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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 March 31, 2021

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 April 26, 2021, the number of shares outstanding of the registrant’s common stock, par value $0.01 per share, was 35,429,694.

 

 


 

TABLE OF CONTENTS

 

 

 

 

 

 

 

Page

PART I

Item 1.

Condensed Consolidated Financial Statements

3

 

Balance Sheets

3

 

Statements of Income (Loss)

4

 

Statements of Comprehensive Income (Loss)

5

 

Statements of Cash Flows

6

 

Statements of Stockholders' Equity

7

 

Notes to Financial Statements

8

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

Item 4.

Controls and Procedures

27

PART II

Item 1.

Legal Proceedings

29

Item 1A.

Risk Factors

29

Item 6.

Index to Exhibits

30

 

Signatures

31

 

 

 


Table of Contents

 

 

PART I—FINANCIAL INFORMATION

Item 1.        Financial Statements

DRIL-QUIP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

 

 

March 31,

2021

 

 

December 31,

2020

 

 

 

(In thousands, except per share data)

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

362,213

 

 

$

345,955

 

Trade receivables, net

 

 

103,803

 

 

 

116,202

 

Unbilled receivables

 

 

139,516

 

 

 

140,318

 

Inventories, net

 

 

194,911

 

 

 

212,536

 

Prepaids and other current assets

 

 

44,278

 

 

 

48,182

 

Total current assets

 

 

844,721

 

 

 

863,193

 

Operating lease right of use assets

 

 

5,646

 

 

 

6,962

 

Property, plant and equipment, net

 

 

231,385

 

 

 

234,823

 

Deferred income taxes

 

 

6,109

 

 

 

5,768

 

Intangible assets

 

 

28,743

 

 

 

29,434

 

Other assets

 

 

10,227

 

 

 

10,992

 

Total assets

 

$

1,126,831

 

 

$

1,151,172

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

38,495

 

 

$

37,424

 

Accrued income taxes

 

 

5,207

 

 

 

4,343

 

Contract liabilities

 

 

13,858

 

 

 

11,339

 

Accrued compensation

 

 

7,012

 

 

 

5,015

 

Operating lease liabilities

 

 

788

 

 

 

1,110

 

Other accrued liabilities

 

 

29,947

 

 

 

26,281

 

Total current liabilities

 

 

95,307

 

 

 

85,512

 

Deferred income taxes

 

 

6,934

 

 

 

6,779

 

Income tax payable

 

 

9,423

 

 

 

9,383

 

Operating lease liabilities, long-term

 

 

4,916

 

 

 

5,845

 

Other long-term liabilities

 

 

1,985

 

 

 

2,125

 

Total liabilities

 

 

118,565

 

 

 

109,644

 

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, 35,428,778 and 35,417,712

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

 

 

363

 

 

 

363

 

Additional paid-in capital

 

 

68,799

 

 

 

65,613

 

Retained earnings

 

 

1,090,905

 

 

 

1,125,263

 

Accumulated other comprehensive losses

 

 

(151,801

)

 

 

(149,711

)

Total stockholders' equity

 

 

1,008,266

 

 

 

1,041,528

 

Total liabilities and stockholders' equity

 

$

1,126,831

 

 

$

1,151,172

 

 

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 INCOME (LOSS)

(UNAUDITED)

 

 

 

Three months ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

 

 

(In thousands, except per share data)

 

Revenues:

 

 

 

 

 

 

 

 

Products

 

$

55,583

 

 

$

67,558

 

Services

 

 

17,667

 

 

 

18,814

 

Leasing

 

 

7,989

 

 

 

9,626

 

Total revenues

 

 

81,239

 

 

 

95,998

 

Cost and expenses:

 

 

 

 

 

 

 

 

Cost of sales:

 

 

 

 

 

 

 

 

Products

 

 

41,204

 

 

 

53,645

 

Services

 

 

9,350

 

 

 

9,688

 

Leasing

 

 

6,233

 

 

 

8,081

 

Total cost of sales

 

 

56,787

 

 

 

71,414

 

Selling, general and administrative

 

 

29,558

 

 

 

24,658

 

Engineering and product development

 

 

4,037

 

 

 

5,525

 

Impairments

 

 

-

 

 

 

7,719

 

Restructuring and other charges

 

 

25,020

 

 

 

32,713

 

Gain on sale of assets

 

 

(3,955

)

 

 

(467

)

Foreign currency transaction (gains) and losses

 

 

1,374

 

 

 

(3,242

)

Total costs and expenses

 

 

112,821

 

 

 

138,320

 

Operating loss

 

 

(31,582

)

 

 

(42,322

)

Interest income

 

 

49

 

 

 

1,206

 

Interest expense

 

 

(439

)

 

 

(191

)

Loss before income taxes

 

 

(31,972

)

 

 

(41,307

)

Income tax provision (benefit)

 

 

2,386

 

 

 

(21,609

)

Net loss

 

$

(34,358

)

 

$

(19,698

)

Loss per common share:

 

 

 

 

 

 

 

 

Basic

 

$

(0.97

)

 

$

(0.55

)

Diluted

 

$

(0.97

)

 

$

(0.55

)

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

35,385

 

 

 

35,695

 

Diluted

 

 

35,385

 

 

 

35,695

 

 

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 COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

 

 

 

Three months ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

 

 

(In thousands)

 

Net loss

 

$

(34,358

)

 

$

(19,698

)

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(2,090

)

 

 

(24,979

)

Total comprehensive loss

 

$

(36,448

)

 

$

(44,677

)

 

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 CASH FLOWS

(UNAUDITED)

 

 

 

Three months ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

 

 

(In thousands)

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(34,358

)

 

$

(19,698

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

7,416

 

 

 

8,873

 

Stock-based compensation expense

 

 

3,186

 

 

 

3,176

 

Impairments

 

 

-

 

 

 

7,719

 

Restructuring and other charges

 

 

25,020

 

 

 

32,713

 

Gain on sale of assets

 

 

(3,955

)

 

 

(467

)

Deferred income taxes

 

 

(433

)

 

 

(10,862

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Trade receivables, net

 

 

11,024

 

 

 

(19,444

)

Unbilled receivables

 

 

802

 

 

 

11,224

 

Inventories, net

 

 

(5,794

)

 

 

(15,537

)

Prepaids and other assets

 

 

4,962

 

 

 

(11,723

)

Accounts payable and accrued expenses

 

 

5,202

 

 

 

(7,211

)

Net cash provided by (used in) operating activities

 

 

13,072

 

 

 

(21,237

)

Investing activities

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(2,513

)

 

 

(4,187

)

Proceeds from sale of equipment

 

 

5,944

 

 

 

687

 

Net cash provided by (used in) investing activities

 

 

3,431

 

 

 

(3,500

)

Financing activities

 

 

 

 

 

 

 

 

Repurchase of common shares

 

 

-

 

 

 

(25,000

)

Other

 

 

(40

)

 

 

(85

)

Net cash used in financing activities

 

 

(40

)

 

 

(25,085

)

Effect of exchange rate changes on cash activities

 

 

(205

)

 

 

(5,652

)

Increase (decrease) in cash and cash equivalents

 

 

16,258

 

 

 

(55,474

)

Cash and cash equivalents at beginning of period

 

 

345,955

 

 

 

398,946

 

Cash and cash equivalents at end of period

 

$

362,213

 

 

$

343,472

 

 

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

 

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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 January 1, 2021

 

$

363

 

 

$

65,613

 

 

$

1,125,263

 

 

$

(149,711

)

 

$

1,041,528

 

Foreign currency translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,090

)

 

 

(2,090

)

Net loss

 

 

-

 

 

 

-

 

 

 

(34,358

)

 

 

-

 

 

 

(34,358

)

Comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(36,448

)

Stock option expense

 

 

-

 

 

 

3,186

 

 

 

-

 

 

 

-

 

 

 

3,186

 

Balance at March 31, 2021

 

$

363

 

 

$

68,799

 

 

$

1,090,905

 

 

$

(151,801

)

 

$

1,008,266

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional Paid-In Capital

 

 

Retained Earnings

 

 

Accumulated Other Comprehensive Losses

 

 

Total

 

 

 

 

 

 

 

(In thousands, except shares)

 

 

 

 

 

Balance at January 1, 2020

 

$

371

 

 

$

52,870

 

 

$

1,181,023

 

 

$

(143,563

)

 

$

1,090,701

 

Foreign currency translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(24,979

)

 

 

(24,979

)

Net loss

 

 

-

 

 

 

-

 

 

 

(19,698

)

 

 

-

 

 

 

(19,698

)

Comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(44,677

)

Repurchase of common stock (808,389 shares)

 

 

(8

)

 

 

-

 

 

 

(25,000

)

 

 

-

 

 

 

(25,008

)

Stock option expense

 

 

-

 

 

 

3,176

 

 

 

-

 

 

 

-

 

 

 

3,176

 

Other

 

 

-

 

 

 

(1

)

 

 

10

 

 

 

-

 

 

 

9

 

Balance at March 31, 2020

 

$

363

 

 

$

56,045

 

 

$

1,136,335

 

 

$

(168,542

)

 

$

1,024,201

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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, 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 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 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; 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; 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, 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. 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 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. 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.

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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 running 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.

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.

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.

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 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).

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Table of Contents

 

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 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

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

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

 

 

(In thousands)

 

Weighted average common shares outstanding – basic

 

 

35,385

 

 

 

35,695

 

Dilutive effect of common stock awards

 

 

-

 

 

 

-

 

Weighted average common shares outstanding – diluted

 

 

35,385

 

 

 

35,695

 

 

 

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

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

 

 

(In thousands)

 

Director stock awards

 

 

56

 

 

 

40

 

Stock options

 

 

58

 

 

 

132

 

Performance share units

 

 

331

 

 

 

277

 

Restricted stock awards

 

 

480

 

 

 

336

 

 

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.

3. New Accounting Standards

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. The adoption of ASU 2019-12 did not have a material impact 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 March 31,

 

 

 

Western

Hemisphere

 

 

Eastern

Hemisphere

 

 

Asia-

Pacific

 

 

Total

 

 

 

2021

 

2020

 

 

2021

 

2020

 

 

2021

 

2020

 

 

2021

 

2020

 

 

 

(In thousands)

 

 

 

 

Product Revenues

 

$

37,916

 

$

41,472

 

 

$

6,722

 

$

18,179

 

 

$

10,945

 

$

7,907

 

 

$

55,583

 

$

67,558

 

Service Revenues

 

 

10,504

 

 

10,956

 

 

 

2,719

 

 

4,338

 

 

 

4,444

 

 

3,520

 

 

 

17,667

 

 

18,814

 

Total

 

$

48,420

 

$

52,428

 

 

$

9,441

 

$

22,517

 

 

$

15,389

 

$

11,427

 

 

$

73,250

 

$

86,372

 

 

 

Contract Balances  

Balances related to contracts with customers consisted of the following:

Contract Assets (amounts shown in thousands)

 

Contract Assets at December 31, 2020

 

$

135,973

 

Additions

 

 

25,307

 

Transfers to Trade Receivables, Net

 

 

(26,121

)

Contract Assets at March 31, 2021

 

$

135,159

 

Contract Liabilities (amounts shown in thousands)

 

Contract Liabilities at December 31, 2020

 

$

10,815

 

Additions

 

 

6,546

 

Revenue Recognized

 

 

(3,650

)

Contract Liabilities at March 31, 2021

 

$

13,711

 

 

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 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 $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.  

The Company applies the practical expedient available under the revenue standard and does not disclose information about remaining performance obligations that have original expected durations of one year or less.

5. 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. 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.

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Table of Contents

 

6. Inventories, net

Inventories consist of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

(In thousands)

 

Raw materials and supplies

 

$

30,991

 

 

$

32,833

 

Work in progress

 

$

42,593

 

 

 

44,924

 

Finished goods

 

$

221,588

 

 

 

216,928

 

 

 

 

295,172

 

 

 

294,685

 

Less: allowance for slow moving and excess inventory

 

 

(100,261

)

 

 

(82,149

)

Total inventory

 

$

194,911

 

 

$

212,536

 

 

7. Impairment, Restructuring and Other Charges

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 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,

 

 

 

2021

 

 

2020

 

Inventory write-down

 

$

19,251

 

 

$

17,272

 

Severance

 

 

2,746

 

 

 

8,399

 

Long-lived asset write-down

 

 

-

 

 

 

6,912

 

Other

 

 

3,023

 

 

 

130

 

 

 

$

25,020

 

 

$

32,713

 

 

 

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

 

 

Total

 

Beginning balance at January 1, 2021

 

$

1,146

 

Additions for costs expensed

 

 

5,769

 

Reductions for payments

 

 

(768

)

Other

 

 

(5

)

Ending balance at March 31, 2021

 

$