rates used to value the Company's reporting units as of December 1, 2019 ranged between 12.5 % and 13.0 %. 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. 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 the March 2020 assessment. 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. The discount rates used to value the Company's reporting units as of March 31, 2020 ranged between 16.8 % and 18.5 %. -77- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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. December 2020 and 2021 Assessments As of December 1, 2020 and 2021, the Company had only one reporting unit – Offshore/Manufactured Products – with a goodwill balance of $ 76 million. The Company performed its annual quantitative assessments 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 impairment was required in either period. The fair value of the Offshore/Manufactured Products reporting unit was determined using significant unobservable inputs (a Level 3 fair value measurement). The valuation techniques used in these annual assessments 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 and 2021 was 15.3 % and 14.5 %, respectively. The estimated returns required by market participants decreased in the Company's 2020 and 2021 annual assessments from the assessment as of March 31, 2020 given improvements in the global economy and financial markets. 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, 2021 and 2020 (in thousands): 2021 2020 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Other intangible assets: Customer relationships $ 168,284 $ 66,734 $ 101,550 $ 168,288 $ 55,380 $ 112,908 Patents/Technology/Know-how 78,821 33,151 45,670 75,920 26,124 49,796 Noncompete agreements — — — 16,044 14,742 1,302 Tradenames and other 53,708 15,179 38,529 53,708 11,965 41,743 $ 300,813 $ 115,064 $ 185,749 $ 313,960 $ 108,211 $ 205,749 Amortization expense was $ 20.6 million, $ 24.9 million and $ 26.8 million in the years ended December 31, 2021, 2020 and 2019, respectively. The weighted average remaining amortization period for all intangible assets, other than goodwill, was 11.3 years as of December 31, 2021 and 12.4 years as of December 31, 2020. Amortization expense is expected to total approximately $ 20 million in 2022 and $ 17 million in 2023 through 2026. As of December 31, 2021 and 2020, no impairment of other intangible assets was required. -78- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 6. Long-term Debt As of December 31, 2021 and 2020, long-term debt consisted of the following (in thousands): 2021 2020 Revolving credit facilities (1) $ — $ 18,408 2026 Notes (2) 131,291 — 2023 Notes (3) 25,802 143,242 Promissory note 17,534 17,095 Other debt and finance lease obligations 4,123 4,792 Total debt 178,750 183,537 Less: Current portion ( 18,262 ) ( 17,778 ) Total long-term debt $ 160,488 $ 165,759 ____________________ (1) Presented net of $ 0.6 million of unamortized deferred financing costs as of December 31, 2020. Unamortized deferred financing costs of $ 2.7 million as of December 31, 2021 are presented in Other noncurrent assets. (2) The outstanding principal amount of the 2026 Notes was $ 135.0 million as of December 31, 2021. (3) The outstanding principal amount of the 2023 Notes was $ 26.0 million and $ 157.4 million as of December 31, 2021 and December 31, 2020, respectively. Scheduled maturities of total debt as of December 31, 2021, are as follows (in thousands): 2022 18,262 2023 26,311 2024 485 2025 512 2026 131,806 Thereafter 1,374 $ 178,750 Revolving Credit Facilities ABL 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 "ABL Facility") under which credit availability is subject to a borrowing base calculation. Concurrent with entering into this facility, the Company's former senior secured revolving credit facility (discussed below) was terminated. On March 16, 2021, the Company entered into an amendment to the ABL Facility that permitted the Company 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 discussed below). 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 the Company's 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. Quarterly, the Company must also pay a commitment fee of 0.375 % to 0.50 % per annum, based on unused commitments under the ABL Agreement. -79- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The ABL 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 2023 Notes and the 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 repayment of all amounts then outstanding. The ABL 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 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 December 31, 2021, the Company had $ 16.1 million of outstanding letters of credit, but no borrowings outstanding under the ABL Agreement. The total amount available to be drawn as of December 31, 2021 was $ 48.9 million, calculated based on the current borrowing base less outstanding borrowings, if any, and letters of credit. As of December 31, 2021, the Company was in compliance with its debt covenants under the ABL Agreement. Former Revolving Credit Facility Until its termination on February 10, 2021, the Company's former senior secured revolving credit facility was governed by a credit agreement which was scheduled to mature on January 30, 2022. On June 17, 2020, the Company entered into an omnibus amendment to the credit agreement, under which lender commitments were reduced in exchange for the suspension of certain financial covenants through March 30, 2021. The following provides a summary of the more significant provisions of the Company's former revolving credit facility. Prior to June 17, 2020 From June 17, 2020 to February 10, 2021 Lender commitments $ 350 million $ 200 million Interest rate on outstanding borrowings (1) : LIBOR based borrowings LIBOR plus a margin of 1.75 % to 3.00 % LIBOR plus a margin of 2.50 % to 3.75 % Base-rate based borrowings Base rate plus a margin of 0.75 % to 2.00 % Base rate plus a margin of 1.50 % to 2.75 % Commitment fees (2) 0.25 % to 0.50 % 0.375 % to 0.50 % ____________________ (1) Based on the ratio of the Company's total net funded debt to consolidated EBITDA. (2) Based on unused commitments under the credit agreement. 2026 Notes On March 19, 2021, the Company issued $ 135.0 million aggregate principal amount of the 2026 Notes pursuant to an indenture, dated as of March 19, 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. The Company used $ 120.0 million of the cash proceeds to purchase $ 125.0 million principal amount of the outstanding 2023 Notes at a discount, with the balance added to cash on-hand. The 2026 Notes bear interest at a rate of 4.75 % per year and will mature on April 1, 2026, unless earlier repurchased, redeemed or converted. Interest is payable semi-annually in arrears on April 1 and October 1 of each year. Additional interest and special interest may accrue on the 2026 Notes under certain circumstances as described in the 2026 Indenture. The initial conversion rate is 95.3516 shares of the Company's common stock per $1,000 principal amount of 2026 Notes (equivalent to an initial conversion price of approximately $ 10.49 per share of common stock). The conversion rate, and thus the conversion price, may be adjusted under certain circumstances as described in the 2026 Indenture. The Company's intent is to repay the principal amount of the 2026 Notes in cash and settle the conversion feature in shares of the Company's common stock. Noteholders may convert their 2026 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 2026 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 -80- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) certain corporate events or distributions on the Company's common stock, as described in the 2026 Indenture; or (4) if the Company calls the 2026 Notes for redemption, or at any time from, and including, January 1, 2026 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 2026 Notes will be redeemable, in whole or in part, at the Company's option on or after April 6, 2024, at a cash redemption price equal to the principal amount of the 2026 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 2026 Indenture occur, then noteholders may require the Company to repurchase their 2026 Notes at a cash repurchase price equal to the principal amount of the 2026 Notes to be repurchased, plus accrued and unpaid interest. Additionally, 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. As of December 31, 2021, none of the conditions allowing holders of the 2026 Notes to convert, or requiring the Company to repurchase the 2026 Notes, had been met. 2023 Notes On January 30, 2018, the Company 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 Notes bear interest at a rate of 1.50 % per year and 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 2023 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 2023 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. The initial carrying amount of the 2023 Notes recorded in the consolidated balance sheet was less than their principal amount, in accordance with then-applicable accounting principles, reflective of the estimated fair value of a similar debt instrument that did not have a conversion feature. The Company recorded the value of the conversion feature as a debt discount, which was amortized as interest expense over the term of the 2023 Notes, with a similar amount allocated to additional paid-in capital. As a result of this amortization (prior to the Company's adoption of ASU 2020-06 effective January 1, 2021), the interest expense recognized on the 2023 Notes for accounting purposes was based on an effective interest rate of approximately 6 %, which was greater than the cash interest the Company is obligated to pay. See Note 2, "Summary of Significant Accounting Policies," for discussion of ASU 2020-06, which changed the Company's method of accounting for the 2023 Notes upon adoption. The following table provides details with respect to the carrying amount of the 2023 Notes in the consolidated balance sheets as of December 31, 2021 and 2020 (in thousands): 2021 2020 Principal amount of the liability component $ 25,969 $ 157,369 Less: Unamortized discount — 12,308 Less: Unamortized issuance costs 167 1,819 Net carrying amount of the liability component $ 25,802 $ 143,242 Net carrying amount of the equity component n.a. $ 25,683 -81- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table provides a summary of the Company's purchases of outstanding 2023 Notes during the years ended December 31, 2021, 2020 and 2019, with non-cash gains reported within Other income, net (in thousands): Principal Amount Carrying Value of Liability Cash Paid Non-cash Gains Recognized 2021 $ 131,400 $ 129,974 $ 125,952 $ 4,022 2020 34,881 30,799 20,078 10,721 2019 7,750 6,724 6,724 — Promissory Note In connection with the 2018 acquisition of GEODynamics, Inc., (such company, "GEODynamics" and such acquisition, the "GEODynamics Acquisition"), the Company issued a $ 25.0 million promissory note that bears interest at 2.50 % per annum (subject to adjustment) 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 the GEODynamics Acquisition. The Company has 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 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 such note. The Company has incurred settlement costs and expenses of $ 7.5 million related to such indemnification claims, and believes that the maturity date of such note is extended until the resolution of such indemnity claims and that it is permitted to set-off the principal amount owed by the amount of such costs and expenses. Accordingly, the Company has reduced the carrying amount of such note in the consolidated balance sheet to $ 17.5 million as of December 31, 2021, which is its current best estimate of what is owed after set-off for such indemnification matters. See Note 14, "Commitments and Contingencies." 7. Operating Leases Operating Lease Assets The following table presents the carry value of operating lease assets in the Company's consolidated balance sheets as of December 31, 2021 and 2020 (in thousands): 2021 2020 Operating lease assets, net $ 25,388 $ 33,140 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. 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, 2021, 2020 and 2019 (in thousands): 2021 2020 2019 Operating lease expense components: Leases with initial term of greater than 12 months $ 9,412 $ 12,564 $ 11,972 Leases with initial term of 12 months or less 4,232 4,024 5,906 Total operating lease expense $ 13,644 $ 16,588 $ 17,878 During 2020, the Downhole Technologies segment closed 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. During 2021, the Well Site Services segment recognized non-cash operating lease asset impairment charges of $ 2.8 million associated with the closure of certain leased facilities. During 2021, the segment also recorded an additional $ 1.9 million charge for other expenses associated with the exit of a leased facility. -82- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Operating Lease Liabilities The following table provides the scheduled maturities of operating lease liabilities as of December 31, 2021 (in thousands): 2022 $ 7,942 2023 6,026 2024 4,531 2025 4,164 2026 3,963 Thereafter 8,167 Total lease payments 34,793 Less: Imputed interest ( 4,860 ) Present value of operating lease liabilities 29,933 Less: Current portion ( 6,481 ) Total long-term operating lease liabilities $ 23,452 Weighted-average remaining lease term (years) 6.2 Weighted-average discount rate 5.0 % 8. Stockholders' Equity Common and Preferred Stock The following table provides details with respect to the changes to the number of shares of common stock, $ 0.01 par value, outstanding during 2021 (in thousands): Issued Treasury Stock Outstanding Shares of common stock outstanding – December 31, 2019 72,546 12,045 60,501 Restricted stock awards, net of forfeitures 743 — 743 Shares withheld for taxes on vesting of stock awards — 239 ( 239 ) Shares of common stock outstanding – December 31, 2020 73,289 12,284 61,005 Restricted stock awards, net of forfeitures 611 — 611 Shares withheld for taxes on vesting of stock awards — 238 ( 238 ) Shares of common stock outstanding – December 31, 2021 73,900 12,522 61,378 As of December 31, 2021 and December 31, 2020, the Company had 25,000,000 shares of preferred stock, $ 0.01 par value, authorized, with no shares issued or outstanding. Accumulated Other Comprehensive Loss Accumulated other comprehensive loss, reported as a component of stockholders' equity, primarily relates to fluctuations in currency exchange rates against the U.S. dollar as used to translate certain of the international operations of the Company's operating segments. Accumulated other comprehensive loss decreased from $ 71.4 million at December 31, 2020 to $ 66.0 million at December 31, 2021, with the reclassification of $ 9.3 million in historical currency translation adjustments to net loss upon the liquidation of an international operation partially offset by the impact of changes in currency exchange rates during 2021. For 2021 and 2020, currency translation adjustments recognized as a component of other comprehensive loss due to exchange rate movements were primarily attributable to the United Kingdom and Brazil. During 2021, the exchange rate for the British pound and the Brazilian real compared to the U.S. dollar weakened by 1 % and 7 %, respectively, contributing to other comprehensive loss of $ 4.0 million. During 2020, the exchange rate for 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. -83- 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, 2021, 2020 and 2019 consisted of the following (in thousands): 2021 2020 2019 United States $ ( 56,665 ) $ ( 534,452 ) $ ( 254,291 ) Foreign ( 16,669 ) 123 13,564 Total $ ( 73,334 ) $ ( 534,329 ) $ ( 240,727 ) The 2021 foreign losses before income taxes included the reclassification of $ 9.3 million in historical currency translation adjustments upon the liquidation of an international operation, which were not deductible for income tax purposes. Additionally, 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. Approximately $ 313.1 million and $ 165.0 million of the goodwill impairment charges were not deductible for income tax purposes in 2020 and 2019, respectively. Components of income tax benefit for the years ended December 31, 2021, 2020 and 2019 consisted of the following (in thousands): 2021 2020 2019 Current: United States $ 370 $ ( 44,399 ) $ 300 U.S. state 250 235 292 Foreign ( 1,322 ) 2,622 5,958 ( 702 ) ( 41,542 ) 6,550 Deferred: United States ( 7,662 ) ( 20,913 ) ( 13,972 ) U.S. state ( 177 ) ( 1,798 ) ( 473 ) Foreign ( 800 ) ( 1,693 ) ( 1,024 ) ( 8,639 ) ( 24,404 ) ( 15,469 ) Total income tax benefit $ ( 9,341 ) $ ( 65,946 ) $ ( 8,919 ) A reconciliation of the U.S. statutory tax benefit rate to the effective tax benefit rate for the years ended December 31, 2021, 2020 and 2019 is as follows: 2021 2020 2019 U.S. statutory tax benefit rate ( 21.0 ) % ( 21.0 ) % ( 21.0 ) % Release of foreign currency translation adjustments on liquidation of an international operation 2.7 — — Impairments of goodwill — 12.3 14.4 Effect of CARES Act — ( 3.1 ) — State income taxes, net of federal benefits ( 1.6 ) ( 1.1 ) ( 0.4 ) Effect of foreign income taxed at different rates ( 0.4 ) 0.1 0.7 Valuation allowances against tax assets 3.3 0.3 0.8 Non-deductible compensation 1.1 0.1 0.3 Other non-deductible expenses, net 3.2 0.1 1.5 Effective tax benefit rate ( 12.7 ) % ( 12.3 ) % ( 3.7 ) % -84- 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, 2021 and 2020 are as follows (in thousands): 2021 2020 Deferred tax assets: Foreign tax credit carryforwards $ 20,360 $ 20,870 Net operating loss carryforwards 46,304 37,838 Employee benefits 5,456 7,353 Inventories 10,192 9,696 Operating lease liabilities 5,355 6,697 Other 6,899 7,649 Gross deferred tax asset 94,566 90,103 Valuation allowance ( 37,643 ) ( 35,497 ) Net deferred tax asset 56,923 54,606 Deferred tax liabilities: Tax over book depreciation ( 23,938 ) ( 27,613 ) Intangible assets ( 29,671 ) ( 30,392 ) Convertible senior notes discount — ( 2,790 ) Operating lease assets ( 4,355 ) ( 5,884 ) Other ( 718 ) ( 910 ) Deferred tax liability ( 58,682 ) ( 67,589 ) Net deferred tax liability $ ( 1,759 ) $ ( 12,983 ) 2021 2020 Balance sheet classification: Other non-current assets $ 1,878 $ 1,280 Deferred tax liability ( 3,637 ) ( 14,263 ) Net deferred tax liability $ ( 1,759 ) $ ( 12,983 ) 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. The Company had $ 98.7 million of U.S. federal NOL carryforwards as of December 31, 2021, 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, 2021 totaled $ 194.2 million, of which $ 13.6 million are attributable to the acquired GEODynamics operations and are subject to certain limitation provisions. As of December 31, 2021, the Company had NOL carryforwards related to certain of its international operations totaling $ 44.6 million, of which $ 15.0 million can be carried forward indefinitely. As of December 31, 2021 and 2020, the Company had recorded valuation allowances of $ 20.6 million and $ 18.4 million, respectively, primarily with respect to foreign and U.S. state NOL carryforwards. As of December 31, 2021 and 2020, the Company's foreign tax credit carryforwards totaled $ 20.4 million and $ 20.9 million, respectively. These foreign tax credits will expire in varying amounts from 2022 to 2029. As of December 31, 2021 and 2020, the Company had recorded valuation allowances of $ 17.1 million and $ 17.1 million, respectively, with respect to foreign tax credit carryforwards. 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. -85- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The total amount of unrecognized tax benefits as of December 31, 2021 and 2020 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, 2021 and 2020, the Company had no accrued interest expense or penalties. 10. 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, 2021, 2020 and 2019 (in thousands, except per share amounts): Year Ended December 31, 2021 2020 2019 Numerators: Net loss $ ( 63,993 ) $ ( 468,383 ) $ ( 231,808 ) Less: Income attributable to unvested restricted stock awards — — — Numerator for basic net loss per share ( 63,993 ) ( 468,383 ) ( 231,808 ) Effect of dilutive securities: Unvested restricted stock awards — — — Numerator for diluted net loss per share $ ( 63,993 ) $ ( 468,383 ) $ ( 231,808 ) Denominators: Weighted average number of common shares outstanding 61,314 60,953 60,424 Less: Weighted average number of unvested restricted stock awards outstanding ( 1,021 ) ( 1,141 ) ( 1,045 ) Denominator for basic and diluted net loss per share 60,293 59,812 59,379 Net loss per share: Basic $ ( 1.06 ) $ ( 7.83 ) $ ( 3.90 ) Diluted ( 1.06 ) ( 7.83 ) ( 3.90 ) The calculation of diluted net loss per share for the years ended December 31, 2021, 2020 and 2019 excluded 430 thousand shares, 582 thousand shares and 659 thousand shares, respectively, issuable pursuant to outstanding stock options, due to their antidilutive effect. Additionally, shares issuable upon conversion of both the 2023 Notes and the 2026 Notes were excluded due to, among other factors, their antidilutive effect. 11. Long-Term Incentive Compensation 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 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 expense recognized during the years ended December 31, 2021, 2020 and 2019 totaled $ 7.9 million, $ 8.4 million and $ 16.8 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 objective for performance-based awards granted in 2021 is the Company's cumulative EBITDA over a three-year period. The performance objectives for performance-based stock units granted during 2020 and 2019 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 -86- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 a three-year term. The following table presents changes in restricted stock awards and related information for the year ended December 31, 2021 (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, 2020 1,087 $ 14.07 287 $ 12.13 1,374 Granted 601 6.77 245 6.84 846 Vested ( 636 ) 14.69 ( 70 ) 6.55 ( 705 ) Forfeited ( 59 ) 13.60 ( 105 ) 15.86 ( 164 ) Unvested, December 31, 2021 993 $ 9.29 358 $ 8.49 1,350 The total fair value of restricted stock awards that vested in 2021, 2020 and 2019 was $ 9.3 million, $ 14.5 million and $ 18.2 million, respectively. As of December 31, 2021, there was $ 5.8 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 1.4 years. On May 11, 2021, the Company’s stockholders approved the Amended and Restated Equity Participation Plan of Oil States International, Inc. (the "Plan"), which provided for a 4.5 million increase in the number of shares authorized for issuance under the plan. As of December 31, 2021, approximately 5.0 million shares were available for future grant under the Plan. Stock Options No options were awarded or exercised in 2021, 2020 or 2019. As of December 31, 2021, the Company had 388 thousand stock options outstanding and exercisable, with exercise prices ranging from $ 42.29 to $ 58.54 and a weighted-average contractual life of 1.4 years. Long-Term Cash Incentive Awards During 2021 and 2020, the Company issued conditional long-term cash incentive awards ("Cash Awards") of $ 1.5 million and $ 2.0 million (adjusted for forfeitures), respectively, with the ultimate dollar amount to be awarded ranging from zero to a maximum of $ 3.1 million for the 2021 Cash Award and from zero to a maximum of $ 4.0 million for the 2020 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 2021 and 2020 Cash Awards is limited to their targeted award value ($ 1.5 million and $ 2.0 million, respectively) if the Company's total stockholder return is negative over the performance period. The obligations, if any, related to the Cash Awards are classified as liabilities and recognized over the vesting period. 12. Retirement Plans Defined Contribution Plans The Company sponsors defined contribution plans, including a 401(k) retirement savings plan (the "401(k) Plan"). Participation in these plans is available to substantially all employees. The Company recognized expenses of $ 0.8 million, $ 3.4 million and $ 9.5 million primarily related to matching contributions under its various defined contribution plans during the years ended December 31, 2021, 2020 and 2019, respectively. Effective January 1, 2022, the Company resumed matching contributions to the Company's 401(k) Plan and Deferred Compensation Plan (defined below) – which were suspended in 2020 in response to the significant decline in industry activity levels due to the COVID-19 pandemic. Deferred Compensation Plan The Company also maintains a nonqualified deferred compensation plan (the "Deferred Compensation Plan") that permits eligible directors and employees to elect to defer the receipt of all or a portion of their directors' fees or salary and annual -87- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) bonuses. The Deferred Compensation Plan permits the Company to make discretionary contributions to an employee's account. Since inception of the plan, this discretionary contribution provision has been limited to a matching of the employee's contributions on a basis equivalent to matching permitted under the Company's 401(k) Plan but are not subject to the IRS limitations on match-eligible compensation. The vesting of Company contributions to participant accounts is equivalent to the vesting requirements of the Company's 401(k) Plan. 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 a selection of funds consistent with those in the Company's 401(k) Plan. Distributions from the plan are generally made in cash upon the participants' termination as a director or employee of the Company. As of December 31, 2021, Trust assets and amounts payable to plan participants totaled $ 23.3 million, which are classified as "Other noncurrent assets" and "Other noncurrent liabilities" in the Company's consolidated balance sheet. The fair value of the investments held by the Trust was based on quoted market prices in active markets (a Level 1 fair value measurement). 13. 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 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. The Downhole Technologies segment, comprised of the GEODynamics business acquired in 2018, 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 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, downhole and extended reach activity, well testing and flowback operations, sand control and land drilling. 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. -88- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Financial information by business segment for each of the three years ended December 31, 2021, 2020 and 2019, is summarized in the following table (in thousands). Revenues Depreciation and amortization Operating income (loss) Capital expenditures Total assets 2021 Offshore/Manufactured Products $ 298,729 $ 22,190 $ 15,447 $ 4,628 $ 541,346 Downhole Technologies (1) 103,492 17,591 ( 13,470 ) 901 267,468 Well Site Services (2) 170,940 40,152 ( 34,511 ) 10,977 200,874 Corporate — 808 ( 32,258 ) 1,011 76,060 Total $ 573,161 $ 80,741 $ ( 64,792 ) $ 17,517 $ 1,085,748 2020 Offshore/Manufactured Products (3) $ 340,300 $ 21,881 $ ( 80,794 ) $ 2,913 $ 547,962 Downhole Technologies (4) 97,936 22,649 ( 224,414 ) 3,230 280,096 Well Site Services (5) 199,839 53,240 ( 193,388 ) 6,937 244,932 Corporate — 773 ( 35,744 ) ( 331 ) 79,270 Total $ 638,075 $ 98,543 $ ( 534,340 ) $ 12,749 $ 1,152,260 2019 Offshore/Manufactured Products $ 402,946 $ 22,842 $ 36,022 $ 7,692 $ 677,036 Downhole Technologies (6) 182,314 21,247 ( 164,008 ) 13,808 529,677 Well Site Services (7) 432,094 78,413 ( 55,040 ) 33,470 478,249 Corporate — 817 ( 45,154 ) 1,146 42,905 Total $ 1,017,354 $ 123,319 $ ( 228,180 ) $ 56,116 $ 1,727,867 ________________ (1) Operating loss included a non-cash inventory impairment charge of $ 2.1 million. (2) Operating loss included non-cash inventory and fixed and operating lease asset impairment charges of $ 1.5 million and $ 4.2 million, respectively. (3) Operating loss included non-cash goodwill and inventory impairment charges of $ 86.5 million and $ 16.2 million, respectively. (4) Operating loss included non-cash goodwill, inventory and fixed and operating lease impairment charges of $ 192.5 million, $ 5.9 million and $ 3.6 million, respectively. (5) Operating loss included non-cash goodwill, inventory and fixed asset impairment charges of $ 127.1 million, $ 9.0 million and $ 8.8 million, respectively. (6) Operating loss included a non-cash goodwill impairment charge of $ 165.0 million. (7) Operating loss included a non-cash fixed asset impairment charge of $ 33.7 million. See Note 3, "Asset Impairments and Other Restructuring Items," and Note 4, "Details of Selected Balance Sheet Accounts," for further discussion of these and other charges and benefits. No customer individually accounted for greater than 10% of the Company's 2021, 2020 or 2019 consolidated revenues or individually accounted for greater than 10% of the Company's consolidated accounts receivable at December 31, 2021. The Company's 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 it manufactures. 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 between product and service cost. For the Downhole Technologies segment, substantially all depreciation and amortization expense relates to cost of products while substantially all depreciation and amortization expense for the Well Site Services segment relates to cost of services. Operating income (loss) excludes equity in net income of unconsolidated affiliates, which is immaterial and not reported separately herein. -89- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following tables provide supplemental disaggregated revenue from contracts with customers by operating segment for the years ended December 31, 2021, 2020 and 2019 (in thousands): Offshore/Manufactured Products Downhole Technologies Well Site Services 2021 2020 2019 2021 2020 2019 2021 2020 2019 Major revenue categories - Project-driven products $ 122,097 $ 165,497 $ 159,205 $ — $ — $ — $ — $ — $ — Short-cycle: Completion products and services 41,640 26,148 95,806 103,492 97,936 182,314 160,881 191,529 390,748 Drilling services — — — — — — 10,059 8,310 41,346 Other products 23,534 21,994 27,416 — — — — — — Total short-cycle 65,174 48,142 123,222 103,492 97,936 182,314 170,940 199,839 432,094 Other products and services 111,458 126,661 120,519 — — — — — — $ 298,729 $ 340,300 $ 402,946 $ 103,492 $ 97,936 $ 182,314 $ 170,940 $ 199,839 $ 432,094 Financial information by geographic location for the years ended December 31, 2021, 2020 and 2019, 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 2021 Revenues from unaffiliated customers $ 447,002 $ 59,352 $ 35,886 $ 30,921 $ 573,161 Long-lived assets 487,749 79,723 15,202 43,459 626,133 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 -90- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 14. Commitments and Contingencies During 2021, the distribution of COVID-19 vaccines progressed and many government-imposed restrictions were relaxed or rescinded. However, the effects of the COVID-19 pandemic and related economic, business and market disruptions continue and the macro outlook remains uncertain. The most direct impacts that the Company continues to experience are decreased pricing for its products and services due to the timing and rate of activity increases, the demand for crude oil, market pressures driving increased capital discipline by its customers and, to a lesser extent, supply chain disruptions. While the prices of and demand for crude oil have recovered from the lows seen in the initial stages of the pandemic, further outbreaks or the emergence of new strains of the COVID-19 virus, such as the Omicron variant, could result in the reimposition of domestic and international regulations directing individuals to stay at home, limiting travel, requiring facility closures and imposing quarantines. Widespread implementation of these or similar restrictions could result in commodity price volatility, reduced demand for the Company's products and services, as well as delays in or inability of the Company to fulfill its contractual obligations to customers, logistic constraints, increases in the Company's costs and workforce and raw material shortages. The Company continues to monitor the effect of the COVID-19 pandemic on its employees, customers, critical suppliers and other stakeholders. The ultimate duration of the COVID-19 pandemic, along with resulting governmental restrictions and related impacts on the prices of and demand for crude oil, the global economy and capital markets remains uncertain. The Company is a party to various pending or threatened claims, lawsuits and administrative proceedings seeking damages or other remedies concerning its commercial operations, products, employees and other matters, including occasional claims by individuals alleging exposure to hazardous materials as a result of the Company's products or operations. Some of these claims relate to matters occurring prior to the acquisition of businesses, and some relate to businesses the Company has sold. In certain cases, the Company is entitled to indemnification from the sellers of businesses and, in other cases, the Company has indemnified the buyers of businesses. Although the Company can give no assurance about the outcome of pending legal and administrative proceedings and the effect such outcomes may have on the Company, management believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by indemnity or insurance, will not have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity. 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 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 settlements and related costs of $ 7.5 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 such note is extended until the resolution of such claims. Accordingly, the Company reduced the carrying amount of such note in its consolidated balance sheet to $ 17.5 million as of December 31, 2021, which is the Company's current best estimate of what is owed after set-off for such indemnification matters, but without considering the outcome of the counterclaim described below. 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 $ 19.0 million in U.S. federal income tax carryback claims received by the Company under the provisions of the CARES Act. On February 15, 2021, following the federal magistrate's report and recommendation that the federal district court dismiss the Seller's lawsuit for lack of federal jurisdiction, the Seller dismissed the federal lawsuit without prejudice and refiled its lawsuit in state court. On September 20, 2021, the state court denied the Seller's motion for partial summary judgement. In December 2021, the Company filed a counterclaim against the Seller alleging material misrepresentations and breaches of warranties by the Seller with respect to GEODynamics' liability for anti-dumping and countervailing duties. The Company denies the validity of the breach of contract claims asserted by the Seller and is vigorously defending against this lawsuit. -91- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 15. 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 Balance at End of Period Year Ended December 31, 2021: Allowance for doubtful accounts receivable $ 8,304 $ 705 $ ( 3,932 ) $ ( 606 ) $ 4,471 Allowance for excess or obsolete inventory 40,731 4,806 ( 4,919 ) ( 178 ) 40,440 Valuation allowance on deferred tax assets 35,497 3,161 ( 751 ) ( 264 ) 37,643 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 -92-