Forum Energy Annual Report 2017

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, 2017ORo 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. þIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer a smaller reporting company or an emerging growth company.See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):Large accelerated filer þ Accelerated filer o Non-accelerated filer oSmaller reporting company o Emerging growth company o If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financialaccounting standards provided pursuant to Section 13(a) of the Exchange Act. oIndicate 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, 2017, determined using the per share closing price on the New York Stock Exchange Compositetape of $15.60 on June 30, 2017, was approximately $1.1 billion. For this purpose, our executive officers and directors and SCF Partners L.P. and its affiliates are consideredaffiliates.As of February 23, 2018, there were 108,539,940 common shares outstanding.DOCUMENTS INCORPORATED BY REFERENCEPortions of our Proxy Statement for the 2018 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 Comments28Item 2.Properties29Item 3.Legal Proceedings30Item 4.Mine Safety Disclosures30PART IIItem 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities32Item 6.Selected Financial Data33Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations35Item 7A.Quantitative and Qualitative Disclosures About Market Risk56Item 8.Financial Statements and Supplementary Data57Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure101Item 9A.Controls and Procedures101Item 9B.Other Information102PART IIIItem 10.Directors, Executive Officers and Corporate Governance102Item 11.Executive Compensation102Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters102Item 13.Certain Relationships and Related Transactions, and Director Independence102Item 14.Principal Accounting Fees and Services102PART IVItem 15.Exhibits, Financial Statement Schedules102Item 16.Form 10-K Summary106SIGNATURES107 2Table of ContentsPART IItem 1. BusinessForum Energy Technologies, Inc., a Delaware corporation (“Forum,” the “Company,” “we” or “us”), is a global oilfield products company, serving thedrilling, subsea, completions, 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 website as soon asreasonably practicable after such reports are electronically filed with or furnished to the Securities and Exchange Commission (“SEC”). Thesereports are also available on the SEC’s website at www.sec.gov. Information contained on or accessible from our website is not incorporated byreference into this Annual Report on Form 10-K and should not be considered part of this report or any other filing that we make with the SEC.OverviewWe are a global oilfield products company, serving the drilling, subsea, completions, 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 frequently replaced consumable products that are used in the exploration, development,production and transportation of oil and natural gas, as well as a mix of highly engineered capital products. Our consumable products are used indrilling, well construction and completions activities, within the supporting infrastructure, and at processing centers and refineries. Our engineeredcapital products are directed at: drilling rig equipment for new rigs, upgrades and refurbishment projects; subsea construction and developmentprojects; pressure pumping equipment; the placement of production equipment on new producing wells; and downstream capital projects. In 2017,approximately 80% of our revenue was derived from consumable products and activity-based equipment, while the balance was derived fromcapital products, and a small amount 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 in both oiland natural gas and non-oil and natural gas industries, and pipeline and refinery operators.We operate three business segments that cover all stages of the well cycle, Drilling & Subsea, Completions, and Production & Infrastructure. Thetable below provides a summary of proportional revenue contributions from our three business segments and our primary geographic markets overthe last three years: Percentage of revenue Year ended December 31, 2017 2016 2015Drilling & Subsea28% 38% 44%Completions32% 22% 26%Production & Infrastructure40% 40% 30% Total100% 100% 100% United States76% 62% 60%Canada7% 7% 5%Other International17% 31% 35% Total100% 100% 100%We incorporate by reference the segment and geographic information for the last three years set forth in Note 16 Business Segments and theinformation with respect to acquisitions set forth in Note 4 Acquisitions.3Table of ContentsDrilling & 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 amount of well service equipment in use and the severity of the conditions under whichthey operate. 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; customized offlinecrane systems; drilling data acquisition management systems; pumps, pump parts, valves, and manifolds; drilling fluid end components, and abroad 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. In addition, we design and manufacture a range of rig-based offline activity cranes, multi-purpose cranes andpersonnel transfer solutions. Many of these cranes are fit-for-purpose multi-axis cranes that provide access to hard-to-reach places and eliminatethe 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.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 in 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, other specialty subsea vehicles, and rescue submarines, as well as critical components of these vehicles. Many of ourrelated technical services 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 an offshore rig and (3) observation-class vehicles for inspection and light manipulation. We are a leading providerof work-class and observation-class vehicles.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 burial4Table of Contentsoperations. The largest of these subsea trenchers provides up to 1,500 horsepower and is able to cut over three meters deep into the seafloor tolay 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, including non-oil and natural gas industry entities, such as arange of governmental organizations including navies, maritime science and geoscience research organizations, offshore wind power companies,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. Our Forum Subsea Rentals (“FSR”) business maintains a fleet of subsea rental items, primarily subseapositioning equipment. Our customers for rental items are primarily subsea construction and offshore service companies. In addition, we offer asystem that offers a complete solution for digital video capture, playback, processing and reporting of subsea inspection survey data. On January3, 2018, we contributed FSR into Ashtead Technology, a competing business, in exchange for a 40% interest in the combined business. Thetransaction creates a market leading independent provider of subsea survey and ROV equipment rental services. After the transaction, our interestin the combined business will be presented as an equity method investment.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 we also offer stimulation and intervention technologies, including pumps andwell stimulation consumable 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 and Coiled Tubing productline are impacted by the use of hydraulic fracturing to develop oil and natural gas reserves in shale or tight sand basins across North America andthe level of workover and intervention 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 operations, 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.Completion products. We manufacture a line of downhole completion tools, including composite plugs, and wireline flow-control products. Ourcomposite plugs are primarily used for zonal isolation during multi-stage hydraulic fracturing in horizontal and vertical wells. The design of theplugs allows them to be drilled out quickly to improve service efficiency. We offer a variety of plug sizes to fit various casings as well as a rangeof temperature and pressure ratings to accommodate different well environments. Our wireline flow-control products include a number ofcomponents included in most completions such as landing nipples, circulating sleeves, blanking plugs and separation tools.Downhole protection systems. We offer a full range of downhole protection solutions through our Cannon Services™ and Multilift brands. TheCannon Services clamp and protection system is used to shield downhole control lines, cables and gauges during installation and to provideprotection during production enhancement operations. We design and5Table of Contentsmanufacture a full range of downhole protection solutions for electrical submersible pump (“ESP”) cabling, encapsulated control lines, sub-surfacesafety valves and permanent downhole gauges. We provide both standard and customized protection systems, and we utilize a range of materialsin our products for various downhole environments. Multilift SandGuard™ and Cyclone™ completion tools extend the useful life of an ESP byprotecting it against sand and other solids after shutdown.Specialized torque equipment. 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; and portable torque units for field deployment. In addition, we provideaftermarket service.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.We perform these services at various locations and operate a fleet of mobile refurbishment and recertification tractor trailers, which can bedeployed to the customer’s yard. We serve many of the unconventional basins across North America and seek to position our stocking andservice locations in proximity to our customers’ operations.We manufacture pressure control products that are used for well intervention operations and 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.Coiled Tubing. We manufacture Global Tubing® branded coiled tubing strings, coiled line pipe and provide related services. Coiled tubing stringsare consumable components of coiled tubing units that perform well completion and intervention activities. Our coiled line pipe offering serves asan alternative to the conventional line pipe in onshore and subsea applications.We invested in Global Tubing, LLC (“Global Tubing”) with a joint venture partner (with Global Tubing’s management retaining a small interest) in2013. In the fourth quarter of 2017, we acquired the remaining membership interests in Global Tubing. Additional details about the acquisition andinvestment are included in Note 4 Acquisitions and Note 5 Investment in Unconsolidated Subsidiary, respectively.Our primary customers in the Coiled Tubing product line are service companies that provide coiled tubing services globally.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 and process equipment, and abroad 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 U.S. Once a well has been drilled, completed and brought on stream, weprovide the well operator or producer with the process equipment necessary to make the oil or natural gas ready for transmission. We engineer,fabricate and install separators, packaged6Table of Contentsproduction systems and American Society of Mechanical Engineers (“ASME”) and American Petroleum Institute (“API”) coded pressure vessels,skidded vessels with gas measurement, modular process plants, header and manifold skids, process and flow control equipment and separators tohelp clean and process oil or natural gas as it travels from the wellhead and along the transmission line to the refinery. Our customers areprincipally oil and natural gas operators or producers.We have several North American manufacturing locations and service centers. To ensure smooth delivery of equipment, we maintain a fleet ofspecialized trucks and crews 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®, Cooper Alloy®, andABZ™. Much of our production is sold through distribution supply companies, with our marketing efforts targeting end users for pull through of ourproducts. Our global sales force and representatives cover approximately 30 countries, with local sales and distribution in Australia and Canada.Our Canadian operations provide 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. was renamedForum 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, 2017 were scheduled to be delivered within sixmonths. Our backlog, net of cancellations, was approximately $222 million at December 31, 2017 and approximately $165 million at December 31,2016. Substantially all of the projects currently in our backlog are subject to change and/or termination at the option of the customer. In the case ofa change or termination, the customer is generally required to pay us for work performed and other costs necessarily incurred as a result of thechange or termination. It is difficult to predict how much of our current backlog will be delayed or terminated, or subject to changes, as well as ourability to collect termination or change fees.Our 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, 2017 and 2016 were approximately $870 million and $597 million,respectively.CustomersNo customer represented more than 10% of consolidated revenue in any of the last three years.7Table of ContentsSeasonalityA 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. In addition, given the geographic proximity of a number of our facilities to the Gulf Coast, we are subject to businessinterruptions caused by hurricanes and tropical storms. A small portion of the revenue we generate from selected Canadian operations oftenbenefits from higher first quarter activity levels, as operators take advantage of the winter freeze to gain access to remote drilling and productionareas. Revenue exposed to this type of seasonality, however, comprised less than 5% of our overall revenue in 2017.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.Working capitalWe fund our business operations through a combination of available cash and equivalents, short-term investments, and cash flow generated fromoperations. In addition, our senior secured revolving credit facility is available for working capital needs. For a summary of our credit facility,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 can8Table of Contentsbe of great value to our customers. We also stockpile raw materials and components in order to be in a position to build products in response tomarket demand.We typically offer our customers payment terms of 30 days, although during downturns in activity such as our industry experienced beginning inthe 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 60 days. For critical items sourced from significant vendors, we have settledaccounts 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.The 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.9Table of ContentsWater 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 U.S. The discharge of pollutants into regulatedwaters is prohibited, except in accordance with the terms of a permit issued by the EPA or an analogous state agency. A responsible partyincludes 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. In April 2016, the U.S. signed the Paris Agreement, which requires member countries to reviewand “represent a progression” in their nationally determined contributions, which set GHG emission reduction goals, every five years. In June 2017,President Trump announced that the U.S. will withdraw from the Paris Agreement unless it is renegotiated. The State Department informed theUnited Nations of the U.S. withdrawal in August 2017.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 change legislation or regulations restricting emissions of greenhouse gases could increase our operating costs or reduce demand for ourproducts.”10Table of ContentsHydraulic 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. In addition, some states have adopted, andother states are considering adopting, regulations that could impose more stringent disclosure and/or well construction requirements on hydraulicfracturing operations. Local governments may also seek to adopt ordinances within their jurisdictions regulating the time, place and manner ofdrilling activities in general or hydraulic fracturing activities in particular, in some cases banning hydraulic fracturing entirely. We cannot predictwhether any such legislation will ever be enacted and if so, what its provisions would be. If additional levels of regulation and permits were requiredthrough the adoption of new laws and regulations at the federal or state level, that could lead to delays, increased operating costs and processprohibitions for our customers that could reduce demand for our products and services, which would materially adversely affect our revenues,results of operations and cash flows.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 actions are 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.EmployeesAs of December 31, 2017, we had approximately 2,600 employees. Of our total employees, approximately 2,000 were in the U.S., 250 were in theUnited Kingdom, 100 were in Germany, 100 were in Canada and 150 were in other locations. We are not a party to any collective bargainingagreements, other than in our Hamburg, Germany and Monterrey, Mexico facilities, and we consider our relations with our employees to besatisfactory.11Table of ContentsItem 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 customersreduced or delayed their oil and natural gas exploration and production spending, reducing the demand for our products and services andexerting downward pressure on the prices that we charge. These conditions adversely impacted our business in 2015 and 2016. Althoughcrude oil prices increased by approximately 17% over the course of 2017, and we have experienced strong incremental demand growth overthe last year, it is uncertain whether commodity prices and demand will maintain these levels or increase materially in 2018. Furthermore, therecan be no assurance that the demand or pricing for oil and natural gas will follow historic patterns or continue to recover meaningfully in thenear term. Declines in oil and natural gas prices and decreased levels of exploration, development, and production activity relative to historicalnorms may 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; and•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.12Table of ContentsOur inability to control the inherent risks of acquiring and integrating businesses could disrupt our business operations and adverselyaffect our operating results going forward.We continuously evaluate acquisitions and dispositions and may elect to acquire or dispose of assets in the future. For example, in 2017 weacquired Multilift Welltec, LLC, Multilift Wellbore Technology Limited, the remaining membership interests of Global Tubing, LLC, substantially allof the assets of Cooper Valves, LLC, and 100% of the general partnership interests of Innovative Valve Components. Furthermore, in January2018, we contributed our subsea rentals business into a competing business in exchange for a 40% interest in the combined business. Theseactivities may distract management 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 inability to retain 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 fourteen acquisitions since our initial publicoffering. These factors may make it more difficult for investors to evaluate our business and prospects, and to forecast our future operatingresults. As a result, historical financial data may not give you an accurate indication of what our actual results would have been if subsequentacquisitions had been completed at the beginning of the periods presented or of what our future results of operations are likely to be. Our futureresults will depend on our ability to efficiently manage our combined operations and execute our business strategy.Facility consolidations or expansions may subject us to risks of operating inefficiencies, construction delays and cost overruns.We have consolidated and may continue to consolidate facilities to achieve operating efficiencies and reduce costs. These facility consolidationsmay be delayed and cause us to incur increased costs, product or service delivery delays, decreased responsiveness to customer needs,liabilities under terms and conditions of sale or other operational inefficiencies, or may not provide the benefits we anticipate. We may lose keypersonnel 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. For example, in 2017, the market price of ourcommon stock reached a high of $26.25 per share on February 10, 2017 and a low of $10.05 per share on August 21, 2017. We expect it tocontinue to remain volatile given the cyclical nature of our industry.Given the uncertainty relating to long-term commodity prices and associated customer demand, we may hold excess or obsoleteinventory 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 upon writing down the value of inventory. Conversely, if we underestimate customer demand or if insufficient manufacturingcapacity is available, we would miss revenue opportunities and potentially lose market share and damage our customer relationships. Forexample, we did not maintain sufficient inventory of power ends and treating iron as we underestimated the acceleration in demand from pressurepumping customers in 2017. In addition, any future significant cancellations or deferrals of product orders or the return of previously sold productscould materially and adversely affect profit margins, increase product obsolescence and restrict our ability to fund our operations.A substantial portion of our business has historically been driven by our customers’ spending on capital equipment such as drillingrigs. As a result of the high levels of construction of capital equipment in prior years, we expect capital spending by our customers mayremain at its current low level for a significant period of time.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 reduceactivity, exacerbating the effect of oversupply. As a result of both the prior high levels of capital investment and decreased levels of activity, thedemand for capital equipment construction fell significantly in recent years. When spending levels by our customers fall, we experience decreaseddemand for our capital equipment products. For example, starting in the second half of 2014 we saw spending levels on drilling rigs decreaserelative to the pace of investment in the previous two years, which has continued due to the overhang of capital equipment. This reduction incapital spending is spread across most energy sectors that we supply. Our financial results have been negatively impacted by the recent andongoing reduction in capital equipment spending in the oilfield services industry, and we expect that this will continue until oil prices increasesubstantially and the oversupply of capital equipment is eliminated.Technological advances have rendered drilling more efficient, reducing the amount of capital equipment required to drill the samenumber of wells and the demand for our products.New techniques and technological advances have reduced the number of days required to drill wells. The number of days required for a drilling rigto be on a site to drill a well has in many areas been reduced by at least half over the last several years. This has exacerbated the oversupply ofdrilling rigs and may lengthen the time until the next round of significant capital investment by our drilling company customers. These advancesmay also result in a lower overall level of capital investment when the current generation of drilling rigs is required to be replaced.14Table of ContentsOur indebtedness could restrict our operations and make us more vulnerable to adverse economic conditions.We currently have a substantial amount of indebtedness, including $400.0 million of 6.25% senior unsecured notes due October 2021, and $108.4million outstanding under our $300.0 million senior secured revolving credit facility. Our level of indebtedness may adversely affect our operationsand limit 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;•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;•create unrestricted subsidiaries; or•execute our acquisition strategy.Our credit facility also contains covenants, which, among other things, require us in certain circumstances, on a consolidated basis, to maintainspecified financial ratios or conditions. As a result of these covenants, we may be limited in the manner in which we conduct our business, and wemay be unable to engage in favorable business activities or finance future operations or capital needs. Our ability to borrow under the credit facilityand comply with some of the covenants, ratios or tests contained in our indenture and credit facility may be affected by events beyond our control.If market or other economic conditions deteriorate, and there is a decrease in our accounts receivable and inventory, our ability to borrow under ourcredit facility will be reduced and our ability to comply with these covenants, ratios or tests may be impaired. A failure to comply with thecovenants, ratios or tests or any future indebtedness could result in an event of default, which, if not cured or waived, could have a materialadverse 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. In some cases, the suppliers own the intellectual property rights tothe products we sell, or possess the technology or specialized tooling required to15Table of Contentsmanufacture them. As a result of this concentration in part of our supply chain, our business and operations could be negatively affected if our keysuppliers were to experience significant disruptions affecting the price, quality, availability or timely delivery of their products, or if they were todecide to terminate their relationships with us. For example, we have a limited number of suppliers for our bearings product lines and certain of ourvalve product lines. The partial or complete loss of any one of our key suppliers, or a significant adverse change in the relationship with any ofthese suppliers, through consolidation or otherwise, would limit our ability 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.Decreases in oil and natural gas prices and the resulting uncertainty regarding demand for our customers’ services have resulted in orderreductions, cancellations and acceptance delays in the past, and we may experience more of these in the future. We may be unable to collectrevenue for all of the orders reflected in our backlog, or we may be unable to collect cancellation penalties, to the extent we have the right toimpose them, or the revenues may be pushed into future periods. In addition, customers who are more highly leveraged or otherwise unable to paytheir creditors in the ordinary course of business may become insolvent or be unable to operate as a going concern. We may be unable to collectamounts due or damages we are awarded from these customers, and our efforts to collect such amounts may damage our customer relationships.Our results of operations 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 a substantially greater market share than us in one of our product lines and has substantiallygreater resources than we do. We also have several other competitors that are large national and multinational companies that have longeroperating histories, greater financial, technical and other resources and greater name recognition than we do. Some of our competitors may be ableto respond more quickly to new or emerging technologies and services and changes in customer requirements. In addition, several of ourcompetitors provide a much broader array of services, and have a stronger presence in more geographic markets. Our larger competitors may beable to use their size and purchasing power to seek economies of scale and pricing concessions. Furthermore, some of our customers are alsoour competitors and they may cease buying from us. We also have competitors outside of the U.S. with lower structural costs due to labor and rawmaterial cost in and around their manufacturing centers. Moreover, our competitors may utilize available capacity during a period of depressedenergy prices 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 increasing activity in our industry, such as we are nowexperiencing in some of our product lines, our ability to expand our operations depends in part on our ability to increase the size of our skilled laborforce. In addition, during those periods the demand for skilled workers is high, the supply is limited and the cost to attract and retain qualifiedpersonnel increases, especially for skilled workers. For example, we experienced shortages of engineers, mechanical assemblers, machinists andwelders, which in some instances slowed the productivity of certain of our operations. During periods of low activity in our industry, we reduce thesize of our labor force to match declining revenue levels, and other employees may choose to leave in order to find more stable employment. Thismay cause us to lose skilled personnel, the absence16Table of Contentsof which could cause us to incur quality, efficiency and deliverability issues in our operations, or delay our response to an upturn in the market.Furthermore, a significant increase in the wages paid by competing employers could result in a reduction of our skilled labor force, increases in thewage rates that we must pay, or both. If any of these events were to occur, our ability to respond quickly to customer demands may be inhibitedand 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 or services to customers could have a material adverse effect onour business. In particular, because many of our products are manufactured out of steel, we are particularly susceptible to fluctuations in steelprices. Our results of operations may be adversely affected by our inability to manage the rising costs and availability of raw materials andcomponents 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 completion, production and drilling 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 malfunctions;failures; explosions; blowouts or uncontrollable flows of oil, natural gas or well fluids; and natural disasters on land or in deepwater or shallow-waterenvironments, can cause personal injury; loss of life; suspension of operations; damage to formations; damage to facilities; business interruptionand damage to or destruction of property, surface water and drinking water resources, equipment and the environment. These risks can be causedor contributed to by failure of, defects in or misuse of our products. In addition, we provide certain services that could cause, contribute to or beimplicated in these events. If our products or services fail to meet specifications or are involved in accidents or failures, we could face warranty,contract or other litigation claims, which could expose us to substantial liability for personal injury, wrongful death, property damage, loss of oil andnatural gas production, and pollution or other environmental damages. Our insurance policies may not be adequate to cover all liabilities. Further,insurance may not be generally available in the future or, if available, insurance premiums may make such insurance commercially unjustifiable.Moreover, even if we are successful in defending 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 revenues. In addition, these risks may be greater for us because we may acquire companies that have notallocated significant resources and management focus to quality or safety, requiring rehabilitative efforts during the integration process. We mayincur liabilities for losses associated with these newly acquired companies before we are able to rehabilitate such companies’ quality, safety andenvironmental programs.17Table of ContentsA 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.Our success depends on our ability to implement new technologies and services more efficiently and quickly than our competitors.Our success depends on our ability to develop and implement new product designs and improvements that meet our customer’s needs in amanner equal to or more effective than those offered by our competitors. If we are not able to continue to provide new and innovative services andtechnologies in a manner that allows us to meet evolving industry requirements at prices acceptable to our customers, our financial results may benegatively affected. In addition, some of our competitors are large national and multinational companies that may be able to devote greaterfinancial, technical, manufacturing and marketing resources to research and develop more or better systems, services and technologies than weare able to do. Moreover, during the industry downturn, we were unable to allocate material amounts of capital to research and new productdevelopment activities, which may limit our ability to compete in the market and generate revenue.Our 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 efforts to maintain information as trade secrets or proprietarytechnology are subject to determination by the judicial system and may not be successful. Our rights in our confidential information, trade secrets,and confidential know-how will not prevent third parties from independently developing similar information. Publicly available information (e.g.information in expired issued patents, published patent applications, and scientific literature) can also be used by third parties to independentlydevelop technology. We cannot provide assurance that this independently developed technology will not be equivalent or superior to our proprietarytechnology.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.18Table of ContentsWe 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.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 years ended December 31, 2017 and 2015, we incurred impairment charges, and we may incur additional impairment chargesin the future.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 seven reporting units using adiscounted cash flow approach. Determining the fair value of a reporting unit requires the use of estimates and assumptions. If the reporting unit’scarrying value is greater than its calculated fair value, we recognize a goodwill impairment charge for the amount by which the carrying value ofgoodwill exceeds its fair value. Due to the deterioration of market conditions for our products, we recorded impairment losses totaling $68.0 millionand $123.2 million for our Subsea reporting unit for the years ended December 31, 2017 and December 31, 2015, respectively. No impairment losswas recorded for the year ended December 31, 2016. Following these impairment charges, the Subsea reporting unit has no remaining goodwillbalance. Further declines in commodity prices or sustained lower valuation for the Company’s common stock could indicate a reduction in theestimate of reporting unit fair value which, in turn, could lead to additional impairment charges associated with goodwill.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 the use of the asset and its eventual value upon disposal are estimated. If the undiscountedfuture cash flows are less than the carrying amount of the assets, there is an indication that the asset may be impaired. The amount of theimpairment is measured as the difference between the carrying value and the estimated fair value of the asset. The fair value is determined eitherthrough the use of an external valuation, or by means of an analysis of discounted future cash flows based on expected utilization. In 2017,impairment losses totaling $1.1 million were recorded on certain intangible assets within the Subsea and Downhole reporting units related to thedecision to abandon specific product lines. No impairment loss was recorded for the year ended December 31, 2016. In the fourth quarter of 2015,we recognized an impairment loss of $1.9 million related to certain trade names that were no longer in use.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:19Table of Contents•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 local oil companies in bidding for oil leases, or require local companies to perform oilfield services currently supplied by international servicecompanies. To the extent that such companies are not our customers, or we are unable to develop relationships with them, our business maysuffer. We cannot determine the extent to which our future operations and earnings may be affected by new legislation, new regulations or changesin 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 laws relating to multinational corporations, or increased scrutiny by taxauthorities.We have operations in multiple countries which are subject to the jurisdiction of a significant number of taxing authorities. The final determinationof our income tax liabilities involves the interpretation of local tax laws, tax treaties and related authorities in each jurisdiction, as well as thesignificant use of estimates and assumptions. The U.S. Congress and government agencies in non-U.S. jurisdictions where we, and our affiliates,do business have recently focused on issues related to the taxation of multinational corporations.Additionally, we are currently evaluating the provisions of U.S. tax reform recently enacted in December 2017, informally known as the Tax Cutsand Jobs Act of 2017 (the “Act”). The Act made substantial changes in the taxation of U.S. and multinational corporations, which included, amongother things, reducing the U.S. corporate income tax rate to 21% starting in 2018 and creating a territorial tax system with a one-time mandatorytax on previously deferred earnings of non-U.S. subsidiaries. As a result, we recorded a net charge of $10.1 million during the fourth quarter of2017 based on our preliminary assessment of the impact of the Act. This amount consists of a $27.7 million charge for the one-time mandatorytax on previously deferred earnings of certain non-U.S. subsidiaries that are owned by Forum and an $17.6 million credit resulting from the re-measurement of net deferred tax liabilities in the U.S. based on the new lower corporate income tax rate. The taxes recognized related to the Actare provisional in nature and subject to adjustment as further guidance is provided by the U.S. Internal Revenue Service regarding the applicationof the new tax laws. We will continue to evaluate the impacts of tax reform as additional information is obtained and will adjust the provisionalamounts, as necessary. We expect to complete our detailed analysis no later than the fourth quarter of 2018. Furthermore, we cannot predictwhether any additional legislation or any regulatory or other administrative guidance could materially adversely affect us.If the U.S. 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 U.S. under the North American Free Trade Agreement(“NAFTA”). The Trump Administration has made comments suggesting that it is not supportive of NAFTA. As a result, it is unclear what may ormay not be done with respect to this trade agreement. Withdrawal from or modifications to NAFTA could impose additional tariffs or duties onimports from our facility. Under either of these scenarios, the use of our facility in Mexico may be rendered uneconomical for our operations. Thismay cause us to lose the value of our investment in this facility, interrupt our operations and may negatively impact our financial performance andresults 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 disposal20Table of Contentsof hazardous and nonhazardous wastes; require acquisition of environmental permits related to our operations; restrict the types, quantities, andconcentrations of various materials that can be released into the environment; limit or prohibit operational activities in certain ecologically sensitiveand other protected areas; regulate specific health and safety criteria addressing worker protection; require compliance with operational andequipment standards; impose testing, reporting and recordkeeping requirements; and require remedial measures to mitigate pollution from formerand ongoing operations. Failure to comply with these laws and regulations or to obtain or comply with permits may result in the assessment ofadministrative, civil and criminal penalties, imposition of remedial or corrective action requirements and the imposition of injunctions to prohibitcertain activities or force future compliance. Certain environmental laws may impose joint and several liability, without regard to fault or legality ofconduct, on classes of persons who are considered to be responsible for the release of a hazardous substance into the environment. In addition,these risks may be greater for us because the companies we acquire or have acquired may not have allocated sufficient resources andmanagement focus to environmental compliance, potentially requiring rehabilitative efforts during the integration process or exposing us to liabilitybefore 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 we may be held criminally liable. In addition, in connection with the recent increase in manufacturing activity through 2017, asubstantial portion of our work force is made up of newer employees who are less experienced and therefore more prone to injury. As a result, newemployees require ongoing training and a higher degree of oversight. We may incur additional costs to encourage training and ensure properoversight of these shorter service employees. Moreover, we may incur costs in connection with equipment upgrades, or other costs to facilitateour compliance with safety regulations. Failure to maintain safe operations or achieve certain safety performance metrics could disqualify us fromdoing 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.The industry in which we operate is undergoing continuing consolidation that may impact our 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 could result in reduced capital spending by such customers or decreased demand for our products and services.If we cannot maintain sales levels for customers that have consolidated or replace such revenues with increased business activities from othercustomers, this consolidation activity could have a significant negative impact on our results of operations or financial condition. We are unable topredict what effect consolidations in the industry may have on prices, capital spending by customers, selling strategies, competitive position,customer retention or our ability to negotiate favorable agreements 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, 2017, we derived approximately 24% of our revenue from sales outside the U.S. (based on product destination).In addition, one of our key growth strategies is to market products in international markets. We may not succeed in selling, marketing, branding,and distributing products to generate revenues in these new international markets.21Table of ContentsOur 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 U.S. These risks may include changes inregional, political or economic conditions, local laws and policies, including taxes, trade protection measures, and unexpected changes inregulatory requirements governing the operations of companies that operate outside of the U.S. In addition, if a dispute arises from internationaloperations, courts outside of the U.S. may have exclusive jurisdiction over the dispute, or we may not be able to subject persons outside of theU.S. 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.Fluctuations in currency exchange rates could be material to us depending upon, among other things, our manufacturing locations and the sourcingfor our raw materials and components. In particular, we are sensitive to fluctuations in currency exchange rates between the U.S. dollar and eachof 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 currency denomination. As a result, to the extent that wecontinue our expansion on a global basis, management expects that increasing portions of revenue, costs, assets and liabilities will be subject tofluctuations in foreign currency valuations. We may experience economic loss and a negative impact on earnings or net assets solely as a resultof foreign currency exchange rate fluctuations. Further, the markets in which we operate could restrict the removal or conversion of the localcurrency, resulting in our inability to hedge against these risks.Our business operations in countries outside of the U.S. are subject to a number of U.S. federal laws and regulations, includingrestrictions imposed by the U.S. Foreign Corrupt Practices Act as well as trade sanctions administered by the Office of Foreign AssetsControl and the Commerce Department, as well as similar laws in non-U.S. jurisdictions that govern our operations by virtue of ourpresence or activities there.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 U.S. In many countries, particularly in those with developing economies, it is common to engage in businesspractices that are prohibited by the regulations applicable to us. The U.S. Foreign Corrupt Practices Act and similar anti-bribery laws in otherjurisdictions, including the UK Bribery Act 2010, (“anti-corruption laws”) prohibit corporations and individuals from engaging in certain activities toobtain or retain business or to influence a person working in an official capacity. We may be held responsible for violations by our employees,contractors and agents for violations of anti-corruption laws. We may also be held responsible for any violations by an acquired company thatoccurs prior to an acquisition, or subsequent to an acquisition but before we are able to institute our compliance procedures. In addition, our non-U.S. competitors that are not subject to the FCPA or similar laws may be able to secure business or other preferential treatment in such countriesby means that such laws prohibit with respect to us. The UK Bribery Act 2010 is broader in scope than the FCPA and applies to public and privatesector corruption and contains no facilitating payments exception. A violation of any of these laws, even if prohibited by our policies, could have amaterial adverse effect on our business. Actual or alleged violations could damage our reputation, be expensive to defend, impair our ability to dobusiness, and cause us to incur 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 U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) and similar regulations in non-U.S. jurisdictions alsopose a risk to us. We cannot provide products or services to certain countries, companies or individuals subject to trade sanctions of the U.S. andother countries. Furthermore, the laws and regulations concerning import activity, export recordkeeping and reporting, export control and economicsanctions are complex and constantly changing. Any failure to comply with applicable legal and regulatory trading obligations could result incriminal and civil penalties and sanctions, such as fines, imprisonment, debarment from governmental contracts, seizure of shipments and loss ofimport 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 U.S. and in international areas that have a history of unionization and we may become the subject of a unionizationcampaign. If some or all of our workforce were to become unionized and collective bargaining agreement terms, including any renegotiation of ourMonterrey, Mexico and Hamburg, Germany22Table of Contentscollective bargaining agreements, were significantly different from our current compensation arrangements or work practices, our costs could beincreased, our flexibility in terms of work schedules and reductions in force could be limited, and we could be subject to strikes or workslowdowns, 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 which exceed 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, 2017, 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, the actual costs of resolving these pending claims could be substantially higher than the current estimate.Among these are uncertainties as to the ultimate number and type of claims filed, the amounts of claim costs, the impact of bankruptcies of othercompanies with asbestos claims or of our insurers, and potential legislative changes and uncertainties surrounding the litigation process fromjurisdiction to jurisdiction and from case to case. In addition, future claims beyond the five-year forecast period are possible, but the accrual doesnot cover losses that may arise from such additional future claims. Therefore, any such future claims could result in a loss.Significant 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, refer to Note 12 Commitments and Contingencies.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 that effectively preventfraud and operate successfully. Our efforts to maintain internal control systems may not be successful. In addition, the entities that we acquire inthe future may not maintain effective systems of internal control or we may encounter difficulties integrating our system of internal control withthose of acquired entities. If we are unable to maintain effective internal control and, as a result, fail to provide reliable financial reports andeffectively prevent fraud, our reputation and operating results would be harmed.23Table of ContentsWe have identified a material weakness in our internal control over financial reporting that could, if not remediated, adversely affect ourability to report our financial and operating results accurately or on a timely basis, and impact overall investor confidence and the valueof our common stock.In connection with the audit of our consolidated financial statements as of and for the year ended December 31, 2017, we identified a materialweakness in our internal control over financial reporting relating to the development of fair value measurements utilized in the application of theacquisition method of accounting for business combinations and for purposes of testing goodwill for impairment. As a result of this materialweakness, we concluded that our disclosure controls and procedures and internal controls over financial reporting were not effective as ofDecember 31, 2017.Under the SEC’s rules and regulations, a “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financialreporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will notbe prevented or detected on a timely basis.We, with oversight from our Audit Committee, are in the process of developing and implementing remediation plans in response to the identifiedmaterial weakness. The specific material weakness and our remediation efforts are described in Part II Item 9A “Management’s Report on InternalControl Over Financial Reporting.” There can be no assurance as to when the remediation plan will be fully implemented or whether the remediationefforts will be successful. As we continue to evaluate and work to improve our internal controls, we may take additional measures to addressthese material weaknesses or modify our remediation plan.Until the remediation plan is fully implemented, we will continue to devote time and attention to these efforts. If the remediation of the materialweakness is not completed in a timely fashion, or at all, or if the plan is inadequate, there will be an increased risk that we may be unable to timelyfile future periodic reports with the SEC and that future consolidated financial statements could contain errors that will be undetected. Theexistence of a material weakness in the effectiveness of our internal controls could also affect our ability to obtain financing or could increase thecost of any such financing. The identification of the material weakness could also cause investors to lose confidence in the reliability of theCompany’s financial statements and could result in a decrease in the value of our common stock.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 U.S. and other countries have focused considerable attention on the emissions ofcarbon dioxide, methane and other greenhouse gases and their potential role in climate change. In response to scientific studies suggesting thatemissions of GHGs, including carbon dioxide and methane, are contributing to the warming of the Earth’s atmosphere and other climaticconditions, the U.S. Congress has considered adopting comprehensive legislation to reduce emissions of GHGs, and almost half of the stateshave already taken legal measures to reduce emissions of GHGs, primarily through measures to promote the use of renewable energy and/orregional GHG cap-and-trade programs. The Environmental Protection Agency (the “EPA”) has already begun to regulate greenhouse gas emissionsunder the federal Clean Air Act. In December 2009, the EPA determined that emissions of carbon dioxide, methane and certain other GHGsendanger public health and the environment because emissions of such gases are, according to the EPA, contributing to warming of the Earth’satmosphere and other climatic changes. Accordingly, the EPA has begun adopting rules under the Clean Air Act that, among other things, coverreductions in GHG emissions from motor vehicles, permits for certain large stationary sources of GHGs, and monitoring and annual reporting ofGHG emissions from specified GHG emission sources, including oil and natural gas exploration and production operations. Additionally, in May2016, the EPA issued final24Table of Contentsnew source performance standards governing methane emissions that impose more stringent controls on methane and volatile organic compoundsemissions at new and modified oil and natural gas production, processing, storage and transmission facilities. The EPA announced its intention toreconsider those standards in April 2017 and has sought to stay those requirements. However, they remain in effect. The EPA has alsoannounced that it intends to impose methane emission standards for existing sources and issued information collection requests to companieswith production, gathering and boosting, gas processing, storage and transmission facilities in December 2016. The EPA withdrew thoseinformation collection requests in March 2017. The EPA has also adopted rules requiring the reporting of greenhouse gas emissions from specifiedlarge greenhouse gas emission sources in the U.S., including oil and gas systems. Similarly, the Department of the Interior’s Bureau of LandManagement (“BLM”) issued final rules in November 2016 relating to the venting, flaring and leaking of natural gas by oil and natural gas producerswho operate on federal and Indian lands. Certain provisions of the BLM rule went into effect in January 2017, while others were scheduled to gointo effect in January 2018. In December 2017, BLM published a final rule delaying the 2018 provisions until 2019. BLM proposed a rule inFebruary 2018 that would revise the 2016 rule and rescind some of its requirements.Finally, 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 U.S. participated in the United Nations Conference on Climate Change,which led to the creation of the Paris Agreement, which requires member countries to review and “represent a progression” in their nationallydetermined contributions, which set GHG emission reduction goals every five years. In June 2017, President Trump announced that the U.S. willwithdraw from the Paris Agreement unless it is renegotiated. The State Department informed the United Nations of the U.S.’ withdrawal in August2017.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 certain of our customers produce and reduce revenues by other of ourcustomers who provide services to those exploration and production customers. Consequently, legislation and regulatory programs to reduceemissions of greenhouse gases could have an adverse effect on our business, financial condition and results of operations. Finally, somescientists have concluded that increasing concentrations of greenhouse gases in the Earth’s atmosphere may produce climate changes that havesignificant physical effects, such as increased frequency and severity of storms, droughts, and floods and other climatic events.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. Disruptions in operations ordamage to a manufacturing plant could reduce our ability to produce products and satisfy customer demand. In particular, we have offices andmanufacturing facilities in Houston, Texas, and in various places throughout the U.S. Gulf Coast region. These offices and facilities are particularlysusceptible to severe tropical storms and hurricanes, which may disrupt our operations. If one or more of our manufacturing facilities are damagedby severe weather or any other disaster, accident, catastrophe or event, our operations could be significantly interrupted. Similar interruptionscould result from damage to production or other facilities that provide supplies or other raw materials to our plants or other stoppages arising fromfactors beyond our control. These interruptions might involve significant damage to property, among other things, and repairs might take from aweek or less for a minor incident to many months or more for a major interruption. For example, in the third quarter 2017, we were impacted byidled facilities and operations directly related to Hurricane Harvey’s widespread damage in Texas and Louisiana. As a result, our financial resultswere negatively impacted by foregone revenue and under-absorption of manufacturing costs, and, indirectly, due to supplier and logistical delays.25Table of ContentsPotential 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 U.S.) are in the process of studying, restricting, regulating or preparing to regulate hydraulicfracturing, directly or indirectlyFor example, the EPA released the final results of its comprehensive research study on the potential adverse impacts that hydraulic fracturingmay have on drinking water resources in December 2016. The EPA concluded that hydraulic fracturing activities can impact drinking waterresources under some circumstances, including large volume spills and inadequate mechanical integrity of wells. In May 2016, the EPA issuedfinal new source performance standard requirements that impose more stringent controls on methane and volatile organic compounds emissionsfrom oil and natural gas development and production operations, including hydraulic fracturing and other well completion activity. The EPAannounced its intention to reconsider the rule in April 2017 and has sought to stay its requirements. However, the rule remains in effect. The EPAhas also issued the 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. These rules were struck down by a federal court in Wyoming in June 2016, but reinstated on appeal bythe Tenth Circuit in September 2017. While this appeal was pending, BLM proposed a rulemaking in July 2017 to rescind these rules in theirentirety. BLM published a final rule rescinding the 2015 rules on December 29, 2017.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 fracturing process. Some states have adopted, and other states areconsidering adopting, legal requirements that could impose more stringent permitting, public disclosure or well construction requirements onhydraulic fracturing activities. Local government also may seek to adopt ordinances within their jurisdictions regulating the time, place and mannerof drilling activities in general or hydraulic fracturing activities in particular, in some cases banning 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, and production activities, and perhaps even be precluded from drillingwells, some or all of which could adversely affect demand for our products and services from 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 are able to provide conflict free products, and may affect our abilityto obtain products in sufficient quantities to meet customer demand or at competitive prices. In addition, there may be material costs associatedwith complying with the disclosure requirements, such as costs related to determining the source of any relevant minerals used in our products, aswell 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 activityin response to significant environmental incidents.26Table of ContentsThe 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 federal, state, and international regulation of our and our customers’ operations thatcould negatively impact our earnings, prospects and the availability and cost of insurance coverage. Any additional regulation of the explorationand production industry as a whole could result in fewer companies being financially qualified to operate offshore or onshore in the U.S. or in non-U.S. jurisdictions, resulting in higher operating costs for our customers and reduced 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 sufferreputational 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.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;•authority of our board to fill vacancies and determine its size;•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 Partners (“SCF”), may significantly influence the outcome ofstockholder voting and may exercise this voting power in a manner adverse to our other stockholders.As of February 23, 2018, SCF held approximately 20.5 million shares of our common stock, equal to approximately 19% of the outstandingcommon stock at that date. LESA is the ultimate general partner of SCF and will exert significant influence 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.27Table 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 ofthe Chairman of our board of directors, C. Christopher Gaut, are primary beneficiaries holds an ownership interest in the general partner of each ofSCF-VI, L.P. and SCF-VII, L.P. These positions may create conflicts of interest because these directors and Mr. Gaut have an ownership interestin 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 withsuch individuals’ duties as one of our directors or officers regarding business dealings and other matters between SCF Partners and us. Theresolution of these conflicts may not always be in the best interest of our Company or our other stockholders. Please read “We have renouncedany interest in specified business opportunities, and SCF Partners and its director nominees on our board of directors generally have no obligationto offer us those 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.28Table of ContentsItem 2. PropertiesThe following table describes the significant facilities owned or leased by us as of December 31, 2017 for our Drilling and Subsea (“D&S”),Completions (“C”) and Production and Infrastructure (“P&I”) segments:Country Location Number offacilities Description Leased orOwned Segments Canada Alberta 3 Service/Distribution Leased D&S and C Calgary 2 Service/Distribution Leased C and P&I Edmonton 1 Distribution Leased P&IGermany Hamburg 1 Manufacturing Leased D&SMexico Monterrey 1 Manufacturing Leased D&SSaudi Arabia Dammam 1 Manufacturing Leased P&ISingapore Singapore 1 Manufacturing/Service Leased D&SUAE Dubai 2 Service/Distribution Leased D&S and P&IUnited Kingdom Aberdeen 3 Distribution Leased D&S Kirkbymoorside 1 Manufacturing Leased D&S Findon 1 Manufacturing Leased D&S Ashington 1 Manufacturing Leased D&SUnited States Broussard, LA 3 Manufacturing Owned D&S and P&I Brownsville, PA 1 Manufacturing Leased C Bryan, TX 1 Manufacturing Owned D&S Clearfield, PA 1 Manufacturing/Service/Distribution Owned Shared P&I and C Davis, OK 1 Manufacturing Owned C Dayton, TX 1 Manufacturing Owned C Elmore City, OK 1 Manufacturing Owned P&I Fort Worth, TX 1 Manufacturing Leased C Guthrie, OK 1 Manufacturing Leased P&I Houston, TX 3 Corporate/Distribution Leased Shared with all Madison, KS 5 Manufacturing Leased P&I Midland, TX 2 Service/Distribution Leased C Odessa, TX 2 Service/Distribution Leased P&I and C Pearland, TX 1 Manufacturing Owned C Pearland, TX 1 Distribution Leased P&I Plantersville, TX 1 Manufacturing Owned D&S San Antonio, TX 1 Service/Distribution Owned C Stafford, TX 3 Manufacturing/Distribution Leased P&I Stafford, TX 1 Manufacturing Owned C Tyler, TX 1 Distribution Leased D&S Williston, ND 3 Service/Distribution Leased Shared D&S and CWe 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 the information set forth in Item 1 and Item 7 of this Annual Report on Form 10-K and the information set forth in Note7 Property and Equipment and Note 12 Commitments and Contingencies.29Table of ContentsItem 3. Legal ProceedingsInformation related to Item 3. Legal Proceedings is included in Note 12 Commitments and Contingencies, which is incorporated herein byreference. In addition to these matters, we are involved in various other legal proceedings incidental to the conduct of our business. We do notbelieve that any of these legal proceedings will have a material adverse effect on our financial condition, results of operation or cash flows.Item 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 23, 2018:NameAgePositionPrady Iyyanki47President and Chief Executive OfficerJames W. Harris58Executive Vice President and Chief Financial OfficerJames L. McCulloch65Executive Vice President, General Counsel and SecretaryMichael D. Danford55Senior Vice President-Human ResourcesPablo G. Mercado41Senior Vice President-FinanceD. Lyle Williams48Senior Vice President-OperationsPrady Iyyanki. Mr. Iyyanki has served as our President and Chief Executive Officer and as a member of our board of directors since May2017. From May 2016 to May 2017, Mr. Iyyanki served as President and Chief Operating Officer, and from January 2014 to May 2016, he servedas Executive Vice President and Chief Operating Officer. Mr. Iyyanki was a private investor from March 2013 to December 2013. From April 2011to March 2013, Mr. Iyyanki served as Vice President of GE Oil and Gas, a manufacturer of capital equipment and service provider for the oil andnatural gas industry, and from April 2011 to December 2012 he served as President & Chief Executive Officer of the GE Oil and Gas TurboMachinery business. From June 2006 to April 2011, Mr. Iyyanki served as President and Chief Executive Officer of the GE Power and Water GasEngines business. Mr. Iyyanki holds a B.S. in Mechanical Engineering from Jawaharlal Nehru Technology University and an M.S. in Engineeringfrom 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 holds a B.S. andMasters of Accounting from Brigham Young University and an M.B.A. from Rice University. Mr. Harris is a certified public accountant. OnFebruary 21, 2018, we announced that Mr. Harris will transition to serve as Executive Vice President - Drilling and Subsea on a full-time basis,effective March 1, 2018.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 as Senior Vice President and General Counsel until the company’smerger with Transocean Inc. in December 2007. Mr. McCulloch holds a B.A. from Tulane University and a J.D. from Tulane University School ofLaw.30Table of ContentsMichael 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., a privately held provider of subsea and marine support vessels and services to the oiland gas industry, as Vice President - Human Resources. From 1997 through July 2007, Mr. Danford served as Director of Human Resources andVice President - Human Resources for Hydril Company, a publicly traded manufacturer of connections used for oil and gas drilling and production.From 1991 to 1997, Mr. Danford served in various human resources roles for Baker Hughes Incorporated, a publicly traded oilfield servicescompany. Prior to joining Baker Hughes, from 1990 to 1991, Mr. Danford served as a recruiter and as an employee relations representative in thehuman resources department for Compaq Computer, a publicly traded developer and manufacturer of computer systems. Mr. Danford holds a B.S.degree in Computer Science from the University of Louisiana at Monroe (formerly Northeast Louisiana University).Pablo G. Mercado. Mr. Mercado has served as our Senior Vice President - Finance since June 2017. Prior to that, he served as VicePresident, Operations Finance from August 2015 to June 2017; Vice President, Corporate Strategy and Treasurer from January 2014 to August2015; Vice President, Corporate Development & Strategy from February 2013 to January 2014; and Vice President, Corporate Development fromNovember 2011 to February 2013. From May 2005 to October 2011, Mr. Mercado was an investment banker in the Oil and Gas Group of CreditSuisse Securities (USA) LLC where he worked with oilfield services companies and other companies in the oil and gas industry, most recently asa Director. From 1998 to 2001 and 2003 to May 2005, Mr. Mercado was an investment banker at other firms, primarily working with companies inthe oil and gas industry. Mr. Mercado holds a B.B.A. from the Cox School of Business and a B.A. in Economics from the Dedman College atSouthern Methodist University, and an M.B.A. from The University of Chicago Booth School of Business. On February 21, 2018, we announcedMr. Mercado’s appointment as Senior Vice President and Chief Financial Officer, effective March 1, 2018.D. Lyle Williams, Jr. Mr. Williams has served as our Senior Vice President - Operations since May 2017. Since January 2007, Mr. Williamshas held various financial and operations roles with us, including Vice President - Corporate Development and Treasury; Vice President -Operations Finance; Vice President - Finance and Accounting, Drilling & Subsea segment; Senior Vice President - Downhole Technologies; VicePresident - Subsea Products; and Vice President - Drilling Capital Equipment. Prior to joining Forum, Mr. Williams held various operationspositions with Cooper Cameron Corporation, including Director of Operations - Engineered Products. He holds a B.A. in Economics and Englishfrom Rice University, and an M.B.A. from Harvard University Graduate School of Business Administration.31Table 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 sales prices for our common stock as quoted on the NYSE:Year Ended December 31, 2017 High LowFirst Quarter $26.25 $18.05Second Quarter $21.68 $14.55Third Quarter $16.50 $10.05Fourth Quarter $15.85 $12.55Year Ended December 31, 2016 High LowFirst Quarter $13.52 $8.54Second Quarter $19.00 $12.54Third Quarter $19.86 $15.09Fourth Quarter $23.55 $17.10As of February 23, 2018, there were approximately 78 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 2017 or 2016, and we do not currently have any plans to pay cash dividends in the future. Theindenture governing our senior notes restricts the payment of dividends. Our future dividend policy is within the discretion of our board of directorsand will depend upon various factors, including our results of operations, financial condition, capital requirements, investment opportunities, andother loan agreements.Purchase of Equity SecuritiesOn October 27, 2014, our board of directors authorized a share repurchase program for the repurchase of outstanding shares of our common stockhaving an aggregate purchase price of up to $150 million.The number of shares of common stock purchased and placed in treasury during the three months ended December 31, 2017 is provided in thetable below. No shares were purchased during the three months ended December 31, 2017 from employees in connection with the settlement ofincome tax and related benefit withholding obligations arising from the vesting of restricted stock grants.Period Total number ofshares purchased Average price paidper 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, 2017 - October 31, 2017 — $— — $49,752November 1, 2017 - November 30, 2017 — $— — $49,752December 1, 2017 - December 31, 2017 — $— — $49,752Total — $— — Acquisition of Innovative Valve ComponentsOn January 9, 2017, we acquired all of the issued and outstanding partnership interests of Innovative Valve Components. As partial considerationfor the acquisition we issued 196,249 shares of our common stock. On January 9, 2018, we issued 8,400 shares of our common stock inconnection with the first anniversary of the closing pursuant to the terms of the purchase agreement. The issuance of our common stock wasexempt from registration under the Securities Act pursuant to Rule 4(a)(2) thereof and the safe harbor provided by Rule 506 of Regulation Dpromulgated thereunder.32Table of ContentsAcquisition of Global Tubing, LLCOn October 2, 2017, we acquired the remaining membership interests in Global Tubing from its joint venture partner and members of management.As partial consideration for the acquisition we issued 11,488,208 shares of our common stock. The issuance of our common stock in connectionwith the acquisitions was exempt from registration under the Securities Act pursuant to Rule 4(a)(2) thereof and the safe harbor provided by Rule506 of Regulation D promulgated thereunder.Performance 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 January 1, 2013 through December 31, 2017. This comparison assumes the investment of $100 on January 1, 2013, andthe reinvestment of all dividends. The shareholder return set forth is not necessarily indicative of future performance.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, 2017 and 2016, and for the years ended December 31, 2017, 2016 and 2015 are derivedfrom our audited consolidated financial statements and related notes thereto that are33Table of Contentsincluded herein. The selected historical data as of December 31, 2015, 2014 and 2013 and for the years ended December 31, 2014 and 2013 havebeen derived from our audited consolidated financial statements, which are not included in this Annual Report on Form 10-K. Our historical resultsare not necessarily indicative of our results to be expected in any future period. Year ended December 31,(in thousands, except per share information)2017 2016 2015 2014 2013Income Statement Data: Net sales$818,620 $587,635 $1,073,652 $1,739,717 $1,524,811Total operating expenses961,215 718,411 1,202,199 1,496,843 1,322,569Earnings from equity investment1,000 1,824 14,824 25,164 7,312Operating income (loss)(141,595) (128,952) (113,723) 268,038 209,554Total other expense (income)(86,316) 9,047 20,600 25,516 23,472Income (loss) before income taxes(55,279) (137,999) (134,323) 242,522 186,082Provision for income tax expense (benefit)4,121 (56,051) (14,939) 68,145 56,478Net income (loss)(59,400) (81,948) (119,384) 174,377 129,604Less: Income (loss) attributable to noncontrolling interest— 30 (31) 12 65Net income (loss) attributable to common stockholders(59,400) (81,978) (119,353) 174,365 129,539 Weighted average shares outstanding Basic98,689 91,226 89,908 92,628 90,697Diluted98,689 91,226 89,908 95,308 94,604Earnings (loss) per share Basic$(0.60) $(0.90) $(1.33) $1.88 $1.43Diluted$(0.60) $(0.90) $(1.33) $1.83 $1.37 As of December 31,(in thousands)2017 2016 2015 2014 2013Balance Sheet Data: Cash and cash equivalents$115,216 $234,422 $109,249 $76,579 $39,582Net property, plant and equipment197,281 152,212 186,667 189,974 180,292Total assets2,195,228 1,835,192 1,886,042 2,214,102 2,160,247Long-term debt506,750 396,747 396,016 420,484 503,455Total stockholders’ equity1,409,016 1,235,202 1,257,020 1,395,356 1,330,355 Year ended December 31,(in thousands)2017 2016 2015 2014 2013Other financial data: Net cash provided by (used in) operating activities$(40,033) $64,742 $155,913 $269,966 $211,393Capital expenditures for property and equipment(26,709) (16,828) (32,291) (53,792) (60,263)Proceeds from sale of property and equipment1,971 9,763 1,821 2,718 964Acquisition of businesses, net of cash acquired(162,189) (4,072) (60,836) (38,289) (181,718)Net cash used in investing activities(187,968) (11,137) (91,306) (70,691) (289,030)Net cash provided by (used in) financing activities100,563 86,195 (26,937) (162,018) 77,05434Table 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 frequently replaced items that are used in the exploration, development, production andtransportation of oil and natural gas, as well as a mix of highly engineered capital products. Our consumable products are used in drilling, wellconstruction and completions activities, within the supporting infrastructure, and at processing centers and refineries. Our engineered capitalproducts are directed at: drilling rig equipment for new rigs, upgrades and refurbishment projects; subsea construction and development projects;the placement of production equipment on new producing wells; pressure pumping equipment; and downstream capital projects. In 2017,approximately 80% of our revenue was derived from consumable products and activity-based equipment, while the balance was derived fromcapital products, and a small amount 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.We operate three business segments that cover all stages of the well cycle. A summary of the products and services offered by each segment isas follows:•Drilling & Subsea segment. This segment designs and manufactures products and provides related services to the drilling, energy subseaconstruction and services markets, and other markets such as alternative energy, defense and communications. The products and relatedservices consist primarily of: (i) capital equipment and a broad line of expendable drilling products consumed in the drilling process; and (ii)subsea remotely operated vehicles and trenchers, specialty components and tooling, products used in subsea pipeline infrastructure, anda 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 and electrical submersible pump protectors used in completions and artificial lift, and compositeplugs used for zonal isolation in hydraulic fracturing; and (ii) capital and consumable products sold to the pressure pumping, hydraulicfracturing and flowback services markets, including hydraulic fracturing pumps, pump consumables and flow iron as well as coiled tubing,wireline cable, and pressure control 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 process systems,production equipment and related field services, as well as oil and produced water treatment equipment; and (ii) a wide range of industrialvalves focused on serving upstream, midstream, and downstream oil and natural gas customers as well as power and other generalindustries.Market 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.35Table of ContentsThe probability of any cyclical change in energy prices and the extent and duration of such a change are difficult to predict. In November 2016, theOrganization of Petroleum Exporting Countries (“OPEC”) and other unaffiliated countries announced that their production levels would be capped orreduced. In November 2017, the OPEC coalition agreed to extend the reductions previously agreed in November 2016 through year end 2018.These OPEC actions led to a modest increase in oil prices in late 2016 and 2017. These increases in prices and the expectation of animprovement in supply and demand balance led to higher drilling and completions activity and spending by our customers, primarily in NorthAmerica. The volume of rigs drilling for oil and natural gas in North America is a driver for our revenue from this region, and the number of thoserigs has increased substantially over the past year. Exploration and production operators have continued to drill and complete wells and haveimproved well economics derived from concentrating activity in basins with the best returns on investment, and enhanced drilling and completiontechniques. This increased activity resulted in improved revenue and orders in 2017. Activity in high cost areas, however, especially offshore andin some international areas, is lagging the North America onshore activity recovery. The pace and strength of a recovery in energy markets and inour results remain uncertain.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: 2017 2016 2015Average global oil, $/bbl West Texas Intermediate $50.80 $43.29 $48.66United Kingdom Brent $54.12 $43.67 $52.32 Average North American Natural Gas, $/Mcf Henry Hub $2.99 $2.52 $2.62Average WTI and Brent oil prices were 17% and 24% higher, respectively, for the year ended December 31, 2017 compared to 2016. The WTI oilprice was $60.46 and $53.75 per barrel as of the year ended December 31, 2017 and 2016, respectively. Average natural gas prices were 19%higher in 2017 than 2016.The table below shows the average number of active drilling rigs operating by geographic area and drilling for different purposes based on theweekly rig count information published by Baker Hughes, a GE Company. 2017 2016 2015Active Rigs by Location United States 877 509 978Canada 206 130 192International 948 955 1,167Global Active Rigs 2,031 1,594 2,337 Land vs. Offshore Rigs Land 1,812 1,348 2,016Offshore 219 246 321Global Active Rigs 2,031 1,594 2,337 U.S. Commodity Target, Land Oil/Gas 704 408 750Gas 172 100 227Unclassified 1 1 1Total U.S. Land Rigs 877 509 978 U.S. Well Path, Land Horizontal 737 400 744Vertical 70 60 139Directional 70 49 95Total U.S. Active Land Rigs 877 509 97836Table of ContentsAs a result of higher oil and natural gas prices, the average U.S. and Canadian rig counts in 2017 increased 72% and 58%, respectively, ascompared to 2016, while the international rig count remained flat in 2017 compared to 2016. The U.S. rig count reached a trough of 404 rigs in thesecond quarter of 2016. Since then, the number of working rigs in the U.S. has increased steadily to 929 rigs at the end of December 2017. Asubstantial portion of our revenue is impacted by the level of rig activity and the number of wells completed. While the U.S. land rig count hascontinued 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, 2017, 2016 and 2015:(in millions of dollars) 2017 2016 2015Orders: Drilling & Subsea $219.8 $215.3 $355.5Completions 291.8 130.7 217.2Production & Infrastructure 358.3 250.8 297.3Total Orders $869.9 $596.8 $870.0AcquisitionsOn October 2, 2017, we acquired all the remaining membership interests in Global Tubing, LLC (“Global Tubing”) from our joint venture partner andmanagement for total consideration of approximately $290.3 million, including approximately $116.8 million in cash and approximately 11.5 millionshares of our common stock. We originally invested in Global Tubing with a joint venture partner in 2013. Prior to acquiring a 100% ownershipinterest in Global Tubing, we reported this investment using the equity method of accounting. Located in Dayton, Texas, Global Tubing providescoiled tubing, coiled line pipe and related services to customers worldwide. Global Tubing is included in the Completions segment.On July 3, 2017, we acquired Multilift Welltec, LLC and Multilift Wellbore Technology Limited (collectively, “Multilift”) for approximately $39.2million in cash consideration. Multilift, located in Houston, Texas, manufactures the patented SandGuardTM and the CycloneTM completion tools.This acquisition increased our product offering related to artificial lift to our completions customers. Multilift is included in the Completion Segment.On January 9, 2017, we acquired substantially all of the assets of Cooper Valves, LLC as well as 100% of the general partnership interests ofInnovative Valve Components (collectively, “Cooper”) for total aggregate consideration of $14.0 million. The aggregate consideration includes theissuance of stock valued at $4.5 million and certain contingent cash payments. These acquisitions are included in the Production & 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.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 2017, 2016, and 2015 acquisitions, refer to Note 4 Acquisitions.Evaluation of operationsWe manage our operations through our three business segments. We have focused on implementing financial reporting and controls at all of ouroperations to accelerate the availability of critical information necessary to support informed decision making. We use a number of financial andnon-financial measures to routinely analyze and evaluate, on a segment and corporate level, the performance of our business. As an example of anon-financial measure, we measure our safety by tracking the total recordable incident rate, and we believe that there is a relationship betweensafety and the quality of our products. Financial measures include the following:37Table of ContentsRevenue 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 line. 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; certaindepreciation and amortization expense; bad debt expense; and other office and administrative related costs. Our management continuallyevaluates the level of our selling, general and administrative expenses in relation to our revenue and makes appropriate changes in light of activitylevels to preserve and improve our profitability while meeting the on-going support and regulatory requirements of the business.Operating 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, as net income divided by common sharesoutstanding, giving effect for unvested restricted shares and the assumed exercise of outstanding options with a strike price less than the averagefair value of the shares over the period covered for the calculation. There is no dilutive effect for 2017, 2016 and 2015 since we are in a net lossposition. We believe this measure is important as it reflects the sum total of operating results and all attendant capital decisions, showing in onenumber the amount earned 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 the sale of property and equipment and other. We believe that this measure is important because it encompasses both profitabilityand capital management in evaluating results. Free cash flow represents the business’s contribution in the generation of funds available to paydebt outstanding, invest in other areas, or return funds to our stockholders. Free cash flow is a non-GAAP financial measure and should not beconsidered as an alternative to cash provided by operating activities as a cash flow 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 businesses in each of 2017, 2016, and 2015. We acquired threebusinesses in 2017, one business in 2016, and one business in 2015. The historical financial data for periods prior to the acquisitions does notinclude the results of any of the acquired companies for the periods presented and, as such, does not provide an accurate indication of ourfuture 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, 2017 compared with year ended December 31, 2016 Year ended December 31, Favorable / (Unfavorable) 2017 2016 $ %(in thousands of dollars, except per share information) Revenue: Drilling & Subsea$234,742 $224,447 $10,295 4.6 %Completions260,191 131,786 128,405 97.4 %Production & Infrastructure327,287 233,754 93,533 40.0 %Eliminations(3,600) (2,352) (1,248) *Total revenue$818,620 $587,635 230,985 39.3 %Cost of sales: Drilling & Subsea$179,978 $186,820 $6,842 3.7 %Completions201,631 126,789 (74,842) (59.0)%Production & Infrastructure251,823 176,643 (75,180) (42.6)%Eliminations(3,600) (2,352) 1,248 *Total cost of sales$629,832 $487,900 $(141,932) (29.1)%Gross profit: Drilling & Subsea$54,764 $37,627 $17,137 45.5 %Completions58,560 4,997 53,563 *Production & Infrastructure75,464 57,111 18,353 32.1 %Total gross profit$188,788 $99,735 $89,053 89.3 %Selling, general and administrative expenses: Drilling & Subsea$86,327 $90,682 $4,355 4.8 %Completions66,306 52,430 (13,876) (26.5)%Production & Infrastructure67,653 56,456 (11,197) (19.8)%Corporate33,427 27,440 (5,987) (21.8)%Total selling, general and administrative expenses$253,713 $227,008 $(26,705) (11.8)%Segment operating income (loss): Drilling & Subsea$(31,563) $(53,055) $21,492 40.5 %Operating margin %(13.4)% (23.6)% Completions(6,746) (45,609) 38,863 85.2 %Operating margin %(2.6)% (34.6)% Production & Infrastructure7,811 655 7,156 *Operating margin %2.4 % 0.3 % Corporate(33,427) (27,440) (5,987) (21.8)%Total segment operating loss$(63,925) $(125,449) $61,524 49.0 %Operating margin %(7.8)% (21.3)% Goodwill and intangible asset impairments69,062 — (69,062) *Transaction expenses6,511 865 (5,646) *Loss on disposal of assets2,097 2,638 541 *Loss from operations(141,595) (128,952) (12,643) (9.8)%Interest expense, net26,808 27,410 602 2.2 %Foreign exchange losses (gains) and other, net7,268 (21,341) (28,609) *Gain realized on previously held equity investment(120,392) — 120,392 *Deferred loan cost written off— 2,978 2,978 *Other (income) expense, net(86,316) 9,047 95,363 *Loss before income taxes(55,279) (137,999) 82,720 59.9 %Income tax expense (benefit)4,121 (56,051) (60,172) (107.4)%Net loss(59,400) (81,948) 22,548 27.5 %Less: Income attributable to non-controlling interest— 30 (30) *Net loss attributable to common stockholders$(59,400) $(81,978) $22,578 27.5 % Weighted average shares outstanding Basic98,689 91,226 Diluted98,689 91,226 Loss per share Basic$(0.60) $(0.90) Diluted$(0.60) $(0.90) * not meaningful 39Table of ContentsRevenueOur revenue for the year ended December 31, 2017 increased $231.0 million, or 39.3%, to $818.6 million compared to the year endedDecember 31, 2016. In general, the increase in revenue is due to higher market activity resulting from higher commodity prices. In the third quarterof 2017, we were adversely affected by Hurricane Harvey, which temporarily idled facilities and operations, resulting in foregone revenue. For theyear ended December 31, 2017, our Drilling & Subsea segment, Completions segment, and Production & Infrastructure segment comprised 28.2%,31.8% and 40.0% of our total revenue, respectively, compared to 37.8%, 22.4% and 39.8%, respectively, for the year ended December 31, 2016.The revenue changes by operating segment consisted of the following:Drilling & Subsea segment — Revenue increased $10.3 million, or 4.6%, to $234.7 million during the year ended December 31, 2017 compared tothe year ended December 31, 2016. Approximately $33 million of the increase relates to improved sales volumes of our drilling products primarilyassociated with the 72% increase in the average U.S. rig count compared to the prior year. The improvement in volumes was particularly strong forconsumable products sold to drilling contractors both for rig mud pump upgrades and rig operations. The increase in drilling products was partiallyoffset by lower sales volumes and demand for our remotely operated subsea vehicles, associated subsea systems and other offshore products,which was largely attributable to reduced investment in global offshore projects.Completions segment — Revenue increased $128.4 million, or 97.4%, to $260.2 million during the year ended December 31, 2017 compared to theyear ended December 31, 2016. The increase in drilling and completions budgets of exploration and production companies has led to an increasein market demand for our completions products. Approximately $76 million of the increase is a result of higher sales volumes for our wellstimulation and intervention products, particularly in North America. In addition, segment revenue includes $36 million of revenue from theacquisition of the remaining membership interests of Global Tubing in the fourth quarter of 2017. The remaining increase in segment revenues wasdue to higher sales of our downhole products, including revenue from our acquisition of Multilift in the third quarter of 2017.Production & Infrastructure segment — Revenue increased $93.5 million, or 40.0%, to $327.3 million during the year ended December 31, 2017compared to the year ended December 31, 2016. The increase in drilling and completions budgets of exploration and production companies andresulting infrastructure spending have led to increased sales of our surface production equipment and valve products. Approximately half of theincrease is attributable to higher sales volumes in our activity-based production equipment. The remaining segment revenue increase was due tohigher sales of valves, including revenue from our acquisition of Cooper in the first quarter of 2017.Segment operating income (loss) and segment operating margin percentageSegment operating loss for the year ended December 31, 2017 improved $61.5 million to a loss of $63.9 million for the year ended December 31,2017 compared to a loss of $125.4 million the year ended December 31, 2016. In the third quarter of 2017, we were adversely affected byHurricane Harvey, which temporarily idled facilities and operations, resulting in foregone revenue and under-absorption of manufacturing costs. Theoperating margin percentage improved to (7.8)% for the year ended December 31, 2017 from (21.3)% for the year ended December 31, 2016. Thesegment operating margin percentage is calculated by dividing segment operating loss by revenue for the period. The change in operating marginpercentage for each segment is explained as follows:Drilling & Subsea segment — The operating margin percentage improved to (13.4)% for the year ended December 31, 2017 compared to (23.6)%for the year ended December 31, 2016. The year ended December 31, 2017 included $3.6 million of severance and facility closure costs. The yearended December 31, 2016 included $12.6 million of inventory write-downs attributable to lower activity levels and reduced pricing, severance andfacility closure costs. The remaining increase in operating margins was driven by higher activity levels, which caused an improvement inmanufacturing scale efficiencies, as well as a better mix of higher margin product sales. For the segment, the margin improvement for our drillingproducts was partially offset by lower margins for our subsea products.Completions segment — The operating margin percentage improved to (2.6)% for the year ended December 31, 2017 from (34.6)% for the yearended December 31, 2016. The year ended December 31, 2017 included $9.2 million of inventory write-downs attributable to the decision to exitspecific product lines in the fourth quarter 2017. The year ended December 31, 2016 included $21.1 million of charges for inventory write-downsattributable to lower activity levels and reduced pricing, severance and facility closure costs. The remaining increase in operating marginpercentage is due to increased operating leverage on higher revenue and volumes. Operating results were also positively impacted by animprovement in earnings for Global Tubing, LLC which was reported as an equity method investment until our acquisition of the remainingmembership interests in October 2017.40Table of ContentsProduction & Infrastructure segment — The operating margin percentage improved to 2.4% for the year ended December 31, 2017 from 0.3% forthe year ended December 31, 2016. The years ended December 31, 2017 and December 31, 2016 included costs related to inventory write-downs,facility closure costs and severance totaling $4.9 million and $3.9 million, respectively. The remaining increase in operating margins was primarilyattributable to higher activity levels leading to increased operating leverage in our activity-based production equipment products.Corporate — Selling, general and administrative expenses for Corporate increased $6.0 million, or 21.8%, for the year ended December 31, 2017compared to the year ended December 31, 2016 due to higher personnel costs, including bonus accruals, and higher professional fees. Corporatecosts include payroll, professional fees and other costs for general management, administration, marketing, finance, legal, information technologyand human resources.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 loss. These items include goodwill andintangible asset impairments, transaction expenses, and gains/losses from the disposal of assets. Transaction expenses include legal, advisoryand other costs incurred in acquiring businesses which are not considered to be part of segment operating income (loss). These costs were $6.5million and $0.9 million for the years ended December 31, 2017 and 2016, respectively, with the increase primarily related to the acquisition ofGlobal Tubing in the fourth quarter of 2017.The Company recorded a goodwill impairment charge of $68.0 million in the second quarter of 2017 related to the subsea reporting unit. In addition,the Company also recorded impairment charges totaling $1.1 million in 2017 related to intangible assets in the Subsea and Downhole reportingunits. Refer to Note 8 Goodwill and Intangible Assets for further discussion.Other income and expenseOther income and expense includes interest expense, foreign exchange gains and losses, a gain realized on the previously held equity investmentin Global Tubing, and the write-off of deferred loan costs. We incurred $26.8 million of interest expense during the year ended December 31, 2017,a decrease of $0.6 million compared to the year ended December 31, 2016 primarily due to lower commitment fees on the unused portion of ourrevolving credit line. The foreign exchange loss was $7.3 million for the year ended December 31, 2017 compared to a gain of $21.3 million for theyear ended December 31, 2016. The foreign exchange gains and losses are primarily the result of movements in the British pound and the Eurorelative to the U.S. dollar. These movements in exchange rates create foreign exchange gains or losses when applied to monetary assets orliabilities denominated in currencies other than the location’s functional currency, primarily U.S. dollar denominated cash, trade accountreceivables and net intercompany receivable balances for our entities using a functional currency other than U.S. dollar. In 2017, we recognized again of $120.4 million on the previously held equity investment in Global Tubing upon acquiring the remaining interest in the fourth quarter of 2017.In year ended December 31, 2016, we wrote off $3.0 million of deferred financing costs as a result of the amendments of our credit facility in thefirst and fourth quarters of 2016 which reduced the size of our revolving credit line.TaxesTax expense (benefit) 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 (benefit) by income before income taxes, was 7.5% and 40.6% for the years ended December 31, 2017and 2016, respectively. Items reducing the effective tax rate for the year ended December 31, 2017 include $14.7 million associated with the non-tax deductible goodwill impairment for the subsea reporting unit and a net $10.1 million expense associated with U.S. tax reform. Also impactingthe tax rate in 2017 is the change in the proportion of losses generated in the U.S., which are benefited at a higher statutory tax rate, as comparedto losses generated outside the U.S. in jurisdictions subject to lower tax rates. Partially offsetting these items was a $9.2 million reduction in taxexpense associated with the gain on acquisition of the remaining 52% membership interest of Global Tubing.41Table of ContentsYear ended December 31, 2016 compared to year ended December 31, 2015 Year ended December 31, Favorable / (Unfavorable) 2016 2015 $ %(in thousands of dollars, except per share information) Revenue: Drilling & Subsea$224,447 $469,778 $(245,331) (52.2)%Completions131,786 285,177 (153,391) (53.8)%Production & Infrastructure233,754 320,442 (86,688) (27.1)%Eliminations(2,352) (1,745) (607) *Total revenue$587,635 $1,073,652 (486,017) (45.3)%Cost of sales: Drilling & Subsea$186,820 $347,936 $161,116 46.3 %Completions126,789 223,726 96,937 43.3 %Production & Infrastructure176,643 241,058 64,415 26.7 %Eliminations(2,352) (1,745) 607 *Total cost of sales$487,900 $810,975 $323,075 39.8 %Gross profit: Drilling & Subsea$37,627 $121,842 $(84,215) (69.1)%Completions4,997 61,451 (56,454) (91.9)%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$90,682 $119,121 $28,439 23.9 %Completions52,430 60,982 8,552 14.0 %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 $37,898 14.3 %Operating income (loss): Drilling & Subsea$(53,055) $2,721 $(55,776) *Operating income margin %(23.6)% 0.6% Completions(45,609) 15,293 (60,902) *Operating income margin %(34.6)% 5.4% Production & Infrastructure655 22,658 (22,003) (97.1)%Operating income margin %0.3 % 7.1% Corporate(27,440) (28,077) 637 (2.3)%Total segment operating income (loss)$(125,449) $12,595 (138,044) *Operating income margin %(21.3)% 1.2% Goodwill and Intangible asset impairment— 125,092 125,092 *Transaction expenses865 480 (385) *Loss on sale of assets2,638 746 (1,892) *Loss from operations(128,952) (113,723) (15,229) (13.4)%Interest expense, net27,410 29,945 2,535 8.5 %Foreign exchange gains and other, net(21,341) (9,345) 11,996 *Deferred loan costs written off2,978 — (2,978) *Other expense, net9,047 20,600 11,553 56.1 %Loss before income taxes(137,999) (134,323) (3,676) (2.7)%Income tax benefit(56,051) (14,939) 41,112 *Net loss(81,948) (119,384) 37,436 31.4 %Less: Income (loss) attributable to non-controlling interest30 (31) 61 *Loss attributable to common stockholders$(81,978) $(119,353) $37,375 31.3 % Weighted average shares outstanding Basic91,226 89,908 Diluted91,226 89,908 Loss per share Basic$(0.90) $(1.33) Diluted$(0.90) $(1.33) * not meaningful 42Table 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. The low commodity prices throughout 2016 resulted in a substantial reduction in activity as our customers’ budgets for capitaland consumable equipment were significantly reduced. For the year ended December 31, 2016, our Drilling & Subsea segment, Completionssegment, and Production & Infrastructure segment comprised 37.8%, 22.4% and 39.8% of our total revenue, respectively, compared to 43.7%,26.5% 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 $245.3 million, or 52.2%, to $224.4 million during the year ended December 31, 2016 comparedto the year ended December 31, 2015. Approximately 60% of the decline in segment revenue was the result of lower sales volumes of our drillingproducts and was caused by the 48% decrease in U.S. average rig count compared to the prior year period. Lower demand for our remotelyoperated vehicles and associated systems and other offshore products, which was largely attributable to reduced investment in global offshoreprojects, resulted in lower sales volumes and was approximately 30% of our reduced segment revenue for the period. The remaining 10%reduction in revenue was due to lower product pricing to our customers and changes in foreign exchange rates.Completions segment — Revenue decreased $153.4 million, or 53.8%, to $131.8 million during the year ended December 31, 2016 compared tothe year ended December 31, 2015. Approximately 80% of the reduction in segment revenue was attributable to decreased volumes, as the globalmarket experienced lower well completions activity, including in North America, and the remainder was due to lower product pricing to ourcustomers. These items led to lower revenue from our casing and cementing equipment products sold to pressure pumping service providers andpressure 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. Approximately 75% of the decrease in segment revenue was due to reduced sales volumes inproduction equipment and valves products. The decrease in exploration and production budgets led to lower sales of our surface productionequipment and, to a lesser extent, lower sales of valve products to the upstream sector. The remaining 25% of the decline in segment revenuewas due to reduced product pricing to our customers. The demand for our midstream and downstream valves has been more resilient through thedownturn relative to our other product lines.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 2016 results include total charges of $38.3 million related to several facility consolidations and closures, inventorywrite-downs across all product lines attributable to 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. Excluding the charges described above, the adjusted segment operating margin percentage decreased to(14.8)% for the year ended December 31, 2016 compared to 7.1% for the year ended December 31, 2015. We believe that adjusted operatingmargins excluding the costs described above are useful for assessing operating performance, especially when comparing periods. The change inoperating margin percentage for each segment is explained as follows:Drilling & Subsea segment — The operating margin percentage decreased to (23.6)% for the year ended December 31, 2016 from 0.6% for theyear ended December 31, 2015. The years ended December 31, 2016 and 2015 included $12.6 million and $32.1 million, respectively, of inventorywrite-downs, severance and facility closure costs as described above. Excluding these charges, the adjusted operating margin percentagedecreased to (18.0)%, for the year ended December 31, 2016, from 7.4% for the year ended December 31, 2015. The main driver for this decreasein adjusted operating margin percentage is the lower activity levels, which has caused a loss of manufacturing scale efficiencies and more intensecompetition for fewer sales opportunities reducing our prices.Completions segment — The operating margin percentage decreased to (34.6)% for the year ended December 31, 2016 from 5.4% for the yearended December 31, 2015. The years ended December 31, 2016 and 2015 included $21.2 million and $25.2 million, respectively, of inventorywrite-downs and facility closure costs as described above. Excluding these charges, the adjusted operating margin percentage decreasedto (18.6)%, for the year ended December 31, 2016, from 14.2% for the year ended December 31, 2015. The decrease in adjusted operating marginpercentage is due to reduced operating leverage on lower volumes and pricing pressure especially on43Table of Contentsconsumable flow equipment sold to pressure pumping service companies. Also impacting margins were lower earnings from our investment inGlobal Tubing.Production & 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 years ended December 31, 2016 and 2015 included $3.9 million and $5.1 million, respectively, of costsrelated to facility consolidation and severance as described above. Excluding these charges, the adjusted operating margin percentage decreasedto 1.9%, for the year ended December 31, 2016, from 8.7% for the year ended December 31, 2015. The decrease in adjusted operating marginpercentage was attributable to reduced operating leverage on lower volumes, and pricing pressure on our surface production equipment on loweractivity levels. The operating margins for our valve products have been more resilient as demand for midstream and downstream valves remainssteady.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 incomeSeveral items are not included in segment operating income, but are included in total operating income (loss). These items include goodwill andintangible asset impairments, transaction expenses, and gains/losses from the disposal of assets. Transaction expenses include legal, advisoryand other costs incurred in acquiring businesses which are not considered to be part of segment operating income (loss). These costs were $0.9million and $0.5 million for the years ended December 31, 2016 and 2015, respectively. In the year ended December 31, 2016, we recognized a netloss of $2.6 million on sales of assets, primarily related to plant consolidations.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. These movements in exchange rates create foreign exchange gains or losses when applied tomonetary assets or liabilities denominated in currencies other than the location’s functional currency, primarily U.S. dollar denominated cash, tradeaccount receivables and net intercompany receivable balances for our entities using a functional currency other than U.S. dollar. In year endedDecember 31, 2016, we wrote off $3.0 million of deferred financing costs as a result of the amendments to our credit facility in the first and fourthquarter 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 provision 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 U.S. offset by earnings generated outside the U.S. in jurisdictionssubject to lower tax rates. In addition, the majority of the goodwill impairment loss in 2015 was not tax deductible. The effective tax rate can varyfrom period to period depending on our relative mix of U.S. and non-U.S. earnings. Excluding the goodwill and intangible asset impairment and thecharges discussed above in the segment operating margin discussion, our effective tax rate would have been approximately 22% for the yearended December 31, 2015.44Table of ContentsLiquidity 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, trade credit, and the issuance of our senior notes described below. Our primary uses of capital have been for acquisitions, ongoingmaintenance and growth capital expenditures, inventories and sales on credit to our customers. We continually monitor potential capital sources,including equity and debt financing, to meet our investment and target liquidity requirements. Our future success and growth will be highlydependent on our ability to continue to access outside sources of capital.At December 31, 2017, we had cash and cash equivalents of $115.2 million and total debt of $507.9 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.The amount of capital expenditures incurred in 2017 was $26.7 million, including our investment in a new production facility in Saudi Arabia. Ourtotal 2018 capital expenditure budget is approximately $35.0 million, which consists of, among other items, investments in certain manufacturingfacilities, replacing end of life machinery and equipment, continuing the implementation of our enterprise resource planning solution globally, andgeneral capital expenditures. This budget does not include expenditures for potential business acquisitions. We believe cash flows from operationsshould be sufficient to fund our capital requirements for 2018.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 three businesses in 2017 for total cash and stock consideration of approximately $340.7million, net of cash acquired. We used cash on hand, borrowings under our credit facility, and the issuance of shares to finance these acquisitions.We continue to actively review acquisition opportunities on an ongoing basis, and we may fund future acquisitions with cash and/or equity. Ourability to make significant additional acquisitions for cash may require us to pursue additional equity or debt financing, which we may not be able toobtain on terms acceptable to us or at all.In October 2014, our board of directors approved a program for the repurchase of outstanding shares of our common stock with an aggregatepurchase amount 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 $49.8 million.Our cash flows for the years ended December 31, 2017, 2016 and 2015 are presented below (in millions): Year ended December 31, 2017 2016 2015Net cash provided by (used in) operating activities$(40.0) $64.7 $155.9Net cash used in investing activities(188.0) (11.1) (91.3)Net cash provided by (used in) financing activities100.6 86.2 (26.9)Effect of exchange rate changes on cash8.2 (14.6) (5.0)Net increase (decrease) in cash and cash equivalents(119.2) 125.2 32.7Free cash flow, before acquisitions$(64.7) $57.7 $125.445Table of ContentsFree cash flow, a non-GAAP financial measure, is defined as net cash provided by operating activities, less capital expenditures for property andequipment net of proceeds from sale of property and equipment and other, plus the payment of contingent consideration included in operatingactivities. Management believes free cash flow is an important measure because it encompasses both profitability and capital management inevaluating results. Free cash flow should not be considered an alternative to net cash provided by operating activities as a cash flowmeasurement. A reconciliation of cash flow from operating activities to free cash flow, before acquisitions, is as follows (in millions): Year ended December 31, 2017 2016 2015Cash flow from operating activities$(40.0) $64.7 $155.9Capital expenditures for property and equipment(26.7) (16.8) (32.3)Proceeds from sale of property and equipment2.0 9.8 1.8Free cash flow, before acquisitions$(64.7) $57.7 $125.4Cash flows provided by (used in) operating activitiesNet cash provided by (used in) operating activities was $(40.0) million and $64.7 million for the years ended December 31, 2017 and 2016,respectively. Cash provided by (used in) operations decreased primarily as a result of increases in working capital in 2017 which used cash of$38.4 million compared to reductions in working capital in 2016 which provided cash of $56.8 million. The increase in working capital in 2017 isprimarily due to increased accounts receivable on higher revenue and investments in inventory in anticipation of a continued recovery in marketdemand, partially offset by an increase in accrued liabilities and $30.9 million of taxes refunded from our election to carry back our 2016 U.S. netoperating loss to recover taxes paid in earlier periods.Net 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 in 2016 decreased primarily as a result of lower earnings, slightly offset by the positive cash flow resulting fromchanges in working capital, such as accounts receivable and inventory, compared to the year ended December 31, 2015.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 various factors. These factors arebeyond our control and are difficult to predict.Cash flows used in investing activitiesNet cash used in investing activities was $188.0 million and $11.1 million for the years ended December 31, 2017 and 2016, respectively, a $176.8million increase. The increase was primarily due to cash consideration of $162.2 million, net of cash acquired, paid for three acquisitions in 2017compared to consideration of $4.1 million paid for one acquisition in 2016. In addition, capital expenditures of $26.7 million in 2017 increasedcompared to $16.8 million in 2016, partially offset by proceeds from the sale of assets of $2.0 million and $9.8 million during 2017 and 2016,respectively.Net cash used in investing activities was $11.1 million and $91.3 million for the years ended December 31, 2016 and 2015, respectively, an $80.2million decrease. The decrease was primarily due to consideration of $4.1 million paid for an acquisition in 2016 compared to consideration of$60.8 million paid for an acquisition in 2015. In addition, capital expenditures of $16.8 million in 2016 decreased compared to $32.3 million during2015. The proceeds from the sale of business and properties was $9.8 million during 2016, compared to $1.8 million during 2015.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 $100.6 million for the year ended December 31, 2017 and was primarily due to the borrowings on ourrevolving credit facility of $107.4 million for the year ended December 31, 2017.Net 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 $87.7 million.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.46Table of ContentsSenior 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 a price of 103.25% of par, plus accrued interest from October 2, 2013 (the “SeniorNotes”). The Senior 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. Net proceeds from the issuance of approximately $394.0 million, after deducting initial purchasers’ discounts and offering expenses andexcluding accrued interest paid by the purchasers, were used for the repayment of the then-outstanding term loan balance and a portion of therevolving credit 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, and areguaranteed on a senior unsecured basis by our subsidiaries that guarantee the credit facility and rank junior to, among other indebtedness, thecredit facility to the extent of the value of the collateral securing the credit facility. The Senior Notes contain customary covenants including somelimitations and restrictions on our ability to pay dividends on, purchase or redeem our common stock or purchase or redeem our subordinated debt;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 restrictedsubsidiaries; consolidate, merge or transfer all or substantially all of our assets; engage in transactions with affiliates; and create unrestrictedsubsidiaries. Many of these restrictions will terminate if the Senior Notes become rated investment grade. The Indenture also contains customaryevents of default, including nonpayment, breach of covenants in the Indenture, payment defaults or acceleration of other indebtedness, failure topay certain judgments and certain events of bankruptcy and insolvency. We are required to offer to repurchase the Senior Notes in connection withspecified change in control events or with excess proceeds of asset sales not applied for permitted purposes.We may redeem the Senior Notes due 2021:•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 October 30, 2017, we amended and restated our existing credit facility with Wells Fargo Bank, National Association, as administrative agent (insuch capacity, “Wells Fargo”), and several financial institutions as lenders (such amended and restated credit facility, the “2017 Credit Facility”) to,among other things, increase revolving credit commitments from $140.0 million to $300.0 million (with a sublimit of up to $25.0 million available forthe issuance of letters of credit for the account of the Company and certain of our domestic subsidiaries) (the “U.S. Line”), of which up to $30.0million is available to certain of our Canadian subsidiaries for loans in U.S. or Canadian dollars (with a sublimit of up to $3.0 million available for theissuance of letters of credit for the account of our Canadian subsidiaries) (the “Canadian Line”). Lender commitments under the 2017 CreditFacility, subject to certain limitations, may be increased by an additional $100.0 million. The 2017 Credit Facility matures in July 2021, but if ouroutstanding Notes due October 2021 are refinanced or replaced with indebtedness maturing in or after February 2023, the final maturity of the 2017Credit Facility will automatically extend to October 2022.Availability under the 2017 Credit Facility is subject to a borrowing base calculated by reference to eligible accounts receivable in the U.S., Canadaand certain other jurisdictions (subject to a cap) and eligible inventory in the U.S. and Canada. Our borrowing capacity under the 2017 CreditFacility could be reduced or eliminated, depending on future receivables and fluctuations in our inventory. As of December 31, 2017, our borrowingbase was $299.4 million, of which $108.4 million was drawn and $7.0 million was used for security of outstanding letters of credit, resulting inremaining availability of $184.0 million.Borrowings under the U.S. Line bear interest at a rate equal to, at our option, either (a) the LIBOR rate or (b) a base rate determined by reference tothe highest of (i) the rate of interest per annum determined from time to time by Wells Fargo as its prime rate in effect at its principal office in SanFrancisco, (ii) the federal funds rate plus 0.50% per annum and (iii) the one-month adjusted LIBOR plus 1.00% per annum, in each case plus anapplicable margin. Borrowings under the Canadian Line bear interest at a rate equal to, at Forum Canada’s option, either (a) the CDOR rate or (b) a47Table of Contentsbase rate determined by reference to the highest of (i) the prime rate for Canadian dollar commercial loans made in Canada as reported from timeto time by Thomson Reuters and (ii) the CDOR rate plus 1.00%, in each case plus an applicable margin. The applicable margin for LIBOR andCDOR loans will initially range from 1.75% to 2.25%, depending upon average excess availability under the 2017 Credit Facility. After the firstquarter ending on or after March 31, 2018 in which our total leverage ratio is less than or equal to 4.00:1.00, the applicable margin for LIBOR andCDOR loans will range from 1.50% to 2.00%, depending upon average excess availability under the 2017 Credit Facility. The weighted averageinterest rate under the 2017 Credit Facility was approximately 3.56% in the fourth quarter 2017.The 2017 Credit Facility also provides for a commitment fee in the amount of (a) 0.375% per annum on the unused portion of commitments ifaverage usage of the 2017 Credit Facility is greater than 50% and (b) 0.50% per annum on the unused portion of commitments if average usage ofthe 2017 Credit Facility is less than or equal to 50%. After the first quarter ending on or after March 31, 2018 in which our total leverage ratio isless than or equal to 4.00:1.00, the commitment fees will range from 0.25% to 0.375%, depending upon average usage of the 2017 Credit Facility.Subject to customary exceptions, all obligations under the 2017 Credit Facility are guaranteed, jointly and severally, by each wholly-owned U.S.subsidiary of the Company and, in the case of the Canadian Line, each wholly-owned Canadian subsidiary of the Company, and are secured bysubstantially all assets of each such entity and the Company.The 2017 Credit Facility contains various covenants that, among other things, limit our ability (none of which are absolute) to incur additionalindebtedness or issue certain preferred shares, grant certain liens, make certain loans and investments, pay dividends, make distributions or makeother restricted payments, enter into mergers or acquisitions unless certain conditions are satisfied, enter into hedging transactions, change ourlines of business, prepay certain indebtedness, enter into certain affiliate transactions, engage in certain asset dispositions or modify the terms ofcertain debt or organizational agreements.If excess availability under the 2017 Credit Facility falls below the greater of 10.0% of the borrowing base and $20.0 million, we will be required tomaintain a fixed charge coverage ratio of at least 1.00:1.00 as of the end of each fiscal quarter until excess availability under the 2017 CreditFacility exceeds such thresholds for at least 60 consecutive days.Interest is payable monthly for base rate loans and at the end of each interest period for LIBOR loans and CDOR loans, except that if the interestperiod for a LIBOR loan or a CDOR Loan is longer than three months, interest is paid at the end of each three-month period.If an event of default exists under the 2017 Credit Facility, lenders holding greater than 50% of the aggregate outstanding loans and letter of creditobligations and unfunded commitments have the right to accelerate the maturity of the obligations outstanding under the 2017 Credit Facility andexercise other rights and remedies. Obligations outstanding under the 2017 Credit Facility, however, will be automatically accelerated upon anevent of default arising from a bankruptcy or insolvency event. Each of the following constitutes an event of default under the 2017 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 2017 Credit Facility or other loan documents being incorrect or misleading in any material respect;•Failure to perform or otherwise comply with the covenants in the 2017 Credit Facility or other loan documents, subject, in certaininstances, to grace periods;•Impairment of security under the loan documents affecting (a) collateral whose value is included in calculating the borrowing base having afair market value in excess of $2.2 million and (b) other collateral having a fair market value in excess of $25 million;•The obligations of any guarantor under any guarantee of the indebtedness under the 2017 Credit Facility are materially limited orterminated by operation or law or such guarantor or any guarantor repudiates or purports to repudiate any such guaranty;•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;48Table of Contents•The entry, and failure to pay, of one or more adverse judgments in excess of $25 million (except to the extent fully covered by aninsurance policy pursuant to which the insurer has not denied coverage), upon which enforcement proceedings are commenced or that arenot stayed pending appeal;•The occurrence of a change in control (as defined in the 2017 Credit Facility);•The invalidity or unenforceability of any loan document; and•The occurrence of certain ERISA events.Off-balance sheet arrangementsAs of December 31, 2017, 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.Contractual obligationsThe following table summarizes our significant contractual obligations and other long- term liabilities as of December 31, 2017 (in thousands): 2018 2019 2020 2021 2022 After 2022 TotalSenior notes due October 2021 (1) $25,000 $25,000 $25,000 $418,750 $— $— $493,750Senior secured credit facility 3,858 3,858 3,858 110,375 — — 121,949Other debt 1,156 943 — — — — 2,099Operating leases 17,421 15,060 12,512 10,369 9,552 6,517 71,431Letters of credit 7,448 454 44 — — — 7,946Pension 368 360 372 364 390 7,099 8,953Total $55,251 $45,675 $41,786 $539,858 $9,942 $13,616 $706,128(1) Includes interest on $400 million of senior notes at 6.25% that are due in October 2021.As discussed in Note 10 Income Taxes, as of December 31, 2017 the Company has approximately $14.8 million of liabilities associated withuncertain tax positions in the various jurisdictions in which the Company conducts business. Due to the uncertain and complex application of thetax regulations, combined with the difficulty in predicting when tax audits throughout the world may be concluded, the Company cannot makeprecise estimates of the timing of cash outflows relating to these liabilities. Accordingly, liabilities associated with uncertain tax positions havebeen 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 2017, 2016 or 2015.Although the impact of inflation has been insignificant in recent years, it is still a factor in the global economy and we do experience inflationarypressure on the cost of raw materials and components used in our products.49Table of ContentsCritical 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. In preparing our financial statements, we make judgments, estimates and assumptions affecting theamounts reported. We base our estimates on factors including historical experience and various assumptions that we believe are reasonable underthe circumstances. These factors form the basis for making estimates about the carrying values of assets and liabilities that are not readilyapparent from other sources. Certain accounting policies involve judgments and uncertainties to such an extent that there is a reasonablelikelihood that materially different amounts could have been reported under different conditions, or if different assumptions had been used. Weevaluate our estimates and assumptions on a regular basis. Actual results may differ from these estimates and assumptions used in preparationof our consolidated financial statements.In order to provide a better understanding of how we make judgments, and develop estimates and assumptions about future events, we havedescribed our most critical accounting policies below. We believe that these accounting policies reflect our more significant estimates andassumptions used in preparation of our consolidated financial statements.Our most critical accounting policies relate to:•Revenue recognition;•Share based compensation;•Inventories;•Business combinations, goodwill and other intangible assets;•Income taxes;•Property and equipment; and•Recognition of provisions for contingencies.Revenue recognitionGenerallyThe 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 Summary of Significant Accounting Policies have been met.The only revenue recognition criteria requiring judgment on these sales is assurance of collectability. We carefully evaluate the financial strengthof our customers before extending credit, and historically we have not incurred significant losses for bad debt.Long term ContractsRevenue generated from long-term contracts, typically longer than six months in duration, is recognized using the percentage-of-completionmethod of accounting. Approximately 4% of our 2017 revenue was accounted for on this basis. There are significant estimates and judgmentsinvolved in recognizing revenue over the term of the contract. For the portion of our business accounted for using the percentage-of-completionmethod, we generally recognize revenue and cost of goods sold each period based upon the advancement of the work-in-progress. The percentagecomplete is determined by comparing the costs incurred to date to the contract’s total estimated costs. The percentage-of-completion methodrequires management to calculate reasonably dependable estimates of progress towards completion and total contract costs. Each period theselong-term contracts are reevaluated and may result in upward or downward revisions in estimated total contract costs, which are accounted for inthe period of the change to reflect a catch up adjustment for the cumulative impact from inception of the contract. Whenever revisions ofestimated contract costs and contract value indicates that the contract costs will exceed estimated revenue, a provision for the total estimatedloss is recorded in that period.Equipment Rentals and ServiceRevenue from the rental of equipment or provision 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 the utilization of equipment or personnel, which requires us to estimate the revenuerecognized in the period. In the following period, these estimates are adjusted to actual field tickets received late.50Table of ContentsShare-based compensationWe account for awards of share-based compensation at fair value on the date granted to employees and recognize the compensation expense inour 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 the outstanding options, and a Monte Carlo Simulationmodel for performance share units. These models require assumptions and estimates for inputs, especially the estimate of the volatility in thevalue of the underlying 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 net realizable value. Weevaluate our inventories, based on an analysis of stocking levels, historical sales levels and future sales forecasts, to determine obsolete, slow-moving and excess inventory. While we have policies for calculating and recording reserves against inventory carrying values, we exercisejudgment in establishing and applying these policies.Business combinations, goodwill and other intangible assetsBusiness combinationsGoodwill 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.Goodwill and intangible assets with indefinite livesFor 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 complete our annual impairment test for goodwill and other indefinite-lived intangibles using an assessmentdate of October 1. Goodwill is reviewed for impairment by comparing the carrying value of each of our seven reporting unit’s net assets, includingallocated goodwill, to the estimated fair value of the reporting unit. We determine the fair value of our reporting units using a discounted cash flowapproach. We selected this valuation approach because we believe it, combined with our best judgment regarding underlying assumptions andestimates, provides the best estimate of fair value for each of our reporting units. Determining the fair value of a reporting unit requires the use ofestimates and assumptions. Such estimates and assumptions include revenue growth rates, future operating margins, the weighted average costof capital, a terminal growth value, and future market conditions, among others. We believe that the estimates and assumptions used in ourimpairment assessments are reasonable. If the reporting unit’s carrying value is greater than its calculated fair value, we recognize a goodwillimpairment charge for the amount by which the carrying value of goodwill exceeds its fair value.In the second quarter of 2017, there was a decline in oil prices and a developing consensus view that production from lower cost oil basins wouldbe sufficient to meet anticipated demand for a longer period, delaying the need for production from higher cost basins. With this indication offurther delays in the recovery of the offshore market, we performed an impairment test and determined that the carrying value of the goodwill in ourSubsea reporting unit was impaired. We recorded an impairment charge of $68.0 million for the quarter ended June 30, 2017. Following theimpairment charge, the Subsea reporting unit has no remaining goodwill balance. There was no indication an impairment may have occurred in theother reporting units.At October 1, 2017, 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 our reporting units exceeded its carrying value. As such, no further impairment losses were recordedon goodwill in 2017. Based on this updated fair value estimate, the fair value for our Drilling Technologies and Downhole Technologies reportingunits remain approximately 16% and 17% above their reporting unit’s carrying value, respectively. As of December 31, 2017, goodwill associatedwith the Drilling Technologies and Downhole Technologies reporting units was $251 million and $244 million, respectively. There are significantinherent uncertainties and management judgment in estimating the fair value of each reporting unit. While we believe we have made reasonableestimates and assumptions to estimate the fair value of our reporting units, it is possible that a material change could occur. If actual results arenot consistent with our current estimates51Table of Contentsand assumptions, or if changes in macroeconomic conditions outside the control of management change such that it results in a significantnegative impact to our estimated fair values, the fair value of these reporting units may decrease below their net carrying value, which could resultin a material impairment of our goodwill.No impairment losses were recorded on goodwill for the year ended December 31, 2016.For the year ended December 31, 2015, due to deterioration of market conditions for our products, the Company performed an impairment test onall reporting units. The Company identified and recorded an impairment charge of $123.2 million for its Subsea reporting unit for the year endedDecember 31, 2015.Intangible assets with definite livesIntangible assets with definite lives are tested for impairment whenever events or changes in circumstances indicate that their carrying amountmay not be recoverable. In 2017, an impairment loss of $1.1 million was recorded on certain intangible assets within the Subsea and Downholereporting units related to specific product lines as the decision was made to abandon these specific product lines. No impairments to intangibleassets were recorded in 2016. In the fourth quarter of 2015, an impairment loss of $1.9 million relating to certain trade names that were no longer inuse was recorded.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 U.S. Consequently, we are subject to the jurisdiction of a number of taxing authorities. The finaldetermination of tax liabilities involves the interpretation of local tax laws, tax treaties, and related authorities in each jurisdiction. Changes in theoperating environment, including changes in tax law or interpretation of tax law and currency repatriation controls, could impact the determinationof our tax liabilities for a given tax year.We are currently reviewing and evaluating the impact of U.S. tax reform enacted in December 2017. As a result, we recorded a net charge of $10.1million during the fourth quarter of 2017 based on our preliminary assessment of the impact. The amounts recognized related to U.S. tax reformare provisional in nature and subject to adjustment as further guidance is provided by the U.S. Internal Revenue Service regarding the applicationof the new tax laws. We will continue to evaluate the impacts of tax reform as additional information is obtained and will adjust the provisionalamounts, as necessary. We expect to complete our detailed analysis no later than the fourth quarter of 2018.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 an assets’ carrying value as compared to itsestimated fair value.52Table of ContentsRecognition 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 at the date of the consolidated financial statements it is probable that aliability has been incurred and the amount can be reasonably estimated. If it is determined that the reasonable estimate of the loss is a range andthat there is no best estimate within the range, provision will be made for the lower amount of the range. Legal costs are expensed as incurred.An assessment is made of the areas where potential claims may arise under contract warranty clauses. Where a specific risk is identified and thepotential for a claim is assessed as probable and can be reasonably estimated, an appropriate warranty provision is recorded. Warranty provisionsare eliminated at the end of the warranty period, except where warranty claims are still outstanding. The liability for product warranty is included inother accrued liabilities on the consolidated balance sheets.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 September 2017, the FASB issued Accounting Standard Updates (“ASU”) No. 2017-13, Revenue Recognition (Topic 605), Revenue fromContracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the StaffAnnouncement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments. This ASUcodifies the text of the SEC announcement, as it relates to revenue recognition and leases. The ASU also rescinds certain codified SECannouncements and comments that are no longer applicable upon adoption of ASU No. 2014-09 and ASU No. 2016-02. The recent accountingpronouncements related to revenue and leases are discussed later in this section.In May 2017, the FASB issued ASU No. 2017-09 Compensation - Stock Compensation (Topic 718) - Scope of Modification Accounting, whichclarifies when to account for a change to the terms or conditions of a share based payment award as a modification. Under the new ASU, an entityshould apply modification accounting unless the fair value, the vesting conditions, and the classification of the award as equity or liability of themodified award all remain the same as the original award. The ASU should be adopted prospectively for all entities for annual periods, and interimperiods within those annual periods, beginning after December 15, 2017. This guidance is not expected to have a material impact on theCompany’s Consolidated Financial Statements.In January 2017, the FASB issued ASU No. 2017-04 Intangibles- Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment,which simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test where the implied fair value ofgoodwill needs to be determined and compared to the carrying amount of that goodwill to measure the impairment loss. The Company is requiredto adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019,and early adoption is permitted. The Company adopted this standard in the first quarter of 2017. During the second quarter of 2017, the Companyapplied this new ASU to perform the goodwill impairment analysis. Refer to Note 8 Goodwill and Intangible Assets for further discussion.In January 2017, the FASB issued ASU No. 2017-01 Business Combination (Topic 805) - Clarifying the Definition of a Business, in an effort toclarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should beaccounted for as acquisitions (or disposals) of assets or businesses. This guidance will be effective for annual periods beginning after December15, 2017, including interim periods within those periods, and is not expected to have a material impact on the Company’s consolidated financialstatements.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, 2017,and interim periods within those annual reporting periods, and should be applied using a retrospective transition method to each period presented.This guidance is not expected to have a material impact on the Company’s consolidated 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 requires53Table of Contentsthe income tax consequences of an intra-entity transfer of an asset other than inventory be recognized when the transfer occurs. ASU 2016-16 iseffective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods, andshould be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings on January 1, 2018. TheASU is not expected to have a material impact on the Company’s 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 the Company is distributionsreceived from equity method investees, where the new guidance allows an accounting policy election between the cumulative earnings approachand the nature of the distribution approach. The Company will continue to use the cumulative earnings approach, therefore the guidance is notexpected to have a material impact on the Company’s consolidated financial statements. ASU 2016-15 is required to be applied retrospectivelyand is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.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. The Company applied theupdate prospectively beginning January 1, 2017. This guidance did not have a material impact on the Company’s Consolidated FinancialStatements.In February 2016, the FASB issued ASU No. 2016-02, Leases. Under this new guidance, lessees will be required to recognize assets and liabilitieson the balance sheet for the rights and obligations created by all leases with terms of greater than twelve months. The standard will take effect forpublic companies with fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currentlyevaluating the impact of the adoption of this guidance.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. Entities must apply a five-step process to (1)identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate thetransaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performanceobligation. ASU 2014-09 also mandates disclosure of sufficient information to enable users of financial statements to understand the nature,amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The disclosure requirements include qualitativeand quantitative information about contracts with customers, significant judgments, and assets recognized from the costs to obtain or fulfill acontract. The guidance permits the entity to use either a full retrospective or modified retrospective transition method. The FASB issued severalsubsequent updates in 2015 through 2017 containing implementation guidance related to the new standard. These standards provide additionalguidance related to principal versus agent considerations, licensing, and identifying performance obligations. Additionally, these standards providenarrow-scope improvements and practical expedients as well as technical corrections and improvements.The Company has evaluated the impact of the adoption of the revised guidance. The status of implementation is as follows:•The Company established an implementation team, which provided internal training and reviewed contracts subject to the new revenuestandard.•The implementation team reviewed contracts for the areas identified during the impact assessment and identified the impacts on theCompany’s financial statements and related disclosures.•The implementation team has established new processes and controls in anticipation of the new guidance.Overall, the new guidance is effective for the fiscal year beginning after December 31, 2017. The Company adopted this new standard on January1, 2018 using the modified retrospective method which applies the new revenue standard only to contracts that were not completed as of theadoption date. The Company has concluded that the adoption of this ASU does not have a material impact on its consolidated financialstatements.54Table of ContentsCautionary 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, but are not limited to, statements about the following subjects:•business strategy;•cash flows and liquidity;•the volatility and impact of changes 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 employees ofthe businesses we acquire;•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;•effects of remediation efforts to address the material weakness discussed in “Part II. Item 9A. Controls and Procedures;”•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.55Table of ContentsItem 7A. Quantitative and qualitative disclosures about market riskWe are currently exposed to market risk from changes in foreign currency and interest rates. From time to time, we may enter into derivativefinancial instrument transactions to manage or reduce our market risk, but we do not enter into derivative transactions for speculative purposes. Adiscussion 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 U.K. markets, and as a result, our primary exposure to fluctuations in currency exchange rates relatesto fluctuations 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. As a result, we may experience economic losses and a negative impact on earnings ornet assets solely as a result of foreign currency exchange rate fluctuations. To the extent that we continue our expansion on a global basis,management expects that increasing portions of revenue, costs, assets and liabilities will be subject to fluctuations in foreign currency valuations.Gains and losses resulting from balance sheet remeasurements of monetary assets and liabilities denominated in a currency other than the localentity’s functional currency are included in the consolidated statements of operations as incurred. Our consolidated statement of operationsincludes foreign exchange losses of $7.9 million and gains of $20.9 million for the years ended December 31, 2017 and 2016, respectively.Assets and liabilities for which the functional currency is not the U.S. dollar are translated using the exchange rates in effect at the balance sheetdate, resulting in translation adjustments included in accumulated other comprehensive income in the stockholders’ equity section of ourconsolidated balance sheet. For the year ended December 31, 2017, net foreign currency translation gains of $36.2 million, net of tax, are includedin other comprehensive income for the year ended December 31, 2017 to reflect the net impact of the general strengthening of other applicablecurrencies against the U.S. dollar. This translation gain was caused primarily by the relative strengthening of the Euro and the British poundsterling, as the Euro and the British pound sterling appreciated 14% and 10%, respectively, relative to the U.S. dollar from December 31, 2016 toDecember 31, 2017.Interest ratesAt December 31, 2017, our principal amount of debt outstanding included $400.0 million of Senior Notes which bear interest at a fixed rate of6.25%, and $108.4 million of borrowings outstanding under our 2017 Credit Facility which are subject to a variable interest rate as determined bythe credit agreement. Borrowings on our 2017 credit facility are exposed to interest rate risk associated with changes in market interest rates.56 Item 8. Financial Statements and Supplementary Data PageReport of independent registered public accounting firm58Consolidated statements of comprehensive income (loss) for the years ended December 31, 2017, 2016 and 201560Consolidated balance sheets as of December 31, 2017 and 201661Consolidated statements of cash flows for the years ended December 31, 2017, 2016 and 201562Consolidated statements of changes in stockholders' equity for the years ended December 31, 2017, 2016 and 201563Notes to consolidated financial statements6457Report of Independent Registered Public Accounting FirmTo the Board of Directors and Stockholders of Forum Energy Technologies, Inc.Opinions on the Financial Statements and Internal Control over Financial ReportingWe have audited the accompanying consolidated balance sheets of Forum Energy Technologies, Inc. and its subsidiaries as of December 31,2017 and 2016, and the related consolidated statements of comprehensive income (loss), of changes in stockholders’ equity and of cash flows foreach of the three years in the period ended December 31, 2017, including the related notes (collectively referred to as the “consolidated financialstatements”). We also have audited the Company's internal control over financial reporting as of December 31, 2017, based on criteria establishedin Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Companyas of December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the three years in the period endedDecember 31, 2017 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Companydid not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria establishedin Internal Control - Integrated Framework (2013) issued by the COSO because a material weakness in internal control over financial reportingrelated to the development of fair value measurements utilized in the application of the acquisition method of accounting for businesscombinations and for the purpose of testing goodwill for impairment, specifically the development and application of inputs, assumptions, andcalculations used in fair value measurements associated with business combinations and goodwill impairment testing, existed as of that date.A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonablepossibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. Thematerial weakness referred to above is described in Management's Report on Internal Control Over Financial Reporting appearing under Item 9A.We considered this material weakness in determining the nature, timing, and extent of audit tests applied in our audit of the 2017 consolidatedfinancial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect ouropinion on those consolidated financial statements.Change in Accounting PrincipleAs discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for goodwill impairment in2017.Basis for OpinionsThe Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financialreporting, and for its assessment of the effectiveness of internal control over financial reporting included in management's report referred to above.Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financialreporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicablerules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtainreasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, andwhether effective internal control over financial reporting was maintained in all material respects.Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of theconsolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures includedexamining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also includedevaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of theconsolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control overfinancial reporting, assessing the risk that a material weakness exists, and58testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performingsuch other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded Global Tubing, LLC from itsassessment of internal control over financial reporting as of December 31, 2017 because it was acquired by the Company in a purchase businesscombination during 2017. We have also excluded Global Tubing, LLC from our audit of internal control over financial reporting. Global Tubing, LLCis a wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal controlover financial reporting represent approximately 6% and 4%, respectively, of the related consolidated financial statement amounts as of and forthe year ended December 31, 2017.Definition and Limitations of Internal Control over Financial ReportingA 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, 2018We have served as the Company’s auditor since 2005.59 Forum Energy Technologies, Inc. and subsidiariesConsolidated statements of comprehensive income (loss) Year ended December 31,(in thousands, except per share information)2017 2016 2015Net sales$818,620 $587,635 $1,073,652Cost of sales629,832 487,900 810,975Gross profit188,788 99,735 262,677Operating expenses Selling, general and administrative expenses253,713 227,008 264,906Goodwill and intangible asset impairments69,062 — 125,092Transaction expenses6,511 865 480Loss on disposal of assets2,097 2,638 746Total operating expenses331,383 230,511 391,224Earnings from equity investment1,000 1,824 14,824Operating loss(141,595) (128,952) (113,723)Other expense (income) Interest expense26,808 27,410 29,945Foreign exchange losses (gains) and other, net7,268 (21,341) (9,345)Gain realized on previously held equity investment(120,392) — —Deferred loan costs written off— 2,978 —Total other expense (income)(86,316) 9,047 20,600Loss before income taxes(55,279) (137,999) (134,323)Income tax expense (benefit)4,121 (56,051) (14,939)Net loss(59,400) (81,948) (119,384)Less: Income (loss) attributable to noncontrolling interest— 30 (31)Net loss attributable to common stockholders(59,400) (81,978) (119,353) Weighted average shares outstanding Basic98,689 91,226 89,908Diluted98,689 91,226 89,908Loss per share Basic$(0.60) $(0.90) $(1.33)Diluted$(0.60) $(0.90) $(1.33) Other comprehensive income (loss), net of tax: Net loss(59,400) (81,948) (119,384)Change in foreign currency translation, net of tax of $036,163 (45,722) (45,270)Gain (loss) on pension liability107 (335) 46Comprehensive income (loss)(23,130) (128,005) (164,608)Less: comprehensive loss (income) attributable to noncontrolling interests— (162) 168Comprehensive income (loss) attributable to common stockholders$(23,130) $(128,167) $(164,440)The accompanying notes are an integral part of these consolidated financial statements.60 Forum Energy Technologies, Inc. and subsidiariesConsolidated balance sheets(in thousands, except share information)December 31, 2017 December 31, 2016Assets Current assets Cash and cash equivalents$115,216 $234,422Accounts receivable—trade, net202,914 105,268Inventories, net443,177 338,583Income tax receivable1,872 32,801Prepaid expenses and other current assets17,618 29,443Costs and estimated profits in excess of billings9,584 9,199Total current assets790,381 749,716Property and equipment, net of accumulated depreciation197,281 152,212Deferred financing costs, net2,900 1,112Intangibles, net443,064 216,418Goodwill755,245 652,743Investment in unconsolidated subsidiary— 59,140Deferred income taxes, net3,344 851Other long-term assets3,013 3,000Total assets$2,195,228 $1,835,192Liabilities and equity Current liabilities Current portion of long-term debt$1,156 $124Accounts payable—trade137,684 73,775Accrued liabilities66,765 55,604Deferred revenue8,819 8,338Billings in excess of costs and profits recognized1,881 4,004Total current liabilities216,305 141,845Long-term debt, net of current portion506,750 396,747Deferred income taxes, net31,232 26,185Other long-term liabilities31,925 34,654Total liabilities786,212 599,431Commitments and contingencies Equity Common stock, $0.01 par value, 296,000,000 shares authorized, 116,343,656 and 103,682,128shares issued1,163 1,037Additional paid-in capital1,195,339 998,169Treasury stock at cost, 8,190,362 and 8,174,963 shares(134,293) (133,941)Retained earnings438,774 498,174Accumulated other comprehensive loss(91,967) (128,237)Total stockholders’ equity1,409,016 1,235,202Noncontrolling interest in subsidiary— 559Total equity1,409,016 1,235,761Total liabilities and equity$2,195,228 $1,835,192The accompanying notes are an integral part of these consolidated financial statements.61 Forum Energy Technologies, Inc. and subsidiariesConsolidated statements of cash flows Year ended December 31,(in thousands, except share information)2017 2016 2015Cash flows from operating activities Net loss$(59,400) $(81,948) $(119,384)Adjustments to reconcile net loss to net cash provided by (used in) operating activities Depreciation expense34,401 35,636 38,388Amortization of intangible assets30,728 26,124 27,295Goodwill and intangible assets impairment69,062 — 125,092Inventory write down14,620 25,537 51,917Share-based compensation expense20,310 20,535 21,675(Earnings) loss from unconsolidated subsidiary, net of distributions2,073 (1,421) (8,044)Gain realized on previously held equity investment(120,392) — —Deferred income taxes149 (24,418) (23,246)Deferred loan costs written off— 2,978 —Provision for doubtful accounts2,903 485 4,358Other3,886 4,389 3,867Changes in operating assets and liabilities Accounts receivable—trade(64,844) 29,450 145,753Inventories(66,646) 57,294 344Income tax receivable30,929 (32,801) —Prepaid expenses and other current assets12,462 1,071 3,576Cost and estimated profit in excess of billings(171) 1,897 2,215Accounts payable, deferred revenue and other accrued liabilities52,142 3,799 (111,264)Billings in excess of costs and estimated profits earned(2,245) (3,865) (6,629)Net cash provided by (used in) operating activities$(40,033) $64,742 $155,913Cash flows from investing activities Acquisition of businesses, net of cash acquired(162,189) (4,072) (60,836)Investment in unconsolidated subsidiary(1,041) — —Capital expenditures for property and equipment(26,709) (16,828) (32,291)Proceeds from sale of business, property and equipment1,971 9,763 1,821Net cash used in investing activities$(187,968) $(11,137) $(91,306)Cash flows from financing activities Borrowings under credit facility107,431 — 94,984Repayment of debt— — (120,077)Repurchases of stock(4,742) (623) (6,438)Excess tax benefits from stock based compensation— — (8)Proceeds from stock issuance1,491 87,676 5,275Payment of capital lease obligation(1,187) (92) (673)Deferred financing costs(2,430) (766) —Net cash provided by (used in) financing activities$100,563 $86,195 $(26,937)Effect of exchange rate changes on cash8,232 (14,627) (5,000)Net increase (decrease) in cash and cash equivalents(119,206) 125,173 32,670Cash and cash equivalents Beginning of period234,422 109,249 76,579End of period$115,216 $234,422 $109,249Supplemental cash flow disclosures Cash paid for interest25,986 26,331 27,870Cash paid (refunded) for income taxes(29,094) (6,273) 19,919Noncash investing and financing activities Acquisition via issuance of stock177,972 — —Accrued purchases of property and equipment1,398 797 929Accrued consideration for acquisition— — 1,070The accompanying notes are an integral part of these consolidated financial statements.62 Forum Energy Technologies, Inc. and subsidiariesConsolidated statements of changes in stockholders’ equity Common Stock Additionalpaid incapital Treasury Shares Retainedearnings Accumulatedothercomprehensiveincome / (loss) TotalcommonStockholders’equity NoncontrollingInterest TotalEquity Shares Amount Shares Amount (in thousands of dollars, except share information) Balance 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 offorfeitures 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 performance shares 17,282 — (22) — — — — (22) — (22)Shares issued in employee stockpurchase 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 translation adjustment — — — — — — (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 offorfeitures 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 performance shares 42,443 1 (48) — — — — (47) — (47)Shares issued in employee stockpurchase 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 translation adjustment — — — — — — (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 $1,235,761Restricted stock issuance, net offorfeitures 429,321 3 (3,152) — — — — (3,149) — (3,149)Stock based compensationexpense — — 20,310 — — — — 20,310 — 20,310Exercised stock options 161,233 2 1,489 — — — — 1,491 — 1,491Issuance of performance shares 250,643 3 (1,244) — — — — (1,241) — (1,241)Shares issued in employee stockpurchase plan 135,882 1 1,912 — — — — 1,913 — 1,913Shares issued for acquisition 11,684,449 117 177,855 — — — — 177,972 — 177,972Sale of non-controlling interest — — — — — — — — (559) (559)Treasury stock — — — (15,399) (352) — — (352) — (352)Change in pension liability — — — — — — 107 107 — 107Currency translation adjustment — — — — — — 36,163 36,163 — 36,163Net Loss — — — — — (59,400) — (59,400) — (59,400)Balance at December 31, 2017 116,343,656 $1,163 $1,195,339 (8,190,362) $(134,293) $438,774 $(91,967) $1,409,016 $— $1,409,016The accompanying notes are an integral part of these consolidated financial statements.63Table 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. In the first quarter of 2017, we sold our South African subsidiary.The Company’s investments in operating entities where the Company has the ability to exert significant influence, but does not control operatingand financial policies, are accounted for using the equity method of accounting with the Company’s share of the net income reported in “Earningsfrom equity investment” in the consolidated statements of comprehensive income (loss) and the investments reported in “Investment inunconsolidated subsidiary” in the consolidated balance sheets. The Company reports its share of equity earnings within operating income as theoperations of investees are similar in nature to the operations of the Company.Prior to acquiring the remaining membership interest of Global Tubing, LLC (“Global Tubing”) on October 2, 2017, the Company’s investment wasaccounted for using the equity method of accounting. Refer to Note 4 Acquisitions for further discussion on the acquisition of the remaining sharesof Global Tubing, LLC.On January 3, 2018, the Company contributed Forum Subsea Rentals (“FSR”) into Ashtead Technology, a competing business, in exchange for a40% interest in the combined business. After the merger, our interest in the combined business will be accounted for using the equity method ofaccounting. Refer to Note 19 Subsequent Event for further discussion.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 consolidated financial statements is reflected in the consolidated financialstatements.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.64Table 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, 2017 is as follows (in thousands):Period ended Balance at beginningof period Charged to expense Deductions orother Balance at end ofperiodDecember 31, 2015 $5,646 $4,358 $(1,885) $8,119December 31, 2016 8,119 485 (5,273) 3,331December 31, 2017 3,331 2,903 (439) 5,795InventoriesInventory consisting of finished goods and materials and supplies held for resale is carried at the lower of cost or net realizable value. For certainoperations, cost, which includes the cost of raw materials and labor for finished goods, is determined using standard cost which approximates afirst-in first-out basis. For other operations, this cost is determined on an average cost, first-in first-out or specific identification basis. Netrealizable value means estimated selling price in the ordinary business, less reasonably predictable cost of completion, disposal, andtransportation. The Company continuously evaluates inventories based on an analysis of inventory levels, historical sales experience and futuresales forecasts, to determine obsolete, slow-moving and excess inventory. Adjustments to reduce such inventory to its net realizable value havebeen recorded by management.Property and equipmentProperty and equipment are stated at cost less accumulated depreciation. Capital leases of property and equipment are stated at the present valueof minimum lease payments. Expenditures for property and equipment and for items which substantially increase the useful lives of existingassets are capitalized at cost and depreciated over their estimated useful life utilizing the straight-line method. Routine expenditures for repairsand maintenance are expensed as incurred. Depreciation is computed using the straight-line method based on the estimated useful lives ofassets, generally three to thirty years. Property and equipment held under capital leases are amortized straight-line over the shorter of the leaseterm or estimated useful life of the asset. Gains or losses resulting from the disposition of assets are recognized in income with the related assetcost and accumulated depreciation removed from the balance sheet. Assets acquired in connection with business combinations are recorded atfair value.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. For the year ended December 31, 2016, the Company recorded an impairment loss of$4.3 million related to an operation in South Africa and one of the Company’s Texas facilities. For the years ended December 31, 2017 and 2015,no significant impairments were recorded.The Company records the fair value of asset retirement obligations as a liability in the period in which the associated legal obligation is incurred.The fair value of the obligation is recorded as a liability and capitalized as part of the related asset. Over time, the liability is accreted to its futurevalue and the capitalized cost is depreciated over the estimated65Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)useful life of the related asset. The current portion of the liability is included in other accrued liabilities and non-current portion is included in otherlong-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 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. The Company recognizes a goodwillimpairment charge for the amount by which the carrying value of goodwill exceeds the reporting units’ fair value. Any impairment losses arereflected in operating income.In the second quarter of 2017, there was a decline in oil prices and a developing consensus view that production from lower cost oil basins wouldbe sufficient to meet anticipated demand for a longer period, delaying the need for production from higher cost basins. With this indication offurther delays in the recovery of the offshore market, the Company performed an impairment test and determined that the carrying value of thegoodwill in our Subsea reporting unit was impaired. The Company recorded an impairment charge of $68.0 million in the quarter ended June 30,2017. Following the impairment charge, the Subsea reporting unit has no remaining goodwill balance.At October 1, 2017, 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 reporting unit exceeded its carrying value. As such, no further goodwill impairment losseswere recorded in 2017. There was no indication an impairment may have occurred in the other reporting units.No goodwill impairment losses were recorded for the year ended December 31, 2016.For the year ended December 31, 2015, due to deterioration of market conditions for our products, the Company performed an impairment test onall reporting units. The Company identified and recorded an impairment charge of $123.2 million for its Subsea reporting unit for the year endedDecember 31, 2015.Intangible assets with definite lives comprised of customer and distributor relationships, trade names, non-compete agreements, and patents andtechnology are amortized on a straight-line basis over the life of the intangible asset, generally three to seventeen years. These assets are testedfor impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. In 2017, impairmentlosses totaling $1.1 million were recorded on certain intangible assets within the Subsea and Downhole reporting units related to management’sdecision to abandon specific product lines. No impairments to intangible assets were recorded in 2016. In 2015, $1.9 million of intangible assetswere written off related to trade names no longer in use. Refer to Note 8 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 asof the date of the consolidated financial statements and the amount can be reasonably estimated. If it is determined that the reasonable estimateof the loss is a range and that there is no best estimate within that range, a provision will be made for the lowest amount of the range. Legal costsare expensed as incurred.An assessment is made of the areas where potential claims may arise under contract warranty clauses. Where a specific risk is identified, and thepotential for a claim is assessed as probable and can be reasonably estimated, an appropriate warranty provision is recorded. Warranty provisionsare eliminated at the end of the warranty period except where warranty claims are still outstanding. The liability for product warranty is included inother accrued liabilities on the consolidated balance sheets.66Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)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, 2015 $5,314 $5,539 $(5,156) $5,697December 31, 2016 5,697 4,031 (6,504) 3,224December 31, 2017 3,224 3,172 (2,776) 3,620Revenue 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, is recognized using the percentage-of-completionmethod of accounting. The Company recognizes revenue and cost of goods sold each period based upon the advancement of the work-in-progressunless the stage of completion is insufficient to enable a reasonably certain forecast of profit to be established. In such cases, no profit isrecognized during the period. The percentage-of-completion is calculated based on the ratio of costs incurred to-date to total estimated costs,taking into account the level of completion. The percentage-of-completion method requires management to calculate reasonably dependableestimates of progress toward completion of contract revenues and contract costs. Whenever revisions of estimated contract costs and contractvalues indicate that the contract costs will exceed estimated revenues, thus creating a loss, a provision for the total estimated loss is recorded inthat period.Accounting estimates during the course of the project may change, primarily related to our remotely operated vehicles (“ROVs”), which may takelonger to manufacture. 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 international customers. For the years ended December 31, 2017, 2016 and 2015, no one customeraccounted for 10% or more of the total revenue or 10% or 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 Monte Carlo Simulation model and in accordancewith Accounting Standards Codification (“ASC”) 718, is not adjusted based on actual achievement of the performance goals. The Black-Scholesoption pricing model is used to measure the fair value of options. The following sections address the assumptions used related to the Black-Scholes option pricing model:67Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)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 yieldThe 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 U.S. Treasury zero-coupon issues with remaining terms similar to the expected life of the options.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.On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (“U.S. tax reform”) which significantly changes U.S. corporate income taxlaws by, among other things, reducing the U.S. corporate income tax rate to 21% starting in 2018 and creating a territorial tax system with a one-time mandatory tax on previously deferred foreign earnings of U.S. subsidiaries. As a result of the enactment of U.S. tax reform, we recognized$10.1 million of discrete tax expense in the fourth quarter of 2017. Refer to Note 10 Income Taxes for further discussion.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 (loss) divided by the weighted average number of shares of the Company’scommon stock outstanding during the period. Diluted earnings per share is computed by dividing net income (loss) by the weighted averagenumber of shares of the Company’s common stock outstanding during the period as adjusted for the dilutive effect of the Company’s stock optionsand restricted share plans. The exercise price of each option is based on the Company’s stock price at the date of grant.68Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)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, 2017 2016 2015Basic weighted average shares outstanding 98,689 91,226 89,908Dilutive effect of stock options and restricted share plans — — —Diluted weighted average shares outstanding 98,689 91,226 89,908For all periods presented, we excluded all potentially dilutive stock options and restricted shares in calculating diluted earnings per share as theeffect was anti-dilutive due to the net losses incurred for these periods.Non-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 the functional currency. Financial statements of these non-U.S. operations where the functional currency is notthe U.S. dollar are translated into U.S. dollars using the current rate method whereby assets and liabilities are translated at the balance sheet rateand income and expenses are translated into U.S. dollars at the average exchange rates in effect during the period. The resultant translationadjustments are reported as a component of accumulated other comprehensive income (loss) within stockholders’ equity. Gains and lossesresulting from balance sheet remeasurements of monetary assets and liabilities denominated in a currency other than the local entity’s functionalcurrency are included in the consolidated statements of operations as incurred.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 in 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 September 2017, the FASB issued Accounting Standard Updates (“ASU”) No. 2017-13, Revenue Recognition (Topic 605), Revenue fromContracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the StaffAnnouncement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments. This ASUcodifies the text of the SEC announcement, as it relates to revenue recognition and leases. The ASU also rescinds certain codified SECannouncements and comments that69Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)are no longer applicable upon adoption of ASU No. 2014-09 and ASU No. 2016-02. The recent accounting pronouncements related to revenue andleases are discussed later in this footnote.In May 2017, the FASB issued ASU No. 2017-09 Compensation - Stock Compensation (Topic 718) - Scope of Modification Accounting, whichclarifies when to account for a change to the terms or conditions of a share based payment award as a modification. Under the new ASU, an entityshould apply modification accounting unless the fair value, the vesting conditions, and the classification of the award as equity or liability of themodified award all remain the same as the original award. The ASU should be adopted prospectively for all entities for annual periods, and interimperiods within those annual periods, beginning after December 15, 2017. This guidance is not expected to have a material impact on theCompany’s Consolidated Financial Statements.In January 2017, the FASB issued ASU No. 2017-04 Intangibles- Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment,which simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test where the implied fair value ofgoodwill needs to be determined and compared to the carrying amount of that goodwill to measure the impairment loss. The Company is requiredto adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019.The Company adopted this standard in the first quarter of 2017. During the second quarter of 2017, the Company applied this new ASU to performthe goodwill impairment analysis. Refer to Note 8 Goodwill and Intangible Assets for further discussion.In January 2017, the FASB issued ASU No. 2017-01 Business Combination (Topic 805) - Clarifying the Definition of a Business, in an effort toclarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should beaccounted for as acquisitions (or disposals) of assets or businesses. This guidance will be effective for annual periods beginning after December15, 2017, including interim periods within those periods, and is not expected to have a material impact on the Company’s consolidated financialstatements.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, 2017,and interim periods within those annual reporting periods, and should be applied using a retrospective transition method to each period presented.This guidance is not expected to have a material impact on the Company’s consolidated 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 the income tax consequences of an intra-entity transfer of an asset other thaninventory be recognized when the transfer occurs. ASU 2016-16 is effective for annual reporting periods beginning after December 15, 2017,including interim periods within those annual reporting periods, and should be applied on a modified retrospective basis through a cumulative-effectadjustment directly to retained earnings on January 1, 2018. The ASU is not expected to have a material impact on the Company’s consolidatedfinancial 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 the Company is distributionsreceived from equity method investees, where the new guidance allows an accounting policy election between the cumulative earnings approachand the nature of the distribution approach. The Company will continue to use the cumulative earnings approach, therefore the guidance is notexpected to have a material impact on the Company’s consolidated financial statements. ASU 2016-15 is required to be applied retrospectivelyand is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.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 presented70Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)in the financial statements. The Company applied the update prospectively beginning January 1, 2017. This guidance did not have a materialimpact on the Company’s Consolidated Financial Statements.In February 2016, the FASB issued ASU No. 2016-02, Leases. Under this new guidance, lessees will be required to recognize assets and liabilitieson the balance sheet for the rights and obligations created by all leases with terms of greater than twelve months. The standard will take effect forpublic companies with fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currentlyevaluating the impact of the adoption of this guidance.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. Entities must apply a five-step process to (1)identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate thetransaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performanceobligation. ASU 2014-09 also mandates disclosure of sufficient information to enable users of financial statements to understand the nature,amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The disclosure requirements include qualitativeand quantitative information about contracts with customers, significant judgments, and assets recognized from the costs to obtain or fulfill acontract. The guidance permits the entity to use either a full retrospective or modified retrospective transition method. The FASB issued severalsubsequent updates in 2015 through 2017 containing implementation guidance related to the new standard. These standards provide additionalguidance related to principal versus agent considerations, licensing, and identifying performance obligations. Additionally, these standards providenarrow-scope improvements and practical expedients as well as technical corrections and improvements.The Company has evaluated the impact of the adoption of the revised guidance. The status of implementation is as follows:•The Company established an implementation team, which provided internal training and reviewed contracts subject to the new revenuestandard.•The implementation team reviewed contracts for the areas identified during the impact assessment and identified the impacts on theCompany’s financial statements and related disclosures.•The implementation team has established new processes and controls in anticipation of adopting the new guidance.Overall, the new guidance is effective for the fiscal year beginning after December 15, 2017. The Company adopted this new standard on January1, 2018 using the modified retrospective method which applies the new revenue standard only to contracts that were not completed as of theadoption date. The Company has concluded that the adoption of this ASU does not have a material impact on its consolidated financialstatements.3. Cash and Cash EquivalentsCash and cash equivalents at December 31, 2017 are comprised of bank deposits and short-term investments with an original maturity of threemonths or less, such as money market funds, the fair value of which is based on quoted market prices, a Level 1 fair value measure.71Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)4. Acquisitions2017 AcquisitionsOn January 9, 2017, the Company acquired substantially all of the assets of Cooper Valves, LLC as well as 100% of the general partnershipinterests of Innovative Valve Components (collectively, “Cooper”) for total aggregate consideration of $14.0 million, after settlement of workingcapital adjustments. The aggregate consideration includes the issuance of stock valued at $4.5 million and certain contingent cash payments.These acquisitions are included in the Production & Infrastructure segment. The acquired Cooper brands include the Accuseal® metal seated ballvalves engineered to meet Class VI shut off standards for use in severe service applications, as well as a full line of Cooper Alloy® cast andforged gate, globe, and check valves. Innovative Valve Components, in partnership with Cooper Valves, commercialized critical service valvesand components for the power generation, mining and oil and natural gas industries. The fair values of the assets acquired and liabilities assumedhave not been presented because they are not material to the consolidated financial statements. Pro forma results of operations for thisacquisition have not been presented because the effects were not material to the consolidated financial statements.On July 3, 2017, the Company acquired Multilift Welltec, LLC and Multilift Wellbore Technology Limited (collectively, “Multilift”) for approximately$39.2 million in cash consideration. These acquisitions are included in the Completions segment. Based in Houston, Texas, Multilift manufacturesthe patented SandGuardTM and the CycloneTM completion tools. This acquisition increases our product offering related to artificial lift for ourcompletions customers. We intend to utilize our distribution system to increase Multilift’s sales with additional customers and through geographicexpansion. Pro forma results of operations for this acquisition have not been presented because the effects were not material to the consolidatedfinancial statements. The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of the acquisition (inthousands):Current assets, net of cash acquired $3,763Property and equipment 96Intangible assets (primarily developed technologies and customer relationships) 17,090Tax-deductible goodwill 16,472Non-tax deductible goodwill 3,099Current liabilities (1,329)Net assets acquired $39,191On October 2, 2017, we acquired all of the remaining ownership interests of Global Tubing, LLC (“Global Tubing”) from our joint venture partner andmanagement for total consideration of approximately $290.3 million. We originally invested in Global Tubing with a joint venture partner in 2013.Prior to acquiring the remaining ownership interest in Global Tubing, we reported this investment using the equity method of accounting. Thefinancial results for Global Tubing are reported in the Completions segment. Located in Dayton, Texas, Global Tubing provides coiled tubing, coiledline pipe and related services to customers worldwide. We believe that this strategic acquisition will further enhance our focus and strategy ofexpansion in the North American completions market.The acquisition of Global Tubing contributed revenues of $35.5 million and net income of $3.8 million to our consolidated statement ofcomprehensive income (loss) from the time of acquisition to December 31, 2017. The following unaudited pro forma summary presentsconsolidated information as if the Global Tubing acquisition had occurred on January 1, 2016: Pro Forma Year Ended December 31, 2017 2016Net sales$901,856 $659,108Net loss attributable to common stockholders(125,204) (101,173)The pro forma consolidated results of operations amounts have been calculated after applying our accounting policies, and include the followingadjustments:•An increase in depreciation and amortization expense resulting from the fair value adjustments of property, plant and equipment andintangible assets recognized as part of the Global Tubing Acquisition;72Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)•Removal of earnings from equity investment;•In 2017, we incurred $4.5 million of acquisition-related costs in connection with this transaction. These expenses are included intransaction expenses on our consolidated statement of comprehensive income (loss) for the year ended December 31, 2017 and arereflected in pro forma earnings for the year ended December 31, 2016 in the table above;•An increase in stock based compensation costs as a result of the full vesting of pre-acquisition management incentive units and grantingof additional restricted stock units to Global Tubing management;•Adjusted interest expense to remove the historical interest expense from Global Tubing’s historical debt and include interest expense fromthe amount borrowed on our revolving credit facility to finance the acquisition; and•As a result of acquiring the remaining equity interest of Global Tubing, the Company’s previously held equity interest was remeasured tofair value, resulting in a gain of approximately $120.4 million. This gain has been recognized in the consolidated statement ofcomprehensive income (loss) for the year ended December 31, 2017 and is excluded from the pro forma results above; and•Estimated tax benefits of approximately $45 million and $12 million in 2017 and 2016, respectively, to tax-effect the aforementioned proforma adjustments using an estimated U.S. federal income tax rate of 35%.The pro forma amounts do not include any potential synergies, cost savings or other expected benefits of the acquisition, and are presented forillustrative purposes only and are not necessarily indicative of results that would have been achieved if the acquisition had occurred as ofJanuary 1, 2016 or of future operating performance.The following table summarizes the consideration transferred to acquire the remaining ownership interests of Global Tubing (in thousands otherthan stock price and shares issued): PurchaseConsiderationForum Energy Technologies' closing stock price on October 2, 2017 $15.10Multiplied by number of shares issued for acquisition 11,488,208Common shares $173,472Cash 31,764Repayment of Global Tubing debt at acquisition 85,084Total Consideration paid for the acquisition $290,320As the value of certain assets and liabilities are preliminary in nature, they are subject to adjustment as additional information is obtained about thefacts and circumstances that existed at the acquisition date, including any post-closing purchase price adjustments. When the valuation is final,any changes to the preliminary valuation of acquired assets and liabilities could result in adjustments to identified intangibles and goodwill. Thefollowing table summarizes the current fair values of the assets acquired and liabilities assumed at the date of the acquisition (in thousands):Accounts Receivable $28,044Inventory 40,005Other current assets 3,141Property and equipment 51,585Intangible assets (primarily developed technologies and customer relationships) 228,190Tax-deductible goodwill 69,423Non-tax deductible goodwill 64,491Current liabilities (16,005)Long term liabilities $(54)Total net assets $468,820Fair value of equity method investment previously held (178,500)Net assets acquired $290,32073Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)The goodwill is attributable to the workforce of the acquired business and synergies expected to arise following the acquisition of the remainingownership interests of Global Tubing. The goodwill associated with the previously owned equity interests is not deductible for tax purposes. All ofthe goodwill was assigned to the Company’s Completions segment.2016 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. This acquisition is included in the Completions segment.The fair values of the assets acquired and liabilities assumed have not been presented because they are not material to the 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 AcquisitionIn 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 pump accessories.J-Mac is included in the Completions segment. The following table summarizes the fair values of the assets acquired and liabilities assumed atthe date of the acquisition (in thousands):Current 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 $61,906Revenue and net income related to the 2015 acquisition were not significant for the year ended December 31, 2015. Pro forma results ofoperations for the 2015 acquisition have not been presented because the effects were not material to the consolidated financial statements.74Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)5. Investment in Unconsolidated SubsidiaryPrior to the Company’s acquisition of the remaining membership interests in Global Tubing from its joint venture partner and management inOctober 2017, the Company’s investment was accounted for using the equity method of accounting and reported in the Completions segment.Refer to Note 4 Acquisitions for further details on the acquisition. As Global Tubing’s products are complementary to the Company’s wellintervention and stimulation products and the investment’s business is integral to the Company’s operations, the earnings from the equity methodinvestment were included within operating income (loss). The operating results for the year ended December 31, 2017 included the financial resultsof Global Tubing prior to the acquisition completed in the fourth quarter of 2017 which were reported in earnings from equity investment on theconsolidated statement of comprehensive income (loss).Condensed financial data for the equity investment in the unconsolidated subsidiary is summarized as follows: December 31, 2017 December 31, 2016Current assets$— $48,194Long-term assets— 142,682Current liabilities— 11,918Long-term liabilities— 80,500 Year ended December 31, 2017 2016 2015Net revenues$83,236 $71,473 $103,532Gross profit54,019 16,899 45,333Net income2,130 3,795 30,888The Company’s earnings from equity investment1,000 1,824 14,824In January 2017, the Company contributed $1.0 million to Global Tubing.On January 3, 2018, the Company contributed Forum Subsea Rentals (“FSR”) into Ashtead Technology, a competing business, in exchange for a40% interest in the combined business. After the merger, our interest in the combined business will be accounted for using the equity method ofaccounting. Refer to Note 19 Subsequent Event for further discussion.6. InventoriesThe Company’s significant components of inventory at December 31, 2017 and 2016 were as follows (in thousands): December 31, 2017 December 31, 2016Raw materials and parts$160,093 $106,329Work in process51,941 23,303Finished goods305,461 277,303Gross inventories517,495 406,935Inventory reserve(74,318) (68,352)Inventories$443,177 $338,58375Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)The change in the amounts of the inventory reserve during the three year period ended December 31, 2017 is as follows (in thousands):Period ended Balance atbeginning of period Charged toexpense Deductions orother Balance at end ofperiodDecember 31, 2015 $29,456 $51,917 $(3,485) $77,888December 31, 2016 77,888 25,537 (35,073) $68,352December 31, 2017 68,352 14,620 (8,654) $74,3187. Property and EquipmentProperty and equipment consists of the following (in thousands): Estimated usefullives December 31, 2017 2016Land $12,408 $10,157Buildings and leasehold improvements 5-30 90,909 75,947Computer equipment 3-5 42,074 42,248Machinery & equipment 5-10 169,203 131,860Furniture & fixtures 3-10 6,338 5,626Vehicles 3-5 8,048 8,660Construction in progress 14,589 4,545 343,569 279,043Less: accumulated depreciation (160,787) (143,677)Property & equipment, net 182,782 135,366 Rental equipment 3-10 70,679 69,475Less: accumulated depreciation (56,180) (52,629)Rental equipment, net 14,499 16,846 Total property & equipment, net $197,281 $152,212Depreciation expense was $34.4 million, $35.6 million and $38.4 million for the years ended December 31, 2017, 2016 and 2015, respectively.8. Goodwill and Intangible AssetsGoodwillThe changes in the carrying amount of goodwill were as follows (in thousands): Drilling &SubseaCompletionsProduction &InfrastructureTotal 20172016201720162017201620172016Goodwill Balance at January 1, net$307,806$324,995$327,293$326,514$17,644$17,527$652,743$669,036Acquisitions, net of dispositions——153,485—1,595—155,080—Impairment(68,004)—————(68,004)—Impact of non-U.S. local currency translation11,652(17,189)3,56777920711715,426(16,293)Goodwill Balance at December 31, net$251,454$307,806$484,345$327,293$19,446$17,644$755,245$652,74376Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)The Company performs its annual impairment tests of goodwill as of October 1 or when there is an indication animpairment may have occurred.At October 1, 2017, 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. Declines incommodity prices or a sustained decrease in valuation of the Company’s common stock could indicate a reduction in the estimate of reporting unitfair value which, in turn, could lead to an impairment of reporting unit goodwill.In the second quarter of 2017, there was a decline in oil prices and a developing consensus view that production from lower cost oil basins wouldbe sufficient to meet anticipated demand for a longer period, delaying the need for production from higher cost basins. With this indication offurther delays in the recovery of the offshore market, the Company performed an impairment test and determined that the carrying value of thegoodwill in our Subsea reporting unit was impaired. The Company recorded an impairment charge of $68.0 million in the second quarter of 2017.Following the impairment charge, the Subsea reporting unit has no remaining goodwill balance. There was no indication an impairment may haveoccurred in the other reporting units.There was no impairment of goodwill during the year ended December 31, 2016.For the year ended December 31, 2015, due to deterioration of market conditions for our products, the Company performed an impairment test onall reporting units. The Company identified and recorded an impairment charge of $123.2 million for its Subsea reporting unit for the year endedDecember 31, 2015.The fair values used in the impairment analysis were determined using the net present value of the expected future cash flows for each reportingunit. During the Company’s goodwill impairment analysis, the Company determines the fair value of each of its reporting units using a discountedcash flow analysis, which requires significant assumptions and estimates about the future operations of each reporting unit. The assumptionsabout future cash flows and growth rates are based on our current budget, strategic plans and management’s beliefs about future activity levels.The discount rate we used for future periods could change substantially if the cost of debt or equity were to significantly increase or decrease, or ifwe were to choose different comparable companies in determining the appropriate discount rate for our reporting units. Forecasted cash flows infuture periods were estimated using a terminal value calculation, which considered long-term earnings growth rates. Accumulated impairmentlosses on goodwill were $236.8 million, $168.8 million and $168.8 million as of December 31, 2017, 2016, and 2015, respectively.Intangible assetsAt December 31, 2017 and 2016, intangible assets consisted of the following, respectively (in thousands): December 31, 2017 Gross carryingamount Accumulatedamortization Net intangibles Amortizationperiod (in years)Customer relationships$428,544 $(138,566) $289,978 4-15Patents and technology110,910 (16,733) 94,177 5-17Non-compete agreements6,625 (6,041) 584 3-6Trade names64,359 (22,090) 42,269 10-15Distributor relationships22,160 (16,338) 5,822 8-15Trademark10,319 (85) 10,234 15 - IndefiniteIntangible Assets Total$642,917 $(199,853) $443,064 77Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued) December 31, 2016 Gross carryingamount Accumulatedamortization Net intangibles 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 Intangible assets with definite lives are tested for impairment whenever events or changes in circumstances indicate that their carrying amountmay not be recoverable. In 2017, impairment losses totaling $1.1 million were recorded on certain intangible assets within the Subsea andDownhole reporting units related to management’s decision to abandon specific product lines. No indicators of intangible asset impairmentoccurred during 2016. In 2015, an impairment loss of $1.9 million was recorded related to trade names that were no longer in use within the Drilling& Subsea segment. Impairment charges are included in “Goodwill and intangible asset impairments” in the consolidated statement ofcomprehensive income (loss).Amortization expense was $30.7 million, $26.1 million and $27.3 million for the years ended December 31, 2017, 2016 and 2015, 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, 2018 $44,1632019 43,9762020 41,8092021 41,2442022 37,1279. DebtNotes payable and lines of credit as of December 31, 2017 and 2016 consisted of the following (in thousands): December 31, 2017 December 31, 20166.25% Senior notes due October 2021$400,000 $400,000Unamortized debt premium1,583 1,989Debt issuance cost(4,222) (5,324)Senior secured revolving credit facility108,446 —Other debt2,099 206Total debt507,906 396,871Less: current maturities(1,156) (124)Long-term debt$506,750 $396,747Senior 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 a price of 103.25% of par, plus accrued interest from October 2, 2013 (the “SeniorNotes”). The Senior 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. Net proceeds from the issuance of approximately $394.0 million, after deducting initial purchasers’ discounts and offering expenses andexcluding78Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)accrued 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, and areguaranteed on a senior unsecured basis by our subsidiaries that guarantee the credit facility and rank junior to, among other indebtedness, thecredit facility to the extent of the value of the collateral securing the credit facility. The Senior Notes contain customary covenants including somelimitations and restrictions on our ability to pay dividends on, purchase or redeem our common stock or purchase or redeem our subordinated debt;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 restrictedsubsidiaries; consolidate, merge or transfer all or substantially all of our assets; engage in transactions with affiliates; and create unrestrictedsubsidiaries. Many of these restrictions will terminate if the Senior Notes become rated investment grade. The Indenture also contains customaryevents of default, including nonpayment, breach of covenants in the Indenture, payment defaults or acceleration of other indebtedness, failure topay certain judgments and certain events of bankruptcy and insolvency. We are required to offer to repurchase the Senior Notes in connection withspecified change in control events or with excess proceeds of asset sales not applied for permitted purposes.We may redeem the Senior Notes due 2021:•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 October 30, 2017, we amended and restated our existing credit facility with Wells Fargo Bank, National Association, as administrative agent (insuch capacity, “Wells Fargo”), and several financial institutions as lenders (such amended and restated credit facility, the “2017 Credit Facility”) to,among other things, increase revolving credit commitments from $140.0 million to $300.0 million (with a sublimit of up to $25.0 million available forthe issuance of letters of credit for the account of the Company and certain of our domestic subsidiaries) (the “U.S. Line”), of which up to $30.0million million is available to certain of our Canadian subsidiaries for loans in U.S. or Canadian dollars (with a sublimit of up to $3.0 million availablefor the issuance of letters of credit for the account of our Canadian subsidiaries) (the “Canadian Line”). Lender commitments under the 2017 CreditFacility, subject to certain limitations, may be increased by an additional $100.0 million. The 2017 Credit Facility matures in July 2021, but if ouroutstanding Notes due October 2021 are refinanced or replaced with indebtedness maturing in or after February 2023, the final maturity of the 2017Credit Facility will automatically extend to October 2022.Availability under the 2017 Credit Facility is subject to a borrowing base calculated by reference to eligible accounts receivable in the U.S., Canadaand certain other jurisdictions (subject to a cap) and eligible inventory in the U.S. and Canada. Our borrowing capacity under the 2017 CreditFacility could be reduced or eliminated, depending on future receivables and fluctuations in our inventory. As of December 31, 2017, our totalborrowing base was $299.4 million, of which $108.4 million was drawn and $7.0 million was used for security of outstanding letters of,resulting inremaining availability of $184.0 million.Borrowings under the U.S. Line bear interest at a rate equal to, at our option, either (a) the LIBOR rate or (b) a base rate determined by reference tothe highest of (i) the rate of interest per annum determined from time to time by Wells Fargo as its prime rate in effect at its principal office in SanFrancisco, (ii) the federal funds rate plus 0.50% per annum and (iii) the one-month adjusted LIBOR plus 1.00% per annum, in each case plus anapplicable margin. Borrowings under the Canadian Line bear interest at a rate equal to, at Forum Canada’s option, either (a) the CDOR rate or (b) abase rate determined by reference to the highest of (i) the prime rate for Canadian dollar commercial loans made in Canada as reported from timeto time by Thomson Reuters and (ii) the CDOR rate plus 1.00%, in each case plus an applicable margin. The applicable margin for LIBOR andCDOR loans will initially range from 1.75% to 2.25%, depending upon average excess availability under the 2017 Credit Facility. After the firstquarter ending on or after March 31, 2018 in which our total leverage ratio is less than or equal to 4.00:1.00, the applicable margin for LIBOR andCDOR79Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)loans will range from 1.50% to 2.00%, depending upon average excess availability under the 2017 Credit Facility. The weighted average interestrate under the 2017 Credit Facility was approximately 3.56% in the fourth quarter 2017.The 2017 Credit Facility also provides for a commitment fee in the amount of (a) 0.375% per annum on the unused portion of commitments ifaverage usage of the 2017 Credit Facility is greater than 50% and (b) 0.50% per annum on the unused portion of commitments if average usage ofthe 2017 Credit Facility is less than or equal to 50%. After the first quarter ending on or after March 31, 2018 in which our total leverage ratio isless than or equal to 4.00:1.00, the commitment fees will range from 0.25% to 0.375%, depending upon average usage of the 2017 Credit Facility.If excess availability under the 2017 Credit Facility falls below the greater of 10.0% of the borrowing base and $20.0 million, we will be required tomaintain a fixed charge coverage ratio of at least 1.00:1.00 as of the end of each fiscal quarter until excess availability under the 2017 CreditFacility exceeds such thresholds for at least 60 consecutive days.Other debtOther debt consists primarily of various capital leases of equipment.Deferred loan 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 $1.7 million, $1.9 million and $2.6 million were amortized to interest expense for the yearsended December 31, 2017, 2016 and 2015, respectively. On February 25, 2016 and December 12, 2016, the Company amended its credit facilitywhich reduced lender commitments from $600.0 million to $140.0 million. In connection with these amendments, the Company wrote off $3.0million of deferred financing costs related to the credit facility in 2016. In October 2017, the Company further amended and restated its existingcredit facility which increased lender commitments to $300.0 million and recorded an additional $2.4 million to deferred financing costs.Future principal payments under long-term debt for each of the years ending December 31 are as follows (in thousands):2018 $1,1562019 9432020 —2021 508,4462022 —Thereafter —Total future payment $510,545Add: Unamortized debt premium 1,583Less: Debt issuance cost (4,222)Total debt $507,90610. Income TaxesThe components of the Company’s income before income taxes for the years ended December 31, 2017, 2016 and 2015 are as follows (inthousands): 2017 2016 2015U.S.$(3,015) $(155,058) $(114,862)Non-U.S.(52,264) 17,059 (19,461)Loss before income taxes$(55,279) $(137,999) $(134,323)80Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)The Company’s provision (benefit) for income taxes from continuing operations for the years ended December 31, 2017, 2016 and 2015 are asfollows (in thousands): 2017 2016 2015Current U.S. Federal and state$(1,426) $(38,589) $43Non-U.S.5,398 6,956 8,264Total current3,972 (31,633) 8,307Deferred U.S. Federal and state6,415 (18,290) (19,071)Non-U.S.(6,266) (6,128) (4,175)Total deferred149 (24,418) (23,246)Provision for income tax expense (benefit)$4,121 $(56,051) $(14,939)The reconciliation between the actual provision for income taxes from continuing operations and that computed by applying the U.S. statutory rateto income before income taxes and noncontrolling interests are outlined below (in thousands): 2017 2016 2015Income tax expense at the statutory rate$(19,348)(35.0)% $(48,300)(35.0)% $(47,013)(35.0)%State taxes, net of federal tax benefit(294)(0.5)% (1,425)(1.0)% (1,157)(0.9)%Non-U.S. operations6,33711.5 % (5,791)(4.2)% 6,3004.7 %Domestic incentives(254)(0.5)% (170)(0.1)% (250)(0.2)%Prior year federal, non-U.S. and state tax(1,283)(2.3)% (777)(0.6)% (518)(0.4)%Nondeductible expenses6441.2 % 3450.3 % 2790.2 %Goodwill impairment14,73126.6 % —— % 27,21020.3 %Global Tubing acquisition(9,160)(16.6)% —— % —— %U.S. tax reform10,13818.3 % —— % —— %U.K. valuation allowance4,5238.2 % —— % —— %Other(1,913)(3.4)% 67— % 2100.2 %Provision for income tax expense (benefit)$4,1217.5 % $(56,051)(40.6)% $(14,939)(11.1)%Our effective tax rate was 7.5%, (40.6)%, and (11.1)% for the years ended December 31, 2017, 2016 and 2015, respectively. For the year endedDecember 31, 2017, we recognized the following significant items impacting our effective tax rate:–$10.1 million of tax expense associated with U.S. tax reform, as described below,–$14.7 million of tax expense associated with the impairment of non-tax deductible goodwill for our Subsea reporting unit,–$9.2 million reduction in tax expense associated with the gain on acquisition of the remaining 52% interest of Global Tubing,–a charge of $4.5 million for a valuation allowance against our net operating loss carry-forward for our U.K. operations, and–losses in our non-U.S. operations in which the corresponding tax benefit is applied at lower statutory rates in certain jurisdictionsOn December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act of 2017 (“U.S. Tax Reform”), a comprehensive U.S. tax reform package that,effective January 1, 2018, among other things, lowered the corporate income tax rate from 35% to 21% and moved the country towards a territorialtax system with a one-time mandatory tax on previously deferred earnings of non-U.S. subsidiaries. Under the accounting rules, companies arerequired to recognize the effects of changes in tax laws and tax rates on deferred tax assets and liabilities in the period in which the newlegislation is enacted. The effects of U.S. Tax Reform on us include two major categories: (i) recognition of liabilities for taxes on mandatorydeemed repatriation and (ii) re-measurement of deferred taxes. As described further below, we recorded81Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)a total charge of $10.1 million in the year ended December 31, 2017 related to U.S. Tax Reform. As we do not have all the necessary informationto analyze all income tax effects of the new rules, this is a provisional amount which we believe represents a reasonable estimate of theaccounting implications of U.S. Tax Reform. The ultimate impact of U.S. Tax Reform is subject to adjustment as further guidance is provided bythe U.S. Internal Revenue Service regarding the application of the new U.S. corporate income tax laws. We expect to complete our detailedanalysis no later than the fourth quarter of 2018. Below is a brief description of the two categories of effects from U.S. tax reform and their impacton us:(1) Liability for taxes due on mandatory deemed repatriation - under the Act, a company’s non-U.S. earnings accumulated under the legacy taxlaws are deemed to be repatriated into the U.S. We recorded a provisional estimate of federal and state tax related to deemed repatriation in theamount of approximately $27.7 million. While there is no cash tax component in this amount as a result of using current year losses to offset thedeemed repatriation tax, should we ultimately incur a cash tax obligation, such amount will be payable over eight years. We continue to analyzethe potential tax liabilities attributable to any additional repatriation. We will record the tax effects of any change in the period that we complete ouranalysis.(2) Re-measurement of deferred taxes - under the Act, the U.S. corporate income tax rate was reduced from 35% to 21%. Accordingly, we re-measured our net U.S. deferred tax liabilities as of December 31, 2017 to a 21% rate, resulting in a tax benefit of $17.6 million.The primary components of deferred taxes include (in thousands): 2017 2016Deferred tax assets Reserves and accruals$5,932 $6,603Inventory20,836 24,677Stock awards6,235 10,984Net operating loss and other tax credit carryforwards31,164 30,317Other1,419 982Gross deferred tax assets65,586 73,563Valuation allowance(4,523) —Total deferred tax assets61,063 73,563Deferred tax liabilities Property and equipment(12,172) (13,593)Goodwill and intangible assets(76,454) (73,074)Investment in unconsolidated subsidiary— (10,000)Unremitted non-U.S. earnings— (740)Prepaid expenses and other(325) (1,490)Total deferred tax liabilities(88,951) (98,897)Net deferred tax liabilities$(27,888) $(25,334)At December 31, 2017, the Company had $72.3 million of U.S. net operating loss carryforwards and $5.1 million of state net operating losses. Thelosses will expire no later than 2036 if they are not utilized prior to that date. The Company also had $66.9 million of non-U.S. net operating losscarryforwards with indefinite expiration dates. The Company anticipates being able to fully utilize the losses prior to their expiration in alljurisdictions except the U.K. See discussion below regarding the valuation allowance for the U.K. Where the Company has unrecognized taxbenefits in jurisdictions with existing net operating losses, the Company utilizes the unrecognized tax benefits as a source of income to offsetsuch losses.At December 31, 2017, the Company had $5.0 million of foreign tax credit carryforwards which will generally expire no later than 2026. 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.82Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)The Company has evaluated the use of deferred tax assets in each jurisdiction to offset future taxable income, including the reversal of taxabletemporary differences, and believes that it is more likely than not that deferred tax assets at December 31, 2017 and 2016 will be utilized for alljurisdictions except the U.K. Consequently, a valuation allowance of $4.5 million has been recorded related to the U.K. deferred tax asset. Noother valuation allowances have been recorded in the financial statements.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 2011.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, 2017 $14,220Additional based on tax positions related to current year 1,490Lapse of statute of limitations (942)Balance at December 31, 2017 14,768The total amount of unrecognized tax benefits at December 31, 2017 was $14.8 million, of which it is reasonably possible that $3.1 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, 2017 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, 2017 and 2016, we had accrued approximately $0.6 million and $0.5 million in interest and penalties,respectively. During the years ended December 31, 2017 and 2016, we recognized no material change in the interest and penalties related touncertain tax positions.11. Fair Value MeasurementsAt December 31, 2017, the Company had $108.4 million of debt outstanding under the 2017 Credit Facility which incurs interest at a variableinterest rate and therefore, the carrying amount approximates fair value. The fair value of the debt is classified as a Level 2 measurement becauseinterest 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, 2017, the fair value and the carrying value of the Company’s unsecured Senior Notes approximated$402.0 million and $400.0 million, respectively. At December 31, 2016, the fair value and the carrying value of the Company’s Senior Notes eachapproximated $402.0 million.There were no other outstanding financial instruments as of December 31, 2017 and 2016 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, 2017.12. 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 to83Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)be appropriate in light of those outcomes that are believed to be probable and can be estimated. The reserves accrued at December 31, 2017 and2016 are immaterial. In the opinion of management, the Company’s ultimate liability, if any, with respect to these actions is not expected to have amaterial 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 were fewer than 50 new cases filed against our subsidiary in each of last two years, and a significant number of existing cases weredismissed, settled or otherwise disposed over the last year. We currently have fewer than 150 lawsuits pending against this subsidiary. Oursubsidiary has over $17 million in face amount of insurance per occurrence and over $23 million of aggregate primary insurance coverage; aportion of the coverage has been eroded by payments made by insurers. In addition, our subsidiary has over $950 million in face amount ofexcess coverage applicable to the claims. There can be no guarantee that all of this can be collected due to policy terms and conditions andinsurer insolvencies in the past or in the future. In January 2011, we entered into an agreement with seven of our primary insurers under which theyhave agreed to pay 80% of the costs of handling and settling each asbestos claim against the affected subsidiary. After an initial period, and undercertain circumstances, our subsidiary and the subscribing 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.84Table 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, 2017 are as follows:2018$17,421201915,060202012,512202110,36920229,552Thereafter6,517 $71,431Total rent expense was $19.3 million, $18.6 million and $20.9 million under operating leases for the years ended December 31, 2017, 2016 and2015, 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, 2017, the Company had $7.9million in letters of credit outstanding.85Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)13. Stockholders’ Equity and Employee Benefit PlansShares issued for AcquisitionOn January 9, 2017, the Company issued 196,249 shares of common stock to acquire 100% of the general partnership interests of InnovativeValve Components. On October 2, 2017, the Company issued 11.5 million shares of common stock to acquire the remaining membership interestsin Global Tubing. Refer to Note 4 Acquisitions for further details on these acquisitions.Equity 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 U.S. employees and related savings plans for certain non-U.S. 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 temporarily suspended the matching of contributions.Subsequent to the closing of all acquisitions, employees of those acquired entities will generally be eligible to participate in the Company’s 401(k)savings plan. The Company also has the discretion to provide a profit sharing contribution to each participant depending on the Company’sperformance for the applicable year. The expense under the Company’s plan was $5.4 million, $1.4 million, and $2.2 million for the years endedDecember 31, 2017, 2016 and 2015, 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 program for the repurchase of outstanding shares of the Company’s common stock with anaggregate purchase price of up to $150.0 million. The Company has purchased approximately 4.5 million shares (primarily in 2014) under thisprogram for aggregate consideration of approximately $100.2 million.14. 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 4.0 million shares remained available under the 2016 Plan for futuregrants as of December 31, 2017.The total amount of share-based compensation expense recorded was approximately $20.3 million, $20.5 million and $21.7 million for the yearsended December 31, 2017, 2016 and 2015, respectively. As of December 31, 2017, the Company expects to record share-based compensationexpense of approximately $37.0 million over the remaining term of the restricted stock and options of approximately two years. Future grants willresult in additional compensation expense.86Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)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 recognized on a straight line basis over the vesting period. The following tables provide additionalinformation related to the options:2017 ActivityNumber of shares(in thousands) Weighted averageexercise price Remaining weightedaverage contractual lifein years Intrinsic value(in millions)Beginning balance5,871 $12.42 5.3 $59.1Granted279 $20.10 Exercised(161) $9.24 Forfeited/expired(172) $18.50 Total outstanding5,817 $12.66 4.6 $28.3Options exercisable4,607 $12.10 3.7 $24.6The assumptions used in the Black-Scholes pricing model to estimate the fair value of the options granted in 2017, 2016 and 2015 are as follows: 2017 2016 2015Weighted average fair value$8.95 $3.85 $6.36Assumptions Expected life (in years)6.25 6.25 6.30Volatility43% 40% 33%Dividend yield—% —% —%Risk free interest rate2.11% 1.40% 1.81%The intrinsic value of the options exercised was $1.6 million in 2017, $1.3 million in 2016 and $3.9 million 2015. The intrinsic value is the amountby which the fair value of the underlying share exceeds the exercise price of an option.Restricted stockRestricted stock generally vests over a three or four year period from the date of grant. Further information about the restricted stock follows: Restricted Stock (Shares inthousands)2017 Activity Nonvested at beginning of year418Granted53Vested(177)Forfeited(2)Nonvested at the end of year292The weighted average grant date fair value of the restricted stock was $19.00, $10.28 and $18.87 per share during the years ended December 31,2017, 2016, and 2015, respectively. The total fair value of shares vested was $2.3 million during 2017, $3.9 million during 2016 and $5.1 millionduring 2015.87Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)Restricted stock unitsRestricted stock units generally vest over a three or four year period from the date of grant. Further information about the restricted stock unitsfollows: Restricted stock units(Shares in thousands)2017 Activity Nonvested at beginning of year1,765Granted1,274Vested(599)Forfeited(214)Nonvested at the end of year2,226The weighted average grant date fair value of the restricted stock units was $17.97, $9.74 and $18.06 per share during the years endedDecember 31, 2017, 2016, and 2015, respectively. The total fair value of units vested was $10.0 million, $8.4 million, and $6.7 million during 2017,2016, and 2015 .Performance share awardsDuring 2017, the Company granted 124,213 performance share awards with service-vesting and market-vesting conditions. These awards maysettle between zero and two shares of the Company’s common stock for each performance share unit awarded. The number of shares issuedpursuant to the performance share awards will be determined based on the total shareholder return of the Company’s common stock as comparedto a group of peer companies, measured annually over a one-year, two-year, and three-year performance period.15. 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.16. Business SegmentsThe Company reports its results of operations in the following three reportable segments: Drilling & Subsea, Completions and Production &Infrastructure.The Drilling & Subsea segment designs, manufactures and supplies products and provides related services to the drilling, energy and subseaconstruction and services markets, and other markets such as alternative energy, defense and communications. The Completions segmentdesigns, manufactures and supplies products and provides related services to the well construction, completion, stimulation and interventionmarkets. The Production & Infrastructure segment designs, manufactures and supplies products, and provides related equipment and services forproduction and infrastructure markets.In order to better align with the predominant customer base of the segment, the Company has moved management and financial reporting of ourAMC branded fully rotational torque machine operations from the Drilling & Subsea segment to the Completions segment. Prior period financialinformation has been revised to conform with current period presentation with no impact to total segment operating results.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 be theChief Executive Officer.88Table 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, 2017 2016 2015Net sales: Drilling & Subsea $234,742 $224,447 $469,778Completions 260,191 131,786 285,177Production & Infrastructure 327,287 233,754 320,442Intersegment eliminations (3,600) (2,352) (1,745)Total net sales $818,620 $587,635 $1,073,652 Operating income (loss): Drilling & Subsea $(31,563) $(53,055) $2,721Completions (6,746) (45,609) 15,293Production & Infrastructure 7,811 655 22,658Corporate (33,427) (27,440) (28,077)Total segment operating income (loss) (63,925) (125,449) 12,595Goodwill and intangible asset impairment 69,062 — 125,092Transaction expenses 6,511 865 480Loss on disposal of assets 2,097 2,638 746Operating Loss $(141,595) $(128,952) $(113,723) Depreciation and amortization Drilling & Subsea $25,582 $28,827 $32,248Completions 30,512 25,549 25,417Production & Infrastructure 8,608 6,738 7,377Corporate 427 646 641Total depreciation and amortization $65,129 $61,760 $65,683 Capital expenditures Drilling & Subsea $5,424 $7,774 $13,788Completions 6,458 2,557 8,416Production & Infrastructure 6,855 1,953 3,102Corporate 7,972 4,544 6,985Total capital expenditures $26,709 $16,828 $32,291A summary of consolidated assets by reportable segment is as follows (in thousands): As of December 31,Assets 2017 2016 2015Drilling & Subsea $645,254 $766,234 $867,801Completions 1,202,379 696,208 773,268Production & Infrastructure 251,685 175,940 187,741Corporate 95,910 196,810 57,232Total assets $2,195,228 $1,835,192 $1,886,042Corporate assets primarily include deferred tax assets and deferred loan costs.89Table 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, 2017 2016 2015Net sales: $% $% $%United States $621,44576.0% $361,94161.7% $646,92860.3%Europe & Africa 61,1347.5% 77,84713.2% 188,41417.5%Asia-Pacific 28,6943.5% 51,8808.8% 69,9236.5%Middle East 25,6343.1% 25,9754.4% 59,6805.6%Canada 60,8987.4% 42,5207.2% 57,8375.4%Latin America 20,8152.5% 27,4724.7% 50,8704.7%Total net sales $818,620100.0% $587,635100.0% $1,073,652100.0% As of December 31,Long-lived assets: 2017 2016 2015United States $1,087,381 $809,545 $869,388Europe & Africa 213,008 184,768 202,852Canada 88,280 79,403 83,688Asia-Pacific 7,984 7,855 8,192Middle East 7,362 3,175 3,189Latin America 832 730 921Total long-lived assets $1,404,847 $1,085,476 $1,168,230Net sales by product lines were as follows (in thousands): Year ended December 31, 2017 2016 2015Net sales: $% $% $%Drilling Technologies $169,04520.6 % $136,03323.1 % $280,68826.1 %Subsea Technologies 65,6978.0 % 88,41415.0 % 189,09017.6 %Downhole Technologies 76,0109.3 % 59,54510.1 % 124,47311.6 %Stimulation and Intervention 148,66518.2 % 72,24112.3 % 160,70415.0 %Coiled Tubing 35,5164.3 % —— % —— %Production Equipment 124,32315.2 % 77,16613.1 % 145,92713.6 %Valve Solutions 202,96424.8 % 156,58826.6 % 174,51516.3 %Eliminations (3,600)(0.4)% (2,352)(0.2)% (1,745)(0.2)%Total net sales $818,620100.0 % $587,635100.0 % $1,073,652100.0 %90Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)17. 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, 2017 FET (Parent) GuarantorSubsidiaries Non-GuarantorSubsidiaries Eliminations Consolidated (in thousands) Net sales $— $703,409 $182,417 $(67,206) $818,620Cost of sales — 550,931 145,743 (66,842) 629,832Gross profit — 152,478 36,674 (364) 188,788Operating expenses Selling, general and administrative expenses — 205,672 48,041 — 253,713Goodwill and intangible assets impairment — 33,301 35,761 — 69,062Transaction expenses — 6,521 (10) — 6,511Loss on sale of assets — 1,981 116 — 2,097Total operating expenses — 247,475 83,908 — 331,383Earnings (loss) from equity investment — 1,000 — — 1,000Equity earnings from affiliate, net of tax (41,253) (53,682) — 94,935 —Operating income (loss) (41,253) (147,679) (47,234) 94,571 (141,595)Other expense (income) Interest expense 27,919 (569) (542) — 26,808Foreign exchange (gains) losses and other, net — (118) 7,386 — 7,268Gain realized on previously held equity investment — (120,392) — — (120,392)Deferred loan costs written off — — — — —Total other expense (income) 27,919 (121,079) 6,844 — (86,316)Income (loss) before income taxes (69,172) (26,600) (54,078) 94,571 (55,279)Provision for income tax expense (benefit) (9,772) 14,653 (760) — 4,121Net income (loss) (59,400) (41,253) (53,318) 94,571 (59,400)Less: Loss attributable to noncontrolling interest — — — — —Net income (loss) attributable to commonstockholders (59,400) (41,253) (53,318) 94,571 (59,400) Other comprehensive income (loss), net of tax: Net income (loss) (59,400) (41,253) (53,318) 94,571 (59,400)Change in foreign currency translation, net of tax of $0 36,163 36,163 36,163 (72,326) 36,163Change in pension liability 107 107 107 (214) 107Comprehensive income (loss) (23,130) (4,983) (17,048) 22,031 (23,130)Less: comprehensive (income) loss attributable tononcontrolling interests — — — — —Comprehensive income (loss) attributable to commonstockholders $(23,130) $(4,983) $(17,048) $22,031 $(23,130)91Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)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 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 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 (benefit) for income tax expense (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 loss (128,035) (108,237) (32,329) 140,596 (128,005)Less: comprehensive income attributable to noncontrollinginterests — — (162) — (162)Comprehensive loss attributable to common stockholders $(128,035) $(108,237) $(32,491) $140,596 $(128,167)92Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)Condensed consolidating statements of operations and comprehensive income 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 loss (99,908) (109,500) (31,219) 126,904 (113,723)Other expense (income) Interest expense 29,914 10 21 — 29,945Foreign exchange gains and other, net — (479) (8,866) — (9,345)Total other expense (income) 29,914 (469) (8,845) — 20,600Loss before income taxes (129,822) (109,031) (22,374) 126,904 (134,323)Provision (benefit) for income taxes (10,469) (9,123) 4,653 — (14,939)Net loss (119,353) (99,908) (27,027) 126,904 (119,384)Less: Income attributable to noncontrolling interest — — (31) — (31)Net loss attributable to common stockholders (119,353) (99,908) (26,996) 126,904 (119,353) Other comprehensive income, net of tax: Net 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 loss (164,577) (145,132) (72,251) 217,352 (164,608)Less: comprehensive loss attributable to noncontrollinginterests — — 168 — 168Comprehensive loss attributable to common stockholders $(164,577) $(145,132) $(72,083) $217,352 $(164,440)93Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)Condensed consolidating balance sheets December 31, 2017 FET (Parent) GuarantorSubsidiaries Non-GuarantorSubsidiaries Eliminations Consolidated (in thousands) Assets Current assets Cash and cash equivalents $— $73,981 $41,235 $— $115,216Accounts receivable—trade, net — 168,162 34,752 — 202,914Inventories, net — 374,527 77,454 (8,804) 443,177Income tax receivable — 1,872 — — 1,872Cost and profits in excess of billings — 9,584 — — 9,584Prepaid expenses and other current assets — 10,807 6,811 — 17,618Total current assets — 638,933 160,252 (8,804) 790,381Property and equipment, net of accumulated depreciation — 167,407 29,874 — 197,281Deferred financing costs, net 2,900 — — — 2,900Deferred income taxes, net — — 3,344 — 3,344Intangibles, net — 390,752 52,312 — 443,064Goodwill — 599,677 155,568 — 755,245Investment in unconsolidated subsidiary — — — — —Investment in affiliates 1,250,593 418,799 — (1,669,392) —Long-term loan and advances to affiliates 667,968 — 90,524 (758,492) —Other long-term assets — 2,086 927 — 3,013Total assets $1,921,461 $2,217,654 $492,801 $(2,436,688) $2,195,228Liabilities and equity Current liabilities Current portion of long-term debt $— $1,048 $108 $— $1,156Accounts payable—trade — 117,158 20,526 — 137,684Accrued liabilities 6,638 46,962 13,165 — 66,765Deferred revenue — 4,455 4,364 — 8,819Billings in excess of costs and profits recognized — 1,394 487 — 1,881Total current liabilities 6,638 171,017 38,650 — 216,305Long-term debt, net of current portion 505,807 908 35 — 506,750Long-term loans and payables to affiliates — 758,492 — (758,492) —Deferred income taxes, net — 22,737 8,495 — 31,232Other long-term liabilities — 13,907 18,018 — 31,925Total liabilities 512,445 967,061 65,198 (758,492) 786,212 Total stockholders’ equity 1,409,016 1,250,593 427,603 (1,678,196) 1,409,016Noncontrolling interest in subsidiary — — — — —Total equity 1,409,016 1,250,593 427,603 (1,678,196) 1,409,016Total liabilities and equity $1,921,461 $2,217,654 $492,801 $(2,436,688) $2,195,22894Table 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, net — 269,036 77,987 (8,440) 338,583Income tax receivable — 32,801 — — 32,801Cost and profits in excess of billings — 4,477 4,722 — 9,199Prepaid expenses and other 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, net — 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 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 cost and profit 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 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 stockholders’ equity 1,235,202 1,080,337 468,606 (1,548,943) 1,235,202Noncontrolling interest in subsidiary — — 559 — 559Total equity 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) $1,835,19295Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)Condensed consolidating statements of cash flows Year ended December 31, 2017 FET (Parent) GuarantorSubsidiaries Non-GuarantorSubsidiaries Eliminations Consolidated (in thousands) Cash flows from operating activities $(15,718) $483 $3,702 $(28,500) $(40,033)Cash flows from investing activities Acquisition of businesses, net of cash acquired — (157,297) (4,892) — (162,189)Capital expenditures for property and equipment — (20,499) (6,210) — (26,709)Long-term loans and advances to affiliates (86,097) 22,072 — 64,025 —Other — 997 (67) — 930Net cash used in investing activities (86,097) (154,727) (11,169) 64,025 (187,968)Cash flows from financing activities Borrowings under credit facility 107,431 — — — 107,431Repayment of long-term debt — — — — —Long-term loans and advances to affiliates — 86,097 (22,072) (64,025) —Dividend paid to affiliates — — (28,500) 28,500 —Repurchases of stock (4,742) — — — (4,742)Proceeds from stock issuance 1,491 — — — 1,491Other (2,430) (1,147) (40) — (3,617)Net cash provided by (used in) financing activities 101,750 84,950 (50,612) (35,525) 100,563Effect of exchange rate changes on cash — — 8,232 — 8,232Net decrease in cash and cash equivalents (65) (69,294) (49,847) — (119,206)Cash and cash equivalents Beginning of period 65 143,275 91,082 — 234,422End of period $— $73,981 $41,235 $— $115,21696Table 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 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 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 in cash and cash equivalents 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 $— $234,42297Table 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 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 —Repurchase 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 $— $109,24998Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued)18. Quarterly Results of Operations (Unaudited)The following tables summarize the Company’s results by quarter for the years ended December 31, 2017 and 2016. The quarterly results may notbe comparable primarily due to acquisitions in 2017, 2016 and 2015. Refer to Note 4 Acquisitions for further information. 2017(in thousands, except per share information)Q1 Q2 Q3 Q4Net sales$171,096 $201,115 $198,709 $247,700Cost of sales132,117 151,860 151,150 194,705Gross profit38,979 49,255 47,559 52,995Total operating expenses (1)61,056 131,779 64,839 73,709Earnings from equity investment1,462 2,568 3,361 (6,391)Operating loss(20,615) (79,956) (13,919) (27,105)Total other expense (2)8,126 8,987 8,726 (112,155)Income (loss) before income taxes(28,741) (88,943) (22,645) 85,050Provision for income tax expense (benefit)(12,973) (11,070) (7,817) 35,981Net income (loss)(15,768) (77,873) (14,828) 49,069Less: loss attributable to noncontrolling interest— — — —Net income (loss) attributable to common stockholders$(15,768) $(77,873) $(14,828) $49,069 Weighted average shares outstanding Basic95,860 96,170 96,275 105,947Diluted95,860 96,170 96,275 108,581Earnings (loss) per share Basic$(0.16) $(0.81) $(0.15) $0.46Diluted$(0.16) $(0.81) $(0.15) $0.45(1) Total Operating expenses in Q2 included $68.0 million goodwill impairment for Subsea reporting unit.(2) Total Other expenses in Q4 included $120.4 million gain realized on previously held equity investment99Table of ContentsForum Energy Technologies, Inc. and subsidiariesNotes to consolidated financial statements (continued) 2016(in thousands, except per share information)Q1 Q2 Q3 Q4Net sales$159,441 $142,723 $138,268 $147,203Cost of sales124,884 137,442 108,984 116,590Gross profit34,557 5,281 29,284 30,613Total operating expenses60,147 58,375 55,920 56,069Earnings from equity investment577 216 414 617Operating loss(25,013) (52,878) (26,222) (24,839)Total other expense8,341 (3,229) 3,594 341Loss before income taxes(33,354) (49,649) (29,816) (25,180)Income tax benefit(10,406) (21,147) (11,821) (12,677)Net loss(22,948) (28,502) (17,995) (12,503)Less: Income (loss) attributable to noncontrolling interest(5) 35 (6) 6Net loss attributable to common stockholders$(22,943) $(28,537) $(17,989) $(12,509) Weighted average shares outstanding Basic90,477 90,707 90,860 91,923Diluted90,477 90,707 90,860 91,923Loss per share Basic$(0.25) $(0.31) $(0.20) $(0.14)Diluted$(0.25) $(0.31) $(0.20) $(0.14)19. Subsequent EventOn January 3, 2018, we contributed our Forum Subsea Rentals business into Ashtead Technology, a competing business, in exchange for a 40%interest in the combined business. The transaction creates a market leading independent provider of subsea survey and remotely operated vehicleequipment rental services. After the merger, our interest in the combined business will be presented as an equity method investment. Pro formaresults of operations for this merger have not been presented because the effects were not material to the consolidated financial statements.100Table 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). The Company’s disclosurecontrols and procedures have been designed to provide reasonable assurance that information required to be disclosed in our reports filed orsubmitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules andforms. Our disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed inreports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officerand Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.Our management, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated theeffectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of December 31, 2017. Based on thatevaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as ofDecember 31, 2017 because of a material weakness in our internal control over financial reporting as discussed below.Notwithstanding this material weakness, our Chief Executive Officer and Chief Financial Officer have concluded that the Consolidated FinancialStatements included in this Annual Report on Form 10-K present fairly, in all material respects, the financial position of the Company atDecember 31, 2017 and December 31, 2016 and the consolidated results of operations and cash flows for each of the three fiscal years in theperiod ended December 31, 2017 in conformity with U.S. generally accepted accounting principles.Management’s Report on Internal Control Over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control overfinancial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally accepted accounting principles.Our management performed an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2017, utilizingthe criteria described in the “Internal Control - Integrated Framework” (2013) issued by the Committee of Sponsoring Organizations of the TreadwayCommission.We identified the following material weakness in the operation of our internal control over financial reporting that existed as of December 31, 2017:We did not maintain effective controls over the development of fair value measurements utilized in the application of the acquisition method ofaccounting for business combinations, and for purposes of testing goodwill for impairment. Specifically, our review procedures over thedevelopment and application of inputs, assumptions, and calculations used in fair value measurements associated with business combinationsand goodwill impairment testing did not operate at an appropriate level of precision commensurate with our financial reporting requirements. Thiscontrol deficiency resulted in an adjustment to the gain realized upon the consolidation of Global Tubing, LLC. This adjustment was recorded priorto the issuance of the Company’s consolidated financial statements as of and for the fiscal year ended December 31, 2017. Additionally, thiscontrol deficiency could result in a misstatement of the aforementioned account balances or disclosures that would result in a materialmisstatement to the annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, our managementhas determined that this control deficiency constitutes a material weakness.A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonablepossibility that a material misstatement of the Company’s annual or interim consolidated financial statements will not be prevented or detected ona timely basis. This material weakness did not result in a restatement of any of the Company’s previously filed consolidated financial statements.In conducting management's evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2017, we haveexcluded Global Tubing, LLC, because it was acquired by the Company in a purchase business combination during 2017. The total assets andtotal revenues of Global Tubing, LLC, a wholly-owned subsidiary, constituted approximately 6% of our total consolidated assets as ofDecember 31, 2017 and approximately 4% of our total consolidated revenues for the year then ended.101Table of ContentsOur independent registered public accounting firm, PricewaterhouseCoopers LLP, audited the effectiveness of our internal control over financialreporting as of December 31, 2017, as stated in their report which appears herein.Remediation PlansOur management, with oversight from our Audit Committee, is in the process of developing and implementing remediation plans in response to theidentified material weakness described above. These plans include the implementation of additional controls and procedures to address thedevelopment of fair value measurements utilized in the application of the acquisition method of accounting for business combinations, and forpurposes of testing goodwill for impairment. These new controls and procedures will be tested when we perform our annual goodwill impairmenttesting for the year ending December 31, 2018, or earlier should a business acquisition occur or an interim impairment assessment becomenecessary. Until management has tested the remediation and we conclude that the controls are operating effectively as designed, the materialweakness will continue to exist.Changes in Internal Control over Financial ReportingThere have been no changes in internal control over financial reporting during the quarter ended December 31, 2017 that have materially affected,or are reasonably likely to materially affect, the Company’s 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), Chief Accounting Officer (or other principal accounting officer) and other senior financial officers. We have posted a copy of the codeunder “Corporate Governance” in the “Investors” section of our internet website at www.f-e-t.com. Copies of the code may be obtained free ofcharge on our website. 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 thecorporate governance rules of the NYSE.Item 11. Executive compensationInformation required by this item is incorporated herein by reference from our Proxy Statement for the 2018 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 2018 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 2018 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 2018 Annual Meeting of Stockholders.Item 15. Exhibits(a) The following documents are filed as part of this Annual Report on Form 10-K:102Table of Contents1. Financial Statements filed as part of this reportIndex to Consolidated Financial StatementsPageReport of Independent Registered Public Accounting Firm58Consolidated Statements of Comprehensive Income (loss)60Consolidated Balance Sheets61Consolidated Statements of Cash Flows62Consolidated Statements of Changes in Stockholders’ Equity63Notes to Consolidated Financial Statements642. 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 NumberDESCRIPTION2.1*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 Services International, Inc.,Subsea Merger Sub, LLC, Triton Group Holdings LLC, Triton Merger Sub, LLC and SCF-VII, L.P. (incorporated herein byreference to Exhibit 2.1 to the Company’s Registration Statement on Form S-1 (the “Registration Statement”), filed on August31, 2011) File No. 333-180676. 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)(File No. 333-180676). 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) (File No. 1-35504). 4.1*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 Report onForm 8-K, filed on October 4, 2013). 4.2*Registration Rights Agreement by and among Forum Energy Technologies and the other parties thereto (incorporated herein byreference to Exhibit B to Exhibit 4.2 to the Registration Statement, filed on August 31, 2011) (File No. 333-180676). 4.3*Form of Common Stock Certificate (incorporated herein by reference to Exhibit 4.1 to Amendment No. 3 to the RegistrationStatement, filed on December 29, 2011) (File No. 333-180676). 4.4*Form of Note (incorporated herein by reference to Exhibit A 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) )(File No. 333-180676). 10.2*#Form of Restricted Stock Unit Agreement (Directors) (incorporated herein by reference to Exhibit 10.2 to the Company’sQuarterly Report on Form 10-Q, filed on April 29, 2014). 10.3*#Form of Restricted Stock Agreement (Directors) (incorporated herein by reference to Exhibit 10.3 to the Company’s QuarterlyReport on Form 10-Q, filed on April 29, 2014). 10.4*#Form of Restricted Stock Unit Agreement (Employees and Consultants) (incorporated herein by reference to Exhibit 10.4 to theCompany’s Quarterly Report on Form 10-Q, filed April 29, 2014). 10.5*#Form of Nonstatutory Stock Option Agreement (Employees and Consultants) (incorporated herein by reference to Exhibit 10.5 tothe Company’s Quarterly Report on Form 10-Q, filed on April 29, 2014). 103Table of Contents10.6*#Form of Performance Share Award Agreement (Employees and Consultants) (incorporated herein by reference to Exhibit 10.6 tothe Company’s Quarterly Report on Form 10-Q, filed on April 29, 2014). 10.7*#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). 10.8*#Form of Restricted Stock Agreement (Directors) (incorporated herein by reference to Exhibit 10.2 to the Company’s QuarterlyReport on Form 10-Q, filed on May 1, 2015). 10.9*#Form of Restricted Stock Unit Agreement (Employees and Consultants) (incorporated herein by reference to Exhibit 10.3 to theCompany’s Quarterly Report on Form 10-Q, filed May 1, 2015). 10.10*#Form of Nonstatutory Stock Option Agreement (Employees and Consultants) (incorporated herein by reference to Exhibit 10.4 tothe Company’s Quarterly Report on Form 10-Q, filed on May 1, 2015). 10.11*#Form of Performance Share Award Agreement (Employees and Consultants) (incorporated herein by reference to Exhibit 10.5 tothe Company’s Quarterly Report on Form 10-Q, filed on May 1, 2015). 10.12*#Form of Restricted Stock Unit Agreement - Three Year Cliff Vesting (Employees and Consultants) (incorporated herein byreference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed on October 30, 2015). 10.13*#Form of Nonstatutory Stock Option Agreement - Three Year Cliff Vesting (Employees and Consultants) (incorporated herein byreference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, filed on October 30, 2015). 10.14*#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) ) (File No. 333-180676). 10.15*#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) ) (File No. 333-180676). 10.16*#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) ) (File No. 333-180676). 10.17*#Amendment to Employment Agreement dated as of April 12, 2012 between Forum Energy Technologies, Inc. and C. ChristopherGaut (incorporated herein by reference to Exhibit 10.2 on the Company’s Current Report on Form 8-K, filed on April 17, 2012)(File No. 1-35504). 10.18*#Amendment to Employment Agreement dated as of April 12, 2012 between Forum Energy Technologies, Inc. and James W.Harris (incorporated herein by reference to Exhibit 10.4 on the Company’s Current Report on Form 8-K, filed on April 17, 2012). 10.19*#Amendment to Employment Agreement dated as of April 12, 2012 between Forum Energy Technologies, Inc. and James L.McCulloch (incorporated herein by reference to Exhibit 10.5 on the Company’s Current Report on Form 8-K, filed on April 17,2012). 10.20*#Employment Agreement dated as of January 13, 2014 between Forum Energy Technologies, Inc. and Prady Iyyanki(incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on January 8, 2014). 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) (File No. 333-180676). 10.22*#Form of Indemnification Agreement between Forum Energy Technologies, Inc. and the executive officers identified on Annex Athereto (incorporated herein by reference to Exhibit 10.10 to the Registration Statement, filed on August 31, 2011) (File No. 333-180676). 10.23*#Form of Indemnification Agreement between Forum Energy Technologies and each of the non-SCF directors identified on AnnexA thereto (incorporated herein by reference to Exhibit 10.11 to the Registration Statement, filed on August 31, 2011) (File No.333-180676). 10.24*#Form of Indemnification Agreement between Forum Energy Technologies and each of the SCF directors identified on Annex Athereto (incorporated herein by reference to Exhibit 10.12 to the Registration Statement, filed on August 31, 2011) (File No. 333-180676). 104Table of Contents10.25*#Forum Energy Technologies, Inc. Severance Plan (incorporated herein by reference to Exhibit 10.15 to the RegistrationStatement, filed on August 31, 2011) (File No. 333-180676). 10.26*#Forum Energy Technologies, Inc. Deferred Compensation and Restoration Plan (incorporated herein by reference to Exhibit 10.6to 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 herein byreference to Exhibit 10.31 to Amendment No. 5 to the Registration Statement, filed on March 29, 2012) (File No. 333-180676). 10.28*#Forum Energy Technologies, Inc. 2010 Stock Incentive Plan (as amended and restated effective August 15, 2012) (incorporatedherein by reference to Exhibit 10.2 to the Company’s Current Report on Form 10- Q, filed November 6, 2012) (File No. 1-35504). 10.29*#Subscription Agreement dated July 16, 2010 by and among Forum Oilfield Technologies, Inc., SCF-VII, L.P., Sunray Capital,LP, C. Christopher Gaut and W. Patrick Connelly, as amended (incorporated herein by reference to Exhibit 10.21 to theRegistration Statement, filed on August 31, 2011) (File No. 333-180676). 10.30*#Retirement and Separation Agreement, effective as of December 18, 2014 (incorporated herein by reference to Exhibit 10.1 tothe Company’s Current Report on Form 8-K, filed on December 18, 2014). 10.31*#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). 10.32*#Form of Restricted Stock Agreement (Directors) (incorporated herein by reference to Exhibit 10.2 to the Company’s QuarterlyReport on Form 10-Q, filed on May 3, 2016). 10.33*#Form of Restricted Stock Unit Agreement (Employees and Consultants - Group 1) (incorporated herein by reference to Exhibit10.3 to the Company’s Quarterly Report on Form 10-Q, filed on May 3, 2016). 10.34*#Form of Restricted Stock Unit Agreement (Employees and Consultants - Group 2) (incorporated herein by reference to Exhibit10.4 to the Company’s Quarterly Report on Form 10-Q, filed on May 3, 2016). 10.35*#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). 10.36*#Form of Nonstatutory Stock Option Agreement (Employees and Consultants) (incorporated herein by reference to Exhibit 10.6 tothe Company’s Quarterly Report on Form 10-Q, filed on May 3, 2016). 10.37*#Form of Performance Share Award Agreement (Employees and Consultants) (incorporated herein by reference to Exhibit 10.7 tothe Company’s Quarterly Report on Form 10-Q, filed on May 3, 2016). 10.38*#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). 10.39*#Form of Restricted Stock Unit Agreement (Employees and Consultants) (incorporated herein by reference to Exhibit 10.1 to theCompany’s Quarterly Report on Form 10-Q, filed on November 2, 2016). 10.40*#Form of Restricted Stock Agreement (Directors) (incorporated herein by reference to Exhibit 10.1 to the Company’s QuarterlyReport on Form 10-Q, filed on May 2, 2017). 10.41*#Form of Restricted Stock Unit Agreement (Directors) (incorporated herein by reference to Exhibit 10.2 to the Company’sQuarterly Report on Form 10-Q, filed on May 2, 2017). 10.42*#Form of Restricted Stock Unit Agreement (Employees and Consultants - Group 1) (incorporated herein by reference to Exhibit10.3 to the Company’s Quarterly Report on Form 10-Q, filed on May 2, 2017). 10.43*#Form of Restricted Stock Unit Agreement (Employees and Consultants - Group 2) (incorporated herein by reference to Exhibit10.4 to the Company’s Quarterly Report on Form 10-Q, filed on May 2, 2017). 10.44*#Form of Nonstatutory Stock Option Agreement (Employees and Consultants) (incorporated herein by reference to Exhibit 10.5 tothe Company’s Quarterly Report on Form 10-Q, filed on May 2, 2017). 10.45*#Form of Performance Share Award Agreement (Employees and Consultants) (incorporated herein by reference to Exhibit 10.6 tothe Company’s Quarterly Report on Form 10-Q, filed on May 2, 2017). 10.46*#Amended and Restated Employee Stock Purchase Plan, dated as of July 1, 2017 (incorporated herein by reference to Exhibit10.1 to the Company’s Quarterly Report on Form 10-Q, filed on August 1, 2017). 105Table of Contents10.47*#Purchase and Sale Agreement, dated August 25, 2017, by and among Q-GT (V) Investment Partners, LLC, Forum EnergyTechnologies, Inc. and Global Tubing, LLC (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K, filed on August 28, 2017). 10.48*#Amendment No. 2 to the Registration Rights Agreement, dated as of August 25, 2017, by and among Forum EnergyTechnologies and the other parties thereto (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report onForm 8-K, filed on August 28, 2017). 10.49*#Registration Rights Agreement, dated as of October 2, 2017, by and between Forum Energy Technologies, Inc. and Q-GT (V)Investment Partners, LLC (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filedon October 3, 2017). 10.50*Third Amended and Restated Credit Agreement, dated as of October 30, 2017, by and among Forum Energy Technologies, Inc.,Forum Canada ULC, Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto(incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on November 2, 2017). 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.Item 16. Form 10-K SummaryNone.106Table 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 by theundersigned 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) As required by the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in thecapacities an on the dates indicated.Signature Title Date /s/ Prady Iyyanki Chief Executive Officer and Director (Principal Executive Officer) February 27, 2018Prady Iyyanki /s/ James W. Harris Executive Vice President and Chief Financial Officer (Principal Financial Officer) February 27, 2018James W. Harris /s/ Tylar K. Schmitt Vice President and Chief Accounting Officer (Principal Accounting Officer) February 27, 2018Tylar K. Schmitt /s/ C. Christopher Gaut Chairman of the Board February 27, 2018C. Christopher Gaut /s/ Evelyn M. Angelle Director February 27, 2018Evelyn M. Angelle /s/ David C. Baldwin Director February 27, 2018David C. Baldwin /s/ John A. Carrig Director February 27, 2018John A. Carrig /s/ Michael McShane Director February 27, 2018Michael McShane /s/ Terence O’Toole Director February 27, 2018Terence O’Toole /s/ Franklin Myers Director February 27, 2018Franklin Myers /s/ Louis A. Raspino Director February 27, 2018Louis A. Raspino /s/ John Schmitz Director February 27, 2018John Schmitz /s/ Andrew L. Waite Director February 27, 2018Andrew L. Waite 107Exhibit 21.1List of Subsidiaries of Forum Energy Technologies, Inc. Name JurisdictionFET (Barbados) SRL BarbadosFET Holdings LLC DelawareFET Finance Ltd. Cayman IslandsForum Arabia Limited Saudi ArabiaForum 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 KingdomForum Energy Technology (Shanghai) Co., Ltd ChinaFET 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 Severe Service Valves LLC DelawareForum US, Inc. DelawareForum Worldwide Holdings Limited United KingdomGlobal Flow Technologies, Inc. DelawareGlobal Tubing LLC DelawareGT Coiled Tubing of Canada ULC CanadaMultilift Wellbore Technology Limited United KingdomMultilift Welltec LLC DelawareQuality Wireline & Cable Inc. CanadaTGH (US), Inc. DelawareForum Germany Holdings Limited United KingdomForum Europe Holdings Limited United KingdomZy-Tech Global Industries, Inc. DelawareExhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe hereby consent to the incorporation by reference in the Registration Statements on Forms S-8 (Nos.333-180769, 333-188915, 333-213158, 333-218789)and Forms S-3 (No. 333-213266, 333-220814) of Forum Energy Technologies, Inc. of our report dated February 27, 2018 relating to the financial statementsand the effectiveness of internal control over financial reporting, which appears in this Form 10‑K./s/ PricewaterhouseCoopers LLPHouston, TexasFebruary 27, 2018Exhibit 31.1Forum Energy Technologies, Inc.CertificationI, Prady Iyyanki, 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, 2018 By: /s/ Prady Iyyanki Prady Iyyanki President and 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, 2018 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 31,2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Prady Iyyanki, as Chief Executive 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, 2018 By: /s/ Prady Iyyanki Prady Iyyanki President and 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 31,2017, 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, 2018 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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