Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 30, 2015 | Oct. 23, 2015 | |
Document And Entity Information [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Sep. 30, 2015 | |
Document Fiscal Year Focus | 2,015 | |
Document Fiscal Period Focus | Q3 | |
Trading Symbol | DRQ | |
Entity Registrant Name | DRIL-QUIP INC | |
Entity Central Index Key | 1,042,893 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 38,355,812 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands | Sep. 30, 2015 | Dec. 31, 2014 |
Current assets: | ||
Cash and cash equivalents | $ 396,969 | $ 298,705 |
Trade receivables, net | 298,442 | 373,993 |
Inventories, net | 365,674 | 392,559 |
Deferred income taxes | 29,452 | 23,569 |
Prepaids and other current assets | 43,290 | 38,314 |
Total current assets | 1,133,827 | 1,127,140 |
Property, plant and equipment, net | 292,608 | 309,525 |
Other assets | 11,685 | 12,586 |
Total assets | 1,438,120 | 1,449,251 |
Current liabilities: | ||
Accounts payable | 44,688 | 53,837 |
Accrued income taxes | 9,628 | 16,903 |
Customer prepayments | 26,916 | 71,177 |
Accrued compensation | 16,327 | 21,527 |
Other accrued liabilities | 20,491 | 35,198 |
Total current liabilities | 118,050 | 198,642 |
Deferred income taxes | 4,275 | 5,417 |
Total liabilities | $ 122,325 | $ 204,059 |
Commitments and contingencies (Note 7) | ||
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, 38,353,789 and 38,932,508 shares issued and outstanding at September 30, 2015 and December 31, 2014 | $ 382 | $ 388 |
Additional paid-in capital | 16,480 | |
Retained earnings | 1,409,409 | 1,278,528 |
Accumulated other comprehensive losses | (93,996) | (50,204) |
Total stockholders' equity | 1,315,795 | 1,245,192 |
Total liabilities and stockholders' equity | $ 1,438,120 | $ 1,449,251 |
Condensed Consolidated Balance3
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares | Sep. 30, 2015 | Dec. 31, 2014 |
Statement of Financial Position [Abstract] | ||
Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
Preferred stock, par value | $ 0.01 | $ 0.01 |
Preferred stock, shares issued | 0 | 0 |
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 100,000,000 | 100,000,000 |
Common stock, shares issued | 38,353,789 | 38,932,508 |
Common stock, shares outstanding | 38,353,789 | 38,932,508 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Income (Unaudited) - USD ($) shares in Thousands, $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | |
Revenues: | ||||
Products | $ 157,790 | $ 198,827 | $ 521,413 | $ 560,742 |
Services | 43,612 | 42,923 | 121,267 | 115,396 |
Total revenues | 201,402 | 241,750 | 642,680 | 676,138 |
Cost and expenses: | ||||
Products | 88,923 | 113,642 | 293,279 | 309,181 |
Services | 19,209 | 21,608 | 57,655 | 61,849 |
Total cost of sales | 108,132 | 135,250 | 350,934 | 371,030 |
Selling, general and administrative | 17,280 | 20,845 | 67,871 | 70,300 |
Engineering and product development | 11,735 | 12,663 | 35,348 | 34,295 |
Total costs and expenses | 137,147 | 168,758 | 454,153 | 475,625 |
Operating income | 64,255 | 72,992 | 188,527 | 200,513 |
Interest income | 345 | 206 | 559 | 555 |
Interest expense | (4) | (3) | (10) | (15) |
Income before income taxes | 64,596 | 73,195 | 189,076 | 201,053 |
Income tax provision | 13,819 | 17,512 | 45,422 | 51,428 |
Net income | $ 50,777 | $ 55,683 | $ 143,654 | $ 149,625 |
Earnings per common share: | ||||
Basic | $ 1.32 | $ 1.41 | $ 3.72 | $ 3.72 |
Diluted | $ 1.32 | $ 1.40 | $ 3.70 | $ 3.70 |
Weighted average common shares outstanding: | ||||
Basic | 38,347 | 39,630 | 38,601 | 40,208 |
Diluted | 38,548 | 39,880 | 38,789 | 40,444 |
Condensed Consolidated Stateme5
Condensed Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | |
Statement of Comprehensive Income [Abstract] | ||||
Net income | $ 50,777 | $ 55,683 | $ 143,654 | $ 149,625 |
Other comprehensive loss, net of tax: | ||||
Foreign currency translation adjustments | (33,099) | (28,432) | (43,792) | (12,004) |
Total comprehensive income | $ 17,678 | $ 27,251 | $ 99,862 | $ 137,621 |
Condensed Consolidated Stateme6
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands | 9 Months Ended | |
Sep. 30, 2015 | Sep. 30, 2014 | |
Operating activities | ||
Net income | $ 143,654 | $ 149,625 |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||
Depreciation and amortization | 22,777 | 22,774 |
Stock-based compensation expense | 9,794 | 8,640 |
Loss (gain) on sale of equipment | 73 | (199) |
Deferred income taxes | (7,420) | 1,879 |
Changes in operating assets and liabilities: | ||
Trade receivables, net | 60,329 | (55,169) |
Inventories, net | 8,993 | (44,047) |
Prepaids and other assets | (8,747) | (2,722) |
Excess tax benefits of stock options and awards | (57) | (309) |
Accounts payable and accrued expenses | (70,658) | 22,112 |
Net cash provided by operating activities | 158,738 | 102,584 |
Investing activities | ||
Purchase of property, plant and equipment | (16,746) | (31,164) |
Proceeds from sale of equipment | 183 | 543 |
Net cash used in investing activities | (16,563) | (30,621) |
Financing activities | ||
Repurchase of common stock | (40,911) | (140,261) |
Proceeds from exercise of stock options | 1,952 | 1,864 |
Excess tax benefits of stock options and awards | 57 | 309 |
Net cash used in financing activities | (38,902) | (138,088) |
Effect of exchange rate changes on cash activities | (5,009) | (3,267) |
Increase (decrease) in cash and cash equivalents | 98,264 | (69,392) |
Cash and cash equivalents at beginning of period | 298,705 | 384,356 |
Cash and cash equivalents at end of period | $ 396,969 | $ 314,964 |
Organization and Principles of
Organization and Principles of Consolidation | 9 Months Ended |
Sep. 30, 2015 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Organization and Principles of Consolidation | 1. Organization and Principles of Consolidation Dril-Quip, Inc., a Delaware corporation (the “Company” or “Dril-Quip”), designs, manufactures, sells and services highly engineered offshore drilling and production equipment that is well suited 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 and diverters. Dril-Quip’s products are used by major integrated, large independent and foreign national oil and gas companies in offshore areas 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 headquarter locations as well as Macae, Brazil. The condensed consolidated financial statements included herein are unaudited. The balance sheet at December 31, 2014, has been derived from the audited consolidated financial statements at that date. In the opinion of management, the unaudited condensed consolidated interim financial statements include all normal recurring adjustments necessary for a fair presentation of the financial position as of September 30, 2015 and the results of operations and comprehensive income for the three- and nine-month periods ended September 30, 2015 and 2014 and the cash flows for the nine-month periods ended September 30, 2015 and 2014. 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. Management believes the unaudited interim related disclosures in these condensed consolidated financial statements are adequate. The results of operations, comprehensive income and cash flows for the nine-month period ended September 30, 2015 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, 2014. |
Significant Accounting Policies
Significant Accounting Policies | 9 Months Ended |
Sep. 30, 2015 | |
Accounting Policies [Abstract] | |
Significant Accounting Policies | 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. Revisions The Company has corrected its Condensed Consolidated Statements of Cash Flows for the nine-month period ended September 30, 2014, to reflect a $6.7 million reclassification adjustment from changes in prepaids and other assets to changes in accounts payable and accrued expenses related to the 2014 beginning balances. There was no impact on the net cash provided by operating activities or any other reported cash flow amounts as a result of the reclassifications. The Company has evaluated the impact of this revision and determined that it was not material. 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 and disclosure of contingent 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 from those estimates. Some of the Company’s more significant estimates are those affected by critical accounting policies for revenue recognition, inventories and contingent liabilities. Revenue Recognition Product Revenue The Company earns product revenues from two methods: • product revenues recognized under the percentage-of-completion method; and • product revenues from the sale of products that do not qualify for the percentage-of-completion method. Revenues recognized under the percentage-of-completion method The Company uses the percentage-of-completion method on long-term project contracts that have the following characteristics: • The contracts call for products which are designed to customer specifications; • The structural designs are unique and require significant engineering and manufacturing efforts generally requiring more than one year in duration; • The contracts contain specific terms as to milestones, progress billings and delivery dates; and • Product requirements cannot be filled directly from the Company’s standard inventory. For each project, the Company prepares a detailed analysis of estimated costs, profit margin, completion date and risk factors which include availability of material, production efficiencies and other factors that may impact the project. On a quarterly basis, management reviews the progress of each project, which may result in revisions of previous estimates, including revenue recognition. The Company calculates the percent complete and applies the percentage to determine the revenues earned and the appropriate portion of total estimated costs. Losses, if any, are recorded in full in the period they become known. Historically, the Company’s estimates of total costs and costs to complete have approximated actual costs incurred to complete the project. Under the percentage-of-completion method, billings may not correlate directly to the revenue recognized. Based upon the terms of the specific contract, billings may be in excess of the revenue recognized, in which case the amounts are included in customer prepayments as a liability on the Condensed Consolidated Balance Sheets. Likewise, revenue recognized may exceed customer billings in which case the amounts are reported in trade receivables. Unbilled revenues are expected to be billed and collected within one year. At September 30, 2015 and December 31, 2014, receivables included $87.2 million and $68.0 million of unbilled receivables, respectively. For the quarter ended September 30, 2015, there were 9 projects representing approximately 17% of the Company’s total revenue and approximately 22% of its product revenues that were accounted for using percentage-of-completion accounting, compared to 14 projects during the third quarter of 2014, which represented approximately 15% of the Company’s total revenues and approximately 18% of its product revenues. For the nine months ended September 30, 2015, there were 14 projects representing approximately 16% of the Company’s total revenues and approximately 20% of its product revenues, compared to 17 projects representing approximately 10% of the Company’s total revenues and approximately 13% of its product revenues for the nine months ended September 30, 2014, all of which were accounted for using percentage-of-completion accounting. Revenues not recognized under the percentage-of-completion method Revenues from the sale of inventory products, not accounted for under the percentage-of-completion method, are recorded at the time the manufacturing processes are complete and ownership is transferred to the customer. Service revenue The Company earns service revenues from three sources: • technical advisory assistance; • rental of running tools; and • rework and reconditioning of customer-owned Dril-Quip products. The Company does not install products for its customers, but it does provide technical advisory assistance. At the time of delivery of the product, the customer is not obligated to buy or rent the Company’s running tools and the Company is not obligated to perform any subsequent services relating to installation. Technical advisory assistance service revenue is recorded at the time the service is rendered. Service revenues associated with the rental of running and installation tools are recorded as earned. Rework and reconditioning service revenues are recorded when the refurbishment process is complete. The Company normally negotiates contracts for products, including those accounted for under the percentage-of-completion method, and services separately. 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 use a third party or their own personnel. 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. Earnings Per Share Basic earnings per common share is computed by dividing net income 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 options and 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 Nine months ended 2015 2014 2015 2014 (In thousands) Weighted average common shares outstanding—basic 38,347 39,630 38,601 40,208 Dilutive effect of common stock options and awards 201 250 188 236 Weighted average common shares outstanding—diluted 38,548 39,880 38,789 40,444 |
New Accounting Standards
New Accounting Standards | 9 Months Ended |
Sep. 30, 2015 | |
Accounting Changes and Error Corrections [Abstract] | |
New Accounting Standards | 3. New Accounting Standards In July 2015, the FASB issued ASU 2015-11 “Simplifying the Measurement of Inventory (Topic 330).” This standard states that inventory within the scope of this update should be measured at the lower of cost and net realizable value. Net realizable value is defined as the estimated selling price in the normal course of business, less reasonably predictable costs of completion, disposal, and transportation. The standard is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company is evaluating the impact of the new guidance on its consolidated financial statements. In May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers (Topic 606).” The amendment applies a new five-step revenue recognition model to be used in recognizing revenues associated with customer contracts. The amendment requires disclosure sufficient to enable readers of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill the contract. The standard’s effective date was originally for fiscal years beginning after December 15, 2016, including interim periods within the reporting period. On April 1, 2015, the FASB voted to defer the effective date by one year to December 15, 2017 and interim periods within annual reporting periods beginning after December 15, 2017. The Company is currently evaluating the new guidance to determine the impact on its consolidated financial statements. |
Stock-Based Compensation and St
Stock-Based Compensation and Stock Awards | 9 Months Ended |
Sep. 30, 2015 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Stock-Based Compensation and Stock Awards | 4. Stock-Based Compensation and Stock Awards During the three months ended September 30, 2015 and 2014, the Company recognized approximately $3.3 million and $3.0 million, respectively, of stock-based compensation expense, which is included in the selling, general and administrative expense line on the Condensed Consolidated Statements of Income. For the nine months ended September 30, 2015 and 2014, stock-based compensation expense totaled $9.8 million and $8.6 million, respectively. No stock-based compensation expense was capitalized during the three and nine months ended September 30, 2015 or 2014. |
Inventories
Inventories | 9 Months Ended |
Sep. 30, 2015 | |
Inventory Disclosure [Abstract] | |
Inventories | 5. Inventories Inventories consist of the following: September 30, December 31, (In thousands) Raw materials $ 102,029 $ 107,357 Work in progress 105,124 112,514 Finished goods 195,016 207,295 402,169 427,166 Less: allowance for obsolete and excess inventory (36,495 ) (34,607 ) Total inventory $ 365,674 $ 392,559 |
Geographic Areas
Geographic Areas | 9 Months Ended |
Sep. 30, 2015 | |
Segment Reporting [Abstract] | |
Geographic Areas | 6. Geographic Areas Three months ended Nine months ended 2015 2014 2015 2014 (In thousands) Revenues: Western Hemisphere Products $ 75,681 $ 101,833 $ 250,056 $ 312,175 Services 23,285 20,397 67,092 55,678 Intercompany 17,002 19,501 41,757 38,856 Total $ 115,968 $ 141,731 $ 358,905 $ 406,709 Eastern Hemisphere Products $ 44,955 $ 53,894 $ 185,194 $ 151,631 Services 15,128 17,587 40,387 45,578 Intercompany 549 7,018 5,372 10,517 Total $ 60,632 $ 78,499 $ 230,953 $ 207,726 Asia-Pacific Products $ 37,154 $ 43,100 $ 86,163 $ 96,936 Services 5,199 4,939 13,788 14,140 Intercompany 2,492 394 4,881 2,724 Total $ 44,845 $ 48,433 $ 104,832 $ 113,800 Summary Products $ 157,790 $ 198,827 $ 521,413 $ 560,742 Services 43,612 42,923 121,267 115,396 Intercompany 20,043 26,913 52,010 52,097 Eliminations (20,043 ) (26,913 ) (52,010 ) (52,097 ) Total $ 201,402 $ 241,750 $ 642,680 $ 676,138 Income before income taxes: Western Hemisphere $ 23,536 $ 34,496 $ 83,500 $ 106,666 Eastern Hemisphere 24,386 25,620 69,969 56,794 Asia-Pacific 16,471 13,646 28,960 34,954 Eliminations 203 (567 ) 6,647 2,639 Total $ 64,596 $ 73,195 $ 189,076 $ 201,053 September 30, December 31, (In thousands) Total Long-Lived Assets: Western Hemisphere $ 208,406 $ 221,597 Eastern Hemisphere 42,946 45,517 Asia-Pacific 55,867 57,923 Eliminations (2,926 ) (2,926 ) Total $ 304,293 $ 322,111 Total Assets: Western Hemisphere $ 707,263 $ 731,448 Eastern Hemisphere 392,007 375,781 Asia-Pacific 356,149 354,329 Eliminations (17,299 ) (12,307 ) Total $ 1,438,120 $ 1,449,251 |
Commitments and Contingencies
Commitments and Contingencies | 9 Months Ended |
Sep. 30, 2015 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | 7. Commitments and Contingencies Brazilian Tax Issue From 2002 to 2007, the Company’s Brazilian subsidiary imported goods through the State of Espirito Santo in Brazil and subsequently transferred them to its facility in the State of Rio de Janeiro. During that period, the Company’s Brazilian subsidiary paid taxes to the State of Espirito Santo on its imports. Upon the final sale of these goods, the Company’s Brazilian subsidiary collected taxes from customers and remitted them to the State of Rio de Janeiro net of the taxes paid on importation of those goods to the State of Espirito Santo in accordance with the Company’s understanding of Brazilian tax laws. In August 2007, the State of Rio de Janeiro served the Company’s Brazilian subsidiary with assessments to collect a state tax on the importation of goods through the State of Espirito Santo from 2002 to 2007 claiming that these taxes were due and payable to it under applicable law. The Company settled these assessments with payments to the State of Rio de Janeiro of $12.2 million in March 2010 and $3.9 million in December 2010. Approximately $7.8 million of these settlement payments were attributable to penalties, interest and amounts that had expired under the statute of limitations so that amount was recorded as an expense. The remainder of the settlement payments generated credits (recorded as a long-term prepaid tax) to be used to offset future state taxes on sales to customers in the State of Rio de Janeiro, subject to certification by the tax authorities. During the second quarter of 2015, the tax authorities certified approximately $8.3 million of those credits paid in 2010 and granted an additional $2.3 million in inflation-related credits. The additional amount of credits granted by the tax authorities increased long-term prepaid taxes and decreased selling, general and administrative expenses by $2.3 million. In December 2010 and January 2011, the Company’s Brazilian subsidiary was served with two additional assessments totaling approximately $13.0 million from the State of Rio de Janeiro to cancel the credits associated with the tax payments to the State of Espirito Santo (“Santo Credits”) on the importation of goods from July 2005 to October 2007. The Santo Credits are not related to the credits described above. The Company has objected to these assessments on the grounds that they would represent double taxation on the importation of the same goods and that the Company is entitled to the credits under applicable Brazilian law. With regard to the December 2010 assessment, the Company’s Brazilian subsidiary filed an appeal with the relevant State of Rio de Janeiro judicial court to annul the tax assessment following a ruling against the Company by the tax administration’s highest council. In connection with that appeal, the Company was required to deposit with the court approximately $3.1 million as the full amount of the assessment with penalties and interest. The Company intends to file a similar appeal in the judicial system with regard to the January 2011 assessment as a result of a recent ruling against the Company by the tax administration’s highest council. The Company believes that these credits are valid and that success in the judicial court process is probable. Based upon this analysis, the Company has not accrued any liability in conjunction with this matter. Since 2007, the Company’s Brazilian subsidiary has paid taxes on the importation of goods directly to the State of Rio de Janeiro and the Company does not expect any similar issues to exist for periods subsequent to 2007. General 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 dependency on the condition of the oil and gas industry. Additionally, the Company’s products are used in potentially hazardous drilling, completion, and production applications that can cause personal injury, product liability, and environmental claims. Although exposure to such risk has not resulted in any significant liabilities or obligations in the past, there can be no assurance that ongoing and future developments will not adversely impact the Company. The Company is also involved in a number of legal actions arising in the ordinary course of business. Although no assurance can be given with respect to the ultimate outcome of such legal action, in the opinion of management, the ultimate liability with respect thereto will not have a material adverse effect on the Company’s results of operations, financial position or cash flows. |
Significant Accounting Polici14
Significant Accounting Policies (Policies) | 9 Months Ended |
Sep. 30, 2015 | |
Accounting Policies [Abstract] | |
Principles of Consolidation | 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. |
Revisions | Revisions The Company has corrected its Condensed Consolidated Statements of Cash Flows for the nine-month period ended September 30, 2014, to reflect a $6.7 million reclassification adjustment from changes in prepaids and other assets to changes in accounts payable and accrued expenses related to the 2014 beginning balances. There was no impact on the net cash provided by operating activities or any other reported cash flow amounts as a result of the reclassifications. The Company has evaluated the impact of this revision and determined that it was not material. |
Use of Estimates | 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 and disclosure of contingent 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 from those estimates. Some of the Company’s more significant estimates are those affected by critical accounting policies for revenue recognition, inventories and contingent liabilities. |
Revenue Recognition | Revenue Recognition Product Revenue The Company earns product revenues from two methods: • product revenues recognized under the percentage-of-completion method; and • product revenues from the sale of products that do not qualify for the percentage-of-completion method. |
Revenues recognized under the percentage-of-completion method | Revenues recognized under the percentage-of-completion method The Company uses the percentage-of-completion method on long-term project contracts that have the following characteristics: • The contracts call for products which are designed to customer specifications; • The structural designs are unique and require significant engineering and manufacturing efforts generally requiring more than one year in duration; • The contracts contain specific terms as to milestones, progress billings and delivery dates; and • Product requirements cannot be filled directly from the Company’s standard inventory. For each project, the Company prepares a detailed analysis of estimated costs, profit margin, completion date and risk factors which include availability of material, production efficiencies and other factors that may impact the project. On a quarterly basis, management reviews the progress of each project, which may result in revisions of previous estimates, including revenue recognition. The Company calculates the percent complete and applies the percentage to determine the revenues earned and the appropriate portion of total estimated costs. Losses, if any, are recorded in full in the period they become known. Historically, the Company’s estimates of total costs and costs to complete have approximated actual costs incurred to complete the project. Under the percentage-of-completion method, billings may not correlate directly to the revenue recognized. Based upon the terms of the specific contract, billings may be in excess of the revenue recognized, in which case the amounts are included in customer prepayments as a liability on the Condensed Consolidated Balance Sheets. Likewise, revenue recognized may exceed customer billings in which case the amounts are reported in trade receivables. Unbilled revenues are expected to be billed and collected within one year. At September 30, 2015 and December 31, 2014, receivables included $87.2 million and $68.0 million of unbilled receivables, respectively. For the quarter ended September 30, 2015, there were 9 projects representing approximately 17% of the Company’s total revenue and approximately 22% of its product revenues that were accounted for using percentage-of-completion accounting, compared to 14 projects during the third quarter of 2014, which represented approximately 15% of the Company’s total revenues and approximately 18% of its product revenues. For the nine months ended September 30, 2015, there were 14 projects representing approximately 16% of the Company’s total revenues and approximately 20% of its product revenues, compared to 17 projects representing approximately 10% of the Company’s total revenues and approximately 13% of its product revenues for the nine months ended September 30, 2014, all of which were accounted for using percentage-of-completion accounting. |
Revenues not recognized under the percentage-of-completion method | Revenues not recognized under the percentage-of-completion method Revenues from the sale of inventory products, not accounted for under the percentage-of-completion method, are recorded at the time the manufacturing processes are complete and ownership is transferred to the customer. |
Service revenue | Service revenue The Company earns service revenues from three sources: • technical advisory assistance; • rental of running tools; and • rework and reconditioning of customer-owned Dril-Quip products. The Company does not install products for its customers, but it does provide technical advisory assistance. At the time of delivery of the product, the customer is not obligated to buy or rent the Company’s running tools and the Company is not obligated to perform any subsequent services relating to installation. Technical advisory assistance service revenue is recorded at the time the service is rendered. Service revenues associated with the rental of running and installation tools are recorded as earned. Rework and reconditioning service revenues are recorded when the refurbishment process is complete. The Company normally negotiates contracts for products, including those accounted for under the percentage-of-completion method, and services separately. 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 use a third party or their own personnel. |
Fair Value of Financial Instruments | 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. |
Earnings Per Share | Earnings Per Share Basic earnings per common share is computed by dividing net income 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 options and 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 Nine months ended 2015 2014 2015 2014 (In thousands) Weighted average common shares outstanding—basic 38,347 39,630 38,601 40,208 Dilutive effect of common stock options and awards 201 250 188 236 Weighted average common shares outstanding—diluted 38,548 39,880 38,789 40,444 |
Significant Accounting Polici15
Significant Accounting Policies (Tables) | 9 Months Ended |
Sep. 30, 2015 | |
Accounting Policies [Abstract] | |
Schedule of Earnings Per Share | 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 Nine months ended 2015 2014 2015 2014 (In thousands) Weighted average common shares outstanding—basic 38,347 39,630 38,601 40,208 Dilutive effect of common stock options and awards 201 250 188 236 Weighted average common shares outstanding—diluted 38,548 39,880 38,789 40,444 |
Inventories (Tables)
Inventories (Tables) | 9 Months Ended |
Sep. 30, 2015 | |
Inventory Disclosure [Abstract] | |
Schedule of Inventories | Inventories consist of the following: September 30, December 31, (In thousands) Raw materials $ 102,029 $ 107,357 Work in progress 105,124 112,514 Finished goods 195,016 207,295 402,169 427,166 Less: allowance for obsolete and excess inventory (36,495 ) (34,607 ) Total inventory $ 365,674 $ 392,559 |
Geographic Areas (Tables)
Geographic Areas (Tables) | 9 Months Ended |
Sep. 30, 2015 | |
Segment Reporting [Abstract] | |
Schedule of Segment Reporting | Three months ended Nine months ended 2015 2014 2015 2014 (In thousands) Revenues: Western Hemisphere Products $ 75,681 $ 101,833 $ 250,056 $ 312,175 Services 23,285 20,397 67,092 55,678 Intercompany 17,002 19,501 41,757 38,856 Total $ 115,968 $ 141,731 $ 358,905 $ 406,709 Eastern Hemisphere Products $ 44,955 $ 53,894 $ 185,194 $ 151,631 Services 15,128 17,587 40,387 45,578 Intercompany 549 7,018 5,372 10,517 Total $ 60,632 $ 78,499 $ 230,953 $ 207,726 Asia-Pacific Products $ 37,154 $ 43,100 $ 86,163 $ 96,936 Services 5,199 4,939 13,788 14,140 Intercompany 2,492 394 4,881 2,724 Total $ 44,845 $ 48,433 $ 104,832 $ 113,800 Summary Products $ 157,790 $ 198,827 $ 521,413 $ 560,742 Services 43,612 42,923 121,267 115,396 Intercompany 20,043 26,913 52,010 52,097 Eliminations (20,043 ) (26,913 ) (52,010 ) (52,097 ) Total $ 201,402 $ 241,750 $ 642,680 $ 676,138 Income before income taxes: Western Hemisphere $ 23,536 $ 34,496 $ 83,500 $ 106,666 Eastern Hemisphere 24,386 25,620 69,969 56,794 Asia-Pacific 16,471 13,646 28,960 34,954 Eliminations 203 (567 ) 6,647 2,639 Total $ 64,596 $ 73,195 $ 189,076 $ 201,053 September 30, December 31, (In thousands) Total Long-Lived Assets: Western Hemisphere $ 208,406 $ 221,597 Eastern Hemisphere 42,946 45,517 Asia-Pacific 55,867 57,923 Eliminations (2,926 ) (2,926 ) Total $ 304,293 $ 322,111 Total Assets: Western Hemisphere $ 707,263 $ 731,448 Eastern Hemisphere 392,007 375,781 Asia-Pacific 356,149 354,329 Eliminations (17,299 ) (12,307 ) Total $ 1,438,120 $ 1,449,251 |
Organization and Principles o18
Organization and Principles of Consolidation - Additional Information (Detail) | 9 Months Ended |
Sep. 30, 2015SegmentLocation | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Number of geographic segments | Segment | 3 |
Number of headquarter locations | 3 |
Significant Accounting Polici19
Significant Accounting Policies - Additional Information (Detail) $ in Millions | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2015USD ($)Project | Sep. 30, 2014Project | Sep. 30, 2015USD ($)ProjectMethodSource | Sep. 30, 2014USD ($)Project | Dec. 31, 2014USD ($) | |
Significant Accounting Policies [Line Items] | |||||
Number of product revenue sources | Method | 2 | ||||
Unbilled receivables | $ 87.2 | $ 87.2 | $ 68 | ||
Number of projects | Project | 9 | 14 | 14 | 17 | |
Percentage of total revenues | 17.00% | 15.00% | 16.00% | 10.00% | |
Percentage of product revenues | 22.00% | 18.00% | 20.00% | 13.00% | |
Number of service revenue sources | Source | 3 | ||||
Prepaid and Other Current Assets [Member] | |||||
Significant Accounting Policies [Line Items] | |||||
Prior period reclassification adjustment | $ 6.7 |
Significant Accounting Polici20
Significant Accounting Policies - Schedule of Earnings Per Share (Detail) - shares shares in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | |
Earnings Per Share [Abstract] | ||||
Weighted average common shares outstanding-basic | 38,347 | 39,630 | 38,601 | 40,208 |
Dilutive effect of common stock options and awards | 201 | 250 | 188 | 236 |
Weighted average common shares outstanding-diluted | 38,548 | 39,880 | 38,789 | 40,444 |
Stock-Based Compensation and 21
Stock-Based Compensation and Stock Awards - Additional Information (Detail) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||
Stock-based compensation expense | $ 3,300,000 | $ 3,000,000 | $ 9,794,000 | $ 8,640,000 |
Capitalized expense | $ 0 | $ 0 | $ 0 | $ 0 |
Inventories - Schedule of Inven
Inventories - Schedule of Inventories (Detail) - USD ($) $ in Thousands | Sep. 30, 2015 | Dec. 31, 2014 |
Inventory Disclosure [Abstract] | ||
Raw materials | $ 102,029 | $ 107,357 |
Work in progress | 105,124 | 112,514 |
Finished goods | 195,016 | 207,295 |
Inventory, gross, Total | 402,169 | 427,166 |
Less: allowance for obsolete and excess inventory | (36,495) | (34,607) |
Total inventory | $ 365,674 | $ 392,559 |
Geographic Areas - Schedule of
Geographic Areas - Schedule of Segment Reporting (Detail) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | Dec. 31, 2014 | |
Segment Reporting Information [Line Items] | |||||
Products | $ 157,790 | $ 198,827 | $ 521,413 | $ 560,742 | |
Services | 43,612 | 42,923 | 121,267 | 115,396 | |
Intercompany | 20,043 | 26,913 | 52,010 | 52,097 | |
Eliminations | (20,043) | (26,913) | (52,010) | (52,097) | |
Total revenues | 201,402 | 241,750 | 642,680 | 676,138 | |
Total Long-Lived Assets | 304,293 | 304,293 | $ 322,111 | ||
Income before income taxes | 64,596 | 73,195 | 189,076 | 201,053 | |
Total Assets | 1,438,120 | 1,438,120 | 1,449,251 | ||
Eliminations [Member] | |||||
Segment Reporting Information [Line Items] | |||||
Income before income taxes | 203 | (567) | 6,647 | 2,639 | |
Total Long-Lived Assets Eliminations | (2,926) | (2,926) | (2,926) | ||
Total Assets Eliminations | (17,299) | (17,299) | (12,307) | ||
Western Hemisphere [Member] | Operating Segments [Member] | |||||
Segment Reporting Information [Line Items] | |||||
Products | 75,681 | 101,833 | 250,056 | 312,175 | |
Services | 23,285 | 20,397 | 67,092 | 55,678 | |
Intercompany | 17,002 | 19,501 | 41,757 | 38,856 | |
Total revenues | 115,968 | 141,731 | 358,905 | 406,709 | |
Total Long-Lived Assets | 208,406 | 208,406 | 221,597 | ||
Income before income taxes | 23,536 | 34,496 | 83,500 | 106,666 | |
Total Assets | 707,263 | 707,263 | 731,448 | ||
Eastern Hemisphere [Member] | Operating Segments [Member] | |||||
Segment Reporting Information [Line Items] | |||||
Products | 44,955 | 53,894 | 185,194 | 151,631 | |
Services | 15,128 | 17,587 | 40,387 | 45,578 | |
Intercompany | 549 | 7,018 | 5,372 | 10,517 | |
Total revenues | 60,632 | 78,499 | 230,953 | 207,726 | |
Total Long-Lived Assets | 42,946 | 42,946 | 45,517 | ||
Income before income taxes | 24,386 | 25,620 | 69,969 | 56,794 | |
Total Assets | 392,007 | 392,007 | 375,781 | ||
Asia-Pacific [Member] | Operating Segments [Member] | |||||
Segment Reporting Information [Line Items] | |||||
Products | 37,154 | 43,100 | 86,163 | 96,936 | |
Services | 5,199 | 4,939 | 13,788 | 14,140 | |
Intercompany | 2,492 | 394 | 4,881 | 2,724 | |
Total revenues | 44,845 | 48,433 | 104,832 | 113,800 | |
Total Long-Lived Assets | 55,867 | 55,867 | 57,923 | ||
Income before income taxes | 16,471 | $ 13,646 | 28,960 | $ 34,954 | |
Total Assets | $ 356,149 | $ 356,149 | $ 354,329 |
Commitments and Contingencies -
Commitments and Contingencies - Additional Information (Detail) - USD ($) $ in Millions | 1 Months Ended | 3 Months Ended | 12 Months Ended | ||
Dec. 31, 2010 | Mar. 31, 2010 | Jun. 30, 2015 | Dec. 31, 2010 | Dec. 31, 2014 | |
Commitments And Contingencies [Line Items] | |||||
Court deposit | $ 3.1 | ||||
Brazil [Member] | |||||
Commitments And Contingencies [Line Items] | |||||
Tax assessment settled with payments | $ 3.9 | $ 12.2 | |||
Amount of interest, penalties and monetary restatement fees on tax assessments | 7.8 | ||||
Tax credits certified | $ 8.3 | ||||
Value of assessments served on Brazilian subsidiary | $ 13 | ||||
Brazil [Member] | Inflation Related Credits [Member] | |||||
Commitments And Contingencies [Line Items] | |||||
Tax credits certified | $ 2.3 |