What changed in this filing

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Item 1. Financial Statements

2021-04-29 compared with 2020-10-29 · 72 added, 154 removed, 314 unchanged (42% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

(In thousands, except per share data)

30 unchanged sentences

100,000,000 shares authorized at $ 0.01 par value, 35,428,778 and 35,417,712

shares issued and outstanding at September 30, 2020 and December 31, 2019

shares issued and outstanding at March 31, 2021 and December 31, 2020

Additional paid-in capital

7 unchanged sentences

Three months ended

Nine months ended

September 30,

(In thousands, except per share data)

6 unchanged sentences

Restructuring and other charges

(Gain) loss on sale of assets

Gain on sale of assets

Foreign currency transaction (gains) and losses

Total costs and expenses

Operating income (loss)

Operating loss

Interest income

Interest expense

Income (loss) before income taxes

Loss before income taxes

Income tax provision (benefit)

Net income (loss)

Income (loss) per common share:

Loss per common share:

Weighted average common shares outstanding:

3 unchanged sentences

Three months ended

Nine months ended

September 30,

(In thousands)

Net income (loss)

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments

Total comprehensive income (loss)

Total comprehensive loss

The accompanying notes are an integral part of these condensed consolidated financial statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine months ended

September 30,

Three months ended

(In thousands)

2 unchanged sentences

Depreciation and amortization

Release of contingent consideration

Stock-based compensation expense

12 unchanged sentences

Proceeds from sale of equipment

Net cash used in investing activities

Net cash provided by (used in) investing activities

Financing activities

Repurchase of common shares

Proceeds from exercise of stock options

Net cash used in financing activities

Effect of exchange rate changes on cash activities

Decrease in cash and cash equivalents

Increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

7 unchanged sentences

(In thousands, except shares)

Balance at July 1, 2020

Foreign currency translation adjustment

Comprehensive income

Stock option expense

Balance at September 30, 2020

Balance at January 1, 2021

1 unchanged sentence

Comprehensive loss

Repurchase of common stock ( 808,389 shares)

Stock option expense

Balance at September 30, 2020

Balance at March 31, 2021

Additional Paid-In Capital

2 unchanged sentences

(In thousands, except shares)

Balance at July 1, 2019

Foreign currency translation adjustment

Comprehensive loss

Repurchase of common stock ( 75,737 shares)

Options exercised and awards vested ( 47,712 shares), net of shares withheld for employee taxes

Stock option expense

Balance at September 30, 2019

Balance at January 1, 2020

2 unchanged sentences

Repurchase of common stock ( 808,389 shares)

Options exercised and awards vested ( 47,712 shares), net of shares withheld for employee taxes

Stock option expense

Balance at September 30, 2019

Balance at March 31, 2020

The accompanying notes are an integral part of these condensed consolidated financial statements.

11 unchanged sentences

headquartered in Singapore).

Each of these segments sells similar products and services, and the Company has major manufacturing facilities in all three of its regional headquarter locations, as well as in Macae, Brazil.

Each of these segments sells similar products and services, and the Company has manufacturing facilities in all three of its regional headquarter locations, as well as in Macae, Brazil.

The Company’s major subsidiaries are Dril-Quip (Europe) Limited, located in Aberdeen with branches in Azerbaijan, Denmark, Norway and Holland;

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de R.L.C.V., located in Villahermosa, Mexico;

TIW de Venezuela S.A., located in Anaco, Venezuela and with a registered branch located in Ecuador;

Dril-Quip Venezuela S.C.A., located in Anaco, Venezuela and with a registered branch located in Ecuador;

TIW (UK) Limited, located in Aberdeen, Scotland;

TIW Hungary LLC, located in Szolnok, Hungary;

and TIW International LLC, with a registered branch located in Singapore.

1 unchanged sentence

The balance sheet at December 31, 2020 has been derived from the audited consolidated financial statements as of that date.

In the opinion of management, the unaudited condensed consolidated interim financial statements include all normal recurring adjustments necessary for a fair statement of the financial position as of September 30, 2020 and the results of operations and comprehensive income (loss) for the three and nine months ended September 30, 2020 and 2019 and cash flows for the nine months ended September 30, 2020 and 2019.

In the opinion of management, the unaudited condensed consolidated interim financial statements include all normal recurring adjustments necessary for a fair statement of the financial position as of March 31, 2021 and the results of operations and comprehensive income (loss) for the three months ended March 31, 2021 and 2020 and cash flows for the three months ended March 31, 2021 and 2020.

Certain information and footnote disclosures normally included in annual audited consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission.

The results of operations and comprehensive income (loss) for the three and nine months ended September 30, 2020 and cash flows for the nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the full year.

The results of operations and comprehensive income (loss) for the three months ended March 31, 2021 and cash flows for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the full year.

The condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

The outbreak of COVID-19 and its development into a pandemic has continued to result in significant economic disruption globally.

Although we have seen some relaxation in the actions taken by various governmental authorities, individuals and companies around the world to prevent the spread of COVID-19, such actions continue to impact our business and have significantly reduced global economic activity and caused global demand for oil and gas to decrease at an unprecedented rate.

This demand reduction was further exacerbated by disputes over oil production by the Organization of Petroleum Exporting Countries (OPEC) and non-OPEC nations.

Although the OPEC and non-OPEC nations have since agreed upon substantial production cuts to stabilize oil prices, the dispute has led to significant declines and volatility in crude oil prices, resulting in a challenging industry environment.

The extent of the impact of the pandemic and the decline in oil prices on our operational and financial performance will depend on future developments, which are uncertain and cannot be predicted.

In February 2021, a severe winter storm resulted in widespread power outages across Texas.

This unprecedented event caused our Houston manufacturing facilities to be shut down for a week resulting in additional costs.

In addition to these weather-related impacts, we are continuing to experience effects resulting from the COVID-19 pandemic, although to a lesser degree as compared to 2020.

The introduction of the COVID-19 vaccine during the first quarter of 2021 and the recent availability of the vaccine to the general population has resulted in the rate of new infections trend downwards.

Although the downward trend is encouraging, the effect of the pandemic and the actions and changes in consumer behavior resulting from the pandemic continue to impact our business and have significantly reduced global economic activity and caused global demand for oil and gas to decrease at an unprecedented rate.

This demand reduction was further exacerbated by disputes over oil production between the Organization of Petroleum Exporting Countries (OPEC) and non-OPEC nations.

We continue to experience demand deterioration in 2021 as the market continues to be volatile and challenging.

The extent of the impact of the pandemic, including economic impacts that may persist following the widespread deployment of vaccines, and the decline in oil prices on our operational and financial performance will depend on future developments, which are uncertain and cannot be predicted.

An extended period of economic disruption could have a material adverse impact on our business, results of operations, access to sources of liquidity and overall financial condition.

14 unchanged sentences

The customer may instead choose to use a third party or its own personnel.

Lease revenues

The Company earns lease revenues from the rental of running tools and rental of its forging facility.

Rental revenues are recognized within leasing revenues on a day rate basis over the lease term, which is generally between one to three months.

Leasing revenues

The Company earns leasing revenues from the rental of running tools and rental of its forging facility.

Revenues from rental of running tools are recognized within leasing revenues on a day rate basis over the lease term, which is generally between one to three months.

Rental revenue from the forging facility is recognized on a straight-line basis over the expected life of the lease.

Lease revenues from rental of running tools for the three and nine months ended September 30, 2020 were $ 6.6 million and $ 21.7 million, respectively, and lease revenues from rental of facilities were $ 0.5 million and $ 1.6 million, respectively, for the same period.

Leasing revenues from rental of running tools for the three months ended March 31, 2021 were $ 7.5 million and leasing revenues from rental of facilities were $ 0.5 million for the same period.

Fair Value of Financial Instruments

1 unchanged sentence

The carrying values of these financial instruments approximate their respective fair values as they are short-term in nature.

Goodwill and indefinite-lived intangible assets

For goodwill and intangible assets with indefinite lives, an assessment for impairment is performed annually or when there is an indication an impairment may have occurred.

We complete our annual impairment test for goodwill and other indefinite-lived intangibles using an assessment date of October 1.

Goodwill is reviewed for impairment by comparing the carrying value of each of our reporting unit’s net assets, including allocated goodwill, to the estimated fair value of the reporting unit.

We determine the fair value of our reporting units using a discounted cash flow approach.

We selected this valuation approach because we believe it, combined with our best judgment regarding underlying assumptions and estimates, provides the best estimate of fair value for each of our reporting units.

Determining the fair value of a reporting unit requires the use of estimates and assumptions.

Such estimates and assumptions include revenue growth rates, future operating margins, the weighted average cost of capital ("discount rates"), a terminal growth value, and future market conditions, among others.

We believe that the estimates and assumptions used in our impairment assessments are reasonable.

If the reporting unit’s carrying value is greater than its calculated fair value, we recognize a goodwill impairment charge for the amount by which the carrying value of goodwill exceeds its fair value.

In March 2020, the overall offshore market conditions declined primarily due to the outbreak of the COVID-19 pandemic and the developments in the global oil markets.

This decline was evidenced by lower commodity prices, decline in expected offshore rig counts, decrease in our customers’ capital budgets and potential contract delays.

As a result, an interim goodwill impairment analysis was performed in connection with the preparation and review of financial statements during the first quarter of 2020.

Based on this analysis, we fully impaired our goodwill balance of $ 7.7 million, all of which was in the Eastern Hemisphere reporting unit.

Impairment of Long-Lived Assets

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Restructuring and Other Charges

During 2020, the overall offshore market conditions declined as a result of the COVID-19 pandemic and developments in global oil markets.

As such, we incurred additional costs under our existing 2018 global strategic plan to realign our manufacturing facilities globally.

We incurred restructuring and other charges of $ 0.6 million primarily related to consulting fees for the three months ended September 30, 2020.

We incurred restructuring and other charges of $ 34.9 million related to non-cash inventory write-downs, long-lived asset write-downs, severance and other charges of approximately $ 17.3 million, $ 7.8 million, $ 8.4 million and $ 1.4 million, respectively, for the nine months ended September 30, 2020.

During the first quarter of 2021, the Company incurred additional costs under our existing 2018 global strategic plan to realign manufacturing facilities globally.

These charges were primarily related to the restructuring of our downhole tools business where we are exiting certain underperforming countries and markets and shifting from manufacturing in-house to a vendor sourcing model which resulted in non-cash inventory write downs of $ 19.3 million, severance charges of $ 2.7 million and other charges of $ 3.0 million, consisting of facilities-related restructuring charges and professional fees.

We incurred restructuring and other charges of $ 32.7 million related to non-cash inventory write-downs, long-lived asset write-downs, severance and other charges of approximately $ 17.3 million, $ 6.9 million, $ 8.4 million and $ 0.1 million, respectively, for the three months ended March 31, 2020.

These charges are reflected as "Restructuring and other charges" in our condensed consolidated statements of income (loss).

In the third quarter of 2018, we initiated a global strategic plan to better align our operations with market conditions and finalized this plan during the second quarter of 2019.

As a result of this plan, during the three and nine months ended September 30, 2019, we incurred restructuring charges of approximately $ 0.5 million and $ 4.0 million, respectively.

All of these charges primarily relate to employee termination benefits and consulting fees.

Treasury Shares

Repurchase of Equity Securities

On February 26, 2019, the Board of Directors authorized a share repurchase plan under which the Company can repurchase up to $ 100 million of its common stock.

The repurchase plan has no set expiration date, and any repurchased shares are expected to be cancelled.

For the three months ended September 30, 2020, the Company purchased no shares under the share repurchase plan.

For the nine months ended September 30, 2020, the Company purchased 808,389 shares under the share repurchase plan at an average price of approximately $ 30.91 per share totaling approximately $ 25.0 million and has retired such shares .

For the three month period ended September 30, 2019, the Company purchased 75,737 shares under the share repurchase plan at an average price of approximately $ 44.45 per share totaling approximately $ 3.4 million and has retired such shares.

For the nine-month period ended September 30, 2019, the Company purchased 125,888 shares under the share repurchase plan at an average price of approximately $ 42.60 per share totaling approximately $ 5.4 million and has retired such shares.

For the three months ended March 31, 2021, the Company purchased no shares under the share repurchase plan.

For the three months ended March 31, 2020 , the Company purchased 808,389 shares under the share repurchase plan at an average price of approximately $ 30.91 per share totaling approximately $ 25.0 million and has retired such shares .

Earnings Per Share

4 unchanged sentences

Three months ended

Nine months ended

September 30,

(In thousands)

2 unchanged sentences

Weighted average common shares outstanding – diluted

For the three and nine months ended September 30, 2020 and 2019, the Company has excluded the following common stock options and awards because their impact on the income/(loss) per share is anti-dilutive (in thousands on a weighted average basis):

For the three months ended March 31, 2021 and 2020, the Company has excluded the following common stock options and awards because their impact on the income/(loss) per share is anti-dilutive (in thousands on a weighted average basis):

Three months ended

Nine months ended

September 30,

(In thousands)

4 unchanged sentences

Reclassifications

We reclassified approximately $ 1.1 million and $ 2.1 million of foreign currency transaction gains for the three and nine months ended September 30, 2019, respectively, from selling, general and administrative to foreign currency transaction (gains) and losses.

We reclassified approximately $ 3.2 million of foreign currency transaction gains for the three months ended March 31, 2020, from selling, general and administrative to foreign currency transaction (gains) and losses.

These reclassifications did not have an impact on our condensed consolidated statements of income (loss), condensed consolidated balance sheets, condensed consolidated statements of comprehensive income (loss), condensed consolidated statements of stockholders’ equity and condensed consolidated statements of cash flows .

During the three months ended September 30, 2019, the Company identified errors related to a product contract in which the performance obligation was satisfied in the three months ended June 30, 2019 and product costs of sales were incorrectly eliminated at June 30, 2019.

The Company recorded in the three months ended September 30, 2019 out-of-period adjustments, which increased product revenue by $ 3.4 million and decreased net income (loss) by $ 1.5 million.

Management determined the errors were not material to the previously issued condensed consolidated interim financial statements as of and for the three and six months ended June 30, 2019.

In addition, the correction of the errors in the three months ended September 30, 2019 was not material on either a quantitative basis or a qualitative basis.

New Accounting Standards

In June 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-04 “Reference Rate Reform (Topic 848).” Topic 848 is effective for fiscal years and interim periods beginning as of March 12, 2020 through December 31, 2022.

This update provides optional guidance for a limited period of time to ease the potential burden in accounting for reference rate reform on financial reporting.

It is elective and applies to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

We are currently in the process of assessing the impact of this guidance on our financial position, results of operations and cash flows.

In December 2019, the FASB issued ASU 2019-12 “Income Taxes (Topic 740).” Topic 740 is effective for fiscal years and interim periods beginning after December 15, 2020.

This update simplifies the accounting for income taxes by removing certain exceptions such as the exception to the incremental approach for intraperiod tax allocation, the exception to the requirement to recognize a deferred tax liability for equity method investments, the exception to the ability not to recognize a deferred tax liability for a foreign subsidiary and the exception to the general methodology for calculating income taxes in an interim period.

We are currently in the process of assessing the impact of this guidance on our financial position, results of operations and cash flows.

The adoption of ASU 2019-12 did not have a material impact on our financial position, results of operations or cash flows.

Revenue Recognition

Revenues from contracts with customers (excludes leasing) consisted of the following:

Three months ended September 30,

(In thousands)

Product Revenues

Service Revenues

Nine months ended September 30,

Three months ended March 31,

(In thousands)

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Transfers to Trade Receivables, Net

Contract Assets at September 30, 2020

Contract Assets at March 31, 2021

Contract Liabilities (amounts shown in thousands)

1 unchanged sentence

Revenue Recognized

Contract Liabilities at September 30, 2020

Contract assets include unbilled accounts receivable associated with contracts accounted for under the over time accounting method which were approximately $ 106.3 million and $ 83.2 million at September 30, 2020 and December 31, 2019, respectively.

Unbilled contract assets are transferred to trade receivables, net, when billing milestones are achieved.

Contract Liabilities at March 31, 2021

Contract assets include unbilled accounts receivable associated with contracts accounted for under the over time accounting method which were approximately $ 92.5 million and $ 98.2 million at March 31, 2021 and December 31, 2020, respectively.

Unbilled contract assets are transferred to trade receivables, net, when the rights become unconditional.

The contract liabilities primarily relate to advance payments from customers.

Obligations for returns and refunds were considered immaterial as of September 30, 2020.

Obligations for returns and refunds were considered immaterial as of March 31, 2021.

Remaining Performance Obligations

The aggregate amount of the transaction price allocated to remaining performance obligations from our over time product lines was $ 76.5 million as of September 30, 2020.

The aggregate amount of the transaction price allocated to remaining performance obligations from our over time product lines was $ 69.4 million as of March 31, 2021.

The Company expects to recognize revenue on approximately 49.5 % of the remaining performance obligations over the next 12 months and the remaining 50.5 % thereafter.

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Stock-Based Compensation and Stock Awards

During the three and nine months ended September 30, 2020, the Company recognized approximately $ 3.0 million and $ 9.5 million, respectively, of stock-based compensation expense.

During the three months ended March 31, 2021, the Company recognized approximately $ 3.2 million of stock-based compensation expense.

Stock-based compensation is included in "Selling, general and administrative" in our accompanying condensed consolidated statements of income (loss) and "Additional paid-in capital" in our accompanying condensed consolidated balance sheets.

During the three and nine months ended September 30, 2019, the Company recognized approximately $ 7.7 million and $ 15.7 million, respectively, which includes approximately $ 1.8 million related to accelerated vesting of restricted stock awards and approximately $ 2.4 million related to continued vesting of performance share units pursuant to a separation agreement with our former Chief Operating Officer entered into during the first quarter of 2019.

No stock-based compensation expense was capitalized during the three and nine months ended September 30, 2020 or 2019.

During the three months ended March 31, 2020, the Company recognized approximately $ 3.2 million of stock-based compensation expense.

Inventories, net

Inventories consist of the following:

September 30,

(In thousands)

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Restructuring and Other Charges

As a result of unfavorable market conditions primarily due to the COVID-19 pandemic and developments in global oil markets, which triggered historically low crude oil prices and decreases in our customers’ capital budgets, we incurred additional costs under our 2018 global strategic plan primarily focused on workforce reductions and the reorganization of certain facilities during the first quarter of 2020.

We expect to incur these costs associated with such plan throughout the year.

During the first quarter of 2021, the Company incurred additional costs under our existing 2018 global strategic plan to realign manufacturing facilities globally.

We incurred restructuring and other charges associated with the global strategic plan of $ 32.7 million during the three months ended March 31, 2020.

Of these charges, inventory write-downs, severance charges, long-lived assets write-downs and other charges were $ 17.3 million, $ 8.4 million, $ 6.9 million and $ 0.1 million respectively, during the three months ended March 31, 2020.

These charges are reflected as "Restructuring and other charges" in our condensed consolidated statements of income (loss).

The following table summarizes the components of charges included in "Restructuring and other charges" in our condensed consolidated statements of income (loss) for the three and nine months ended September 30, 2020 and 2019 (in thousands):

Three months ended September 30,

Nine months ended September 30,

The following table summarizes the components of charges included in "Restructuring and other charges" in our condensed consolidated statements of income (loss) for the three months ended March 31, 2021 and 2020 (in thousands):

Three months ended March 31,

Inventory write-down

Long-lived asset write-down

The following table summarizes the changes to our accrued liability balance related to restructuring and other charges as of September 30, 2020 (in thousands):

The following table summarizes the changes to our accrued liability balance related to restructuring and other charges as of March 31, 2021 (in thousands):

Beginning balance at January 1, 2021

1 unchanged sentence

Reductions for payments

Ending balance at September 30, 2020

Ending balance at March 31, 2021

Goodwill Impairment

Impairment losses consist of a full impairment of our Goodwill balance of $ 7.7 million, which occurred in connection with our preparation and review of financial statements during the first quarter of 2020.

For the three months ended March 31, 2020, as a result of our updated assessment of market conditions and restructuring efforts, impairment losses consisted of a full impairment of our Goodwill balance of $ 7.7 million, all of which was in the Eastern Hemisphere reporting unit.

These charges are reflected as "Impairments" in our condensed consolidated statements of income (loss).

No goodwill impairment losses were recorded for the three and nine months ended September 30, 2019.

Intangible Assets

Intangible assets consist of the following:

September 30, 2020

Intangible assets, the majority of which were acquired in the acquisition of TIW and OPT, consist of the following:

March 31, 2021

(In thousands)

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The ABL Credit Facility also contains cross default provisions that apply to the Company’s other indebtedness.

The Company is in compliance with the related covenants as of September 30, 2020.

As of September 30, 2020, the availability under the ABL Credit Facility was $ 44.6 million, after taking into account the outstanding letters of credit of approximately $ 1.0 million issued under the facility.

The Company is in compliance with the related covenants as of March 31, 2021.

As of March 31, 2021, the availability under the ABL Credit Facility was $ 35.4 million, after taking into account the outstanding letters of credit of approximately $ 1.0 million issued under the facility.

Geographic Areas

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headquartered in Singapore).

Each of these segments sells similar products and services and the Company has major manufacturing facilities in all three of its regional headquarter locations as well as in Macae, Brazil.

Each of these segments sells similar products and services and the Company has manufacturing facilities in all three of its regional headquarter locations as well as in Macae, Brazil.

Eliminations of operating profits are related to intercompany inventory transfers that are deferred until shipment is made to third party customers.

Three months ended September 30,

Three months ended March 31,

Western Hemisphere

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Income (loss) before income taxes

During the three months ended September 30, 2020, we recorded restructuring and other charges of $ 0.6 million, consisting primarily of consulting fees in DQ Corporate.

During the three months ended September 30, 2019, we recorded restructuring and other charges of $ 0.5 million, consisting primarily of consulting fees in DQ Corporate.

Nine months ended September 30,

Western Hemisphere

Eastern Hemisphere

(In thousands)

Point in Time

Total Products

Technical Advisory

Reconditioning

Total Services

(excluding rental tools)

Total Services

(including rental tools)

Depreciation and amortization

Income (loss) before income taxes

During the nine months ended September 30, 2020 , we recorded impairments, restructuring and other charges of $ 42.6 million.

Of these charges, $ 32.1 million was recorded in the Eastern Hemisphere, $ 3.2 million in the Western Hemisphere, $ 7.1 million in DQ Corporate and $ 0.2 million in Asia-Pacific.

During the nine months ended September 30, 2019 , we recorded $ 4.0 million of restructuring and other charges , primarily related to consulting fees, and an approximate $ 1.1 million payout to our former Chief Operating Officer, pursuant to a separation agreement entered into with him during the first quarter of 2019.

September 30,

(In thousands)

Total long-lived assets:

4 unchanged sentences

Eastern Hemisphere

As of September 30, 2020 , we wrote down $ 25.1 million related to inventory and long-lived assets balances, with $ 22.3 million recorded in the Eastern Hemisphere and $ 2.8 million in the Western Hemisphere.

During the first quarter of 2021 , there were approximately $ 19.1 million of non-cash inventory write downs in the Western Hemisphere and $ 0.2 million in the Eastern Hemisphere as we proceeded to shift from the manufacturing of our downhole tools products business to a vendor outsourcing model .

During 2020, we wrote down $ 25.5 million related to inventory and long-lived assets balances, with $ 22.3 million recorded in the Eastern Hemisphere and $ 3.2 million in the Western Hemisphere.

We also recorded a full impairment of our goodwill balance of $ 7.7 million during the first quarter of 2020, all of which was in the Eastern Hemisphere.

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted on March 27, 2020 and includes tax relief provisions and incentives for businesses impacted by COVID-19.

The CARES Act includes provisions relating to net operating loss carryback periods which have discretely impacted and increased the effective tax rate by 72.5 % in the current period.

The effective tax rate for the three and nine months ended September 30, 2020 was 797.5 % and 61.3 %, respectively, compared to 162.3 % and 278.3 %, respectively, for the same period in 2019.

The change in the effective tax rate between the periods resulted primarily from discretely recognized tax benefits of Net Operating Losses (“NOLs”), changes in income or loss earned in foreign jurisdictions, impairment losses, changes in valuation allowances in the United States and in various foreign countries, deferred tax accrual for unrepatriated foreign earnings and the mix of earnings in jurisdictions with differing tax rates.

The effective tax rate for the three months ended March 31, 2021 was ( 7.5 )%, compared to 52.3 % for the same period in 2020.

The change in the effective tax rate between the periods resulted primarily from discretely recognized tax benefits of Net Operating Losses (“NOLs”) in 2020 due to the Coronavirus, Aid, Relief and Economic Security Act (“CARES Act”), changes in income or loss earned in foreign jurisdictions, changes in valuation allowances in the United States, changes in nondeductible compensation and the mix of earnings in jurisdictions with differing tax rates.

We have historically considered the majority of undistributed earnings of our foreign subsidiaries and equity investees to be indefinitely reinvested, and, accordingly, no deferred taxes had been provided on the indefinitely reinvested earnings.

As of June 30, 2020, the Company reversed its indefinite reinvestment assertion.

As a result, we recorded a deferred foreign tax liability, which had a balance of $ 3.8 million as of September 30, 2020, and is primarily related to estimated foreign withholding tax associated with repatriating all non-U.S.

As a result, we recorded a deferred foreign tax liability, which had a balance of $ 3.6 million as of March 31, 2021, and is primarily related to estimated foreign withholding tax associated with repatriating all non-U.S.

earnings back to the United States.

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The Company objected to these assessments on the grounds that they would represent double taxation on the importation of the same goods and that the Company is entitled to the credits under applicable Brazilian law.

The Company’s Brazilian subsidiary filed appeals with a State of Rio de Janeiro judicial court to annul both of these tax assessments and deposited with the court approximately $ 8.8 million in December 2014 and December 2016 as the full amount of the assessments with penalties and interest.

The Company’s Brazilian subsidiary filed appeals with a State of Rio de Janeiro judicial court to annul both of these tax assessments and deposited with the court approximately $ 8.8 million (approximately $ 5.9 million at current exchange rates) in December 2014 and December 2016 as the full amount of the assessments with penalties and interest.

The first level judicial court has ruled against the Company in each of these cases and the Company has appealed both of those rulings.

1 unchanged sentence

Based upon this analysis, the Company has not accrued any liability in conjunction with this matter.

The relevant governmental agencies of the State of Rio de Janeiro recently authorized an amnesty program with interest discounts and reduced fines that allows the Company’s Brazilian subsidiary to settle and pay off both of these tax assessments for approximately $ 2.1 million .

T he Company’s Brazilian subsidiary has elected to participate in this amnesty program and as such recorded the settlement amount as of March 31, 2021.

After settling and paying off the tax assessment with the relevant governmental agencies , the security amounts deposited with the court totaling approximately $ 6 million at current exchange rates will be returned to our Brazilian subsidiary in due course .

FMC Technologies Lawsuit

On October 5, 2020, FMC Technologies, Inc.

(“FMC”) sued the Company alleging misappropriation of trade secrets and seeking money damages and injunctive relief in the 127th District Court of Harris County in an action styled FMC Technologies, Inc.

(“FMC”) sued the Company alleging misappropriation of trade secrets and sought money damages and injunctive relief in the 127th District Court of Harris County in an action styled FMC Technologies, Inc.

Richard Murphy and Dril-Quip, Inc.

FMC alleges that its former employee communicated FMC trade secrets to the Company prior to being hired by the Company and that the Company used those trade secrets in its VXTe subsea tree systems.

FMC alleges that its former employee communicated FMC trade secrets to the Company and that the Company used those trade secrets in its VXTe subsea tree systems.

The Company denies these allegations and intends to vigorously defend against this lawsuit.

The Company has not accrued any liability in conjunction with this matter.

The trial began on April 6, 2021 and the jury started deliberations on April 27, 2021 but has not reached a verdict yet.

The Company operates its business and markets its products and services in most of the significant oil and gas producing areas in the world and is, therefore, subject to the risks customarily attendant to international operations and is dependent on the condition of the oil and gas industry.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements