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, 2023 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, 2023 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, 2023, 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, 2023 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 55 and is incorporated herein by reference. -45- (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, 2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information During the three months ended December 31, 2023, no director or executive officer adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” (as each is defined in Item 408 of Regulation S-K) related to securities of our company. -46- PART III Item 10. Directors, Executive Officers and Corporate Governance (1) Information concerning directors, including our audit committee financial experts, is incorporated by reference to our Definitive Proxy Statement for the 2024 Annual Meeting of Stockholders, under “Election of Directors.” (2) Information with respect to executive officers is incorporated by reference to our Definitive Proxy Statement for the 2024 Annual Meeting of Stockholders, under “Executive Officers.” (3) Information concerning Section 16(a) beneficial ownership reporting compliance is incorporated by reference to our Definitive Proxy Statement for the 2024 Annual Meeting of Stockholders, under “Section 16(a) Beneficial Ownership Reporting Compliance,” to the extent such disclosure is required. (4) Information concerning corporate governance and our code of ethics is incorporated by reference to our Definitive Proxy Statement for the 2024 Annual Meeting of Stockholders, under “Corporate Governance.” 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 2024 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 2024 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 2024 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 is incorporated by reference to our Definitive Proxy Statement for the 2024 Annual Meeting of Stockholders, under “Audit Fee Disclosure.” -47- 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 52 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 3.1 — Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10‑Q for the quarter ended June 30, 2023, as filed with the SEC on July 27, 2023 (File No. 001‑16337)). 3.2 — Fifth Amended and Restated Bylaws of Oil States International, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10‑K for the year ended December 31, 2022, as filed with the SEC on February 17, 2023 (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)). 4.3 — 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 (File No. 001-16337)). 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. (incorporated by Reference to Exhibit 10.2 to the Company’s Annual Report on Form 10‑K for the year ended December 31, 2021, as filed with the SEC on February 22, 2022 (File No. 001‑16337)). 10.3 — Form of Deferred Stock Grant Notice and Agreement under the Company’s Amended and Restated Equity Participation Plan. (incorporated by Reference to Exhibit 10.3 to the Company’s Annual Report on Form 10‑K for the year ended December 31, 2021, as filed with the SEC on February 22, 2022 (File No. 001‑16337)). 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)). 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)). -48- 10.9 — Second Amendment to Credit Agreement, dated December 13, 2022, among Oil States International, Inc., as Borrower, the Lenders from time to time hereto, and Wells Fargo Bank, National Association as Agent (incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on February 17, 2023 (File No. 001-16337)). 1 0. 10* — Third Amendment to Credit Agreement, dated February 16, 2024, among Oil States International, Inc., as Borrower, the Lenders from time to time hereto, and Wells Fargo Bank, National Association as Agent. 10.11 — Form of Indemnification Agreement (incorporated by reference to Exhibit 10.14 to the Company’s Quarterly Report on Form 10‑Q for the quarter ended September 30, 2004, as filed with the SEC on November 5, 2004 (File No. 001‑16337)). 10.12+ — Form of Director Stock Option Agreement under the Company’s 2001 Equity Participation Plan (incorporated by reference to Exhibit 10.18 to the Company’s Annual Report on Form 10‑K for the year ended December 31, 2004, as filed with the SEC on March 2, 2005 (File No. 001‑16337)). 10.13+ — Form of Employee Nonqualified Stock Option Agreement under the Company’s 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)). 10.14+ — 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)). 10.15+ — 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)). 10.16+ — 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)). 10.17+ — Non-Employee Director Compensation Summary (incorporated by reference to Exhibit 10.21 to the Company’s Report on Form 8‑K as filed with the SEC on November 15, 2006 (File No. 001‑16337)). 10.18+ — 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)). 10.19+ — 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)). 10.20+ — 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)). 10.21+ — 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)). 10.22+ — Executive Agreement between Oil States International, Inc. and named executive officer (Brian E. Taylor) effective May 10, 2022 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8‑K, as filed with the SEC on May 13, 2022 (File No. 001‑16337)). 10.23+ — 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. 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. -49- 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. 9 7.1* — In centive-Based Compensation Recoupment Policy 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. -50- 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 21, 2024. 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 21, 2024. 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 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 -51- INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements (PCAOB ID: 42 ) 53 Report of Independent Registered Public Accounting Firm on the Company’s Internal Control Over Financial Reporting 55 Consolidated Statements of Operations 56 Consolidated Statements of Comprehensive Income (Loss) 57 Consolidated Balance Sheets 58 Consolidated Statements of Stockholders’ Equity 59 Consolidated Statements of Cash Flows 60 Notes to Consolidated Financial Statements 61 -52- 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, 2023 and 2022, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, 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, 2023, 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 21, 2024 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. -53- Product revenues recognized over-time on project-driven contracts Description of the Matter As discussed in Note 2 to the consolidated financial statements, the Company recognizes product revenue over time for certain project-driven contracts using an input method such as the percentage of costs incurred to date relative to total estimated costs at completion for each contract (cost-to-cost method). Auditing management’s calculation of product revenues recognized under the cost-to-cost method was complex and subjective due to the significant estimation required in determining the estimated costs remaining on the project. In particular, the estimates of remaining costs associated with materials and labor are sensitive and may be impacted by factors outside of the Company’s control. 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 process for recognizing product revenues over-time on project-driven contracts, including management’s review of the estimated costs to complete and associated revenues. To test the Company’s estimate of the progress towards completion of its projects, we performed audit procedures that included, among others, testing the significant assumptions discussed above to develop the estimated cost to complete and testing the completeness and accuracy of the underlying data. To assess management’s estimated costs, we performed audit procedures that included, among others, agreeing the estimates to supporting documentation; conducting interviews with project personnel; observing selected project review meetings; performing observations of select projects to observe progress; and performing lookback analyses to historical actual costs to assess management’s ability to estimate. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2000. Houston, Texas February 21, 2024 -54- 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, 2023, 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, 2023, 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, 2023 and 2022, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2023 and the related notes, and our report dated February 21, 2024 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 21, 2024 -55- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Amounts) Year Ended December 31, 2023 2022 2021 Revenues: Products $ 418,550 $ 385,564 $ 299,293 Services 363,733 352,142 273,868 782,283 737,706 573,161 Costs and expenses: Product costs 328,815 307,371 246,589 Service costs 278,073 271,185 223,807 Cost of revenues (exclusive of depreciation and amortization expense presented below) 606,888 578,556 470,396 Selling, general and administrative expense 94,185 96,038 83,692 Depreciation and amortization expense 60,778 67,334 80,741 Impairments of fixed and lease assets — — 4,166 Other operating income, net ( 2,732 ) ( 7,127 ) ( 1,042 ) 759,119 734,801 637,953 Operating income (loss) 23,164 2,905 ( 64,792 ) Interest expense ( 9,570 ) ( 10,571 ) ( 10,328 ) Interest income 1,381 291 158 Other income, net 849 3,315 1,628 Income (loss) before income taxes 15,824 ( 4,060 ) ( 73,334 ) Income tax (provision) benefit ( 2,933 ) ( 5,480 ) 9,341 Net income (loss) $ 12,891 $ ( 9,540 ) $ ( 63,993 ) Net income (loss) per share: Basic $ 0.20 $ ( 0.15 ) $ ( 1.06 ) Diluted 0.20 ( 0.15 ) ( 1.06 ) Weighted average number of common shares outstanding: Basic 62,690 61,638 60,293 Diluted 63,152 61,638 60,293 The accompanying notes are an integral part of these financial statements. -56- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In Thousands) Year Ended December 31, 2023 2022 2021 Net income (loss) $ 12,891 $ ( 9,540 ) $ ( 63,993 ) Other comprehensive income (loss): Currency translation adjustments 8,957 ( 12,977 ) ( 4,044 ) Release of currency translation adjustments on liquidation of an international operation — — 9,320 Other — 67 78 Total other comprehensive income (loss) 8,957 ( 12,910 ) 5,354 Comprehensive income (loss) $ 21,848 $ ( 22,450 ) $ ( 58,639 ) The accompanying notes are an integral part of these financial statements. -57- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share Amounts) December 31, 2023 December 31, 2022 ASSETS Current assets: Cash and cash equivalents $ 47,111 $ 42,018 Accounts receivable, net 203,211 218,769 Inventories, net 202,027 182,658 Prepaid expenses and other current assets 35,648 19,317 Total current assets 487,997 462,762 Property, plant, and equipment, net 280,389 303,835 Operating lease assets, net 21,970 23,028 Goodwill, net 79,867 79,282 Other intangible assets, net 153,010 169,798 Other noncurrent assets 23,253 25,687 Total assets $ 1,046,486 $ 1,064,392 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Current portion of long-term debt $ 627 $ 17,831 Accounts payable 67,546 73,251 Accrued liabilities 44,227 49,057 Current operating lease liabilities 6,880 6,142 Income taxes payable 1,233 2,605 Deferred revenue 36,757 44,790 Total current liabilities 157,270 193,676 Long-term debt 135,502 135,066 Long-term operating lease liabilities 18,346 20,658 Deferred income taxes 7,717 6,652 Other noncurrent liabilities 18,106 18,782 Total liabilities 336,941 374,834 Stockholders’ equity: Common stock, $ .01 par value, 200,000,000 shares authorized, 77,218,765 shares and 76,587,920 shares issued, respectively 772 766 Additional paid-in capital 1,129,240 1,122,292 Retained earnings 284,918 272,027 Accumulated other comprehensive loss ( 69,984 ) ( 78,941 ) Treasury stock, at cost, 13,892,049 and 12,684,101 shares, respectively ( 635,401 ) ( 626,586 ) Total stockholders’ equity 709,545 689,558 Total liabilities and stockholders’ equity $ 1,046,486 $ 1,064,392 The accompanying notes are an integral part of these financial statements. -58- 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, 2020 $ 733 $ 1,122,945 $ 329,327 $ ( 71,385 ) $ ( 623,989 ) $ 757,631 Adoption of ASU 2020-06 — ( 25,683 ) 16,233 — — ( 9,450 ) Net loss — — ( 63,993 ) — — ( 63,993 ) Currency translation adjustment (excluding intercompany advances) — — — ( 1,096 ) — ( 1,096 ) Currency translation adjustment 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 6 7,873 — — — 7,879 Surrender of stock to settle taxes on restricted stock awards — — — — ( 1,595 ) ( 1,595 ) Balance, December 31, 2021 739 1,105,135 281,567 ( 66,031 ) ( 625,584 ) 695,826 Net loss — — ( 9,540 ) — — ( 9,540 ) Currency translation adjustment (excluding intercompany advances) — — — ( 15,258 ) — ( 15,258 ) Currency translation adjustment on intercompany advances — — — 2,281 — 2,281 Other comprehensive income — — — 67 — 67 Issuance of common stock in connection with settlement of disputes with seller of GEODynamics, Inc. 19 10,313 — — — 10,332 Stock-based compensation expense 8 6,844 — — — 6,852 Surrender of stock to settle taxes on restricted stock awards — — — — ( 1,002 ) ( 1,002 ) Balance, December 31, 2022 766 1,122,292 272,027 ( 78,941 ) ( 626,586 ) 689,558 Net income — — 12,891 — — 12,891 Currency translation adjustments (excluding intercompany advances) — — — 6,822 — 6,822 Currency translation adjustments on intercompany advances — — — 2,135 — 2,135 Stock-based compensation expense 6 6,948 — — — 6,954 Surrender of stock to settle taxes on restricted stock awards — — — — ( 1,948 ) ( 1,948 ) Stock repurchases — — — — ( 6,867 ) ( 6,867 ) Balance, December 31, 2023 $ 772 $ 1,129,240 $ 284,918 $ ( 69,984 ) $ ( 635,401 ) $ 709,545 The accompanying notes are an integral part of these financial statements. -59- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) Year Ended December 31, 2023 2022 2021 Cash flows from operating activities: Net income (loss) $ 12,891 $ ( 9,540 ) $ ( 63,993 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization expense 60,778 67,334 80,741 Impairments of inventories — — 3,581 Impairments of fixed and lease assets — — 4,166 Stock-based compensation expense 6,954 6,852 7,879 Amortization of deferred financing costs 1,798 1,886 2,314 Deferred income tax provision 226 2,020 ( 8,639 ) Gains on disposals of assets ( 4,075 ) ( 2,856 ) ( 6,472 ) Gains on extinguishment of 1.50 % convertible senior notes — ( 176 ) ( 4,022 ) Release of foreign currency translation adjustments on liquidation of an international operation — — 9,320 Other, net ( 1,001 ) 2,066 ( 511 ) Changes in operating assets and liabilities, net of effect from acquired business: Accounts receivable 17,132 ( 35,443 ) ( 24,407 ) Inventories ( 19,793 ) ( 17,364 ) ( 10,334 ) Accounts payable and accrued liabilities ( 11,743 ) 18,183 17,727 Deferred revenue ( 8,033 ) 1,554 ( 148 ) Other operating assets and liabilities, net 1,441 ( 1,654 ) ( 8 ) Net cash flows provided by operating activities 56,575 32,862 7,194 Cash flows from investing activities: Capital expenditures ( 30,653 ) ( 20,266 ) ( 17,517 ) Proceeds from disposition of property and equipment 5,253 5,877 11,527 Acquisition of business, net of cash acquired — ( 8,125 ) — Other, net ( 186 ) ( 211 ) ( 636 ) Net cash flows used in investing activities ( 25,586 ) ( 22,725 ) ( 6,626 ) Cash flows from financing activities: Revolving credit facility borrowings 35,816 10,090 12,873 Revolving credit facility repayments ( 35,816 ) ( 10,090 ) ( 31,873 ) Repayment of 1.50 % convertible senior notes ( 17,315 ) ( 8,450 ) ( 125,952 ) Issuance of 4.75 % convertible senior notes — — 135,000 Payment of promissory note to seller of GEODynamics, Inc. — ( 10,000 ) — Other debt and finance lease repayments ( 457 ) ( 732 ) ( 230 ) Payment of financing costs ( 128 ) ( 105 ) ( 7,791 ) Purchases of treasury stock ( 6,867 ) — — Shares added to treasury stock as a result of net share settlements due to vesting of stock awards ( 1,948 ) ( 1,002 ) ( 1,595 ) Net cash flows used in financing activities ( 26,715 ) ( 20,289 ) ( 19,568 ) Effect of exchange rate changes on cash and cash equivalents 819 ( 682 ) ( 159 ) Net change in cash and cash equivalents 5,093 ( 10,834 ) ( 19,159 ) Cash and cash equivalents, beginning of period 42,018 52,852 72,011 Cash and cash equivalents, end of period $ 47,111 $ 42,018 $ 52,852 Cash paid for: Interest $ 7,867 $ 8,339 $ 6,532 Income taxes, net 1,263 534 152 The accompanying notes are an integral part of these financial statements. -60- 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 presentation of certain prior-year amounts in the Notes to the Company’s Consolidated Financial Statements have been conformed to the current-year presentation. The Company operates through three business segments – Offshore/Manufactured Products, Well Site Services and Downhole Technologies – 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 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, revenue and income recognized over time, goodwill and long-lived asset impairments, 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 2026 Notes (as defined below), on the accompanying consolidated balance sheets approximate their fair values. The estimated fair value of the 2026 Notes as of December 31, 2023 was $ 136.3 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-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. -61- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 of the purchase price for acquired businesses over the allocated fair value of related net assets, reduced by historical impairments. 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. Following the goodwill impairments recognized by the Company in 2020, only the Offshore/Manufactured Products segment has remaining goodwill. The Company’s December 1, 2023 qualitative assessment identified no events or changes in circumstances which indicated that, more likely than not, the $ 79.9 million carrying value of goodwill on the balance sheet of the Offshore/Manufactured Products segment was recoverable. The Company’s December 1, 2022 and 2021 quantitative assessments of goodwill for impairment indicated that the fair value of the Offshore/Manufactured Products reporting unit was greater than its carrying amount at each date and no impairments were required in either period. When a quantitative assessment of goodwill is necessary, 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. 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 5, “Details of Selected Balance Sheet Accounts,” and Note 8, “Operating Leases,” the Company recognized non-cash asset impairment charges totaling $ 4.2 million in 2021 to reduce the carrying value of certain equipment and facilities (owned and leased) to their estimated realizable value. 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 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. -62- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 $ 4.5 million, $ 3.5 million and $ 4.4 million in 2023, 2022 and 2021, 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, 2023 and 2022, 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 34 %, 35 % and 35 % of consolidated revenues for the years ended December 31, 2023, 2022 and 2021, respectively. The majority of the Company’s revenue recognized at a point in time is derived from short-term contracts for standard products. Revenue on these contracts is recognized when control over the product has transferred to the customer. Indicators the Company considers in determining when transfer of control to the customer occurs include: right to payment for the product, transfer of legal title to the customer, transfer of physical possession of the product, transfer of risk and customer acceptance of the product. Revenues from products and services transferred to customers over time accounted for approximately 66 %, 65 % and 65 % of consolidated revenues for the years ended December 31, 2023, 2022 and 2021, 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 -63- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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. As of December 31, 2023, the Company had $ 216.8 million of remaining backlog related to contracts with an original expected duration of greater than one year . Approximately 54 % of this remaining backlog is expected to be recognized as revenue in 2024 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, 2023, the Company’s total investment in foreign subsidiaries (except for its Canadian and Cyprus operations) 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 future income and assessment of future business and tax planning strategies. During 2023, 2022 and 2021, the Company recorded adjustments to valuation allowances primarily with respect to foreign and U.S. state net operating loss (“NOL”) carryforwards as well as U.S. foreign tax credit 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, -64- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 14, “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. Stock-Based Compensation The fair value of share-based payments is estimated using the quoted market price of the Company’s common stock and pricing models as of the date of grant as further discussed in Note 12, “Long-Term Incentive Compensation.” 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. -65- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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, 2023, the maximum potential amount of future payments that the Company could be required to make under these guarantee agreements (letters of credit) was $ 15.2 million. The Company has not recorded any liability in connection with these guarantee arrangements. The Company does not believe, based on historical experience and information currently available, that it is likely that any material amounts will be required to be paid under these guarantee arrangements. Accounting for Contingencies The Company has contingent liabilities and future claims for which estimates of the amount of the eventual cost to liquidate such liabilities are accrued. These liabilities and claims sometimes involve threatened or actual litigation where damages have been quantified and an assessment of exposure has been made and recorded in an amount estimated to cover the expected loss. Other claims or liabilities have been estimated based on their fair value or management’s experience in such matters and, when appropriate, the advice of outside counsel or other outside experts. Upon the ultimate resolution of these uncertainties, future reported financial results will be impacted by the difference between the accruals and actual amounts paid in settlement. Examples of areas with important estimates of future liabilities include duties, income taxes, litigation, insurance claims 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. 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 7, “Long-term Debt,” the 2023 Notes matured and were repaid in full on February 15, 2023. 3. Acquisition On April 14, 2022, the Company acquired E-Flow Control Holdings Limited (“E-Flow”), a U.K.-based global provider of fully integrated handling, control, monitoring and instrumentation solutions. The purchase price of $ 8.1 million (net of cash acquired) was funded with cash-on-hand. Under the terms of the purchase agreement, the Company may be entitled to indemnification for certain matters occurring prior to the acquisition. The E-Flow transaction was accounted for using the acquisition method of accounting, based on the Company’s estimates of the fair value of assets acquired (primarily long-lived intangible assets and goodwill) and liabilities assumed in the acquisition. E-Flow’s results of operations have been included in the Company’s consolidated financial statements and have been reported within the Offshore/Manufactured Products segment subsequent to the closing of the acquisition. -66- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 4. Asset Impairments and Other Charges and Benefits During 2023, the Offshore/Manufactured Products segment recognized facility consolidation charges totaling $ 2.5 million in connection with the ongoing consolidation and relocation of certain manufacturing and service facilities and the relocation of related equipment, which is included in “Other operating income, net.” Additionally, during 2023, the Well Site Services segment recognized $ 0.6 million in costs associated with the defense of certain patents, which are included in “Selling, general and administrative expense.” In August 2022, the Offshore/Manufactured Products segment settled outstanding litigation against certain service providers in exchange for cash totaling $ 6.9 million. In connection with this settlement, the Company recognized a gain of $ 6.1 million (net of legal and other related costs) in 2022, which is included in “other operating income, net.” During 2021, the Company continued its restructuring efforts which began in 2020 due to the COVID-19 pandemic, closing facilities in the United States and assessing 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 Well Site Services Downhole Technologies Corporate Pre-tax Total Tax After-tax Total Impairments of: Fixed assets (Note 5) $ — $ 1,372 $ — $ — $ 1,372 $ 289 $ 1,083 Operating lease assets (Note 8) — 2,794 — — 2,794 587 2,207 Inventories (Note 5) — 1,468 2,113 — 3,581 752 2,829 Severance and restructuring costs (1) 868 4,266 809 1,555 7,498 1,573 5,925 Release of foreign currency translation adjustments on liquidation of an international operation — — — 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. 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 employee retention credit program. 5. Details of Selected Balance Sheet Accounts Additional information regarding selected balance sheet accounts as of December 31, 2023 and December 31, 2022 is presented below (in thousands): December 31, 2023 December 31, 2022 Accounts receivable, net: Trade $ 128,405 $ 145,540 Unbilled revenue 27,756 29,679 Contract assets 46,746 42,599 Other 4,801 6,177 Total accounts receivable 207,708 223,995 Allowance for doubtful accounts ( 4,497 ) ( 5,226 ) $ 203,211 $ 218,769 Allowance for doubtful accounts as a percentage of total accounts receivable 2 % 2 % -67- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2023 December 31, 2022 Deferred revenue (contract liabilities) $ 36,757 $ 44,790 As of December 31, 2023, accounts receivable, net in the United States, the United Kingdom and Singapore represented 66 %, 12 % and 11 %, 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, 2023. A summary of activity in allowance for doubtful accounts for the years ended December 31, 2023, 2022 and 2021 is provided in Note 16, “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, 2023 and 2022 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, 2023, the $ 4.1 million net increase in contract assets was primarily attributable to $ 44.3 million in revenue recognized during the period, which was partially offset by $ 40.2 million transferred to accounts receivable. Deferred revenue (contract liabilities) decreased by $ 8.0 million in 2023, primarily reflecting the recognition of $ 17.6 million of revenue that was deferred at the beginning of the period, partially offset by $ 9.3 million in new customer billings which were not recognized as revenue during the period. For the year ended December 31, 2022, the $ 2.8 million net increase in contract assets was primarily attributable to $ 34.8 million in revenue recognized during the year, which was partially offset by $ 31.7 million transferred to accounts receivable. Deferred revenue (contract liabilities) increased by $ 1.6 million in 2022, primarily reflecting $ 19.0 million in new customer billings which were not recognized as revenue during the year, partially offset by the recognition of $ 17.2 million of revenue that was deferred at the beginning of the period. December 31, 2023 December 31, 2022 Inventories, net: Finished goods and purchased products $ 103,599 $ 90,443 Work in process 30,546 32,079 Raw materials 109,627 97,817 Total inventories 243,772 220,339 Allowance for excess or obsolete inventory ( 41,745 ) ( 37,681 ) $ 202,027 $ 182,658 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 decision to exit certain product and service offerings. -68- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Estimated Useful Life (years) December 31, 2023 December 31, 2022 Property, plant and equipment, net: Land $ 30,624 $ 32,875 Buildings and leasehold improvements 1 – 40 221,803 247,274 Machinery and equipment 2 – 28 246,522 241,257 Completion-related equipment 2 – 10 159,110 504,770 Office furniture and equipment 1 – 10 36,115 33,529 Vehicles 3 – 10 52,140 59,076 Construction in progress 7,829 10,053 Property, plant and equipment $ 754,143 $ 1,128,834 Accumulated depreciation ( 473,754 ) ( 824,999 ) $ 280,389 $ 303,835 During 2023, certain facilities in the Offshore/Manufactured Products segment were reclassified as held for sale assets, and transferred from property, plant and equipment to prepaid and other current assets. The carrying value of these facilities totaled $ 17.2 million as of December 31, 2023. Additionally, the Company sold certain idle facilities and equipment and retired other fully-depreciated completion-related equipment during 2023. For the years ended December 31, 2023, 2022 and 2021, depreciation expense was $ 43.6 million, $ 47.0 million and $ 60.1 million, respectively. 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. December 31, 2023 December 31, 2022 Other noncurrent assets: Deferred compensation plan $ 17,255 $ 17,551 Deferred financing costs 1,109 1,893 Deferred income taxes 2,211 1,517 Other 2,678 4,726 $ 23,253 $ 25,687 December 31, 2023 December 31, 2022 Accrued liabilities: Accrued compensation $ 27,131 $ 33,659 Accrued taxes, other than income taxes 2,076 1,865 Insurance liabilities 3,839 4,640 Accrued interest 1,690 1,784 Accrued commissions 3,060 2,302 Other 6,431 4,807 $ 44,227 $ 49,057 -69- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 6. Goodwill and Other Intangible Assets Goodwill Changes in the carrying amount of goodwill recorded within the Offshore/Manufactured Products segment for the years ended December 31, 2023 and 2022 were as follows (in thousands): Balance as of December 31, 2021 (1) $ 76,412 Goodwill acquired 4,146 Foreign currency translation ( 1,276 ) Balance as of December 31, 2022 (1) 79,282 Foreign currency translation 585 Balance as of December 31, 2023 (1) $ 79,867 ____________________ (1) Net of accumulated impairment losses of $ 86.5 million. 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, 2023 and 2022 (in thousands): 2023 2022 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Other intangible assets: Customer relationships $ 141,342 $ 56,499 $ 84,843 $ 141,179 $ 47,629 $ 93,550 Patents/Technology/Know-how 70,113 34,541 35,572 69,830 29,214 40,616 Tradenames and other 52,505 19,910 32,595 52,488 16,856 35,632 $ 263,960 $ 110,950 $ 153,010 $ 263,497 $ 93,699 $ 169,798 Amortization expense was $ 17.2 million, $ 20.3 million and $ 20.6 million in the years ended December 31, 2023, 2022 and 2021, respectively. The weighted average remaining amortization period for all intangible assets, other than goodwill, was 10.0 years as of December 31, 2023 and 10.6 years as of December 31, 2022. Amortization expense is expected to total approximately $ 17 million in 2024 through 2026, $ 16 million in 2027 and $ 15 million in 2028. As of December 31, 2023 and 2022, no impairment of other intangible assets was required. 7. Long-term Debt As of December 31, 2023 and December 31, 2022, long-term debt consisted of the following (in thousands): December 31, 2023 December 31, 2022 Revolving credit facility (1) $ — $ — 2026 Notes (2) 133,037 132,164 2023 Notes (3) — 17,303 Other debt and finance lease obligations 3,092 3,430 Total debt 136,129 152,897 Less: Current portion ( 627 ) ( 17,831 ) Total long-term debt $ 135,502 $ 135,066 ____________________ (1) Unamortized deferred financing costs of $ 1.1 million and $ 1.9 million as of December 31, 2023 and December 31, 2022, respectively, are presented in other noncurrent assets. (2) The outstanding principal amount of the 2026 Notes was $ 135.0 million as of December 31, 2023 and December 31, 2022. (3) The 2023 Notes matured and were repaid in full on February 15, 2023. -70- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Scheduled maturities of total debt as of December 31, 2023, are as follows (in thousands): 2024 627 2025 576 2026 133,553 2027 543 2028 578 Thereafter 252 $ 136,129 Revolving Credit Facility On February 10, 2021, the Company entered into a senior secured credit facility, which provides for a $ 125.0 million asset-based revolving credit facility (as amended, the “ABL Facility”), under which credit availability is subject to a borrowing base calculation. 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 (as amended, the “ABL Agreement”). On February 16, 2024, the Company amended the ABL Facility to extend the maturity date to February 16, 2028 with a springing maturity 91 days prior to the maturity of any outstanding indebtedness with a principal amount in excess of $ 17.5 million. 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. Since December 13, 2022, borrowings under the ABL Agreement bear interest at a rate equal to the Secured Overnight Financing Rate (subject to a floor rate of 0 %) plus a margin of 2.75 % to 3.25 %, 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. 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 2026 Notes discussed below), 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 (i) in the event that availability under the ABL Agreement is less than the greater of (a) 15 % of the borrowing base and (b) $ 14.1 million; (ii) to complete certain specified transactions; or (iii) if an event of default has occurred and is continuing. As of December 31, 2023, the Company had no borrowings outstanding under the ABL Facility and $ 15.2 million of outstanding letters of credit. The total amount available to be drawn as of December 31, 2023 was $ 76.1 million, calculated based on the current borrowing base less outstanding borrowings, if any, and letters of credit. As of December 31, 2023, the Company was in compliance with its debt covenants under the ABL Agreement. 2026 Notes The Company issued $ 135.0 million aggregate principal amount of its 4.75 % convertible senior notes due 2026 (the “2026 Notes”) pursuant to an indenture, dated as of March 19, 2021 (the “2026 Indenture”), between the Company and Computershare Trust Company, National Association, as successor trustee. 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 -71- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) conversion rate is 95.3516 shares of the Company’s common stock per $1,000 principal amount of the 2026 Notes (equivalent to an initial conversion price of $ 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 (if any) in shares of the Company’s common stock. As of December 31, 2023, none of the conditions allowing holders of the 2026 Notes to convert, or requiring us to repurchase the 2026 Notes, had been met. 2023 Notes On January 30, 2018, the Company issued $ 200.0 million aggregate principal amount of its 1.50 % convertible senior notes due 2023 (the "2023 Notes") pursuant to an indenture, dated as of January 30, 2018. The 2023 Notes bore interest at a rate of 1.50 % per year, and matured and were repaid in full on February 15, 2023. The following table provides a summary of the Company's purchases of outstanding 2023 Notes during the years ended December 31, 2023, 2022 and 2021, with non-cash gains reported within other income, net (in thousands): Principal Amount Carrying Value of Liability Cash Paid Non-cash Gains Recognized Year Ended December 31, 2023 $ 17,315 $ 17,315 $ 17,315 $ — 2022 8,654 8,626 8,450 176 2021 131,400 129,974 125,952 4,022 Promissory Note In connection with the 2018 acquisition of GEODynamics, Inc., the Company issued a $ 25.0 million promissory note (the "GEO Note") that bore interest at 2.50 % per annum and was scheduled to mature on July 12, 2019. Prior to settlement on July 1, 2022, the carrying amount of the GEO Note was $ 17.5 million, which was the Company’s then-current best estimate of what was owed after set-off for certain indemnification matters. On July 1, 2022, the Company paid $ 10.0 million in cash and issued approximately 1.9 million shares of its common stock (having a market value of $ 10.3 million) to extinguish the GEO Note along with accrued interest of $ 2.2 million. 8. 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, 2023 and 2022 (in thousands): 2023 2022 Operating lease assets, net $ 21,970 $ 23,028 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 2023, 2022 and 2021 totaled $ 1.3 million, $ 0.4 million and $ 0.1 million, 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, 2023, 2022 and 2021 (in thousands): 2023 2022 2021 Operating lease expense components: Leases with initial term of greater than 12 months $ 8,481 $ 8,325 $ 9,412 Leases with initial term of 12 months or less 4,852 4,718 4,232 Total operating lease expense $ 13,333 $ 13,043 $ 13,644 -72- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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. Operating Lease Liabilities The following table provides the scheduled maturities of operating lease liabilities as of December 31, 2023 (in thousands): 2024 $ 7,860 2025 6,141 2026 5,192 2027 3,339 2028 2,474 Thereafter 3,229 Total lease payments 28,235 Less: Imputed interest ( 3,009 ) Present value of operating lease liabilities 25,226 Less: Current portion ( 6,880 ) Total long-term operating lease liabilities $ 18,346 Weighted-average remaining lease term (years) 4.7 Weighted-average discount rate 6 % 9. 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 2023 (in thousands): Issued Treasury Stock Outstanding Shares of common stock outstanding – December 31, 2021 73,900 12,522 61,378 Issuance of common stock to seller of GEODynamics, Inc. 1,910 — 1,910 Restricted stock awards, net of forfeitures 778 — 778 Shares withheld for taxes on vesting of stock awards — 162 ( 162 ) Shares of common stock outstanding – December 31, 2022 76,588 12,684 63,904 Restricted stock awards, net of forfeitures 631 — 631 Shares withheld for taxes on vesting of stock awards — 206 ( 206 ) Purchases of treasury stock — 1,002 ( 1,002 ) Shares of common stock outstanding – December 31, 2023 77,219 13,892 63,327 As of December 31, 2023 and December 31, 2022, the Company had 25,000,000 shares of preferred stock, $ 0.01 par value, authorized, with no shares issued or outstanding. On February 16, 2023, the Company’s Board of Directors authorized $ 25.0 million for the repurchase of the Company’s common stock, par value $ 0.01 per share, through February 2025. Over the balance of 2023, the Company repurchased 1,001,753 shares of common stock under the program at a total cost of $ 6.9 million. The amount remaining under the Company’s share repurchase authorization as of December 31, 2023 was $ 18.1 million. Subject to applicable securities laws, such purchases will be at such times and in such amounts as the Company deems appropriate. -73- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 $ 78.9 million at December 31, 2022 to $ 70.0 million at December 31, 2023. For the years ended December 31, 2023 and 2022, currency translation adjustments recognized as a component of other comprehensive income (loss) were primarily attributable to the United Kingdom and Brazil. During 2023, the exchange rates for the British pound and the Brazilian real strengthened by 6 % and 8 %, respectively, compared to the U.S. dollar, contributing to other comprehensive income of $ 9.0 million. During 2022, the exchange rate for the British pound weakened by 11 % compared to the U.S. dollar while the Brazilian real strengthened by 6 % compared to the U.S. dollar, contributing to other comprehensive loss of $ 12.9 million. 10. Income Taxes Consolidated income (loss) before income taxes for the years ended December 31, 2023, 2022 and 2021 consisted of the following (in thousands): 2023 2022 2021 United States $ 3,793 $ ( 22,489 ) $ ( 56,665 ) Foreign 12,031 18,429 ( 16,669 ) Total $ 15,824 $ ( 4,060 ) $ ( 73,334 ) 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. Components of income tax provision (benefit) for the years ended December 31, 2023, 2022 and 2021 consisted of the following (in thousands): 2023 2022 2021 Current: United States $ — $ 155 $ 370 U.S. state 1,135 1,191 250 Foreign 1,572 2,114 ( 1,322 ) 2,707 3,460 ( 702 ) Deferred: United States 2,061 266 ( 7,662 ) U.S. state ( 721 ) ( 12 ) ( 177 ) Foreign ( 1,114 ) 1,766 ( 800 ) 226 2,020 ( 8,639 ) Total income tax provision (benefit) $ 2,933 $ 5,480 $ ( 9,341 ) -74- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) A reconciliation of the U.S. statutory income tax benefit to the total income tax provision (benefit) for the years ended December 31, 2023, 2022 and 2021 is as follows: 2023 2022 2021 U.S. statutory income tax provision (benefit) $ 3,323 $ ( 853 ) $ ( 15,400 ) Effect of foreign income taxed at different rates ( 425 ) 1,895 ( 483 ) Foreign income subject to U.S. taxes 931 1,876 182 Utilization of U.S. foreign tax credits ( 1,460 ) ( 291 ) — State income taxes, net of federal benefits 962 89 ( 1,157 ) Changes in valuation allowances against tax assets (see Note 16) ( 2,010 ) 19 2,410 Non-deductible compensation 1,390 627 814 Other non-deductible expenses, net 222 2,118 2,336 Release of foreign currency translation adjustments on liquidation of an international operation — — 1,957 Total income tax provision (benefit) $ 2,933 $ 5,480 $ ( 9,341 ) The significant items giving rise to the deferred tax assets and liabilities as of December 31, 2023 and 2022 are as follows (in thousands): 2023 2022 Deferred tax assets: Foreign tax credit carryforwards $ 12,614 $ 19,237 Net operating loss carryforwards 23,960 44,955 Inventories 11,523 9,969 Operating lease liabilities 4,334 4,822 Employee benefits 4,442 4,327 Deferred revenue 6,437 — Other 5,770 3,357 Gross deferred tax asset 69,080 86,667 Valuation allowance (see Note 16) ( 29,638 ) ( 36,749 ) Net deferred tax asset 39,442 49,918 Deferred tax liabilities: Tax over book depreciation ( 14,337 ) ( 21,077 ) Intangible assets ( 26,542 ) ( 29,232 ) Operating lease assets ( 3,632 ) ( 4,013 ) Other ( 437 ) ( 731 ) Deferred tax liability ( 44,948 ) ( 55,053 ) Net deferred tax liability $ ( 5,506 ) $ ( 5,135 ) 2023 2022 Balance sheet classification: Other non-current assets $ 2,211 $ 1,517 Deferred tax liability ( 7,717 ) ( 6,652 ) Net deferred tax liability $ ( 5,506 ) $ ( 5,135 ) The Company had $ 10.7 million of U.S. federal NOL carryforwards as of December 31, 2023, which can be carried forward indefinitely. The Company’s U.S. state NOL carryforwards as of December 31, 2023 totaled $ 184.6 million, of which $ 8.6 million are attributable to the acquired GEODynamics operations and are subject to certain limitation provisions. As of December 31, 2023, the Company had NOL carryforwards related to certain of its international operations totaling $ 31.3 million, of which $ 15.6 million can be carried forward indefinitely. As of December 31, 2023 and 2022, the Company had recorded valuation allowances of $ 17.7 million and $ 20.0 million, respectively, primarily with respect to foreign and U.S. state NOL carryforwards. -75- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) As of December 31, 2023 and 2022, the Company’s foreign tax credit carryforwards totaled $ 12.6 million and $ 19.2 million, respectively. During 2023, $ 5.0 million of the Company’s foreign tax credits expired, and the offsetting valuation allowances were reduced. The remaining foreign tax credits will expire in varying amounts from 2024 to 2029. As of December 31, 2023 and 2022, the Company had recorded valuation allowances of $ 11.9 million and $ 16.7 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 (except for 2016) 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. The total amount of unrecognized tax benefits as of December 31, 2023 and 2022 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, 2023 and 2022, the Company had no accrued interest expense or penalties. 11. Net Income (Loss) Per Share The table below provides a reconciliation of the numerators and denominators of basic and diluted net income (loss) per share for the years ended December 31, 2023 and 2022 (in thousands, except per share amounts): 2023 2022 2021 Numerators: Net income (loss) $ 12,891 $ ( 9,540 ) $ ( 63,993 ) Less: Income attributable to unvested restricted stock awards ( 251 ) — — Numerator for basic net income (loss) per share 12,640 ( 9,540 ) ( 63,993 ) Effect of dilutive securities: Unvested restricted stock awards 2 — — Numerator for diluted net income (loss) per share $ 12,642 $ ( 9,540 ) $ ( 63,993 ) Denominators: Weighted average number of common shares outstanding 63,934 62,842 61,314 Less: Weighted average number of unvested restricted stock awards outstanding ( 1,244 ) ( 1,204 ) ( 1,021 ) Denominator for basic net income (loss) per share 62,690 61,638 60,293 Effect of dilutive securities: Performance share units 462 — — Denominator for diluted net income (loss) per share 63,152 61,638 60,293 Net income (loss) per share: Basic $ 0.20 $ ( 0.15 ) $ ( 1.06 ) Diluted 0.20 ( 0.15 ) ( 1.06 ) The calculation of diluted net income (loss) per share for the years ended December 31, 2023, 2022 and 2021 excluded 172 thousand shares, 277 thousand shares and 430 thousand shares, respectively, issuable pursuant to outstanding stock options, due to their antidilutive effect. Additionally, shares issuable upon conversion of the 2026 Notes were excluded due to, among other factors, the Company’s share price. 12. 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 -76- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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, 2023, 2022 and 2021 totaled $ 7.0 million, $ 6.9 million and $ 7.9 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 based on the Company’s cumulative EBITDA over a three-year period. In the event the predefined targets are exceeded for any performance-based award, additional shares up to a maximum of 200 % of the target award may be granted. Conversely, if actual performance falls below the predefined target, the number of shares vested is reduced. If the actual performance falls below the threshold performance level, no restricted shares will vest. Service-based restricted stock awards generally vest on a straight-line basis over a three-year term. The following table presents changes in restricted stock awards and related information for the year ended December 31, 2023 (shares in thousands): Service-based Restricted Stock Performance- and Service-based Stock Units Number of Shares Weighted Average Grant Date Fair Value Number of Units Weighted Average Grant Date Fair Value Total Number of Restricted Shares and Units Unvested, December 31, 2022 1,222 $ 7.12 494 $ 6.67 1,716 Granted 647 8.80 211 8.66 858 Performance adjustment (1) — — 222 6.87 222 Vested ( 620 ) 7.62 — — ( 620 ) Forfeited ( 16 ) 8.30 — — ( 16 ) Unvested, December 31, 2023 1,233 $ 7.74 927 $ 7.17 2,160 ____________________ (1) Reflects an adjustment to the number of shares issued in 2024 upon vesting of the 2021 performance-based stock awards. The total fair value of restricted stock awards that vested in 2023, 2022 and 2021 was $ 4.7 million, $ 5.5 million and $ 9.3 million, respectively. As of December 31, 2023, there was $ 7.0 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 1.2 years. As of December 31, 2023, approximately 3.4 million shares were available for future grant under the Company’s Amended and Restated Equity Participation Plan. Stock Options No options were awarded or exercised in 2023, 2022 or 2021. As of December 31, 2023, the Company had 158 thousand stock options outstanding and exercisable, with exercise prices ranging from $ 42.29 to $ 58.54 and a weighted-average contractual life of 7 months. Long-Term Cash Incentive Awards The Company issued conditional long-term cash incentive awards (“Cash Awards”) totaling $ 1.5 million in both 2023 and 2022. 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 each annual grant ranges from zero to a maximum of $ 3.1 million, but is limited to the targeted award value if the Company’s total stockholder return is negative over the respective performance period. Obligations related to these Cash Awards are classified as liabilities and recognized over the vesting period. -77- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 13. 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. 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. The Company recognized expenses of $ 7.0 million, $ 3.4 million and $ 0.8 million primarily related to matching contributions under its various defined contribution plans during the years ended December 31, 2023, 2022 and 2021, respectively. 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 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 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 made by the Company, in a selection of funds consistent with those in the Company’s 401(k) Plan. Distributions from the Deferred Compensation Plan are made in cash based upon the participants’ specific deferral payment elections. As of December 31, 2023, Trust assets and amounts payable to plan participants totaled $ 17.3 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). 14. 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 acquisition of GEODynamics, 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, managed pressure drilling 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, alternative energy 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 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. The Downhole Technologies segment provides oil and gas perforation systems and downhole tools in support of completion, intervention, wireline and well abandonment operations. This segment designs, manufactures and markets its consumable engineered products to oilfield service as well as exploration and production companies, which are completing -78- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) complex wells with longer lateral lengths, increased frac stages and more perforation clusters to increase unconventional well productivity. Corporate information includes corporate expenses, such as those related to corporate governance, stock-based compensation and other infrastructure support, as well as impacts from corporate-wide decisions for which individual operating units are not evaluated. Financial information by business segment for each of the three years ended December 31, 2023, 2022 and 2021, is summarized in the following table (in thousands): Revenues Depreciation and amortization Operating income (loss) Capital expenditures Total assets 2023 Offshore/Manufactured Products (1) $ 441,263 $ 18,510 $ 65,299 $ 9,661 $ 561,174 Well Site Services (2) 242,633 25,318 13,881 19,125 191,630 Downhole Technologies (3) 98,387 16,314 ( 14,884 ) 1,399 238,901 Corporate — 636 ( 41,132 ) 468 54,782 Total $ 782,283 $ 60,778 $ 23,164 $ 30,653 $ 1,046,486 2022 Offshore/Manufactured Products (4) $ 381,723 $ 20,451 $ 45,268 $ 5,857 $ 556,769 Well Site Services 231,189 28,564 4,865 12,963 206,632 Downhole Technologies 124,794 17,628 ( 6,669 ) 1,271 255,550 Corporate — 691 ( 40,559 ) 175 45,441 Total $ 737,706 $ 67,334 $ 2,905 $ 20,266 $ 1,064,392 2021 Offshore/Manufactured Products $ 298,729 $ 22,190 $ 15,447 $ 4,628 $ 541,346 Well Site Services (5) 170,940 40,152 ( 34,511 ) 10,977 200,874 Downhole Technologies (6) 103,492 17,591 ( 13,470 ) 901 267,468 Corporate — 808 ( 32,258 ) 1,011 76,060 Total $ 573,161 $ 80,741 $ ( 64,792 ) $ 17,517 $ 1,085,748 ________________ (1) Operating income included $ 2.5 million of facility consolidation charges. (2) Operating income included $ 0.6 million in costs associated with the defense of certain patents. (3) Operating loss included $ 3.2 million in provisions for excess and obsolete inventories. (4) Operating income included a $ 6.1 million gain on settlement of outstanding litigation. (5) Operating loss included inventory and fixed and operating lease asset impairment charges of $ 1.5 million and $ 4.2 million, respectively. (6) Operating loss included an inventory impairment charge of $ 2.1 million. See Note 4, “Asset Impairments and Other Charges and Benefits,” Note 5, “Details of Selected Balance Sheet Accounts,” and Note 8, “Operating Leases” for further discussion of these and other charges and benefits. No customer individually accounted for greater than 10% of the Company’s 2023, 2022 or 2021 consolidated revenues or individually accounted for greater than 10% of the Company’s consolidated accounts receivable at December 31, 2023. 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. -79- 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, 2023, 2022 and 2021 (in thousands): Offshore/Manufactured Products Well Site Services Downhole Technologies 2023 2022 2021 2023 2022 2021 2023 2022 2021 Project-driven: Products $ 189,739 $ 158,040 $ 122,097 $ — $ — $ — $ — $ — $ — Services 112,742 98,968 87,344 — — — — — — Total project-driven 302,481 257,008 209,441 — — — — — — Military and other products 32,596 32,563 24,114 — — — — — — Short-cycle: Products 106,186 92,152 65,174 — — — 90,029 102,808 87,908 Services — — — 242,633 231,189 170,940 8,358 21,986 15,584 Total short-cycle 106,186 92,152 65,174 242,633 231,189 170,940 98,387 124,794 103,492 $ 441,263 $ 381,723 $ 298,729 $ 242,633 $ 231,189 $ 170,940 $ 98,387 $ 124,794 $ 103,492 Financial information by geographic location for the years ended December 31, 2023, 2022 and 2021, 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 2023 Revenues from unaffiliated customers $ 594,808 $ 81,643 $ 48,131 $ 57,701 $ 782,283 Long-lived assets 407,457 79,607 6,485 41,687 535,236 2022 Revenues from unaffiliated customers $ 571,008 $ 82,687 $ 34,380 $ 49,631 $ 737,706 Long-lived assets 443,818 76,377 14,218 41,531 575,944 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 15. Commitments and Contingencies 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. 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 covered by insurance, will not have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity. -80- OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 16. 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, 2023: Allowance for doubtful accounts receivable $ 5,226 $ ( 336 ) $ ( 428 ) $ 35 $ 4,497 Allowance for excess or obsolete inventory 37,681 5,229 ( 1,437 ) 272 41,745 Valuation allowance on deferred tax assets (1) 36,749 ( 2,010 ) ( 5,020 ) ( 81 ) 29,638 Year Ended December 31, 2022: Allowance for doubtful accounts receivable $ 4,471 $ 2,066 $ ( 1,266 ) $ ( 45 ) $ 5,226 Allowance for excess or obsolete inventory 40,440 3,739 ( 5,911 ) ( 587 ) 37,681 Valuation allowance on deferred tax assets 37,643 19 ( 1,027 ) 114 36,749 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 2,410 — ( 264 ) 37,643 ________________ (1) As further discussed in Note 10, “Income Taxes,” the $ 5.0 million reduction in the valuation allowance on deferred tax assets is attributable to the expiration of foreign tax credit carryforwards in 2023. -81-