OIL STATES INTERNATIONAL, INC - Quarter Report: 2015 September (Form 10-Q)

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		THREE MONTHS ENDED								NINE MONTHS ENDED
		SEPTEMBER 30,								SEPTEMBER 30,
		2015				2014				2015				2014
Revenues		$	258,886			$	471,032			$	865,503			$	1,335,876
Costs and expenses:
Cost of sales and services			188,590				306,497				620,976				886,777
Selling, general and administrative expenses			33,126				43,734				100,732				128,181
Depreciation and amortization expense			31,730				31,076				96,742				92,970
Other operating expense (income)			(1,206	)			(1,887	)			(2,077	)			9,524
			252,240				379,420				816,373				1,117,452
Operating income			6,646				91,612				49,130				218,424
Interest expense			(1,541	)			(1,602	)			(4,876	)			(15,500	)
Interest income			153				150				428				411
Loss on extinguishment of debt			--				30				--				(100,380	)
Other income			401				235				1,221				2,571
Income from continuing operations before income taxes			5,659				90,425				45,903				105,526
Income tax provision			(3,953	)			(32,048	)			(18,646	)			(36,545	)
Net income from continuing operations			1,706				58,377				27,257				68,981
Net income (loss) from discontinued operations, net of tax			23				(1,467	)			224				51,571
Net income			1,729				56,910				27,481				120,552
Less: Net income (loss) attributable to noncontrolling interest			--				(10	)			--				8
Net income attributable to Oil States International, Inc.		$	1,729			$	56,920			$	27,481			$	120,544
Net income (loss) attributable to Oil States International, Inc.:
Continuing operations		$	1,706			$	58,387			$	27,257			$	68,973
Discontinued operations			23				(1,467	)			224				51,571
Net income attributable to Oil States International, Inc.		$	1,729			$	56,920			$	27,481			$	120,544
Basic net income (loss) per share attributable to Oil States International, Inc. common stockholders from:
Continuing operations		$	0.03			$	1.08			$	0.53			$	1.28
Discontinued operations			--				(0.03	)			--				0.95
Net income		$	0.03			$	1.05			$	0.53			$	2.23
Diluted net income (loss) per share attributable to Oil States International, Inc. common stockholders from:
Continuing operations		$	0.03			$	1.07			$	0.53			$	1.27
Discontinued operations			--				(0.02	)			--				0.95
Net income		$	0.03			$	1.05			$	0.53			$	2.22
Weighted average number of common shares outstanding:
Basic			50,011				52,979				50,422				53,119
Diluted			50,050				53,294				50,500				53,422

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		THREE MONTHS ENDED								NINE MONTHS ENDED
		SEPTEMBER 30,								SEPTEMBER 30,
		2015				2014				2015				2014
Net income		$	1,729			$	56,910			$	27,481			$	120,552
Other comprehensive income (loss):
Foreign currency translation adjustment			(15,415	)			(13,144	)			(20,132	)			10,301
Unrealized gain on forward contracts, net of tax			88				3				160				4
Total other comprehensive income (loss)			(15,327	)			(13,141	)			(19,972	)			10,305
Comprehensive income (loss)			(13,598	)			43,769				7,509				130,857
Less: Comprehensive loss attributable to noncontrolling interest			--				(10	)			--				(16	)
Comprehensive income (loss) attributable to Oil States International, Inc.		$	(13,598	)		$	43,779			$	7,509			$	130,873

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		SEPTEMBER 30,				DECEMBER 31,
		2015				2014
		(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents		$	85,715			$	53,263
Accounts receivable, net			304,574				497,124
Inventories, net			226,394				232,490
Prepaid expenses and other current assets			31,325				43,789
Total current assets			648,008				826,666
Property, plant, and equipment, net			648,330				649,846
Goodwill, net			264,308				252,201
Other intangible assets, net			60,558				52,935
Other noncurrent assets			27,134				27,964
Total assets		$	1,648,338			$	1,809,612
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	72,345			$	108,949
Accrued liabilities			61,434				96,130
Income taxes			9,056				9,195
Current portion of long-term debt and capitalized leases			515				530
Deferred revenue			28,820				48,948
Deferred tax liabilities			12,562				7,431
Other current liabilities			213				229
Total current liabilities			184,945				271,412
Long-term debt and capitalized leases			159,611				146,835
Deferred income taxes			30,151				33,913
Other noncurrent liabilities			18,988				16,795
Total liabilities			393,695				468,955
Stockholders’ equity:
Oil States International, Inc. stockholders’ equity:
Common stock, $.01 par value, 200,000,000 shares authorized, 61,564,018 shares and 60,940,734 shares issued, respectively, and 50,805,727 shares and 53,017,359 shares outstanding, respectively			616				610
Additional paid-in capital			704,402				685,232
Retained earnings			1,178,747				1,151,266
Accumulated other comprehensive loss			(42,072	)			(22,100	)
Common stock held in treasury at cost, 10,758,291 and 7,923,375 shares, respectively			(587,050	)			(474,351	)
Total Oil States International, Inc. stockholders’ equity			1,254,643				1,340,657
Noncontrolling interest			--				--
Total stockholders’ equity			1,254,643				1,340,657
Total liabilities and stockholders’ equity		$	1,648,338			$	1,809,612

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		NINE MONTHS ENDED SEPTEMBER 30,
		2015				2014
Cash flows from operating activities:
Net income		$	27,481			$	120,552
Adjustments to reconcile net income to net cash provided by operating activities:
Income from discontinued operations			(224	)			(51,571	)
Depreciation and amortization			96,742				92,970
Deferred income tax benefit			(2,862	)			(20,144	)
Tax impact of share-based payment arrangements			(550	)			(4,585	)
Provision for bad debt			(99	)			3,767
Gain on disposals of assets			(907	)			(1,761	)
Non-cash compensation charge			16,245				19,284
Amortization of deferred financing costs			585				1,625
Loss on extinguishment of debt			--				100,380
Other, net			--				(182	)
Changes in operating assets and liabilities, net of effect from acquired businesses:
Accounts receivable			189,882				(71,442	)
Inventories			5,207				(11,534	)
Accounts payable and accrued liabilities			(71,848	)			(20,257	)
Taxes payable			5,784				(38,990	)
Other operating assets and liabilities, net			(12,959	)			23,238
Net cash flows provided by continuing operating activities			252,477				141,350
Net cash flows provided by discontinued operating activities			350				161,130
Net cash flows provided by operating activities			252,827				302,480
Cash flows from investing activities:
Capital expenditures			(92,314	)			(142,549	)
Acquisitions of businesses, net of cash acquired			(33,427	)			193
Proceeds from disposition of property, plant and equipment			1,911				3,069
Other, net			(491	)			(1,463	)
Net cash flows used in continuing investing activities			(124,321	)			(140,750	)
Net cash flows used in discontinued investing activities			--				(119,061	)
Net cash flows used in investing activities			(124,321	)			(259,811	)
Cash flows from financing activities:
Revolving credit borrowings, net			13,084				171,734
Repayment of 6 1/2% Senior Notes			--				(630,307	)
Repayment of 5 1/8% Senior Notes			--				(419,794	)
Distribution received from Spin-Off of Civeo			--				750,000
Debt and capital lease repayments			(411	)			(408	)
Issuance of common stock from share-based payment arrangements			2,385				8,844
Purchase of treasury stock			(104,596	)			(162,053	)
Tax impact of share-based payment arrangements			550				4,585
Shares added to treasury stock as a result of net share settlements due to vesting of restricted stock			(6,786	)			(5,048	)
Payment of financing costs			(2	)			(3,862	)
Other, net			--				1
Net cash flows used in continuing financing activities			(95,776	)			(286,308	)
Net cash flows used in discontinued financing activities			--				(282,204	)
Net cash flows used in financing activities			(95,776	)			(568,512	)
Effect of exchange rate changes on cash			(278	)			(3,663	)
Net change in cash and cash equivalents			32,452				(529,506	)
Cash and cash equivalents, beginning of period			53,263				599,306
Cash and cash equivalents, end of period		$	85,715			$	69,800

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		Common Stock				Additional Paid- In Capital				Retained Earnings				Accumulated Other Comprehensive Income (Loss)				Treasury Stock				Total Stockholders' Equity
Balance, December 31, 2014		$	610			$	685,232			$	1,151,266			$	(22,100	)		$	(474,351	)		$	1,340,657
Net income.											27,481												27,481
Currency translation adjustment (excluding intercompany notes)															(16,295	)							(16,295	)
Currency translation adjustment on intercompany notes															(3,837	)							(3,837	)
Unrealized gain on forward contracts, net of tax															160								160
Exercise of stock options, including tax impact			2				2,932																2,934
Amortization of restricted stock compensation							13,993																13,993
Stock option expense							2,252																2,252
Restricted stock awards granted			4				(4	)															--
Surrender of stock to pay taxes on stock option exercises and restricted stock awards																			(6,786	)			(6,786	)
OIS common stock withdrawn from deferred compensation plan							(3	)											3				--
Share repurchases																			(105,916	)			(105,916	)
Balance, September 30, 2015		$	616			$	704,402			$	1,178,747			$	(42,072	)		$	(587,050	)		$	1,254,643

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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.

 

On May 30, 2014, we completed the spin-off of our accommodations business into a stand-alone, publicly traded corporation (Civeo Corporation, or Civeo) (the Spin-Off). The results of operations for our accommodations business have been classified as discontinued operations for all periods presented. Unless indicated otherwise, the information in the Notes to the Unaudited Condensed Consolidated Financial Statements relates to our continuing operations.

 

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 condensed 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. Our industry is cyclical and this cyclicality impacts our estimates of the period over which future cash flows will be generated, as well as the predictability of these cash flows including our determination of whether a decline in value of our long-lived assets and related fair values of our reporting units have occurred. A longer term continuation of the current down cycle will likely result in changes in our estimates of forward cash flow timing and amounts and may result in impairment losses.

 

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, 2014 (the 2014 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 September 2015, the FASB issued guidance on measurement-period adjustments for business combinations which require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period with a corresponding adjustment to goodwill in the reporting period in which the adjustment amounts are determined, as opposed to revising prior periods presented in financial statements as previously required. Thus, an acquirer shall record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. This guidance requires an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. For public business entities, the guidance is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. This guidance should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this guidance with earlier application permitted for financial statements that have not been issued. We do not expect that the adoption of this standard will have a material effect on our consolidated financial statements.

In July 2015, the FASB issued guidance on the measurement of inventory which simplifies the guidance on the subsequent measurement of inventory, excluding inventory measured using last-in, first out or the retail inventory method. Under this guidance, in scope inventory should be measured at the lower of cost and net realizable value. This guidance is effective for interim and annual periods beginning after December 15, 2016, with early adoption permitted. We are evaluating the impact of this guidance on our consolidated financial statements and our timing for adoption but do not expect that the adoption of this guidance will have a material effect on our consolidated financial statements.

 

 

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED 

FINANCIAL STATEMENTS

(Continued)

 

In April 2015, the FASB issued guidance on the presentation of debt issuance costs which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. In August 2015, the FASB issued additional guidance on this topic which adds comments from the Commission addressing the guidance issued in April 2015 and debt issuance costs related to line-of-credit arrangements. The Commission commented it would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The recognition and measurement guidance for debt issuance costs are not affected by this guidance. For public business entities, this guidance is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. We do not expect that the adoption of this standard will have a material effect on our consolidated financial statements.

 

In May 2014, the FASB issued guidance on revenue from contracts with customers that will supersede most current revenue recognition guidance, including industry-specific guidance. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include capitalization of certain contract costs, consideration of time value of money in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. In August 2015, the FASB issued guidance deferring the effective date by one year to December 15, 2017 for fiscal years, and interim periods within those years, beginning after that date and permitted early adoption of the standard, but not before the original effective date of December 15, 2016. The guidance permits the use of either a retrospective or cumulative effect transition method. We have not yet selected a transition method and are currently evaluating the impact of the amended guidance on our consolidated financial position, results of operations and related disclosures.

3.	DETAILS OF SELECTED BALANCE SHEET ACCOUNTS

 

Additional information regarding selected balance sheet accounts at September 30, 2015 and December 31, 2014 is presented below (in thousands):

 

 

 

 

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED 

FINANCIAL STATEMENTS

(Continued)

 

 

 

 

4.	ACCUMULATED OTHER COMPREHENSIVE LOSS

 

Our accumulated other comprehensive loss, reported as a component of stockholders’ equity, increased from $22.1 million at December 31, 2014 to $42.1 million at September 30, 2015 primarily as a result of foreign currency exchange rate differences. Our accumulated other comprehensive loss is primarily related to fluctuations in the foreign currency exchange rates compared to the U.S. dollar which are used to remeasure the foreign operations of our reportable segments (primarily in the United Kingdom, Brazil, Thailand and Canada). During the first nine months of 2015, the U.S. dollar strengthened significantly relative to the majority of these key foreign currencies, and, as a result, our accumulated other comprehensive loss increased.

 

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5.	EARNINGS PER SHARE

 

The numerator (income or loss) and denominator (shares) used for the computation of basic and diluted earnings per share were as follows (in thousands):

 

 

 

 

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED 

FINANCIAL STATEMENTS

(Continued)

 

Our calculation of diluted earnings per share for the three and nine months ended September 30, 2015 excluded 757,150 shares and 745,514 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 nine months ended September 30, 2014 excluded 196,039 shares and 186,354 shares, respectively, issuable pursuant to outstanding stock options and restricted stock awards, due to their antidilutive effect.

 

6.	BUSINESS ACQUISITIONS AND GOODWILL

 

On January 2, 2015, we acquired all of the equity of Montgomery Machine Company, Inc. (MMC). Headquartered in Houston, Texas, MMC combines machining and proprietary cladding technology and services to manufacture high-specification components for the offshore capital equipment industry. We believe that the acquisition of MMC will strengthen our position in our offshore products segment as a supplier of subsea components with enhanced capabilities, proprietary technology and logistical advantages. Total transaction consideration was $33.4 million in cash, net of cash acquired, funded from amounts available under the Company’s credit facility. The operations of MMC have been included in our offshore products segment since the acquisition date.

 

Changes in the carrying amount of goodwill for the nine month period ended September 30, 2015 were as follows (in thousands):

 

 

7.	DISCONTINUED OPERATIONS

 

On May 30, 2014, we completed the Spin-Off of our accommodations business, Civeo Corporation, to the Company’s stockholders. On May 30, 2014, the stockholders of record of Oil States common stock as of the close of business on May 21, 2014 (the Record Date) received two shares of Civeo common stock for each share of Oil States common stock held as of the Record Date. Following the Spin-Off, Oil States ceased to own any shares of Civeo common stock.

 

 

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED 

FINANCIAL STATEMENTS

(Continued)

 

The following table provides the components of net income from discontinued operations, net of tax for each operating segment (in thousands).

 

 

8.

DEBT

 

As of September 30, 2015 and December 31, 2014, long-term debt consisted of the following (in thousands):

 

 

Credit Facility

 

In connection with the Spin-Off, the Company terminated its then existing credit facility on May 28, 2014 and entered into a new $600 million senior secured revolving credit facility. The Company has an option to increase the maximum borrowings under its revolving credit facility to $750 million subject to additional lender commitments prior to its maturity on May 28, 2019. The credit facility is governed by a Credit Agreement dated as of May 28, 2014 (Credit Agreement) by and among the Company, the Lenders party thereto, Wells Fargo Bank, N.A., as administrative agent, the Swing Line Lender and an Issuing Bank, and Royal Bank of Canada, as Syndication agent, and Compass Bank, as Documentation agent. Amounts outstanding under the revolving credit facility bear interest at LIBOR plus a margin of 1.50% to 2.50%, or at a base rate plus a margin of 0.50% to 1.50%, in each case based on a ratio of the Company’s total leverage to EBITDA (as defined in the Credit Agreement). During the first nine months of 2015, our applicable margin over LIBOR was 1.50%. We must also pay a quarterly commitment fee, based on our leverage ratio, on the unused commitments under the Credit Agreement. The unused commitment fee was 0.375% for the first nine months of 2015. The Credit Agreement contains customary financial covenants and restrictions. Specifically, we must maintain an interest coverage ratio, defined as the ratio of consolidated EBITDA, to consolidated interest expense of at least 3.0 to 1.0 and our maximum leverage ratio, defined as the ratio of total debt to consolidated EBITDA of no greater than 3.25 to 1.0. Each of the factors considered in the calculations of these ratios are defined in the Credit Agreement. EBITDA and consolidated interest, exclude goodwill impairments, losses on extinguishment of debt, debt discount amortization and other non-cash charges. As of September 30, 2015, we were in compliance with our debt covenants. Borrowings under the Credit Agreement are secured by a pledge of substantially all of our assets and the assets of our domestic subsidiaries.  Our obligations under the Credit Agreement are guaranteed by our significant domestic subsidiaries. The credit facility also contains negative covenants that limit the Company's ability to borrow additional funds, encumber assets, pay dividends, sell assets and enter into other significant transactions. As of September 30, 2015, we had $153.8 million outstanding under the Credit Agreement and an additional $39.5 million of outstanding letters of credit, leaving $406.7 million available to be drawn under the credit facility. As of September 30, 2015, the Company had approximately $85.7 million of cash and cash equivalents.

 

 

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED 

FINANCIAL STATEMENTS

(Continued)

 

Loss on Extinguishment of Debt

 

During the first nine months of 2014, we recognized losses on the extinguishment of debt totaling $100.4 million primarily due to the repurchase of our remaining 6 1/2% Notes and 5 1/8% Notes (the Notes), which resulted in a loss of $96.7 million consisting of the premium paid over book value for the Notes and the write-off of unamortized deferred financing costs associated with the Notes. This repurchase was partially funded with the proceeds of the $750 million special cash dividend paid to us by Civeo in connection with the Spin-Off, along with available cash on hand. In addition, as a result of the refinancing of our existing credit facility in the second quarter of 2014, we recognized a loss on extinguishment of debt of $3.7 million (net of $1.8 million allocated to discontinued operations for the Canadian portion of the facility) from the write-off of unamortized deferred financing costs.

 

9.	FAIR VALUE MEASUREMENTS

 

The Company’s financial instruments consist of cash and cash equivalents, investments, receivables, payables, bank debt and foreign currency forward contracts. The Company believes that the carrying values of these instruments on the accompanying consolidated balance sheets approximate their fair values.

 

10.	CHANGES IN COMMON STOCK OUTSTANDING

 

 

On September 6, 2013, the Company announced an increase in its Board-authorized Company share repurchase program from $200 million to $500 million providing for the repurchase of the Company’s common stock, par value $.01 per share. On July 29, 2015, the Company’s Board of Directors approved the termination of our existing share repurchase program and authorized a new program providing for the repurchase of up to $150 million of the Company’s common stock, par value $.01 per share. The new program is set to expire on July 29, 2016. During the nine months ended September 30, 2015, a total of $105.9 million of our stock (2,674,218 shares) were repurchased under these programs compared to $155.4 million (1,704,127 shares) during the nine months ended September 30, 2014. The amount remaining under our current share repurchase authorization as of September 30, 2015 was approximately $136.8 million. Subject to applicable securities laws, such purchases will be at such times and in such amounts as the Company deems appropriate.

 

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11.	STOCK BASED COMPENSATION

 

The following table presents a summary of stock option award and restricted stock award activity for the nine months ended September 30, 2015.

 

 

Stock based compensation pre-tax expense from continuing operations recognized in the three month periods ended September 30, 2015 and 2014 totaled $5.5 million and $6.8 million, respectively. Stock based compensation pre-tax expense from continuing operations recognized in the nine month periods ended September 30, 2015 and 2014 totaled $16.2 million and $19.3 million, respectively.

 

In February 2015, the Company granted performance based stock awards totaling 75,900 shares valued at a total of $3.2 million. These performance based awards may vest in February 2018 in an amount that will depend on the Company’s achievement of specified performance objectives. These performance based awards have a performance criteria that will be measured based upon the Company’s achievement of specified levels of average after-tax annual return on invested capital for the three year period commencing January 1, 2015 and ending December 31, 2017.

 

At September 30, 2015, $38.3 million of compensation cost related to unvested stock options and restricted stock awards attributable to vesting conditions had not yet been recognized.

 

12.	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 nine months ended September 30, 2015 was income tax expense of $4.0 million, representing 69.9% of pretax income, and $18.6 million, representing 40.6% of pretax income, respectively, compared to income tax expense of $32.0 million, or 35.4% of pretax income, and income tax expense of $36.5 million, or 34.6% of pretax income, respectively, for the three and nine months ended September 30, 2014. The higher effective tax rate in the third quarter of 2015 compared to the third quarter of 2014 was primarily due to a $3.2 million tax valuation allowance recorded against certain of the Company’s deferred tax assets. The increase in the effective tax rate for the nine months ended September 30, 2015 compared to the same period in 2014 was largely the result of the $3.5 million tax valuation allowance recorded against certain of the Company’s deferred tax assets, a $2.3 million deferred tax adjustment for certain prior period non-deductible items in 2015, partially offset by reduced domestic income in 2015 due to the impact of the industry downturn in activity and the loss incurred in 2014 from the extinguishment of debt associated with the debt refinancings completed in conjunction with the Spin-Off.  

 

13.	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 and offshore products. 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 information for that segment.

 

 

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED 

FINANCIAL STATEMENTS

(Continued)

 

Financial information by business segment for continuing operations for each of the three and nine months ended September 30, 2015 and 2014 is summarized in the following table (in thousands):

 

 

 

 

 

(1)

The corporate operating losses for the nine months ended September 30, 2014 include $11.0 million of transactions costs primarily related to the Spin-Off.