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Press release from GlobeNewswire (a Nasdaq OMX company)

Oil States Announces Third Quarter Earnings and New Record Offshore Products Backlog

Wednesday, October 31, 2012

Oil States Announces Third Quarter Earnings and New Record Offshore Products Backlog13:16 EDT Wednesday, October 31, 2012HOUSTON, Oct. 31, 2012 (GLOBE NEWSWIRE) -- Oil States International, Inc. (NYSE:OIS) reported net income for the quarter ended September 30, 2012 of $103.8 million, or $1.87 per diluted share, which included an unfavorable $7.5 million pre-tax, or $0.10 per diluted share after-tax, non-cash accrual adjustment in its tubular services segment. These results compare to net income of $91.9 million, or $1.67 per diluted share, in the third quarter of 2011. The Company generated revenues of $1.1 billion and EBITDA of $216.0 million during the third quarter of 2012. Excluding the non-recurring adjustment in tubular services totaling $7.5 million, revenues and EBITDA in the third quarter of 2012 were $1.1 billion and $223.5 million, respectively, compared to revenues of $902.6 million and EBITDA of $191.9 million in the third quarter of 2011 (EBITDA(A) is defined as net income plus interest, taxes, depreciation and amortization). Excluding the non-recurring adjustment, consolidated operating income and EBITDA increased by 12% and 16% year-over-year, respectively, due to organic growth initiatives in the accommodations segment, increased sales of deepwater capital equipment and growth in its well site services and tubular services segments despite softening U.S. rig counts. "Consolidated third quarter 2012 results reflected top-line growth across all of our business segments on a year-over-year basis," commented Cindy B. Taylor, Oil States' President and Chief Executive Officer. "Occupancy levels in our major Canadian lodges and Australian villages were near full capacity during the third quarter of 2012, affording us higher than anticipated RevPAR for the quarter. Given the significant number of lodge and village rooms that are contracted on a multi-year, take-or-pay basis, we have substantial revenue and profit visibility for the next couple of years, which helps mitigate the occupancy risk associated with near term commodity price volatility. Backlog in our offshore products segment reached a new record level of $597 million at September 30, 2012. The outlook for deepwater capital equipment remains robust and bidding and quoting activity is very strong. Well site services results increased sequentially despite the 4% quarter-over-quarter decrease in the U.S. land rig count. Pricing for our proprietary rental equipment and utilization of our land drilling rig fleet was strong in the third quarter. We remain focused on managing our costs and personnel throughout the U.S. shale basins as customer activity continues to be impacted by adjusting capital spending budgets and commodity prices." The Company invested $131.8 million in capital expenditures during the third quarter of 2012 primarily related to the ongoing expansion of its accommodations business, the addition of proprietary rental equipment deployed to service the active U.S. shale plays and facility and equipment investments in its offshore products segment. The Company currently expects to spend approximately $500 million to $550 million in capital expenditures during 2012 which is down from our prior estimate of $600 to $700 million due to delayed receipt of equipment and slower investments in land, buildings and accommodations facilities. Spending on these investments is expected to shift into the first half of 2013. The Company recognized an effective tax rate of 26.4% in the third quarter of 2012 compared with 28.4% in the third quarter of 2011. The lower effective tax rate in the third quarter of 2012 was primarily due to higher foreign earnings as a percentage of total earnings. Our foreign earnings are taxed at a lower rate than our domestic earnings. For the first nine months of 2012, the Company reported revenues of $3.3 billion, EBITDA of $700.4 million and net income of $350.1 million, or $6.32 per diluted share. The year-to-date results for 2012 included (i) a pre-tax benefit of $17.9 million, or $0.23 per diluted share after-tax, related to a favorable contract settlement in its U.S. accommodations business recognized in the first quarter of 2012 and (ii) a pre-tax gain of $2.5 million, or $0.03 per diluted share after-tax, related to insurance proceeds received during the second quarter for the land drilling rig that was lost in a fire. For the first nine months of 2011, the Company reported revenues of $2.5 billion, EBITDA of $492.4 million and $228.2 million of net income, or $4.15 per diluted share. BUSINESS SEGMENT RESULTS (Unless otherwise noted, the following discussion compares the quarterly results from the third quarter of 2012 to the results from the third quarter of 2011.) Accommodations Accommodations generated revenues of $273.3 million and EBITDA of $122.8 million for the third quarter of 2012 compared to revenues and EBITDA of $227.8 million and $99.5 million in the third quarter of 2011. Revenues increased 20% and EBITDA increased 23% year-over-year due to a 17% year-over-year increase in average available rooms and a 14% year-over-year increase in RevPAR related to higher occupancy levels at the Company's major lodges and villages. EBITDA margins increased 1% to 45% in the third quarter of 2012 compared to the third quarter of 2011. Well Site Services Well site services generated revenues of $181.7 million and EBITDA of $61.1 million in the third quarter of 2012 compared to revenues and EBITDA of $172.8 million and $56.4 million, respectively, in the third quarter of 2011. Revenues increased 5% and EBITDA increased 8% year-over-year primarily due to improved pricing for both rental tools and drilling. EBITDA margins for the segment increased slightly to 34% in the third quarter of 2012 compared to 33% in the third quarter of 2011. Rental tools revenue per ticket increased 4% year-over-year due to the deployment of a favorable mix of the Company's proprietary tools, particularly in the Gulf Coast, Bakken, and Eagle Ford. Activity in the third quarter of 2012, as measured by the number of service tickets issued, decreased 1% year-over-year due to reduced work available in the Haynesville, Barnett and Marcellus regions. Offshore Products Offshore products generated revenues and EBITDA of $189.5 million and $31.8 million in the third quarter of 2012 compared to revenues and EBITDA of $139.5 million and $27.9 million in the third quarter of 2011. Revenues and EBITDA increased 36% and 14% year-over-year, respectively, primarily due to a revenue mix favoring our production equipment and connector products along with contributions from the Piper Valve business which was acquired in July 2012. EBITDA margins decreased to 17% in the third quarter of 2012 compared to 20% in the third quarter of 2011 largely due to a $2.9 million, or $0.04 per diluted share after-tax, unfavorable margin adjustment booked on a subsea pipeline project in Brazil which was largely completed during 2010 and 2011. Excluding this unfavorable adjustment, EBITDA margins for the third quarter of 2012 would have been 18%. Backlog reached an all-time record level, totaling $597 million at September 30, 2012. This record backlog level compares to $562 million reported at June 30, 2012 and $514 million reported at September 30, 2011. Major backlog additions during the quarter included subsea pipeline and connector product orders along with several crane orders. Tubular Services Tubular services generated revenues of $436.2 million and EBITDA of $11.5 million during the third quarter of 2012 compared to revenues and EBITDA of $362.5 million and $18.8 million, respectively, in the third quarter of 2011. Revenues improved 20% primarily due to the Company's 17% year-over-year increase in OCTG shipments resulting from increased activity in the Gulf of Mexico coupled with certain market share gains onshore.  Despite higher revenue and shipments, EBITDA decreased by 39% year-over-year primarily due to an unfavorable $7.5 million non-cash accrual adjustment for customer credits and returned inventory caused by ERP system design and implementation issues. As a result, gross margin as a percent of revenues decreased to 3.6% in the third quarter of 2012 compared to 6.3% reported in the third quarter of 2011. Excluding this non-cash adjustment recorded during the quarter, gross margin as a percent of revenues would have been 5.3% and 5.5%, respectively, during the three and nine months ended September 30, 2012. The Company ended the quarter with $523.7 million of OCTG inventories, up $47.1 million from June 30, 2012. The increase in inventories was primarily in support of customer orders for deepwater OCTG. Oil States International, Inc. is a diversified oilfield services company and is a leading, integrated provider of remote site accommodations with prominent market positions in the Canadian oil sands and the Australian mining regions. Oil States is also a leading manufacturer of products for deepwater production facilities and subsea pipelines as well as a provider of completion-related rental tools, oil country tubular goods distribution and land drilling services to the oil and gas industry. Oil States is publicly traded on the New York Stock Exchange under the symbol OIS. For more information on the Company, please visit Oil States International's website at http://www.oilstatesintl.com. The Oil States International, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=6058 The foregoing contains forward-looking statements within the meaning of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are those that do not state historical facts and are, therefore, inherently subject to risks and uncertainties. The forward-looking statements included therein are based on then current expectations and entail various risks and uncertainties that could cause actual results to differ materially from those forward-looking statements. Such risks and uncertainties include, among other things, risks associated with the general nature of the oilfield service industry and other factors discussed in the "Business" and "Risk Factors" sections of the Form 10-K for the year ended December 31, 2011 filed by Oil States with the SEC on February 17, 2012 and the "Risk Factors" section of the form 10-Q for the three months ended June 30, 2012 filed by Oil States with the SEC on August 3, 2012.     OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES    UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In Thousands, Except Per Share Amounts)    THREE MONTHS ENDEDSEPTEMBER 30,NINE MONTHS ENDEDSEPTEMBER 30, 2012201120122011                 Revenues  $ 1,080,673  $ 902,621  $ 3,270,752  $ 2,483,379           Costs and expenses:         Cost of sales and services  814,034  665,855   2,428,994  1,857,031 Selling, general and administrative expenses  51,308  45,430   147,901  131,902 Depreciation and amortization expense  59,440  46,929   164,323  137,318 Other operating (income) expense   1,566   (57)   1,703   2,724     926,348   758,157  2,742,921  2,128,975 Operating income  154,325  144,464   527,831  354,404           Interest expense, net of capitalized interest  (15,736)  (16,760)  (51,617)  (39,541) Interest income  440  174  979  1,422 Equity in earnings (loss) of unconsolidated affiliates  30  (204)  671  (151) Other income   2,486   885   8,530   1,515 Income before income taxes  141,545  128,559  486,394  317,649 Income tax expense   (37,436)   (36,487)   (135,337)   (88,757) Net income    104,109    92,072    351,057    228,892 Less: Net income attributable to noncontrolling interest   317   221   967   721 Net income attributable to Oil States International, Inc.  $ 103,792  $ 91,851  $ 350,090  $ 228,171           Net income per share attributable to Oil States International, Inc. common stockholders          Basic    $ 1.92  $ 1.79  $ 6.69  $ 4.46 Diluted  $ 1.87  $ 1.67  $ 6.32  $ 4.15           Weighted average number of common shares outstanding:         Basic    53,975  51,264  52,347  51,144 Diluted  55,365  54,960  55,391  55,028   OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES    CONSOLIDATED BALANCE SHEETS (In Thousands)     ASSETSSEPTEMBER 30,2012DECEMBER 31,2011  (UNAUDITED)       Current assets:     Cash and cash equivalents  $ 163,551  $ 71,721 Accounts receivable, net  811,270  732,240 Inventories, net  807,317  653,698 Prepaid expenses and other current assets   18,853   32,000 Total current assets  1,800,991  1,489,659       Property, plant, and equipment, net  1,760,309  1,557,088 Goodwill, net  489,405  467,450 Other intangible assets, net  134,395  127,602 Other noncurrent assets   66,439   61,842 Total assets  $ 4,251,539  $ 3,703,641        LIABILITIES AND STOCKHOLDERS' EQUITY           Current liabilities:     Accounts payable  $ 328,029  $ 252,209 Accrued liabilities  113,291  96,748 Income taxes  31,688  10,395 Current portion of long-term debt and capitalized leases  32,605  34,435 Deferred revenue  65,158  75,497 Other current liabilities   1,761   5,665 Total current liabilities  572,532  474,949       Long-term debt and capitalized leases (B)  1,154,167  1,142,505 Deferred income taxes  112,905  97,377 Other noncurrent liabilities   27,761   25,538 Total liabilities  1,867,365  1,740,369       Stockholders' equity:     Oil States International, Inc. stockholders' equity:     Common stock, $.01 par value, 200,000,000 shares authorized, 58,458,892 shares and 54,803,539 shares issued, respectively, and 54,893,645 shares and 51,288,750 shares outstanding, respectively    585    548 Additional paid-in capital  580,479  545,730 Retained earnings  1,800,676  1,450,586 Accumulated other comprehensive income  114,464  74,371 Treasury stock, at cost, 3,565,247 and 3,514,789 shares, respectively   (113,246)   (109,079) Total Oil States International, Inc. stockholders' equity   2,382,958   1,962,156 Noncontrolling interest   1,216   1,116 Total stockholders' equity   2,384,174   1,963,272 Total liabilities and stockholders' equity  $ 4,251,539  $ 3,703,641         OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES   UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands)   NINE MONTHSENDED SEPTEMBER 30,   2012    2011      Cash flows from operating activities:     Net income  $ 351,057  $ 228,892 Adjustments to reconcile net income to net cash provided by operating activities:     Depreciation and amortization  164,323  137,318 Deferred income tax provision  5,122  16,281 Excess tax benefits from share-based payment arrangements  (7,739)  (7,966) Gains on disposals of assets  (7,131)  (1,650) Non-cash compensation charge  13,934  10,829 Accretion of debt discount  4,106  5,787 Amortization of deferred financing costs  5,249  4,699 Other, net  (9)  (16) Changes in operating assets and liabilities, net of effect from acquired businesses:     Accounts receivable  (62,688)  (109,415) Inventories  (140,408)  (104,421) Accounts payable and accrued liabilities  84,449  28,137 Taxes payable  38,035  11,343 Other current assets and liabilities, net   (2,337)   3,256 Net cash flows provided by operating activities  445,963  223,074       Cash flows from investing activities:     Capital expenditures, including capitalized interest  (331,750)  (371,165) Acquisitions of businesses, net of cash acquired  (48,000)  (212) Proceeds from disposition of property, plant and equipment  9,609  2,778 Other, net   (1,668)   (3,601) Net cash flows used in investing activities  (371,809)  (372,200)       Cash flows from financing activities:     Revolving credit borrowings and (repayments), net  201,837  (395,908) 6 1/2% senior notes issued  ----  600,000 Payment of principal on 2 3/8% Notes conversion  (174,990)  ---- Term loan repayments  (22,510)  (11,246) Debt and capital lease repayments  (2,453)  (966) Issuance of common stock from share-based payment arrangements  13,108  11,559 Purchase of treasury stock  ----  (12,632) Excess tax benefits from share-based payment arrangements  7,739  7,966 Payment of financing costs  (3,264)  (13,152) Tax withholdings related to net share settlements of restricted stock  (4,167)  (2,540) Other, net   3   (11) Net cash flows provided by (used in) financing activities  15,303  183,070       Effect of exchange rate changes on cash   2,802   (11,325) Net increase in cash and cash equivalents from continuing operations  92,259  22,619 Net cash used in discontinued operations – operating activities  (429)  (118) Cash and cash equivalents, beginning of period   71,721   96,350 Cash and cash equivalents, end of period  $ 163,551    $ 118,851              Non-cash financing activities:     Value of common stock issued in payment of 2 3/8% Notes conversion  $ 220,597  $ ----     Oil States International, Inc. Segment Data (in thousands) (unaudited)             Three Months Ended September 30, Nine Months Ended September 30,   2012 2011 2012 2011           Revenues          Rental tools  $130,752 $127,217 $391,385 $347,406 Drilling services   50,995  45,550  149,857  119,653 Well site services   181,747  172,767  541,242  467,059 Accommodations   273,315  227,783  836,101  627,824 Offshore products   189,450  139,525  566,808  399,709 Tubular services   436,161  362,546  1,326,601  988,787 Total revenues  $1,080,673 $902,621 $3,270,752 $2,483,379           EBITDA (A)          Rental tools  $45,207 $43,297 $133,076 $112,878 Drilling services (C)   15,931  13,145  45,645  31,742 Well site services   61,138  56,442  178,721  144,620 Accommodations (C)   122,823  99,461  386,418  258,641 Offshore products   31,772  27,875  108,950  69,871 Tubular services (D)   11,460  18,838  59,972  50,011 Corporate and eliminations   (11,229)  (10,763)  (33,673)  (30,778) Total EBITDA  $215,964 $191,853 $700,388 $492,365           Operating income / (loss)          Rental tools  $32,218 $32,939 $94,986 $82,432 Drilling services   9,943  7,973  25,760  16,578 Well site services   42,161  40,912  120,746  99,010 Accommodations (C)   85,132  71,727  287,364  178,451 Offshore products   28,026  24,854  97,116  60,374 Tubular services (D)   10,515  17,934  56,990  47,936 Corporate and eliminations   (11,509)  (10,963)  (34,385)  (31,367) Total operating income  $154,325 $144,464 $527,831 $354,404 (C) The EBITDA of our drilling business for the nine months ended September 30, 2012 includes a pre-tax gain of $2.5 million related to insurance proceeds received during the second quarter for the land drilling rig that was lost in a fire. In addition, the EBITDA and operating income of our accommodations segment for the nine months ended September 30, 2012 includes a pre-tax benefit of $17.9 million related to a favorable contract settlement in its U.S. accommodations business recognized in the first quarter of 2012.     (D) The EBITDA and operating income of our tubular services segment for the three months ended September 30, 2012 includes $7.5 of out-of-period adjustments related to corrections of accruals for customer credits and related returned inventory.     Oil States International, Inc. Additional Quarterly Segment and Operating Data (unaudited)         Three Months Ended September 30,   2012 2011       Supplemental operating data            Lodge/village revenues ($ in thousands)  $216,969 $162,359 Other accommodations revenues ($ in thousands)   56,346  65,424 Total accommodations revenues ($ in thousands)  $273,315 $227,783       Average available lodge/village rooms   18,644  15,931 Lodge/village revenues per available room  $126 $111       Offshore products backlog ($ in millions)  $596.9 $513.9       Rental tool job tickets   12,674  12,777 Average revenue per ticket ($ in thousands)  $10.3 $10.0       Tubular services operating data      Shipments (tons in thousands)  213.5 182.3 Quarter end inventory ($ in thousands)  $523,718 $375,114       Land drilling operating statistics      Average rigs available  33 34 Utilization  91.6% 88.4% Implied day rate ($ in thousands per day)  $18.3 $16.5 Implied daily cash margin ($ in thousands per day)  $6.0 $5.0 (A) The term EBITDA consists of net income plus interest, taxes, depreciation and amortization. EBITDA is not a measure of financial performance under generally accepted accounting principles and should not be considered in isolation from or as a substitute for net income or cash flow measures prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity. Additionally, EBITDA may not be comparable to other similarly titled measures of other companies. The Company has included EBITDA as a supplemental disclosure because its management believes that EBITDA provides useful information regarding our ability to service debt and to fund capital expenditures and provides investors a helpful measure for comparing its operating performance with the performance of other companies that have different financing and capital structures or tax rates. The Company uses EBITDA to compare and to monitor the performance of its business segments to other comparable public companies and as a benchmark for the award of incentive compensation under its annual incentive compensation plan.  The following table sets forth a reconciliation of EBITDA to net income, which is the most directly comparable measure of financial performance calculated under generally accepted accounting principles.   Oil States International, Inc. Reconciliation of GAAP to Non-GAAP Financial Information (in thousands) (unaudited)             Three Months Ended September 30, Nine Months Ended September 30,   2012 2011 2012 2011           Net income / (loss)  $103,792 $91,851 $350,090 $228,171 Income tax provision   37,436  36,487  135,337  88,757 Depreciation and amortization   59,440  46,929  164,323  137,318 Interest income   (440)  (174)  (979)  (1,422) Interest expense   15,736  16,760  51,617  39,541 EBITDA  $215,964 $191,853 $700,388 $492,365 (B) As of September 30, 2012, the Company had approximately $710 million available under its credit facilities.CONTACT: Company Contact: Bradley J. Dodson Oil States International, Inc. 713-652-0582