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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(MARK ONE)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the Quarterly Period Ended June 30, 2020

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

Commission file number 001-13439

 

DRIL-QUIP, INC.

(Exact name of registrant as specified in its charter)

 

 

delaware

 

74-2162088

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

6401 N. ELDRIDGE PARKWAY

HOUSTON, texas

77041

(Address of principal executive offices) (Zip Code)

(713) 939-7711

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value per share

DRQ

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes       No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes       No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).    Yes       No  

As of July 27, 2020, the number of shares outstanding of the registrant’s common stock, par value $0.01 per share, was 35,093,933.

 

 


TABLE OF CONTENTS

 

 

 

 


Table of Contents

 

PART I—FINANCIAL INFORMATION

Item 1.        Financial Statements

DRIL-QUIP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

 

June 30,

2020

 

 

December 31,

2019

 

 

 

(In thousands, except per share data)

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

345,808

 

 

$

398,946

 

Trade receivables, net

 

 

101,034

 

 

 

107,626

 

Unbilled receivables

 

 

140,226

 

 

 

140,534

 

Inventories, net

 

 

212,412

 

 

 

205,062

 

Prepaids and other current assets

 

 

48,732

 

 

 

28,321

 

Total current assets

 

 

848,212

 

 

 

880,489

 

Operating lease right of use assets

 

 

4,729

 

 

 

5,144

 

Property, plant and equipment, net

 

 

243,796

 

 

 

258,497

 

Deferred income taxes

 

 

9,566

 

 

 

8,936

 

Goodwill

 

 

-

 

 

 

7,947

 

Intangible assets

 

 

30,473

 

 

 

32,245

 

Other assets

 

 

10,915

 

 

 

13,307

 

Total assets

 

$

1,147,691

 

 

$

1,206,565

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

58,856

 

 

$

46,324

 

Accrued income taxes

 

 

8,936

 

 

 

4,561

 

Contract liabilities

 

 

7,682

 

 

 

6,901

 

Accrued compensation

 

 

9,209

 

 

 

13,599

 

Operating lease liabilities

 

 

984

 

 

 

1,314

 

Other accrued liabilities

 

 

28,044

 

 

 

24,241

 

Total current liabilities

 

 

113,711

 

 

 

96,940

 

Deferred income taxes

 

 

3,609

 

 

 

4,150

 

Income tax payable

 

 

9,123

 

 

 

8,868

 

Operating lease liabilities, long-term

 

 

3,714

 

 

 

3,801

 

Other long-term liabilities

 

 

2,147

 

 

 

2,105

 

Total liabilities

 

 

132,304

 

 

 

115,864

 

Contingencies (Note 12)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

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

 

 

-

 

 

 

-

 

Common stock:

 

 

 

 

 

 

 

 

100,000,000 shares authorized at $0.01 par value, 35,073,744 and 35,859,540

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

 

 

363

 

 

 

371

 

Additional paid-in capital

 

 

59,327

 

 

 

52,870

 

Retained earnings

 

 

1,122,191

 

 

 

1,181,023

 

Accumulated other comprehensive losses

 

 

(166,494

)

 

 

(143,563

)

Total stockholders' equity

 

 

1,015,387

 

 

 

1,090,701

 

Total liabilities and stockholders' equity

 

$

1,147,691

 

 

$

1,206,565

 

 

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

3


Table of Contents

 

DRIL-QUIP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(UNAUDITED)

 

 

 

Three months ended

 

 

Six months ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(In thousands, except per share data)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

$

63,133

 

 

$

77,233

 

 

$

130,691

 

 

$

142,667

 

Services

 

 

20,750

 

 

 

16,575

 

 

 

39,564

 

 

 

35,051

 

Leasing

 

 

6,563

 

 

 

10,000

 

 

 

16,189

 

 

 

20,407

 

Total revenues

 

 

90,446

 

 

 

103,808

 

 

 

186,444

 

 

 

198,125

 

Cost and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

 

49,741

 

 

 

53,568

 

 

 

103,386

 

 

 

105,110

 

Services

 

 

9,222

 

 

 

10,219

 

 

 

18,910

 

 

 

19,455

 

Leasing

 

 

7,974

 

 

 

10,080

 

 

 

16,055

 

 

 

18,675

 

Total cost of sales

 

 

66,937

 

 

 

73,867

 

 

 

138,351

 

 

 

143,240

 

Selling, general and administrative

 

 

23,331

 

 

 

23,068

 

 

 

47,989

 

 

 

48,315

 

Engineering and product development

 

 

5,364

 

 

 

5,157

 

 

 

10,889

 

 

 

8,777

 

Impairments

 

 

-

 

 

 

-

 

 

 

7,719

 

 

 

-

 

Restructuring and other charges

 

 

1,587

 

 

 

1,019

 

 

 

34,300

 

 

 

3,415

 

Gain on sale of assets

 

 

(85

)

 

 

(1,190

)

 

 

(552

)

 

 

(1,203

)

Foreign currency transaction (gains) and losses

 

 

817

 

 

 

(233

)

 

 

(2,425

)

 

 

(937

)

Total costs and expenses

 

 

97,951

 

 

 

101,688

 

 

 

236,271

 

 

 

201,607

 

Operating income (loss)

 

 

(7,505

)

 

 

2,120

 

 

 

(49,827

)

 

 

(3,482

)

Interest income

 

 

653

 

 

 

2,680

 

 

 

1,859

 

 

 

4,686

 

Interest expense

 

 

(209

)

 

 

-

 

 

 

(400

)

 

 

(121

)

Income (loss) before income taxes

 

 

(7,061

)

 

 

4,800

 

 

 

(48,368

)

 

 

1,083

 

Income tax provision (benefit)

 

 

7,081

 

 

 

3,119

 

 

 

(14,528

)

 

 

5,452

 

Net income (loss)

 

$

(14,142

)

 

$

1,681

 

 

$

(33,840

)

 

$

(4,369

)

Income (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.40

)

 

$

0.05

 

 

$

(0.96

)

 

$

(0.12

)

Diluted

 

$

(0.40

)

 

$

0.05

 

 

$

(0.96

)

 

$

(0.12

)

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

35,023

 

 

 

35,967

 

 

 

35,359

 

 

 

35,764

 

Diluted

 

 

35,023

 

 

 

36,210

 

 

 

35,359

 

 

 

35,764

 

 

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

4


Table of Contents

 

DRIL-QUIP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

 

 

 

Three months ended

 

 

Six months ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(In thousands)

 

Net income (loss)

 

$

(14,142

)

 

$

1,681

 

 

$

(33,840

)

 

$

(4,369

)

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

2,048

 

 

 

(2,317

)

 

 

(22,931

)

 

 

(690

)

Total comprehensive loss

 

$

(12,094

)

 

$

(636

)

 

$

(56,771

)

 

$

(5,059

)

 

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

5


Table of Contents

 

DRIL-QUIP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

Six months ended

 

 

 

June 30,

 

 

 

2020

 

 

2019

 

 

 

(In thousands)

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(33,840

)

 

$

(4,369

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

16,813

 

 

 

16,851

 

Stock-based compensation expense

 

 

6,458

 

 

 

8,083

 

Impairments

 

 

7,719

 

 

 

-

 

Restructuring and other charges

 

 

34,300

 

 

 

314

 

Gain on sale of assets

 

 

(552

)

 

 

(1,203

)

Deferred income taxes

 

 

(2,421

)

 

 

164

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Trade receivables, net

 

 

(104

)

 

 

7,621

 

Unbilled receivables

 

 

(467

)

 

 

(24,337

)

Inventories, net

 

 

(33,869

)

 

 

(1,002

)

Prepaids and other assets

 

 

(23,452

)

 

 

5,860

 

Accounts payable and accrued expenses

 

 

11,224

 

 

 

2,731

 

     Other, net

 

 

-

 

 

 

(63

)

Net cash provided by (used in) operating activities

 

 

(18,191

)

 

 

10,650

 

Investing activities

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(8,318

)

 

 

(4,598

)

Proceeds from sale of equipment

 

 

3,138

 

 

 

1,565

 

Net cash used in investing activities

 

 

(5,180

)

 

 

(3,033

)

Financing activities

 

 

 

 

 

 

 

 

Repurchase of common shares

 

 

(25,000

)

 

 

(1,996

)

Other

 

 

(129

)

 

 

-

 

Net cash used in financing activities

 

 

(25,129

)

 

 

(1,996

)

Effect of exchange rate changes on cash activities

 

 

(4,638

)

 

 

(595

)

Increase (decrease) in cash and cash equivalents

 

 

(53,138

)

 

 

5,026

 

Cash and cash equivalents at beginning of period

 

 

398,946

 

 

 

418,100

 

Cash and cash equivalents at end of period

 

$

345,808

 

 

$

423,126

 

 

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

 

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Table of Contents

 

DRIL-QUIP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

 

 

Common Stock

 

 

Additional Paid-In Capital

 

 

Retained Earnings

 

 

Accumulated Other Comprehensive Losses

 

 

Total

 

 

 

 

 

 

 

(In thousands, except shares)

 

 

 

 

 

Balance at April 1, 2020

 

$

363

 

 

$

56,045

 

 

$

1,136,335

 

 

$

(168,542

)

 

$

1,024,201

 

Foreign currency translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,048

 

 

 

2,048

 

Net loss

 

 

-

 

 

 

-

 

 

 

(14,142

)

 

 

-

 

 

 

(14,142

)

Comprehensive loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(12,094

)

Stock option expense

 

 

-

 

 

 

3,282

 

 

 

-

 

 

 

-

 

 

 

3,282

 

Other

 

 

-

 

 

 

-

 

 

 

(2

)

 

 

-

 

 

 

(2

)

Balance at June 30, 2020

 

$

363

 

 

$

59,327

 

 

$

1,122,191

 

 

$

(166,494

)

 

$

1,015,387

 

 

 

Balance at January 1, 2020

 

$

371

 

 

$

52,870

 

 

$

1,181,023

 

 

$

(143,563

)

 

$

1,090,701

 

Foreign currency translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(22,931

)

 

 

(22,931

)

Net loss

 

 

-

 

 

 

-

 

 

 

(33,840

)

 

 

-

 

 

 

(33,840

)

Comprehensive loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(56,771

)

Repurchase of common stock (808,389 shares)

 

 

(8

)

 

 

-

 

 

 

(24,992

)

 

 

-

 

 

 

(25,000

)

Stock option expense

 

 

-

 

 

 

6,458

 

 

 

-

 

 

 

-

 

 

 

6,458

 

Other

 

 

-

 

 

 

(1

)

 

 

-

 

 

 

-

 

 

 

(1

)

Balance at June 30, 2020

 

$

363

 

 

$

59,327

 

 

$

1,122,191

 

 

$

(166,494

)

 

$

1,015,387

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional Paid-In Capital

 

 

Retained Earnings

 

 

Accumulated Other Comprehensive Losses

 

 

Total

 

 

 

 

 

 

 

(In thousands, except shares)

 

 

 

 

 

Balance at April 1, 2019

 

$

376

 

 

$

39,815

 

 

$

1,198,700

 

 

$

(143,486

)

 

$

1,095,405

 

Foreign currency translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,317

)

 

 

(2,317

)

Net income

 

 

-

 

 

 

-

 

 

 

1,681

 

 

 

-

 

 

 

1,681

 

Comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(636

)

Repurchase of common stock (22,073 shares)

 

 

-

 

 

 

-

 

 

 

(880

)

 

 

-

 

 

 

(880

)

Stock option expense

 

 

-

 

 

 

3,221

 

 

 

-

 

 

 

-

 

 

 

3,221

 

Other

 

 

-

 

 

 

17

 

 

 

1

 

 

 

-

 

 

 

18

 

Balance at June 30, 2019

 

$

376

 

 

$

43,053

 

 

$

1,199,502

 

 

$

(145,803

)

 

$

1,097,128

 

 

 

Balance at January 1, 2019

 

$

376

 

 

$

34,953

 

 

$

1,205,946

 

 

$

(145,113

)

 

$

1,096,162

 

Foreign currency translation adjustment

 

 

-

 

 

 

-

 

 

 

 

 

 

 

(690

)

 

 

(690

)

Net loss

 

 

-

 

 

 

-

 

 

 

(4,369

)

 

 

-

 

 

 

(4,369

)

Comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,059

)

Repurchase of common stock (50,151 shares)

 

 

-

 

 

 

-

 

 

 

(1,996

)

 

 

-

 

 

 

(1,996

)

Stock option expense

 

 

-

 

 

 

8,083

 

 

 

-

 

 

 

-

 

 

 

8,083

 

Other

 

 

-

 

 

 

17

 

 

 

(79

)

 

 

-

 

 

 

(62

)

Balance at June 30, 2019

 

$

376

 

 

$

43,053

 

 

$

1,199,502

 

 

$

(145,803

)

 

$

1,097,128

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

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Table of Contents

 

DRIL-QUIP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Organization and Basis of Presentation

Dril-Quip, Inc., a Delaware corporation (the “Company” or “Dril-Quip”), designs, manufactures, sells and services highly engineered drilling and production equipment that is well suited primarily for use in deepwater, harsh environment and severe service applications. The Company’s principal products consist of subsea and surface wellheads, subsea and surface production trees, subsea control systems and manifolds, mudline hanger systems, specialty connectors and associated pipe, drilling and production riser systems, liner hangers, wellhead connectors, diverters and safety valves. Dril-Quip’s products are used by major integrated, large independent and foreign national oil and gas companies and drilling contractors throughout the world. Dril-Quip also provides technical advisory assistance on an as-requested basis during installation of its products, as well as rework and reconditioning services for customer-owned Dril-Quip products. In addition, Dril-Quip’s customers may rent or purchase running tools from the Company for use in the installation and retrieval of the Company’s products.

The Company’s operations are organized into three geographic segments — Western Hemisphere (including North and South America; headquartered in Houston, Texas), Eastern Hemisphere (including Europe and Africa; headquartered in Aberdeen, Scotland) and Asia-Pacific (including the Pacific Rim, Southeast Asia, Australia, India and the Middle East; 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. The Company’s major subsidiaries are Dril-Quip (Europe) Limited, located in Aberdeen with branches in Azerbaijan, Denmark, Norway and Holland; Dril-Quip Asia-Pacific PTE Ltd., located in Singapore; and Dril-Quip do Brasil LTDA, located in Macae, Brazil. Other operating subsidiaries include TIW Corporation (TIW) and Honing, Inc., both located in Houston, Texas; DQ Holdings Pty. Ltd., located in Perth, Australia; Dril-Quip Cross (Ghana) Ltd., located in Takoradi, Ghana; PT DQ Oilfield Services Indonesia, located in Jakarta, Indonesia; Dril-Quip (Nigeria) Ltd., located in Port Harcourt, Nigeria; Dril-Quip Egypt for Petroleum Services S.A.E., located in Alexandria, Egypt; Dril-Quip TIW Saudi Arabia Limited, located in Dammam, Kingdom of Saudi Arabia; Dril-Quip Oilfield Services (Tianjin) Co. Ltd., located in Tianjin, China, with branches in Shenzhen and Beijing, China; Dril-Quip Qatar LLC, located in Doha, Qatar; Dril-Quip TIW Mexico S. 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; 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.

The condensed consolidated financial statements included herein are unaudited. The balance sheet at December 31, 2019 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 June 30, 2020 and the results of operations and comprehensive income (loss) for the three and six months ended June 30, 2020 and 2019 and cash flows for the six months ended June 30, 2020 and 2019. 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 six months ended June 30, 2020 and cash flows for the six months ended June 30, 2020 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, 2019.

The recent outbreak of COVID-19 and its development into a pandemic has resulted in significant economic disruption globally. Actions taken by various governmental authorities, individuals and companies around the world to prevent the spread of COVID-19 through social distancing have restricted travel, curtailed business operations, prohibited public gatherings and restricted the overall level of individual movement and in-person interaction across the globe. This has 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 Organization of Petroleum Exporting Countries (OPEC) and non-OPEC nations. Although the OPEC and non-OPEC nations have agreed upon substantial production cuts to stabilize oil prices, the dispute has led to significant declines 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. 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.

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Table of Contents

 

2. Significant Accounting Policies

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates. Some of the Company’s more significant estimates are those affected by critical accounting policies for revenue recognition, impairment of our goodwill and asset recoverability tests and inventories.

Revenue Recognition

The Company generates revenues through the sale of products, the sale of services and the leasing of installation tools. The Company normally negotiates contracts for products, including those accounted for under the over time method, rental tools and services separately. Modifications to the scope and price of sales contracts may occur in the form of variations and change orders. For all product sales, it is the customer’s decision as to the timing of the product installation, as well as whether Dril-Quip running tools will be purchased or rented. Furthermore, the customer is under no obligation to utilize the Company’s technical advisory assistance services. 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. 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 six months ended June 30, 2020 were $6.0 million and $15.1 million, respectively, and lease revenues from rental of facilities were $0.6 million and $1.1 million, respectively, for the same period.

Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash and cash equivalents, receivables and payables. 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 such, an interim goodwill impairment analysis was performed in connection with the preparation and review of financial statements for the three months ended March 31, 2020. Based on this analysis, we recorded a $7.7 million goodwill impairment loss in the first quarter of 2020, all of which was in our Eastern Hemisphere reporting unit.

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Table of Contents

 

Impairment of Long-Lived Assets

Long-lived assets, including property, plant and equipment and definite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We evaluate our property and equipment and definite-lived intangible assets for impairment whenever changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Should the review indicate that the carrying value is not fully recoverable, the amount of the impairment loss is determined by comparing the carrying value to the estimated fair value. We assess recoverability based on undiscounted future net cash flows. Estimating future net cash flows requires us to make judgements regarding long-term forecasts of future revenues and costs related to the assets subject to review. These forecasts are uncertain in that they require assumptions about our revenue growth, operating margins, capital expenditures, future market conditions and technological developments. If changes in these assumptions occur, our expectations regarding future net cash flows may change such that a material impairment could result.

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. In the first quarter of 2020, we recorded non-cash inventory and long-lived asset write-downs of approximately $17.3 million and $6.9 million, respectively, as a result of expected changes in our business structure and manufacturing footprint. Additionally, during the three months ended March 31, 2020, we incurred severance and other charges of $8.4 million and $0.1 million, respectively. We incurred restructuring and other charges of $1.6 million primarily related to the write-down of long-lived assets and consulting fees for the three months ended June 30, 2020. These charges are reflected as "Restructuring and other charges" in our consolidated statement of operations.

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 six months ended June 30, 2019, we incurred restructuring charges of approximately $1.0 million and $3.4 million, respectively. All of these charges primarily relate to employee termination benefits and consulting fees.  

Treasury Shares

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 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.

For the three month period ended June 30, 2019, the Company purchased 22,073 shares under the share repurchase plan at an average price of approximately $39.87 per share totaling approximately $0.9 million and has retired such shares. For the six-month period ended June 30, 2019, the Company purchased 50,151 shares under the share repurchase plan at an average price of approximately $39.80 per share totaling approximately $2.0 million and has retired such shares.

Earnings Per Share

Basic earnings per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per common share is computed considering the dilutive effect of stock awards using the treasury stock method.

In each relevant period, the net income used in the basic and dilutive earnings per share calculations is the same. The following table reconciles the weighted average basic number of common shares outstanding and the weighted average diluted number of common shares outstanding for the purpose of calculating basic and diluted earnings per share:

 

 

 

Three months ended

 

 

Six months ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(In thousands)

 

Weighted average common shares outstanding - basic

 

 

35,023

 

 

 

35,967

 

 

 

35,359

 

 

 

35,764

 

Dilutive effect of common stock awards

 

 

-

 

 

 

243

 

 

 

-

 

 

 

-

 

Weighted average common shares outstanding – diluted

 

 

35,023

 

 

 

36,210

 

 

 

35,359

 

 

 

35,764

 

 

 

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Table of Contents

 

For the three and six months ended June 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):

 

 

 

Three months ended

 

 

Six months ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(In thousands)

 

Director stock awards

 

 

45

 

 

 

-

 

 

 

42

 

 

 

7

 

Stock options

 

 

122

 

 

 

-

 

 

 

124

 

 

 

-

 

Performance share units

 

 

279

 

 

 

2

 

 

 

278

 

 

 

121

 

Restricted stock awards

 

 

333

 

 

 

7

 

 

 

333

 

 

 

97

 

 

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 to conform to the current period presentation. We reclassified approximately $0.2 million and $0.9 million of foreign currency transaction gains for the three and six months ended June 30, 2019, respectively, 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.

 

3. 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 or 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 or cash flows.

 

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Table of Contents

 

4. Revenue Recognition

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

 

 

Three months ended June 30,

 

 

 

Western

Hemisphere

 

 

Eastern

Hemisphere

 

 

Asia-

Pacific

 

 

Total

 

 

 

2020

 

2019