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OIL STATES INTERNATIONAL, INC - Quarter Report: 2012 June (Form 10-Q)

osii_10q-063012.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2012
 
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from _________________________ to_________________________
 
Commission file number:  001-16337
 
OIL STATES INTERNATIONAL, INC.
 

 
(Exact name of registrant as specified in its charter)
 
Delaware
76-0476605
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
   
Three Allen Center, 333 Clay Street, Suite 4620,
77002
Houston, Texas
(Zip Code)
(Address of principal executive offices)
 
 
(713) 652-0582

(Registrant’s telephone number, including area code)
None

(Former name, former address and former fiscal year,
if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES  [X]                   NO  [  ]
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)
YES  [X]                   NO  [  ]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of "accelerated filer," "large accelerated filer" and "smaller reporting company in Rule 12b-2 of the Exchange Act.
  (Check one):  
Large Accelerated Filer   [X]   Accelerated Filer [  ]
     
Non-Accelerated Filer [  ] (Do not check if a smaller reporting company)  Smaller Reporting Company [  ]
                     
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES  [  ]                  NO  [X ]
 
The Registrant had 54,741,285 shares of common stock, par value $0.01, outstanding and 3,565,490 shares of treasury stock as of August 2, 2012.
 
 
1

 
 
OIL STATES INTERNATIONAL, INC.
 
INDEX
 
 
 
Page No.
 
Part I -- FINANCIAL INFORMATION
 
     
Item 1.
Financial Statements:
 
     
 
Condensed Consolidated Financial Statements
 
 
Unaudited Condensed Consolidated Statements of Income for the Three and Six Month Periods Ended June 30, 2012 and 2011
3
 
Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three and Six Month Periods Ended June 30, 2012 and 2011
4
 
Consolidated Balance Sheets – June 30, 2012 (unaudited) and December 31, 2011
5
 
Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months EndedJune 30, 2012 and 2011
6
 
Notes to Unaudited Condensed Consolidated Financial Statements
7 – 24
     
Cautionary Statement Regarding Forward-Looking Statements
25
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
25 – 36
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
36 – 37
     
Item 4.
Controls and Procedures
37
     
     
 
Part II -- OTHER INFORMATION
 
     
Item 1.
Legal Proceedings
37 – 38
     
Item 1A.
Risk Factors
38
     
Item 2. Purchases of Equity Securities by the Issuer and Affiliated Purchasers 39
     
Item 6.
Exhibits
39
     
 
(a) Index of Exhibits
39 – 40
     
Signature Page
41
 
 
2

 
 
PART I -- FINANCIAL INFORMATION
 
ITEM 1.  Financial Statements
 
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
 
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
 
 
   
THREE MONTHS ENDED
JUNE 30,
   
SIX MONTHS ENDED
JUNE 30,
 
   
2012
   
2011
   
2012
   
2011
 
                         
                         
Revenues
  $ 1,091,088     $ 820,317     $ 2,190,080     $ 1,580,758  
                                 
Costs and expenses:
                               
Cost of sales and services
    819,164       616,778       1,614,961       1,191,176  
Selling, general and administrative expenses
    48,853       42,765       96,592       86,472  
Depreciation and amortization expense
    54,218       45,238       104,884       90,390  
Other operating (income) expense
    (407 )     373       137       2,781  
      921,828       705,154       1,816,574       1,370,819  
Operating income
    169,260       115,163       373,506       209,939  
                                 
Interest expense, net of capitalized interest
    (17,937 )     (12,532 )     (35,880 )     (22,781 )
Interest income
    242       235       539       1,248  
Equity in earnings of unconsolidated affiliates
    220       2       640       53  
Other income
    4,308       488       6,044       631  
Income before income taxes
    156,093       103,356       344,849       189,090  
Income tax expense
    (44,617 )     (28,887 )     (97,901 )     (52,270 )
Net income
    111,476       74,469       246,948       136,820  
Less: Net income attributable to noncontrolling interest
    242       226       650       500  
Net income attributable to Oil States International, Inc.
  $ 111,234     $ 74,243     $ 246,298     $ 136,320  
                                 
Net income per share attributable to Oil States International, Inc. common stockholders
                               
Basic
  $ 2.15     $ 1.45     $ 4.78     $ 2.67  
Diluted
  $ 2.01     $ 1.34     $ 4.45     $ 2.48  
                                 
Weighted average number of common shares outstanding:
                               
Basic
    51,637       51,231       51,533       51,083  
Diluted
    55,251       55,270       55,404       55,061  
 
The accompanying notes are an integral part of
these financial statements.
 
 
3

 
 
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
 
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
 
 
   
THREE MONTHS ENDED
JUNE 30,
   
SIX MONTHS ENDED
JUNE 30,
 
   
2012
   
2011
   
2012
   
2011
 
                         
                         
Net income
  $ 111,476     $ 74,469     $ 246,948     $ 136,820  
                                 
Other comprehensive income (loss):
                               
Foreign currency translation adjustment
    (28,283 )     35,052       (3,037 )     65,715  
Total other comprehensive income (loss)
    (28,283 )     35,052       (3,037 )     65,715  
                                 
Comprehensive income
    83,193       109,521       243,911       202,535  
Comprehensive income attributable to noncontrolling interest
    (215 )     (239 )     (640 )     (538 )
Comprehensive income attributable to Oil States International, Inc.
  $ 82,978     $ 109,282     $ 243,271     $ 201,997  
 
The accompanying notes are an integral part of
these financial statements.
 
 
4

 
 
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
(In Thousands)
 
 
 
 
JUNE 30,
2012
   
DECEMBER 31,
2011
 
   
(UNAUDITED)
       
             
ASSETS            
             
Current assets:
           
Cash and cash equivalents
  $ 114,391     $ 71,721  
Accounts receivable, net
    831,424       732,240  
Inventories, net
    733,803       653,698  
Prepaid expenses and other current assets
    21,568       32,000  
Total current assets
    1,701,186       1,489,659  
                 
Property, plant, and equipment, net
    1,657,189       1,557,088  
Goodwill, net
    467,099       467,450  
Other intangible assets, net
    121,014       127,602  
Other noncurrent assets
    63,201       61,842  
Total assets
  $ 4,009,689     $ 3,703,641  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
                 
Current liabilities:
               
Accounts payable
  $ 297,476     $ 252,209  
Accrued liabilities
    88,265       96,748  
Income taxes
    25,617       10,395  
Current portion of long-term debt and capitalized leases
    32,262       34,435  
Deferred revenue
    71,779       75,497  
Other current liabilities
    4,322       5,665  
Total current liabilities
    519,721       474,949  
                 
Long-term debt and capitalized leases
    1,130,592       1,142,505  
Deferred income taxes
    107,358       97,377  
Other noncurrent liabilities
    26,449       25,538  
Total liabilities
    1,784,120       1,740,369  
                 
Stockholders’ equity:
               
Oil States International, Inc. stockholders’ equity:                
Common stock, $.01 par value, 200,000,000 shares authorized, 55,266,720 shares and 54,803,539 shares issued, respectively, and 51,701,473 shares and 51,288,750 shares outstanding, respectively
    553       548  
Additional paid-in capital
    568,729       545,730  
Retained earnings
    1,696,884       1,450,586  
Accumulated other comprehensive income
    71,334       74,371  
Treasury stock, at cost, 3,565,247 and 3,514,789 shares, respectively
    (113,171 )     (109,079 )
Total Oil States International, Inc. stockholders’ equity
    2,224,329       1,962,156  
Noncontrolling interest
    1,240       1,116  
Total stockholders’ equity
    2,225,569       1,963,272  
Total liabilities and stockholders’ equity
  $ 4,009,689     $ 3,703,641  
 
The accompanying notes are an integral part of
these financial statements.
 
 
5

 
 
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
 
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
 
 
 
SIX MONTHS
ENDED JUNE 30,
 
 
 
2012
   
2011
 
             
Cash flows from operatinqg activities:
           
Net income
  $ 246,948     $ 136,820  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    104,884       90,390  
Deferred income tax provision
    4,991       10,788  
Excess tax benefits from share-based payment arrangements
    (6,014 )     (6,198 )
Gains on disposals of assets
    (4,851 )     (763 )
Non-cash compensation charge
    9,189       7,198  
Accretion of debt discount
    4,106       3,823  
Amortization of deferred financing costs
    3,600       2,914  
Other, net
    (547 )     (126 )
Changes in operating assets and liabilities, net of effect from acquired businesses:
               
Accounts receivable
    (99,243 )     (66,481 )
Inventories
    (79,781 )     (88,781 )
Accounts payable and accrued liabilities
    36,199       7,802  
Taxes payable
    29,137       9,977  
Other current assets and liabilities, net
    2,707       (10,728 )
Net cash flows provided by operating activities
    251,325       96,635  
                 
Cash flows from investing activities:
               
Capital expenditures, including capitalized interest
    (199,983 )     (230,253 )
Acquisitions of businesses, net of cash acquired
    --       (212 )
Proceeds from disposition of property, plant and equipment
    5,225       1,435  
Other, net
    (1,650 )     (2,285 )
Net cash flows used in investing activities
    (196,408 )     (231,315 )
                 
Cash flows from financing activities:
               
Revolving credit borrowings and (repayments), net
    (951 )     (428,682 )
6 1/2% senior notes issued
    --       600,000  
Term loan repayments
    (14,944 )     (7,494 )
Debt and capital lease repayments
    (2,312 )     (587 )
Issuance of common stock from share-based payment arrangements
    7,801       9,792  
Excess tax benefits from share-based payment arrangements
    6,014       6,198  
Payment of financing costs
    (23 )     (12,640 )
Tax withholdings related to net share settlements of restricted stock
    (4,092 )     (2,456 )
Net cash flows provided by (used in) financing activities
    (8,507 )     164,131  
                 
Effect of exchange rate changes on cash
    (3,461 )     (2,399 )
Net increase in cash and cash equivalents from continuing operations
    42,949       27,052  
Net cash used in discontinued operations – operating activities
    (279 )     (98 )
Cash and cash equivalents, beginning of period
    71,721       96,350  
                 
Cash and cash equivalents, end of period
  $ 114,391     $ 123,304   
 
The accompanying notes are an integral part of these
financial statements.
 
 
6

 
 
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
 
1.     ORGANIZATION AND BASIS OF PRESENTATION
 
The accompanying unaudited condensed consolidated financial statements of Oil States International, Inc. and its wholly-owned subsidiaries (referred to in this report as we or the Company) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the Commission) pertaining to interim financial information. Certain information in footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to these rules and regulations. The unaudited financial statements included in this report reflect all the adjustments, consisting of normal recurring adjustments, which the Company considers necessary for a fair presentation of the results of operations for the interim periods covered and for the financial condition of the Company at the date of the interim balance sheet. Results for the interim periods are not necessarily indicative of results for the full year.
 
The preparation of condensed consolidated financial statements in conformity with GAAP requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  If the underlying estimates and assumptions, upon which the financial statements are based, change in future periods, actual amounts may differ from those included in the accompanying condensed consolidated financial statements.
 
The financial statements included in this report should be read in conjunction with the Company’s audited financial statements and accompanying notes included in its Annual Report on Form 10-K for the year ended December 31, 2011 (the 2011 Form 10-K).
 
2.     RECENT ACCOUNTING PRONOUNCEMENTS
 
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the FASB), which are adopted by the Company as of the specified effective date.  Unless otherwise discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s consolidated financial statements upon adoption.
 
In June 2011, the FASB issued amendments to disclosure requirements for the presentation of comprehensive income.  This guidance eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity.  The amendments require that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income.  The amendments should be applied retrospectively. For public entities, the amendments were effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The amendments do not require any transition disclosures. In December 2011, the FASB issued an amendment deferring the effective date of the requirement to present reclassification adjustments out of accumulated other comprehensive income on the face of the consolidated statement of income.  We adopted this standard in the quarterly Report on Form 10-Q for the three month period ended March 31, 2012.
 
 
7

 
 
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
 
 
3.     DETAILS OF SELECTED BALANCE SHEET ACCOUNTS
 
Additional information regarding selected balance sheet accounts is presented below (in thousands):
 
   
JUNE 30,
2012
   
DECEMBER 31,
2011
 
Accounts receivable, net:
           
Trade
  $ 615,924     $ 553,481  
Unbilled revenue
    217,190       180,273  
Other
    1,979       2,449  
Total accounts receivable
    835,093       736,203  
Allowance for doubtful accounts
    (3,669 )     (3,963 )
    $ 831,424     $ 732,240  
 
   
JUNE 30,
2012
   
DECEMBER 31,
2011
Inventories, net:
         
Tubular goods
  $ 476,650     $ 420,519  
Other finished goods and purchased products
    86,661       80,184  
Work in process
    70,690       76,353  
Raw materials
    111,864       86,672  
Total inventories
    745,865       663,728  
Allowance for obsolescence
    (12,062 )     (10,030 )
    $ 733,803     $ 653,698  
 
 
 
ESTIMATED
USEFUL LIFE
(years)
 
JUNE 30,
2012
   
DECEMBER 31,
2011
 
Property, plant and equipment, net:
                 
Land
        $ 49,282     $ 48,989  
Accommodations assets (1)
2 - 15      1,251,663       1,160,661  
Buildings and leasehold improvements (1)
1
-
40     171,177       154,233  
Machinery and equipment
1
-
29     375,128       355,798  
Rental tools
4
-
10     227,195       199,084  
Office furniture and equipment
1
-
10     51,075       48,081  
Vehicles
2
-
10     111,993       100,554  
Construction in progress
          186,619       166,371  
Total property, plant and equipment
          2,424,132       2,233,771  
Accumulated depreciation
          (766,943 )     (676,683 )
          $ 1,657,189     $ 1,557,088  
 
 
 
 
JUNE 30,
2012
   
DECEMBER 31,
2011
 
Accrued liabilities:
           
Accrued compensation
  $ 48,061     $ 61,394  
Accrued interest
    5,804       6,035  
Insurance liabilities
    12,558       12,396  
Accrued taxes, other than income taxes
    10,179       5,889  
Liabilities related to discontinued operations
    1,846       2,125  
Other
    9,817       8,909  
    $ 88,265     $ 96,748  
 
 
(1)
As of December 31, 2011, we have reclassified $54.7 million in buildings and leasehold improvements to accommodations assets for comparability purposes.
 
 
8

 
 
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
 
4.    EARNINGS PER SHARE
 
The calculation of earnings per share attributable to the Company is presented below (in thousands, except per share amounts):
 
   
THREE MONTHS ENDED
JUNE 30,
   
SIX MONTHS ENDED
JUNE 30,
 
   
2012
   
2011
   
2012
   
2011
 
                         
Basic earnings per share:
                       
Net income attributable to Oil States International, Inc.
  $ 111,234     $ 74,243     $ 246,298     $ 136,320  
                                 
Weighted average number of shares outstanding
    51,637       51,231       51,533       51,083  
                                 
Basic earnings per share
  $ 2.15     $ 1.45     $ 4.78     $ 2.67  
                                 
Diluted earnings per share:
                               
Net income attributable to Oil States International, Inc.
  $ 111,234     $ 74,243     $ 246,298     $ 136,320  
                                 
Weighted average number of shares outstanding
    51,637       51,231       51,533       51,083  
Effect of dilutive securities:
                               
Options on common stock
    484       679       531       703  
2 3/8% Convertible Senior Subordinated Notes
    3,030       3,200       3,196       3,094  
Restricted stock awards and other
    100       160       144       181  
                                 
Total shares and dilutive securities
    55,251       55,270       55,404       55,061  
                                 
Diluted earnings per share
  $ 2.01     $ 1.34     $ 4.45     $ 2.48  
 
Our calculation of diluted earnings per share for the three and six months ended June 30, 2012 excludes 625,565 shares and 484,533 shares, respectively, issuable pursuant to outstanding stock options and restricted stock awards, due to their antidilutive effect.  Our calculation of diluted earnings per share for the three and six months ended June 30, 2011 excludes 178,855 shares and 177,702 shares, respectively, issuable pursuant to outstanding stock options and restricted stock awards due to their antidilutive effect.
 
 
9

 
 
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
 
5.     BUSINESS ACQUISITIONS AND GOODWILL
 
See Note 13 to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form  10-Q.
 
Changes in the carrying amount of goodwill for the six month period ended June 30, 2012 are as follows (in thousands):
 
   
Well Site Services
                         
   
Rental
Tools
and
Services
   
Drilling Services
   
Subtotal
   
Accommodations
   
Offshore
Products
   
Tubular
Services
   
Total
 
Balance as of December 31, 2010                                          
Goodwill
  $ 170,034     $ 22,767     $ 192,801     $ 299,062     $ 100,654     $ 62,863     $ 655,380  
Accumulated Impairment Losses
    (94,528 )     (22,767 )     (117,295 )     --       --       (62,863 )     (180,158 )
      75,506       --       75,506       299,062       100,654       --       475,222  
Goodwill acquired and purchase price adjustments
    --       --       --       (9,826 )     315       --       (9,511 )
Foreign currency translation and other changes
    (323 )     --       (323 )     2,087       (25 )     --       1,739  
      75,183       --       75,183       291,323       100,944       --       467,450  
                                                         
Balance as of December 31, 2011
                                                       
Goodwill
    169,711       22,767       192,478       291,323       100,944       62,863       647,608  
Accumulated Impairment Losses
    (94,528 )     (22,767 )     (117,295 )     --       --       (62,863 )     (180,158 )
 
    75,183       --       75,183       291,323       100,944       --       467,450  
Foreign currency translation and other changes
    (29 )     --       (29 )     (373 )     51       --       (351 )
      75,154       --       75,154       290,950       100,995       --       467,099  
Balance as of June 30, 2012
                                                       
Goodwill
    169,682       22,767       192,449       290,950       100,995       62,863       647,257  
Accumulated Impairment Losses
    (94,528 )     (22,767 )     (117,295 )     --       --       (62,863 )     (180,158 )
    $ 75,154     $ --     $ 75,154     $ 290,950     $ 100,995     $ --     $ 467,099  
 
 
6.     DEBT
 
As of June 30, 2012 and December 31, 2011, long-term debt consisted of the following (in thousands):
 
   
June 30,
2012
   
December 31,
2011
 
   
(Unaudited)
       
             
U.S. revolving credit facility, which matures December 10, 2015, with available commitments up to $500 million and with a weighted average interest rate of 3.1% for the six month period ended June 30, 2012
  $ 73,500     $ 68,065  
U.S. term loan, which matures December 10, 2015, of $200 million; 2.5% of aggregate principal repayable per quarter; weighted average interest rate of 2.5% for the six month period ended June 30, 2012
    180,000       190,000  
Canadian revolving credit facility, which matures on December 10, 2015, with available commitments up to $250 million and with a weighted average interest rate of 4.3% for the six month period ended June 30, 2012
    --       --  
Canadian term loan, which matures December 10, 2015, of $100 million; 2.5% of aggregate principal repayable per quarter; weighted average interest rate of 3.5% for the six month period ended June 30, 2012
    88,675       93,795  
Australian revolving credit facility, which matures November 30, 2013, with available commitments up to A$150 million and with a weighted average interest rate of 6.4% for the six month period ended June 30, 2012
    36,850       43,050  
6 1/2% senior unsecured notes - due June 2019
    600,000       600,000  
2 3/8% contingent convertible senior subordinated notes, net due 2025
    174,990       170,884  
Subordinated unsecured notes payable to sellers of businesses, fixed interest rate of 6%, which mature in December 2012
    2,000       4,000  
Capital lease obligations and other debt
    6,839       7,146  
Total debt
    1,162,854       1,176,940  
Less: Current portion
    32,262       34,435  
Total long-term debt and capitalized leases
  $ 1,130,592     $ 1,142,505  
 
 
10

 
 
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
 
On June 1, 2011, the Company sold $600 million aggregate principal amount of 6 1/2% senior unsecured notes (6 1/2% Notes) due 2019 through a private placement to qualified institutional buyers.
 
The 6 1/2% Notes are senior unsecured obligations of the Company, are guaranteed by our material U.S. subsidiaries (the Guarantors), bear interest at a rate of 6 1/2% per annum and mature on June 1, 2019.  At any time prior to June 1, 2014, the Company may redeem up to 35% of the 6 1/2% Notes at a redemption price of 106.500% of the principal amount, plus accrued and unpaid interest to the redemption date, with the proceeds of certain equity offerings. Prior to June 1, 2014, the Company may redeem some or all of the 6 1/2% Notes for cash at a redemption price equal to 100% of their principal amount plus an applicable make-whole premium and accrued and unpaid interest to the redemption date. On and after June 1, 2014, the Company may redeem some or all of the 6 1/2% Notes at redemption prices (expressed as percentages of principal amount), plus accrued and unpaid interest to the redemption date.  The optional redemption prices as a percentage of principal amount are as follows:
 
Twelve Month Period Beginning
June 1,
 
% of Principal
Amount
2014
  104.875%
2015
  103.250%
2016
  101.625%
2017
  100.000%
 
The Company utilized approximately $515 million of the net proceeds of the 6 1/2% Note offering in June 2011 to repay borrowings outstanding under its U.S. and Canadian credit facilities (as defined below).  The remaining net proceeds of approximately $75 million were utilized for general corporate purposes.

 
On May 17, 2012, the Company gave notice of the redemption of all of its outstanding 2 3/8% Contingent Convertible Senior Subordinated Notes (2 3/8% Notes) due 2025, totaling $174,990,000 at a redemption price equal to 100% of the principal amount thereof plus accrued interest. In July 2012, rather than having their 2 3/8% Notes redeemed, on or prior to July 5, 2012, holders of $174,990,000 aggregate principal amount of the 2 3/8% Notes converted their 2 3/8% Notes and received cash up to the principal amount and 3,012,380 shares of the Company’s Common Stock.  As of June 30, 2012, we classified the $175.0 million principal amount of our 2 3/8% Notes as a noncurrent liability based on our ability and intent to refinance the 2 3/8% Notes utilizing borrowings available under our senior secured credit facilities.  See Note 13 to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.   
 
The following table presents the carrying amount of our 2 3/8% Notes in our condensed consolidated balance sheets (in thousands):
 
   
June 30, 2012
   
December 31, 2011
 
             
Carrying amount of the equity component in additional paid-in capital
  $ 28,434     $ 28,434  
                 
Principal amount of the liability component
  $ 174,990     $ 174,990  
Less: Unamortized discount
    --       4,106  
Net carrying amount of the liability component
  $ 174,990     $ 170,884  
 
The discount on the 2 3/8% Notes was fully amortized as of June 30, 2012 in consideration of the expected conversion of these notes in July 2012.
 
 
11

 
 
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
 
The effective interest rate of 7.17% was applied as of the issuance date for our 2 3/8% Notes in accordance with ASC 470-20 – Debt with Conversion and Other Options.  Interest expense on the 2 3/8% Notes, excluding amortization of debt issue costs, was as follows (in thousands):
 
   
Three months ended
June 30,
   
Six months ended
June 30,
 
                         
   
2012
   
2011
   
2012
   
2011
 
Interest expense
  $ 3,111     $ 2,968     $ 6,185     $ 5,901  
 
 
   
June 30, 2012
 
       
Remaining period over which discount will be amortized
 
Discount is fully amortized
 
Conversion price                                                                                  
  $ 31.75  
Number of shares to be delivered upon conversion (1)
    2,868,143  
Conversion value in excess of principal amount (in thousands) (1)
  $ 189,871  
Derivative transactions entered into in connection with the convertible notes 
 
None
 
 
 
 
(1)
Calculation is based on the Company’s June 29, 2012 closing stock price of $66.20.  See Note 13 to the Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
 
On July 13, 2011, The MAC Services Group Pty Limited (The MAC) entered into a A$150 million revolving loan facility governed by a Facility Agreement (the Facility Agreement) between The MAC and National Australia Bank Limited, which is guaranteed by the Company. The Facility Agreement amended The MAC’s existing A$75 million revolving loan facility on substantially the same terms, including the maturity date of the Facility Agreement of November 30, 2013.  As of June 30, 2012, we had A$36 million outstanding under the Australian credit facility leaving A$114 million available to be drawn under this facility.
 
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 our 2 3/8% Notes and our 6 1/2% Notes, on the accompanying consolidated balance sheets approximate their fair values.
 
The fair values of our 2 3/8% and 6 1/2 % Notes are estimated based on quoted prices and analysis of similar debt instruments (Level 2 fair value measurements).  The Company changed from a Level 1 fair value measurement standard to a Level 2 fair value measurement standard in the second quarter of 2012 in consideration of the daily trading volume of our debt instruments.  The carrying values and fair values of these notes were as follows (in thousands):
 
         
June 30, 2012
   
December 31, 2011
 
   
Interest
Rate
   
Carrying
Value
   
Fair
Value
   
Carrying
Value
   
Fair
Value
 
6 1/2% Notes
                             
Principal amount due 2019
    6 1/2%     $ 600,000     $ 636,000     $ 600,000     $ 625,128  
                                         
2 3/8% Notes
                                       
Principal amount due 2025
    2 3/8%     $ 174,990     $ 366,693     $ 174,990     $ 411,396  
  Less:  unamortized discount
            -       -       4,106       -  
  Net value                                  
          $ 174,990     $ 366,693     $ 170,884     $ 411,396  
 
As of June 30, 2012, the estimated fair value of the Company's debt outstanding under its credit facilities was estimated to be at fair value.
 
As June 30, 2012, the Company had approximately $114.4 million of cash and cash equivalents and $648.6 million of the Company’s U.S. and Canadian credit facilities available for future financing needs.  The Company also had availability totaling A$114 million under its Australian credit facility.  As of June 30, 2012, we had $31.8 million of outstanding letters of credit.
 
 
12

 
 
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
 
Interest expense on the condensed consolidated statements of income is net of capitalized interest of $1.2 million and $2.5 million, respectively, for the three and six months ended June 30, 2012 and $1.0 million and $2.5 million, respectively, for the same periods in 2011.
 
7.     CHANGES IN COMMON STOCK OUTSTANDING
 
Shares of common stock outstanding – January 1, 2012
    51,288,750  
Shares issued upon exercise of stock options and vesting of restricted stock awards
    463,181  
Shares withheld for taxes on vesting of restricted stock awards and transferred to treasury
    (50,458 )
Shares of common stock outstanding – June 30, 2012
    51,701,473  
 
8.     STOCK BASED COMPENSATION
 
During the first six months of 2012, we granted restricted stock awards totaling 289,993 shares valued at a total of $24.3 million.  Of the restricted stock awards granted in the first half of 2012, a total of 206,000 awards vest in four equal annual installments beginning in February 2013, 47,625 awards are performance shares that may vest in February 2015 in an amount that will depend on the Company’s achievement of specified performance objectives, 23,625 awards vest 100% in February 2016 and 12,464 awards vest 100% in May 2013.  The performance based awards have a performance criteria that will be measured based upon the Company’s achievement levels of average after-tax annual return on invested capital for the three year period 2012 to 2014.  During the six months ended June 30, 2012, the Company also granted 54,950 units of phantom shares under the newly created Canadian Long-Term Incentive Plan, which provides for the granting of units of phantom shares to key Canadian employees. These awards vest in three equal annual installments beginning in February 2013 and are accounted for as a liability.  Participants granted units of phantom shares are entitled to a lump sum cash payment equal to the fair market value of a share of the Company’s Common Stock on the vesting date.  A total of 155,250 stock options with a ten-year term were awarded in the six months ended June 30, 2012 with an average exercise price of $84.52 that will vest in four equal annual installments starting in February 2013.
 
Stock based compensation pre-tax expense recognized in the six month periods ended June 30, 2012 and 2011 totaled $9.2 million and $7.2 million, or $0.12 and $0.10 per diluted share after tax, respectively.  Stock based compensation pre-tax expense recognized in the three month periods ended June 30, 2012 and 2011 totaled $4.8 million and $3.8 million, or $0.07 and $0.05 per diluted share after tax, respectively.  The total fair value of restricted stock awards that vested during the six months ended June 30, 2012 and 2011 was $15.6 million and $12.2 million, respectively. At June 30, 2012, $44.8 million of compensation cost related to unvested stock options and restricted stock awards attributable to future performance had not yet been recognized.
 
9.     INCOME TAXES
 
Income tax expense for interim periods is based on estimates of the effective tax rate for the entire fiscal year.  The Company’s income tax provision for the three and six months ended June 30, 2012 totaled $44.6 million, or 28.6% of pretax income, and $97.9 million, or 28.4% of pretax income, respectively, compared to $28.9 million, or 27.9% of pretax income, and $52.3 million, or 27.6% of pretax income, respectively, for the three and six months ended June 30, 2011.  The modest increase in the effective tax rate from the prior year was largely the result of higher domestic earnings as a percentage of total earnings.  Our domestic earnings are taxed at a higher rate than our foreign earnings.
 
10.   SEGMENT AND RELATED INFORMATION
 
In accordance with current accounting standards regarding disclosures about segments of an enterprise and related information, the Company has identified the following reportable segments: well site services, accommodations, offshore products and tubular services.  The Company’s reportable segments represent strategic business units that offer different products and services.  They are managed separately because each business requires different technologies and marketing strategies.  Most of the businesses were initially acquired as a unit, and the management at the time of the acquisition was retained.  Subsequent acquisitions have been direct extensions to our business segments.  Separate business lines within the well site services segment have been disclosed to provide additional detail for that segment.  Results of a portion of our accommodations segment supporting traditional oil and natural gas drilling activities are impacted by seasonally higher activity during the Canadian winter drilling season occurring in the first calendar quarter.
 
 
13

 
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)

Financial information by business segment for each of the three and six months ended June 30, 2012 and 2011 is summarized in the following table (in thousands):
 
   
Revenues
from
unaffiliated
customers
   
Depreciation
and
amortization
   
 
Operating
income (loss)
   
Equity in
earnings of
unconsolidated
affiliates
   
 
Capital
expenditures
   
Total assets
 
Three months ended June 30, 2012
                                   
Well site services –
                                   
Rental tools and services
  $ 125,079     $ 12,433     $ 28,974     $ --     $ 19,349     $ 489,942  
Drilling services
    51,456       5,950       8,358       --       4,961       131,273  
Total well site services
    176,535       18,383       37,332       --       24,310       621,215  
Accommodations
    260,966       31,609       83,207       --       62,217       1,928,076  
Offshore products
    191,638       3,434       36,589       67       10,977       704,508  
Tubular services
    461,949       573       24,054       153       281       714,130  
Corporate and eliminations
    --        219       (11,922 )     --       796       41,760  
Total
  $ 1,091,088     $ 54,218     $ 169,260     $ 220     $ 98,581     $ 4,009,689  
 
   
Revenues
from
unaffiliated
customers
   
 
Depreciation and amortization
   
 
 
Operating income (loss)
   
Equity in
earnings of
unconsolidated
affiliates
   
 
 
Capital
expenditures
   
Total assets
 
Three months ended June 30, 2011
                                   
Well site services –
                                   
Rental tools and services
  $ 112,658     $ 10,299     $ 25,103     $ --     $ 18,654     $ 410,370  
Drilling services
    40,998       4,806       6,370       --       5,754       116,672  
Total well site services
    153,656       15,105       31,473       --       24,408       527,042  
Accommodations
    202,943       26,195       57,750       (1 )     106,873       1,700,385  
Offshore products
    131,742       3,358       18,770       (228 )     3,519       588,472  
Tubular services
    331,976       377       16,956       231       2,780       521,675  
Corporate and eliminations
    --       203       (9,786 )     --       64       87,480  
Total
  $ 820,317     $ 45,238     $ 115,163     $ 2     $ 137,644     $ 3,425,054  
 
   
Revenues
from
unaffiliated
customers
   
Depreciation and
amortization
   
 
Operating
income (loss)
   
Equity in
earnings of
unconsolidated
affiliates
   
 
Capital
expenditures
   
Total assets
 
Six months ended June 30, 2012
                                   
Well site services –
                                   
Rental tools and services
  $ 260,633     $ 23,873     $ 62,768     $ --     $ 37,874     $ 489,942  
Drilling services
    98,862       11,021       15,817       --       13,524       131,273  
Total well site services
    359,495       34,894       78,585       --       51,398       621,215  
Accommodations
    562,786       61,560       202,232       --       126,125       1,928,076  
Offshore products
    377,358       6,852       69,090       252       20,963       704,508  
Tubular services
    890,441       1,144       46,475       388       296       714,130  
Corporate and eliminations
    --        434       (22,876 )     --       1,201       41,760  
Total
  $ 2,190,080     $ 104,884     $ 373,506     $ 640     $ 199,983     $ 4,009,689  
 
   
Revenues
from
unaffiliated
customers
   
 
Depreciation and
amortization
   
 
 
Operating
income (loss)
   
Equity in
earnings of
unconsolidated
affiliates
   
 
 
Capital
expenditures
   
Total assets
 
Six months ended June 30, 2011
                                   
Well site services –
                                   
Rental tools and services
  $ 220,189     $ 20,095     $ 49,493     $ --     $ 35,495     $ 410,370  
Drilling services
    74,103       9,739       8,605       --       12,922       116,672  
Total well site services
    294,292       29,834       58,098       --       48,417       527,042  
Accommodations
    400,041       52,748       106,723       2       168,915       1,700,385  
Offshore products
    260,184       6,692       35,520       (228 )     7,574       588,472  
Tubular services
    626,241       728       30,002       279       5,151       521,675  
Corporate and eliminations
    --       388       (20,404 )     --       196       87,480  
Total
  $ 1,580,758     $ 90,390     $ 209,939     $ 53     $ 230,253     $ 3,425,054  
 
14

 
 
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
 
11.   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, including warranty and product liability claims and occasional claims by individuals alleging exposure to hazardous materials as a result of its products or operations. Some of these claims relate to matters occurring prior to its acquisition of businesses, and some relate to businesses it has sold. In certain cases, the Company is entitled to indemnification from the sellers of businesses, and in other cases, it has indemnified the buyers of businesses from it.  Although the Company can give no assurance about the outcome of pending legal and administrative proceedings and the effect such outcomes may have on it, management believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by insurance, will not have a material adverse effect on its consolidated financial position, results of operations or liquidity.
 
12.   CONDENSED CONSOLIDATING FINANCIAL INFORMATION
 
Certain wholly-owned subsidiaries, as detailed below (the Guarantor Subsidiaries), have fully and unconditionally guaranteed all of the 6 1/2% Notes issued in 2011 and all of the 2 3/8% Notes issued in 2005.
 
The following condensed consolidating financial information is included so that separate financial statements of the Guarantor Subsidiaries are not required to be filed with the Commission. The condensed consolidating financial information presents investments in both consolidated and unconsolidated affiliates using the equity method of accounting.
 
The following condensed consolidating financial information presents: consolidating statements of income and comprehensive income for each of the three and six month periods ended June 30, 2012 and 2011, condensed consolidating balance sheets as of June 30, 2012 and December 31, 2011 and the statements of cash flows for each of the six months ended June 30, 2012 and 2011 of (a) the Company (parent/guarantor), (b) Acute Technological Services, Inc., Capstar Holding, L.L.C., Capstar Drilling, Inc., General Marine Leasing, L.L.C., Oil States Energy Services L.L.C., Oil States Energy Services Holding, Inc., Oil States Energy Services International Holding, L.L.C., Oil States Management, Inc., Oil States Industries, Inc., Oil States Skagit SMATCO, L.L.C., PTI Group USA L.L.C., PTI Mars Holdco 1, L.L.C., Sooner Inc., Sooner Pipe, L.L.C., Sooner Holding Company, Specialty Rental Tools & Supply, L.L.C., Stinger Wellhead Protection, Incorporated, and Well Testing, Inc., (the Guarantor Subsidiaries), (c) the non-guarantor subsidiaries, (d) consolidating adjustments necessary to consolidate the Company and its subsidiaries and (e) the Company on a consolidated basis.  Note:  As of January 1, 2012, Specialty Rental Tools & Supply, L.L.C., Stinger Wellhead Protection, Incorporated, and Well Testing, Inc. were combined to form Oil States Energy Services L.L.C.
 
We have corrected the presentation of our condensed consolidating statements of income for the three and six month periods ended June 30, 2011, our condensed consolidating balance sheet as of December 31, 2011 and our statement of cash flows for the six month period ended June 30, 2011 to properly reflect the investment in and equity earnings of certain non-guarantor subsidiaries by certain guarantor subsidiaries in accordance with SEC Regulation S-X, which were previously only presented in the Parent/Guarantor column.  We have also corrected other immaterial amounts previously disclosed to properly present (i) the activity and balances of a certain guarantor subsidiary in the Guarantor Subsidiaries column which was previously presented in the Parent/Guarantor column and (ii) the activity and balances of a certain non-guarantor subsidiary in the Non-Guarantors column which was previously presented in the Guarantor Subsidiaries column.  The effect of these corrections increased net income for the Guarantor Subsidiaries and Non-Guarantor Subsidiaries by $26 million and $1 million, respectively, for three month periods ended June 30, 2011 and $47 million and $5 million, respectively, for the six month periods ended June 30, 2011.  The effect of the correction to the Guarantor Subsidiaries’ investments in unconsolidated affiliates balance at December 31, 2011 was an increase of $1,034 million.  These changes had no impact on consolidated results as previously reported.
 
 
15

 
 
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
 
Condensed Consolidating Statements of Income and Comprehensive Income
 
   
Three Months Ended June 30, 2012
 
   
Oil States
International,
Inc. (Parent/
Guarantor)
   
Guarantor
Subsidiaries
   
Other
Subsidiaries
(Non-
Guarantors)
   
Consolidating
Adjustments
   
Consolidated Oil
States
International,
Inc.
 
   
(In thousands)
 
   
REVENUES
                                       
Operating revenues
 
$
   
$
774,316
   
$
316,772
   
$
   
$
1,091,088
 
Intercompany revenues
   
     
7,516
     
3,413
     
(10,929)
     
 
Total revenues
   
     
781,832
     
320,185
     
(10,929)
     
1,091,088
 
                                         
OPERATING EXPENSES
                                       
Cost of sales and services
   
     
645,387
     
175,945
     
(2,168)
     
819,164
 
Intercompany cost of sales and services
   
     
5,306
     
3,085
     
(8,391)
     
 
Selling, general and administrative expenses
   
394
     
31,440
     
17,019
     
     
48,853
 
Depreciation and amortization expense
   
219
     
23,082
     
30,922
     
(5)
     
54,218
 
Other operating (income) expense
   
143
     
(71)
     
(479)
     
     
(407)
 
Operating income (loss)
   
(756)
     
76,688
     
93,693
     
(365)
     
169,260
 
                                         
Interest expense, net of capitalized interest
   
(16,803)
     
(216)
     
(17,669)
     
16,751
     
(17,937)
 
Interest income
   
5,033
     
56
     
11,904
     
(16,751)
     
242
 
Equity in earnings (loss) of unconsolidated affiliates
   
123,055
     
67,555
     
74
     
(190,464)
     
220
 
Other income
   
     
3,971
     
337
     
     
4,308
 
Income before income taxes
   
110,529
     
148,054
     
88,339
     
(190,829)
     
156,093
 
Income tax provision
   
705
     
(24,613)
     
(20,709)
     
     
(44,617)
 
Net income
   
111,234
     
123,441
     
67,630
     
(190,829)
     
111,476
 
                                         
Other comprehensive income:
                                       
Foreign currency translation adjustment
   
(28,283)
     
(21,244)
     
(21,244)
     
42,488
     
(28,283)
 
Total other comprehensive income
   
(28,283)
     
(21,244)
     
(21,244)
     
42,488
     
(28,283)
 
                                         
Comprehensive income
   
82,951
     
102,197
     
46,386
     
(148,341)
     
83,193
 
Comprehensive income attributable to noncontrolling interest
   
     
     
(215)
     
     
(215)
 
Comprehensive income attributable to Oil States International, Inc.
 
$
82,951
   
$
102,197
   
$
46,171
   
$
(148,341)
   
$
82,978
 
 
 
16

 
 
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
 
Condensed Consolidating Statements of Income and Comprehensive Income
 
 
   
Three Months Ended June 30, 2011
 
   
Oil States
International,
Inc. (Parent/
Guarantor)
   
Guarantor
Subsidiaries
   
Other
Subsidiaries
(Non-
Guarantors)
   
Consolidating
Adjustments
   
Consolidated Oil
States
International,
Inc.
 
   
(In thousands)
 
   
REVENUES
                                       
   Operating revenues
 
$
   
$
582,948
   
$
237,369
   
$
   
$
820,317
 
   Intercompany revenues
   
     
1,645
     
216
     
(1,861)
     
 
      Total revenues
   
     
584,593
     
237,585
     
(1,861)
     
820,317
 
                                         
OPERATING EXPENSES
                                       
   Cost of sales and services
   
     
480,126
     
137,528
     
(876)
     
616,778
 
   Intercompany cost of sales and services
   
     
778
     
207
     
(985)
     
 
   Selling, general and administrative expenses
   
376
     
28,899
     
13,490
     
     
42,765
 
   Depreciation and amortization expense
   
203
     
19,300
     
25,737
     
(2)
     
45,238
 
   Other operating (income)expense
   
(295)
     
304
     
364
     
     
373
 
Operating income (loss)
   
(284)
     
55,186
     
60,259
     
2
     
115,163
 
                                         
Interest expense
   
(11,061)
     
(342)
     
(17,978)
     
16,849
     
(12,532)
 
Interest income
   
2,648
     
21
     
14,415
     
(16,849)
     
235
 
Equity in earnings of unconsolidated affiliates
   
82,287
     
41,808
     
(229)
     
(123,864)
     
2
 
Other income (expense)
   
     
274
     
214
     
     
488
 
   Income before income taxes
   
73,590
     
96,947
     
56,681
     
(123,862)
     
103,356
 
Income tax provision
   
654
     
(14,649)
     
(14,892)
     
     
(28,887)
 
Net income
   
74,244
     
82,298
     
41,789
     
(123,862)
     
74,469
 
                                         
Other comprehensive income:
                                       
   Foreign currency translation adjustment
   
35,052
     
62,507
     
18,751
     
(81,258)
     
35,052
 
Total other comprehensive income
   
35,052
     
62,507
     
18,751
     
(81,258)
     
35,052
 
                                         
Comprehensive income
   
109,296
     
144,805
     
60,540
     
(205,120)
     
109,521
 
  Comprehensive income attributable to noncontrolling interest
   
     
     
(222)
     
(17)
     
(239)
 
Comprehensive income attributable to Oil States International, Inc.
 
$
109,296
   
$
144,805
   
$
60,318
   
$
(205,137)
   
$
109,282
 
                                         
 
 
17

 
 
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
 
Condensed Consolidating Statements of Income and Comprehensive Income
 
   
Six Months Ended June 30, 2012
 
   
Oil States
International,
Inc. (Parent/
Guarantor)
   
Guarantor
Subsidiaries
   
Other
Subsidiaries
(Non-
Guarantors)
   
Consolidating
Adjustments
   
Consolidated Oil
States
International,
Inc.
 
   
(In thousands)
 
   
REVENUES
                                       
Operating revenues
 
$
   
$
1,527,538
   
$
662,542
   
$
   
$
2,190,080
 
Intercompany revenues
   
     
12,554
     
3,443
     
(15,997)
     
 
Total revenues
   
     
1,540,092
     
665,985
     
(15,997)
     
2,190,080
 
                                         
OPERATING EXPENSES
                                       
Cost of sales and services
   
     
1,256,544
     
362,368
     
(3,951)
     
1,614,961
 
Intercompany cost of sales and services
   
     
8,528
     
3,130
     
(11,658)
     
 
Selling, general and administrative expenses
   
825
     
62,415
     
33,352
     
     
96,592
 
Depreciation and amortization expense
   
435
     
44,168
     
60,290
     
(9)
     
104,884
 
Other operating (income) expense
   
(25)
     
(646)
     
808
     
     
137
 
Operating income (loss)
   
(1,235)
     
169,083
     
206,037
     
(379)
     
373,506
 
                                         
Interest expense, net of capitalized interest
   
(33,640)
     
(433)
     
(36,114)
     
34,307
     
(35,880)
 
Interest income
   
10,105
     
78
     
24,663
     
(34,307)
     
539
 
Equity in earnings (loss) of unconsolidated affiliates
   
269,672
     
148,959
     
252
     
(418,243)
     
640
 
Other income
   
     
5,599
     
445
     
     
6,044
 
Income before income taxes
   
244,902
     
323,286
     
195,283
     
(418,622)
     
344,849
 
Income tax provision
   
1,396
     
(53,194)
     
(46,103)
     
     
(97,901)
 
Net income
   
246,298
     
270,092
     
149,180
     
(418,622)
     
246,948
 
                                         
Other comprehensive income:
                                       
Foreign currency translation adjustment
   
(3,037)
     
(2,693)
     
(2,683)
     
5,376
     
(3,037)
 
Total other comprehensive income
   
(3,037)
     
(2,693)
     
(2,683)
     
5,376
     
(3,037)
 
                                         
Comprehensive income
   
243,261
     
267,399
     
146,497
     
(413,246)
     
243,911
 
Comprehensive income attributable to noncontrolling interest
   
     
     
(635)
     
(5)
     
(640)
 
Comprehensive income attributable to Oil States International, Inc.
 
$
243,261
   
$
267,399
   
$
145,862
   
$
(413,251)
   
$
243,271
 
 
 
18

 
 
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)Condensed Consolidating Statements of Income and Comprehensive Income
 
   
Six Months Ended June 30, 2011
 
   
Oil States
International,
Inc. (Parent/
Guarantor)
   
Guarantor
Subsidiaries
   
Other
Subsidiaries
(Non-
Guarantors)
   
Consolidating
Adjustments
   
Consolidated Oil
States
International,
Inc.
 
   
(In thousands)
 
   
REVENUES
                                       
Operating revenues
 
$
   
$
1,106,232
   
$
474,526
   
$
   
$
1,580,758
 
Intercompany revenues
   
     
3,301
     
531
     
(3,832)
     
 
Total revenues
   
     
1,109,533
     
475,057
     
(3,832)
     
1,580,758
 
                                         
OPERATING EXPENSES
                                       
Cost of sales and services
   
     
913,322
     
279,454
     
(1,600)
     
1,191,176
 
Intercompany cost of sales and services
   
     
1,851
     
381
     
(2,232)
     
 
Selling, general and administrative expenses
   
755
     
57,528
     
28,189
     
     
86,472
 
Depreciation and amortization expense
   
388
     
40,806
     
49,199
     
(3)
     
90,390
 
Other operating (income)expense
   
743
     
183
     
1,854
     
1
     
2,781
 
Operating income (loss)
   
(1,886)
     
95,843
     
115,980
     
2
     
209,939
 
                                         
Interest expense
   
(19,472)
     
(688)
     
(40,435)
     
37,814
     
(22,781)
 
Interest income
   
5,218
     
24
     
33,819
     
(37,813)
     
1,248
 
Equity in earnings of unconsolidated affiliates
   
151,163
     
82,953
     
(226)
     
(233,837)
     
53
 
Other income (expense)
   
     
424
     
207
     
     
631
 
Income before income taxes
   
135,023
     
178,556
     
109,345
     
(233,834)
     
189,090
 
Income tax provision
   
1,297
     
(27,334)
     
(26,233)
     
     
(52,270)
 
Net income
   
136,320
     
151,222
     
83,112
     
(233,834)
     
136,820
 
                                         
Other comprehensive income:
                                       
Foreign currency translation adjustment
   
65,715
     
87,815
     
44,070
     
(131,885)
     
65,715
 
Total other comprehensive income
   
65,715
     
87,815
     
44,070
     
(131,885)
     
65,715
 
                                         
Comprehensive income
   
202,035
     
239,037
     
127,182
     
(365,719)
     
202,535
 
Comprehensive income attributable to noncontrolling interest
   
     
     
(515)
     
(23)
     
(538)
 
Comprehensive income attributable to Oil States International, Inc.
 
$
202,035
   
$
239,037
   
$
126,667
   
$
(365,742)
   
$
201,997
 
 
 
19

 
 
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
 
Condensed Consolidating Balance Sheets
 
   
June 30, 2012
 
   
Oil States
International,
Inc. (Parent/
Guarantor)
   
Guarantor
Subsidiaries
   
Other
Subsidiaries
(Non-
Guarantors)
   
Consolidating
Adjustments
   
Consolidated
Oil States
International,
Inc.
 
   
(In thousands)
 
   
   
ASSETS
Current assets:
                                       
Cash and cash equivalents
 
$
(250)
   
$
2,268
   
$
112,373
   
$
   
$
114,391
 
Accounts receivable, net
   
53
     
507,894
     
323,478
     
(1)
     
831,424
 
Inventories, net
   
     
592,245
     
142,139
     
(581)
     
733,803
 
Prepaid expenses and other current assets
   
4,749
     
6,584
     
10,235
     
     
21,568
 
Total current assets
   
4,552
     
1,108,991
     
588,225
     
(582)
     
1,701,186
 
                                         
Property, plant and equipment, net
   
2,296
     
499,189
     
1,155,860
     
(156)
     
1,657,189
 
Goodwill, net
   
     
172,598
     
294,501
     
     
467,099
 
Other intangible assets, net
   
     
29,708
     
91,306
     
     
121,014
 
Investments in unconsolidated affiliates
   
2,369,063
     
1,435,551
     
3,674
     
(3,798,174)
     
10,114
 
Long-term intercompany receivables (payables)
   
779,166
     
(403,043)
     
(376,123)
     
     
 
Other noncurrent assets
   
38,584
     
523
     
13,980
     
     
53,087
 
Total assets
 
$
3,193,661
   
$
2,843,517
   
$
1,771,423
   
$
(3,798,912)
   
$
4,009,689
 
 
LIABILITIES AND EQUITY
Current liabilities:
                                       
Accounts payable
 
$
15,193
   
$
198,649
   
$
83,634
   
$
   
$
297,476
 
Accrued liabilities
   
17,144
     
43,280
     
27,841
     
     
88,265
 
Income taxes
   
(104,277)
     
113,989
     
15,905
     
     
25,617
 
Current portion of long-term debt and capitalized leases
   
20,018
     
2,328
     
9,916
     
     
32,262
 
Deferred revenue
   
     
38,698
     
33,081
     
     
71,779
 
Other current liabilities
   
     
4,039
     
283
     
     
4,322
 
Total current liabilities
   
(51,922)
     
400,983
     
170,660
             
519,721
 
                                         
Long-term debt and capitalized leases
   
1,008,500
     
6,320
     
115,772
     
     
1,130,592
 
Deferred income taxes
   
1,400
     
57,837
     
48,121
     
     
107,358
 
Other noncurrent liabilities
   
11,354
     
8,789
     
6,755
     
(449)
     
26,449
 
Total liabilities
   
969,332
     
473,929
     
341,308
     
(449)
     
1,784,120
 
                                         
Stockholders’ equity
   
2,224,329
     
2,369,588
     
1,429,088
     
(3,798,676)
     
2,224,329
 
Non-controlling interest
   
     
     
1,027
     
213
     
1,240
 
Total stockholders’ equity
   
2,224,329
     
2,369,588
     
1,430,115
     
(3,798,463)
     
2,225,569
 
Total liabilities and stockholders’ equity
 
$
3,193,661
   
$
2,843,517
   
$
1,771,423
   
$
(3,798,912)
   
$
4,009,689
 
                                         
 
 
20

 
 
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
 
Condensed Consolidating Balance Sheets
 
   
December 31, 2011
 
   
Oil States
International,
Inc. (Parent/
Guarantor)
   
Guarantor
Subsidiaries
   
Other
Subsidiaries
(Non-
Guarantors)
   
Consolidating
Adjustments
   
Consolidated
Oil States
International,
Inc.
 
   
(In thousands)
 
   
 
ASSETS
Current assets:
                                       
Cash and cash equivalents
 
$
(295)
   
$
1,736
   
$
70,280
   
$
   
$
71,721
 
Accounts receivable, net
   
974
     
461,097
     
270,170
     
(1)
     
732,240
 
Inventories, net
   
     
539,067
     
114,823
     
(192)
     
653,698
 
Prepaid expenses and other current assets
   
10,143
     
8,538
     
13,319
     
     
32,000
 
Total current assets
   
10,822
     
1,010,438
     
468,592
     
(193)
     
1,489,659
 
                                         
Property, plant and equipment, net
   
1,530
     
459,414
     
1,096,310
     
(166)
     
1,557,088
 
Goodwill, net
   
     
172,598
     
294,852
     
     
467,450
 
Other intangible assets, net
   
     
31,372
     
96,230
     
     
127,602
 
Investments in unconsolidated affiliates
   
2,088,062
     
1,269,457
     
1,710
     
(3,351,468)
     
7,761
 
Long-term intercompany receivables (payables)
   
836,853
     
(453,156)
     
(383,697)
     
     
 
Other noncurrent assets
   
41,235
     
457
     
12,389
     
     
54,081
 
Total assets
 
$
2,978,502
   
$
2,490,580
   
$
1,586,386
   
$
(3,351,827)
   
$
3,703,641
 
 
LIABILITIES AND EQUITY
Current liabilities:
                                       
Accounts payable
 
$
19,418
   
$
162,762
   
$
70,029
   
$
   
$
252,209
 
Accrued liabilities
   
17,804
     
48,819
     
30,125
     
     
96,748
 
Income taxes
   
(59,396)
     
61,060
     
8,731
     
     
10,395
 
Current portion of long-term debt and capitalized leases
   
20,018
     
4,404
     
10,013
     
     
34,435
 
Deferred revenue
   
     
47,227
     
28,270
     
     
75,497
 
Other current liabilities
   
     
5,382
     
283
     
     
5,665
 
Total current liabilities
   
(2,156)
     
329,654
     
147,451
     
     
474,949
 
                                         
Long-term debt and capitalized leases
   
1,008,969
     
6,437
     
127,099
     
     
1,142,505
 
Deferred income taxes
   
(1,072)
     
57,677
     
40,772
     
     
97,377
 
Other noncurrent liabilities
   
10,605
     
8,635
     
6,747
     
(449)
     
25,538
 
Total liabilities
   
1,016,346
     
402,403
     
322,069
     
(449)
     
1,740,369
 
                                         
Stockholders’ equity
   
1,962,156
     
2,088,177
     
1,263,410
     
(3,351,587)
     
1,962,156
 
Non-controlling interest
   
     
     
907
     
209
     
1,116
 
Total stockholders’ equity
   
1,962,156
     
2,088,177
     
1,264,317
     
(3,351,378)
     
1,963,272
 
Total liabilities and stockholders’ equity
 
$
2,978,502
   
$
2,490,580
   
$
1,586,386
   
$
(3,351,827)
   
$
3,703,641
 
                                         
 
 
21

 
 
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
 
Condensed Consolidating Statements of Cash Flows
 
   
Six Months Ended June 30, 2012
 
   
Oil States
International,
Inc. (Parent/
Guarantor)
   
Guarantor
Subsidiaries
   
Other
Subsidiaries
(Non-
Guarantors)
   
Consolidating
Adjustments
   
Consolidated
Oil States
International,
Inc.
 
   
(In thousands)
 
   
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
 
$
(79,674)    
$
157,868    
$
173,131    
$
   
$
251,325
 
                                         
CASH FLOWS FROM INVESTING ACTIVITIES:
                                       
Capital expenditures, including capitalized interest
    (1,198)       (82,503)       (116,282)      
     
(199,983)
 
Proceeds from disposition of property, plant and equipment
   
      4,567       658      
     
5,225
 
Other, net
    (6)       (5,695)       4,051      
     
(1,650)
 
Net cash provided by (used in) investing activities
    (1,204)       (83,631)       (111,573)      
     
(196,408)
 
                                         
CASH FLOWS FROM FINANCING ACTIVITIES:
                                       
Revolving credit borrowings (repayments), net
    5,434      
      (6,385)      
     
(951)
 
Term loan repayments
    (10,000)      
      (4,944)      
     
(14,944)
 
Debt and capital lease payments
    (11)       (2,211)       (90)      
     
(2,312)
 
Issuance of common stock from share-based payment arrangements
    7,801      
     
     
     
7,801
 
Excess tax benefits from share-based payment arrangements
    6,014      
     
     
     
6,014
 
Proceeds from (funding of) accounts and notes with affiliates, net
    75,800       (71,216)       (4,584)      
     
 
Tax withholdings related to net share settlements of restricted stock
    (4,092)      
     
     
     
(4,092)
 
Other, net     (23)      
     
     
      (23)  
Net cash provided by (used in) financing activities
    80,923       (73,426)       (16,004)      
     
(8,507)
 
                                         
Effect of exchange rate changes on cash
   
     
      (3,461)      
     
(3,461)
 
Net change in cash and cash equivalents from continuing operations
    45       811       42,093      
     
42,949
 
Net cash used in discontinued operations operating activities
   
      (279)      
     
     
(279)
 
Cash and cash equivalents, beginning of period
    (295)       1,736       70,280      
     
71,721
 
                                         
Cash and cash equivalents, end of period
 
$
(250)    
$
2,268    
$
112,373    
$
   
$
114,391
 
 
 
22

 
 
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
 
Condensed Consolidating Statements of Cash Flows
 
   
Six Months Ended June 30, 2011
 
   
Oil States
International,
Inc. (Parent/
Guarantor)
   
Guarantor
Subsidiaries
   
Other
Subsidiaries
(Non-
Guarantors)
   
Consolidating
Adjustments
   
Consolidated
Oil States
International,
Inc.
 
   
(In thousands)
 
   
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
 
$
(38,791)
   
$
57,999
   
$
77,427
   
$
   
$
96,635
 
                                         
CASH FLOWS FROM INVESTING ACTIVITIES:
                                       
Capital expenditures, including capitalized interest
   
(195)
     
(62,356)
     
(167,702)
             
(230,253)
 
Acquisitions of businesses, net of cash acquired
   
     
(212)
     
     
     
(212)
 
Proceeds from disposition of property, plant and equipment
   
     
1,052
     
383
     
     
1,435
 
Other, net
   
     
(147)
     
(2,138)
     
     
(2,285)
 
Net cash used in investing activities
   
(195)
     
(61,663)
     
(169,457)
     
     
(231,315)
 
                                         
CASH FLOWS FROM FINANCING ACTIVITIES:
                                       
Revolving credit borrowings and (repayments), net
   
(346,742)
     
     
(81,940)
     
     
(428,682)
 
6 1/2% senior notes issued
   
600,000
     
     
     
     
600,000
 
Term loan repayments
   
(5,000)
     
     
(2,494)
     
     
(7,494)
 
Debt and capital lease payments
   
(10)
     
(230)
     
(347)
     
     
(587)
 
Issuance of common stock from share-based payment arrangements
   
9,792
     
     
     
     
9,792
 
Excess tax benefits from share-based payment arrangements
   
6,198
     
     
     
     
6,198
 
Payment of financing costs
   
(12,640)
     
     
     
     
(12,640)
 
Proceeds from (funding of) accounts and notes with affiliates, net
   
(177,803)
     
14,922
     
162,881
     
     
 
Tax withholdings related to net share settlements of restricted stock    
(2,456)
     
     
     
     
(2,456)
 
 Other, net    
     
(3)
     
3
     
     
 
Net cash provided by financing activities
   
71,339
     
14,689
     
78,103
     
     
164,131
 
                                         
Effect of exchange rate changes on cash
   
     
     
(2,399)
     
     
(2,399)
 
Net change in cash and cash equivalents from continuing operations
   
32,353
     
11,025
     
(16,326)
     
     
27,052
 
Net cash used in discontinued operations operating activities
   
     
(98)
     
     
     
(98)
 
Cash and cash equivalents, beginning of period
   
(227)
     
1,216
     
95,361
     
     
96,350
 
                                         
Cash and cash equivalents, end of period
 
$
32,126
   
$
12,143
   
$
79,035
   
$
   
$
123,304
 
 
 
23

 
 
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
 
13.  SUBSEQUENT EVENTS
 
On July 2, 2012, we acquired Piper Valve Systems, Ltd (Piper).  Headquartered in Oklahoma City, Oklahoma, Piper designs and manufactures high pressure valves and manifold components for oil and gas industry projects located offshore, onshore and subsea.  Piper's valve technology will complement our offshore products segment, allowing us to integrate their valve products and services in various subsea applications and increase our suite of global deepwater product and service offerings.  Subject to customary post-closing adjustments, total transaction consideration was $48.0 million, funded from amounts available under the Company’s U.S. and Canadian credit facilities.
 
On May 17, 2012, the Company gave notice of the redemption of all of its outstanding 2 3/8% Notes due 2025, totaling $174,990,000 in aggregate principal amount, on July 6, 2012 at a redemption price equal to 100% of the principal amount thereof plus accrued interest. The 2 3/8% Notes were convertible by the holders thereof into shares of the Company’s Common Stock at the conversion rate of 31.496 shares of Common Stock for each $1,000 principal amount of 2 3/8% Notes converted. Rather than having their 2 3/8% Notes redeemed, on or prior to July 5, 2012, holders of $174,990,000 aggregate principal amount of the 2 3/8% Notes converted their 2 3/8% Notes and received cash up to the principal amount and 3,012,380 shares of the Company’s Common Stock. No gain or loss was recognized on the conversion.  Dilution attributable to the 2 3/8% Notes was reflected in the diluted share count for the three and six months ended June 30, 2012.  See Note 4 to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Set forth below is a chart that describes the aggregate principal amount of 2 3/8% Notes converted on each Conversion Date and the resulting number of shares of Common Stock issued in connection with such conversions:

Conversion Date
 
Principal Amount
of 2 3/8% Notes
Converted
   
Number of
Shares of
Common
Stock Issued
 
July 24, 2012
  $ 52,684,000       899,713  
July 25, 2012
    47,917,000       824,036  
July 26, 2012
    74,389,000       1,288,631  
Total
  $ 174,990,000       3,012,380  
 
 
 
24

 
 
Cautionary Statement Regarding Forward-Looking Statements
 
This quarterly report on Form 10-Q contains "certain forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the Exchange Act).  The Private Securities Litigation Reform Act of 1995 provides safe harbor provisions for forward-looking information.  Some of the information in the quarterly report may contain "forward-looking statements."  The "forward-looking statements" can be identified by the use of forward-looking terminology including "may," "expect," "anticipate," "estimate," "continue," "believe," or other similar words.  Actual results could differ materially from those projected in the forward-looking statements as a result of a number of important factors.  For a discussion of known material factors that could affect our results, please refer to Part II, Item 1A. Risk Factors in this report and "Part I, Item 1A. Risk Factors" and the financial statement line item discussions set forth in "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations" included in our 2011 Form 10-K filed with the Commission on February 17, 2012.  Should one or more of these risks or uncertainties materialize, or should the assumptions prove incorrect, actual results may differ materially from those expected, estimated or projected.  Our management believes these forward-looking statements are reasonable.  However, you should not place undue reliance on these forward-looking statements, which are based only on our current expectations and are not guarantees of future performance.  All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the foregoing.  Forward-looking statements speak only as of the date they are made, and we undertake no obligation to publicly update or revise any of them in light of new information, future events or otherwise.
 
In addition, in certain places in this quarterly report, we refer to reports published by third parties that purport to describe trends or developments in the energy industry.  The Company does so for the convenience of our stockholders and in an effort to provide information available in the market that will assist the Company’s investors in a better understanding of the market environment in which the Company operates.  However, the Company specifically disclaims any responsibility for the accuracy and completeness of such information and undertakes no obligation to update such information.
 
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
You should read the following discussion and analysis together with our condensed consolidated financial statements and the notes to those statements included elsewhere in this quarterly report on Form 10-Q.
 
Macroeconomic Environment and Outlook
 
We provide a broad range of products and services to the oil and gas industry through our accommodations, offshore products, well site services and tubular services business segments.  In our accommodations segment, we support both the oil and gas and mining industries.  Demand for our products and services is cyclical and substantially dependent upon activity levels in the oil and gas and mining industries, particularly our customers’ willingness to spend capital on the exploration for and development of oil, natural gas, coal and mineral reserves.  Our customers’ spending plans are generally based on their outlook for near-term and long-term commodity prices.  As a result, demand for our products and services is highly sensitive to current and expected commodity prices, principally that of crude oil, coal and, to a lesser extent, natural gas.
 
 
25

 
 
In the first quarter of 2012, the price of crude oil increased to over $100 per barrel as positive economic news related to growth rates projected in China and other emerging markets, consumer spending and U.S. consumer confidence indicated that an economic recovery was underway.  However, the spot price of crude oil decreased during the second quarter of 2012 and is currently trading at approximately $90 per barrel for West Texas Intermediates (WTI) crude and around $106 per barrel for Intercontinental Exchange (ICE) Brent crude.  Successful shale oil drilling in the U.S. has led to robust oil production causing supply bottlenecks at Cushing, Oklahoma, which have contributed to WTI trading at a significant discount to Brent crude pricing.  If U.S. oil production grows significantly and continues to exceed pipeline transportation capacity, we could see additional downward pressure on oil prices triggering lower future U.S. drilling activity.  Despite some signs of an improving economy in the United States, the world’s largest consumer of crude oil, global economic risks remain due to fiscal and financial uncertainty in various European countries, a prolonged level of relatively high unemployment in the U.S. and other advanced economies and inflation risks in certain emerging markets.  Recent WTI and Brent crude pricing trends are as follows:
 
   
Average Price (per bbl)
 
   
WTI
   
Brent Crude
 
             
Quarter ended
           
6/30/2012
  $ 93.38     $ 108.90  
3/31/2012
    102.85       118.54  
12/31/2011
    94.03       109.31  
9/30/2011
    89.71       112.47  
6/30/2011
    102.51       117.12  
3/31/2011
    93.93       104.90  
12/31/2010
    85.10       86.80  
9/30/2010
    76.01       76.41  
6/30/2010
    77.86       78.67  
 
Prices for natural gas in the United States continue to be weak due to the rise in production from unconventional natural gas resources in North America, largely due to increases in onshore shale production resulting from technological advancements in horizontal drilling and hydraulic fracturing.  Natural gas prices are currently trading at or below $3.25 per Mcf.  Natural gas inventories in the U.S. continue to be over-stocked, particularly given an unseasonably warm winter season.  The U.S. gas-related working rig count has declined from more than 800 rigs at the beginning of 2012 to less than 520 rigs currently.  Increases in the supply of natural gas, whether the supply comes from conventional or unconventional production or associated gas production from oil wells, will likely constrain prices for natural gas and result in fewer rigs drilling for gas in the near-term.
 
Growing Chinese and Indian steel production in the first half of 2012 is expected to support metallurgical coal pricing for the remainder of 2012.  After decreasing over the past year, metallurgical coal prices are expected to remain at these levels during the remainder of the year.  Urbanization and infrastructure investment from the Chinese government should fuel continued strength in steel demand in the foreseeable future.  Beyond China, Indian steel consumption is expected to grow as India's five-year growth plan calls for significant investments to expand its infrastructure.
 
Various oil and gas industry analysts have projected that 2012 global exploration and production expenditures are expected to increase over calendar year 2011 levels.  North American capital spending plans are expected to be focused in onshore areas while international exploration and production budgets are expected to primarily be spent offshore.
 
Overview
 
Demand for our accommodations and offshore products segments is primarily tied to the long-term outlook for commodity prices.  In contrast, demand for our well site services and tubular services segments responds to shorter-term movements in oil and natural gas prices and, specifically, changes in North American drilling and completion activity.  Other factors that can affect our business and financial results include the general global economic environment and regulatory changes in the U. S. and internationally.
 
Our accommodations business is predominantly located in northern Alberta, Canada and Queensland, Australia and derives most of its business from resource companies who are developing and producing oil sands and coal resources and, to a lesser extent, other mineral resources.  A significant portion of our accommodations revenues is generated by our large-scale lodge and village facilities.  Where traditional accommodations and infrastructure are not accessible or cost effective, our semi-permanent lodge and village facilities provide comprehensive accommodations services similar to those found in an urban hotel.  We typically contract our facilities to our customers on a fee per day basis covering lodging and meals that is based on the duration of their needs which can range from several months to several years.  In addition, primarily in Canada and the U.S., we provide shorter-term remote site accommodations in smaller configurations utilizing our modular, mobile camp assets.
 
Generally, our oil sands and mining accommodations’ customers are making multi-billion dollar investments to develop their prospects, which have estimated reserve lives of 10 to in excess of 30 years and, consequently, these investments are dependent on those customers' longer-term view of commodity demand and prices.  Oil sands development activity has increased in the past year and has had a positive impact on our accommodations segment.  Recent announcements of new and expanded oil sands projects will create the opportunity for extensions of existing accommodations contracts and incremental accommodations contracts for us in Canada.  In addition, several major oil companies and national oil companies have announced joint ventures to develop oil sands leases that should bode well for future oil sands investment and, as a result, demand for oil sands accommodations. Our Australian accommodations business is significantly influenced by increased metallurgical coal demand, especially from China, Japan and India.  Despite coal prices weakening recently, we expect Chinese metallurgical coal demand to continue to increase in 2012 compared to 2011 as the country continues to industrialize.  We are expanding our Australian accommodations capacity to meet this increasing demand.  We are also expanding accommodations deployed to support onshore North American drilling and completion activity in several of the active shale play regions.
 
 
26

 
 
Our offshore products segment provides highly engineered products for offshore oil and natural gas drilling and production systems and facilities.  Sales of our offshore products and services depend primarily upon development of infrastructure for offshore production systems and subsea pipelines, repairs and upgrades of existing offshore drilling rigs and construction of new offshore drilling rigs and vessels. In this segment, we are particularly influenced by global deepwater drilling and production spending, which are driven largely by our customers’ longer-term outlook for oil and natural gas prices.
 
The improvement in oil prices over the last two years, along with the outlook for long-term oil demand, resulted in increased bidding and quoting activity for our offshore products in the latter part of 2010 that continued throughout 2011 and the first half of 2012.  As a result of this increased activity, backlog in our offshore products segment increased from $519 million as of June 30, 2011 to a record $562 million as of June 30, 2012.  Offshore products’ backlog totaled $535 million as of December 31, 2011.  We anticipate global deepwater spending to continue to include new award opportunities coming from Brazil, West Africa, the U.S. Gulf of Mexico, South East Asia and Australia over the next twelve months.
 
Our well site services businesses are significantly influenced by drilling and completion activity primarily in the U.S. and, to a lesser extent, Canada and the rest of the world.  Until recently, overall industry activity has been primarily driven by spending for natural gas exploration and production, particularly in the shale play regions of the U.S. using horizontal drilling and completion techniques.  However, considering current oil prices, lower natural gas prices and the advancement of horizontal drilling and completion techniques, activity in North America has shifted to a greater proportion of oil and liquids-rich drilling.  According to rig count data published by Baker Hughes Incorporated, the oil rig count in the U.S. now totals approximately 1,400 rigs, the highest oil-related rig count in over 20 years, comprising approximately 73% of total U.S. drilling activity.
 
In our well site services business segment, we predominantly provide rental tools and services and, to a lesser extent, land drilling services.  Our rental tools and services business provides equipment and service personnel utilized in the completion and initial production of new and recompleted wells.  Activity for the rental tools and services business is dependent primarily upon the level and complexity of drilling, completion and workover activity throughout North America.  Well complexity has increased as the number of productive zones completed in connection with horizontal drilling has increased.  Demand for our drilling services is driven by land drilling activity in our primary drilling markets in West Texas, where we primarily drill oil wells, and in the Rocky Mountains area in the U.S., where we drill both liquids-rich and natural gas wells.
 
Through our tubular services segment, we distribute a broad range of casing and tubing used in the drilling and completion of oil and natural gas wells primarily in North America. Accordingly, sales and gross margins in our tubular services segment depend upon the overall level of drilling activity, the types of wells being drilled, movements in global steel input prices and the overall industry level of OCTG inventory and pricing.  Historically, tubular services’ gross margin generally expands during periods of rising OCTG prices and contracts during periods of decreasing OCTG prices.  Our tubular services business has historically been our most cyclical business segment.  The strong U.S. land drilling activity in 2011 and in the first half of 2012 along with the return of drilling in the U.S. Gulf of Mexico have led to increased tubular services volumes and revenues.

We have a diversified product and service offering, which has led to exposure to activities conducted throughout the oil and gas cycle.  Demand for our tubular services, land drilling and rental tools and services businesses is highly correlated to changes in the drilling rig count in the United States and, to a much lesser extent, Canada. The table below sets forth a summary of North American rig activity, as measured by Baker Hughes Incorporated, for the periods indicated.
 
 
27

 
 
   
Average Drilling Rig Count for
 
   
Three Months Ended
   
Six Months Ended
 
   
June 30,
2012
   
June 30,
2011
   
June 30,
2012
   
June 30,
2011
 
U.S. Land – Oil
    1,351       929       1,294       866  
U.S. Land – Natural gas and other
    572       870       642       878  
U.S. Offshore
    47       31       45       29  
Total U.S.
    1,970       1,830       1,981       1,773  
Canada
    173       188       382       387  
Total North America
    2,143       2,018       2,363       2,160  
 
The average North American rig count for the six months ended June 30, 2012 increased by 203 rigs, or 9.4%, compared to the six months ended June 30, 2011 largely due to growth in the U.S. land oil rig count partially offset by a decline in natural gas drilling.
 
A factor that influences the financial results for our accommodations segment is the exchange rate between the U.S. dollar and the Canadian dollar and, to a lesser extent, the exchange rate between the U.S. dollar and the Australian dollar.  Our accommodations segment has derived a majority of its revenues and operating income in Canada and, since 2011, Australia.  These revenues and profits are translated into U.S. dollars for U.S. GAAP financial reporting purposes.  Although U.S. dollar and Australian dollar exchange rates were comparable in the first half of 2012 and 2011, the Canadian dollar was valued at an average exchange rate of U.S. $0.99 in the first half of 2012 compared to U.S. $1.02 for the first half of 2011, a decrease of 3%.  This weakening of the Canadian dollar had a proportionately negative impact on the translation of earnings generated from our Canadian subsidiary and, therefore, the financial results of our accommodations segment.
 
Steel and steel input prices influence the pricing decisions of our OCTG suppliers, thereby impacting the pricing and margins of our tubular services segment.  During 2011 and 2012, OCTG marketplace supply and demand became more balanced compared to the previous two years.  Increased supplies of OCTG have met the increased demand created by expanded drilling activity.  Throughout 2011 and into the first half of 2012, imports of OCTG have increased, particularly goods imported from Canada and Korea followed by India, Mexico and Japan.  Additionally, domestic OCTG mill capacity is expected to increase in 2012.  This projected increase in OCTG production has led to a decline in OCTG prices during the first half of 2012.  This increase in supply has been in response to the 12% year-over-year increase in the drilling rig count in the U. S.  The OCTG Situation Report suggests that industry OCTG inventory levels peaked in the first quarter of 2009 at approximately twenty months’ supply on the ground and have trended down to approximately four to four-and-a half months' supply currently, which is considered closer to a normalized level when measured against historical levels.  We have expanded our physical infrastructure and installed new enterprise-wide computer systems in 2011 and 2012 to support our growth, optimize our financial returns and ensure ongoing customer service in our OCTG distribution business.  We remain focused on working capital management and returns on invested capital in our tubular services segment and will continue to monitor industry inventory levels, forecasted drilling and completion activity and OCTG prices.
 
While global demand for oil and natural gas are significant factors influencing our business generally, certain other factors also influence our business, such as the pace of worldwide economic growth and the recovery in U.S. Gulf of Mexico drilling following the lifting of the government imposed drilling moratorium.
 
Although higher than 2011, the drilling rig count in the U.S. Gulf of Mexico remains below historical levels following the Macondo well incident and resultant oil spill in the U.S. Gulf of Mexico.  A rescission of a moratorium on offshore drilling activity was effective in late 2010; however, substantial increases in activity were delayed by adjustments in operating procedures, compliance certifications, and lead times for permits and inspections, as a result of changes in the regulatory environment.  In addition, there have been a variety of proposals to change existing laws and regulations that could affect offshore development and production.  Uncertainties and delays caused by the new, more stringent regulatory environment continued to have an overall adverse effect on Gulf of Mexico drilling activity in 2011.  Beginning in the third quarter of 2011, however, U.S. Gulf of Mexico drilling activity has shown signs of a slow, but steady, recovery as permitting levels have been steadily improving.  New well permitting has increased from 43 permits issued in the first half of 2011 to 104 permits issued in the first half of 2012.
 
 
28

 
 
We continue to monitor the global economy, the demand for crude oil, coal and natural gas and the resultant impact on the capital spending plans and operations of our customers in order to plan our business.  We currently expect that our 2012 capital expenditures will total approximately $600 million to $700 million compared to 2011 capital expenditures of $487 million.  Our 2012 capital expenditures include funding to expand our Canadian oil sands and Australian mining related accommodations facilities, to fund our other product and service offerings, and for maintenance and upgrade of our equipment and facilities.  Approximately two-thirds of our total expected 2012 capital expenditures will be spent in our accommodations segment.  In our well site services segment, we continue to monitor industry capacity additions and will make future capital expenditure decisions based on an evaluation of both the market outlook and industry fundamentals.
 
Consolidated Results of Operations (in millions)
 
    THREE MONTHS ENDED
JUNE 30,
    SIX MONTHS ENDED
JUNE 30,
 
               
Variance
2012 vs. 2011
                   
Variance
 
 
   
2012
   
2011
     $       %       2012       2011     $       %  
                                                         
Revenues
                                                       
Well site services -
                                                       
Rental tools and services
  $ 125.1     $ 112.7     $ 12.4       11 %   $ 260.6     $ 220.2     $ 40.4       18 %
Drilling services
    51.4       41.0       10.4       25 %     98.9       74.1       24.8       33 %
Total well site services
    176.5       153.7       22.8       15 %     359.5       294.3       65.2       22 %
Accommodations
    261.0       202.9       58.1       29 %     562.8       400.1       162.7       41 %
Offshore products
    191.6       131.7       59.9       45 %     377.4       260.2       117.2       45 %
Tubular services
    462.0       332.0       130.0       39 %     890.4       626.2       264.2       42 %
Total
  $ 1,091.1     $ 820.3     $ 270.8       33 %   $ 2,190.1     $ 1,580.8     $ 609.3       39 %
Product costs; service and other costs (“Cost of sales and service”)
                                                               
Well site services -
                                                               
Rental tools and services
  $ 78.3     $ 70.4     $ 7.9       11 %   $ 162.9     $ 137.7     $ 25.2       18 %
Drilling services
    36.4       29.2       7.2       25 %     70.5       54.4       16.1       30 %
Total well site services
    114.7       99.6       15.1       15 %     233.4       192.1       41.3       21 %
Accommodations
    132.7       108.5       24.2       22 %     272.2       216.8       55.4       26 %
Offshore products
    138.8       98.2       40.6       41 %     275.0       194.8       80.2       41 %
Tubular services
    433.0       310.5       122.5       39 %     834.4       587.5       246.9       42 %
Total
  $ 819.2     $ 616.8     $ 202.4       33 %   $ 1,615.0     $ 1,191.2     $ 423.8       36 %
Gross margin
                                                               
Well site services -
                                                               
Rental tools and services
  $ 46.8     $ 42.3     $ 4.5       11 %   $ 97.7     $ 82.5     $ 15.2       18 %
Drilling services
    15.0       11.8       3.2       27 %     28.4       19.7       8.7       44 %
Total well site services
    61.8       54.1       7.7       14 %     126.1       102.2       23.9       23 %
Accommodations
    128.3       94.4       33.9       36 %     290.6       183.3       107.3       59 %
Offshore products
    52.8       33.5       19.3       58 %     102.4       65.4       37.0       57 %
Tubular services
    29.0       21.5       7.5       35 %     56.0       38.7       17.3       45 %
Total
  $ 271.9     $ 203.5     $ 68.4       34 %   $ 575.1     $ 389.6     $ 185.5       48 %
Gross margin as a percentage of revenues
                                                               
Well site services -
                                                               
Rental tools and services
    37 %     38 %                     37 %     37 %                
Drilling services
    29 %     29 %                     29 %     27 %                
Total well site services
    35 %     35 %                     35 %     35 %                
Accommodations
    49 %     47 %                     52 %     46 %                
Offshore products
    28 %     25 %                     27 %     25 %                
Tubular services
    6 %     6 %                     6 %     6 %                
Total
    25 %     25 %                     26 %     25 %                
 
 
THREE MONTHS ENDED JUNE 30, 2012 COMPARED TO THREE MONTHS ENDED JUNE 30, 2011
 
We reported net income attributable to the Company for the quarter ended June 30, 2012 of $111.2 million, or $2.01 per diluted share.  These results compare to net income attributable to the Company of $74.2 million, or $1.34 per diluted share, reported for the quarter ended June 30, 2011.  Second quarter 2012 results included a pre-tax gain of $2.5 million, or $0.03 per diluted share after-tax, related to insurance proceeds received in excess of net book value from the constructive total loss of a drilling rig lost in a fire that occurred in the first quarter of 2012.
 
Revenues.  Consolidated revenues increased $270.8 million, or 33%, in the second quarter of 2012 compared to the second quarter of 2011.
 
 
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Our well site services segment revenues increased $22.8 million, or 15%, in the second quarter of 2012 compared to the second quarter of 2011 primarily due to increases in both rental tools and services revenues and drilling services revenues.  Our rental tools and services revenues increased $12.4 million, or 11%, in the second quarter of 2012 compared to the second quarter of 2011 primarily due to increased demand for completion services supporting the 8% increase in the U.S. rig count, a more favorable mix of higher value rentals and services, increased equipment utilization, additional capital investment in rental equipment and greater service intensity.  Our drilling services revenues increased $10.4 million, or 25%, in the second quarter of 2012 compared to the second quarter of 2011 primarily as a result of increases in pricing, with average day rates rising to $18,500 per day for the second quarter of 2012 up from $16,500 per day for the second quarter of 2011, and increased utilization of our rigs from an average of approximately 80% for the second quarter of 2011 to an average of approximately 92% for the second quarter of 2012.

 
Our accommodations segment reported revenues in the second quarter of 2012 that were $58.1 million, or 29%, higher than the second quarter of 2011.  Higher accommodations revenues were generated primarily from expanded room capacity in Canada and Australia.  Revenues and average available rooms for lodges and villages increased 41% and 29%, respectively, in the second quarter of 2012 compared to the second quarter of 2011.

Our offshore products segment revenues increased $59.9 million, or 45%, in the second quarter of 2012 compared to the second quarter of 2011.  This increase was primarily the result of higher levels of manufacturing and service activity, along with an improved revenue mix favoring our production equipment and connector products.  Backlog reached a new record level, totaling $562 million at June 30, 2012 compared to $519 million reported at June 30, 2011.

Our tubular services segment revenues increased $130.0 million, or 39%, in the second quarter of 2012 compared to the second quarter of 2011.  This increase was primarily a result of an increase in tons shipped from 173,300 in 2011 to 230,000 in 2012, an increase of 56,700 tons, or 33%, driven by the 8% increase in U.S. drilling and completion activity, particularly increased activity in the Permian, Eagle Ford and Gulf of Mexico markets coupled with increased service intensity.  We also reported a 5% increase in realized revenues per ton shipped in the second quarter of 2012 compared to the second quarter of 2011.
 
Cost of Sales and Service.  Our consolidated cost of sales increased $202.4 million, or 33%, in the second quarter of 2012 compared to the second quarter of 2011 as a result of increased cost of sales at our tubular services segment of $122.5 million, or 39%, an increase at our offshore products segment of $40.6 million, or 41%, an increase at our accommodations segment of $24.2 million, or 22%, and an increase at our well site services segment of $15.1 million, or 15%.  These cost of sales increases were directly related to the increases in segmental revenues.  Our consolidated gross margin as a percentage of revenues was 25% in both the second quarter of 2012 and 2011.
 
Our well site services segment cost of sales increased $15.1 million, or 15%, in the second quarter of 2012 compared to the second quarter of 2011 as a result of a $7.9 million, or 11%, increase in rental tools and services cost of sales and a $7.2 million, or 25%, increase in drilling services cost of sales.  Our well site services segment gross margin as a percentage of revenues was 35% in both the second quarter of 2012 and 2011.  Our rental tools and services gross margin as a percentage of revenues was consistent at 37% in the second quarter of 2012 compared to 38% in the second quarter of 2011.  Our drilling services gross margin as a percentage of revenues was also consistent at 29% in the second quarters of 2012 and 2011 despite increased rig utilization and pricing due to increased repair and maintenance costs.
 
 
Our accommodations segment cost of sales increased $24.2 million, or 22%, in the second quarter of 2012 compared to the second quarter of 2011 primarily due to increased revenues and room capacity in both Canada and Australia.  Our accommodations segment gross margin as a percentage of revenues increased from 47% in the second quarter of 2011 to 49% in the second quarter of 2012 primarily due to a 10% increase in revenue per available room (RevPar) in the second quarter of 2012 compared to the second quarter of 2011.  The increase in the RevPar in 2012 compared to 2011 was primarily due to increased occupancy levels.
 
Our offshore products segment cost of sales increased $40.6 million, or 41%, in the second quarter of 2012 compared to the second quarter of 2011 primarily due to increased revenues.  Our offshore products segment gross margin as a percentage of revenues increased from 25% in the second quarter of 2011 to 28% in the second quarter of 2012 primarily due to the improved revenue mix of production equipment and connector products sales combined with improved cost absorption.
 
 
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Our tubular services segment cost of sales increased by $122.5 million, or 39%, in the second quarter of 2012 compared to the second quarter of 2011 primarily as a result of an increase in tons shipped.  Our tubular services segment gross margin as a percentage of revenues remained constant at 6% in both the second quarter of 2012 and 2011.

Selling, General and Administrative Expenses.  Selling, general and administrative expense increased $6.1 million, or 14%, in the second quarter of 2012 compared to the second quarter of 2011 primarily due to increased employee-related costs, commissions expense and professional fees.

Depreciation and Amortization.  Depreciation and amortization expense increased $9.0 million, or 20%, in the second quarter of 2012 compared to the second quarter of 2011 primarily due to capital expenditures made during the previous twelve months largely related to investments in our Canadian and Australian accommodations and rental tools and services businesses.

Operating Income.  Consolidated operating income increased $54.1 million, or 47%, in the second quarter of 2012 compared to the second quarter of 2011 primarily as a result of an increase in operating income from our accommodations segment of $25.5 million, or 44%, primarily as a result of expanded room capacity in Canada and Australia, and an increase in operating income from our offshore products segment of $17.8 million, or 95%.  In addition, operating income from our tubular services segment increased $7.1 million, or 42%, primarily as a result of the increase in tons shipped.  Operating income from our well site services segment increased $5.9 million, or 19%, largely due to a more favorable mix and increased activity in our rental tools and services business and increased rig utilization and dayrates in our drilling services business.

Interest Expense and Interest Income.  Net interest expense increased by $5.4 million, or 44%, in the second quarter of 2012 compared to the second quarter of 2011 primarily due to interest expense associated with the 6 1/2% Notes which were issued on June 1, 2011.  The weighted average interest rate on borrowings outstanding under the Company’s U.S. and Canadian credit facilities was 3.0% in the second quarters of 2012 and 2011.

 
Income Tax Expense.  Our income tax provision for the three months ended June 30, 2012 totaled $44.6 million, or 28.6% of pretax income, compared to income tax expense of $28.9 million, or 27.9% of pretax income, for the three months ended June 30, 2011.  The increase in the effective tax rate from the prior year was largely the result of higher domestic earnings as a percentage of total earnings.  Our domestic earnings are taxed at a higher rate than our foreign earnings.
 
SIX MONTHS ENDED JUNE 30, 2012 COMPARED TO SIX MONTHS ENDED JUNE 30, 2011
 
We reported net income attributable to the Company for the six months ended June 30, 2012 of $246.3 million, or $4.45 per diluted share, including a gain of $17.9 million, or $0.23 per diluted share after-tax, from a favorable contract settlement reported in our U.S. accommodations business and a pre-tax gain of $2.5 million, or $0.03 per diluted share after-tax, related to insurance proceeds received in excess of net book value from the constructive total loss of a drilling rig lost in a fire that occurred in the first quarter of 2012.  These results compare to net income attributable to the Company of $136.3 million, or $2.48 per diluted share, reported for the six months ended June 30, 2011.
 
Revenues.  Consolidated revenues increased $609.3 million, or 39%, in the first half of 2012 compared to the first half of 2011.

Our well site services segment revenues increased $65.2 million, or 22%, in the first half of 2012 compared to the first half of 2011 primarily due to increases in both rental tools and services revenues and drilling services revenues.  Our rental tools and services revenues increased $40.4 million, or 18%, in the first half of 2012 compared to the first half of 2011 primarily due to increased demand for completion services supporting the 12% increase in the U.S. rig count, a more favorable mix of higher value rentals and services, increased equipment utilization, additional capital investment in rental equipment and greater service intensity.  Our drilling services revenues increased $24.8 million, or 33%, in the first half of 2012 compared to the first half of 2011 primarily as a result of increased utilization of our rigs from an average of approximately 76% in for the first half of 2011 to an average of approximately 90% during the first half of 2012, and increases in pricing, with average day rates rising to $18,200 per day for the first half of 2012 up from $15,900 per day for the first half of 2011.
 
 
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Our accommodations segment reported revenues in the first half of 2012 that were $162.7 million, or 41%, above the first half of 2011.  The increase in accommodations revenue primarily resulted from increased revenues from expanded room capacity in Canada and Australia along with $18.3 million in revenue from a favorable contract settlement reported in our U.S. accommodations business.  Revenues and average available rooms for our lodges and villages increased 44% and 32%, respectively, in the first half of 2012 compared to the first half of 2011.

Our offshore products segment revenues increased $117.2 million, or 45%, in the first half of 2012 compared to the first half of 2011.  This increase was primarily the result of higher levels of manufacturing and service activity, along with an improved revenue mix favoring our production equipment and connector products.

Our tubular services segment revenues increased $264.2 million, or 42%, in the first half of 2012 compared to the first half of 2011.  This increase was primarily a result of an increase in tons shipped from 327,700 in 2011 to 435,400 in 2012, an increase of 107,700 tons, or 33%, driven by the 12% increase in U.S. drilling and completion activity, particularly increased activity in the Permian, Eagle Ford and Gulf of Mexico markets coupled with increased service intensity.  We also reported a 7% increase in realized revenues per ton shipped in the first half of 2012 compared to the first half of 2011.

Cost of Sales and Service.  Our consolidated cost of sales increased $423.8 million, or 36%, in the first half of 2012 compared to the first half of 2011 as a result of increased cost of sales at our tubular services segment of $246.9 million, or 42%, an increase at our offshore products segment of $80.2 million, or 41%, an increase at our accommodations segment of $55.4 million, or 26%, and an increase at our well site services segment of $41.3 million, or 21%.  These cost of sales increases were directly related to the increases in segmental revenues.  Our consolidated gross margin as a percentage of revenues increased from 25% in the first half of 2011 to 26% in the first half of 2012 primarily due to the increased proportion of relatively higher margin accommodations and rental tools and services revenues and higher margins realized in our accommodations and offshore products segments, partially offset by an increased proportion of relatively lower margin tubular services segment revenues in the first half of 2012 compared to the first half of 2011.

Our well site services segment cost of sales increased $41.3 million, or 21%, in the first half of 2012 compared to the first half of 2011 as a result of a $25.2 million, or 18%, increase in rental tools and services cost of sales and a $16.1 million, or 30%, increase in drilling services cost of sales.  Our well site services segment gross margin as a percentage of revenues remained constant at 35% in the first half of 2012 and 2011.  Our rental tools and services gross margin as a percentage of revenues was 37% in the first half of 2012 and 2011.  Our drilling services gross margin as a percentage of revenues increased from 27% in the first half of 2011 to 29% in the first half of 2012 primarily due to increased day rates, rig utilization and cost absorption.
 
 
Our accommodations segment cost of sales increased $55.4 million, or 26%, in the first half of 2012 compared to the first half of 2011 primarily due to increased revenues and room capacity in both Canada and Australia.  Our accommodations segment gross margin as a percentage of revenues increased from 46% in the first half of 2011 to 52% in the first half of 2012 primarily due to a 9% increase in RevPar in the first half of 2012 compared to the first half of 2011 and, to a lesser extent, the favorable contract settlement reported in our U.S. accommodations business.  The increase in the RevPar in 2012 compared to 2011 was primarily due to increased occupancy levels.  Excluding the favorable contract settlement, our accommodations segment gross margin as a percentage of revenues would have been 48% in the first half of 2012.
 
Our offshore products segment cost of sales increased $80.2 million, or 41%, in the first half of 2012 compared to the first half of 2011 primarily due to increased revenues.  Our offshore products segment gross margin as a percentage of revenues increased from 25% in the first half of 2011 to 27% in the first half of 2012 primarily due to the improved revenue mix of production equipment and connector products sales combined with improved cost absorption.
 
 
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Our tubular services segment cost of sales increased by $246.9 million, or 42%, in the first half of 2012 compared to the first half of 2011 primarily as a result of an increase in tons shipped.  Our tubular services segment gross margin as a percentage of revenues remained at high levels in the second quarter of 2012 with 6.3% compared to 6.5% reported in the second quarter of 2011 primarily due to higher-end OCTG product mix and stable mill pricing.
 
Selling, General and Administrative Expenses.  Selling, general and administrative expense increased $10.1 million, or 12%, in the first half of 2012 compared to the first half of 2011 primarily due to increased employee-related costs and commissions expense.

Depreciation and Amortization. Depreciation and amortization expense increased $14.5 million, or 16%, in the first half of 2012 compared to the first half of 2011 primarily due to capital expenditures made during the previous twelve months largely related to investments in our Canadian and Australian accommodations and rental tools and services businesses.

Operating Income.  Consolidated operating income increased $163.6 million, or 78%, in the first half of 2012 compared to the first half of 2011 primarily as a result of an increase in operating income from our accommodations segment of $95.5 million, or 89%, due to expanded room capacity in Canada and Australia, along with the favorable contract settlement reported in our U.S. accommodations business, an increase in operating income from our offshore products segment of $33.6 million, or 95%, and an increase in operating income from our well site services segment of $20.5 million, or 35%, largely due to a more favorable mix and increased activity in our rental tools and services business and increased rig utilization and dayrates in our drilling services business.  In addition, operating income from our tubular services segment increased $16.5 million, or 55%, primarily as a result of the increase in tons shipped.

Interest Expense and Interest Income.  Net interest expense increased by $13.8 million, or 64%, in the first half of 2012 compared to the first half of 2011 primarily due to interest expense on the 6 1/2% Notes due in 2019 which were issued on June 1, 2011.  The weighted average interest rate on borrowings outstanding under the Company’s U.S. and Canadian credit facilities was 3.2% in the first half of 2012 compared to 3.0% in the first half of 2011.  Interest income decreased as a result of decreased cash balances in interest bearing accounts.
 
Income Tax Expense.  Our income tax provision for the six months ended June 30, 2012 totaled $97.9 million, or 28.4% of pretax income, compared to income tax expense of $52.3 million, or 27.6% of pretax income, for the six months ended June 30, 2011.  The increase in the effective tax rate from the prior year was largely the result of higher domestic earnings as a percentage of total earnings.  Our domestic earnings are taxed at a higher rate than our foreign earnings.
 
Liquidity and Capital Resources
 
Our primary liquidity needs are to fund capital expenditures, which have in the past included expanding our accommodations facilities, expanding and upgrading our offshore products manufacturing facilities and equipment, replacing and increasing rental tool assets, funding new product development and for general working capital needs. In addition, capital has been used to repay debt and fund strategic business acquisitions. Our primary sources of funds have been cash flow from operations, proceeds from borrowings, and capital markets transactions.
 
Cash totaling $251.3 million was provided by operations during the first six months of 2012 compared to cash totaling $96.6 million provided by operations during the first six months of 2011.  During the first six months of 2012, $111.0 million was used to fund working capital, primarily due to increased investments in working capital for our tubular services business and increases in receivables in our Canadian accommodations business.  During the first six months of 2011, $148.2 million was used to fund working capital, primarily due to increased investments in working capital for our tubular services segment, increases in receivables in our Canadian accommodations business and increased raw materials inventory in our offshore products segment due to increased activity levels.
 
Cash was used in investing activities during the six months ended June 30, 2012 and 2011 in the amounts of $196.4 million and $231.3 million, respectively.  Capital expenditures totaled $200.0 million and $230.3 million during the six months ended June 30, 2012 and 2011, respectively.  Capital expenditures in both years consisted principally of purchases and installation of assets for our accommodations and well site services segments, and in particular for accommodations investments made in support of Canadian oil sands developments and Australian mining related accommodations facilities.
 
 
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We currently expect to spend a total of approximately $600 million to $700 million for capital expenditures during 2012 to expand our Canadian oil sands and Australian mining related accommodations facilities, to fund our other product and service offerings, and for maintenance and upgrade of our equipment and facilities.  Approximately two-thirds of our total estimated 2012 capital expenditures are expected to be spent in our accommodations segment.  We expect to fund these capital expenditures with cash available, internally generated funds and borrowings under our U.S. and Canadian credit facilities.  The foregoing capital expenditure budget does not include any funds for strategic acquisitions, which the Company could pursue depending on the economic environment in our industry and the availability of transactions at prices deemed to be attractive to the Company.  At June 30, 2012, we had cash totaling $112.8 million held by foreign subsidiaries, primarily in Canada and the United Kingdom, where we have assumed permanent reinvestment of earnings and where we have not recorded a U.S. tax liability upon the assumed repatriation of foreign earnings.  We believe these cash balances will be utilized for future investment outside the United States.
 
On July 2, 2012, we acquired Piper Valve Systems, Ltd (Piper).  Subject to customary post-closing adjustments, total transaction consideration was $48.0 million, funded from amounts available under the Company’s U.S. and Canadian credit facilities.
 
Net cash of $8.5 million was used in financing activities during the six months ended June 30, 2012, primarily as a result of repayments on our U.S. and Canadian term loans, partially offset by proceeds from the issuance of common stock from share-based payment arrangements.  A total of $164.1 million was provided by financing activities during the six months ended June 30, 2011, primarily as a result of proceeds from the issuance of $600 million aggregate principal amount of 6 1/2% senior unsecured notes due 2019 in the second quarter of 2011 partially offset by repayments of our revolving credit facility.
 
On May 17, 2012, the Company gave notice of the redemption of all of its outstanding 2 3/8% Notes due 2025, totaling $174,990,000 in aggregate principal amount, on July 6, 2012 at a redemption price equal to 100% of the principal amount thereof plus accrued interest. All 2 3/8% Noteholders elected to convert their 2 3/8% Notes - see Note 13 to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
 
 
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We believe that cash on hand, cash flow from operations and available borrowings under our credit facilities will be sufficient to meet our liquidity needs in the coming twelve months.  If our plans or assumptions change, or are inaccurate, or if we make further acquisitions, we may need to raise additional capital.  Acquisitions have been, and our management believes acquisitions will continue to be, a key element of our business strategy.  The timing, size or success of any acquisition effort and the associated potential capital commitments are unpredictable and uncertain.  We may seek to fund all or part of any such efforts with proceeds from debt and/or equity issuances.  Our ability to obtain capital for additional projects to implement our growth strategy over the longer term will depend upon our future operating performance, financial condition and, more broadly, on the availability of equity and debt financing.  Capital availability will be affected by prevailing conditions in our industry, the global economy, the global financial markets and other factors, many of which are beyond our control.  In addition, such additional debt service requirements could be based on higher interest rates and shorter maturities and could impose a significant burden on our results of operations and financial condition, and the issuance of additional equity securities could result in significant dilution to stockholders.
 
Stock Repurchase Program.  On August 27, 2010, the Company announced that its Board of Directors authorized $100 million for the repurchase of the Company’s Common Stock, par value $.01 per share.  The authorization replaced the prior share repurchase authorization, which expired on December 31, 2009.  As of June 30, 2012, the Company had approximately 51.7 million shares of common stock outstanding.  The Board of Directors’ authorization is limited in duration and expires on September 1, 2012.  Subject to applicable securities laws, such purchases will be at such times and in such amounts as the Company deems appropriate.  Through June 30, 2012, a total of $12.6 million of our stock (209,300 shares) had been repurchased under the current authorization, leaving a total remaining authorization of up to approximately $87.4 million available.
 
Credit Facilities.  Our current bank credit facilities consist of a U.S. revolving credit facility, a U.S. term loan, a Canadian revolving facility, and a Canadian term loan.  The U.S. and Canadian credit facilities contain total commitments available of $1.05 billion, including Total U.S. Commitments (as defined in the Credit Agreement) of U.S. $700 million (including $200 million in U.S. term loans), and Total Canadian Commitments (as defined in the Credit Agreement) of U.S. $350 million (including $100 million in Canadian term loans).  The maturity date of the Credit Agreement is December 10, 2015. The current principal balance of the term loans is repayable at a rate of 2.5% per quarter of the aggregate principal amount until maturity on December 10, 2015 when the remaining principal is due.  We currently have 19 lenders in our Credit Agreement with commitments ranging from $25.3 million to $150 million.  While we have not experienced, nor do we anticipate, any difficulties in obtaining funding from any of these lenders at this time, the lack of or delay in funding by a significant member of our banking group could negatively affect our liquidity position.
 
As of June 30, 2012, we had $342.2 million outstanding under the Credit Agreement and an additional $27.9 million of outstanding letters of credit, leaving $648.6 million available to be drawn under the U.S. and Canadian facilities.  In July 2012, we repaid our 2 3/8% Notes and reduced availability by $175 million.
 
On July 13, 2011, The MAC entered into a A$150 million Facility Agreement with National Australia Bank Limited. The Facility Agreement amended The MAC’s existing A$75 million revolving loan facility on substantially the same terms, including the maturity date of the Facility Agreement of November 30, 2013.  As of June 30, 2012, we had A$36 million outstanding under the Australian credit facility leaving A$114 million available to be drawn under this facility.
 
Our total debt represented 34.3% of our combined total debt and stockholders’ equity at June 30, 2012 compared to 37.5% at December 31, 2011 and 36.8% at June 30, 2011.  As of June 30, 2012 and after repayment of the 2 3/8% Notes, the Company was in compliance with all of its debt covenants.
 
6 1/2% Notes.  On June 1, 2011, the Company sold $600 million aggregate principal amount of 6 1/2% senior unsecured notes due 2019 through a private placement to qualified institutional buyers.
 
The 6 1/2% Notes are senior unsecured obligations of the Company, are guaranteed by our material U.S. subsidiaries (the Guarantors), bear interest at a rate of 6 1/2% per annum and mature on June 1, 2019.  At any time prior to June 1, 2014, the Company may redeem up to 35% of the 6 1/2% Notes at a redemption price of 106.500% of the principal amount, plus accrued and unpaid interest to the redemption date, with the proceeds of certain equity offerings. Prior to June 1, 2014, the Company may redeem some or all of the 6 1/2% Notes for cash at a redemption price equal to 100% of their principal amount plus an applicable make-whole premium and accrued and unpaid interest to the redemption date. On and after June 1, 2014, the Company may redeem some or all of the 6 1/2% Notes at redemption prices (expressed as percentages of principal amount), plus accrued and unpaid interest to the redemption date.  The optional redemption prices as a percentage of principal amount are as follows:
 
 
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Twelve Month Period Beginning June 1,
 
% of Principal Amount
2014
    104.875 %
2015
    103.250 %
2016
    101.625 %
2017
    100.000 %
 
The Company utilized approximately $515 million of the net proceeds of the 6 1/2% Note offering in June 2011 to repay borrowings under its U.S. and Canadian credit facilities.  The remaining net proceeds of approximately $75 million were utilized for general corporate purposes.

On June 1, 2011, in connection with the issuance of the 6 1/2% Notes, the Company entered into an Indenture (the Indenture) with the Guarantors and Wells Fargo Bank, N.A., as trustee.  The Indenture restricts the Company's ability and the ability of the Guarantors to: (i) incur additional debt; (ii) pay distributions on, redeem or repurchase equity interests; (iii) make certain investments; (iv) incur liens; (v) enter into transactions with affiliates; (vi) merge or consolidate with another company; and (vii) transfer and sell assets. These covenants are subject to a number of important exceptions and qualifications. If at any time when the 6 1/2% Notes are rated investment grade by either Moody's Investors Service, Inc. or Standard & Poor's Ratings Services and no Default (as defined in the Indenture) has occurred and is continuing, many of such covenants will terminate and the Company and its subsidiaries will cease to be subject to such covenants. The Indenture contains customary events of default.  As of June 30, 2012, the Company was in compliance with all covenants of the 6 1/2% Notes.

2 3/8% Notes.  If certain contingent conversion thresholds based on the Company’s stock price are met and a 2 3/8% Note holder chooses to present its notes for conversion during a future quarter prior to the first put/call date in July 2012, then it will receive cash up to $1,000 for each 2 3/8% Note plus Company common stock for any excess valuation over $1,000 using the conversion rate of the 2 3/8% Notes of 31.496 multiplied by the Company’s average common stock price over a ten trading day period following presentation of the 2 3/8% Notes for conversion.  As of June 30, 2012, the contingent conversion thresholds were met and, as a result, 2 3/8% Note holders could present their notes for conversion during the quarter following the June 30, 2012 measurement date.  As of June 30, 2012, the recent trading prices of the 2 3/8% Notes exceeded their conversion value due to the remaining imbedded conversion option of the holder.  As of June 30, 2012, we had classified the $175.0 million principal amount of our  2 3/8% Notes as a noncurrent liability based on our ability and intent to refinance the 2 3/8% Notes utilizing borrowings available under our U.S. and Canadian credit facilities.
 
On May 17, 2012, the Company gave notice of the redemption of all of its outstanding 2 3/8% Notes due 2025, totaling $174,990,000 in aggregate principal amount, on July 6, 2012 at a redemption price equal to 100% of the principal amount thereof plus accrued interest. The 2 3/8% Notes were convertible by the holders thereof into shares of the Company’s Common Stock at the conversion rate of 31.496 shares of Common Stock for each $1,000 principal amount of 2 3/8% Notes converted. Rather than having their 2 3/8% Notes redeemed, on or prior to July 5, 2012, holders of $174,990,000 aggregate principal amount of the 2 3/8% Notes converted their 2 3/8% Notes and received cash up to the principal amount and 3,012,380 shares of the Company’s Common Stock.
 
Set forth below is a chart that describes the aggregate principal amount of 2 3/8% Notes converted on each Conversion Date and the resulting number of shares of Common Stock issued in connection with such conversions:
 
Conversion Date
 
Principal Amount of 2 3/8% Notes Converted
   
Number of Shares of Common Stock Issued
 
July 24, 2012
  $ 52,684,000       899,713  
July 25, 2012
    47,917,000       824,036  
July 26, 2012
    74,389,000       1,288,631  
Total
  $ 174,990,000       3,012,380  
 
 
36

 
 
Critical Accounting Policies
 
For a discussion of the critical accounting policies and estimates that we use in the preparation of our condensed consolidated financial statements, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2011 Form 10-K.  These estimates require significant judgments, assumptions and estimates.  We have discussed the development, selection and disclosure of these critical accounting policies and estimates with the audit committee of our board of directors. There have been no material changes to the judgments, assumptions and estimates, upon which our critical accounting estimates are based.
 
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
 
Interest Rate Risk
 
We have credit facilities that are subject to the risk of higher interest charges associated with increases in interest rates.  As of June 30, 2012, we had floating-rate obligations totaling approximately $379.0 million drawn under our credit facilities.  These floating-rate obligations expose us to the risk of increased interest expense in the event of increases in short-term interest rates.   If floating interest rates increased by 1%, our consolidated interest expense would increase by a total of approximately $3.8 million annually based on our floating debt obligations as of June 30, 2012.
 
Foreign Currency Exchange Rate Risk
 
Our operations are conducted in various countries around the world and we receive revenue from these operations in a number of different currencies. As such, our earnings are subject to movements in foreign currency exchange rates when transactions are denominated in (i) currencies other than the U.S. dollar, which is our functional currency or (ii) the functional currency of our subsidiaries, which is not necessarily the U.S. dollar. In order to mitigate the effects of exchange rate risks in areas outside the U.S. (primarily in our offshore products segment), we generally pay a portion of our expenses in local currencies and a substantial portion of our contracts provide for collections from customers in U.S. dollars.  During the first six months of 2012, our reported foreign exchange losses were $0.4 million and are included in “Other operating expense” in the consolidated statements of income.
 
ITEM 4. Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
 
As of the end of the period covered by this Quarterly Report on Form 10-Q, 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 Commission.  Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2012 at the reasonable assurance level.
 
Changes in Internal Control over Financial Reporting
 
Effective January 1, 2012, we reorganized our rental tools and services operations by merging several separate legal entities into one entity, realigning management and combining three formerly separate accounting groups into one accounting group with one accounting system.  This reorganization resulted in changes in our disclosure controls and procedures that were implemented during the first quarter of 2012 to ensure that information required to be disclosed and reported by this business was recorded, processed, summarized and reported accurately and on a timely basis.
 
 
37

 
 
During the three months ended June 30, 2012, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) or in other factors, which have materially affected our internal control over financial reporting, or are reasonably likely to materially affect our internal control over financial reporting.
 
PART II -- OTHER INFORMATION
 
ITEM 1.  Legal Proceedings
 
We are a party to various pending or threatened claims, lawsuits and administrative proceedings seeking damages or other remedies concerning our commercial operations, products, employees and other matters, including occasional claims by individuals alleging exposure to hazardous materials as a result of our products or operations.  Some of these claims relate to matters occurring prior to our acquisition of businesses, and some relate to businesses we have sold.  In certain cases, we are entitled to indemnification from the sellers of businesses, and in other cases, we have indemnified the buyers of businesses from us.  Although we can give no assurance about the outcome of pending legal and administrative proceedings and the effect such outcomes may have on us, we believe that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by indemnity or insurance, will not have a material adverse effect on our consolidated financial position, results of operations or liquidity.
 
ITEM 1A. Risk Factors
 
Item 1A. “Risk Factors” of our 2011 Form 10-K includes a detailed discussion of our risk factors.  The risks described in this Quarterly Report on Form 10-Q and our 2011 Form 10-K are not the only risks we face.  Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.  There have been no significant changes to our risk factors as set forth in our 2011 Form 10-K except for the additional risk factors below:
 
We could be subject to additional regulatory initiatives in the U.S. Gulf of Mexico that could subject us to increased costs and liabilities.
 
Offshore U.S. Gulf of Mexico exploration and production operations have been subject to additional, more stringent environmental and safety-related regulations and other regulatory initiatives issued by the Bureau of Ocean Energy Management (BOEM), the Bureau of Safety and Environmental Enforcement (BSEE) and the Office of Natural Resource Revenue (ONRR), in addition to their regulatory predecessors, in the aftermath of the Macondo well incident in April 2010.  In addition, governmental officials responsible for one or more of the aforementioned regulatory bodies have publically stated that their authority extends beyond oil and gas operators to include service and equipment contractors as well.  This governmental assertion of broad legal authority to govern contractors’ activity is a new development, may be subject to future clarification and may result in the development and implementation of various regulatory compliance programs governing contractor activities.  We are uncertain about the potential breadth of future regulatory initiatives, if implemented, or the specific responsibilities that may arise from these initiatives, but expect that the implementation of new or more stringent initiatives may subject us and other contractors to increased costs and liabilities to comply, which could have a significant adverse effect on our expectations.  We believe that offshore contractors and service providers, including ourselves, will closely monitor rulemaking in this area to ensure ongoing compliance.
 
Exchange rate fluctuations could adversely affect our results of operations and financial position.
 
In the ordinary course of our business, we enter into purchase and sales commitments that are denominated in currencies that differ from the functional currency used by our operating subsidiaries. Currency exchange rate fluctuations can create volatility in our consolidated financial position, results of operations and/or cash flows. Although we may enter into foreign exchange agreements with financial institutions in order to reduce our exposure to fluctuations in currency exchange rates, these transactions, if entered into, will not eliminate that risk entirely. To the extent that we are unable to match sales received in foreign currencies with expenses paid in the same currency, exchange rate fluctuations could have a negative impact on our consolidated financial position, results of operations and/or cash flows. Additionally, because our consolidated financial results are reported in U.S. dollars, if we generate net sales or earnings within entities whose functional currency is not the U.S. dollar, the translation of such amounts into U.S. dollars can result in an increase or decrease in the amount of our net sales and earnings. With respect to our potential exposure to foreign currency fluctuations and devaluations, for the six months ended June 30, 2012, approximately 30% of our sales originated from subsidiaries outside of the U.S. in currencies including, among others, the Canadian dollar, the Australian dollar and the pound sterling. As a result, a material decrease in the value of these currencies relative to the U.S. dollar may have a negative impact on our reported sales, net income and cash flows. Any currency controls implemented by local monetary authorities in countries where we currently operate could also adversely affect our business, financial condition and results of operations.
 
 
38

 
 
ITEM 2.  Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Purchases of Equity Securities

Period
 
Total Number of Shares Purchased
   
Average Price Paid per Share
   
Total Number of Shares Purchased
as Part of Publicly Announced Program
   
Approximate
Dollar Value of Shares That May Yet Be Purchased Under the Program (1)
 
April 1, 2012 – April 30, 2012
    --       --       --     $ 87,367,801  
May 1, 2012 – May 31, 2012
    282 (2)   $ 68.57 (3)     --     $ 87,367,801  
June 1, 2012 – June 30, 2012
    9,524 (2)   $ 69.58 (4)     --     $ 87,367,801  
Total
    9,806     $ 69.55       --     $ 87,367,801  

(1)  
On August 27, 2010, we announced a share repurchase program of up to $100,000,000.  The share repurchase program expires on September 1, 2012.
(2)  
Shares surrendered to us by participants in our 2001 Equity Participation Plan to settle the participants’ personal tax liabilities that resulted from the lapsing of restrictions on shares awarded to the participants under the plan.
(3)  
The price paid per share was based on the weighted average closing price of our Company’s common stock on May 15, 2012 and May 17, 2012, which represent the dates the restrictions lapsed on such shares.
(4)  
The price paid per share was based on the weighted average closing price of our Company’s common stock on June 16, 2012 and June 19, 2012, which represents the date the restrictions lapsed on such shares.

ITEM 6. Exhibits
 
(a)
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 Annual Report on Form 10-K for the year ended December 31, 2000, as filed with the Commission on March 30, 2001 (File No. 001-16337)).
     
3.2
Third Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, as filed with the Commission on March 13, 2009 (File No. 001-16337)).
     
3.3
Certificate of Designations of Special Preferred Voting Stock of Oil States International, Inc. (incorporated by reference to Exhibit 3.3 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000, as filed with the Commission on March 30, 2001 (File No. 001-16337)).
 
31.1*
Certification of Chief Executive Officer of Oil States International, Inc. pursuant to Rules 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934.
     
31.2*
Certification of Chief Financial Officer of Oil States International, Inc. pursuant to Rules 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934.
     
32.1***
Certification of Chief Executive Officer of Oil States International, Inc. pursuant to Rules 13a-14(b) or 15d-14(b) under the Securities Exchange Act of 1934.
     
32.2***
Certification of Chief Financial Officer of Oil States International, Inc. pursuant to Rules 13a-14(b) or 15d-14(b) under the Securities Exchange Act of 1934.
     
101.INS*
XBRL Instance Document
     
101.SCH*
XBRL Taxonomy Extension Schema Document
     
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF*
XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document

Filed herewith.
** 
Management contracts or compensatory plans or arrangements.
*** 
Furnished herewith.
 
 
39

 
 
SIGNATURES
 
Pursuant to the requirements 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.
 
OIL STATES INTERNATIONAL, INC.
 
  Date:
August 3, 2012
  By
 /s/ BRADLEY J. DODSON
 
       
Bradley J. Dodson
 
       
Senior Vice President, Chief Financial Officer and
 
       
Treasurer (Duly Authorized Officer and Principal
Financial Officer)
 
           
           
           
  Date:
August 3, 2012
   By
/s/ ROBERT W. HAMPTON
 
       
Robert W. Hampton
 
       
Senior Vice President -- Accounting and
 
       
Secretary (Duly Authorized Officer and Chief
Accounting Officer)
 
 
 
40

 
 
Exhibit Index
 
Exhibit No.
 
Description
3.1
Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000, as filed with the Commission on March 30, 2001 (File No. 001-16337)).
     
3.2
Third Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, as filed with the Commission on March 13, 2009 (File No. 001-16337)).
     
3.3
Certificate of Designations of Special Preferred Voting Stock of Oil States International, Inc. (incorporated by reference to Exhibit 3.3 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000, as filed with the Commission on March 30, 2001 (File No. 001-16337)).
 
31.1*
Certification of Chief Executive Officer of Oil States International, Inc. pursuant to Rules 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934.
     
31.2*
Certification of Chief Financial Officer of Oil States International, Inc. pursuant to Rules 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934.
     
32.1***
Certification of Chief Executive Officer of Oil States International, Inc. pursuant to Rules 13a-14(b) or 15d-14(b) under the Securities Exchange Act of 1934.
     
32.2***
Certification of Chief Financial Officer of Oil States International, Inc. pursuant to Rules 13a-14(b) or 15d-14(b) under the Securities Exchange Act of 1934.
     
101.INS*
XBRL Instance Document
     
101.SCH*
XBRL Taxonomy Extension Schema Document
     
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF*
XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document

Filed herewith.
** 
Management contracts or compensatory plans or arrangements.
*** 
Furnished herewith.