What changed in this filing

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Item 1. Financial Statements

2021-07-29 compared with 2021-04-29 · 99 added, 60 removed, 326 unchanged (33% of the section changed)

31 unchanged sentences

Preferred stock:

10,000,000 shares authorized at $ 0.01 par value ( no ne issued)

10,000,000 shares authorized at $ 0.01 par value ( none issued)

Common stock:

100,000,000 shares authorized at $ 0.01 par value, 35,431,110 and 35,417,712

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

shares issued and outstanding at June 30, 2021 and December 31, 2020

Additional paid-in capital

7 unchanged sentences

Three months ended

Six months ended

(In thousands, except per share data)

6 unchanged sentences

Restructuring and other charges

Gain on sale of assets

(Gain) loss on sale of assets

Foreign currency transaction (gains) and losses

11 unchanged sentences

Three months ended

Six months ended

(In thousands)

5 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three months ended

Six months ended

(In thousands)

31 unchanged sentences

(In thousands, except shares)

Balance at April 1, 2021

Foreign currency translation adjustment

Comprehensive loss

Stock option expense

Balance at June 30, 2021

Balance at January 1, 2021

2 unchanged sentences

Stock option expense

Balance at March 31, 2021

Balance at June 30, 2021

Additional Paid-In Capital

2 unchanged sentences

(In thousands, except shares)

Balance at April 1, 2020

Foreign currency translation adjustment

Comprehensive loss

Stock option expense

Balance at June 30, 2020

Balance at January 1, 2020

3 unchanged sentences

Stock option expense

Balance at March 31, 2020

Balance at June 30, 2020

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

32 unchanged sentences

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 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.

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 June 30, 2021 and the results of operations and comprehensive income (loss) for the three and six months ended June 30, 2021 and 2020 and cash flows for the six months ended June 30, 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 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 results of operations and comprehensive income (loss) for the three and six months ended June 30, 2021 and cash flows for the six months ended June 30, 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.

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.

We are continuing to experience effects resulting from the COVID-19 pandemic, albeit to a lesser degree as compared to 2020.

Increased availability of the COVID-19 vaccine to the general population in the second quarter of 2021 has resulted in a lower rate of new infections, hospitalizations and deaths as compared to 2020.

Although the downward trend is encouraging, emergence and spread of the COVID-19 Delta variant adds uncertainty for a potential economic recovery.

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 global demand for oil and gas.

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.

We continue to experience delayed recovery 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 global 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.

15 unchanged sentences

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.

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.

The Company earns leasing revenues from the rental of running tools.

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

On April 30, 2021, as a result of lower activity stemming from the COVID-19 pandemic, AFGlobal Corporation provided a 90-day written notice of termination of the lease agreement between the Company and AFGlobal in relation to the Company’s forge facility and equipment at its Houston Eldridge campus.

Based on the initial 5 -year term of the lease agreement, the Company had straight-lined the total anticipated lease revenue for that initial term into equal monthly lease revenue.

As a result of the lease termination, the Company has approximately $ 2.3 million in unbilled revenue that was expensed as of June 30, 2021.

Leasing revenue from renting this facility that was not recognized due to the termination of the lease agreement was approximately $ 0.5 million for the three and six months ended June 30, 2021.

The Company has numerous other forging suppliers and does not expect any disruptions in forging supply as a result of the lease termination.

Fair Value of Financial Instruments

10 unchanged sentences

Restructuring and Other Charges

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.

During the first half 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 exited certain underperforming countries and markets and shifted from manufacturing in-house to a vendor sourcing model.

During the first half of 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.

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

2 unchanged sentences

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

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 .

The manner, timing and amount of any purchase will be determined by management based on an evaluation of market conditions, stock price, liquidity and other factors.

The program does not obligate the Company to acquire any amount of common stock and may be modified or superseded at any time at the Company’s discretion.

For the three and six months ended June 30, 2021, the Company purchased no shares under the share repurchase plan.

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

Earnings Per Share

4 unchanged sentences

Three months ended

Six months ended

(In thousands)

2 unchanged sentences

Weighted average common shares outstanding – diluted

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):

For the three and six months ended June 30, 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

Six months ended

(In thousands)

3 unchanged sentences

Restricted stock awards

Reclassifications

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 .

New Accounting Standards

4 unchanged sentences

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

Three months ended March 31,

Three months ended June 30,

(In thousands)

1 unchanged sentence

Service Revenues

Six months ended June 30,

(In thousands)

Product Revenues

Service Revenues

Contract Balances

3 unchanged sentences

Transfers to Trade Receivables, Net

Contract Assets at March 31, 2021

Contract Assets at June 30, 2021

Contract Liabilities (amounts shown in thousands)

1 unchanged sentence

Revenue Recognized

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.

Contract Liabilities at June 30, 2021

Contract assets include unbilled accounts receivable associated with contracts accounted for under the over time accounting method which were approximately $ 83.4 million and $ 98.2 million at June 30, 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 March 31, 2021.

Obligations for returns and refunds were considered immaterial as of June 30, 2021.

Remaining Performance Obligations

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 aggregate amount of the transaction price allocated to remaining performance obligations from our over time product lines was $ 57.6 million as of June 30, 2021.

The Company expects to recognize revenue on approximately 87.0 % of the remaining performance obligations over the next 12 months and the remaining 13.0 % thereafter.

1 unchanged sentence

Stock-Based Compensation and Stock Awards

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

During the three and six months ended June 30, 2021, the Company recognized approximately $ 3.1 million and $ 6.3 million, respectively, 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 months ended March 31, 2020, the Company recognized approximately $ 3.2 million of stock-based compensation expense.

During the three and six months ended June 30, 2020, the Company recognized approximately $ 3.3 million and $ 6.5 million, respectively of stock-based compensation expense.

Inventories, net

8 unchanged sentences

Restructuring and Other Charges

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 months ended March 31, 2021 and 2020 (in thousands):

Three months ended March 31,

During the three and six months ended June 30, 2021, the Company incurred additional costs under our existing 2018 global strategic plan to realign manufacturing facilities globally.

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 three and six months ended June 30, 2020.

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 six months ended June 30, 2021 and 2020 (in thousands):

Three months ended June 30,

Six months ended June 30,

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 March 31, 2021 (in thousands):

The following table summarizes the changes to our accrued liability balance related to restructuring and other charges as of June 30, 2021 (in thousands):

Beginning balance at January 1, 2021

1 unchanged sentence

Reductions for payments

Ending balance at March 31, 2021

Ending balance at June 30, 2021

Goodwill Impairment

3 unchanged sentences

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

March 31, 2021

June 30, 2021

(In thousands)

1 unchanged sentence

Customer relationships

Non-compete agreements

Organizational costs

3 unchanged sentences

Customer relationships

Non-compete agreements

Organizational costs

16 unchanged sentences

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 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.

The Company is in compliance with the related covenants as of June 30, 2021.

As of June 30, 2021, the availability under the ABL Credit Facility was $ 25.1 million, after taking into account the outstanding letters of credit of approximately $ 7.4 million issued under the facility.

Geographic Areas

5 unchanged sentences

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

Three months ended March 31,

Three months ended June 30,

Western Hemisphere

12 unchanged sentences

Income (loss) before income taxes

During the three months ended June 30, 2021, we recorded restructuring and other charges of $ 1.0 million, consisting primarily of consulting fees in DQ Corporate.

During the three months ended June 30, 2020, we recorded restructuring and other charges of $ 1.6 million, consisting primarily of a $ 0.9 million in write-down of long-lived assets in the Western Hemisphere and $ 0.7 million for consulting fees in DQ Corporate.

Six months ended June 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 six months ended June 30, 2021, we recorded $ 26.0 million of restructuring and other charges.

These charges were related to non-cash inventory write downs, severance charges and other charges, primarily consisting of facilities restructuring exit costs and consulting fees.

Of these charges, $ 21.0 million was recorded in the Western Hemisphere, $ 1.6 million in the Eastern Hemisphere and $ 3.4 million in DQ Corporate.

During the six months ended June 30, 2020, we recorded impairments, restructuring and other charges of $ 42.0 million.

Of these charges, $ 32.1 million was recorded in the Eastern Hemisphere, $ 2.8 million in the Western Hemisphere, $ 6.9 million in DQ Corporate and $ 0.2 million in Asia-Pacific.

(In thousands)

Total long-lived assets:

4 unchanged sentences

Eastern 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 .

As of June 30, 2021, we wrote down $ 19.1 million of non-cash inventory write downs in the Western Hemisphere and $ 0.2 million in the Eastern Hemisphere as we shifted 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 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 effective tax rate for the three and six months ended June 30, 2021 was ( 30.1 )% and ( 14.6 )%, respectively, compared to ( 100.3 )% and 30.0 %, respectively, 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.

1 unchanged sentence

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 $ 3.6 million as of March 31, 2021, 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 $ 3.5 million as of June 30, 2021, and is primarily related to estimated foreign withholding tax associated with repatriating all non-U.S.

earnings back to the United States.

9 unchanged sentences

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 .

In the first quarter of 2021, the relevant governmental agencies of the State of Rio de Janeiro authorized an amnesty program with interest discounts and reduced fines.

The Company’s Brazilian subsidiary elected to participate in this amnesty program and recorded the settlement amount of approximately $ 2.1 million as of March 31, 2021.

As a result of settling these tax assessments with the relevant governmental agencies pursuant to the amnesty program, the security amounts previously deposited with the court totaling approximately $ 6 million at current exchange rates are being returned to our Brazilian subsidiary, with approximately $ 4 million already received during the second quarter of 2021.

FMC Technologies Lawsuit

2 unchanged sentences

Richard Murphy and Dril-Quip, Inc.

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

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

On April 29, 2021, the jury returned a verdict in favor of the Company.

If FMC appeals, the Company intends to continue its vigorous defense of this matter.

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.

4 unchanged sentences

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