Forum Energy Annual Report 2016

Plain-text annual report

Table of ContentsUNITED STATES SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549___________________________________FORM 10-K____________________________________þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2016ORo TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from __________ to __________Commission File Number 001-35504FORUM ENERGY TECHNOLOGIES, INC.(Exact name of registrant as specified in its charter)Delaware 61-1488595(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)920 Memorial City Way, Suite 1000Houston, Texas 77024(Address of principal executive offices)Registrant’s telephone number, including area code: (281) 949-2500Securities registered pursuant to Section 12(b) of the Act:Common stock, $0.01 par value New York Stock Exchange(Title of Each Class) (Name of Each Exchange on Which Registered)Securities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No oIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þIndicate 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 12months (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 þ No oIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ NooIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. oIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "largeaccelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):Large accelerated filer þ Accelerated filer o Non-accelerated filer o Smaller reporting company o (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þThe aggregate market value of Common Stock held by non-affiliates on June 30, 2016, determined using the per share closing price on the New York Stock Exchange Compositetape of $17.31 on June 30, 2016, was approximately $1.2 billion. For this purpose, our executive officers and directors and SCF Partners L.P. and its affiliates are consideredaffiliates.As of February 24, 2017, there were 96,081,493 common shares outstanding.DOCUMENTS INCORPORATED BY REFERENCEPortions of our Proxy Statement for the 2017 Annual Meeting of Stockholders are incorporated by reference into Part III of this report.1Table of ContentsForum Energy Technologies, Inc.Index to Form 10-KPART IItem 1.Business3Item 1A.Risk Factors12Item 1B.Unresolved Staff Comments27Item 2.Properties28Item 3.Legal Proceedings28Item 4.Mine Safety Disclosures29PART IIItem 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities31Item 6.Selected Financial Data32Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations34Item 7A.Quantitative and Qualitative Disclosures About Market Risk55Item 8.Financial Statements and Supplementary Data56Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure96Item 9A.Controls and Procedures96Item 9B.Other Information96PART IIIItem 10.Directors, Executive Officers and Corporate Governance96Item 11.Executive Compensation97Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters97Item 13.Certain Relationships and Related Transactions, and Director Independence97Item 14.Principal Accounting Fees and Services97PART IVItem 15.Exhibits, Financial Statement Schedules97SIGNATURES101 2Table of Contents PART IItem 1. BusinessForum Energy Technologies, Inc., (“Forum,” the “Company,” “we” or “us”) a Delaware corporation, is a global oilfield products company, serving thedrilling, subsea, completion, production and infrastructure sectors of the oil and natural gas industry. Our common shares are listed on the NewYork Stock Exchange ("NYSE") under the symbol "FET." Our principal executive offices are located at 920 Memorial City Way, Suite 1000,Houston, Texas 77024, our telephone number is (281) 949-2500, and our website is www.f-e-t.com. Our Annual Reports on Form 10-K, quarterlyreports on Form 10-Q and current reports on Form 8-K, and all amendments thereto, are available free of charge on our Internet website as soonas reasonably practicable after such reports are electronically filed with or furnished to the Securities and Exchange Commission ("SEC"). Thesereports are also available at the SEC's Internet website at www.sec.gov. Information contained on or accessible from our website is notincorporated by reference into this Annual Report on Form 10-K and should not be considered part of this report or any other filing that we makewith the SEC.OverviewWe design, manufacture and distribute products and engage in aftermarket services, parts supply and related services that complement ourproduct offering. Our product offering includes a mix of highly engineered capital products and frequently replaced items that are used in theexploration, development, production and transportation of oil and natural gas. Our capital products are targeted at: drilling rig equipment for newrigs, upgrades and refurbishment projects; subsea construction and development projects; the placement of production equipment on newproducing wells; pressure pumping equipment; and downstream capital projects. Our engineered systems are critical components used on drillingrigs, for well completions or in the course of subsea operations, while our consumable products are used to maintain efficient and safe operationsat well sites in the well construction process, within the supporting infrastructure and at processing centers and refineries. Historically, over 60% ofour revenue is derived from activity-based consumable products, while the balance is derived from capital products and a small amount from rentaland other services.We seek to design, manufacture and supply reliable products that create value for our diverse customer base, which includes, among others, oiland natural gas operators, land and offshore drilling contractors, oilfield service companies, subsea construction and service companies in both oiland natural gas and non-oil and natural gas industries, and pipeline and refinery operators.We operate three business segments, Drilling & Subsea, Completions, and Production & Infrastructure. The table below provides a summary ofproportional revenue contributions from our three business segments and our primary geographic markets over the last three years: Percentage of revenue Year ended December 31, 2016 2015 2014Drilling & Subsea38% 45% 50%Completions22% 25% 25%Production & Infrastructure40% 30% 25% Total100% 100% 100% United States62% 60% 60%Canada7% 5% 6%Other International31% 35% 34% Total100% 100% 100%We incorporate by reference in response to this item the segment and geographic information for the last three years set forth in "Management'sDiscussion and Analysis of Financial Condition and Results of Operations – Results of operations" in Item 7 of this Annual Report on Form 10-Kand Note 15 of the Notes to consolidated financial statements included in Item 8 of this Annual Report on Form 10-K. We also incorporate byreference in response to this item the information with respect to acquisitions set forth in "Management's Discussion and Analysis of FinancialCondition and3Table of ContentsResults of Operations – Acquisitions" in Item 7 and in Note 3 of our Notes to consolidated financial statements included in Item 8 of this AnnualReport on Form 10-K.Drilling & Subsea segmentIn our Drilling & Subsea segment, we design, manufacture and supply products and provide related services to the drilling and subsea constructionmarkets. Through this segment, we offer drilling technologies, including capital equipment and a broad line of products consumed in the drillingprocess; and subsea technologies, including robotic vehicles and other capital equipment, specialty components and tooling, a broad suite ofcomplementary subsea technical services and rental items, and products used in pipeline infrastructure.There are several factors that drive demand for our Drilling & Subsea segment. Our Drilling Technologies product line is influenced by global drillingactivity, the level of capital investment in drilling rigs, rig upgrades and equipment replacement as drilling contractors modify their existing rigs toimprove efficiency and safety, and the number of rigs and well service equipment in use and the severity of the conditions under which theyoperate. Demand for our subsea products is impacted by global offshore activity, subsea equipment and pipeline installation, repair andmaintenance spending, and growth in offshore resource development.Drilling Technologies. We provide both drilling capital equipment and consumables, with a focus on products that enhance our customers' handlingof tubulars and drilling fluids on the drilling rig. Our product offering includes powered and manual tubular handling equipment; specialized torqueequipment; customized offline crane systems; drilling data acquisition management systems; pumps, pump parts, valves, and manifolds; drilling,well servicing and hydraulic fracturing fluid end components, and a broad line of items consumed in the drilling process.Drilling capital equipment. We design and manufacture a range of powered and manual tubular handling tools used on onshore and offshore drillingrigs. Our Forum B+V Oil Tools and Wrangler™ branded tools reduce direct human involvement in the handling of pipe during drilling operations,improving safety, speed and efficiency of operations. Our tubular handling tools include elevators, clamps, slip handles, tong handles, poweredslips, spiders and kelly spinners. Our hydraulic catwalks mechanize the lifting and lowering of tubulars to and from the drill floor, eliminating orreducing the need for traditional drill pipe and casing "pick-up and lay-down" operations with associated personnel. In addition, our make-up andbreak-out tools, called Forum B+V Oil Tools Floorhand™ and Wrangler Roughneck™, automate a potentially dangerous rig floor task and improverig drilling speed and safety. We also design and manufacture specialized torque equipment and related control systems for tubular connections,including high torque stroking, or bucking units, fully rotational torque units, portable torque units for field deployment, and provide aftermarketservice. In addition, we design and manufacture a range of rig-based offline activity cranes, multi-purpose cranes and personnel transfer solutions.Many of these cranes are fit-for-purpose multi-axis cranes that provide access to hard-to-reach places and eliminate the need for manual interface.In addition to powered tubular handling equipment, materials handling and personnel transfer equipment, we design and manufacture drillingmanifold systems and high pressure piping packages. We also manufacture drill floor instrumentation and monitoring systems. These systemsprovide real-time monitoring and logging of drilling data to drilling contractors, and oil and natural gas producers on the rig and at remote locations.Finally, we repair and service drilling equipment for both land and offshore rigs. Many of our service employees work in the field to addressproblems at the rig site.Consumable products. We manufacture a range of consumable products used on drilling rigs, well servicing rigs, pressure pumping units, andhydraulic fracturing systems. Our consumable products include valves, centrifugal pumps, mud pump parts, rig sensors, inserts, and dies. We arealso a supplier of oilfield bearings to original equipment manufacturers and repair businesses for use on drilling and well stimulation equipment.Subsea Technologies. We design and manufacture capital equipment and specialty components used in the subsea sector and provide a broadsuite of complementary subsea technical services and rental items. We have a core focus on the design and manufacture of remotely operatedvehicle ("ROV") systems and other specialty subsea vehicles, as well as critical components of these vehicles. Many of our related technicalservices complement our vehicle offerings.Subsea vehicles. We are a leading designer and manufacturer of a wide range of ROVs that we supply to the offshore subsea construction,observation and related service markets. The market for subsea ROVs can be segmented into three broad classes of vehicles based on size andcategory of operations: (1) large work-class vehicles and trenchers for subsea construction and installation activities, (2) drilling-class vehiclesdeployed from and for use around an4Table of Contentsoffshore rig and (3) observation-class vehicles for inspection and light manipulation. We are a leading provider of work-class and observation-classvehicles.We design and manufacture large work-class ROVs through our Perry brand. These vehicles are principally used in deepwater constructionapplications with the largest vehicles providing up to 200 horsepower, exceeding 1,200 pounds of payload capacity and having the capability towork in depths up to 4,000 meters. In addition to work-class ROVs, we design and manufacture large subsea trenchers that travel along the seafloor for digging, installation and burial operations. The largest of these subsea trenchers provides up to 1,500 horsepower and is able to cut overthree meters deep into the seafloor to lay pipelines, power cables or communications cables.Our Sub-Atlantic branded observation-class vehicles are electrically powered and are principally used for inspection, survey and light manipulation,and serve a wide range of industries.Our subsea vehicle customers are primarily large offshore construction companies, but also include non-oil and natural gas industry entities, suchas a range of governmental organizations including navies, maritime science and geoscience research organizations, offshore wind powercompanies and other industries operating in marine environments.Subsea products. In addition to subsea vehicles, we are a leading manufacturer of subsea products and components. We design and manufacturea group of products that are used in and around the ROV. For example, we manufacture Dynacon™ branded ROV launch and recovery systems,Syntech™ branded syntactic foam buoyancy components, Sub-Atlantic branded ROV thrusters, and a wide range of hydraulic power units andvalve packs. We design and manufacture these ROV components for incorporation into our own vehicles as well as for sale to other ROVmanufacturers. We also provide a broad suite of subsea tooling, both industry standard and custom designed.In addition to vehicle-related subsea products, we provide products used in subsea infrastructure, including subsea pipeline inspection gaugelaunching and receiving systems, and subsea connectors. Our primary customers in this product line are offshore pipeline constructioncompanies.Subsea technical services and rental. We maintain a fleet of subsea rental items, primarily subsea positioning equipment. Our customers for rentalitems are primarily subsea construction and offshore service companies. In addition, we offer a system that offers a complete solution for digitalvideo capture, playback, processing and reporting of subsea inspection survey data. We also maintain a geophysical and geotechnical engineeringgroup that provides consulting services to the oil and natural gas, and marine industries, typically to interpret and analyze third party subsea dataprovided by clients.Completions segmentIn our Completions segment, we design, manufacture and supply products and provide related services to the well construction, completion,stimulation and intervention markets. Through this segment, we offer downhole technologies, including cementing and casing tools, completionproducts, and a range of downhole cable protection solutions; and stimulation and intervention technologies, including pumps and well stimulationconsumable products and related recertification and refurbishment services.There are several factors driving demand for our Completions segment. Our Downhole Technologies product line is impacted by the level of wellcompletion activity, and complexity of well construction and completion. Our Stimulation and Intervention product line is impacted by the use ofhydraulic fracturing to develop oil and natural gas reserves in shale or tight sand basins across North America and the level of workover andintervention activity.Downhole Technologies. We manufacture a broad line of downhole products that are consumed during the well construction, completion andproduction enhancement processes.Casing and cementing tools. Through our Davis-Lynch™ branded downhole well construction and completion tools business, we design andmanufacture products used in the construction of oil and natural gas wells. We design and manufacture a full range of centralizers, floatequipment, stage cementing tools, inflatable packers, flotation collars, cementing plugs, fill and circulation tools for running casing, casing hangersand surge reduction equipment. Our products are used in the construction of onshore and offshore wells.5Table of ContentsCompletion products. We manufacture a line of downhole completion tools, including composite plugs, wireline flow-control products and packers.Our composite plugs are primarily used for zonal isolation during multi-stage hydraulic fracturing in horizontal and vertical wells. The compositeconstruction with metal slips allows the plugs to be drilled out quickly to improve service efficiency. We offer a variety of plug sizes to fit variouscasings as well as a range of temperature and pressure ratings to accommodate different well environments. Our wireline flow-control productsinclude a number of components included in most completions such as landing nipples, circulating sleeves, blanking plugs and separation tools.Our packers include retrievable and permanent packers, bridge plugs, and accessories to oilfield service providers and packer repair companies.Downhole protection systems. We offer a full range of downhole protection solutions through our Cannon Services™ brand. The clamp andprotection system is used to shield downhole control lines, cables and gauges during installation and to provide protection during productionenhancement operations. We design and manufacture a full range of downhole protection solutions for electrical submersible pump ("ESP")cabling, encapsulated control lines, sub-surface safety valves and permanent downhole gauges. We provide both standard and customizedprotection systems, and we utilize a range of materials in our products for various downhole environments.Our primary customers in this product line are oil and natural gas producers, and service companies providing completion, ESP and otherintervention services to producers.Stimulation and Intervention. We provide a broad range of high pressure pumps and flow equipment used by well stimulation, or pressure pumping,companies during stimulation, intervention and flowback processes. We design and manufacture pressure control plug, choke and relief valves,swivel joints, pup joints and integral fittings, manifolds and manifold trailers, as well as triplex and quintuplex fluid-end assemblies. Frequentrefurbishment and recertification of flow equipment is critical to ensuring the reliable and safe operation of a pressure pumping company's fleet. Weperform these services at various locations and operate a fleet of mobile refurbishment and recertification tractor trailers, which can be deployed tothe customer's yard. We serve many of the unconventional basins across North America and seek to position our stocking and service locations inproximity to our customers' operations.We manufacture pressure control products that are used for well intervention operations and are sold directly to oilfield service companies andequipment rental companies. These products include both coiled tubing and wireline blowout preventers and their accessories. We also conductaftermarket refurbishment and recertification services for pressure control equipment. In addition to blowout preventers for wireline units, wemanufacture electro-mechanical wireline cables.Our primary customers in the Stimulation and Intervention product line are pressure pumping and flowback service companies, although we alsogenerate sales to original equipment manufacturers of pressure pumping units.Global Tubing, LLC ("Global Tubing"), a joint venture among us and an equal partner (with Global Tubing's management retaining a small interest)is a manufacturer of coiled tubing strings and related services. Global Tubing® coiled tubing strings are consumable components of coiled tubingunits that perform well completion and intervention activities. Our investment in Global Tubing is reported in the Completions segment using theequity method of accounting.Production & Infrastructure segmentIn our Production & Infrastructure segment, we design, manufacture and supply products and provide related equipment and services to productionand infrastructure markets. Through this segment, we supply production equipment, including well site production equipment and processequipment; and valve solutions, including a broad range of industrial and process valves.The level of spending to bring new wells on production, including the related infrastructure is the primary driver for our Production & Infrastructuresegment. Our Production Equipment product line also has exposure to the amount of spending on midstream and downstream projects as it offersproducts that go from the well site to inside the refinery fence. Our Valve Solutions product line is impacted by the level of infrastructure additions,upgrades and maintenance activities across the oil and natural gas industry, including the upstream, midstream and downstream sectors. Thisincludes heavy oil development in Canada and investments in new petrochemical facilities. In addition, our valves are used in the power, processand mining industries.Production Equipment. Our surface Production Equipment product line provides engineered process systems and field services for capitalequipment used at the wellsite and, for production processing, in the United States. Once a well has been drilled, completed and brought onstream, we provide the well operator-producer with the process equipment necessary to make the oil or natural gas ready for transmission. Weengineer, fabricate and install tanks,6Table of Contentsseparators, packaged production systems and American Society of Mechanical Engineers ("ASME") and American Petroleum Institute ("API")coded and non-coded pressure vessels, skidded vessels with gas measurement, modular process plants, header and manifold skids, process andflow control equipment and separators to help clean and process oil or natural gas as it travels from the wellhead and along the transmission line tothe refinery. Our customers are principally oil and natural gas operators/producers, and our manufacturing and staging locations are positionedacross North America to best serve the key emerging shale and unconventional resource plays.A key to our competiveness is manufacturing tanks and pressure vessels in relatively close proximity to their location of use to reduce freightcosts, as well as helping our customers manage their production equipment needs as their drilling programs progress. We have five NorthAmerican manufacturing locations and two service centers. To ensure smooth delivery of equipment, we maintain a fleet of specialized trucks andcrews that can deliver and install the production equipment on the well site.We also design and provide process oil and produced water treatment equipment, including desalters and dehydrators, used in refineriesworldwide. We have a team of technicians and field service engineers for repair and installation, and we supply a broad range of replacement partsfor our equipment and other manufacturers. This equipment removes sand, water and suspended solids from hydrocarbons prior to their refining.Valve Solutions. We design, manufacture and provide a wide range of industrial valves that principally serve the upstream, midstream anddownstream markets of the oil and natural gas industry. To a lesser extent, our valves serve general industrial, power and process industrycustomers as well as the mining industry. We provide ball, gate, globe, check and butterfly valves across a range of sizes and applications.We market our valves to our customers and end users through our recognized brands: PBV™, DSI®, Quadrant®, Accuseal® and ABZ™. Much ofour production is sold through distribution supply companies, with our marketing efforts targeting end users for pull through of our products. Ourglobal sales force and representatives cover approximately 30 countries, with local sales and distribution in Australia and Canada. Our Canadiancompany provides significant exposure to the heavy oil projects.Our manufacturing and supply chain systems enable us to design and produce high-quality engineered valves, as well as provide standardizedproducts, while maintaining competitive pricing and minimizing capital requirements. We also utilize our international manufacturing partners toproduce components and completed products for a number of our other valve brands.Depending on the product, we manufacture our valves to conform to the standards of one or more of the API, American National StandardsInstitute, American Bureau of Shipping, and International Organization for Standardization and/or other relevant standards governing the designand manufacture of industrial valves. Through our Valve Solutions product line, we participate in the API's standard-setting process.Business historyForum was incorporated in 2005 and formed through a series of acquisitions. In August 2010, Forum Oilfield Technologies, Inc. (“FOT”), wasrenamed Forum Energy Technologies, Inc. On April 17, 2012, we completed our initial public offering.BacklogAs we provide a mix of capital goods, consumable products, repair parts, and rental services, a majority of our business does not require lengthylead times. A majority of the orders and commitments included in our backlog as of December 31, 2016 were scheduled to be delivered within sixmonths. Our backlog, net of cancellations, was approximately $165 million at December 31, 2016 and approximately $183 million at December 31,2015.Substantially all of the projects currently included in our backlog are subject to change and/or termination at the option of the customer. In thecase of a change or termination, the customer is generally required to pay us for work performed and other costs necessarily incurred as a resultof the change or termination. Prior to 2015, terminations and cancellations had not been material to our overall operating results. Since 2015, wehave observed an increase in terminations and cancellations. Going forward, it is difficult to predict how much of our current backlog will bedelayed or terminated, or subject to changes, as well as our ability to collect termination or change fees.7Table of ContentsOur consumable and repair products are predominantly off-the-shelf items requiring short lead-times, generally less than six months, and ourrelated refurbishment or other services are also not contracted with significant lead time. The composition of our backlog is reflective of our mix ofcapital equipment, consumable products, aftermarket and other related items. Our bookings, which consist of written orders or commitments forour products or related services, during the years ended December 31, 2016 and 2015 were approximately $597 million and $870 million,respectively.CustomersNo customer represented more than 10% of consolidated revenue in any of the last three years.SeasonalityA substantial portion of our business is not significantly impacted by seasonality. We do, however, generally experience lower sales andprofitability in the fourth quarter due to a decrease in working days caused by calendar year-end holidays, and manufacturing and shipping delayscaused by weather. A small portion of the revenue we generate from selected Canadian operations often benefits from higher first quarter activitylevels, as operators take advantage of the winter freeze to gain access to remote drilling and production areas. We also experience someexposure to seasonality through the portion of our subsea rental business that serves the North Sea. Due to the harsh winter environment, it iscustomary for North Sea activity to slow down between the months of November and February. Revenue exposed to this type of seasonality,however, comprised less than 5% of our overall revenue in 2016.CompetitionThe markets in which we operate are highly competitive. We compete with a number of companies, some of which have greater financial and otherresources than we do. The principal competitive factors in our markets are product quality and performance, price, breadth of product offering,availability of products and services, distribution capabilities, responsiveness to customer needs and reputation for service. We believe ourproducts and services in each segment are at least comparable in price, quality, performance and dependability with our competitors' offerings. Weseek to differentiate ourselves from our competitors by providing a rapid response to the needs of our customers, a high level of customer service,and innovative product development initiatives. Some of our competitors expend greater amounts of money on formal research and engineeringefforts than we do. We believe, however, that our product development efforts are enhanced by the investment of management time we make toimprove our customer service and to work with our customers on their specific product needs and challenges.Although we have no single competitor across all of our product lines, the companies we compete with across the greatest number of our productlines include Cameron International Corporation (a subsidiary of Schlumberger), Exterran Corp., National Oilwell Varco, Inc., TechnipFMC plc,Weatherford International, Ltd., and Weir SPM, a subsidiary of The Weir Group.Patents, trademarks and other intellectual propertyWe currently hold multiple U.S. and international patents and trademarks and have a number of pending patent and trademark applications.Although in the aggregate our patents, trademarks and licenses are important to us, we do not regard any single patent, trademark or license ascritical or essential to our business as a whole.Raw materialsWe acquire component parts, products and raw materials from suppliers, including foundries, forge shops, and original equipment manufacturers.The prices we pay for our raw materials may be affected by, among other things, energy, steel and other commodity prices, tariffs and duties onimported materials and foreign currency exchange rates. Certain of our component parts, products or raw materials, such as bearings, are onlyavailable from a limited number of suppliers. Please see "Risk factors—Risks related to our business—We are subject to the risk of supplierconcentration."We cannot assure you that we will be able to continue to purchase raw materials on a timely basis or at acceptable prices. We generally try topurchase our raw materials from multiple suppliers so we are not dependent on any one supplier, but this is not always possible.8Table of ContentsWorking capitalWe fund our business operations through a combination of available cash and equivalents, short-term investments, and cash flow generated fromoperations. In addition, the revolving portion of our senior secured credit facility is available for working capital needs. For a summary of our creditfacility, please read "Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and capital resources."InventoryAn important consideration for many of our customers in selecting a vendor is timely availability of the product. Customers may pay a premium forearlier or immediate availability because of the cost of delays in critical operations. We stock our consumable products in regional warehousesaround the world so that we can have these products available for our customers when needed. This availability is especially critical for certainconsumable products, causing us to carry substantial inventories for these products. For critical capital items in which demand is expected to bestrong, we often build certain items before we have a firm order. Our having such goods available on short notice can be of great value to ourcustomers. We also stockpile raw materials and components in order to be in a position to build products in response to market demand.We typically offer our customers payment terms of net 30 days, although during downturns in activity such as our industry experienced beginningin the second half of 2014, customers often take 60 days or more to settle accounts. For sales into certain countries or for select customers, wemight require payment upfront or credit support through a letter of credit. For longer term projects, we typically require progress payments asimportant milestones are reached. On average we collect our receivables in about 60 days from shipment resulting in a substantial investment inaccounts receivable. Likewise, standard terms with our vendors are net 60 days. For critical items sourced from significant vendors we havesettled accounts more quickly, sometimes in exchange for early payment discounts.Environmental, transportation, health and safety regulationOur operations are subject to numerous stringent and complex laws and regulations governing the discharge of materials into the environment,health and safety aspects of our operations, or otherwise relating to human health and environmental protection. We also operate vehicles that aresubject to federal and state transportation regulations. Failure to comply with these laws or regulations or to obtain or comply with permits mayresult in the assessment of administrative, civil and criminal penalties, imposition of remedial or corrective action requirements, and the impositionof injunctions to prohibit certain activities or force future compliance.The trend in environmental regulation has been to impose increasingly stringent restrictions and limitations on activities that may impact theenvironment, and thus, any changes in environmental laws and regulations or in enforcement policies that result in more stringent and costly wastehandling, storage, transport, disposal, or remediation requirements could have a material adverse effect on our operations and financial position.Moreover, accidental releases or spills of regulated substances may occur in the course of our operations, and we cannot assure you that we willnot incur significant costs and liabilities as a result of such releases or spills, including any third party claims for damage to property, naturalresources or persons.The following is a summary of the more significant existing environmental, health and safety laws and regulations to which our business operationsare subject and for which compliance may have a material adverse impact on our capital expenditures, results of operations or financial position.Hazardous substances and wasteThe Resource Conservation and Recovery Act (the "RCRA") and comparable state statutes, regulate the generation, transportation, treatment,storage, disposal and cleanup of hazardous and non-hazardous wastes. Under the auspices of the Environmental Protection Agency (the "EPA"),the individual states administer some or all of the provisions of the RCRA, sometimes in conjunction with their own, more stringent requirements.We are required to manage the transportation, storage and disposal of hazardous and non-hazardous wastes in compliance with the RCRA.9Table of ContentsThe Comprehensive Environmental Response, Compensation, and Liability Act (the "CERCLA"), also known as the Superfund law, imposes jointand several liability, without regard to fault or legality of conduct, on classes of persons who are considered to be responsible for the release of ahazardous substance into the environment. These persons include the owner or operator of the site where the release occurred, and anyone whodisposed or arranged for the disposal of a hazardous substance released at the site. We currently own, lease, or operate numerous properties thathave been used for manufacturing and other operations for many years. We also contract with waste removal services and landfills. Theseproperties and the substances disposed or released on them may be subject to the CERCLA, RCRA and analogous state laws. Under such laws,we could be required to remove previously disposed substances and wastes, remediate contaminated property, or perform remedial operations toprevent future contamination. In addition, it is not uncommon for neighboring landowners and other third-parties to file claims for personal injury andproperty damage allegedly caused by hazardous substances released into the environment.Water dischargesThe Federal Water Pollution Control Act (the "Clean Water Act") and analogous state laws impose restrictions and strict controls with respect tothe discharge of pollutants, including spills and leaks of oil and other substances, into waters of the United States. The discharge of pollutants intoregulated waters is prohibited, except in accordance with the terms of a permit issued by the EPA or an analogous state agency. A responsibleparty includes the owner or operator of a facility from which a discharge occurs. The Clean Water Act and analogous state laws provide foradministrative, civil and criminal penalties for unauthorized discharges and, together with the Oil Pollution Act of 1990, impose rigorousrequirements for spill prevention and response planning, as well as substantial potential liability for the costs of removal, remediation, anddamages in connection with any unauthorized discharges.Air emissionsThe Federal Clean Air Act (the "Clean Air Act") and comparable state laws regulate emissions of various air pollutants through air emissionspermitting programs and the imposition of other emission control requirements. In addition, the EPA has developed, and continues to develop,stringent regulations governing emissions of toxic air pollutants at specified sources. Non-compliance with air permits or other requirements of theClean Air Act and associated state laws and regulations can result in the imposition of administrative, civil and criminal penalties, as well as theissuance of orders or injunctions limiting or prohibiting non-compliant operations.Climate changeIn December 2009, the EPA determined that emissions of carbon dioxide, methane and other "greenhouse gases" (“GHGs”) present anendangerment to public health and the environment because emissions of such gases are, according to the EPA, contributing to warming of theearth's atmosphere and other climatic changes. Based on these findings, the EPA has begun adopting and implementing regulations to restrictemissions of greenhouse gases under existing provisions of the Clean Air Act.In addition, the U.S. Congress has from time to time considered adopting legislation to reduce emissions of greenhouse gases and almost one-halfof the states have already taken legal measures to reduce emissions of greenhouse gases primarily through the planned development ofgreenhouse gas emission inventories and/or regional greenhouse gas cap and trade programs. Most of these cap and trade programs work byrequiring major sources of emissions, such as electric power plants, or major producers of fuels, such as refineries and gas processing plants, toacquire and surrender emission allowances. The number of allowances available for purchase is reduced each year in an effort to achieve theoverall greenhouse gas emission reduction goal. Finally, in April 2016, the United States signed the Paris Agreement, which requires membercountries to review and “represent a progression” in their nationally determined contributions, which set GHG emission reduction goals, every fiveyears.The adoption of legislation or regulatory programs to reduce emissions of greenhouse gases could require us to incur increased operating costs,such as costs to purchase and operate emissions control systems, to acquire emissions allowances or comply with new regulatory or reportingrequirements. Any such legislation or regulatory programs could also increase the cost of consuming, and thereby reduce demand for, the oil andnatural gas produced by our customers. Consequently, legislation and regulatory programs to reduce emissions of greenhouse gases could havean adverse effect on our business, financial condition and results of operations. Finally, it should be noted that some scientists have concludedthat increasing concentrations of greenhouse gases in the earth's atmosphere may produce climate changes that have significant physical effects,such as increased frequency and severity of storms, droughts, and floods and other climatic events. If any such effects were to occur, they couldhave an adverse effect on our business, financial condition, results of operations and cash flow. For more information, please read “Risk Factors-Climate change10Table of Contentslegislation or regulations restricting emissions of greenhouse gases could increase our operating costs or reduce demand for our products.”Hydraulic fracturingA significant percentage of our customers' oil and natural gas production is being developed from unconventional sources, such as hydrocarbonshales. These formations require hydraulic fracturing completion processes to release the oil or natural gas from the rock so that it can flowthrough the formations. Hydraulic fracturing involves the injection of water, sand and chemicals under pressure into the formation to stimulateproduction. A number of federal agencies, including the EPA and the U.S. Department of Energy, are analyzing, or have been requested to review,a variety of environmental issues associated with shale development, including hydraulic fracturing. For instance, the EPA released the finalresults of its comprehensive research study on the potential adverse impacts that hydraulic fracturing may have on drinking water resources inDecember 2016. The EPA concluded that hydraulic fracturing activities can impact drinking water resources under some circumstances, includinglarge volume spills and inadequate mechanical integrity of wells. In addition, some states have adopted, and other states are considering adopting,regulations that could impose more stringent disclosure and/or well construction requirements on hydraulic fracturing operations. Localgovernments may also seek to adopt ordinances within their jurisdictions regulating the time, place and manner of drilling activities in general orhydraulic fracturing activities in particular, in some cases banning hydraulic fracturing entirely.We cannot predict whether any such legislation willever be enacted and if so, what its provisions would be. If additional levels of regulation and permits were required through the adoption of newlaws and regulations at the federal or state level, that could lead to delays, increased operating costs and process prohibitions for our customersthat could reduce demand for our products and services, which would materially adversely affect our revenues, results of operations and cashflows.Employee health and safetyWe are subject to a number of federal and state laws and regulations, including the federal Occupational Safety and Health Act ("OSHA") andcomparable state statutes, establishing requirements to protect the health and safety of workers. In addition, the OSHA hazard communicationstandard, the EPA community right-to-know regulations under Title III of the federal Superfund Amendment and Reauthorization Act andcomparable state statutes require that information be maintained concerning hazardous materials used or produced in our operations and that thisinformation be provided to employees, state and local government authorities and the public. Substantial fines and penalties can be imposed andorders or injunctions limiting or prohibiting certain operations may be issued in connection with any failure to comply with laws and regulationsrelating to worker health and safety. For more information, please read “Risk Factors-Potential legislation or regulations restricting the use ofhydraulic fracturing could reduce demand for our products.”Offshore regulationEvents in recent years have heightened environmental and regulatory concerns about the offshore oil and natural gas industry. From time to time,governing bodies may propose and have enacted legislation or regulations that may materially limit or prohibit offshore drilling in certain areas. Iflaws are enacted or other governmental action is taken that delay, restrict or prohibit offshore operations in our customers' expected areas ofoperation, our business could be materially adversely affected. New or newly interpreted regulations and other regulatory initiatives by U.S.governmental agencies have created significant uncertainty regarding the outlook for offshore activity in the U.S. Gulf of Mexico and possibleimplications for regions outside of the U.S. Gulf of Mexico. Third party challenges to industry operations in the U.S. Gulf of Mexico may also serveto further delay or restrict activities. If the new regulations, operating procedures and possibility of increased legal liability are viewed by our currentor future customers as a significant impairment to expected profitability on projects, then they could discontinue or curtail their offshore operationsthereby reducing demand for our offshore products and services.We also operate in non-U.S. jurisdictions, which may impose similar regulations, prohibitions or liabilities.Operating risk and insuranceWe maintain insurance coverage of types and amounts that we believe to be customary and reasonable for companies of our size and with similaroperations. In accordance with industry practice, however, we do not maintain insurance coverage against all of the operating risks to which ourbusiness is exposed. Therefore, there is a risk our insurance program may not be sufficient to cover any particular loss or all losses. Currently, ourinsurance program includes coverage for, among other things, general liability, umbrella liability, sudden and accidental pollution, personalproperty, vehicle, workers' compensation, and employer's liability coverage.11Table of ContentsEmployeesAs of December 31, 2016, we had approximately 2,050 employees. Of our total employees, approximately 1,400 were in the United States, 330were in the United Kingdom, 100 were in Germany, 80 were in Canada and 140 were in other locations. We are not a party to any collectivebargaining agreements, other than in our Hamburg, Germany and Monterrey, Mexico facilities, and we consider our relations with our employees tobe satisfactory.Item 1A. Risk FactorsRisks related to our businessWe derive a substantial portion of our revenues from companies in or affiliated with the oil and natural gas industry, a historicallycyclical industry, with levels of activity that are significantly affected by the levels and volatility of oil and natural gas prices. As a result,this cyclicality has caused, and will continue to cause fluctuations in our revenues and results of our operations.We have experienced, and will continue to experience, fluctuations in revenues and operating results due to economic and business cycles. Thewillingness of oil and natural gas operators to make capital expenditures to explore for and produce oil and natural gas, the willingness of oilfieldservice companies to invest in capital equipment and the need of these customers to replenish consumable parts depends largely upon prevailingindustry conditions that are influenced by numerous factors over which we have no control. Such factors include:•supply of and demand for oil and natural gas;•level of prices, and expectations about future prices, of oil and natural gas;•cost of exploring for, developing, producing and delivering oil and natural gas;•level of drilling activity and drilling day rates;•expected decline in rates of current and future production;•discovery rates of new oil and natural gas reserves;•ability of our customers to access new markets or areas of production or to continue to access current markets;•weather conditions, including hurricanes, that can affect oil and natural gas operations over a wide area;•more stringent restrictions in environmental regulation on activities that may impact the environment;•moratoriums on drilling activity resulting in a cessation or disruption of operations;•domestic and worldwide economic conditions;•financial stability of our customers and other industry participants;•political instability in oil and natural gas producing countries;•conservation measures and technological advances affecting energy consumption;•price and availability of alternative fuels; and•merger and divestiture activity among oil and natural gas producers, drilling contractors and oilfield service companies.In the second half of 2014 the oil and natural gas industry began to experience a prolonged reduction in the overall level of exploration anddevelopment activities as a result of the decline in commodity prices that continued into late 2016. As a result, many of our customers reduced ordelayed their oil and natural gas exploration and production spending, reducing the demand for our products and services and exerting downwardpressure on the prices that we charge. These conditions have adversely impacted our business over the course of the last two years. Althoughcrude oil prices increased from a low of $26 per barrel in February 2016 to a high of $54 per barrel in December 2016, market reports indicate thatprices are not expected to increase materially in 2017. There can be no assurance that the demand or pricing for oil and natural gas will followhistoric patterns or recover meaningfully in the near term. The prolonged reduction in oil and natural gas prices and depressed levels of exploration,development, and production activity may continue to negatively affect:•revenues, cash flows, and profitability;•the ability to maintain or increase borrowing capacity;•the ability to obtain additional capital to finance our business and the cost of that capital;•the ability to collect outstanding amounts from our customers; and12Table of Contents•the ability to attract and retain skilled personnel to maintain our business or that will be needed in the event of an upturn in the demand for ourproducts.Our inability to control the inherent risks of acquiring and integrating businesses could disrupt our business and adversely affect ouroperating results going forward.We continuously evaluate acquisitions and dispositions and may elect to acquire or dispose of assets in the future. These activities may distractmanagement from day-to-day tasks. Acquisitions involve numerous risks, including:•unanticipated costs and exposure to unforeseen liabilities;•difficulty in integrating the operations and assets of the acquired businesses;•potential loss of key employees and customers of the acquired company;•potential inability to properly establish and maintain effective internal controls over an acquired company;•risk of entering markets in which we have limited prior experience; and•failure to realize the full range of synergies that were expected when assessing the value to be paid for the acquisition.Achieving the anticipated or desired benefits of our past or future acquisitions will depend, in part, upon whether the integration of the variousbusinesses, products, services, technology and employees is accomplished in an efficient and effective manner. There can be no assurance thatwe will obtain these anticipated or desired benefits of our past or future acquisitions, and if we fail to manage these risks successfully, our resultsof operations could be adversely affected.Our failure to achieve consolidation savings, to integrate the acquired businesses and assets into our existing operations successfully or tominimize any unforeseen operational difficulties could have a material adverse effect on our business. In addition, we may incur liabilities arisingfrom events prior to the acquisition or prior to our establishment of adequate compliance oversight. While we generally seek to obtain indemnitiesfor liabilities for events occurring before such acquisitions, these are limited in amount and duration, may be held to be unenforceable or the sellermay not be able to indemnify us. We may also incur indebtedness or issue additional equity securities to finance future acquisitions. Debt servicerequirements could represent a burden on our results of operations and financial condition, and the issuance of additional equity securities could bedilutive to our existing stockholders. In addition, we may dispose of assets or products that investors may consider beneficial to us.Our operating history may not be sufficient for investors to evaluate our business and prospects.We have a relatively short operating history as a public company. In addition, we have completed a number of acquisitions since our formation.These factors may make it more difficult for investors to evaluate our business and prospects, and to forecast our future operating results. As aresult, historical financial data may not give you an accurate indication of what our actual results would have been if subsequent acquisitions hadbeen completed at the beginning of the periods presented or of what our future results of operations are likely to be. Our future results will dependon our ability to efficiently manage our combined operations and execute our business strategy.Facility consolidations and expansions may subject us to risks of construction delays, cost overruns and operating inefficiencies.We have consolidated and plan to continue to consolidate facilities to achieve operating efficiencies and reduce costs. These facilityconsolidations may be delayed and cause us to incur increased costs, product or service delivery delays, decreased responsiveness to customerneeds, liabilities under terms and conditions of sale or other operational inefficiencies, or may not provide the benefits we anticipate. We may losekey personnel and operational knowledge that might lead to quality issues or delays in production.In the future, we may grow our businesses through the construction of new facilities and expansions of our existing facilities. These projects, andany other capital asset construction projects which we may commence, are subject to similar risks of delay or cost overrun inherent in anyconstruction project resulting from numerous factors, including the following:•difficulties or delays in obtaining land;•shortages of key equipment, materials or skilled labor;13Table of Contents•unscheduled delays in the delivery of ordered materials and equipment;•unanticipated cost increases;•weather interferences; and•difficulties in obtaining necessary permits or in meeting permit conditions. Our common stock price has been volatile, and we expect it to continue to remain volatile in the future.The market price of common stock of companies engaged in the oil and natural gas equipment manufacturing and services industry has beenvolatile. Likewise, the market price of our common stock has varied significantly in the past, reaching a high of $23.55 per share on December 12,2016 and a low of $8.54 per share on February 12, 2016, and we expect it to continue to remain volatile given the cyclical nature of our industry.The downturn in the oil and natural gas industry has negatively affected and will likely continue to affect our ability to accurately predictcustomer demand, causing us to hold excess or obsolete inventory and experience a reduction in gross margins and financial results.We cannot accurately predict what or how many products our customers will need in the future. Orders are placed with our suppliers based onforecasts of customer demand and, in some instances, we may establish buffer inventories to accommodate anticipated demand. For example, atcertain times, we have built capital equipment before receiving customer orders, and we have kept our standardized downhole protection systemsand certain of our flow iron products in stock and readily available for delivery on short notice from customers. Our forecasts of customer demandare based on multiple assumptions, each of which may introduce errors into the estimates. In addition, many of our suppliers, such as those forcertain of our standardized valves, require a longer lead time to provide products than our customers demand for delivery of our finished products.If we overestimate customer demand, we may allocate resources to the purchase of material or manufactured products that we may not be able tosell when we expect to, if at all. As a result, we would hold excess or obsolete inventory, which would reduce gross margin and adversely affectfinancial results, or write down the value of inventory. Conversely, if we underestimate customer demand or if insufficient manufacturing capacityis available, we would miss revenue opportunities and potentially lose market share and damage our customer relationships. In addition, any futuresignificant cancellations or deferrals of product orders or the return of previously sold products could materially and adversely affect profit margins,increase product obsolescence and restrict our ability to fund our operations.A substantial portion of our business is driven by our customers’ spending on capital equipment such as drilling rigs. As a result of thesubstantial decrease in commodity prices, we expect much of our customer base to maintain capital spending at their current low levels,or to decrease their spending even further.In various segments of the energy industry there have been high levels of demand for construction of capital intensive equipment in recent years,some of which has a long life once introduced into the industry. High levels of investment can produce excess supply of equipment for manyyears, reducing day rates and undermining the economics for new capital equipment orders. In addition, decreases in commodity prices resulted ina significant reduction in the North America rig count since June 2014, which has only recently begun to recover. As a result, many of ourcustomers reduced capital expenditures beginning in 2015, and, if commodity prices remain at current levels, our customers may continue tocurtail spending, may fail to resume spending at prior levels. When spending levels by our customers fall, we experience decreased demand forour capital equipment products. For example, starting in the second half of 2014 we saw spending levels on drilling rigs decrease relative to thepace of investment in the previous two years due to lower drilling activity. This resulted in lower revenues for us from capital equipment orders andconsumables in 2014, 2015 and 2016. This reduction in capital spending is spread across most energy sectors that we supply. Our financialresults have been negatively impacted by the recent and ongoing reduction in capital equipment spending in the oilfield services industry, and weexpect that this will continue until oil prices increase substantially.Our indebtedness could restrict our operations and make us more vulnerable to adverse economic conditions.We currently have a substantial amount of indebtedness. In addition to our $400.0 million of 6.25% senior unsecured notes due October 2021, wemay borrow under our $140.0 million senior secured revolving credit facility. Our level of indebtedness may adversely affect our operations andlimit our growth, and we may have difficulty making debt service payments on our indebtedness as such payments become due. Our level ofindebtedness may affect our operations in several ways, including the following:•our indebtedness may increase our vulnerability to general adverse economic and industry conditions;14Table of Contents•the covenants contained in the agreements that govern our indebtedness limit our ability to borrow funds, dispose of assets, pay dividendsand make certain investments;•our debt covenants also affect our flexibility in planning for, and reacting to, changes in the economy and in its industry;•any failure to comply with the financial or other covenants of our indebtedness could result in an event of default, which could result in some orall of our indebtedness becoming immediately due and payable;•our indebtedness could impair our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions orother general corporate purposes; and•our business may not generate sufficient cash flow from operations to enable us to meet our debt obligations.The indenture governing our notes and our credit facility contains operating and financial restrictions that may restrict our business andfinancing activities.Our indenture and credit facility contain, and any future indebtedness we incur may contain, a number of restrictive covenants that will imposesignificant operating and financial restrictions on us, including restrictions on our ability to, among other things:•pay dividends on, purchase or redeem our common stock;•make certain investments;•incur or guarantee additional indebtedness or issue certain types of equity securities;•create certain liens;•sell assets, including equity interests in our restricted subsidiaries;•redeem or prepay subordinated debt;•restrict dividends or other payments of our restricted subsidiaries;•consolidate, merge or transfer all or substantially all of our assets; •engage in transactions with affiliates; or•create unrestricted subsidiaries.Our credit facility also contains covenants, which, among other things, require us, on a consolidated basis, to maintain specified financial ratios orconditions. As a result of these covenants, we may be limited in the manner in which we conduct our business, and we may be unable to engagein favorable business activities or finance future operations or capital needs. Our ability to borrow under the credit facility and comply with some ofthe covenants, ratios or tests contained in our indenture and credit facility may be affected by events beyond our control. If market or othereconomic conditions continue or deteriorate, and our financial performance does not improve, our ability to borrow under our credit facility will bereduced and our ability to comply with these covenants, ratios or tests may be impaired. A failure to comply with the covenants, ratios or tests orany future indebtedness could result in an event of default, which, if not cured or waived, could have a material adverse effect on our business,financial condition and results of operations.We are subject to the risk of supplier concentration.Certain of our product lines depend on a limited number of third party suppliers and vendors. In some cases the vendors own the intellectualproperty rights to the products we sell, or possess the technology or specialized tooling required to manufacture them. As a result of thisconcentration in some of our supply chains, our business and operations could be negatively affected if our key suppliers were to experiencesignificant disruptions affecting the price, quality, availability or timely delivery of their products, or if they were to decide to terminate theirrelationships with us. For example, we have a limited number of vendors for our bearings product lines. The partial or complete loss of any one ofour key suppliers, or a significant adverse change in the relationship with any of these suppliers, through consolidation or otherwise, would limit ourability to manufacture and sell certain of our products.We may not realize revenue on our current backlog due to customer order reductions, cancellations and acceptance delays, which maynegatively impact our financial results and relationships with our customers.In the current environment of decreased oil and natural gas prices, and the resulting uncertainty regarding demand for our customers’ services, wehave experienced order reductions, cancellations and acceptance delays, and may15Table of Contentsexperience more of these in the future, as projects have become uneconomical for our customers. We may be unable to collect revenue for all ofthe orders reflected in our backlog, or we may be unable to collect cancellation penalties, to the extent we have the right to impose them, or therevenues may be pushed into future periods. In addition, customers who are more highly leveraged or otherwise unable to pay their creditors in theordinary course of business may become insolvent or be unable to operate as a going concern. We may be unable to collect amounts due ordamages we are awarded from these customers, and our efforts to collect such amounts may damage our customer relationships. Our results ofoperations and overall financial condition may be negatively impacted by a reduction in revenue as a result of these circumstances.The markets in which we operate are highly competitive, and some of our competitors hold substantial market share and havesubstantially greater resources than we do. We may not be able to compete successfully in this environment and, in particular, against amuch larger competitor.The markets in which we operate are highly competitive and our products and services are subject to competition from significantly largerbusinesses. One competitor in particular holds substantial market share in our largest product line's market and has substantially greaterresources than we do. We also have several other competitors that are large national and multinational companies that have longer operatinghistories, greater financial, technical and other resources and greater name recognition than we do. Some of our competitors may be able torespond more quickly to new or emerging technologies and services and changes in customer requirements. In addition, several of our competitorsprovide a much broader array of services, and have a stronger presence in more geographic markets. Our larger competitors may be able to usetheir size and purchasing power to seek economies of scale and pricing concessions. Furthermore, some of our customers are also ourcompetitors and they may cease buying from us. We also have competitors outside of the United States with lower structural costs due to laborand raw material cost in and around their manufacturing centers. Moreover, our competitors may utilize available capacity during a period ofdepressed energy prices, similar to that which we are currently experiencing, to gain market share.New competitors could also enter the markets in which we compete. We consider product quality, price, breadth of product offering, availability ofproducts and services, performance, distribution capabilities, responsiveness to customer needs and reputation for service to be the primarycompetitive factors. Competitors may be able to offer more attractive pricing, duplicate strategies, or develop enhancements to products that couldoffer performance features that are superior to our products. In addition, we may not be able to retain key employees of entities that we acquire inthe future and those employees may choose to compete against us. Competitive pressures, including those described above, and other factorscould adversely affect our competitive position, resulting in a loss of market share or decreases in prices. In addition, some competitors are basedin foreign countries and have cost structures and prices based on foreign currencies. Accordingly, currency fluctuations could cause U.S. dollar-priced products to be less competitive than our competitors' products that are priced in other currencies. For more information about ourcompetitors, please read "Business-Competition."We may be unable to employ a sufficient number of skilled and qualified workers.The delivery of our products and services requires personnel with specialized skills and experience. Our ability to be productive and profitabledepends upon our ability to employ and retain skilled workers. During periods of low activity in our industry, such as we are now experiencing, wereduce the size of our labor force to match declining revenue levels, and other employees may choose to leave in order to find more stableemployment. This may cause us to lose skilled personnel, the absence of which could cause us to incur quality, efficiency and deliverabilityissues in our operations, or delay our response to an upturn in the market. During periods of high activity in our industry, our ability to expand ouroperations depends in part on our ability to increase the size of our skilled labor force. In addition, during those periods the demand for skilledworkers is high, the supply is limited and the cost to attract and retain qualified personnel increases. For example, during the last upturn weexperienced shortages of engineers, mechanical assemblers, machinists and code welders, which in some instances slowed the productivity ofcertain of our operations. Furthermore, a significant increase in the wages paid by competing employers could result in a reduction of our skilledlabor force, increases in the wage rates that we must pay, or both. If any of these events were to occur our ability to respond quickly to customerdemands or strong market conditions may be inhibited and our growth potential could be impaired.Our business depends upon our ability to obtain key raw materials and specialized equipment from suppliers. Increased costs of rawmaterials and other components may result in increased operating expenses.Should our suppliers be unable to provide the necessary raw materials or finished products or otherwise fail to deliver such materials and productstimely and in the quantities required, resulting delays in the provision of products or16Table of Contentsservices to customers could have a material adverse effect on our business. In particular, because many of our products are manufactured out ofsteel, we are particularly susceptible to fluctuations in steel prices. Our results of operations may be adversely affected by our inability to managethe rising costs and availability of raw materials and components used in our products.If suppliers cannot provide adequate quantities of materials to meet customers' demands on a timely basis or if the quality of thematerials provided does not meet established standards, we may lose customers or experience lower profitability.Some of our customer contracts require us to compensate customers if we do not meet specified delivery obligations. We rely on suppliers toprovide required materials and in many instances these materials must meet certain specifications. Managing a geographically diverse supplybase poses inherently significant logistical challenges. Furthermore, the ability of third party suppliers to deliver materials to our specifications maybe affected by events beyond our control. As a result, there is a risk that we could experience diminished supplier performance resulting in longerthan expected lead times and/or product quality issues. For example, in the past, we have experienced issues with the quality of certain forgingsused to produce materials utilized in our products. As a result, we were required to seek alternative suppliers for those forgings, which resulted inincreased costs and a disruption in our supply chain. We have also been required in certain circumstances to provide better economic terms tosome of our suppliers in exchange for their agreement to increase their capacity to satisfy our supply needs. The occurrence of any of theforegoing factors could have a negative impact on our ability to deliver products to customers within committed time frames.Our products are used in operations that are subject to potential hazards inherent in the oil and natural gas industry and, as a result, weare exposed to potential liabilities that may affect our financial condition and reputation.Our products are used in potentially hazardous drilling, completion and production applications in the oil and natural gas industry where an accidentor a failure of a product can potentially have catastrophic consequences. Risks inherent to these applications, such as equipment malfunctionsand failures, equipment misuse and defects, explosions, blowouts and uncontrollable flows of oil, natural gas or well fluids and natural disasters,on land or in deepwater or shallow-water environments, can cause personal injury, loss of life, suspension of operations, damage to formations,damage to facilities, business interruption and damage to or destruction of property, surface water and drinking water resources, equipment andthe environment. In addition, we provide certain services that could cause, contribute to or be implicated in these events. If our products orservices fail to meet specifications or are involved in accidents or failures, we could face warranty, contract or other litigation claims, which couldexpose us to substantial liability for personal injury, wrongful death, property damage, loss of oil and natural gas production, and pollution and otherenvironmental damages. Our insurance policies may not be adequate to cover all liabilities. Further, insurance may not be generally available inthe future or, if available, insurance premiums may make such insurance commercially unjustifiable. Moreover, even if we are successful indefending a claim, it could be time-consuming and costly to defend.In addition, the frequency and severity of such incidents could affect operating costs, insurability and relationships with customers, employees andregulators. In particular, our customers may elect not to purchase our products or services if they view our safety record as unacceptable, whichcould cause us to lose customers and substantial revenues. In addition, these risks may be greater for us because we may acquire companiesthat have not allocated significant resources and management focus to quality, or safety requiring rehabilitative efforts during the integrationprocess. We may incur liabilities for losses associated with these newly acquired companies before we are able to rehabilitate such companies'quality, safety and environmental programs.Our success depends on our ability to implement new technologies and services.Our success depends on the ongoing development and implementation of new product designs and improvements, and on our ability to protectand maintain critical intellectual property assets related to these developments. If we are not able to obtain patent or other intellectual propertyprotection of our technology, we may not be able to recoup development costs or fully exploit systems, services and technologies in a manner thatallows us to meet evolving industry requirements at prices acceptable to our customers. In addition, some of our competitors are large nationaland multinational companies that may be able to devote greater financial, technical, manufacturing and marketing resources to research anddevelopment of new systems, services and technologies than we are able to do. We have not spent material amounts on research anddevelopment activities during the three most recent fiscal years.17Table of ContentsOur success will be affected by the use and protection of our proprietary technology. There are limitations to our intellectual propertyrights in our proprietary technology, and thus our right to exclude others from the use of such proprietary technology.Our success will be affected by our development and implementation of new product designs and improvements and by our ability to protect andmaintain critical intellectual property assets related to these developments. Although in many cases our products are not protected by anyregistered intellectual property rights, in other cases we rely on a combination of patents and trade secret laws to establish and protect thisproprietary technology.We currently hold multiple U.S. and international patents and have multiple pending patent applications for products and processes in the U.S. andcertain non-U.S. countries. Patent rights give the owner of a patent the right to exclude third parties from making, using, selling, and offering forsale the inventions claimed in the patents in the applicable country. Patent rights do not necessarily grant the owner of a patent the right topractice the invention claimed in a patent, but merely the right to exclude others from practicing the invention claimed in the patent. It may also bepossible for a third party to design around our patents. Furthermore, patent rights have strict territorial limits. Some of our work will be conducted ininternational waters and may, therefore, not fall within the scope of any country's patent jurisdiction. We may not be able to enforce our patentsagainst infringement occurring in international waters and other "non-covered" territories. Also, we do not have patents in every jurisdiction in whichwe conduct business and our patent portfolio will not protect all aspects of our business and may relate to obsolete or unusual methods, whichwould not prevent third parties from entering the same market.In addition, by customarily entering into confidentiality and/or license agreements with our employees, customers and potential customers andsuppliers, we attempt to limit access to and distribution of our technology. Our rights in our confidential information, trade secrets, and confidentialknow-how will not prevent third parties from independently developing similar information. Publicly available information (e.g. information in expiredissued patents, published patent applications, and scientific literature) can also be used by third parties to independently develop technology. Wecannot provide assurance that this independently developed technology will not be equivalent or superior to our proprietary technology.Our competitors may infringe upon, misappropriate, violate or challenge the validity or enforceability of our intellectual property and we may notable to adequately protect or enforce our intellectual property rights in the future.During periods of high market activity, if we cannot continue operating our manufacturing facilities at adequate levels, our results ofoperations could be adversely affected.We operate a number of manufacturing facilities. The equipment and management systems necessary for such operations may break down,perform poorly or fail, resulting in fluctuations in manufacturing efficiencies. Such fluctuations may affect our ability to deliver quality products toour customers on a timely basis.During the year ended December 31, 2015, we incurred impairment charges and we may incur additional impairment charges in thefuture.For goodwill and intangible assets with indefinite lives, an assessment for impairment is performed annually or when there is an indication animpairment may have occurred. Goodwill is reviewed for impairment by comparing the carrying value of each reporting unit's net assets, includingallocated goodwill, to the estimated fair value of the reporting unit. We determine the fair value of each of our six reporting units using a discountedcash flow approach. Determining the fair value of a reporting unit requires the use of estimates and assumptions. If the reporting unit's carryingvalue is greater than its fair value, a second step is performed whereby the implied fair value of goodwill is estimated by allocating the fair value ofthe reporting unit in a hypothetical purchase price allocation analysis. We recognize a goodwill impairment charge for the amount by which thecarrying value of goodwill exceeds its reassessed fair value. Due to the further deterioration of market conditions for our products, we recorded a$123.2 million of impairment loss for our Subsea reporting unit for the year ended December 31, 2015. No impairment loss was recorded for theyear ended December 31, 2016. The cost of exploring for or producing oil and natural gas in offshore areas is generally much higher than it is foronshore fields; as such significantly higher oil and natural gas prices may be required in order to stimulate an increase in activity. A further declineof offshore activity or failure for that activity to increase could require further impairment charges for our Subsea product line in the future.We evaluate our long-lived assets, including property and equipment and intangible assets with definite lives, for potential impairment wheneverevents or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. In performing our review forimpairment, future cash flows expected to result from the18Table of Contentsuse of the asset and its eventual value upon disposal are estimated. If the undiscounted future cash flows are less than the carrying amount of theassets, there is an indication that the asset may be impaired. The amount of the impairment is measured as the difference between the carryingvalue and the estimated fair value of the asset. The fair value is determined either through the use of an external valuation, or by means of ananalysis of discounted future cash flows based on expected utilization. Following the impairment charge, at December 31, 2015, our Subseareporting unit has a remaining balance of $73 million in goodwill. No impairment loss was recorded for the year ended December 31, 2016. Theimpairment loss recognized represents the excess of the asset's carrying value as compared to its estimated fair value. Further declines incommodity prices or sustained lower valuation for the Company's common stock could indicate a reduction in the estimate of reporting unit fairvalue which, in turn, could lead to additional impairment charges associated with goodwill. The impairment loss recognized represents the excessof the asset's carrying value as compared to its estimated fair value.Intangible assets with definite lives are tested for impairment whenever events or changes in circumstances indicate that their carrying amountmay not be recoverable. In the fourth quarter of 2015, an impairment loss of $1.9 million related to certain trade names that were no longer in usewas recorded. No impairment loss was recorded for the year ended December 31, 2016.If we determine that the carrying value of our long-lived assets, goodwill or intangible assets is less than their fair value, we may be required torecord additional charges in the future, which could adversely affect our financial condition and results of operations.Our operations and our customers' operations are subject to a variety of governmental laws and regulations that may increase our andour customers' costs, prohibit or curtail our customers' operations in certain areas, limit the demand for our products and services orrestrict our operations.Our business and our customers' businesses may be significantly affected by:•federal, state and local U.S. and non-U.S. laws and other regulations relating to oilfield operations, worker safety and protection of theenvironment;•changes in these laws and regulations; and•the level of enforcement of these laws and regulations.In addition, we depend on the demand for our products and services from the oil and natural gas industry. This demand is affected by changingtaxes, price controls and other laws and regulations relating to the oil and natural gas industry in general. For example, the adoption of laws andregulations curtailing exploration and development drilling for oil and natural gas for economic or other policy reasons could adversely affect ouroperations by limiting demand for our products. In addition, some non-U.S. countries may adopt regulations or practices that provide an advantageto indigenous oil companies in bidding for oil leases, or require indigenous companies to perform oilfield services currently supplied by internationalservice companies. To the extent that such companies are not our customers, or we are unable to develop relationships with them, our businessmay suffer. We cannot determine the extent to which our future operations and earnings may be affected by new legislation, new regulations orchanges in existing regulations.Because of our non-U.S. operations and sales, we are also subject to changes in non-U.S. laws and regulations that may encourage or requirehiring of local contractors or require non-U.S. contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. If we fail tocomply with any applicable law or regulation, our business, results of operations or financial condition may be adversely affected.Our tax position may be adversely affected by changes in tax law relating to multinational corporations, or increased scrutiny by taxauthorities. Recent legislative proposals have aimed to make changes in the taxation of U.S. and multinational corporations, including proposal to limit theability of corporations to deduct interest expense. The U.S. Congress and government agencies in non-U.S. jurisdictions where we, and ouraffiliates, do business, have recently focused on issues related to the taxation of multinational corporations. Moreover, the Trump Administrationand members of the U.S. Congress have called for substantial change to fiscal and tax policies, which may include comprehensive tax reform orthe imposition of taxes on the imports of goods into the United States. As a result, the lax laws in the United States and other countries in whichwe and our affiliates do business could change on a prospective or retroactive basis. Until we know what changes are enacted, we cannot predictwhether these changes could materially adversely affect us.19Table of ContentsIf the United States were to withdraw from or modify the North American Free Trade Agreement our financial performance and results ofoperations may be negatively affected.We utilize our facility located in Mexico to manufacture products and export them to the United States under the North American Free TradeAgreement (“NAFTA”). The Trump Administration has made comments suggesting that it is not supportive of NAFTA. As a result, it is unclearwhat may or may not be done with respect to this trade agreement. Withdrawal from or modifications to NAFTA could impose additional tariffs orduties on imports from our facility. Additionally, taxes may be imposed generally on imports to the United States by virtue of the corporate taxreform efforts currently being discussed. Under either of these scenarios the use of our facility in Mexico may be rendered uneconomical for ouroperations. This may cause us to lose the value of our investment in this facility, interrupt our operations and may negatively impact our financialperformance and results of operations.Our operations are subject to environmental and operational safety laws and regulations that may expose us to significant costs andliabilities.Our operations are subject to numerous stringent and complex laws and regulations governing the discharge of materials into the environment,health and safety aspects of our operations, or otherwise relating to human health and environmental protection. These laws and regulations may,among other things, regulate the management and disposal of hazardous and nonhazardous wastes; require acquisition of environmental permitsrelated to our operations; restrict the types, quantities, and concentrations of various materials that can be released into the environment; limit orprohibit operational activities in certain ecologically sensitive and other protected areas; regulate specific health and safety criteria addressingworker protection; require compliance with operational and equipment standards; impose testing, reporting and recordkeeping requirements; andrequire remedial measures to mitigate pollution from former and ongoing operations. Failure to comply with these laws and regulations or to obtainor comply with permits may result in the assessment of administrative, civil and criminal penalties, imposition of remedial or corrective actionrequirements and the imposition of injunctions to prohibit certain activities or force future compliance. Certain environmental laws may impose jointand several liability, without regard to fault or legality of conduct, on classes of persons who are considered to be responsible for the release of ahazardous substance into the environment. In addition, these risks may be greater for us because the companies we acquire or have acquiredmay not have allocated sufficient resources and management focus to environmental compliance, potentially requiring rehabilitative efforts duringthe integration process or exposing us to liability before such rehabilitation occurs.The trend in environmental regulation has been to impose increasingly stringent restrictions and limitations on activities that may impact theenvironment. The implementation of new laws and regulations could result in materially increased costs, stricter standards and enforcement, largerfines and liability and increased capital expenditures and operating costs, particularly for our customers.We may incur liabilities, fines, penalties or additional costs, or we may be unable to sell to certain customers if we do not maintain safeoperations.If we fail to comply with safety regulations or maintain an acceptable level of safety at our facilities we may incur fines, penalties or otherliabilities, or may be held criminally liable. We may incur additional costs to upgrade equipment or conduct additional training, or otherwise incurcosts in connection with compliance with safety regulations. Failure to maintain safe operations or achieve certain safety performance metricscould disqualify us from doing business with certain customers, particularly major oil companies.Our executive officers and certain key personnel are critical to our business and these officers and key personnel may not remain withus in the future.Our future success depends in substantial part on our ability to hire and retain our executive officers and other key personnel. In particular, we arehighly dependent on certain of our executive officers. These individuals possess extensive expertise, talent and leadership, and they are critical toour success. The diminution or loss of the services of these individuals, or other integral key personnel affiliated with entities that we acquire in thefuture, could have a material adverse effect on our business. Furthermore, we may not be able to enforce all of the provisions in any employmentagreement we have entered into with certain of our executive officers and such employment agreements may not otherwise be effective inretaining such individuals. In addition, we may not be able to retain key employees of entities that we acquire in the future. This may impact ourability to successfully integrate or operate the assets we acquire.20Table of ContentsThe industry in which we operate is undergoing continuing consolidation that may impact results of operations.Some of our largest customers have consolidated and are using their size and purchasing power to achieve economies of scale and pricingconcessions. This consolidation may result in reduced capital spending by such customers or the acquisition of one or more of our primarycustomers, which may lead to decreased demand for our products and services. If we cannot maintain sales levels for customers that haveconsolidated or replace such revenues with increased business activities from other customers, this consolidation activity could have a significantnegative impact on results of operations or financial condition. We are unable to predict what effect consolidations in the industries may have onprices, capital spending by customers, selling strategies, competitive position, ability to retain customers or ability to negotiate favorableagreements with customers.If we are unable to continue operating successfully overseas or to successfully expand into new international markets, our revenues maydecrease.For the year ended December 31, 2016, we derived approximately 38% of our revenue from sales outside the United States (based on productdestination). In addition, one of our key growth strategies is to market products in international markets. We may not succeed in marketing,developing a recognized brand, selling, distributing products and generating revenues in these new international markets.Our non-U.S. operations will subject us to special risks.We are subject to various risks inherent in conducting business operations in locations outside of the United States. These risks may includechanges in regional, political or economic conditions, local laws and policies, including taxes, trade protection measures, and unexpected changesin regulatory requirements governing the operations of companies that operate outside of the United States. In addition, if a dispute arises frominternational operations, courts outside of the United States may have exclusive jurisdiction over the dispute, or we may not be able to subjectpersons outside of the United States to the jurisdiction of U.S. courts.Our exposure to currency exchange rate fluctuations may result in fluctuations in our cash flows and could have an adverse effect on ourresults of operations.From time to time, fluctuations in currency exchange rates could be material to us depending upon, among other things, our manufacturinglocations and the sourcing for our raw materials and components. In particular, we are sensitive to fluctuations in currency exchange ratesbetween the United States dollar and each of the Canadian dollar, the British pound sterling, the Euro, and, to a lesser degree, the Mexican Peso,the Chinese Yuan and the Singapore dollar. There may be instances in which costs and revenue will not be matched with respect to currencydenomination. As a result, to the extent that we continue our expansion on a global basis, management expects that increasing portions ofrevenue, costs, assets and liabilities will be subject to fluctuations in foreign currency valuations. We may experience economic loss and anegative impact on earnings or net assets solely as a result of foreign currency exchange rate fluctuations. Further, the markets in which weoperate could restrict the removal or conversion of the local or foreign currency, resulting in our inability to hedge against these risks.Our business operations in countries outside of the United States are subject to a number of U.S. federal laws and regulations, includingrestrictions imposed by the United States Foreign Corrupt Practices Act as well as trade sanctions administered by the Office of ForeignAssets Control and the Commerce Department.We rely on a large number of agents in non-U.S. countries that pose a high risk of corrupt activities and whose local laws and customs differsignificantly from those in the United States. In many countries, particularly in those with developing economies, it is common to engage inbusiness practices that are prohibited by the regulations applicable to us. The United States Foreign Corrupt Practices Act and similar anti-briberylaws in other jurisdictions, including the UK Bribery Act 2010, ("anti-corruption laws") prohibit corporations and individuals, including us and ouremployees, from engaging in certain activities to obtain or retain business or to influence a person working in an official capacity. We may be heldresponsible for violations by our employees, contractors and agents, for violations of anti-corruption laws. We may also be held responsible for anyviolations by an acquired company that occurs prior to an acquisition, or subsequent to the acquisition but before we are able to institute ourcompliance procedures. In addition, our non-U.S. competitors that are not subject to the FCPA or similar laws may be able to secure business orother preferential treatment in such countries by means that such laws prohibit with respect to us. The UK Bribery Act 2010 is broader in scopethan the FCPA and applies to public and private sector corruption and contains no facilitating payments exception. A violation of any of theselaws, even if prohibited by our policies, could have a material adverse effect on21Table of Contentsour business. Actual or alleged violations could damage our reputation, be expensive to defend, impair our ability to do business, and cause us toincur civil and criminal fines, penalties and sanctions.Compliance with regulations relating to export controls, trade sanctions and embargoes administered by the countries in which we operate,including the United States Department of the Treasury's Office of Foreign Assets Control ("OFAC") also poses a risk to us. We cannot provideproducts or services to certain countries, companies or individuals subject to trade sanctions of the U.S. and other countries. Furthermore, thelaws and regulations concerning import activity, export recordkeeping and reporting, export control and economic sanctions are complex andconstantly changing. Any failure to comply with applicable legal and regulatory trading obligations could result in criminal and civil penalties andsanctions, such as fines, imprisonment, debarment from governmental contracts, seizure of shipments and loss of import and export privileges.Unionization efforts and labor regulations in certain areas in which we operate could materially increase our costs or limit our flexibility.We are not a party to any collective bargaining agreements, other than in our Monterrey, Mexico and Hamburg, Germany facilities. We operate incertain states within the United States and in international areas that have a history of unionization and we may become the subject of aunionization campaign. If some or all of our workforce were to become unionized and collective bargaining agreement terms, including anyrenegotiation of our Monterrey, Mexico and Hamburg, Germany collective bargaining agreements, were significantly different from our currentcompensation arrangements or work practices, our costs could be increased, our flexibility in terms of work schedules and reductions in forcecould be limited, and we could be subject to strikes or work slowdowns, among other things.We may incur liabilities to customers as a result of warranty claims.We provide warranties as to the proper operation and conformance to specifications of the products we manufacture or install. Failure of ourproducts to operate properly or to meet specifications may increase costs by requiring additional engineering resources and services, replacementof parts and equipment or monetary reimbursement to a customer. We have in the past received warranty claims, and we expect to continue toreceive them in the future. To the extent that we incur substantial warranty claims in any period, our reputation, ability to obtain future businessand earnings could be adversely affected.We are subject to litigation risks that may not be covered by insurance.In the ordinary course of business, we become the subject of various claims, lawsuits and administrative proceedings seeking damages or otherremedies concerning our commercial operations, products, employees and other matters, including occasional claims by individuals allegingexposure to hazardous materials as a result of our products or operations. Some of these claims relate to the activities of businesses that wehave acquired, even though these activities may have occurred prior to our acquisition of such businesses. Our insurance does not cover all of ourpotential losses, and we are subject to various self-insured retentions and deductibles under our insurance. A judgment may be rendered againstus in cases in which we could be uninsured or beyond the amounts that we currently have reserved or anticipate incurring for such matters.The number and cost of our current and future asbestos claims could be substantially higher than we have estimated and the timing ofpayment of claims could be sooner than we have estimated.One of our subsidiaries has been and continues to be named as a defendant in asbestos related product liability actions. The actual amountsexpended on asbestos-related claims in any year may be impacted by the number of claims filed, the nature of the allegations asserted in theclaims, the jurisdictions in which claims are filed, and the number of settlements. As of December 31, 2016, our subsidiary has a net liability of$0.3 million for the estimated indemnity cost associated with the resolution of its current open claims and future claims anticipated to be filedduring the next five years.Due to a number of uncertainties that may result in significant changes in the current estimate, the actual costs of resolving these pending claimscould be substantially higher than the current estimate. Among these are uncertainties as to the ultimate number and type of claims filed, theamounts of claim costs, the impact of bankruptcies of other companies with asbestos claims or of our insurers, and potential legislative changesand uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case. In addition, future claims beyond thefive-year forecast period are possible, but the accrual does not cover losses that may arise from such additional future claims. Therefore, anysuch future claims could result in a loss.22Table of ContentsSignificant costs are incurred in defending asbestos claims and these costs are recorded at the time incurred. Receipt of reimbursement from ourinsurers may be delayed for a variety of reasons. In particular, if our primary insurers claim that certain policy limits have been exhausted, we maybe delayed in receiving reimbursement as a result of the transition from one set of insurers to another. Our excess insurers may also dispute theclaims of exhaustion, or may rely on certain policy requirements to delay or deny claims. Furthermore, the various per occurrence and aggregatelimits in different insurance policies may result in extended negotiations or the denial of reimbursement for particular claims. For more informationon the cost sharing agreements related to this risk, please read "Business—Legal proceedings."If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or preventfraud.Effective internal control over financial processes and reporting are necessary for us to provide reliable financial reports effectively prevent fraudand operate successfully. Our efforts to maintain internal control systems may not be successful. In addition, the entities that we acquire in thefuture may not maintain effective systems of internal control or we may encounter difficulties integrating our system of internal control with thoseof acquired entities. If we are unable to maintain effective internal control and, as a result, fail to provide reliable financial reports and effectivelyprevent fraud, our reputation and operating results would be harmed.We may be impacted by disruptions in the political, regulatory, economic and social conditions of the foreign countries in which we areexpected to conduct business.Instability and unforeseen changes in the international markets in which we conduct business, including economically and politically volatile areassuch as North Africa, the Middle East, Latin America and the Asia Pacific region, could cause or contribute to factors that could have an adverseeffect on the demand for the products and services we provide. For example, we have previously transferred management and operations fromcertain Latin American countries, due to the presence of political turmoil, to other countries in the region that are more politically stable.In addition, worldwide political, economic, and military events have contributed to oil and natural gas price volatility and are likely to continue to doso in the future. Depending on the market prices of oil and natural gas, oil and natural gas exploration and development companies may cancel orcurtail their drilling programs, thereby reducing demand for our products and services.Climate change legislation or regulations restricting emissions of greenhouse gases could increase our operating costs or reducedemand for our products.Environmental advocacy groups and regulatory agencies in the United States and other countries have focused considerable attention on theemissions of carbon dioxide, methane and other greenhouse gases and their potential role in climate change. In response to scientific studiessuggesting that emissions of GHGs, including carbon dioxide and methane, are contributing to the warming of the Earth's atmosphere and otherclimatic conditions, the U.S. Congress has considered adopting comprehensive legislation to reduce emissions of GHGs, and almost half of thestates have already taken legal measures to reduce emissions of GHGs, primarily through measures to promote the use of renewable energyand/or regional GHG cap-and-trade programs. The Environmental Protection Agency (the "EPA") has already begun to regulate greenhouse gasemissions under the federal Clean Air Act. In December 2009, the EPA determined that emissions of carbon dioxide, methane and certain otherGHGs endanger public health and the environment because emissions of such gases are, according to the EPA, contributing to warming of theEarth's atmosphere and other climatic changes. Accordingly, the EPA has begun adopting rules under the Clean Air Act that, among other things,cover reductions in GHG emissions from motor vehicles, permits for certain large stationary sources of GHGs, and monitoring and annual reportingof GHG emissions from specified GHG emission sources, including oil and natural gas exploration and production operations. Additionally, in May2016, the EPA issued final new source performance standards governing methane emissions that impose more stringent controls on methane andvolatile organic compounds emissions at new and modified oil and natural gas production, processing, storage and transmission facilities. TheEPA has also announced that it intends to impose methane emission standards for existing sources and has issued information collectionrequests to companies with production, gathering and boosting, gas processing, storage and transmission facilities. The EPA has also adoptedrules requiring the reporting of greenhouse gas emissions from specified large greenhouse gas emission sources in the United States, including oiland gas systems. Similarly, the Department of the Interior’s Bureau of Land Management (“BLM”) issued final rules in November 2016 relating tothe venting, flaring and leaking of natural gas by oil and natural gas producers who operate on federal and Indian lands.23Table of ContentsFinally, efforts have also been made and continue to be made in the international community toward the adoption of international treaties orprotocols that would address global climate change issues. In 2015, the United States participated in the United Nations Conference on ClimateChange, which led to the creation of the Paris Agreement. In April 2016, the United States signed the Paris Agreement, which requires membercountries to review and “represent a progression” in their nationally determined contributions, which set GHG emission reduction goals, every fiveyears.The adoption of additional legislation or regulatory programs to reduce emissions of greenhouse gases could require us to incur increasedoperating costs to comply with new emissions-reduction or reporting requirements. Any such legislation or regulatory programs could also increasethe cost of consuming, and thereby reduce demand for, hydrocarbons that our customers produce. Consequently, legislation and regulatoryprograms to reduce emissions of greenhouse gases could have an adverse effect on our business, financial condition and results of operations.Finally, some scientists have concluded that increasing concentrations of greenhouse gases in the Earth's atmosphere may produce climatechanges that have significant physical effects, such as increased frequency and severity of storms, droughts, and floods and other climaticevents.Adverse weather conditions adversely affect demand for services and operations.Adverse weather conditions, such as hurricanes, tornadoes, ice or snow may damage or destroy our facilities, interrupt or curtail our operations, orour customers' operations, cause supply disruptions and result in a loss of revenue, which may or may not be insured. For example, certain of ourfacilities located in Oklahoma and Pennsylvania have experienced suspensions in operations due to tornado activity or extreme cold weatherconditions.A natural disaster, catastrophe or other event could result in severe property damage, which could curtail our operations.Some of our operations involve risks of, among other things, property damage, which could curtail our operations. For example, disruptions inoperations or damage to a manufacturing plant could reduce our ability to produce products and satisfy customer demand. In particular, we haveoffices and manufacturing facilities in Houston, Texas, and in various places throughout the U.S. Gulf Coast region. These offices and facilitiesare particularly susceptible to severe tropical storms and hurricanes, which may disrupt our operations. If one or more of our manufacturingfacilities are damaged by severe weather or any other disaster, accident, catastrophe or event, our operations could be significantly interrupted.Similar interruptions could result from damage to production or other facilities that provide supplies or other raw materials to our plants or otherstoppages arising from factors beyond our control. These interruptions might involve significant damage to, among other things, property andrepairs might take from a week or less for a minor incident to many months or more for a major interruption.Potential legislation or regulations restricting the use of hydraulic fracturing could reduce demand for our products.Hydraulic fracturing is an important and common practice in the oil and natural gas industry, which involves the injection of water, sand andchemicals under pressure into a formation to fracture the surrounding rock and stimulate production of hydrocarbons. Certain environmentaladvocacy groups have suggested that additional federal, state and local laws and regulations may be needed to more closely regulate thehydraulic fracturing process, and have made claims that hydraulic fracturing techniques are harmful to surface water and drinking water resources.Various governmental entities (within and outside the United States) are in the process of studying, restricting, regulating or preparing to regulatehydraulic fracturing, directly or indirectlyFor example, the EPA also released the final results of its comprehensive research study on the potential adverse impacts that hydraulicfracturing may have on drinking water resources in December 2016. The EPA concluded that hydraulic fracturing activities can impact drinkingwater resources under some circumstances, including large volume spills and inadequate mechanical integrity of wells. In May 2016, the EPAissued final new source performance standard requirements that impose more stringent controls on methane and volatile organic compoundsemissions from oil and natural gas development and production operations, including hydraulic fracturing and other well completion activity. TheEPA has also issued federal Safe Drinking Water Act (“SDWA”) permitting guidance for hydraulic fracturing operations involving the use of dieselfuel in fracturing fluids in those states where the EPA is the permitting authority. Additionally, the BLM issued final rules to regulate hydraulicfracturing on federal lands in March 2015. Although these rules were struck down by a federal court in Wyoming in June 2016, an appeal of thedecision is still pending.In past sessions, Congress has considered, but not passed, the adoption of legislation to provide for federal regulation of hydraulic fracturing underthe SDWA and to require disclosure of the chemicals used in the hydraulic fracturing24Table of Contentsprocess. Some states have adopted, and other states are considering adopting, legal requirements that could impose more stringent permitting,public disclosure or well construction requirements on hydraulic fracturing activities. Local government also may seek to adopt ordinances withintheir jurisdictions regulating the time, place and manner of drilling activities in general or hydraulic fracturing activities in particular, in some casesbanning hydraulic fracturing entirely.If new or more stringent federal, state or local legal restrictions relating to the hydraulic fracturing process are adopted in areas where our oil andnatural gas exploration and production customers operate, they could incur potentially significant added costs to comply with such requirements,experience delays or curtailment in the pursuit of exploration, development, or production activities, and perhaps even be precluded from drillingwells, some or all of which activities could adversely affect demand for our services to those customers.Compliance with government regulations regarding the use of "conflict minerals" may result in increased costs and risks to us.As part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 ("Dodd-Frank"), the SEC has promulgated disclosurerequirements regarding the use of certain minerals, which are mined from the Democratic Republic of Congo and adjoining countries, known asconflict minerals. We are required to publicly disclose our determination as to whether the products we sell contain conflict minerals and couldincur significant costs related to implementing a process that will meet the mandates of Dodd-Frank. Additionally, customers may rely on us toprovide critical data regarding the parts they purchase and will likely request conflict mineral information. We have many suppliers and each willprovide conflict mineral information in a different manner, if at all. Accordingly, because the supply chain is complex, we may face reputationalchallenges if we are unable to sufficiently verify the origins of certain minerals used in our products. Additionally, customers may demand that theproducts they purchase be free of conflict minerals. The implementation of this requirement could affect the sourcing and availability of productswe purchase from our suppliers. This may reduce the number of suppliers that may be able to provide conflict free products, and may affect ourability to obtain products in sufficient quantities to meet customer demand or at competitive prices. In addition, there may be material costsassociated with complying with the disclosure requirements, such as costs related to determining the source of any relevant minerals used in ourproducts, as well as costs arising from any changes as a consequence of such verification activities.Our financial results could be adversely impacted by changes in regulation of oil and natural gas exploration and development activity,in response to significant environmental incidents.The U.S. Department of the Interior implemented additional safety and certification requirements applicable to drilling activities in the U.S. Gulf ofMexico, imposed additional requirements with respect to exploration, development and production activities in U.S. waters and imposed amoratorium that delayed the approval of drilling plans and well permits in both deepwater and shallow-water areas due to the Macondo wellincident. Although neither we nor our products were involved in the incident, the delays caused by the new regulations and requirements had anoverall negative effect on drilling activity in U.S. waters, and to a certain extent, our financial results. Another similar environmental incident couldresult in similar drilling moratoria, and could result in increased state, international and additional federal regulation of our and our customers'operations that could negatively impact our earnings, prospects and the availability and cost of insurance coverage. Any additional regulation ofthe exploration and production industry as a whole could result in fewer companies being financially qualified to operate offshore or onshore in theU.S. or in non-U.S. jurisdictions, result in higher operating costs for our customers and reduce demand for our products and services.We may not be able to satisfy technical requirements, testing requirements, code requirements or other specifications under contractsand contract tenders.Many of our products are used in harsh environments and severe service applications. Our contracts with customers and customer requests forbids often set forth detailed specifications or technical requirements (including that they meet certain industrial code requirements, such as API,ASME or similar codes, or that our processes and facilities maintain ISO or similar certifications) for our products and services, which may alsoinclude extensive testing requirements. We anticipate that such code testing requirements will become more common in our contracts. We cannotassure you that our products or facilities will be able to satisfy the specifications or requirements, or that we will be able to perform the full-scaletesting necessary to prove that the product specifications are satisfied in future contract bids or under existing contracts, or that the costs ofmodifications to our products or facilities to satisfy the specifications and testing will not adversely affect our results of operations. If our productsor facilities are unable to satisfy such requirements, or we are unable to perform or satisfy any required full-scale testing, we may suffer25Table of Contentsreputational harm and our customers may cancel their contracts and/or seek new suppliers, and our business, results of operations or financialposition may be adversely affected.We may be adversely affected by disputes regarding intellectual property rights and the value of our intellectual property rights isuncertain.As discussed above, we may become involved in legal proceedings from time to time to protect and enforce our intellectual property rights. Thirdparties from time to time may initiate litigation against us by asserting that the conduct of our business infringes, misappropriates or otherwiseviolates intellectual property rights. We may not prevail in any such legal proceedings related to such claims, and our products and services maybe found to infringe, impair, misappropriate, dilute or otherwise violate the intellectual property rights of others. Any legal proceeding concerningintellectual property could be protracted and costly and is inherently unpredictable and could have a material adverse effect on our business,regardless of its outcome. Further, our intellectual property rights may not have the value that management believes them to have and such valuemay change over time as we and others develop new product designs and improvements.A failure or breach of our information technology infrastructure, including as a result of cyber attacks, could adversely impact ourbusiness and results of operations.The efficient operation of our business is dependent on our information technology ("IT") systems. Accordingly, we rely upon the capacity,reliability and security of our IT hardware and software infrastructure and our ability to expand and update this infrastructure in response to ourchanging needs. Despite our implementation of security measures, our IT systems are vulnerable to computer viruses, natural disasters,incursions by intruders or hackers, failures in hardware or software, power fluctuations, cyber terrorists and other similar disruptions. The failure ofour IT systems to perform as anticipated for any reason or any significant breach of security could disrupt our business and result in numerousadverse consequences, including reduced effectiveness and efficiency of our operations and that of our customers, inappropriate disclosure ofconfidential information, increased overhead costs, and loss of intellectual property, which could lead to liability to third parties or otherwise andhave a material adverse effect on our business and results of operations. In addition, we may be required to incur significant costs to preventdamage caused by these disruptions or security breaches in the future.Provisions in our organizational documents and under Delaware law could delay or prevent a change in control of our company, whichcould adversely affect the price of our common stock.The existence of some provisions in our organizational documents and under Delaware law could delay or prevent a change in control of ourcompany that a stockholder may consider favorable, which could adversely affect the price of our common stock. Certain provisions of ouramended and restated certificate of incorporation and amended and restated bylaws could make it more difficult for a third party to acquire controlof our company, even if the change of control would be beneficial to our stockholders. These provisions include:•a classified board of directors, so that only approximately one-third of our directors are elected each year;•the ability of our board of directors to issue preferred stock without stockholder approval;•limitations on the removal of directors; and•limitations on the ability of our stockholders to call special meetings.In addition, our amended and restated bylaws establish advance notice provisions for stockholder proposals and nominations for elections to theboard of directors to be acted upon at meetings of stockholders.L.E. Simmons & Associates, Incorporated ("LESA"), through SCF, may effectively control the outcome of stockholder voting and mayexercise this voting power in a manner adverse to our other stockholders.As of February 24, 2017, SCF held approximately 20.5 million shares of our common stock, equal to approximately 21% of the outstandingcommon stock at that date. LESA is the ultimate general partner of SCF and will exert significant control over us, including over the outcome ofmost matters requiring a stockholder vote, such as the election of directors, adoption of amendments to our charter and bylaws and approval oftransactions involving a change of control. LESA's interests may differ from our other stockholders, and SCF may vote its common stock in amanner that may adversely affect those stockholders.26Table of ContentsSCF is a party to a registration rights agreement with us which requires us to effect the registration of its shares in certain circumstances. SCFexercised such rights in 2013, 2014 and 2016 with respect to 6.0 million, 11.5 million and 3.7 million shares, respectively, which were offered andsold in November 2013, May 2014 and December 2016, respectively. Additional sales of substantial amounts of our common stock by SCF, or theperception that such sales could occur, may adversely affect prevailing market prices of our common stock.Certain of our directors may have conflicts of interest because they are also directors or officers of SCF. The resolution of these conflictsof interest may not be in the best interests of our Company or our other stockholders.Certain of our directors, namely David C. Baldwin and Andrew L. Waite, are currently officers of LESA. In addition, a trust in which the children ofour Chief Executive Officer, C. Christopher Gaut, are primary beneficiaries holds an ownership interest in the general partner of each of SCF-VI,L.P. and SCF-VII, L.P. These positions may create conflicts of interest because these directors and Mr. Gaut have an ownership interest in SCF-VI, L.P. and SCF-VII, L.P. and/or responsibilities to SCF Partners and its owners. Duties as directors or officers of LESA may conflict with suchindividuals' duties as one of our directors or officers regarding business dealings and other matters between SCF Partners and us. The resolutionof these conflicts may not always be in the best interest of our Company or our other stockholders. Please read "We have renounced any interestin specified business opportunities, and SCF Partners and its director nominees on our board of directors generally have no obligation to offer usthose opportunities."We have renounced any interest in specified business opportunities, and SCF Partners and its director nominees on our board ofdirectors generally have no obligation to offer us those opportunities.Our certificate of incorporation provides that, so long as we have a director or officer who is affiliated with SCF Partners (an "SCF Nominee") andfor a continuous period of one year thereafter, we renounce any interest or expectancy in any business opportunity in which any member of theSCF group participates or desires or seeks to participate in and that involves any aspect of the energy equipment or services business or industry,other than (i) any business opportunity that is brought to the attention of an SCF Nominee solely in such person’s capacity as a director or officerof our Company and with respect to which no other member of the SCF group independently receives notice or otherwise identifies suchopportunity and (ii) any business opportunity that is identified by the SCF group solely through the disclosure of information by or on behalf of ourCompany. We refer to SCF Partners and its other affiliates and its portfolio companies as the SCF group. We are not prohibited from pursuing anybusiness opportunity with respect to which we have renounced any interest.SCF Partners has investments in other oilfield service companies that may compete with us, and SCF Partners and its affiliates, other than ourCompany, may invest in other such companies in the future. LESA, the ultimate general partner of SCF Partners, has an internal policy thatdiscourages it from investing in two or more portfolio companies with substantially overlapping industry segments and geographic areas. However,LESA’s internal policy does not restrict the management or operation of its other individual portfolio companies from competing with us. Pursuantto LESA’s policy, LESA may allocate any potential opportunities to the existing portfolio company where LESA determines, in its discretion, suchopportunities are the most logical strategic and operational fit. As a result, LESA or its affiliates may become aware, from time to time, of certainbusiness opportunities, such as acquisition opportunities, and may direct such opportunities to its other portfolio companies, in which case wemay not become aware of or otherwise have the ability to pursue such opportunities. Furthermore, LESA does not have a specific policy withregard to allocation of financial professionals and they are under no obligation to provide us with financial professionals.Item 1B. Unresolved Staff CommentsNot applicable.27Table of Contents Item 2. PropertiesThe following tables describe the material facilities owned or leased by us as of December 31, 2016:Country Location Leased or Owned Canada Alberta Leased Calgary Leased Edmonton LeasedGermany Hamburg LeasedMexico Monterrey LeasedSingapore Singapore LeasedUAE Dubai LeasedUnited Kingdom Aberdeen Leased Kirkbymoorside Leased Findon Leased Newcastle LeasedUnited States Bryan, TX Owned Broussard, LA Leased Broussard, LA Owned Brownsville, PA Leased Clearfield, PA Owned Davis, OK Owned Dayton, TX Owned Elmore City, OK Owned Fort Worth, TX Leased Guthrie, OK Leased Houston, TX Leased Madison, KS Leased Odessa, TX Leased Pearland, TX Owned Pearland, TX Leased Plantersville, TX Owned San Antonio, TX Owned Stafford, TX Leased Stafford, TX Owned Tyler, TX Leased Williston, ND LeasedWe believe our facilities are suitable for their present and intended purposes, and are adequate for our current and anticipated level of operations.We incorporate by reference in response to this item the information set forth in Item 1 and Item 7 of this Annual Report on Form 10-K and theinformation set forth in Note 6 and Note 11 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.Item 3. Legal ProceedingsInformation related to Item 3. Legal Proceedings is included in Note 11 to the consolidated financial statements, which are incorporated herein byreference in Part II, Item 8 "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.28Table of ContentsItem 4. Mine Safety DisclosuresNot applicable.Executive officers of the registrantThe following table indicates the names, ages and positions of the executive officers of Forum as of February 24, 2017:NameAgePositionC. Christopher Gaut60Chief Executive Officer, Chairman of the BoardPrady Iyyanki46President and Chief Operating OfficerJames W. Harris57Executive Vice President and Chief Financial OfficerJames L. McCulloch64Executive Vice President, General Counsel and SecretaryMichael D. Danford54Senior Vice President-Human ResourcesC. Christopher Gaut. Mr. Gaut has served as our Chief Executive Officer and Chairman of the Board since May 2016. From August 2010 toMay 2016 he also served as President, Chief Executive Officer and Chairman of the Board, and as one of our directors since December 2006. Heserved as a consultant to LESA, the ultimate general partner of SCF, our largest stockholder, from November 2009 to August 2010. Mr. Gautserved at Halliburton Company, a leading diversified oilfield services company, as President of the Drilling and Evaluation Division and prior to thatas Chief Financial Officer, from March 2003 through April 2009. From April 2009 through November 2009, Mr. Gaut was a private investor. Prior tojoining Halliburton Company in 2003, Mr. Gaut was the Co-Chief Operating Officer of Ensco International, a provider of offshore contract drillingservices. He also served as Ensco's Chief Financial Officer from 1988 until 2003. Mr. Gaut is currently a member of the board of directors ofEnsco plc, the successor to Ensco International, and Key Energy Services Inc., a well services provider to major oil companies. Mr. Gaut holdsan A.B. in Engineering Sciences from Dartmouth College and an M.B.A. from The Wharton School at the University of Pennsylvania.Prady Iyyanki. Mr. Iyyanki has served as our President and Chief Operating Officer since May 2016. From January 2014 to May 2016, heserved as Executive Vice President and Chief Operating Officer. Mr. Iyyanki was a private investor from March 2013 to December 2013. FromApril 2011 to March 2013, Mr. Iyyanki served as Vice President of GE Oil and Gas, a manufacturer of capital equipment and service provider forthe oil and natural gas industry, and from April 2011 to December 2012 he served as President & Chief Executive Officer of the GE Oil and GasTurbo Machinery business. From June 2006 to April 2011, Mr. Iyyanki served as President and Chief Executive Officer of the GE Power andWater Gas Engines business. Mr. Iyyanki holds a B.S. in Mechanical Engineering from Jawaharlal Nehru Technology University and an M.S. inEngineering from South Dakota State University.James W. Harris. Mr. Harris has served as our Executive Vice President and Chief Financial Officer since February 2015. From December2005 to February 2015, Mr. Harris held various titles, the most recent of which was Senior Vice President and Chief Financial Officer. Mr. Harriswas Vice President, Controller of VeriCenter, Inc., a provider of information technology services, and General Manager of its AppSite Hostingservice line from January 2004 through November 2005. Prior to joining VeriCenter, from August 1999 through December 2001, Mr. Harris workedfor Enron Energy Services, Inc., as a Vice President and thereafter served as a consultant to Enron through December 2003. Mr. Harris began hiscareer at Price Waterhouse from January 1985 until February 1994, with his final position being a Senior Tax Manager, and at Baker HughesIncorporated from February 1994 until May 1999 in various positions, including Vice President, Tax and Controller. Mr. Harris currently serves as amember of the board of directors of Oil Patch Group, a privately held company specializing in the rental of drill pipe, living quarters and other rentalequipment for the oil and natural gas industry. Mr. Harris holds a B.S. and Masters of Accounting from Brigham Young University and an M.B.A.from Rice University. Mr. Harris is a certified public accountant.James L. McCulloch. Mr. McCulloch has served as our Executive Vice President, General Counsel and Secretary since May 2016. FromOctober 2010 to May 2016 he served as Senior Vice President, General Counsel and Secretary. Mr. McCulloch was a private investor fromJanuary 2008 until October 2010, and since February 2008 he has also served on the board of directors of Sunland Inc., a privately held pipelineconstruction and services company. In 1983, Mr. McCulloch joined Global Marine Inc., a leading international offshore drilling contractor, asAssistant General Counsel and served in a variety of capacities within the legal department until being named Senior Vice President and GeneralCounsel in 1995. In 2001, Global Marine merged with Santa Fe International Corporation, an international land and offshore drilling contractor, toform GlobalSantaFe Corporation, where Mr. McCulloch continued to serve as29Table of ContentsSenior Vice President and General Counsel until the company's merger with Transocean Inc. in December 2007. Mr. McCulloch holds a B.A. fromTulane University and a J.D. from Tulane University School of Law.Michael D. Danford. Mr. Danford has served as our Senior Vice President - Human Resources since February 2015. Prior to that, Mr. Danfordserved as Vice President - Human Resources from November 2007 to February 2015. Prior to joining Forum and, from August 2007 throughNovember 2007, he worked at Trico Marine Services Inc. as Vice President - Human Resources. From 1997 through July 2007, Mr. Danfordserved as Director of Human Resources and Vice President - Human Resources for Hydril Company. From 1991 to 1997, Mr. Danford served invarious human resources roles for Baker Hughes Incorporated. Prior to joining Baker Hughes Incorporated, from 1990 to 1991, Mr. Danford servedas a recruiter and as an employee relations representative in the human resources department for Compaq Computer. Mr. Danford holds a B.S.degree in Computer Science from the University of Louisiana at Monroe (formerly Northeast Louisiana University).30Table of ContentsPART IIItem 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesOur common stock trades on the NYSE under the trading symbol "FET." The following table sets forth, for each full quarterly period indicated, thehigh and low closing sales prices for our common stock as quoted on the NYSE:Year Ended December 31, 2016 High LowFirst Quarter $13.52 $8.54Second Quarter $19.00 $12.54Third Quarter $19.86 $15.09Fourth Quarter $23.55 $17.10Year Ended December 31, 2015 High LowFirst Quarter $20.95 $15.31Second Quarter $23.26 $19.62Third Quarter $19.30 $12.21Fourth Quarter $15.66 $11.67As of February 24, 2017, there were approximately 67 shareholders of record of our common stock. In calculating the number of shareholders, weconsider clearing agencies and security position listings as one shareholder for each agency or listing.No dividends were declared or issued during 2016 or 2015, and we do not currently have any plans to pay cash dividends in the future. Our creditfacility prohibits us from paying any cash dividends. Our future dividend policy is within the discretion of our Board of Directors and will dependupon various factors, including our results of operations, financial condition, capital requirements, investment opportunities, and other loanagreements. The indenture governing our senior notes also restricts the payment of dividends.Purchase of Equity SecuritiesOur Board of Directors authorized on October 27, 2014, a share repurchase program for the repurchase of outstanding shares of our CommonStock having an aggregate purchase price of up to $150 million. Our credit facility prohibits us from repurchasing shares.The shares of common stock purchased and placed in treasury during the three months ended December 31, 2016 is provided in the table below.15,076 shares were purchased during the three months ended December 31, 2016 from employees in connection with the settlement of income taxand related benefit withholding obligations arising from the vesting of restricted stock grants.Period Total number ofshares purchased(a) Average pricepaid per share Total number of sharespurchased as part ofpublicly announced planor programs Maximum value ofshares that may yet bepurchased under theplan or program(in thousands)October 1, 2016 - October 31, 2016 2,008 $21.13 — $49,752November 1, 2016 - November 30, 2016 41 $18.15 — —December 1, 2016 - December 31, 2016 13,027 $22.05 — —Total 15,076 $21.92 — $49,752Performance GraphThe following graph compares total shareholder return on our common stock with the Standard & Poor’s 500 Stock Index and the Philadelphia OilService Sector Index ("OSX"), an index of oil and natural gas related companies that represents an industry composite of our peers. This graphcovers the period from April 13, 2012, using the closing price for the first day of trading immediately following the effectiveness of our initial publicoffering per SEC regulations (rather than the IPO offering price of $20.00 per share), through December 31, 2016. This comparison assumes the31Table of Contentsinvestment of $100 on April 13, 2012, and the reinvestment of all dividends. The shareholder return set forth is not necessarily indicative of futureperformance.The performance graph above is furnished and not filed for purposes of Section 18 of the Exchange Act and will not be incorporated by referenceinto any registration statement filed under the Securities Act of 1933 (the "Securities Act") unless specifically identified therein as beingincorporated therein by reference. The performance graph is not soliciting material subject to Regulation 14A.Item 6. Selected Financial DataThe following selected historical consolidated financial data should be read in conjunction with Item 7, "Management's Discussion and Analysis ofFinancial Condition and Results of Operations" and our consolidated financial statements and related notes appearing in Item 8 "FinancialStatements and Supplementary Data" of this Annual Report on Form 10-K to fully understand the factors that may affect the comparability of theinformation presented below.The selected historical financial data as of December 31, 2016 and 2015, and for the years ended December 31, 2016, 2015 and 2014 are derivedfrom our audited consolidated financial statements and related notes thereto included herein. The selected historical data as of December 31,2014, 2013 and 2012 and for the years ended December 31, 2013 and 2012 have been derived from our audited consolidated financial statements,which are not included in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of our results to be expected in anyfuture period.32Table of Contents Year ended December 31,(in thousands, except per share information)2016 2015 2014 2013 2012Income Statement Data: Net sales$587,635 $1,073,652 $1,739,717 $1,524,811 $1,414,933Total operating expenses718,411 1,202,199 1,496,843 1,322,569 1,174,053Earnings from equity investment1,824 14,824 25,164 7,312 —Operating income (loss)(128,952) (113,723) 268,038 209,554 240,880Total other expenses9,047 20,600 25,516 23,472 18,085Income (loss) from continuing operations before income taxes(137,999) (134,323) 242,522 186,082 222,795Provision for income tax expense (benefit)(56,051) (14,939) 68,145 56,478 71,265Net income (loss)(81,948) (119,384) 174,377 129,604 151,530Less: Income (loss) attributable to noncontrolling interest30 (31) 12 65 74Net income (loss) attributable to common stockholders(81,978) (119,353) 174,365 129,539 151,456 Weighted average shares outstanding Basic91,226 89,908 92,628 90,697 80,111Diluted91,226 89,908 95,308 94,604 86,937Earnings (loss) per share Basic$(0.90) $(1.33) $1.88 $1.43 $1.89Diluted$(0.90) $(1.33) $1.83 $1.37 $1.74 As of December 31,(in thousands)2016 2015 2014 2013 2012Balance Sheet Data: Cash and cash equivalents$234,422 $109,249 $76,579 $39,582 $41,063Net property, plant and equipment152,212 186,667 189,974 180,292 152,983Total assets1,835,192 1,886,042 2,214,102 2,160,247 1,892,980Long-term debt396,747 396,016 420,484 503,455 400,201Total stockholders’ equity1,235,202 1,257,020 1,395,356 1,330,355 1,161,472 Year ended December 31,(in thousands)2016 2015 2014 2013 2012Other financial data: Net cash provided by operating activities$64,742 $155,913 $269,966 $211,393 $137,941Capital expenditures for property and equipment(16,828) (32,291) (53,792) (60,263) (49,685)Proceeds from sale of property and equipment9,763 1,821 2,718 964 5,051Acquisition of businesses, net of cash acquired(4,072) (60,836) (38,289) (181,718) (139,889)Net cash used in investing activities(11,137) (91,306) (70,691) (289,030) (184,523)Net cash provided by / (used in) financing activities86,195 (26,937) (162,018) 77,054 65,78233Table of Contents Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsThe following discussion and analysis of our financial condition and results of operations should be read in conjunction with "Selected historicalconsolidated financial data" included under Item 6 of this Annual Report on Form 10-K and our financial statements and related notes includedunder Item 8 of this Annual Report on Form 10-K. This discussion contains forward-looking statements based on our current expectations,estimates and projections about our operations and the industry in which we operate. Our actual results may differ materially from thoseanticipated in these forward-looking statements as a result of a variety of risks and uncertainties, including those described in "Risk factors", "—Cautionary note regarding forward-looking statements" and elsewhere in this Annual Report on Form 10-K. We assume no obligation to update anyof these forward-looking statements.OverviewWe are a global oilfield products company, serving the drilling, subsea, completion, production and infrastructure sectors of the oil and natural gasindustry. We design, manufacture and distribute products, and engage in aftermarket services, parts supply and related services that complementour product offering. Our product offering includes a mix of highly engineered capital products and frequently replaced items that are used in theexploration, development, production and transportation of oil and natural gas. Our capital products are directed at: drilling rig equipment for newrigs, upgrades and refurbishment projects; subsea construction and development projects; the placement of production equipment on newproducing wells; pressure pumping equipment; and downstream capital projects. Our engineered systems are critical components used on drillingrigs, for completions or in the course of subsea operations, while our consumable products are used to maintain efficient and safe operations atwell sites in the well construction process, within the supporting infrastructure and at processing centers and refineries. Historically, over 60% ofour revenue is derived from consumable products and activity-based equipment, while the balance is derived from capital products and a smallamount from rental and other services.We seek to design, manufacture and supply reliable products that create value for our diverse customer base, which includes, among others, oiland natural gas operators, land and offshore drilling contractors, oilfield service companies, subsea construction and service companies, andpipeline and refinery operators.Beginning with the first quarter of 2016, we realigned our segments. Several product lines were combined into a new segment, designated as theCompletions segment, in recognition of the expansion in these operations and their significant growth potential. We are reporting our results ofoperations in the following reportable segments: Drilling & Subsea, Completions, and Production & Infrastructure, instead of the original tworeportable segments. Management’s change in the composition of our reportable segments was made in order to align with activity drivers and thecustomers of our product groups, and how management reviews and evaluates operating performance. This change is reflected on a retrospectivebasis in accordance with generally accepted accounting principles in the United States ("GAAP"), with prior years adjusted to reflect the change inreportable segments. The new segments are composed of the following:•Drilling & Subsea segment. This segment designs and manufactures products and provides related services to the drilling and subseaconstruction and services markets. The products and related services consist primarily of: (i) capital equipment and a broad line ofexpendable drilling products consumed in the drilling process; and (ii) subsea capital equipment, specialty components and tooling,products used in subsea pipeline infrastructure, and a broad suite of complementary subsea technical services and rental items. •Completions segment. This segment designs, manufactures and supplies products and provides related services to the well construction,completion, stimulation and intervention markets. The products and related services consist primarily of: (i) well construction casing andcementing equipment, cable protectors used in completions, composite plugs used for zonal isolation in hydraulic fracturing and wirelineflow-control products; and (ii) capital and consumable products sold to the pressure pumping, hydraulic fracturing and flowback servicesmarkets, including hydraulic fracturing pumps, pump consumables and flow iron as well as coiled tubing, wireline cable, and pressurecontrol equipment used in the well completion and intervention service markets.•Production & Infrastructure segment. This segment designs, manufactures and supplies products and provides related equipment andservices for production and infrastructure markets. The products and related services consist primarily of: (i) engineered processsystems, production equipment and related field services, as well as oil and produced water treatment equipment; and (ii) a wide range ofindustrial valves focused on serving upstream, midstream, and downstream oil and natural gas customers.34Table of ContentsMarket ConditionsThe level of demand for our products and services is directly related to activity levels and the capital and operating budgets of our customers,which in turn are influenced heavily by energy prices and the expectation as to future trends in those prices. Energy prices have historically beencyclical in nature, as exemplified by the significant decrease in oil prices beginning in the middle of 2014, and are affected by a wide range offactors. The low energy price environment caused a steep reduction in activity and spending by our customers beginning in 2014. Manyexploration and production companies, especially those with operations in North America or offshore, curtailed operations, reduced the number ofwells being drilled, or chose to defer the completion of wells that had been drilled. The low commodity prices also resulted in a substantialreduction in activity and revenue for energy service companies, resulting in both exploration and production and energy service companiessignificantly reducing their purchases of both capital and consumable equipment from the Company and other equipment manufacturers. Thiswidespread reduction in spending had a negative impact on our financial results and new orders from the second half of 2014 through 2016.Although the probability of any cyclical change in energy prices and the extent and duration of such a change are difficult to predict, there aresigns that the market may be recovering from the recent downturn. The announcement by the Organization of Petroleum Exporting Countries("OPEC") and other unaffiliated countries that their production levels would be capped or reduced has led to a modest increase in oil prices. As aresult, a number of exploration and production companies have announced increases in their capital budgets for 2017 based on a more optimisticassessment of the direction of oil prices in the near to medium term. Should this additional spending materialize and continue, our customers, ledby those active in North American land basins, should see increased activity and require additional consumable and capital equipment from theCompany and other equipment manufacturers. Activity in high cost areas, however, especially offshore and in some international areas, isexpected to lag any recovery. Influenced by the expectation of higher energy prices, our inbound orders increased in the fourth quarter. The paceand strength of a recovery in energy markets and in our results, however, remain uncertain as we enter 2017.The table below shows average crude oil and natural gas prices for West Texas Intermediate crude oil (WTI), United Kingdom Brent crude oil(Brent), and Henry Hub natural gas: 2016 2015 2014Average global oil, $/bbl West Texas Intermediate $43.29 $48.66 $93.21United Kingdom Brent $43.67 $52.32 $98.97 Average North American Natural Gas, $/Mcf Henry Hub $2.52 $2.62 $4.37Average WTI and Brent oil prices were 11% and 17% lower, respectively, in 2016 than 2015. The WTI oil price was $53.75 and $37.13 per barrelon December 31, 2016 and 2015, respectively. Average natural gas prices were 4% lower in 2016 than 2015. Primarily as a result of increasingsupply and insufficient demand growth, crude oil prices began a significant decline in the second half of 2014 and have declined 50% from peakprices in June 2014 to the end of December 2016. The precipitous decline in oil and natural gas prices resulted in a significant decrease inexploration and production activity and spending by our customers, causing us to experience a significant adverse impact on our results ofoperation during that period.35Table of ContentsThe table below shows the average number of active drilling rigs, based on the weekly Baker Hughes Incorporated rig count, operating bygeographic area and drilling for different purposes. 2016 2015 2014Active Rigs by Location United States 509 978 1,862Canada 130 192 379International 955 1,167 1,337Global Active Rigs 1,594 2,337 3,578 Land vs. Offshore Rigs Land 1,348 2,016 3,193Offshore 246 321 385Global Active Rigs 1,594 2,337 3,578 U.S. Commodity Target, Land Oil/Gas 408 750 1,526Gas 100 227 333Unclassified 1 1 3Total U.S. Land Rigs 509 978 1,862 U.S. Well Path, Land Horizontal 400 744 1,273Vertical 60 139 377Directional 49 95 212Total U.S. Active Land Rigs 509 978 1,862As a result of lower oil and natural gas prices, the average U.S. rig count decreased 48% from 2015, while the international rig count and theCanadian rig count decreased 18% and 32%, respectively, from 2015. The U.S. rig count declined 79% from the peak of 1,931 rigs in the thirdquarter of 2014 to the trough of 404 rigs in the second quarter of 2016. Since then the number of working rigs has increased steadily to 658 rigs atthe end of December 2016. A substantial portion of our revenue is impacted by the level of rig activity and the number of wells completed. Whilethe U.S. land rig count has started to recover, it remains low compared to historical norms.The table below shows the amount of total inbound orders by segment for the years ended December 31, 2016, 2015 and 2014:(in millions of dollars) 2016 2015 2014Orders: Drilling & Subsea $216.7 $363.5 $1,002.2Completions 129.3 209.2 373.9Production & Infrastructure 250.8 297.3 470.1Total Orders $596.8 $870.0 $1,846.236Table of ContentsAcquisitionsSubsequent to December 31, 2016, we acquired substantially all of the assets of Cooper Valves, LLC (“Cooper”) as well as 100% of the generalpartnership interests of Innovative Valve Components for total aggregate consideration of $14.5 million. The acquired Cooper brands include theAccuseal® metal seated ball valves engineered to meet Class VI shut off standards for use in severe service applications, as well as a full line ofcast and forged gate, globe, and check valves. Innovative Valve Components, in partnership with Cooper Valves, commercialized critical servicevalves and components for the power generation, mining and oil and natural gas industries. Cooper is included in the Production and Infrastructuresegment.On April 28, 2016, we completed the acquisition of the wholesale completion packers business of Team Oil Tools, Inc. The acquisition includes awide variety of completion and service tools, including retrievable and permanent packers, bridge plugs and accessories which are sold to oilfieldservice providers, packer repair companies and distributors on a global basis, and is included in the Completions segment.On February 2, 2015, we completed the acquisition of J-Mac Tool, Inc. (“J-Mac”) for aggregate consideration of approximately $61.9 million. J-Mac, located in Fort Worth, Texas, manufactures hydraulic fracturing pumps, power ends, fluid ends and other pump accessories. The acquiredbusiness also provides repair and refurbishment services at its main location in Fort Worth and at other service center locations. J-Mac is includedin the Completions segment.On May 1, 2014, we completed the acquisition of Quality Wireline & Cable, Inc. ("Quality") for consideration of $38.3 million. Quality is a Calgary,Alberta based manufacturer of high-performance cased-hole electro-mechanical wireline cables and specialty cables for the oil and natural gasindustry. Quality is included in the Drilling & Subsea segment.None of these transactions included potential future payments contingent on financial performance.There are factors related to the businesses we have acquired that may result in lower net profit margins on a going-forward basis, primarily thefederal income tax status of the legal entity and the level of depreciation and amortization charges arising out of the accounting for the purchase.For additional information regarding our 2016, 2015, and 2014 acquisitions, please read Note 3 of the Notes to the Consolidated FinancialStatements in Part II, Item 8 "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.Evaluation of operationsWe manage our operations through the three business segments described above. We have focused on implementing financial reporting andcontrols at all of our operations to accelerate the availability of critical information necessary to support informed decision making. We use anumber of financial and non-financial measures to routinely analyze and evaluate, on a segment and corporate level, the performance of ourbusiness. As an example of a non-financial measure, we measure our safety by tracking the total recordable incident rate and we consider this asan indication of the quality of our products. Financial measures include the following:Revenue growth. We compare actual revenue achieved each month to the most recent estimate for that month and to the annual plan for themonth established at the beginning of the year. We monitor our revenue to analyze trends in the relative performance of each of our product linesas compared to standard revenue drivers or market metrics applicable to that product. We are particularly interested in identifying positive ornegative trends and investigating to understand the root causes. In addition, we review these metrics on a quarterly basis. We also evaluatechanges in the mix of products sold and the resultant impact on reported gross margins.Gross margin percentage. We define gross margin percentage as our gross margin, or net sales minus cost of sales, divided by our net sales. Ourmanagement continually evaluates our consolidated gross margin percentage and our gross margin percentage by segment to determine how eachsegment is performing. This metric aids management in capital resource allocation and pricing decisions.Selling, general and administrative expenses as a percentage of total revenue. Selling, general and administrative expenses include payroll relatedcosts for sales, marketing, administrative, accounting, information technology, certain engineering and human resources functions; audit, legal andother professional fees; insurance; franchise taxes not based on income; travel and entertainment; advertising and promotions; depreciation andamortization expense; bad debt expense; and other office and administrative related costs. Our management continually evaluates the level of ourselling, general and administrative expenses in relation to our revenue and makes appropriate changes in light of activity levels to preserve andimprove our profitability while meeting the on-going support and regulatory requirements of the business.37Table of ContentsOperating income and operating margin percentage. We define operating income as revenue less cost of goods sold less selling, general andadministrative expenses. We define our operating margin percentage as operating income divided by revenue. These metrics assist managementin evaluating the performance of each segment as a whole, especially to determine whether the amount of administrative burden is appropriate tosupport current business activity levels.Earnings per share. We calculate fully-diluted earnings per share as prescribed under GAAP, that is net income divided by common sharesoutstanding, giving effect for the assumed exercise of all outstanding options and warrants with a strike price less than the average fair value ofthe shares over the period covered for the calculation. There is no dilutive effect for 2016 and 2015 since we are in a net loss position. We believethis measure is important as it reflects the sum total of operating results and all attendant capital decisions, showing in one number the amountearned for the stockholders of our Company.Free cash flow. We define free cash flow as net cash provided by operating activities, less capital expenditures for property and equipment net ofproceeds from sale of property and equipment and other. We believe that this measure is important because it encompasses both profitability andcapital management in evaluating results. Free cash flow represents the business’ contribution in the generation of funds available to pay debtoutstanding, invest in other areas, or return funds to our stockholders.Free cash flow is a non-GAAP financial measure and should not be considered as an alternative to cash provided by operating activities as a cashflow measurement.Factors affecting the comparability of our future results of operations to our historical results of operationsOur future results of operations may not be comparable to our historical results of operations for the periods presented, primarily for the followingreasons:•Since our initial public offering in 2012, we have grown our business both organically and through strategic acquisitions. We have expandedand diversified our product portfolio and business lines with the acquisition of one business in each of 2016, 2015, and 2014. The historicalfinancial data for periods prior to the acquisitions does not include the results of any of the acquired companies for the periods presented and,as such, does not provide an accurate indication of our future results.•As we integrate acquired companies and further implement internal controls, processes and infrastructure to operate in compliance with theregulatory requirements applicable to companies with publicly traded shares, it is likely that we will incur incremental selling, general andadministrative expenses relative to historical periods.Our future results will depend on our ability to efficiently manage our combined operations and execute our business strategy.38Table of ContentsResults of operationsYear ended December 31, 2016 compared with year ended December 31, 2015 Year ended December 31, Favorable / (Unfavorable) 2016 2015 $ %(in thousands of dollars, except per share information) Revenue: Drilling & Subsea$227,872 $487,299 $(259,427) (53.2)%Completions127,432 267,236 (139,804) (52.3)%Production & Infrastructure233,754 320,442 (86,688) (27.1)%Eliminations(1,423) (1,325) (98) *Total revenue$587,635 $1,073,652 (486,017) (45.3)%Cost of sales: Drilling & Subsea$189,132 $359,004 $169,872 47.3 %Completions123,548 212,238 88,690 41.8 %Production & Infrastructure176,643 241,058 64,415 26.7 %Eliminations(1,423) (1,325) 98 *Total cost of sales$487,900 $810,975 $323,075 39.8 %Gross profit: Drilling & Subsea$38,740 $128,295 $(89,555) (69.8)%Completions3,884 54,998 (51,114) (92.9)%Production & Infrastructure57,111 79,384 (22,273) (28.1)%Total gross profit$99,735 $262,677 $(162,942) (62.0)%Selling, general and administrative expenses: Drilling & Subsea$92,329 $121,405 $29,076 23.9 %Completions50,783 58,698 7,915 13.5 %Production & Infrastructure56,456 56,726 270 0.5 %Corporate27,440 28,077 637 2.3 %Total selling, general and administrative expenses$227,008 $264,906 $37,898 14.3 %Operating income (loss): Drilling & Subsea$(53,589) $6,890 $(60,479) *Operating income margin %(23.5)% 1.4% Completions(45,075) 11,124 (56,199) *Operating income margin %(35.4)% 4.2% Production & Infrastructure655 22,658 (22,003) (97.1)%Operating income margin %0.3 % 7.1% Corporate(27,440) (28,077) 637 2.3 %Total segment operating income (loss)$(125,449) $12,595 $(138,044) *Operating income margin %(21.3)% 1.2% Goodwill and Intangible asset impairment— 125,092 125,092 *Transaction expenses865 480 (385) *Loss on sale of assets2,638 746 (1,892) *Loss from operations(128,952) (113,723) (15,229) (13.4)%Interest expense, net27,410 29,945 2,535 8.5 %Other (income) expense, net(21,341) (9,345) 11,996 *Deferred loan cost written off2,978 — (2,978) *Other (income) expense, net9,047 20,600 11,553 56.1 %Loss before income taxes(137,999) (134,323) (3,676) (2.7)%Income tax benefit(56,051) (14,939) 41,112 *Net loss(81,948) (119,384) 37,436 31.4 %Less: Income (loss) attributable to non-controlling interest30 (31) 61 *Loss attributable to common stockholders$(81,978) $(119,353) $37,375 31.3 % Weighted average shares outstanding Basic91,226 89,908 Diluted91,226 89,908 Earnings (loss) per share Basic$(0.90) $(1.33) Diluted$(0.90) $(1.33) * not meaningful 39Table of ContentsRevenueOur revenue for the year ended December 31, 2016 decreased $486.0 million, or 45.3%, to $587.6 million compared to the year endedDecember 31, 2015. For the year ended December 31, 2016, our Drilling & Subsea segment, Completions segment, and Production &Infrastructure segment comprised 38.5%, 21.7% and 39.8% of our total revenue, respectively, compared to 45.3%, 24.9% and 29.8%,respectively, for the year ended December 31, 2015. The revenue changes by operating segment consisted of the following:Drilling & Subsea segment — Revenue decreased $259.4 million, or 53.2%, to $227.9 million during the year ended December 31, 2016 comparedto the year ended December 31, 2015 as a result of decreased oil and natural gas drilling and well completions activity, both onshore and offshore,and pricing pressure. The U.S. average rig count decreased 48% compared to the prior year period resulting in decreased sales of our drillingequipment products. We also recognized lower revenue compared to the prior year period on our subsea products as demand for our remotelyoperated vehicles and associated systems and other offshore products decreased substantially due to reduced investment in offshore projectsglobally.Completions segment — Revenue decreased $139.8 million, or 52.3%, to $127.4 million during the year ended December 31, 2016 compared tothe year ended December 31, 2015. The decrease in revenue was attributable to lower well completions activity globally, including in NorthAmerica, and pricing pressure, leading to lower revenue from our casing and cementing equipment, products sold to pressure pumping serviceproviders and pressure control equipment.Production & Infrastructure segment - Revenue decreased $86.7 million, or 27.1%, to $233.8 million during the year ended December 31, 2016compared to the year ended December 31, 2015. The decrease in revenue was primarily attributable to a decrease in exploration and productionbudgets, which led to pricing pressure and lower sales of our surface production equipment, and, to a lesser extent, lower sales of our valves tothe upstream sector. The demand for our midstream and downstream valves has continued to be more resilient than some of our other productlines.Segment operating income (loss) and segment operating margin percentageSegment operating income (loss) for the year ended December 31, 2016 decreased $138.0 million, to a loss of $125.4 million compared to the yearended December 31, 2015. The operating margin percentage decreased to (21.3)% for the year ended December 31, 2016 from 1.2% for the yearended December 31, 2015. The 2016 results include total charges of $38.3 million related to several facility consolidations and closures, inventorywrite-downs across all product lines attributable to expected continuing lower activity levels, and severance paid to employees under our policy forreductions in force. In 2015, similar charges totaled $63.7 million. The segment operating margin percentage is calculated by dividing segmentoperating income (loss) by revenue. For the year ended December 31, 2016, the adjusted segment operating margin percentage, excludingcharges, decreased to (14.8)% from the 7.1% adjusted operating margin percentage for the year ended December 31, 2015. We believe thatadjusted operating margins excluding the costs described above are useful for assessing operating performance, especially when comparingperiods. The change in adjusted operating margin percentage for each segment, excluding charges, is explained as follows:Drilling & Subsea segment — The operating margin percentage decreased to (23.5)% for the year ended December 31, 2016 from 1.4% for theyear ended December 31, 2015. The year ended December 31, 2016 and 2015 included $12.6 million and $32.1 million, respectively, of inventorywrite-downs due to lower activity levels and reduced pricing of our products, and severance and facility closure costs incurred to further reduce ourcost structure in line with current activity levels. Excluding these charges, the adjusted operating margin percentage decreased to (18.0)%, for theyear ended December 31, 2016, from 8.0% for the year ended December 31, 2015. The main driver for this decrease in operating marginpercentage is the lower activity levels, which have caused a loss of manufacturing scale efficiencies and more intense competition for fewer salesopportunities reducing our prices.Completions segment — The operating margin percentage decreased to (35.4)% for the year ended December 31, 2016 from 4.2% for the yearended December 31, 2015. The year ended December 31, 2016 and 2015 included $21.2 million and $25.2 million, respectively, of inventory write-downs attributable to lower activity levels and reduced pricing of our products, and facility closure costs incurred to reduce our cost structure inline with current market activity levels. Excluding these charges, the adjusted operating margin percentage decreased to (18.8)%, for the yearended December 31, 2016, from 13.6% for the year ended December 31, 2015. The decrease in operating margin percentage is due to reducedoperating leverage on lower volumes and pricing pressure especially on consumable flow equipment sold to pressure pumping service companies.Also impacting margins were lower earnings from our investment in Global Tubing.40Table of ContentsProduction & Infrastructure segment — The operating margin percentage decreased to 0.3% for the year ended December 31, 2016 from 7.1% forthe year ended December 31, 2015. The year ended December 31, 2016 and 2015 included $3.9 million and $5.1 million, respectively, of costsrelated to facility consolidation and severance. Excluding these charges, adjusted operating margin percentage decreased to 1.9% for the yearended December 31, 2016, from 8.7% for the year ended December 31, 2015. The decrease in operating margin percentage was attributable toreduced operating leverage on lower volumes, and pricing pressure on our surface production equipment on lower activity levels. The operatingmargins for our valve products have been more resilient as demand for midstream and downstream valves remains steady.Corporate — Selling, general and administrative expenses for Corporate decreased $0.6 million, or 2.3%, for the year ended December 31, 2016compared to the year ended December 31, 2015, due to lower personnel costs and lower professional fees. Corporate costs include, among otheritems, payroll related costs for general management and management of finance and administration, legal, human resources and informationtechnology, professional fees for legal, accounting and related services, and marketing costs.Other items not included in segment operating income (loss)Several items are not included in segment operating income (loss), but are included in total operating income (loss). These items include:transaction expenses, gains/losses from the sale of assets, and impairment losses of intangible assets and goodwill. Transaction expenses relateto legal and other advisory costs incurred in acquiring businesses, including fees to accomplish an internal legal entity restructuring, and are notconsidered to be part of segment operating income (loss). These costs were $0.9 million and $0.5 million for the years ended December 31, 2016and 2015, respectively. In the year ended December 31, 2016, we recognized a net loss of $2.6 million on sales of assets, primarily including again of $1.7 million from the sale of a plant, a loss of $1.9 million related to an operation in South Africa expected to be sold, and a loss of $2.4million related to one of our Texas facilities sold in fourth quarter of 2016.The 2015 impairment losses for intangible assets and goodwill were $1.9 million and $123.2 million, respectively. The intangible assets that werewritten off related to certain trade names that were no longer in use. Due to the further deterioration of market conditions for our products, thegoodwill impairment test showed that goodwill in our subsea product line was impaired, and based on a valuation of the applicable assets werecorded a charge in the fourth quarter 2015. No impairment losses were recorded on goodwill or indefinite-lived intangible assets for the yearended December 31, 2016. Other income and expenseOther income and expense includes interest expense, and foreign exchange gains and losses. We incurred $27.4 million of interest expense duringthe year ended December 31, 2016, a decrease of $2.5 million from the year ended December 31, 2015 on lower outstanding indebtedness andlower commitment fees on the unused portion of our revolving credit line. The foreign exchange gain was $21.3 million for the year endedDecember 31, 2016, an increase of $12.0 million from the year ended December 31, 2015, and was primarily the result of movements in the Britishpound and the Euro relative to the U.S. dollar. In year ended December 31, 2016, we wrote off $3.0 million of deferred financing costs as a resultof the amendments of our credit facility in the first and fourth quarter of 2016 which reduced the size of our undrawn revolving credit line.TaxesTax expense includes current income taxes expected to be due based on taxable income to be reported during the periods in the variousjurisdictions in which we conduct business, and deferred income taxes based on changes in the tax effect of temporary differences between thebases of assets and liabilities for financial reporting and tax purposes at the beginning and end of the respective periods. The effective tax rate,calculated by dividing total tax expense by income before income taxes, was a benefit of 40.6% and a benefit of 11.1% for the years endedDecember 31, 2016 and 2015, respectively. The effective tax rate for the year ended December 31, 2016 is significantly different than thecomparable period in 2015 primarily due to net operating losses incurred in the United States offset by earnings generated outside the UnitedStates in jurisdictions subject to lower tax rates. In addition, the majority of the goodwill impairment loss in 2015 was not tax deductible. Theeffective tax rate can vary from period to period depending on our relative mix of U.S. and non-U.S. earnings. Excluding the goodwill and intangibleasset impairment and the charges discussed above in the segment operating margin discussion, our effective tax rate would have beenapproximately 22% for the year ended December 31, 2015.41Table of ContentsYear ended December 31, 2015 compared to year ended December 31, 2014 Year ended December 31, Favorable / (Unfavorable) 2015 2014 $ %(in thousands of dollars, except per share information) Revenue: Drilling & Subsea$487,299 $864,320 $(377,021) (43.6)%Completions267,236 441,345 (174,109) (39.4)%Production & Infrastructure320,442 436,271 (115,829) (26.5)%Eliminations(1,325) (2,219) 894 *Total revenue$1,073,652 $1,739,717 (666,065) (38.3)%Cost of sales: Drilling & Subsea$359,004 $580,195 $221,191 38.1 %Completions212,238 279,961 67,723 24.2 %Production & Infrastructure241,058 322,328 81,270 25.2 %Eliminations(1,325) (2,219) (894) *Total cost of sales$810,975 $1,180,265 $369,290 31.3 %Gross profit: Drilling & Subsea$128,295 $284,125 $(155,830) (54.8)%Completions54,998 161,384 (106,386) (65.9)%Production & Infrastructure79,384 113,943 (34,559) (30.3)%Total gross profit$262,677 $559,452 $(296,775) (53.0)%Selling, general and administrative expenses: Drilling & Subsea$121,405 $153,052 $31,647 20.7 %Completions58,698 59,959 1,261 2.1 %Production & Infrastructure56,726 57,795 1,069 1.8 %Corporate28,077 42,015 13,938 33.2 %Total selling, general and administrative expenses$264,906 $312,821 $47,915 15.3 %Operating income: Drilling & Subsea$6,890 $131,072 $(124,182) (94.7)%Operating income margin %1.4% 15.2% Completions11,124 126,590 (115,466) (91.2)%Operating income margin %4.2% 28.7% Production & Infrastructure22,658 56,148 (33,490) (59.6)%Operating income margin %7.1% 12.9% Corporate(28,077) (42,015) 13,938 33.2 %Total segment operating income$12,595 $271,795 (259,200) (95.4)%Operating income margin %1.2% 15.6% Goodwill and Intangible asset impairment125,092 — (125,092) *Transaction expenses480 2,326 1,846 *Loss on sale of assets746 1,431 685 *Income (loss) from operations(113,723) 268,038 (381,761) (142.4)%Interest expense, net29,945 29,847 (98) (0.3)%Other, net(9,345) (4,331) 5,014 *Other (income) expense, net20,600 25,516 4,916 19.3 %Income (loss) before income taxes(134,323) 242,522 (376,845) (155.4)%Income tax expense (benefit)(14,939) 68,145 83,084 121.9 %Net income (loss)(119,384) 174,377 (293,761) (168.5)%Less: Income (loss) attributable to non-controlling interest(31) 12 (43) *Income (loss) attributable to common stockholders$(119,353) $174,365 $(293,718) (168.5)% Weighted average shares outstanding Basic89,908 92,628 Diluted89,908 95,308 Earnings (loss) per share Basic$(1.33) $1.88 Diluted$(1.33) $1.83 * not meaningful 42Table of ContentsRevenueOur revenue for the year ended December 31, 2015 decreased $666.1 million, or 38.3%, to $1,073.7 million compared to the year endedDecember 31, 2014. For the year ended December 31, 2015, our Drilling & Subsea segment, Completions segment, and Production &Infrastructure segment comprised 45.3%, 24.9%% and 29.8% of our total revenue, respectively, compared to 49.6%, 25.3% and 25.1%,respectively, for the year ended December 31, 2014. The revenue changes by operating segment consisted of the following:Drilling & Subsea segment — Revenue decreased $377.0 million, or 43.6%, to $487.3 million during the year ended December 31, 2015 comparedto the year ended December 31, 2014. The decrease is primarily attributable to decreased oil and natural gas drilling activity in North America and,to a lesser extent lower international activity. The U.S. average rig count decreased 48% compared to the prior year period, and the number of rigsworking in the U.S. was down 62% from the beginning to the end of the year, resulting in decreased sales of our drilling equipment. We alsorecognized lower revenue compared to the prior year period on our subsea products , such as ROVs, as investment in offshore oil and natural gasprojects declined.Completions segment — Revenue decreased $174.1 million, or 39.4%, to $267.2 million during the year ended December 31, 2015 compared tothe year ended December 31, 2014. The decrease is primarily attributable to decreased oil and natural gas drilling and well completions activity inNorth America, resulting in decreased sales of our completions products. The decrease in revenue was also due to lower sales of our consumableflow equipment products to pressure pumping service providers, offset by the addition of J-Mac sales from the first quarter 2015 acquisition.Production & Infrastructure segment — Revenue decreased $115.8 million, or 26.5%, to $320.4 million during the year ended December 31, 2015compared to the year ended December 31, 2014. The decrease in revenue was due to lower sales of our surface production equipment toexploration and production operators. Our customers, exploration and production operators, completed fewer wells in the current year resulting inlower spending with their suppliers, including us. Unlike our other product lines, Valve Solutions derives a significant portion of its revenue from themidstream, downstream and processing sectors, which have not suffered the same decline in activity experienced as the upstream sector.Revenue for the product line decreased, primarily due to reduced sales in the upstream sector including the slower Canadian market activity, andfewer large project orders in the downstream sector. However, the decrease was less than that experienced by our other product lines.Segment operating income and segment operating margin percentageSegment operating income for the year ended December 31, 2015 decreased $259.2 million, or 95.4%, to $12.6 million compared to the yearended December 31, 2014. The 2015 results include total charges of $63.7 million related to several facility consolidations and closures, inventorywrite-downs across all product lines attributable to expected continuing lower activity levels, and severance paid to employees under our policy forreductions in force. In 2014, similar charges totaled $3.8 million. The segment operating margin percentage is calculated by dividing segmentoperating income by revenue. For the year ended December 31, 2015, the adjusted segment operating margin percentage, excluding charges,decreased to 7.1% from 15.8% adjusted operating margin percentage for the year ended December 31, 2014. We believe that adjusted operatingmargins excluding the costs described above are useful for assessing operating performance, especially when comparing periods. The change inadjusted operating margin percentage for each segment, excluding charges, is explained as follows:Drilling & Subsea segment — The operating margin percentage decreased to 1.4% for the year ended December 31, 2015 from 15.2% for the yearended December 31, 2014. The charges described above that were excluded from this segment’s adjusted operating margin for 2015 and 2014,respectively, were approximately $32.1 million and $1.6 million. Excluding these charges, the adjusted operating margin percentage decreased to8.0%, for the year ended December 31, 2015, from 15.3% for the year ended December 31, 2014. The primary reasons for the decrease inadjusted operating margin percentage are lower activity levels, causing a loss of manufacturing scale efficiencies, and more intense competitionfor fewer sales opportunities which reduces prices charged to the customer.Completions segment — The operating margin percentage decreased to 4.2% for the year ended December 31, 2015 from 28.7% for the yearended December 31, 2014. The charges described above that were excluded from this segment’s adjusted operating margin for 2015 and 2014were approximately $25.2 million and $0.1 million, respectively. Excluding these charges, the adjusted operating margin percentage decreased to13.6%, for the year ended December 31, 2015, from 28.7% for the year ended December 31, 2014. The overall decrease in operating marginpercentage is due to reduced operating leverage on lower volumes and pricing pressure especially on consumable flow equipment sold to pressurepumping service companies. Also impacting margins were lower earnings from our investment in Global Tubing.43Table of ContentsProduction & Infrastructure segment — Operating margin percentage decreased to 7.1% for the year ended December 31, 2015, from 12.9% forthe year ended December 31, 2014. The charges described above that were excluded from this segment’s adjusted operating margin for 2015 and2014, respectively, were approximately $5.1 million and $0.4 million. Excluding these charges, adjusted operating margin percentage decreased to8.7% for the year ended December 31, 2015, from 13.0% for the year ended December 31, 2014. The decrease in adjusted operating marginpercentage was attributable to higher competition for fewer sales on lower activity levels, and reduced operating leverage on lower volumes.Corporate — Selling, general and administrative expenses for Corporate decreased $13.9 million, or 33.2%, for the year ended December 31, 2015compared to the year ended December 31, 2014 due to lower personnel costs, including reduced bonus accruals, and lower professional fees.Corporate costs include, among other items, payroll related costs for general management and management of finance and administration, legal,human resources and information technology; professional fees for legal, accounting and related services; and marketing costs.Other items not included in segment operating incomeSeveral items are not included in segment operating income, but are included in total operating income (loss). These items include: transactionexpenses, gains/losses from the sale of assets, and impairment losses of intangible assets and goodwill. Transaction expenses relate to legal andother advisory costs incurred in acquiring businesses, including fees to accomplish an internal legal entity restructuring, and are not considered tobe part of segment operating income. These costs were $0.5 million and $2.3 million for the years ended December 31, 2015 and 2014,respectively. In the year ended December 31, 2015, we recognized a net loss of $0.7 million on sales of assets, primarily related to plantconsolidations.The 2015 impairment losses for intangible assets and goodwill were $1.9 million and $123.2 million, respectively. The intangible assets that werewritten off related to certain trade names that were no longer in use. Due to the further deterioration of market conditions for our products, thegoodwill impairment test showed that goodwill in our subsea product line was impaired, and based on a valuation of the applicable assets werecorded a charge in the fourth quarter 2015. No impairment losses were recorded on goodwill or indefinite-lived intangible assets for the yearended December 31, 2014. Other income and expenseOther income and expense includes interest expense, and foreign exchange gains and losses. We incurred $29.9 million of interest expense duringthe year ended December 31, 2015, a increase of $0.1 million from the year ended December 31, 2014. The change in foreign exchange gains orlosses is primarily the result of movements in the British pound and the Euro relative to the U.S. dollar.TaxesTax expense includes current income taxes expected to be due based on taxable income to be reported during the periods in the variousjurisdictions in which we conduct business, and deferred income taxes based on changes in the tax effect of temporary differences between thebases of assets and liabilities for financial reporting and tax purposes at the beginning and end of the respective periods. The effective tax rate,calculated by dividing total tax expense by income before income taxes, was a benefit of 11.1% and a provision of 28.1% for the years endedDecember 31, 2015 and 2014, respectively. The effective tax rate for the year ended December 31, 2015 is significantly different than thecomparable period in 2014 primarily due to a higher proportion of our earnings being generated outside the United States in jurisdictions subject tolower tax rates and because the majority of the goodwill impairment loss was not tax deductible. The effective tax rate can vary from period toperiod depending on our relative mix of U.S. and non-U.S. earnings. Excluding the goodwill and intangible asset impairment and the chargesdiscussed above in the segment operating margin discussion, our effective tax rate would have been approximately 22% for the year endedDecember 31, 2015.Liquidity and capital resourcesSources and uses of liquidityOur internal sources of liquidity are cash on hand and cash flows from operations, while our primary external sources have included our creditfacility described below, trade credit, and the issuance of our senior notes described below. Our primary uses of capital have been for acquisitions,ongoing maintenance and growth capital expenditures,44Table of Contentsinventories and sales on credit to our customers. We continually monitor potential capital sources, including equity and debt financing, to meet ourinvestment and target liquidity requirements. Our future success and growth will be highly dependent on our ability to continue to access outsidesources of capital.At December 31, 2016, we had cash and cash equivalents of $234.4 million and total debt of $396.9 million. We believe that cash on hand andcash generated from operations will be sufficient to fund operations, working capital needs, capital expenditure requirements and financingobligations for the foreseeable future. We intend to elect to carry back our 2016 U.S. net operating loss to recover taxes paid in earlier periods, andwe expect to receive a tax refund of approximately $33 million in the third quarter 2017.Our total 2017 capital expenditure budget is approximately $30.0 million, which consists of, among other items, investments in maintaining certainmanufacturing facilities, replacing end of life machinery and equipment, maintaining our rental fleet of subsea equipment, continuing theimplementation of our enterprise resource planning solution globally, and general capital expenditures. This budget does not include expendituresfor potential business acquisitions.The amount of capital expenditures incurred in 2016 was $16.8 million. These expenditures were paid for from internally generated funds. Webelieve cash flows from operations should be sufficient to fund our capital requirements for 2017.Although we do not budget for acquisitions, pursuing growth through acquisitions is a significant part of our business strategy. We expanded anddiversified our product portfolio with the acquisition of one business in the second quarter 2016 for total consideration of $3.0 million, one businessin the first quarter 2015 for total consideration (net of cash acquired) of $61.9 million, and one business in the second quarter 2014 for totalconsideration (net of cash acquired) of $38.3 million. Subsequent to December 31, 2016, we acquired one business for total consideration of $14.5million. We used cash on hand and borrowings under our credit facility to finance these acquisitions. We continue to actively review acquisitionopportunities on an ongoing basis, and we may fund future acquisitions with cash and/or equity. Our ability to make significant additionalacquisitions for cash may require us to obtain additional equity or debt financing, which we may not be able to obtain on terms acceptable to us orat all.In October 2014, our Board of Directors approved a share repurchase program for the repurchase of outstanding shares of our common stock withan aggregate purchase price of up to $150 million. We have purchased approximately 4.5 million shares of stock under this program for aggregateconsideration of approximately $100.2 million. Remaining authorization under this program is $49.8 million. However, our credit facility prohibits usfrom repurchasing shares.Our cash flows for the years ended December 31, 2016, 2015 and 2014 are presented below (in millions): Year ended December 31, 2016 2015 2014Net cash provided by operating activities$64.7 $155.9 $270.0Net cash used in investing activities(11.1) (91.3) (70.7)Net cash provided by (used in) financing activities86.2 (26.9) (162.0)Net increase in cash and cash equivalents125.2 32.7 37.0Free cash flow, before acquisitions$57.7 $125.4 $218.9Free cash flow, a non-GAAP financial measure, is defined as net cash provided by operating activities, less capital expenditures for property andequipment net of proceeds from sale of property and equipment and other, plus the payment of contingent consideration included in operatingactivities. Management believes free cash flow is an important measure because it encompasses both profitability and capital management inevaluating results. Free cash flow should not be considered an alternative to net cash provided by operating activities as a cash flowmeasurement. A reconciliation of cash flow from operating activities to free cash flow, before acquisitions, is as follows (in millions): Year ended December 31, 2016 2015 2014Cash flow from operating activities$64.7 $155.9 $270.0Capital expenditures for property and equipment(16.8) (32.3) (53.8)Proceeds from sale of property and equipment9.8 1.8 2.7Free cash flow, before acquisitions$57.7 $125.4 $218.945Table of ContentsCash flows provided by operating activitiesNet cash provided by operating activities was $64.7 million and $155.9 million for the years ended December 31, 2016 and 2015, respectively.Cash provided by operations decreased primarily as a result of the change in earnings, slightly offset by the positive cash flow resulting fromchanges in working capital, such as inventory, compared to the year ended December 31, 2015.Net cash provided by operating activities was $155.9 million and $270.0 million for the years ended December 31, 2015 and 2014, respectively.Cash provided by operations decreased primarily as a result of lower earnings, offset by the positive cash flow resulting from changes in workingcapital, such as accounts receivable, compared to the year ended December 31, 2014.Our operating cash flows are sensitive to a number of variables, the most significant of which is the level of drilling and production activity for oiland natural gas reserves. These activity levels are in turn impacted by the volatility of oil and natural gas prices, regional and worldwide economicactivity and its effect on demand for hydrocarbons, weather, infrastructure capacity to reach markets and other variable factors. These factors arebeyond our control and are difficult to predict.Cash flows used in investing activitiesNet cash used in investing activities was $11.1 million and $91.3 million for the years ended December 31, 2016 and 2015, respectively, a $80.2million decrease. The decrease was primarily due to consideration of $4.1 million paid primarily for an acquisition during the year endedDecember 31, 2016 compared to consideration of $60.8 million paid for an acquisition during the year ended December 31, 2015. A lowerinvestment in property and equipment of $16.8 million was made during the year ended December 31, 2016 compared to an investment of $32.3million during the year ended December 31, 2015. The proceeds from the sale of business and properties was $9.8 million during the year endedDecember 31, 2016, compared to $1.8 million during the year ended December 31, 2015.Net cash used in investing activities was $91.3 million and $70.7 million for the years ended December 31, 2015 and 2014, respectively, a $20.6million increase. The increase was primarily due to consideration of $60.8 million paid for an acquisition during the year ended December 31, 2015compared to consideration of $38.3 million paid for an acquisition during the year ended December 31, 2014. A lower investment in property andequipment of $32.3 million was made during the year ended December 31, 2015 compared to an investment of $53.8 million during the year endedDecember 31, 2014. The proceeds from the sale of business and properties was $1.8 million during the year ended December 31, 2015, comparedto $12.2 million during the year ended December 31, 2014. In addition, there was no return of investment in our unconsolidated subsidiary duringthe year ended December 31, 2015, compared to $9.2 million during the year ended December 31, 2014.Other than capital required for acquisitions, we expect to fund all maintenance and other growth capital expenditures from our current cash onhand, and from internally generated funds.Cash flows provided by (used in) financing activitiesNet cash provided by financing activities was $86.2 million for the year ended December 31, 2016 and was primarily due to the equity offeringproceeds of $85.5 million for the years ended December 31, 2016.Net cash used in financing activities was $26.9 million for the year ended December 31, 2015 and was primarily due to the net pay down of debt of$25.8 million.Net cash used in financing activities was $162.0 million for the year ended December 31, 2014 and was primarily due to the repurchase of ourstock for $96.6 million and the net pay down of long-term debt of $84.2 million .Senior Notes Due 2021In October 2013, we issued $300.0 million of 6.25% senior unsecured notes due 2021 at par, and in November 2013 we issued an additional$100.0 million aggregate principal amount of the notes at 103.25% of par, plus accrued interest from October 2, 2013 (the "Senior Notes"). TheSenior Notes bear interest at a rate of 6.25% per annum, payable on April 1 and October 1 of each year, and mature on October 1, 2021. Netproceeds from the issuances of approximately $394.0 million, after deducting initial purchasers' discounts and offering expenses and excludingaccrued interest paid by the purchasers, were used for the repayment of the then-outstanding term loan balance and a portion of the revolvingcredit facility balance.The terms of the Senior Notes are governed by the indenture, dated October 2, 2013 (the “Indenture”), by and among us, the guarantors namedtherein and Wells Fargo Bank, National Association, as trustee (the “Trustee”). The Senior Notes are senior unsecured obligations, are guaranteedon a senior unsecured basis by our subsidiaries that guarantee46Table of Contentsour credit facility and rank junior to, among other indebtedness, the credit facility to the extent of the value of the collateral securing the creditfacility. The Senior Notes contain customary covenants including some limitations and restrictions on our ability to pay dividends on, purchase orredeem our common stock or purchase or redeem our subordinated debt; make certain investments; incur or guarantee additional indebtedness orissue certain types of equity securities; create certain liens, sell assets, including equity interests in our restricted subsidiaries; redeem or prepaysubordinated debt; restrict dividends or other payments of our restricted subsidiaries; consolidate, merge or transfer all or substantially all of ourassets; engage in transactions with affiliates; and create unrestricted subsidiaries. Many of these restrictions will terminate if the Senior Notesbecome rated investment grade. The Indenture also contains customary events of default, including nonpayment, breach of covenants in theIndenture, payment defaults or acceleration of other indebtedness, failure to pay certain judgments and certain events of bankruptcy andinsolvency. We are required to offer to repurchase the Senior Notes in connection with specified change in control events or with excess proceedsof asset sales not applied for permitted purposes.We may redeem the Senior Notes due 2021:•beginning on October 1, 2016 at a redemption price of 104.688% of their principal amount plus accrued and unpaid interest and additionalinterest, if any; then•at a redemption price of 103.125% of their principal amount plus accrued and unpaid interest and additional interest, if any, for the twelve-month period beginning October 1, 2017; then•at a redemption price of 101.563% of their principal amount plus accrued and unpaid interest and additional interest, if any, for the twelve-month period beginning October 1, 2018; and then•at a redemption price of 100.000% of their principal amount plus accrued interest and unpaid interest and additional interest, if any,beginning on October 1, 2019.Credit FacilityOn February 25, 2016, we amended our credit facility with Wells Fargo Bank, National Association, as administrative agent, and several financialinstitutions as lenders (the “Credit Facility”) to reduce lender commitments to $200.0 million. On December 12, 2016, we further amended theCredit Facility (such further amendment, the “Amended Credit Facility”), to, among other things, reduce revolving credit line commitments from$200.0 million to $140.0 million, including the previously existing sublimits for up to $25.0 million available for letters of credit and up to $10.0million in swingline loans. As of December 31, 2016, we had no borrowings outstanding under our Amended Credit Facility, $17.0 million ofoutstanding letters of credit, and the capacity to borrow an additional $103.7 million under the Amended Credit Facility. Our Amended CreditFacility matures in November 2018 and, subject to certain limitations, lender commitments may be increased by an additional $150.0 million. Ourborrowing capacity under the Amended Credit Facility could be reduced or eliminated, depending on our future EBITDA. Weighted average interestrates under the Amended Credit Facility for the twelve months ended December 31, 2016 and 2015 were approximately 3.00% and 2.00%,respectively. Availability is subject to a borrowing base calculated by reference to eligible accounts receivable in the United States, UnitedKingdom and Canada, eligible inventory in the United States, and cash on hand.The Amended Credit Facility contains various covenants that, among other things, limit our ability to incur additional indebtedness, grant certainliens, make certain loans and investments, make distributions, enter into mergers or acquisitions unless certain conditions are satisfied, enter intohedging transactions, change our lines of business, prepay certain indebtedness, enter into certain affiliate transactions or engage in certain assetdispositions. The Amended Credit Facility also limits our ability to incur additional indebtedness with certain exceptions, including the ability toincur up to $150.0 million of additional unsecured debt, $10.0 million of capital leases, $30.0 million of foreign overdraft lines, $10.0 million ofletters of credit outside the facility, and $50.0 million of other debt.The Amended Credit Facility’s financial covenants, among other things, require us, on a consolidated basis, to maintain specified financial ratiosor conditions. We were in compliance with all financial covenants under the Amended Credit Facility at December 31, 2016. We anticipate that wewill continue to be in compliance with the Amended Credit Facility for the next twelve months. The Amended Credit Facility’s financial covenantsare summarized as follows:•Senior secured debt to adjusted EBITDA of not more than 4.50 to 1.0 for each fiscal quarter through December 31, 2017 and not more than3.50 to 1.0 for each fiscal quarter ending thereafter through the termination of the Amended Credit Facility. For purposes of calculation ofsenior secured debt to adjusted EBITDA, the Amended Credit Facility provides for netting of certain cash and cash equivalents against seniorsecured debt for each fiscal quarter through December 31, 2017; and47Table of Contents•A fixed charge coverage ratio of not less than 1.25 to 1.0. This ratio is measured as EBITDA minus maintenance capital expenditures minustaxes paid in cash divided by scheduled principal and interest payments. The fixed charge coverage ratio is tested only if availability under theAmended Credit Facility falls below certain levels.Under the Amended Credit Facility, EBITDA is defined to generally exclude the effect of non-cash items, and to give pro forma effect toacquisitions and non-ordinary course asset sales (with adjustments to EBITDA of the acquired businesses or related to the sold assets to bemade in accordance with the guidelines for pro forma presentations set forth by the SEC or in a manner otherwise reasonably acceptable to theAdministrative Agent under the Amended Credit Facility). The EBITDA of Global Tubing is excluded until such time as it is distributed as cash tothe Company.We have the ability to elect the interest rate applicable to borrowings under the Amended Credit Facility. Interest under the Amended Credit Facilitymay be determined by reference to (1) the London interbank offered rate, or LIBOR, plus an applicable margin which ranges from 3.0% to 4.0% perannum or (2) the Adjusted Base Rate plus an applicable margin which ranges from 0.00% to 1.50% per annum, in each case with the applicablemargin depending upon availability under the Amended Credit Facility. The Adjusted Base Rate is equal to the highest of (1) the Federal FundsRate, as published by the Federal Reserve Bank of New York, plus one half of 1.0%, (2) the prime rate of Wells Fargo Bank, National Association,as established from time to time at its principal U.S. office and (3) daily LIBOR for an interest period of one-month plus 1.0%.Interest is payable quarterly for base rate loans and at the end of each interest period for LIBOR loans, except that if the interest period for aLIBOR loan is longer than three months, interest is paid at the end of each three-month period.All of the obligations under the Amended Credit Facility are secured by first priority liens (subject to permitted liens) on substantially all of theassets of the Company and its wholly-owned domestic restricted subsidiaries, with exceptions for real property and certain other assets.Additionally, all of the obligations under the Amended Credit Facility are guaranteed by the wholly-owned domestic restricted subsidiaries of theCompany.If an event of default exists under the Amended Credit Facility, lenders holding greater than 50% of the aggregate outstanding loans and letter ofcredit obligations and unfunded commitments have the right to accelerate the maturity of the obligations outstanding under the Amended CreditFacility and exercise other rights and remedies. Obligations outstanding under the Amended Credit Facility, however, will be automaticallyaccelerated upon an event of default arising from a bankruptcy or insolvency event. Each of the following constitutes an event of default under theAmended Credit Facility:•Failure to pay any principal when due or any interest, fees or other amount within certain grace periods;•Representations and warranties in the Amended Credit Facility or other loan documents being incorrect or misleading in any materialrespect;•Failure to perform or otherwise comply with the covenants in the Amended Credit Facility or other loan documents, subject, in certaininstances, to grace periods;•Impairment of security under the loan documents affecting collateral having a fair market value in excess of $25 million;•The actual or asserted invalidity of any material provisions of the guarantees of the indebtedness under the Amended Credit Facility;•Default by us or our restricted subsidiaries in the payment of any other indebtedness with a principal amount in excess of $25 million, anydefault in the performance of any obligation or condition with respect to such indebtedness beyond the applicable grace period if the effectof the default is to permit or cause the acceleration of the indebtedness, or such indebtedness will be declared due and payable prior to itsscheduled maturity;•Bankruptcy or insolvency events involving us or our restricted subsidiaries;•The entry, and failure to pay, of one or more adverse judgments in excess of $25 million, upon which enforcement proceedings arecommenced or that are not stayed pending appeal; and•The occurrence of a change in control (as defined in the Amended Credit Facility).The Amended Credit Facility also provides for a commitment fee in the amount of 0.375% per annum on the unused portion of commitments.Off-balance sheet arrangementsAs of December 31, 2016, we had no off-balance sheet instruments or financial arrangements, other than operating leases and letters of creditentered into in the ordinary course of business.48Table of ContentsContractual obligationsOur debt, lease and financial obligations as of December 31, 2016 will mature and become due and payable according to the following table (inthousands): 2017 2018 2019 2020 2021 After 2021 TotalSenior notes due October 2021 (1) $25,000 $25,000 $25,000 $25,000 $418,750 $— $518,750Senior secured credit facility — — — — — — —Other debt 124 82 — — — — 206Operating leases 15,455 12,526 10,939 8,988 7,858 10,253 66,019Letters of credit 13,585 3,282 136 — — — 17,003Pension 343 313 311 323 317 6,530 8,137Total $54,507 $41,203 $36,386 $34,311 $426,925 $16,783 $610,115(1) Includes 5 years of interest on $400 million of senior notes at 6.25% that become due in 2021.As discussed in Note 9 of the Consolidated Financial Statements, as of December 31, 2016 the Company has approximately $14.2 million ofliabilities associated with uncertain tax positions in the various jurisdictions in which the Company conducts business. Due to the uncertain andcomplex application of the tax regulations, combined with the difficulty in predicting when tax audits throughout the world may be concluded, theCompany cannot make precise estimates of the timing of cash outflows relating to these liabilities. Accordingly, liabilities associated withuncertain tax positions have been excluded from the contractual obligations table above.InflationGlobal inflation has been relatively low in recent years and did not have a material impact on our results of operations during 2016, 2015 or 2014.Although the impact of inflation has been insignificant in recent years, it is still a factor in the global economy and we tend to experienceinflationary pressure on the cost of raw materials and components used in our products.Critical accounting policies and estimatesThe discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which havebeen prepared in accordance with GAAP. The preparation of our financial statements requires us to make estimates and assumptions that affectthe reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Certain accountingpolicies involve judgments and uncertainties to such an extent that there is a reasonable likelihood that materially different amounts could havebeen reported under different conditions, or if different assumptions had been used. We evaluate our estimates and assumptions on a regularbasis. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances,the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from othersources. Actual results may differ from these estimates and assumptions used in preparation of our consolidated financial statements. We provideexpanded discussion of our most critical accounting policies, estimates and judgments below. We believe that these accounting policies reflectour more significant estimates and assumptions used in preparation of our consolidated financial statements.Revenue recognitionThe substantial majority of our revenue is recognized when the associated goods are shipped and title passes to the customer or when serviceshave been rendered, as long as all of the criteria for recognition described in Note 2 of the Notes to the Consolidated Financial Statements in PartII, Item 8 "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K have been met. The only revenue recognitioncriteria requiring judgment on these sales is assurance of collectability. We carefully evaluate creditworthiness of our customers before extendingpayment terms other than cash upfront, and historically we have not incurred significant losses for bad debt.Revenue generated from long-term contracts, typically longer than six months in duration, is recognized on the percentage-of-completion methodof accounting. Approximately 9% of our 2016 revenue was accounted for on this basis. There are significant estimates and judgments involved inrecognizing revenue over the term of the contract. For that portion of our business accounted for on the percentage-of-completion method, wegenerally recognize revenue and cost of goods sold each period based upon the advancement of the work-in-progress. The percentage complete49Table of Contentsis determined based on the ratio of costs incurred to date to total estimated costs for the project. The percentage-of-completion method requiresmanagement to calculate reasonably dependable estimates of progress towards completion and total contract costs. Each period these long-termcontracts are reevaluated and may result in upward or downward revisions in estimated total costs, which are accounted for in the period of thechange to reflect a catch up adjustment for the cumulative impact from inception of the contract to date in the period of the revision. Wheneverrevisions of estimated contract costs and contract value indicates that the contract costs will exceed estimated revenue, thus creating a loss, aprovision for the total estimated loss is recorded in that period.Revenue from the rental of equipment or providing of services is recognized over the period when the asset is rented or services are rendered andcollectability is reasonably assured. Rates for asset rental and service provision are priced on a per day, per man hour, or similar basis. There aretypically delays in receiving some field tickets reporting utilization of equipment or personnel requiring us to make estimates for revenuerecognition in the period. In the following period, these estimates are adjusted to actual field tickets received late.Share-based compensationWe account for awards of share-based compensation at fair value on the date granted to employees and recognize the compensation expense inthe financial statements over the requisite service period. Fair value of the share-based compensation was measured using the fair value of thecommon stock for restricted stock and restricted stock units, the Black-Scholes model for most of the outstanding options, and a lattice model forperformance share units. These models require assumptions and estimates for inputs, especially the estimate of the volatility in the value of theunderlying share price, that affect the resultant values and hence the amount of compensation expense recognized.InventoriesInventory, consisting of finished goods and materials and supplies held for resale, is carried at the lower of cost or market. We evaluate ourinventories, based on an analysis of stocking levels, historical sales experience and future sales forecasts, to determine obsolete, slow-movingand excess inventory. While we have policies for calculating and recording reserves against inventory carrying values, we exercise judgment inestablishing and applying these policies.Business combinations, goodwill and other intangible assetsGoodwill acquired in connection with business combinations represents the excess of consideration over the fair value of net assets acquired.Certain assumptions and estimates are employed in evaluating the fair value of assets acquired and liabilities assumed. These estimates may beaffected by factors such as changing market conditions, technological advances in the oil and natural gas industry or changes in regulationsgoverning that industry. The most significant assumptions requiring judgment involve identifying and estimating the fair value of intangible assetsand the associated useful lives for establishing amortization periods. To finalize purchase accounting for significant acquisitions, we utilize theservices of independent valuation specialists to assist in the determination of the fair value of acquired intangible assets.For goodwill and intangible assets with indefinite lives, an assessment for impairment is performed annually or when there is an indication animpairment may have occurred. We typically complete our annual impairment test for goodwill and other indefinite-lived intangibles using anassessment date of October 1. Goodwill is reviewed for impairment by comparing the carrying value of each of our six 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 discountedcash flow approach. We selected this valuation approach because we believe it, combined with our best judgment regarding underlyingassumptions and estimates, provides the best estimate of fair value for each of our reporting units. Determining the fair value of a reporting unitrequires the use of estimates and assumptions. Such estimates and assumptions include revenue growth rates, future operating margins, theweighted average cost of capital, a terminal growth value, and future market conditions, among others. We believe that the estimates andassumptions used in our impairment assessments are reasonable. If the reporting unit’s carrying value is greater than its calculated fair value, asecond step is performed whereby the implied fair value of goodwill is estimated by allocating the fair value of the reporting unit in a hypotheticalpurchase price allocation analysis. We recognize a goodwill impairment charge for the amount by which the carrying value of goodwill exceeds itsreassessed fair value.At October 1, 2016, we performed our annual impairment test on each of our reporting units and concluded that there had been no impairmentbecause the estimated fair value of each of those reporting units exceeded its carrying value. As such, no impairment losses were recorded ongoodwill for the year ended December 31, 2016. If the market conditions do not improve further, however, we may have additional impairmentcharges in our Subsea reporting units in the future.For the year ended December 31, 2015, we recorded $123.2 million of impairment losses for our Subsea reporting unit for the year endedDecember 31, 2015.50Table of ContentsNo impairment losses were recorded on goodwill for the year ended December 31, 2014.Intangible assets with definite lives are tested for impairment whenever events or changes in circumstances indicate that their carrying amountmay not be recoverable. In the fourth quarter of 2015, an impairment loss of $1.9 million related to certain trade names that were no longer in usewas recorded. No impairments to intangible assets were recorded in 2016 and 2014.Income taxesWe follow the liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are determined basedupon temporary differences between the carrying amounts and tax bases of our assets and liabilities at the balance sheet date, and are measuredusing enacted tax rates and laws that will be in effect when the differences are expected to reverse. We record a valuation allowance whenevermanagement believes that it is more likely than not that any deferred tax asset will not be realized. We must apply judgment in assessing therealizability of deferred tax assets, including estimating our future taxable income, to predict whether a future cash tax reduction will be realizedfrom the deferred tax asset. Any changes in the valuation allowance due to changes in circumstances and estimates are recognized in income taxexpense in the period the change occurs.The accounting guidance for income taxes requires that we recognize the financial statement benefit of a tax position only after determining thatthe relevant tax authority would more likely than not sustain the position following an audit. If a tax position meets the "more likely than not"recognition criteria, the accounting guidance requires the tax position be measured at the largest amount of benefit greater than 50% likely of beingrealized upon ultimate settlement. If management determines that likelihood of sustaining the realization of the tax benefit is less than or equal to50%, then the tax benefit is not recognized in the financial statements.We have operations in countries other than the United States. Consequently, we are subject to the jurisdiction of a number of taxing authorities.The final determination of tax liabilities involves the interpretation of local tax laws, tax treaties, and related authorities in each jurisdiction.Changes in the operating environment, including changes in tax law or interpretation of tax law and currency repatriation controls, could impact thedetermination of our tax liabilities for a given tax year.Property and equipmentProperty and equipment is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method based on theestimated useful lives of assets, generally 3 to 30 years. We have established standard lives for certain classes of assets.We review long-lived assets for potential impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. In performing the review for impairment, future cash flows expected to result from the use of the asset and itseventual disposal are estimated. If the undiscounted future cash flows are less than the carrying amount of the assets, there is an indication thatthe asset may be impaired. The amount of the impairment is measured as the difference between the carrying value and the estimated fair valueof the asset. The fair value is determined either through the use of an external valuation, or by means of an analysis of discounted future cashflows based on expected utilization. The impairment loss recognized represents the excess of the assets carrying value as compared to itsestimated fair value.Recognition of provisions for contingenciesIn the ordinary course of business, we are subject to various claims, suits and complaints. We, in consultation with internal and external advisors,will provide for a contingent loss in the consolidated financial statements if it is probable that a liability has been incurred at the date of theconsolidated financial statements and the amount can be reasonably estimated. If it is determined that the reasonable estimate of the loss is arange and that there is no best estimate within the range, provision will be made for the lower amount of the range. Legal costs are expensed asincurred.An assessment is made of the areas where potential claims may arise under the contract warranty clauses. Where a specific risk is identified andthe potential for a claim is assessed as probable and can be reasonably estimated, an appropriate warranty provision is recorded. Warrantyprovisions are eliminated at the end of the warranty period except where warranty claims are still outstanding. The liability for product warranty isincluded in other accrued liabilities on the consolidated balance sheets.Recent accounting pronouncementsIn November 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-18 Statement ofCash Flows (Topic 230) - Restricted Cash a consensus of the FASB Emerging Issues Task Force. This new guidance requires that a statement ofcash flows explain the change during the period in the total of51Table of Contentscash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generallydescribed as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for fiscal years beginning after December15, 2018, and interim periods within fiscal years beginning after December 15, 2019 and is not expected to have a material impact on ourconsolidated financial statements.In October 2016, the FASB issued ASU No. 2016-16 Income Tax (Topic 740) - Intra-Entity Transfers of Assets Other Than Inventory. CurrentGAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outsideparty. This new guidance eliminates this exception and requires an entity to recognize the income tax consequences of an intra-entity transfer ofan asset other than inventory when the transfer occurs. ASU 2016-16 is effective for annual reporting periods beginning after December 15, 2017,including interim reporting periods within those annual reporting periods, and should be applied on a modified retrospective basis through acumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The ASU is not expected to have amaterial impact on our consolidated financial statements.In August 2016, the FASB issued ASU No. 2016-15 Cash Flow Statement (Topic 230) - Classification of Certain Cash Receipts and CashPayments. This new guidance addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice, including:debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments, contingent considerationpayments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, andseparately identifiable cash flows and application of the predominance principle. The only issue currently relevant to us is distributions receivedfrom equity method investees, where the new guidance allows an accounting policy election between the cumulative earnings approach and thenature of the distribution approach. We will continue to use the cumulative earnings approach, therefore the guidance is not expected to have amaterial impact on our consolidated financial statements. ASU 2016-15 is effective for public business entities for fiscal years beginning afterDecember 15, 2017, and interim periods within those fiscal years.In May 2016, the FASB issued ASU No. 2016-11 Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815) - Rescission of SECGuidance Because of Accounting Standards Updates No. 2014-09 and No. 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITFMeeting. This new guidance rescinded certain SEC staff observer comments in Topic 605 related to revenue and expense recognition for freightservices in process and accounting for shipping and handling fees and costs, in Topic 932 related to gas-balancing arrangements, and in Topic815 related to the nature of a host contract related to a hybrid instrument issued in the form of a share. ASU 2016-11 is effective upon adoption ofTopic 606 and is not expected to have a material impact on our consolidated financial statements.In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting. This new guidance includesprovisions intended to simplify how share-based payments are accounted for and presented in the financial statements, including: a) all excess taxbenefits and tax deficiencies should be recognized as income tax expense or benefit in the income statement; b) excess tax benefits should beclassified along with other income tax cash flows as an operating activity; c) an entity can make an entity-wide accounting policy election to eitherestimate the number of awards that are expected to vest or account for forfeitures when they occur; d) the threshold to qualify for equityclassification permits withholding up to the maximum statutory tax rates in the applicable jurisdictions; e) cash paid by an employer should beclassified as a financing activity when shares are directly withheld for tax withholding purposes. There are also two additional provisions for non-public entities that do not apply to us. The element of the new standard that will have the most impact on our financial statements will be incometax consequences. Excess tax benefits and tax deficiencies on stock-based compensation awards will now be included in our tax provision withinour consolidated statement of comprehensive income, rather than our current accounting of recording in additional paid-in capital on ourconsolidated balance sheet. The standard will take effect for public companies for annual periods beginning after December 15, 2016, and interimperiods within those annual periods.In February 2016, the FASB issued ASU No. 2016-02, Leases. Under this new guidance, lessees will be required to recognize assets andliabilities on the balance sheet for the rights and obligations created by all leases with terms of more than twelve months. The standard will takeeffect for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. We are currentlyevaluating the impact of the adoption of this guidance.In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern. The new standard requiresmanagement to evaluate whether there are conditions or events that raise substantial doubt as to an entity's ability to continue as a going concernfor both annual and interim reporting periods. The guidance was52Table of Contentseffective for us for the annual period ending after December 15, 2016 and interim periods thereafter. The guidance did not have a material impacton our consolidated financial statements.In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The comprehensive new standard willsupersede existing revenue recognition guidance and require revenue to be recognized when promised goods or services are transferred tocustomers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services.Adoption of the new rules could affect the timing of revenue recognition for certain transactions. The guidance permits two implementationapproaches, one requiring retrospective application of the new standard with restatement of prior years and one requiring prospective application ofthe new standard with disclosure of results under old standards. The FASB issued several subsequent standards in 2016 containingimplementation guidance related to the new standard. These standards provide additional guidance related to principal versus agentconsiderations, licensing, and identifying performance obligations. Additionally, these standards provide narrow-scope improvements and practicalexpedients as well as technical corrections and improvements. Overall, the new guidance is to be effective for the fiscal year beginning afterDecember 15, 2017. Companies are able to early adopt the pronouncement, however not before fiscal years beginning after December 15, 2016.We currently anticipate that we will adopt this standard using the modified retrospective method. We have put in place an implementation team toprovide training and to review contracts to assess the impact, if any, the new revenue standard will have on our consolidated financial statements.Our approach includes performing a detailed review of key contracts representative of our different businesses and comparing historical accountingpolicies and practices to the new standard. We will also continue to monitor for any additional implementation or other guidance that may be issuedin 2017 with respect to the new revenue standard and adjust its assessment and implementation plans accordingly.Cautionary note regarding forward-looking statementsThis Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E ofthe Exchange Act. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond the Company'scontrol. All statements, other than statements of historical fact, included in this Annual Report on Form 10-K regarding our strategy, futureoperations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-lookingstatements. When used in this Annual Report on Form 10-K, the words "will," "could," "believe," "anticipate," "intend," "estimate," "expect," "may,""continue," "predict," "potential," "project" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words.Forward-looking statements may include statements about:•business strategy;•cash flows and liquidity;•the volatility and impact of recent significant declines in oil and natural gas prices;•the availability of raw materials and specialized equipment;•our ability to accurately predict customer demand;•customer order cancellations or deferrals;•competition in the oil and gas industry;•governmental regulation and taxation of the oil and natural gas industry;•environmental liabilities;•political, social and economic issues affecting the countries in which we do business;•our ability to deliver our backlog in a timely fashion;•our ability to implement new technologies and services;•availability and terms of capital;•general economic conditions;•our ability to successfully manage our growth, including risks and uncertainties associated with integrating and retaining key employeesof the businesses we acquire;53Table of Contents•benefits of our acquisitions;•availability of key management personnel;•availability of skilled and qualified labor;•operating hazards inherent in our industry;•the continued influence of our largest shareholder;•the ability to establish and maintain effective internal control over financial reporting;•financial strategy, budget, projections and operating results;•uncertainty regarding our future operating results; and•plans, objectives, expectations and intentions contained in this report that are not historical.All forward-looking statements speak only as of the date of this Annual Report on Form 10-K. We disclaim any obligation to update or revise thesestatements unless required by law, and you should not place undue reliance on these forward-looking statements. Although we believe that ourplans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this Annual Report on Form 10-K arereasonable, we can give no assurance that these plans, intentions or expectations will be achieved. We disclose important factors that couldcause our actual results to differ materially from our expectations in "Risk Factors" and "Management's Discussion and Analysis of FinancialCondition and Results of Operations" and elsewhere in this Annual Report on Form 10-K. These cautionary statements qualify all forward-lookingstatements attributable to us or persons acting on our behalf.54Table of ContentsItem 7A. Quantitative and qualitative disclosures about market riskWe are currently exposed to market risk from changes in foreign currency and changes in interest rates. From time to time, we may enter intoderivative financial instrument transactions to manage or reduce our market risk, but we do not enter into derivative transactions for speculativepurposes. A discussion of our market risk exposure in financial instruments follows.Non-U.S. currency exchange ratesIn certain regions, we conduct our business in currencies other than the U.S. dollar and the functional currency is the applicable local currency. Weoperate primarily in the U.S., Canadian and UK markets, and as a result our primary exposure to fluctuations in currency exchange rates relates tofluctuations between the U.S. dollar and the Canadian dollar, the British pound sterling, the Euro, and, to a lesser degree, the Mexican Peso andthe Singapore dollar. In countries in which we operate in the local currency, the effects of currency fluctuations are largely mitigated because localexpenses of such operations are also generally denominated in the local currency. There may be instances, however, in which costs and revenuewill not be matched with respect to currency denomination and we may experience economic loss and a negative impact on earnings or net assetssolely as a result of foreign currency exchange rate fluctuations. To the extent that we continue our expansion on a global basis, managementexpects that increasing portions of revenue, costs, assets and liabilities will be subject to fluctuations in foreign currency valuations.Assets and liabilities for which the functional currency is the local currency are translated using the exchange rates in effect at the balance sheetdate, resulting in translation adjustments that are reflected as accumulated other comprehensive income in the stockholders’ equity section on ourconsolidated balance sheet. We recorded $45.9 million in net foreign currency translation loss, net of tax that is included in other comprehensiveincome for the year ended December 31, 2016 to reflect the net impact of the general weakening of other applicable currencies against the U.S.dollar. This translation loss was caused primarily by the relative weakening of the Euro and the British pound sterling, as the Euro and the Britishpound sterling depreciated 3% and 16%, respectively, relative to the U.S. dollar from December 31, 2015 to December 31, 2016.Interest ratesAt December 31, 2016, our long-term debt consisted of $402.0 million in 6.25% Senior Notes and no long-term borrowings under our AmendedCredit Facility. At December 31, 2016, the fair value of the Senior Notes approximated $402.0 million. We are subject to interest rate risk on ourfloating interest rate borrowings. Floating rate debt, where the interest rate fluctuates periodically, exposes us to short-term changes in marketinterest rates. All of the long-term debt outstanding under our Amended Credit Facility is structured on floating interest rate terms.55 Item 8. Financial Statements and Supplementary Data PageReport of independent registered public accounting firm57Consolidated statements of comprehensive income (loss) for the years ended December 31, 2016, 2015 and 201458Consolidated balance sheets as of December 31, 2016 and 201559Consolidated statement of cash flows for the years ended December 31, 2016, 2015 and 201460Consolidated statement of changes in stockholders' equity for the years ended December 31, 2016, 2015 and 201461Notes to consolidated financial statements6256Report of Independent Registered Public Accounting FirmTo the Board of Directors and Stockholders of Forum Energy Technologies, Inc.:In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of comprehensive income (loss), ofchanges in stockholders’ equity and of cash flows present fairly, in all material respects, the financial position of Forum Energy Technologies, Inc.and its subsidiaries at December 31, 2016 and December 31, 2015, and the results of their operations and their cash flows for each of the threeyears in the period ended December 31, 2016 in conformity with accounting principles generally accepted in the United States of America. Also inour opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based oncriteria established in Internal Control - Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the TreadwayCommission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control overfinancial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report onInternal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements and onthe Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standardsof the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtainreasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financialreporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made bymanagement, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining anunderstanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the designand operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as weconsidered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Acompany’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurancethat transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directorsof the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition ofthe company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or thatthe degree of compliance with the policies or procedures may deteriorate./s/ PricewaterhouseCoopers LLPHouston, TexasFebruary 27, 201757 Forum Energy Technologies, Inc. and subsidiariesConsolidated statements of comprehensive income (loss) Year ended December 31,(in thousands, except per share information)2016 2015 2014Net sales$587,635 $1,073,652 $1,739,717Cost of sales487,900 810,975 1,180,265Gross profit99,735 262,677 559,452Operating expenses Selling, general and administrative expenses227,008 264,906 312,821Goodwill and Intangible asset impairment— 125,092 —Transaction expenses865 480 2,326Loss on sale of assets2,638 746 1,431Total operating expenses230,511 391,224 316,578Earnings from equity investment1,824 14,824 25,164Operating income (loss)(128,952) (113,723) 268,038Other expense (income) Interest expense27,410 29,945 29,847Foreign exchange (gains) losses and other, net(21,341) (9,345) (4,331)Deferred loan costs written off2,978 — —Total other expense9,047 20,600 25,516Income (loss) before income taxes(137,999) (134,323) 242,522Provision for income tax expense (benefit)(56,051) (14,939) 68,145Net income (loss)(81,948) (119,384) 174,377Less: Income (loss) attributable to noncontrolling interest30 (31) 12Net income (loss) attributable to common stockholders(81,978) (119,353) 174,365 Weighted average shares outstanding Basic91,226 89,908 92,628Diluted91,226 89,908 95,308Earnings (loss) per share Basic$(0.90) $(1.33) $1.88Diluted$(0.90) $(1.33) $1.83 Other comprehensive income (loss), net of tax: Net income (loss)(81,948) (119,384) 174,377Change in foreign currency translation, net of tax of $0(45,722) (45,270) (43,694)Gain (loss) on pension liability(335) 46 (1,110)Comprehensive income (loss)(128,005) (164,608) 129,573Less: comprehensive loss (income) attributable to noncontrolling interests(162) 168 46Comprehensive income (loss) attributable to common stockholders$(128,167) $(164,440) $129,619The accompanying notes are an integral part of these consolidated financial statements.58 Forum Energy Technologies, Inc. and subsidiariesConsolidated balance sheets(in thousands, except share information)December 31, 2016 December 31, 2015Assets Current assets Cash and cash equivalents$234,422 $109,249Accounts receivable—trade, net105,268 138,597Inventories, net338,583 424,121Income tax receivable32,801 —Prepaid expenses and other current assets29,443 33,836Costs and estimated profits in excess of billings9,199 12,009Total current assets749,716 717,812Property and equipment, net of accumulated depreciation152,212 186,667Deferred financing costs, net1,112 4,125Intangibles, net216,418 246,650Goodwill652,743 669,036Investment in unconsolidated subsidiary59,140 57,719Deferred income taxes, net851 780Other long-term assets3,000 3,253Total assets$1,835,192 $1,886,042Liabilities and equity Current liabilities Current portion of long-term debt$124 $253Accounts payable—trade73,775 76,823Accrued liabilities55,604 58,563Deferred revenue8,338 7,283Billings in excess of costs and profits recognized4,004 8,631Total current liabilities141,845 151,553Long-term debt, net of current portion396,747 396,016Deferred income taxes, net26,185 51,100Other long-term liabilities34,654 29,956Total liabilities599,431 628,625Commitments and contingencies Equity Common stock, $0.01 par value, 296,000,000 shares authorized, 103,682,128and 98,605,902 shares issued1,037 986Additional paid-in capital998,169 891,248Treasury stock at cost, 8,174,963 and 8,145,802 shares(133,941) (133,318)Retained earnings498,174 580,152Accumulated other comprehensive loss(128,237) (82,048)Total stockholders’ equity1,235,202 1,257,020Noncontrolling interest in subsidiary559 397Total equity1,235,761 1,257,417Total liabilities and equity$1,835,192 $1,886,042The accompanying notes are an integral part of these consolidated financial statements.59 Forum Energy Technologies, Inc. and subsidiariesConsolidated statements of cash flows Year ended December 31,(in thousands, except share information)2016 2015 2014Cash flows from operating activities Net income (loss)$(81,948) $(119,384) $174,377Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation expense35,636 38,388 37,414Amortization of intangible assets26,124 27,295 27,658Impairment of intangible assets and goodwill— 125,092 —Inventory reserves25,537 51,917 8,171Share-based compensation expense20,535 21,675 18,770Earnings from equity investment, net of distributions(1,421) (8,044) 1,376Deferred income taxes(24,418) (23,246) (3,270)Deferred loan costs written off2,978 — —Provision for doubtful accounts485 4,358 2,492Other4,389 3,867 4,109Changes in operating assets and liabilities Accounts receivable—trade29,450 145,753 (44,727)Inventories57,294 344 (34,051)Income tax receivable(32,801) — —Prepaid expenses and other current assets1,071 3,576 (4,107)Cost and estimated profit in excess of billings1,897 2,215 8,742Accounts payable, deferred revenue and other accrued liabilities3,799 (111,264) 62,772Billings in excess of costs and estimated profits earned(3,865) (6,629) 10,240Net cash provided by operating activities$64,742 $155,913 $269,966Cash flows from investing activities Acquisition of businesses, net of cash acquired(4,072) (60,836) (38,289)Capital expenditures for property and equipment(16,828) (32,291) (53,792)Return of investment in unconsolidated subsidiary— — 9,240Proceeds from sale of business, property and equipment9,763 1,821 12,150Net cash used in investing activities$(11,137) $(91,306) $(70,691)Cash flows from financing activities Borrowings under credit facility— 94,984 15,423Repayment of long-term debt— (120,077) (98,415)Repurchases of stock(623) (6,438) (96,632)Excess tax benefits from stock based compensation— (8) 7,742Proceeds from stock issuance87,676 5,275 11,101Payment of capital lease obligation(92) (673) (1,231)Deferred financing costs(766) — (6)Net cash provided by (used in) financing activities$86,195 $(26,937) $(162,018)Effect of exchange rate changes on cash(14,627) (5,000) (260)Net increase in cash and cash equivalents125,173 32,670 36,997Cash and cash equivalents Beginning of period109,249 76,579 39,582End of period$234,422 $109,249 $76,579Supplemental cash flow disclosures Interest paid26,331 27,870 27,628Income taxes paid (refunded)(6,273) 19,919 55,576Noncash investing and financing activities Accrued purchases of property and equipment797 929 765Accrued consideration for acquisition— 1,070 —The accompanying notes are an integral part of these consolidated financial statements.60 Forum Energy Technologies, Inc. and subsidiariesConsolidated statements of changes in stockholders’ equity Common Stock Additionalpaid incapital Treasury Shares Warrants Retainedearnings Accumulatedothercomprehensiveincome / (loss) TotalcommonStockholders’equity NoncontrollingInterest TotalEquity Shares Amount Shares Amount (in thousands of dollars, except share information) Balance at December 31,2013 96,306,753 $964 $826,028 (3,585,098) $(30,249) $687 $525,140 $7,785 $1,330,355 $611 $1,330,966Restricted stock issuance,net of forfeitures 70,179 1 (680) — — — — — (679) — (679)Stock based compensationexpense — — 18,770 — — — — — 18,770 — 18,770Exercised stock options 1,108,045 11 9,174 — — — — — 9,185 — 9,185Exercise of warrants 248,189 2 685 — — (687) — — — — —Issuance of performanceshares 21,603 — (70) — — — — — (70) — (70)Shares issued in employeestock purchase plan 110,509 1 2,664 — — — — — 2,665 — 2,665Treasury stock — — — (4,523,885) (102,231) — — — (102,231) — (102,231)Excess tax benefits — — 7,742 — — — — — 7,742 — 7,742Change in pension liability — — — — — — — (1,110) (1,110) — (1,110)Currency translationadjustment — — — — — — — (43,636) (43,636) (58) (43,694)Net income — — — — — — 174,365 — 174,365 12 174,377Balance at December 31,2014 97,865,278 $979 $864,313 (8,108,983) $(132,480) $— $699,505 $(36,961) $1,395,356 $565 $1,395,921Restricted stock issuance,net of forfeitures 157,577 1 (875) — — — — — (874) — (874)Stock based compensationexpense — — 21,675 — — — — — 21,675 — 21,675Exercised stock options 419,363 4 3,618 — — — — — 3,622 — 3,622Issuance of performanceshares 17,282 — (22) — — — — — (22) — (22)Shares issued in employeestock purchase plan 146,402 2 2,547 — — — — — 2,549 — 2,549Treasury stock — — — (36,819) (838) — — — (838) — (838)Excess tax benefits — — (8) — — — — — (8) — (8)Change in pension liability — — — — — — — 46 46 — 46Currency translationadjustment — — — — — — — (45,133) (45,133) (137) (45,270)Net Loss — — — — — — (119,353) — (119,353) (31) (119,384)Balance at December 31,2015 98,605,902 $986 $891,248 (8,145,802) $(133,318) $—$580,152 $(82,048) $1,257,020 $397 $1,257,417Restricted stock issuance,net of forfeitures 670,769 6 (1,051) — — — — — (1,045) — (1,045)Stock based compensationexpense — — 20,535 — — — — — 20,535 — 20,535Exercised stock options 151,335 2 1,710 — — — — — 1,712 — 1,712Issuance of performanceshares 42,443 1 (48) — — — — — (47) — (47)Shares issued in employeestock purchase plan 186,679 2 1,976 — — — — — 1,978 — 1,978Equity offering 4,025,000 40 85,038 — — — — — 85,078 — 85,078Treasury stock — — — (29,161) (623) — — — (623) — (623)Excess tax benefits — — (1,239) — — — — — (1,239) — (1,239)Change in pension liability — — — — — — — (335) (335) — (335)Currency translationadjustment — — — — — — — (45,854) (45,854) 132 (45,722)Net Loss — — — — — — (81,978) — (81,978) 30 (81,948)Balance at December 31,2016 103,682,128 $1,037 $998,169 (8,174,963) $(133,941) $— $498,174 $(128,237) $1,235,202 $559 $1,235,761The accompanying notes are an integral part of these consolidated financial statements.61Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements1. Nature of operationsForum Energy Technologies, Inc. (the "Company"), a Delaware corporation, is a global oilfield products company, serving the drilling, subsea,completion, production and infrastructure sectors of the oil and natural gas industry. The Company designs, manufactures and distributesproducts, and engages in aftermarket services, parts supply and related services that complement the Company’s product offering.2. Summary of significant accounting policiesBasis of presentationThe accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the UnitedStates of America ("GAAP").Principles of consolidationThe consolidated financial statements include the accounts of the Company and its wholly and majority owned subsidiaries after elimination ofintercompany balances and transactions. Noncontrolling interest principally represents ownership by others of the equity in our consolidatedmajority owned South African subsidiary.The Company's investment in an operating entity where the Company has the ability to exert significant influence, but does not control operatingand financial policies, is accounted for using the equity method. The Company's share of the net income of this entity is recorded as "Earningsfrom equity investment" in the consolidated statements of comprehensive income (loss). The investment in this entity is included in "Investment inunconsolidated subsidiary" in the consolidated balance sheets. The Company reports its share of equity earnings within operating income as theinvestee's operations are similar in nature to the operations of the Company.Use of estimatesThe preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect thereported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and thereported amounts of revenues and expenses during the reporting period.In the preparation of these consolidated financial statements, estimates and assumptions have been made by management including, amongothers, costs to complete contracts, an assessment of percentage of completion of projects, the selection of useful lives of tangible and intangibleassets, fair value of reporting units used for goodwill impairment testing, expected future cash flows from long lived assets to support impairmenttests, provisions necessary for trade receivables, amounts of deferred taxes and income tax contingencies. Actual results could differ from theseestimates.The financial reporting of contracts depends on estimates, which are assessed continually during the term of those contracts. Recognizedrevenues and income are subject to revisions as the contract progresses to completion and changes in estimates are reflected in the period inwhich the facts that give rise to the revisions become known. Additional information that enhances and refines the estimating process that isobtained after the balance sheet date, but before issuance of the financial statements is reflected in the financial statements.Cash and cash equivalentsCash and cash equivalents consist of cash on deposit and high quality, short term money market instruments with an original maturity of threemonths or less. Cash equivalents are stated at cost plus accrued interest, which approximates fair value.62Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)Accounts receivable-tradeTrade accounts receivables are carried at their estimated collectible amounts. Trade credit is generally extended on a short-term basis; thusreceivables do not bear interest, although a finance charge may be applied to amounts past due. The Company maintains an allowance fordoubtful accounts for estimated losses that may result from the inability of its customers to make required payments. Such allowances are basedupon several factors including, but not limited to, credit approval practices, industry and customer historical experience as well as the current andprojected financial condition of the specific customer. Accounts receivable outstanding longer than contractual terms are considered past due. TheCompany writes off accounts receivable to the allowance for doubtful accounts when they become uncollectible. Any payments subsequentlyreceived on receivables previously written off are credited to bad debt expense.The change in amounts of the allowance for doubtful accounts during the three year period ended December 31, 2016 is as follows (in thousands):Period ended Balance at beginningof period Charged to expense Deductions orother Balance at end ofperiodDecember 31, 2014 $5,725 $2,492 $(2,571) $5,646December 31, 2015 5,646 4,358 (1,885) 8,119December 31, 2016 8,119 485 (5,273) 3,331InventoriesInventory consisting of finished goods and materials and supplies held for resale is carried at the lower of cost or market. For certain operations,cost, which includes the cost of raw materials and labor for finished goods, is determined using standard cost which approximates a first-in first-out basis. For other operations, this cost is determined on an average cost, first-in first-out or specific identification basis. Market means currentreplacement cost except that (1) market should not exceed net realizable value and (2) market should not be less than net realizable valuereduced by an allowance for a normal profit margin. The Company continuously evaluates inventories, based on an analysis of inventory levels,historical sales experience and future sales forecasts, to determine obsolete, slow-moving and excess inventory. Adjustments to reduce suchinventory to its estimated recoverable value have been recorded by management.Property and equipmentProperty and equipment are stated at cost less accumulated depreciation. Equipment held under capital leases are stated at the present value ofminimum lease payments. Expenditures for property and equipment and for items which substantially increase the useful lives of existing assetsare capitalized at cost and depreciated over their estimated useful life utilizing the straight-line method. Routine expenditures for repairs andmaintenance are expensed as incurred. Depreciation is computed using the straight-line method based on the estimated useful lives of assets,generally three to thirty years. Property and equipment held under capital leases are amortized straight-line over the shorter of the lease term orestimated useful life of the asset. Gains or losses resulting from the disposition of assets are recognized in income, and the related asset costand accumulated depreciation are removed from the accounts. Assets acquired in connection with business combinations are recorded at fairvalue.Rental equipment consists of equipment leased to customers under operating leases. Rental equipment is recorded at cost and depreciated usingthe straight-line method over the estimated useful life of three to ten years.The Company reviews long-lived assets for potential impairment whenever events or changes in circumstances indicate that the carrying amountof a long-lived asset may not be recoverable. In performing the review for impairment, future cash flows expected to result from the use of theasset and its eventual disposal are estimated. If the undiscounted future cash flows are less than the carrying amount of the assets, there is anindication that the asset may be impaired. The amount of the impairment is measured as the difference between the carrying value and theestimated fair value of the asset. The fair value is determined either through the use of an external valuation, or by means of an analysis ofdiscounted future cash flows based on expected utilization. The impairment loss recognized represents the excess of the assets carrying value ascompared to its estimated fair value. For the year ended December 31, 2016, the Company recorded an impairment loss of $4.3 million related toan operation in South Africa and one of the Company's Texas facilities. For the years ended December 31, 2015 and 2014, no impairments wererecorded.To the extent that asset retirement obligations are incurred, the Company records the fair value of an asset retirement obligation as a liability in theperiod in which the associated legal obligation is incurred. The fair values of these63Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)obligations are recorded as liabilities on a discounted basis. The costs associated with these liabilities are capitalized as part of the related assetsand depreciated. Over time, the liabilities are accreted for any change in their present value. The current portion of the liability is included in otheraccrued liabilities and non-current portion is included in other long-term liabilities on the consolidated balance sheets.Goodwill and intangible assetsFor goodwill and intangible assets with indefinite lives, an assessment for impairment is performed annually or when there is an indication animpairment may have occurred. The Company completes its annual impairment test for goodwill and other indefinite-lived intangibles using anassessment date of October 1. Goodwill is reviewed for impairment by comparing the carrying value of each of our six reporting unit’s net assets(including allocated goodwill) to the fair value of the reporting unit. The fair value of the reporting units is determined using a discounted cash flowapproach. Determining the fair value of a reporting unit requires the use of estimates and assumptions. Such estimates and assumptions includerevenue growth rates, operating margins, weighted average costs of capital, a terminal growth rate, and future market conditions, among others.The Company believes that the estimates and assumptions used in impairment assessments are reasonable. If the reporting unit’s carrying valueis greater than its fair value, a second step is performed whereby the implied fair value of goodwill is estimated by allocating the fair value of thereporting unit in a hypothetical purchase price allocation analysis. The Company recognizes a goodwill impairment charge for the amount by whichthe carrying value of goodwill exceeds its fair value. Any impairment losses are reflected in operating income.At October 1, 2016, the Company performed the annual impairment test on each of its reporting units and concluded that there had been noimpairment because the estimated fair value of each of those reporting units exceeded its carrying value. As such, no impairment losses wererecorded on goodwill for the year ended December 31, 2016. If the market conditions do not improve further, however, we may have additionalimpairment charges in our Subsea reporting unit in the future.For the year ended December 31, 2015, the Company performed the impairment test on all six reporting units, and recorded $123.2 million ofimpairment losses for its Subsea reporting unit. In 2014, no goodwill impairment losses were recorded.Intangible assets with definite lives comprised of customer and distributor relationships, non-compete agreements, and patents are amortized on astraight-line basis over the life of the intangible asset, generally three to seventeen years. These assets are tested for impairment wheneverevents or changes in circumstances indicate that their carrying amount may not be recoverable. In the fourth quarter of 2015, $1.9 million ofintangible assets were written off related to trade names no longer in use. No impairments to intangible assets were recorded in 2016 and 2014.Refer to Note 7, Goodwill and intangible assets, for further discussion.Recognition of provisions for contingenciesIn the ordinary course of business, the Company is subject to various claims, suits and complaints. The Company, in consultation with internaland external advisors, will provide for a contingent loss in the consolidated financial statements if it is probable that a liability has been incurred atthe date of the consolidated financial statements and the amount can be reasonably estimated. If it is determined that the reasonable estimate ofthe loss is a range and that there is no best estimate within the range, provision will be made for the lower amount of the range. Legal costs areexpensed as incurred.An assessment is made of the areas where potential claims may arise under the contract warranty clauses. Where a specific risk is identified andthe potential for a claim is assessed as probable and can be reasonably estimated, an appropriate warranty provision is recorded. Warrantyprovisions are eliminated at the end of the warranty period except where warranty claims are still outstanding. The liability for product warranty isincluded in other accrued liabilities on the consolidated balance sheets.Changes in the Company’s warranty liability were as follows (in thousands):Period ended Balance at beginningof period Charged toexpense Deductions orother Balance at end ofperiodDecember 31, 2014 $5,280 $2,588 $(2,554) $5,314December 31, 2015 5,314 5,539 (5,156) 5,697December 31, 2016 5,697 4,031 (6,504) 3,22464Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)Revenue recognition and deferred revenueRevenue is recognized when all of the following criteria have been met: (a) persuasive evidence of an arrangement exists, (b) delivery of theequipment has occurred or services have been rendered, (c) the price of the product or service is fixed and determinable and (d) collectability isreasonably assured. Revenue from product sales, including shipping costs, is recognized as title passes to the customer, which generally occurswhen items are shipped from the Company’s facilities. Revenue from services is recognized when the service is completed to the customer’sspecifications.Customers are sometimes billed in advance of services performed or products manufactured, and the Company recognizes the associated liabilityas deferred revenue.Revenue generated from long-term contracts typically longer than six months in duration are recognized on the percentage-of-completion methodof accounting. The Company recognizes revenue and cost of goods sold each period based upon the advancement of the work-in-progress unlessthe stage of completion is insufficient to enable a reasonably certain forecast of profit to be established. In such cases, no profit is recognizedduring the period. The percentage-of-completion is calculated based on the ratio of costs incurred to-date to total estimated costs, taking intoaccount the level of completion. The percentage-of-completion method requires management to calculate reasonably dependable estimates ofprogress toward completion of contract revenues and contract costs. Whenever revisions of estimated contract costs and contract values indicatethat the contract costs will exceed estimated revenues, thus creating a loss, a provision for the total estimated loss is recorded in that period.Primarily related to the remotely operated vehicles ("ROVs"), which may take longer to manufacture, accounting estimates during the course of theproject may change. The effect of such a change, which can be upward as well as downward, is accounted for in the period of change and thecumulative income recognized to date is adjusted to reflect the latest estimates. These revisions to estimates are accounted for on a prospectivebasis.On a contract by contract basis, cost and profit in excess of billings represents the cumulative revenue recognized less the cumulative billings tothe customer. Similarly, billings in excess of costs and profits represent the cumulative billings to the customer less the cumulative revenuerecognized.Revenue from the rental of equipment or providing of services is recognized over the period when the asset is rented or services are rendered andcollectability is reasonably assured. Rates for asset rental and service provision are priced on a per day, per man hour, or similar basis.Concentration of credit riskFinancial instruments which potentially subject the Company to credit risk include trade accounts receivable. Trade accounts receivable consist ofuncollateralized receivables from domestic and internationally based customers. For the years ended December 31, 2016, 2015 and 2014, no onecustomer accounted for 10% or more of the total revenue or 10% more of the total accounts receivable balance at the end of the respective period.Share-based compensationThe Company measures all share-based compensation awards at fair value on the date they are granted to employees and directors, andrecognizes compensation cost, net of forfeitures, over the requisite service period for awards with only a service condition, and over a gradedvesting period for awards with service and performance or market conditions.The fair value of share-based compensation awards with market conditions is measured using a lattice model and in accordance with AccountingStandards Codification ("ASC") 718, is not adjusted based on actual achievement of the performance goals. The Black-Scholes option pricingmodel is used to measure the fair value of options. The following sections address the assumptions used related to the Black-Scholes optionpricing model:Expected lifeThe expected term of stock options represents the period the stock options are expected to remain outstanding and is based on the simplifiedmethod, which is the weighted average vesting term plus the original contractual term divided by two. The Company uses the simplified methoddue to a lack of sufficient historical share option exercise experience upon which to estimate an expected term.Expected volatilityExpected volatility measures the amount that a stock price has fluctuated or is expected to fluctuate during a period and is estimated based on aweighted average of the Company's historical stock price.Dividend yield65Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)The Company has never declared or paid any cash dividends and does not plan to pay cash dividends in the foreseeable future. Therefore, a zeroexpected dividend yield was used in the valuation model.Risk-free interest rateThe risk-free interest rate is based on United States Treasury zero-coupon issues with remaining terms similar to the expected term on theoptions.ForfeituresThe Company estimates forfeitures at the time of grant and revises those estimates in subsequent periods if actual forfeitures differ from thoseestimates. The Company uses historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only forthose awards that are expected to vest. If the Company’s actual forfeiture rate is materially different from its estimate, the stock-basedcompensation expense could be different from what the Company has recorded in the current period. Historically, estimated forfeitures have beenin line with actual forfeitures.Income taxesThe Company follows the liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities aredetermined based upon temporary differences between the carrying amounts and tax bases of the Company’s assets and liabilities at the balancesheet date, and are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. The effect ondeferred tax assets and liabilities of a change in the tax rates is recognized in income in the period in which the change occurs. The Companyrecords a valuation allowance in each reporting period when management believes that it is more likely than not that any deferred tax assetcreated will not be realized.Accounting guidance for income taxes requires that the Company recognize the financial statement benefit of a tax position only after determiningthat the relevant tax authority would more likely than not sustain the position following an audit. If a tax position meets the "more likely than not"recognition criteria, accounting guidance requires the tax position be measured at the largest amount of benefit greater than 50% likely of beingrealized upon ultimate settlement.Earnings per shareBasic earnings per share for all periods presented equals net income divided by the weighted average number of the shares of the Company’scommon stock outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average number ofshares of the Company’s common stock outstanding during the period as adjusted for the dilutive effect of the Company’s stock options, restrictedshare plans.The exercise price of each option is based on the Company’s stock price at the date of grant. There is no dilutive effect for 2016 and 2015 sincethe Company is in a net loss position. The diluted earnings per share calculation excludes approximately 0.5 million stock options for the yearended December 31, 2014, because they were anti-dilutive as the option exercise price or warrant conversion price was greater than the averagemarket price of the common stock.The following is a reconciliation of the number of shares used for the basic and diluted earnings per share computations (shares in thousands): December 31, 2016 2015 2014Basic weighted average shares outstanding 91,226 89,908 92,628Dilutive effect of stock option, restricted share plan and warrants — — 2,680Diluted weighted average shares outstanding 91,226 89,908 95,308Non-U.S. local currency translationThe Company operates globally and its primary functional currency is the U.S. dollar ($). The majority of the Company’s non-U.S. operations havedesignated the local currency as their functional currency. Financial statements of these non-U.S. operations are translated into U.S. dollars usingthe current rate method whereby assets and liabilities are translated at the balance sheet rate and income and expenses are translated into U.S.dollars at the average exchange rates in effect during the period. The resultant translation adjustments are reported as a component ofaccumulated other comprehensive income (loss) within stockholders’ equity.66Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)Noncontrolling interestNoncontrolling interests are classified as equity in the consolidated balance sheets. Net earnings include the net earnings for both controlling andnoncontrolling interests, with disclosure of both amounts on the consolidated statements of comprehensive income (loss).Fair valueThe carrying amounts for financial instruments classified as current assets and current liabilities approximate fair value, due to the short maturityof such instruments. The book values of other financial instruments, such as the Company’s debt related to the credit facility, approximates fairvalue because interest rates charged are similar to other financial instruments with similar terms and maturities and the rates vary in accordancewith a market index.For the financial assets and liabilities disclosed at fair value, fair value is determined as the exit price, or the price that would be received to sell anasset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The established fair valuehierarchy divides fair value measurement into three broad levels:•Level 1 - inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability toaccess at the measurement date;•Level 2 - inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either directly or indirectly;and•Level 3 - inputs are unobservable for the asset or liability, which reflect the best judgment of management.The financial assets and liabilities that are disclosed at fair value for disclosure purposes are categorized in one of the above three levels based onthe lowest level input that is significant to the fair value measurement in its entirety. Level 1 provides the most reliable measure of fair value,whereas Level 3 generally requires significant management judgment.Recent accounting pronouncementsFrom time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB"), which are adopted by theCompany as of the specified effective date.In November 2016, the FASB issued ASU No. 2016-18 Statement of Cash Flows (Topic 230) - Restricted Cash a consensus of the FASBEmerging Issues Task Force. This new guidance requires that a statement of cash flows explain the change during the period in the total of cash,cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described asrestricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period andend-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for fiscal years beginning after December 15, 2018,and interim periods within fiscal years beginning after December 15, 2019 and is not expected to have a material impact on the Company'sconsolidated financial statements.In October 2016, the FASB issued ASU No. 2016-16 Income Tax (Topic 740) - Intra-Entity Transfers of Assets Other Than Inventory. CurrentGAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outsideparty. This new guidance eliminates this exception and requires an entity to recognize the income tax consequences of an intra-entity transfer ofan asset other than inventory when the transfer occurs. ASU 2016-16 is effective for annual reporting periods beginning after December 15, 2017,including interim reporting periods within those annual reporting periods, and should be applied on a modified retrospective basis through acumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The ASU is not expected to have amaterial impact on the Company's consolidated financial statements.In August 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-15 Cash Flow Statement (Topic 230) - Classification of CertainCash Receipts and Cash Payments. This new guidance addresses eight specific cash flow issues with the objective of reducing the existingdiversity in practice, including: debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debtinstruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceedsfrom the settlement of corporate-owned life insurance policies, distributions received from equity method investees, beneficial interests insecuritization transactions, and separately identifiable cash flows and application of the predominance principle. The only issue currently relevantto the Company is distributions received from equity method investees, where the new guidance allows an accounting policy election between thecumulative earnings approach and the nature of the distribution approach. The Company will continue to use the cumulative earnings approach,therefore the guidance is not expected to have a material impact on the Company's consolidated financial statements. ASU67Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)2016-15 is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.In May 2016, the FASB issued ASU No. 2016-11 Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815) - Rescission of SECGuidance Because of Accounting Standards Updates No. 2014-09 and No. 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITFMeeting. This new guidance rescinded certain SEC staff observer comments in Topic 605 related to revenue and expense recognition for freightservices in process and accounting for shipping and handling fees and costs, in Topic 932 related to gas-balancing arrangements, and in Topic815 related to the nature of a host contract related to a hybrid instrument issued in the form of a share. ASU 2016-11 is effective upon adoption ofTopic 606 and is not expected to have a material impact on the Company's consolidated financial statements.In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting. This new guidance includesprovisions intended to simplify how share-based payments are accounted for and presented in the financial statements, including: a) all excess taxbenefits and tax deficiencies should be recognized as income tax expense or benefit in the income statement; b) excess tax benefits should beclassified along with other income tax cash flows as an operating activity; c) an entity can make an entity-wide accounting policy election to eitherestimate the number of awards that are expected to vest or account for forfeitures when they occur; d) the threshold to qualify for equityclassification permits withholding up to the maximum statutory tax rates in the applicable jurisdictions; e) cash paid by an employer should beclassified as a financing activity when shares are directly withheld for tax withholding purposes. There are also two additional provisions for non-public entities that do not apply to the Company. The element of the new standard that will have the most impact on Company's financialstatements will be income tax consequences. Excess tax benefits and tax deficiencies on stock-based compensation awards will now be includedin the tax provision within the consolidated statement of comprehensive income, rather than the Company's current accounting of recording inadditional paid-in capital on the consolidated balance sheet. The standard will take effect for public companies for annual periods beginning afterDecember 15, 2016, and interim periods within those annual periods.In February 2016, the FASB issued ASU No. 2016-02, Leases. Under this new guidance, lessees will be required to recognize assets andliabilities on the balance sheet for the rights and obligations created by all leases with terms of greater than twelve months. The standard will takeeffect for public companies with fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company iscurrently evaluating the impact of the adoption of this guidance.In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern. The new standard requiresmanagement to evaluate whether there are conditions or events that raise substantial doubt as to an entity's ability to continue as a going concernfor both annual and interim reporting periods. The guidance was effective for the Company for the annual period ending after December 15, 2016and interim periods thereafter. The guidance did not have a material impact on the Company's consolidated financial statements.In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The comprehensive new standard willsupersede existing revenue recognition guidance and require revenue to be recognized when promised goods or services are transferred tocustomers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services.Adoption of the new rules could affect the timing of revenue recognition for certain transactions. The guidance permits two implementationapproaches, one requiring retrospective application of the new standard with restatement of prior years and one requiring prospective application ofthe new standard with disclosure of results under old standards. The FASB issued several subsequent standards in 2016 containingimplementation guidance related to the new standard. These standards provide additional guidance related to principal versus agentconsiderations, licensing, and identifying performance obligations. Additionally, these standards provide narrow-scope improvements and practicalexpedients as well as technical corrections and improvements. Overall, the new guidance is to be effective for the fiscal year beginning afterDecember 15, 2017. Companies are able to early adopt the pronouncement, however not before fiscal years beginning after December 15, 2016.The Company currently anticipates that it will adopt this standard using the modified retrospective method.68Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)3. Acquisitions2016 AcquisitionIn April 2016, the Company completed the acquisition of the wholesale completion packers business of Team Oil Tools, Inc. The acquisitionincludes a wide variety of completion and service tools, including retrievable and permanent packers, bridge plugs and accessories which are soldto oilfield service providers, packer repair companies and distributors on a global basis, and is included in the Completions segment. The fairvalues of the assets acquired and liabilities assumed have not been presented because they are not material to the audited consolidated financialstatements. Pro forma results of operations for the 2016 acquisition have not been presented because the effects were not material to theconsolidated financial statements.2015 AcquisitionEffectively February 2015, the Company completed the acquisition of J-Mac Tool, Inc. (“J-Mac”) for aggregate consideration of approximately$61.9 million. J-Mac is a Fort Worth, Texas based manufacturer of high quality hydraulic fracturing pumps, power ends, fluid ends and other pumpaccessories. J-Mac is included in the Completions segment. The following table summarizes the fair values of the assets acquired and liabilitiesassumed at the date of the acquisition (in thousands): 2015 AcquisitionCurrent assets, net of cash acquired $36,174Property and equipment 11,506Intangible assets (primarily customer relationships) 10,400Tax-deductible goodwill 13,977Current liabilities (10,129)Long term liabilities (22)Net assets acquired $61,906Revenue and net income related to the 2015 acquisition were not significant for the year ended December 31, 2015. Pro forma results ofoperations for the 2015 acquisition have not been presented because the effects were not material to the consolidated financial statements.2014 AcquisitionEffective May 1, 2014, the Company completed the acquisition of Quality Wireline & Cable, Inc. ("Quality") for consideration of $38.3 million.Quality is a Calgary, Alberta based manufacturer of high-performance cased-hole electro-mechanical wireline cables and specialty cables for theoil and natural gas industry. Quality is included in the Drilling & Subsea segment. The following table summarizes the fair values of the assetsacquired and liabilities assumed at the date of the acquisition (in thousands): 2014 AcquisitionCurrent assets, net of cash acquired $7,596Property and equipment 3,837Intangible assets (primarily customer relationships) 11,527Non-tax-deductible goodwill 20,573Current liabilities (1,615)Deferred tax liabilities (3,629)Net assets acquired $38,289Revenue and net income related to the 2014 acquisition were not significant for the year ended December 31, 2014. Pro forma results ofoperations for the 2014 acquisition have not been presented because the effects were not material to the consolidated financial statements.69Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)4. Investment in unconsolidated subsidiaryEffective July 1, 2013, the Company jointly purchased Global Tubing, LLC ("Global Tubing") with an equal partner, with Global Tubing'smanagement retaining a small interest. Global Tubing is a Dayton, Texas based provider of coiled tubing strings and related services. TheCompany's equity investment is reported in the Completions segment and is accounted for using the equity method of accounting. As GlobalTubing's products are complementary to the Company’s well intervention and stimulation products and the investment's business is integral to theCompany's operations, the earnings from the equity investment are included within operating income (loss).Condensed financial data for the equity investment in the unconsolidated subsidiary is summarized as follows: December 31, 2016 December 31, 2015Current assets$48,194 $56,160Long-term assets142,682 145,965Current liabilities11,918 10,861Long-term liabilities80,500 95,000 Year ended December 31, 2016 2015Net revenues$71,473 $103,532Gross profit16,899 45,333Net income3,795 30,888The Company's earnings from equity investment1,824 14,824Subsequent to December 31, 2016, the Company contributed $1.0 million to Global Tubing, LLC.5. InventoriesThe Company's significant components of inventory at December 31, 2016 and 2015 were as follows (in thousands): December 31, 2016 December 31, 2015Raw materials and parts$106,329 $148,372Work in process23,303 38,381Finished goods277,303 315,256Gross inventories406,935 502,009Inventory reserve(68,352) (77,888)Inventories$338,583 $424,121The change in the amounts of the inventory reserve during the three year period ended December 31, 2016 is as follows (in thousands):Period ended Balance atbeginning of period Charged toexpense Deductions orother Balance at end ofperiodDecember 31, 2014 $26,419 $8,171 $(5,134) $29,456December 31, 2015 29,456 51,917 (3,485) $77,888December 31, 2016 77,888 25,537 (35,073) $68,35270Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)6. Property and equipmentProperty and equipment consists of the following (in thousands): Estimated usefullives December 31, 2016 2015Land $10,157 $11,467Buildings and leasehold improvements 5-30 75,947 83,983Computer equipment 3-5 42,248 39,986Machinery & equipment 5-10 131,860 128,879Furniture & fixtures 3-10 5,626 6,866Vehicles 3-5 8,660 10,090Construction in progress 4,545 5,841 279,043 287,112Less: accumulated depreciation (143,677) (121,713)Property & equipment, net 135,366 165,399 Rental equipment 3-10 69,475 76,908Less: accumulated depreciation (52,629) (55,640)Rental equipment, net 16,846 21,268 Total property & equipment, net $152,212 $186,667Depreciation expense was $35.6 million, $38.4 million and $37.4 million for the years ended December 31, 2016, 2015 and 2014.7. Goodwill and intangible assetsGoodwillThe changes in the carrying amount of goodwill from January 1, 2015 to December 31, 2016, were as follows (in thousands): Drilling &SubseaCompletionsProduction &InfrastructureTotal 20162015201620152016201520162015Goodwill Balance at January 1, net$334,595$472,891$316,914$307,448$17,527$18,142$669,036$798,481Acquisitions, net of dispositions———13,977———13,977Impairment—(123,200)—————(123,200)Impact of non-U.S. local currency translation(17,189)(15,096)779(4,511)117(615)(16,293)(20,222)Goodwill Balance at December 31, net$317,406$334,595$317,693$316,914$17,644$17,527$652,743$669,036Goodwill and intangible assets with indefinite lives are assessed for impairment annually or whenever an event indicating impairment may haveoccurred. During the year ended December 31, 2015, the Company elected to change the date of the Company's annual assessments of goodwilland indefinite lived intangible assets impairment from December 31 to October 1. This was a change in method of applying an accountingprinciple, which management believed was a preferable alternative as it better aligned the timing of the assessment with our planning andforecasting process and alleviated constraints on accounting resources during our annual reporting process. The change in the assessment datedid not delay, accelerate, or avoid a potential impairment charge.71Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)At October 1, 2016, the Company performed its annual impairment test on each of the reporting units and concluded that there had been noimpairment because the estimated fair values of each of those reporting units exceeded its carrying value. Relevant events and circumstanceswhich could have a negative impact on goodwill include: macroeconomic conditions; industry and market conditions, such as commodity prices;operating cost factors; overall financial performance; the impact of dispositions and acquisitions; and other entity-specific events. Further declinesin commodity prices or sustained lower valuation for the Company's common stock could indicate a reduction in the estimate of reporting unit fairvalue which, in turn, could lead to an impairment of reporting unit goodwill.After October 1, 2015, the Company continued to monitor events and circumstances which could have a negative impact on estimates of reportingunit fair value. Commodity prices had remained at low levels and the active rig count had continued to decline resulting in a significant decline inthe Company’s market capitalization. While the Company incorporated a downturn into its forecasts in this October 1 annual test, several factorsoccurred late in the fourth quarter of 2015 that indicated an occurrence of further declines in market activity. These factors included: 1) the OPECconfirmed that its members would not reduce production even in the face of low commodity prices and excess global oil supply; 2) oil pricesdeclined further; 3) a consensus expectation developed that oil prices would stay lower for longer than previously expected; 4) exploration andproduction companies significantly decreased their budgets as the demand for oil and natural gas was lower and production was significantly lesseconomical for them; and 5) macroeconomic concerns developed regarding a slowdown in the global economy. Due to this further deterioration ofmarket conditions for our products, the Company performed an impairment test on all six reporting units. The Company identified and recorded animpairment charge of $123.2 million for its Subsea reporting unit for the year ended December 31, 2015. Following the impairment charge, atDecember 31, 2015, our Subsea reporting unit had a remaining balance of $73 million in goodwill.The fair values were determined using the net present value of the expected future cash flows for each reporting unit. During the Company’sgoodwill impairment analysis, the Company determines the fair value of each of its reporting units as a whole using a discounted cash flowanalysis, which requires significant assumptions and estimates about the future operations of each reporting unit. The assumptions about futurecash flows and growth rates are based on our current budget for 2017 and for future periods, as well as our strategic plans and management’sbeliefs about future activity levels. The discount rate we used for future periods could change substantially if the cost of debt or equity were tosignificantly increase or decrease, or if we were to choose different comparable companies in determining the appropriate discount rate for ourreporting units. Forecasted cash flows in future periods were estimated using a terminal value calculation, which considered long-term earningsgrowth rates. Accumulated impairment losses on goodwill were $168.8 million, $168.8 million and $45.6 million as of December 31, 2016, 2015,and 2014, respectively. There was no impairment of goodwill during the year ended December 31, 2016 and 2014, respectively.72Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)Intangible assetsAt December 31, 2016 and 2015, intangible assets consisted of the following, respectively (in thousands): December 31, 2016 Gross carryingamount Accumulatedamortization Net amortizableintangibles Amortizationperiod (in years)Customer relationships$270,586 $(115,381) $155,205 4-15Patents and technology33,936 (12,225) 21,711 5-17Non-compete agreements6,230 (5,594) 636 3-6Trade names44,494 (17,944) 26,550 10-15Distributor relationships22,160 (15,074) 7,086 8-15Trademark5,230 — 5,230 IndefiniteIntangible Assets Total$382,636 $(166,218) $216,418 December 31, 2015 Gross carryingamount Accumulatedamortization Net amortizableintangibles Amortizationperiod (in years)Customer relationships$280,297 $(101,636) $178,661 4-15Patents and technology34,140 (10,264) 23,876 5-17Non-compete agreements7,269 (6,292) 977 3-6Trade names45,446 (15,890) 29,556 10-15Distributor relationships22,160 (13,810) 8,350 8-15Trademark5,230 — 5,230 IndefiniteIntangible Assets Total$394,542 $(147,892) $246,650 Intangible assets with definite lives are tested for impairment whenever events or changes in circumstances indicate that their carrying amountmay not be recoverable. During the year ended December 31, 2015, an impairment loss of $1.9 million was recorded on certain intangible assetswithin the Drilling and Subsea segment. The impaired intangible assets included trade names that were no longer in use and is recorded under"Impairment of intangible assets and goodwill" in the consolidated statement of comprehensive income (loss). No indicators of intangible assetimpairment occurred during the years ended December 31, 2016 and 2014.Amortization expense was $26.1 million, $27.3 million and $27.7 million for the years ended December 31, 2016, 2015 and 2014, respectively. Thetotal weighted average amortization period is 14 years and the estimated future amortization expense for the next five years is as follows (inthousands):Year ending December 31, 2017 $26,6472018 26,5562019 26,2072020 24,2952021 23,73073Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)8. DebtNotes payable and lines of credit as of December 31, 2016 and 2015 consisted of the following (in thousands): December 31, 2016 December 31, 20156.25% Senior notes due October 2021$400,000 $400,000Unamortized debt premium1,989 2,395Debt issuance cost(5,324) (6,425)Senior secured revolving credit facility— —Other debt206 299Total debt396,871 396,269Less: current maturities(124) (253)Long-term debt$396,747 $396,016Senior Notes Due 2021In October 2013, the Company issued $300.0 million of 6.25% senior unsecured notes due 2021 at par, and in November 2013, the Companyissued an additional $100.0 million aggregate principal amount of the notes at a price of 103.25% of par, plus accrued interest from October 2,2013 (the "Senior Notes"). The Senior Notes bear interest at a rate of 6.25% per annum, payable on April 1 and October 1 of each year, andmature on October 1, 2021. Net proceeds from the issuance of approximately $394.0 million, after deducting initial purchasers' discounts andoffering expenses and excluding accrued interest paid by the purchasers, were used for the repayment of the then-outstanding term loan balanceand a portion of the revolving credit facility balance.The terms of the Senior Notes are governed by the indenture, dated October 2, 2013 (the “Indenture”), between the Company, the guarantorsnamed therein and Wells Fargo Bank, National Association, as trustee (the “Trustee”). The Senior Notes are senior unsecured obligations, and areguaranteed on a senior unsecured basis by the Company’s subsidiaries that guarantee the credit facility and rank junior to, among otherindebtedness, the credit facility to the extent of the value of the collateral securing the credit facility. The Senior Notes contain customarycovenants including some limitations and restrictions on the Company’s ability to pay dividends on, purchase or redeem its common stock orpurchase or redeem its subordinated debt; make certain investments; incur or guarantee additional indebtedness or issue certain types of equitysecurities; create certain liens, sell assets, including equity interests in its restricted subsidiaries; redeem or prepay subordinated debt; restrictdividends or other payments of its restricted subsidiaries; consolidate, merge or transfer all or substantially all of its assets; engage in transactionswith affiliates; and create unrestricted subsidiaries. Many of these restrictions will terminate if the Senior Notes become rated investment grade.The Indenture also contains customary events of default, including nonpayment, breach of covenants in the Indenture, payment defaults oracceleration of other indebtedness, failure to pay certain judgments and certain events of bankruptcy and insolvency. The Company is required tooffer to repurchase the Senior Notes in connection with specified change in control events or with excess proceeds of asset sales not applied forpermitted purposes.The Company may redeem the Senior Notes due 2021:•beginning on October 1, 2016 at a redemption price of 104.688% of their principal amount plus accrued and unpaid interest and additionalinterest, if any; then•at a redemption price of 103.125% of their principal amount plus accrued and unpaid interest and additional interest, if any, for the twelve-month period beginning October 1, 2017; then•at a redemption price of 101.563% of their principal amount plus accrued and unpaid interest and additional interest, if any, for the twelve-month period beginning October 1, 2018; and then•at a redemption price of 100.000% of their principal amount plus accrued interest and unpaid interest and additional interest, if any,beginning on October 1, 2019.74Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)Credit FacilityOn February 25, 2016, the Company amended the credit facility with Wells Fargo Bank, National Association, as administrative agent and severalfinancial institutions as lenders to reduce lender commitments to $200.0 million. On December 12, 2016, the Company further amended the CreditFacility, to, among other things, reduce revolving credit line commitments from $200.0 million to $140.0 million, including the previously existingsublimits for up to $25.0 million available for letters of credit and up to $10.0 million in swingline loans. As of December 31, 2016, the Companyhad no borrowings outstanding under the Amended Credit Facility, $17.0 million of outstanding letters of credit and the capacity to borrow anadditional $103.7 million under the Amended Credit Facility. The Amended Credit Facility matures in November 2018 and, subject to certainlimitations, lender commitments may be increased by an additional $150.0 million. The Company's borrowing capacity under the Amended CreditFacility could be reduced or eliminated, depending on the future EBITDA. Weighted average interest rates under the Amended Credit Facility atDecember 31, 2016 and 2015 were approximately 3.00% and 2.00%, respectively. Availability under the Amended Credit Facility is subject to aborrowing base calculated by reference to eligible accounts receivable in the United States, United Kingdom and Canada, eligible inventory in theUnited States, and cash on hand.The Amended Credit Facility’s financial covenants, among other things, require the Company, on a consolidated basis, to maintain specifiedfinancial ratios or conditions. The Company was in compliance with all financial covenants under the Amended Credit Facility at December 31,2016. The Company anticipates that it will continue to be in compliance with the Amended Credit Facility for the next twelve months.The Amended Credit Facility’s financial covenants are summarized as follows:•Senior secured debt to adjusted EBITDA of not more than 4.50 to 1.0 for each fiscal quarter through December 31, 2017, and not more than3.50 to 1.0 for each fiscal quarter ending thereafter through the termination of the facility; For purposes of calculation of senior secured debt toadjusted EBITDA, the Amended Credit Facility provides for netting of certain cash and cash equivalents against senior secured debt for eachfiscal quarter through December 31, 2017; and•A fixed charge coverage ratio of not less than 1.25 to 1.0. This ratio is measured as EBITDA minus maintenance capital expenditures minustaxes paid in cash divided by scheduled principal and interest payments.The fixed charge coverage ratio is tested only if availability under theAmended Credit Facility falls below certain levels.Other debtOther debt consists primarily of various capital leases of equipment.Debt issue costsThe Company has incurred loan costs that have been capitalized and are amortized to interest expense over the term of the Senior Notes and theAmended Credit Facility. As a result, approximately $1.9 million, $2.6 million and $2.6 million were amortized to interest expense for the yearsended December 31, 2016, 2015 and 2014, respectively. On February 25, 2016 and December 12, 2016, the Company amended its credit facility.In connection with such amendments, lender commitments were reduced from $600.0 million to $140.0 million. Accordingly, the Company haswritten off $3.0 million of the deferred financing costs related to the credit facility in 2016.75Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)Future paymentsFuture principal payments under long-term debt for each of the years ending December 31 are as follows (in thousands):2017 $1242018 822019 —2020 —2021 400,000Thereafter —Total future payment $400,206Add: Unamortized debt premium 1,989Less: Debt issuance cost (5,324)Total debt $396,8719. Income taxesThe components of the Company's income before income taxes for the years ended December 31, 2016, 2015 and 2014 are as follows (inthousands): 2016 2015 2014U.S.$(155,058) $(114,862) $127,270Non-U.S.17,059 (19,461) 115,252Income (loss) before income taxes$(137,999) $(134,323) $242,522The Company’s provision (benefit) for income taxes from continuing operations for the years ended December 31, 2016, 2015 and 2014 are asfollows (in thousands): 2016 2015 2014Current U.S. Federal and state$(38,589) $43 $47,100Non-U.S.6,956 8,264 24,315Total current(31,633) 8,307 71,415Deferred U.S. Federal and state(18,290) (19,071) (2,080)Non-U.S.(6,128) (4,175) (1,190)Total deferred(24,418) (23,246) (3,270)Provision for income tax expense (benefit)$(56,051) $(14,939) $68,14576Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)The reconciliation between the actual provision for income taxes from continuing operations and that computed by applying the U.S. statutory rateto income before income taxes and noncontrolling interests are outlined below (in thousands): 2016 2015 2014Income tax expense (benefit) at the statutory rate$(48,300)35.0 % $(47,013)35.0 % $84,88235.0 %State taxes, net of federal tax benefit(1,425)1.0 % (1,157)0.9 % 4,1321.7 %Non-U.S. operations(5,791)4.2 % 6,300(4.7)% (15,060)(6.2)%Domestic incentives(170)0.1 % (250)0.2 % (4,412)(1.8)%Prior year federal, non-U.S. and state tax(777)0.6 % (518)0.4 % (1,692)(0.7)%Nondeductible expenses345(0.2)% 279(0.2)% 6630.3 %Goodwill impairment—— % 27,210(20.3)% —— %Other67(0.1)% 210(0.2)% (368)(0.2)%Provision for income tax expense (benefit)$(56,051)40.6 % $(14,939)11.1 % $68,14528.1 %The primary components of deferred taxes include (in thousands): 2016 2015Deferred tax assets Reserves and accruals$6,603 $7,174Inventory24,677 29,154Stock awards10,984 9,350Other982 544Net operating loss and other tax credit carryforwards30,317 1,673Total deferred tax assets73,563 47,895Deferred tax liabilities Property and equipment(13,593) (16,925)Goodwill and intangible assets(73,074) (68,635)Investment in unconsolidated subsidiary(10,000) (10,764)Unremitted non-U.S. earnings(740) (740)Prepaid expenses and other(1,490) (1,151)Total deferred tax liabilities(98,897) (98,215)Net deferred tax liabilities$(25,334) $(50,320)At December 31, 2016, the Company had $59.7 million U.S. net operating loss carryforwards and $3.6 million state net operating losses. Thelosses will expire no later than 2036 if they are not utilized prior to that date. The Company intends to elect to carry the current U.S. net operatingloss back to recover taxes paid in earlier periods to the extent eligible. As a result, a tax benefit of $32.8 million was classified as a current incometax receivable, and is not included in the $59.7 million U.S. net operating carryforward. The Company also had $21.6 million of non-U.S. netoperating loss carryforwards with indefinite expiration dates. The Company anticipates being able to fully utilize the losses prior to their expiration.Where the Company has unrecognized tax benefits in jurisdictions with existing net operating losses, the Company utilizes the unrecognized taxbenefits as a source of income to offset such losses.At December 31, 2016, the Company had $5.1 million of foreign tax credit carryforwards which will generally expire no later than 2025. TheCompany anticipates being able to fully utilize the foreign tax credits prior to their expiration.Goodwill from certain acquisitions is tax deductible due to the acquisition structure as an asset purchase or due to tax elections made by theCompany and the respective sellers at the time of acquisition.The Company believes that it is more likely than not that deferred tax assets at December 31, 2016 and 2015 will be utilized to offset futuretaxable income and the reversal of taxable temporary differences. Consequently, no valuation allowance has been recorded in the financialstatements.77Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)Taxes are provided as necessary with respect to non-U.S. earnings that are not permanently reinvested. For all other non-U.S. earnings, no U.S.taxes are provided because such earnings are intended to be reinvested indefinitely to finance non-U.S. activities. The determination of theamount of the unrecognized deferred tax liability for temporary differences related to investments in non-US subsidiaries is not practicable.The Company files income tax returns in the U.S. as well as in various states and non-U.S. jurisdictions. With few exceptions, the Company is nolonger subject to income tax examination by tax authorities in these jurisdictions prior to 2010.The Company accounts for uncertain tax positions in accordance with guidance in FASB ASC 740, which prescribes the minimum recognitionthreshold a tax position taken or expected to be taken in a tax return is required to meet before being recognized in the financial statements. Areconciliation of the beginning and ending amount of uncertain tax positions is as follows (in thousands):Balance at January 1, 2016 $8,410Additional based on tax positions related to prior years 1,785Additional based on tax positions related to current year 6,103Reduction based on tax positions related to prior years —Lapse of statute of limitations (2,078)Balance at December 31, 2016 14,220Deferred tax benefits on uncertain tax position related to U.S. and non-U.S. income tax —Net balance at December 31, 2016 $14,220The total amount of unrecognized tax benefits at December 31, 2016 was $14.2 million, of which it is reasonably possible that $1.3 million couldbe settled during the next twelve-month period as a result of the conclusion of various tax audits or due to the expiration of the applicable statuteof limitations. Substantially all of the unrecognized tax benefits at December 31, 2016 would impact the Company’s future effective income taxrate, if recognized.The Company recognizes interest and penalties related to uncertain tax positions within the provision for income taxes in the consolidatedstatement of income. As of December 31, 2016 and 2015, we had accrued approximately $0.5 million and $0.4 million, respectively, in interest andpenalties. During the years ended December 31, 2016 and 2015, we recognized no material change in the interest and penalties related touncertain tax positions.10. Fair value measurementsAt December 31, 2016, the Company had no debt outstanding under the Amended Credit Facility and all of the debt under this facility incursinterest at a variable interest rate and therefore, the carrying amount approximates fair value. The fair value of the debt is classified as a Level 2measurement because interest rates charged are similar to other financial instruments with similar terms and maturities.The fair value of the Company’s Senior Notes is estimated using Level 2 inputs in the fair value hierarchy and is based on quoted prices for thoseor similar instruments. At December 31, 2016, the fair value and the carrying value of the Company’s unsecured Senior Notes each approximated$402.0 million. At December 31, 2015, the fair value and the carrying value of the Company’s Senior Notes approximated $334.1million and $402.5 million, respectively.There were no other outstanding financial instruments as of December 31, 2016 and 2015 that required measuring the amounts at fair value on arecurring basis. The Company did not change its valuation techniques associated with recurring fair value measurements from prior periods andthere were no transfers between levels of the fair value hierarchy during the year ended December 31, 2016.78Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)11. Commitments and contingenciesLitigationIn the ordinary course of business, the Company is, and in the future, could be involved in various pending or threatened legal actions, some ofwhich may or may not be covered by insurance. Management has reviewed such pending judicial and legal proceedings, the reasonablyanticipated costs and expenses in connection with such proceedings, and the availability and limits of insurance coverage, and has establishedreserves that are believed to be appropriate in light of those outcomes that are believed to be probable and can be estimated. The reservesaccrued at December 31, 2016 and 2015 are immaterial. In the opinion of management, the Company's ultimate liability, if any, with respect tothese actions is not expected to have a material adverse effect on the Company’s financial position, results of operations or cash flows.Asbestos litigationOne of our subsidiaries has been named as one of many defendants in a number of product liability claims for alleged exposure to asbestos.These lawsuits are typically filed on behalf of plaintiffs who allege exposure to asbestos, against numerous defendants, often 40 or more, who mayhave manufactured or distributed products containing asbestos. The injuries alleged by plaintiffs in these cases range from mesothelioma andother cancers to asbestosis. The earliest claims against our subsidiary were filed in New Jersey in 1998, and our subsidiary currently has activecases in Missouri, New Jersey, New York, and Illinois. These complaints do not typically include requests for a specific amount of damages. Thetrademark for the product line with asbestos exposure was acquired in 1985. Our subsidiary has been successful in obtaining dismissals in manylawsuits where the exposure is alleged to have occurred prior to our acquisition of the trademark. The law in some states does not find purchasersof product lines to have tort liability for incidents occurring prior to the acquisition date unless they assumed the responsibility or in certain othercircumstances. The law in certain other states on so called “successor liability” may be different or ambiguous in this regard. Most claimantsalleging illnesses due to asbestos sue on the basis of exposure prior to 1985, as by that date the hazards of asbestos exposure were well knownand asbestos had begun to fall into disuse in industrial settings. To date, asbestos claims have not had a material adverse effect on our business,financial condition, results of operations, or cash flow, as our annual out-of-pocket costs over the last five years has been less than $200,000.There are typically fewer than 100 cases filed against our subsidiary each year, and a similar number of cases are dismissed, settled or otherwisedisposed of each year. We currently have fewer than 200 lawsuits pending against this subsidiary. Our subsidiary has over $17 million in faceamount of insurance per occurrence and over $23 million of aggregate primary insurance coverage; a portion of the coverage has been eroded bypayments made by insurers. In addition, our subsidiary has over $950 million in face amount of excess coverage applicable to the claims. Therecan be no guarantee that all of this can be collected due to policy terms and conditions and insurer insolvencies in the past or in the future. InJanuary 2011, we entered into an agreement with seven of our primary insurers under which they have agreed to pay 80% of the costs of handlingand settling each asbestos claim against the affected subsidiary. After an initial period, and under certain circumstances, our subsidiary and thesubscribing insurers may withdraw from this agreement.Portland Harbor Superfund litigationIn May 2009, one of the Company's subsidiaries (which is presently a dormant company with nominal assets except for rights under insurancepolicies) was named along with many defendants in a suit filed by the Port of Portland, Oregon seeking reimbursement of costs related to a five-year study of contaminated sediments at the port. In March 2010, the subsidiary also received a notice letter from the Environmental ProtectionAgency indicating that it had been identified as a potentially responsible party with respect to environmental contamination in the "study area" forthe Portland Harbor Superfund Site. Under a 1997 indemnity agreement, the subsidiary is indemnified by a third party with respect to lossesrelating to environmental contamination. As required under the indemnity agreement, the subsidiary provided notice of these claims, and theindemnitor has assumed responsibility and is providing a defense of the claims. Although the Company believes that it is unlikely that thesubsidiary contributed to the contamination at the Portland Harbor Superfund Site, the potential liability of the subsidiary and the ability of theindemnitor to fulfill its indemnity obligations cannot be quantified at this time.79Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)Operating leasesThe Company has operating leases for warehouse, office space, manufacturing facilities and equipment. The leases generally require theCompany to pay certain expenses including taxes, insurance, maintenance, and utilities. The minimum future lease commitments undernoncancelable leases in effect at December 31, 2016 are as follows:2017$15,455201812,526201910,93920208,98820217,858Thereafter10,253 $66,019Total rent expense was $18.6 million, $20.9 million and $20.8 million under operating leases for the years ended December 31, 2016, 2015 and2014, respectively.Letters of credit and guaranteesThe Company executes letters of credit in the normal course of business to secure the delivery of product from specific vendors and also toguarantee the Company fulfilling certain performance obligations relating to certain large contracts. At December 31, 2016, the Company had $17.0million in letters of credit.12. Stockholders' equity and employee benefit plansEquity offeringIn December 2016, the Company offered and sold 4.0 million shares of the Company's common stock and raised $85.1 million in cash (net ofexpenses) pursuant to a public equity offering.Employee benefit plansThe Company sponsors a 401(k) savings plan for US employees and related savings plans for certain non-US employees. These plans benefiteligible employees by allowing them the opportunity to make contributions up to certain limits. The Company contributes by matching a percentageof each employee's contributions. In 2015 and 2016, for certain plans, the Company suspended the matching of contributions. Subsequent to theclosing of all acquisitions, employees of those acquired entities will generally be eligible to participate in the Company's 401(k) savings plan. TheCompany also has the discretion to provide a profit sharing contribution to each participant depending on the Company’s performance for theapplicable year. The expense under the Company's plan was $1.4 million, $2.2 million, and $10.8 million for the years ended December 31, 2016,2015 and 2014, respectively.The Company has an Employee Stock Purchase Plan, which allows eligible employees to purchase shares of the Company's common stock atsix-month intervals through periodic payroll deductions at a price per share equal to 85% of the lower of the fair market value at the beginning andending of the six-month intervals.Stock repurchasesIn October 2014, the Board of Directors approved a share repurchase program for the repurchase of outstanding shares of the Company's commonstock with an aggregate purchase price of up to $150.0 million. The Company has purchased approximately 4.5 million shares primarily in 2014under this program for aggregate consideration of approximately $100.2 million. However, we recently amended our credit facility in 2016 whichprohibits us from repurchasing shares.80Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)13. Stock based compensationFET share-based compensation planIn August 2010 , the Company created the 2010 Stock Incentive Plan (the " 2010 Plan") to allow for employees, directors and consultants of theCompany and its subsidiaries to maintain stock ownership in the Company through the award of stock options, restricted stock, restricted stockunits or any combination thereof. Under the terms of the 2010 Plan, a total of 18.5 million shares were authorized for awards.In May 2016, the Company created a new 2016 Stock Incentive Plan (the " 2016 Plan"). Under the terms of the 2016 Plan, the aggregate numberof shares that may be issued may not exceed the number of shares reserved but not issued under the 2010 Plan as of May 17, 2016, the effectivedate of the 2016 plan, a total of 5.7 million shares. No further awards shall be made under the 2010 Plan after such date, and outstanding awardsgranted under the 2010 Plan shall continue to be outstanding. Approximately 5.6 million shares remained available under the 2016 Plan for futuregrants as of December 31, 2016.The total amount of share-based compensation expense recorded was approximately $20.5 million, $21.7 million and $18.8 million for the yearsended December 31, 2016, 2015 and 2014, respectively. As of December 31, 2016, the Company expects to record share-based compensationexpense of approximately $30.1 million over the remaining term of the restricted stock and options of approximately two years. Future stock optiongrants will result in additional compensation expense.Stock optionsThe exercise price of each option is based on the fair market value of the Company’s stock at the date of grant. Options generally have a ten-yearlife and vest annually in equal increments over three or four years. The Company’s policy for issuing stock upon a stock option exercise is toissue new shares. Compensation expense is generally recognized on a straight line basis over the vesting period. The following tables provideadditional information related to the options:2016 ActivityNumber of shares(in thousands) Weighted averageexercise price Remaining weightedaverage contractual lifein years Intrinsic value(in millions)Beginning balance5,250.4 $12.94 5.7 $15.1Granted818.6 $9.39 —Exercised(151.3) $11.31 —Forfeited/expired(46.6) $20.93 —Total outstanding5,871.1 $12.42 5.3 $59.1Options exercisable4,403.4 $11.74 4.2 $45.2The assumptions used in the Black-Scholes pricing model to estimate the fair value of the options granted in 2016, 2015 and 2014 are as follows: 2016 2015 2014Weighted average fair value$3.85 $6.36 $8.47Assumptions Expected life (in years)6.25 6.30 6.25Volatility40% 33% 27%Dividend yield—% —% —%Risk free interest rate1.40% 1.81% 1.96%The intrinsic value of the options exercised was $1.3 million in 2016, $3.9 million in 2015 and $24.8 million 2014. The intrinsic value is the amountby which the fair value of the underlying share exceeds the exercise price of an option.81Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)Restricted stockRestricted stock generally vests over a three or four year period from the date of grant. Further information about the restricted stock follows(shares in thousands): 2016 Activity Nonvested at beginning of year204.2Granted397.2Vested(174.1)Forfeited(9.5)Nonvested at the end of year417.8The weighted average grant date fair value of the restricted stock was $10.28, $18.87 and $31.71 per share during the years ended December 31,2016, 2015, and 2014, respectively. The total fair value of shares vested was $3.9 million during 2016, $5.1 million during 2015 and $10.9 millionduring 2014.Restricted stock unitsRestricted stock units generally vest over a four year period from the date of grant. Further information about the restricted stock units follows(shares in thousands):Restricted stock units 2016 Activity Nonvested at beginning of year1,212.2Granted1,075.8Vested(363.8)Forfeited(159.1)Nonvested at the end of year1,765.1The weighted average grant date fair value of the restricted stock units was $9.74, $18.06 and $27.81 per share during the years endedDecember 31, 2016, 2015, and 2014, respectively. The total fair value of units vested was $8.4 million, $6.7 million, and $3.0 million during 2016,2015, and 2014 .Performance share awardsDuring 2016, the Company granted 257,900 performance share awards with service-vesting and market-vesting conditions. These awards maysettle between zero and two shares of the Company's common stock. The number of shares issued pursuant to the performance share awards willbe determined based on the total shareholder return of the Company's common stock as compared to a group of peer companies, measuredannually over a one year, two year, and three-year performance period.14. Related party transactionsThe Company has sold and purchased inventory, services and fixed assets to and from various affiliates of certain directors. The dollar amountsrelated to these related party activities are not significant to the Company’s consolidated financial statements.82Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)15. Business segmentsBeginning with the first quarter of 2016, the Company realigned its segments. Several product lines were combined into a new segment,designated as the Completions segment, in recognition of the expanded operations and their significant growth potential. The Company is reportingits results of operations in the following three reportable segments: Drilling & Subsea , Completions and Production & Infrastructure, instead of theoriginal two reportable segments. Management’s change in the composition of the Company’s reporting segments was made in order to align withactivity drivers and the customers of our product group, and how management reviews and evaluates operating performance. This change isreflected on a retrospective basis in accordance with GAAP.The Drilling & Subsea segment designs, manufactures and supplies products and provides related services to the drilling and subsea constructionand services markets. The Completions segment designs, manufactures and supplies products and provides related services to the wellconstruction, completion, stimulation, and intervention markets. The Production & Infrastructure segment designs, manufactures and suppliesproducts, and provides related equipment and services for production and infrastructure markets.The Company’s reportable segments are strategic units that offer distinct products and services. They are managed separately since eachbusiness segment requires different marketing strategies. Operating segments have not been aggregated as part of a reportable segment. TheCompany evaluates the performance of its reportable segments based on operating income. This segmentation is representative of the manner inwhich our Chief Operating Decision Maker and our Board of Directors view the business. We consider the Chief Operating Decision Maker to bethe Chief Executive Officer.83Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)The amounts indicated below as "Corporate" relate to costs and assets not allocated to the reportable segments. Summary financial data bysegment follows (in thousands): Year ended December 31, 2016 2015 2014Net sales: Drilling & Subsea $227,872 $487,299 $864,320Completions 127,432 267,236 441,345Production & Infrastructure 233,754 320,442 436,271Intersegment eliminations (1,423) (1,325) (2,219)Total net sales $587,635 $1,073,652 $1,739,717 Operating income (loss): Drilling & Subsea $(53,589) $6,890 $131,072Completions (45,075) 11,124 126,590Production & Infrastructure 655 22,658 56,148Corporate (27,440) (28,077) (42,015)Total segment operating income (loss) (125,449) 12,595 271,795Intangible asset and goodwill impairment — 125,092 —Transaction expenses 865 480 2,326(Gain)/loss on sale of assets 2,638 746 1,431Income (loss) from operations $(128,952) $(113,723) $268,038 Depreciation and amortization Drilling & Subsea $27,765 $33,348 $36,148Completions 23,405 24,317 20,135Production & Infrastructure 4,935 7,377 7,856Corporate 5,655 641 933Total depreciation and amortization $61,760 $65,683 $65,072 Capital expenditures Drilling & Subsea $7,822 $13,803 $22,891Completions 2,509 8,401 19,942Production & Infrastructure 1,953 3,102 4,569Corporate 4,544 6,985 6,390Total capital expenditures $16,828 $32,291 $53,792A summary of consolidated assets by reportable segment is as follows (in thousands): As of December 31,Assets 2016 2015 2014Drilling & Subsea $786,455 $912,324 $1,204,416Completions 675,987 728,745 726,972Production & Infrastructure 175,940 187,741 231,771Corporate 196,810 57,232 50,943Total assets $1,835,192 $1,886,042 $2,214,102Corporate assets include primarily deferred tax assets and deferred loan costs.84Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)Net sales by shipping destination and long-lived assets by country were as follows (in thousands): Year ended December 31,Net sales: 2016 2015 2014 $% $% $%United States $361,94161.7% $646,92860.3% $1,049,60960.3%Europe & Africa 77,84713.2% 188,41417.5% 305,37617.6%Asia-Pacific 51,8808.8% 69,9236.5% 154,6698.9%Middle East 25,9754.4% 59,6805.6% 65,4983.8%Canada 42,5207.2% 57,8375.4% 103,0775.9%Latin America 27,4724.7% 50,8704.7% 61,4883.5%Total net sales $587,635100.0% $1,073,652100.0% $1,739,717100.0% As of December 31,Long-lived assets: 2016 2015 2014United States $809,545 $869,388 $932,173Europe & Africa 184,768 202,852 313,589Canada 79,403 83,688 59,207Asia-Pacific 7,855 8,192 9,132Middle East 3,175 3,189 3,192Latin America 730 921 1,650Total long-lived assets $1,085,476 $1,168,230 $1,318,943Net sales by product lines were as follows (in thousands): Year ended December 31, Net sales: 2016 2015 2014 $% $% $%Drilling Technologies $139,45823.7 % $298,20927.7 % $543,28131.1 %Subsea Technologies 88,41415.0 % 189,09017.6 % 321,03918.5 %Downhole Technologies 55,1919.4 % 106,5329.9 % 190,77111.0 %Stimulation and Intervention 72,24112.3 % 160,70415.0 % 250,57414.4 %Production Equipment 77,16613.1 % 145,92713.6 % 228,81513.2 %Valve Solutions 156,58826.6 % 174,51516.3 % 207,45611.9 %Eliminations (1,423)(0.1)% (1,325)(0.1)% (2,219)(0.1)%Total net sales $587,635100.0 % $1,073,652100.0 % $1,739,717100.0 %85Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)16. Condensed consolidating financial statementsThe Senior Notes are guaranteed by our domestic subsidiaries which are 100% owned, directly or indirectly, by the Company. The guarantees arefull and unconditional, joint and several and on an unsecured basis.Condensed consolidating statements of operations and comprehensive income (loss) December 31, 2016 FET (Parent) GuarantorSubsidiaries Non-GuarantorSubsidiaries Eliminations Consolidated (in thousands) Net sales $— $436,785 $198,684 $(47,834) $587,635Cost of sales — 375,509 161,190 (48,799) 487,900Gross profit — 61,276 37,494 965 99,735Operating expenses Selling, general and administrative expenses — 187,974 39,034 — 227,008Transaction expenses — 825 40 — 865Loss on sale of assets — 2,616 22 — 2,638Total operating expenses — 191,415 39,096 — 230,511Earnings (loss) from equity investment — 1,824 — — 1,824Equity earnings from affiliate, net of tax (62,180) 14,663 — 47,517 —Operating income (loss) (62,180) (113,652) (1,602) 48,482 (128,952)Other expense (income) Interest expense 27,480 (110) 40 — 27,410Foreign exchange (gains) losses and other, net — (5,264) (16,077) — (21,341)Deferred loan costs written off 2,978 — — — 2,978Total other expense (income) 30,458 (5,374) (16,037) — 9,047Income (loss) before income taxes (92,638) (108,278) 14,435 48,482 (137,999)Provision for income tax expense (benefit) (10,660) (46,098) 707 — (56,051)Net income (loss) (81,978) (62,180) 13,728 48,482 (81,948)Less: Loss attributable to noncontrolling interest — — 30 — 30Net income (loss) attributable to commonstockholders (81,978) (62,180) 13,698 48,482 (81,978) Other comprehensive income (loss), net of tax: Net income (loss) (81,978) (62,180) 13,728 48,482 (81,948)Change in foreign currency translation, net of tax of $0 (45,722) (45,722) (45,722) 91,444 (45,722)Change in pension liability (335) (335) (335) 670 (335)Comprehensive income (loss) (128,035) (108,237) (32,329) 140,596 (128,005)Less: comprehensive (income) loss attributable tononcontrolling interests — — (162) — (162)Comprehensive income (loss) attributable to commonstockholders $(128,035) $(108,237) $(32,491) $140,596 $(128,167)86Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)Condensed consolidating statements of operations and comprehensive income (loss) December 31, 2015 FET (Parent) GuarantorSubsidiaries Non-GuarantorSubsidiaries Eliminations Consolidated (in thousands) Net sales $— $810,890 $369,186 $(106,424) $1,073,652Cost of sales — 646,076 269,900 (105,001) 810,975Gross profit — 164,814 99,286 (1,423) 262,677Operating expenses Selling, general and administrative expenses — 201,904 63,002 — 264,906Goodwill and intangible assets impairment — 57,392 67,700 — 125,092Transaction expenses — 480 — — 480(Gain) loss on sale of assets — 943 (197) — 746Total operating expenses — 260,719 130,505 — 391,224Earnings from equity investment — 14,824 — — 14,824Equity earnings from affiliate, net of tax (99,908) (28,419) — 128,327 —Operating income (loss) (99,908) (109,500) (31,219) 126,904 (113,723)Other expense (income) Interest expense 29,914 10 21 — 29,945Foreign exchange (gains) losses and other, net — (479) (8,866) — (9,345)Total other expense (income) 29,914 (469) (8,845) — 20,600Income (loss) before income taxes (129,822) (109,031) (22,374) 126,904 (134,323)Provision (benefit) for income tax expense (10,469) (9,123) 4,653 — (14,939)Net income (loss) (119,353) (99,908) (27,027) 126,904 (119,384)Less: Loss attributable to noncontrolling interest — — (31) — (31)Net income (loss) attributable to commonstockholders (119,353) (99,908) (26,996) 126,904 (119,353) Other comprehensive income (loss), net of tax: Net income (loss) (119,353) (99,908) (27,027) 126,904 (119,384)Change in foreign currency translation, net of tax of $0 (45,270) (45,270) (45,270) 90,540 (45,270)Change in pension liability 46 46 46 (92) 46Comprehensive income (loss) (164,577) (145,132) (72,251) 217,352 (164,608)Less: comprehensive (income) loss attributable tononcontrolling interests — — 168 — 168Comprehensive income (loss) attributable to commonstockholders $(164,577) $(145,132) $(72,083) $217,352 $(164,440)87Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)Condensed consolidating statements of operations and comprehensive income December 31, 2014 FET (Parent) GuarantorSubsidiaries Non-GuarantorSubsidiaries Eliminations Consolidated (in thousands) Net sales $— $1,266,376 $637,205 $(163,864) $1,739,717Cost of sales — 887,428 453,785 (160,948) 1,180,265Gross profit — 378,948 183,420 (2,916) 559,452Operating expenses Selling, general and administrative expenses — 244,577 68,244 — 312,821Other operating expense — 3,564 193 — 3,757Total operating expenses — 248,141 68,437 — 316,578Earnings (loss) from equity investment — 25,164 — — 25,164Equity earnings from affiliate, net of tax 193,724 90,067 — (283,791) —Operating income 193,724 246,038 114,983 (286,707) 268,038Other expense (income) Interest expense 29,783 78 (14) — 29,847Interest income with affiliate — (5,770) — 5,770 —Interest expense with affiliate — — 5,770 (5,770) —Foreign exchange (gains) losses and other, net — 116 (4,447) — (4,331)Total other expense (income) 29,783 (5,576) 1,309 — 25,516Income before income taxes 163,941 251,614 113,674 (286,707) 242,522Provision for income tax expense (10,424) 57,890 20,679 — 68,145Net income 174,365 193,724 92,995 (286,707) 174,377Less: Income attributable to noncontrolling interest — — 12 — 12Net income attributable to common stockholders 174,365 193,724 92,983 (286,707) 174,365 Other comprehensive income, net of tax: Net income 174,365 193,724 92,995 (286,707) 174,377Change in foreign currency translation, net of tax of $0 (43,694) (43,694) (43,694) 87,388 (43,694)Change in pension liability (1,110) (1,110) (1,110) 2,220 (1,110)Comprehensive income 129,561 148,920 48,191 (197,099) 129,573Less: comprehensive (income) loss attributable tononcontrolling interests — — 46 — 46Comprehensive income attributable to commonstockholders $129,561 $148,920 $48,237 $(197,099) $129,61988Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)Condensed consolidating balance sheets December 31, 2016 FET (Parent) GuarantorSubsidiaries Non-GuarantorSubsidiaries Eliminations Consolidated (in thousands) Assets Current assets Cash and cash equivalents $65 $143,275 $91,082 $— $234,422Accounts receivable—trade, net — 77,229 28,039 — 105,268Inventories — 269,036 77,987 (8,440) 338,583Income tax receivable — 32,801 — — 32,801Cost and profits in excess of billings — 4,477 4,722 — 9,199Other current assets — 21,013 8,430 — 29,443Total current assets 65 547,831 210,260 (8,440) 749,716Property and equipment, net of accumulated depreciation — 127,094 25,118 — 152,212Deferred financing costs, net 1,112 — — — 1,112Deferred income taxes, net — — 851 — 851Intangibles — 166,437 49,981 — 216,418Goodwill — 481,374 171,369 — 652,743Investment in unconsolidated subsidiary — 59,140 — — 59,140Investment in affiliates 1,080,337 460,166 — (1,540,503) —Long-term loan and advances to affiliates 557,061 — 71,057 (628,118) —Other long-term assets — 2,322 678 — 3,000Total assets $1,638,575 $1,844,364 $529,314 $(2,177,061) $1,835,192Liabilities and equity Current liabilities Current portion of long-term debt $— $23 $101 $— $124Accounts payable—trade — 59,261 14,514 — 73,775Accrued liabilities 6,708 40,630 8,266 — 55,604Deferred revenue — 1,206 7,132 — 8,338Billings in excess of costs and profits recognized — 1,799 2,205 — 4,004Total current liabilities 6,708 102,919 32,218 — 141,845Long-term debt, net of current portion 396,665 — 82 — 396,747Long-term loans and payables to affiliates — 628,118 — (628,118) —Deferred income taxes, net — 17,650 8,535 — 26,185Other long-term liabilities — 15,340 19,314 — 34,654Total liabilities 403,373 764,027 60,149 (628,118) 599,431 Total stockholder's equity 1,235,202 1,080,337 468,606 (1,548,943) 1,235,202Noncontrolling interest in subsidiary — — 559 — 559Equity 1,235,202 1,080,337 469,165 (1,548,943) 1,235,761Total liabilities and equity $1,638,575 $1,844,364 $529,314 $(2,177,061) $1,835,19289Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)Condensed consolidating balance sheets December 31, 2015 FET (Parent) GuarantorSubsidiaries Non-GuarantorSubsidiaries Eliminations Consolidated (in thousands) Assets Current assets Cash and cash equivalents $— $36,884 $72,365 $— $109,249Accounts receivable—trade, net — 85,537 53,060 — 138,597Inventories — 318,360 115,165 (9,404) 424,121Cost and profits in excess of billings — 6,477 5,532 — 12,009Other current assets — 25,447 8,389 — 33,836Total current assets — 472,705 254,511 (9,404) 717,812Property and equipment, net of accumulated depreciation — 153,995 32,672 — 186,667Deferred financing costs, net 4,125 — — — 4,125Deferred income taxes, net — — 780 — 780Intangibles — 186,234 60,416 — 246,650Goodwill — 481,374 187,662 — 669,036Investment in unconsolidated subsidiary — 57,719 — — 57,719Investment in affiliates 1,188,707 514,893 — (1,703,600) —Long-term advances to affiliates 467,184 — 60,221 (527,405) —Other long-term assets — 2,549 704 — 3,253Total assets $1,660,016 $1,869,469 $596,966 $(2,240,409) $1,886,042Liabilities and equity Current liabilities Current portion of long-term debt $— $243 $10 $— $253Accounts payable—trade — 57,529 19,294 — 76,823Accrued liabilities 7,026 40,875 10,662 — 58,563Deferred revenue — 1,334 5,949 — 7,283Billings in excess of cost and profit recognized — 1,872 6,759 — $8,631Total current liabilities 7,026 101,853 42,674 — 151,553Long-term debt, net of current portion 395,970 34 12 — 396,016Long-term payables to affiliates — 527,406 — (527,406) —Deferred income tax, net $— $36,937 $14,163 $— 51,100Other long-term liabilities — 14,533 15,423 — 29,956Total liabilities 402,996 680,763 72,272 (527,406) 628,625 Total stockholder's equity 1,257,020 1,188,706 524,297 (1,713,003) 1,257,020Noncontrolling interest in subsidiary — — 397 — 397Equity 1,257,020 1,188,706 524,694 (1,713,003)1,257,417Total liabilities and equity $1,660,016 $1,869,469 $596,966 $(2,240,409) $1,886,04290Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)Condensed consolidating statements of cash flows Year ended December 31, 2016 FET (Parent) GuarantorSubsidiaries Non-GuarantorSubsidiaries Eliminations Consolidated (in thousands) Cash flows from (used in) operating activities $(16,882) $31,055 $73,772 $(23,203) $64,742Cash flows from investing activities Acquisition of businesses, net of cash acquired — (4,072) — — (4,072)Capital expenditures for property and equipment — (12,033) (4,795) — (16,828)Long-term loans and advances to affiliates (69,340) 12,912 — 56,428 —Other — 9,442 321 — 9,763Net cash provided by (used in) investing activities (69,340) 6,249 (4,474) 56,428 (11,137)Cash flows from financing activities Borrowings under credit facility — — — — —Repayment of long-term debt — — — — —Long-term loans and advances to affiliates — 69,340 (12,912) (56,428) —Dividend paid to affiliates — — (23,203) 23,203 —Repurchases of stock (623) — — — (623)Proceeds from stock issuance 87,676 — — — 87,676Other (766) (253) 161 — (858)Net cash provided by (used in) financing activities 86,287 69,087 (35,954) (33,225) 86,195Effect of exchange rate changes on cash — — (14,627) — (14,627)Net increase (decrease) in cash and cashequivalents 65 106,391 18,717 — 125,173Cash and cash equivalents Beginning of period — 36,884 72,365 — 109,249End of period $65 $143,275 $91,082 $— $234,42291Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)Condensed consolidating statements of cash flows Year ended December 31, 2015 FET (Parent) GuarantorSubsidiaries Non-GuarantorSubsidiaries Eliminations Consolidated (in thousands) Cash flows from (used in) operating activities $(17,306) $112,629 $60,590 $— $155,913Cash flows from investing activities Acquisition of businesses, net of cash acquired — (60,836) — — (60,836)Capital expenditures for property and equipment — (23,035) (9,256) — (32,291)Long-term loans and advances to affiliates 38,019 41,755 — (79,774) —Other — 1,057 764 — 1,821Net cash provided by (used in) investing activities 38,019 (41,059) (8,492) (79,774) (91,306)Cash flows from financing activities Borrowings under credit facility 94,984 — — — 94,984Repayment of long-term debt (120,077) — — — (120,077)Long-term loans and advances to affiliates — (38,019) (41,755) 79,774 —Repurchases of stock (6,438) — — — (6,438)Proceeds from stock issuance 5,275 — — — 5,275Other (8) (673) — — (681)Net cash provided by (used in) financing activities (26,264) (38,692) (41,755) 79,774 (26,937)Effect of exchange rate changes on cash — — (5,000) — (5,000)Net increase (decrease) in cash and cashequivalents (5,551) 32,878 5,343 — 32,670Cash and cash equivalents Beginning of period 5,551 4,006 67,022 — 76,579End of period $— $36,884 $72,365 $— $109,24992Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)Condensed consolidating statements of cash flows Year ended December 31, 2014 FET (Parent) GuarantorSubsidiaries Non-GuarantorSubsidiaries Eliminations Consolidated (in thousands) Cash flows from (used in) operating activities $(16,796) $175,700 $111,062 $— $269,966Cash flows from investing activities Acquisition of businesses, net of cash acquired — — (38,289) — (38,289)Capital expenditures for property and equipment — (42,334) (11,458) — (53,792)Long-term loans and advances to affiliates 191,290 34,010 — (225,300) —Other — 20,862 528 — 21,390Net cash provided by (used in) investing activities 191,290 12,538 (49,219) (225,300) (70,691)Cash flows from financing activities Borrowings under credit facility 15,000 423 — — 15,423Repayment of long-term debt (98,406) 124 (133) — (98,415)Long-term loans and advances to affiliates — (191,290) (34,010) 225,300 —Repurchase of stock (96,632) — — — (96,632)Proceeds from stock issuance 11,101 — — — 11,101Other (6) 6,511 — — 6,505Net cash provided by (used in) financing activities (168,943) (184,232) (34,143) 225,300 (162,018)Effect of exchange rate changes on cash — — (260) — (260)Net increase (decrease) in cash and cashequivalents 5,551 4,006 27,440 — 36,997Cash and cash equivalents Beginning of period — — 39,582 — 39,582End of period $5,551 $4,006 $67,022 $— $76,57993Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)17. Quarterly results of operations (unaudited)The following tables summarize the Company's results by quarter for the years ended December 31, 2016 and 2015. The quarterly results may notbe comparable primarily due to acquisitions in 2016, 2015 and 2014. Refer to Note 3, Acquisitions, for further information. 2016(in thousands, except per share information)Q1 Q2 Q3 Q4Net sales$159,441 $142,723 $138,268 $147,203Cost of sales124,884 137,442 108,984 116,590Gross profit34,557 5,281 29,284 30,613Total operating expenses60,147 58,375 55,920 56,069Earnings from equity investment577 216 414 617Operating income (loss)(25,013) (52,878) (26,222) (24,839)Total other expense8,341 (3,229) 3,594 341Income (loss) before income taxes(33,354) (49,649) (29,816) (25,180)Provision for income tax expense (benefit)(10,406) (21,147) (11,821) (12,677)Net income (loss)(22,948) (28,502) (17,995) (12,503)Less: loss attributable to noncontrolling interest(5) 35 (6) 6Net income (loss) attributable to common stockholders$(22,943) $(28,537) $(17,989) $(12,509) Weighted average shares outstanding Basic90,477 90,707 90,860 91,923Diluted90,477 90,707 90,860 91,923Earnings (loss) per share Basic$(0.25) $(0.31) $(0.20) $(0.14)Diluted$(0.25) $(0.31) $(0.20) $(0.14)94Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued) 2015(in thousands, except per share information)Q1 Q2 Q3 Q4Net sales$348,096 $284,415 $244,993 $196,148Cost of sales238,970 199,532 179,231 193,242Gross profit109,126 84,883 65,762 2,906Total operating expenses (1)73,465 66,285 57,439 194,035Earnings from equity investment4,571 3,840 3,870 2,543Operating income (loss)40,232 22,438 12,193 (188,586)Total other expense971 11,662 4,543 3,424Income (loss) before income taxes39,261 10,776 7,650 (192,010)Provision (benefit) for income tax expense10,605 1,911 932 (28,387)Net income (loss)28,656 8,865 6,718 (163,623)Less: Income (loss) attributable to noncontrolling interest(16) (9) (2) (4)Net income (loss) attributable to common stockholders$28,672 $8,874 $6,720 $(163,619) Weighted average shares outstanding Basic89,482 89,767 90,058 90,175Diluted91,469 91,884 91,687 90,175Earnings (loss) per share Basic$0.32 $0.10 $0.07 $(1.81)Diluted$0.31 $0.10 $0.07 $(1.81)(1) Total Operating expenses in Q4 included $125,092 goodwill and intangible assets impairment.18. Subsequent eventOn January 9, 2017, the Company acquired substantially all of the assets of Cooper Valves, LLC (“Cooper”) as well as 100% of the generalpartnership interests of Innovative Valve Components for total aggregate consideration of $14.5 million. The acquired Cooper brands include theAccuseal® metal seated ball valves engineered to meet Class VI shut off standards for use in severe service applications, as well as a full line ofcast and forged gate, globe, and check valves. Innovative Valve Components, in partnership with Cooper Valves, commercialized critical servicevalves and components for the power generation, mining and oil and natural gas industries. The fair values of the assets acquired and liabilitiesassumed have not been presented because they are not material to the audited consolidated financial statements. Pro forma results of operationsfor this acquisition have not been presented because the effects were not material to the consolidated financial statements.95Table of ContentsItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone.Item 9A. Controls and ProceduresEvaluation of Disclosure Controls and ProceduresWe maintain disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Our management, underthe supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of ourdisclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of December 31, 2016. Based on that evaluation, our ChiefExecutive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2016 toprovide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded,processed, summarized, and reported within the time periods specified in the SEC's rules and forms. Our disclosure controls and proceduresinclude controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Actis accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allowtimely decisions regarding required disclosure.Management’s Report on Internal Control Over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting. Management’s intent is todesign a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with GAAP in the United States of America.Our management performed an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2016, utilizingthe criteria described in the “Internal Control - Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the TreadwayCommission. Based on our assessment, management believes that, as of December 31, 2016, the Company’s internal control over financialreporting is effective.Our independent registered public accounting firm, PricewaterhouseCoopers LLP, independently assessed the effectiveness of our internal controlover financial reporting as of December 31, 2016, as stated in their report which appears herein.Changes in Internal Control over Financial ReportingThere were no changes in our internal control over financial reporting during the quarter ended December 31, 2016 that have materially affected, orare reasonably likely to materially affect, our internal control over financial reporting.Item 9B. Other informationNone.Item 10. Directors, executive officers and corporate governanceInformation required by this item is incorporated herein by reference from our Proxy Statement for the 2016 Annual Meeting of Stockholders.Code of EthicsWe have adopted a Financial Code of Ethics, which applies to our Chief Executive Officer, Chief Financial Officer (or other principal financialofficer), Controller (or other principal accounting officer) and other senior financial officers. We have posted a copy of the code under "CorporateGovernance" in the "Investors" section of our internet website at www.f-e-t.com. Copies of the code may be obtained free of charge on ourwebsite. Any waivers of the code must be approved by our Board of Directors or a designated committee of our Board of Directors. Any change to,or waiver from, the Code of Ethics will be promptly disclosed as required by applicable U.S. federal securities laws and the corporate governancerules of the NYSE.96Table of ContentsItem 11. Executive compensationInformation required by this item is incorporated herein by reference from our Proxy Statement for the 2017 Annual Meeting of Stockholders.Item 12. Security ownership of certain beneficial owners and management and related stockholder mattersInformation required by this item is incorporated herein by reference from our Proxy Statement for the 2017 Annual Meeting of Stockholders.Item 13. Certain Relationships and Related Transactions, and Director IndependenceInformation required by this item is incorporated herein by reference from our Proxy Statement for the 2017 Annual Meeting of Stockholders.Item 14. Principal accountant fees and servicesInformation required by this item is incorporated herein by reference from our Proxy Statement for the 2017 Annual Meeting of Stockholders.Item 15. Exhibits(a) The following documents are filed as part of this Annual Report on Form 10-K:1. Financial Statements filed as part of this reportIndex to Consolidated Financial StatementsPageReport of Independent Registered Public Accounting Firm57Consolidated Statements of Comprehensive Income (loss)58Consolidated Balance Sheets59Consolidated Statements of Cash Flows60Consolidated Statements of Changes in Stockholders’ Equity61Notes to Consolidated Financial Statements622. Financial Statement SchedulesAll financial statement schedules have been omitted since the required information is not applicable or is not present in amounts sufficient torequire submission of the schedule, or because the information required is included on the Consolidated Financial Statements and Notes thereto.3. ExhibitsIndex to ExhibitsExhibit Number DESCRIPTION2.1*—Combination Agreement dated July 16, 2010 by and among Forum Oilfield Technologies, Inc., Allied Production Services,Inc., Allied Merger Sub, LLC, Global Flow Technologies, Inc., Global Flow Merger Sub, LLC, Subsea ServicesInternational, Inc., Subsea Merger Sub, LLC, Triton Group Holdings LLC, Triton Merger Sub, LLC and SCF-VII, L.P.(incorporated herein by reference to Exhibit 2.1 to the Company's Registration Statement on Form S-1 File No. 333-180676(the "Registration Statement"), filed on August 31, 2011). 3.1*—Third Amended and Restated Certificate of Incorporation of Forum Energy Technologies, Inc. dated March 28, 2011(incorporated herein by reference to Exhibit 3.2 to Amendment No. 5 to the Registration Statement, filed on March 29,2012). 3.2*—Second Amended and Restated Bylaws of Forum Energy Technologies, Inc. dated April 17, 2012 (incorporated herein byreference to Exhibit 3.1 on the Company's Current Report on Form 8-K, filed on April 17, 2012). 97Table of Contents4.1*—Indenture, dated October 2, 2013, among Forum Energy Technologies, Inc., the guarantors named therein and Wells FargoBank, National Association, as Trustee (incorporated herein by reference to Exhibit 4.1 to the Company’s Current Reporton Form 8-K, filed on October 4, 2013). 4.2*—Registration Rights Agreement by and among Forum Energy Technologies and the other parties thereto (incorporatedherein by reference to Exhibit B to Exhibit 4.2 to the Registration Statement, filed on August 31, 2011). 4.3*—Form of Common Stock Certificate (incorporated herein by reference to Exhibit 4.1 to Amendment No. 3 to theRegistration Statement, filed on December 29, 2011). 4.4*—Form of Note (incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K, filed onOctober 4, 2013). 10.1*—Stock Purchase Agreement between Forum Energy Technologies, Inc. and Tinicum, L.P., dated as of March 28, 2012(incorporated herein by reference to Exhibit 10.30 to Amendment No. 5 to the Registration Statement, filed on March 29,2012). 10.2*—Second Amended and Restated Credit Agreement, dated as of November 26, 2013, among Forum Energy Technologies,Inc., Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto (incorporated hereinby reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on November 29, 2013). 10.3*#—Form of Restricted Stock Unit Agreement (Directors) (incorporated herein by reference to Exhibit 10.1 to the Company'sQuarterly Report on Form 10-Q, filed on April 29, 2014). 10.4*#—Form of Restricted Stock Agreement (Directors) (incorporated herein by reference to Exhibit 10.2 to the Company'sQuarterly Report on Form 10-Q, filed on April 29, 2014). 10.5*#—Form of Restricted Stock Unit Agreement (Employees and Consultants) (incorporated herein by reference to Exhibit 10.3to the Company's Quarterly Report on Form 10-Q, filed April 29, 2014). 10.6*#—Form of Nonstatutory Stock Option Agreement (Employees and Consultants) (incorporated herein by reference to Exhibit10.4 to the Company's Quarterly Report on Form 10-Q, filed on April 29, 2014). 10.7*#—Form of Performance Share Award Agreement (Employees and Consultants) (incorporated herein by reference to Exhibit10.5 to the Company's Quarterly Report on Form 10-Q, filed on April 29, 2014). 10.8*# Form of Restricted Stock Unit Agreement (Directors) (incorporated herein by reference to Exhibit 10.1 to the Company'sQuarterly Report on Form 10-Q, filed on May 1, 2015). 10.9*# Form of Restricted Stock Agreement (Directors) (incorporated herein by reference to Exhibit 10.2 to the Company'sQuarterly Report on Form 10-Q, filed on May 1, 2015). 10.10*# Form of Restricted Stock Unit Agreement (Employees and Consultants) (incorporated herein by reference to Exhibit 10.3to the Company's Quarterly Report on Form 10-Q, filed May 1, 2015). 10.11*# Form of Nonstatutory Stock Option Agreement (Employees and Consultants) (incorporated herein by reference to Exhibit10.4 to the Company's Quarterly Report on Form 10-Q, filed on May 1, 2015). 10.12*# Form of Performance Share Award Agreement (Employees and Consultants) (incorporated herein by reference to Exhibit10.5 to the Company's Quarterly Report on Form 10-Q, filed on May 1, 2015). 10.13*# Form of Restricted Stock Unit Agreement - Three Year Cliff Vesting (Employees and Consultants) (incorporated herein byreference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q, filed on October 30, 2015). 10.14*# Form of Nonstatutory Stock Option Agreement - Three Year Cliff Vesting (Employees and Consultants) (incorporatedherein by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q, filed on October 30, 2015). 10.15*#—Employment Agreement dated as of August 2, 2010 between Forum Energy Technologies, Inc. and C. Christopher Gaut(incorporated herein by reference to Exhibit 10.2 to the Registration Statement, filed on August 31, 2011). 98Table of Contents10.16*#—Employment Agreement dated as of August 2, 2010 between Forum Energy Technologies, Inc. and James W. Harris(incorporated herein by reference to Exhibit 10.6 to the Registration Statement, filed on August 31, 2011). 10.17*#—Employment Agreement dated as of October 25, 2010 between Forum Energy Technologies, Inc. and James L. McCulloch(incorporated herein by reference to Exhibit 10.7 to the Registration Statement, filed on August 31, 2011). 10.18*#—Amendment to Employment Agreement dated as of April 12, 2012 between Forum Energy Technologies, Inc. and C.Christopher Gaut (incorporated herein by reference to Exhibit 10.2 on the Company's Current Report on Form 8-K, filed onApril 17, 2012). 10.19*#—Amendment to Employment Agreement dated as of April 12, 2012 between Forum Energy Technologies, Inc. and JamesW. Harris (incorporated herein by reference to Exhibit 10.4 on the Company's Current Report on Form 8-K, filed on April 17,2012). 10.20*#—Amendment to Employment Agreement dated as of April 12, 2012 between Forum Energy Technologies, Inc. and JamesL. McCulloch (incorporated herein by reference to Exhibit 10.5 on the Company's Current Report on Form 8-K, filed on April17, 2012). 10.21*#—Indemnification Agreement dated as of August 2, 2010 between Forum Energy Technologies and C. Christopher Gaut(incorporated herein by reference to Exhibit 10.9 to the Registration Statement, filed on August 31, 2011). 10.22*#—Form of Indemnification Agreement between Forum Energy Technologies, Inc. and the executive officers identified onAnnex A thereto (incorporated herein by reference to Exhibit 10.10 to the Registration Statement, filed on August 31,2011). 10.23*#—Form of Indemnification Agreement between Forum Energy Technologies and each of the non-SCF directors identified onAnnex A thereto (incorporated herein by reference to Exhibit 10.11 to the Registration Statement, filed on August 31,2011). 10.24*#—Form of Indemnification Agreement between Forum Energy Technologies and each of the SCF directors identified onAnnex A thereto (incorporated herein by reference to Exhibit 10.12 to the Registration Statement, filed on August 31,2011). 10.25*#—Forum Energy Technologies, Inc. Severance Plan (incorporated herein by reference to Exhibit 10.15 to the RegistrationStatement, filed on August 31, 2011). 10.26*#—Forum Energy Technologies, Inc. Deferred Compensation and Restoration Plan (incorporated herein by reference toExhibit 10.6 to the Company's Current Report on Form 10-Q, filed on May 3, 2013). 10.27*#—Letter Agreement dated March 28, 2012 between Forum Energy Technologies, Inc. and Tinicum, L.P. (incorporated hereinby reference to Exhibit 10.31 to Amendment No. 5 to the Registration Statement, filed on March 29, 2012). 10.28*#—Forum Energy Technologies, Inc. 2010 Stock Incentive Plan (as amended and restated effective August 15, 2012). 10.29*#—Employee Stock Purchase Plan (incorporated herein by reference to Exhibit 10.6 to the Company's Quarterly Report onForm 10-Q, filed on August 2, 2013). 10.30*#—Subscription Agreement dated July 16, 2010 by and among Forum Oilfield Technologies, Inc., SCF-VII, L.P., SunrayCapital, LP, C. Christopher Gaut and W. Patrick Connelly, as amended (incorporated herein by reference to Exhibit 10.21to the Registration Statement, filed on August 31, 2011). 10.31*#—Retirement and Separation Agreement, effective as of December 18, 2014 (incorporated herein by reference to Exhibit10.1 to the Company’s Current Report on Form 8-K, filed on December 18, 2014). 10.32*—Amendment No.1 to the Second Amended and Restated Credit Agreement, dated as of February 25, 2016, among ForumEnergy Technologies, Inc., Wells Fargo Bank, National Association, as administrative agent, the guarantors party theretoand the lenders party thereto (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on February 26, 2016). 10.33*#—Form of Restricted Stock Unit Agreement (Directors) (incorporated herein by reference to Exhibit 10.1 to the Company'sQuarterly Report on Form 10-Q, filed on May 3, 2016). 99Table of Contents10.34*#—Form of Restricted Stock Agreement (Directors) (incorporated herein by reference to Exhibit 10.2 to the Company'sQuarterly Report on Form 10-Q, filed on May 3, 2016). 10.35*#—Form of Restricted Stock Unit Agreement (Employees and Consultants - Group 1) (incorporated herein by reference toExhibit 10.3 to the Company's Quarterly Report on Form 10-Q, filed on May 3, 2016). 10.36*#—Form of Restricted Stock Unit Agreement (Employees and Consultants - Group 2) (incorporated herein by reference toExhibit 10.4 to the Company's Quarterly Report on Form 10-Q, filed on May 3, 2016). 10.37*#—Form of Restricted Stock Agreement (Employees and Consultants) (incorporated herein by reference to Exhibit 10.5 to theCompany's Quarterly Report on Form 10-Q, filed on May 3, 2016). 10.38*#—Form of Nonstatutory Stock Option Agreement (Employees and Consultants) (incorporated herein by reference to Exhibit10.6 to the Company's Quarterly Report on Form 10-Q, filed on May 3, 2016). 10.39*#—Form of Performance Share Award Agreement (Employees and Consultants) (incorporated herein by reference to Exhibit10.7 to the Company's Quarterly Report on Form 10-Q, filed on May 3, 2016). 10.40*#—Forum Energy Technologies, Inc. 2016 Stock and Incentive Plan (incorporated herein by reference to Appendix A to theCompany’s Proxy Statement on Schedule 14A filed on April 1, 2016). 10.41*#—Form of Restricted Stock Unit Agreement (Employees and Consultants) (incorporated herein by reference to Exhibit 10.1to the Company's Quarterly Report on Form 10-Q, filed on November 2, 2016). 10.42* Amendment No.2 to the Second Amended and Restated Credit Agreement, dated as of December 12, 2016, among ForumEnergy Technologies, Inc., Wells Fargo Bank, National Association, as administrative agent, the guarantors party theretoand the lenders party thereto (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on December 13, 2016). 21.1**—Subsidiaries of Forum Energy Technologies, Inc. 23.1**—Consent of PricewaterhouseCoopers LLP 31.1**—Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2**—Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1**—Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2**—Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.101.INS**—XBRL Instance Document. 101.SCH**—XBRL Taxonomy Extension Schema Document. 101.CAL**—XBRL Taxonomy Extension Calculation Linkbase Document. 101.LAB**—XBRL Taxonomy Extension Label Linkbase Document. 101.PRE**—XBRL Taxonomy Extension Presentation Linkbase Document. 101.DEF**—XBRL Taxonomy Extension Definition Linkbase Document.* Previously filed.** Filed herewith.# Identifies management contracts and compensatory plans or arrangements.100Table of ContentsSIGNATURESAs required by Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has authorized this report to be signed on its behalf bythe undersigned authorized individuals. FORUM ENERGY TECHNOLOGIES, INC. By:/s/ James W. Harris James W. Harris Executive Vice President and Chief Financial Officer (As Duly Authorized Officer and Principal Financial Officer) By:/s/ Tylar K. Schmitt Tylar K. Schmitt Vice President and Chief Accounting Officer (As Duly Authorized Officer and Principal Accounting Officer) 101Table of ContentsAs required by the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and inthe capacities an on the dates indicated.Signature Title Date /s/ C. Christopher Gaut Chief Executive Officer and Chairman of the Board February 27, 2017C. Christopher Gaut /s/ James W. Harris Executive Vice President and Chief Financial Officer (Principal Financial Officer) February 27, 2017James W. Harris /s/ Tylar K. Schmitt Vice President and Chief Accounting Officer (Principal Accounting Officer) February 27, 2017Tylar K. Schmitt /s/ Evelyn M. Angelle Director February 27, 2017Evelyn M. Angelle /s/ David C. Baldwin Director February 27, 2017David C. Baldwin /s/ John A. Carrig Director February 27, 2017John A. Carrig /s/ Michael McShane Director February 27, 2017Michael McShane /s/ Terence O'Toole Director February 27, 2017Terence O'Toole /s/ Franklin Myers Director February 27, 2017Franklin Myers /s/ Louis A. Raspino Director February 27, 2017Louis A. Raspino /s/ John Schmitz Director February 27, 2017John Schmitz /s/ Andrew L. Waite Director February 27, 2017Andrew L. Waite 102Exhibit 21.1List of Subsidiaries of Forum Energy Technologies, Inc. Name JurisdictionFET (Barbados) SRL BarbadosFET Holdings LLC DelawareFET Finance Ltd. Cayman IslandsForum B+V Oil Tools GmbH GermanyForum Canada ULC CanadaForum Energia, Tecnologia, Equipamentos, e Servicos Ltda. BrazilForum Energy Asia Pacific Pte. Ltd. SingaporeForum Energy Services, Inc. DelawareForum Energy Solutions de Mexico, S. de R.L. de C.V. MexicoForum Energy Technologies (UK) Limited United KingdomFET Global Holdings Limited United KingdomForum Global Tubing LLC DelawareForum International Holdings, Inc. DelawareForum Middle East Limited British Virgin IslandsForum Oilfield Technologies De Mexico S de RL MexicoForum Singapore Holdings Limited United KingdomForum US, Inc. DelawareForum Worldwide Holdings Limited United KingdomGlobal Flow Technologies, Inc. DelawareQuality Wireline & Cable Inc. CanadaTGH (AP) Pte. Ltd. SingaporeTGH (US), Inc. DelawareTube Tec (Tubular Protection Services) Limited United KingdomUK Project Support Ltd. United KingdomZy-Tech Global Industries, Inc. DelawareZy-Tech Valvestock Africa (PTY) Ltd. South AfricaExhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe hereby consent to the incorporation by reference in the Registration Statements on Form S‑8 (Nos. 333-180769, 333-188915, 333-213158) and on FormS-3 (No. 333-213266) of Forum Energy Technologies, Inc. of our report dated February 27, 2017 relating to the consolidated financial statements and theeffectiveness of internal control over financial reporting, which appears in this Form 10‑K./s/ PricewaterhouseCoopers LLPHouston, TexasFebruary 27, 2017Exhibit 31.1Forum Energy Technologies, Inc.CertificationI, C. Christopher Gaut, certify that:1.I have reviewed this Annual Report on Form 10-K of Forum Energy Technologies, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periodcovered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d-15(f)) for the registrant and have:a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared;b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting.Date: February 27, 2017 By: /s/ C. Christopher Gaut C. Christopher Gaut Chief Executive OfficerExhibit 31.2Forum Energy Technologies, Inc.CertificationI, James W. Harris, certify that:1.I have reviewed this Annual Report on Form 10-K of Forum Energy Technologies, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periodcovered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d-15(f)) for the registrant and have:a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared;b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting.Date: February 27, 2017 By: _/s/ James W. Harris_________________ James W. Harris Chief Financial OfficerExhibit 32.1Certification Pursuant to 18 U.S.C. Section 1350(Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)In connection with the Annual Report on Form 10-K of Forum Energy Technologies, Inc. (the “Company”) for the year ended December 31,2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), C. Christopher Gaut, as Chief Executive Officer ofthe Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best ofhis knowledge:(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the"Exchange Act"); and(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany.Dated: February 27, 2017 By: /s/ C. Christopher Gaut C. Christopher Gaut Chief Executive OfficerA signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Companyand furnished to the Securities and Exchange Commission or its staff upon request.This certification shall not be deemed filed by the Company for purposes of § 18 of the Exchange Act.Exhibit 32.2Certification Pursuant to 18 U.S.C. Section 1350(Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)In connection with the Annual Report on Form 10-K of Forum Energy Technologies, Inc. (the “Company”) for the year ended December 31,2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), James W. Harris, as Chief Financial Officer of theCompany, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of hisknowledge:(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the"Exchange Act"); and(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany.Dated: February 27, 2017 By: /s/ James W. Harris James W. Harris Chief Financial OfficerA signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Companyand furnished to the Securities and Exchange Commission or its staff upon request.This certification shall not be deemed filed by the Company for purposes of § 18 of the Exchange Act.

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