Principal Executive Offices
Frank’s International N.V.
Prins Bernhardplein 200
1097 JB Amsterdam, The Netherlands
U.S. Headquarters
Frank’s International
10260 Westheimer, Suite 700
Houston, Texas 77042
75 YEARS STRONG
75 YEARS STRONG
2013 ANNUAL REPORT
1938 Frank Mosing founded Frank’s Casing Crew & Rental Tools –
a one-crew casing company operated out of his garage. Over the years,
Frank’s sons, Donald, Billy and Larry, joined the company to help manage
the growing operations. Donald was a driving force in the development of
many of the company’s proprietary tools and processes.
Donald’s son, Keith, formed Frank’s International in 1981, and his
entrepreneurial efforts led to expansion of operations across the United
States, South America, Asia, Africa and Europe.
In 2011, Frank’s International and Frank’s Casing Crew & Rental Tools and
the other U.S. operating companies all began operating throughout the
world under the name Frank’s International. Frank’s International N.V. is
now traded on the New York Stock Exchange under the ticker symbol “FI”.
For over 75 years, Frank’s International has been providing innovative
tubular services to oil companies worldwide.
FINANCIAL HIGHLIGHTS
Year Ended December 31,
(In thousands, except per share data)
2013
2012
2011
Revenue(1)
Income from continuing operations
Net income
Adjusted EBITDA(2)
Diluted earnings per common share
Net cash provided by operating activities
Capital Expenditures
Long-term debt
Total stockholder’s equity
Total Recordable Incident Rate (TRIR)
Lost Time Incident Rate (LTIR)
(1) From continuing operations
(2) Adjusted EBITDA is a non-GAAP financial measure
$
$
$
$ 1,077,722
308,195
350,830
438,739
1.85
277,431
184,504
376
$
$ 1,333,327
$
$
$
1.13
0.33
$ 1,039,054
$
$
$
$
$
$
$
$
344,250
350,934
439,524
2.04
344,766
180,187
475,931
446,988
1.96
0.54
$ 719,412
$ 162,798
$
170,787
$ 241,124
$
$
$
$
0.99
180,710
117,883
12,117
$ 667,128
1.98
0.64
DIRECTORS AND OFFICERS
STOCK INFORMATION
BOARD
MANAGEMENT
D. Keith Mosing
Chairman of the Supervisory Board,
Director, Chief Executive Officer
and President
D. Keith Mosing
Chairman of the Supervisory Board,
Director, Chief Executive Officer
and President
Kirkland D. Mosing
Supervisory Director
Steven B. Mosing
Supervisory Director
Sheldon R. Erikson
Former Chairman, President
and Chief Executive Officer
Cameron International Corporation
Michael C. Kearney
Former President and
Chief Executive Officer
DeepFlex, Inc.
Gary P. Luquette
Former President
Chevron North America Exploration
and Production Company
W. John Walker
Executive Vice President,
Operations
John W. Sinders
Executive Vice President,
Administration
Burney J. Latiolais, Jr.
Senior Vice President, Business
Development and Corporate Sales
C. Michael Webre
Vice President of Engineering
Mark G. Margavio
Vice President, Chief Financial Officer
and Treasurer
Brian D. Baird
Vice President, Chief Legal Officer
and Secretary
FINANCIAL INFORMATION AND
NEWS RELEASES
Information updates about Frank’s
International, including quarterly
financial results and current news
releases, are available to the public on
our website at www.franksinternational.
com or upon request from our Investor
Relations Department.
STOCK TRANSFER AGENT
AND REGISTRAR
American Stock Transfer &
Trust Company
6201 15th Avenue
Brooklyn, NY 11219
(800) 937-5449
amstock.com
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP
STOCK LISTING
New York Stock Exchange
Symbol: FI
FORM 10-K
A copy of the Company’s Annual Report
on Form 10-K is available by writing to:
Investor Relations
Frank’s International N.V.
10260 Westheimer, Suite 700
Houston, TX 77042
Information above as of February 28, 2014
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FORWARD-LOOKING STATEMENTS
In addition to statements of historical fact, this report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Statements that are not historical in nature or that relate to future events and conditions are, or may be deemed to be, forward-looking statements. These “forward-
looking statements” are based on our current projections about us and our industry, and our management’s beliefs and assumptions concerning future events and
financial trends affecting our financial condition and results of operations. In some cases, you can identify these statements by terminology such as “may,” “will,”
“predicts,” “expects,” “projects,” “potential” or “continue” – or the negative of such terms and other comparable terminology. These statements are only predictions and
are subject to substantial risks and uncertainties and are not guarantees of performance. Future actions, events and conditions and future results of operations may
differ materially from those expressed in these statements. In evaluating those statements, you should keep in mind the risk factors and other cautionary statements
included in our 2013 Annual Report on Form 10-K included in this report. We caution you not to place undue reliance on forward-looking statements, and we undertake
no obligation to update this information. We urge you to carefully review and consider the disclosures made in this report and other filings with the Securities and
Exchange Commission regarding the risks and factors that may affect our business.
FELLOW SHAREHOLDERS
2013 At Frank’s International, we
pride ourselves on our technology and
engineering expertise and our relationships
with our customers.
2013 was an exciting year for Frank’s
International. Not only did we celebrate
75 years since Mr. Frank Mosing and his
wife, Mrs. Jesse Mosing, founded a one-
crew casing company out of their family
garage in Lafayette, Louisiana, but we also
completed a very successful initial public
offering. I am personally proud of the over
4,000 employees that have made this
company a leader in the tubular services
industry. They engi neer and manufacture
innovative tools and provide superior
customer service. To our employees, I
thank you.
At Frank’s International, we pride
ourselves on our technology and
engineering expertise and our relation-
ships with our customers. Our customers
trust us and value the service we provide.
Working with our customers and partners,
we have been able to innovate and meet
increasing demands as wells are drilled
deeper and in more complex geologies.
This trust has allowed us to grow to the
size we are today and thrive in this very
cyclical industry. Every day we strive to
ensure that our tools and services meet
the needs of our customers and that we
are prepared for, and anticipate changes
in, our industry.
In 2013 we built on the success and
growth of our record year in 2012.
Our international operations had strong
growth in Africa and Asia Pacific, and in
the U.S., our Gulf of Mexico operations
grew revenue by 22 percent year-over-year.
Both were spurred by the increase in deep
and ultra-deepwater drilling activity. After
topping $1 billion in revenue in 2012, we
surpassed that mark again in 2013 with
almost $1.1 billion in revenue. All three of
our business segments, International
Services, U.S. Services and Tubular Sales,
grew in 2013. Since 2009, we have
more than doubled the
revenue of Frank’s
International, growing
from $517 million in
2009 to $1,078 million
in 2013. During this
same time we have
expanded our
Adjusted EBITDA
margins and
finished 2013
with an Adjusted
EBITDA margin of
over 40%.
Our offshore
business, both
international and
in the Gulf of
Mexico, is the
majority of our
worldwide operations
and is driven by deep
and ultra-deep water
exploration and
development activity.
Running tubulars in
deeper water with deeper
D. Keith Mosing
Chairman, President and
Chief Executive Officer
ENGINEER
MANUFACTURE
SERVICE
We have 108 U.S. patents and 39 more pending.
In 2013, we filed 18 U.S patent applications and were
issued 11 new U.S. patents. Our engineering culture
drives technology innovation.
A majority of our tools are manufactured in-house
allowing us to maximize operational efficiencies
while minimizing safety risks. Our proprietary tools
uniquely position us to better service our customers.
We have a global footprint that allows us to market
our premium services to customers around the world
from our offices in approximately 60 countries on
six continents.
wells requires tools and a skillset that
only a few companies can provide. We
have proven ourselves, showing that our
equipment and crews can reduce the
time it takes to run tubulars, saving our
customers money and providing better
service and safety in the process.
The land portion of our business
typically does not require the same level
of expertise. Wells are generally less
expensive and simpler to drill. In the
U.S., this environment is highly compet-
itive with fewer barriers to entry. Our
competitors range from drilling rig com-
panies, to regional casing com panies,
to one-crew operators. Due to this
competitive environment, we are
always evaluating and refocusing our
efforts to target the well architectures
and geographic regions that are less
commoditized. Our focus is on quality,
technology and safety.
Our Tubular Sales business leverages
our facility in the Port of Iberia and we
plan to expand our capabilities with a new
yard in Texas. In addition to distribution
of large outside diameter (“OD”) pipe, we
provide fabrication services including
attaching connectors. The connectors are,
and more importantly the connection is,
critical given the stress that is placed on
these tubulars during use. These tubulars
and connectors have many applications
in the oil industry, primarily offshore,
including casing strings, catenary risers
and tension legs.
We continuously assess our businesses
to ensure we are positioned for both the
peaks and troughs. Because of this, we
continue to believe that having diversi-
fication geographically, and operationally,
is key to weathering the cyclicality of the
industry. 75 years of experience has taught
us these lessons many times over, as well
as how to maintain positive cash flow
during these cycles.
We have invested nearly $500 million in
new equipment and facilities over the last
three years, including $185 million in 2013.
All of this investment has been funded
from cash flow from operations while still
having ample free cash flow to pay our
dividend. Our equipment build-out has
positioned us to respond to our customers’
needs. For example, in the second half
of 2013 we were able to design and
manufacture a modification to our
mechanized tong package to integrate
with an iron roughneck on a newly-built
drillship. This drillship and our equip-
ment is currently working off the shore
of New Zealand. In addition to adding new
equipment to our balance sheet, we have
begun an initiative to improve our equip-
ment utilization and look for opportunities
to continue to generate revenue from
older and fully depreciated equipment.
The success of these initiatives will help
improve our return on capital.
Technology is at the core of our
business. Our engineers continue to
design new tools to meet the needs of
our customers as wells are being drilled
deeper and in more complex geologies.
In 2013, we added to our patent portfolio.
As of December 31, 2013, we have 108 U.S.
patents with 39 more pending. In addition,
we are presently working on over 55 new
tech nologies and product improvements.
All of this allows us to deliver unique
services to our customers, addressing
the demands of the oilfield while
improving the efficiency and safety of
our tubular running.
As I look to 2014, I am excited about
the opportunities globally. Oil companies
continue to look for new reserves in deeper
wells and deeper water in more remote
locations with more complex geology.
Frank’s International is well-positioned to
meet those needs with over 90 locations
in approximately 60 countries, but more
importantly, with our 4,000+ employ ees
who work daily to make Frank’s
International the global technology and
services leader in tubular services. We
plan continued investment in 2014 to
further strengthen our ability to meet the
growing demand we see for our tubular
services, particularly in deep water both
internationally and in the Gulf of Mexico.
With over $400 million in cash and
virtually no debt at year-end 2013, we
have the financial flexibility to take
ad vantage of any acquisition opportu nities
that may arise that can complement
our service offerings or expand our
worldwide footprint.
On a personal note, I would like to
thank the members of our Board of
Supervisory Directors whose advice and
guidance during the initial public offering
and our transition to a public company
have been invaluable. Last fall, we
ex panded our Board with three new
independent directors, Messrs. Sheldon
Erikson, Gary Luquette and Michael
Kearney. Their added experience and
knowledge is invaluable.
Lastly, I would like to thank you, our
shareholders. We believe that continuing to
deliver premium services to our customers
will lead to strong financial performance
and increased value for our shareholders.
Thank you for your continued support.
D. Keith Mosing
Chairman of the Board, President and
Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2013
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: 001-36053
Frank’s International N.V.
(Exact name of registrant as specified in its charter)
The Netherlands
(State or other jurisdiction of
incorporation or organization)
Prins Bernhardplein 200
1097 JB Amsterdam, The Netherlands
(Address of principal executive offices)
98-1107145
(IRS Employer
Identification number)
Not Applicable
(Zip Code)
Registrant’s telephone number, including area code: +31 (0)20 52 14 777
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of exchange on which registered
Common Stock, €0.01 par value
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
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 and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
On August 9, 2013, the registrant’s common stock began trading on the New York Stock Exchange under the symbol "FI". Accordingly,
as of June 30, 2013 (the date of the registrant’s most recently completed second fiscal quarter), the registrant’s common stock was
not listed on an exchange and, therefore, the aggregate market value of the registrant’s common stock held by non-affiliates cannot
be reasonably determined.
As of February 28, 2014, there were 153,524,000 shares of common stock, €0.01 par value per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement in connection with the 2014 Annual Meeting of Stockholders are incorporated by reference into
Part III of this Form 10-K.
FRANK'S INTERNATIONAL N.V.
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2013
TABLE OF CONTENTS
Item 1.
Item 1A.
Business
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Mine Safety Disclosures
PART I
PART II
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Item 6.
Selected Financial Data
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantititave 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
Item 10.
Item 11.
Item 12.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Item 13.
Item 14.
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
PART IV
Item 15.
Exhibits and Financial Statement Schedules
Signatures
Page
4
13
30
31
31
31
32
34
35
48
50
82
82
82
82
82
82
82
82
83
87
2
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (this "Form 10-K") includes certain "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements include those that
express a belief, expectation or intention, as well as those that are not statements of historical fact. Forward-looking
statements include information regarding our future plans and goals and our current expectations with respect to, among
other things:
•
•
•
•
•
•
•
our business strategy and prospects for growth;
our cash flows and liquidity;
our financial strategy, budget, projections and operating results;
the amount, nature and timing of capital expenditures;
the availability and terms of capital;
competition and government regulations; and
general economic conditions.
Our forward-looking statements are generally accompanied by words such as "estimate," "project," "predict,"
"believe," "expect," "anticipate," "potential," "plan," "goal" or other terms that convey the uncertainty of future events
or outcomes, although not all forward-looking statements contain such identifying words. The forward-looking
statements in this Form 10-K speak only as of the date of this report; we disclaim any obligation to update these
statements unless required by law, and we caution you not to rely on them unduly. Forward-looking statements are not
assurances of future performance and involve risks and uncertainties. We have based these forward-looking statements
on our current expectations and assumptions about future events. While our management considers these expectations
and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory
and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond
our control. These risks, contingencies and uncertainties include, but are not limited to, the following:
•
•
•
•
•
•
•
•
•
the level of activity in the oil and gas industry;
the volatility of oil and gas prices;
unique risks associated with our offshore operations;
political, economic and regulatory uncertainties in our international operations;
our ability to develop new technologies and products;
our ability to protect our intellectual property rights;
our ability to employ and retain skilled and qualified workers;
the level of competition in our industry;
operational safety laws and regulations; and
• weather conditions and natural disasters.
These and other important factors that could affect our operating results and performance are described in (1) Part
I, Item 1A “Risk Factors” and in Part II, Item 7 "Management’s Discussion and Analysis of Financial Condition and
Results of Operations" of this Form 10-K, and elsewhere within this Form 10-K, (2) our other reports and filings we
make with the SEC from time to time and (3) other announcements we make from time to time. Should one or more
of the risks or uncertainties described in the documents above or in this Form 10-K occur, or should underlying
assumptions prove incorrect, our actual results, performance, achievements or plans could differ materially from those
expressed or implied in any forward-looking statements.
3
Item 1. Business
General
PART I
Frank’s International N.V. ("FINV") is a Netherlands limited liability company and includes the activities of Frank’s
International C.V. ("FICV") and its wholly owned subsidiaries (collectively, the "Company," "we," "us" and "our").
We were established in 1938 and are an industry-leading global provider of highly engineered tubular services to the
oil and gas industry. We provide our services to leading exploration and production companies in both offshore and
onshore environments, with a focus on complex and technically demanding wells. We believe that we are one of the
largest global providers of tubular services to the oil and gas industry.
On August 8, 2013, our registration statement on Form S-1 relating to our initial public offering ("IPO") was
declared effective by the Securities Exchange Commission ("SEC") and on August 9, 2013, we began trading on the
New York Stock Exchange ("NYSE") under the symbol "FI." We completed our IPO of 34,500,000 shares of common
stock on August 14, 2013.
Our Operations
Tubular services involve the handling and installation of multiple joints of pipe to establish a cased wellbore and
the installation of smaller diameter pipe inside a cased wellbore to provide a conduit for produced oil and gas to reach
the surface. The casing of a wellbore isolates the wellbore from the surrounding geologic formations and water table,
provides well structure and pressure integrity, and allows well operators to target specific zones for production. Given
the central role that our services play in the structural integrity, reliability and safety of a well, and the importance of
efficient tubular services to managing the overall cost of a well, we believe that our role is vital to the overall process
of producing oil and gas.
In addition to our services offering, we also design and manufacture certain products that we sell directly to external
customers, including large outside diameter (“OD”) pipe connectors. We also provide specialized fabrication and
welding services in support of deep water projects in the U.S. Gulf of Mexico, including drilling and production risers,
flowlines and pipeline end terminations, as well as long length tubulars (up to 300 feet in length) for use as caissons
or pilings. Finally, we distribute large OD pipe manufactured by third parties, and generally maintain an inventory of
this pipe in order to support our pipe sales and distribution operations.
We offer our tubular services and tubular sales through our three operating segments: (1) International Services,
(2) U.S. Services and (3) Tubular Sales, each of which is described in more detail in "Description of Business Segments."
The table below shows our consolidated revenue and each segment's external revenue and percentage of
consolidated revenue for the periods indicated (revenue in thousands):
2013
Year Ended December 31,
2012
2011
Revenue
Percent
Revenue
Percent
Revenue
Percent
International Services
U.S. Services
Tubular Sales (1)
Total
$
475,297
434,940
167,485
$ 1,077,722
44.1% $
40.4%
15.5%
100.0% $
467,126
422,522
149,406
1,039,054
44.9% $
40.7%
14.4%
100.0% $
365,278
259,396
94,738
719,412
50.7%
36.1%
13.2%
100.0%
(1) In June 2013, we sold a component of our Tubular Sales segment and as a result, the operations from that component
have been reported as discontinued operations in the accompanying financial statements for all periods presented.
4
Our Organizational Structure
On August 14, 2013, immediately prior to the completion of our IPO, Mosing Holdings, Inc. ("Mosing Holdings")
contributed all of the outstanding membership interests in each of Frank's International, LLC, Frank's Casing Crew &
Rental Tools, LLC and Frank's Tong Service, LLC, which constitute our U.S. operating subsidiaries, to FICV in exchange
for 52,976,000 shares of Series A preferred stock (the "Preferred Stock") and a 25.7% limited partnership interest in
FICV. FICV is a partnership that was formed to act as a holding company of various U.S. and foreign operating companies
engaged in our business. Excluded from the contribution were certain assets that generated a de minimus amount of
revenue, including aircraft, real estate and life insurance policies, which were retained by Mosing Holdings.
FINV contributed all of its international operating subsidiaries and a portion of the proceeds from the IPO to FICV.
Following the completion of the IPO, FINV's sole material asset consists of our ownership of 74.2% of the limited
partnership interest and the 0.1% general partnership interest in FICV. Mosing Holdings holds the remaining 25.7%
limited partnership interest in FICV.
Mosing Holdings has the right to convert all or a portion of its Preferred Stock into shares of our common stock
by delivery of an equivalent portion of its interest in FICV to us. Accordingly, the increase in our interest in FICV in
connection with such conversion will decrease the noncontrolling interest in our financial statements that is attributable
to Mosing Holdings’ interest in FICV.
5
The chart below depicts our ownership structure and percentages as of December 31, 2013.
Mosing
Family
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
FWW B.V.
Public Investors
(cid:3)
Mosing
Holdings, Inc.
119,024,000 shares of common stock
(representing 57.6% of voting power)
34,500,000 shares of common stock
(representing 16.7% of voting power)
52,976,000 shares of Series A
preferred (representing 25.7% of
voting power)
Frank’s International N.V.
25.7% limited
partner interest
Frank’s
International LP B.V.
Frank’s
International
Management B.V.
74.2% limited
partner interest
0.1% general
partner interest
Frank’s
International
C.V.
U.S. Operating
Subsidiaries
International
Operating
Subsidiaries
6
Competitive Strengths
We believe that the following competitive strengths position us well within the oilfield services industry:
• Global market leader. We are a leading provider of tubular services in many of the regions in which we operate,
including the U.S. Gulf of Mexico and almost every significant international offshore market. We currently
provide our services in approximately 60 countries on six continents. Our customers include most of the
world’s largest integrated oil companies and many of the largest national oil companies. We have no significant
customer concentration. Our global presence allows us to quickly expand to additional regions that experience
increases in drilling and production activity.
• Focused service provider with highly differentiated engineering and manufacturing capabilities. We have an
in-house engineering team responsible for developing new products to solve complex customer difficulties
and advance the efficiency and safety of our equipment. Our engineers typically work closely with our field
personnel and customers in order to identify specific equipment needs related to the services we provide. We
believe that our engineering expertise and our flexible manufacturing capabilities give us a competitive
advantage in quickly designing and manufacturing custom solutions in response to our customers’ unique
requirements and applications.
• Favorable reputation developed over eight decades. We have built a reputation as a premier tubular services
provider focused on quality, safety and being a leader in our industry. During our more than 75 years of
operations we have developed a large and stable customer base, some of whom have been with us for over 40
years. We believe this historical success is a result of consistently providing a high level of comprehensive
services and maintaining a strong safety track record.
•
Strong position in favorable deep water offshore markets. We believe we will continue to benefit from the
continued development of oil and gas resources located offshore. As a result of the long development lead
times associated with deep water projects, they are generally less likely to be canceled or delayed due to
volatility in commodity or financial markets. Also, due to their technical complexity and often remote locations,
offshore projects typically provide us with a greater opportunity to differentiate our capabilities from those of
our competitors. We believe the economic opportunity for deep water services will continue to be favorable
given the technical challenges associated with constructing and completing wells offshore, and the risk of
potential negative economic consequences to our customers if tubular services are poorly performed.
•
Significant experience selectively acquiring and integrating companies. We have a long history of evaluating
and acquiring companies that expand or complement our geographic footprint. Since 1982, we have
successfully acquired and integrated more than 50 private companies.
• Experienced management team with proven track record. Our executive officers and senior operational
managers have extensive experience at Frank’s International and in the oilfield service industry generally. Our
executive officers and senior operational managers have an average of 25 years of experience in the oilfield
services industry with us. Our Chairman of our Supervisory Board, Director, Chief Executive Officer and
President, Keith Mosing, is a third generation owner and manager who successfully led our expansion into
international operations.
Business Strategy
Our objective is to maximize shareholder value by expanding our leading global oilfield services company and
continuing to supply high-quality services and products to our customers. We intend to accomplish that objective by
capitalizing on the key long-term industry growth trends through the execution of the following strategies:
• Continue to focus on customer service. We have a long track record of being responsive to our customers’
unique requirements. We believe that focusing on our customers’ needs and continuing to provide industry-
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leading technological and safety innovations will enable us to expand our customer base and increase our
revenues.
•
Sustain our track record of technical innovation. Our team of over 85 in-house engineers and engineering
technicians works to develop new products and technologies and provides operational support. At
December 31, 2013, we had 108 U.S. patents and 137 related international patents and 39 U.S. patent
applications pending and 141 related international patent applications pending for equipment that our engineers
have developed. In addition, we currently have more than 55 new technologies and product improvements
under development. We have developed strong working relationships with oil and gas producers throughout
the world, many of whom have approached us with requests for solutions to specific well construction and
completion challenges. To address these needs, we continue to invest in new product engineering capabilities.
In addition to our own efforts to continuously enhance our equipment and procedures, we expect to continue
to develop innovative products and solutions driven by our customers’ needs.
• Pursue disciplined growth organically and through acquisitions. We intend to selectively pursue acquisitions
that complement our geographic footprint and product and service offerings, with a focus on businesses that
would benefit from our global presence and international sales capabilities. We intend to continue to grow
organically by leveraging our customer base, investing in additional equipment and geographically expanding
our existing global facilities in order to continue to grow our cash flows and satisfy incremental customer
demand.
• Maintain and expand our worldwide presence. We are committed to being on the ground in strategic markets
to provide services on a global basis. We intend to build upon our existing presence in Africa, the Asia-Pacific
region, the Middle East, North America, the North Sea and South America through deployment of sales,
distribution, and service resources. We believe this organic expansion will provide more points of contact with
our customers, allowing us to respond more quickly to their needs.
Description of Business Segments
International Services
The International Services segment provides tubular services in international offshore markets and in several
onshore international regions in approximately 60 countries on six continents. Our customers in these international
markets are primarily large exploration and production companies, including integrated oil and gas companies and
national oil and gas companies.
U. S. Services
The U.S. Services segment provides tubular services in almost all of the active onshore oil and gas drilling regions
in the U.S., including the Permian Basin, Eagle Ford Shale, Marcellus Shale, Utica Shale, Barnett Shale, Woodford
Shale, Piceance Basin, San Juan Basin, Uintah Basin, Big Horn Basin, Powder River Basin, DJ/Wattenberg Basin and
Williston Basin, as well as in the U.S. Gulf of Mexico.
Tubular Sales
The Tubular Sales segment designs and manufactures certain products that we sell directly to external customers,
including large OD pipe connectors. We also provide specialized fabrication and welding services in support of deep
water projects in the U.S. Gulf of Mexico, including drilling and production risers, flowlines and pipeline end
terminations, as well as long length tubulars (up to 300 feet in length) for use as caissons or pilings. In addition, we
distribute large OD pipe manufactured by third parties that we have equipped with weld-on end connections. This
segment also designs and manufactures proprietary equipment for use in our International and U.S. Services segments.
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Financial Information About Segment and Geographic Areas
Segment financial and geographic information is provided in Part II, Item 8, Financial Statements and
Supplementary Data, Note 19 of the Notes to the Consolidated Financial Statements.
Suppliers and 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, tariffs and duties on imported materials and foreign currency exchange rates.
Certain of our component parts, products or specific raw materials are only available from a limited number of suppliers.
Our ability to source low cost raw materials and components, such as steel castings and forgings, is critical to our
ability to manufacture our drilling products competitively and, in turn, our ability to provide onshore and offshore
drilling services. In order to purchase raw materials and components in a cost effective manner we have developed a
broad international sourcing capability and we maintain quality assurance and testing programs to analyze and test
these raw materials and components.
We have experienced increased costs in recent years due to rising steel prices. There is also strong demand within
the industry for forgings, castings and outsourced coating services necessary for us to make our products. We cannot
assure that we will be able to continue to purchase these raw materials on a timely basis or at historical prices. We
generally try to purchase our raw materials from multiple suppliers so we are not dependent on any one supplier, but
this is not always possible.
Patents
We currently hold multiple U.S. and international patents and have a number of pending patent applications.
Although in the aggregate our patents and licenses are important to us, we do not regard any single patent or license
as critical or essential to our business as a whole.
Seasonality
A substantial portion of our business is not significantly impacted by changing seasons. We can be impacted by
hurricanes, winter storms and other disruptions. We can also benefit from the winter freeze in colder environments and
then impacted by the resulting thaw.
Customers
Our customers consist primarily of oil and gas exploration and production companies, both U.S. and international,
including major and independent companies, national oil companies and, on occasion, other service companies that
have contractual obligations to provide casing and handling services. Demand for our services depends primarily upon
the capital spending of oil and gas companies and the level of drilling activity in the U.S. and internationally. We do
not believe the loss of any of our individual customers would have a material adverse effect on our business. No single
customer accounted for more than 10% of our revenue for the years ended December 31, 2013 and 2011 and one
customer accounted for approximately 11% of our revenue for the year ended December 31, 2012.
Our International Services segment did not have any customers that contributed more than 10% of its revenue in
2013. Our U.S. Services segment had two customers which accounted for more than 10% of its revenue in 2013 and
our Tubular Services segment had one customer which accounted for more than 10% of its revenue in 2013.
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Competition
The markets in which we operate are competitive. We compete with a number of companies, some of which have
financial and other resources greater than us. The principal competitive factors in our markets are the quality, price and
availability of products and services and a company’s responsiveness to customer needs and reputation for safety. In
general, we face a larger number of smaller, more regionally-specific customers in U.S. onshore market as compared
to offshore markets, where larger competitors dominate.
We believe several factors give us a strong competitive position. In particular, we believe our products and services
in each segment fulfill our customer’s requirements for international capability, availability of tools, range of services
provided, intellectual property, technological sophistication, rigorous quality systems and availability of equipment,
along with reputation and safety record. We seek to differentiate ourselves from our competitors by providing a rapid
response to the needs of our customers, a high level of customer service and innovative product development initiatives.
Although we have no single competitor across all of our product lines, we believe that Weatherford International
represents our most direct competitor across our segments for providing tubular services on an aggregate, global basis.
Inventories and Working Capital
An important consideration for many of our customers in selecting a vendor is timely availability of the product.
Often customers will pay a premium for earlier or immediate availability because of the cost of delays in critical
operations. We aim to stock certain of our consumable products in regional warehouses around the world so we can
have these products available for our customers when needed. This availability is especially critical for our proprietary
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. Having such goods available on short
notice can be of great value to our customers.
Environmental, Health and Safety Regulation
Our operations are subject to numerous stringent and complex laws and regulations governing the emission and
discharge of materials into the environment, health and safety aspects of our operations, or otherwise relating to human
health and environmental protection. 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 orders or injunctions to prohibit or restrict certain activities or force future
compliance.
Numerous governmental authorities, such as the U.S. Environmental Protection Agency (“EPA”), and analogous
state agencies and, in certain circumstances, citizens’ groups, have the power to enforce compliance with these laws
and regulations and the permits issued under them. Certain environmental laws may impose joint and several liability,
without regard to fault or the legality of the original conduct, on classes of persons who are considered to be responsible
for the release of a hazardous substance into the environment. 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 we cannot assure you that we will not 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.
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 could have a material adverse impact on our
capital expenditures, results of operations or financial position.
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Hazardous Substances and Waste
The Resource Conservation and Recovery Act (“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 EPA, the individual states administer some or all of the provisions of 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 RCRA.
The Comprehensive Environmental Response, Compensation, and Liability Act (“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 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.
Water Discharges
The Federal Water Pollution Control Act (the “Clean Water Act”) and analogous state laws impose restrictions and
strict controls with respect to the discharge of pollutants, including spills and leaks of oil and other substances, into
waters of the United States. The discharge of pollutants into regulated waters is prohibited, except in accordance with
the terms of a permit issued by the EPA or an analogous state agency. A responsible party includes the owner or operator
of a facility from which a discharge occurs. The Clean Water Act and analogous state laws provide for administrative,
civil and criminal penalties for unauthorized discharges and, together with the Oil Pollution Act of 1990, impose rigorous
requirements for spill prevention and response planning, as well as substantial potential liability for the costs of removal,
remediation, and damages in connection with any unauthorized discharges. Pursuant to these laws and regulations, we
may be required to obtain and maintain approvals or permits for the discharge of wastewater or storm water from our
operations and may be required to develop and implement spill prevention, control and countermeasure plans, also
referred to as “SPCC plans,” in connection with on-site storage of significant quantities of oil, including refined
petroleum products. We maintain all required discharge permits necessary to conduct our operations, and we believe
we are in substantial compliance with their terms.
Air Emissions
The federal Clean Air Act and comparable state laws regulate emissions of various air pollutants through air
emissions permitting programs and the imposition of other emission control requirements. In addition, the EPA has
developed, and continues to develop, stringent regulations governing emissions of toxic air pollutants at specified
sources. Non-compliance with air permits or other requirements of the federal Clean Air Act and associated state laws
and regulations can result in the imposition of administrative, civil and criminal penalties, as well as the issuance of
orders or injunctions limiting or prohibiting non-compliant operations. We do not believe that any of our operations
are subject to the federal Clean Air Act permitting or regulatory requirements for major sources of air emissions, but
some of our facilities could be subject to state “minor source” air permitting requirements and other state regulatory
requirements applicable to air emissions.
Climate Change
In December 2009, the EPA determined that emissions of carbon dioxide, methane and other “greenhouse gases”
present an endangerment to 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. Based on these findings, the EPA
has begun adopting and implementing regulations to restrict emissions of greenhouse gases under existing provisions
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of the federal Clean Air Act. The EPA recently adopted two sets of rules regulating greenhouse gas emissions under
the Clean Air Act, one of which requires a reduction in emissions of greenhouse gases from motor vehicles and the
other of which regulates emissions of greenhouse gases from certain large stationary sources, effective January 2011.
The EPA has also adopted rules requiring the reporting of greenhouse gas emissions from specified large greenhouse
gas emission sources in the United States, as well as onshore oil and gas production facilities, on an annual basis.
In addition, the United States Congress has from time to time considered adopting legislation to reduce emissions
of greenhouse gases and almost one-half of the states have already taken legal measures to reduce emissions of
greenhouse gases primarily through the planned development of greenhouse gas emission inventories and/or regional
greenhouse gas cap and trade programs. Most of these cap and trade programs work by requiring major sources of
emissions, such as electric power plants, or major producers of fuels, such as refineries and gas processing plants, to
acquire and surrender emission allowances. The number of allowances available for purchase is reduced each year in
an effort to achieve the overall greenhouse gas emission reduction goal.
The adoption of legislation or regulatory programs to reduce emissions of greenhouse gases could require us to
incur increased operating costs, such as costs to purchase and operate emissions control systems, to acquire emissions
allowances or comply with new regulatory or reporting requirements. Any such legislation or regulatory programs
could also increase the cost of consuming, and thereby reduce demand for, the oil and gas produced by our customers.
Consequently, legislation and regulatory programs to reduce emissions of greenhouse gases could have an adverse
effect on our business, financial condition and results of operations. Finally, it should be noted that 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. If any such effects were to occur, they could have an adverse effect on our business, financial
condition and results of operations.
Employee Health and Safety
We are subject to a number of federal and state laws and regulations, including the Occupational Safety and Health
Act ("OSHA") and comparable state statutes, establishing requirements to protect the health and safety of workers. In
addition, the OSHA hazard communication standard, the EPA community right-to-know regulations under Title III of
the federal Superfund Amendment and Reauthorization Act and comparable state statutes require that information be
maintained concerning hazardous materials used or produced in our operations and that this information be provided
to employees, state and local government authorities and the public. Substantial fines and penalties can be imposed
and orders or injunctions limiting or prohibiting certain operations may be issued in connection with any failure to
comply with laws and regulations relating to worker health and safety.
We also operate in non-U.S. jurisdictions, which may impose similar liabilities against us. We believe that we are
in substantial compliance with applicable environmental laws and regulations in effect and that continued compliance
with existing requirements will not have a material adverse impact on us. However, we also believe that it is reasonably
likely that the trend in environmental legislation and regulation will continue toward stricter standards and, thus, we
cannot give any assurance that we will not be adversely affected in the future.
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, among other things, general liability, umbrella liability, sudden and
accidental pollution, personal property, vehicle, workers’ compensation, and employer’s liability coverage. Our
insurance includes various limits and deductibles or retentions, which must be met prior to or in conjunction with
recovery.
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Employees
At December 31, 2013, we had approximately 4,100 employees worldwide. We are a party to collective bargaining
agreements or other similar arrangements in certain international areas in which we operate, such as Brazil, the Far
East and Europe. We consider our relations with our employees to be satisfactory.
Available Information
Our principal executive offices are located at Prins Bernhardplein 200, 1097 JB Amsterdam, The Netherlands, and
our telephone number at that address is +31 (0)20 52 14 777. Our primary U.S. offices are located at 10260 Westheimer
Rd., Houston, Texas 77042, and our telephone number at that address is (281) 966-7300. Our website address is
www.franksinternational.com, and we make available free of charge through our website our Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports, as soon as
reasonably practicable after such materials are electronically filed with or furnished to the SEC. Our website also
includes general information about us, including our Corporate Governance Guidelines and charter for the Audit
Committee of our Supervisory Board of Directors. We may from time to time provide important disclosures to investors
by posting them in the investor relations section of our website, as allowed by SEC rules. Information on our website
or any other website is not incorporated by reference herein and does not constitute a part of this report.
Materials we file with the SEC may be inspected without charge and copied, upon payment of a duplicating fee,
at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of
the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an
internet website at www.sec.gov that contains reports, proxy and information statements, and other information regarding
our company that we file electronically with the SEC.
Item 1A. Risk Factors
Risks Related to Our Business
You should carefully consider the risks described below together with the other information contained in this Form
10-K. Realization of any of the following risks could have a material adverse effect on our business, financial condition,
cash flows and results of operations.
Our business depends on the level of activity in the oil and gas industry, which is significantly affected by volatile
oil and gas prices and other factors.
Our business depends on the level of activity in oil and gas exploration, development and production in market
sectors worldwide. Oil and gas prices and market expectations of potential changes in these prices significantly affect
this level of activity. However, higher commodity prices do not necessarily translate into increased drilling activity,
since customers’ expectations of future commodity prices typically drive demand for our services. The availability of
quality drilling prospects, exploration success, relative production costs, the stage of reservoir development and political
and regulatory environments also affect the demand for our services. Worldwide military, political and economic events
have in the past contributed to oil and gas price volatility and are likely to do so in the future. The demand for our
services may be affected by numerous factors, including:
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the level of worldwide oil and gas exploration and production;
the cost of exploring for, producing and delivering oil and gas;
demand for energy, which is affected by worldwide economic activity and population growth;
the level of excess production capacity;
the discovery rate of new oil and gas reserves;
the ability of OPEC to set and maintain production levels for oil;
the level of production by non-OPEC countries;
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• U.S. and global political and economic uncertainty, socio-political unrest and instability or hostilities;
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demand for, availability of and technological viability of, alternative sources of energy; and
technological advances affecting energy exploration, production, transportation and consumption.
Demand for our offshore services substantially depends on the level of activity in offshore oil and gas exploration,
development and production. The level of offshore activity is historically cyclical and characterized by large fluctuations
in response to relatively minor changes in a variety of factors, including oil and gas prices, which could have a material
adverse effect on our business, financial condition and results of operations.
A significant amount of our U.S. onshore business is focused on unconventional shale resource plays. The demand
for those services is substantially affected by oil and gas prices and market expectations of potential changes in these
prices. If commodity prices were to go below a certain threshold for an extended period of time, demand for our services
in the U.S. onshore market would be greatly reduced, potentially having a material adverse effect on our business,
financial condition and results of operations.
The oil and gas industry has historically experienced periodic downturns, which have been characterized by reduced
demand for oilfield services and downward pressure on the prices we charge. A significant downturn in the oil and gas
industry will adversely affect the demand for oilfield services and our business, financial condition and results of
operations.
Physical dangers are inherent in our operations and may expose us to significant potential losses. Personnel
and property may be harmed during the process of drilling for oil and gas.
Drilling for and producing oil and gas, and the associated services that we provide, include inherent dangers that
may lead to property damage, personal injury, death or the discharge of hazardous materials into the environment. Many
of these events are outside our control. Typically, we provide services at a well site where our personnel and equipment
are located together with personnel and equipment of our customers and third parties, such as other service providers.
At many sites, we depend on other companies and personnel to conduct drilling operations in accordance with applicable
environmental laws and regulations and appropriate safety standards. From time to time, personnel are injured or
equipment or property is damaged or destroyed as a result of accidents, failed equipment, faulty products or services,
failure of safety measures, uncontained formation pressures, or other dangers inherent in drilling for oil and gas. Any
of these events can be the result of human error. With increasing frequency, our services are deployed on more challenging
prospects, particularly deep water offshore drilling sites, where the occurrence of the types of events mentioned above
can have an even more catastrophic impact on people, equipment and the environment. Such events may expose us to
significant potential losses, which could adversely affect our business, financial condition and results of operations.
We are vulnerable to risks associated with our offshore operations that could negatively impact our business,
financial condition and results of operations.
We conduct offshore operations in the U.S. Gulf of Mexico and almost every significant international offshore
market, including West Africa, Latin America, Europe, the Asia Pacific region and several other producing regions.
Our operations and financial results could be significantly impacted by conditions in some of these areas because we
are vulnerable to certain unique risks associated with operating offshore, including those relating to:
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hurricanes and other adverse weather conditions;
terrorist attacks, such as piracy;
failure of offshore equipment and facilities;
local and international political and economic conditions and policies and regulations related to offshore
drilling;
unavailability of offshore drilling rigs in the markets that we operate;
the cost of offshore exploration for, and production and transportation of, oil and gas;
successful exploration for, and production and transportation of, oil and gas from onshore sources;
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•
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the availability and rate of discovery of new oil and gas reserves in offshore areas; and
the ability of oil and gas companies to generate or otherwise obtain funds for exploration and production.
While the impact of these factors is difficult to predict, any one or more of these factors could adversely affect
our business, financial condition and results of operations.
Our international operations and revenue expose us to political, economic and other uncertainties inherent
to international business.
We have substantial international operations, and we intend to grow those operations further. For the years ended
December 31, 2013, 2012 and 2011, international operations accounted for approximately 44%, 45% and 51%,
respectively, of our revenue. Our international operations are subject to a number of risks inherent in any business
operating in foreign countries, including, but not limited to, the following:
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political, social and economic instability;
potential expropriation, seizure or nationalization of assets;
deprivation of contract rights;
increased operating costs;
inability to collect revenues due to shortages of convertible currency;
unwillingness of foreign governments to make new onshore and offshore areas available for drilling;
civil unrest and protests, strikes, acts of terrorism, war or other armed conflict;
import/export quotas;
confiscatory taxation or other adverse tax policies;
continued application of foreign tax treaties;
currency exchange controls;
currency exchange rate fluctuations and devaluations;
restrictions on the repatriation of funds; and
other forms of government regulation which are beyond our control.
Instability and disruptions in the political, regulatory, economic and social conditions of the foreign countries in
which we conduct business, including economically and politically volatile areas such as Africa, the Middle East, Latin
America and the Asia Pacific region, could cause or contribute to factors that could have an adverse effect on the demand
for the products and services we provide. Worldwide political, economic, and military events have contributed to oil
and gas price volatility and are likely to continue to do so in the future. Depending on the market prices of oil and gas,
oil and gas exploration and development companies may cancel or curtail their drilling programs, thereby reducing
demand for our services.
Additionally, our competitiveness in international market areas may be adversely affected by regulations that
promote or incentivize, among other things, the:
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awarding of contracts to local contractors; and
establishment of foreign subsidiaries with significant ownership positions reserved by the foreign government
for local citizens.
While the impact of these factors is difficult to predict, any one or more of these factors could adversely affect
our business, financial condition and results of operations.
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To compete in our industry, we must continue to develop new technologies and products to support our tubular
services, secure and maintain patents related to our current and new technologies and products and protect and
enforce our intellectual property rights.
The markets for our tubular services are characterized by continual technological developments. While we believe
that the proprietary products we have developed provide us with technological advances in providing services to our
customers, substantial improvements in the scope and quality of the products in the market we operate may occur over
a short period of time. If we are not able to develop commercially competitive products in a timely manner in response,
our ability to service our customers’ demands may be adversely affected. Our future ability to develop new products
in order to support our services depends on our ability to:
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design and produce products that allow us to meet the needs of our customers; and
obtain and maintain patent protection.
We may encounter resource constraints, technical barriers, or other difficulties that would delay introduction of
new services and related products in the future. Our competitors may introduce new products or obtain patents before
we do and achieve a competitive advantage. Additionally, the time and expense invested in product development may
not result in commercial applications.
We currently hold multiple U.S. and international patents and have multiple pending patent applications for products
and processes. Patent rights give the owner of a patent the right to exclude third parties from making, using, selling,
and offering for sale the inventions claimed in the patents in the applicable country. Patent rights do not necessarily
grant the owner of a patent the right to practice the invention claimed in a patent, but merely the right to exclude others
from practicing the invention claimed in the patent. It may also be possible for a third party to design around our patents.
Furthermore, patent rights have strict territorial limits. Some of our work will be conducted in international waters and
would, therefore, not fall within the scope of any country’s patent jurisdiction. We may not be able to 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.
We attempt to limit access to and distribution of our technology by customarily entering into confidentiality
agreements with our employees, customers and potential customers and suppliers. However, our rights in our confidential
information, trade secrets, and confidential know-how will not prevent third parties from independently developing
similar information. Publicly available information (e.g. information in expired issued patents, published patent
applications, and scientific literature) can also be used by third parties to independently develop technology. We cannot
provide assurance that this independently developed technology will not be equivalent or superior to our proprietary
technology.
In addition, we may become involved in legal proceedings from time to time to protect and enforce our intellectual
property rights. Third parties from time to time may initiate litigation against us by asserting that the conduct of our
business infringes, misappropriates or otherwise violates intellectual property rights. We may not prevail in any such
legal proceedings related to such claims, 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 could be protracted and costly and is inherently unpredictable and could have a material adverse effect on our
business, regardless of its outcome. Further, our intellectual property rights may not have the value that management
believes them to have and such value may change over time as we and others develop new product designs and
improvements.
Our tubular services may be adversely affected by various laws and regulations in countries in which we operate
relating to the equipment and operation of drilling units, oil and gas exploration and development, as well as import
and export activities.
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Governments in some foreign countries have been increasingly active in regulating and controlling the ownership
of concessions and companies holding concessions, the exploration for oil and gas and other aspects of the oil and gas
industries in their countries, including local content requirements for participating in tenders for certain tubular services.
We operate in several of these countries, including Angola, Nigeria, Indonesia, Malaysia, Brazil and Canada. Many
governments favor or effectively require that contracts be awarded to local contractors or require foreign contractors
to employ citizens of, or purchase supplies from, a particular jurisdiction. These practices may result in inefficiencies
or put us at a disadvantage when we bid for contracts against local competitors.
In addition, the shipment of goods, services and technology across international borders subjects us to extensive
trade laws and regulations. Our import and export activities are governed by unique customs laws and regulations in
each of the countries where we operate. Moreover, many countries control the import and export of certain goods,
services and technology and impose related import and export recordkeeping and reporting obligations. Governments
also may impose economic sanctions against certain countries, persons and other entities that may restrict or prohibit
transactions involving such countries, persons and entities, and we are also subject to the U.S. anti-boycott law. In
addition, certain anti-dumping regulations in the foreign countries in which we operate may prohibit us from purchasing
pipe from certain suppliers.
The laws and regulations concerning import and export activity, recordkeeping and reporting, import and export
control and economic sanctions are complex and constantly changing. These laws and regulations may be enacted,
amended, enforced or interpreted in a manner materially impacting our operations. A global economic downturn may
increase some foreign governments’ efforts to enact, enforce, amend or interpret laws and regulations as a method to
increase revenue. Materials that we import can be delayed and denied for varying reasons, some of which are outside
our control and some of which may result from failure to comply with existing legal and regulatory regimes. Shipping
delays or denials could cause unscheduled operational downtime. Any failure to comply with these applicable legal
and regulatory obligations also could result in criminal and civil penalties and sanctions, such as fines, imprisonment,
debarment from government contracts, seizure of shipments and loss of import and export privileges.
We may be exposed to unforeseen risks in our services and product manufacturing, which could adversely affect
our results of operations.
We operate a number of manufacturing facilities to support our tubular services. In addition, we also manufacture
certain products, including large OD pipe connectors that we sell directly to external customers. The equipment and
management systems necessary for such operations may break down, perform poorly or fail, resulting in fluctuations
in manufacturing efficiencies. Additionally, some of our U.S. onshore business may be conducted under fixed price or
“turnkey” contracts. Under fixed price contracts, we agree to perform a defined scope of work for a fixed price. Prices
for these contracts are based largely upon estimates and assumptions relating to project scope and specifications,
personnel and material needs.
Fluctuations in our manufacturing process and inaccurate estimates and assumptions used in our projects may
occur due to factors out of our control, resulting in cost overruns, which we may be required to absorb and could have
a material adverse effect on our business, financial condition and results of operations. Such fluctuations or incorrect
estimates may affect our ability to deliver services and products to our customers on a timely basis and we may suffer
financial penalties and a diminution of our commercial reputation and future product orders, which could adversely
affect our business, financial condition and results of operations.
We may be unable to employ a sufficient number of skilled and qualified workers to sustain or expand our
current operations.
The delivery of our tubular services requires personnel with specialized skills and experience. Our ability to be
productive and profitable will depend upon our ability to employ and retain skilled workers. In addition, our ability to
expand our operations depends in part on our ability to increase the size of our skilled labor force. The demand for
skilled workers is high, the supply is limited, and the cost to attract and retain qualified personnel has increased over
the past few years. In addition, we are currently a party to collective bargaining or similar agreements in certain
international areas in which we operate, which could result in increases in the wage rates that we must pay to retain
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our employees. 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. If any of these events were to occur,
our capacity could be diminished, our ability to respond quickly to customer demands or strong market conditions may
be inhibited and our growth potential could be impaired, any of which could have a material adverse effect on our
business, financial condition and results of operations.
We operate in an intensively competitive industry, and if we fail to compete effectively, our business will suffer.
Our competitors may attempt to increase their market share by reducing prices, or our customers may adopt
competing technologies. The drilling industry is driven primarily by cost minimization, and our strategy is aimed at
reducing drilling costs through the application of new technologies. Our competitors, many of whom have a more
diverse product line and access to greater amounts of capital than we do, have the ability to compete against the cost
savings generated by our technology by reducing prices and by introducing competing technologies. Our competitors
may also have the ability to offer bundles of products and services to customers that we do not offer. We have limited
resources to sustain prolonged price competition and maintain the level of investment required to continue the
commercialization and development of our new technologies. Any failure to continue to do so could adversely affect
our business, financial condition or results of operations.
Our business depends upon our ability to source low cost raw materials and components, such as steel castings
and forgings. Increased costs of raw materials and other components may result in increased operating expenses.
Our ability to source low cost raw materials and components, such as steel castings and forgings, is critical to our
ability to manufacture our drilling products competitively and, in turn, our ability to provide onshore and offshore
drilling services. Should our current suppliers be unable to provide the necessary raw materials or components or
otherwise fail to deliver such materials and components 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, we have experienced increased costs in recent years due to rising steel prices. There is also strong
demand within the industry for forgings, castings and outsourced coating services necessary for us to make our products.
We cannot assure that we will be able to continue to purchase these raw materials on a timely basis or at historical
prices. 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.
Our tubular services are provided in connection with operations that are subject to potential hazards inherent
in the oil and gas industry, and, as a result, we are exposed to potential liabilities that may affect our financial
condition and reputation.
Our tubular services are provided in connection with potentially hazardous drilling, completion and production
applications in the oil and gas industry where an accident can potentially have catastrophic consequences. This is
particularly true in deep water operations, where we are increasingly providing more tubular services. Risks inherent
to these applications, such as equipment malfunctions and failures, equipment misuse and defects, explosions, blowouts
and uncontrollable flows of oil, gas or well fluids and natural disasters, on land or in deep water 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. If our services fail to meet specifications or are involved in accidents or failures, we
could face warranty, contract, fines or other litigation claims, which could expose us to substantial liability for personal
injury, wrongful death, property damage, loss of oil and gas production, pollution and other environmental damages.
Our insurance policies may not be adequate to cover all liabilities. Further, insurance may not be generally available
in the future or, if available, insurance premiums may make such insurance commercially unjustifiable. Moreover, even
if we are successful in defending a claim, it could be time-consuming and costly to defend.
In addition, the frequency and severity of such incidents will affect operating costs, insurability and relationships
with customers, employees and regulators. In particular, our customers may elect not to purchase our services if they
view our safety record as unacceptable, which could cause us to lose customers and substantial revenues. In addition,
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these risks may be greater for us because we may acquire companies that have not allocated significant resources and
management focus to safety and have a poor safety record requiring rehabilitative efforts during the integration process
and we may incur liabilities for losses before such rehabilitation occurs.
The imposition of stringent restrictions or prohibitions on offshore drilling by any governing body may have a
material adverse effect on our business.
Events in recent years have heightened environmental and regulatory concerns about the oil and gas industry. From
time to time, governing bodies have enacted and may propose legislation or regulations that would materially limit or
prohibit offshore drilling in certain areas. If laws are enacted or other governmental action is taken that restrict or
prohibit offshore drilling in our expected areas of operation, our expected future growth in offshore services could be
reduced and our business could be materially adversely affected.
For example, the legal and regulatory developments since the 2010 Deepwater Horizon incident have created
significant uncertainty regarding the outlook of offshore drilling activity in the U.S. Gulf of Mexico as well as possible
implications for regions outside of the U.S. Gulf of Mexico. If the new regulations, operating procedures and possibility
of increased legal liability are viewed by our current or future customers as a significant increased financial burden on
drilling projects in the U.S. Gulf of Mexico for other potentially more profitable regions, drillships and other floating
rigs could depart the U.S. Gulf of Mexico, which would likely affect the supply and demand for our equipment and
services. In addition, government agencies could issue new safety and environmental guidelines or regulations for
drilling in the U.S. Gulf of Mexico that could disrupt or delay drilling operations, increase the cost of drilling operations
or reduce the area of operations for drilling. All of these uncertainties could result in a reduced demand for our equipment
and services, which could have an adverse effect on our business.
We may not be fully indemnified against financial losses in all circumstances where damage to or loss of property,
personal injury, death or environmental harm occur.
As is customary in our industry, our contracts typically provide that our customers indemnify us for claims arising
from the injury or death of their employees, the loss or damage of their equipment, damage to the reservoir and pollution
emanating from the customer’s equipment or from the reservoir (including uncontained oil flow from a reservoir).
Conversely, we typically indemnify our customers for claims arising from the injury or death of our employees, the
loss or damage of our equipment, or pollution emanating from our equipment. Our contracts typically provide that our
customer will indemnify us for claims arising from catastrophic events, such as a well blowout, fire or explosion.
Our indemnification arrangements may not protect us in every case. For example, from time to time (i) we may
enter into contracts with less favorable indemnities or perform work without a contract that protects us, (ii) our indemnity
arrangements may be held unenforceable in some courts and jurisdictions or (iii) we may be subject to other claims
brought by third parties or government agencies. Furthermore, the parties from which we seek indemnity may not be
solvent, may become bankrupt, may lack resources or insurance to honor their indemnities, or may not otherwise be
able to satisfy their indemnity obligations to us. The lack of enforceable indemnification could expose us to significant
potential losses.
Further, our assets generally are not insured against loss from political violence such as war, terrorism or civil
unrest. If any of our assets are damaged or destroyed as a result of an uninsured cause, we could recognize a loss of
those assets.
We may incur liabilities, fines, penalties or additional costs, or we may be unable to provide services 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 in connection with our tubular
services, we may incur fines, penalties or other liabilities or may be held criminally liable. We expect to incur additional
costs over time to upgrade equipment or conduct additional training or otherwise incur costs in connection with
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. Because we provide
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tubular services to a large number of major oil companies, any such failure could adversely affect our business, financial
condition and results of operations.
The industry in which we operate is undergoing continuing consolidation that may impact results of operations.
Some of our largest customers have consolidated and are using their size and purchasing power to achieve economies
of scale and pricing concessions. This consolidation may result in reduced capital spending by such customers or the
acquisition of one or more of our other primary customers, which may lead to decreased demand for our products and
services. If we cannot maintain sales levels for customers that have consolidated or replace such revenues with increased
business activities from other customers, this consolidation activity could have a significant negative impact on our
business, financial condition and results of operations. We are unable to predict what effect consolidations in our industry
may have on prices, capital spending by customers, selling strategies, competitive position, ability to retain customers
or ability to negotiate favorable agreements with customers.
Our operations and our customers’ operations are subject to a variety of governmental laws and regulations
that may increase our costs, limit the demand for our services and products or restrict our operations.
Our business and our customers’ businesses may be significantly affected by:
•
•
•
federal, state and local 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; and
the level of enforcement of these laws and regulations.
In addition, we depend on the demand for our tubular services from the oil and gas industry. This demand is affected
by changing taxes, price controls and other laws and regulations relating to the oil and gas industry in general. For
example, the adoption of laws and regulations curtailing exploration and development drilling for oil and 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 may adopt regulations or practices that give advantage to indigenous oil companies in bidding
for oil leases, or require indigenous 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
may 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, financial
condition and results of operations may be adversely affected.
An inability to obtain visas and work permits for our employees on a timely basis could negatively affect our
operations and have an adverse effect on our business.
Our ability to provide services worldwide depends on our ability to obtain the necessary visas and work permits
for our personnel to travel in and out of, and to work in, the jurisdictions in which we operate. Governmental actions
in some of the jurisdictions in which we operate may make it difficult for us to move our personnel in and out of these
jurisdictions by delaying or withholding the approval of these permits. If we are not able to obtain visas and work
permits for the employees we need for conducting our tubular services on a timely basis, we might not be able to
perform our obligations under our contracts, which could allow our customers to cancel the contracts. If our customers
cancel some of our contracts, and we are unable to secure new contracts on a timely basis and on substantially similar
terms, our business, financial condition and results of operations could be materially adversely affected.
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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.
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 non-hazardous 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 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
considered to be responsible for the release of a hazardous substance into the environment.
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.
Our operations in countries outside of the United States are subject to a number of U.S. federal laws and
regulations, including restrictions imposed by the Foreign Corrupt Practices Act, as well as trade sanctions
administered by the Office of Foreign Assets Control and the Commerce Department.
Local laws and customs in many countries differ significantly from those in the United States. In many countries,
particularly in those with developing economies, it is common to engage in business practices that are prohibited by
U.S. regulations applicable to us. The United States Foreign Corrupt Practices Act (“FCPA”) and similar anti-bribery
laws in other jurisdictions, including the UK Bribery Act 2010 and the United Nations Convention Against Corruption,
prohibit corporations and individuals, including us and our employees, from engaging in certain accounting practices
or activities to obtain or retain business or to influence a person working in an official capacity. We do business and
may do additional business in the future in countries and regions in which we may face, directly or indirectly, corrupt
demands by officials, tribal or insurgent organizations, or private entities. Thus, we face the risk of unauthorized
payments or offers of payments by one of our employees, contractors and agents, even though these parties are not
always subject to our control. It is our policy to implement compliance procedures to prohibit these practices. However,
our existing safeguards and any future improvements may prove to be less than effective, and our employees, contractors,
and agents may engage in conduct for which we might be held responsible, regardless of whether such conduct occurs
within or outside the United States. We may also be held responsible for any violations by an acquired company that
occur prior to an acquisition, or subsequent to the acquisition but before we are able to institute our compliance
procedures. In addition, our non-U.S. competitors that are not subject to the FCPA or similar laws may be able to secure
business or other preferential treatment in such countries by means that such laws prohibit with respect to us. A violation
of any of these laws, even if prohibited by our policies, may result in severe criminal or civil sanctions and other
penalties, and could have a material adverse effect on our business. Actual or alleged violations could damage our
reputation, be expensive to defend, and impair our ability to do business.
Compliance with U.S. regulations on trade sanctions and embargoes administered by the United States Department
of the Treasury’s Office of Foreign Assets Control (“OFAC”) also poses a risk to us. We cannot provide products or
services to certain countries subject to U.S. trade sanctions. Furthermore, the laws and regulations concerning import
activity, export recordkeeping and reporting, export control 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.
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Compliance with and changes in laws could be costly and could affect operating results.
We have operations in the U.S. and in approximately 60 countries that can be impacted by expected and unexpected
changes in the legal and business environments in which we operate. Political instability and regional issues in many
of the areas in which we operate may contribute to such changes with greater significance or frequency. Our ability to
manage our compliance costs and compliance programs will impact our business, financial condition and results of
operations. Compliance-related issues could also limit our ability to do business in certain countries. Changes that could
impact the legal environment include new legislation, new regulations, new policies, investigations and legal
proceedings and new interpretations of existing legal rules and regulations, in particular, changes in export control laws
or exchange control laws, additional restrictions on doing business in countries subject to sanctions and changes in
laws in countries where we operate or intend to operate.
Restrictions on emissions of greenhouse gases could increase our operating costs or reduce demand for our
products.
Environmental advocacy groups and regulatory agencies in the United States and other countries have focused
considerable attention on emissions of carbon dioxide, methane and other greenhouse gases and their potential role in
climate change. The U.S. Environmental Protection Agency (the “EPA”) has already begun to regulate greenhouse gas
emissions under existing provisions of the federal Clean Air Act, and the state of California has established a “cap-and-
trade” program requiring state-wide annual reductions in emission of greenhouse gasses. In addition, from time to time
there have been proposals to impose a “carbon tax” based on the carbon content of combusted fuels. 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 our customers
produce. Consequently, legislation and regulatory programs to reduce emissions of greenhouse gases could have an
adverse effect on our business, financial condition and results of operations. Finally, some scientists have concluded
that increasing concentrations of greenhouse gases in the Earth’s atmosphere may produce climate changes that have
significant physical effects, such as increased frequency and severity of storms, droughts, and floods and other climatic
events.
We face risks related to natural disasters and pandemic diseases, which could result in severe property damage
or materially and adversely disrupt our operations and affect travel required for our worldwide operations.
Some of our operations involve risks of, among other things, property damage, which could curtail our operations.
For example, 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 Lafayette,
Louisiana and in various places throughout the Gulf Coast region of the United States. These offices and facilities are
particularly susceptible to severe tropical storms and hurricanes, which may disrupt our operations. If one or more
manufacturing facilities we own are damaged by severe weather or any other disaster, accident, catastrophe or event,
our operations could be significantly interrupted. Similar interruptions could result from damage to production or other
facilities that provide supplies or other raw materials to our plants or other stoppages arising from factors beyond our
control. These interruptions might involve significant damage to, among other things, property, and repairs might take
from a week or less for a minor incident to many months or more for a major interruption.
In addition, a portion of our business involves the movement of people and certain parts and supplies to or from
foreign locations. Any restrictions on travel or shipments to and from foreign locations, due to the occurrence of natural
disasters such as earthquakes, floods or hurricanes, or an epidemic or outbreak of diseases, including the H1N1 virus
and the avian flu, in these locations, could significantly disrupt our operations and decrease our ability to provide
services to our customers. In addition, our local workforce could be affected by such an occurrence or outbreak which
could also significantly disrupt our operations and decrease our ability to provide services to our customers.
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Our exposure to currency exchange rate fluctuations may result in fluctuations in our cash flows and could
have an adverse effect on our financial condition and results of operations.
From time to time, fluctuations in currency exchange rates could be material to us depending upon, among other
things, the principal regions in which we provide tubular services. For the year ended December 31, 2013, on a U.S.
dollar-equivalent basis, approximately 21% of our revenue was represented by currencies other than the U.S. dollar.
In particular, we are sensitive to fluctuations in currency exchange rates between the U.S. dollar and each of the Euro,
Norwegian Krone, British Pound, Venezuelan Bolivar and Brazilian Real. 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 continue our
expansion on a global basis, as expected, we expect that increasing 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 or foreign currency, resulting in our inability to hedge
against these risks.
Seasonal and weather conditions could adversely affect demand for our services and operations.
Weather can have a significant impact on demand as consumption of energy is seasonal, and any variation from
normal weather patterns, such as cooler or warmer summers and winters, can have a significant impact on demand.
Adverse weather conditions, such as hurricanes in the U.S. Gulf of Mexico or typhoons in the Asia Pacific region, may
interrupt or curtail our operations, or our customers’ operations, cause supply disruptions and result in a loss of revenue
and damage to our equipment and facilities, which may or may not be insured. Extreme winter conditions in Canada,
Russia or the North Sea may interrupt or curtail our operations, or our customers’ operations, in those areas and result
in a loss of revenue.
Legislation or regulations restricting the use of hydraulic fracturing could reduce demand for our services.
Hydraulic fracturing is an important and common practice in the oil and gas industry. The process involves the
injection of water, sand and chemicals under pressure into a formation to fracture the surrounding rock and stimulate
production of hydrocarbons. Certain environmental advocacy groups and regulatory agencies 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 and may cause earthquakes. Various governmental entities (within and outside the United States) are in the
process of studying, restricting, regulating or preparing to regulate hydraulic fracturing, directly or indirectly. For
example, the EPA has already begun to regulate certain hydraulic fracturing operations involving diesel under the
Underground Injection Control program of the federal Safe Drinking Water Act, and is conducting a study to determine
if additional regulation of hydraulic fracturing is warranted. The adoption of legislation or regulatory programs that
restrict hydraulic fracturing could adversely affect, reduce or delay well drilling and completion activities, increase the
cost of drilling and production, and thereby reduce demand for our services.
Customer credit risks could result in losses.
The concentration of our customers in the energy industry may impact our overall exposure to credit risk as
customers may be similarly affected by prolonged changes in economic and industry conditions. Those countries that
rely heavily upon income from hydrocarbon exports would be hit particularly hard by a drop in oil prices. Further, laws
in some jurisdictions in which we operate could make collection difficult or time consuming. We perform ongoing
credit evaluations of our customers and do not generally require collateral in support of our trade receivables. While
we maintain reserves for potential credit losses, we cannot assure such reserves will be sufficient to meet write-offs of
uncollectible receivables or that our losses from such receivables will be consistent with our expectations.
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We may be unable to identify or complete acquisitions.
We expect that acquisitions will be an important element of our business strategy going forward. We can give no
assurance that we will be able to identify and acquire additional businesses in the future on terms favorable to us or
that we will be able to integrate successfully the assets and operations of acquired businesses with our own business.
Any inability on our part to integrate and manage the growth of acquired businesses may have a material adverse effect
on our business, financial condition and results of operations.
Our executive officers and certain key personnel are critical to our business, and these officers and key personnel
may not remain with us in the future.
Our future success depends in substantial part on our ability to hire and retain our executive officers and other key
personnel. In particular, we are highly dependent on our executive officers, particularly Keith Mosing, our Chairman
of the Supervisory Board, Chief Executive Officer and President. These individuals possess extensive expertise, talent
and leadership, and they are critical to our success. The diminution or loss of the services of these individuals, or other
integral key personnel affiliated with entities that we acquire in the future, could have a material adverse effect on our
business. Furthermore, we may not be able to enforce all of the provisions in any employment agreement we have
entered into with certain of our executive officers, and such employment agreements may not otherwise be effective
in retaining such individuals. In addition, we may not be able to retain key employees of entities that we acquire in the
future. This may impact our ability to successfully integrate or operate the assets we acquire.
Control of oil and gas reserves by state-owned oil companies may impact the demand for our services and create
additional risks in our operations.
Much of the world’s oil and gas reserves are controlled by state-owned oil companies, and we provide tubular
services for a number of those companies. State-owned oil companies may require their contractors to meet local content
requirements or other local standards, such as joint ventures, that could be difficult or undesirable for us to meet. The
failure to meet the local content requirements and other local standards may adversely impact our operations in those
countries. In addition, our ability to work with state-owned oil companies is subject to our ability to negotiate and agree
upon acceptable contract terms.
Risks Related to Our Organizational Structure
We are a holding company and our sole material asset is our indirect equity interest in FICV, and we are
accordingly dependent upon distributions from FICV to pay taxes, make payments under the tax receivable
agreement, and pay dividends.
We are a holding company and have no material assets other than our indirect equity interest in FICV. We have no
independent means of generating revenue. We intend to cause FICV to make distributions to us and Mosing Holdings
in an amount sufficient to cover (i) all applicable taxes at assumed tax rates, (ii) payments under the tax receivable
agreement we entered into with Mosing Holdings in connection with the IPO and (iii) dividends, if any, declared by
us. To the extent that we need funds and FICV or its subsidiaries is restricted from making such distributions under
applicable law or regulation or under the terms of their financing or other contractual arrangements, or is otherwise
unable to provide such funds, it could materially adversely affect our liquidity and financial condition.
The Mosing family holds a majority of the combined voting power of the Company's common stock and Series
A preferred stock (the "FINV Stock") and, accordingly, has substantial control over our management and affairs.
The Mosing family holds approximately 83.3% of the combined voting power of the FINV Stock through FWW
B.V. ("FWW") and Mosing Holdings. Accordingly, the Mosing family has the ability to elect all of the members of our
supervisory board, and thereby control our management and affairs. Moreover, pursuant to our amended and restated
articles of association, our board of directors will consist of no more than nine individuals. The Mosing family has the
right to recommend one director for nomination to the supervisory board for each 10% of the outstanding FINV Stock
they collectively beneficially own, up to a maximum of five directors. The remaining directors are nominated by our
24
supervisory board. Our supervisory board consists of six members, three of whom are members of the Mosing family
and are also employees of us or one of our affiliates, including our chief executive officer. As a result, members of the
Mosing family have meaningful influence over us and potential conflicts may arise, including with respect to matters
related to the compensation of our chief executive officer and the other members of the Mosing family who serve on
our supervisory board. In addition, the Mosing family will be able to determine the outcome of all matters requiring
shareholder approval, including mergers, amendments of our articles of association and other material transactions,
and will be able to cause or prevent a change in the composition of our supervisory board or a change in control of our
company that could deprive our shareholders of an opportunity to receive a premium for their common stock as part
of a sale of our company. The existence of significant shareholders may also have the effect of deterring hostile takeovers,
delaying or preventing changes in control or changes in management, or limiting the ability of our other shareholders
to approve transactions that they may deem to be in the best interests of our company. So long as the Mosing family
continues to own a significant amount of the FINV Stock, even if such amount represents less than 50% of the aggregate
voting power, it will continue to be able to strongly influence all matters requiring shareholder approval, regardless of
whether or not other shareholders believe that the transaction is in their own best interests.
The Mosing family may have interests that conflict with holders of shares of our common stock.
In addition to their ownership interests in us, the Mosing family indirectly owns 25.7% of the limited partnership
interests in FICV. Because they hold a portion of their ownership interest in our business through FICV, rather than
through FINV, the Mosing family may have conflicting interests with holders of shares of our common stock. For
example, the Mosing family may have different tax positions from us which could influence their decisions regarding
whether and when to cause us to dispose of assets, whether and when to cause us to incur new or refinance existing
indebtedness, especially in light of the existence of the tax receivable agreement that we entered into in connection
with the IPO. In addition, the structuring of future transactions may take into consideration the Mosing family’s tax or
other considerations even where no similar benefit would accrue to us.
We are required under the tax receivable agreement to pay Mosing Holdings or its permitted transferees for
certain tax benefits we may claim, and the amounts we may pay could be significant.
We entered into the tax receivable agreement with Mosing Holdings in connection with the IPO. This agreement
generally provides for the payment by us of 85% of actual reductions, if any, in payments of U.S. federal, state and
local income tax or franchise tax (which reductions we refer to as “cash savings”) in periods as a result of (i) the tax
basis increases resulting from the transfer of FICV interests to us in connection with the conversion of shares of Series
A Preferred Stock into shares of our common stock and (ii) imputed interest deemed to be paid by us as a result of, and
additional tax basis arising from, payments under the tax receivable agreement. In addition, the tax receivable agreement
provides for interest earned from the due date (without extensions) of the corresponding tax return to the date of payment
specified by the tax receivable agreement.
The payment obligations under the tax receivable agreement are our obligations and are not obligations of FICV.
The term of the tax receivable agreement continues until all such tax benefits have been utilized or expired, unless we
exercise our right to terminate the tax receivable agreement.
Estimating the amount of payments that may be made under the tax receivable agreement is by its nature imprecise,
insofar as the calculation of amounts payable depends on a variety of factors. The actual increase in tax basis, as well
as the amount and timing of any payments under the tax receivable agreement, will vary depending upon a number of
factors, including the timing of exchanges, the relative value of our U.S. and international assets at the time of the
exchange, the price of shares of our common stock at the time of the exchange, the extent to which such exchanges are
taxable, the amount and timing of the taxable income we realize in the future and the tax rate then applicable, our use
of loss carryovers and the portion of our payments under the tax receivable agreement constituting imputed interest or
depreciable or amortizable basis. We expect that the payments that we will be required to make under the tax receivable
agreement will be substantial. There may be a substantial negative impact on our liquidity if, as a result of timing
discrepancies or otherwise, (i) the payments under the tax receivable agreement exceed the actual benefits we realize
in respect of the tax attributes subject to the tax receivable agreement or (ii) distributions to us by FICV are not sufficient
to permit us to make payments under the tax receivable agreement subsequent to the payment of our taxes and other
25
obligations. The payments under the tax receivable agreement are not conditioned upon a holder of rights under a tax
receivable agreement having a continued ownership interest in either FICV or us. While we may defer payments under
the tax receivable agreement to the extent we do not have sufficient cash to make such payments, except in the case of
an acceleration of payments thereunder occurring in connection with an early termination of the tax receivable agreement
or certain mergers or changes of control, any such unpaid obligation will accrue interest. Additionally, during any such
deferral period, we are prohibited from paying dividends on our common stock.
In certain cases, payments under the tax receivable agreement to Mosing Holdings or its permitted transferees
may be accelerated or significantly exceed the actual benefits, if any, we realize in respect of the tax attributes subject
to the tax receivable agreement.
The tax receivable agreement provides that we may terminate it early. If we elect to terminate the tax receivable
agreement early, we are required to make an immediate payment equal to the present value of the anticipated future
tax benefits subject to the tax receivable agreement (based upon certain assumptions and deemed events set forth in
the tax receivable agreement, including the assumption that we have sufficient taxable income to fully utilize such
benefits and that any interests in FICV that Mosing Holdings or its transferees own on the termination date are deemed
to be exchanged on the termination date). Any early termination payment may be made significantly in advance of the
actual realization, if any, of such future benefits. In addition, payments due under the tax receivable agreement are
similarly accelerated following certain mergers or other changes of control. In these situations, our obligations under
the tax receivable agreement could have a substantial negative impact on our liquidity and could have the effect of
delaying, deferring or preventing certain mergers, asset sales, other forms of business combinations or other changes
of control. For example, if the tax receivable agreement were terminated on December 31, 2013, the estimated
termination payment would be approximately $51.8 million (calculated using a discount rate of 4.02%). The foregoing
number is merely an estimate and the actual payment could differ materially. There can be no assurance that we will
be able to finance our obligations under the tax receivable agreement. If we were unable to finance our obligations due
under the tax receivable agreement, we would be in breach of the agreement. Any such breach could adversely affect
our business, financial condition or results of operations.
Payments under the tax receivable agreement will be based on the tax reporting positions that we will determine.
Although we are not aware of any issue that would cause the Internal Revenue Service (the “IRS”) to challenge a tax
basis increase or other benefits arising under the tax receivable agreement, the holders of rights under the tax receivable
agreement will not reimburse us for any payments previously made under the tax receivable agreement if such basis
increases or other benefits are subsequently disallowed, except that excess payments made to any such holder will be
netted against payments otherwise to be made, if any, to such holder after our determination of such excess. As a result,
in such circumstances, we could make payments that are greater than our actual cash tax savings, if any, and may not
be able to recoup those payments, which could adversely affect our liquidity.
Risks Related to Our Common Stock
The requirements of being a public company, including compliance with the reporting requirements of the
Exchange Act and the requirements of the Sarbanes-Oxley Act, may strain our resources, increase our costs and
distract management and we may be unable to comply with these requirements in a timely or cost-effective manner.
As a new publicly traded company with listed equity securities, we are required to comply with new laws, regulations
and requirements, including corporate governance provisions of the Sarbanes-Oxley Act of 2002, and rules and
regulations of the SEC and the NYSE, as well as the relevant provisions under Dutch law, with which we were not
required to comply with as a private company. Complying with these statutes, regulations and requirements occupy a
significant amount of time of our management board and supervisory board and management and significantly increases
our costs and expenses.
These requirements could also make it more difficult for us to attract and retain qualified members of our
supervisory board, particularly to serve on our Audit Committee, qualified executive officers and key personnel.
26
Future sales of our common stock in the public market could lower our stock price, and any additional capital
raised by us through the sale of equity may dilute your ownership in us.
We may sell additional shares of common stock in subsequent public offerings. As of February 26, 2014, we had
153,524,000 outstanding shares of our common stock and 52,976,000 outstanding shares of Series A preferred stock
that are convertible into an equivalent number of shares of common stock. Members of the Mosing family own, indirectly
through FWW and Mosing Holdings, 119,024,000 shares of common stock and all of our shares of Series A preferred
stock. Together, these shares represent approximately 83.3% of our total outstanding FINV Stock. All of these shares
may be sold into the market in the future.
On August 14, 2013, we filed a registration statement with the SEC on Form S-8 providing for the registration of
20,000,000 shares of our common stock issued or reserved for issuance under our stock incentive plan and 3,000,000
shares of our common stock issued or reserved for issuance under our employee stock purchase plan. Subject to the
satisfaction of vesting conditions and the expiration of lock-up agreements, shares registered under the registration
statement on Form S-8 will be available for resale immediately in the public market without restriction. As of
December 31, 2013, 16,480,590 shares were available for issuance under the stock incentive plan.
We cannot predict the size of future issuances of our common stock or the effect, if any, that future issuances and
sales of shares of our common stock will have on the market price of our common stock. Sales of substantial amounts
of our common stock (including shares issued in connection with an acquisition), or the perception that such sales could
occur, may adversely affect prevailing market prices of our common stock.
Our declaration of dividends is within the discretion of our management board, with the approval of our
supervisory board, and subject to certain limitations under Dutch law, and there can be no assurance that we will
pay dividends.
Our dividend policy is within the discretion of our management board, with the approval of our supervisory board,
and the amount of future dividends, if any, will depend upon various factors, including our results of operations, financial
condition, capital requirements and investment opportunities. We can provide no assurance that we will pay dividends
on our common stock. No dividends on our common stock will accrue in arrears. In addition, Dutch law contains certain
restrictions on a company’s ability to pay cash dividends, and we can provide no assurance that those restrictions will
not prevent us from paying a dividend in future periods.
As a Dutch public company with limited liability, the rights of our shareholders may be different from the rights
of shareholders in companies governed by the laws of U.S. jurisdictions.
We are a Dutch public company with limited liability (naamloze vennootschap). Our corporate affairs are governed
by our articles of association and by the laws governing companies incorporated in The Netherlands. The rights of
shareholders and the responsibilities of members of our management board and supervisory board may be different
from those in companies governed by the laws of U.S. jurisdictions.
For example, resolutions of the general meeting of shareholders may be taken with majorities different from the
majorities required for adoption of equivalent resolutions in, for example, Delaware corporations. Although shareholders
will have the right to approve legal mergers or demergers, Dutch law does not grant appraisal rights to a company’s
shareholders who wish to challenge the consideration to be paid upon a legal merger or demerger of a company.
In addition, if a third party is liable to a Dutch company, under Dutch law shareholders generally do not have the
right to bring an action on behalf of the company or to bring an action on their own behalf to recover damages sustained
as a result of a decrease in value, or loss of an increase in value, of their ordinary shares. Only in the event that the
cause of liability of such third party to the company also constitutes a tortious act directly against such shareholder and
the damages sustained are permanent, may that shareholder have an individual right of action against such third party
on its own behalf to recover damages. The Dutch Civil Code provides for the possibility to initiate such actions
collectively. A foundation or an association whose objective, as stated in its articles of association, is to protect the
rights of persons having similar interests may institute a collective action. The collective action cannot result in an
27
order for payment of monetary damages but may result in a declaratory judgment (verklaring voor recht), for example
declaring that a party has acted wrongfully or has breached a fiduciary duty. The foundation or association and the
defendant are permitted to reach (often on the basis of such declaratory judgment) a settlement which provides for
monetary compensation for damages. A designated Dutch court may declare the settlement agreement binding upon
all the injured parties, whereby an individual injured party will have the choice to opt-out within the term set by the
court (at least three months). Such individual injured party, may also individually institute a civil claim for damages
within the before mentioned term.
Furthermore, certain provisions of Dutch corporate law have the effect of concentrating control over certain
corporate decisions and transactions in the hands of our management board and supervisory board. As a result, holders
of our shares may have more difficulty in protecting their interests in the face of actions by members of our management
board and supervisory board than if we were incorporated in the United States.
In the performance of its duties, our management board and supervisory board will be required by Dutch law to
act in the interest of the company and its affiliated business, and to consider the interests of our company, our shareholders,
our employees and other stakeholders in all cases with reasonableness and fairness. It is possible that some of these
parties will have interests that are different from, or in addition to, interests of our shareholders.
Our articles of association and Dutch corporate law contain provisions that may discourage a takeover attempt.
Provisions contained in our amended and restated articles of association and the laws of The Netherlands could
make it more difficult for a third party to acquire us, even if doing so might be beneficial to our shareholders. Provisions
of our articles of association impose various procedural and other requirements, which could make it more difficult for
shareholders to effect certain corporate actions. Among other things, these provisions:
•
•
authorize our management board, with the approval of our supervisory board, for a period of five years from
the date of the offering to issue preferred stock, including for defensive purposes, and shares of common stock,
in each case without shareholder approval; and
do not provide for shareholder action by written consent, thereby requiring all shareholder actions to be taken
at a general meeting of shareholders.
These provisions, alone or together, could delay hostile takeovers and changes in control of our company or changes
in our management.
It may be difficult for you to obtain or enforce judgments against us or some of our executive officers and
directors in the United States or The Netherlands.
We were formed under the laws of The Netherlands and, as such, the rights of holders of our ordinary shares and
the civil liability of our directors will be governed by the laws of The Netherlands and our amended and restated articles
of association. Some of our directors and executive officers and some of our assets and some of the assets of our directors
and executive officers are located outside the United States.
In the absence of an applicable convention between the United States and The Netherlands providing for the
reciprocal recognition and enforcement of judgments (other than arbitration awards and divorce decrees) in civil and
commercial matters, a judgment rendered by a court in the United States will not automatically be recognized by the
courts of The Netherlands. In principle, the courts of The Netherlands will be free to decide, at their own discretion, if
and to what extent a judgment rendered by a court in the United States should be recognized in The Netherlands. In
general terms, Dutch courts tend to grant the same judgment without re-litigating on the merits if the following three
cumulative minimum conditions are met:
•
•
•
the judgment was rendered by the foreign court that was (based on internationally accepted grounds) competent
to take cognizance of the matter;
the judgment is the outcome of a proper judicial procedure (behoorlijke rechtspleging); and
the judgment is not manifestly incompatible with the public policy (openbare orde) of The Netherlands.
28
Without prejudice to the above, in order to obtain enforcement of a judgment rendered by a United States court in
The Netherlands, a claim against the relevant party on the basis of such judgment should be brought before the competent
court of The Netherlands. During the proceedings such court will assess, when requested, whether a foreign judgment
meets the above conditions. In the affirmative, the court may order that substantive examination of the matter shall be
dispensed with. In such case, the court will confine itself to an order reiterating the foreign judgment against the party
against whom it had been obtained.
Otherwise, a new substantive examination will take place in the framework of the proceedings. In all of the above
situations, when applying the law of any jurisdiction (including The Netherlands), Dutch courts may give effect to the
mandatory rules of the laws of another country with which the situation has a close connection, if and insofar as, under
the law of the latter country, those rules must be applied regardless of the law applicable to the contract or legal
relationship. In considering whether to give effect to these mandatory rules of such third country, regard shall be given
to the nature, purpose and the consequences of their application or non-application. Moreover, a Dutch court may give
effect to the rules of the laws of The Netherlands in a situation where they are mandatory irrespective of the law otherwise
applicable to the documents or legal relationship in question. The application of a rule of the law of any country that
otherwise would govern an obligation may be refused by the courts of The Netherlands if such application is manifestly
incompatible with the public policy (openbare orde) of The Netherlands.
Under our amended and restated articles of association, we will indemnify and hold our officers and directors
harmless against all claims and suits brought against them, subject to limited exceptions. Under our amended and
restated articles of association, to the extent allowed by law, the rights and obligations among or between us, any of
our current or former directors, officers and employees and any current or former shareholder will be governed
exclusively by the laws of The Netherlands and subject to the jurisdiction of Dutch courts, unless those rights or
obligations do not relate to or arise out of their capacities listed above. Although there is doubt as to whether U.S. courts
would enforce such provision in an action brought in the United States under U.S. securities laws, this provision could
make judgments obtained outside of The Netherlands more difficult to have recognized and enforced against our assets
in The Netherlands or jurisdictions that would apply Dutch law. Insofar as a release is deemed to represent a condition,
stipulation or provision binding any person acquiring our ordinary shares to waive compliance with any provision of
the Securities Act or of the rules and regulations of the SEC, such release will be void.
We are a “controlled company” within the meaning of the NYSE rules and qualify for and have the ability to
rely on exemptions from certain NYSE corporate governance requirements.
Because the Mosing family beneficially owns a majority of our outstanding common stock, we are a “controlled
company” as that term is set forth in Section 303A of the NYSE Listed Company Manual. Under the NYSE rules, a
company of which more than 50% of the voting power is held by another person or group of persons acting together
is a “controlled company” and may elect not to comply with certain NYSE corporate governance requirements,
including:
•
•
•
the requirement that a majority of its supervisory board consist of independent directors;
the requirement that its nominating and governance committee be composed entirely of independent directors
with a written charter addressing the committee’s purpose and responsibilities; and
the requirement that its compensation committee be composed entirely of independent directors with a written
charter addressing the committee’s purpose and responsibilities.
These requirements will not apply to us as long as we remain a “controlled company.” So long as members of the
Mosing family control the outstanding common stock and Series A preferred stock representing at least a majority of
the outstanding voting power in FINV, we expect to utilize these exemptions. Accordingly, you may not have the same
protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of
the NYSE. The significant ownership interest held by the Mosing family could adversely affect investors’ perceptions
of our corporate governance.
29
Tax Risks
Changes in tax laws, treaties or regulations or adverse outcomes resulting from examination of our tax returns
could adversely affect our financial results.
Our future effective tax rates could be adversely affected by changes in tax laws, treaties and regulations, both in
the United States and internationally. Tax laws, treaties and regulations are highly complex and subject to interpretation.
Consequently, we are subject to changing tax laws, treaties and regulations in and between countries in which we
operate or are resident. Our income tax expense is based upon the interpretation of the tax laws in effect in various
countries at the time that the expense was incurred. A change in these tax laws, treaties or regulations, or in the
interpretation thereof, could result in a materially higher tax expense or a higher effective tax rate on our worldwide
earnings. If any country successfully challenges our income tax filings based on our structure, or if we otherwise lose
a material tax dispute, our effective tax rate on worldwide earnings could increase substantially and our financial results
could be materially adversely affected.
U.S. tax authorities could treat us as a “passive foreign investment company,” which could have adverse U.S.
federal income tax consequences to U.S. holders.
A foreign corporation will be treated as a “passive foreign investment company,” or PFIC, for U.S. federal income
tax purposes if either (1) at least 75% of its gross income for any taxable year consists of certain types of “passive
income” or (2) at least 50% of the average value of the corporation’s assets for any taxable year produce or are held
for the production of those types of “passive income.” For purposes of these tests, “passive income” includes dividends,
interest and gains from the sale or exchange of investment property and rents and royalties other than certain rents and
royalties which are received from unrelated parties in connection with the active conduct of a trade or business, but
does not include income derived from the performance of services. U.S. shareholders of a PFIC are subject to a
disadvantageous U.S. federal income tax regime with respect to the income derived by the PFIC, the distributions they
receive from the PFIC, and the gain, if any, they derive from the sale or other disposition of their interests in the PFIC.
We believe that we will not be a PFIC for the current taxable year or for any future taxable year. However, this
involves a facts and circumstances analysis and it is possible that the IRS would not agree with our conclusion, or the
U.S. tax laws could change significantly.
U.S. “anti-inversion” tax laws could negatively affect our results and could result in a reduced amount of foreign
tax credit for U.S. holders.
Under rules contained in U.S. tax law, we would be subject to tax as a U.S. corporation in the event the we acquire
substantially all of the assets of a U.S. corporation and the equity owners of that U.S. corporation own at least 80%
(calculated without regard for any stock issued in a public offering) of our stock by reason of holding stock in the U.S.
corporation. For purposes of applying these rules, the rights associated with the Series A preferred stock and the interests
in FICV would likely result in the holders thereof being deemed to own our common stock under the “stock equivalent”
portion of the rules.
We acquired the assets of Mosing Holdings (a U.S. corporation); however, the ownership of Mosing Holdings in
our stock, taking into account common stock that Mosing Holdings is deemed to own under the “stock equivalent”
rules, is substantially below the 80% standard for the application of the rules. Accordingly, we do not believe these
rules should apply.
There can be no assurance that the IRS will not challenge our determination that these rules are inapplicable. In
the event that these rules were applicable, we would be subject to U.S. federal income tax on our worldwide income,
which would negatively impact our cash available for distribution and the value of our common stock. Application of
the rules could also adversely affect the ability of a U.S. holder.
Item 1B. Unresolved Staff Comments
None.
30
Item 2. Properties
In order to design, manufacture and service the proprietary products that support our tubular services business, as
well as those that we offer for sale directly to external customers, we maintain several manufacturing and service
facilities around the world. Though our manufacturing and service capabilities are primarily concentrated in the U.S.,
we currently provide our services in approximately 60 countries.
The following table details our material facilities by segment, owned or leased by us as of December 31, 2013.
Location
All Segments
Houston, Texas
Den Helder, The Netherlands
U.S. Services and Tubular Sales Segments
Lafayette, Louisiana
International Services Segment
Aberdeen, Scotland
Dubai
Singapore
India
Leased or
Owned
Principal/Most Significant Use
Leased
Owned
Corporate office
Regional operations and administration
Leased
Regional operations, manufacturing, engineering
and administration
Owned
Owned
Owned
Owned
Regional operations, engineering and administration
Regional operations and administration
Regional operations and administration
Administration
Our largest manufacturing facility is located in Lafayette, Louisiana, where we manufacture a substantial portion
of our pipe handling tools. The facility serves our U.S. Services segment in the U.S. Gulf of Mexico, and is our global
headquarters for the design and manufacture of our equipment. The Lafayette facility is situated on a total of 151 acres.
The main facility occupies 135 acres and the remaining acreage is dedicated to pipe storage located offsite, within
Lafayette. There are a total of 16 buildings onsite and 11 buildings offsite. Our manufacturing operations occupy 11
of the 16 buildings, with the remaining buildings dedicated to administration, training and other operational tasks. The
main administrative building within the facility is approximately 40,000 square feet. The facility is owned by Mosing
Holdings and leased to us through 2018.
Item 3. Legal Proceedings
We are the subject of lawsuits and claims arising in the ordinary course of business from time to time. Management
cannot predict the ultimate outcome of such lawsuits and claims. While the lawsuits and claims are asserted for amounts
that may be material should an unfavorable outcome be the result, management does not currently expect that these
matters will have a material adverse effect on our financial position or results of operations. See Note 17 in the Notes
to Consolidated Financial Statements, which are incorporated herein by reference in Part II, Item 8 "Financial Statements
and Supplementary Data" of this Form 10-K.
Item 4. Mine Safety Disclosures
Not applicable.
31
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market Information
Since our initial public offering on August 14, 2013, our common stock has traded on the NYSE under the trading
symbol “FI.” Prior to that time, there was no public trading market for our common stock. The initial public offering
price of our common stock was $22.00 per share.
On February 28, 2014, we had 153,524,000 shares of common stock outstanding. The common shares outstanding
at February 26, 2014 were held by approximately three record holders, excluding stockholders for whom shares are
held in the "nominee" or "street" name.
The following table sets forth the NYSE high and low closing sales prices and the dividend payments for our
common stock for the periods indicated.
Year Ended December 31, 2013
Third Quarter (beginning August 9, 2013)
Fourth Quarter
High
Low
Dividends
Per Share
$
$
30.45
32.70
$
25.76
23.10
—
0.075
On February 28, 2014, the last reported sales price of our common stock on the NYSE was $23.64 per share.
See Part III, Item 12, "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters" for discussion of equity compensation plans.
Dividend Policy
Cash dividends on our common stock in the amount of $0.075 per share were paid in December 2013. The declaration
and payment of future dividends will be at the discretion of the Supervisory Board of Directors and will depend upon,
among other things, future earnings, general financial condition, liquidity, capital requirements and general business
conditions. Accordingly, there can be no assurance that we will continue to pay dividends at that level or at all.
Each share of Preferred Stock has a liquidation preference equal to its par value of €0.01 per share and is entitled
to an annual dividend equal to 0.25% of its par value.
Recent Sales of Unregistered Securities and Use of Proceeds
Recent Sale of Unregistered Securities
There were no sales of unregistered securities during the period ended December 31, 2013.
Use of Proceeds
On August 14, 2013 we completed our IPO of 34,500,000 shares of common stock (including 4,500,000 shares of
common stock from the full exercise of the overallotment option granted to the underwriters) at a price to the public
of $22.00 per share. The offer and sale of all of the shares of common stock in the IPO were registered under the
Securities Act pursuant to a Registration Statement on Form S-1 (File No. 333-188536), which was declared effective
by the SEC on August 8, 2013. There has been no material change in the planned use of proceeds from our IPO as
described in our final prospectus dated August 8, 2013 as filed with the SEC on August 9, 2013.
32
Issuer Purchases of Equity Securities
None.
Performance Graph
The following performance graph compares the performance of our common stock to the PHLX Oil Service
Sector Index, the Russell 1000 Index and to a peer group established by management. The peer group consists of the
following companies: Baker Hughes Inc., Cameron International Corporation, Core Laboratories N.V., Diamond
Offshore Drilling, Inc., Dril-Quip, Inc., Ensco plc, FMC Technologies, Inc., Forum Energy Technologies, Inc.,
Halliburton Company, Helmerich & Payne, Inc., Hornbeck Offshore Services, Inc., Nabors Industries Ltd., National
Oilwell Varco, Inc., Oceaneering International, Inc., Patterson-UTI Energy, Inc., Rowan Companies plc,
Schlumberger N.V., Tesco Corporation, Transocean Ltd. and Weatherford International Ltd. The graph below
compares the cumulative total return to holders of our common stock with the cumulative total returns of the PHLX
Oil Service Sector Index, the Russell 1000 Index and our peer group for the period from August 9, 2013, using the
closing price for the first day of trading immediately following the effectiveness of our IPO through December 31,
2013. The graph assumes that the value of the investment in our common stock was $100 at August 9, 2013 or July
31, 2013 for each index (including reinvestment of dividends) and tracks the return on the investment through
December 31, 2013. The shareholder return set forth herein is not necessarily indicative of future performance.
COMPARISON OF 5 MONTH CUMULATIVE TOTAL RETURN
Among Frank's International N.V., the Russell 1000 Index,
the PHLX Oil Service Sector Index, and a Peer Group
$120
$110
$100
$90
$80
8/9/13
8/13
9/13
10/13
11/13
12/13
Frank's International N.V.
PHLX Oil Service Sector
Russell 1000
Peer Group
The performance graph above and related information shall not be deemed "soliciting material" or to be "filed"
with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act
or the Exchange Act, except to the extent that we specifically incorporate by reference.
33
Item 6. Selected Financial Data
The selected consolidated financial information contained below is derived from our Consolidated Financial
Statements and should be read in conjunction with Part II, Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our audited Consolidated Financial Statements each of which is included in
this Form 10-K. Our historical results are not necessarily indicative of our results to be expected in any future period.
Financial Statement Data:
Revenue
Income from continuing operations
Total assets
Long-term debt and capital lease
obligations - excluding affiliates
Long-term debt - affiliates
Total equity
Earnings Per Share Information:
Basic earnings per common share:
Continuing operations
Discontinued operations
Total
Diluted earnings per common share:
Continuing operations
Discontinued operations
Total
Weighted average common shares
outstanding:
Basic
Diluted
Cash dividends per common share
Other Data:
Adjusted EBITDA (1)
2013
Year Ended December 31,
2011
2010
2012
(in thousands, except per share amounts)
2009
$ 1,077,722
308,195
1,561,195
$ 1,039,054
344,250
1,107,961
$
$
719,412
162,798
847,500
$
591,111
111,672
710,543
507,968
72,796
649,915
376
—
1,333,327
7,368
468,563
446,988
9,204
2,913
667,128
46,579
202
536,013
57,108
105
484,307
$
$
$
$
$
$
1.69
0.24
1.93
1.68
0.17
1.85
132,257
185,506
0.075
$
$
$
$
$
2.15
0.04
2.19
2.01
0.03
2.04
$
$
$
$
1.02
0.05
1.07
0.96
0.03
0.99
$
$
$
$
0.70
0.04
0.74
0.66
0.03
0.69
$
$
$
$
0.46
0.01
0.47
0.43
—
0.43
119,024
172,000
119,024
172,000
119,024
172,000
— $
— $
— $
119,024
172,000
—
438,739
$
439,524
$
241,124
$
177,560
$
142,259
(1) Adjusted EBITDA is a supplemental non-GAAP financial measure that is used by management and external
users of our financial statements, such as industry analysts, investors, lenders and rating agencies. For a definition
and a reconciliation of Adjusted EBITDA to our income from continuing operations, see Part II, Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of Operations - How We Evaluate
Our Operations - Adjusted EBITDA and Adjusted EBITDA Margin".
34
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation
The following discussion and analysis of our financial condition and results of operations should be read in
conjunction with the consolidated financial statements and the related notes thereto included in Part II, Item 8,
"Financial Statements and Supplementary Data" included in this Form 10-K.
This section contains forward-looking statements that are based on management's current expectations, estimates
and projections about our business and operations, and involve risks and uncertainties. Our actual results may differ
materially from those currently anticipated and expressed in such forward-looking statement because of various factors,
including those described in the sections titled "Cautionary Note Regarding Forward-Looking Statements",“Risk
Factors” and elsewhere in this Form 10-K.
Overview of Business
We are a 75 year-old global provider of highly engineered tubular services to the oil and gas industry. We provide
our services to leading exploration and production companies in both offshore and onshore environments, with a focus
on complex and technically demanding wells.
We conduct our business through three operating segments:
•
International Services. We currently provide our services in approximately 60 countries on six continents.
Our customers in these international markets are primarily large exploration and production companies,
including integrated oil and gas companies and national oil and gas companies.
• U.S. Services. We service customers in the deep water areas of the U.S. Gulf of Mexico. In addition, we have
a significant presence in almost all of the active onshore oil and gas drilling regions in the U.S., including the
Permian Basin, Eagle Ford Shale, Marcellus Shale, Utica Shale, Barnett Shale, Woodford Shale, Piceance
Basin, San Juan Basin, Uintah Basin, Big Horn Basin, Powder River Basin, DJ/Wattenberg Basin and Williston
Basin.
•
Tubular Sales. We design and manufacture certain products that we sell directly to external customers, including
large OD pipe connectors. We also provide specialized fabrication and welding services in support of deep
water projects in the U.S. Gulf of Mexico, including drilling and production risers, flowlines and pipeline end
terminations, as well as long length tubulars (up to 300 feet in length) for use as caissons or pilings. In addition,
we distribute large OD pipe manufactured by third parties that we have equipped with weld-on end connections.
This segment also designs and manufactures proprietary equipment for use in our International and U.S.
Services segments.
How We Generate Our Revenue
The majority of our services revenues are derived primarily from two sources:
•
•
personnel rates for our specially trained employees who perform tubular services for our customers;
and
rental rates for the suite of products and equipment that our employees use to perform tubular services.
In addition, our customers typically reimburse us for transportation costs that we incur in connection with
transporting our products and equipment from our staging areas to the customers’ job sites.
In contrast, our Tubular Sales revenues are derived from sales of certain products, including large OD pipe
connectors and large OD pipe manufactured by third parties, directly to external customers.
35
How We Evaluate Our Operations
We use a number of financial and operational measures to routinely analyze and evaluate the performance of our
business, including revenue, Adjusted EBITDA and Adjusted EBITDA margin and safety performance.
Revenue
We analyze our revenue growth by comparing actual monthly revenue to our internal projections for each month
to assess our performance. We also assess incremental changes in our monthly revenue across our operating segments
to identify potential areas for improvement.
Adjusted EBITDA and Adjusted EBITDA Margin
We define Adjusted EBITDA as income from continuing operations before net interest income or expense,
depreciation and amortization, income tax benefit or expense, asset impairments, gain or loss on sale of assets, foreign
currency gain or loss, stock-based compensation, other non-cash adjustments and unusual or non-recurring charges.
Adjusted EBITDA margin reflects our Adjusted EBITDA as a percentage of our revenues. We review Adjusted EBITDA
and Adjusted EBITDA margin on both a consolidated basis and on a segment basis. We use Adjusted EBITDA and
Adjusted EBITDA margin to assess our financial performance because it allows us to compare our operating performance
on a consistent basis across periods by removing the effects of our capital structure (such as varying levels of interest
expense), asset base (such as depreciation and amortization) and items outside the control of our management team
(such as income tax rates). Adjusted EBITDA and Adjusted EBITDA margin have limitations as analytical tools and
should not be considered as an alternative to net income, operating income, cash flow from operating activities or any
other measure of financial performance or liquidity presented in accordance with generally accepted accounting
principles in the U.S. ("GAAP").
The following table presents a reconciliation of income from continuing operations to Adjusted EBITDA, our most
directly comparable GAAP performance measure, for each of the periods presented (in thousands):
Income from continuing operations
Interest (income) expense, net
Depreciation and amortization
Income tax expense
Gain on sale of assets
Foreign currency loss
Stock-based compensation expense
IPO transaction-related costs (1)
Adjusted EBITDA
Year Ended December 31,
2012
2011
2013
$
$
308,195
653
78,082
38,727
(122)
2,556
7,220
3,428
438,739
$
$
344,250
(260)
65,815
31,877
(2,608)
450
—
—
439,524
$
$
162,798
661
54,216
20,287
(47)
3,209
—
—
241,124
(1) Represents nonrecurring charges incurred in connection with our IPO, primarily those amounts attributable to
the restructuring in advance of the IPO.
For a reconciliation of our Adjusted EBITDA on a segment basis to the most comparable measure calculated in
accordance with GAAP, see “—Operating Segment Results.”
36
Safety Performance
Maintaining a strong safety record is a critical component of our operational success. Many of our larger customers
have safety standards we must satisfy before we can perform services for them. We continually monitor our safety
culture through the use of employee safety surveys and trend analysis, and we modify existing programs or develop
new programs according to the data obtained therefrom. One way to measure safety is by tracking the total recordable
incident rate (“TRIR”) and the lost time incident rate (“LTIR”), which are reviewed on both a monthly and rolling
twelve-month basis.
TRIR is a measure of the rate of recordable workplace injuries, normalized and stated on the basis of 100 workers
for an annual period. The factor is derived by multiplying the number of recordable injuries in a calendar year by
200,000 and dividing this value by the total man-hours actually worked in the year.
LTIR measures the rate of lost time recordable workplace injuries. The factor is derived by multiplying the number
of lost time recordable injuries in a calendar year by 200,000 and dividing this value by the total man-hours actually
worked in the year. A lost time recordable injury is a work related injury that renders an employee unable to work in
any capacity beyond the date of injury.
A recordable injury includes occupational death, nonfatal occupational illness, and other occupational injuries
that involve loss of consciousness, restriction of work or motion, transfer to another job, or medical treatment other
than first aid.
The table below presents our worldwide TRIR and LTIR for the years ended December 31, 2013, 2012 and 2011:
TRIR
LTIR
Outlook
Year Ended December 31,
2012
2011
2013
1.13
0.33
1.96
0.54
1.98
0.64
We believe the long-term outlook for the tubular services businesses is favorable. Increasing global demand for
crude oil and natural gas has spurred increases in energy development spending. Significant new well development is
required to replace naturally declining production and new well construction is increasingly more complex and
expensive.
We expect both our U.S. and international offshore businesses will continue to benefit from increased deep water
and ultra deep water drilling activity including new drilling rigs worldwide. New drillships and semi-submersibles
drilling rigs offer an opportunity for increased demand for our services.
Our U.S. land business is impacted by the number of rigs working and wells being drilled as well as the competitive
environment. We believe this market will remain competitive. We have the ability to move resources, both people and
equipment, to areas with the most demand.
Our tubular sales business does not follow any particular industry driver. Instead, this business is driven by the
requirements and timing of our customers' projects. We believe our facilities and services position us well to meet the
needs of our customers and that this business will continue to grow in the coming years.
We expect our cash flow from operations to fund our working capital needs, our capital expenditure requirements
and fund our current and any future dividends. Any acquisition would be funded by a combination of cash on hand,
cash flow from operations, equity issuances and borrowings under our credit facility. We expect the effective tax rate
for 2014 to be between 20 and 25 percent.
37
Results of Operations
The following table presents our consolidated results for the periods presented (in thousands):
Revenues:
Equipment rentals and services
Products (1)
Total revenue
Operating expenses:
Cost of revenues, exclusive of depreciation and amortization
Equipment rentals and services
Products
General and administrative expenses
Depreciation and amortization
Gain on sale of assets
Operating income
Other income (expense):
Other income
Interest income (expense), net
Foreign currency loss
Total other income (expense)
Income from continuing operations before income tax expense
Income tax expense
Income from continuing operations
Income from discontinued operations
Net income
Less: Net income attributable to non controlling interest
Net income attributable to Frank's International N.V.
$
Year Ended December 31,
2012
2011
2013
$
$
902,960
174,762
1,077,722
880,010
159,044
1,039,054
$
613,456
105,956
719,412
310,244
124,092
224,755
78,082
(122)
340,671
9,460
(653)
(2,556)
6,251
346,922
38,727
308,195
42,635
350,830
95,368
255,462
$
300,661
124,946
186,112
65,815
(2,608)
364,128
12,189
260
(450)
11,999
376,127
31,877
344,250
6,684
350,934
90,015
260,919
$
246,724
75,748
159,602
54,216
(47)
183,169
3,786
(661)
(3,209)
(84)
183,085
20,287
162,798
7,989
170,787
43,807
126,980
(1) Consolidated products revenue includes a small amount of revenues attributable to the U.S. Services and
International Services segments.
Consolidated Results of Operations
Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
Revenues. Revenues from external customers, excluding intersegment sales, for the year ended December 31, 2013
increased by $38.7 million, or 3.7%, to $1,077.7 million from $1,039.1 million for the year ended December 31, 2012.
The increase was primarily attributable to higher revenues in all of our segments, most notably in our Tubular Sales
and U. S. Services segments, with revenues increasing $12.4 million and $18.1 million, respectively, due to an increase
in demand for our pipe and offshore services.
Cost of revenues, exclusive of depreciation and amortization. Cost of revenues for the year ended December 31,
2013 increased by $8.7 million, or 2.1%, to $434.3 million from $425.6 million for the year ended December 31, 2012.
The increase was primarily attributable to increases in compensation related costs of $9.4 million and the cost of products
of $3.0 million, partially offset by a $3.1 million decrease in equipment rentals.
38
General and administrative expenses. General and administrative ("G&A") expenses for the year ended
December 31, 2013 increased by $38.6 million, or 20.8%, to $224.8 million from $186.1 million for the year ended
December 31, 2012. The increase was primarily attributable to $13.8 million of bad debt expense in our Latin American
region due to the political and economic turmoil in Venezuela and the filing of bankruptcy by a customer in Brazil.
Compensation related costs of $8.6 million, stock based compensation expense of $7.2 million, other non-income based
taxes of $5.5 million and $4.0 million of public company expenses (of which $3.4 million was of a non-recurring nature)
also contributed to the increase.
Depreciation and amortization. Depreciation and amortization for the year ended December 31, 2013 increased
by $12.3 million, or 18.6%, to $78.1 million from $65.8 million for the year ended December 31, 2012. The increase
was primarily attributable to a higher depreciable base resulting from property and equipment additions.
Other income. Other income for the year ended December 31, 2013 decreased by $2.7 million, or 22.4%, to $9.5
million from $12.2 million for the year ended December 31, 2012. The decrease was due to a $4.0 million gain on the
exchange of an investment and $4.9 million in death benefit proceeds from the passing of a related party received in
2012, partially offset by the receipt in 2013 of $3.9 million in additional royalties, a $1.6 million value-added tax refund
and a workmen's compensation dividend of $1.1 million.
Foreign currency loss. Foreign currency loss for the year ended December 31, 2013 increased by $2.1 million to
$2.6 million from $0.5 million for the year ended December 31, 2012. The increase in foreign currency loss was due
to unfavorable fluctuations in foreign currency exchange rates.
Income tax expense. Income tax expense for the year ended December 31, 2013 increased by $6.9 million, or
21.5%, to $38.7 million from $31.9 million for the year ended December 31, 2012 primarily due to our domestic
operations becoming taxable subsequent to our IPO, as well as a change in mix of earnings among countries with
different rates. We are subject to many U.S. and foreign tax jurisdictions and many tax agreements and treaties among
the various taxing authorities. Our operations in these different jurisdictions are taxed on various bases such as income
before taxes, deemed profits (which is generally determined using a percentage of revenues rather than profits), and
withholding taxes based on revenues; consequently, the relationship between our pre-tax income or loss from operations
and our income tax benefit or provision varies from period to period.
Income from discontinued operations. The discussions above reflect only continuing operations for the years ended
December 31, 2013 and 2012. During the year ended December 31, 2013, we recognized a gain of $39.6 million upon
the sale of a component of our Tubular Sales segment. See Note 3 in the Notes to Consolidated Financial Statements.
Year Ended December 31, 2012 Compared to Year Ended December 31, 2011
Revenues. Revenues from external customers, excluding intersegment sales, for the year ended December 31, 2012
increased by $319.6 million, or 44.4%, to $1,039.1 million from $719.4 million for the year ended December 31, 2011.
The increase was primarily attributable to higher revenues of $163.3 million and $54.8 million from our U.S. Services
and Tubular Sales segments, respectively, as the demand continued to increase after the repeal of the Macondo-related
drilling moratorium. Increased activity levels in our International Services segment comprised approximately $103.3
million of the increase.
Cost of revenues, exclusive of depreciation and amortization. Cost of revenues for the year ended December 31,
2012 increased by $103.1 million, or 32.0%, to $425.6 million from $322.5 million for the year ended December 31,
2011. The increase was primarily attributable to increases in the cost of products, equipment rentals and services of
$73.0 million and compensation-related costs of $28.6 million due to the aforementioned increase in drilling activity.
General and administrative expenses. G&A expenses for the year ended December 31, 2012 increased by $26.5
million, or 16.6%, to $186.1 million from $159.6 million for the year ended December 31, 2011. The increase supported
the growth in our business, and as a result of such growth, we experienced approximately $22.7 million in higher
compensation related costs.
39
Depreciation and amortization. Depreciation and amortization for the year ended December 31, 2012 increased
by $11.6 million, or 21.4%, to $65.8 million from $54.2 million for the year ended December 31, 2011. The increase
was primarily attributable to a higher depreciable base resulting from property and equipment additions.
Other income. Other income for the year ended December 31, 2012 increased by $8.4 million, or 221.9%, to $12.2
million from $3.8 million for the year ended December 31, 2011. The increase was due to a $4.0 million gain on the
exchange of an investment and $4.9 million in death benefit proceeds from the passing of a related party.
Foreign currency loss. Foreign currency loss for the year ended December 31, 2012 decreased by $2.7 million, or
86.0%, to $0.5 million from $3.2 million for the year ended December 31, 2011. The decrease in foreign currency loss
was due to favorable fluctuations in foreign currency exchange rates.
Income tax expense. Income tax expense for the year ended December 31, 2012 increased by $11.6 million, or
57.1%, to $31.9 million from $20.3 million for the year ended December 31, 2011. We are subject to many U.S. and
foreign tax jurisdictions and many tax agreements and treaties among the various taxing authorities. Our operations in
these different jurisdictions are taxed on various bases such as income before taxes, deemed profits (which is generally
determined using a percentage of revenues rather than profits), and withholding taxes based on revenues; consequently,
the relationship between our pre-tax income or loss from operations and our income tax benefit or provision varies
from period to period.
Income from discontinued operations. The discussions above discuss only continuing operations for the years
ended December 31, 2012 and 2011. See Note 3 in the Notes to Consolidated Financial Statements.
40
Operating Segment Results
The following table presents revenues and Adjusted EBITDA by segment, and a reconciliation of Adjusted EBITDA
to net income from continuing operations, which is the most comparable GAAP financial measure (in thousands):
Revenue:
International Services
U.S. Services
Tubular Sales
Intersegment sales
Total
Segment Adjusted EBITDA:
International Services
U.S. Services
Tubular Sales
Corporate and other (1)
Adjusted EBITDA Total
Interest income (expense), net
Income tax expense
Depreciation and amortization
Gain on sale of assets
Foreign currency loss
Stock-based compensation expense
IPO transaction-related costs
Income from continuing operations
Year Ended December 31,
2012
2011
2013
$
478,572
455,492
238,756
(95,098)
$ 1,077,722
$
469,464
444,568
197,070
(72,048)
$ 1,039,054
$
$
199,620
198,442
40,624
53
438,739
(653)
(38,727)
(78,082)
122
(2,556)
(7,220)
(3,428)
308,195
$
$
219,199
199,397
20,958
(30)
439,524
260
(31,877)
(65,815)
2,608
(450)
—
—
344,250
$
$
$
$
366,106
277,286
127,557
(51,537)
719,412
153,064
72,141
15,919
—
241,124
(661)
(20,287)
(54,216)
47
(3,209)
—
—
162,798
(1) Corporate and other represents amounts not directly associated with an operating segment.
Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
International Services
Revenue for the International Services segment increased by $9.1 million, or 1.9%, compared to 2012, primarily
as a result of an increased demand for our services in West Africa, the Middle and Far East and Canada. We experienced
decreases in Latin America due to the termination of certain contracts and in Europe due to the uncertainty of exportation
limits in Israel.
Adjusted EBITDA for the International Services segment decreased $19.6 million, or 8.9%, compared to 2012,
primarily due to an increase in bad debt expense of $13.8 million due to the political and economic turmoil in Venezeula
and the filing of bankruptcy by a customer in Brazil. Compensation related costs of $11.9 million and other non-income
based taxes of $2.9 million, partially offset by the $9.1 million increase in revenue.
U.S. Services
Revenue for the U.S. Services segment increased $10.9 million, or 2.5%, compared to 2012, due to $32.3 million
of higher offshore revenue from our Lafayette and Houma locations, which provide primarily offshore services. This
increase was partially offset by a decrease of $19.8 million from our onshore office locations.
41
Adjusted EBITDA for the U.S. Services segment decreased $1.0 million, or 0.5%, compared to 2012 due to increases
in equipment rental costs of $4.5 million, other non-income based taxes of $2.6 million and the receipt in 2012 of $4.9
million in death benefit proceeds from the passing of a related party, substantially offset by the $10.9 million increase
in revenue.
Tubular Sales
Revenue for the Tubular Sales segment increased $41.7 million, or 21.2%, compared to 2012, primarily due to an
increase of $22.0 million in pipe sales in deepwater markets and an increase of $21.2 million to our International and
U.S. Services segments from our manufacturing component. Partially offsetting these increases were lower fabrication
revenues of $1.6 million.
Adjusted EBITDA for the Tubular Sales segment increased $19.7 million, or 93.8%, compared to 2012, primarily
as a result of the $41.7 million increase in revenue, which was partially offset by a $13.1 million increase in the cost
of pipe and products resulting from the higher revenue. In addition, higher compensation related costs of $4.0 million
and in increase in equipment rentals and supplies of $3.2 million attributed to the increase.
Year Ended December 31, 2012 Compared to Year Ended December 31, 2011
International Services
Revenue for the International Services segment increased by $103.4 million, or 28.2%, compared to 2011, primarily
as a result of additional contracts and increased demand for our services from existing customers in our Europe, Far
East and Africa regions of approximately $56.7 million. In Latin America, we experienced an increase in tubular services
performed on a callout basis of approximately $14.0 million. The remainder of the increase is attributable to increased
demand from our other international regions.
Adjusted EBITDA for the International Services segment increased by $66.1 million, or 43.2%, compared to 2011,
primarily as a result of the $103.4 million revenue increase described above. Partially offsetting this increase were
higher freight, transportation and repairs and maintenance expenses as demand for our services in the deep water
offshore markets increased. The number of employees in the International Services segment increased 19% in 2012
compared to 2011 which initiated higher compensation related costs of approximately $24.5 million.
U.S. Services
Revenue for the U.S. Services segment increased by $167.3 million, or 60.3%, compared to 2011 primarily as a
result of increased services volume due to increased permit activity in the U.S. Gulf of Mexico following the October
2010 repeal of the Macondo-related drilling moratorium.
Adjusted EBITDA for the U.S. Services segment increased by $127.3 million, or 176.4%, compared to 2011
primarily as a result of the $167.3 million revenue increase described above and an increase in other income of $9.1
million. Partially offsetting this increase was a $23.4 million increase in cost of revenues in 2012 due to increases in
product costs and salaries and wages. G&A expenses increased $25.7 million in 2012 due primarily to higher
compensation related to the increase in employees in the segment.
Tubular Sales
Revenue for the Tubular Sales segment increased by $69.5 million, or 54.5%, compared to 2011 primarily as a
result of increased permit activity in the U.S. Gulf of Mexico following the October 2010 repeal of the Macondo-related
drilling moratorium. Increased sales with U.S. customers of approximately $40.2 million and an increase in activity in
our international markets of approximately $16.8 million also contributed to the increase.
Adjusted EBITDA for the Tubular Sales segment increased by $5.0 million, or 31.7%, compared to 2011 primarily
as a result of the $69.5 million revenue increase described above. Partially offsetting this increase was an increase in
cost of revenues including higher materials costs of approximately $49.3 million and higher direct labor costs of
42
approximately $7.8 million. In addition, G&A expenses increased approximately $3.3 million due to higher
compensation related costs.
Liquidity and Capital Resources
Liquidity
Our primary sources of liquidity to date have been cash flows from operations and the net proceeds that we received
from our recent IPO as well as our borrowing capacity under the credit facilities. Our primary uses of capital have been
for organic growth capital expenditures and acquisitions. We continually monitor potential capital sources, including
equity and debt financing, in order to meet our investment and target liquidity requirements.
Our total capital expenditures are estimated at $250.0 million for 2014. We expect approximately $140.0 million
for the purchase and manufacture of equipment and the remainder for the purchase or construction of facilities. Our
2014 capital expenditure budget does not include any provision for acquisitions. The actual amount of capital
expenditures for the manufacture of equipment may fluctuate based on market conditions. During the years ended
December 31, 2013, 2012 and 2011, capital expenditures were $184.5 million, $180.2 million and $117.9 million,
respectively, and were funded from internally generated sources. We believe the remaining net proceeds from our IPO,
together with cash flows from operations and additional borrowings under our credit facilities, should be sufficient to
fund our capital expenditure requirements for 2014.
A dividend of $0.075 per share was paid on December 19, 2013 to stockholders of record on November 29, 2013.
The board of directors declared a first quarter 2014 cash dividend of $0.075 per share for stockholders of record on
February 28, 2014, which will be payable on March 21, 2014. We expect to pay a regular cash dividend at an annual
rate of $0.30 per share; however, the timing, declaration, amount of, and payment of any dividends is within the discretion
of our board of directors and will depend upon many factors, including our financial condition, earnings, capital
requirements of our operating subsidiaries, covenants associated with certain of our debt service obligations, legal
requirements, regulatory constraints, industry practice, ability to access capital markets, and other factors deemed
relevant by its board of directors. We do not have a legal obligation to pay any dividend and there can be no assurance
that we will be able to do so.
Credit Facilities
In connection with the IPO, we entered into two revolving credit facilities. The credit agreements provide for (i)
a $100.0 million revolving credit facility, including up to $20.0 million for letters of credit and up to $10.0 million in
swingline loans, which matures in August 2018 (the “Five Year Facility”) and (ii) a $100.0 million revolving credit
facility that matures in August 2014 (the “One Year Facility” and, together with the Five Year Facility, the “Credit
Facilities”). Subject to the terms of the credit agreements, we have the ability to increase the commitments under the
Credit Facilities by $150.0 million. As of December 31, 2013, we did not have any outstanding indebtedness under the
Credit Facilities and had approximately $7.3 million in letters of credit outstanding. We incurred approximately $1.0
million of deferred financing costs related to the Credit Facilities.
Borrowings under the Credit Facilities bear interest, at our option, at either a base rate or an adjusted Eurodollar
rate. Base rate loans under the credit facilities bear interest at a rate equal to the higher of (a) the prime rate as published
in the Wall Street Journal, (b) the Federal Funds Effective Rate plus 0.5% or (c) the adjusted Eurodollar rate plus 1.00%,
plus an applicable margin ranging from 0.50% to 1.50%, subject to adjustment based on the leverage ratio. Interest is
payable quarterly for base-rate loans. Eurodollar loans under the Credit Facilities bear interest at an adjusted Eurodollar
rate equal to the Eurodollar rate for such interest period multiplied by the statutory reserves, plus an applicable margin
ranging from 1.50% to 2.50%, subject to adjustment based on the leverage ratio. Interest is payable at the end of
applicable interest periods for Eurodollar loans, except that if the interest period for a Eurodollar loan is longer than
three months, interest is paid at the end of each three-month period. The unused portion of the Five Year Facility is
subject to a commitment fee of up to 0.375%.
43
The Credit Facilities contain various covenants that, among other things, limit our ability to grant certain liens,
make certain loans and investments, enter into mergers or acquisition, enter into hedging transactions, change our lines
of business, prepay certain indebtedness, enter into certain affiliate transactions, incur additional indebtedness or engage
in certain asset dispositions. Additionally, the credit agreements limit our ability to incur additional indebtedness subject
to certain exceptions.
The Credit Facilities also contain financial covenants, which, among other things, require us, on a consolidated
basis, to maintain (i) a total consolidated funded debt to adjusted EBITDA (as defined in the Credit Facilities) ratio of
not more than 2.50 to 1.0; and (ii) an EBITDA to interest expense ratio of not less than 3.0 to 1.0. As of December 31,
2013, we were in compliance with all financial covenants under the Credit Facilities.
In addition, the Credit Facilities contain customary events of default, including, among others, the failure to make
required payments, borrower's failure to comply with certain covenants or other agreements, borrower's breach of the
representation and covenants contained in the agreements, borrower's default of certain other indebtedness, certain
events of bankruptcy or insolvency and the occurrence of a change in control (as defined in the Credit Facilities).
Prior to the completion of the IPO, we had two revolving credit facilities, with available borrowing capacities of
$40.0 million and $5.0 million. In connection with the completion of our IPO, these credit facilities were repaid in full
and terminated.
Notes Payable
We have financed certain business acquisitions through financing agreements. At December 31, 2013 and 2012,
the aggregate outstanding balance of the finance agreements was $0.4 million and $1.3 million, respectively, with an
interest rate of 5% per annum. The finance agreements are due on demand and have maturity dates in October 2018.
Notes Payable - Affiliated
In 2012, we made a non-cash distribution of $484.0 million to our owners in the form of two unsecured promissory
notes payable to FWW. In connection with the completion of our IPO, the notes to FWW were repaid in full. We also
had various notes payable - affiliated, which were either paid off or transferred to Mosing Holdings in connection with
the completion of our IPO.
All other indebtedness existing prior to the IPO was repaid.
Cash Flows from Operating, Investing and Financing Activities
Cash flows provided by (used in) our operations, investing and financing activities are summarized below (in
thousands):
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash activities
Increase (decrease) in cash and cash equivalents
Year Ended December 31,
2012
2011
2013
$
$
277,431
(137,500)
110,234
250,165
1,837
252,002
$
$
344,776
(182,533)
(107,210)
55,033
(737)
54,296
$
$
180,710
(126,655)
(71,874)
(17,819)
2,305
(15,514)
44
Statements of cash flows for entities with international operations that use the local currency as the functional
currency exclude the effects of the changes in foreign currency exchange rates that occur during any given year, as
these are noncash changes. As a result, changes reflected in certain accounts on the consolidated statements of cash
flows may not reflect the changes in corresponding accounts on the consolidated balance sheets.
Operating Activities
Cash flow from operating activities was $277.4 million for the year ended December 31, 2013 as compared to
$344.8 million in 2012 and $180.7 million in 2011. The decrease in 2013 was due primarily to an increase in inventory
and a decrease in accrued expenses, partially offset by an increase in deferred revenue. The increase in 2012 was due
primarily to the increase in profitability as a result of the increased permit activity from the repeal of the Macondo-
related moratorium in the U.S. Gulf of Mexico that occurred in late 2010.
Investing Activities
Cash flow used in investing activities was $137.5 million for the year ended December 31, 2013 as compared to
$182.5 million in 2012 and $126.7 million in 2011. The decrease in 2013 was due primarily to $51.0 million of proceeds
from the sale of assets and equipment, primarily including the sale of a component of our Tubular Sales segment. The
increase in 2012 was primarily due to an increase in capital expenditures to ensure that we maintain the appropriate
levels and types of machinery and equipment to support our expanding business.
Financing Activities
Cash provided by financing activities was $110.2 million for the year ended December 31, 2013 as compared to
cash used in financing activities of $107.2 million and $71.9 million for the years ended December 31, 2012 and 2011,
respectively. In 2013, we received net proceeds of approximately $711.5 million from our IPO, which was partially
offset by $464.0 million in payments related to the FWW notes, $105.4 million in stockholder distributions, $11.5
million in dividend payments on common stock and $11.5 million in distributions to noncontrolling interests. Cash
used in financing activities increased in 2012 from 2011 primarily due to an increase in stockholder distributions partially
offset by an increase in borrowings from our revolving credit facilities.
Contractual Obligations
We are a party to various contractual obligations. A portion of these obligations are reflected in our financial
statements, such as long-term debt, while other obligations, such as operating leases and purchase obligations, are not
reflected on our balance sheet. The following is a summary of our contractual obligations as of December 31, 2013 (in
thousands):
Long-term debt
Noncancellable operating leases
Purchase obligations (1)
Total
Payments Due by Period
Total
376
80,306
124,350
205,032
$
$
$
$
Less than
1 year
1-3 years
3-5 years
More than
5 years
376
13,712
56,791
70,879
$
$
— $
— $
22,988
67,559
90,547
$
17,069
—
17,069
$
—
26,537
—
26,537
(1) Includes purchase commitments for connectors and pipe for existing orders from our customers. We enter into
purchase commitments on an as-needed basis.
Not included in the table above are uncertain tax positions of $2.1 million that we have accrued as of December 31,
2013, as the amounts and timing of payment, if any, are uncertain. See Note 16 in the Notes to Consolidated Financial
Statements for further detail on this amount.
45
We entered into a TRA with Mosing Holdings in connection with the IPO. This agreement generally provides for
the payment by us of 85% of actual reductions, if any, in payments of U.S. federal, state and local income tax or franchise
tax in periods as a result of (i) the tax basis increases resulting from the transfer of FICV interests to us in connection
with the conversion of shares of Preferred Stock into shares of our common stock and (ii) imputed interest deemed to
be paid by us as a result of, and additional tax basis arising from, payments under the TRA. In addition, the TRA
provides for interest earned from the due date (without extensions) of the corresponding tax return to the date of payment
specified by the TRA. Because there have been no conversions, the TRA has not impacted our consolidated financial
statements. The actual amount and timing of payments under the TRA will depend upon a number of factors, including
the amount and timing of taxable income we generate in the future, the value of our individual assets, the portion of
our payments under the TRA constituting imputed interest and increases in the tax basis of our assets resulting in
payments to Mosing Holdings.
Off-Balance Sheet Arrangements
At December 31, 2013, we had no off-balance sheet arrangements.
Critical Accounting Policies
The preparation of consolidated financial statements in conformity with GAAP requires management to select
appropriate accounting principles from those available, to apply those principles consistently and to make reasonable
estimates and assumptions that affect revenues and associated costs as well as reported amounts of assets and liabilities,
and related disclosure of contingent assets and liabilities. Certain accounting policies involve judgments and
uncertainties. We evaluate estimates and assumptions on a regular basis. We base our respective estimates on historical
experience and various other assumptions that we believe to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from the estimates and assumptions used in preparation of our consolidated
financial statements. We consider the following policies to be the most critical to understanding the judgments that are
involved and the uncertainties that could impact our results of operations, financial condition and cash flows.
Revenue Recognition
All revenue is recognized when all of the following criteria have been met: (1) evidence of an arrangement exists;
(2) delivery to and acceptance by the customer has occurred; (3) the price of the customer is fixed or determinable; and
(4) collectability is reasonably assured, as follows:
Services Revenue. We provide tubular services to clients in the oil and gas industry. We perform services either
under direct service purchase orders or master service agreements. Service revenue is recognized when services have
been performed or rendered.
Rental Revenue. We design and manufacture a suite of highly technical equipment and products that we rent to
our customers in connection with providing our services, including high-end, proprietary tubular handling equipment.
We rent our products either under direct rental agreements or with customers with rental agreements in place. Revenue
from rental agreements is recognized as earned over the rental period.
For customers contracted under direct service purchase orders and direct rental agreements, an accrual is recorded
in unbilled accounts receivable for revenue earned but not yet invoiced.
Tubular Sales Revenue. Revenue on tubular sales is recognized when the product has shipped and significant risks
of ownership have passed to the customer. The sales arrangements typically do not include right of return or other
similar provisions or other post-delivery obligations. In some regions, customers have a right of return due to purchasing
of excess products and deliverability limitations of products in remote locations. When the likelihood of a return exists
on a sale, a determination of this portion of revenue is reclassified to unearned revenue until such time as the product
is returned or no return occurs.
46
Income Taxes
The liability method is used for determining our income tax provisions, under which current and deferred tax
liabilities and assets are recorded in accordance with enacted tax laws and rates. Under this method, the amounts of
deferred tax liabilities and assets at the end of each period are determined using the tax rate expected to be in effect
when taxes are actually paid or recovered. Valuation allowances are established to reduce deferred tax assets when it
is more likely than not that some portion or all of the deferred tax assets will not be realized. In determining the need
for valuation allowances, we have considered and made judgments and estimates regarding estimated future taxable
income and ongoing prudent and feasible tax planning strategies. These estimates and judgments include some degree
of uncertainty, and changes in these estimates and assumptions could require us to adjust the valuation allowances for
our deferred tax assets. Historically, changes to valuation allowances have been caused by major changes in the business
cycle in certain countries and changes in local country law. The ultimate realization of the deferred tax assets depends
on the generation of sufficient taxable income in the applicable taxing jurisdictions.
Through FICV, we operate in approximately 60 countries under many legal forms. As a result, we are subject to
the jurisdiction of numerous U.S. and foreign tax authorities, as well as to tax agreements and treaties among these
governments. Our operations in these different jurisdictions are taxed on various bases: actual income before taxes,
deemed profits (which are generally determined using a percentage of revenue rather than profits) and withholding
taxes based on revenue. Determination of taxable income in any jurisdiction requires the interpretation of the related
tax laws and regulations and the use of estimates and assumptions regarding significant future events such as the amount,
timing and character of deductions, permissible revenue recognition methods under the tax law and the sources and
character of income and tax credits. Changes in tax laws, regulations, agreements and treaties, foreign currency exchange
restrictions or our level of operations or profitability in each taxing jurisdiction could have an impact on the amount
of income taxes that we provide during any given year.
Our tax filings for various periods are subject to audit by the tax authorities in most jurisdictions where we conduct
business. These audits may result in assessments of additional taxes that are resolved with the authorities or through
the courts. We believe these assessments may occasionally be based on erroneous and even arbitrary interpretations of
local tax law. Resolution of these situations inevitably includes some degree of uncertainty; accordingly, we provide
taxes only for the amounts we believe will ultimately result from these proceedings. The resulting change to our tax
liability, if any, is dependent on numerous factors including, among others, the amount and nature of additional taxes
potentially asserted by local tax authorities; the willingness of local tax authorities to negotiate a fair settlement through
an administrative process; the impartiality of the local courts; the number of countries in which we do business; and
the potential for changes in the tax paid to one country to either produce, or fail to produce, an offsetting tax change
in other countries. Our experience has been that the estimates and assumptions we have used to provide for future tax
assessments have proven to be appropriate. However, past experience is only a guide, and the potential exists that the
tax resulting from the resolution of current and potential future tax controversies may differ materially from the amount
accrued.
In addition to the aforementioned assessments that have been received from various tax authorities, we also provide
for taxes for uncertain tax positions where formal assessments have not been received. The determination of these
liabilities requires the use of estimates and assumptions regarding future events. Once established, we adjust these
amounts only when more information is available or when a future event occurs necessitating a change to the reserves
such as changes in the facts or law, judicial decisions regarding the application of existing law or a favorable audit
outcome. We believe that the resolution of tax matters will not have a material effect on our consolidated financial
condition, although a resolution could have a material impact on our consolidated statements of income for a particular
period and on our effective tax rate for any period in which such resolution occurs.
Allowance for Doubtful Accounts
We evaluate whether client receivables are collectible. We perform ongoing credit evaluations of our clients and
monitor collections and payments in order to maintain a provision for estimated uncollectible accounts based on our
historical collection experience and our current aging of client receivables outstanding in addition to clients'
representations and our understanding of the economic environment in which our clients operate. Based on our review,
47
we establish or adjust allowances for specific clients and the accounts receivable as a whole. Our allowance for doubtful
accounts at December 31, 2013 and 2012 was $13.6 million and $1.7 million, respectively.
Recent Accounting Pronouncements
See Note 1 in the Notes to Consolidated Financial Statements set forth in Part II, Item 8, "Financial Statements
and Supplementary Data", under the heading "Recent Accounting Pronouncements" included in this Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to certain market risks that are inherent in our financial instruments and arise from changes in
foreign currency exchange rates and interest rates. A discussion of our market risk exposure in financial instruments is
presented below.
The primary objective of the following information is to provide forward-looking quantitative and qualitative
information about our potential exposure to market risks. The disclosures are not meant to be precise indicators of
expected future losses or gains, but rather indicators of reasonably possible losses or gains. This forward-looking
information provides indicators of how we view and manage our ongoing market risk exposures.
Foreign Currency Exchange Rates
We operate in virtually every oil and natural gas exploration and production region in the world. In some parts of
the world, the currency of our primary economic environment is the U.S. dollar, and we use the U.S. dollar as our
functional currency. In other parts of the world, such as Europe, Norway, Venezuela and Brazil, we conduct our business
in currencies other than the U.S. dollar, and the functional currency is the applicable local currency. Assets and liabilities
of entities for which the functional currency is the local currency are translated into U.S. dollars using the exchange
rates in effect at the balance sheet date, resulting in translation adjustments that are reflected in accumulated other
comprehensive income (loss) in the shareholders’ equity section on our consolidated balance sheets. A portion of our
net assets are impacted by changes in foreign currencies in relation to the U.S. dollar. We recorded an $11.2 million
adjustment to decrease our equity account for the year ended December 31, 2013 to reflect the change in the U.S. dollar
against various foreign currencies.
For the year ended December 31, 2013, on a U.S. dollar-equivalent basis, approximately 21% of our revenue was
represented by currencies other than the U.S. dollar. However, no single foreign currency poses a primary risk to us. A
hypothetical 10% decrease in the exchange rates for each of the foreign currencies in which a portion of our revenues
is denominated would result in a 1.3% decrease in our overall revenues for the year ended December 31, 2013.
In February 2013, the Venezuelan government announced a devaluation of the Bolivar Fuerte (“Bolivar”), resulting
in the exchange rate declining from 4.3 to 6.3 Bolivars to the U.S. Dollar. As a result of the devaluation, we recorded
a foreign currency loss of $1.8 million during the first quarter of 2013, related to the re-measurement of the Bolivar-
denominated net monetary assets of our Venezuelan operations as of the date of the devaluation.
In March 2013, the Venezuelan government announced the creation of a new auction-based foreign exchange rate
market program referred to as SICAD. In December 2013, the regulation that created the SICAD program was amended
to require the Central Bank of Venezuela to include the weekly average exchange rate implied by transactions settled
via the SICAD auction program. The most recent transactions executed through SICAD auctions have been at a Bolivar
to U.S. dollar exchange rate of 11.4. The auction participants are limited to import transactions for specific sectors or
products as determined by the Venezuelan government. As of December 31, 2013, we have not utilized the SICAD
auction program. We are not exposed to U.S. dollar importation transactions, and will continue to monitor this situation
for future developments and the impact, if any, on our Venezuelan operations. At December 31, 2013, we had
approximately $6.2 million in net monetary U.S. dollar liabilities in Venezuela at the official exchange rate of 6.3.
Depending on the transparency and liquidity of the foreign exchange rate market, we may incur a future charge to our
income statement. For example, if we were required to apply an exchange rate of 11.4 Bolivars to the US dollar, it
would result in a charge of approximately $2.8 million.
48
Interest Rate Risk
As of December 31, 2013, we did not have any outstanding balances under the Credit Facilities. If we borrow
under the Credit Facilities in the future, we will be exposed to changes in interest rates on our floating rate borrowings
under the Credit Facilities. Although we do not currently utilize interest rate derivative instruments to reduce interest
rate exposure, we may do so in the future.
Customer Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk are trade receivables. We extend
credit to customers and other parties in the normal course of business. We have established various procedures to manage
our credit exposure, including credit evaluations and maintaining an allowance for doubtful accounts.
We are also exposed to credit risk because our customers are concentrated in the oil and natural gas industry. This
concentration of customers may impact overall exposure to credit risk, either positively or negatively, because our
customers may be similarly affected by changes in economic and industry conditions, including sensitivity to commodity
prices. While current energy prices are important contributors to positive cash flow for our customers, expectations
about future prices and price volatility are generally more important for determining future spending levels. However,
any prolonged increase or decrease in oil and natural gas prices affects the levels of exploration, development and
production activity, as well as the entire health of the oil and natural gas industry, and can therefore negatively impact
spending by our customers.
49
Item 8. Financial Statements
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2013 and 2012
Consolidated Statements of Income for the Years Ended
December 31, 2013, 2012 and 2011
Consolidated Statements of Comprehensive Income for the Years Ended
December 31, 2013, 2012 and 2011
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 2013, 2012 and 2011
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2013, 2012 and 2011
Notes to the Consolidated Financial Statements
Page
51
52
53
54
55
56
57
50
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Frank’s International N.V.:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income,
comprehensive income, stockholders’ equity and cash flows present fairly, in all material respects, the financial position
of Frank’s International N.V. (the “Company”) at December 31, 2013 and 2012, and the results of their operations and
their cash flows for each of the three years in the period ended December 31, 2013 in conformity with accounting
principles generally accepted in the United States of America. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits of these statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Houston, Texas
March 4, 2014
51
FRANK'S INTERNATIONAL N.V.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
Assets
Current assets:
Cash and cash equivalents
Accounts receivables, net
Inventories
Other current assets
Total current assets
Property, plant and equipment, net
Goodwill and intangible assets, net
Other assets
Total assets
Liabilities and Equity
Current liabilities:
Current portion of long-term debt and capital lease obligations
Current portion of notes payable - affiliated
Accounts payable
Deferred revenue
Accrued and other current liabilities
Total current liabilities
Long-term debt:
Long-term debt and capital lease obligations
Notes payable - affiliated
Total long-term debt
Deferred tax liabilities
Other non-current liabilities
Total liabilities
Commitments and contingencies (Note 17)
$
$
$
December 31,
2013
2012
$
$
$
404,947
364,817
185,589
15,843
971,196
511,199
14,814
63,986
1,561,195
376
—
22,254
62,610
90,484
175,724
—
—
—
13,114
38,325
227,163
152,945
313,657
108,543
16,632
591,777
426,500
17,071
72,613
1,107,961
6,317
323,476
19,377
23,172
104,627
476,969
1,051
145,087
146,138
6,575
30,586
660,268
Series A preferred stock, €0.01 par value, 60,000,000 shares authorized;
52,976,000 shares issued and outstanding
705
705
Stockholders' equity
Common stock, €0.01 par value, 180,000,000 shares authorized; 153,524,000
shares issued and outstanding at December 31, 2013; 119,024,000
shares issued and outstanding at December 31, 2012
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Total stockholders' equity
Noncontrolling interest
Total equity
Total liabilities and equity
2,019
642,164
455,632
(2,383)
1,097,432
235,895
1,333,327
1,561,195
$
1,561
651
327,436
3,254
332,902
114,086
446,988
1,107,961
$
The accompanying notes are an integral part of these consolidated financial statements.
52
FRANK'S INTERNATIONAL N.V.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Revenues:
Equipment rentals and services
Products
Total revenue
Operating expenses:
Cost of revenues, exclusive of depreciation
and amortization
Equipment rentals and services
Products
General and administrative expenses
Depreciation and amortization
Gain on sale of assets
Operating income
Other income (expense):
Other income
Interest income (expense), net
Foreign currency loss
Total other income (expense)
Income from continuing operations before
income tax expense
Income tax expense
Income from continuing operations
Income from discontinued operations
Net income
Net income attributable to noncontrolling interest
Net income attributable to Frank's International N.V.
Basic earnings per common share:
Continuing operations
Discontinued operations
Total
Diluted earnings per common share:
Continuing operations
Discontinued operations
Total
Weighted average common shares outstanding:
Basic
Diluted
Year Ended December 31,
2012
2011
2013
$
902,960
174,762
1,077,722
$
880,010
159,044
1,039,054
$
613,456
105,956
719,412
310,244
124,092
224,755
78,082
(122)
340,671
9,460
(653)
(2,556)
6,251
346,922
38,727
308,195
42,635
350,830
95,368
255,462
1.69
0.24
1.93
1.68
0.17
1.85
$
$
$
$
$
300,661
124,946
186,112
65,815
(2,608)
364,128
12,189
260
(450)
11,999
376,127
31,877
344,250
6,684
350,934
90,015
260,919
2.15
0.04
2.19
2.01
0.03
2.04
$
$
$
$
$
246,724
75,748
159,602
54,216
(47)
183,169
3,786
(661)
(3,209)
(84)
183,085
20,287
162,798
7,989
170,787
43,807
126,980
1.02
0.05
1.07
0.96
0.03
0.99
132,257
185,506
119,024
172,000
119,024
172,000
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
53
FRANK'S INTERNATIONAL N.V.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income
Other comprehensive income (loss):
Foreign currency translation
adjustments, net of tax
Unrealized gain on marketable
securities, net of tax
Total other comprehensive income (loss)
Comprehensive income
Less: Comprehensive income attributable to
noncontrolling interest
Comprehensive income attributable to
Frank's International N.V.
Year Ended December 31,
2012
2011
2013
$
350,830
$
350,934
$
170,787
(11,240)
(178)
(2,734)
3,658
(7,582)
343,248
113
(65)
350,869
301
(2,433)
168,354
93,423
89,998
43,183
$
249,825
$
260,871
$
125,171
The accompanying notes are an integral part of these consolidated financial statements.
54
FRANK'S INTERNATIONAL N.V.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Common Stock
Shares
Value
Additional
Paid-In
Capital
Accumulated
Other
Retained
Earnings
Comprehensive Noncontrolling
Income (Loss)
Interest
Total
Stockholders'
Equity
119,024
—
$
1,561
—
$
651
$ 391,070
— 126,980
$
$
5,111
—
137,620
43,807
$
536,013
170,787
Balance at December 31, 2010
Net income
Foreign currency translation
adjustments
—
—
—
—
(2,033)
(701)
(2,734)
Unrealized gain on marketable
securities
Capital contribution
Distributions to stockholders
Balance at December 31, 2011
Net income
Foreign currency translation
—
—
—
119,024
—
—
—
—
1,561
—
—
—
—
651
—
2,726
(29,714)
491,062
— 260,919
224
—
—
3,302
—
77
—
(10,251)
170,552
90,015
301
2,726
(39,965)
667,128
350,934
adjustments
—
—
—
—
(132)
(46)
(178)
Unrealized gain on marketable
securities
Distributions to stockholders
Balance at December 31, 2012
Net income
Distribution of net assets
to Mosing Holdings
Capital contribution by
noncontrolling interest
equity holders to subsidiary
Issuance of common stock upon
IPO, net of offering costs
Foreign currency translation
adjustments
Unrealized gain on marketable
securities
Stock-based compensation
expense
Distributions to stockholders
Distribution to
noncontrolling interest
Common stock dividends
($0.075 per share)
Other
Balance at December 31, 2013
—
—
119,024
—
—
—
—
—
1,561
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— (424,545)
327,436
651
— 255,462
—
(37,412)
—
—
—
—
—
—
—
84
—
3,254
—
—
—
—
29
(146,464)
114,086
95,368
113
(571,009)
446,988
350,830
(12,907)
(50,319)
3,002
3,002
76,814
711,511
(8,357)
(2,883)
(11,240)
2,720
938
3,658
7,220
—
—
(78,340)
—
—
—
—
—
—
(27,027)
7,220
(105,367)
(11,496)
(11,496)
34,500
458
634,239
—
—
153,524
$
—
—
2,019
—
54
$ 642,164
(11,514)
—
$ 455,632
$
—
—
(2,383) $
—
—
235,895
(11,514)
54
$ 1,333,327
The accompanying notes are an integral part of these consolidated financial statements.
55
FRANK'S INTERNATIONAL N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities
Net income
Adjustments to reconcile net income to cash provided
by operating activities
Depreciation and amortization
Stock-based compensation expense
Amortization of deferred financing costs
Venezuelan currency devaluation charge
Deferred tax provision
Provision for (recovery of) bad debts
Gain on sale of assets
Changes in fair value of marketable securities
Gain on exchange of investment
(Increase) decrease in value of life insurance policies
Changes in operating assets and liabilities
Accounts receivable
Inventories
Other current assets
Other assets
Accounts payable
Deferred revenue
Accrued expenses and other current liabilities
Other noncurrent liabilities
Other
Net cash provided by operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Proceeds from sale of assets and equipment
Purchase of marketable securities
Premiums on life insurance policies
Other
Net cash used in investing activities
Cash flows from financing activities
Proceeds from initial public offering, net of offering costs
Repayments of borrowings
Proceeds from borrowings
Proceeds from reissuance of stock
Deferred financing costs
Dividends paid on common stock
Distribution to noncontrolling interest
Distributions to stockholders
Net cash provided by (used in) financing activities
Year Ended December 31,
2012
2011
2013
$
350,830
$
350,934
$
170,787
78,226
7,220
129
1,755
3,621
12,551
(39,752)
(3,891)
—
(815)
(82,032)
(81,983)
(1,698)
(1,430)
3,355
39,437
(15,048)
6,956
—
277,431
(184,504)
50,959
(1,813)
(2,142)
—
(137,500)
711,511
(472,070)
170
—
(1,000)
(11,514)
(11,496)
(105,367)
110,234
575
1,262
252,002
152,945
404,947
$
66,215
—
—
—
1,449
(389)
(2,608)
(2,058)
(3,997)
254
(76,729)
(15,351)
845
(173)
(533)
(11,599)
33,854
4,662
—
344,776
(180,187)
5,259
(2,757)
(3,088)
(1,760)
(182,533)
—
(39,211)
19,016
—
—
—
—
(87,015)
(107,210)
—
(737)
54,296
98,649
152,945
$
54,581
—
—
—
(412)
2,486
(47)
688
—
731
(72,266)
(4,606)
(2,681)
403
5,274
2,344
21,823
1,445
160
180,710
(117,883)
391
(4,518)
(3,698)
(947)
(126,655)
—
(39,735)
5,100
2,726
—
—
—
(39,965)
(71,874)
—
2,305
(15,514)
114,163
98,649
Effect of exchange rate changes on cash due to Venezuelan devaluation
Effect of exchange rate changes on cash
Net increase (decrease) in cash
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
$
The accompanying notes are an integral part of these consolidated financial statements.
56
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1—Basis of Presentation and Significant Accounting Policies
Nature of Business
Frank’s International is a global provider of highly engineered tubular services to the oil and gas industry. Frank’s
International provides services to leading exploration and production companies in both offshore and onshore
environments with a focus on complex and technically demanding wells.
Basis of Presentation
The consolidated financial statements of Frank's International N.V. ("FINV"), a limited liability company organized
under the laws of The Netherlands, for the years ended December 31, 2013, 2012 and 2011 include the activities of
Frank's International C.V. ("FICV") and its wholly owned subsidiaries (collectively, the "Company," "we," "us" and
"our"). All intercompany accounts and transactions have been eliminated for purposes of preparing these consolidated
financial statements.
Our accompanying consolidated financial statements and related financial information have been prepared in
accordance with generally accepted accounting principles in the United States of America ("GAAP"). In the opinion
of management, the consolidated financial statements reflect all adjustments and reclassifications consisting solely of
normal accruals that are necessary for the fair presentation of financial results as of and for the periods presented.
The consolidated financial statements have been prepared on a historical cost basis using the United States dollar
as the reporting currency.
Reclassifications
In reporting periods prior to the fourth quarter of fiscal 2013, certain costs of equipment rentals and services and
product sales were misclassified between the two line items. There was no impact to previously reported operating
income, income from continuing operations, net income, earnings per share or cash flow. Corrections have been made
to the relevant periods presented in the financial statements included herein. These corrections resulted in reductions
of cost of equipment rentals and services with corresponding increases to cost of products of $12.2 million and $7.9
million for the years ended December 31, 2012 and 2011, respectively.
We have determined that the previously reported December 31, 2012 and 2011 property, plant and equipment
balances for our U.S. Services and Tubular Sales segments in Note 19 were misclassified. Corrections have been made
to the relevant periods presented in the financial statements included herein. These corrections resulted in increases to
the Tubular Sales balance of $58.7 million and $24.9 million at December 31, 2012 and 2011, respectively, with the
corresponding decrease to the U.S. Services segment, and had no effect on the impairment testing of goodwill.
We have evaluated and concluded that the identified amounts were not material to any of our previously filed
annual financial statements as the effects in prior periods were not material.
Recast of Historical Financial Presentation
The reorganization discussed below has been reflected retroactively on a historical cost basis for all periods
presented as it was a reorganization of entities under common control. The impact of the reorganization was to combine
all of the previously separate entities under a single capital structure to facilitate the initial public offering ("IPO") of
FINV. This presentation reflects the consolidation of each of the previously separate entities into FINV, the 25.7%
noncontrolling interest in Frank's International C.V. ("FICV") and issuance of the Series A preferred stock, par value
€0.01 per share (the "Preferred Stock") as outstanding for each period. This presentation allows comparability with
prior periods, including earnings per share ("EPS") calculations.
57
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Initial Public Offering and Reorganization
We completed our IPO on August 14, 2013. We sold 34,500,000 shares of common stock, including 4,500,000
shares of common stock pursuant to the underwriters' option to purchase additional shares, at an offering price of $22.00
per share. After deducting underwriting discounts and commissions and offering expenses payable by us, we received
net proceeds of approximately $711.5 million. We used a portion of the proceeds from our IPO to repay in full the
outstanding notes payable to FWW B.V. (“FWW”), an entity owned by the Mosing family, and expect to use the
remainder for general corporate purposes and infrastructure capital.
Prior to the completion of our IPO, we engaged in a corporate reorganization. On August 1, 2013, each of Frank's
International, Inc. ("FII"), Frank's Casing Crew and Rental Tools, Inc. ("FCC") and Frank's Tong Service, Inc. ("FTS"),
subsidiaries of Mosing Holdings, Inc. (“Mosing Holdings”), converted from corporations to limited liability companies.
On August 14, 2013, immediately prior to the completion of our IPO, Mosing Holdings contributed all of the
outstanding membership interests in each of FII, FCC, and FTS to FICV in exchange for 52,976,000 shares of Preferred
Stock and a 25.7% limited partnership interest in FICV. Excluded from the contribution were certain assets that generated
a de minimus amount of revenue, including aircraft, real estate and life insurance policies, which were retained by
Mosing Holdings. FINV contributed all of its foreign operating subsidiaries and a portion of the proceeds from the IPO
to FICV. Following the reorganization and the completion of the IPO, FINV's sole material asset consists of our
ownership of 74.2% of the limited partnership interest and the 0.1% general partnership interest in FICV. Mosing
Holdings holds the remaining 25.7% limited partnership interest in FICV. The above transactions are collectively
referred to as the “Reorganization.”
Mosing Holdings has the right to redeem all or a portion of its Preferred Stock for cash equal to the par value of
each share of Preferred Stock redeemed plus any accrued but unpaid dividends thereon. Simultaneously, a proportionate
amount of limited partner interests in FICV would then be exchanged for FINV common stock (the "Exchange"). As
the Preferred Stock is redeemed, our noncontrolling interest will be reduced and our outstanding shares of common
stock will increase.
Tax Receivable Agreement
On August 14, 2013, in connection with the completion of our IPO, we entered into a tax receivable agreement
(the “TRA”) with FICV and Mosing Holdings. The TRA generally provides for the payment by us to Mosing Holdings
of 85% of the amount of the benefits, if any, in payments of U.S. federal, state and local income tax or franchise tax in
periods after the IPO as a result of increases in tax basis and certain other tax benefits resulting from the Exchanges,
including tax benefits attributable to payments under the TRA. We will retain the remaining 15% of cash savings, if
any, in realized income tax savings. The payment obligations under the TRA are our obligations and not obligations of
FICV. The term of the TRA continues until all such tax benefits have been utilized or expired, unless we exercise our
right to terminate the TRA. As of December 31, 2013, there have been no Exchanges under the TRA.
If we elect to terminate the TRA early, we are required to make an immediate payment equal to the present value
of the anticipated future tax benefits subject to the TRA. In addition, payments due under the TRA are similarly
accelerated following certain mergers or other changes of control.
Venezuelan Currency Devaluation
In February 2013, the Venezuelan government announced a devaluation of the Bolivar Fuerte ("Bolivar"), resulting
in the exchange rate declining from 4.3 to 6.3 Bolivars to the U.S. Dollar. As a result of the devaluation, we recorded
a foreign currency loss of $1.8 million during the three months ended March 31, 2013, related to the remeasurement
of the Bolivar denominated net monetary assets of our Venezuelan operations as of the date of the devaluation. In future
periods, foreign exchange gains (losses) arising due to the appreciation (depreciation) of the Bolivar versus the U.S.
Dollar will result in benefits (charges) to the statements of income based on the value of the Bolivar-denominated net
monetary assets at the time when such exchange rate changes become effective.
58
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Significant Accounting Policies
Accounting Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted
in the United States requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities, and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements,
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these
estimates.
Accounts Receivable
We establish an allowance for doubtful accounts based on various factors including historical experience, the
current aging status of our customer accounts, the financial condition of our customers and the business and political
environment in which our customers operate. Provisions for doubtful accounts are recorded when it becomes
probable that customer accounts are uncollectible.
Cash and Cash Equivalents
We consider all highly liquid financial instruments purchased with an original maturity of three months or less to
be cash equivalents. Throughout the year, we have cash balances in excess of federally insured limits deposited with
various financial institutions. We have not experienced any losses in such accounts and believe we are not exposed to
any significant credit risk on cash and cash equivalents.
Comprehensive Income
Accounting standards on reporting comprehensive income require that certain items, including foreign currency
translation adjustments and unrealized gains and losses on marketable securities be presented as components of
comprehensive income. The cumulative amounts recognized by us under these standards are reflected in the consolidated
balance sheet as accumulated other comprehensive income, a component of shareholders’ equity.
Contingencies
Certain conditions may exist as of the date our consolidated financial statements are issued that may result in a
loss to us, but which will only be resolved when one or more future events occur or fail to occur. Our management,
with input from legal counsel, assesses such contingent liabilities, and such assessment inherently involves an exercise
in judgment. In assessing loss contingencies related to legal proceedings pending against us or unasserted claims that
may result in proceedings, our management, with input from legal counsel, evaluates the perceived merits of any legal
proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought
therein.
If the assessment of a contingency indicates it is probable a material loss has been incurred and the amount of
liability can be estimated, then the estimated liability would be accrued in our consolidated financial statements. If the
assessment indicates a potentially material loss contingency is not probable but is reasonably possible, or is probable
but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible
loss if determinable and material, is disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case
the guarantees would be disclosed.
59
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred Financing Costs
Deferred financing costs consist of fees and expenses paid in connection with the closing of credit facilities and
are capitalized at the time of payment. Deferred financing costs are amortized using the straight line method over the
term of the credit facility.
Earnings Per Share
Basic earnings per share excludes dilution and is computed by dividing income available to common shareholders
by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if securities to issue common stock were exercised or converted to common stock.
Fair Value of Financial Instruments
Our financial instruments consist primarily of cash and cash equivalents, trade accounts receivable, available-for-
sale securities, obligations under trade accounts payable and short and long-term debt. Due to their short-term nature,
the carrying values for cash and cash equivalents, trade accounts receivable and trade accounts payable approximate
fair value. Refer to Note 10 for the fair values of our available-for-sale securities and other obligations.
Foreign Currency Translations and Transactions
Results of operations for foreign subsidiaries with functional currencies other than the U.S. dollar are translated
using average exchange rates during the period. Assets and liabilities of these foreign subsidiaries are translated using
the exchange rates in effect at the balance sheet dates. Gains and losses resulting from these translations are included
in accumulated other comprehensive income within stockholders’ equity.
For those foreign subsidiaries that have designated the U.S. dollar as the functional currency, gains and losses
resulting from balance sheet remeasurement of foreign operations are included in the consolidated statements of income
as incurred. Gains and losses resulting from transactions denominated in a foreign currency are also included in the
consolidated statements of income as incurred.
Goodwill
Goodwill is not subject to amortization and is tested for impairment annually or more frequently if events or changes
in circumstances indicate that the asset might be impaired. A qualitative assessment is allowed to determine if goodwill
is potentially impaired. The qualitative assessment determines whether it is more likely than not that a reporting unit’s
fair value is less than its carrying amount. If it is more likely that not that the fair value of the reporting unit is less than
the carrying amount, then the two step impairment test is performed. First, the fair value of each reporting unit is
compared to its carrying value to determine whether an indication of impairment exists. If impairment is indicated,
then the fair value of the reporting unit’s goodwill is determined by allocating the unit’s fair value to its assets and
liabilities (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business
combination. The amount of impairment for goodwill is measured as the excess of its carrying value over its fair value.
We complete our assessment of goodwill impairment as of December 31 each year. No impairment was recorded for
years ended December 31, 2013, 2012 and 2011. Our goodwill is allocated to its segments as follows: U.S. Services -
approximately $11.3 million; Tubular Sales - approximately $2.4 million. Goodwill in the Tubular Sales segment
decreased by $1.5 million during the year ended December 31, 2013 due to the sale of a component of that segment.
The inputs used in the determination of fair value are generally level 3 inputs. See Notes 3 and 10 in these Notes to
Consolidated Financial Statements for a discussion of the sale and of fair value measures, respectively.
Impairment of Long-Lived Assets
Long-lived assets, which include property, plant and equipment, and certain other assets to be held and used by
us, are reviewed when events or changes in circumstances indicate that the carrying amount of the assets may not be
recoverable based on estimated future cash flows. If this assessment indicates that the carrying values will not be
60
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
recoverable, as determined based on undiscounted cash flows over the remaining useful lives, an impairment loss is
recognized based on fair value of the asset.
Income Taxes
We operate under many legal forms in approximately 60 countries. As a result, we are subject to many U.S. and
foreign tax jurisdictions and many tax agreements and treaties among the various taxing authorities. Our operations in
these different jurisdictions are taxed on various bases such as income before taxes, deemed profits (which is generally
determined using a percentage of revenues rather than profits), and withholding taxes based on revenues. Determination
of taxable income in any jurisdiction requires the interpretation of the related tax laws and regulations and the use of
estimates and assumptions regarding significant future events. Changes in tax laws, regulations, agreements and treaties,
foreign currency exchange restrictions, or our level of operations or profitability in each taxing jurisdiction could have
an impact upon the amount of income taxes that we provide during any given year.
Prior to the Reorganization, FII, FCC and FTS were classified as S-corporations for U.S. income tax purposes and
therefore not subject to federal or state income taxation. Following the Reorganization, FICV is taxed as a partnership
for U.S. federal income tax purposes and its domestic subsidiaries are classified as limited liability companies not
subject to federal or state income taxation. As a partner in FICV, we are now subject to U.S. taxation on our allocable
share of U.S. taxable income and the noncontrolling member will pay taxes with respect to its allocable share of U.S.
taxable income.
We provide for income tax expense based on the liability method of accounting for income taxes based on the
authoritative accounting guidance. Deferred tax assets and liabilities are recorded based upon temporary differences
between the tax basis of assets and liabilities and their carrying values for financial reporting purposes, and are measured
using the enacted marginal rates and laws that will be in effect when the differences are expected to reverse. Deferred
tax expense or benefit is the result of changes in deferred tax assets and liabilities during the period. The impact of an
uncertain tax position taken or expected to be taken on an income tax return is recognized in the financial statements
at the largest amount that is more likely than not to be sustained upon examination by the relevant taxing authority.
Intangible Assets
Intangible assets are comprised of licenses, customer relationships and tradenames. Identifiable intangible assets
are amortized using the straight-line method over the estimated useful lives of the assets. We evaluate impairment of
our intangible assets on an individual basis whenever circumstances indicate that the carrying value may not be
recoverable. Intangible assets deemed to be impaired are written down to their fair value discounted cash flows and,
if available, comparable market values.
Inventories
Inventories are stated at the lower of cost (primarily average cost) or market value. Work in progress and finished
goods include the cost of materials, labor, and manufacturing overhead. Inventory placed in service is either capitalized
and included in equipment or expensed based upon our capitalization policies.
Marketable Securities
Our marketable securities in certificates of deposit, debt securities and publicly traded equity securities as an
indirect result of strategic investments are classified as available-for-sale and are reported at fair value. See Note 7-
Other Assets.
The marketable securities are held within a Rabbi Trust for the purpose of paying future executive deferred
compensation benefit obligations. Unrealized gains and losses are reported as a component of stockholders’ equity.
Realized gains and losses on marketable securities are included in other income on our consolidated statements of
income, net when realized. Any impairment loss to reduce an investment’s carrying amount to its fair market value is
recognized in income when a decline in the fair market value of an individual security below its cost or carrying value
61
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
is determined to be other than temporary. Realized gains on investments were $3.9 million and $2.1 million for the
years ended December 31, 2013 and 2012, respectively. Realized losses on investments were $0.7 million for the year
ended December 31, 2011.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation. Expenditures for significant
improvements and betterments are capitalized when they extend the useful life of the asset. Expenditures for minor
improvements and routine repairs and maintenance, which do not improve or extend the life of the related assets, are
expensed when incurred. When properties or equipment are sold, retired or otherwise disposed of, the related cost and
accumulated depreciation are removed from the books and the resulting gain or loss is recognized on the consolidated
statements of income.
Depreciation on fixed assets is computed using the straight-line method over the estimated useful lives of the
individual assets. Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated
useful lives or the lease term. The depreciation of fixed assets recorded under capital lease agreements is included in
depreciation expense.
Revenue Recognition
All revenue is recognized when all of the following criteria have been met: (1) evidence of an arrangement exists;
(2) delivery to and acceptance by the customer has occurred; (3) the price of the customer is fixed or determinable; and
(4) collectability is reasonably assured, as follows:
Services Revenue. We provide tubular services to clients in the oil and gas industry. We perform services either
under direct service purchase orders or master service agreements. Service revenue is recognized when services have
been performed or rendered.
Rental Revenue. We design and manufacture a suite of highly technical equipment and products that we rent to
our customers in connection with providing our services, including high-end, proprietary tubular handling equipment.
We rent our products either under direct rental agreements or with customers with rental agreements in place. Revenue
from rental agreements is recognized as earned over the rental period.
For customers contracted under direct service purchase orders and direct rental agreements, an accrual is recorded
in unbilled accounts receivable for revenue earned but not yet invoiced.
Tubular Sales Revenue. Revenue on tubular sales is recognized when the product has shipped and significant risks
of ownership have passed to the customer. The sales arrangements typically do not include right of return or other
similar provisions or other post-delivery obligations. In some regions, customers have a right of return due to purchasing
of excess products and deliverability limitations of products in remote locations. When the likelihood of a return exists
on a sale, a determination of this portion of revenue is reclassified to deferred revenue until such time as the product
is returned or no return occurs.
Some of our tubular sales customers have requested that we store pipe and connectors purchased from us in our
facilities. We considered whether revenue should be recognized on these sales under the “bill and hold” guidance
provided by the SEC Staff; however, based upon the assessment performed, revenue recognition on these transactions
totaling $62.6 million and $23.2 million was deferred at December 31, 2013 and 2012, respectively.
Stock-Based Compensation
Our stock-based compensation plan provides for the granting of stock options, stock appreciation rights (“SARs”),
restricted stock, restricted stock units ("RSUs"), dividend equivalent rights and other types of equity and cash incentive
awards to employees, non-employee directors and service providers. Stock-based compensation expense is measured
62
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
at the grant date of the share-based awards based on their value and is recognized on a straight-line basis over the
vesting period, net of an estimated forfeiture rate and is included in general and administrative expense in the consolidated
statements of income.
Our stock-based compensation currently consists of RSUs. The grant date fair value of the RSUs, which are not
entitled to receive dividends until vested, is measured by reducing the share price at that date by the present value of
the dividends expected to be paid during the requisite vesting period, discounted at the appropriate risk-free interest
rate.
Recent Accounting Pronouncements
In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income
(“AOCI”). This ASU requires entities to present separately, among other items, the amount of the change that is due
to reclassifications, and the amount that is due to current period other comprehensive income. We adopted this guidance
during the first quarter of 2013 and it did not have a material impact on our consolidated financial position, results of
operations or cash flows as there are currently no items reclassified from AOCI.
In July 2013, the FASB issued ASU No. 2013-11 relating to income taxes, which provides guidance on the
presentation of unrecognized tax benefits. The intent is to better reflect the manner in which an entity would settle at
the reporting date any additional income taxes that would result from the disallowance of a tax position when net
operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. This pronouncement is effective for
fiscal years, and interim periods within those years, beginning after December 15, 2013. We are evaluating the impact,
if any, that the adoption of this standard may have on our consolidated financial statements.
Note 2—Noncontrolling Interest
We hold an approximate 74.3% economic interest in FICV and are responsible for all operational, management
and administrative decisions relating to FICV’s business. As a result, the financial results of FICV are consolidated
with ours and we record a noncontrolling interest on our consolidated balance sheet with respect to the remaining
approximately 25.7% economic interest in FICV held by Mosing Holdings. Net income attributable to noncontrolling
interest on the statements of income represents the portion of earnings or loss attributable to the economic interest in
FICV held by Mosing Holdings. As a result of certain of the reorganization transactions, the allocable domestic income
from FICV to FINV is now subject to U.S. taxation.
A reconciliation of net income attributable to noncontrolling interest is detailed as follows (in thousands):
Net income
Add: Provision for U.S. income taxes of FINV (1)
Less: (Income) loss in FINV (2)
Net income subject to noncontrolling interest
Noncontrolling interest percentage
Net income attributable to noncontrolling interest
Year Ended
December 31,
2013
$
$
350,830
20,750
224
371,804
25.7%
95,368
(1) Represents income tax expense attributable to U.S. operations of our 74.3% partnership interests in FICV.
(2) Represents results of operations for entities outside of FICV.
Prior year periods have not been included in the table above since income for U.S. operations for the periods was
not subject to income tax.
63
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3—Discontinued Operations
On June 14, 2013, we sold a component of our Tubular Sales (previously referred to as Pipe and Products) segment,
which manufactured centralizers for sales to third parties, and recognized a gain on sale of $39.6 million, which is
included in income from discontinued operations on the consolidated statements of income. As a result, for the years
ended December 31, 2013, 2012 and 2011, the operations from that component have been reported as discontinued
operations.
The following table presents the results of discontinued operations (in thousands):
Revenues
Income from discontinued operations
Gain on sale of discontinued operations
Income from discontinued operations
before income taxes
Income tax expense
Net income from discontinued operations
Year Ended December 31,
2013
2012
2011
$
$
$
7,554
3,036
39,629
42,665
30
42,635
$
$
$
16,871
6,684
—
6,684
—
6,684
$
$
$
19,663
7,989
—
7,989
—
7,989
The major classes of assets and liabilities as of June 14, 2013, which were included in the disposition were as
follows (in thousands):
Accounts receivable, net
Inventory
Prepaid and other current assets
Property, plant and equipment
Goodwill
Total assets
Total liabilities
$
$
$
1,968
4,905
53
2,260
1,497
10,683
312
Cash flows from discontinued operations are included with cash flows from continuing operations in the
consolidated statements of cash flows for the years ended December 31, 2013, 2012 and 2011.
Note 4—Accounts Receivable, net
Accounts receivable at December 31, 2013 and 2012 were as follows (in thousands):
Trade accounts receivable, net of allowance
of $13,614 and $1,697, respectively
Unbilled receivables
Taxes receivable
Affiliated (1)
Other receivables
Total accounts receivable
December 31,
2013
2012
$
$
232,409
105,824
20,075
3,921
2,588
364,817
$
$
188,095
108,713
6,112
4,551
6,186
313,657
(1) Amounts represent expenditures on behalf of non-consolidated affiliates and receivables for aircraft charter income.
64
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5—Inventories
Inventories at December 31, 2013 and 2012 were as follows (in thousands):
Pipe and connectors
Finished goods
Work in progress
Raw materials, components and supplies
Total inventories
Note 6—Property, Plant and Equipment
December 31,
2013
2012
$
$
168,639
4,114
2,284
10,552
185,589
$
$
87,083
6,985
2,411
12,064
108,543
The following is a summary of property, plant and equipment at December 31, 2013 and 2012 (in thousands):
Land
Buildings and improvements
Rental machinery and equipment
Machinery and equipment - other
Furniture, fixtures and computers
Automobiles and other vehicles
Aircraft
Leasehold improvements
Construction in progress - machinery
and equipment and buildings
Less: Accumulated depreciation
Total property, plant and equipment, net
Estimated
Useful Lives
in Years
—
39
7
7
5
5
7
7
—
December 31,
2013
2012
$
22,460
63,412
669,729
55,306
18,265
35,649
14,868
5,729
21,344
82,005
563,368
43,086
16,707
33,940
21,541
4,843
88,801
974,219
(463,020)
511,199
$
62,122
848,956
(422,456)
426,500
$
$
Depreciation expense was approximately $77.3 million, $64.4 million and $52.5 million for the years ended
December 31, 2013, 2012 and 2011, respectively.
65
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7—Other Assets
Other assets at December 31, 2013 and 2012 consisted of the following (in thousands):
Marketable securities held in Rabbi Trust (1)
Split-dollar life insurance
Deferred tax asset
Notes receivable - affiliates (2)
Deposits
Other
Total other assets
December 31,
2013
2012
42,184
—
7,391
—
3,132
11,279
63,986
$
$
36,479
18,799
—
6,939
1,675
8,721
72,613
$
$
(1) See Note 10 – Fair Value Measurements
(2) Represented amounts due from members of the Mosing family related to split-dollar life insurance policy premiums
that we maintained prior to the IPO.
Note 8—Accrued and Other Current Liabilities
Accrued and other current liabilities at December 31, 2013 and 2012 consisted of the following (in thousands):
Accrued compensation
Accrued property and other taxes
Income taxes
Accrued inventory
Accrued capital expenditures
Accrued medical claims
Accrued purchase orders
Other
Total accrued and other current liabilities
December 31,
2013
2012
26,252
23,018
2,870
5,419
4,188
2,779
5,632
20,326
90,484
$
$
23,978
20,912
4,220
17,723
400
2,066
8,547
26,781
104,627
$
$
66
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9—Long-term Debt
The following is summary of long-term debt at December 31, 2013 and 2012 (in thousands):
Lines of credit
Notes payable
Equipment financing
Capital lease obligations
Less: current portion
Long-term portion
Notes payable - affiliated
Less: current portion
Long-term portion
Total long-term debt
December 31,
2013
2012
$
— $
376
—
—
376
(376)
—
—
—
—
2,000
4,464
818
86
7,368
(6,317)
1,051
468,563
(323,476)
145,087
$
— $
146,138
In connection with the IPO, we entered into two revolving credit facilities: (i) a $100.0 million revolving credit
facility, including up to $20.0 million for letters of credit and up to $10.0 million in swingline loans, which matures in
August 2018 (the “Five Year Facility”); and (ii) a $100.0 million revolving credit facility which matures in August
2014 (the “One Year Facility” and, together with the Five Year Facility, the “Credit Facilities”). Subject to the terms
of the credit agreements, we have the ability to increase the commitments under the Credit Facilities by $150.0 million.
As of December 31, 2013, we did not have any outstanding indebtedness under the Credit Facilities and had $7.3 million
in letters of credit outstanding. We incurred approximately $1.0 million of deferred financing costs related to the Credit
Facilities.
Borrowings under the Credit Facilities bear interest, at our option, at either a base rate or an adjusted Eurodollar
rate. Base rate loans under the credit facilities bear interest at a rate equal to the higher of (a) the prime rate as published
in the Wall Street Journal, (b) the Federal Funds Effective Rate plus 0.50% or (c) the adjusted Eurodollar rate plus
1.00%, plus an applicable margin ranging from 0.50% to 1.50%, subject to adjustment based on the leverage ratio.
Interest is in each case payable quarterly for base-rate loans. Eurodollar loans under the Credit Facilities bear interest
at an adjusted Eurodollar rate equal to the Eurodollar rate for such interest period multiplied by the statutory reserves,
plus an applicable margin ranging from 1.50% to 2.50%. Interest is payable at the end of applicable interest periods
for Eurodollar loans, except that if the interest period for a Eurodollar loan is longer than three months, interest is paid
at the end of each three-month period. The unused portion of the Five Year Facility is subject to a commitment fee of
up to 0.375%.
The Credit Facilities contain various covenants that, among other things, limit our ability to grant certain liens,
make certain loans and investments, enter into mergers or acquisition, enter into hedging transactions, change our lines
of business, prepay certain indebtedness, enter into certain affiliate transactions, incur additional indebtedness or engage
in certain asset dispositions. Additionally, the credit agreements limit our ability to incur additional indebtedness subject
to certain exceptions.
The Credit Facilities also contain financial covenants, which, among other things, require us, on a consolidated
basis, to maintain: (i) a ratio of total consolidated funded debt to adjusted EBITDA (as defined in the credit agreements)
of not more than 2.50 to 1.0; and (ii) a ratio of EBITDA to interest expense of not less than 3.0 to 1.0. As of December 31,
2013, we were in compliance with all financial covenants under the credit agreements.
67
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition, the Credit Facilities contain customary events of default, including, among others, the failure to make
required payments, borrower's failure to comply with certain covenants or other agreements, borrower's breach of the
representation and covenants contained in the agreements, borrower's default of certain other indebtedness, certain
events of bankruptcy or insolvency and the occurrence of a change in control (as defined in the credit agreements).
Prior to the completion of the IPO, we had two revolving credit facilities, with available borrowing capacities of
$40.0 million and $5.0 million. In connection with the completion of our IPO, these credit facilities were repaid in full
and terminated.
Notes Payable - Affiliated
In 2012, we made a non-cash distribution of $484.0 million to our owners in the form of two unsecured promissory
notes payable to FWW. Interest was charged on the notes at the applicable short-term monthly applicable federal rate
as published by the Internal Revenue Service. In connection with the completion of our IPO, the $415.3 million balance
of the notes to FWW was repaid in full. We also had various notes payable – affiliated, which were either repaid in full
or transferred to Mosing Holdings in connection with the completion of our IPO.
All other affiliated indebtedness existing prior to the IPO was repaid.
Note 10—Fair Value Measurements
We follow fair value measurement authoritative accounting guidance for measuring fair values of assets and
liabilities in financial statements. Fair value is 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 (exit price). We utilize market
data or assumptions that market participants who are independent, knowledgeable, and willing and able to transact
would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the
valuation technique. We are able to classify fair value balances based on the observability of these inputs. The
authoritative guidance for fair value measurements establishes three levels of the fair value hierarchy, defined as follows:
• Level 1: Unadjusted, quoted prices for identical assets or liabilities in active markets.
• Level 2: Quoted prices in markets that are not considered to be active or financial instruments for
which all significant inputs are observable, either directly or indirectly for substantially the full term
of the asset or liability.
• Level 3: Significant, unobservable inputs for use when little or no market data exists, requiring a
significant degree of judgment.
The hierarchy gives the highest priority to Level 1 measurements and the lowest priority to Level 3 measurements.
Depending on the particular asset or liability, input availability can vary depending on factors such as product type,
longevity of a product in the market and other particular transaction conditions. In some cases, certain inputs used to
measure fair value may be categorized into different levels of the fair value hierarchy. For disclosure purposes under
the accounting guidance, the lowest level that contains significant inputs used in valuation should be chosen.
68
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Financial Assets and Liabilities
A summary of financial assets and liabilities that are measured at fair value on a recurring basis, as of December 31,
2013 and 2012 were as follows (in thousands):
Quoted Prices
in Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
December 31, 2013
Assets:
Investments available-for-sale:
Marketable securities - deferred
compensation plan
Marketable securities - other
Liabilities:
Marketable securities - deferred
compensation plan
December 31, 2012
Assets:
Investments available-for-sale:
Marketable securities - deferred
compensation plan
Marketable securities - other
Liabilities:
Marketable securities - deferred
compensation plan
$
$
— $
7,038
$
42,184
—
— $
—
42,184
7,038
—
37,980
—
37,980
— $
3,717
$
36,479
—
— $
—
36,479
3,717
—
30,143
—
30,143
Our investments associated with our deferred compensation plan consist of marketable securities that are held in
the form of investments in mutual funds within insurance contracts. Assets and liabilities measured using significant
other observable inputs are reported at fair value based on third-party broker statements which are derived from the
fair value of the funds' underlying investments. Other marketable securities are included in other assets on the
consolidated balance sheets.
Assets and Liabilities Measured at Fair Value on a Non-recurring Basis
We apply the provisions of the fair value measurement standard to our non-recurring, non-financial measurements
including business combinations as well as impairment related to goodwill and other long-lived assets. For business
combinations, the purchase price is allocated to the assets acquired and liabilities assumed based on a discounted cash
flow model for most intangibles as well as market assumptions for the valuation of equipment and other fixed assets.
We utilize a discounted cash flow model in evaluating impairment considerations related to goodwill and long-lived
assets. Given the unobservable nature of the inputs, the discounted cash flow models are deemed to use Level 3 inputs.
There were no non-recurring measurements during the periods presented.
Other Fair Value Considerations
The carrying values on our consolidated balance sheet of our cash and cash equivalents, trade accounts receivable,
other current assets, accounts payable, accrued and other current liabilities and lines of credit approximates fair values
due to their short maturities.
69
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Transactions involving related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite
conditions of competitive, free-market dealings may not exist. It was not practical to determine the fair value of the
long-term portion of the notes payable to FWW at December 31, 2012 due to their related-party nature. The balance
of the notes due FWW was repaid in August 2013.
Note 11—Preferred Stock
At December 31, 2013, we had 52,976,000 shares of Preferred Stock issued and outstanding, which were held by
Mosing Holdings. Each share of Preferred Stock has a liquidation preference equal to its par value of €0.01 per share
and is entitled to an annual dividend equal to 0.25% of its par value. Additionally, each share of Preferred Stock entitles
its holder to one vote. Preferred stockholders vote with the common stock as a single class on all matters presented to
FINV's shareholders for their vote.
The FICV Limited Partnership Agreement contains provisions linking each share of Preferred Stock to a
proportionate portion of the limited partnership interest in FICV held by Mosing Holdings. Mosing Holdings has the
right to redeem all or a portion of its Preferred Stock for cash equal to the par value of each share of Preferred Stock
redeemed plus any accrued but unpaid dividends thereon. Simultaneously, a proportionate amount of limited partner
interests in FICV would then be exchanged for FINV common stock. As of December 31, 2013, there have been no
redemptions of the Preferred Stock or conversions of the FICV limited partner interests. Exchanges are subject to
customary conversion rate adjustments for stock splits, stock dividends and reclassifications.
The Preferred Stock is classified outside of permanent equity in our consolidated balance sheet at its redemption
value of par plus accrued and unpaid dividends because the conversion provisions are not solely within our control.
Note 12—Related Party Transactions
We have engaged in certain transactions with other companies related to us by common ownership. We have entered
into various operating leases to lease and office and manufacturing space from an affiliated entities owned by the
Mosing family. Rent expense related to these leases was $5.8 million, $3.4 million and $3.1 million for the years ended
December 31, 2013, 2012 and 2011, respectively.
We are a party to certain agreements relating to the rental of aircraft to Western Airways ("WA"), a wholly owned
subsidiary of an entity owned by the Mosing family. Prior to the IPO, we were under agreements, whereby we leased
the aircraft as needed for a rental fee per hour and reimbursed WA for a management fee and hangar rental. The rental
fees exceeded the reimbursement costs and we recorded net charter income. Subsequent to the IPO, we entered into
new agreements with WA for the aircraft that was retained by us whereby we are paid a flat monthly fee. We recorded
net charter income of $1.0 million, $1.0 million and $2.6 million for the years ended December 31, 2013, 2012 and
2011, respectively.
We had receivables totaling $5.6 million at December 31, 2012, due from our chief executive officer, Keith Mosing,
and certain members of the Mosing family, relating to amounts owed to us for split-dollar life insurance policy premiums
that we previously maintained. The receivables were recorded in other assets on the consolidated balance sheets. The
cash surrender value of $18.8 million related to such policies was recorded in other assets as of December 31, 2012.
We recorded an unrealized gain of $0.8 million for the year ended December 31, 2013 and unrealized losses of $0.3
million and $0.7 million for the years ended December 31, 2012 and 2011, respectively, in general and administrative
expenses on the consolidated statements of income related to the change in the cash surrender value of the policies.
The split dollar life insurance policies were transferred to Mosing Holdings in connection with the Reorganization.
In addition, we had two outstanding notes payable to FWW that were repaid in full in connection with the completion
of our IPO. See Note 9 – Long-term Debt.
70
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13—Earnings Per Common Share
Basic earnings per common share is determined dividing net income, less preferred stock dividends, by the weighted
average number of common shares outstanding during the period. Diluted earnings per share is determined by dividing
net income attributable to common stockholders by the weighted average number of common shares outstanding,
assuming all potentially dilutive shares were issued.
We apply the treasury stock method to determine the dilutive weighted average common shares represented by the
unvested restricted stock units. The diluted earnings per share calculation assumes exchange of 100% of our outstanding
Preferred Stock on an as if converted basis. Accordingly, the numerator is also adjusted to include the earnings allocated
to the noncontrolling interest after taking into account the tax effect of such exchange.
The following table summarizes the basic and diluted earnings per share calculations (in thousands, except per
share amounts):
Numerator - Basic
Income from continuing operations
Less: Net income attributable to noncontrolling interest
Discontinued operations attributable to noncontrolling interest
Less: Preferred stock dividends
Income from continuing operations
attributable to common shareholders
Income from discontinued operations attributable to FINV
Net income attributable to common shareholders
Numerator - Diluted
Income from continuing operations
applicable to common shareholders
Add: Net income attributable to noncontrolling interest (1)
Add: Preferred stock dividends
Diluted income from continuing operations
applicable to common shareholders
Income from discontinued operations attributable to FINV
Dilutive net income available to common shareholders
Denominator
Basic weighted average common shares
Exchange of noncontrolling interest for common stock (Note 11)
Restricted stock units
Diluted weighted average common shares
Basic earnings per common share:
Continuing operations
Discontinued operations
Total
Diluted earnings per common share:
Continuing operations
Discontinued operations
Total
Year Ended December 31,
2012
2011
2013
308,195
(95,368)
10,935
—
223,762
31,700
255,462
223,762
88,041
—
311,803
31,700
343,503
132,257
52,976
273
185,506
1.69
0.24
1.93
1.68
0.17
1.85
$
$
$
$
$
$
$
$
344,250
(90,015)
1,714
—
255,949
4,970
260,919
255,949
90,015
—
345,964
4,970
350,934
119,024
52,976
—
172,000
2.15
0.04
2.19
2.01
0.03
2.04
$
$
$
$
$
$
$
$
162,798
(43,807)
2,049
—
121,040
5,940
126,980
121,040
43,807
—
164,847
5,940
170,787
119,024
52,976
—
172,000
1.02
0.05
1.07
0.96
0.03
0.99
$
$
$
$
$
$
$
$
(1) Adjusted for additional tax expense of $7.3 million for the year ended December 31, 2013 upon the assumed
conversion of the Preferred Stock.
71
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14—Stock-Based Compensation
2013 Long-Term Incentive Plan
In connection with the completion of our IPO, we adopted the Frank's International N.V. 2013 Long-Term Incentive
Plan (the “LTIP”), under which stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock
units, dividend equivalent rights and other types of equity and cash incentive awards may be granted to employees,
non-employee directors and service providers. The LTIP expires after 10 years, unless prior to that date the maximum
number of shares available for issuance under the plan has been issued or our board of directors terminates the plan.
There are 20,000,000 shares of common stock reserved for issuance under the LTIP.
Restricted Stock Units
Subsequent to the completion of the IPO and pursuant to the LTIP, we issued 3,522,158 RSUs to management and
employees. Substantially all RSUs granted under the LTIP vest ratably over a period of three years (one-third on each
anniversary of the grant), except for certain grants that vest 20% on the first three anniversaries and the remaining 40%
at the end of three and a half years.
Employees granted RSUs are not entitled to dividends declared on the underlying shares while the restricted stock
is unvested. As such, the grant date fair value of the award is measured by reducing the grant date price of our common
stock by the present value of the dividends expected to be paid on the underlying shares during the requisite service
period, discounted at the appropriate risk-free interest rate. The resulting fair value of the restricted stock awards granted
was $21.03. Compensation expense is recognized ratably over the vesting period. As of December 31, 2013, we assumed
no annual forfeiture rate because of our lack of turnover and history for this type of award.
Stock-based compensation expense relating to RSUs for the year ended December 31, 2013, was $7.2 million and
is included in general and administrative expenses on the consolidated statements of income. Unamortized stock
compensation expense as of December 31, 2013 relating to RSUs totaled approximately $66.8 million which will be
expensed over a weighted average period of 3.0 years.
Non-vested RSUs outstanding as of December 31, 2013 and the changes during the year were as follows:
Weighted
Number of
Average Grant
Non-vested at December 31, 2012
Granted
Forfeited
Non-vested at December 31, 2013
Employee Stock Purchase Plan
Shares
— $
3,522,158
(2,748)
3,519,410
Date Fair Value
—
21.03
21.03
21.03
$
In connection with the completion of our IPO, we adopted the Frank's International N.V. Employee Stock Purchase
Plan (the “ESPP”), which we expect to become effective July 1, 2014. Under the ESPP, eligible employees have the
right to purchase shares of common stock at the lesser of (1) 85% of the last reported sale price of our common stock
on the first business day of the option period, or (ii) 85% of the last reported sale price of our common stock on the
last business day of the option period. The ESPP is intended to qualify as an employee stock purchase plan under
Section 423 of the Internal Revenue Code. We have reserved three million shares of our common stock for issuance
under the ESPP.
72
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15—Employee Benefit Plans
U.S. Benefit Plans
401(k) Savings and Investment Plan. FII, FCC and FTS administer separate 401(k) savings and investment plans
(the “Plans”) as part of the employee benefits package. Employees are required to complete six months of service before
becoming eligible to participate in the Plans. Under the terms of the Plans, we match 75% of employee contributions
up to $3,000 annually. Our matching contributions to the Plans totaled $2.9 million, $2.9 million and $2.6 million for
the years ended December 31, 2013, 2012 and 2011, respectively.
Executive Deferred Compensation Plan. In December 2004, we and certain affiliates adopted the Frank’s Executive
Deferred Compensation Plan (“EDC Plan”). The purpose of the EDC Plan is to provide participants with an opportunity
to defer receipt of a portion of their salary, bonus, and other specified cash compensation. Participant contributions are
immediately vested. Our contributions vest after five years of service. All participant benefits under this EDC Plan
shall be paid directly from the general funds of the applicable participating subsidiary or a grantor trust, commonly
referred to as a Rabbi Trust, created for the purpose of informally funding the EDC Plan, and other than such Rabbi
Trust, no special or separate fund shall be established and no other segregation of assets shall be made to assure payment.
The assets of our EDC Plan’s trust are invested in a corporate owned split-dollar life insurance policy and an
amalgamation of mutual funds (Note 7).
We recorded compensation expense related to the vesting of the Company’s contribution of $2.1 million, $4.8
million and $2.6 million for the years ended December 31, 2013, 2012 and 2011, respectively. The total liability recorded
at December 31, 2013 and 2012, related to the EDC Plan was $38.0 million and $30.1 million, respectively, and was
included in other noncurrent liabilities on the consolidated balance sheets.
Foreign Benefit Plans
We sponsor certain benefit plans as dictated by host country law. We recorded expense related to foreign benefit
plans of $4.4 million, $2.4 million and $1.7 million for the years ended December 31, 2013, 2012 and 2011, respectively.
Note 16—Income Taxes
Income from continuing operations before income tax expense was comprised of the following for the periods
indicated (in thousands):
United States
Foreign
Income from continuing operations
before income tax expense
Year Ended December 31,
2013
2012
2011
177,244
169,678
$
185,861
190,266
$
56,263
126,822
346,922
$
376,127
$
183,085
$
$
73
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income taxes have been provided for based upon the tax laws and rates in the countries in which operations are
conducted and income is earned. Components of income tax expense consist of the following for the periods indicated
(in thousands:)
Current
U.S. federal
U. S state and local
Foreign
Total current
Deferred
U.S. federal
U.S. state and local
Foreign
Total deferred
Total income tax expense
Year Ended December 31,
2013
2012
2011
$
$
9,367
630
25,052
35,049
10,696
833
(7,851)
3,678
38,727
$
$
63
—
30,365
30,428
(63)
—
1,512
1,449
31,877
$
$
68
92
20,539
20,699
(62)
—
(350)
(412)
20,287
Foreign taxes were incurred in the following regions for the periods indicated (in thousands):
Latin America
West Africa
Middle East
Europe
Far East
Other
Total foreign income tax expense
Year Ended December 31,
2013
2012
2011
$
$
(4,171) $
8,789
4,765
1,842
2,732
3,244
17,201
$
5,992
5,978
1,665
1,677
1,630
14,935
31,877
$
$
11,996
9,104
3,751
1,707
2,172
(8,541)
20,189
A reconciliation of the differences between the income tax provision computed at the U.S. statutory rate and the
reported provision for income taxes for the periods indicated is as follows (in thousands):
Income tax expense at statutory rate
Benefit of pass through entity status
Taxes on foreign earnings at less than the U.S statutory rate
Noncontrolling interest
Other
Total income tax expense
Year Ended December 31,
2013
2012
2011
$
$
133,565
(41,644)
(48,154)
(6,869)
1,829
38,727
$
$
133,984
(66,593)
(35,514)
—
—
31,877
$
$
66,876
(22,353)
(24,236)
—
—
20,287
A reconciliation using the Netherlands statutory rate was not provided as there are no significant operations in the
Netherlands.
74
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred tax assets and liabilities are recorded for the anticipated future tax effects of temporary differences between
the financial statement basis and tax basis of our assets and liabilities using the applicable tax rates in effect at year-
end. A valuation allowance is recorded when it is not more likely than not that some or all of the benefit from the
deferred tax asset will be realized. Significant components of deferred tax assets and liabilities are as follows (in
thousands):
December 31,
2013
2012
Deferred tax assets
Current
Other
Investment in partnership
Noncurrent
Other
Property and equipment
Total deferred tax assets
Deferred tax liabilities
Current
Other
Property and equipment
Noncurrent
Investment in partnership
Other
Property and equipment
Total deferred liabilities
$
$
117
73
6,926
465
7,581
(159)
—
(11,660)
(1,454)
—
(13,273)
Net deferred tax liabilities
$
(5,692) $
94
—
—
324
418
—
(21)
—
(6,899)
(6,920)
(6,502)
Undistributed earnings of certain of our foreign subsidiaries amounted to approximately $304.7 million at
December 31, 2013. It is our intention to permanently reinvest undistributed earnings and profits from the subsidiaries
of the consolidated companies’ operations that have been generated through December 31, 2013 and future plans do
not demonstrate a need to repatriate the foreign amounts to fund U.S. operations. In the event of distribution of those
earnings in the form of dividends or otherwise, we would not be subject to either U.S. income taxes nor foreign
withholding taxes payable to certain foreign entities.
75
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A tabular reconciliation of the total amounts of uncertain tax positions at the beginning and end of the periods is
as follows (in thousands):
Balance at December 31, 2011
Increase in prior year tax positions
Balance at December 31, 2012
Decrease in prior year tax positions
Increase in prior year tax positions
Balance at December 31, 2013
Gross
Unrecognized
Tax Benefits,
Excluding
Interest and
Penalties
Interest and
Penalties
Total Gross
Unrecognized
Tax Benefits
$
$
1,796
1,553
3,349
(2,289)
459
1,519
$
$
— $
564
564
(179)
243
628
$
1,796
2,117
3,913
(2,468)
702
2,147
Substantially all of the uncertain tax positions, if recognized in the future, would impact our effective tax rate. We
have elected to classify interest and penalties incurred on income taxes as income tax expense.
We file income tax returns in various international tax jurisdictions. As of December 31, 2013, the tax years 2007
through 2013 remain open to examination in the major foreign taxing jurisdictions to which we are subject. There are
currently no U.S. Federal or state audits or examinations underway.
Note 17—Commitments and Contingencies
Commitments
We are committed under various noncancelable operating lease agreements primarily related to facilities and
equipment that expire at various dates throughout the next several years. Future minimum lease commitments under
noncancelable operating leases with initial or remaining terms of one year or more at December 31, 2013, are as follows
(in thousands):
Year Ending December 31,
2014
2015
2016
2017
2018
Thereafter
Total future lease commitments
$
$
13,712
12,450
10,538
9,533
7,536
26,537
80,306
Total rent expense incurred under operating leases was $12.9 million, $8.4 million, and $5.8 million for the years
ended December 31, 2013, 2012 and 2011, respectively.
Contingencies
We are the subject of lawsuits and claims arising in the ordinary course of business. Management cannot predict the
ultimate outcome of such lawsuits and claims. While the lawsuits and claims are asserted for amounts that may be
material should an unfavorable outcome be the result, management does not expect that the currently pending matters
will have a material adverse effect on our financial position or results of operations.
76
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 18—Supplemental Cash Flow Information
Supplemental cash flows and non-cash transactions were as follows for the periods indicated (in thousands):
Cash paid for interest
Cash paid for income taxes
Non-cash transactions:
Change in accounts payable related to capital expenditures
Distribution of net assets to Mosing Holdings
Insurance premium financed by note payable
Notes issued as payment of distribution to owners
Note 19—Segment Information
Reporting Segments
Year Ended December 31,
2013
2012
2011
$
$
$
$
1,542
29,196
3,787
50,319
—
—
$
1,434
8,292
710
6,624
(10,943) $
—
—
483,994
10,997
—
1,777
—
Operating segments are defined as components of an enterprise for which separate financial information is available
that is regularly evaluated by the chief operating decision maker (“CODM”) in deciding how to allocate resources and
assess performance. We are comprised of three reportable segments: International Services, U.S. Services and Tubular
Sales. We previously referred to the Tubular Sales segment as the Pipe and Products segment. We renamed this segment
to better describe the business activities conducted within this segment after the sale of our centralizer manufacturing
business (See Note 3).
The International Services segment provides tubular services in international offshore markets and in several
onshore international regions. Our customers in these international markets are primarily large exploration and
production companies, including integrated oil and gas companies and national oil and gas companies.
The U.S. Services segment provides tubular services in almost all of the active onshore oil and gas drilling regions
in the U.S., including the Permian Basin, Eagle Ford Shale, Marcellus Shale, Utica Shale, Barnett Shale, Woodford
Shale, Piceance Basin, San Juan Basin, Uintah Basin, Big Horn Basin, Powder River Basin, DJ/Wattenberg Basin and
Williston Basin, as well as in the U.S. Gulf of Mexico.
The Tubular Sales segment designs and manufactures certain products that we sell directly to external customers,
including large OD pipe connectors. We also provide specialized fabrication and welding services in support of deep
water projects in the U.S. Gulf of Mexico, including drilling and production risers, flowlines and pipeline end
terminations, as well as long length tubulars (up to 300 feet in length) for use as caissons or pilings. In addition, we
distribute large OD pipe manufactured by third parties that we have equipped with weld-on end connections. This
segment also designs and manufactures proprietary equipment for use in our International and U.S. Services segments.
The operating results of the Tubular Sales component that was sold in June 2013 have been accounted for as
discontinued operations and have been excluded from the segment results below.
Adjusted EBITDA
We define Adjusted EBITDA as income from continuing operations before net interest income or expense,
depreciation and amortization, income tax benefit or expense, asset impairments, gain or loss on sale of assets, foreign
currency gain or loss, stock-based compensation, other non-cash adjustments and unusual or non-recurring charges.
Our CODM uses Adjusted EBITDA as the primary measure of segment reporting performance.
77
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents a reconciliation of Segment Adjusted EBITDA to income from continuing operations
(in thousands):
Segment Adjusted EBITDA:
International Services
U.S. Services
Tubular Sales
Corporate and other
Adjusted EBITDA Total
Interest income (expense), net
Income tax expense
Depreciation and amortization
Gain on sale of assets
Foreign currency loss
Stock-based compensation expense
IPO transaction-related costs (1)
Income from continuing operations
Year Ended December 31,
2013
2012
2011
$
$
199,620
198,442
40,624
53
438,739
(653)
(38,727)
(78,082)
122
(2,556)
(7,220)
(3,428)
308,195
$
$
219,199
199,397
20,958
(30)
439,524
260
(31,877)
(65,815)
2,608
(450)
—
—
344,250
$
$
153,064
72,141
15,919
—
241,124
(661)
(20,287)
(54,216)
47
(3,209)
—
—
162,798
(1) Represents nonrecurring charges incurred in connection with our IPO, primarily those amounts attributable to
the restructuring in advance of the IPO.
78
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables set forth certain financial information with respect to our reportable segments. Included in
“Corporate and Other” are intersegment eliminations and costs associated with activities of a general nature (in
thousands):
Year Ended December 31, 2013
Revenue from external customers
Inter-segment revenues
Adjusted EBITDA
Depreciation and amortization
Property, plant and equipment
Capital expenditures
Year Ended December 31, 2012
Revenue from external customers
Inter-segment revenues
Adjusted EBITDA
Depreciation and amortization
Property, plant and equipment
Capital expenditures
Year Ended December 31, 2011
Revenue from external customers
Inter-segment revenues
Adjusted EBITDA
Depreciation and amortization
Property, plant and equipment
Capital expenditures
International
Services
U.S.
Services
Tubular
Sales
Corporate
and Other
Total
$
$
$
$
$
$
475,297
3,275
199,620
41,177
278,452
97,120
467,126
2,338
219,199
31,931
222,197
98,781
365,278
828
153,064
23,702
164,709
63,285
$
$
$
434,940
20,552
198,442
33,102
132,502
56,586
422,522
22,046
199,397
30,230
123,084
75,342
259,396
17,890
72,141
27,378
113,447
49,097
167,485
71,271
40,624
3,803
100,245
30,798
149,406
47,664
20,958
3,654
81,219
6,064
94,738
32,819
15,919
3,136
46,725
5,501
$
— $
(95,098)
53
—
—
—
$
— $
(72,048)
(30)
—
—
—
$
— $
(51,537)
—
—
—
—
1,077,722
—
438,739
78,082
511,199
184,504
1,039,054
—
439,524
65,815
426,500
180,187
719,412
—
241,124
54,216
324,881
117,883
The CODM does not review total assets by segment as part of the financial information provided; therefore, no
asset information is provided in the above table.
79
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We are a Netherlands based company and we derive our revenue from services and product sales to clients primarily
in the oil and gas industry. No single customer accounted for more than 10% of our revenue for the years ended
December 31, 2013 and 2011 and one customer accounted for approximately 11% of our revenue for the year ended
December 31, 2012.
Geographic Areas
Revenue:
United States
Europe/Middle East/Africa
Latin America
Far East
Other countries
Year Ended December 31,
2013
2012
2011
$
542,562
$
543,688
$
310,603
78,019
63,709
287,433
107,112
54,893
82,829
1,077,722
$
45,928
1,039,054
$
$
341,745
215,110
90,409
38,911
33,237
719,412
The revenue generated in The Netherlands was immaterial for the years ended December 31, 2013, 2012 and 2011.
Other than the United States, no individual country represented more than 10% of our revenue for each of the years
ended December 31, 2013, 2012 and 2011.
Long-Lived Assets (PP&E)
United States
International
December 31,
2013
2012
$
$
232,747
278,452
511,199
$
$
204,303
222,197
426,500
Based on the unique nature of our operating structure, revenue generating assets are interchangeable between
international countries and are not separately identifiable. Revenues from customers and long-lived assets in The
Netherlands were insignificant in each of the years presented.
80
FRANK’S INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 20—Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for the years ended December 31, 2013 and 2012 is set forth below (in
thousands, except per share data).
2013
Revenue
Operating income
Net income attributable to Frank's International N.V.
Earnings per common share: (1)
Basic
Diluted
2012
Revenue
Operating income
Net income attributable to Frank's International N.V.
Earnings per common share: (1)
Basic
Diluted
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
$
$
$
$
$
$
232,573
79,262
54,200
0.45
0.42
235,094
83,755
61,157
0.51
0.48
$
$
$
$
$
$
292,975
103,933
105,363
0.89
0.89
262,689
96,511
67,595
0.57
0.53
$
$
$
$
$
$
270,102
75,193
40,814
0.30
0.29
266,407
95,513
68,067
0.57
0.53
$
$
$
$
$
$
282,072
82,283
55,085
$ 1,077,722
340,671
255,462
0.36
0.36
$
$
1.93
1.85
274,864
88,349
64,100
$ 1,039,054
364,128
260,919
0.54
0.50
$
$
2.19
2.04
(1) The sum of the individual quarterly earnings per share amounts may not agree with year-to-date net income per
common share as each quarterly computation is based on the weighted average number of commons shares
outstanding during that period.
81
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
As required by Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we have
evaluated, under the supervision and with the participation of our management, including our principal executive officer
and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Form
10-K. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required
to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management,
including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions
regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified
in the rules and forms of the SEC. Based upon the evaluation, our principal executive officer and principal financial
officer have concluded that our disclosure controls and procedures were effective as of December 31, 2013 at the
reasonable assurance level.
Management's Report Regarding Internal Control
This Form 10-K does not include a report of management’s assessment regarding internal control over financial
reporting or an attestation report of our independent registered public accounting firm due to a transition period
established by rules of the SEC for newly public companies. We will be required to include our internal management
assessment and an attestation report from our independent registered public accounting firm in our December 31, 2014
annual report filed with the SEC in 2015 regarding the effectiveness of our internal control over financial reporting.
Changes in Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the quarter ended
December 31, 2013, that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
Item 9B. Other Information
None.
PART III
The information required by Part III (Items 10 through 14) is incorporated by reference from our definitive proxy
statement to be filed in connection with our 2014 annual meeting of stockholders pursuant to Regulation 14A under
the Exchange Act. We expect to file our definitive proxy with the SEC within 120 days after the close of the year ended
December 31, 2013.
82
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)(1) Financial Statements
Our Consolidated Financial Statements are included under Part II, Item 8 of this Form 10-K. For a listing of these
statements and accompanying footnotes, see "Index to Consolidated Financial Statements" at page 50.
(a)(2) Financial Statement Schedules
Schedule II - Valuation and Qualifying Account
Schedules not listed above have been omitted because they are not applicable or not required or the information
required to be set forth therein is included in the Financial Statements and Supplementary Data, Item 8, or notes thereto.
(a)(3) Exhibits
Exhibits are listed in the exhibit index beginning on page 85.
83
FRANK'S INTERNATIONAL N.V.
Schedule II - Valuation and Qualifying Account
(In thousands)
Balance at
Beginning of
Period
Additions/
Charged to
Expense
Deductions
Other
Balance at
End of
Period
Year Ended December 31, 2013
Allowance for doubtful accounts
Year Ended December 31, 2012
Allowance for doubtful accounts
Year Ended December 31, 2011
Allowance for doubtful accounts
$
$
$
1,697
$
12,050
$
— $
(133) $
13,614
4,655
$
932
$
(2,517) $
(1,373) $
1,697
2,242
$
2,835
$
(38) $
(384) $
4,655
84
3.1
10.1
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
Exhibit Index
Deed of Amendment to Articles of Association of Frank's International N.V., dated August 13,
2013 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K (File No.
001-36053), filed on August 19, 2013).
Revolving Credit Agreement, dated August 14, 2013, by and among Frank's International C.V.
(as Borrower), Amegy Bank National Association (as Administrative Agent), Capital One,
National Association (as Syndication Agent) and the other lenders party thereto (incorporated by
reference to Exhibit 10.5 to the Current Report on Form 8-K (File No. 001-36053), filed on August
19, 2013).
364-Day Credit Agreement, dated August 14, 2013, by and among Frank's International C.V. (as
Borrower), Amegy Bank National Association (as Administrative Agent), Capital One, National
Association (as Syndication Agent) and the other lenders party thereto (incorporated by reference
to Exhibit 10.6 to the Current Report on Form 8-K (File No. 001-36053), filed on August 19,
2013).
Indemnification Agreement dated August 14, 2013, by and among Frank's International N.V.
and Donald Keith Mosing (incorporated by reference to Exhibit 10.9 to the Current Report on
Form 8-K (File No. 001-36053), filed on August 19, 2013).
Indemnification Agreement dated August 14, 2013, by and among Frank's International N.V. and
Brian D. Baird (incorporated by reference to Exhibit 10.10 to the Current Report on Form 8-K
(File No. 001-36053), filed on August 19, 2013).
Indemnification Agreement dated August 14, 2013, by and among Frank's International N.V. and
C. Michael Webre (incorporated by reference to Exhibit 10.11 to the Current Report on Form 8-
K (File No. 001-36053), filed on August 19, 2013).
Indemnification Agreement dated August 14, 2013, by and among Frank's International N.V. and
Kirkland D. Mosing (incorporated by reference to Exhibit 10.12 to the Current Report on Form
8-K (File No. 001-36053), filed on August 19, 2013).
Indemnification Agreement dated August 14, 2013, by and among Frank's International N.V. and
Mark G. Margavio (incorporated by reference to Exhibit 10.13 to the Current Report on Form
8-K (File No. 001-36053), filed on August 19, 2013).
Indemnification Agreement dated August 14, 2013, by and among Frank's International N.V. and
Sheldon Erikson (incorporated by reference to Exhibit 10.14 to the Current Report on Form 8-
K (File No. 001-36053), filed on August 19, 2013).
Indemnification Agreement dated August 14, 2013, by and among Frank's International N.V. and
Steven B. Mosing (incorporated by reference to Exhibit 10.15 to the Current Report on Form 8-
K (File No. 001-36053), filed on August 19, 2013).
Indemnification Agreement dated August 14, 2013, by and among Frank's International N.V. and
W. John Walker (incorporated by reference to Exhibit 10.16 to the Current Report on Form 8-K
(File No. 001-36053), filed on August 19, 2013).
Indemnification Agreement dated September 26, 2013, by and among Frank's International N.V.
and John W. Sinders.
Indemnification Agreement dated February 3, 2014, by and among Frank's International N.V.
and Burney J. Latiolais, Jr.
Indemnification Agreement dated February 3, 2014, by and among Frank's International N.V.
and Victor C. Szabo.
Frank's International N.V. 2013 Long-Term Incentive Plan (incorporated by reference to Exhibit
4.3 to the Registration Statement on Form S-8 (File No. 333-190607), filed on August 13, 2013).
Frank's International N.V. Employee Stock Purchase Plan (incorporated by reference to Exhibit
4.6 to the Registration Statement on Form S-8 (File No. 333-190607), filed on August 13, 2013).
First Amendment to Frank's International N.V. Employee Stock Purchase Plan effective as of
December 31, 2013.
Frank's International N.V. 2013 Long-Term Incentive Plan Restricted Stock Unit Agreement
(Non-Employee Director Form) (incorporated by reference to Exhibit 10.5 to the Registration
Statement on Form S-1/A (File No. 333-188536), filed on July 16, 2013).
85
*†10.18
†10.19
*†10.20
†10.21
10.22
10.23
10.24
10.25
10.26
10.27
*21.1
*23.1
*31.1
*31.2
**32.1
**32.2
**101.INS
**101.SCH
**101.CAL
**101.DEF
**101.LAB
**101.PRE
Frank's International N.V. 2013 Long-Term Incentive Plan Restricted Stock Unit Agreement
(Non-Employee Director Form).
Frank's International N.V. 2013 Long Term Incentive Plan Restricted Stock Unit Agreement
(Employee Form) (incorporated by reference to Exhibit 10.6 to the Registration Statement on
Form S-1/A (File No. 333-188536), filed on July 16, 2013).
Frank's International N.V. 2013 Long-Term Incentive Plan Restricted Stock Unit Agreement
(Employee Form).
Frank's Executive Deferred Compensation Plan, as amended and restated effective January 1,
2009 (incorporated by reference to Exhibit 10.18 to the Current Report on Form 8-K (File No.
001-36053), filed on August 19, 2013).
Tax Receivable Agreement, dated August 14, 2013, by and among Frank's International N.V.,
Frank's International C.V. and Mosing Holdings, Inc. (incorporated by reference to Exhibit 10.1
to the Current Report on Form 8-K (File No. 001-36053), filed on August 19, 2013).
Registration Rights Agreement, dated August 14, 2013, by and among Frank's International N.V.,
Mosing Holdings, Inc. and FWW B.V. (incorporated by reference to Exhibit 10.2 to the Current
Report on Form 8-K (File No. 001-36053), filed on August 19, 2013).
Global Transaction Agreement, dated July 22, 2013, by and among Frank's International N.V.
and Mosing Holdings, Inc. (incorporated by reference to Exhibit 10.11 to the Registration
Statement on Form S-1/A (File No. 333-188536), filed on July 24, 2013).
Voting Agreement, dated July 22, 2013, by and among Ginsoma Family C.V., FWW B.V., Mosing
Holdings, Inc., and certain other parties thereto (incorporated by reference to Exhibit 10.12 to
the Registration Statement on Form S-1/A (File No. 333-188536), filed on July 24, 2013).
Frank's International C.V. Management Agreement, dated August 14, 2013, by and among Frank's
International N.V., Frank's International LP B.V., Frank's International Management B.V. and
Mosing Holdings, Inc. (incorporated by reference to Exhibit 10.3 to the Current Report on Form
8-K (File No. 001-36053), filed on August 19, 2013).
Amendment No. 5 to the Limited Partnership Agreement of Frank's International C.V., dated
October 14, 2013 (incorporated by reference to Exhibit 10.21 to the Quarterly Report on Form
10-Q (File No. 001-36053), filed on November 13, 2013).
List of Subsidiaries of Frank's International N.V.
Consent of PricewaterhouseCoopers LLP
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange
Act of 1934.
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange
Act of 1934.
Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350.
Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
XBRL Instance Document.
XBRL Taxonomy Extension Schema Document.
XBRL Taxonomy Calculation Linkbase Document.
XBRL Taxonomy Definition Linkbase Document.
XBRL Taxonomy Extension Label Linkbase Document.
XBRL Taxonomy Extension Presentation Linkbase Document.
† Represents management contract or compensatory plan or arrangement.
* Filed herewith.
** Furnished herewith.
86
Pursuant to the requirements 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
By: Frank's International
(Registrant)
Date: March 4, 2014
By:
/s/ Mark G. Margavio
Mark G. Margavio
Chief Financial 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 indicated on March 4, 2014.
Signature
Title
/s/ Donald Keith Mosing
Donald Keith Mosing
Chairman of the Supervisory Board, Director,
Chief Executive Officer and President
(Principal Executive Officer)
/s/ Mark G. Margavio
Mark G. Margavio
/s/ Victor C. Szabo
Victor C. Szabo
/s/ Kirkland D. Mosing
Kirkland D. Mosing
/s/ Steven B. Mosing
Steven B. Mosing
/s/ Sheldon Erikson
Sheldon Erikson
/s/ Michael C. Kearney
Michael C. Kearney
/s/ Gary P. Luquette
Gary P. Luquette
Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer)
Chief Accounting Officer
(Principal Accounting Officer)
Supervisory Director
Supervisory Director
Supervisory Director
Supervisory Director
Supervisory Director
87
1938 Frank Mosing founded Frank’s Casing Crew & Rental Tools –
a one-crew casing company operated out of his garage. Over the years,
Frank’s sons, Donald, Billy and Larry, joined the company to help manage
the growing operations. Donald was a driving force in the development of
many of the company’s proprietary tools and processes.
Donald’s son, Keith, formed Frank’s International in 1981, and his
entrepreneurial efforts led to expansion of operations across the United
States, South America, Asia, Africa and Europe.
In 2011, Frank’s International and Frank’s Casing Crew & Rental Tools and
the other U.S. operating companies all began operating throughout the
world under the name Frank’s International. Frank’s International N.V. is
now traded on the New York Stock Exchange under the ticker symbol “FI”.
For over 75 years, Frank’s International has been providing innovative
tubular services to oil companies worldwide.
FINANCIAL HIGHLIGHTS
Year Ended December 31,
(In thousands, except per share data)
2013
2012
2011
Revenue(1)
Income from continuing operations
Net income
Adjusted EBITDA(2)
Diluted earnings per common share
Net cash provided by operating activities
Capital Expenditures
Long-term debt
Total stockholder’s equity
Total Recordable Incident Rate (TRIR)
Lost Time Incident Rate (LTIR)
(1) From continuing operations
(2) Adjusted EBITDA is a non-GAAP financial measure
$
$
$
$ 1,077,722
308,195
350,830
438,739
1.85
277,431
184,504
376
$
$ 1,333,327
$
$
$
1.13
0.33
$ 1,039,054
$
$
$
$
$
$
$
$
344,250
350,934
439,524
2.04
344,766
180,187
475,931
446,988
1.96
0.54
$ 719,412
$ 162,798
$
170,787
$ 241,124
$
$
$
$
0.99
180,710
117,883
12,117
$ 667,128
1.98
0.64
DIRECTORS AND OFFICERS
STOCK INFORMATION
BOARD
MANAGEMENT
D. Keith Mosing
Chairman of the Supervisory Board,
Director, Chief Executive Officer
and President
D. Keith Mosing
Chairman of the Supervisory Board,
Director, Chief Executive Officer
and President
Kirkland D. Mosing
Supervisory Director
Steven B. Mosing
Supervisory Director
Sheldon R. Erikson
Former Chairman, President
and Chief Executive Officer
Cameron International Corporation
Michael C. Kearney
Former President and
Chief Executive Officer
DeepFlex, Inc.
Gary P. Luquette
Former President
Chevron North America Exploration
and Production Company
W. John Walker
Executive Vice President,
Operations
John W. Sinders
Executive Vice President,
Administration
Burney J. Latiolais, Jr.
Senior Vice President, Business
Development and Corporate Sales
C. Michael Webre
Vice President of Engineering
Mark G. Margavio
Vice President, Chief Financial Officer
and Treasurer
Brian D. Baird
Vice President, Chief Legal Officer
and Secretary
FINANCIAL INFORMATION AND
NEWS RELEASES
Information updates about Frank’s
International, including quarterly
financial results and current news
releases, are available to the public on
our website at www.franksinternational.
com or upon request from our Investor
Relations Department.
STOCK TRANSFER AGENT
AND REGISTRAR
American Stock Transfer &
Trust Company
6201 15th Avenue
Brooklyn, NY 11219
(800) 937-5449
amstock.com
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP
STOCK LISTING
New York Stock Exchange
Symbol: FI
FORM 10-K
A copy of the Company’s Annual Report
on Form 10-K is available by writing to:
Investor Relations
Frank’s International N.V.
10260 Westheimer, Suite 700
Houston, TX 77042
Information above as of February 28, 2014
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FORWARD-LOOKING STATEMENTS
In addition to statements of historical fact, this report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Statements that are not historical in nature or that relate to future events and conditions are, or may be deemed to be, forward-looking statements. These “forward-
looking statements” are based on our current projections about us and our industry, and our management’s beliefs and assumptions concerning future events and
financial trends affecting our financial condition and results of operations. In some cases, you can identify these statements by terminology such as “may,” “will,”
“predicts,” “expects,” “projects,” “potential” or “continue” – or the negative of such terms and other comparable terminology. These statements are only predictions and
are subject to substantial risks and uncertainties and are not guarantees of performance. Future actions, events and conditions and future results of operations may
differ materially from those expressed in these statements. In evaluating those statements, you should keep in mind the risk factors and other cautionary statements
included in our 2013 Annual Report on Form 10-K included in this report. We caution you not to place undue reliance on forward-looking statements, and we undertake
no obligation to update this information. We urge you to carefully review and consider the disclosures made in this report and other filings with the Securities and
Exchange Commission regarding the risks and factors that may affect our business.
Principal Executive Offices
Frank’s International N.V.
Prins Bernhardplein 200
1097 JB Amsterdam, The Netherlands
U.S. Headquarters
Frank’s International
10260 Westheimer, Suite 700
Houston, Texas 77042
75 YEARS STRONG
75 YEARS STRONG
2013 ANNUAL REPORT