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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________________
FORM 10-K
____________________________________
☑
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 001-35504
FORUM 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.)
10344 Sam Houston Park Drive
Suite 300
Houston
Texas
(Address of Principal Executive Offices)
77064
(Zip Code)
Registrant’s telephone number, including area code: (713) 351-7900
Securities registered pursuant to Section 12(b) of the Act:
Common stock, $0.01 par value
(Title of Each Class)
FET
(Trading Symbol)
New York Stock Exchange
(Name of Each Exchange on Which Registered)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑
No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange
Act:
Large accelerated filer
Smaller reporting company
☐ Accelerated filer
☑ Emerging growth company
☑ Non-accelerated filer
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
The aggregate market value of Common Stock held by non-affiliates on June 30, 2021, determined using the per share closing price on the New York Stock Exchange
Composite tape of $23.48 on June 30, 2021, was approximately $104.7 million. For this purpose, our executive officers and directors and SCF Partners L.P. and its affiliates
are considered affiliates.
As of February 25, 2022, there were 5,652,723 common shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of our Proxy Statement for the 2022 Annual Meeting of Stockholders are incorporated by reference into Part III of this report.
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Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Forum Energy Technologies, Inc.
Index to Form 10-K
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART I
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Reserved
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Item 15.
Item 16.
SIGNATURES
Exhibits, Financial Statement Schedules
Form 10-K Summary
PART IV
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PART I
Item 1. Business
Forum Energy Technologies, Inc., a Delaware corporation (the “Company,” “FET,” “we,” “our” or “us”), is a global company serving the oil,
natural gas, industrial and renewable energy industries. Our common shares are listed on the New York Stock Exchange (“NYSE”) under the
symbol “FET.” Our principal executive offices are located at 10344 Sam Houston Park Drive, Houston, Texas 77064, our telephone number is
(713) 351-7900, and our website is www.f-e-t.com. Our Annual Reports on Form 10-K, quarterly reports on Form 10-Q and current reports on
Form 8-K, and all amendments thereto, are available free of charge in the “Investors” section of our website as soon as reasonably
practicable after such reports are electronically filed with or furnished to the Securities and Exchange Commission (“SEC”). These reports are
also available on the SEC’s website at www.sec.gov. Information contained on or accessible from our website is not incorporated by
reference into this Annual Report on Form 10-K and should not be considered part of this report or any other filing that we make with the
SEC.
Overview
We are a global company serving the oil, natural gas, industrial and renewable energy industries. FET provides value added solutions aimed
at improving the safety, efficiency, and environmental impact of our customers' operations. We are an environmentally and socially
responsible company headquartered in Houston, Texas with manufacturing, distribution and service facilities strategically located throughout
the world. Our products include highly engineered capital equipment as well as consumable products. These consumable products are used
in drilling, well construction and completions activities, within the supporting infrastructure, and at processing centers and refineries. Our
engineered capital products are directed at drilling rig equipment for new rigs, upgrades and refurbishment projects, subsea construction and
development projects, pressure pumping equipment, the placement of production equipment on new producing wells, downstream capital
projects and capital equipment for renewable energy projects. In 2021, over 78% of our revenue was derived from consumable products and
activity-based equipment, while the balance was primarily derived from capital products with a small amount from rental and other services.
We design, manufacture and supply high quality reliable products that create value for our diverse customer base, which includes, among
others, oil and natural gas operators, land and offshore drilling contractors, oilfield service companies, subsea construction and service
companies, and pipeline and refinery operators. In addition, we offer some of our products to renewable energy and new energy companies
for applications such as offshore wind, geothermal power and biogas.
We expect that the world's long-term energy demand will continue to rise with global population growth and that hydrocarbons will continue to
play a vital role in meeting the world's long-term energy needs while renewable energy sources continue to develop. As such, we remain
focused on serving our customers in both oil and natural gas applications, where we are continuing to develop products to lower operators’
current emissions. We are also deploying our existing product technologies in renewable energy applications and seeking to develop
innovative equipment.
Our reporting segments align with business activity drivers and the manner in which management reviews and evaluates operating
performance. FET operates in the following three reporting segments: Drilling & Downhole, Completions and Production. We believe that the
reporting segment structure is aligned with the key phases of the well cycle and provides operating efficiencies.
We incorporate by reference the segment and geographic information for the last two years set forth in Note 18 Business Segments, and the
information with respect to dispositions set forth in Note 4 Acquisitions & Dispositions.
DRILLING AND DOWNHOLE SEGMENT
Our Drilling & Downhole segment designs, manufactures and supplies products and provides related services to the drilling, well
construction, artificial lift and subsea energy construction markets, including applications in oil and natural gas, renewable energy, defense,
and communications. The products and related services consist primarily of (i) capital equipment and a broad line of expendable products
consumed in the drilling process; (ii) well construction casing and cementing equipment and protection products for artificial lift equipment
and cables; and (iii) subsea remotely operated vehicles and trenchers, submarine rescue vehicles, specialty components and tooling, and
complementary subsea technical services.
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There are several factors that drive demand for our Drilling & Downhole segment. Our Drilling Technologies product line is influenced by
global drilling activity; the level of capital investment in drilling rigs and equipment replacement as drilling contractors modify or replace
existing rigs to increase capability or improve efficiency and safety; the number of rigs in use and the severity of operating conditions. Our
Downhole Technologies product line is impacted by the level of well completion activity and complexity of well construction and completion.
Our Subsea Technologies product line is affected by global offshore activity, defense spending, subsea equipment and pipeline installation,
repair and maintenance expenditures, and growth in offshore windfarm development.
Drilling Technologies. We provide both drilling capital equipment and consumables, with a focus on products that enhance our customers’
handling of tubulars and drilling fluids on the drilling rig. Our product offering includes powered and manual tubular handling equipment;
customized offline crane systems; drilling data acquisition management systems; pumps, pump parts, valves, and manifolds; drilling fluid end
components; and a broad line of items consumed in the drilling process.
Drilling capital equipment. We design and manufacture a range of powered and manual tubular handling tools used on onshore and offshore
drilling rigs. 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, rotary slips, rotary
tongs, powered slips, spiders and kelly spinners. Our hydraulic catwalks mechanize the lifting and lowering of tubulars to and from the drill
floor, eliminating or reducing the need for traditional drill pipe and casing “pick-up and lay-down” operations with associated personnel. In
addition, our make-up and break-out tools, called Forum Roughneck™, automate a dangerous rig floor task and improve rig drilling speed
and safety. In addition, we also manufacture torque machines which allow customers to make up and break out complex tubulars and casing
offline. We also design and manufacture a range of rig-based offline activity cranes and multi-purpose cranes.
In addition to powered tubular handling equipment, we design and manufacture drilling manifold 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 address
problems at the rig site.
Consumable products. We manufacture a range of consumable products used on drilling rigs, well servicing rigs, and hydraulic fracturing
systems. Our consumable products include valves, centrifugal pumps, mud pump fluid end components, including P-Quip™ mud pump
modules, Forumlok™, rig sensors, inserts, and dies. We are also a supplier of oilfield bearings, including FracMax™, to original equipment
manufacturers and repair businesses for use in drilling and well stimulation equipment.
Downhole Technologies. We manufacture a broad line of downhole products that are consumed during the construction, completion and
production phases of a well’s lifecycle.
Downhole protection systems. We offer a full selection of downhole protection solutions and artificial lift accessories through our various
brands such as Cannon Services™ and Multilift. Our Cannon Services protectors are used to shield downhole control lines, cables and
gauges during installation and to provide protection during production enhancement operations. We design and manufacture a variety of
downhole protection solutions for electrical submersible pump (“ESP”) cabling, encapsulated control lines, sub-surface safety valves and
permanent downhole gauges. We provide both standard and customized protection systems, and we utilize a range of materials in our
products for various downhole environments. SandGuard™ and Cyclone™ branded completion tools extend the useful life of an ESP by
protecting it against sand and other solids during shutdown and startup. Forum’s GasGuard™ branded product also extends the useful life of
an ESP by breaking down gas slugs, creating an uninterrupted flow of liquid.
Casing and cementing tools. Through our Davis-Lynch™ branded downhole well construction operations, we design and manufacture
products used in the construction of oil, natural gas and geothermal wells. We design and manufacture a full portfolio of centralizers, float
equipment, stage cementing tools, inflatable packers, flotation collars, cementing plugs and surge reduction equipment. Our products are
used globally in the construction of onshore and offshore wells.
Our primary customers in this product line are oil and natural gas producers, and service companies providing completions, artificial lift and
other intervention services to producers.
Subsea Technologies. We design and manufacture capital equipment and specialty components used in the subsea sector and provide a
broad suite of complementary technical services. We have a core focus on the design and manufacture of remotely operated vehicle (“ROV”)
systems, other specialty subsea vehicles, and rescue
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submarines, as well as critical components of these vehicles. Many of our related 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 ROVs can be segmented into three broad classes of vehicles based on size and
category of operations: (1) large work-class vehicles and trenchers for construction and installation activities, (2) drilling-class vehicles
deployed from and for use around an offshore rig and (3) observation-class vehicles for inspection and light manipulation. We are a leading
provider of work-class and observation class vehicles.
We design and manufacture large work-class ROVs through our highly respected Perry brand. These vehicles are principally used in
deepwater construction applications. In addition to work-class ROVs, we design and manufacture large trenchers that travel along the sea
floor for trenching, installation and burial operations. The largest of these trenchers is able to cut over three meters deep into the seafloor to
lay pipelines, power cables or communications cables for customers in the pipeline, offshore wind power and telecom markets.
®
Our Forum 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.
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In addition to ROVs, we design and manufacture subsea rescue vehicles capable of a range of tasks, including submarine rescue operations,
diver support, seabed survey, port security, under hull search and a variety of other tasks.
Our subsea vehicle customers are primarily large offshore service companies that serve the oil and natural gas, telecommunications,
offshore wind power, and other industries operating in marine environments. In addition, we sell products to a range of governmental
organizations including naval, maritime science and geoscience research organizations.
Subsea products and technical services. We are also a leading designer and manufacturer of subsea products and components utilized in
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conjunction with ROVs for the oil and natural gas, renewables, telecommunications and defense markets. We manufacture Dynacon
branded ROV launch and recovery systems, linear cable engines, Sub-Atlantic branded ROV thrusters, and a wide range of hydraulic power
units and valve packs. We design and manufacture these ROV components for incorporation into our own vehicles as well as for sale to
other ROV manufacturers. We also provide a broad suite of subsea tooling and technical services.
®
COMPLETIONS SEGMENT
Our Completions segment designs, manufactures and supplies products and provides related services to the coiled tubing, well stimulation
and intervention markets. The products and related services consist primarily of: (i) capital and consumable products sold to the pressure
pumping, hydraulic fracturing and flowback services markets, including hydraulic fracturing pumps, cooling systems, high-pressure flexible
hoses and flow iron as well as wireline cable and pressure control equipment used in the well completion and intervention service markets;
and (ii) coiled tubing strings and coiled line pipe and related services.
Demand for our Stimulation & Intervention and Coiled Tubing product lines is impacted by the level of shale or tight sand basin hydraulic
fracturing activity and the level of workover and intervention activity.
Stimulation and Intervention. We provide a broad range of high pressure pumps and flow equipment used by pressure pumping
companies during stimulation, intervention (principally plug and perforation activity) and flowback processes. We sell power end assemblies,
industrial heat exchanger and cooling systems, manifolds and manifold trailers, high-pressure flexible hoses and flow iron. Frequent
refurbishment 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 and position inventory in strategic locations in North America.
We also manufacture pressure control products that are used for well intervention operations that are sold domestically and internationally to
oilfield service companies and equipment rental companies. Products we supply include blowout preventers for coiled tubing and wireline
units and our Hydraulic Latch Assembly, which is used to facilitate efficient zipper fracturing operations. We also manufacture electro-
mechanical wireline cables as well as innovative EnviroLite branded (greaseless) cables. We also conduct aftermarket refurbishment and
recertification services for pressure control equipment.
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Our primary customers in the Stimulation and Intervention product line are pressure pumping, wireline and flowback service companies. In
addition, we sell directly to pressure pumping unit original equipment manufacturers.
Coiled Tubing. We manufacture Global Tubing® branded coiled tubing strings, including DURACOIL (quench and temper), and coiled line
pipe, and provide related services. Coiled tubing strings are consumable components utilized to perform well completion and intervention
activities. Our coiled line pipe offering serves as an alternative to conventional line pipe and composite flexibles in onshore and offshore
applications. More recently, our coiled line pipe offering has been utilized by a customer for a carbon capture project to transport carbon for
injection into underground storage.
The product line’s primary customers are domestic and international service companies that provide coiled tubing services and oil and gas
operators.
PRODUCTION SEGMENT
Our Production segment designs, manufactures and supplies products and provides related equipment and services for production and
infrastructure markets. The products and related services consist primarily of: (i) engineered process systems, production equipment, as well
as specialty separation equipment; and (ii) a wide range of industrial valves focused on serving oil and natural gas customers as well as
power generation, renewable energy and other general industrial applications.
The segment’s primary market driver is the level of spending associated with new producing wells as well as spending on midstream and
downstream projects. In addition, demand for our Valve Solutions products is affected by activity levels in the power generation, process,
petrochemical and mining industries.
Production Equipment. Our Production Equipment product line provides engineered process systems for capital equipment used at the
wellsite and for production processing in the U.S. Once a well has been drilled, completed and brought on stream, we provide the well
operator with process equipment necessary to make the oil or natural gas ready for transmission. We engineer, fabricate and install
separators, packaged production systems and pressure vessels, skidded vessels with gas measurement, modular process plants, header
and manifold skids, process and flow control equipment and separators to help clean and process oil or natural gas as it travels from the
wellhead and along the transmission line to the refinery. Our customers are principally U.S. oil and natural gas operators or producers.
We also design and provide process oil treatment equipment, including EDGE and NU-STATIC branded desalters and dehydrator
technologies, used in refineries and other process applications worldwide. We have a team of highly trained technicians and field service
engineers for repair and installation, and we supply a broad range of replacement parts for our equipment and other manufacturers. This
equipment removes sand, water and suspended solids from hydrocarbons prior to their transmission or refining.
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Valve Solutions. We provide a wide range of industrial valves that principally serve the upstream, midstream and downstream markets of
the oil and natural gas industry. Our valves also serve general industrial, power generation and process industry customers as well as the
mining industry. In addition, our Canadian operations provide significant exposure to heavy oil projects. 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 and Accuseal . Much of our production is
sold through distribution supply companies, with our marketing efforts targeting end users for pull through of our valve products.
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Our supply chain systems enable us to design and sell high-quality engineered valves, as well as provide standardized products, while
maintaining competitive pricing and minimizing capital requirements. We utilize our international manufacturing partners to produce
completed products and components for the majority of our valve products.
Depending on the product, our valves are manufactured to conform to the standards of one or more of the API, American National Standards
Institute, American Bureau of Shipping, and International Organization for Standardization and/or other relevant standards governing the
design and manufacture of industrial valves.
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Business history
Forum was incorporated in 2005 and formed through a series of acquisitions. In August 2010, Forum Oilfield Technologies, Inc. was renamed
Forum Energy Technologies, Inc., when four other companies were merged into Forum. On April 17, 2012, we completed our initial public
offering.
Backlog
As we provide a mix of consumable products, capital goods, and repair parts and services, the majority of orders and commitments included
in our backlog as of December 31, 2021 are scheduled to be delivered within six months. Our backlog was approximately $196 million at
December 31, 2021 and approximately $114 million at December 31, 2020. Substantially all of the projects currently in our backlog are
subject to change and our customers may seek to terminate these orders. However, customers are generally required to pay us for work
performed as well as other costs and fees as a result of such changes or termination. It is difficult to predict how much of our current backlog
may be delayed or terminated, or subject to changes, as well as our ability 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 our
related refurbishment or other services are also not contracted with significant lead time. The composition of our backlog is reflective of our
mix of capital equipment, consumable products, aftermarket and other related items. Our bookings, which consist of written orders or
commitments for our products or related services, during the years ended December 31, 2021 and 2020 were approximately $632.3 and
$473 million, respectively.
Customers
No customer represented more than 10% of consolidated revenue in any of the last three years.
Seasonality
Our business is not significantly impacted by seasonality. However, in the years ended December 31, 2019 through 2021, we did experience
a decreased level of demand for our products in the fourth quarter. In addition, given the geographic proximity of a number of our facilities to
the Gulf Coast, we are subject to business interruptions caused by hurricanes and tropical storms. Furthermore, a small portion of the
revenue we generate from select Canadian operations often benefits from higher first quarter activity levels, as operators take advantage of
the winter freeze to gain access to remote drilling and production areas.
Competition
The markets in which we operate are highly competitive. We compete with a number of companies of varying sizes. There are several large
national and multinational companies that have longer operating histories, greater financial, technical and other resources and greater name
recognition. In addition, we have several smaller competitors who compete with us on a regional or local basis. These competitors are often
times very quick to respond to new or emerging technologies and services, and changes in customer requirements. The principal competitive
factors in our markets are product quality and performance, price, breadth of product offering, availability of products and services,
performance, distribution capabilities, technical expertise, responsiveness to customer needs, reputation for service and intellectual property
rights. We believe our products and services in each segment are comparable in price, quality, performance and dependability with our
competitors’ offerings. We seek to differentiate ourselves from our competitors by providing a rapid response to the needs of our customers,
expert knowledge, a high level of customer service, and innovative product development initiatives. Some of our competitors expend greater
amounts of money than us on formal research and engineering efforts. We believe, however, that our product development efforts are
enhanced by the investment of management time that we make to improve 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
product lines include National Oilwell Varco, Inc., Cameron International Corporation (a subsidiary of Schlumberger), TechnipFMC plc,
Tenaris S.A., and Caterpillar, Inc.
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Patents, trademarks and other intellectual property
We currently hold multiple U.S. and international patents and trademarks, have a number of pending patent and trademark applications and
have developed a significant amount of trade secrets or other know how in the areas where we compete. Although our patents, trademarks,
licenses, trade secrets and know how are material to us in the aggregate, we do not regard any single piece of intellectual property to be
material to our business as a whole.
Raw materials
We 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,
inflationary pressures, tariffs and duties on imported materials and foreign currency exchange rates. Certain of our component parts,
products or raw materials, such as bearings, are only available from a limited number of suppliers. Please see “Risk factors—Risks related to
our business—We rely on relationships with key suppliers to operate and maintain our business.”
Timely receipt of raw materials is critical to our business. In 2021, we were negatively impacted by various transportation and other supply
chain constraints, which caused manufacturing delays for some of our products. In the future, we may not be able to continue purchasing raw
materials on a timely basis or at acceptable prices. We generally try to purchase raw materials from multiple suppliers so that we are not
dependent on any one supplier, but this is not always possible.
Working Capital
An important consideration for many of our customers in selecting a vendor is timely availability of the product. Customers may pay a
premium for earlier or immediate availability because of the cost of delays in critical operations. We stock our consumable products in
regional warehouses or on consignment around the world so that these products are available for our customers when needed. This
availability is especially critical for certain consumable products, causing us to carry substantial inventories for these products. For critical
capital items in which demand is expected to be strong, we often build certain items before we have a firm order. Our having such goods
available on short notice can be of great value to our customers. We also stock raw materials and components in order to be in a position to
build products in response to market demand.
We typically offer our customers standard payment terms of 30 days, although during downturns in activity, customers often take 65 days or
more to settle accounts. For sales into certain countries or for select customers, we might require payment upfront or credit support through a
letter of credit. For longer term projects, we typically require progress payments as important milestones are reached. On average, we collect
our receivables in about 60 days from shipment resulting in a substantial investment in accounts receivable. Likewise, standard terms with
our vendors are 90 days. For critical items sourced from significant vendors, we have settled accounts more quickly, sometimes in exchange
for early payment discounts.
Governmental regulation
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. In addition to
environmental and worker safety regulations, we are subject to regulation by numerous other governmental regulatory agencies, including
the U.S. Department of Labor and other state, local and international bodies regulating worker rights and labor conditions. In addition, we are
subject to certain requirements to contribute to retirement funds or other benefit plans and laws in some jurisdictions in which we operate
restrict our ability to dismiss employees. Failure to comply with these laws or regulations or to obtain or comply with permits may result in the
assessment of administrative, civil and criminal penalties, imposition of remedial or corrective action requirements, and the imposition of
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 the
environment, and thus, any changes in environmental laws and regulations or in enforcement policies that result in more stringent and costly
waste handling, 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 if so, we
may incur significant costs and liabilities as a result of such releases or spills, including any third party claims for damage to property, natural
resources or persons.
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The following is a summary of the more significant existing environmental, health and safety laws and regulations to which our business
operations are subject and for which compliance may have a material adverse impact on our capital expenditures, results of operations or
financial position.
Hazardous substances and waste
The 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
joint and several liability, without regard to fault or legality of conduct, on classes of persons who are considered to be responsible for the
release of a hazardous substance into the environment. These persons include the owner or operator of the site where the release occurred,
and anyone who disposed or arranged for the disposal of a hazardous substance released at the site. We currently own, lease, or operate
numerous properties that have been used for manufacturing and other operations for many years. We also contract with waste removal
services and landfills. These properties 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 to prevent future contamination. In addition, it is not uncommon for neighboring
landowners and other third-parties to file claims for personal injury and property damage allegedly caused by hazardous substances released
into the environment.
Hydraulic fracturing
A significant percentage of our customers’ oil and natural gas production is being developed from unconventional sources, such as
hydrocarbon shales. These formations require hydraulic fracturing completion processes to release the oil or natural gas from the rock so
that it can flow through the formations. Hydraulic fracturing involves the injection of water, sand and chemicals under pressure into the
formation to stimulate production. 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.
Moreover, various political groups and officials are requesting or have discussed implementing a ban on hydraulic fracturing, or oil & gas
extraction generally, on federal lands. For more information, please read “Risk Factors-Potential legislation or regulations restricting the use
of hydraulic fracturing could reduce demand for our products.”
Operating risk and insurance
We maintain insurance coverage of types and amounts that we believe to be customary and reasonable for companies of our size and with
similar operations. In accordance with industry practice, however, we do not maintain insurance coverage against all of the operating risks to
which our business is exposed. Therefore, there is a risk our insurance program may not be sufficient to cover any particular loss or all
losses. Currently, our insurance program includes coverage for, among other things, general liability, umbrella liability, sudden and accidental
pollution, personal property, vehicles, workers’ compensation, and employer’s liability coverage.
Employees
As of December 31, 2021, we had approximately 1,400 employees. Of our total employees, approximately 1,000 were in the U.S., 150 were
in the United Kingdom, 100 were in Germany, 100 were in Canada and 50 were in other locations. We are not a party to any collective
bargaining agreements, other than in our Hamburg, Germany facility. We consider our relations with our employees to be satisfactory.
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Item 1A. Risk Factors
The following summarizes the principal factors that make an investment in our company speculative or risky, all of which are more fully
described in the Risk Factors section below. This summary should be read in conjunction with the Risk Factors section and should not be
relied upon as an exhaustive summary of the material risks facing our business.
Risks Related to our Business and Operations:
•
•
The success of our business largely depends on activity levels in the oil and natural gas industry, which can be affected by the
amount and volatility of oil and natural gas prices.
The markets in which we operate are highly competitive, including some companies that hold substantial market share and have
substantially greater resources than we do, as well as a number of regional or local competitors for certain of our product lines. We
may not be able to compete successfully in this environment.
• Given the uncertainty related to long-term commodity prices and associated customer demand, we may hold excess or obsolete
inventory, and as a result, may experience a reduction in gross margins and financial results.
• We may not realize revenue on our current backlog due to customer order reductions, cancellations or acceptance delays, which
may negatively impact our financial results.
• The COVID-19 pandemic has and may continue to adversely affect our business and results of operations.
•
The industry in which we operate is undergoing continuing consolidation and seeking opportunities to participate in the energy
transition, which may impact our results of operations.
A greater focus on budgetary discipline and technological advances have caused a decline in customer spending that may remain at
a low level despite an increase in commodity prices.
•
• We may be unable to employ a sufficient number of skilled and qualified workers.
• We rely on relationships with key suppliers to operate and maintain our business.
• Our business depends upon our ability to obtain key raw materials and specialized equipment from suppliers. Increased costs of raw
materials and other components, and inflationary pressure, may result in increased operating expenses.
• We may not be able to satisfy technical requirements, testing requirements, code requirements or other specifications under
•
contracts and contract tenders.
A failure or breach of our information technology infrastructure, including as a result of cyber attacks or failures of data protection
measures, could adversely impact our business and results of operations and expose us to potential liabilities.
• Our success depends on our ability to implement new technologies and services more efficiently and quickly than our competitors.
• Our success will be affected by the use and protection of our proprietary technology. Due to the limitations of our intellectual property
rights, our ability to exclude others from the use of our proprietary technology may be reduced. Furthermore, we may be adversely
affected by disputes regarding intellectual property rights.
• We may incur liabilities, fines, penalties or additional costs, or we may be unable to sell to certain customers if we do not maintain safe
•
operations.
If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent
fraud.
• Facility consolidations or expansions may subject us to risks of operating inefficiencies, construction delays and cost overruns.
• Our acquisitions and dispositions may not result in anticipated benefits and may present risks not originally contemplated, which may
have a material adverse effect on our business, consolidated results of operations and consolidated financial condition.
• A natural disaster, catastrophe or other event could result in severe property damage, which could curtail our operations.
Legal and Regulatory Risks:
• Our operations and our customers’ operations are subject to a variety of governmental laws and regulations that affect our and our
customers’ costs, prohibit or curtail our customers’ operations in certain areas, limit the demand for our products and services or
restrict our operations.
Potential legislation or regulations restricting the use of hydraulic fracturing could reduce demand for our products.
•
• Our financial results could be adversely impacted by changes in regulation of oil and natural gas exploration and development
activity in response to significant environmental incidents or climate change actions.
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• Our operations are subject to environmental and operational safety laws and regulations that may expose us to significant costs and
liabilities.
Tariffs imposed by the U.S. government could have a further severe adverse effect on our results of operations.
•
• We are subject to litigation risks that may not be covered by insurance.
•
The number and cost of our current and future asbestos claims could be substantially higher than we have estimated and the timing
of payment of claims could be sooner than we have estimated.
• Our products are used in operations that are subject to potential hazards inherent in the oil and natural gas industry and, as a result,
we are exposed to potential liabilities that could affect our financial condition and reputation.
• Climate change legislation or regulations restricting emissions of greenhouse gases and related divestment and other efforts could
increase our operating costs or reduce demand for our products.
Risks Related to our International Operations
• Our business operations worldwide are subject to a number of U.S. federal laws and regulations, including restrictions imposed by
the U.S. Foreign Corrupt Practices Act as well as trade sanctions administered by the Office of Foreign Assets Control and the
Commerce Department, as well as similar laws in non-U.S. jurisdictions that govern our operations by virtue of our presence or
activities there.
• Our exposure to currency exchange rate fluctuations may result in fluctuations in our cash flows and could have an adverse effect on
our results of operations.
Risks Related to our Common Stock, Indebtedness and Financial Condition:
• Our common stock price has been volatile, and we expect it to continue to remain volatile in the future.
• We have a significant amount of indebtedness. Our leverage and debt service obligations restrict our operations and make us more
•
vulnerable to adverse economic conditions.
The indenture governing our 2025 Notes and our Credit Facility contain operating and financial restrictions that restrict our business
and financing activities.
• Our ability to access the capital and credit markets to raise capital on favorable terms is limited by our debt level, industry conditions
and credit rating.
• We have incurred impairment charges and we may incur additional impairment charges in the future.
•
Provisions in our organizational documents and under Delaware law could delay or prevent a change in control of our company,
which could adversely affect the price of our common stock.
L.E. Simmons & Associates (“LESA”), through SCF Partners (“SCF”), may significantly influence the outcome of stockholder voting
and may exercise this voting power in a manner adverse to our other stockholders.
•
• We have renounced any interest in specified business opportunities.
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Risks Related to our Business and Operations:
The success of our business largely depends on activity levels in the oil and natural gas industry, which can be affected by the
amount and volatility of oil and natural gas prices.
We have experienced, and will continue to experience, fluctuations in revenues and operating results due to economic and business cycles.
The willingness of oil and natural gas operators to make capital expenditures to explore for and produce oil and natural gas, the need of
oilfield services companies to replenish consumable parts and the willingness of these customers to invest in capital equipment depends
largely upon prevailing industry 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;
prices, and expectations about future prices, of oil and natural gas;
ability or willingness of the Organization of Petroleum Exporting Countries (“OPEC”) and other major producers to set and maintain
production limits;
cost of exploring for, developing, producing and delivering oil and natural gas;
levels of drilling and completions activity;
expected decline in rates of current and future production, or faster than anticipated declines in production;
discovery rates of new oil and natural gas reserves;
the COVID-19 pandemic and related public health measures implemented by governments worldwide;
ability of our customers to access new markets or areas of production or to continue to access current markets, including as a result of
trade restrictions;
• weather conditions, including hurricanes and tornadoes, that can affect oil and natural gas operations;
•
natural disasters, catastrophes or other events resulting in severe property damage;
• more stringent environmental regulations;
•
•
•
•
•
•
•
•
•
prohibitions, moratoriums or similar limitations on drilling or hydraulic fracturing 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;
increased pressures to invest in sustainable energy sources, shareholder activism or activities by non-governmental organizations to
restrict the exploration, development and production of oil and natural gas;
conservation measures and technological advances affecting energy consumption;
price and availability of alternative energy resources and fuels;
uncertainty in capital and commodities markets, and the ability of oil and natural gas companies to raise equity capital and debt financing;
interest rates, the cost of capital and inflationary pressures; and
• merger and divestiture activity among oil and natural gas producers, drilling contractors and oilfield service companies.
The oil and natural gas industry has historically experienced periodic reductions in the overall level of exploration and development activities
in connection with declines in commodity prices. As a result, there are periodic reductions in the demand for our products and services,
downward pressure on the prices that we charge and ultimately an adverse impact on our business. During the year ended December 31,
2021, the COVID-19 pandemic negatively impacted demand for oil and natural gas, which has contributed to further price volatility. Although,
as of early 2022, oil and gas prices and demand have recovered from the historic lows seen in the first half of 2020, it is uncertain whether
prices will maintain current levels, decline or increase. Furthermore, there can be no assurance that the demand or pricing for oil and natural
gas will follow historic patterns, including as a result of increased availability of alternative energy sources. Declines in oil and natural gas
prices, decreased levels of exploration,
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development, and production activity, use of alternative sources of energy, and the willingness of customers to invest in their equipment
relative to historical norms 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 our products.
The markets in which we operate are highly competitive, including some companies that hold substantial market share and have
substantially greater resources than we do, as well as a number of regional or local competitors for certain of our product lines.
We may not be able to compete successfully in this environment.
The markets in which we operate are highly competitive and our products and services are subject to competition from significantly larger
businesses. We have several competitors that are large national and multinational companies that have longer operating histories, and
greater financial, technical and other resources than we do. In addition, we compete with many small companies on a regional or local
basis. Our competitors may be able to respond more quickly to new or emerging technologies and services and changes in customer
requirements. In addition, several of our competitors provide a much broader array of services, and have a stronger presence in more
geographic markets and, as such, may be better positioned to withstand an extended downturn. Our larger competitors are able to use their
size and purchasing power to seek economies of scale and pricing concessions. Furthermore, some of our customers are our competitors
and have in the past ceased buying from us, and may do the same in the future. We also have competitors outside of the U.S. with lower
structural costs due to labor and raw material cost in and around their manufacturing centers, and prices based on foreign currencies.
Accordingly, currency fluctuations may cause U.S. dollar-priced products to be less competitive than our competitors’ products that are priced
in other currencies. Moreover, our competitors may utilize available capacity during a period of depressed energy prices to gain market
share.
New competitors have also entered the markets in which we compete. We consider product quality, price, breadth of product offering,
availability of products and services, performance, distribution capabilities, technical expertise, responsiveness to customer needs, reputation
for service and intellectual property rights to be the primary competitive factors. Competitors may be able to offer more attractive pricing,
duplicate strategies, or develop enhancements to products that offer performance features that are superior to our products. In addition, we
may not be able to retain key employees of entities that we acquire in the future and those employees may choose to compete against us
following a contractually agreed period of non-competition that is permitted under the law. Competitive pressures, including those described
above, and other factors could adversely affect our competitive position, resulting in a loss of market share or decreases in prices. For more
information about our competitors, please read “Business—Competition.”
Given the uncertainty related to long-term commodity prices and associated customer demand, we may hold excess or obsolete
inventory, and as a result, may 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
on forecasts of customer demand and, in some instances, we may establish buffer inventories to accommodate anticipated demand. At
certain times, we have built capital equipment before receiving customer orders. Our forecasts of customer demand are based on multiple
assumptions, which have introduced errors into the estimates. These forecasts were particularly challenging during the height of the COVID-
19 pandemic, including as a result of uncertain demand levels and inability by our customers to receive finished goods. In addition, many of
our suppliers, such as those for certain of our standardized valves, require a longer lead time to provide products than our customers
demand for delivery of our finished products. If we underestimate customer demand or if insufficient manufacturing capacity is available, we
would miss revenue opportunities and potentially lose market share and damage our customer relationships. Conversely, if we overestimate
customer demand, we would allocate resources to the purchase of material or manufactured products that we are not be able to sell when
we expect to, if at all. As a result, we would hold excess or obsolete inventory, which would reduce gross margin and adversely affect
financial results upon writing down the value of inventory. In addition, any future significant cancellations or deferrals of product orders or the
return of previously sold products could materially and adversely affect profit margins, increase product obsolescence and restrict our ability
to fund our operations.
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We may not realize revenue on our current backlog due to customer order reductions, cancellations or acceptance delays, which
may negatively impact our financial results.
Uncertainty regarding demand for our customers’ services has resulted in order reductions, cancellations and acceptance delays, and we
may experience more of these in the future. We may be unable to collect revenue 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 to impose them, or the revenues may be pushed into future periods.
In addition, customers who are more highly leveraged or otherwise unable to pay their creditors in the ordinary course of business may
become insolvent or be unable to operate as a going concern. We may be unable to collect amounts 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 COVID-19 pandemic has and may continue to adversely affect our business and results of operations.
The COVID-19 pandemic and related responses by governmental authorities and changes to consumer behavior have significantly impacted
global economic activity. In addition to impacts on oil and natural gas markets (as described in “Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Market Conditions”), the COVID-19 pandemic caused further declines in the global rig count
and North America completions activities that impacted our business and operations. These events have compounded the impact from many
of the risks described in this Risk Factors section, including those relating to our customers’ capital spending and trends in oil and natural gas
prices. Although demand for our products and services has partially recovered from 2020 lows, demand may remain depressed as a result of
our customers’ reduction in capital budgets in response to commodity price volatility, ongoing macroeconomic instability, supply chain
disruption and other factors related to the COVID-19 pandemic. In addition, we are facing, and expect to continue to face, logistical
challenges resulting from the COVID-19 pandemic, including operational and supply chain disruptions, material and labor shortages, travel
restrictions and an inability to commute to certain facilities and job sites, as we provide services and products to our customers.
Given the dynamic nature of these events, we cannot reasonably estimate the period of time that the COVID-19 pandemic and related
market conditions will persist, the full extent of the impact they will have on our business, financial condition, results of operations or cash
flows or the pace or extent of any subsequent recovery. The ultimate extent of the impact of the pandemic will depend largely on future
developments, including the duration and spread of the outbreak, the success of vaccination and booster programs and the related impact on
overall economic activity, all of which are uncertain and cannot be predicted with certainty at this time. For more information, see
“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Market Conditions.”
The industry in which we operate is undergoing continuing consolidation and seeking opportunities to participate in the energy
transition, which may impact our results of operations.
Some of our customers have consolidated and are seeking to achieve economies of scale and pricing concessions. In addition, they are
making investments in non-traditional oil and gas markets as part of the energy transition. As a result, we may be unable to supply our
traditional oil and gas products to these customers if we do not develop new technology that meets their changing needs. In addition, the
consolidation of customers and focus on non-traditional energy investments could result in reduced spending by such companies or
decreased demand for our existing products and services. Therefore, to counteract these pressures, any reduced spending or decreased
demand for traditional energy products will need to be offset at the same or greater pace by sales to other customers or increased sales of
renewable energy technologies that we develop. If we are not successful in offsetting such sales, there could be a significant negative impact
on our results of operations or financial condition. We are unable to predict what effect consolidations and the energy transition in the
industry may have on prices, spending by customers, selling strategies, competitive position, customer retention or our ability to negotiate
favorable agreements with customers.
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A greater focus on budgetary discipline and technological advances have caused a decline in customer spending that may remain
at a low level despite an increase in commodity prices.
A portion of our business is driven by our customers’ spending on capital equipment such as drilling rigs. Our customers and their investors
have adopted business strategies placing significant emphasis on capital discipline that has limited the level of their spending. In addition,
new techniques and technological advances have reduced the number of days required to drill wells. The number of days required for a
drilling rig to be on a site to drill a well has in many areas been reduced by at least half over the last several years. Given these factors, we
cannot provide any assurance that our capital equipment sales will increase if there is an increase in commodity prices.
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
profitable depends upon our ability to employ and retain skilled workers. During periods of low activity in our industry, we have reduced the
size of our labor force to match declining revenue levels, and other employees have chosen to leave in order to find more stable
employment. This causes us to lose skilled personnel, the absence of which could cause us to incur quality, efficiency and deliverability
issues in our operations, or delay our response to an upturn in the market. During periods of increasing activity in our industry, our ability to
expand our operations depends in part on our ability to increase the size of our skilled labor force. In addition, during those periods, the
demand for skilled workers is high, the supply is limited and the cost to attract and retain qualified personnel increases, especially for skilled
workers. For example, we have recently experienced shortages of engineers, mechanical assemblers, machinists and welders, which in
some instances slowed the productivity of certain of our operations. Furthermore, a significant increase in the wages paid by competing
employers could result in a reduction of our skilled labor force, increases in the wage rates that we must pay, or both. We are also exposed to
the impact of labor cost increases resulting from other factors such as high employment levels, increased wages offered by employers in
other industries, and government regulations. If any of these events were to occur, our ability to respond quickly to customer demands may
be inhibited and our growth potential could be impaired.
We rely on relationships with key suppliers to operate and maintain our business.
Certain of our product lines depend on a limited number of third party suppliers. In some cases, the suppliers own the intellectual property
rights to the products we sell, or possess the technology or specialized tooling required to manufacture them. As a result of this concentration
in part of our supply chain, our business and operations may be negatively affected if our key suppliers were to experience significant
disruptions affecting the price, quality, availability or timely delivery of their products, such as from the COVID-19 pandemic, or if they were to
decide to terminate their relationships with us. For example, we have a limited number of suppliers for our bearings product lines and certain
of our valve product lines. The limited number of these suppliers can restrict the quantity and timeliness of customer deliveries. Recently,
some of our suppliers have imposed more stringent payment terms and conditions on us based on our perceived risk as a counterparty. The
partial or complete loss of any one of our key suppliers, a significant adverse change in the relationship with any of these suppliers, through
consolidation or otherwise, would limit our ability to manufacture and sell certain of our products.
Our business depends upon our ability to obtain key raw materials and specialized equipment from suppliers. Increased costs of
raw materials and other components, and inflationary pressure, 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
products timely and in the quantities required, resulting delays in the provision of products or services to customers could have a material
adverse effect on our business. In particular, because many of our products are manufactured out of steel, we are particularly susceptible to
fluctuations in steel prices and tariffs. Our results of operations may be adversely affected by our inability to manage the rising costs and
availability of raw materials and components used in our products. For example, our Coiled Tubing product line was unable to source a
sufficient amount of steel during the third and fourth quarters of 2021 to satisfy customer orders on a timely basis. In addition to the impact of
the COVID-19 pandemic and related supply chain and operational disruptions, the availability and cost of necessary raw materials and
finished products may be impacted by macroeconomic demand, various national, regional, local, economic and political factors, and
inflationary pressures.
Some of our customer contracts require us to compensate customers if we do not meet specified delivery obligations. We rely on suppliers to
provide required materials and in many instances these materials must meet certain specifications. Managing a geographically diverse
supply base poses inherently significant logistical challenges. Furthermore, the ability of third party suppliers to deliver materials to our
specifications may be affected by events beyond our control. As a result, there is a risk that we could experience diminished supplier
performance
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resulting in longer than expected lead times and/or product quality issues. For example, in the past, we have experienced issues with the
quality of certain forgings used to produce materials utilized in our products. As a result, we were required to seek alternative suppliers for
those forgings, which resulted in increased costs and a disruption in our supply chain. We have also been required in certain circumstances
to provide better economic terms to some of our suppliers in exchange for their agreement to increase their capacity to satisfy our supply
needs. The occurrence of any of the foregoing factors would have a negative impact on our ability to deliver products to customers within
committed time frames.
We may not be able to satisfy technical requirements, testing requirements, code requirements or other specifications under
contracts and contract tenders.
Many of our products are used in harsh environments and severe service applications. Our contracts with customers and customer requests
for bids 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 also include extensive testing requirements. We anticipate that such code testing requirements will become more common in our
contracts. We cannot assure that our products or facilities will be able to satisfy the specifications or requirements, or that we will be able to
perform the full-scale testing necessary to prove that the product specifications are satisfied in future contract bids or under existing
contracts, or that the costs of modifications to our products or facilities to satisfy the specifications and testing will not adversely affect our
results of operations. If our products or facilities are unable to satisfy such requirements, or we are unable to perform or satisfy any required
full-scale testing, we may suffer reputational harm and our customers may cancel their contracts and/or seek new suppliers, and our
business, results of operations or financial position may be adversely affected.
A failure or breach of our information technology infrastructure, including as a result of cyber attacks or failures of data protection
measures, could adversely impact our business and results of operations and expose us to potential liabilities.
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
our changing needs, including remote connectivity. 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. In certain instances, our IT systems have failed to perform as anticipated, resulting in disruptions in operations
and other adverse consequences. Should our IT systems materially fail in the future, it may result in numerous other adverse consequences,
including reduced effectiveness and efficiency of our operations, inappropriate disclosure or loss of confidential or sensitive information,
increased overhead costs, and loss of intellectual property, which could lead to liability to third parties or otherwise and have a material
adverse effect on our business and results of operations. Our insurance may not protect us against such occurrences or our insurers may
refuse to make payment. In addition, we may be required to incur significant costs to prevent damage caused by these disruptions or security
breaches in the future.
In addition, recent laws and regulations governing data privacy and the unauthorized disclosure of confidential information, including the
European Union General Data Protection Regulation and laws enacted in certain U.S. jurisdictions, pose increasingly complex compliance
challenges and potentially elevate our costs. Any failure by us to comply with these laws and regulations, including as a result of a security or
privacy breach, could result in significant penalties and liabilities for us. Additionally, if we acquire a company that has violated or is not in
compliance with applicable data protection laws, we may incur significant liabilities and penalties as a result.
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 a
manner equal to or more effective than those offered by our competitors. If we are not able to continue to provide new and innovative
services and technologies in a manner that allows us to meet evolving industry requirements, including the focus on renewable energy
opportunities, at prices acceptable to our customers, our financial results would be negatively affected. In addition, some of our competitors
are large national and multinational companies that we believe are able to devote greater financial, technical, manufacturing and marketing
resources to research and develop more or better systems, services and technologies than we are able to do. Moreover, as a result of the
currently depressed levels of customer activity, we may be unable to allocate sufficient amounts of capital to research and new product
development activities, which may limit our ability to compete in the market and generate revenue.
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Our success will be affected by the use and protection of our proprietary technology. Due to the limitations of our intellectual
property rights, our ability to exclude others from the use of our proprietary technology may be reduced. Furthermore, we may be
adversely affected by disputes regarding intellectual property rights.
Our success will be affected by our development and implementation of new product designs and improvements and by our ability to protect
and maintain intellectual property assets related to these developments. Although in many cases our products are not protected by any
registered intellectual property rights, in some cases we rely on a combination of patents and trade secret laws to establish and protect this
proprietary technology.
We currently hold multiple U.S. and international patents and have several pending patent applications associated with our products and
processes. Some work is conducted in international waters and, therefore, does not fall within the scope of any country’s patent jurisdiction.
As a result, we would be limited in the degree to which we can enforce our patents against infringement occurring in international waters and
other “non-covered” territories. Also, we do not have patents in every jurisdiction in which we conduct business and our patent portfolio will
not protect all aspects of our business and may relate to obsolete or unusual methods, which would not prevent third parties from entering
the same market.
From time to time, our competitors have infringed upon, misappropriated, circumvented, violated or challenged the validity or enforceability of
our intellectual property. In the future, we may not be able to adequately protect or enforce our intellectual property rights. Our failure or
inability to protect our proprietary information or successfully oppose intellectual property challenges against us could materially and
adversely affect our competitive position. Moreover, third parties from time to time may initiate litigation against us by asserting that the
conduct of our business infringes, misappropriates or otherwise violates their intellectual property rights. For example, in 2017, one of our
subsidiaries filed an action seeking a declaratory judgment action of non-infringement against Tenaris Coiled Tubes, LLC. Tenaris
subsequently filed counterclaims against our subsidiary and us alleging infringement on certain of its patents. We may not prevail in any such
legal proceedings, and our products and services may be found to infringe, impair, misappropriate, dilute or otherwise violate the intellectual
property rights of others. Any legal proceeding concerning intellectual property is likely to 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 expected and such value is expected to change over time as new products are designed and improved.
We may incur liabilities, fines, penalties or additional costs, or we may be unable to sell to certain customers if we do not maintain
safe operations.
If we fail to comply with safety regulations or maintain an acceptable level of safety at our facilities, we may incur fines, penalties or other
liabilities, or we may be held criminally liable. In addition, a portion of our work force is made up of newer employees who are less
experienced and therefore more prone to injury. As a result, new employees require ongoing training and a higher degree of oversight. We
incur additional costs to encourage training and ensure proper oversight of these shorter service employees. Moreover, we incur costs in
connection with equipment upgrades, or other costs to facilitate our compliance with safety regulations. Failure to maintain safe operations or
achieve certain safety performance metrics could disqualify us from doing business with certain customers, particularly major oil companies.
If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or
prevent fraud.
Effective internal controls over financial processes and reporting are necessary for us to provide reliable financial reports that effectively
prevent fraud and operate successfully. Our efforts to maintain internal control systems have not been successful in the past. The existence
of a material weakness in the future or a failure of our internal controls could affect our ability to obtain financing or increase the cost of any
such financing. The identification of a material weakness in the future could also cause investors to lose confidence in the reliability of our
financial statements and could result in a decrease in the value of our common stock. In addition, the entities that we acquire in the future
may not maintain effective systems of internal control or we may encounter difficulties integrating our system of internal controls with those of
acquired entities. If we are unable to maintain effective internal controls and, as a result, fail to provide reliable financial reports and
effectively prevent fraud, our reputation and operating results would be harmed.
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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
consolidations may 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 key personnel and operational knowledge that might lead to quality issues, delays in production or other competitive
disadvantages.
In the future, we may grow our businesses through the construction of new facilities and expansions of our existing facilities. These projects,
and any other capital asset construction projects that we may commence, are subject to similar risks of delay or cost overruns inherent in any
construction project resulting from numerous factors, including the following:
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difficulties or delays in obtaining land;
shortages of key equipment, materials or skilled labor;
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 acquisitions and dispositions may not result in anticipated benefits and may present risks not originally contemplated, which
may have a material adverse effect on our business, consolidated results of operations and consolidated financial condition.
We continually seek opportunities to maximize efficiency and value through various transactions, including purchases or sales of assets,
businesses, investments, or joint venture interests. These transactions are intended to (but may not) result in the realization of savings, the
creation of efficiencies, the offering of new products or services, the generation of cash or income, or the reduction of risk. Acquisition
transactions may use cash on hand or be financed by additional borrowings or by the issuance of our common stock. These transactions
may also affect our business, consolidated results of operations and consolidated financial condition. These transactions also involve risks,
and we cannot ensure that:
•
•
•
•
•
•
•
any acquisitions we attempt will be completed on the terms announced, or at all;
any acquisitions would result in an increase in income or provide an adequate return of capital or other anticipated benefits;
any acquisitions would be successfully integrated into our operations and internal controls;
the due diligence conducted prior to an acquisition would uncover situations that could result in financial or legal exposure, including
under the U.S. Foreign Corrupt Practices Act (“FCPA”), or that we will appropriately quantify the exposure from known risks;
any disposition would not result in decreased earnings, revenue, or cash flow;
use of cash for acquisitions would not adversely affect our cash available for capital expenditures and other uses; or
any dispositions, investments, or acquisitions, including integration efforts, would not divert management resources.
A natural disaster, catastrophe or other event could result in severe property damage, which could curtail our operations.
Adverse weather conditions, such as hurricanes, tornadoes, ice or snow may damage or destroy our facilities, interrupt or curtail our
operations, or our customers’ operations, cause supply disruptions and result in a loss of revenue, which may or may not be insured. For
example, certain of our facilities located in Oklahoma and Pennsylvania have experienced suspensions in operations due to tornado activity
or extreme cold weather conditions.
Some of our operations involve risks of, among other things, property damage, which could curtail our operations. Disruptions in operations
or damage to a manufacturing plant could reduce our ability to produce products and satisfy customer demand. In particular, we have offices
and manufacturing facilities in Houston, Texas, and in
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various places throughout the U.S. Gulf Coast region. These offices and facilities are particularly susceptible to severe tropical storms and
hurricanes, which may disrupt our operations. Damage to one or more of our manufacturing facilities by severe weather or any other disaster,
accident, catastrophe or event, could significantly interrupt our operations. Similar interruptions could result from damage to production or
other facilities that provide supplies or other raw materials to our plants or other stoppages arising from factors beyond our control. These
interruptions might involve significant damage to property, among other things, and repairs might take a significant amount of time. For
example, in the third quarter 2017, we were impacted by idled facilities and operations directly related to Hurricane Harvey’s widespread
damage in Texas and Louisiana. As a result, our financial results were negatively impacted by foregone revenue and under-absorption of
manufacturing costs, and, indirectly, due to supplier and logistical delays.
Legal and Regulatory Risks:
Our operations and our customers’ operations are subject to a variety of governmental laws and regulations that affect our and our
customers’ costs, prohibit or curtail our customers’ operations in certain areas, limit the demand for our products and services or
restrict our operations.
Our business and our customers’ businesses may be significantly affected by:
•
•
•
•
federal, state and local U.S. and non-U.S. laws and other regulations relating to oilfield operations, worker safety and protection of the
environment;
changes in these laws and regulations;
the level of enforcement of these laws and regulations; and
interpretation of existing 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
changing taxes, price controls and other laws and regulations relating to the oil and natural gas industry in general. For example, the
adoption of laws and regulations curtailing exploration and development drilling for oil and natural gas for economic or other policy reasons
could adversely affect our operations by limiting demand for our products. In addition, some non-U.S. countries adopt regulations or practices
that provide an advantage to local oil companies in bidding for oil leases, or require local companies to perform oilfield services currently
supplied by international service companies. To the extent that such companies are not our customers, or we are unable to develop
relationships with them, our business may suffer. We cannot determine the extent to which our future operations and earnings may be
affected by new legislation, new regulations or changes in existing regulations.
Because of our non-U.S. operations and sales, we are also subject to changes in non-U.S. laws and regulations that encourage or require
hiring of local contractors or require non-U.S. contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. If we fail to
comply with any applicable law or regulation, our business, results of operations or financial condition may be adversely affected.
Potential legislation or regulations restricting the use of hydraulic fracturing could reduce demand for our products.
Certain environmental advocacy groups and politicians have suggested that additional federal, state and local laws and regulations may be
needed to more closely regulate the hydraulic 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 hydraulic fracturing, directly or indirectly.
The EPA has asserted federal authority over hydraulic fracturing using fluids that contain “diesel fuel” under the federal Safe Drinking Water
Act (“SDWA”) Underground Injection Control Program and has issued permitting guidance for hydraulic fracturing operations involving the
use of diesel fuel in fracturing fluids in those states where the EPA is the permitting authority. Additionally, in March 2015, the Department of
the Interior’s Bureau of Land Management (“BLM”) issued final rules, including new requirements relating to public disclosure, wellbore
integrity and handling of flowback water, to regulate hydraulic fracturing on federal and Indian lands. These rules were rescinded by rule in
December 2017; however, in January 2018, California and a coalition of environmental groups filed a lawsuit in the Northern District of
California to challenge the BLM’s rescission of the rules. The Northern District of California upheld the rescission in 2020, but this decision
was then appealed to the Ninth Circuit Court of Appeals. This litigation is ongoing and future implementation of the BLM rules is uncertain at
this time
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In past sessions, Congress has considered, but not passed, the adoption of legislation to provide for federal regulation of hydraulic fracturing
under the SDWA and to require disclosure of the chemicals used in the hydraulic fracturing process. Some states have adopted, and other
states are considering adopting, legal requirements that could impose more stringent permitting, public disclosure or well construction
requirements on hydraulic fracturing activities or impose bans or moratoria on these activities altogether. Local governments also may seek
to adopt ordinances within their jurisdictions regulating the time, place and manner of drilling activities in general or hydraulic fracturing
activities in particular, in some cases banning hydraulic fracturing entirely. For example, the Colorado state legislature passed a package of
hydraulic fracturing regulations in April 2019. Under the new law, the state oil and natural gas agency must review well locations for
environmental protection criteria. In addition, the legislation broadened the authority for local governments to further regulate or restrict
hydraulic fracturing. In November 2019, the California governor’s office imposed new regulations on hydraulic fracturing, including a
moratorium on all new hydraulic fracturing permits pending review by a panel of scientists. In February 2018, the Oklahoma Corporation
Commission released a protocol that requires operators to suspend hydraulic fracturing well completion operations in response to certain
levels of seismic activity.
If new or more stringent federal, state or local legal restrictions relating to the hydraulic fracturing process are adopted in areas where our oil
and natural 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 drilling wells, some or all of which could adversely affect demand for our products and services from those customers.
Our financial results could be adversely impacted by changes in regulation of oil and natural gas exploration and development
activity in response to significant environmental incidents or climate change actions.
Environmental incidents such as the Macondo well incident could result in drilling moratoria, and could result in increased federal, state, and
international regulation of our and our customers’ operations that could negatively impact our earnings, prospects and the availability and
cost of insurance coverage. Any additional regulation of the exploration and 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.
In January 2021, President Biden signed an executive order that, among other things, instructed the Secretary of the Interior to pause new oil
and natural gas leases on public lands or in offshore waters pending completion of a comprehensive review and reconsideration of federal oil
and natural gas permitting and leasing practices. Following that executive order, the acting Secretary of the Interior issued an order imposing
a 60 day pause on the issuance of new leases, permits and right-of-way grants for oil and gas drilling on federal lands, unless approved by
senior officials at the Department of the Interior. In March 2021, prior to the expiration of the Secretary of the Interior’s order, President Biden
announced that career staff at the Department of the Interior would resume processing oil and gas drilling permits. In June 2021, a federal
judge for the U.S. District Court of the Western District of Louisiana issued a nationwide preliminary injunction against the pause of oil and
natural gas leasing on public lands or in offshore waters while litigation challenging that aspect of the executive order is ongoing. The full
impact of these federal actions remains unclear, and if other restrictions or prohibitions become effective in the future, they could have an
adverse impact on our business, financial condition, results of operations and cash flows.
Our operations are subject to environmental and operational safety laws and regulations that may expose us to significant costs
and liabilities.
Our operations are subject to numerous stringent and complex laws and regulations governing the discharge of materials into the
environment, health and safety aspects of our operations, or otherwise relating to human health and environmental protection. These laws
and regulations may, among other things, regulate the management and disposal of hazardous and nonhazardous wastes; require
acquisition of environmental permits related to our operations; restrict the types, quantities, and concentrations of various materials that can
be released into the environment; limit or prohibit operational activities in certain ecologically sensitive and other protected areas; regulate
specific health and safety criteria addressing worker protection; require compliance with operational and equipment standards; impose
testing, reporting and record keeping requirements; and require remedial measures to mitigate pollution from former and ongoing operations.
Failure to comply with these laws and regulations or to obtain or comply with permits may result in the inability to conduct certain operational
activities, assessment of administrative, civil and criminal penalties, imposition of remedial or corrective action requirements and the
imposition of injunctions to prohibit certain activities or force future compliance. Certain environmental laws may impose joint and several
liability, without regard to fault or legality of conduct, on classes of persons who are
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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 and management focus to environmental
compliance, potentially requiring rehabilitative efforts during the integration process or exposing us to liability before such rehabilitation
occurs.
The trend in environmental regulation has been to impose increasingly stringent restrictions and limitations on activities that may impact the
environment. The implementation of new laws and regulations could result in materially increased costs, stricter standards and enforcement,
larger fines and liability and increased capital expenditures and operating costs, particularly for our customers.
Tariffs imposed by the U.S. government could have a further severe adverse effect on our results of operations.
The U.S. government imposed global tariffs on certain imported steel and aluminum products pursuant to Section 232 of the Trade
Expansion Act of 1962, as well as tariffs on imports of various Chinese product (including steel) pursuant to Section 301 of the Trade Act of
1974. In response, China and other countries have imposed retaliatory tariffs on a wide range of U.S. products, including those containing
steel and aluminum. In addition, the U.S. government recently issued a preliminary determination pursuant to an anti-dumping duty order on
certain hot-rolled steel products from Japan, in which it found imports of the subject merchandise were sold in the United States at prices
below normal value during the August 2019 to July 2020 time period. As a result, the U.S. government has preliminarily calculated a dumping
margin of 26.81% for imports from Japan of the subject steel products. At this time, we cannot predict whether this level of dumping margins
will become final or the duty amount that may be imposed. Our efforts to mitigate the impact of tariffs on raw materials through the
diversification of our supply chain, exemption requests and other measures may not be sufficiently successful. Furthermore, a prolonged
imposition of tariffs on our goods could have a significant adverse effect on our results of operations.
We are subject to litigation risks that may not be covered by insurance.
In the ordinary course of business, we become the subject of claims, lawsuits and administrative proceedings seeking damages or other
remedies concerning our commercial operations, products, employees and other matters, including occasional claims by individuals alleging
exposure to hazardous materials as a result of our products or operations. Some of these claims relate to the activities of businesses that we
have acquired, even though these activities may have occurred prior to our acquisition of such businesses. Our insurance does not cover all
of our potential losses, and we are subject to various self-insured retentions and deductibles under our insurance. A judgment may be
rendered against us 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 of payment 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 amounts
expended on asbestos-related claims in any year may be impacted by the number of claims filed, the nature of the allegations asserted in the
claims, the jurisdictions in which claims are filed, and the number of settlements. As of December 31, 2021, 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
filed during 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 lawsuits filed, the amounts of claim costs, the impact of bankruptcies of
other companies with asbestos suits or of our insurers, and potential legislative changes and uncertainties surrounding the litigation process
from jurisdiction to jurisdiction and from case to case. In addition, future claims beyond the five-year forecast period are possible, but the
accrual does not 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
our insurers may be delayed for a variety of reasons. In particular, if our primary insurers claim that certain policy limits have been exhausted,
we may be delayed in receiving reimbursement due to the transition from one set of insurers to another. Our excess insurers may also
dispute the claims of exhaustion, or may rely on certain policy requirements to delay or deny claims. Furthermore, the various per occurrence
and aggregate limits in different insurance policies may result in extended negotiations or the denial of reimbursement
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for particular claims. For more information on the cost sharing agreements related to this risk, refer to Note 13 Commitments and
Contingencies.
Our products are used in operations that are subject to potential hazards inherent in the oil and natural gas industry and, as a
result, we are exposed to potential liabilities that could 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
accident or 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-water environments, can cause personal injury; loss of life; suspension of operations; damage to formations; damage
to facilities; business interruption and damage to or destruction of property, surface water and drinking water resources, equipment and the
environment. These risks can be caused or contributed to by failure of, defects in or misuse of our products. In addition, we provide certain
services that could cause, contribute to or be implicated 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 and natural gas production, and pollution or other environmental damages. In addition,
failure of our products to operate properly or to meet specifications may increase costs by requiring additional engineering resources and
services, replacement of parts and equipment or monetary reimbursement to a customer. 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 and regulators. In particular, our customers may elect not to purchase our products or services if they view our safety record as
unacceptable, which could cause us to lose customers and revenues. In addition, these risks may be greater for us because we may acquire
companies that have not allocated significant resources and management focus to quality or safety, requiring rehabilitative efforts during the
integration process. We may incur liabilities for losses associated with these newly acquired companies before we are able to rehabilitate
such companies’ quality, safety and environmental programs.
Climate change legislation or regulations restricting emissions of greenhouse gases and related divestment and other efforts
could increase our operating costs or reduce demand for our products.
Environmental advocacy groups and regulatory agencies in the U.S. and other countries have focused considerable attention on the
emissions of carbon dioxide, methane and other greenhouse gases and their potential role in climate change. In response to scientific
studies suggesting that emissions of GHGs, including carbon dioxide and methane, are contributing to the warming of the Earth’s
atmosphere and other climatic conditions, the U.S. Congress has considered adopting comprehensive legislation to reduce emissions of
GHGs, and almost half of the states have already taken legal measures to reduce emissions of GHGs, primarily through measures to
promote the use of renewable energy and/or regional GHG cap-and-trade programs. The Environmental Protection Agency (the “EPA”) has
attempted to regulate greenhouse gas emissions under the federal Clean Air Act. In December 2009, the EPA determined that emissions of
carbon dioxide, methane and certain other GHGs endanger public health and the environment because emissions of such gases are,
according to the EPA, contributing to warming of the Earth’s atmosphere and other climatic changes. In October 2015, the EPA finalized the
Clean Power Plan (CPP), which tried to impose additional obligations on the power generation sector to reduce GHG emissions. In August
2019, the EPA finalized the repeal of the 2015 regulations and replaced them with the Affordable Clean Energy rule (ACE), which designates
heat rate improvement, or efficiency improvement, as the best system of emissions reduction for carbon dioxide from existing coal-fired
electric utility generating units. In 2021, the U.S. Court of Appeals for the District of Columbia struck down the ACE rule but did not reinstate
the former CPP regulation. The power of the EPA to reissue the CPP under Section 111(d) of the CAA will be decided by the Supreme Court
in 2022. In August 2020, the EPA rescinded methane and volatile organic compound emissions standards for new and modified oil and gas
transmission and storage infrastructure previously promulgated in 2016, as well as methane limits for new and modified oil and gas
production and processing equipment. The EPA also relaxed requirements for oil and gas operators to monitor emissions leaks. However, in
November 2021, the EPA proposed new NSPS updates and emission guidelines to reduce methane and other pollutants from the oil and gas
industry. The EPA has also adopted rules requiring the reporting of greenhouse gas emissions from specified large greenhouse gas emission
sources in the U.S., including oil and natural gas systems.
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Efforts have also been made and continue to be made in the international community toward the adoption of international treaties or
protocols that would address global climate change issues. Although the U.S. had withdrawn from the Paris Agreement in November 2020,
the Biden Administration officially reentered the U.S. into the agreement in February 2021. Under the Paris Agreement, the Biden
Administration has committed the United States to reducing its greenhouse gas emissions by 50 - 52% from 2005 levels by 2030. In
November 2021, the United States and other countries entered into the Glasgow Climate Pact, which includes a range of measures designed
to address climate change, including but not limited to the phase-out of fossil fuel subsidies, reducing methane emissions 30% by 2030, and
cooperating toward the advancement of the development of clean energy.
The adoption of additional legislation or regulatory programs to reduce emissions of greenhouse gases could require us to incur increased
operating costs to comply with new emissions-reduction or reporting requirements. Any such legislation or regulatory programs could also
increase the cost of consuming, and thereby reduce demand for, hydrocarbons that certain of our customers produce and reduce revenues
by other of our customers who provide services to those exploration and production customers. Consequently, legislation and regulatory
programs to reduce emissions of greenhouse gases could have a material adverse effect on our business, financial condition and results of
operations.
In addition to the regulatory efforts described above, there have also been efforts in recent years aimed at the investment community,
including investment advisers, sovereign wealth funds, public pension funds, universities and other groups, promoting the divestment of fossil
fuel equities as well as to pressure lenders and other financial services companies to limit or curtail activities with companies engaged in the
extraction of fossil fuel reserves. In connection with such developments, numerous market participants, including certain New York State
pension and public employee retirement funds, have announced plans to completely or partially divest from fossil fuel and related stocks or
otherwise pursue net-zero portfolio strategies. If these efforts are successful, our ability to access capital markets may be limited and our
stock price may be negatively impacted.
Members of the investment community have recently increased their focus on sustainability practices, including practices related to GHGs
and climate change, in the oil and natural gas industry. As a result, we and our customers have come under increasing pressure to improve
our sustainability and other Environmental, Social and Governance (ESG) performance and to increase our public reporting and disclosure
on our ESG practices. Some of our customers have begun to screen their service providers, including us, for compliance with sustainability
metrics and we may incur additional costs to comply with ESG reporting expectations and ESG-linked contracting policies for our customers
and suppliers.
Additionally, members of the investment community have begun to screen companies such as ours for sustainability performance before
investing in our stock. If we are unable to establish adequate sustainability practices, we may lose customers, our stock price may be
negatively impacted, our reputation may be negatively affected, and it may be more difficult for us to compete effectively. Our efforts to
improve our sustainability practices in response to these pressures may increase our costs, and we may be forced to implement technologies
that are not economically viable in order to improve our sustainability performance and to perform services for certain customers. Finally,
some scientists have concluded that 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.
Finally, increasing attention to the risks of climate change has resulted in an increased possibility of lawsuits or investigations brought by
public and private entities against oil and natural gas companies in connection with their greenhouse gas emissions. Should we be targeted
by any such litigation or investigations, we may incur liability, which, to the extent that societal pressures or political or other factors are
involved, could be imposed without regard to the causation of or contribution to the asserted damage, or to other mitigating factors.
Risks Related to our International Operations:
Our business operations worldwide are subject to a number of U.S. federal laws and regulations, including restrictions imposed by
the FCPA as well as trade sanctions administered by the Office of Foreign Assets Control and the Commerce Department, as well
as similar laws in non-U.S. jurisdictions that govern our operations by virtue of our presence or activities there.
We rely on a large number of agents in non-U.S. countries that have been identified as posing a high risk of corrupt activities and whose local
laws and customs differ significantly from those in the U.S. In many countries, particularly in those with developing economies, it is common
to engage in business practices that are prohibited by the regulations applicable to us. The U.S. Foreign Corrupt Practices Act and similar
anti-corruption laws in other jurisdictions, including the UK Bribery Act 2010, (“anti-corruption laws”) prohibit corporations and individuals from
engaging in certain activities to obtain or retain business or to influence a person working in an official capacity. We
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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 violations by an acquired company that occur 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 anti-corruption laws
may be able to secure business or other preferential treatment in such countries by means that such laws prohibit with respect to us. The UK
Bribery Act 2010 is broader in scope than the FCPA, applies to public and private sector corruption, and contains no facilitating payments
exception. A violation of any of these laws, even if prohibited by our policies, could have a material adverse effect on our business. Actual or
alleged violations could damage our reputation, be expensive to defend, impair our ability to do business, 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
also pose a risk to us. We cannot provide products or services to certain countries, companies or individuals subject to U.S. and other
countries’ trade sanctions. Furthermore, the laws and regulations concerning import activity, export record keeping and reporting, export
controls and economic sanctions are complex and constantly changing. Any failure to comply with applicable legal and regulatory trading
obligations could result in criminal and civil penalties and sanctions, such as fines, imprisonment, debarment from governmental contracts,
seizure of shipments and loss of import and export privileges.
Our exposure to currency exchange rate fluctuations may result in fluctuations in our cash flows and could have an adverse effect
on our results of operations.
Fluctuations in currency exchange rates could be material to us depending upon, among other things, our manufacturing locations and the
sourcing for our raw materials and components. In particular, we are sensitive to fluctuations in currency exchange rates between the U.S.
dollar and each of the Canadian dollar, the British pound sterling, the Euro, and, to a lesser degree, the Mexican peso, the Chinese yuan, the
Singapore dollar, and the Saudi riyal. 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 we expand on a global basis, higher portions of revenue, costs, assets and liabilities will be
subject to fluctuations in foreign currency valuations. We may experience economic loss and a negative impact on earnings or net assets
solely as a result of foreign currency exchange rate fluctuations. Further, the markets in which we operate could restrict the removal or
conversion of the local currency, resulting in our inability to hedge against these risks.
Risks Related to our Common Stock, Indebtedness and Financial Condition:
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
been volatile. Likewise, the market price of our common stock has varied significantly in the past. For example, in 2021, the market price of
our common stock reached a high of $28.50 per share on June 2, 2021 and a low of $12.09 per share on January 4, 2021. Additionally, the
Reverse Stock Split reduced the number of shares in our public float, which may limit trading and liquidity and increase volatility until more
shares become available, if ever. We expect our stock price to continue to remain volatile given the cyclical nature of our industry and our
limited public float.
We have a significant amount of indebtedness. Our leverage and debt service obligations restrict our operations and make us
more vulnerable to adverse economic conditions.
We currently have a substantial amount of indebtedness, including approximately $257.0 million of 9.00% convertible secured notes due
August 2025 (“2025 Notes”). Our level of indebtedness and restrictions in our debt agreements have significant consequences for our future
prospects, including limiting our liquidity and flexibility in obtaining additional financing. In addition, we may have difficulty making debt
service payments on our indebtedness as such payments become due. Furthermore, our $179.0 million senior secured revolving credit
facility (“Credit Facility”), which had no borrowings outstanding as of December 31, 2021, is scheduled to mature the earlier of September 8,
2026 or 91 days prior to the maturity of the 2025 Notes. Our level of indebtedness and the terms of our debt agreements affect our
operations in several ways, including the following:
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requiring us to dedicate a substantial portion of our cash flow from operations to servicing existing debt obligations;
increasing our vulnerability to general adverse economic and industry conditions;
limiting our ability to borrow funds, dispose of assets, pay dividends and make certain investments;
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•
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reducing our flexibility to plan for, and react to, changes in the economy and in our industry; and
impairing our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions or other general
corporate purposes.
Our ability to pay our expenses, and fund our working capital needs and debt obligations, will depend on our future performance, which will
be affected by financial, business, economic, regulatory and other factors that are outside of our control. As a result of these factors, our
business may not generate sufficient cash flow from operations to enable us to meet our debt obligations. In addition, under the terms of our
Credit Facility, any failure to comply with the financial or other covenants of our indebtedness would result in an event of default, which would
cause some or all of our indebtedness to become immediately due and payable and have a material adverse effect on our business, financial
condition and results of operations.
The indenture governing our 2025 Notes and our Credit Facility contains operating and financial restrictions that restrict our
business and financing activities.
Our indenture and Credit Facility contain, and any future indebtedness we incur may contain, a number of restrictive covenants that will
impose significant 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;
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•
•
•
•
•
•
•
•
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 or debt that is unsecured or secured on a basis junior to our notes;
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
maintain specified financial ratios or conditions. As a result of these covenants, we are limited in the manner in which we conduct our
business, and we may be unable to engage in favorable business activities or finance future operations or capital needs. Our ability to borrow
under the Credit Facility and 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 our Credit Facility will be reduced and our ability to comply with these covenants, ratios or tests may be
impaired. A failure to comply with the covenants, ratios or tests would result in an event of default, which, if not cured or waived, would cause
some or all of our indebtedness to become immediately due and payable and have a material adverse effect on our business, financial
condition and results of operations.
Our ability to access the capital and credit markets to raise capital on favorable terms is limited by our debt level, industry
conditions and credit rating.
Our ability to access the capital and credit markets is limited by, among other things, oil and natural gas prices, our existing capital structure,
our credit ratings, the state of the economy, the health of the drilling and overall oil and natural gas industry, trends among investors to avoid
companies associated with the production of hydrocarbon products, and the liquidity of the capital markets. Many of the factors that affect our
ability to access capital markets are outside of our control and may be negatively impacted by market events. Recent trends and conditions
in the capital and credit markets with respect to the energy sector, including environmental and climate change related divestment
campaigns, limit our ability to access these markets or may significantly increase our cost of capital. Low levels of exploration and drilling
activity have caused and may continue to cause lenders to increase the interest rates under our credit facilities, enact tighter lending
standards, refuse to refinance existing debt on acceptable terms or at all and may reduce or cease to provide funding. If we are unable to
access the capital or credit markets on terms acceptable to us, it could have a material adverse effect on our business, financial condition,
results of operations, cash flows and liquidity, particularly in respect of our ability to repay or refinance our debt.
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We have incurred impairment charges and we may incur additional impairment charges in the future.
We evaluate our long-lived assets, including property and equipment, intangible assets with definite lives and operating lease right of use
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 our review for impairment, future cash flows expected to result from the use of the asset and its eventual value
upon disposal are estimated. If the undiscounted future cash flows are less than the carrying amount of the assets, there is an indication that
the asset may be impaired. The amount of the impairment is measured as the difference between the carrying value and the estimated fair
value of the asset. The fair value is determined either through the use of an external valuation, or by means of an analysis of discounted
future cash flows based on expected utilization.
For the year ended December 31, 2021, we did not recognize any impairment charges. For the year ended December 31, 2020, we
recognized impairment charges for property and equipment, intangible assets and operating lease right of use assets totaling $15.1 million,
$5.3 million and $15.4 million, respectively. See Note 8 Impairments of Long-Lived Assets for further information related to these charges.
If we determine that the carrying value of our long-lived assets is less than their fair value, we would be required to record additional charges
in the future, which could adversely affect our financial condition and results of operations.
Provisions in our organizational documents and under Delaware law could delay or prevent a change in control of our company,
which could 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 our
company that a stockholder may consider favorable, which could adversely affect the price of our common stock. Certain provisions of our
amended and restated certificate of incorporation and amended and restated bylaws could make it more difficult for a third party to acquire
control of 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
the board of directors to be acted upon at meetings of stockholders.
LESA, through SCF, may significantly influence the outcome of stockholder voting and may exercise this voting power in a manner
adverse to our other stockholders.
As of February 25, 2022, SCF held approximately 748 thousand shares of our common stock, equal to approximately 13% of the outstanding
common stock at that date. LESA is the ultimate general partner of SCF and will exert significant influence over us, including over the
outcome of most matters requiring a stockholder vote, such as the election of directors, adoption of amendments to our charter and bylaws
and approval of transactions involving a change of control. LESA’s interests may differ from our other stockholders, and SCF may vote its
common stock in a manner that may adversely affect those stockholders.
SCF is a party to a registration rights agreement with us, which requires us to effect the registration of its shares in certain circumstances.
SCF has exercised such rights in the past. Sales of substantial amounts of our common stock by SCF, or the perception that such sales
could occur, may adversely affect prevailing market prices of our common stock.
26
Table of Contents
We have renounced any interest in specified business opportunities.
Our certificate of incorporation provides that, so long as we have a director or officer who is affiliated with SCF (an “SCF Nominee”) and for a
continuous period of one year thereafter, we renounce any interest or expectancy in any business opportunity in which any member of the
SCF 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 officer of our Company and with respect to which no other member of the SCF group independently receives notice or otherwise
identifies such opportunity and (ii) any business opportunity that is identified by the SCF group solely through the disclosure of information by
or on behalf of our Company. We refer to SCF and its other affiliates and its portfolio companies as the SCF group. We are not prohibited
from pursuing any business opportunity with respect to which we have renounced any interest. No SCF nominee currently serves on our
board of directors and, therefore, this provision in our certificate of incorporation is scheduled to expire in December 2022.
SCF has investments in other oilfield service companies that may compete with us, and SCF and its affiliates, other than our Company, may
invest in other such companies in the future. LESA, the ultimate general partner of SCF, has an internal policy that discourages 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. Pursuant to
LESA’s policy, LESA may allocate any potential opportunities to the existing portfolio company where LESA determines, in its discretion, such
opportunities are the most logical strategic and operational fit. As a result, LESA or its affiliates may become aware, from time to time, of
certain business opportunities, such as acquisition opportunities, and may direct such opportunities to its other portfolio companies, in which
case we may not become aware of or otherwise have the ability to pursue such opportunities. Furthermore, LESA does not have a specific
policy with regard to allocation of financial professionals and they are under no obligation to provide us with financial professionals.
Item 1B. Unresolved Staff Comments
None.
27
Table of Contents
Item 2. Properties
The following table describes the significant facilities owned or leased by us as of December 31, 2021 for our Drilling & Downhole (“D&D”),
Completions (“C”) and Production (“P”) segments:
Country
Location
Number of
facilities
Description
Leased or
Owned
Segments
Canada
Germany
Saudi Arabia
UAE
Red Deer
Calgary
Edmonton
Grande Prairie
Hamburg
Dammam
Dubai
Jebel Ali
United Kingdom Aberdeen
United States
Kirkbymoorside
Broussard, LA
Bryan, TX
Clearfield, PA
Dayton, TX
Fort Worth, TX
Guthrie, OK
Houston, TX
Humble, TX
Midland, TX
Odessa, TX
Odessa, TX
Pearland, TX
Plantersville, TX
Smock, PA
Stafford, TX
Stafford, TX
Tyler, TX
Williston, ND
2
1
2
1
1
1
1
1
1
1
1
1
1
1
1
1
2
1
1
1
1
1
1
1
1
1
1
1
Leased
Service/Distribution
Leased
Manufacturing
Leased
Service/Distribution
Leased
Service/Distribution
Leased
Manufacturing
Owned
Manufacturing/Distribution
Leased
Service/Distribution
Leased
Service/Distribution
Leased
Service/Distribution
Manufacturing
Owned
Manufacturing/Service/Distribution Owned
Manufacturing
Owned
Manufacturing/Service/Distribution Owned
Owned
Manufacturing
Leased
Manufacturing/Service
Leased
Manufacturing
Leased
Corporate/Manufacturing
Leased
Manufacturing
Leased
Service/Distribution
Leased
Service/Distribution
Owned
Service/Distribution
Owned
Manufacturing/Distribution
Owned
Manufacturing/Distribution
Leased
Service
Leased
Manufacturing/Distribution
Owned
Manufacturing
Leased
Distribution
Leased
Service/Distribution
C
C
Shared
C
D&D
Shared
D&D
D&D
D&D
D&D
Shared
Shared
P
C
C
P
Shared
C
C
C
D&D
D&D
D&D
C
P
D&D
D&D
Shared
We 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
Note 6 Property and Equipment and Note 13 Commitments and Contingencies.
28
Table of Contents
Item 3. Legal Proceedings
Information related to Item 3. Legal Proceedings is included in Note 13 Commitments and Contingencies, which is incorporated herein by
reference. In addition to these matters, we are involved in various other legal proceedings incidental to the conduct of our business. We do
not believe 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 Disclosures
Not applicable.
Information About Our Executive Officers
The following table indicates the names, ages and positions of the executive officers of Forum as of February 25, 2022:
Name
C. Christopher Gaut
Neal Lux
D. Lyle Williams
John C. Ivascu
Michael D. Danford
Age
65
46
52
44
59
Position
Executive Chairman of the Board
President and Chief Executive Officer
Executive Vice President and Chief Financial Officer
Executive Vice President, General Counsel, Chief Compliance Officer and Corporate
Secretary
Senior Vice President and Chief Human Resources Officer
C. Christopher Gaut. Mr. Gaut currently serves as Executive Chairman of the Board, having previously served as President and Chief
Executive Officer of Forum from November 2018 until his retirement from those positions in February 2022, and as Chairman of the Board
from December 2017. Prior to that, from May 2017 to December 2017, he served as Executive Chairman of the Board, and as Chief
Executive Officer from May 2016 to May 2017. From August 2010 to May 2016, he served as President, Chief Executive Officer and
Chairman of the Board, and as one of our directors since December 2006. He served as a consultant to SCF Partners from November 2009
to August 2010, and an industry advisor from May 2017 to November 2018. Mr. Gaut served at Halliburton Company, a leading diversified
oilfield services company, as President of the Drilling and Evaluation Division and prior to that as Chief Financial Officer, from March 2003
through April 2009. From April 2009 through November 2009, Mr. Gaut was a private investor. Prior to joining Halliburton Company in 2003,
Mr. Gaut was a Co-Chief Operating Officer of Ensco International, a provider of offshore contract drilling services. He also served as Ensco's
Chief Financial Officer from 1988 until 2003.
Neal Lux. Mr. Lux was appointed as President and Chief Executive Officer of Forum and as a director on Forum's board of directors
effective February 18, 2022. Mr. Lux previously served as the Company's Executive Vice President and Chief Operating Officer from
December 2020 to February 2022. From January 2009 to February 2022, Mr. Lux held various operations roles of increasing responsibility
with the Company and its subsidiaries, including Executive Vice President - Operations; Senior Vice President - Completions; Managing
Director - Global Tubing; and President, Global Tubing. He holds a B.S. in Industrial Engineering from Purdue University.
D. Lyle Williams, Jr. Mr. Williams has served as Executive Vice President and Chief Financial Officer since June 2020. Since January
2007, Mr. Williams has held various financial and operations roles, including Senior Vice President - Operations; Vice President - Corporate
Development and Treasurer; Vice President - Operations Finance; Vice President - Finance and Accounting, Drilling and Subsea Segment;
Senior Vice President - Downhole Technologies; Vice President - Subsea Products; and Vice President - Capital Equipment. Prior to joining
Forum, Mr. Williams held various operations positions with Cooper Cameron Corporation, including Director of Operations - Engineering
Products. He holds a B.A. in Economics and English from Rice University and an M.B.A. from Harvard University Graduate School of
Business Administration.
John C. Ivascu. Mr. Ivascu has served as Executive Vice President, General Counsel, Chief Compliance Officer and Corporate Secretary
since June 2020. Since June 2011, Mr. Ivascu has held various legal roles of increasing responsibility, including Senior Vice President,
General Counsel, Chief Compliance Officer and Secretary; Senior Vice President, General Counsel and Secretary; Vice President, Deputy
General Counsel and Secretary; Vice President, Associate General Counsel and Assistant Secretary; and Assistant General Counsel. From
2006 to June
29
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2011, Mr. Ivascu practiced corporate law at Vinson & Elkins L.L.P., representing public and private companies and investment banking firms
in capital markets offerings, mergers and acquisitions, and corporate governance and bankruptcy matters. From 2004 to 2006, Mr. Ivascu
served as an attorney for the U.S. Securities & Exchange Commission, Division of Enforcement. Mr. Ivascu holds a B.B.A. from the Stephen
M. Ross School of Business at the University of Michigan, and a J.D. from Brooklyn Law School.
Michael D. Danford. Mr. Danford has served as Senior Vice President and Chief Human Resources Officer since June 2020. Prior to that,
Mr. Danford served as Senior Vice President - Human Resources from February 2015 to June 2020; and Vice President - Human Resources
from November 2007 to February 2015. Prior to joining Forum, from August 2007 through November 2007, he worked at Trico Marine
Services Inc., a privately held provider of subsea and marine support vessels and services to the oil and natural gas industry, as Vice
President - Human Resources. From 1997 through July 2007, Mr. Danford served as Director of Human Resources and Vice President -
Human Resources for Hydril Company, a publicly traded manufacturer of connections used for oil and natural gas drilling and production.
From 1991 to 1997, Mr. Danford served in various human resources roles for Baker Hughes Incorporated, a publicly traded oilfield services
company. Prior to joining Baker Hughes, from 1990 to 1991, Mr. Danford served as a recruiter and as an employee relations representative in
the human 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).
30
Table of Contents
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock trades on the NYSE under the trading symbol “FET.” As of February 25, 2022, there were approximately 38 common
stockholders of record. In calculating the number of shareholders, we consider clearing agencies and security position listings as one
shareholder for each agency or listing.
No dividends were declared or issued during 2021 or 2020, and we do not currently have any plans to pay cash dividends in the future. Our
future dividend policy is within the discretion of our board of directors and will depend upon various factors, including our results of
operations, financial condition, capital requirements, investment opportunities, and restrictions under our loan agreements.
Purchase of Equity Securities
Following is a summary of our repurchases of our common stock during the three months ended December 31, 2021.
Period
October 1, 2021 - October 31, 2021
November 1, 2021 - November 30, 2021
December 1, 2021 - December 31, 2021
Total
Total number of
shares
purchased (a)
Average price
paid per share
45 $
31,410 $
24,821 $
56,276 $
24.25
20.22
17.17
18.88
Total number of
shares purchased
as part of publicly
announced plan or
programs (b)
Maximum value of
shares that may yet
be purchased under
the plan or program
(in thousands) (b)
— $
31,410 $
24,821 $
56,231 $
—
9,365
8,939
8,939
(a) 45 of the 56,276 shares purchased during the three months ended December 31, 2021 were acquired from employees in connection with
the settlement of income tax and related benefit withholding obligations arising from the vesting of restricted stock grants. These shares were
not part of a publicly announced program to purchase common stock.
(b) In November 2021, our board of directors approved a program for the repurchase of outstanding shares of our common stock with an
aggregate purchase amount of up to $10 million. Shares may be repurchased under the program from time to time, in amounts and at prices
that the company deems appropriate, subject to market and business conditions, applicable legal requirements and other considerations.
The program may be executed using open market purchases pursuant to Rule 10b-18 under the Securities Exchange Act of 1934 (the
"Exchange Act") in privately negotiated agreements, by way of issuer tender offers, Rule 10b5-1 plans or other transactions. From the
inception of the program through December 31, 2021, we have repurchased approximately 56 thousand shares of our common stock for
aggregate consideration of approximately $1.1 million. Remaining authorization under this program is $8.9 million.
Item 6. [Reserved].
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial
statements and related notes included under 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 those anticipated in these forward-looking statements as a result of a variety of risks and
uncertainties, including those described in “Risk Factors” and “Cautionary note regarding forward-looking statements” and elsewhere in this
Annual Report on Form 10-K. We assume no obligation to update any of these forward-looking statements.
Overview
We are a global company serving the oil, natural gas, industrial and renewable energy industries. FET provides value added solutions aimed
at improving the safety, efficiency, and environmental impact of our customers' operations. We are an environmentally and socially
responsible company headquartered in Houston, Texas with manufacturing, distribution and service facilities strategically located throughout
the world. Our products include highly engineered capital equipment as well as consumable products. These consumable products are used
in drilling, well construction and completions activities, within the supporting infrastructure, and at processing centers and refineries. Our
engineered capital products are directed at drilling rig equipment for new rigs, upgrades and refurbishment projects, subsea construction and
development projects, pressure pumping equipment, the placement of production equipment on new producing wells, downstream capital
projects and capital equipment for renewable energy projects. In 2021, over 78% of our revenue was derived from consumable products and
activity-based equipment, while the balance was primarily derived from capital products with a small amount from rental and other services.
We design, manufacture and supply high quality reliable products that create value for our diverse customer base, which includes, among
others, oil and natural gas operators, land and offshore drilling contractors, oilfield service companies, subsea construction and service
companies, and pipeline and refinery operators. In addition, we offer some of our products to renewable energy and new energy companies.
We expect that the world's long-term energy demand will continue to rise. We also expect hydrocarbons will continue to play a vital role in
meeting the world's long-term energy needs while renewable energy sources continue to develop. As such, we remain focused on serving
our customers in both oil and natural gas as well as renewable energy applications. We are also continuing to develop products to help oil
and gas operators lower their current emissions while also deploying our existing product technologies in renewable energy applications and
seeking to develop innovative equipment.
A summary of the products and services offered by each segment is as follows:
• Drilling & Downhole. This segment designs, manufactures and supplies products and provides related services to the drilling, well
construction, artificial lift and subsea energy construction markets, including applications in oil and natural gas, renewable energy,
defense, and communications. The products and related services consist primarily of: (i) capital equipment and a broad line of
expendable products consumed in the drilling process; (ii) well construction casing and cementing equipment and protection
products for artificial lift equipment and cables; and (iii) subsea remotely operated vehicles and trenchers, submarine rescue
vehicles, specialty components and tooling, and complementary subsea technical services.
• Completions. This segment designs, manufactures and supplies products and provides related services to the coiled tubing, well
stimulation and intervention markets. The products and related services consist primarily of: (i) capital and consumable products sold
to the pressure pumping, hydraulic fracturing and flowback services markets, including hydraulic fracturing pumps, cooling systems,
high-pressure flexible hoses and flow iron as well as wireline cable and pressure control equipment used in the well completion and
intervention service markets; and (ii) coiled tubing strings and coiled line pipe and related services.
•
Production. This segment designs, manufactures and supplies products and provides related equipment and services for production
and infrastructure markets. The products and related services consist primarily of: (i) engineered process systems, production
equipment, as well as specialty separation equipment; and (ii) a wide range of industrial valves focused on serving oil and natural
gas customers as well as power generation, renewable energy and other general industrial applications.
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Market Conditions
The level of demand for our products is directly related to the activity levels and the capital and operating budgets of our customers, which in
turn are heavily influenced by energy prices and expectations as to future price trends. In addition, the availability of existing capital
equipment adequate to serve exploration and production requirements, or lack thereof, drives demand for our capital equipment products.
In 2020, the COVID-19 pandemic and associated actions taken around the world to mitigate the spread of COVID-19 caused unprecedented
declines in economic activity, energy demand and oil and natural gas prices. In response, OPEC+ implemented significant reductions in oil
production and North American exploration and production companies aggressively reduced drilling and completion activities. In response to
the decline in demand for our products in 2020, we implemented significant cost reduction actions, including exiting facilities, lowering
headcount, reducing salaries, temporarily suspending the Company’s matching contribution to the U.S. and Canada defined contribution
retirement plans, and furloughing select employee groups. Certain facility closures and headcount reduction efforts continued into 2021.
During 2021, distribution of vaccines and reopening of certain economies resulted in increasing demand for oil and natural gas. At the same
time, the supply of oil and natural gas has been impacted by ongoing constraints by OPEC+ and North American exploration and production
companies. As a result of these supply and demand factors, commodity prices increased substantially in 2021. In addition, ongoing COVID-
19 outbreaks and worldwide labor constraints continue to cause disruptions in global supply chains, which have led to inflationary pressures
for certain goods and services.
Our revenues are highly correlated to the U.S. drilling rig count, which has increased to 586 rigs as of the end of 2021 from a low of 244 rigs
in August 2020. The level of active hydraulic fracturing fleets also increased substantially in 2021 in order to meet increasing oil demand.
Despite these improvements, drilling and completions activity remains significantly below pre-pandemic levels. In addition, publicly owned
exploration and production companies in North America remain under pressure to generate positive cash flows and constrain capital
expenditures. In contrast, privately owned exploration and production companies in North America have increased their drilling and
completions activity in response to the higher oil and natural gas price environment. Furthermore, consolidation of exploration and production
and service companies continued in 2021.
Activity levels have also increased in international markets, as well as in global offshore and subsea activity. As a result, demand for our
drilling and subsea capital equipment offerings increased during 2021 due to an improved outlook for our international drilling customers and
the diversification of our subsea product line outside of the oil and natural gas industry.
On December 31, 2020, we sold assets pertaining to our ABZ and Quadrant valve brands for total consideration of $104.6 million, and
recognized a gain on disposition of $88.4 million. The disposition of these brands resulted in a substantial decrease in our Valve Solutions
product line’s revenue compared to the prior year.
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:
Average global oil, $/bbl
West Texas Intermediate
United Kingdom Brent
Average North American Natural Gas, $/Mcf
Henry Hub
2021
2020
68.13
70.86
$
$
39.16
41.96
3.89
$
2.03
$
$
$
The price of oil has varied dramatically over the last two years. The spot prices for WTI and Brent fell from $61.14 and $67.77 per barrel,
respectively, as of December 31, 2019 to lows below $15.00 per barrel in April 2020. Since that time, oil prices have rebounded to an
average of $68.13 and $70.86 for WTI and Brent, respectively, as of December 31, 2021. In addition, average natural gas prices were 91.6%
higher in 2021 compared to 2020.
33
Table of Contents
The table below shows the average number of active drilling rigs operating by geographic area and drilling for different purposes based on
the weekly rig count information published by Baker Hughes Company.
2021
2020
Active Rigs by Location
United States
Canada
International
Global Active Rigs
Land vs. Offshore Rigs
Land
Offshore
Global Active Rigs
U.S. Commodity Target
Oil/Gas
Gas
Unclassified
Total U.S. Rigs
U.S. Well Path
Horizontal
Vertical
Directional
Total U.S. Active Rigs
478
132
755
1,365
1,172
193
1,365
379
98
1
478
431
22
25
478
433
89
825
1,347
1,133
214
1,347
345
85
3
433
384
21
28
433
A substantial portion of our revenue is impacted by the level of rig activity and the number of wells completed. The average U.S. rig count for
2021 increased 10% as compared to 2020, while the international rig count decreased 8% compared to 2020. The U.S. rig count started
2020 at 805 working rigs and fell 70% to a low of 244 rigs in August 2020. Since that time, the number of active rigs has partially recovered,
ending with 586 rigs as of December 31, 2021. Despite this improvement, the U.S. drilling rig count remains significantly below pre-pandemic
levels.
The table below shows the amount of total inbound orders by segment for the years ended December 31, 2021 and 2020:
(in millions of dollars)
Orders:
Drilling & Downhole
Completions
Production
Total Orders
2021
2020
$
$
282.6 $
207.0
142.7
632.3 $
208.5
112.8
151.3
472.6
34
Table of Contents
Results of operations
(in thousands of dollars, except per share information)
Revenue:
Drilling & Downhole
Completions
Production
Eliminations
Total revenue
Cost of sales:
Drilling & Downhole
Completions
Production
Eliminations
Total cost of sales
Gross profit:
Drilling & Downhole
Completions
Production
Total gross profit
Selling, general and administrative expenses:
Drilling & Downhole
Completions
Production
Corporate
Total selling, general and administrative expenses
Segment operating income (loss):
Drilling & Downhole
Operating margin %
Completions
Operating margin %
Production
Operating margin %
Corporate
Total segment operating loss
Operating margin %
Impairments of intangible assets, property and equipment
Loss (gain) on disposal of assets and other
Operating loss
Interest expense
Foreign exchange losses and other, net
Loss (gain) on extinguishment of debt
Deferred loan costs written off
Gain on disposition of business
Total other (income) expense, net
Loss before income taxes
Income tax expense (benefit)
Net loss
Weighted average shares outstanding
Basic
Diluted
Loss per share
Basic
Diluted
* not meaningful
Year ended December 31,
2020
2021
Change
$
%
23,059
66,333
(60,800)
—
28,592
(22,030)
(18,858)
(64,882)
—
(105,770)
45,089
85,191
4,082
134,362
(7,624)
(7,581)
(14,982)
1,396
(28,791)
10.6 %
55.9 %
(34.3)%
*
5.6 %
(11.4)%
(11.4)%
(39.0)%
*
(20.2)%
186.3 %
183.5 %
36.5 %
1,219.1 %
(10.6)%
(14.9)%
(33.6)%
4.7 %
(14.6)%
52,713
109.9 %
92,772
19,064
(1,396)
163,153
(20,394)
(3,583)
187,130
1,741
(6,253)
77,768
(2,262)
88,375
159,369
27,761
13,523
14,238
95.3 %
57.0 %
(4.7)%
78.2 %
*
*
80.8 %
5.8 %
*
*
*
*
*
25.3 %
*
14.7 %
$
$
$
$
$
$
$
$
$
216,836
118,685
177,510
(555)
512,476
192,640
165,098
166,314
(555)
523,497
24,196
(46,413)
11,196
(11,021)
72,160
50,891
44,614
30,012
197,677
(47,964)
(22.1)%
(97,304)
(82.0)%
(33,418)
(18.8)%
(30,012)
(208,698)
(40.7)%
20,394
2,531
(231,623)
30,268
6,470
(72,478)
2,262
(88,375)
(121,853)
(109,770)
(12,881)
(96,889)
5,577
5,577
(17.37)
(17.37)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
239,895
185,018
116,710
(555)
541,068
170,610
146,240
101,432
(555)
417,727
69,285
38,778
15,278
123,341
64,536
43,310
29,632
31,408
168,886
4,749
2.0 %
(4,532)
(2.4)%
(14,354)
(12.3)%
(31,408)
(45,545)
(8.4)%
—
(1,052)
(44,493)
32,009
217
5,290
—
—
37,516
(82,009)
642
(82,651)
5,643
5,643
$
$
(14.65)
(14.65)
$
$
35
Table of Contents
Revenue
Our revenue for the year ended December 31, 2021 was $541.1 million, an increase of $28.6 million, or 5.6%, compared to the year ended
December 31, 2020. For the year ended December 31, 2021, our Drilling & Downhole segment, Completions segment, and Production
segment comprised 44.3%, 34.1% and 21.6% of our total revenue, respectively, compared to 42.3%, 23.1% and 34.6%, respectively, for the
year ended December 31, 2020. The overall increase in revenue is primarily related to higher sales volumes in the Drilling and Downhole and
Completions segments due to improving market conditions in 2021 compared to 2020, which was negatively impacted by the COVID 19
pandemic. Offsetting the overall increase is a $41.1 million decrease from the fourth quarter 2020 divestiture of our ABZ and Quadrant valve
brands within our Production segment. The changes in revenue by operating segment consisted of the following:
Drilling & Downhole segment — Revenue was $239.9 million for the year ended December 31, 2021, an increase of $23.1 million, or 10.6%,
compared to the year ended December 31, 2020. This increase includes an $18.5 million, or 33.3%, increase in revenue for our Subsea
Technologies product line primarily due to higher sales of Work Class ROVs into international markets. Revenue for our Downhole
Technologies product line increased by $5.1 million, or 8.0%, primarily due to higher sales volumes of casing and cementing tools as the
number of wells drilled in 2021 recovered from the historically low activity levels in 2020 during the COVID 19 pandemic. Revenue for our
Drilling Technologies product line was comparable year-over-year as higher sales volumes of consumable products were offset by lower
repair and service revenues.
Completions segment — Revenue was $185.0 million for the year ended December 31, 2021, an increase of $66.3 million, or 55.9%,
compared to the year ended December 31, 2020. This increase includes a $40.3 million, or 71.3%, increase in sales volumes for our
Stimulation and Intervention product line and a $26.1 million, or 42%, increase in sales volumes for our Coiled Tubing product line. These
higher revenue levels were driven by increasing U.S. hydraulic fracturing and well intervention service activity levels in 2021 compared to a
rapidly declining market in 2020 when service companies were idling equipment in response to historically low levels of oil demand as a
result of the COVID 19 pandemic.
Production segment — Revenue was $116.7 million for the year ended December 31, 2021, a decrease of $60.8 million, or 34.3%,
compared to the year ended December 31, 2020. This decrease includes a $41.1 million decline from the divestiture of our ABZ and
Quadrant valve brands in the fourth quarter 2020. The remaining decrease was driven by a $15.0 million decline in sales volumes of our
valve products, particularly sales into the North America downstream and midstream markets, and a $4.8 million decrease in revenue for our
Production Equipment product line from lower sales volumes of our surface production equipment, partially offset by higher sales volumes for
our process oil treatment equipment due to increased project activity with international downstream customers.
Segment operating income (loss) and segment operating margin percentage
Segment operating loss for the year ended December 31, 2021 was $45.5 million compared to a loss of $208.7 million for the year ended
December 31, 2020. For the year ended December 31, 2021, segment operating margin percentage was (8.4)% compared to (40.7)% for the
year ended December 31, 2020. Segment operating margin percentage is calculated by dividing segment operating income (loss) by
revenue for the period. The change in operating loss and segment operating margin percentage for each segment is explained as follows:
Drilling & Downhole segment — Segment operating income was $4.7 million, or 2.0%, for the year ended December 31, 2021 compared to a
loss of $48.0 million, or (22.1)%, for the year ended December 31, 2020. The $52.7 million improvement in segment operating results
includes higher gross profit from the 10.6% increase in revenues discussed above. In addition, operating results improved due to a $20.4
million decrease in inventory write downs, a $5.3 million decrease in impairments of operating lease right of use assets and reductions in
restructuring and employee related costs due to headcount, salary and other cost reductions implemented in 2020.
Completions segment — Segment operating loss was $4.5 million, or (2.4)%, for the year ended December 31, 2021 compared to a loss of
$97.3 million, or (82.0)% for the year ended December 31, 2020. The $92.8 million improvement in segment operating results includes higher
gross profit from the 55.9% increase in revenues discussed above. In addition, operating results improved due to a $51.4 million decrease in
inventory write downs, a $6.1 million decrease in impairments of operating lease right of use assets and reductions in restructuring and
employee related costs due to headcount, salary and other cost reductions implemented in 2020.
Production segment — Segment operating loss was $14.4 million, or (12.3)%, for the year ended December 31, 2021 compared to a loss of
$33.4 million, or (18.8)% for the year ended December 31, 2020. The $19.1 million improvement in segment operating results is primarily
attributable to a $20.9 million decrease in inventory write downs, a $2.2 million decrease in impairments of operating lease right of use assets
and reductions in restructuring and employee related costs due to headcount, salary and other cost reductions implemented in 2020. These
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improvements in operating results were partially offset by the reduction in operating income from the fourth quarter 2020 disposition of our
ABZ and Quadrant valve brands.
Corporate — Selling, general and administrative expenses for Corporate were $31.4 million for the year ended December 31, 2021, a $1.4
million increase compared to the year ended December 31, 2020. This increase was primarily related to higher variable compensation costs,
partially offset by a $1.5 million decrease in impairments of operating lease right of use assets and a decrease in professional fees.
Corporate costs include, among other items, payroll related costs for management, administration, finance, legal, and human resources
personnel; professional fees for legal, accounting and related services; and marketing costs.
Other items not included in segment operating loss
Several items are not included in segment operating loss, but are included in the total operating loss. These items include impairments of
intangible assets, property and equipment, and loss (gain) on disposal of assets and other. For further information related to impairments of
intangible assets, property and equipment, see Note 8 Impairments of Long-Lived Assets.
Other income and expense
Other income and expense includes interest expense, loss (gain) on extinguishment of debt, deferred loan costs written off, foreign exchange
losses and other, net, and gain on disposition of business.
We incurred $32.0 million of interest expense during the year ended December 31, 2021, an increase of $1.7 million compared to the year
ended December 31, 2020 due to higher non-cash amortization of debt discount and debt issuance costs associated with our 2025 Notes as
well as a higher interest rate on our 2025 Notes compared to our previous 2021 Notes. These increases were partially offset by lower
average debt balances outstanding in 2021 compared to 2020.
The foreign exchange losses are primarily the result of movements in the British pound, Euro and Canadian dollar relative to the U.S. dollar.
These movements in exchange rates create foreign exchange gains or losses when applied to monetary assets or liabilities denominated in
currencies other than the location’s functional currency, primarily U.S. dollar denominated cash, trade account receivables and net
intercompany receivable balances for our entities using a functional currency other than the U.S. dollar.
During the year ended December 31, 2021, we recognized a $5.3 million loss on extinguishment of debt from the repurchase of an
aggregate $59.9 million of principal amount of our 2025 Notes for $58.6 million. The net carrying value of the extinguished debt, including
unamortized debt discount and debt issuance costs, was $53.3 million.
During the year ended December 31, 2020, we recognized $72.5 million of gains on extinguishment of debt, including a $43.8 million gain
from the repurchase of notes in the first half of 2020 and a $28.7 million gain from the exchange of notes in the third quarter of 2020. During
the first half of 2020, we repurchased an aggregate $71.9 million of principal amount of our 6.25% unsecured notes due 2021 (the “2021
Notes”) for $27.7 million and recognized a net gain of $43.8 million reflecting the difference in the amount paid and the net carrying value of
the extinguished debt, including debt issuance costs and unamortized debt premium. In the third quarter of 2020, we exchanged $315.5
million principal amount of 2021 Notes for new 2025 Notes. This transaction was accounted for as an extinguishment of the 2021 Notes with
the new 2025 Notes recorded at fair value on the transaction date, resulting in a $28.7 million gain on extinguishment of debt. See Note 9
Debt for further information.
During the year ended December 31, 2020, we wrote-off $2.3 million of deferred loan costs including $2.0 million for the termination of
previous discussions related to a potential exchange offer for our 2021 Notes and $0.3 million related to amending our Credit Facility.
In the fourth quarter of 2020, we sold certain assets of our ABZ and Quadrant valve brands and recognized a gain on disposition totaling
$88.4 million. See Note 4 Acquisitions & Dispositions for further information related to this transaction.
Taxes
We recorded tax expense of $0.6 million for the year ended December 31, 2021 compared to a tax benefit of $12.9 million for the year ended
December 31, 2020. The estimated annual effective tax rates for the years ended December 31, 2021 and 2020 were impacted by losses in
jurisdictions where the recording of a tax benefit is not available. Furthermore, the tax expense or benefit recorded can vary from period to
period depending on the Company’s relative mix of earnings and losses by jurisdiction.
The tax benefit for the year ended December 31, 2020 included a $16.6 million benefit related to a carryback claim for U.S. federal tax losses
based on provisions in the U.S. Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which was signed into law on March 27,
2020. The CARES Act provided relief to corporate taxpayers by permitting a five-year carryback of 2018-2020 NOLs, increased the 30%
limitation on interest expense
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deductibility to 50% of adjusted taxable income for 2019 and 2020, and accelerated refunds for minimum tax credit carryforwards, among
other provisions. The tax effects of changes in tax laws are recognized in the period in which the law is enacted. See Note 11 Income Taxes
for additional information.
Liquidity and capital resources
Sources and uses of liquidity
Our internal sources of liquidity are cash on hand and cash flows from operations, while our primary external sources include trade credit, the
Credit Facility and the 2025 Notes. Our primary uses of capital have been for inventory, sales on credit to our customers, maintenance and
growth capital expenditures, and debt repayments. We continually monitor other potential capital sources, including equity and debt
financing, to meet our investment and target liquidity requirements. Our future success and growth will be highly dependent on our ability to
generate positive operating cash flow and access outside sources of capital.
As of December 31, 2020, we had $316.9 million principal amount of 2025 Notes outstanding and $13.1 million outstanding under our
revolving Credit Facility. During the year ended December 31, 2021 we repurchased $59.9 million principal amount of our 2025 Notes and
repaid the $13.1 million outstanding under our revolving Credit Facility. Following these transactions, we had $257.0 million principal amount
of 2025 Notes and no borrowings outstanding under our Credit Facility as of December 31, 2021.
In September 2021, we amended our Credit Facility to, among other things, extend the maturity date to September 2026, reduce the
aggregate amount of the commitment under the Credit Facility to $179.0 million, and change the interest rate applicable to outstanding loans.
See Note 9 Debt for further details related to the terms for our 2025 Notes and Credit Facility.
As of December 31, 2021, we had cash and cash equivalents of $46.9 million and $127.4 million of availability under our Credit Facility. We
anticipate that our future working capital requirements for our operations will fluctuate directionally with revenues. Furthermore, availability
under our Credit Facility will fluctuate directionally based on the level of our eligible accounts receivable and inventory subject to applicable
sublimits. In addition, we expect total 2022 capital expenditures to be less than $10.0 million, consisting of, among other items, replacing end
of life machinery and equipment.
We expect our available cash on-hand, cash generated by operations, and estimated availability under our Credit Facility to be adequate to
fund current operations during the next 12 months. In addition, based on existing market conditions and our expected liquidity needs, among
other factors, we may use a portion of our cash flows from operations, proceeds from divestitures, securities offerings or other eligible capital
to reduce the principal amount of our 2025 Notes outstanding.
In November 2021, our board of directors approved a program for the repurchase of outstanding shares of our common stock with an
aggregate purchase amount of up to $10.0 million. Shares may be repurchased under the program from time to time, in amounts and at
prices that the company deems appropriate, subject to market and business conditions, applicable legal requirements and other
considerations. In the fourth quarter of 2021, we repurchased approximately 56,000 shares of our common stock for aggregate consideration
of approximately $1.1 million. Remaining authorization under this program is $8.9 million.
In the fourth quarter of 2021, we completed the acquisition of Hawker Equipment Solutions, LLC (“Hawker”) for total cash consideration of
$5.1 million, of which, $3.4 million was paid in the fourth quarter of 2021 with the balance expected to be paid over the next five years. In
2020, we completed the disposition of our ABZ and Quadrant valve brands for total cash consideration of $103.4 million. For additional
information, see Note 4 Acquisitions & Dispositions. We may pursue acquisitions in the future, which may be funded with cash and/or equity.
Our ability to make significant acquisitions for cash may require us to pursue additional equity or debt financing, which we may not be able to
obtain on terms acceptable to us or at all.
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Our cash flows for the years ended December 31, 2021 and 2020 are presented below (in thousands):
Net cash provided by (used in) operating activities
Net cash provided by investing activities
Net cash used in financing activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash, cash equivalents and restricted cash
Net cash provided by (used in) operating activities
Year ended December 31,
2020
2021
(15,775) $
10,698
(76,243)
(439)
(81,759) $
3,883
108,250
(41,765)
338
70,706
$
$
Net cash used in operating activities was $15.8 million for the year ended December 31, 2021 compared to $3.9 million of cash provided by
operating activities for the year ended December 31, 2020. The decline in operating cash flows is primarily attributable to changes in working
capital which provided cash of $6.7 million for the year ended December 31, 2021 compared to providing $57.3 million for the year ended
December 31, 2020. This decline was partially offset by an improvement in net income adjusted for non-cash items which used $9.1 million
of cash for the year ended December 31, 2021 compared to using $53.5 million of cash for the year ended December 31, 2020.
Net cash provided by investing activities
Net cash provided by investing activities was $10.7 million for the year ended December 31, 2021 including $10.8 million of cash received to
settle a note receivable from the 2019 sale of our equity interest in Ashtead Technology and $7.0 million of proceeds from the sale of property
and equipment. These cash inflows were partially offset by $3.4 million of cash paid for the acquisition of Hawker and $2.4 million of capital
expenditures. Net cash provided by investing activities was $108.3 million for the year ended December 31, 2020 including $104.6 million
from the sale of certain assets of our ABZ and Quadrant brands of valve products and $5.3 million of proceeds from the sale of property and
equipment, partially offset by $2.2 million of capital expenditures.
Net cash used in financing activities
Net cash used in financing activities was $76.2 million for the year ended December 31, 2021 including $58.6 million of cash used to
repurchase 2025 Notes and $13.1 of repayments on the revolving Credit Facility. Net cash used in financing activities was $41.8 million for
the year ended December 31, 2020 including $40.3 million of cash used to repurchase 2021 Notes, $9.7 million paid for deferred financing
costs and a $3.5 million early participation payment for the bond exchange. These cash outflows were partially offset by $13.1 million of net
borrowings on our Credit Facility in 2020.
Off-balance sheet arrangements
As of December 31, 2021, we had no off-balance sheet instruments or financial arrangements, other than letters of credit entered into in the
ordinary course of business. For additional information, refer to Note 13 Commitments and Contingencies.
Supplemental Guarantor Financial Information
The Company’s 2025 Notes are guaranteed by our domestic subsidiaries which are 100% owned, directly or indirectly, by the Company. The
guarantees are full and unconditional, joint and several.
The guarantees of the 2025 Notes are (i) pari passu in right of payment with all existing and future senior indebtedness of such guarantor,
including all obligations under our Credit Facility; (ii) secured by certain collateral of such guarantor, subject to permitted liens under the
indenture governing the 2025 Notes; (iii) effectively senior to all unsecured indebtedness of that guarantor, to the extent of the value of the
collateral securing the 2025 Notes (after giving effect to the liens securing our Credit Facility and any other senior liens on the collateral); and
(v) senior in right of payment to any future subordinated indebtedness of that guarantor.
In the event of a bankruptcy, liquidation or reorganization of any of the non-guarantor subsidiaries of the 2025 Notes, the non-guarantor
subsidiaries of such notes will pay the holders of their debt and their trade creditors before they will be able to distribute any of their assets to
the Company or to any guarantors.
The 2025 Notes guarantees shall each be released upon (i) any sale or other disposition of all or substantially all of the assets of such
guarantor (by merger, consolidation or otherwise) to a person that is not (either before or after giving effect to such transaction) the Company
or a subsidiary, if the sale or other disposition does not violate the
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applicable provisions of the indenture governing such notes; (ii) any sale, exchange or transfer (by merger, consolidation or otherwise) of the
equity interests of such guarantor after which the applicable guarantor is no longer a subsidiary, which sale, exchange or transfer does not
violate the applicable provisions of the indenture governing such notes; (iii) legal or covenant defeasance or satisfaction and discharge of the
indenture governing such notes; or (iv) dissolution of such guarantor, provided no default or event of default has occurred that is continuing.
The obligations of each guarantor of the 2025 Notes under its guarantee will be limited to the maximum amount as will, after giving effect to
all other contingent and fixed liabilities of such guarantor (including, without limitation, any guarantees under the Credit Facility) and any
collections from or payments made by or on behalf of any other guarantor in respect of the obligations of such other guarantor under its
guarantee or pursuant to its contribution obligations under the applicable indenture, result in the obligations of such guarantor under its
guarantee not constituting a fraudulent conveyance, fraudulent preference or fraudulent transfer or otherwise reviewable transaction under
applicable law. Nonetheless, in the event of the bankruptcy, insolvency or financial difficulty of a guarantor, such guarantor’s obligations
under its guarantee may be subject to review and avoidance under applicable fraudulent conveyance, fraudulent preference, fraudulent
transfer and insolvency laws.
We are presenting the following summarized financial information for the Company and the subsidiary guarantors (collectively referred to as
the "Obligated Group") pursuant to Rule 13-01 of Regulation S-X, Guarantors and Issuers of Guaranteed Securities Registered or Being
Registered. For purposes of the following summarized financial information, transactions between the Company and the subsidiary
guarantors, presented on a combined basis, have been eliminated and information for the non-guarantor subsidiaries have been excluded.
Amounts due to the non-guarantor subsidiaries and other related parties, as applicable, have been separately presented within the
summarized financial information below.
Summarized financial information was as follows (in thousands):
(in thousands, except per share information)
Revenues
Cost of sales
Operating loss
Net loss
(in thousands, except per share information)
Current assets
Noncurrent assets
Current liabilities
Payables to non-guarantor subsidiaries
Noncurrent liabilities
$
$
Year ended December 31,
2021
2020
401,876 $
323,914
(46,827)
(82,651)
393,704
431,670
(238,608)
(96,889)
Year ended December 31,
2021
2020
327,281 $
298,172
144,487
125,281
259,622
385,364
332,486
105,393
102,885
324,954
Critical accounting policies and estimates
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted in the United States of America. In preparing our
consolidated financial statements, we make judgments, estimates and assumptions affecting the amounts reported. We base our estimates
on factors including historical experience and various assumptions that we believe are reasonable under the circumstances. These factors
form the basis for making estimates about the carrying values of assets and liabilities that are not readily apparent from other sources.
Certain accounting policies involve judgments and uncertainties to such an extent that there is a reasonable likelihood that materially different
amounts could have been reported under different conditions, or if different assumptions had been used. We evaluate our estimates and
assumptions on a regular basis. Actual results may differ from these estimates and assumptions used in preparation of 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 have
described our most critical accounting policies and estimates used in preparation of our consolidated financial statements below.
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Revenue recognition
Revenue is recognized in accordance with Accounting Standards Codification Topic 606 (“ASC 606”), when control of the promised goods or
services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods
or services. For the year ended December 31, 2021, approximately 91% of our revenue was recognized from goods transferred to customers
at a point in time while 9% of our revenue was recognized from goods transferred to customers over time.
Although terms of our contracts may vary considerably, the 9% of revenues recognized over time relate to certain contracts in our Subsea
and Production Equipment product lines which are typically based on a fixed amount for the entire contract. Recognition over time for these
contracts is supported by our assessment of the products supplied as having no alternative use to us and by clauses in the contracts that
provide us with an enforceable right to payment for performance completed to date. We use the cost-to-cost method to measure progress for
these contracts because it best depicts the transfer of assets to the customer which occurs as costs are incurred on the contract. The amount
of revenue recognized is calculated based on the ratio of costs incurred to date compared to total estimated costs which requires
management to calculate reasonably dependable estimates of total contract costs. Whenever revisions of estimated contract costs and
contract values indicate that the contract costs will exceed estimated revenues, thus creating a loss, a provision for the total estimated loss is
recorded in that period. We recognize revenue and cost of sales each period based upon the advancement of the work-in-progress unless
the stage of completion is insufficient to enable a reasonably certain forecast of profit to be established. In such cases, no profit is recognized
during the period.
Accounting estimates during the course of projects may change. The effect of such a change, which can be upward as well as downward, is
accounted for in the period of change, and the cumulative income recognized to date is adjusted to reflect the latest estimates. These
revisions to estimates are accounted for on a prospective basis.
Contracts are sometimes modified to account for changes in product specifications or requirements. Most of our contract modifications are
for goods and services that are not distinct from the existing contract. As such, these modifications are accounted for as if they were part of
the existing contract, and therefore, the effect of the modification on the transaction price and our measure of progress for the performance
obligation to which it relates is recognized as an adjustment to revenue on a cumulative catch-up basis.
Inventories
Inventory, consisting of finished goods and materials and supplies held for resale, is carried at the lower of cost or net realizable value. We
evaluate 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
exercise judgment in establishing and applying these policies.
As of December 31, 2021 and 2020, our inventory reserve balances were $62.9 million and $144.9 million, respectively. For the years ended
December 31, 2021 and 2020, we recognized inventory write downs totaling $8.1 million and $100.8 million, respectively. These charges are
all included in “Cost of sales” in the consolidated statements of comprehensive loss. See Note 5 Inventories for further information related to
these charges.
Long-lived assets
As of December 31, 2021, our long-lived assets included property and equipment, definite lived intangibles, and operating lease right of use
assets with balances of $94.0 million, $217.4 million and $25.4 million, respectively. Key estimates related to long-lived assets include useful
lives and recoverability of carrying values and changes in such estimates could have a significant impact on financial results.
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 its eventual disposal are estimated. If the undiscounted future cash flows are less than the carrying amount of the assets, there is
an indication that the asset may be impaired. The amount of the impairment is measured as the difference between the carrying value and
the estimated fair value of the asset. The fair value is determined either through the use of an external valuation, or by means of an analysis
of discounted future cash flows based on expected utilization. The impairment loss recognized represents the excess of an assets’ carrying
value as compared to its estimated fair value.
For the year ended December 31, 2021, we did not recognize any impairment charges. For the year ended December 31, 2020, we
recognized impairment charges for property and equipment, intangible assets and operating lease right of use assets totaling $15.1 million,
$5.3 million and $15.4 million, respectively. See Note 8 Impairments of Long-Lived Assets for further information related to these charges.
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Income taxes
We follow the liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are determined
based upon temporary differences between the carrying amounts and tax bases of our assets and liabilities at the balance sheet date, and
are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. We recognize deferred tax
assets to the extent that we believe these assets are more likely than not to be realized. In making such a determination, we consider all
available positive and negative evidence, including future reversals of existing temporary differences, projected future taxable income, tax-
planning and recent operating results. Any changes in our judgment as to the realizability of our deferred tax assets are recorded as an
adjustment to the deferred tax asset valuation allowance in the period the change occurs. For the year ended December 31, 2020, we
recognized tax expense for valuation allowances totaling $25.3 million. See Note 11 Income Taxes for further information related to these
charges.
The accounting guidance for income taxes requires that we recognize the financial statement benefit of a tax position only after determining
that 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, the accounting guidance requires the tax position be measured at the largest amount of benefit greater than 50%
likely of being realized upon ultimate settlement. If management determines that likelihood of sustaining the realization of the tax benefit is
less than or equal to 50%, then the tax benefit is not recognized in the consolidated 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
final determination of tax liabilities involves the interpretation of local tax laws, tax treaties, and related authorities in each jurisdiction.
Changes in the operating environment, including changes in tax law or interpretation of tax law and currency repatriation controls, could
impact the determination of our tax liabilities for a given tax year.
Recent accounting pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”), which we adopt as of
the specified effective date. Refer to Note 2 Summary of Significant Accounting Policies for information related to recent accounting
pronouncements.
Cautionary note regarding forward-looking statements
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are
subject to a number of risks and uncertainties, many of which are beyond the Company’s control. All statements, other than statements of
historical fact, included in this Annual Report on Form 10-K regarding our strategy, future operations, financial position, estimated revenues
and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. 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.
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
these statements unless required by law, and you should not place undue reliance on these forward-looking statements. Although we believe
that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this Annual Report on
Form 10-K are reasonable, forward-looking statements are not guarantees of future performance and involve risks and uncertainties that may
cause actual results to differ materially from our plans, intentions or expectations. This may be the result of various factors, including, but not
limited to, those factors discussed in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and elsewhere in this Annual Report on Form 10-K.
Item 7A. Quantitative and qualitative disclosures about market risk
Not required under Regulation S-K for “smaller reporting companies.”
42
Item 8. Consolidated Financial Statements and Supplementary Data
Report of independent registered public accounting firm - Deloitte & Touche LLP
Consolidated statements of comprehensive loss for the years ended December 31, 2021 and 2020
Consolidated balance sheets as of December 31, 2021 and 2020
Consolidated statements of cash flows for the years ended December 31, 2021 and 2020
Consolidated statements of changes in stockholders’ equity for the years ended December 31, 2021 and 2020
Notes to consolidated financial statements
Page
44
46
47
48
49
50
43
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Forum Energy Technologies, Incorporated
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Forum Energy Technologies, Incorporated and subsidiaries (the
"Company") as of December 31, 2021 and 2020, the related consolidated statements of comprehensive loss, changes in stockholders'
equity, and cash flows, for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as
the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the
Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period
ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 4, 2022,
expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules 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 audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that were
communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the
financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit
matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical
audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Inventory — Refer to Notes 2 and 5 to the financial statements
Critical Audit Matter Description
Inventory consists of finished goods and materials and supplies which are carried at the lower of cost or net realizable value. The Company
evaluates the net realizable values of inventories based on analysis of inventory levels including excess, obsolete and slow-moving items,
historical sales experience and future sales forecasts. The Company’s evaluation of net realizable value is performed at each location and is
based on information and assumptions specific to that location. Changes in these assumptions could have a significant impact on the
recorded inventory amounts or the amount of inventory write-downs. The inventory, net balance at December 31, 2021 was $241.7 million
and the amount of inventory reserve was $62.9 million.
Given the significant judgments and assumptions made by management in applying the methodology used to determine net realizable value,
future sales forecasts, and the reports utilized to determine inventory levels and
44
historical sales experiences, performing audit procedures required a high degree of auditor judgment and increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the net realizable value of inventory included the following, among others:
• We made inquiries of business unit managers as well as executives, sales, and operations personnel about the expected product
lifecycles and product development plans and historical usage by product.
• We have tested the forecasted demand by comparing internal and external information (e.g. historical usage, contracts,
communications with customers, product development plans, and macroeconomic conditions) with the Company’s forecasted
demand.
• We evaluated management’s overall forecasted demand by comparing actual results to historical forecasts.
• We considered the existence of contradictory evidence based on reading of internal communications to management and the board
of directors, Company press releases, and analysts' reports, as well as our observations and inquiries as to changes within the
business.
/s/ Deloitte & Touche LLP
Houston, Texas
March 4, 2022
We have served as the Company’s auditor since 2019.
45
Forum Energy Technologies, Inc. and subsidiaries
Consolidated statements of comprehensive loss
(in thousands, except per share information)
Revenues
Cost of sales
Gross profit
Operating expenses
Selling, general and administrative expenses
Impairments of intangible assets, property and equipment
Loss (gain) on disposal of assets and other
Total operating expenses
Operating loss
Other expense (income)
Interest expense
Loss (gain) on extinguishment of debt
Deferred loan costs written off
Foreign exchange losses and other, net
Gain on disposition of business
Total other expense (income), net
Loss before income taxes
Income tax expense (benefit)
Net loss
Weighted average shares outstanding
Basic
Diluted
Loss per share
Basic
Diluted
Other comprehensive income (loss), net of tax of $0:
Net loss
Change in foreign currency translation
Gain (loss) on pension liability
Comprehensive loss
The accompanying notes are an integral part of these consolidated financial statements.
46
Year ended December 31,
2021
2020
541,068 $
417,727
123,341
168,886
—
(1,052)
167,834
(44,493)
32,009
5,290
—
217
—
37,516
(82,009)
642
(82,651)
5,643
5,643
(14.65) $
(14.65) $
(82,651)
(1,479)
840
(83,290) $
512,476
523,497
(11,021)
197,677
20,394
2,531
220,602
(231,623)
30,268
(72,478)
2,262
6,470
(88,375)
(121,853)
(109,770)
(12,881)
(96,889)
5,577
5,577
(17.37)
(17.37)
(96,889)
9,249
(700)
(88,340)
$
$
$
$
Forum Energy Technologies, Inc. and subsidiaries
Consolidated balance sheets
(in thousands, except share information)
Assets
Current assets
Cash and cash equivalents
Accounts receivable—trade, net of allowances of $11,114 and $9,217
Inventories, net
Prepaid expenses and other current assets
Costs and estimated profits in excess of billings
Accrued revenue
Total current assets
Property and equipment, net of accumulated depreciation
Operating lease assets
Deferred financing costs, net
Intangibles, net
Deferred income taxes, net
Other long-term assets
Total assets
Liabilities and equity
Current liabilities
Current portion of long-term debt
Accounts payable—trade
Accrued liabilities
Deferred revenue
Billings in excess of costs and profits recognized
Total current liabilities
Long-term debt, net of current portion
Deferred income taxes, net
Operating lease liabilities
Other long-term liabilities
Total liabilities
Commitments and contingencies
Equity
Common stock, $0.01 par value, 14,800,000 shares authorized, 6,100,886 and 5,992,400
shares issued
Additional paid-in capital
Treasury stock at cost, 467,153 and 410,877 shares
Retained deficit
Accumulated other comprehensive loss
Total equity
Total liabilities and equity
The accompanying notes are an integral part of these consolidated financial statements.
47
December 31,
2021
December 31,
2020
$
$
$
$
46,858 $
123,903
241,740
23,702
8,285
2,245
446,733
94,005
25,431
1,484
217,405
203
6,075
791,336 $
860 $
99,379
58,436
7,276
9,705
175,656
232,370
834
34,745
18,605
462,210
128,617
80,606
251,747
19,018
8,516
1,687
490,191
113,668
31,520
249
240,444
102
13,752
889,926
1,322
46,351
67,581
7,863
1,817
124,934
293,373
1,952
44,536
18,895
483,690
61
1,249,962
(135,562)
(684,307)
(101,028)
329,126
791,336 $
60
1,242,720
(134,499)
(601,656)
(100,389)
406,236
889,926
Forum Energy Technologies, Inc. and subsidiaries
Consolidated statements of cash flows
(in thousands, except share information)
Cash flows from operating activities
Net loss
Adjustments to reconcile net loss to net cash provided by (used in) investing activities:
Year ended December 31,
2021
2020
$
(82,651) $
(96,889)
Impairments of intangible assets, property and equipment
Impairments of operating lease assets
Depreciation expense
Amortization of intangible assets
Stock-based compensation expense
Inventory write downs
Provision for doubtful accounts
Deferred income taxes
Gain on disposition of business
Loss (gain) on extinguishment of debt
Deferred loan costs written off
Other
Changes in operating assets and liabilities
Accounts receivable—trade
Inventories
Prepaid expenses and other current assets
Cost and estimated profits in excess of billings
Accounts payable, deferred revenue and other accrued liabilities
Billings in excess of costs and estimated profits earned
Net cash provided by (used in) operating activities
Cash flows from investing activities
Capital expenditures for property and equipment
Proceeds from the sale of property and equipment
Proceeds from settlement of note receivable
Acquisition of businesses, net of cash acquired
Proceeds from the sale of business
Net cash provided by investing activities
Cash flows from financing activities
Borrowings on revolving Credit Facility
Repayments on revolving Credit Facility
Cash paid to repurchase 2025 Notes and 2021 Notes
Bond exchange early participation payment
Repurchases of stock
Payment of capital lease obligations
Deferred financing costs
Net cash used in financing activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents and restricted cash at end of period
Supplemental cash flow disclosures
Cash paid for interest
Cash paid (refunded) for income taxes
Noncash investing and financing activities
Operating lease right of use assets obtained in exchange for lease obligations
Finance lease right of use assets obtained in exchange for lease obligations
Accrued purchases of property and equipment
The accompanying notes are an integral part of these consolidated financial statements.
48
—
—
17,064
25,112
7,594
8,096
2,424
2,791
—
5,290
—
5,210
(44,959)
1,935
(8,078)
84
36,327
7,986
(15,775) $
(2,399)
7,007
10,784
(3,411)
(1,283)
10,698 $
—
(13,126)
(58,596)
—
(1,414)
(1,517)
(1,590)
(76,243) $
(439)
(81,759)
128,617
46,858 $
27,068
2,444
2,340
463
—
20,394
15,370
24,484
26,516
9,784
100,794
1,127
(149)
(88,375)
(72,478)
2,262
3,703
65,541
51,621
17,794
(4,317)
(69,399)
(3,900)
3,883
(2,246)
5,292
—
—
105,204
108,250
182,322
(169,196)
(40,270)
(3,500)
(195)
(1,179)
(9,747)
(41,765)
338
70,706
57,911
128,617
23,763
(13,941)
4,505
1,401
—
$
$
$
$
Forum Energy Technologies, Inc. and subsidiaries
Consolidated statements of changes in stockholders’ equity
(in thousands)
Common stock
Additional
paid-in
capital
Treasury stock
Retained deficit
Accumulated
other
comprehensive
income / (loss)
Total
common
stockholders’
equity
Balance at December 31, 2019
$
1,189 $
1,231,650 $
(134,493) $
(503,369) $
(108,938) $
Restricted stock issuance, net of forfeitures
Stock-based compensation expense
Shares issued in employee stock purchase plan
Adjustment for adoption of ASU 2016-13
Treasury stock
Change in pension liability
Currency translation adjustment
1-for-20 reverse stock split
Net Loss
Balance at December 31, 2020
Restricted stock issuance, net of forfeitures
Stock-based compensation expense
Treasury stock
Change in pension liability
Currency translation adjustment
Net Loss
Balance at December 31, 2021
7
—
2
—
—
—
—
(1,138)
—
(196)
9,784
344
—
—
—
—
1,138
—
—
—
—
—
(6)
—
—
—
—
—
—
—
(1,398)
—
—
—
—
(96,889)
—
—
—
—
—
(700)
9,249
—
—
$
$
60 $
1,242,720 $
(134,499) $
(601,656) $
(100,389) $
1
—
—
—
—
—
(352)
7,594
—
—
—
—
—
—
(1,063)
—
—
—
—
—
—
—
—
(82,651)
—
—
—
840
(1,479)
—
61 $
1,249,962 $
(135,562) $
(684,307) $
(101,028) $
486,039
(189)
9,784
346
(1,398)
(6)
(700)
9,249
—
(96,889)
406,236
(351)
7,594
(1,063)
840
(1,479)
(82,651)
329,126
The accompanying notes are an integral part of these consolidated financial statements.
49
Table of Contents
Forum Energy Technologies, Inc. and subsidiaries
Notes to consolidated financial statements
1. Nature of Operations
Forum Energy Technologies, Inc. (the “Company,” “FET,” “we,” “our,” or “us”), a Delaware corporation, is a global company serving the oil,
natural gas, industrial and renewable energy industries. FET provides value added solutions that increase the safety and efficiency of energy
exploration and production. We are an environmentally and socially responsible company headquartered in Houston, Texas with
manufacturing, distribution and service facilities strategically located throughout the world.
2. Summary of Significant Accounting Policies
Basis of presentation
The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United
States of America (“GAAP”). Certain reclassifications have been made to prior year amounts to conform with the current year presentation.
Principles of consolidation
The consolidated financial statements include the accounts of the Company and its wholly and majority owned subsidiaries after elimination
of intercompany balances and transactions.
COVID-19 Impacts
The outbreak of COVID-19 in 2020 caused significant disruptions in the U.S. and world economies which led to significant reductions in
demand for crude oil. During 2021, distribution of vaccines resulted in reopening of certain economies and increasing demand for oil and
natural gas. However, ongoing COVID-19 outbreaks and related work restrictions continue to contribute to disruptions in global supply chains
which have led to inflationary pressures for certain goods and services. We anticipate that our liquidity, financial condition and future results
of operations will continue to be impacted by ongoing developments from the COVID-19 pandemic.
Use of estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the
reported 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, among
others, an assessment of percentage of completion of projects based on costs to complete contracts, the selection of useful lives of tangible
and intangible assets, expected future cash flows from long lived assets to support impairment tests, provisions necessary for trade
receivables, amounts of deferred taxes and income tax contingencies. Actual results could differ from these estimates.
The financial reporting of contracts depends on estimates, which are assessed continually during the term of those contracts. The amounts of
revenues and income recognized are subject to revisions as the contract progresses to completion and changes in estimates are reflected in
the period in which the facts that give rise to the revisions become known. Additional information that enhances and refines the estimating
process that is obtained after the balance sheet date, but before issuance of the consolidated financial statements, is reflected in the
consolidated financial statements.
Cash and cash equivalents
Cash and cash equivalents consist of cash on deposit and high quality, short term money market instruments with an original maturity of
three months or less. Cash equivalents are based on quoted market prices, a Level 1 fair value measure.
50
Table of Contents
Accounts receivable-trade
Forum Energy Technologies, Inc. and subsidiaries
Notes to consolidated financial statements (continued)
Trade accounts receivables are carried at their estimated collectible amounts. Trade credit is generally extended on a short-term basis; thus
receivables do not bear interest, although a finance charge may be applied to amounts past due. We maintain an allowance for doubtful
accounts for estimated losses that may result from the inability of our customers to make required payments. Such allowances are based
upon several factors including, but not limited to, credit approval practices, industry and customer historical experience as well as the current
and projected financial condition of the specific customer. Accounts receivable outstanding longer than contractual terms are considered past
due. We write off accounts receivable to the allowance for doubtful accounts when they become uncollectible. Any payments subsequently
received on receivables previously written off are credited to bad debt expense.
The change in amounts of the allowance for doubtful accounts during the two year period ended December 31, 2021 is as follows (in
thousands):
Period ended
December 31, 2020
December 31, 2021
Inventories
Balance at
beginning of period
9,048
9,217
Charged to
expense
Deductions or
other
Balance at end of
period
1,127
2,424
(958)
(527)
9,217
11,114
Inventory consisting of finished goods and materials and supplies held for resale is carried at the lower of cost or net realizable value. For
certain operations, cost, which includes the cost of raw materials and labor for finished goods, is determined using standard cost which
approximates a first-in first-out basis. For other operations, this cost is determined on an average cost, first-in first-out or specific identification
basis. Net realizable value means estimated selling price in the ordinary course of business, less reasonably predictable cost of completion,
disposal, and transportation. We continuously evaluate inventories based on an analysis of inventory levels, historical sales experience and
future sales forecasts, to determine obsolete, slow-moving and excess inventory.
For the years ended December 31, 2021 and 2020, we recognized inventory write downs totaling $8.1 million and $100.8 million,
respectively. These charges are all included in “Cost of sales” in the consolidated statements of comprehensive loss. See Note 5 Inventories
for further information related to these charges.
Property and equipment
Property and equipment are stated at cost less accumulated depreciation. Finance leases of property and equipment are stated at the
present value of future minimum lease payments. Expenditures for property and equipment and for items which substantially increase the
useful lives of existing assets are capitalized at cost and depreciated over their estimated useful life utilizing the straight-line method. Routine
expenditures for repairs and maintenance are expensed as incurred. Depreciation is computed using the straight-line method based on the
estimated useful lives of assets, generally 2 to 30 years. Property and equipment held under finance leases are amortized straight-line over
the shorter of the lease term or estimated useful life of the asset. Gains or losses resulting from the disposition of assets are recognized in
income with the related asset cost and accumulated depreciation removed from the balance sheet. Assets acquired in connection with
business combinations are recorded at fair value.
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 its eventual disposal are estimated. If the undiscounted future cash flows are less than the carrying amount of the assets, there is
an indication that the asset may be impaired. The amount of the impairment is measured as the difference between the carrying value and
the estimated fair value of the asset. The fair value is determined either through the use of an external valuation, or by means of an analysis
of discounted future cash flows based on expected utilization.
For the year ended December 31, 2021, we did not recognize any property and equipment impairment charges. For the year ended
December 31, 2020, we recognized property and equipment impairment charges totaling $15.1 million which are included in “Impairments of
intangible assets, property and equipment” in the consolidated statements of comprehensive loss. See Note 8 Impairments of Long-Lived
Assets for further information related to these charges.
51
Table of Contents
Lease Obligations
Forum Energy Technologies, Inc. and subsidiaries
Notes to consolidated financial statements (continued)
We determine if an arrangement is a lease at inception. Leases with an initial term of 12 months or less are not recorded in our consolidated
balance sheets. Leases with an initial term greater than 12 months are recognized in our consolidated balance sheets based on lease
classification as either operating or financing. Operating leases are included in operating lease assets, accrued liabilities and operating lease
liabilities. Finance leases are included in property and equipment, current portion of long-term debt, and long-term debt. Some of our lease
agreements include lease and non-lease components for which we have elected to not separate for all classes of underlying assets. Our
lease agreements do not contain any material residual value guarantees or material restrictive covenants. We sublease certain real estate to
third parties when we have no future use for the property.
Our lease portfolio primarily consists of operating leases for certain manufacturing facilities, warehouses, service facilities, office spaces,
equipment and vehicles. Operating lease right of use (“ROU”) assets and operating lease liabilities are recognized based on the present
value of the future minimum lease payments at the commencement date. As most of our leases do not provide an implicit rate, we use our
incremental borrowing rate based on the information available at the commencement date in determining the present value of future
payments. Our leases have remaining terms of 1 year to 12 years and may include options to extend or terminate the lease when it is
reasonably certain that we will exercise that option. The operating lease ROU assets also include any upfront lease payments made and
exclude lease incentives and initial direct costs incurred. Lease expense for operating leases is recognized on a straight-line basis over the
lease term.
We review lease ROU 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 its eventual disposal are estimated. If the undiscounted future cash flows are less than the carrying amount of the assets, there is
an indication that the asset may be impaired. The amount of the impairment is measured as the difference between the carrying value and
the estimated fair value of the asset. The fair value is determined by means of an analysis of discounted future cash flows based on expected
utilization.
For the year ended December 31, 2021, we did not recognize any impairments of operating lease assets. For the year ended December 31,
2020, we recognized impairments of operating lease assets totaling $15.4 million which are included in “Cost of Sales” and “Selling, general
and administrative expenses” in the consolidated statements of comprehensive loss. See Note 8 Impairments of Long-Lived Assets for
further information related to these charges.
Intangible assets
Intangible assets with definite lives are comprised of customer and distributor relationships, patents and technology, trade names,
trademarks and non-compete agreements which are amortized on a straight-line basis over the life of the intangible asset, generally two to
twenty-two years. These assets are tested for impairment whenever events or changes in circumstances indicate that their carrying amount
may not be recoverable. In performing the review for impairment, future cash flows expected to result from the use of the asset are
estimated. If the undiscounted future cash flows are less than the carrying amount of the assets, there is an indication that the asset may be
impaired. The amount of the impairment is measured as the difference between the carrying value and the estimated fair value of the asset.
The fair value is determined either through the use of an external valuation, or by means of an analysis of discounted future cash flows. The
impairment loss recognized represents the excess of an assets’ carrying value as compared to its estimated fair value.
For the year ended December 31, 2021, we did not recognize any impairments of intangible assets. For the year ended December 31, 2020,
we recognized intangible asset impairment charges totaling $5.3 million which are included in “Impairments of intangible assets, property and
equipment” in the consolidated statements of comprehensive loss. See Note 8 Impairments of Long-Lived Assets for further information
related to these charges.
Recognition of provisions for contingencies
In the ordinary course of business, we are subject to various claims, suits and complaints. We, in consultation with internal and external legal
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 a liability has been incurred and the amount can be reasonably estimated. If it is determined that the reasonable estimate of the
loss is a range and that there is no best estimate within that range, a provision will be made for the lower amount of the range. Legal costs
are expensed as incurred.
52
Table of Contents
Forum Energy Technologies, Inc. and subsidiaries
Notes to consolidated financial statements (continued)
An assessment is made of the areas where potential claims may arise under contract warranty clauses. Where a specific risk is identified,
and the potential for a claim is assessed as probable and can be reasonably estimated, an appropriate warranty provision is recorded.
Warranty provisions are eliminated at the end of the warranty period except where warranty claims are still outstanding. The liability for
product warranty is included in other accrued liabilities in the consolidated balance sheets.
Revenue recognition and deferred revenue
Revenue is recognized in accordance with Accounting Standards Codification Topic 606 (“ASC 606”), when control of the promised goods or
services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods
or services.
Contract Identification. We account for a contract when it is approved, both parties are committed, the rights of the parties are identified,
payment terms are defined, the contract has commercial substance and collection of consideration is probable.
Performance Obligations. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer under
ASC 606. The majority of our contracts with customers contain a single performance obligation to provide agreed-upon products or services.
For contracts with multiple performance obligations, we allocate revenue to each performance obligation based on its relative standalone
selling price. In accordance with ASC 606, we do not assess whether promised goods or services are performance obligations if they are
immaterial in the context of the contract with the customer. We have elected to apply the practical expedient to account for shipping and
handling costs associated with outbound freight after control of a product has transferred to a customer as a fulfillment cost which is included
in Cost of Sales. Furthermore, since our customer payment terms are short-term in nature, we have also elected to apply the practical
expedient which allows an entity to not adjust for the effects of a significant financing component if it expects that the customer’s payment
period will be less than one year in duration.
Contract Value. Revenue is measured based on the amount of consideration specified in the contracts with our customers and excludes any
amounts collected on behalf of third parties. We have elected the practical expedient to exclude amounts collected from customers for all
sales (and other similar) taxes.
The estimation of total revenue from a customer contract is subject to elements of variable consideration. Certain customers may receive
rebates or discounts which are accounted for as variable consideration. We estimate variable consideration as the most likely amount to
which we expect to be entitled, and we include estimated amounts in the transaction price to the extent it is probable that a significant
reversal of cumulative revenue will not occur when the uncertainty associated with the variable consideration is resolved. Our estimate of
variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an
assessment of our anticipated performance and all information (historic, current, forecast) that is reasonably available to us.
Timing of Recognition. We recognize revenue when we satisfy a performance obligation by transferring control of a product or service to a
customer. Our performance obligations are satisfied at a point in time or over time as work progresses.
Revenue from goods transferred to customers at a point in time accounted for 91% of revenues for the year ended December 31, 2021. The
majority of this revenue is product sales, which are generally recognized when items are shipped from our facilities and title passes to the
customer. The amount of revenue recognized for products is adjusted for expected returns, which are estimated based on historical data.
Revenue from goods transferred to customers over time accounted for 9% of revenues for the year ended December 31, 2021, which is
related to certain contracts in our Subsea and Production Equipment product lines. Recognition over time for these contracts is supported by
our assessment of the products supplied as having no alternative use to us and by clauses in the contracts that provide us with an
enforceable right to payment for performance completed to date. We use the cost-to-cost method to measure progress for these contracts
because it best depicts the transfer of assets to the customer which occurs as costs are incurred on the contract. The amount of revenue
recognized is calculated based on the ratio of costs incurred to-date compared to total estimated costs which requires management to
calculate reasonably dependable estimates of total contract costs. Whenever revisions of estimated contract costs and contract values
indicate that the contract costs will exceed estimated revenues, thus creating a loss, a provision for the total estimated loss is recorded in that
period. We recognize revenue and cost of sales each period based upon the advancement of the work-in-progress unless the stage of
53
Table of Contents
Forum Energy Technologies, Inc. and subsidiaries
Notes to consolidated financial statements (continued)
completion is insufficient to enable a reasonably certain forecast of profit to be established. In such cases, no profit is recognized during the
period.
Accounting estimates during the course of projects may change, primarily related to our remotely operated vehicles (“ROVs”) which may take
longer 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
the cumulative income recognized to date is adjusted to reflect the latest estimates. These revisions to estimates are accounted for on a
prospective basis.
Contracts are sometimes modified to account for changes in product specifications or requirements. Most of our contract modifications are
for goods and services that are not distinct from the existing contract. As such, these modifications are accounted for as if they were part of
the existing contract, and therefore, the effect of the modification on the transaction price and our measure of progress for the performance
obligation to which it relates is recognized as an adjustment to revenue on a cumulative catch-up basis. No adjustment to any one contract
was material to our consolidated financial statements for the years ended December 31, 2021 and 2020.
We sell our products through a number of channels including a direct sales force, marketing representatives, and distributors. We have
elected to expense sales commissions when incurred as the amortization period would be less than one year. These costs are recorded
within cost of sales.
Portfolio Approach. We have elected to apply ASC 606 to a portfolio of contracts with similar characteristics as we reasonably expect that the
effects on the financial statements of applying this guidance to the portfolio would not differ materially from applying this guidance to the
individual contracts within that portfolio.
Disaggregated Revenue. Refer to Note 18 Business Segments for disaggregated revenue by product line and geography.
Contract Balances. Contract balances are determined on a contract by contract basis. Contract assets represent revenue recognized for
goods and services provided to our customers when payment is conditioned on something other than the passage of time. Similarly, when
we receive consideration, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the
customer under the terms of a sales contract, we record a contract liability. Such contract liabilities typically result from billings in excess of
costs incurred and advance payments received on product sales.
Concentration of credit risk
Trade accounts receivable are financial instruments which potentially subject the Company to credit risk. Trade accounts receivable consist
of uncollateralized receivables from domestic and international customers. For the years ended December 31, 2021 and 2020, no one
customer accounted 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.
Stock based compensation
We measure all stock based compensation awards at fair value on the date they are granted to employees and directors, and recognize
compensation cost over the requisite service period for awards with only a service condition, and over a graded vesting period for awards
with service and performance or market conditions.
The fair value of stock based compensation awards with market conditions is measured using a Monte Carlo Simulation model and, in
accordance with Accounting Standards Codification Topic 718, is not adjusted based on actual achievement of the performance goals. The
Black-Scholes option pricing model is used to measure the fair value of options. Forfeitures are accounted for as they occur.
Income taxes
We follow the liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are determined
based upon temporary differences between the carrying amounts and tax bases of our assets and liabilities at the balance sheet date, and
are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. The effect on deferred tax
assets and liabilities of a change in the tax rates is recognized in income in the period in which the change occurs. We record a valuation
allowance in each reporting period when management believes that it is more likely than not that any deferred tax asset created will not be
realized. See Note 11 Income Taxes for more information on valuation allowances recognized.
Accounting guidance for income taxes requires that we recognize the financial statement benefit of a tax position only after determining that
the relevant tax authority would more likely than not sustain the position following an
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Forum Energy Technologies, Inc. and subsidiaries
Notes to consolidated financial statements (continued)
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 being realized upon ultimate settlement.
Non-U.S. local currency translation
We have global operations and the majority of our non-U.S. operations have designated the local currency as the functional currency.
Realized and unrealized gains and losses resulting from re-measurements of monetary assets and liabilities denominated in a currency other
than the local entity’s functional currency are included in the consolidated statements of comprehensive loss as incurred.
Financial statements of our foreign operations where the functional currency is not the U.S. dollar are translated into U.S. dollars using the
current rate method whereby assets and liabilities are translated at the balance sheet rate and income and expenses are translated at the
average exchange rates in effect during the period. The resultant translation adjustments are reported as a component of accumulated other
comprehensive loss within stockholders’ equity in our consolidated balance sheets.
Fair value
The carrying amounts for financial instruments classified as current assets and current liabilities approximate fair value, due to the short
maturity of such instruments. The book values of other financial instruments, such as our debt related to the Credit Facility, approximates fair
value because interest rates charged are similar to other financial instruments with similar terms and maturities and the rates vary in
accordance with a market index.
For 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
an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The established fair
value hierarchy 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 to access at the measurement date;
Level 2 - inputs other than quoted prices included within Level 1 that are observable for the asset 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 on the 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 pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”), which we adopt as of
the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards, which are not
yet effective, will not have a material impact on our consolidated financial statements upon adoption.
Accounting Standards Adopted in 2021
Income Tax. In December 2019, the FASB issued ASU No. 2019-12 Income Taxes (Topic 740) - Disclosure Framework - Simplifying the
Accounting for Income Taxes, which simplified the accounting for income taxes by removing certain exceptions to the general principles of
Topic 740 and clarifying and amending existing guidance. We adopted this new standard as of January 1, 2021. The adoption of this new
standard did not have a material impact on our consolidated financial statements.
Accounting Standards Issued But Not Yet Adopted
Convertible Debt. In August 2020, the FASB issued ASU No. 2020-06 Accounting for Convertible Instruments and Contracts in an Entity's
Own Equity. This update reduces the number of accounting models for convertible debt instruments resulting in fewer embedded conversion
features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be
subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract,
that meet the
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Forum Energy Technologies, Inc. and subsidiaries
Notes to consolidated financial statements (continued)
definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued
with substantial premiums for which the premiums are recorded as paid-in-capital. In addition, this update also makes targeted changes to
the disclosures for convertible instruments and earnings-per-share guidance. This guidance may be adopted through either a modified
retrospective or fully retrospective method of transition. This guidance will be effective for us in the first quarter of 2022. We currently expect
that the adoption of this guidance will not have a material impact on our consolidated financial statements.
3. Revenues
Disaggregated Revenue
Refer to Note 18 Business Segments for disaggregated revenue by product line and geography.
Contract Balances
The following table reflects the changes in our contract assets and contract liabilities balances for the year ended December 31, 2021:
December 31,
2021
December 31,
2020
Increase
$
%
Accrued revenue
Costs and estimated profits in excess of billings
Contract assets
Deferred revenue
Billings in excess of costs and profits recognized
Contract liabilities
$
$
$
$
2,245 $
8,285
10,530 $
7,276 $
9,705
16,981 $
1,687
8,516
10,203 $
7,863
1,817
9,680 $
327
3 %
7,301
75 %
During the year ended December 31, 2021, our contract assets increased by $0.3 million and our contract liabilities increased by $7.3 million
primarily due to the timing of billings on large projects in our Subsea Technologies product line.
During the year ended December 31, 2021, we recognized revenue of $8.2 million that was included in the contract liability balance at the
beginning of the period.
Substantially all of our contracts are less than one year in duration. As such, we have elected to apply the practical expedient which allows
an entity to exclude disclosures about its remaining performance obligations if the performance obligation is part of a contract that has an
original expected duration of one year or less.
4. Acquisitions & Dispositions
2021 Acquisition of Hawker Equipment Solutions
On December 20, 2021, we acquired certain assets of Hawker Equipment Solutions, LLC (“Hawker”) for total cash consideration of $5.1
million, of which, $3.4 million was paid in the fourth quarter of 2021 with the balance expected to be paid over the next five years. Hawker is a
manufacturer of hydraulic pickup and laydown units. This acquisition is included in the Drilling product line within the Drilling and Downhole
segment. The fair values of the assets acquired and liabilities assumed, as well as the pro forma results of operations for this acquisition,
have not been presented because they are not material to the consolidated financial statements.
2020 Disposition of ABZ and Quadrant Valves
On December 31, 2020, we sold certain assets of our ABZ and Quadrant valve brands for cash consideration of $104.6 million. This
transaction was accounted for as a disposition of a business. We recognized a gain on disposition of $88.4 million based on the difference in
cash received less $15.0 million of net book value of assets sold and a $1.2 million working capital settlement liability which was paid in
2021. Pro forma results of operations for this disposition have not been presented because the effects were not material to the consolidated
financial statements.
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5. Inventories
Forum Energy Technologies, Inc. and subsidiaries
Notes to consolidated financial statements (continued)
The Company’s significant components of inventory at December 31, 2021 and 2020 were as follows (in thousands):
Raw materials and parts
Work in process
Finished goods
Gross inventories
Inventory reserve
Inventories
December 31,
2021
December 31,
2020
$
$
97,053 $
24,618
182,954
304,625
(62,885)
241,740 $
151,531
15,946
229,212
396,689
(144,942)
251,747
The change in the amounts of the inventory reserve during the two year period ended December 31, 2021 is as follows (in thousands):
Period ended
Balance at beginning
of period
Charged to
expense
Deductions or other
Balance at end of
period
December 31, 2020
December 31, 2021
66,075
144,942
100,794
8,096
(21,927) $
(90,153) $
144,942
62,885
The $100.8 million charged to expense during the year ended December 31, 2020 includes significant write downs of inventory related to the
Company’s decision to discontinue certain products and other changes to sourcing and manufacturing strategies.
6. Property and Equipment
Property and equipment consists of the following (in thousands):
Land
Buildings and leasehold improvements
Computer equipment
Machinery & equipment
Furniture & fixtures
Vehicles
Right of use assets - finance leases
Rental equipment
Construction in progress
Less: accumulated depreciation
Total property and equipment, net
Estimated useful
lives
December 31,
2021
2020
5-30
3-5
5-10
3-10
3-5
2-6
3-10
$
7,502 $
85,810
43,853
124,254
5,961
2,944
3,530
2,112
1,960
277,926
(183,921)
$
94,005 $
8,476
93,645
44,607
148,019
6,275
3,835
3,823
3,830
968
313,478
(199,810)
113,668
Depreciation expense was $17.1 million and $24.5 million for the years ended December 31, 2021 and 2020, respectively.
For the year ended December 31, 2021, we did not recognize any property and equipment impairment charges. For the year ended
December 31, 2020, we recognized property and equipment impairment charges totaling $15.1 million, which are included in “Impairments of
intangible assets, property and equipment” in the consolidated statements of comprehensive loss. See Note 8 Impairments of Long-Lived
Assets for further information related to these charges.
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7. Intangible Assets
Forum Energy Technologies, Inc. and subsidiaries
Notes to consolidated financial statements (continued)
At December 31, 2021 and 2020, intangible assets consisted of the following, respectively (in thousands):
Customer relationships
Patents and technology
Non-compete agreements
Trade names
Trademark
Intangible Assets Total
Customer relationships
Patents and technology
Non-compete agreements
Trade names
Trademark
Intangible Assets Total
Gross carrying
amount
Accumulated
amortization
Net intangibles
Amortization
period (in years)
December 31, 2021
$
$
$
$
269,589 $
89,449
191
43,125
5,089
407,443 $
(133,451) $
(29,785)
(173)
(25,187)
(1,442)
(190,038) $
136,138
59,664
18
17,938
3,647
217,405
10 - 15
5 - 19
2 - 6
7 - 19
15
Gross carrying
amount
Accumulated
amortization
Net intangibles
Amortization
period (in years)
December 31, 2020
272,470 $
89,626
190
42,984
5,089
410,359 $
(121,294) $
(24,440)
(137)
(22,941)
(1,103)
(169,915) $
151,176
65,186
53
20,043
3,986
240,444
10 - 15
5 - 19
2 - 6
7 - 19
15
Intangible assets with definite lives are tested for impairment whenever events or changes in circumstances indicate that their carrying
amount may not be recoverable. For the year ended December 31, 2021, we did not recognize any intangible asset impairment charges. For
the year ended December 31, 2020, we recognized intangible asset impairment charges totaling $5.3 million, which are included in
“Impairments of intangible assets, property and equipment” in the consolidated statements of comprehensive loss. See Note 8 Impairments
of Long-Lived Assets for further information related to these charges.
Amortization expense was $25.1 million and $26.5 million for the years ended December 31, 2021 and 2020, respectively. The estimated
future amortization expense for the next five years is as follows (in thousands):
Year ending December 31,
2022
2023
2024
2025
2026
$
Amount
25,161
24,200
22,881
21,694
20,837
8. Impairments of Long-Lived Assets
During the year ended December 31, 2020, the COVID-19 pandemic and associated preventative actions taken around the world to mitigate
its spread caused oil demand to deteriorate and economic activity to decrease. As a result, oil prices declined significantly during the period
and created an extremely challenging market for all sub-sectors of the oil and natural gas industry. In addition, responses to the spread of
COVID-19, including significant government restrictions on movement, led to sharp declines in global economic activity.
As a result, we determined that certain long-lived assets were impaired as their carrying values exceeded their fair values. The amount of the
impairment charges were measured as the difference between the carrying value and the estimated fair value of the assets. The fair value
was determined either through analysis of discounted future cash flows or, for certain real estate, based on a third party's sales price
estimate (classified within level 3 of the fair value hierarchy).
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Forum Energy Technologies, Inc. and subsidiaries
Notes to consolidated financial statements (continued)
Following is a summary of impairment charges recognized in our segments during the year ended December 31, 2020 (in thousands):
Impairments of:
Property and equipment
Intangible assets
Operating lease right of use assets
(1)
(1)
(2)
Total impairments
Drilling & Downhole
1,069
5,257
5,366
11,692 $
$
Completions
Production
Corporate
Total Impairments
9,608
—
6,140
15,748 $
4,460
—
2,366
6,826 $
—
—
1,498
1,498 $
15,137
5,257
15,370
35,764
(1)
These charges are included in Impairments of intangible assets, property and equipment in the condensed consolidated statements of
comprehensive loss.
(2)
$10.8 million of these charges are included in Cost of sales, while $4.5 million are included in Selling, general and administrative expenses
in the condensed consolidated statements of comprehensive loss.
9. Debt
Notes payable and lines of credit as of December 31, 2021 and 2020 consisted of the following (in thousands):
2025 Notes
Unamortized debt discount
Debt issuance cost
Credit Facility
Other debt
Total debt
Less: current maturities
Long-term debt
2025 Notes
December 31,
2021
December 31,
2020
256,970
(20,035)
(4,918)
—
1,213
233,230
(860)
232,370 $
316,863
(30,248)
(7,318)
13,126
2,272
294,695
(1,322)
293,373
$
In August 2020, we exchanged $315.5 million principal amount of our previous 6.25% unsecured notes due 2021 (“2021 Notes”) for new
9.00% convertible secured notes due August 2025 (the “2025 Notes”). This transaction was accounted for as an extinguishment of the 2021
Notes with the new 2025 Notes recorded at fair value on the transaction date. We estimated the fair value of the 2025 Notes to be $282.6
million at the issuance date, resulting in a $32.9 million discount (“Debt Discount”) at issuance. As a result, we recognized a $28.7 million
gain on extinguishment of debt that reflects the difference in the $314.8 million net carrying value of the 2021 Notes exchanged, including
debt issuance costs and unamortized debt premium, less the $282.6 million estimated fair value of 2025 Notes and a $3.5 million early
participation fee paid to bondholders that participated in the exchange. The Debt Discount is being amortized as non-cash interest expense
over the term of the 2025 Notes using the effective interest method.
The 2025 Notes pay interest at the rate of 9.00%, of which 6.25% is payable in cash and 2.75% is payable in cash or additional notes, at the
Company’s option. The 2025 Notes are secured by a first lien on substantially all of the Company’s assets, except for Credit Facility priority
collateral, which secures the 2025 Notes on a second lien basis. As of December 31, 2021, approximately $116.0 million principal amount of
the 2025 Notes is mandatorily convertible into shares of our common stock at a conversion rate of 37.0370 shares per $1,000 principal
amount of 2025 Notes converted, equivalent to a conversion price of $27.00 per share, subject, however, to the condition that the average of
the daily trading prices for the common stock over the preceding 20-trading day period is at least $30.00 per share. Holders of the 2025
Notes also have optional conversion rights in the event that the Company elects to redeem the 2025 Notes in cash and at the final maturity of
the new notes. Any interest that the Company elects to pay in additional notes is also subject to the mandatory and optional conversion
rights.
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Forum Energy Technologies, Inc. and subsidiaries
Notes to consolidated financial statements (continued)
During the year ended December 31, 2021, we repurchased an aggregate $59.9 million of principal amount of our 2025 Notes for $58.6
million. The net carrying value of the extinguished debt, including unamortized debt discount and debt issuance costs, was $53.3 million,
resulting in a $5.3 million loss on extinguishment of debt.
Credit Facility
In September 2021, we amended our senior secured revolving credit facility ("Credit Facility") to, among other things, extend the maturity
date to September 2026, reduce the aggregate amount of the commitment under the Credit Facility, and change the interest rate applicable
to outstanding loans. Following such amendment, our Credit Facility provides revolving credit commitments of $179.0 million (with a sublimit
of up to $45.0 million available for the issuance of letters of credit for the account of the Company and certain of its domestic subsidiaries)
(the “U.S. Line”), of which up to $20.0 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 available for the issuance of letters of credit for the account of our Canadian subsidiaries) (the “Canadian Line”).
Availability under the Credit Facility is subject to a borrowing base calculated by reference to eligible accounts receivable in the U.S., Canada
and certain other jurisdictions (subject to a cap) and eligible inventory in the U.S. and Canada. Such eligible accounts receivable and eligible
inventory serve as priority collateral for the Credit Facility, which is also secured on a second lien basis by substantially all of the Company's
other assets. The amount of eligible inventory included in the borrowing base is restricted to the lesser of $127.5 million (subject to a
quarterly reduction of $0.5 million) and 80.0% of the total borrowing base. Our borrowing capacity under the Credit Facility could be reduced
or eliminated, depending on future fluctuations in our receivables and inventory. As of December 31, 2021, our total borrowing base
was $146.1 million, of which no amounts were drawn and $18.7 million was used for security of outstanding letters of credit, resulting in
remaining availability of $127.4 million.
Borrowings under the U.S. line bear interest at a rate equal to, at our option, either (a) the LIBOR rate, subject to a floor of 0.00%, plus a
margin of 2.25% to 2.75%, or (b) a base rate plus a margin of 1.25% to 1.75%, in each case based upon the Company's quarterly total net
leverage ratio. The U.S. line base rate is determined by reference to the greatest of (i) the federal funds rate plus 0.50% per annum, (ii) the
one-month adjusted LIBOR plus 1.00% per annum, and (iii) the rate of interest announced, from time to time, by Wells Fargo at its principal
office in San Francisco as its prime rate, subject to a floor of 0.00%.
Borrowings under the Canadian Line bear interest at a rate equal to, at Forum Canada’s option, either (a) the CDOR rate, subject to a floor of
0.00%, plus a margin of 2.25% to 2.75%, or (b) a base rate plus a margin of 1.25% to 1.75%, in each case based upon the Company's
quarterly net leverage ratio. The Canadian line base rate is determined by reference to the greater of (i) the one-month CDOR rate
plus 1.00% and (ii) the prime rate for Canadian dollar commercial loans made in Canada as reported by Thomson Reuters, subject to a floor
of 0.00%.
The Credit Facility also provides for a commitment fee in the amount of (a) 0.375% on the unused portion of commitments if average usage
of the Credit Facility is greater than 50% and (b) 0.500% on the unused portion of commitments if average usage of the Credit Facility is less
than or equal to 50%.
If excess availability under the Credit Facility falls below the greater of 12.5% of the borrowing base and $22.4 million, we will be required to
maintain 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 Credit
Facility exceeds such thresholds for at least 60 consecutive days. Furthermore, the Credit Facility includes an obligation to prepay
outstanding loans with cash on hand in excess of certain thresholds and includes a cross-default to the 2025 Notes.
Other Debt
Other debt consists of various finance leases of equipment.
Deferred loan costs
We have incurred loan costs that have been deferred and are amortized to interest expense over the term of the 2025 Notes and the Credit
Facility. In the first quarter of 2020, we wrote-off $2.0 million of deferred loan costs for the termination of previous discussions related to a
potential exchange offer for our 2021 Notes. In connection with the September 2021 Credit Facility amendment, we deferred approximately
$1.6 million of loan costs that will be amortized over the facility's remaining life.
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Forum Energy Technologies, Inc. and subsidiaries
Notes to consolidated financial statements (continued)
Future principal payments under long-term debt for each of the years ending December 31 are as follows (in thousands):
2022
2023
2024
2025
2026
Thereafter
Total future payment
Add: Unamortized debt discount
Less: Debt issuance cost
Less: present value discount on finance leases
Total debt
10. Leases
$
$
$
$
860
317
97
256,975
—
—
258,249
(20,035)
(4,918)
(66)
233,230
Our lease portfolio primarily consists of operating leases for certain manufacturing facilities, warehouses, service facilities, office spaces,
equipment and vehicles. The following table summarizes the supplemental balance sheet information related to leases as of December 31,
2021 and 2020 (in thousands):
Classification
December 31, 2021
December 31, 2020
As of
Assets
Operating lease assets
Finance lease assets
Total lease assets
Liabilities
Current
Operating
Finance
Noncurrent
Operating
Finance
Total lease liabilities
Operating lease assets
Property and equipment, net of accumulated
depreciation
Accrued liabilities
Current portion of long-term debt
Operating lease liabilities
Long-term debt, net of current portion
$
$
$
$
$
25,431 $
1,727
27,158 $
10,956 $
860
34,745
353 $
46,914 $
31,520
2,464
33,984
11,974
1,322
44,536
950
58,782
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Forum Energy Technologies, Inc. and subsidiaries
Notes to consolidated financial statements (continued)
The following table summarizes the components of lease expenses for the twelve months ended December 31, 2021 (in thousands):
Lease Cost
Operating lease cost
Finance lease cost
Amortization of leased assets
Interest on lease liabilities
Sublease income
Net lease cost
Classification
Cost of sales and Selling, general and
administrative expenses
Selling, general and administrative expenses
Interest expense
Cost of sales and Selling, general and
administrative expenses
$
$
The maturities of lease liabilities as of December 31, 2021 are as follows (in thousands):
Twelve Months Ended
December 31,
2021
2020
11,123 $
1,061
110
(2,184)
10,110 $
8,439
932
155
(2,001)
7,525
2022
2023
2024
2025
2026
Thereafter
Total lease payments
Less: present value discount
Present value of lease liabilities
Operating
Leases
Finance
Leases
Total
$
$
13,199 $
8,631
7,053
6,105
5,053
15,862
55,903
(10,202)
45,701 $
860 $
316
97
6
—
—
1,279
(66)
1,213 $
14,059
8,947
7,150
6,111
5,053
15,862
57,182
(10,268)
46,914
The following table summarizes the weighted-average remaining lease term and weighted average discount rates related to leases as of
December 31, 2021:
Lease Term and Discount Rate
Weighted-average remaining lease term (years)
Operating leases
Financing leases
Weighted-average discount rate
Operating leases
Financing leases
December 31, 2021
December 31, 2020
6.4 years
1.5 years
6.58 %
6.58 %
6.6 years
1.8 years
6.58 %
6.58 %
The following table summarizes the supplemental cash flow information related to leases as of December 31, 2021:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
Twelve Months Ended
December 31,
2021
2020
$
$
13,053 $
92
1,517 $
11,038
80
1,179
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11. Income Taxes
Forum Energy Technologies, Inc. and subsidiaries
Notes to consolidated financial statements (continued)
The components of loss before income taxes for the years ended December 31, 2021 and 2020 are as follows (in thousands):
U.S.
Non-U.S.
Loss before income taxes
$
$
2021
2020
(98,445) $
16,436
(82,009) $
(106,785)
(2,985)
(109,770)
The components of income tax expense (benefit) for the years ended December 31, 2021 and 2020 are as follows (in thousands):
Current
U.S. federal and state
Non-U.S.
Total current
Deferred
U.S. federal and state
Non-U.S.
Total deferred
Income tax expense (benefit)
2021
2020
1,235 $
(3,384)
(2,149)
(169)
2,960
2,791
642 $
(17,219)
4,487
(12,732)
723
(872)
(149)
(12,881)
$
$
The reconciliation between the actual provision for income taxes and that computed by applying the U.S. statutory rate to loss before income
taxes are outlined below (in thousands):
Income tax benefit at the statutory rate
State taxes, net of federal tax benefit
Non-U.S. operations
Domestic incentives
Prior year federal, non-U.S. and state tax
Nondeductible expenses
U.S. CAREs Act
Valuation allowance
Other
Income tax benefit
$
$
2021
(17,222)
22
(7,594)
(264)
(7,183)
1,624
113
31,079
67
642
(21.0)% $
— %
(9.3)%
(0.3)%
(8.8)%
2.0 %
0.1 %
37.9 %
0.2 %
0.8 % $
2020
(23,052)
(4,190)
625
(264)
(1,827)
2,053
(15,981)
25,349
4,406
(12,881)
(21.0)%
(3.8)%
0.6 %
(0.2)%
(1.7)%
1.9 %
(14.6)%
23.1 %
4.0 %
(11.7)%
Our effective tax rate was 0.8% and (11.7)% for the years ended December 31, 2021 and 2020, respectively.
For the year ended December 31, 2020, we recognized a $16.0 million benefit related to a carryback claim for U.S. federal tax losses based
on provisions in the U.S. Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) which was signed into law on March 27, 2020.
The CARES Act provided relief to corporate taxpayers by permitting a five-year carryback of 2018-2020 NOLs, increased the 30% limitation
on interest expense deductibility to 50% of adjusted taxable income for 2019 and 2020, and accelerated refunds for minimum tax credit
carryforwards, among other provisions. The tax effects of changes in tax laws are recognized in the period in which the law is enacted.
The tax benefit for the year ended December 31, 2021 and 2020 includes an increase in our valuation allowance of $31.1 million and $25.3
million, respectively, consisting of a full valuation allowance against our deferred tax assets in the U.S., U.K., Germany, Singapore, China and
Saudi Arabia as further described below under the primary components of deferred taxes.
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Forum Energy Technologies, Inc. and subsidiaries
Notes to consolidated financial statements (continued)
The primary components of deferred taxes include (in thousands):
Deferred tax assets
Reserves and accruals
Operating lease liabilities
Inventory
Stock awards
Net operating loss and other tax carryforwards
Goodwill and intangible assets
Fair value discount on 2025 Notes
Property and equipment
Other
Gross deferred tax assets
Valuation allowance
Total deferred tax assets
Deferred tax liabilities
Property and equipment
Operating lease assets
Prepaid expenses and other
Total deferred tax liabilities
Net deferred tax liabilities
2021
2020
$
3,978 $
11,176
14,692
2,340
109,402
32,513
22,250
6,424
1,912
204,687
(198,366)
6,321
—
(6,490)
(462)
(6,952)
$
(631) $
14,917
3,097
37,784
2,180
53,781
39,381
30,564
—
931
182,635
(167,287)
15,348
(6,861)
(6,818)
(3,519)
(17,198)
(1,850)
Goodwill from certain acquisitions is tax deductible due to the acquisition structure as an asset purchase or due to tax elections made by the
Company and the respective sellers at the time of acquisition.
We have deferred tax assets related to net operating loss and other tax carryforwards in the U.S., and in certain states and foreign
jurisdictions. We recognize deferred tax assets to the extent that we believe these assets are more likely than not to be realized.
At December 31, 2021, we had $243.6 million of U.S. net operating loss carryforwards and $10.1 million of state net operating losses. Of
these losses, $14.9 million will expire no later than 2037 if they are not utilized prior to that date. The remaining $238.8 million will not expire.
We also had $186.9 million of non-U.S. net operating loss carryforwards with indefinite expiration dates. The ultimate realization of income
tax benefits for these net operating loss carryforwards depends on our ability to generate sufficient taxable income in the respective taxing
jurisdictions. Where we have unrecognized tax benefits in jurisdictions with existing net operating losses, we utilize the unrecognized tax
benefits as a source of income to offset such losses. We do not anticipate being able to fully utilize all of the losses prior to their expiration in
the following jurisdictions: the U.S, the U.K, Germany, Singapore, China and Saudi Arabia.
During 2021, we recognized $31.1 million of tax expense related to the increase in our valuation allowance provided against our deferred tax
assets to write down our deferred tax assets in these jurisdictions to what is more likely than not realizable. We increased our valuation
allowance related to our U.S. and foreign deferred tax assets by $15.6 million and $15.5 million, respectively. In making such a determination
for each of these jurisdictions, we considered all available positive and negative evidence, including our recent history of pretax losses over
the prior three year period, the goodwill and intangible asset impairments for various reporting units, the future reversals of existing taxable
temporary differences, the projected future taxable income or loss and tax-planning.
Deferred tax liabilities arising from the difference between the financial reporting and income tax bases inherent in our foreign subsidiaries,
referred to as outside basis differences, have not been provided for U.S. income tax purposes because we do not intend to sell, liquidate or
otherwise trigger the recognition of U.S. taxable income with regard to our investment in these foreign subsidiaries. Determining the amount
of U.S. deferred tax liabilities associated with outside basis differences is not practicable at this time.
We file income tax returns in the U.S. as well as in various states and non-U.S. jurisdictions. With few exceptions, we are no longer subject to
income tax examination by tax authorities in these jurisdictions prior to 2015.
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Forum Energy Technologies, Inc. and subsidiaries
Notes to consolidated financial statements (continued)
We account for uncertain tax positions in accordance with guidance in Accounting Standards Codification Topic 740, which prescribes the
minimum recognition threshold a tax position taken or expected to be taken in a tax return is required to meet before being recognized in the
financial statements. A reconciliation of the beginning and ending amount of uncertain tax positions is as follows (in thousands):
Balance at January 1, 2021
Additional based on tax positions related to prior years
Additional based on tax positions related to current year
Reduction based on tax positions related to prior years
Settlement with tax authorities
Lapse of statute of limitations
Balance at December 31, 2021
$
12,382
367
1,712
—
—
(6,103)
8,358
The total amount of unrecognized tax benefits at December 31, 2021 was $8.4 million, of which it is reasonably possible that $1.6 million
could be 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 statute of limitations. We estimate that $8.4 million of the unrecognized tax benefits at December 31, 2021, excluding
consideration of valuation allowance, would impact our future effective income tax rate, if recognized.
We recognize interest and penalties related to uncertain tax positions within the provision for income taxes in the consolidated statements
of comprehensive loss. As of December 31, 2021 and 2020, we had accrued approximately $0.5 million and $1.4 million in interest and
penalties, respectively. During the years ended December 31, 2021 and 2020, we recognized no material change in the interest and
penalties related to uncertain tax positions.
12. Fair Value Measurements
The Company had zero and $13.1 million outstanding under the Credit Facility at December 31, 2021 and December 31, 2020, respectively.
The Credit Facility incurs interest at a variable interest rate and therefore, the carrying amount approximates fair value. The fair value of the
debt is classified as a Level 2 measurement because interest rates charged are similar to other financial instruments with similar terms and
maturities.
The fair value of the Company’s Senior Notes is estimated using Level 2 inputs in the fair value hierarchy and is based on quoted prices for
those or similar instruments. At December 31, 2021, the fair value and the carrying value of the Company’s 2025 Notes approximated $225.0
million and $232.0 million, respectively. At December 31, 2020, the fair value and the carrying value of the Company’s 2021 Notes
approximated $200.3 million and $279.3 million, respectively.
There were no other significant outstanding financial instruments as of December 31, 2021 and 2020 that required measuring the amounts at
fair value on a recurring basis. The Company did not change its valuation techniques associated with recurring fair value measurements from
prior periods. and there were no transfers between levels of the fair value hierarchy during the year ended December 31, 2021.
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Forum Energy Technologies, Inc. and subsidiaries
Notes to consolidated financial statements (continued)
13. Commitments and Contingencies
Litigation
In the ordinary course of business, the Company is, and in the future, could be involved in various pending or threatened legal actions, some
of which may or may not be covered by insurance. Management has reviewed such pending judicial and legal proceedings, the reasonably
anticipated costs and expenses in connection with such proceedings, and the availability and limits of insurance coverage, and has
established reserves that are believed to be appropriate in light of those outcomes that are believed to be probable and can be estimated.
The reserves accrued at December 31, 2021 and 2020 are immaterial. In the opinion of management, the Company’s ultimate liability, if any,
with respect to these actions is not expected to have a material adverse effect on the Company’s financial position, results of operations or
cash flows.
Asbestos litigation
One of our subsidiaries has been named as one of many defendants in a number of product liability claims for alleged exposure to asbestos
used in valves. These lawsuits are typically filed on behalf of plaintiffs who allege exposure to asbestos, against numerous defendants, often
forty or more, who are alleged to have manufactured or distributed products containing asbestos. The injuries alleged by plaintiffs in these
cases range from mesothelioma and other cancers to asbestosis. The earliest claims against our subsidiary were filed in New Jersey in
1998, and our subsidiary currently has active cases in Missouri, New Jersey, New York, Illinois and Delaware. These complaints do not
typically include requests for a specific amount of damages. Our subsidiary acquired the trademark for the product line in question in 1985.
To date, most of the claims against our subsidiary alleging illnesses due to asbestos have generally been based on products manufactured
by the previous owner prior to 1985 that are alleged to have contained asbestos. Many claimants alleging illnesses due to asbestos sue on
the basis of exposure prior to 1985, as by that date the hazards of asbestos exposure were well known and asbestos had begun to fall into
disuse. Our subsidiary has been successful in obtaining dismissals in most lawsuits without any cash contribution including because the
“successor liability” law in most states does not hold a purchaser in good faith liable for the actions of the seller prior to the acquisition date
unless the purchaser contractually assumed the liabilities, which our subsidiary did not. There are exceptions to the successor liability
doctrine in many states, so there are no assurances that our subsidiary will not be found liable for the actions of its predecessor. The law in
other states on so called “successor liability” may be different or ambiguous in this regard, and could also expose our subsidiary to liability.
Our subsidiary could also be found liable should a trier of fact reject our subsidiary’s position that it is not responsible for the alleged asbestos
injuries, such as in a case where a plaintiff alleges post-1985 exposure. 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 25 new cases filed against our subsidiary in each of last two years, and a significant number of
existing cases were dismissed, settled or otherwise disposed of over the last year. We currently have fewer than 150 lawsuits pending
against this subsidiary. Our subsidiary has over $17 million in face amount of insurance per occurrence and over $23 million of aggregate
primary insurance coverage. In addition, our subsidiary has over $950 million in face amount of excess coverage applicable to the claims.
There can be no guarantee that all of this can be collected due to policy terms and conditions and insurer insolvencies in the past or in the
future. In January 2011, we entered into an agreement with seven of our primary insurers under which they have agreed to pay 80% of the
costs of handling and settling each asbestos claim against the affected subsidiary. The insurers’ portion of the settlements is funded by our
primary insurance limits, which are eroded only by settlements and not legal fees. Approximately $2.0 million in settlements has been paid by
insurers and our subsidiary to date, with approximately $40,000 paid over the course of the last two years. Our subsidiary and the
subscribing insurers have the right to withdraw from this agreement, but to date, no party has exercised this right or expressed an intent to do
so.
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Forum Energy Technologies, Inc. and subsidiaries
Notes to consolidated financial statements (continued)
Portland Harbor Superfund litigation
In May 2009, one of the Company’s subsidiaries (which is presently a dormant company with nominal assets except for rights under
insurance policies) 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 Protection Agency indicating that it had been identified as a potentially responsible party with respect to environmental
contamination in the “study area” for the Portland Harbor Superfund Site. Under a 1997 indemnity agreement, the subsidiary is indemnified
by a third party with respect to losses relating to environmental contamination. As required under the indemnity agreement, the subsidiary
provided notice of these claims, and the indemnitor has assumed responsibility and is providing a defense of the claims. Although the
Company believes that it is unlikely that the subsidiary contributed to the contamination at the Portland Harbor Superfund Site, the potential
liability of the subsidiary and the ability of the indemnitor to fulfill its indemnity obligations cannot be quantified at this time.
Tenaris litigation
In October of 2017, one of our subsidiaries, Global Tubing, LLC, filed suit against Tenaris Coiled Tubes, LLC and Tenaris, S.A. (together
“Tenaris”) in the United States District Court for the Southern District of Texas seeking a declaration that its DURACOIL products do not
infringe certain Tenaris patents related to coiled tubing. Tenaris filed counterclaims against Global Tubing alleging DURACOIL products
infringe three patents. Tenaris seeks unspecified damages and a permanent injunction. Global Tubing is vigorously defending itself and
alleges the Tenaris patents are invalid and unenforceable. While Global Tubing believes that it will prevail on all claims, if Tenaris were to
obtain a permanent injunction, Global Tubing may be barred from selling certain of its DURACOIL products.
TM
TM
TM
Operating leases
The Company has operating leases for warehouses, office space, manufacturing facilities and equipment. The leases generally require the
Company to pay certain expenses including taxes, insurance, maintenance, and utilities. See Note 10 Leases for further information.
Letters of credit and guarantees
The Company executes letters of credit in the normal course of business to secure the delivery of product from specific vendors and also to
guarantee the Company fulfilling certain performance obligations relating to certain large contracts. At December 31, 2021, the Company had
$18.7 million in letters of credit outstanding.
14. Loss Per Share
The reconciliation of basic and diluted earnings per share for each period presented was as follows (dollars and shares in thousands, except
per share amounts):
Net loss attributable to common stockholders
Basic - weighted average shares outstanding
Dilutive effect of stock options and restricted stock
Dilutive effect of convertible 2025 Notes
Diluted - weighted average shares outstanding
Loss per share
Basic
Diluted
Year ended December 31,
2020
2021
(82,651) $
(96,889)
5,643
—
—
5,643
(14.65) $
(14.65) $
5,577
—
—
5,577
(17.37)
(17.37)
$
$
$
For all periods presented, we excluded all potentially dilutive restricted shares and stock options in calculating diluted earnings per share as
the effect was anti-dilutive due to net losses incurred for these periods.
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Forum Energy Technologies, Inc. and subsidiaries
Notes to consolidated financial statements (continued)
15. Stockholders' Equity and Employee Benefit Plans
Employee benefit plans
We sponsor a 401(k) savings plan for U.S. employees and related savings plans for certain non-U.S. employees. These plans benefit eligible
employees by allowing them the opportunity to make contributions up to certain limits. We contribute by matching a percentage of each
employee’s contributions. In 2020, for certain plans, the Company temporarily suspended the matching of contributions. Matching
contributions were reinstated at the beginning of 2022. 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. We also have the discretion to provide a profit sharing contribution
to each participant depending on the Company’s performance for the applicable year. The expense under the Company’s plan was zero and
$2.3 million for the years ended December 31, 2021 and 2020, respectively.
Reverse stock split
In order to bring the Company into compliance with the listing requirements of the New York Stock Exchange, our Board of Directors
approved a 1-for-20 reverse stock split (the “Reverse Stock Split”) of the Company’s issued and outstanding shares of common stock, par
value $0.01 per share, accompanied by a corresponding decrease in the Company’s authorized shares of common stock. The Company’s
stockholders previously approved the Reverse Stock Split at the annual meeting of stockholders on May 12, 2020.
The effective time of the Reverse Stock Split was after market close on November 9, 2020, with the common stock trading on a post-split
basis under the Company’s existing trading symbol, “FET,” at the market open on November 10, 2020. No fractional shares of common stock
were issued as a result of the Reverse Stock Split. Instead, any stockholder who would have been entitled to a fractional share received a
cash payment in lieu of such fractional shares.
Following the completion of the Reverse Stock Split, the number of authorized shares of common stock was reduced from 296,000,000 to
14,800,000. Unless otherwise indicated, the number of shares of common stock outstanding and per-share amounts in these consolidated
financial statements and accompanying notes have been retroactively adjusted to reflect the effect of the Reverse Stock Split. The par value
of our common stock remains at $0.01 per share.
16. Long-Term Incentive Compensation
FET stock based compensation plan
The following share and per-share information has been retroactively adjusted to reflect the effect of the 1-for-20 Reverse Stock Split. See
Note 15. Stockholders' Equity and Employee Benefit Plans for further information.
In August 2010, we created the 2010 Stock Incentive Plan (the “2010 Plan”) to allow for employees, directors and consultants of the
Company and its subsidiaries to maintain stock ownership in the Company through the award of stock options, restricted stock, restricted
stock units, performance shares or any combination thereof. Under the terms of the 2010 Plan, a total of 925 thousand shares were
authorized for awards.
In May 2016, we created a new 2016 Stock and Incentive Plan (the “2016 Plan”). Under the terms of the 2016 Plan, the aggregate number of
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
effective date of the 2016 plan, a total of 285 thousand shares. No further awards will be made under the 2010 Plan after such date, and
outstanding awards granted under the 2010 Plan shall continue to be outstanding. In May 2019, our stockholders approved to amend and
restate the 2016 Plan (the “2016 Amended Plan”) to provide for an additional 145 thousand shares and revised certain terms thereof. In May
2020, our stockholders approved an amendment to the 2016 Amended Plan to provide for an additional 60 thousand shares. Approximately
105 thousand shares remained available under the 2016 Amended Plan for future grants as of December 31, 2021.
The total amount of stock based compensation expense recorded was $7.6 million and $9.8 million for the years ended December 31, 2021
and 2020, respectively. As of December 31, 2021, the Company expects to record stock based compensation expense of approximately
$11.4 million over a weighted average remaining term of approximately two years. Future grants will result in additional compensation
expense.
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Stock options
Forum Energy Technologies, Inc. and subsidiaries
Notes to consolidated financial statements (continued)
The 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-
year life and vest annually in equal increments over four years. Our policy for issuing stock upon a stock option exercise is to issue new
shares. Compensation expense is recognized on a straight line basis over the vesting period. The following table provides additional
information related to stock options:
2021 Activity
Beginning balance
Forfeited/expired
Total outstanding
Options exercisable
Number of shares
(in thousands)
Weighted average
exercise price
95 $
(20) $
75 $
75 $
358.31
362.07
357.34
358.46
Remaining weighted
average contractual
life in years
3.5
3.2
3.2
Intrinsic value
(in millions)
$
$
$
—
—
—
The intrinsic value is the amount by which the fair value of the underlying share exceeds the exercise price of the stock option. No stock
options were exercised in 2021 or 2020.
As of December 31, 2021 and 2020, the share price of the Company was less than the exercise price for all outstanding stock options.
Therefore, the intrinsic value for stock options outstanding and exercisable were both zero. No stock options were granted in 2021 or 2020.
Restricted stock
Restricted stock generally vests over a period of one to four years from the date of grant. The following table provides additional information
related to our restricted stock:
2021 Activity
Nonvested at beginning of year
Granted
Vested
Nonvested at the end of year
Restricted stock (shares in
thousands)
—
10
—
10
The weighted average grant date fair value of restricted stock granted during the year ended December 31, 2021 was $23.36 per share. The
total grant date fair value of shares vested was $1.5 million during 2020.
Restricted stock units
Restricted stock units generally vest over a three or four year period from the date of grant. The following table provides additional
information related to our restricted stock units:
2021 Activity
Nonvested at beginning of year
Granted
Vested
Forfeited
Nonvested at the end of year
Restricted stock units
(shares in thousands)
331
140
(113)
(2)
356
Of the restricted stock units granted during 2021, 73,839 shares vest ratably over three years and 66,524 shares vest ratably over three
years dependent upon achieving a minimum stock price of $23.49 for 20 trading days during each performance period.
The weighted average grant date fair value of the restricted stock units was $18.20 and $12.83 per share during the years ended
December 31, 2021, and 2020, respectively. The total grant date fair value of units vested was $5.3 million and $10.3 million during 2021 and
2020, respectively.
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Table of Contents
Liability-classified awards
Forum Energy Technologies, Inc. and subsidiaries
Notes to consolidated financial statements (continued)
During 2021, we granted 66,524 cash-settled phantom stock units to employees that vest ratably over three years. These awards have a
maximum payout that is calculated based on five times the stock price on the date of grant.
The Company also granted 73,839 cash-settled contingent phantom stock units to employees that vest ratably over three years dependent
upon achieving a minimum stock price of $23.49 for 20 trading days during each performance period. These awards also have a maximum
payout that is calculated based on five times the stock price on the date of grant.
Stock appreciation rights
In the fourth quarter of 2019, we granted stock appreciation rights with service-vesting and market-vesting conditions. The following table
provides additional information related to our stock appreciation rights:
2021 Activity
Nonvested at beginning of year
Granted
Forfeited
Nonvested at the end of year
Stock Appreciation Rights
(in thousands)
248
—
(11)
237
The grant date fair value of the stock appreciation rights was $3.86. The stock appreciation rights will vest on the third anniversary from the
grant date if the average closing price of a share of our Common Stock over the twenty trading days prior to the third anniversary date (the
“Ending Market Value”) is equal to or greater than $100.00. If vested, the stock appreciation rights will ultimately be settled for the difference
between the Ending Market Value and the exercise price of $29.00. The stock appreciation rights, if vested, may be settled in stock or cash.
If vested, we intend to settle the stock appreciation rights in stock.
17. Related Party Transactions
The Company has sold and purchased inventory, services and fixed assets to and from various affiliates of certain directors. The dollar
amounts related to these related party activities are not significant to our consolidated financial statements.
18. Business Segments
The Company reports results of operations in the following three reporting segments: Drilling & Downhole, Completions and Production. The
amounts indicated below as “Corporate” relate to costs and assets not allocated to the reportable segments.
The Drilling & Downhole segment designs and manufactures products and provides related services to the drilling, well construction, artificial
lift and subsea energy construction and services markets, including applications in oil and natural gas, renewable energy, defense, and
communications. The Completions segment designs, manufactures and supplies products and provides related services to the coiled tubing,
well stimulation and intervention markets. The Production segment designs, manufactures and supplies products, and provides related
equipment and services for production and infrastructure markets.
The Company’s reportable segments are strategic units that offer distinct products and services. They are managed separately since each
business segment requires different marketing strategies. Operating segments have not been aggregated as part of a reportable segment.
The Company evaluates the performance of its reportable segments based on operating income. This segmentation is representative of the
manner in which our Chief Operating Decision Maker and our board of directors view the business. We consider the Chief Operating
Decision Maker to be the Chief Executive Officer.
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Table of Contents
Forum Energy Technologies, Inc. and subsidiaries
Notes to consolidated financial statements (continued)
Summary financial data by segment follows (in thousands):
Revenue:
Drilling & Downhole
Completions
Production
Eliminations
Total revenue
Segment operating income (loss):
Drilling & Downhole
Completions
Production
Corporate
Total segment operating loss
Impairments of intangible assets, property and equipment
Loss (gain) on disposal of assets and other
Operating loss
Depreciation and amortization
Drilling & Downhole
Completions
Production
Corporate
Total depreciation and amortization
A summary of capital expenditures by reportable segment is as follows (in thousands):
Capital expenditures
Drilling & Downhole
Completions
Production
Corporate
Total capital expenditures
A summary of consolidated assets by reportable segment is as follows (in thousands):
Assets
Drilling & Downhole
Completions
Production
Corporate
Total assets
Corporate assets primarily include cash, certain prepaid expenses and deferred loan costs.
71
Year ended December 31,
2021
2020
239,895
185,018
116,710
(555)
541,068
4,749
(4,532)
(14,354)
(31,408)
(45,545)
—
(1,052)
(44,493)
14,536
22,568
4,769
303
42,176
$
$
$
$
$
$
216,836
118,685
177,510
(555)
512,476
(47,964)
(97,304)
(33,418)
(30,012)
(208,698)
20,394
2,531
(231,623)
17,895
24,831
7,755
519
51,000
Year ended December 31,
2021
2020
1,476 $
512
411
—
2,399 $
Year ended December 31,
2021
2020
313,493 $
351,908
83,150
42,785
791,336 $
462
275
287
1,222
2,246
314,375
356,645
92,949
125,957
889,926
$
$
$
$
$
$
$
$
$
$
Table of Contents
Forum Energy Technologies, Inc. and subsidiaries
Notes to consolidated financial statements (continued)
A summary of long-lived assets by country is as follows (in thousands):
Long-lived assets:
United States
Europe
Canada
Asia-Pacific
Middle East
Latin America
Total long-lived assets
Year ended December 31,
2021
2020
$
$
298,171 $
25,956
14,977
221
4,412
866
344,603 $
The following table presents our revenues disaggregated by geography based on shipping destination (in thousands):
Revenue:
United States
Canada
Europe & Africa
Middle East
Asia-Pacific
Latin America
Total Revenue
Year ended December 31,
2021
2020
$
324,376
41,822
59,207
48,352
36,641
30,670
541,068
$
$
%
60.0 % $
7.7 %
10.9 %
8.9 %
6.8 %
5.7 %
100.0 % $
$
323,322
30,492
37,438
43,192
48,067
29,965
512,476
The following table presents our revenues disaggregated by product line (in thousands):
Revenue:
Drilling Technologies
Downhole Technologies
Subsea Technologies
Stimulation and Intervention
Coiled Tubing
Production Equipment
Valve Solutions
Eliminations
Total revenue
Year ended December 31,
2021
$
96,680
69,215
74,000
96,731
88,287
60,981
55,729
(555)
541,068
%
17.8 % $
12.8 %
13.7 %
17.9 %
16.3 %
11.3 %
10.3 %
(0.1)%
100.0 % $
2020
$
97,232
64,083
55,521
56,460
62,225
65,763
111,747
(555)
512,476
$
$
72
332,554
42,424
17,796
836
4,877
1,248
399,735
%
63.2 %
5.9 %
7.3 %
8.4 %
9.4 %
5.8 %
100.0 %
%
19.1 %
12.5 %
10.8 %
11.0 %
12.1 %
12.8 %
21.8 %
(0.1)%
100.0 %
Table of Contents
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) of the Exchange Act). The Company’s
disclosure controls and procedures have been designed to provide reasonable assurance that information required to be disclosed in our
reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the
SEC’s rules and forms. Our disclosure controls and procedures include controls and procedures designed to provide reasonable assurance
that information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to our
management, including our Chief Executive Officer and 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
the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of December 31, 2021. Based on
that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective
at the reasonable assurance level as of December 31, 2021.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over
financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles.
Our management performed an assessment of the overall effectiveness of our internal control over financial reporting as of December 31,
2021, utilizing the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this assessment, management has concluded that the Company’s internal control
over financial reporting is effective as of December 31, 2021.
Changes in Internal Control over Financial Reporting
There have been no changes in internal control over financial reporting during the quarter ended December 31, 2021 that have materially
affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Forum Energy Technologies, Incorporated
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Forum Energy Technologies, Inc. and subsidiaries (the “Company”) as of
December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013)
issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
consolidated financial statements as of and for the year ended December 31, 2021, of the Company and our report dated March 4, 2022
expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance
with the
73
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U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists,
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the 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 any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Houston, TX
March 4, 2022
Item 9B. Other information
None.
Item 10. Directors, executive officers and corporate governance
Information required by this item is incorporated herein by reference to our Proxy Statement for the 2022 Annual Meeting of Stockholders.
Code of Ethics
We have adopted a Financial Code of Ethics, which applies to our Chief Executive Officer, Chief Financial Officer (or other principal financial
officer), Chief Accounting Officer (or other principal accounting officer) and other senior financial officers. We have posted a copy of the code
under “Corporate Governance” in the “Investors” section of our website at www.f-e-t.com. Copies of the code may be obtained free of charge
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 the
corporate governance rules of the NYSE.
Item 11. Executive compensation
Information required by this item is incorporated herein by reference to our Proxy Statement for the 2022 Annual Meeting of Stockholders.
Item 12. Security ownership of certain beneficial owners and management and related stockholder matters
Information required by this item is incorporated herein by reference to our Proxy Statement for the 2022 Annual Meeting of Stockholders.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information required by this item is incorporated herein by reference to our Proxy Statement for the 2022 Annual Meeting of Stockholders.
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Item 14. Principal accountant fees and services
Our independent registered public accounting firm is Deloitte & Touche LLP, Houston, Texas, PCAOB ID No. 34.
Information required by this item is incorporated herein by reference to our Proxy Statement for the 2022 Annual Meeting of Stockholders.
Item 15. Exhibits
(a) The following documents are filed as part of this Annual Report on Form 10-K:
1. Financial Statements filed as part of this report
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Comprehensive Loss
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Stockholders’ Equity
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Page
44
46
47
48
49
50
All financial statement schedules have been omitted since the required information is not applicable or is not present in amounts sufficient to
require submission of the schedule, or because the information required is included on the Consolidated Financial Statements and Notes
thereto.
3. Exhibits
Index to Exhibits
Exhibit
Number
3.1*
3.2*
3.3*
4.1*
4.2*
4.3*
4.4*
4.5*
DESCRIPTION
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).
Amendment to the Third Amended and Restated Certificate of Incorporation of Forum Energy Technologies,
Inc., effective November 9, 2020 (incorporated herein by reference to Exhibit 3.1 on the Company’s Current
Report on Form 8-K, filed on November 9, 2020).
Second Amended and Restated Bylaws of Forum Energy Technologies, Inc. dated April 17, 2012
(incorporated herein by reference to Exhibit 3.1 on the Company’s Current Report on Form 8-K, filed on
April 17, 2012) (File No. 1-35504).
Registration Rights Agreement by and among Forum Energy Technologies and the other parties thereto
(incorporated herein by reference to Exhibit B to Exhibit 4.2 to the Registration Statement, filed on August
31, 2011) (File No. 333-180676).
Form of Common Stock Certificate (incorporated herein by reference to Exhibit 4.1 to Amendment No. 3 to
the Registration Statement, filed on December 29, 2011) (File No. 333-180676).
Indenture, dated as of August 4, 2020, among the Company, the subsidiary guarantors party thereto and the
Trustee and Collateral Agent. (incorporated herein by reference to Exhibit 4.1 to the Company’s Current
Report on 8-K, filed on August 5, 2020).
Form of 9.000% convertible senior secured notes due 2025 (incorporated herein by reference to Exhibit 4.1
to the Company’s Current Report on 8-K, filed on August 5, 2020).
Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934
(incorporated herein by reference to Exhibit 4.5 to the Company’s Annual Report on Form 10-K, filed
February 25, 2020).
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).
75
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10.2*#
10.3*#
10.4*#
10.5*#
10.6*#
10.7*#
10.8*#
10.9*#
10.10*#
10.11*#
10.12*#
10.13*#
10.14*#
10.15*#
10.16*#
10.17*#
10.18*#
10.19*#
10.20*#
Form of Nonstatutory Stock Option Agreement (Employees and Consultants) (incorporated herein by
reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q, filed on November 6, 2012).
Form of Nonstatutory Stock Option Agreement (Employees and Consultants)(incorporated herein by
reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q, filed on May 3, 2013).
Form of Nonstatutory Stock Option Agreement (Employees and Consultants) (incorporated herein by
reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q, filed on April 29, 2014).
Form of Nonstatutory Stock Option Agreement (Employees and Consultants) (incorporated herein by
reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q, filed on May 1, 2015).
Form of Nonstatutory Stock Option Agreement - Three Year Cliff Vesting (Employees and Consultants)
(incorporated herein by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, filed on
October 30, 2015).
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).
Form of Indemnification Agreement between Forum Energy Technologies, Inc. and the executive officers
identified on Annex A thereto (incorporated herein by reference to Exhibit 10.10 to the Registration
Statement, filed on August 31, 2011) (File No. 333-180676).
Form of Indemnification Agreement between Forum Energy Technologies and each of the non-SCF
directors identified on Annex A thereto (incorporated herein by reference to Exhibit 10.11 to the Registration
Statement, filed on August 31, 2011) (File No. 333-180676).
Form of Indemnification Agreement between Forum Energy Technologies and each of the SCF directors
identified on Annex A thereto (incorporated herein by reference to Exhibit 10.12 to the Registration
Statement, filed on August 31, 2011) (File No. 333-180676).
Forum Energy Technologies, Inc. Severance Plan (incorporated herein by reference to Exhibit 10.15 to the
Registration Statement, filed on August 31, 2011) (File No. 333-180676).
Forum Energy Technologies, Inc. 2010 Stock Incentive Plan (as amended and restated effective August 15,
2012) (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 10- Q,
filed November 6, 2012) (File No. 1-35504).
Severance Agreement dated as of February 16, 2018 between Forum Energy Technologies, Inc. and Pablo
G. Mercado (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-
K, filed on February 21, 2018).
Severance Agreement dated as of February 16, 2018 between Forum Energy Technologies, Inc. and
Michael D. Danford (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on
Form 8-K, filed on February 21, 2018).
Severance Agreement dated as of December 19, 2018 between Forum Energy Technologies, Inc. and C.
Christopher Gaut (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K/A, filed on December 21, 2018).
Severance Agreement dated as of September 1, 2018 between Forum Energy Technologies, Inc. and D.
Lyle Williams (Incorporate herein by reference to Exhibit 10.26 to the Company’s Annual Report on Form
10-K, filed on February 28, 2019).
Form of Restricted Stock Unit Agreement (Employees and Consultants - Group 2) (incorporated herein by
reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q, filed on May 2, 2017).
Form of Nonstatutory Stock Option Agreement (Employees and Consultants) (incorporated herein by
reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q, filed on May 2, 2017).
Amended and Restated Employee Stock Purchase Plan, dated as of July 1, 2017 (incorporated herein by
reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed on August 1, 2017).
Form of Restricted Stock Unit Agreement (Directors) (incorporated herein by reference to Exhibit 10.5 to the
Company’s Quarterly Report on Form 10-Q, filed on May 2, 2018).
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10.21*#
10.22*#
10.23*#
10.24*#
10.25*#
10.26*#
10.27*#
10.28*#
10.29*
10.30*
10.31*
10.32*
10.33*#
10.34*#
10.35*#
10.36*#
10.37*#
10.38*#
Form of Restricted Stock Unit Agreement (Employees and Consultants - Group 2) (incorporated herein by
reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q, filed on May 2, 2018).
Form of Nonstatutory Stock Option Agreement (Employees and Consultants) (incorporated herein by
reference to Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q, filed on May 2, 2018).
Form of Restricted Stock Unit Agreement (Directors) (incorporated herein by reference to Exhibit 10.2 to the
Company’s Quarterly Report on Form 10-Q, filed on May 1, 2019).
Form of Restricted Stock Unit Agreement (Employees and Consultants - Group 1) (incorporated herein by
reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q, filed on May 1, 2019).
Form of Restricted Stock Unit Agreement (Employees and Consultants - Group 2) (incorporated herein by
reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q, filed on May 1, 2019).
Form of Performance Share Award Agreement (Employees and Consultants) (incorporated herein by
reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q, filed on May 1, 2019).
Form of Cash Award Agreement (Employees and Consultants) (incorporated herein by reference to Exhibit
10.6 to the Company’s Quarterly Report on Form 10-Q, filed on May 1, 2019).
Severance Agreement dated as of February 15, 2019 between Forum Energy Technologies, Inc. and John
C. Ivascu (incorporated herein by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-
Q, filed on May 1, 2019).
Amendment No. 2 to the Registration Rights Agreement, dated as of August 25, 2017, by and among
Forum Energy Technologies and the other parties thereto (incorporated herein by reference to Exhibit 10.2
to the Company’s Current Report on Form 8-K, filed on August 28, 2017).
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, filed on October 3, 2017).
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).
Amendment No. 1 to the Third Amended and Restated Credit Agreement, dated as of February 3, 2020,
among Forum Energy Technologies, Inc., the lenders party thereto, Wells Fargo Bank, National Association,
as Administrative Agent, and the other borrowers and guarantors party thereto (incorporate herein by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on February 5, 2020).
Form of Restricted Stock Unit Agreement (Gaut) (incorporated herein by reference to Exhibit 10.50 to the
Company’s annual Report on Form 10-K, filed on February 28, 2019).
Form of Performance Share Award Agreement (Gaut) (incorporated herein by reference to Exhibit 10.51 to
the Company’s Annual Report on Form 10-K, filed Februray 28, 2019).
Form of Restricted Stock Unit Agreement (Employees and Consultants) (incorporated herein by reference to
Exhibit 10.1 to the Company’s Quarterly Report on Form 10.Q, filed on May 8, 2020).
Form of Performance Share Award Agreement (Employees and Consultants) (incorporated herein by
reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, filed on May 8, 2020).
Form of Stock Appreciation Right Agreement (Employees and Consultants - Group 1) (incorporated herein
by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q, filed on May 8, 2020).
Form of Stock Appreciation Right Agreement (Employees and Consultants - Group 2) (incorporated herein
by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q, filed on May 8, 2020).
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Table of Contents
10.39*
10.40*
10.41*
10.42*#
10.43*#
10.44*#
10.45*#
10.46*#
10.47*#
10.48*
21.1**
22.1**
23.1**
31.1**
31.2**
32.1**
32.2**
Credit Agreement Amendment, dated as of September 8, 2021, among the Company, as borrower, the
other borrowers party thereto, the guarantors party thereto, the lenders party thereto, Wells Fargo Bank,
National Association, as Administrative Agent, and the other parties named therein (incorporated herein by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on September 8, 2021).
Forum Energy Technologies, Inc. Second Amended and Restated 2016 Stock and Incentive Plan
(incorporated by reference to Appendix B to the Company’s Proxy Statement on Schedule 14A filed on April
2, 2020).
Registration Rights Agreement, dated as of August 4, 2020, among the Company and holders of New Notes
party thereto. (incorporated by referenced to Exhibit 10.2 to the Company’s Current Report on Form 8-K,
filed on August 5, 2020).
Form of Form of Performance Restricted Stock Unit Agreement (Employees and Consultants). Restricted
Stock Unit Agreement (Employees and Consultants) (incorporated herein by reference to Exhibit 10.4 to the
Company’s Quarterly Report on Form 10-Q, filed on November 6, 2020).
Form of Special Performance Restricted Stock Unit Agreement (Employees and Consultants) (incorporated
herein by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q, filed on November 6,
2020).
Form of Special Performance Restricted Stock Unit Agreement (Employees and Consultants) (incorporated
herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed on May 7, 2021).
Form of 2021 Performance Restricted Stock Unit Agreement (Chief Executive Officer) (incorporated herein
by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, filed on May 7, 2021).
Form of 2021 Performance Phantom Unit Agreement (Executive Management).(incorporated herein by
reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q, filed on May 7, 2021).
Form of 2021 Restricted Stock Unit Agreement (Executive Management) (incorporated herein by reference
to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q, filed on May 7, 2021)
Asset Purchase Agreement, dated December 31, 2020, by and among Forum US, Inc., Anvil International,
LLC and, for the limited purposes set forth therein, Forum Energy Technologies, Inc. (incorporated herein by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 4, 2021).
Subsidiaries of Forum Energy Technologies, Inc.
Subsidiary guarantors of the Company's Convertible Secured Notes due 2025.
Consent of Deloitte & Touche LLP.
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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.
104**
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
* Previously filed.
** Filed herewith.
78
Table of Contents
# Identifies management contracts and compensatory plans or arrangements.
Item 16. Form 10-K Summary
None.
79
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SIGNATURES
March 4, 2022
FORUM ENERGY TECHNOLOGIES, INC.
By:
/s/ D. Lyle Williams, Jr.
D. Lyle Williams, Jr.
Executive Vice President and Chief Financial Officer
(As Duly Authorized Officer and Principal Financial Officer)
March 4, 2022
By:
/s/ John McElroy
John McElroy
Vice President and Chief Accounting Officer
(As Duly Authorized Officer and Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Signature
/s/ Neal Lux
Neal Lux
/s/ D. Lyle Williams, Jr.
D. Lyle Williams, Jr.
/s/ John McElroy
John McElroy
/s/ C. Cristopher Gaut
C. Cristopher Gaut
/s/ Evelyn M. Angelle
Evelyn M. Angelle
/s/ John A. Carrig
John A. Carrig
/s/ Michael McShane
Michael McShane
/s/ Louis A. Raspino
Louis A. Raspino
/s/ Emily Reichert, Ph.D.
Emily Reichert, Ph.D.
/s/ Paul E. Rowsey III
Paul E. Rowsey III
/s/ John Schmitz
John Schmitz
Title
President and Chief Executive Officer
(Principal Executive Officer)
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Vice President and Chief Accounting Officer
(Principal Accounting Officer)
Chairman of the Board
Director
Director
Director
Director
Director
Director
Director
80
Date
March 4, 2022
March 4, 2022
March 4, 2022
March 4, 2022
March 4, 2022
March 4, 2022
March 4, 2022
March 4, 2022
March 4, 2022
March 4, 2022
March 4, 2022
Exhibit 21.1
List of Subsidiaries of Forum Energy Technologies, Inc.
Name
FET (Barbados) SRL
Forum B+V Oil Tools GmbH
FET Global L.P.
FET Global Holdings Limited
FET Holdings LLC
FET Worldwide L.P.
Forum Global Tubing L.P.
Forum Global Tubing LLC
Forum International Holdings, Inc.
Forum US, Inc.
Forum Worldwide Holdings Limited
Global Tubing LLC
Jurisdiction
Barbados
Germany
United Kingdom
United Kingdom
Delaware
United Kingdom
Delaware
Delaware
Delaware
Delaware
United Kingdom
Delaware
Exhibit 22.1
The following subsidiaries of Forum Energy Technologies, Inc. (the “Company”) were, as of December 31, 2021, guarantors of the
Company’s 9.00% Notes due October 2025:
Forum Energy Technologies, Inc.
List of Issuer and Guarantors
Name of Subsidiary
Forum Energy Technologies, Inc.
FET Holdings, LLC
Forum Energy Services, Inc.
Forum Global Holdings, LLC
Forum Global Tubing LLC
Forum Global Tubing LP
Forum International Holdings, Inc.
Forum US, Inc.
Global Tubing LLC
Z Explorations, Inc.
Global Flow Technologies, Inc.
Z Resources, Inc.
Zy-Tech Global Industries, Inc.
Houston Global Heat Transfer LLC
Jurisdiction of Formation
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Role
Issuer
Guarantor
Guarantor
Guarantor
Guarantor
Guarantor
Guarantor
Guarantor
Guarantor
Guarantor
Guarantor
Guarantor
Guarantor
Guarantor
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statements on Form S-8 (Nos.333-180769, 333-188915, 333-213158, 333-
218789, 333-231525, 333-239257) and Forms S-3 (No. 333-233678) of our report dated March 4, 2022 relating to the financial statements of
Forum Energy Technologies, Incorporated and subsidiaries (“the Company”) and the effectiveness of the Company's internal control over
financial reporting appearing in this Annual Report on Form 10-K for the year ended December 31, 2021.
/s/ Deloitte & Touche LLP
Houston, Texas
March 4, 2022
Exhibit 31.1
I, Neal Lux, certify that:
Forum Energy Technologies, Inc.
Certification
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 to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the 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 in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-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 our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us
by others 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
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external 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
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the 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 are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: March 4, 2022
By: /s/ Neal Lux
Neal Lux
President and Chief Executive Officer
Exhibit 31.2
Forum Energy Technologies, Inc.
Certification
I, D. Lyle Williams, Jr., 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 to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the 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 in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-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 our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us
by others 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
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external 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
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the 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 are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: March 4, 2022
By: _/s/ D. Lyle Williams, Jr._________________
D. Lyle Williams, Jr.
Executive Vice President and Chief Financial Officer
Certification Pursuant to 18 U.S.C. Section 1350
(Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)
Exhibit 32.1
In connection with the Annual Report on Form 10-K of Forum Energy Technologies, Inc. (the “Company”) for the year ended
December 31, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Neal Lux, as Chief Executive
Officer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002,
that, to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"); and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Dated: March 4, 2022
By: /s/ Neal Lux
Neal Lux
President and Chief Executive Officer
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the
Company and 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.
Certification Pursuant to 18 U.S.C. Section 1350
(Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)
Exhibit 32.2
In connection with the Annual Report on Form 10-K of Forum Energy Technologies, Inc. (the “Company”) for the year ended
December 31, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), D. Lyle Williams, Jr., as Chief
Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of
2002, that, to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"); and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Dated: March 4, 2022
By: /s/ D. Lyle Williams, Jr.
D. Lyle Williams, Jr.
Executive Vice President and Chief Financial Officer
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the
Company and 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.