Business Acquisitions

12 Months Ended

Dec. 31, 2016

Business Combinations [Abstract]

Business Acquisitions

Business Acquisitions

On October 14, 2016, the Company entered into an agreement with Pearce Industries, Inc. to acquire all the outstanding common stock, par value $100.00 per share, of TIW Corporation (TIW) for a cash purchase price of $142.7 million, which is subject to customary adjustments for cash and working capital. The acquisition closed on November 10, 2016 and is expected to strengthen the Company's liner hanger sales and increase market share. Additionally, the acquisition of TIW gives Dril-Quip a presence in the onshore oil and gas market.

Total acquisition costs through December 31, 2016 in connection with the purchase of TIW were $2.5 million and were expensed in general and administrative costs.

Purchase Price Allocation

Acquired assets and liabilities were recorded at estimated fair value as of the acquisition date. The excess of the purchase price over the estimated fair value of tangible and intangible identifiable net assets resulted in the recognition of goodwill of $34.4 million, the majority of which is included in long-lived assets in the Western Hemisphere and is attributable to expected synergies from combining operations as well as intangible assets which do not qualify for separate recognition. The amount of goodwill that is deductible for income tax purposes is not significant.

The goodwill was determined on the basis of the fair values of the tangible and intangible assets and liabilities as of the acquisition date. It may be adjusted if the provisional fair values change as a result of circumstances existing at the acquisition date. Such fair value adjustments may arise in respect to intangible assets, inventories and property, plant and equipment, upon completion of the necessary valuations and physical verifications of such assets. The amount of deferred taxes may also be adjusted during the measurement period. For further information regarding goodwill, see Note 7.

The following table sets forth the preliminary purchase price allocation, which was based on fair value of assets acquired and liabilities assumed at the acquisition date, November 10, 2016:

	Valuation at November 10, 2016
	(In thousands)
Cash	$	1,829
Trade receivables	9,794
Inventories	29,896
Prepaid and other current assets	3,572
Deferred income taxes	205
Property, plant and equipment	38,058
Intangible assets (1)	29,808
Total assets acquired	$	113,162
Accounts payable	5,599
Customer prepayments	2,757
Other accrued liabilities	2,644
Deferred tax liabilities, non-current	2,261
Total liabilities assumed	$	13,261
Net identifiable assets acquired	$	99,901
Goodwill	34,371
Net assets acquired	$	134,272

(1) Includes $3.3 million of patents with a weighted average useful life of 10 years, $8.4 million of tradenames with an indefinite life and $18.1 million of customer relationships with a weighted average useful life of 15 years. See Note 8 for further information regarding intangible assets.

Summary of Unaudited Pro Forma Information

TIW's results of operations have been included in Dril-Quip's financial statements for the period subsequent to the closing of the acquisition on November 10, 2016. Business acquired from TIW contributed revenues of $6.6 million, a pre-tax operating loss of $4.4 million and a net loss of $3.1 million for the period from November 10, 2016 through December 31, 2016. The following table reflects the unaudited pro forma consolidated results of operations for the period presented, as though the acquisition of TIW had occurred on January 1, 2015:

	Year Ended December 31,
	2016		2015
	(In thousands, except per share data)
	(unaudited)
Revenues	$	595,797	$	943,714
Net income	$	84,756	$	193,310
Basic earnings per share	$	2.26	$	5.04
Diluted earnings per share	$	2.25	$	5.02

The unaudited pro forma financial information is presented for illustrative purposes only and is not indicative of the results of operations that would have been realized if the acquisition had been completed on the date indicated, nor is it indicative of future operating results. The pro forma results do not include, for example, the effects of anticipated synergies from the acquisition.